<PAGE> 1
As filed with the Securities and Exchange Commission on August 28, 1997
Securities Act File No. 33-27489
Investment Company Act File No. 811-5775
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
POST-EFFECTIVE AMENDMENT NO. 26 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 29 [X]
Sierra Trust Funds
(Exact Name of Registrant as Specified in Charter)
9301 Corbin Avenue
Northridge, California 91324
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (818) 725-0200
James H. Overholt
9301 Corbin Avenue
Northridge, California 91324
(Name and Address of Agent for Service)
Copies to:
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Richard W. Grant, Esq. W. John McGuire, Esq.
Morgan, Lewis & Bockius LLP Morgan, Lewis & Bockius LLP
2000 One Logan Square 1800 M Street, N.W.
Philadelphia, Pennsylvania 19103 Washington, D.C. 20036
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It is proposed that this filing will become effective (check
appropriate box):
___ immediately upon filing pursuant to paragraph (b),
___ or on [date] pursuant to paragraph (b),
___ 60 days after filing pursuant to paragraph (a), or
___ 75 days after filing pursuant to paragraph (a), or
x on October 31, 1997 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, 1997 was filed with the Securities and Exchange Commission on
August 27, 1997.
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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
Form N-1A Intermediate Municipal Fund, National Municipal Fund, Growth and Income Fund, Growth Fund,
Item No. Emerging Growth Fund and International Growth Fund
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1. Cover Page . . . . . . . . . Cover Page
2. Synopsis . . . . . . . . . . The Sierra Trust Funds Family at a Glance; Summary of Sierra
Trust Funds Expenses
3. Condensed Financial Financial Highlights; Performance Information
Information . . . . . . . .
4. General Description of The Sierra Trust Funds Family at a Glance; Organization;
Registrant . . . . . . . . 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 Not Applicable - Disclosure in Annual Report
Fund Performance . . . . .
6. Capital Stock and Other The Sierra Trust Funds Family at a Glance; Organization;
Securities . . . . . . . . Dividends, Capital Gains and Taxes
7. Purchase of Securities Ways to Set Up Your Account; How to Invest in the Funds;
Being Offered . . . . . . . How to Sell Shares; Transaction Details; Exchange Privileges
and Restrictions
8. Redemption or Repurchase . . How to Invest in the Funds; How to Sell Shares; Transaction
Details; Exchange Privileges and Restrictions
9. Pending Legal Proceedings. . Not Applicable
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(i)
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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
Form N-1A Municipal Fund, National Municipal Fund, Growth and Income Fund, Growth Fund, Emerging
Item No. Growth Fund and International Growth Fund
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1. Cover Page . . . . . . . . . Cover Page
2. Synopsis . . . . . . . . . . The Sierra Trust Funds Family at a Glance; Summary of Sierra
Trust Funds Expenses
3. Condensed Financial Financial Highlights; Performance Information
Information . . . . . . . .
4. General Description of The Sierra Trust Funds Family at a Glance; Organization;
Registrant . . . . . . . . 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 Not Applicable - Disclosure in Annual Report
Fund Performance . . . . .
6. Capital Stock and Other The Sierra Trust Funds Family at a Glance; Organization;
Securities . . . . . . . . Dividends, Capital Gains and Taxes
7. Purchase of Securities Your Account; Ways to Set Up Your Account; How to Invest
Being Offered . . . . . . . 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
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(ii)
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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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1. Cover Page . . . . . . . . . Cover Page
2. Synopsis . . . . . . . . . . The Target Maturity 2002 Fund at a Glance; Summary of Fund
Expenses
3. Condensed Financial Financial Highlights; Performance Information
Information . . . . . . . .
4. General Description of The Target Maturity 2002 Fund at a Glance; Organization;
Registrant . . . . . . . . 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 Not Applicable - Disclosure in Annual Report
Fund Performance . . . . .
6. Capital Stock and Other The Target Maturity 2002 Fund at a Glance; Organization;
Securities . . . . . . . . Dividends, Capital Gains and Taxes
7. Purchase of Securities Your Account; Ways to Set Up Your Account; How to Invest
Being Offered . . . . . . . in Class A Shares of the Fund; How to Sell Shares;
Transaction Details; Exchange Privileges and Restrictions
8. Redemption or Repurchase . . How to Sell Shares; Transaction Details; Exchange Privileges
and Restrictions
9. Pending Legal Proceedings. . Not Applicable
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(iii)
<PAGE> 5
Part B - Information Required in a Statement of Additional Information
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Form N-1A
Item No. Location in Statement of Additional Information
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10. Cover Page . . . . . . . . . Cover Page
11. Table of Contents . . . . . Contents
12. General Information and
History . . . . . . . . . . See Prospectus -- The Sierra Trust Funds Family
at a glance
13. Investment Objectives and
Policies . . . . . . . . . Investment Objectives and Policies of the Funds
14. Management of the Fund . . . Management of the Trust
15. Control Persons and Principal
Holders of Securities . . . Management of the Trust
16. Investment Advisory and
Other Services . . . . . . How to Buy and Redeem Shares; Management
of the Trust
17. Brokerage Allocation and
Other Practices . . . . . . Portfolio Turnover; Portfolio Transactions
18. Capital Stock and Other
Securities . . . . . . . . Management of the Trust; see Prospectus --
"Organization" and "Dividends, Capital Gains
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, Capital
Gains 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
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Part C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to this Registration Statement.
(iv)
<PAGE> 6
This prospectus describes the Class A, SIERRA TRUST FUNDS
Class B and Class I Shares of the GLOBAL MONEY FUND
Sierra Trust Funds (the "Trust"). The U.S. GOVERNMENT MONEY FUND
Trust consists of the fifteen separate CALIFORNIA MONEY FUND
investment funds (each, a "Fund") SHORT TERM HIGH QUALITY BOND FUND
listed to the right and the Target SHORT TERM GLOBAL GOVERNMENT FUND
Maturity 2002 Fund, which is described U.S. GOVERNMENT FUND
in a separate prospectus. The Class A CORPORATE INCOME FUND
and Class B Shares offer investors CALIFORNIA MUNICIPAL FUND
alternative ways of paying sales FLORIDA INSURED MUNICIPAL FUND
charges and distribution costs. Class CALIFORNIA INSURED INTERMEDIATE
I Shares are not offered or sold to MUNICIPAL FUND
individual investors. See "Class I NATIONAL MUNICIPAL FUND
Shares." Please read this prospectus GROWTH AND INCOME FUND
before investing, and keep it for GROWTH FUND
future reference. It contains useful EMERGING GROWTH FUND
information that can help you decide INTERNATIONAL GROWTH FUND
whether the investment goals of the
Funds are right for you. PROSPECTUS
OCTOBER 31, 1997
A Statement of Additional Information SIERRA TRUST FUNDS
("SAI") about the Trust, dated October P.O. BOX 5118
31, 1997, has been filed with the WESTBORO, MASSACHUSETTS 01581-5118
Securities and Exchange Commission 800-222-5852
(the "SEC"), and is incorporated
herein by reference (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. 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. IN ADDITION,
THE CALIFORNIA MONEY FUND MAY INVEST A
SIGNIFICANT PERCENTAGE OF ITS ASSETS
IN A SINGLE ISSUER, AND INVESTING IN
THE CALIFORNIA MONEY FUND MAY BE
RISKIER THAN INVESTING IN OTHER TYPES
OF MONEY MARKET FUNDS.
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,
NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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CONTENTS PAGE
2 THE SIERRA TRUST FUNDS FAMILY
SUMMARY OF EXPENSES & FINANCIAL 6 EXPENSES
HIGHLIGHTS
10 FINANCIAL HIGHLIGHTS The financial
data the Funds will report.
THE FUNDS' INVESTMENTS AND RISK 16 INVESTMENT PRINCIPLES AND RISK
CONSIDERATIONS CONSIDERATIONS Each Fund's overall
approach to investing.
SECURITIES AND INVESTMENT PRACTICES 28 SECURITIES AND INVESTMENT PRACTICES
regarding each Fund's investments
and practices.
PERFORMANCE INFORMATION 44 PERFORMANCE How each Fund's
performances may be measured and
compared.
YOUR ACCOUNT 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 RESTRICTION
Exchanging shares of one Fund for
another.
57 DIVIDENDS, CAPITAL GAINS AND TAXES
SHAREHOLDER AND ACCOUNT POLICIES 60 TRANSACTION DETAILS Share price
calculations and the timing of
purchases and redemptions.
60 ORGANIZATION How each fund is
THE FUNDS IN DETAIL 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.
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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. 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. Class I Shares are 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. 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-
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<PAGE> 9
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.
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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.
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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.
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SUMMARY OF SIERRA TRUST FUNDS' EXPENSES
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SHORT SHORT TERM
U.S. TERM HIGH GLOBAL
GLOBAL MONEY GOVERNMENT CALIFORNIA QUALITY GOVERNMENT
FUND MONEY FUND MONEY FUND BOND FUND FUND
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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)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> 13
<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>
CALIFORNIA INTERNATIONAL
MUNICIPAL FUND GROWTH FUND
----------------------------------------------------------------------------------------
<S> <C>
4.50%(1) 5.75%(1)
None None
None None
None None
None None
None None
None(2) None(2)
5.00%(3) 5.00%(3)
None None
None None
None None
None None
None None
None None
None None
0.37% 0.83%
0.37% 0.83%
0.37% 0.83%
0.25% 0.25%
1.00% 1.00%
0% 0%
0.48% 0.75%
0.48% 0.75%
0.48% 0.75%
1.10% 1.83%
1.85% 2.58%
0.85% 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. 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 for, and further information
about, Class S Shares.
-7-
<PAGE> 14
SUMMARY OF SIERRA TRUST FUNDS' EXPENSES
EXAMPLE:
You would have paid the following expenses on a $1,000 investment at the end of
each time period, assuming (1) 5% annual return and (2) reinvestment of all
dividends and distributions.
<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> 15
<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> 16
FINANCIAL HIGHLIGHTS
The following information, insofar as it relates to each of the respective
periods ended June 30, 1997 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>
NET ASSET NET REALIZED &
VALUE AT NET UNREALIZED
BEGINNING INVESTMENT GAIN/(LOSS) ON
FUND OF PERIOD INCOME/(LOSS) INVESTMENTS
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
GLOBAL MONEY FUND
CLASS A SHARES
Year ended 6/30/97......................................................
Year ended 6/30/96...................................................... $ 1.00 $ 0.051 $0.000(19)
Year ended 6/30/95...................................................... 1.00 0.049 0.000(19)
Year ended 6/30/94...................................................... 1.00 0.030 0.000(19)
Year ended 6/30/93...................................................... 1.00 0.031 -
Year ended 6/30/92...................................................... 1.00 0.048 -
Year ended 6/30/91...................................................... 1.00 0.073 -
Period ended 6/30/90(1)................................................. 1.00 0.074 -
CLASS B SHARES
Year ended 6/30/97......................................................
Year ended 6/30/96...................................................... 1.00 0.043 0.000(19)
Year ended 6/30/95...................................................... 1.00 0.042 0.000(19)
U.S. GOVERNMENT MONEY FUND
CLASS A SHARES
Year ended 6/30/97......................................................
Year ended 6/30/96...................................................... 1.00 0.047 -
Year ended 6/30/95...................................................... 1.00 0.046 -
Year ended 6/30/94...................................................... 1.00 0.027 -
Year ended 6/30/93...................................................... 1.00 0.027 -
Year ended 6/30/92...................................................... 1.00 0.042 0.002
Year ended 6/30/91...................................................... 1.00 0.065 -
Period ended 6/30/90(2)................................................. 1.00 0.073 -
CLASS B SHARES
Year ended 6/30/97......................................................
Year ended 6/30/96...................................................... 1.00 0.040 -
Year ended 6/30/95...................................................... 1.00 0.038 -
CALIFORNIA MONEY FUND
CLASS A SHARES
Year ended 6/30/97......................................................
Year ended 6/30/96...................................................... 1.00 0.029 -
Year ended 6/30/95...................................................... 1.00 0.028 -
Year ended 6/30/94...................................................... 1.00 0.018 -
Year ended 6/30/93...................................................... 1.00 0.021 -
Year ended 6/30/92...................................................... 1.00 0.033 -
Year ended 6/30/91...................................................... 1.00 0.044 -
Period ended 6/30/90(2)................................................. 1.00 0.046 -
CLASS B SHARES
Year ended 6/30/97......................................................
Year ended 6/30/96...................................................... 1.00 0.022 -
Year ended 6/30/95...................................................... 1.00 0.020 -
SHORT TERM HIGH QUALITY BOND FUND
CLASS A SHARES
Year ended 6/30/97......................................................
Year ended 6/30/96(17).................................................. 2.35 0.15 (0.03)
Year ended 6/30/95...................................................... 2.39 0.08 0.02
Period ended 6/30/94(3)................................................. 2.50 0.09 (0.11)
CLASS B SHARES
Year ended 6/30/97......................................................
Year ended 6/30/96(17).................................................. 2.35 0.13 (0.03)
Year ended 6/30/95...................................................... 2.39 0.06 0.02
SHORT TERM GLOBAL GOVERNMENT FUND
CLASS A SHARES
Year ended 6/30/97......................................................
Year ended 6/30/96(17).................................................. 2.24 0.15 0.07
Year ended 6/30/95...................................................... 2.34 0.17 (0.12)
Year ended 6/30/94...................................................... 2.48 0.17 (0.14)
Year ended 6/30/93...................................................... 2.56 0.19 (0.04)
Period ended 6/30/92(4)................................................. 2.50 0.07 0.07
CLASS B SHARES
Year ended 6/30/97......................................................
Year ended 6/30/96(17).................................................. 2.24 0.13 0.07
Year ended 6/30/95...................................................... 2.34 0.15 (0.12)
U. S. GOVERNMENT FUND
CLASS A SHARES
Year ended 6/30/97......................................................
Year ended 6/30/96...................................................... 9.67 0.67 (0.26)
Year ended 6/30/95...................................................... 9.45 0.70 0.22
Year ended 6/30/94...................................................... 10.65 0.75 (1.21)
Year ended 6/30/93...................................................... 10.52 0.74 0.16
Year ended 6/30/92...................................................... 10.04 0.84 0.49
Year ended 6/30/91...................................................... 9.93 0.84 0.13
Period ended 6/30/90(5)................................................. 10.00 0.76 (0.09)
CLASS B SHARES
Year ended 6/30/97......................................................
Year ended 6/30/96...................................................... 9.67 0.60 (0.26)
Year ended 6/30/95...................................................... 9.45 0.63 0.22
CORPORATE INCOME FUND
CLASS A SHARES
Year ended 6/30/97......................................................
Year ended 6/30/96...................................................... 10.52 0.76 (0.36)
Year ended 6/30/95...................................................... 9.87 0.68 0.78
Year ended 6/30/94...................................................... 11.33 0.80 (1.35)
Year ended 6/30/93...................................................... 10.52 0.84 0.84
Year ended 6/30/92...................................................... 9.87 0.91 0.64
Period ended 6/30/91(6)................................................. 10.00 0.81 (0.13)
CLASS B SHARES
Year ended 6/30/97......................................................
Year ended 6/30/96...................................................... 10.52 0.68 (0.36)
Year ended 6/30/95...................................................... 9.87 0.61 0.78
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
DIVIDENDS
TOTAL FROM FROM NET
INVESTMENT INVESTMENT
FUND OPERATIONS INCOME
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
GLOBAL MONEY FUND
CLASS A SHARES
Year ended 6/30/97......................................................
Year ended 6/30/96...................................................... $0.051 $ (0.051)
Year ended 6/30/95...................................................... 0.049 (0.049)
Year ended 6/30/94...................................................... 0.030 (0.030)
Year ended 6/30/93...................................................... 0.031 (0.031)
Year ended 6/30/92...................................................... 0.048 (0.048)
Year ended 6/30/91...................................................... 0.073 (0.073)
Period ended 6/30/90(1)................................................. 0.074 (0.074)
CLASS B SHARES
Year ended 6/30/97......................................................
Year ended 6/30/96...................................................... 0.043 (0.043)
Year ended 6/30/95...................................................... 0.042 (0.042)
U.S. GOVERNMENT MONEY FUND
CLASS A SHARES
Year ended 6/30/97......................................................
Year ended 6/30/96...................................................... 0.047 (0.047)
Year ended 6/30/95...................................................... 0.046 (0.046)
Year ended 6/30/94...................................................... 0.027 (0.027)
Year ended 6/30/93...................................................... 0.027 (0.027)
Year ended 6/30/92...................................................... 0.044 (0.042)
Year ended 6/30/91...................................................... 0.065 (0.065)
Period ended 6/30/90(2)................................................. 0.073 (0.073)
CLASS B SHARES
Year ended 6/30/97......................................................
Year ended 6/30/96...................................................... 0.040 (0.040)
Year ended 6/30/95...................................................... 0.038 (0.038)
CALIFORNIA MONEY FUND
CLASS A SHARES
Year ended 6/30/97......................................................
Year ended 6/30/96...................................................... 0.029 (0.029)
Year ended 6/30/95...................................................... 0.028 (0.028)
Year ended 6/30/94...................................................... 0.018 (0.018)
Year ended 6/30/93...................................................... 0.021 (0.021)
Year ended 6/30/92...................................................... 0.033 (0.033)
Year ended 6/30/91...................................................... 0.044 (0.044)
Period ended 6/30/90(2)................................................. 0.046 (0.046)
CLASS B SHARES
Year ended 6/30/97......................................................
Year ended 6/30/96...................................................... 0.022 (0.022)
Year ended 6/30/95...................................................... 0.020 (0.020)
SHORT TERM HIGH QUALITY BOND FUND
CLASS A SHARES
Year ended 6/30/97......................................................
Year ended 6/30/96(17).................................................. 0.12 (0.15)
Year ended 6/30/95...................................................... 0.10 (0.08)
Period ended 6/30/94(3)................................................. (0.02) (0.09)
CLASS B SHARES
Year ended 6/30/97......................................................
Year ended 6/30/96(17).................................................. 0.10 (0.13)
Year ended 6/30/95...................................................... 0.08 (0.06)
SHORT TERM GLOBAL GOVERNMENT FUND
CLASS A SHARES
Year ended 6/30/97......................................................
Year ended 6/30/96(17).................................................. 0.22 (0.16)
Year ended 6/30/95...................................................... 0.05 (0.02)
Year ended 6/30/94...................................................... 0.03 (0.13)
Year ended 6/30/93...................................................... 0.15 (0.20)
Period ended 6/30/92(4)................................................. 0.14 (0.08)
CLASS B SHARES
Year ended 6/30/97......................................................
Year ended 6/30/96(17).................................................. 0.20 (0.14)
Year ended 6/30/95...................................................... 0.03 (0.00)(14)
U. S. GOVERNMENT FUND
CLASS A SHARES
Year ended 6/30/97......................................................
Year ended 6/30/96...................................................... 0.41 (0.67)
Year ended 6/30/95...................................................... 0.92 (0.70)
Year ended 6/30/94...................................................... (0.46) (0.64)
Year ended 6/30/93...................................................... 0.90 (0.74)
Year ended 6/30/92...................................................... 1.33 (0.84)
Year ended 6/30/91...................................................... 0.97 (0.85)
Period ended 6/30/90(5)................................................. 0.67 (0.74)
CLASS B SHARES
Year ended 6/30/97......................................................
Year ended 6/30/96...................................................... 0.34 (0.60)
Year ended 6/30/95...................................................... 0.85 (0.63)
CORPORATE INCOME FUND
CLASS A SHARES
Year ended 6/30/97......................................................
Year ended 6/30/96...................................................... 0.40 (0.76)
Year ended 6/30/95...................................................... 1.46 (0.68)
Year ended 6/30/94...................................................... (0.55) (0.78)
Year ended 6/30/93...................................................... 1.68 (0.84)
Year ended 6/30/92...................................................... 1.55 (0.90)
Period ended 6/30/91(6)................................................. 0.68 (0.81)
CLASS B SHARES
Year ended 6/30/97......................................................
Year ended 6/30/96...................................................... 0.32 (0.68)
Year ended 6/30/95...................................................... 1.39 (0.61)
- --------------------------------------------------------------------------
</TABLE>
-10-
<PAGE> 17
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 Sierra Shareholder Services ("Shareholder Services") at 800-222-5852.
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DISTRIBUTIONS IN DISTRIBUTIONS DISTRIBUTIONS IN NET ASSET
EXCESS OF NET FROM NET EXCESS OF NET DISTRIBUTIONS VALUE AT
INVESTMENT 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)(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> 18
<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 6/30/97.................
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 6/30/97.................
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 6/30/97.................
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 6/30/97.................
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 6/30/97.................
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 6/30/97.................
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 6/30/97.................
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 6/30/97.................
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 6/30/97.................
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 6/30/97.................
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 6/30/97.................
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 6/30/97.................
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 6/30/97.................
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 6/30/97.................
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
<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
CUSTODIAN(21) CUSTODIAN(13)(21)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
GLOBAL MONEY FUND
CLASS A SHARES
YEAR ENDED 6/30/97.................
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 6/30/97.................
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 6/30/97.................
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 6/30/97.................
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 6/30/97.................
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 6/30/97.................
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 6/30/97.................
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 6/30/97.................
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 6/30/97.................
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 6/30/97.................
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 6/30/97.................
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 6/30/97.................
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 6/30/97.................
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 6/30/97.................
Year ended 6/30/96................. 1.70 2.13
Year ended 6/30/95................. N/A 2.15
</TABLE>
- --------------------------------------------------------------------------------
-12-
<PAGE> 19
<TABLE>
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- --------------------------------------------------------------------------------------------------------------------
NET ASSETS
VALUE AT NET
BEGINNING INVESTMENT
FUND OF PERIOD INCOME/(LOSS)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CALIFORNIA MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/97..............................................................
Year ended 6/30/96(17).......................................................... $10.53 $ 0.60
Year ended 6/30/95.............................................................. 10.38 0.61
Year ended 6/30/94.............................................................. 11.22 0.61
Year ended 6/30/93.............................................................. 10.45 0.62
Year ended 6/30/92.............................................................. 10.07 0.65
Year ended 6/30/91.............................................................. 10.01 0.63
Period ended 6/30/90(5)......................................................... 10.00 0.57
CLASS B SHARES
Year ended 6/30/97..............................................................
Year ended 6/30/96(17).......................................................... 10.53 0.51
Year ended 6/30/95.............................................................. 10.38 0.53
FLORIDA INSURED MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/97..............................................................
Year ended 6/30/96.............................................................. 9.43 0.50
Year ended 6/30/95.............................................................. 9.40 0.52
Year ended 6/30/94.............................................................. 10.05 0.52
Period ended 6/30/93(7)......................................................... 10.00 0.00(14)
CLASS B SHARES
Year ended 6/30/97..............................................................
Year ended 6/30/96.............................................................. 9.43 0.42
Year ended 6/30/95.............................................................. 9.40 0.45
CALIFORNIA INSURED INTERMEDIATE MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/97..............................................................
Year ended 6/30/96.............................................................. 10.45 0.49
Year ended 6/30/95.............................................................. 10.10 0.50
Year ended 6/30/94(8)........................................................... 10.00 0.11
CLASS B SHARES
Year ended 6/30/97..............................................................
Year ended 6/30/96.............................................................. 10.45 0.41
Year ended 6/30/95.............................................................. 10.10 0.43
NATIONAL MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/97..............................................................
Year ended 6/30/96.............................................................. 10.76 0.61
Year ended 6/30/95.............................................................. 10.85 0.64
Year ended 6/30/94.............................................................. 11.65 0.65
Year ended 6/30/93.............................................................. 10.96 0.67
Year ended 6/30/92.............................................................. 10.16 0.72
Period ended 6/30/91(6)......................................................... 10.00 0.64
CLASS B SHARES
Year ended 6/30/97..............................................................
Year ended 6/30/96.............................................................. 10.76 0.53
Year ended 6/30/95.............................................................. 10.85 0.56
GROWTH AND INCOME FUND
CLASS A SHARES
Year ended 6/30/97..............................................................
Year ended 6/30/96(17).......................................................... 12.58 0.08
Year ended 6/30/95.............................................................. 11.30 0.13
Year ended 6/30/94.............................................................. 12.09 0.12
Year ended 6/30/93.............................................................. 11.25 0.12
Year ended 6/30/92.............................................................. 10.51 0.17
Year ended 6/30/91.............................................................. 10.12 0.23
Period ended 6/30/90(5)......................................................... 10.00 0.24
CLASS B SHARES
Year ended 6/30/97..............................................................
Year ended 6/30/96(17).......................................................... 12.55 (0.02)
Year ended 6/30/95.............................................................. 11.30 0.05
GROWTH FUND
CLASS A SHARES
Year ended 6/30/97..............................................................
Year ended 6/30/96(17).......................................................... 14.18 (0.07)
Year ended 6/30/95(17).......................................................... 10.73 0.05
Year ended 6/30/94.............................................................. 10.72 (0.02)
Period ended 6/30/93(9)......................................................... 10.00 0.00(14)
CLASS B SHARES
Year ended 6/30/97..............................................................
Year ended 6/30/96(17).......................................................... 14.10 (0.19)
Year ended 6/30/95(17).......................................................... 10.73 (0.04)
EMERGING GROWTH FUND
CLASS A SHARES
Year ended 6/30/97..............................................................
Year ended 6/30/96(17).......................................................... 15.47 (0.19)
Year ended 6/30/95(17).......................................................... 13.02 (0.00)(14)
Year ended 6/30/94.............................................................. 13.76 (0.09)
Year ended 6/30/93.............................................................. 11.67 (0.02)
Year ended 6/30/92(17).......................................................... 9.62 (0.01)
Period ended 6/30/91(6)......................................................... 10.00 0.09
CLASS B SHARES
Year ended 6/30/97..............................................................
Year ended 6/30/96(17).......................................................... 15.37 (0.32)
Year ended 6/30/95(17).......................................................... 13.02 (0.10)
INTERNATIONAL GROWTH FUND
CLASS A SHARES
Year ended 6/30/97..............................................................
Year ended 6/30/96(17).......................................................... 9.78 0.05
Year ended 6/30/95(17).......................................................... 10.74 (0.11)(20)
Year ended 6/30/94.............................................................. 9.80 0.06
Year ended 6/30/93.............................................................. 8.82 0.07
Year ended 6/30/92.............................................................. 8.27 0.05
Period ended 6/30/91(6)......................................................... 10.00 0.02
CLASS B SHARES
Year ended 6/30/97..............................................................
Year ended 6/30/96(17).......................................................... 9.73 (0.03)
Year ended 6/30/95(17).......................................................... 10.74 (0.17)(20)
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
NET
REALIZED &
UNREALIZED TOTAL
FUND GAIN/(LOSS) FROM
ON INVESTMENT
INVESTMENTS OPERATIONS
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CALIFORNIA MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/97..............................................................
Year ended 6/30/96(17).......................................................... $ 0.07 $ 0.67
Year ended 6/30/95.............................................................. 0.15 0.76
Year ended 6/30/94.............................................................. (0.82) (0.21)
Year ended 6/30/93.............................................................. 0.77 1.39
Year ended 6/30/92.............................................................. 0.38 1.03
Year ended 6/30/91.............................................................. 0.06 0.69
Period ended 6/30/90(5)......................................................... 0.01 0.58
CLASS B SHARES
Year ended 6/30/97..............................................................
Year ended 6/30/96(17).......................................................... 0.07 0.58
Year ended 6/30/95.............................................................. 0.15 0.68
FLORIDA INSURED MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/97..............................................................
Year ended 6/30/96.............................................................. 0.21 0.71
Year ended 6/30/95.............................................................. 0.03(15) 0.55
Year ended 6/30/94.............................................................. 0.65 (0.13)
Period ended 6/30/93(7)......................................................... 0.05 0.05
CLASS B SHARES
Year ended 6/30/97..............................................................
Year ended 6/30/96.............................................................. 0.21 0.63
Year ended 6/30/95.............................................................. 0.03(15) 0.48
CALIFORNIA INSURED INTERMEDIATE MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/97..............................................................
Year ended 6/30/96.............................................................. 0.15 0.64
Year ended 6/30/95.............................................................. 0.35 0.85
Year ended 6/30/94(8)........................................................... 0.11(15) 0.22
CLASS B SHARES
Year ended 6/30/97..............................................................
Year ended 6/30/96.............................................................. 0.15 0.56
Year ended 6/30/95.............................................................. 0.35 0.78
NATIONAL MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/97..............................................................
Year ended 6/30/96.............................................................. 0.07 0.68
Year ended 6/30/95.............................................................. 0.01(15) 0.65
Year ended 6/30/94.............................................................. (0.73) (0.08)
Year ended 6/30/93.............................................................. 0.75 1.42
Year ended 6/30/92.............................................................. 0.79 1.51
Period ended 6/30/91(6)......................................................... 0.16 0.80
CLASS B SHARES
Year ended 6/30/97..............................................................
Year ended 6/30/96.............................................................. 0.07 0.60
Year ended 6/30/95.............................................................. 0.01(15) 0.57
GROWTH AND INCOME FUND
CLASS A SHARES
Year ended 6/30/97..............................................................
Year ended 6/30/96(17).......................................................... 2.51 2.59
Year ended 6/30/95.............................................................. 2.04 2.17
Year ended 6/30/94.............................................................. 0.72 0.84
Year ended 6/30/93.............................................................. 0.91 1.03
Year ended 6/30/92.............................................................. 0.74 0.91
Year ended 6/30/91.............................................................. 0.43 0.66
Period ended 6/30/90(5)......................................................... 0.07 0.31
CLASS B SHARES
Year ended 6/30/97..............................................................
Year ended 6/30/96(17).......................................................... 2.50 2.48
Year ended 6/30/95.............................................................. 2.04 2.09
GROWTH FUND
CLASS A SHARES
Year ended 6/30/97..............................................................
Year ended 6/30/96(17).......................................................... 3.47 3.40
Year ended 6/30/95(17).......................................................... 3.42 3.47
Year ended 6/30/94.............................................................. 0.03(15) 0.01
Period ended 6/30/93(9)......................................................... 0.72 0.72
CLASS B SHARES
Year ended 6/30/97..............................................................
Year ended 6/30/96(17).......................................................... 3.45 3.26
Year ended 6/30/95(17).......................................................... 3.42 3.38
EMERGING GROWTH FUND
CLASS A SHARES
Year ended 6/30/97..............................................................
Year ended 6/30/96(17).......................................................... 5.65 5.46
Year ended 6/30/95(17).......................................................... 2.77 2.77
Year ended 6/30/94.............................................................. 0.68 0.59
Year ended 6/30/93.............................................................. 2.31 2.29
Year ended 6/30/92(17).......................................................... 2.16 2.15
Period ended 6/30/91(6)......................................................... (0.40) (0.31)
CLASS B SHARES
Year ended 6/30/97..............................................................
Year ended 6/30/96(17).......................................................... 5.59 5.27
Year ended 6/30/95(17).......................................................... 2.77 2.67
INTERNATIONAL GROWTH FUND
CLASS A SHARES
Year ended 6/30/97..............................................................
Year ended 6/30/96(17).......................................................... 1.21 1.26
Year ended 6/30/95(17).......................................................... (0.31) (0.42)
Year ended 6/30/94.............................................................. 1.15 1.21
Year ended 6/30/93.............................................................. 0.94 1.01
Year ended 6/30/92.............................................................. 0.55 0.60
Period ended 6/30/91(6)......................................................... (1.75) (1.73)
CLASS B SHARES
Year ended 6/30/97..............................................................
Year ended 6/30/96(17).......................................................... 1.21 1.18
Year ended 6/30/95(17).......................................................... (0.31) (0.48)
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
DIVIDENDS
FROM
FUND NET
INVESTMENT
INCOME
- --------------------------------------------------------------------------------------------------------------------
CALIFORNIA MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/97..............................................................
Year ended 6/30/96(17).......................................................... $(0.60)
Year ended 6/30/95.............................................................. (0.61)
Year ended 6/30/94.............................................................. (0.61)
Year ended 6/30/93.............................................................. (0.62)
Year ended 6/30/92.............................................................. (0.65)
Year ended 6/30/91.............................................................. (0.63)
Period ended 6/30/90(5)......................................................... (0.57)
CLASS B SHARES
Year ended 6/30/97..............................................................
Year ended 6/30/96(17).......................................................... (0.51)
Year ended 6/30/95.............................................................. (0.53)
FLORIDA INSURED MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/97..............................................................
Year ended 6/30/96.............................................................. (0.50)
Year ended 6/30/95.............................................................. (0.52)
Year ended 6/30/94.............................................................. (0.52)
Period ended 6/30/93(7)......................................................... -
CLASS B SHARES
Year ended 6/30/97..............................................................
Year ended 6/30/96.............................................................. (0.42)
Year ended 6/30/95.............................................................. (0.45)
CALIFORNIA INSURED INTERMEDIATE MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/97..............................................................
Year ended 6/30/96.............................................................. (0.49)
Year ended 6/30/95.............................................................. (0.50)
Year ended 6/30/94(8)........................................................... (0.11)
CLASS B SHARES
Year ended 6/30/97..............................................................
Year ended 6/30/96.............................................................. (0.41)
Year ended 6/30/95.............................................................. (0.43)
NATIONAL MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/97..............................................................
Year ended 6/30/96.............................................................. (0.61)
Year ended 6/30/95.............................................................. (0.64)
Year ended 6/30/94.............................................................. (0.65)
Year ended 6/30/93.............................................................. (0.67)
Year ended 6/30/92.............................................................. (0.71)
Period ended 6/30/91(6)......................................................... (0.64)
CLASS B SHARES
Year ended 6/30/97..............................................................
Year ended 6/30/96.............................................................. (0.53)
Year ended 6/30/95.............................................................. (0.56)
GROWTH AND INCOME FUND
CLASS A SHARES
Year ended 6/30/97..............................................................
Year ended 6/30/96(17).......................................................... (0.08)
Year ended 6/30/95.............................................................. (0.12)
Year ended 6/30/94.............................................................. (0.12)
Year ended 6/30/93.............................................................. (0.12)
Year ended 6/30/92.............................................................. (0.17)
Year ended 6/30/91.............................................................. (0.27)
Period ended 6/30/90(5)......................................................... (0.19)
CLASS B SHARES
Year ended 6/30/97..............................................................
Year ended 6/30/96(17).......................................................... (0.01)
Year ended 6/30/95.............................................................. (0.07)
GROWTH FUND
CLASS A SHARES
Year ended 6/30/97..............................................................
Year ended 6/30/96(17).......................................................... -
Year ended 6/30/95(17).......................................................... (0.02)
Year ended 6/30/94.............................................................. -
Period ended 6/30/93(9)......................................................... -
CLASS B SHARES
Year ended 6/30/97..............................................................
Year ended 6/30/96(17).......................................................... -
Year ended 6/30/95(17).......................................................... (0.01)
EMERGING GROWTH FUND
CLASS A SHARES
Year ended 6/30/97..............................................................
Year ended 6/30/96(17).......................................................... -
Year ended 6/30/95(17).......................................................... -
Year ended 6/30/94.............................................................. -
Year ended 6/30/93.............................................................. -
Year ended 6/30/92(17).......................................................... (0.01)
Period ended 6/30/91(6)......................................................... (0.07)
CLASS B SHARES
Year ended 6/30/97..............................................................
Year ended 6/30/96(17).......................................................... -
Year ended 6/30/95(17).......................................................... -
INTERNATIONAL GROWTH FUND
CLASS A SHARES
Year ended 6/30/97..............................................................
Year ended 6/30/96(17).......................................................... (0.05)
Year ended 6/30/95(17).......................................................... (0.04)
Year ended 6/30/94.............................................................. (0.02)
Year ended 6/30/93.............................................................. (0.03)
Year ended 6/30/92.............................................................. (0.05)
Period ended 6/30/91(6)......................................................... -
CLASS B SHARES
Year ended 6/30/97..............................................................
Year ended 6/30/96(17).......................................................... (0.02)
Year ended 6/30/95(17).......................................................... (0.03)
</TABLE>
- --------------------------------------------------------------------------------
-13-
<PAGE> 20
<TABLE>
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- ----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
IN EXCESS OF DISTRIBUTIONS
NET FROM NET
INVESTMENT REALIZED
FUND INCOME GAINS
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CALIFORNIA MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/97.............................................................
Year ended 6/30/96(17)......................................................... $ - $ -
Year ended 6/30/95............................................................. - (0.00)(14)
Year ended 6/30/94............................................................. (0.00)(14) -
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 6/30/97.............................................................
Year ended 6/30/96(17)......................................................... - -
Year ended 6/30/95............................................................. - (0.00)(14)
FLORIDA INSURED MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/97.............................................................
Year ended 6/30/96............................................................. - -
Year ended 6/30/95............................................................. - -
Year ended 6/30/94............................................................. (0.00)(14) -
Period ended 6/30/93(7)........................................................ - -
CLASS B SHARES
Year ended 6/30/97.............................................................
Year ended 6/30/96............................................................. - -
Year ended 6/30/95............................................................. - -
CALIFORNIA INSURED INTERMEDIATE MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/97.............................................................
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 6/30/97.............................................................
Year ended 6/30/96............................................................. - (0.04)
Year ended 6/30/95............................................................. - -
NATIONAL MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/97.............................................................
Year ended 6/30/96............................................................. - -
Year ended 6/30/95............................................................. - (0.01)
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 6/30/97.............................................................
Year ended 6/30/96............................................................. - -
Year ended 6/30/95............................................................. - (0.01)
GROWTH AND INCOME FUND
CLASS A SHARES
Year ended 6/30/97.............................................................
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 6/30/97.............................................................
Year ended 6/30/96(17)......................................................... - (0.99)
Year ended 6/30/95............................................................. - (0.77)
GROWTH FUND
CLASS A SHARES
Year ended 6/30/97.............................................................
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 6/30/97.............................................................
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 6/30/97.............................................................
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)
Period ended 6/30/91(6)........................................................ - -
CLASS B SHARES
Year ended 6/30/97.............................................................
Year ended 6/30/96(17)......................................................... - (0.76)
Year ended 6/30/95(17)......................................................... - (0.32)
INTERNATIONAL GROWTH FUND
CLASS A SHARES
Year ended 6/30/97.............................................................
Year ended 6/30/96(17)......................................................... (0.04) (0.46)
Year ended 6/30/95(17)......................................................... - (0.44)
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 6/30/97.............................................................
Year ended 6/30/96(17)......................................................... (0.04) (0.46)
Year ended 6/30/95(17)......................................................... - (0.44)
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
IN EXCESS
OF
NET DISTRIBUTIONS
REALIZED FROM
FUND GAINS CAPITAL
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CALIFORNIA MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/97.............................................................
Year ended 6/30/96(17)......................................................... $ - $ -
Year ended 6/30/95............................................................. - -
Year ended 6/30/94............................................................. (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 6/30/97.............................................................
Year ended 6/30/96(17)......................................................... - -
Year ended 6/30/95............................................................. - -
FLORIDA INSURED MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/97.............................................................
Year ended 6/30/96............................................................. - -
Year ended 6/30/95............................................................. - -
Year ended 6/30/94............................................................. (0.00)(14) -
Period ended 6/30/93(7)........................................................ - -
CLASS B SHARES
Year ended 6/30/97.............................................................
Year ended 6/30/96............................................................. - -
Year ended 6/30/95............................................................. - -
CALIFORNIA INSURED INTERMEDIATE MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/97.............................................................
Year ended 6/30/96............................................................. - -
Year ended 6/30/95............................................................. - -
Period ended 6/30/94(8)........................................................ - -
CLASS B SHARES
Year ended 6/30/97.............................................................
Year ended 6/30/96............................................................. - -
Year ended 6/30/95............................................................. - -
NATIONAL MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/97.............................................................
Year ended 6/30/96............................................................. - -
Year ended 6/30/95............................................................. (0.09) -
Year ended 6/30/94............................................................. - -
Year ended 6/30/93............................................................. - -
Year ended 6/30/92............................................................. - -
Period ended 6/30/91(6)........................................................ - -
CLASS B SHARES
Year ended 6/30/97.............................................................
Year ended 6/30/96............................................................. - -
Year ended 6/30/95............................................................. (0.09) -
GROWTH AND INCOME FUND
CLASS A SHARES
Year ended 6/30/97.............................................................
Year ended 6/30/96(17)......................................................... - -
Year ended 6/30/95............................................................. - -
Year ended 6/30/94............................................................. - -
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 6/30/97.............................................................
Year ended 6/30/96(17)......................................................... - -
Year ended 6/30/95............................................................. - -
GROWTH FUND
CLASS A SHARES
Year ended 6/30/97.............................................................
Year ended 6/30/96(17)......................................................... - -
Year ended 6/30/95(17)......................................................... - -
Year ended 6/30/94............................................................. - -
Period ended 6/30/93(9)........................................................ - -
CLASS B SHARES
Year ended 6/30/97.............................................................
Year ended 6/30/96(17)......................................................... - -
Year ended 6/30/95(17)......................................................... - -
EMERGING GROWTH FUND
CLASS A SHARES
Year ended 6/30/97.............................................................
Year ended 6/30/96(17)......................................................... - -
Year ended 6/30/95(17)......................................................... - -
Year ended 6/30/94............................................................. - -
Year ended 6/30/93............................................................. - -
Year ended 6/30/92(17)......................................................... - (0.01)(16)
Period ended 6/30/91(6)........................................................ - -
CLASS B SHARES
Year ended 6/30/97.............................................................
Year ended 6/30/96(17)......................................................... - -
Year ended 6/30/95(17)......................................................... - -
INTERNATIONAL GROWTH FUND
CLASS A SHARES
Year ended 6/30/97.............................................................
Year ended 6/30/96(17)......................................................... - -
Year ended 6/30/95(17)......................................................... (0.06) -
Year ended 6/30/94............................................................. - -
Year ended 6/30/93............................................................. - -
Year ended 6/30/92............................................................. - -
Period ended 6/30/91(6)........................................................ - -
CLASS B SHARES..................................................................
Year ended 6/30/97.............................................................
Year ended 6/30/96(17)......................................................... - -
Year ended 6/30/95(17)......................................................... (0.06) -
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
NET ASSET
VALUE AT
TOTAL END
FUND DISTRIBUTIONS OF PERIOD
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CALIFORNIA MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/97.............................................................
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 6/30/97.............................................................
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 6/30/97.............................................................
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 6/30/97.............................................................
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 6/30/97.............................................................
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 6/30/97.............................................................
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 6/30/97.............................................................
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 6/30/97.............................................................
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 6/30/97.............................................................
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 6/30/97.............................................................
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 6/30/97.............................................................
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 6/30/97.............................................................
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 6/30/97.............................................................
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 B SHARES
Year ended 6/30/97.............................................................
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 6/30/97.............................................................
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 6/30/97.............................................................
Year ended 6/30/96(17)......................................................... (0.52) 10.39
Year ended 6/30/95(17)......................................................... (0.53) 9.73
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
-14-
<PAGE> 21
<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
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------
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> 22
(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> 23
(iii) if not so rated, the security is determined to be of comparable quality.
Since the Money Funds often purchase securities supported by credit enhancements
from banks and other financial institutions, changes in the credit quality of
these institutions could cause losses to the Money Funds and affect share price.
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. 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
-17-
<PAGE> 24
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> 25
"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> 26
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 Principal of BlackRock since
1996.
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> 27
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.
-21-
<PAGE> 28
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 January 1997, Thomas M. Byron, a Vice President of Van Kampen, has had
primary responsibility for the day-to-day management of the Fund's portfolio.
Mr. Byron has been at Van Kampen for over 15 years. Prior to taking over
responsibility for managing the Fund, Mr. Byron was Head Buyer and Manager of
Van Kampen's Unit Investment Trust desk.
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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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<PAGE> 31
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, William M. Riegel and Henry D. Cavanna,
Managing Directors of J.P. Morgan, have had primary management responsibility
for the Fund since September 1993. Mr. Riegel, who joined J.P. Morgan in 1979,
is a senior equity portfolio manager in its Equity and Balanced Accounts Group.
Mr. Cavanna, who joined J.P. Morgan in 1971, is a senior 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.
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<PAGE> 32
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 appreciation.
Non-investment grade debt securities are considered to be speculative and
involve greater risk
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<PAGE> 33
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 and the Portfolio Manager of the Janus Enterprise
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 or Baa or better by
Moody's or of comparable quality in the opinion of the Fund's Sub-Advisor,
including Euro-currency instruments and securities.
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<PAGE> 34
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 31 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, Managing Director, 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, Managing Director, has 14 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. Vincent J. McBride, Senior Vice President, has 10 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.
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"), Global Depositary
Receipts ("GDRs") 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, which are sometimes referred to as Continental
Depositary Receipts ("CDRs"), 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.
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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 may attempt 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
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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, or other liquid assets 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 or other liquid assets 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
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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 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
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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 1996-97 General
Revenue plus Working Capital and Budget Stabilization funds available total
$16,617.4 million, an increase of approximately 6.7% over comparable figures in
fiscal 1995-96. Total effective appropriations for the 1995-96 fiscal year were
$15,537.2 million, with unencumbered reserves at the end of 1995-96 estimated at
$1,080.2 million. Estimated fiscal year 1997-98 General Revenue plus Working
Capital and Budget Stabilization funds available total $17,537.3 million, an
increase of approximately 5.5% over comparable figures for fiscal year
1996-1997. Total effective appropriations for the 1997-98 fiscal year are
estimated to be $16,359.7 million, a 5.1% increase over the analogous figure in
1996-97.
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
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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 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
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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 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,
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as the case may be. In addition, the Fund would pay commissions and other costs
in connection with such investments, which may increase the Fund's expenses and
reduce its return. While utilization of options, futures contracts and similar
instruments may be advantageous to the Fund, if the Fund's Sub-Advisor is not
successful in employing such instruments in managing the Fund's investments, the
Fund's performance will be worse than if the Fund did not make such investments.
Losses incurred in hedging transactions and the costs of these transactions will
adversely affect a Fund's performance.
The Money Funds will not invest in futures and options on futures. In addition,
because any income earned from transactions in futures contracts and options on
futures contracts will be taxable, it is anticipated that the California
Municipal, Florida Insured Municipal, California Insured Intermediate Municipal
and National Municipal Funds will invest in these instruments only in unusual
circumstances, such as when the Fund's Sub-Advisor anticipates an extreme change
in interest rates or market conditions.
GEOGRAPHICAL AND INDUSTRY CONCENTRATION. Potential investors in the California
Money, California Municipal, California Insured Intermediate Municipal and
Florida Insured Municipal Funds should consider the possibly greater risk
arising from the geographic concentration of their investments, as well as the
current and past financial condition of California and Florida municipal
issuers, respectively. Certain California and Florida constitutional amendments,
legislative measures, executive orders, administrative regulations, court
decisions and voter initiatives could result in certain adverse consequences
affecting California and Florida municipal obligations, respectively. See the
SAI for a more detailed description of these and other risks relating to the
California Money Fund's, California Municipal Fund's and California Insured
Intermediate Municipal Fund's investments in California municipal obligations
and the Florida Insured Municipal Fund's investments in Florida municipal
obligations.
The Global Money Fund will invest at least 25% of its assets in bank obligations
unless the Fund is in a temporary defensive position. As a result of this
concentration policy, which is a fundamental policy of the Fund, the Fund's
investments may be subject to greater risk than a fund that does not concentrate
in the banking industry. In particular, bank obligations may be subject to the
risks associated with interest rate volatility, changes in federal and state
laws and regulations governing banking and the inability of borrowers to pay
principal and interest when due. In addition, foreign banks present the risks of
investing in foreign securities generally and are not subject to reserve
requirements and other regulations comparable to those of U.S. banks.
GOVERNMENT STRIPPED MORTGAGE-BACKED SECURITIES. The Short Term High Quality
Bond, Short Term Global Government, U.S. Government and Corporate Income Funds
may invest in government stripped mortgage-backed securities issued or
guaranteed by the Government National Mortgage Association ("GNMA"), Federal
National Mortgage Association ("FNMA") and Federal Home Loan Mortgage
Corporation ("FHLMC"). These securities represent beneficial ownership interests
in either periodic principal distributions ("principal-only") or interest
distributions ("interest-only") on mortgage-backed certificates issued by GNMA,
FNMA or FHLMC, as the case may be. The certificates underlying the government
stripped mortgage-backed securities represent all or part of the beneficial
interest in pools of mortgage loans. The Funds will invest in interest-only
government stripped mortgage-backed securities in order to enhance yield or to
benefit from anticipated appreciation in value of the securities at times when
the appropriate Sub-Advisor believes that interest rates will remain stable or
increase. In periods of rising interest rates, the value of interest-only
government stripped mortgage-backed securities may be expected to increase
because of the diminished expectation that the underlying mortgages will be
prepaid. In this situation the expected increase in the value of interest-only
government stripped mortgage-backed securities may offset all or a portion of
any decline in value of the portfolio securities of the Funds. Investing in
government stripped mortgage-backed securities involves the risks normally
associated with investing in mortgage-backed securities issued by government or
government-related entities. See "Mortgage-Backed Securities" section. In
addition, the yields on interest-only and principal-only government stripped
mortgage-backed securities are extremely sensitive to the prepayment experience
on the mortgage loans underlying the certificates collateralizing 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
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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.
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."
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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 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"
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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.
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
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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 or other liquid assets
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
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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 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
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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 other liquid assets 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 cash or other
liquid assets that at all times are in an amount equal to their obligations
under reverse repurchase agreements.
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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
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
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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 or other liquid assets in
an amount equal to the amount of its when-issued and delayed-delivery
commitments.
WHEN-ISSUED MUNICIPAL SECURITIES AND FORWARD COMMITMENTS. The California Money
Fund and the Municipal Funds may purchase Municipal Securities offered on a
"when-issued" basis and may purchase or sell Municipal Securities on a "forward
commitment" basis. When such transactions are negotiated, the price, which is
generally expressed in yield terms, is fixed at the time the commitment is made,
but delivery and payment for the securities take place at a later date.
Normally, the settlement date occurs within two months after the transaction,
but delayed settlements beyond two months may be negotiated. During the period
between a commitment and settlement, no payment is made for the Municipal
Securities purchased by the purchaser and, thus, no interest accrues to the
purchaser from the transaction.
The use of when-issued transactions and forward commitments enables the Funds to
hedge against anticipated changes in interest rates and prices. For instance, in
periods of rising interest rates and falling bond prices, a Fund might sell
Municipal Securities that it owned on a forward commitment basis to limit its
exposure to falling prices. In periods of falling interest rates and rising bond
prices, a Fund might sell a Municipal Security and purchase the same or a
similar security on a when-issued or forward commitment basis, thereby obtaining
the benefit of currently higher cash yields. However, if the relevant Fund's
Sub-Advisor were to forecast incorrectly the direction of interest rate
movements, the Fund might be required to complete such when-issued or forward
transactions at prices inferior to then-current market values.
When-issued Municipal Securities and forward commitments may be sold prior to
the settlement date, but a Fund enters into when-issued and forward commitments
only with the intention of actually receiving or delivering the Municipal
Securities, as the case may be. If a Fund, however, chooses to dispose of the
right to acquire a when-issued security prior to its acquisition or dispose of
its right to deliver or receive against a forward commitment, it may incur a
gain or loss. When-issued Municipal Securities may include bonds purchased on a
"when, as and if issued" basis, under which the issuance of the securities
depends on the occurrence of a subsequent event, such as approval of a proposed
financing by appropriate municipal authorities. Any significant commitment of a
Fund's assets to the purchase of securities on a "when, as and if issued" basis
may increase the volatility of the Fund's NAV. No when-issued or forward
commitments will be made by a Fund if, as a
-43-
<PAGE> 50
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.
TAX EQUIVALENT YIELDS
TABLE 1
<TABLE>
<CAPTION>
Combined
Federal
and
Federal California California Tax-Exempt Yield
Sample 1997 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-$24,650 $0-$41,200 15% 6.00% 20.10% 2.50% 3.13% 3.75% 4.38% 5.01%
$24,650-$59,750 $41,200-$99,600 28% 9.30% 34.70% 3.06% 3.83% 4.59% 5.36% 6.13%
$59,750-$124,650 $99,600-$151,750 31% 9.30% 37.42% 3.20% 3.99% 4.79% 5.59% 6.39%
$124,650-$271,050 $151,750-$271,050 36% 9.30% 41.95% 3.44% 4.31% 5.17% 6.03% 6.89%
$271,050 and up $271,050 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 1997 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> <C>
$0-$24,650 $0-$41,200 15% 6.00% 20.10% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
$24,650-$59,750 $41,200-$99,600 28% 9.30% 34.70% 6.89% 7.66% 8.42% 9.19% 9.95% 10.72%
$59,750-$124,650 $99,600-$151,750 31% 9.30% 37.42% 7.19% 7.99% 8.79% 9.59% 10.39% 11.19%
$124,650-$271,050 $151,750-$271,050 36% 9.30% 41.95% 7.75% 8.61% 9.47% 10.34% 11.20% 12.06%
$271,050 and up $271,050 and up 39.6% 9.30% 45.22% 8.21% 9.13% 10.04% 10.95% 11.87% 12.78%
</TABLE>
-44-
<PAGE> 51
TABLE 2
<TABLE>
<CAPTION> Tax-Exempt Yield
Sample 1997 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-$24,650 $0-$41,200 15% 5.29% 5.88% 6.47% 7.06% 7.65% 8.24%
$24,650-$59,750 $41,200-$99,600 28% 6.25% 6.94% 7.64% 8.33% 9.03% 9.72%
$59,750-$124,650 $99,600-$151,750 31% 6.52% 7.25% 7.97% 8.70% 9.42% 10.14%
$124,650-$271,050 $151,750-$271,050 36% 7.03% 7.81% 8.59% 9.38% 10.16% 10.94%
$271,050 and up $271,050 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.
TOTAL RETURN
From time to time, a Fund may advertise its average annual total return over
various periods of time. Such TOTAL RETURN figures show the average percentage
change in value of an investment in the Fund from the beginning date of the
measuring period. These figures reflect changes in the price of the Fund's
shares and assume that any income dividends and/or capital gains distributions
made by the Fund during the period were reinvested in shares of the Fund.
Figures will be given for recent one-, five- and ten-year periods (if
applicable), and may be given for other periods as well (such as from
commencement of the Fund's operations, or on a year-by-year basis).
ADDITIONAL PERFORMANCE QUOTATIONS. Advertisements of total return will always
show a calculation that includes the effect of the maximum sales charge but may
also show total return without giving effect to that charge. Similarly, a Fund
may provide yield quotations in investor communications based on the Fund's NAV
(rather than its Public Offering Price) per share on the last day of the period
covered by the yield computation. Because these additional quotations will not
reflect the maximum sales charge payable, such performance quotations will be
higher than the performance quotations that include the maximum sales charge.
TOTAL RETURNS AND YIELDS ARE BASED ON PAST RESULTS AND ARE NOT A PREDICTION OF
FUTURE PERFORMANCE.
PERFORMANCE COMPARISONS
In reports or other communications to shareholders or in advertising material, a
Fund may compare the performance of its Class A, Class B and Class I Shares with
that of other mutual funds as listed in the rankings prepared by Lipper
Analytical Services, Inc., CDA Technologies, Inc. or similar independent
services that monitor the performance of mutual funds or with other appropriate
indexes of investment securities. In addition, certain indexes may be used to
illustrate historic performance of select asset classes. These may include,
among others, the Dimensional Fund Advisor's Small Cap Index, the Lehman
Brothers GNMA Index, the S&P 100 Index, the Lehman Brothers Index of Baa-rated
Corporate Bonds, the T-Bill Index, the Bank Rate Monitor, Donoghue's Money Fund
Averages and the "Stocks, Bonds and Inflation Index" published annually by
Ibbotson Associates. The performance information may also include evaluations of
the Funds published by nationally recognized ranking services and by financial
publications that are nationally recognized, such as Business Week, Forbes,
Fortune, Institutional Investor, Money and The Wall Street Journal. The
International Growth, Short Term Global Government and Growth Funds may compare
their performance to other investments or relevant indexes consisting of Salomon
Brothers Short Term Global Bond Index, J.P. Morgan Global Government Traded
Index, Morgan Stanley Capital International EAFE Index, the Standard & Poor's
500 Index, the Lipper International Fund Index and The Financial Times World
Stock Index. If a Fund compares its performance to other funds or to relevant
indexes, the Fund's performance will be stated in the same terms in which such
comparative data and indexes are stated, which is normally total return rather
than yield. For these purposes the performance of the Fund, as well as the
performance of such investment companies or indexes, may not reflect sales
charges, which, if reflected, would reduce performance results.
-45-
<PAGE> 52
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 earlier pages 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 earlier pages 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.
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.
-46-
<PAGE> 53
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.
- --------------------------------------------------------------------------------
-47-
<PAGE> 54
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 800-222-5852. - Call Shareholder Services at 800-222-
(6:00 a.m. to 6:00 p.m., Pacific Time/9:00 5852.
a.m. to 9:00 p.m., Eastern Time, Monday
through Friday and 6:00 a.m. to 3:00 p.m.,
Pacific Time/9:00 a.m. to 6:00 p.m.,
Eastern Time, on Saturdays)
- --------------------------------------------------------------------------------------------------------------
BY MAIL - Complete and sign the application. Make - Make your check payable to "Sierra
your check or negotiable bank draft Trust Funds." Indicate your Fund
payable to "Sierra Trust Funds." Third- account number on your check. Include
party checks are not accepted. the "next investment" stub from your
previous account statement. Mail the
Mail the completed application form and check and stub to the address printed
check to: on your account statement.
Sierra Trust Funds
c/o First Data Investor Services Group - Exchange by mail: call 800-222-5852
P.O. Box 5118 for instructions.
Westboro, MA 01581-5118
- --------------------------------------------------------------------------------------------------------------
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>
-48-
<PAGE> 55
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."
SALES TO SAM ACCOUNTS AND SAM PORTFOLIOS. From time to time, one or more of the
Funds used for investment by the SAM Accounts or SAM Portfolios may experience
relatively large investments or redemptions due to 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 or SAM Portfolios
transactions on the Funds; Sierra Services, representing the interest of the SAM
Accounts and SAM Portfolios, 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 and SAM Portfolios. 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 and SAM Portfolios 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, Martin Luther King, Jr. 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
-49-
<PAGE> 56
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 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> 57
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.
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<PAGE> 58
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
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 Shareholder Services at the
time of the current purchase.
QUANTITY DISCOUNTS. As shown in the tables previously and under the "Right of
Accumulation" section, larger purchases of the Non-Money Fund Class A Shares of
the Funds combined with Class B Shares and Class S Shares of the Funds, Class A
Common Shares of SPIF and Class A and Class B Shares of the SAM Portfolios
reduce the sales charge paid on the Non-Money Fund Class A Shares. The Funds
will combine purchases of the Non-Money Fund Class A Shares with Class B and
Class S Shares of the Funds, Class A Common Shares of SPIF and Class A and Class
B Shares of the SAM Portfolios made on the same day by the investor, spouse, and
any minor children when calculating the Non-Money Fund Class A Shares sales
charge. In order to receive the cumulative quantity reduction, the investor or
the securities dealer must call related purchases of such Class A Common Shares
of SPIF, Class A, Class B and Class S Shares of the Trust and Class A and Class
B Shares of the SAM Portfolios to the attention of 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 of SPIF made during the 13-month period
will be subtracted from the amount of purchases of Class A Shares or Class A
Common Shares of SPIF in determining whether the terms of the Letter of Intent
have been met. During the term of a Letter of Intent, 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
Washington
-52-
<PAGE> 59
Mutual or an affiliate serves as investment advisor; (c) registered
representatives or full-time employees of Authorized Dealers or full-time
employees of banks affiliated with such dealers; (2) purchases by retirement
plans created pursuant to Section 457 of the Code; (3) purchases that are paid
for with the proceeds from the redemption 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
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<PAGE> 60
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. 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.
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<PAGE> 61
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.
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<PAGE> 62
- - 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. 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
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<PAGE> 63
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 Shareholder Services by
telephone, an investor may deliver the transaction request to 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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<PAGE> 64
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 invested in any
Fund, you can elect to receive a check for at least $100 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 certain 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.
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. No portion of the dividends from 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, and
National Municipal Funds is expected to qualify for the corporate dividends
received deduction, and only a portion of the dividends from the Growth and
Income, Growth, Emerging Growth, and International Growth Funds is expected to
qualify for the corporate dividends received deduction. 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.
TAXES ON TRANSACTIONS. The sale, exchange or redemption of Fund shares will be a
taxable event. Any
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<PAGE> 65
gain or loss recognized on a redemption, transfer, or exchange of shares of the
Fund by a shareholder who is not a dealer in securities generally will be
treated as long-term capital gain or loss if the shares have been held for more
than twelve months, and otherwise generally will be treated as a short-term
capital gain or loss. Any loss recognized by a shareholder upon the disposition
of shares of the Fund held for six months or less, however, will be disallowed
to the extent of any "exempt-interest dividends" received by the shareholder
with respect to such shares. Furthermore, if shares on which a net capital gains
distribution has been received are subsequently disposed of and such shares have
been held for six months or less, any loss recognized will be treated as a
long-term capital loss to the extent of the net capital gains distribution.
Statements as to the tax status of each shareholder's dividends and
distributions are mailed annually to shareholders within 60 days of the close of
the calendar year. These statements set forth the dollar amount of dividends and
NAV excluded or exempt from federal income taxes or Florida intangible personal
property taxes and the dollar amount, if any, subject to such taxes. Whenever
you sell shares of the Fund, the Trust will send you a confirmation statement
showing how many shares you sold and at what price. You also will receive a
consolidated transaction statement every January. However, it is up to you or
your tax preparer to determine whether this sale resulted in a capital gain and,
if so, the amount of tax to be paid. You should retain your regular account
statements; the information they contain will be essential in calculating the
amount of your capital gains.
ADDITIONAL CONSIDERATIONS FOR SHAREHOLDERS OF THE MUNICIPAL FUNDS AND THE
CALIFORNIA MONEY FUND. Dividends paid by any of the Municipal Funds or the
California Money Fund that are derived from interest earned on qualifying tax-
exempt obligations will be "exempt-interest" dividends, which shareholders may
exclude from their gross incomes for federal income tax purposes, if at the
close of each quarter of that Fund's taxable year, at least 50 percent of the
Fund's total assets consist of obligations the interest on which is excludable
from gross income for federal income tax purposes. To the extent that any of
these Funds invests in AMT-Subject Bonds, any exempt-interest dividends derived
from interest on such AMT-Subject Bonds are a specific preference item for
purposes of the federal individual and corporate alternative minimum taxes. In
any event, all exempt-interest dividends will be a component of adjusted current
earnings for purposes of computing the federal corporate alternative minimum tax
and the federal corporate environmental tax.
Current federal income tax laws limit the types and volume of bonds qualifying
for the federal income tax exemption of interest, which may have an effect on
the ability of the Municipal Funds to purchase sufficient amounts of tax-exempt
securities to satisfy the requirements for the payment of "exempt-interest"
dividends.
Interest on indebtedness incurred or continued by shareholders to purchase or
carry shares of the Municipal Funds and the California Money Fund is not
deductible for federal income tax purposes. The Municipal Funds and the
California Money Fund may not be an appropriate investment for persons
(including corporations and other business entities) who are not currently
subject to federal income tax (such as certain qualified retirement accounts) or
who are substantial users (or who are related to substantial users) of
facilities financed by "private activity bonds" or certain industrial
development bonds. "Substantial user" is defined generally as including a
"non-exempt person" who regularly uses in a trade or business a part of a
facility financed from the proceeds of such bonds. Entities or persons who are
"substantial users" (or persons related to "substantial users") should consult
their tax advisors before purchasing shares of the Municipal Funds or the
California Money Fund.
ADDITIONAL CONSIDERATIONS FOR SHAREHOLDERS OF THE FLORIDA INSURED MUNICIPAL
FUND. Florida does not impose an income tax on individuals. Accordingly,
dividends or distributions by the Florida Insured Municipal Fund to an
individual who is a Florida resident are not subject to state income tax in
Florida. However, Florida imposes an intangible personal property tax on shares
of the Fund owned by a Florida resident on January 1 of each year unless such
shares qualify for an exemption from the tax.
The Fund has received a Technical Assistance Advisement from the State of
Florida, Department of Revenue, to the effect that Fund shares owned by a
Florida resident will be exempt from the intangible personal property tax so
long as the Fund's portfolio includes only assets, such as notes, bonds, and
other obligations issued by the State of 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.
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<PAGE> 66
ADDITIONAL CONSIDERATIONS FOR SHAREHOLDERS OF THE CALIFORNIA MONEY FUND,
CALIFORNIA MUNICIPAL FUND AND CALIFORNIA INSURED INTERMEDIATE MUNICIPAL
FUND. If, at the close of each quarter of its taxable year, at least 50% of the
value of the total assets of each of the California Money Fund, California
Municipal Fund and California Insured Intermediate Municipal Fund (the
"California Funds") consist of obligations the interest on which would be exempt
from California personal income tax if the obligations were held by an
individual ("California Tax Exempt Obligations"), and if each of the California
Funds continues to qualify as a regulated investment company for federal income
tax purposes, then each respective California Fund will be qualified to pay
dividends, subject to certain limitations, to its shareholders that are exempt
from California State personal income tax, but not from California State
franchise tax or California State corporate income tax ("California
exempt-interest dividends"). However, the total amount of California
exempt-interest dividends paid by each of the California Funds to each of the
California Fund's non-corporate shareholders with respect to any taxable year
cannot exceed the amount of interest received by such California Fund during
such year on California Tax Exempt Obligations less any expenses and
expenditures (including any dividends paid to corporate shareholders) deemed to
have been paid from such interest. If the aggregate dividends exceed the amount
that may be treated as California exempt-interest dividends, only that
percentage of each dividend distribution equal to the ratio of aggregate
California exempt-interest dividends to aggregate dividends will be treated as a
California exempt-interest dividend. Dividend distributions that do not qualify
for treatment as California exempt-interest dividends will be taxable to
shareholders at ordinary 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
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under the laws of the Commonwealth of Massachusetts as a "Massachusetts business
trust."
THE FUNDS MAY HOLD SPECIAL MEETINGS AND MAIL PROXY MATERIALS. As a Massachusetts
business trust, the Funds are not required to hold annual shareholder meetings.
On occasion, however, special meetings may be called to elect or remove
trustees, change fundamental policies, approve a management contract, or for
other purposes. Trustees may be removed by shareholders at a special meeting
called upon the request of shareholders among at least 10% of the outstanding
shares of the Trust. Shareholders not attending these meetings are encouraged to
vote by proxy. Sierra Administration will mail proxy materials in advance,
including a voting card and information about the proposals to be voted on. When
matters are submitted for shareholder vote, shareholders of each Fund and class
will have one vote for each full share owned and proportionate, fractional votes
for fractional shares held and will have exclusive voting rights with respect to
matters pertaining solely to such Fund or class, respectively, such as the
distribution plan for a class.
SIERRA ADVISORS, ITS AFFILIATES AND SERVICE PROVIDERS
ADVISOR
Sierra Advisors, located at 9301 Corbin Avenue, Northridge, California 91324, is
the investment advisor of the Funds. Responsibilities of Sierra Advisors include
formulating the Funds' investment policies (subject to the terms of this
Prospectus), analyzing economic trends and directing and evaluating the
investment services provided by the Sub-Advisors and monitoring each Fund's
investment performance. In connection with these activities, Sierra Advisors may
initiate action to change a Sub-Advisor if it deems such action to be in the
best interests of a Fund and its shareholders.
Sierra Advisors became a registered investment advisor in 1988. Sierra Advisors
is an indirectly wholly owned subsidiary of Washington Mutual, Inc. ("Washington
Mutual"). Washington Mutual is a publicly owned financial services company. As
of June 30, 1997, Sierra Advisors and its affiliates had total assets under
management of $3.7 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 May 31,
1997, total assets under management were over $194 billion.
BLACKROCK is located at 345 Park Avenue, 30th floor, New York, New York 10154.
BlackRock is a wholly owned corporate subsidiary of PNC Asset Management Group
Inc., the holding company for the asset management businesses of PNC Bank Corp.
("PNC"). PNC is a 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,
1997, BlackRock had aggregate assets under management or supervision of more
than $50 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, 1997, Janus had approximately
$60 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, 1997, J.P. Morgan and its affiliates had
investment management authority with respect to approximately $234 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
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mutual funds. As of June 30, 1997, Scudder's assets under management were in
excess of $125 billion.
On June 27, 1997, Scudder, Stevens & Clark, Inc. ("Scudder") and The Zurich
Group ("Zurich") announced that they had entered into a definitive agreement to
form a global investment organization. Zurich is a leading international
insurance and financial services organization. Under the agreement, Zurich's
wholly owned subsidiary, Zurich Kemper Investments, Inc. will combine with
Scudder, with combined assets of $200 billion. Subject to certain conditions
being met, it is currently anticipated that the transaction will close in the
fourth quarter of 1997.
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, 1997, TCW
Management and its affiliated advisers had just over $50.1 billion under
management or committed to management.
VAN KAMPEN is located at One Parkview Plaza, Oakbrook, 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 MSAM Holding, Inc., which in turn is a wholly owned
subsidiary of Morgan Stanley, Dean Witter, Discover & Co., a publicly held
company. 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, 1997, of
more than $64.3 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 companies, employee benefit plans, endowment funds,
foundations and other institutions and individuals. As of June 30, 1997, Warburg
managed approximately $19.7 billion of assets, including approximately $11.5
billion of investment company assets. Incorporated in 1970, Warburg is
indirectly controlled by Warburg, Pincus & Co. ("WP & Co."), which has no
business other than being a holding company of Warburg and its affiliates.
Lionel I. Pincus, the managing partner of WP & Co., may be deemed to control
both WP & Co. and Warburg.
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 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
Washington Mutual, 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
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<PAGE> 69
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, 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. Broker-dealers are selected on the basis of
their ability to obtain best price and execution for a Fund's transactions and
recognizing brokerage, research and other services provided to the Fund and to
the Fund's Advisor or Sub-Advisor. 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> 70
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.
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<PAGE> 71
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.
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<PAGE> 72
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.
================================================================================
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<PAGE> 73
(800) 222-5852
P.O. BOX 5118
WESTBORO, MASSACHUSETTS 01581-5118
<TABLE>
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<S> <C> <C>
1. YOUR ACCOUNT REGISTRATION Check one box for the account you wish to open and
complete information.
[ ] 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 ( ) _________________
- -----------------------------------------------------------------------------------------------------------------------
2. YOUR INVESTMENT SELECTION (Minimum initial $250; Minimum subsequent $100)
</TABLE>
<TABLE>
<CAPTION>
Fund Investment Amount Fund Investment Amount
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Government Money Fund California Insured Intermediate
Class A Shares $ ________________________ Municipal Fund
California Money Fund Class A Shares $ ________________________
Class A Shares $ ________________________ Class B Shares $ ________________________
Global Money Fund Florida Insured Municipal Fund
Class A Shares $ ________________________ Class A Shares $ ________________________
Short Term High Quality Bond Class B Shares $ ________________________
Fund National Municipal Fund
Class A Shares $ ________________________ Class A Shares $ ________________________
Class B Shares $ ________________________ Class B Shares $ ________________________
Short Term Global Government Growth and Income Fund
Fund Class A Shares $ ________________________
Class A Shares $ ________________________ Class B Shares $ ________________________
Class B Shares $ ________________________ Growth Fund
U.S. Government Fund Class A Shares $ ________________________
Class A Shares $ ________________________ Class B Shares $ ________________________
Class B Shares $ ________________________ Emerging Growth Fund
Corporate Income Fund Class A Shares $ ________________________
Class A Shares $ ________________________ Class B Shares $ ________________________
Class B Shares $ ________________________ International Growth Fund
California Municipal Fund Class A Shares $ ________________________
Class A Shares $ ________________________ Class B Shares $ ________________________
Class B Shares $ ________________________ Other ___________________ $ ________________________
Total investment $ ________________________
- -----------------------------------------------------------------------------------------------------------------------
3. YOUR PAYMENT METHOD FOR INITIAL INVESTMENT
[ ] CHECK: $ _________________ Make check payable to: SIERRA TRUST FUNDS.
[ ] WIRE: Call (800) 222-5852 for instructions.
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 74
<TABLE>
<S> <C> <C>
_____________________________________________________________________________________________________
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.______________________________________
Branch 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 (per Fund), 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 prior to today's date.
Effective Date
___________________________________________________ ____________________________________________
Signature(s) Date
APPLICATION CONTINUED ON THE NEXT PAGE
</TABLE>
<PAGE> 75
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 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
</TABLE>
<TABLE>
<C> <C>
______________________________________________________________________________________________________________________________
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
SIGNATURE CARD Last Name _____________________ First Name _________________ Mid. Init. ________
Boston Safe Deposit and Trust Co.
X ________________________________________________________________________________
____________________________________ SIGNATURE
Account Number
[ ] Check here if only one signature is required on checks. If neither box is checked,
All Registered Owners must
sign this Signature Card. [ ] Check here if both signatures are required on checks. all checks will require
both signatures.
______________________________________________________________________________________________________________________________
</TABLE>
<PAGE> 76
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> 77
<TABLE>
<S> <C>
PROSPECTUS SIERRA TRUST FUNDS
OCTOBER 31, 1997 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,
1997, has been filed with the Securities and Exchange Commission (the "SEC"),
and is incorporated herein by reference (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.
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. IN ADDITION, THE CALIFORNIA MONEY FUND MAY INVEST A SIGNIFICANT
PERCENTAGE OF ITS ASSETS IN A SINGLE ISSUER, AND INVESTING IN THE CALIFORNIA
MONEY FUND MAY BE RISKIER THAN INVESTING IN OTHER TYPES OF MONEY MARKET FUNDS.
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, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
<TABLE>
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PAGE
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<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> 78
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. 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> 79
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> 80
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> 81
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.
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<PAGE> 82
SUMMARY OF SIERRA TRUST FUNDS' EXPENSES*
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<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)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> 83
<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.
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
for, and further information about, Class B Shares.
-6-
<PAGE> 84
SUMMARY OF SIERRA TRUST FUNDS' EXPENSES
EXAMPLE:
You would have paid the following expenses on a $1,000 investment at the end of
each time period, assuming (1) 5% annual return and (2) reinvestment of all
dividends and distributions.
<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> 85
<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> 86
FINANCIAL HIGHLIGHTS
The following information, insofar as it relates to each of the respective
periods ended June 30, 1997 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>
NET ASSET NET REALIZED &
VALUE AT NET UNREALIZED
BEGINNING INVESTMENT GAIN/(LOSS)
FUND OF PERIOD INCOME/(LOSS) ON INVESTMENTS
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
GLOBAL MONEY FUND
CLASS A SHARES
Year ended 6/30/97...................................................
Year ended 6/30/96................................................... $ 1.00 $ 0.051 $0.000(19)
Year ended 6/30/95................................................... 1.00 0.049 0.000(19)
Year ended 6/30/94................................................... 1.00 0.030 0.000(19)
Year ended 6/30/93................................................... 1.00 0.031 -
Year ended 6/30/92................................................... 1.00 0.048 -
Year ended 6/30/91................................................... 1.00 0.073 -
Period ended 6/30/90(1).............................................. 1.00 0.074 -
CLASS S SHARES
Year ended 6/30/97...................................................
Year ended 6/30/96................................................... 1.00 0.043 0.000(19)
Year ended 6/30/95................................................... 1.00 0.042 0.000
U.S. GOVERNMENT MONEY FUND
CLASS A SHARES
Year ended 6/30/97...................................................
Year ended 6/30/96................................................... 1.00 0.047 -
Year ended 6/30/95................................................... 1.00 0.046 -
Year ended 6/30/94................................................... 1.00 0.027 -
Year ended 6/30/93................................................... 1.00 0.027 -
Year ended 6/30/92................................................... 1.00 0.042 0.002
Year ended 6/30/91................................................... 1.00 0.065 -
Period ended 6/30/90(2).............................................. 1.00 0.073 -
CLASS S SHARES
Year ended 6/30/97...................................................
Year ended 6/30/96................................................... 1.00 0.040 -
Year ended 6/30/95................................................... 1.00 0.038 -
CALIFORNIA MONEY FUND
CLASS A SHARES
Year ended 6/30/97...................................................
Year ended 6/30/96................................................... 1.00 0.029 -
Year ended 6/30/95................................................... 1.00 0.028 -
Year ended 6/30/94................................................... 1.00 0.018 -
Year ended 6/30/93................................................... 1.00 0.021 -
Year ended 6/30/92................................................... 1.00 0.033 -
Year ended 6/30/91................................................... 1.00 0.044 -
Period ended 6/30/90(2).............................................. 1.00 0.046 -
CLASS S SHARES
Year ended 6/30/97...................................................
Year ended 6/30/96................................................... 1.00 0.022 -
Year ended 6/30/95................................................... 1.00 0.020 -
SHORT TERM HIGH QUALITY BOND FUND
CLASS A SHARES
Year ended 6/30/97...................................................
Year ended 6/30/96(17)............................................... 2.35 0.15 (0.03)
Year ended 6/30/95................................................... 2.39 0.08 0.02
Period ended 6/30/94(3).............................................. 2.50 0.09 (0.11)
CLASS S SHARES
Year ended 6/30/97...................................................
Year ended 6/30/96(17)............................................... 2.35 0.13 (0.03)
Year ended 6/30/95................................................... 2.39 0.06 0.02
SHORT TERM GLOBAL GOVERNMENT FUND
CLASS A SHARES
Year ended 6/30/97...................................................
Year ended 6/30/96(17)............................................... 2.24 0.15 0.07
Year ended 6/30/95................................................... 2.34 0.17 (0.12)
Year ended 6/30/94................................................... 2.48 0.17 (0.14)
Year ended 6/30/93................................................... 2.56 0.19 (0.04)
Period ended 6/30/92(4).............................................. 2.50 0.07 0.07
CLASS S SHARES
Year ended 6/30/97...................................................
Year ended 6/30/96(17)............................................... 2.24 0.13 0.07
Year ended 6/30/95................................................... 2.34 0.15 (0.12)
U. S. GOVERNMENT FUND
CLASS A SHARES
Year ended 6/30/97...................................................
Year ended 6/30/96................................................... 9.67 0.67 (0.26)
Year ended 6/30/95................................................... 9.45 0.70 0.22
Year ended 6/30/94................................................... 10.65 0.75 (1.21)
Year ended 6/30/93................................................... 10.52 0.74 0.16
Year ended 6/30/92................................................... 10.04 0.84 0.49
Year ended 6/30/91................................................... 9.93 0.84 0.13
Period ended 6/30/90(5).............................................. 10.00 0.76 (0.09)
CLASS S SHARES
Year ended 6/30/97...................................................
Year ended 6/30/96................................................... 9.67 0.60 (0.26)
Year ended 6/30/95................................................... 9.45 0.63 0.22
CORPORATE INCOME FUND
CLASS A SHARES
Year ended 6/30/97...................................................
Year ended 6/30/96................................................... 10.52 0.76 (0.36)
Year ended 6/30/95................................................... 9.87 0.68 0.78
Year ended 6/30/94................................................... 11.33 0.80 (1.35)
Year ended 6/30/93................................................... 10.52 0.84 0.84
Year ended 6/30/92................................................... 9.87 0.91 0.64
Period ended 6/30/91(6).............................................. 10.00 0.81 (0.13)
CLASS S SHARES
Year ended 6/30/97...................................................
Year ended 6/30/96................................................... 10.52 0.68 (0.36)
Year ended 6/30/95................................................... 9.87 0.61 0.78
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
DIVIDENDS
TOTAL FROM NET
INVESTMENT INVESTMENT
FUND OPERATIONS INCOME
- -----------------------------------------------------------------------
<S> <C> <C>
GLOBAL MONEY FUND
CLASS A SHARES
Year ended 6/30/97...................................................
Year ended 6/30/96................................................... $0.051 $ (0.051)
Year ended 6/30/95................................................... 0.049 (0.049)
Year ended 6/30/94................................................... 0.030 (0.030)
Year ended 6/30/93................................................... 0.031 (0.031)
Year ended 6/30/92................................................... 0.048 (0.048)
Year ended 6/30/91................................................... 0.073 (0.073)
Period ended 6/30/90(1).............................................. 0.074 (0.074)
CLASS S SHARES
Year ended 6/30/97...................................................
Year ended 6/30/96................................................... 0.043 (0.043)
Year ended 6/30/95................................................... 0.042 (0.042)
U.S. GOVERNMENT MONEY FUND
CLASS A SHARES
Year ended 6/30/97...................................................
Year ended 6/30/96................................................... 0.047 (0.047)
Year ended 6/30/95................................................... 0.046 (0.046)
Year ended 6/30/94................................................... 0.027 (0.027)
Year ended 6/30/93................................................... 0.027 (0.027)
Year ended 6/30/92................................................... 0.044 (0.042)
Year ended 6/30/91................................................... 0.065 (0.065)
Period ended 6/30/90(2).............................................. 0.073 (0.073)
CLASS S SHARES
Year ended 6/30/97...................................................
Year ended 6/30/96................................................... 0.040 (0.040)
Year ended 6/30/95................................................... 0.038 (0.038)
CALIFORNIA MONEY FUND
CLASS A SHARES
Year ended 6/30/97...................................................
Year ended 6/30/96................................................... 0.029 (0.029)
Year ended 6/30/95................................................... 0.028 (0.028)
Year ended 6/30/94................................................... 0.018 (0.018)
Year ended 6/30/93................................................... 0.021 (0.021)
Year ended 6/30/92................................................... 0.033 (0.033)
Year ended 6/30/91................................................... 0.044 (0.044)
Period ended 6/30/90(2).............................................. 0.046 (0.046)
CLASS S SHARES
Year ended 6/30/97...................................................
Year ended 6/30/96................................................... 0.022 (0.022)
Year ended 6/30/95................................................... 0.020 (0.020)
SHORT TERM HIGH QUALITY BOND FUND
CLASS A SHARES
Year ended 6/30/97...................................................
Year ended 6/30/96(17)............................................... 0.12 (0.15)
Year ended 6/30/95................................................... 0.10 (0.08)
Period ended 6/30/94(3).............................................. (0.02) (0.09)
CLASS S SHARES
Year ended 6/30/97...................................................
Year ended 6/30/96(17)............................................... 0.10 (0.13)
Year ended 6/30/95................................................... 0.08 (0.06)
SHORT TERM GLOBAL GOVERNMENT FUND
CLASS A SHARES
Year ended 6/30/97...................................................
Year ended 6/30/96(17)............................................... 0.22 (0.16)
Year ended 6/30/95................................................... 0.05 (0.02)
Year ended 6/30/94................................................... 0.03 (0.13)
Year ended 6/30/93................................................... 0.15 (0.20)
Period ended 6/30/92(4).............................................. 0.14 (0.08)
CLASS S SHARES
Year ended 6/30/97...................................................
Year ended 6/30/96(17)............................................... 0.20 (0.14)
Year ended 6/30/95................................................... 0.03 (0.00)(14)
U. S. GOVERNMENT FUND
CLASS A SHARES
Year ended 6/30/97...................................................
Year ended 6/30/96................................................... 0.41 (0.67)
Year ended 6/30/95................................................... 0.92 (0.70)
Year ended 6/30/94................................................... (0.46) (0.64)
Year ended 6/30/93................................................... 0.90 (0.74)
Year ended 6/30/92................................................... 1.33 (0.84)
Year ended 6/30/91................................................... 0.97 (0.85)
Period ended 6/30/90(5).............................................. 0.67 (0.74)
CLASS S SHARES
Year ended 6/30/97...................................................
Year ended 6/30/96................................................... 0.34 (0.60)
Year ended 6/30/95................................................... 0.85 (0.63)
CORPORATE INCOME FUND
CLASS A SHARES
Year ended 6/30/97...................................................
Year ended 6/30/96................................................... 0.40 (0.76)
Year ended 6/30/95................................................... 1.46 (0.68)
Year ended 6/30/94................................................... (0.55) (0.78)
Year ended 6/30/93................................................... 1.68 (0.84)
Year ended 6/30/92................................................... 1.55 (0.90)
Period ended 6/30/91(6).............................................. 0.68 (0.81)
CLASS S SHARES
Year ended 6/30/97...................................................
Year ended 6/30/96................................................... 0.32 (0.68)
Year ended 6/30/95................................................... 1.39 (0.61)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-9-
<PAGE> 87
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 Sierra Shareholder Services ("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 OF TOTAL
INCOME GAINS GAINS CAPITAL DISTRIBUTIONS 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> 88
<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 6/30/97...............
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 6/30/97...............
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 6/30/97...............
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 6/30/97...............
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 6/30/97...............
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 6/30/97...............
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 6/30/97...............
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 6/30/97...............
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 6/30/97...............
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 6/30/97...............
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 6/30/97...............
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 6/30/97...............
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 6/30/97...............
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 6/30/97...............
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>
RATIO OF OPERATIONS
EXPENSES TO
AVERAGE NET ASSETS
WITHOUT
FEE WAIVER,
EXPENSES ABSORBED
AND/OR
FEES REDUCED
BY CREDITS
ALLOWED BY THE
CUSTODIAN(13)(21)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
GLOBAL MONEY FUND
CLASS A SHARES
Year ended 6/30/97...............
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 6/30/97...............
Year ended 6/30/96............... 1.90
Year ended 6/30/95............... 1.93
U.S. GOVERNMENT MONEY FUND
CLASS A SHARES
Year ended 6/30/97...............
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 6/30/97...............
Year ended 6/30/96............... 1.97
Year ended 6/30/95............... 2.00
CALIFORNIA MONEY FUND
CLASS A SHARES
Year ended 6/30/97...............
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 6/30/97...............
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 6/30/97...............
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 6/30/97...............
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 6/30/97...............
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 6/30/97...............
Year ended 6/30/96(17)........... 2.22
Year ended 6/30/95............... 2.19
U. S. GOVERNMENT FUND
CLASS A SHARES
Year ended 6/30/97...............
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 6/30/97...............
Year ended 6/30/96............... 2.20
Year ended 6/30/95............... 2.34
CORPORATE INCOME FUND
CLASS A SHARES
Year ended 6/30/97...............
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 6/30/97...............
Year ended 6/30/96............... 2.13
Year ended 6/30/95............... 2.15
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-11-
<PAGE> 89
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET ASSET
VALUE AT NET
BEGINNING INVESTMENT
FUND OF PERIOD INCOME/(LOSS)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CALIFORNIA MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/97..................................................................
Year ended 6/30/96 (17)............................................................. $ 10.53 $ 0.60
Year ended 6/30/95.................................................................. 10.38 0.61
Year ended 6/30/94.................................................................. 11.22 0.61
Year ended 6/30/93.................................................................. 10.45 0.62
Year ended 6/30/92.................................................................. 10.07 0.65
Year ended 6/30/91.................................................................. 10.01 0.63
Period ended 6/30/90 (5)............................................................ 10.00 0.57
CLASS S SHARES
Year ended 6/30/97..................................................................
Year ended 6/30/96 (17)............................................................. 10.53 0.51
Year ended 6/30/95.................................................................. 10.38 0.53
FLORIDA INSURED MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/97..................................................................
Year ended 6/30/96.................................................................. 9.43 0.50
Year ended 6/30/95.................................................................. 9.40 0.52
Year ended 6/30/94.................................................................. 10.05 0.52
Period ended 6/30/93 (7)............................................................ 10.00 0.00(14)
CLASS S SHARES
Year ended 6/30/97..................................................................
Year ended 6/30/96.................................................................. 9.43 0.42
Year ended 6/30/95.................................................................. 9.40 0.45
CALIFORNIA INSURED INTERMEDIATE MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/97..................................................................
Year ended 6/30/96.................................................................. 10.45 0.49
Year ended 6/30/95.................................................................. 10.10 0.50
Period ended 6/30/94 (8)............................................................ 10.00 0.11
CLASS S SHARES
Year ended 6/30/97..................................................................
Year ended 6/30/96.................................................................. 10.45 0.41
Year ended 6/30/95.................................................................. 10.10 0.43
NATIONAL MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/97..................................................................
Year ended 6/30/96.................................................................. 10.76 0.61
Year ended 6/30/95.................................................................. 10.85 0.64
Year ended 6/30/94.................................................................. 11.65 0.65
Year ended 6/30/93.................................................................. 10.96 0.67
Year ended 6/30/92.................................................................. 10.16 0.72
Period ended 6/30/91 (6)............................................................ 10.00 0.64
CLASS S SHARES
Year ended 6/30/97..................................................................
Year ended 6/30/96.................................................................. 10.76 0.53
Year ended 6/30/95.................................................................. 10.85 0.56
GROWTH AND INCOME FUND
CLASS A SHARES
Year ended 6/30/97..................................................................
Year ended 6/30/96 (17)............................................................. 12.58 0.08
Year ended 6/30/95.................................................................. 11.30 0.13
Year ended 6/30/94.................................................................. 12.09 0.12
Year ended 6/30/93.................................................................. 11.25 0.12
Year ended 6/30/92.................................................................. 10.51 0.17
Year ended 6/30/91.................................................................. 10.12 0.23
Period ended 6/30/90 (5)............................................................ 10.00 0.24
CLASS S SHARES
Year ended 6/30/97..................................................................
Year ended 6/30/96 (17)............................................................. 12.55 (0.02)
Year ended 6/30/95.................................................................. 11.30 0.05
GROWTH FUND
CLASS A SHARES
Year ended 6/30/97..................................................................
Year ended 6/30/96 (17)............................................................. 14.18 (0.07)
Year ended 6/30/95 (17)............................................................. 10.73 0.05
Year ended 6/30/94.................................................................. 10.72 (0.02)
Period ended 6/30/93 (9)............................................................ 10.00 0.00(14)
CLASS S SHARES
Year ended 6/30/97..................................................................
Year ended 6/30/96 (17)............................................................. 14.11 (0.19)
Year ended 6/30/95 (17)............................................................. 10.73 (0.04)
EMERGING GROWTH FUND
CLASS A SHARES
Year ended 6/30/97..................................................................
Year ended 6/30/96 (17)............................................................. 15.47 (0.19)
Year ended 6/30/95 (17)............................................................. 13.02 (0.00)(14)
Year ended 6/30/94.................................................................. 13.76 (0.09)
Year ended 6/30/93.................................................................. 11.67 (0.02)
Year ended 6/30/92 (17)............................................................. 9.62 (0.01)
Period ended 6/30/91 (6)............................................................ 10.00 0.09
CLASS S SHARES
Year ended 6/30/97..................................................................
Year ended 6/30/96 (17)............................................................. 15.37 (0.32)
Year ended 6/30/95 (17)............................................................. 13.02 (0.10)
INTERNATIONAL GROWTH FUND
CLASS A SHARES
Year ended 6/30/97..................................................................
Year ended 6/30/96 (17)............................................................. 9.78 0.05
Year ended 6/30/95 (17)............................................................. 10.74 (0.11)(20)
Year ended 6/30/94.................................................................. 9.80 0.06
Year ended 6/30/93.................................................................. 8.82 0.07
Year ended 6/30/92.................................................................. 8.27 0.05
Period ended 6/30/91 (6)............................................................ 10.00 0.02
CLASS S SHARES
Year ended 6/30/97..................................................................
Year ended 6/30/96 (17)............................................................. 9.73 (0.03)
Year ended 6/30/95 (17)............................................................. 10.74 (0.17)(20)
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
NET REALIZED &
UNREALIZED TOTAL FROM
GAIN/(LOSS) ON INVESTMENT
FUND INVESTMENTS OPERATIONS
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CALIFORNIA MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/97..................................................................
Year ended 6/30/96 (17)............................................................. $ 0.07 $ 0.67
Year ended 6/30/95.................................................................. 0.15 0.76
Year ended 6/30/94.................................................................. (0.82) (0.21)
Year ended 6/30/93.................................................................. 0.77 1.39
Year ended 6/30/92.................................................................. 0.38 1.03
Year ended 6/30/91.................................................................. 0.06 0.69
Period ended 6/30/90 (5)............................................................ 0.01 0.58
CLASS S SHARES
Year ended 6/30/97..................................................................
Year ended 6/30/96 (17)............................................................. 0.07 0.58
Year ended 6/30/95.................................................................. 0.15 0.68
FLORIDA INSURED MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/97..................................................................
Year ended 6/30/96.................................................................. 0.21 0.71
Year ended 6/30/95.................................................................. 0.03(15) 0.55
Year ended 6/30/94.................................................................. (0.65) (0.13)
Period ended 6/30/93 (7)............................................................ 0.05 0.05
CLASS S SHARES
Year ended 6/30/97..................................................................
Year ended 6/30/96.................................................................. 0.21 0.63
Year ended 6/30/95.................................................................. 0.03(15) 0.48
CALIFORNIA INSURED INTERMEDIATE MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/97..................................................................
Year ended 6/30/96.................................................................. 0.15 0.64
Year ended 6/30/95.................................................................. 0.35 0.85
Period ended 6/30/94 (8)............................................................ 0.11(15) 0.22
CLASS S SHARES
Year ended 6/30/97..................................................................
Year ended 6/30/96.................................................................. 0.15 0.56
Year ended 6/30/95.................................................................. 0.35 0.78
NATIONAL MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/97..................................................................
Year ended 6/30/96.................................................................. 0.07 0.68
Year ended 6/30/95.................................................................. 0.01(15) 0.65
Year ended 6/30/94.................................................................. (0.73) (0.08)
Year ended 6/30/93.................................................................. 0.75 1.42
Year ended 6/30/92.................................................................. 0.79 1.51
Period ended 6/30/91 (6)............................................................ 0.16 0.80
CLASS S SHARES
Year ended 6/30/97..................................................................
Year ended 6/30/96.................................................................. 0.07 0.60
Year ended 6/30/95.................................................................. 0.01(15) 0.57
GROWTH AND INCOME FUND
CLASS A SHARES
Year ended 6/30/97..................................................................
Year ended 6/30/96 (17)............................................................. 2.51 2.59
Year ended 6/30/95.................................................................. 2.04 2.17
Year ended 6/30/94.................................................................. 0.72 0.84
Year ended 6/30/93.................................................................. 0.91 1.03
Year ended 6/30/92.................................................................. 0.74 0.91
Year ended 6/30/91.................................................................. 0.43 0.66
Period ended 6/30/90 (5)............................................................ 0.07 0.31
CLASS S SHARES
Year ended 6/30/97..................................................................
Year ended 6/30/96 (17)............................................................. 2.51 2.49
Year ended 6/30/95.................................................................. 2.04 2.09
GROWTH FUND
CLASS A SHARES
Year ended 6/30/97..................................................................
Year ended 6/30/96 (17)............................................................. 3.47 3.40
Year ended 6/30/95 (17)............................................................. 3.42 3.47
Year ended 6/30/94.................................................................. 0.03(15) 0.01
Period ended 6/30/93 (9)............................................................ 0.72 0.72
CLASS S SHARES
Year ended 6/30/97..................................................................
Year ended 6/30/96 (17)............................................................. 3.44 3.25
Year ended 6/30/95 (17)............................................................. 3.42 3.38
EMERGING GROWTH FUND
CLASS A SHARES
Year ended 6/30/97..................................................................
Year ended 6/30/96 (17)............................................................. 5.65 5.46
Year ended 6/30/95 (17)............................................................. 2.77 2.77
Year ended 6/30/94.................................................................. 0.68 0.59
Year ended 6/30/93.................................................................. 2.31 2.29
Year ended 6/30/92 (17)............................................................. 2.16 2.15
Period ended 6/30/91 (6)............................................................ (0.40) (0.31)
CLASS S SHARES
Year ended 6/30/97..................................................................
Year ended 6/30/96 (17)............................................................. 5.59 5.27
Year ended 6/30/95 (17)............................................................. 2.77 2.67
INTERNATIONAL GROWTH FUND
CLASS A SHARES
Year ended 6/30/97..................................................................
Year ended 6/30/96 (17)............................................................. 1.21 1.26
Year ended 6/30/95 (17)............................................................. (0.31) (0.42)
Year ended 6/30/94.................................................................. 1.15 1.21
Year ended 6/30/93.................................................................. 0.94 1.01
Year ended 6/30/92.................................................................. 0.55 0.60
Period ended 6/30/91 (6)............................................................ (1.75) (1.73)
CLASS S SHARES
Year ended 6/30/97..................................................................
Year ended 6/30/96 (17)............................................................. 1.20 1.17
Year ended 6/30/95 (17)............................................................. (0.31) (0.48)
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
DIVIDENDS
FROM
NET
INVESTMENT
FUND INCOME
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
CALIFORNIA MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/97..................................................................
Year ended 6/30/96 (17)............................................................. $(0.60)
Year ended 6/30/95.................................................................. (0.61)
Year ended 6/30/94.................................................................. (0.61)
Year ended 6/30/93.................................................................. (0.62)
Year ended 6/30/92.................................................................. (0.65)
Year ended 6/30/91.................................................................. (0.63)
Period ended 6/30/90 (5)............................................................ (0.57)
CLASS S SHARES
Year ended 6/30/97..................................................................
Year ended 6/30/96 (17)............................................................. (0.51)
Year ended 6/30/95.................................................................. (0.53)
FLORIDA INSURED MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/97..................................................................
Year ended 6/30/96.................................................................. (0.50)
Year ended 6/30/95.................................................................. (0.52)
Year ended 6/30/94.................................................................. (0.52)
Period ended 6/30/93 (7)............................................................ -
CLASS S SHARES
Year ended 6/30/97..................................................................
Year ended 6/30/96.................................................................. (0.42)
Year ended 6/30/95.................................................................. (0.45)
CALIFORNIA INSURED INTERMEDIATE MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/97..................................................................
Year ended 6/30/96.................................................................. (0.49)
Year ended 6/30/95.................................................................. (0.50)
Period ended 6/30/94 (8)............................................................ (0.11)
CLASS S SHARES
Year ended 6/30/97..................................................................
Year ended 6/30/96.................................................................. (0.41)
Year ended 6/30/95.................................................................. (0.43)
NATIONAL MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/97..................................................................
Year ended 6/30/96.................................................................. (0.61)
Year ended 6/30/95.................................................................. (0.64)
Year ended 6/30/94.................................................................. (0.65)
Year ended 6/30/93.................................................................. (0.67)
Year ended 6/30/92.................................................................. (0.71)
Period ended 6/30/91 (6)............................................................ (0.64)
CLASS S SHARES
Year ended 6/30/97..................................................................
Year ended 6/30/96.................................................................. (0.53)
Year ended 6/30/95.................................................................. (0.56)
GROWTH AND INCOME FUND
CLASS A SHARES
Year ended 6/30/97..................................................................
Year ended 6/30/96 (17)............................................................. (0.08)
Year ended 6/30/95.................................................................. (0.12)
Year ended 6/30/94.................................................................. (0.12)
Year ended 6/30/93.................................................................. (0.12)
Year ended 6/30/92.................................................................. (0.17)
Year ended 6/30/91.................................................................. (0.27)
Period ended 6/30/90 (5)............................................................ (0.19)
CLASS S SHARES
Year ended 6/30/97..................................................................
Year ended 6/30/96 (17)............................................................. (0.01)
Year ended 6/30/95.................................................................. (0.07)
GROWTH FUND
CLASS A SHARES
Year ended 6/30/97..................................................................
Year ended 6/30/96 (17)............................................................. -
Year ended 6/30/95 (17)............................................................. (0.02)
Year ended 6/30/94.................................................................. -
Period ended 6/30/93 (9)............................................................ -
CLASS S SHARES
Year ended 6/30/97..................................................................
Year ended 6/30/96 (17)............................................................. -
Year ended 6/30/95 (17)............................................................. (0.00)(14)
EMERGING GROWTH FUND
CLASS A SHARES
Year ended 6/30/97..................................................................
Year ended 6/30/96 (17)............................................................. -
Year ended 6/30/95 (17)............................................................. -
Year ended 6/30/94.................................................................. -
Year ended 6/30/93.................................................................. -
Year ended 6/30/92 (17)............................................................. (0.01)
Period ended 6/30/91 (6)............................................................ (0.07)
CLASS S SHARES
Year ended 6/30/97..................................................................
Year ended 6/30/96 (17)............................................................. -
Year ended 6/30/95 (17)............................................................. -
INTERNATIONAL GROWTH FUND
CLASS A SHARES
Year ended 6/30/97..................................................................
Year ended 6/30/96 (17)............................................................. (0.05)
Year ended 6/30/95 (17)............................................................. (0.04)
Year ended 6/30/94.................................................................. (0.02)
Year ended 6/30/93.................................................................. (0.03)
Year ended 6/30/92.................................................................. (0.05)
Period ended 6/30/91 (6)............................................................ -
CLASS S SHARES
Year ended 6/30/97..................................................................
Year ended 6/30/96 (17)............................................................. (0.02)
Year ended 6/30/95 (17)............................................................. (0.03)
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
-12-
<PAGE> 90
<TABLE>
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- -------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
IN EXCESS DISTRIBUTIONS
OF NET FROM NET
INVESTMENT REALIZED
FUND INCOME GAINS
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CALIFORNIA MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/97............................................................
Year ended 6/30/96(17)........................................................ $ - $ -
Year ended 6/30/95............................................................ - (0.00)(14)
Year ended 6/30/94............................................................ (0.00)(14) -
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 6/30/97............................................................
Year ended 6/30/96(17)........................................................ - -
Year ended 6/30/95............................................................ - (0.00)(14)
FLORIDA INSURED MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/97............................................................
Year ended 6/30/96............................................................ - -
Year ended 6/30/95............................................................ - -
Year ended 6/30/94............................................................ (0.00)(14) -
Period ended 6/30/93(7)....................................................... - -
CLASS S SHARES
Year ended 6/30/97............................................................
Year ended 6/30/96............................................................ - -
Year ended 6/30/95............................................................ - -
CALIFORNIA INSURED INTERMEDIATE MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/97............................................................
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 6/30/97............................................................
Year ended 6/30/96............................................................ - (0.04)
Year ended 6/30/95............................................................ - -
NATIONAL MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/97............................................................
Year ended 6/30/96............................................................ - -
Year ended 6/30/95............................................................ - (0.01)
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 6/30/97............................................................
Year ended 6/30/96............................................................ - -
Year ended 6/30/95............................................................ - (0.01)
GROWTH AND INCOME FUND
CLASS A SHARES
Year ended 6/30/97............................................................
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 6/30/97............................................................
Year ended 6/30/96(17)........................................................ - (0.99)
Year ended 6/30/95............................................................ - (0.77)
GROWTH FUND
CLASS A SHARES
Year ended 6/30/97............................................................
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 6/30/97............................................................
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 6/30/97............................................................
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)
Period ended 6/30/91(6)....................................................... - -
CLASS S SHARES
Year ended 6/30/97............................................................
Year ended 6/30/96(17)........................................................ - (0.76)
Year ended 6/30/95(17)........................................................ - (0.32)
INTERNATIONAL GROWTH FUND
CLASS A SHARES
Year ended 6/30/97............................................................
Year ended 6/30/96(17)........................................................ (0.04) (0.46)
Year ended 6/30/95(17)........................................................ - (0.44)
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 6/30/97............................................................
Year ended 6/30/96(17)........................................................ (0.04) (0.46)
Year ended 6/30/95(17)........................................................ - (0.44)
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
DISTRIBUTIONS
IN EXCESS DISTRIBUTIONS
OF NET FROM NET
REALIZED CAPITAL
FUND GAINS GAINS
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CALIFORNIA MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/97............................................................
Year ended 6/30/96(17)........................................................ $ - $ -
Year ended 6/30/95............................................................ - -
Year ended 6/30/94............................................................ (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 6/30/97............................................................
Year ended 6/30/96(17)........................................................ - -
Year ended 6/30/95............................................................ - -
FLORIDA INSURED MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/97............................................................
Year ended 6/30/96............................................................ - -
Year ended 6/30/95............................................................ - -
Year ended 6/30/94............................................................ (0.00)(14) -
Period ended 6/30/93(7)....................................................... - -
CLASS S SHARES
Year ended 6/30/97............................................................
Year ended 6/30/96............................................................ - -
Year ended 6/30/95............................................................ - -
CALIFORNIA INSURED INTERMEDIATE MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/97............................................................
Year ended 6/30/96............................................................ - -
Year ended 6/30/95............................................................ - -
Period ended 6/30/94(8)....................................................... - -
CLASS S SHARES
Year ended 6/30/97............................................................
Year ended 6/30/96............................................................ - -
Year ended 6/30/95............................................................ - -
NATIONAL MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/97............................................................
Year ended 6/30/96............................................................ - -
Year ended 6/30/95............................................................ (0.09) -
Year ended 6/30/94............................................................ - -
Year ended 6/30/93............................................................ - -
Year ended 6/30/92............................................................ - -
Period ended 6/30/91(6)....................................................... - -
CLASS S SHARES
Year ended 6/30/97............................................................
Year ended 6/30/96............................................................ - -
Year ended 6/30/95............................................................ (0.09) -
GROWTH AND INCOME FUND
CLASS A SHARES
Year ended 6/30/97............................................................
Year ended 6/30/96(17)........................................................ - -
Year ended 6/30/95............................................................ - -
Year ended 6/30/94............................................................ - -
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 6/30/97............................................................
Year ended 6/30/96(17)........................................................ - -
Year ended 6/30/95............................................................ - -
GROWTH FUND
CLASS A SHARES
Year ended 6/30/97............................................................
Year ended 6/30/96(17)........................................................ - -
Year ended 6/30/95(17)........................................................ - -
Year ended 6/30/94............................................................ - -
Period ended 6/30/93(9)....................................................... - -
CLASS S SHARES
Year ended 6/30/97............................................................
Year ended 6/30/96(17)........................................................ - -
Year ended 6/30/95(17)........................................................ - -
EMERGING GROWTH FUND
CLASS A SHARES
Year ended 6/30/97............................................................
Year ended 6/30/96(17)........................................................ - -
Year ended 6/30/95(17)........................................................ - -
Year ended 6/30/94............................................................ - -
Year ended 6/30/93............................................................ - -
Year ended 6/30/92(17)........................................................ - (0.01)(16)
Period ended 6/30/91(6)....................................................... - -
CLASS S SHARES
Year ended 6/30/97............................................................
Year ended 6/30/96(17)........................................................ - -
Year ended 6/30/95(17)........................................................ - -
INTERNATIONAL GROWTH FUND
CLASS A SHARES
Year ended 6/30/97............................................................
Year ended 6/30/96(17)........................................................ - -
Year ended 6/30/95(17)........................................................ (0.06) -
Year ended 6/30/94............................................................ - -
Year ended 6/30/93............................................................ - -
Year ended 6/30/92............................................................ - -
Period ended 6/30/91(6)....................................................... - -
CLASS S SHARES
Year ended 6/30/97............................................................
Year ended 6/30/96(17)........................................................ - -
Year ended 6/30/95(17)........................................................ (0.06) -
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
NET ASSET
VALUE AT
TOTAL END
FUND DISTRIBUTIONS OF PERIOD
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CALIFORNIA MUNICIPAL FUND
CLASS A SHARES
Year ended 6/30/97............................................................
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 6/30/97............................................................
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 6/30/97............................................................
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 6/30/97............................................................
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 6/30/97............................................................
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 6/30/97............................................................
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 6/30/97............................................................
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 6/30/97............................................................
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 6/30/97............................................................
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 6/30/97............................................................
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 6/30/97............................................................
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 6/30/97............................................................
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 6/30/97............................................................
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 6/30/97............................................................
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 6/30/97............................................................
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 6/30/97............................................................
Year ended 6/30/96(17)........................................................ (0.52) 10.38
Year ended 6/30/95(17)........................................................ (0.53) 9.73
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
-13-
<PAGE> 91
<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>
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<PAGE> 92
(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. Since the Money Funds often purchase securities
supported by the credit enhancements from banks and other financial
institutions, changes in credit quality of these institutions could cause losses
to the Money Funds and affect share price. A description of the rating systems
of S&P and Moody's is contained in the SAI.
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<PAGE> 93
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. 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."
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<PAGE> 94
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-
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<PAGE> 95
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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<PAGE> 96
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 Principal of BlackRock since
1996.
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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<PAGE> 97
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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<PAGE> 98
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 January 1997, Thomas M. Byron, a Vice President of Van Kampen, has had
primary responsibility for the day-to-day management of the Fund's portfolio.
Mr. Byron has been at Van Kampen for over 15 years. Prior to taking over
responsibility for managing the Fund, Mr. Byron was Head Buyer and Manager of
Van Kampen's Unit Investment Trust desk.
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, William M. Riegel and Henry D. Cavanna,
Managing Directors of J.P. Morgan, have had primary management responsibility
for the Fund since September 1993. Mr. Riegel, who joined J.P. Morgan in 1979,
is a senior equity portfolio manager in its Equity and Balanced Accounts Group.
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Mr. Cavanna, who joined J.P. Morgan in 1971, is a senior 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 and the Portfolio Manager of the Janus Enterprise
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 or Baa or better by
Moody's or of comparable quality in the opinion of the Fund's Sub-Advisor,
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 31 years of
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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, Managing Director, 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, Managing Director, has 14 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. Vincent J. McBride, Vice President, has 10 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.
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"), Global Depositary
Receipts ("GDRs") 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, which are sometimes referred to as Continental
Depositary Receipts ("CDRs"), 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 may attempt 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, or other liquid assets 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 or other liquid assets 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 tender them back to the issuer or remarketing agent at
par value prior to maturity. Frequently, floating rate,
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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.
NON-DIVERSIFIED STATUS. Each of the California Money, Short Term Global
Government, California Municipal, Florida Insured Municipal and California
Insured Intermediate Municipal Funds is classified as a "non-diversified"
investment company under the 1940 Act, which means that the Fund is not limited
by the 1940 Act in the proportion of its assets that may be invested in the
obligations of a single issuer. Each of these Funds must, however, meet certain
diversification standards to qualify as a regulated investment company under the
Code. See the section "Taxes" in the SAI. Each of these Funds may assume large
positions in the obligations of a small number of issuers which may subject the
Fund to greater credit and other risks than a more broadly diversified
portfolio.
OPTIONS ON SECURITIES.
Option Purchase. All of the Funds except the Municipal Funds and the Money Funds
may purchase put and call options on portfolio securities in which it may invest
that are traded on a U.S. or foreign securities exchange or in the
over-the-counter market. A Fund may utilize up to 10% of its assets to purchase
put options on portfolio securities and may do so at or about the same time that
it purchases the underlying security or at a later time. By buying a put, a Fund
limits its risk of loss from a decline in the market value of the security until
the put expires. Any appreciation in the value of the underlying security,
however, will be partially offset by the amount of the premium paid for the put
option and any related transaction costs. A Fund may also utilize up to 10% of
its assets to purchase call options on securities in which it is authorized to
invest. Call options may be purchased by a Fund in order to acquire the
underlying securities for the Fund at a price that avoids any additional cost
that would result from a substantial increase in the market value of a security.
A Fund may also purchase call options to increase its return to investors at a
time when the call is expected to increase in value due to anticipated
appreciation of the underlying security. Prior to their expirations, put and
call options may be sold in closing sale transactions (sales by the Fund, prior
to the exercise of options that it has purchased, of options of the same
series), and profit or loss from
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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, or other liquid assets
having a value at least equal to the exercise price of the underlying securities
or (2) continue to own an equivalent number of puts on the same "series" (that
is, puts on the same underlying security having the same exercise prices and
expiration dates as those written by the Fund), or an equivalent number of puts
on the same "class" (that is, puts on the same underlying security) with
exercise prices greater than those that it has written (or, if the exercise
prices of the puts it holds are less than the exercise prices of those it has
written, it will deposit the difference with the custodian in a segregated
account).
The principal reason for writing covered call and put options on a securities
portfolio is to attempt to realize, through the receipt of premiums, a greater
return than would be realized on the securities alone. In return for a premium,
the writer of a covered call option forfeits the right to any appreciation in
the value of the underlying security above the strike price for the life of the
option (or until a closing purchase transaction can be effected). Nevertheless,
the call writer retains the risk of a decline in the price of the underlying
security. Similarly, the principal reason for writing covered put options is to
realize income in the form of premiums. The writer of the covered put option
accepts the risk of a decline in the price of the underlying security. The size
of the premiums that the Funds may receive may be adversely affected as new or
existing institutions, including other investment companies, engage in or
increase their option-writing activities.
A Fund may engage in closing purchase transactions to realize a profit, to
prevent an underlying security from being called or put or, in the case of a
call option, to unfreeze an underlying security (thereby permitting its sale or
the writing of a new option on the security prior to the outstanding option's
expiration). To effect a closing purchase transaction, a Fund would purchase,
prior to the holder's exercise of an option that the Fund has written, an option
of the same series as that on which the Fund desires to terminate its
obligation. The obligation of the Fund under an option that it has written would
be terminated by a closing purchase transaction, but the Fund would not be
deemed to own an option as the result of the transaction. There can be no
assurance that the Fund will be able to effect closing purchase transactions at
a time when it wishes to do so. The ability of the Fund to engage in closing
transactions with respect to options depends on the existence of a liquid
secondary market. While the Fund will generally purchase or write options only
if there appears to be a liquid secondary market for the options purchased or
sold, for some options no such secondary market may exist or the market may
cease to exist. To facilitate closing purchase transactions, however, the Fund
will ordinarily write options only if a secondary market for the options exists
on a U.S. securities exchange or in the over-the-counter market.
Option writing for the Funds may be limited by position and exercise limits
established by U.S. securities exchanges and the NASD and by requirements of the
Code for qualification as a regulated investment company. In addition to writing
covered put and call options to generate current income, the Funds may enter
into options transactions as hedges to reduce investment risk, generally by
making an investment expected to move in the opposite direction of a portfolio
position. A hedge is designed to offset a loss on a portfolio position with a
gain on the hedge position; at the same time, however, a properly correlated
hedge will result in a gain on the portfolio position's being offset by a loss
on the hedge position. The Funds bear the risk that the prices of the securities
being hedged will not move in the same amount as the hedge. A Fund will engage
in hedging transactions only when deemed advisable by its Sub-Advisor.
Successful use by the Fund of options will depend on its Sub-Advisor's ability
to correctly predict
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movements in the direction of the stock underlying the option used as a hedge.
Losses incurred in hedging transactions and the costs of these transactions will
adversely affect the Fund's performance.
OPTIONS ON FOREIGN CURRENCIES. All of the Funds except the U.S. Government Fund,
the Municipal Funds and the Money Funds may purchase and write put and call
options on foreign currencies for the purpose of hedging against declines in
U.S. Dollar value on foreign currency-denominated portfolio securities and
against increases in the U.S. Dollar cost of such securities to be acquired. As
in the case of other kinds of options, however, the writing of an option on a
foreign currency constitutes only a partial hedge, up to the amount of the
premium received, and the Fund could be required to purchase or sell foreign
currencies at disadvantageous exchange rates, thereby incurring losses. The
purchase of an option on a foreign currency may constitute an effective hedge
against fluctuations in exchange rates, although, in the event of rate movements
adverse to the Fund's position, it may forfeit the entire amount of the premium
plus related transaction costs. There is no specific percentage limitation on
the Fund's investments in options on foreign currencies. See the SAI for further
discussion of the use, risks and costs of options on foreign currencies.
OPTIONS ON FOREIGN STOCK INDEXES. The International Growth, Growth, Growth and
Income, Emerging Growth, Short Term High Quality Bond, Short Term Global
Government and California Insured Intermediate Municipal Funds may, subject to
applicable securities regulations, purchase and write put and call options on
foreign stock indexes listed on foreign and domestic stock exchanges for the
purposes of hedging its portfolio. A stock index fluctuates with changes in the
market values of the stocks included in the index. Examples of foreign stock
indexes are the Canadian Market Portfolio Index (Montreal Stock Exchange), The
Financial Times - Stock Exchange 100 (London Stock Exchange) and the Toronto
Stock Exchange Composite 300 (Toronto Stock Exchange).
Options on stock indexes are generally similar to options on stock except for
different delivery requirements. Instead of giving the right to take or make
delivery of stock at a specified price, an option on a stock index gives the
holder the right to receive a cash "exercise settlement amount" equal to (a) the
amount, if any, by which the fixed exercise price of the option exceeds (in the
case of a put) or is less than (in the case of a call) the closing value of the
underlying index on the date of exercise, multiplied by (b) a fixed "index
multiplier." Receipt of this cash amount will depend upon the closing level of
the stock index upon which the option is based being greater than, in the case
of a call, or less than, in the case of a put, the exercise price of the option.
The amount of cash received will be equal to such difference between the closing
price of the index and the exercise price of the option expressed in U.S.
Dollars or a foreign currency, as the case may be, times a specified multiple.
The writer of the option is obligated, in return for the premium received, to
make delivery of this amount. The writer may offset its position in stock index
options prior to expiration by entering into a closing transaction on an
exchange or the option may expire unexercised.
The effectiveness of purchasing or writing stock index options as a hedging
technique will depend upon the extent to which price movements in the portion of
the securities portfolio of the Fund correlate with price movements of the stock
index selected. Because the value of an index option depends upon movements in
the level of the index rather than the price of a particular stock, whether the
Fund will realize a gain or loss from the purchase or writing of options on an
index depends upon movements in the level of stock prices in the stock market
generally or, in the case of certain indexes, in an industry or market segment,
rather than movements in the price of a particular stock. Accordingly,
successful use of options on stock indexes by the Fund will be subject to its
Sub-Advisor's ability to predict correctly movements in the direction of the
stock market generally or of a particular industry. This requires different
skills and techniques than predicting changes in the price of individual stocks.
Options on securities indexes entail risks in addition to the risks of options
on securities. Because exchange trading of options on securities indexes is
relatively new, the absence of a liquid secondary market to close out an option
position is more likely to occur, although the Fund generally will only purchase
or write such an option if the Sub-Advisor believes the option can be closed
out. Because options on securities indexes require settlement in cash, the Fund
may be forced to liquidate portfolio securities to meet settlement obligations.
The Fund will engage in stock index options transactions only when determined by
its Sub-Advisor to be consistent with its efforts to control risk. There can be
no assurance that such judgment will be accurate or that the use of these
portfolio strategies will be successful.
When the Fund writes an option on a stock index, it will establish a segregated
account with the Trust's custodian or with a foreign sub-custodian in which the
Fund will deposit cash or other liquid assets 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
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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 cash or other
liquid assets 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
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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 or other liquid assets 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.
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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.
-40-
<PAGE> 118
TAX EQUIVALENT YIELDS
TABLE 1
<TABLE>
<CAPTION>
Combined
Federal
and
Federal California California Tax-Exempt Yield
Sample 1997 Federal Marginal Marginal Marginal ----------------------------------------
Taxable Income Brackets Tax Rate+ Tax Rate* Tax Rate** 2.00% 2.50% 3.00% 3.50% 4.00%
---------------------------------------- --------- --------- ---------- ----------------------------------------
Single Return Joint Return Taxable Yield
------------------ ------------------ ----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$0-$24,650 $0-$41,200 15% 6.00% 20.10% 2.50% 3.13% 3.75% 4.38% 5.01%
$24,650-$59,750 $41,200-$99,600 28% 9.30% 34.70% 3.06% 3.83% 4.59% 5.36% 6.13%
$59,750-$124,650 $99,600-$151,750 31% 9.30% 37.42% 3.20% 3.99% 4.79% 5.59% 6.39%
$124,650-$271,050 $151,750-$271,050 36% 9.30% 41.95% 3.44% 4.31% 5.17% 6.03% 6.89%
$271,050 and up $271,050 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 1997 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-$24,650 $0-$41,200 15% 6.00% 20.10% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
$24,650-$59,750 $41,200-$99,600 28% 9.30% 34.70% 6.89% 7.66% 8.42% 9.19% 9.95% 10.72%
$59,750-$124,650 $99,600-$151,750 31% 9.30% 37.42% 7.19% 7.99% 8.79% 9.59% 10.39% 11.19%
$124,650-$271,050 $151,750-$271,050 36% 9.30% 41.95% 7.75% 8.61% 9.47% 10.34% 11.20% 12.06%
$271,050 and up $271,050 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 1997 Federal Federal Marginal --------------------------------------------------
Taxable Income Brackets Tax Rate+ 4.50% 5.00% 5.50% 6.00% 6.50% 7.00%
---------------------------------------- ---------------- --------------------------------------------------
Single Return Joint Return Taxable Yield
------------------ ------------------ ---------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$0-$24,650 $0-$41,200 15% 5.29% 5.88% 6.47% 7.06% 7.65% 8.24%
$24,650-$59,750 $41,200-$99,600 28% 6.25% 6.94% 7.64% 8.33% 9.03% 9.72%
$59,750-$124,650 $99,600-$151,750 31% 6.52% 7.25% 7.97% 8.70% 9.42% 10.14%
$124,650-$271,050 $151,750-$271,050 36% 7.03% 7.81% 8.59% 9.38% 10.16% 10.94%
$271,050 and up $271,050 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.
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.
-41-
<PAGE> 119
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 previous 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 previous 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.
OBTAINING PERFORMANCE INFORMATION
Each Fund's strategies, performance, and holdings are detailed twice a year in
fund reports, which are sent to all shareholders. The SAI describes the methods
used to determine a Fund's performance. Shareholders may call 800-222-5852 for
performance information. Shareholders may make inquiries regarding a Fund,
including current total return figures, to any Authorized Dealer, or by calling
Shareholder Services at 800-222-5852.
-42-
<PAGE> 120
YOUR ACCOUNT
- --------------------------------------------------------------------------------
WAYS TO SET UP YOUR ACCOUNT
- --------------------------------------------------------------------------------
INDIVIDUAL OR JOINT ACCOUNT
Individual accounts are owned by one person. Two types of joint accounts (having
two or more owners) can be opened:
(1) in a "joint tenancy" account, the surviving owner(s) automatically
receive(s) the shares of any owner(s) who die(s); and
(2) in a "tenants in common" account, the heir(s) of any deceased owner
receive(s) such owner's shares, rather than the surviving owners of the joint
account.
- --------------------------------------------------------------------------------
RETIREMENT
Retirement plans protect investment income and capital gains from current taxes.
Contributions to these accounts may be tax deductible. Retirement accounts
require special applications and typically have lower minimums.
- - INDIVIDUAL RETIREMENT ACCOUNTS ("IRAS") allow persons of legal age and under
70 1/2 years old with earned income to protect up to $2,000 per tax year from
certain tax effects. If your spouse has earned income of less than $250 per
year, you can protect an additional $250 per year in your spouse's name.
- - ROLLOVER IRAS permit persons to retain special tax advantages for certain
transfers from employer-sponsored retirement plans (often occurring when a
person changes employers).
- - SIMPLIFIED EMPLOYEE PENSION PLANS ("SEP-IRAS") provide small business owners
or those with self-employed income (and their eligible employees) with many of
the same advantages as a Keogh, but with fewer administrative requirements.
- --------------------------------------------------------------------------------
GIFTS OR TRANSFERS TO A MINOR CHILD ("UGMA," "UTMA")
These gifts or transfers provide a way to give money to a child and obtain tax
benefits. A parent or grandparent can give up to $10,000 a year to each child
without paying federal gift tax. Depending on state laws, you can set up a
custodial account under the Uniform Gifts to Minors Act (UGMA) or the Uniform
Transfers to Minors Act (UTMA).
- --------------------------------------------------------------------------------
TRUST
Trusts can be used for many purposes, including charitable contributions and
providing a regular income for a child until a certain age. The trust must be
established before an account can be opened.
- --------------------------------------------------------------------------------
CORPORATION OR OTHER ORGANIZATION
Corporations, associations, partnerships, institutions, or other groups may
invest for many purposes.
- --------------------------------------------------------------------------------
-43-
<PAGE> 121
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> 122
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, Martin Luther King, Jr. Day, President's Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day, and on the preceding Friday or subsequent Monday when any of
these holidays falls on a Saturday or Sunday, respectively.
Purchases of each Class of the Fund shares are effected at the Fund's Public
Offering Price next determined after a purchase order has been received in
proper form. A purchase order will be deemed to be in proper form when all of
the steps required, including submission of an application form, have been
completed. In the case of an investment by wire, however, the order will be
deemed to be in proper form after the telephone order and the federal funds wire
have been received. The failure of a shareholder who purchases by wire to submit
an application form in a timely fashion may cause delays in processing
subsequent redemption requests. If a telephone order is received or if
-45-
<PAGE> 123
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> 124
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.
-47-
<PAGE> 125
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 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 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 of SPIF made during the 13-month period
will be subtracted from the amount of purchases of Class A Shares or Class A
Common Shares of SPIF in determining whether the terms of the Letter of Intent
have been met. During the term of a Letter of Intent, 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
Washington Mutual or an affiliate serves as investment advisor; (c) registered
representatives or full-time
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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 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.
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DEFERRED SALES CHARGE ALTERNATIVE: CLASS S SHARES. If you choose the deferred
sales charge alternative, you will purchase Class S Shares of the SAM Account
Funds at their NAV per share without the imposition of a sales charge at the
time of purchase. (Class S Shares of certain Funds are not available for
purchase directly.) 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
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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 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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<PAGE> 129
- - BY TELEPHONE
TO SET UP THE TELEPHONE WIRE REDEMPTION PROCEDURE, indicate your acceptance of
this procedure on the application form and designate a bank and bank account
number to receive the proceeds of withdrawals. To use this procedure after an
account has been opened or to change instructions already given, designate a
bank and bank account number to receive redemption proceeds and send a written
notice to Shareholder Services with a signature guarantee (for more information
regarding signature guarantees, see the following). For joint accounts, all
owners must sign and have their signatures guaranteed.
- - THROUGH SHAREHOLDER SERVICES OR AUTHORIZED DEALERS
You may also sell your shares to the Fund through your Dealer and in that way be
certain, providing the order is timely, of receiving the NAV established at the
end of the day on which your Authorized Dealer is given the redemption order.
The Fund makes no charge for this transaction but the dealer may charge you a
service fee.
CERTAIN WRITTEN REQUESTS MUST INCLUDE A SIGNATURE GUARANTEE. To protect you and
the Trust from fraud, a written request must include a signature guarantee if
any of the following situations apply:
- - You wish to redeem more than $50,000 worth of shares,
- - The redemption check is not being mailed to the address on your Fund account
(record address), or
- - The check is not being made out to the Fund account owner.
You should be able to obtain a signature guarantee from a bank which is a member
of the Federal Deposit Insurance Corporation, a trust company, broker-dealer,
credit union (if authorized under state law), securities exchange or
association, clearing agency, or savings association. A notary public cannot
provide a signature guarantee. For joint accounts, all owners must sign and have
their signatures guaranteed.
EXCHANGE PRIVILEGES AND RESTRICTIONS
The exchange privilege is available only in those states where the offer and
sale of shares of a given Fund may legally be made. Upon 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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<PAGE> 130
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 Shareholder Services by
telephone, an investor may deliver the transaction request to 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 certain 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.
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. No portion of the dividends from 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, and
National Municipal Funds is expected to qualify for the corporate dividends
received deduction, and only a portion of the dividends from the Growth and
Income, Growth, Emerging Growth, and International Growth Funds is expected to
qualify for the corporate dividends received deduction. Each shareholder will
receive after the close of
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<PAGE> 132
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.
TAXES ON TRANSACTIONS. The sale, exchange or redemption of Fund shares will be a
taxable event. Any gain or loss recognized on a redemption, transfer, or
exchange of shares of the Fund by a shareholder who is not a dealer in
securities generally will be treated as long-term capital gain or loss if the
shares have been held for more than twelve months, and otherwise generally will
be treated as a short-term capital gain or loss. Any loss recognized by a
shareholder upon the disposition of shares of the Fund held for six months or
less, however, will be disallowed to the extent of any "exempt-interest
dividends" received by the shareholder with respect to such shares. Furthermore,
if shares on which a net capital gains distribution has been received are
subsequently disposed of and such shares have been held for six months or less,
any loss recognized will be treated as a long-term capital loss to the extent of
the net capital gains distribution.
Statements as to the tax status of each shareholder's dividends and
distributions are mailed annually to shareholders within 60 days of the close of
the calendar year. These statements set forth the dollar amount of dividends and
NAV excluded or exempt from federal income taxes or Florida intangible personal
property taxes and the dollar amount, if any, subject to such taxes. Whenever
you sell shares of the Fund, the Trust will send you a confirmation statement
showing how many shares you sold and at what price. You also will receive a
consolidated transaction statement every January. However, it is up to you or
your tax preparer to determine whether this sale resulted in a capital gain and,
if so, the amount of tax to be paid. You should retain your regular account
statements; the information they contain will be essential in calculating the
amount of your capital gains.
ADDITIONAL CONSIDERATIONS FOR SHAREHOLDERS OF THE MUNICIPAL FUNDS AND THE
CALIFORNIA MONEY FUND. Dividends paid by any of the Municipal Funds or the
California Money Fund that are derived from interest earned on qualifying
tax-exempt obligations will be "exempt-interest" dividends, which shareholders
may exclude from their gross incomes for federal income tax purposes, if at the
close of each quarter of that Fund's taxable year, at least 50 percent of the
Fund's total assets consist of obligations the interest on which is excludable
from gross income for federal income tax purposes. To the extent that any of
these Funds invests in AMT-Subject Bonds, any exempt-interest dividends derived
from interest on such AMT-Subject Bonds are a specific preference item for
purposes of the federal individual and corporate alternative minimum taxes. In
any event, all exempt-interest dividends will be a component of adjusted current
earnings for purposes of computing the federal corporate alternative minimum tax
and the federal corporate environmental tax.
Current federal income tax laws limit the types and volume of bonds qualifying
for the federal income tax exemption of interest, which may have an effect on
the ability of the Municipal Funds to purchase sufficient amounts of tax-exempt
securities to satisfy the requirements for the payment of "exempt-interest"
dividends.
Interest on indebtedness incurred or continued by shareholders to purchase or
carry shares of the Municipal Funds and the California Money Fund is not
deductible for federal income tax purposes. The Municipal Funds and the
California Money Fund may not be an appropriate investment for persons
(including corporations and other business entities) who are not currently
subject to federal income tax (such as certain qualified retirement accounts) or
who are substantial users (or who are related to substantial users) of
facilities financed by "private activity bonds" or certain industrial
development bonds. "Substantial user" is defined generally as including a
"non-exempt person" who regularly uses in a trade or business a part of a
facility financed from the proceeds of such bonds. Entities or persons who are
"substantial users" (or persons related to "substantial users") should consult
their tax advisors before purchasing shares of the Municipal Funds or the
California Money Fund.
ADDITIONAL CONSIDERATIONS FOR SHAREHOLDERS OF THE FLORIDA INSURED MUNICIPAL
FUND. Florida does not impose an income tax on individuals. Accordingly,
dividends or distributions by the Florida Insured Municipal Fund to an
individual who is a Florida resident are not subject to state income tax in
Florida. However, Florida imposes an intangible personal property tax on shares
of the Fund owned by a Florida resident on January 1 of each year unless such
shares qualify for an exemption from the tax.
The Fund has received a Technical Assistance Advisement from the State of
Florida, Department of Revenue, to the effect that Fund shares owned by a
Florida resident will be exempt from the intangible personal property tax so
long as the Fund's portfolio includes only assets, such as notes, bonds, and
other obligations issued by the State of
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Florida or its municipalities, counties, and other taxing districts, the United
States Government, and its agencies, Puerto Rico, Guam, and the U.S. Virgin
Islands, which are exempt from that tax.
ADDITIONAL CONSIDERATIONS FOR SHAREHOLDERS OF THE CALIFORNIA MONEY FUND,
CALIFORNIA MUNICIPAL FUND AND CALIFORNIA INSURED INTERMEDIATE MUNICIPAL
FUND. If, at the close of each quarter of its taxable year, at least 50% of the
value of the total assets of each of the California Money Fund, California
Municipal Fund and California Insured Intermediate Municipal Fund (the
"California Funds") consist of obligations the interest on which would be exempt
from California personal income tax if the obligations were held by an
individual ("California Tax Exempt Obligations"), and if each of the California
Funds continues to qualify as a regulated investment company for federal income
tax purposes, then each respective California Fund will be qualified to pay
dividends, subject to certain limitations, to its shareholders that are exempt
from California State personal income tax, but not from California State
franchise tax or California State corporate income tax ("California exempt-
interest dividends"). However, the total amount of California exempt-interest
dividends paid by each of the California Funds to each of the California Fund's
non-corporate shareholders with respect to any taxable year cannot exceed the
amount of interest received by such California Fund during such year on
California Tax Exempt Obligations less any expenses and expenditures (including
any dividends paid to corporate shareholders) deemed to have been paid from such
interest. If the aggregate dividends exceed the amount that may be treated as
California exempt-interest dividends, only that percentage of each dividend
distribution equal to the ratio of aggregate California exempt-interest
dividends to aggregate dividends will be treated as a California exempt-interest
dividend. Dividend distributions that do not qualify for treatment as California
exempt-interest dividends will be taxable to shareholders at ordinary income tax
rates for California personal income tax purposes.
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT A COMPLETE DESCRIPTION OF
THE FEDERAL, STATE OR LOCAL TAX CONSEQUENCES OF INVESTING IN THE FUNDS. YOU
SHOULD CONSULT YOUR TAX ADVISOR BEFORE INVESTING IN THE FUNDS.
SHAREHOLDER AND ACCOUNT POLICIES
TRANSACTION DETAILS
THE NAV of each class of the Fund is the value of a single share of the
respective class. The NAV is calculated separately for each class of the Funds
and is calculated by adding up the value of the Fund's investments, cash and
other assets, subtracting its liabilities (including the liabilities
attributable exclusively to that class), and then dividing the result by the
number of shares of that class outstanding.
Although the legal rights of Class A and Class S Shares will be identical, the
different expenses borne by each class will result in different NAVs and
dividends. The NAV of Class S Shares will generally be lower than the NAV of
Class A Shares as a result of the larger distribution fees charged to Class S
Shares. It is expected, however, that the NAV per share of these classes will
tend to converge immediately after the recording of dividends, which will differ
by approximately the amount of the distribution expense accrual differential
between the classes.
Portfolio securities and other assets are valued primarily on the basis of
market quotations or, if quotations are not readily available, by a method that
the Board of Trustees believes accurately reflects fair value. Foreign
securities are valued on the basis of quotations from the primary market in
which they are traded, and are translated from the local currency into U.S.
Dollars using current exchange rates.
EACH FUND RESERVES THE RIGHT TO SUSPEND THE OFFERING OF CLASS A OR CLASS S
SHARES for a period of time. Each Fund also reserves the right to reject any
specific purchase order, including certain purchases by exchange. Purchase
orders may be refused if, in the opinion of Shareholder Services, they are of a
size that would disrupt management of a Fund.
SHAREHOLDER SERVICES MAY CHARGE A FEE FOR SPECIAL SERVICES, such as providing
historical account documents, that are beyond the normal scope of its services.
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THE FUNDS IN DETAIL
ORGANIZATION
THE TRUST IS GOVERNED BY A BOARD OF TRUSTEES, which is responsible for
protecting the interests of shareholders. The trustees are experienced business
persons who meet throughout the year to oversee the Trust's activities, review
contractual arrangements with companies that provide services to the Funds, and
review performance. The majority of trustees are not affiliated with Sierra
Services, Sierra Advisors or Sierra Administration other than as trustees of the
Trust. The Trust was organized on February 22, 1989 under the laws of the
Commonwealth of Massachusetts as a "Massachusetts business trust."
THE FUNDS MAY HOLD SPECIAL MEETINGS AND MAIL PROXY MATERIALS. As a Massachusetts
business trust, the Funds are not required to hold annual shareholder meetings.
On occasion, however, special meetings may be called to elect or remove
trustees, change fundamental policies, approve a management contract, or for
other purposes. Trustees may be removed by shareholders at a special meeting
called upon the request of shareholders among at least 10% of the outstanding
shares of the Trust. Shareholders not attending these meetings are encouraged to
vote by proxy. Sierra Administration will mail proxy materials in advance,
including a voting card and information about the proposals to be voted on. When
matters are submitted for shareholder vote, shareholders of each Fund and class
will have one vote for each full share owned and proportionate, fractional votes
for fractional shares held and will have exclusive voting rights with respect to
matters pertaining solely to such Fund or class, respectively, such as the
distribution plan for a class.
SIERRA ADVISORS, ITS AFFILIATES AND SERVICE PROVIDERS
ADVISOR
Sierra Advisors, located at 9301 Corbin Avenue, Northridge, California 91324, is
the investment advisor of the Funds. Responsibilities of Sierra Advisors include
formulating the Funds' investment policies (subject to the terms of this
Prospectus), analyzing economic trends and directing and evaluating the
investment services provided by the Sub-Advisors and monitoring each Fund's
investment performance. In connection with these activities, Sierra Advisors may
initiate action to change a Sub-Advisor if it deems such action to be in the
best interests of a Fund and its shareholders.
Sierra Advisors became a registered investment advisor in 1988. Sierra Advisors
is an indirectly wholly owned subsidiary of Washington Mutual, Inc. ("Washington
Mutual"). Washington Mutual is a publicly owned financial services company. As
of June 30, 1997, Sierra Advisors and its affiliates had total assets under
management of $3.7 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 May 31, 1997, total assets under management were over $194 billion.
BLACKROCK is located at 345 Park Avenue, 30th floor, New York, New York 10154.
BlackRock is a wholly owned corporate subsidiary of PNC Asset Management Group
Inc., the holding company for the asset management businesses of PNC Bank Corp.
("PNC"). PNC is a 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,
1997, BlackRock had aggregate assets under management or supervision of more
than $50 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
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<PAGE> 135
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, 1997 Janus had
approximately $60 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, 1997 J.P. Morgan and its affiliates had
investment management authority with respect to approximately $234 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, 1997 Scudder's assets under management were in excess of $125
billion.
On June 27, 1997, Scudder, Stevens & Clark, Inc. ("Scudder") and The Zurich
Group ("Zurich") announced that they had entered into a definitive agreement to
form a global investment organization. Zurich is a leading international
insurance and financial services organization. Under the agreement, Zurich's
wholly owned subsidiary, Zurich Kemper Investments, Inc. will combine with
Scudder, with combined assets of $200 billion. Subject to certain conditions
being met, it is currently anticipated that the transaction will close in the
fourth quarter of 1997.
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, 1997, TCW
Management and its affiliated advisers had just over $50.1 billion under
management or committed to management.
VAN KAMPEN is located at One Parkview Plaza, Oakbrook, 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 MSAM Holdings, Inc., which in turn is a wholly owned
subsidiary of Morgan Stanley, Dean Witter, Discover & Co., a publicly held
company. 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, as of June 30, 1997, of more than $64.3
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 companies, employee benefit plans, endowment funds,
foundations and other institutions and individuals. As of June 30, 1997, Warburg
managed approximately $19.7 billion of assets, including approximately $11.5
billion of investment company assets. Incorporated in 1970, Warburg is
indirectly controlled by Warburg, Pincus & Co. ("WP & Co."), which has no
business other than being a holding company of Warburg and its affiliates.
Lionel I. Pincus, the managing partner of WP & Co., may be deemed to control
both WP & Co. and Warburg.
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
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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
Washington Mutual, was established in 1992 and is a registered broker-dealer
with the NASD and a registered investment advisor.
Each of the Funds has three distribution plans, pursuant to Rule 12b-1 under the
1940 Act, applicable to each class of Shares of the Trust (each, a "Rule 12b-1
Plan"). Each Fund intends to operate the Rule 12b-1 Plans in accordance with its
terms and the NASD Rules concerning sales charges. Under the applicable Rule
12b-1 Plans, Sierra Services is paid an annual fee as compensation in connection
with the offering and sale of Class A and Class S Shares of the Funds. The
annual fees to be paid to Sierra Services under Rule 12b-1 Plans are calculated
with respect to Class A Shares at an annual rate of up to .25% of the average
daily net assets of the Class A Shares of the Fund and with respect to Class S
Shares at an annual rate of up to .75% of the average daily net assets of the
Class S Shares of the Fund. These fees may be used to cover the expenses of
Sierra Services primarily intended to result in the sale of Class A and Class S
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. Broker-dealers are selected on the basis of
their ability to obtain best price and execution for a Fund's transactions and
recognizing brokerage, research and other services provided to the Fund and to
the Fund's Advisor or Sub-Advisor. 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
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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> 138
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
- ------------------------- ----
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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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
------------- -----
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.
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<PAGE> 140
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.
================================================================================
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<PAGE> 141
<TABLE>
<C> <S>
PROSPECTUS SIERRA TRUST FUNDS
OCTOBER 31, 1997 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"), a diversified portfolio, 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,
1997, has been filed with the Securities and Exchange Commission (the "SEC"),
and is incorporated herein by reference (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, NOR HAS THE SECURITIES AND EXCHANGE 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 Fund Expenses & Financial Highlights................................................ 3
The Fund's Investments and Risk Considerations................................................. 5
Performance Information........................................................................ 8
Your Account
-- Ways to Set Up Your Account............................................................... 9
-- How to Invest in Class A Shares of the Fund............................................... 10
How to Sell Shares............................................................................. 14
Exchange Privileges and Restrictions........................................................... 16
Dividends, Capital Gains and Taxes............................................................. 17
Shareholder and Account Policies............................................................... 19
The Fund in Detail
-- Organization.............................................................................. 19
-- Sierra Advisors, Its Affiliates and Service Providers..................................... 19
-- Breakdown of Fund Expenses................................................................ 21
</TABLE>
<PAGE> 142
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 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, Class S
Shares are sold to investors who select the Sierra Asset Management ("SAM")
service, an active investment management service offered by Sierra Investment
Services Corporation, and have sales charges only if they are redeemed within
six years. Class I Shares are sold exclusively to the various portfolios of
Sierra Asset Management Portfolios ("SAM Portfolios"), an open-end management
investment company that operates as a "fund of funds." 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 offer and sell Class S and Class I Shares.
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.
-1-
<PAGE> 143
GROWTH FUNDS seek long-term growth by investing in stocks.
INTERNATIONAL GROWTH FUND
EMERGING GROWTH FUND
GROWTH FUND
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
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> 144
SUMMARY OF FUND EXPENSES
<TABLE>
<CAPTION>
TARGET MATURITY 2002 FUND
CLASS A SHARES
- ---------------------------------------------------------------------------------------------------------
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering
price)(1)................................................................. 2.00%
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of
offering price)........................................................... None
Deferred Sales Load(2)...................................................... None
Redemption Fees(3).......................................................... None
Exchange Fees(4)............................................................ None
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees (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
2.39% and total fund operating expenses would be 2.89%. See "Breakdown of
Fund Expenses."
<TABLE>
<CAPTION>
1 3 5 10
YEAR YEARS YEARS YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
EXAMPLE:
You would pay the following on a $1,000 investment, assuming
(1) 5% annual return, (2) deduction at the time of purchase of
the maximum 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> 145
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 also 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 financial information 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 YEAR ENDED PERIOD ENDED
06/30/97 06/30/96 6/30/95*
---------- ------------ ------------
<S> <C> <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 investment 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) --
Distributions from realized gains.............................. -- --
------ ------ ------
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>
- ------------------------------------
* 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.
++ 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.
-4-
<PAGE> 146
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. 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 intends to 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> 147
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 Principal of
BlackRock since 1996.
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> 148
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. 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.
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.
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> 149
PERFORMANCE INFORMATION
YIELD
From time to time, advertisements or shareholder reports concerning the Fund may
describe 30-day YIELD. The 30-day YIELD refers to the income generated by an
investment in the 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 Fund 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.
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.
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.
-8-
<PAGE> 150
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 ("E") 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> 151
HOW TO INVEST IN CLASS A SHARES OF THE FUND
<TABLE>
- ----------------------------------------------------------------------------------------------------------
TO OPEN AN ACCOUNT: MINIMUM $250 TO ADD TO AN ACCOUNT: MINIMUM $100
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
BY PHONE - Exchange from another Sierra Trust - Exchange from another Sierra Trust
800-222-5852 Fund, 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
5852. (Monday through Friday, 6:00 800-222-5852.
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 Trust Funds." Indicate your Fund
draft payable to "Sierra Trust Funds." account number on your check. Include
Third party checks are not accepted. the "next investment" stub from your
previous account statement. Mail the
Mail the completed application form check and stub to the address printed
and check to: on your account statement.
Sierra Trust Funds - Exchange by mail: call 800-222-5852
c/o First Data Investor Services for instructions.
Group
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>
- --------------------------------------------------------------------------------
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<PAGE> 152
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, Martin Luther King, Jr. 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 otherwise 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> 153
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 (collectively, "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 notify Shareholder Services of any purchases of Shares of qualifying Sierra
Funds 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 notify Shareholder Services of any related purchases of Shares of
qualifying Sierra Funds 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, 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
investor is not bound to purchase the full amount specified, but if the full
amount specified is not purchased within
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<PAGE> 154
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.
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<PAGE> 155
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.
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<PAGE> 156
WAYS TO SELL SHARES OF YOUR SIERRA TRUST FUND
<TABLE>
- ---------------------------------------------------------------------------------------------------
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.
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<PAGE> 157
- - 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 the exchange. If Class A Shares of the Money Funds, which do not
have a sales load at purchase, are acquired in
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<PAGE> 158
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. 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.
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<PAGE> 159
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 certain 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.
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. No portion of the dividends from the Fund is expected to
qualify for the corporate dividends received deduction. 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.
TAXES ON TRANSACTIONS. The sale, exchange, or redemption of Fund shares will be
a taxable event. Any gain or loss recognized on a redemption, transfer or
exchange of shares of the Fund by a shareholder who is not a dealer in
securities generally will be treated as long-term capital gain or loss if the
shares have been held for more than twelve months, and otherwise generally will
be treated as a short-term capital gain or loss. Furthermore, if shares on which
a net capital gains distribution has been received are subsequently disposed of
and such shares have been held for six months or less, any loss recognized will
be treated as a long-term capital loss to the extent of the net capital gains
distribution.
Statements as to the tax status of each shareholder's dividends and
distributions are mailed annually to shareholders within 60 days of the close of
the calendar year. Whenever you sell shares of the Fund, the Trust will send you
a confirmation statement showing how many shares you sold and at what price. You
also will receive a consolidated transaction statement every January. However,
it is up to you or your tax preparer to determine whether this sale
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<PAGE> 160
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 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
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<PAGE> 161
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"), which is a wholly-owned subsidiary of Washington Mutual,
Inc. ("Washington Mutual"). Washington Mutual is a publicly owned financial
services company.
SUB-ADVISOR
BlackRock is located at 345 Park Avenue, 30th Floor, New York, New York, 10154.
BlackRock is a wholly owned corporate subsidiary of PNC Asset Management Group
Inc., the holding company for the asset management businesses 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, 1997, BlackRock had aggregate assets under management or
supervision of more than $50 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 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 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
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<PAGE> 162
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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[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 164
(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 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).
<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
<TABLE>
<S> <C> <C>
Representative Name _____________________ Representative Number _____________ Branch Number ____________
__________________
Firm Name _________________________________________
Branch Address _____________________________ City ________________________ State _______ Zip ___________
</TABLE>
- --------------------------------------------------------------------------------
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:
<TABLE>
<S> <C> <C>
Name of your Bank __________________________________________________________
Acct. Name ___________________________________ Acct. No._________________________________________________
Bank Address _____________________________ City ________________________ State _______ Zip ___________
</TABLE>
<PAGE> 165
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> 166
SIERRA TRUST FUNDS
P.O. BOX 5118
WESTBORO, MASSACHUSETTS 01581-5118
STATEMENT OF ADDITIONAL INFORMATION
October 31, 1997
o Global Money Fund* o Florida Insured Municipal Fund
o U.S. Government Money Fund* o National Municipal Fund
o California Money Fund o Growth and Income Fund
o Short Term High Quality o Emerging Growth Fund*
Bond Fund*
o U.S. Government Fund* o International Growth Fund*
o Corporate Income Fund* o Short Term Global Government Fund*
o California Municipal Fund o Growth Fund*
o California Insured Intermediate o Target Maturity 2002 Fund
Municipal Fund
This Statement of Additional Information ("SAI") supplements the information
contained in the current Prospectuses of Sierra Trust Funds (the "Trust") which
are dated October 31, 1997, and should be read in conjunction with the
appropriate Prospectus. Two Prospectuses dated October 31, 1997 describe the
first fifteen investment series funds of the Trust 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, 1997 describes the Class A Shares of the last investment series fund
of the Trust that is listed above, the Target Maturity 2002 Fund (the "Target
Maturity Fund").
The Trust's Prospectuses may be obtained without charge by writing to the
Trust at P.O. Box 5118, Westboro, Massachusetts 01581-5118 or by calling the
Trust 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> 167
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
MANAGEMENT OF THE TRUST........................................................ 3
INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS................................ 16
PORTFOLIO TURNOVER............................................................. 63
PORTFOLIO TRANSACTIONS......................................................... 64
NET ASSET VALUE................................................................ 67
HOW TO BUY AND REDEEM SHARES................................................... 68
HOW TO EXCHANGE SHARES......................................................... 72
DETERMINATION OF PERFORMANCE................................................... 72
TAXES.......................................................................... 80
DISTRIBUTOR.................................................................... 85
APPENDIX.........................................................................A-1
</TABLE>
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<PAGE> 168
MANAGEMENT OF THE TRUST
TRUSTEES AND OFFICERS OF THE TRUST
The names, addresses and ages of the Trustees and executive officers of the
Trust, together with information as to their principal business occupations
during the past five years, are set forth below. Unless otherwise indicated, the
address of all persons listed below is 9301 Corbin Avenue, Northridge,
California 91324. The executive officers of the Trust are employees of
organizations that provide services to the separate investment funds (the
"Funds") offered by the Trust. Each Trustee who is an "interested person" of the
Trust, as defined in the Investment Company Act of 1940, as amended (the "1940
Act"), is indicated by an asterisk.
<TABLE>
<CAPTION>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE THE TRUST DURING THE LAST 5 YEARS
- --------------------- -------------- ------------------------
<S> <C> <C>
JAMES H. OVERHOLT (50) President and President and Chief Executive Officer, Sierra
Chief Executive Capital Management Corporation ("SCMC"), 1997
Officer to present; President and Director, Sierra
Administration, 1997 to present; Chairman, Sierra
Advisors, 1997 to present; President and Chief
Executive Officer, Sierra Services, 1997 to
present; President and Chief Executive Officer,
Great Western Financial Securities Corporation,
1996 to present; President and Chief Executive
Officer, Bank South Investment Services, 1994 to
1996; President and Chief Executive Officer,
Wachovia Brokerage Services, 1990 to 1993;
ARTHUR H. BERNSTEIN, ESQ. (72) Chairman of the President, Bancorp Capital Group, Inc., 1988 to
11661 San Vicente Blvd., Suite 701 Board and Trustee present; President, Bancorp Venture Capital, Inc.,
Los Angeles, CA 90049 1988 to present.
DAVID E. ANDERSON (70) Trustee Retired; President and Chief Executive Officer,
17960 Seabreeze Drive GTE California, Inc., 1979 to 1988.
Pacific Palisades, CA 90272
EDMOND R. DAVIS, ESQ. (69) Trustee Partner, Brobeck, Phleger & Harrison (law firm),
550 South Hope Street, 21st Floor 1987 to present.
Los Angeles, CA 90071-2604
</TABLE>
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<PAGE> 169
<TABLE>
<CAPTION>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE THE TRUST DURING THE LAST 5 YEARS
- --------------------- -------------- ------------------------
<S> <C> <C>
JOHN W. ENGLISH (64) Trustee Retired; Vice President and Chief Investment
50 H New England Ave. Officer, Ford Foundation, 19__ to 19__; Chairman
P.O. Box 640 of the Board and Director, The China Fund, Inc. (a
Summit, NJ 07902-0640 closed-end mutual fund), 19__ to present; Trustee,
Retail Property Trust (a company providing management
services for shopping centers), 19__ to present;
Director, The Northern Trust Company's Benchmark Funds
(open-end mutual funds), 19__ to present.
ALFRED E. OSBORNE, JR. PH.D. (52) Trustee Professor, The Anderson School and
110 Westwood Plaza, Suite C305 Director, The Harold Price Center for
Los Angeles, CA 90095-1481 Entrepreneurial Studies at UCLA, 1972 to present;
Director, Times Mirror Company, 19__ to present;
Director, United States Filter Corporation, 19__ to
present; Director, Nordstrom, Inc., 19__ to present;
Director, Seda Specialty Packing Corporation, 19__ to
present; Director, Greyhound Lines, Inc., 19__ to
present. Independent general partner, Technology
Funding Venture Partners v, 19__ to present; former
Governor, National Association of Securities Dealers,
Inc., 19__ to 19__; former Director, NASD Regulation,
19__ to 19__.
KEITH B. PIPES (41) Executive Vice Senior Vice President, Chief Financial Officer and
President, Secretary, SCMC, 1986 to present; Chief Financial
Treasurer and Officer, Secretary and Treasurer, Sierra
Secretary Administration, 199_ to present; Executive Vice
President and Secretary, Sierra Advisors, 199_ to
present; Senior Vice President, Chief Financial
Officer and Secretary, Sierra Services, 199_ to
present;
MICHAEL D. GOTH (52) Senior Vice Chief Operating Officer, Sierra Advisers, 1991 to
President present.
STEPHEN C. SCOTT (52) Senior Vice President and Chief Investment Officer, Sierra
President Advisers, 1988 to present; Senior Vice President and
Chief Investment Officer, Sierra Services, 1996
to present.
CRAIG M. MILLER (38) Assistant Treasurer Vice President and Controller, SCMC, Sierra
Administration and Sierra Services, 1993 to
present; Audit Manager, Coopers & Lybrand,
L.L.P., 1987 to 1993
</TABLE>
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<PAGE> 170
<TABLE>
<CAPTION>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE THE TRUST DURING THE LAST 5 YEARS
- --------------------- -------------- ------------------------
<S> <C> <C>
RICHARD H. ROSE (42) Assistant Treasurer Currently acts as Vice President Division Manager
of First Data Investor Services Group, Inc., a
subsidiary of First Data Corp. (prior to May 6,
1994, a Senior Vice President in a division of The
Boston Company Advisors, Inc. ("Boston
Advisors")). He joined Boston Advisors in 1988 as
Vice President and Group 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.
RICHARD W. GRANT (52) Assistant Secretary Partner, Morgan, Lewis & Bockius LLP, 1989 to
present.
</TABLE>
Each of the Trustees and officers of the Trust 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 Trust 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.
The address of each trustee and officer of the Trust 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 and Transfer Agent of the Funds, or any affiliate of Sierra
Advisors, the Sub-Advisors or First Data will receive any compensation from the
Trust for serving as an officer or Trustee of the Trust. The Trust 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 lead Trustee receives one and one half times the normal Trustee
compensation. The Chairman of the Audit Committee receives a fee of $1,500 per
Audit Committee meeting.
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, 1997.
-5-
<PAGE> 171
COMPENSATION TABLE
<TABLE>
<CAPTION>
(1) (2) (3) (4)
NAME OF AGGREGATE COMPENSATION PENSION OR ESTIMATED TOTAL
PERSON, FROM REGISTRANT RETIREMENT COMPENSATION FROM
POSITION FOR THE FISCAL BENEFITS ACCRUED REGISTRANT AND FUND
YEAR ENDED AS PART OF FUND EXPENSES COMPLEX PAID TO TRUSTEES
JUNE 30, 1997 FOR THE
FISCAL YEAR ENDED
JUNE 30, 1997
================================================================================================================
<S> <C> <C> <C>
Arthur H. Bernstein, Esq. $22,938* 0 $54,063 for service on
Chairman of the Board 4 boards*
and Trustee
David E. Anderson $18,000 0 $42,000 for service on
Trustee 4 boards
Edmond R. Davis, Esq. $18,000 0 $42,000 for service on
Trustee 4 boards
John W. English $18,000 0 $42,000 for service on
Trustee 4 boards
Alfred E. Osborne, Jr. $18,000 0 $42,000 for service
Trustee on 4 boards
================================================================================================================
</TABLE>
* Mr. Bernstein was paid $1,500 for the Audit Committee Meeting held by
the Trust and SVT.
The aggregate remuneration paid to Trustees by the Trust for attendance
at Board and committee meetings for the fiscal year ended June 30, 1997 was
$113,043 (including reimbursement for travel and out-of-pocket expenses). As of
June 30, 1997, the Trustees and officers of the Trust owned, in the aggregate,
less than 1% of the outstanding shares of any of the Funds. In addition, as of
October 1, 1997, to the knowledge of the Trust 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%.
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,
-6-
<PAGE> 172
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 Adamnson, 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. Tallert, 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%.
-7-
<PAGE> 173
SHORT TERM GLOBAL GOVERNMENT FUND - CLASS B: Wedbush 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%.
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 Trust
and maintains office facilities for the Trust.
CUSTODIAN. Boston Safe Deposit and Trust Company ("Boston Safe") serves
as Custodian for the Funds. Under its custodial agreement with the Trust, 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 Trust may
employ foreign sub-custodians that are approved by the Board of Trustees to hold
foreign assets.
MANAGEMENT FEES. For the fiscal years ended June 30, 1995, 1996 and
1997, the Trust paid Sierra Advisors the following management fees:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
1997
- ----------------------------------------------------------------------------------------------------
Expenses
Fees Paid Fees Waived Reimbursed
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Global Money Fund
- ----------------------------------------------------------------------------------------------------
U.S. Government Money Fund
- ----------------------------------------------------------------------------------------------------
</TABLE>
-8-
<PAGE> 174
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
California Money Fund
- ----------------------------------------------------------------------------------------------------
Corporate Income Fund
- ----------------------------------------------------------------------------------------------------
U.S. Government Fund
- ----------------------------------------------------------------------------------------------------
Short Term Global Government Fund
- ----------------------------------------------------------------------------------------------------
Short Term High Quality Bond Fund
- ----------------------------------------------------------------------------------------------------
National Municipal Fund
- ----------------------------------------------------------------------------------------------------
California Municipal Fund
- ----------------------------------------------------------------------------------------------------
Florida Insured Municipal Fund
- ----------------------------------------------------------------------------------------------------
California Insured Intermediate Municipal Fund
- ----------------------------------------------------------------------------------------------------
Growth and Income Fund
- ----------------------------------------------------------------------------------------------------
Emerging Growth Fund
- ----------------------------------------------------------------------------------------------------
Growth Fund
- ----------------------------------------------------------------------------------------------------
International Growth Fund
- ----------------------------------------------------------------------------------------------------
Target Maturity Fund
- ----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1996
-------------------------------------------------------------
Expenses
Fees Paid Fees Waived Reimbursed
---------- ----------- ----------
<S> <C> <C> <C>
Global Money Fund $622,915 $622,915 $143,417
U.S. Government Money Fund $175,521 $162,368
California Money Fund $206,796 $148,062
Corporate Income Fund $2,403,914 $1,606,290
U.S. Government Fund $2,581,417 $2,581,417 $187,726
Short Term Global Government Fund $552,582 $513,501
Short Term High Quality Bond Fund $262,885 $262,885 $13,583
National Municipal Fund $1,418,103 $645,198
California Municipal Fund $2,233,979 $1,398,796
Florida Insured Municipal Fund $201,769 $201,769 $74,295
California Insured Intermediate Municipal Fund $393,599 $393,599 $47,057
Growth and Income Fund $1,769,245
Emerging Growth Fund $2,464,903
Growth Fund $2,023,665
International Growth Fund $1,062,220
</TABLE>
-9-
<PAGE> 175
<TABLE>
<CAPTION>
Target Maturity Fund $7,915 $7,915 $47,054
1995
--------------------------------------------------------------
Expenses
Fees Paid Fees Waived Reimbursed
--------- ----------- ----------
<S> <C> <C> <C>
Global Money Fund $342,696 $342,696
U.S. Government Money Fund $153,991 $112,718
California Money Fund $215,043 $108,224
Corporate Income Fund $2,663,842 $1,503,986
U.S. Government Fund $2,864,170 $1,537,203
Short Term Global Government Fund $1,070,631 $633,137
Short Term High Quality Bond Fund $270,744 $228,615
National Municipal Fund $1,666,333 $1,038,174
California Municipal Fund $2,419,708 $1,403,390
Florida Insured Municipal Fund $200,364 $200,364 $80,852
California Insured Intermediate Municipal Fund $319,780 $319,780 $52,835
Growth and Income Fund $1,323,807
Emerging Growth Fund $1,400,644
Growth Fund $1,365,171
International Growth Fund $1,097,217
Target Maturity Fund $1,207 $1,207 $16,281
</TABLE>
For the fiscal years ended June 30, 1995, 1996, and 1997, Sierra
Advisors paid the Sub- Advisors the following sub-advisory fees:*
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
FEES PAID FEES PAID FEES PAID
1997 1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Global Money Fund $233,593 $128,511
- ------------------------------------------------------------------------------------------------
U.S. Government Fund $868,295 $814,920
- ------------------------------------------------------------------------------------------------
California Money Fund $77,549 $80,641
- ------------------------------------------------------------------------------------------------
Corporate Income Fund $1,109,499 $1,229,465
- ------------------------------------------------------------------------------------------------
U.S. Government Money Fund $65,820 $57,747
- ------------------------------------------------------------------------------------------------
Short Term Global Government Fund $238,035 $456,016
- ------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 176
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Short Term High Quality Bond Fund $78,866 $81,222
- ------------------------------------------------------------------------------------------------
National Municipal Fund $461,755 $467,306
- ------------------------------------------------------------------------------------------------
California Municipal Fund $684,267 $667,343
- ------------------------------------------------------------------------------------------------
Florida Insured Municipal Fund $73,371 $72,860
- ------------------------------------------------------------------------------------------------
California Insured Intermediate Municipal Fund $143,109 $116,283
- ------------------------------------------------------------------------------------------------
Growth and Income Fund $959,559 $721,411
- ------------------------------------------------------------------------------------------------
Emerging Growth Fund $1,470,531 $844,497
- ------------------------------------------------------------------------------------------------
Growth Fund $1,149,390 $780,651
- ------------------------------------------------------------------------------------------------
International Growth Fund $640,950 $646,343
- ------------------------------------------------------------------------------------------------
Target Maturity Fund* $25,000 $7,055
- ------------------------------------------------------------------------------------------------
</TABLE>
* The Target Maturity Fund commenced operations on March 20, 1995.
For the fiscal years ended June 30, 1995, 1996, and 1997 the Trust paid
the Administrator the following administration fees*:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
FEES FEES FEES FEES
PAID FEES WAIVED PAID FEES WAIVED PAID WAIVED
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Global Money Fund $467,187 $5,352 $257,022 $203,124
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. Government Money Fund $131,641 $0 $115,493 $43,310
- -----------------------------------------------------------------------------------------------------------------------------------
California Money fund $155,097 $0 $161,282 $50,408
- -----------------------------------------------------------------------------------------------------------------------------------
Corporate Income Fund $1,294,415 $0 $1,434,376 $558,930
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. Government Fund $1,642,720 $127,314 $1,822,654 $405,720
- -----------------------------------------------------------------------------------------------------------------------------------
Short Term High Quality $809,686 $11,630 $189,519 $117,460
Bond Fund
- -----------------------------------------------------------------------------------------------------------------------------------
Short Term Global $297,544 $15,947 $576,494 $343,700
Government Fund
- -----------------------------------------------------------------------------------------------------------------------------------
National Municipal Fund $902,429 $0 $1,060,394 $391,004
- -----------------------------------------------------------------------------------------------------------------------------------
California Municipal Fund $1,421,633 $0 $1,539,815 $511,663
- -----------------------------------------------------------------------------------------------------------------------------------
Florida Insured Municipal Fund $128,399 $20,472 $127,505 $127,505
- -----------------------------------------------------------------------------------------------------------------------------------
California Insured Intermediate $250,472 $14,288 $203,496 $203,496
Municipal Fund
- -----------------------------------------------------------------------------------------------------------------------------------
Growth and Income Fund $184,020 $0 $594,453 $0
- -----------------------------------------------------------------------------------------------------------------------------------
Emerging Growth Fund $994,372 $0 $556,148 $0
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-11-
<PAGE> 177
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
FEES FEES FEES FEES
PAID FEES WAIVED PAID FEES WAIVED PAID WAIVED
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Growth Fund $769,573 $0 $511,456 $0
- -----------------------------------------------------------------------------------------------------------------------------------
International Growth Fund $422,563 $0 $454,734 $0
- -----------------------------------------------------------------------------------------------------------------------------------
Target Maturity Fund* $11,080 $3,805 $1,690 $1,690
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* The Target Maturity Fund commenced operations on March 20, 1997.
For the fiscal years ended June 30, 1995, 1996, and 1997 the
Administrator paid First Data the following fees (that do 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:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
FEES PAID FEES PAID FEES PAID
1997 1996 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Global Money Fund $122,357 $157,724
- -----------------------------------------------------------------------------------------------------------
U.S. Government Money Fund $65,820 $71,171
- -----------------------------------------------------------------------------------------------------------
California Money fund $40,546 $84,360
- -----------------------------------------------------------------------------------------------------------
Corporate Income Fund $289,871 $617,943
- -----------------------------------------------------------------------------------------------------------
U.S. Government Fund $367,978 $749,131
- -----------------------------------------------------------------------------------------------------------
Short Term High Quality Bond Fund $41,119 $152,405
- -----------------------------------------------------------------------------------------------------------
Short Term Global Government Fund $66,512 $360,039
- -----------------------------------------------------------------------------------------------------------
National Municipal Fund $202,099 $303,537
- -----------------------------------------------------------------------------------------------------------
California Municipal Fund $318,453 $436,521
- -----------------------------------------------------------------------------------------------------------
Florida Insured Municipal Fund $28,762 $37,321
- -----------------------------------------------------------------------------------------------------------
California Insured Intermediate Municipal Fund $56,128 $54,451
- -----------------------------------------------------------------------------------------------------------
Growth and Income Fund $181,544 $334,542
- -----------------------------------------------------------------------------------------------------------
Emerging Growth Fund $222,994 $380,867
- -----------------------------------------------------------------------------------------------------------
Growth Fund $172,561 $312,093
- -----------------------------------------------------------------------------------------------------------
International Growth Fund $94,735 $263,659
- -----------------------------------------------------------------------------------------------------------
Target Maturity Fund* $2,485 $692
- -----------------------------------------------------------------------------------------------------------
</TABLE>
* The Target Maturity Fund commenced operations on March 20, 1995.
-12-
<PAGE> 178
COUNSEL AND AUDITOR
Morgan, Lewis & Bockius LLP serves as counsel to the Trust and provides
legal services to GW Securities, Sierra Advisors, Sierra Administration and
Sierra Services. Paul, Hastings, Janofsky & Walker serves as counsel to the
Trustees who are not "interested persons" of the Trust.
Price Waterhouse LLP, independent accountants, located at 160 Federal
Street, Boston, Massachusetts 02110, serves as auditor of the Trust.
ORGANIZATION OF THE TRUST
The Trust 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 Trust are not physically issued. Boston Safe, the Trust's Custodian, and
First Data, the Trust's Transfer Agent, maintain a record of each shareholder's
ownership of Trust 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 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 Trust 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 Trust's outstanding
shares.
Massachusetts law provides that shareholders, under certain
circumstances, could be held personally liable for the obligations of the Trust.
However, the Trust Agreement disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of such disclaimer be given in
each agreement, obligation or instrument entered into or executed by the Trust
or a Trustee. The Trust Agreement provides for indemnification from the Trust's
property for all losses and expenses of any shareholder held personally liable
for the obligations of the Trust. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Trust would be unable to meet its obligations, a possibility that
the Trust's management believes is remote. Upon payment of any liability
incurred by the Trust, the shareholder paying the liability will be entitled to
reimbursement from
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<PAGE> 179
the general assets of the Trust. The Trustees intend to conduct the operations
of the Trust in such a way so as to avoid, to the extent possible, ultimate
liability of the shareholders for liabilities of the Trust.
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 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
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<PAGE> 180
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.
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 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
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<PAGE> 181
regarding such Funds to any other division or department of J.P. Management or
Morgan Affiliates.
INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS
The Prospectuses discuss the investment objective or objectives of each
of the Funds and the policies to be employed to achieve such objectives. This
section contains supplemental information concerning the types of securities and
other instruments in which the Funds may invest, the investment policies and
portfolio strategies that the Funds may utilize and certain risks attendant to
such investments, policies and strategies.
STRATEGIES AVAILABLE TO ALL FUNDS EXCEPT THE TARGET MATURITY FUND
RATINGS AS INVESTMENT CRITERIA. In general, the ratings of NRSROs, such
as Moody's Investors Service, Inc. ("Moody's") Standard & Poor's Corporation
("S&P"), and Duff and Fitch, 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 these services 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,
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, 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
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<PAGE> 182
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. 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 treated as an illiquid security.
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 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
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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 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 the 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
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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. In addition, the U.S. Government
Fund may invest in commercial mortgage-backed securities. While these securities
generally are structured with one or more types of credit enhancement, they are
issued by non-governmental entities and are not guaranteed by a governmental
agency or instrumentality.
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 investments in reverse repurchase agreements 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 other liquid assets equal
to the amount of when-issued
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or delayed-delivery commitments will be established at Boston Safe, the Trust'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. 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.
Strategic Transactions have associated risks including possible default
by the other party to the transaction, illiquidity and, to the extent the
Sub-Advisor's view as to certain market movements is incorrect, losses greater
than if they had not been used. Use of put and call options, currency
transactions or options and futures transactions entails certain risks as
described herein and in the Appendix to the Prospectuses in sections relating to
such investment or instruments. Losses resulting from the use of Strategic
Transactions would reduce net asset value, and possibly income, and such losses
can be greater than if the Strategic Transactions had not been utilized.
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 strategy when, in the opinion of the Sub-Advisor, it is in the best
interest of the Fund to do so. A combined transaction may contain elements of
risk that are present in each of its component transactions.
The use of Strategic Transactions for portfolio management purposes
involves special considerations and risks. Additional risks pertaining to
particular strategies that make up Strategic Transactions are described in other
sections to this SAI. Successful use of most 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
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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 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 Trust 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
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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 Code of 1986, as amended, (the "Code"), applicable to a regulated
investment company. See "Taxes" below. In addition to the uses of futures
described above, all Funds except the Global Money Fund may use futures for
certain other purposes. See "Strategic Transactions."
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.
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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 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
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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 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. In addition to the uses of options described above,
all Funds except the Global Money Fund may use options for certain other
purposes. See "Strategic Transactions."
STRATEGIES AVAILABLE TO U.S. GOVERNMENT, CORPORATE INCOME, SHORT TERM HIGH
QUALITY BOND, GROWTH AND INCOME, EMERGING GROWTH, SHORT TERM GLOBAL GOVERNMENT,
GROWTH
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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 Corporation (the "OCC") 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 OCC,
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
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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 certain of the facilities of the OCC 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
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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.
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
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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
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 or other liquid assets 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 or other liquid assets 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 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
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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 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.
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STRATEGIES AVAILABLE TO SHORT TERM HIGH QUALITY BOND, SHORT TERM GLOBAL
GOVERNMENT, CORPORATE INCOME, GROWTH AND INCOME, GROWTH, EMERGING GROWTH AND
INTERNATIONAL GROWTH 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.
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
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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, 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.
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, margaining 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 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
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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.
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 Trust'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 Trust 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
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
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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 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 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:
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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 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.
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
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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 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
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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.
SPECIAL CONSIDERATIONS RELATING TO CALIFORNIA MUNICIPAL SECURITIES
The ability of issuers to pay interest on, and repay principal of, California
municipal securities ("California Municipal Securities") may be affected by (1)
amendments to the California Constitution and related statutes that limit the
taxing and spending authority of California government entities, (2) voter
initiatives, (3) a wide variety of California laws and regulations, including
laws related to the operation of health care institutions and laws related to
secured interests in real property and (4) the general financial condition of
the State of California. The following information constitutes only a brief
summary, and is not intended as a complete description. The information has been
drawn, in some cases by excerpt, from official statements relating to securities
offerings of the State of California available as of the date of this Statement
of Additional Information. While the information has not been independently
verified by the California Money Fund, the California Municipal Fund, or the
California Insured Intermediate Municipal Tax Exempt Fund (the "California
Fund"), the California Fund has no reason to believe that such information is
not correct in all material respects.
AMENDMENTS TO THE CALIFORNIA CONSTITUTION AND RELATED STATUTES. Certain of the
California Municipal Securities may be obligations of issuers who rely in whole
or in part on ad valorem real property taxes as a source of revenue. On June 6,
1978, California voters approved an amendment to the California Constitution
known as Proposition 13, which added Article XIIIA to the California
Constitution. The effect of Article XIIIA is to limit ad valorem taxes on real
property, and to restrict the ability of taxing entities to increase real
property tax revenues. On November 7, 1978, California voters approved
Proposition 8, on June 3, 1986, California voters approved Proposition 46, and
on November 4, 1986, California voters approved Proposition 62, all 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, thereafter,
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the appraised value of real property when purchased, 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. In June 1990, Article XIIIB was amended by the
voters through their adoption of Proposition 111. 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. Furthermore, in 1990, Article XIII B was
amended to exclude from the appropriations limit all "qualified outlay projects,
as defined by the Legislature," from proceeds of taxes. In general terms, the
"appropriations limit" is required to be based on certain 1978/79 expenditures,
and is to be tested over consecutive two-year periods to reflect changes in
consumer prices, population and certain services provided by these entities.
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.
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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.
On November 5, 1996, the voters of the State approved Proposition 218, known as
the "Right to Vote on Taxes Act." Proposition 218 adds Articles XIII C and XIII
D to the California Constitution and contains a number of interrelated
provisions affecting the ability of governmental entities to levy and collect
both existing and future taxes, assessments, fees and charges. The
interpretation and application of Proposition 218 will ultimately be determined
by the courts with respect to a number of the matters discussed below, and it is
not possible at this time to predict with certainty the outcome of such
determination.
Proposition 218 (Article XIII C) requires that all new local taxes be submitted
to the electorate before they become effective. Taxes for general governmental
purposes of cities and counties require a majority vote and taxes for specific
purposes, even if deposited in the governmental entity's general fund, require a
two-thirds vote. Further, any general purpose tax which the governmental entity
imposed, extended or increased without voter approval after December 31, 1994
may continue to be imposed only if approved by a majority vote in an election
which must be held within two years of November 5, 1996.
Proposition 218 (Article XIII D) also adds several provisions making it
generally more difficult for local agencies to levy and maintain fees, charges,
and assessments for municipal services and programs. These provisions include,
among other things, (i) a prohibition against assessments which exceed the
reasonable cost of the proportional special benefit conferred on a parcel, (ii)
a requirement that assessments must confer a "special benefit," as defined in
Article XIII D, over and above any general benefits conferred, (iii) a majority
protest procedure for assessments which involves the mailing of notice and a
ballot to the record owner of each affected parcel, a public hearing and the
tabulation of ballots weighted according to the proportional financial
obligation of the affected party, and (iv) a prohibition against fees and
charges which are used for general governmental services, including police, fire
or library services, where the service is available to the public at large in
substantially the same manner as it is to property owners.
Proposition 218 (Article XIII C) also removes limitations on the initiative
power in matters of reducing or repealing local taxes, assessments, fees or
charges. Legislation is currently pending in California to implement the
provisions of Proposition 218.
VOTER INITIATIVES. On June 3, 1986, California voters approved Proposition 46,
which added an additional exemption to the 1% tax limitation imposed by Article
XIII A. Under this amendment to Article XIII A, local governments and school
districts may increase the property tax rate above 1% for the period necessary
to retire new general obligation bonds, if two-thirds of those voting in a local
election approve the issuance of such bonds and the money raised through the
sale of
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the bonds is used exclusively to purchase or improve real property.
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.
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. The oral settlement of
this case, finalized in July 1996, 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
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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. Substantially
increased State General Fund revenues, above initial budget projections in the
1994-95, 1995-96 and 1996-97 fiscal years have resulted or will result in
retroactive increases in Proposition 98 appropriations from subsequent fiscal
year's budgets.
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 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.
On September 28, 1995, the California Supreme Court, in the case of Santa Clara
County Local Transportation Authority v. Guardino, upheld the constitutionality
of Proposition 62. In this case, the court held that a county-wide sales tax of
one-half of one percent was a special tax that, under Section 53722 of the
Government Code, required a two-thirds vote approval. Because the tax received
an affirmative vote of only 54.1%, this special tax was found to be invalid.
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.
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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, 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
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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 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. 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
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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.
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
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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.
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
1994-95, although not all these actions were taken in each year:
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;
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o reduction in growth of support for higher education programs, coupled
with increases in student fees through the 1994-95 fiscal year;
o maintenance of the minimum Proposition 98 funding guarantee for K-14
schools, and the disbursement of additional funds to keep a constant level of
about $2,400 per K-12 pupil through the 1993-94 fiscal year;
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, again using cross-fiscal year revenue warrants to
partly finance the deficit into the 1995-96 fiscal year.
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
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.
During the past several fiscal years 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 last and largest of these borrowings was
$4.0
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billion of revenue anticipation warrants, which were issued in July, 1994 and
matured on April 25, 1996.
1995-96 FISCAL YEAR
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
Budget Act also projected Special Fund revenues of $12.7 billion and
appropriated Special Fund expenditures of $13.0 billion.
Final data for the 1995-96 Fiscal Year showed revenues and transfers of $46.1
billion, some $2 billion over the original fiscal year estimate, which was
attributed to the strong economic recovery. Expenditures also increased, to an
estimated $45.4 billion, as a result of the requirement to expend revenues for
schools under Proposition 98, and, among other things, failure of the federal
government to enact welfare reform during the fiscal year and to budget new aid
for illegal immigrant costs, both of which had been counted on to allow
reductions in State costs. The SFEU had a small negative balance of about $87
million at June 30, 1996, all but eliminating the accumulated budget deficit
from the early 1990's. Available internal borrowable resources (available cash,
after payment of all obligations due) on June 30, 1996 was about $3.8 billion,
representing a significant improvement in the State's cash position, and ending
the need for deficit borrowing over the end of the fiscal year. The State's
improved cash position allowed it to repay the $4.0 billion Revenue Anticipation
Warrant issue on April 25, 1996, and to issue only $2.0 billion of revenue
anticipation notes during the fiscal year, which matured on June 28, 1996.
The 1995-96 Budget Act included substantial additional funding under Proposition
98 for schools and community colleges (about $1.0 billion General Fund and $1.2
billion total above 1994-95 levels). Because of higher than projected revenues
in 1994-95, an additional $561 million ($92 per K-12 ADA) was appropriated to
the 1994-95 Proposition 98 entitlement. A large part of this was a block grant
of about $50 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 was
based on the settlement of the CTA v. Gould litigation described above. Cuts in
health and welfare costs totaled About $220 million, almost $700 million less
than had been anticipated, because of the failure by the federal government to
approve certain of these actions in a timely manner. The federal government also
failed to appropriate all but $31 million of an anticipated $500 million in new
federal aid for incarceration and health care costs of illegal immigrants.
Funding from the General Fund for the University of California was increased by
$106 million and for the California State University system by $97 million, with
no increases in student fees.
CURRENT STATE BUDGET
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The discussion below of the 1996-97 Fiscal Year budget, the proposed 1997-98
Fiscal Year budget below are based on estimates and projections of revenues and
expenditures for the current and upcoming 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.
1996-97 FISCAL YEAR
1996-97 Budget Act
The 1996-97 Budget Act was signed by the Governor on July 15, 1996,
along with various implementing bills. The Governor vetoed about $82 million of
appropriations (both General Fund and Special Fund). With the signing of the
Budget Act, the State implemented its regular cash flow borrowing program with
the issuance of $3.0 billion of Revenue Anticipation Notes to mature on June 30,
1997. The Budget Act appropriated a modest budget reserve in the SFEU of $305
million, as of June 30, 1997. The Department of Finance projected that, on June
30, 1997, the State's available internal borrowable (cash) resources will be
$2.9 billion, after payment of all obligations due by that date, so that no
cross-fiscal year borrowing will be needed.
Revenues - The Legislature rejected the Governor's proposed 15% cut in
personal income taxes (to be phased over three years), but did approve a 5% cut
in bank and corporation taxes, to be effective for income years starting on
January 1, 1997. As a result, revenues for the Fiscal Year were estimated to
total $47.643 billion, a 3.3 percent increase over the final estimated 1995-96
revenues. Special Fund revenues were estimated to be $13.3 billion.
Expenditures - The Budget Act contained General Fund appropriations
totaling $47.251 billion, a 4.0 percent increase over the final estimated
1995-96 expenditures. Special Fund expenditures were budgeted at $12.6 billion.
The following are principal features of the 1996-97 Budget Act:
1. Proposition 98 funding for schools and community college
districts increased by almost $1.6 billion (General Fund) and $1.65 billion
total above revised 1995-96 levels. Almost half of this money was budgeted to
fund class-size reductions in kindergarten and grades 1-3. Also, for the second
year in a row, the full cost of living allowance (3.2 percent) was funded. The
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Proposition 98 increases have brought K-12 expenditures to almost $4,800 per
pupil (also called per ADA, or Average Daily Attendance), an almost 15 %
increase over the level prevailing during the recession years. Community
colleges will receive an increase in funding of $157 million for 1996- 97 out of
this $1.6 billion total.
Because of the higher than projected revenues in 1995-96, an additional
$1.1 billion ($190 per K-12 ADA and $145 million for community colleges) was
appropriated and retroactively applied towards the 1995-96 Proposition 98
guarantee, bringing K-12 expenditures in that year to over $4,600 per ADA. These
new funds were appropriated for a variety of purposes, including block grants,
allocations for each school site, facilities for class size reduction, and a
reading initiative. Similar retroactive increases totaling $230 million, based
on final figures on revenues and State population growth, were made to the
1991-92 and the 1994-95 Proposition 98 guarantees, most of which was allocated
to each school site.
2. The Budget Act assumed savings of approximately $660
million in health and welfare costs which required changes in federal law,
including federal welfare reform. The Budget Act further assumed federal law
changes in August 1996 which would allow welfare cash grant levels to be reduced
by October 1, 1996. These cuts totaled approximately $163 million of the
anticipated $660 million savings.
3. A 4.9 percent increase in funding for the University of
California ($130 million General Fund) and the California State University
system ($101 million General Fund), with no increases in student fees,
maintaining the second year of the Governor's four-year "Compact" with the
State's higher education units.
4. The Budget Act assumed the federal government will provide
approximately $700 million in new aid for incarceration and health care costs of
illegal immigrants. These funds reduce appropriations in these categories that
would otherwise have to be paid from the General Fund. (For purposes of cash
flow projections, the Department of Finance expects $540 million of this amount
to be received during the 1996-97 fiscal year.)
5. General Fund support for the Department of Corrections was
increased by about 7 percent over the prior year, reflecting estimates of
increased prison population.
6. With respect to aid to local governments, the principal new
programs included in the Budget Act are $100 million in grants to cities and
counties for law enforcement purposes, and budgeted $50 million for competitive
grants to local governments for programs to combat juvenile crime.
The Budget Act did not contain any tax increases. As noted, there was a
reduction in corporate taxes. In addition, the Legislature approved another
one-year suspension of the Renters Tax Credit, saving $520 million in
expenditures.
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Federal Welfare Reform - Following enactment of the 1996-97 Budget Act,
Congress passed and the President signed (on August 22, 1996) the Personal
Responsibility and Work Opportunity Act of 1996 (P.L. 104-193, the "Law") making
a fundamental reform of the current welfare system. Among many provisions, the
Law includes: (i) conversion of Aid to Families with Dependent Children from an
entitlement program to a block grant titled Temporary Assistance for Needy
Families (TANF), with lifetime time limits on TANF recipients, work requirements
and other changes; (ii) provisions denying certain federal welfare and Public
benefits to legal noncitizens, allowing states to elect to deny additional
benefits (including TANF) to legal noncitizens, and generally denying almost all
benefits to illegal immigrants; and (iii) changes in the Food Stamp program,
including reducing maximum benefits and imposing work requirements.
The law requires states to implement the new TANP program not later
than July 1, 1997 and provides California approximately $3.7 billion in block
grant funds for FY 1996-97 for the provisions of the Law. States are allowed to
implement TANF as soon as Possible and will receive a prorated block grant
effective the date of application. The California State Plan was approved
November 27, 1996 to allow grant reductions to be implemented effective January
1, 1997 and to allow the State to capture approximately $267 million in
additional federal block grant funds over the currently budgeted level. None of
the other federal changes needed to achieve the balance of the $660 million cost
savings were enacted. Thus, in lieu of the $660 million savings initially
assumed, it is now projected that savings will total approximately $320 million.
A preliminary analysis of the Law by the Legislative Analyst's Office
indicates that an overall assessment of how these changes will affect the
State's General Fund will not be known for some time, and will depend on how the
State implements the Law. There are many choices including how quickly the State
implements the law; the degree to which the State elects to make up for cuts in
federal aid, provide more aid to counties, or cut some of its own existing
programs for noncitizens; and the State's ability to avoid certain penalties
written into the Law.
Other Subsequent Developments - With the continued strong economic
recovery in the State, the Department of Finance has estimated, in connection
with the release of Governor's 1997- 98 Budget Proposal, that revenues for the
1996-97 Fiscal Year will exceed initial projections by about $760 million. This
increase will be offset by higher expenditures for K-14 school aid (pursuant to
proposition 98) and for health and welfare costs, because federal law changes
and other federal actions did not provide as much assistance to the State as was
initially planned in the Budget Act. The Department's updated projections show a
balance in the SFEU of $197 million, slightly lower than projected in July,
1996. The Department also projects the State's cash position will be stronger
than originally estimated, with unused internal borrowable resources at June 30,
1997 of about $4.3 billion.
1997-98 FISCAL YEAR PROPOSED BUDGET
On January 9, 1997, the Governor released his proposed budget for the
1997-98 Fiscal Year
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(the "Governor's Budget"). The Governor's Budget projects General Fund revenues
and transfers in 1997-98 of $50.7 billion, a 4.6% increase from revised 1996-97
figures. The Governor proposes expenditures of $50.3 billion, a 3.9 % increase
from 1996-97. The Governor's Budget projects a balance in the SFEU of $553
million on June 30, 1998. The Governor's Budget also anticipates about $3
billion of external borrowing for cash flow purposes during the year, with no
requirement for cross-fiscal year borrowing.
Among the major initiatives and features of the Governor's Budget are
the following:
1. A proposed 10% cut in the Bank and Corporation Tax rate, to be
phased in over two years.
2. Proposition 98 funding for K-14 schools will be increased again, as
a result of stronger revenues. Per-pupil funding for K-12 schools will reach
$5,010, compared to $4,220 as recently as the 1993-94 Fiscal Year. Part of the
new funding is proposed to be dedicated to the completion of the current program
to reduce class size to 20 pupils in lower elementary grades, and to expand the
program by one grade, so that it will cover K-3rd grade.
3. Funding for higher education will be increased consistent with a
four-year "compact" established in 1995-96. There is not projected to be any
increase in student fees at any of the three levels of the State higher
education system.
4. The 1997-98 proposed Governor's Budget assumes approximately $500
million in savings contingent upon federal action. The Budget assumes that
federal law will be enacted to remove the maintenance-of-effort requirement for
Supplemental Security Income (SSI) payments, thereby enabling the state to
reduce grant levels pursuant to previously enacted state law ($279 million). The
Budget also assumes the federal government will fund $216 million in costs of
health care for illegal immigrants.
The Revenue and Expenditure assumptions set forth above have been based
upon certain estimates of the performance of the California and national
economies in 1996 through 1998. As set forth in the 1997-98 Governor's Budget,
released on January 9, 1997, the Department of Finance projects that, despite
some slowdown in the national economy, California will continue steady economic
growth, as it recovers from the recent recession. The Department set out the
following estimates which were used in predicting revenues and expenditures for
the 1996-97 and 1997-98 Fiscal Year Budgets; also set forth are the Department's
most recent previous estimates as set forth in the May Revision of the 1996-97
Governor's Budget, released May 21, 1996:
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ECONOMIC ASSUMPTIONS
<TABLE>
<CAPTION>
1996 1997
----------------------- -----------------------
May Governor's May Governor's
Revision Budget Revision Budget
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Nonfarm wage and salary 12,791 12,771 13,118 13,100
employment (000)
Percent Change 2.7 2.7 2.6 2.6
Personal income ($ billions) 795.0 815.0 843.0 869.1
Percent Change 6.1 7.2 6.0 6.6
Housing Permits (Units 000) 101 94 121 110
Consumer Price Index 2.7 2.0a/ 3.1 2.7
Percent Change
a/actual
</TABLE>
- --------
SOURCE: State of California, Department of Finance, January 9, 1997 (for
"Governor's Budget") and May, 1996 (for "May Revision").
ADDITIONAL CONSIDERATIONS. With respect to Municipal Securities issued by the
State of California and its political subdivisions, as well as certain other
governmental issuers such as the Commonwealth of Puerto Rico, the Trust cannot
predict what legislation, if any, may be proposed in the California State
Legislature as regards the California State personal income tax status of
interest on such obligations, or which proposals, if any, might be enacted. Such
proposals, if enacted, might materially adversely affect the availability of
California Municipal Securities for investment by the California Fund and the
value of the Fund's investments. In such event, the Trustees would reevaluate
the investment objective and policies of the California Fund and consider
changes in its investments structure or possible dissolution.
SPECIAL CONSIDERATIONS RELATING TO FLORIDA MUNICIPAL SECURITIES
The following information constitutes only a brief summary, and does
not purport to be a complete description. The information in this section is
updated periodically. While the Fund has not independently verified such
information, it has no reason to believe that such information is not correct in
all material respects. The source of the 1994-95, 1995-96 and 1996-97 figures
set forth below is the Revenue and Economic Analysis Unit of the Executive
Office of the Governor of the State of Florida. Such figures are preliminary and
subject to change without notice.
POPULATION. In 1980, Florida was ranked seventh among the fifty states with a
population of 9.7 million people. The State has grown dramatically since then
and as of April 1, 1996 ranks fourth with an estimated population of 14.4
million. Since the beginning of the eighties, Florida has surpassed Ohio,
Illinois, and Pennsylvania in total population. Florida's attraction, as both a
growth
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and retirement state, has kept net migration at an average of 230,000 new
residents per year, from 1987 through 1996.
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
1995, 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 1987, the State's population has increased an estimated 24%.
In the same period of time, Florida's total non-farm employment has increased by
over 35.6%. The average rate of unemployment for Florida since 1987 is 6.2%
while the national average is 6.2%. Though the State has grown by an average of
274,830 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 1987.
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 1996,
the share had edged downward to 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 8.1% of total U.S. housing starts in 1996, while the State's
population is 5.5% of the nation's population. Since 1985, total housing starts
have averaged 148,000 per year.
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 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
42.9 million people visited the State in 1995, as reported by the Florida
Department of Commerce. As discussed below, tourism in Florida appears to be
recovering from the effects of negative publicity regarding crime.
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OUTLOOK. The current Florida Economic Consensus Estimating Conference forecast
shows that the Florida economy is expected to grow at a moderate pace, 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 118,400 in 1996 and 115,500 in 1997. Multi-family
starts have been slow to recover, but they are showing some strong growth lately
and should maintain a level of 30,300 in 1996-97 and 30,900 in 1997-98. Single
family starts are expected to exceed 85,800 this year and reach a level of
84,600 next year. Total construction expenditures are forecasted to increase
7.6% this year and increase 3.1% next year.
Real personal income in Florida is estimated to increase 4.2% in
1996-97 and increase 4.2% in 1997-98 while real personal income per capita is
projected to grow at 2.3% in 1996-97 and 2.3% in 1997-98.
Florida tourism appears to be recovering from the effects of negative
publicity regarding crime against tourists in the state. Tourist arrivals are
expected to increase by 3.1% this fiscal year and 4.7% next year. Air tourists
are expected to increase by 4.8% this year and increase by 4.5% next year, while
auto tourists are expected to increase by 1.1% in 1996-97 and increase 4.9% in
1997-98. By the end of this fiscal year, 42.7 million domestic and international
tourists are expected to have visited the State. In 1997-98, tourist arrivals
should approximate 44.7 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 1995-96, 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 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 1996-97 General Revenue plus Working Capital and
Budget Stabilization funds available total $16,617.4 million, a 6.7% increase
over 1995-96. With combined General Revenue, Working Capital Fund and Budget
Stabilization Fund appropriations at $15,537.2 million, unencumbered reserves at
the end of 1996-97 are estimated at $1,080.2 million.
Estimated fiscal year 1997-98 General Revenue plus Working Capital and
Budget stabilization funds available total $17,537.3 million, a 5.5% increase
over 1996-97.
In fiscal year 1995-96, 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 69%, 7%, 4% and 4%, respectively, of total General Revenue Funds available.
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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 1995-96, appropriations from the General Revenue Fund for
education, health and welfare, and public safety amounted to 51%, 31% and 14%,
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) 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, 1996, receipts from this source were $11,461 million,
an increase of 7.4% over fiscal year 1994-95.
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, 1996, were $1,923 million. However, these
revenues are almost entirely dedicated trust funds for specific purposes and are
not included in the State's General Revenue Fund.
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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 $441.5 million in the State fiscal year ended June 30,
1996, an increase of $4.2 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 1995-96, $100.6 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, 1996, receipts from this source
were $1,162.7 million, an increase of 9.3% from fiscal year 1994-95.
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
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$775.2 million during fiscal year 1995-96, posting an 11.5% increase 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 1995-96,
gross receipts utilities tax collections totaled $543.3 million an increase of
6.9% over the previous fiscal year. All gross receipts utility tax collections
are credited to the Public Education Capital Outlay and Debt Services Fund.
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 1995-96, total
intangible personal property tax collections were $895.9 million, a 9.5%
increase from 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 $77.2
million during fiscal year 1995-96, up 26.1% from the previous 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 1995-96 produced ticket sales of $2.07 billion of which
education received approximately $788.1 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.
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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. 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
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 total 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.
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.
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INVESTMENT RESTRICTIONS
The investment restrictions numbered 1 through 16 below have been
adopted by the Trust 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 Trust, 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 Trust meeting, if the holders of more than 50% of the outstanding
shares of the Trust 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 22 may be changed by vote of a
majority of the Trust's Board of Trustees at any time.
The investment policies adopted by the Trust 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 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
-59-
<PAGE> 225
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. 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 exchange or as otherwise permitted by law,
including the 1940 Act.
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<PAGE> 226
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 of a Money Fund, or more than 15% of the net assets of a
Non-Money Fund, would be 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
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<PAGE> 227
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. Making investments for the purpose of exercising control or management.
21. Purchasing or selling interests in real estate limited partnerships.
22. 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," 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 Trust 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 Trust determine that any such
commitment is no longer in the best interests of the Fund and its shareholders,
the Trust 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,
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<PAGE> 228
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 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 Trust'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 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.
-63-
<PAGE> 229
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 Trust, 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 Trust, 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 Trust and the Sub-Advisors are not reduced by
reason of their receiving such brokerage and research services. The Trust'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 Trust.
Consistent with applicable provisions of the 1940 Act, the rules and
exemptions adopted by the Commission thereunder, and relevant interpretive and
"no-action" positions taken by the Commission's staff, the Trust'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 (other than
affiliated persons of the Trust solely because the broker is an affiliated
person of a sub-adviser of another Fund) 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.
For the three fiscal years ended June 30, 1995, 1996 and 1997, the Trust paid
brokerage commissions of approximately $_____, $_____ and $_____, respectively
to J.P. Morgan, an affiliate of J.P. Morgan Investment Management. For the
fiscal year ended June 30, 1995, 1996 and 1997, commissions paid to J.P. Morgan
represented approximately _____%, _____% and _____%, respectively, of the total
amount of brokerage commissions paid in such period and which were paid in
transactions that incurred commissions paid by the Trust during such period. For
the three fiscal years ended June 30, 1995, 1996 and 1997, the Trust paid
brokerage commissions of approximately $_____, $_____ and $_____, respectively,
to Donaldson, Lufkin &
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<PAGE> 230
Jenrette, an affiliate of Janus Capital Corporation. For the fiscal year ended
June 30, 1995, 1996 and 1997, commissions paid to Donaldson, Lufkin & Jenrette
represented approximately ____%, ____% and ____%, respectively, of the total
amount of brokerage commissions paid in such period and which were paid on
transactions that represented ____%, ____% and ____% respectively, of the
aggregate dollar amount of transactions that incurred commissions paid by the
Trust during such period.
For the fiscal years ended December 31, 1995, 1996 and 1997, the Funds paid the
following brokerage commissions:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
TOTAL BROKERAGE COMMISSIONS PAID
- ----------------------------------------------------------------------------------------------------------
Year ended Year ended Year ended
Fund 6/30/97 6/30/96 6/30/95
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Global Money Fund
- ----------------------------------------------------------------------------------------------------------
U.S. Government Money Fund
- ----------------------------------------------------------------------------------------------------------
California Money Fund
- ----------------------------------------------------------------------------------------------------------
Corporate Income Fund
- ----------------------------------------------------------------------------------------------------------
U.S. Government Fund
- ----------------------------------------------------------------------------------------------------------
Short Term Global Government Fund
- ----------------------------------------------------------------------------------------------------------
Short Term High Quality Bond Fund
- ----------------------------------------------------------------------------------------------------------
National Municipal Fund
- ----------------------------------------------------------------------------------------------------------
California Municipal Fund
- ----------------------------------------------------------------------------------------------------------
Florida Insured Municipal Fund
- ----------------------------------------------------------------------------------------------------------
California Insured Intermediate Municipal Fund
- ----------------------------------------------------------------------------------------------------------
Growth and Income Fund
- ----------------------------------------------------------------------------------------------------------
Emerging Growth Fund
- ----------------------------------------------------------------------------------------------------------
Growth Fund
- ----------------------------------------------------------------------------------------------------------
International Growth Fund
- ----------------------------------------------------------------------------------------------------------
Target Maturity Fund
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
TOTAL BROKERAGE COMMISSIONS PAID TO AFFILIATED PERSONS
- ----------------------------------------------------------------------------------------------------------
Year ended Year ended Year ended
Fund 6/30/97 6/30/96 6/30/95
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Global Money Fund
- ----------------------------------------------------------------------------------------------------------
U.S. Government Money Fund
- ----------------------------------------------------------------------------------------------------------
California Money Fund
- ----------------------------------------------------------------------------------------------------------
</TABLE>
-65-
<PAGE> 231
<TABLE>
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
Corporate Income Fund
- ----------------------------------------------------------------------------------------------------------
U.S. Government Fund
- ----------------------------------------------------------------------------------------------------------
Short Term Global Government Fund
- ----------------------------------------------------------------------------------------------------------
Short Term High Quality Bond Fund
- ----------------------------------------------------------------------------------------------------------
National Municipal Fund
- ----------------------------------------------------------------------------------------------------------
California Municipal Fund
- ----------------------------------------------------------------------------------------------------------
Florida Insured Municipal Fund
- ----------------------------------------------------------------------------------------------------------
California Insured Intermediate Municipal Fund
- ----------------------------------------------------------------------------------------------------------
Growth and Income Fund
- ----------------------------------------------------------------------------------------------------------
Emerging Growth Fund
- ----------------------------------------------------------------------------------------------------------
Growth Fund
- ----------------------------------------------------------------------------------------------------------
International Growth Fund
- ----------------------------------------------------------------------------------------------------------
Target Maturity Fund
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
TOTAL AMOUNT OF
TRANSACTIONS WHERE
TOTAL BROKERAGE COMMISSIONS BROKERAGE COMMISSIONS
PAID TO BROKERS THAT PROVIDED WERE PAID TO BROKERS THAT
RESEARCH PROVIDED RESEARCH
- -----------------------------------------------------------------------------------------------------------------------
Fund Year ended Year ended
6/30/96 6/30/97
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Global Money Fund $0 $0
- -----------------------------------------------------------------------------------------------------------------------
U.S. Government Money Fund $0 $0
- -----------------------------------------------------------------------------------------------------------------------
California Money Fund $0 $0
- -----------------------------------------------------------------------------------------------------------------------
Corporate Income Fund $0 $0
- -----------------------------------------------------------------------------------------------------------------------
U.S. Government Fund $0 $0
- -----------------------------------------------------------------------------------------------------------------------
Short Term Global Government Fund $0 $0
- -----------------------------------------------------------------------------------------------------------------------
Short Term High Quality Bond Fund $0 $0
- -----------------------------------------------------------------------------------------------------------------------
National Municipal Fund $0 $0
- -----------------------------------------------------------------------------------------------------------------------
California Municipal Fund $0 $0
- -----------------------------------------------------------------------------------------------------------------------
Florida Insured Municipal Fund $0 $0
- -----------------------------------------------------------------------------------------------------------------------
California Insured Intermediate Municipal Fund $0 $0
- -----------------------------------------------------------------------------------------------------------------------
Growth and Income Fund $0 $0
- -----------------------------------------------------------------------------------------------------------------------
Emerging Growth Fund $961 $676,876
- -----------------------------------------------------------------------------------------------------------------------
Growth Fund $1,310 $936,110
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 232
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
International Growth Fund* $65,416 $118,936,350
- -----------------------------------------------------------------------------------------------------------------------
Target Maturity Fund $0 $0
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
*Represents figures for period from October 18, 1996 to June 30, 1997.
The Trust is required to identify any securities of its "regular
brokers or dealers" (as such term is defined in the 1940 Act) which the Trust
has acquired during its most recent fiscal year. As of June 30, 1997, none of
the Funds held any securities of any "regular broker or dealer" of the Trust.
NET ASSET VALUE
The Trust 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
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 Trust. 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 Trust 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
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<PAGE> 233
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 Trust 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 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 Trust 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 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 Share or Class S Share next
computed after receipt
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<PAGE> 234
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,
1997 and the application of the maximum sales charge for the Funds, as set forth
in the table below.
<TABLE>
<CAPTION>
Florida
California Insured National
U.S. Corporate Municipal Municipal Municipal Growth and
Class A Shares Government(1) Income Fund(1) Fund(1) Fund(1) Fund(1) Income Fund(2)
-------------- ---------- ----------- ---- ---- ---- -----------
<S> <C> <C> <C> <C> <C> <C>
Net Assets................... $___________ $___________ $__________ $___________ $__________ $__________
Outstanding Shares........... __________ __________ __________ __________ __________ __________
Net Asset Value
Per Share................... $____ $______ $_____ $_____ $_____ $_____
Sales Charge, as a
percentage of the offering
price........................ ____% ____% ____% ____% ____% ____%
Offering to Public........... $____ $_____ $_____ $_____ $_____ $_____
</TABLE>
-69-
<PAGE> 235
<TABLE>
<CAPTION>
California
Short Term Insured Target
Global Short Term Intermediate Maturity
Emerging International Government High Quality Municipal 2002
Growth Fund(2) Growth Fund(2) Growth Fund(2) Fund(3) Bond Fund(3) Fund(1) Fund(4)
----------- ----------- ----------- ---- --------- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Net Assets.................. $___________ $___________ $___________ $__________ $__________ $__________ $________
Outstanding Shares.......... __________ __________ __________ __________ __________ _________ _______
Net Asset Value
Per Share.................. $_____ $_____ $_____ $____ $____ $_____ $_____
Sales Charge, as a
percentage of the offering
price....................... ____% ____% ____% ____% ____% ____% ____%
Offering to Public.......... $_____ $_____ $_____ $_____ $_____ $_____ $_____
</TABLE>
- ------------------
(1) The maximum sales charge for the U.S. Government, Corporate Income,
California Municipal, Florida Insured Municipal, National Municipal and
California Insured Intermediate Municipal Funds is 4.5%.
(2) The maximum sales charge for the Growth and Income, Growth, Emerging Growth
and International Growth Funds is 5.75%.
(3) The maximum sales charge for the Short Term Global Government and Short
Term High Quality Bond Funds is 3.5%.
(4) The maximum sales charge for the Target Maturity Fund is 2.0%.
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 Trust 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 CDSC of 1.0% or 0.5% imposed on redemptions of Class A Shares for
which the entire sales charge at purchase was waived as described in
"Application of Class A Shares CDSC" in the prospectuses of the Funds will be
waived in certain instances as described in "Waivers of Class A Shares CDSC" in
the prospectuses. For purposes of the waivers described in such section of the
prospectuses, a person will be deemed "disabled" only if the person is unable to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment
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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 Trust 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 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 Trust at P.O.
Box 5118, Westboro, Massachusetts 01581-5118 or by calling the Trust 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 Trust'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.
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<PAGE> 237
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 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 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,
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 Trust 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 Trust
reserves the right to reject any exchange request.
DETERMINATION OF PERFORMANCE
From time to time, the Trust 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
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<PAGE> 238
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, 1997, 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 ____%, ____% and ____%,
respectively, and the effective yields of such shares of each such Fund for the
same period were ____%, ____% and ____%, respectively. The California Money Fund
may also calculate its tax equivalent yield as described on the following page.
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:
YIELD = 2[(a-b + 1)6 - 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.
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<PAGE> 239
Based on the foregoing calculation, the SEC Yields relating to the
outstanding shares treated as Class A Shares for the 30-day period ended June
30, 1997 are as follows:
<TABLE>
<CAPTION>
Fund Yield
---- -----
<S> <C>
U.S. Government Fund _____
Corporate Income Fund _____
California Municipal Fund _____
Florida Insured Municipal Fund _____
California Insured Intermediate Municipal Fund _____
Short Term Global Government Fund _____
Short Term High Quality Bond Fund _____
National Municipal Fund _____
Target Maturity Fund _____
</TABLE>
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 period ended June
30, 1997 for the outstanding shares California Municipal, Florida Insured
Municipal, California Insured Intermediate Municipal and National Municipal
Funds were ____%, ____%, ____% and ____%, respectively.
The tax equivalent yield for the California Money, California
Municipal, California Insured Intermediate 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, 1997 was ____%. The tax equivalent
SEC 30-day yields for the period ended June 30, 1997 for the outstanding shares
of the California Municipal, Florida Insured Municipal, California Insured
Intermediate Municipal, National Municipal and Target Maturity Funds were ____%,
____%, ____%, ____% and ____%, respectively. The tax equivalent yield based on
the 30-day average yield for the period ended June 30, 1997 for the outstanding
shares of the California Municipal, Florida Insured Municipal, California
Insured Intermediate Municipal and the National Municipal Funds were _____%,
____%, ____% and ____%, respectively. Tax-equivalent yields assume the payment
of federal income taxes at a rate of 39.6% and, if applicable, California state
income taxes at a rate of 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
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<PAGE> 240
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:
P(1+T)n = 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
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, 1997 and for the
period from inception through June 30, 1997 are as follows:
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<PAGE> 241
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Aggregate
Since Date Total Return
of from Date of
One Year Five Year Inception Inception
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHORT TERM HIGH QUALITY BOND FUND*
CLASS A SHARES 11/1/93
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
CLASS B SHARES 6/30/94
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
CLASS S SHARES 6/30/94
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
- --------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT FUND
CLASS A SHARES 7/25/89
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
CLASS B SHARES 6/30/94
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
CLASS S SHARES 6/30/94
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
- --------------------------------------------------------------------------------------------------------
CORPORATE INCOME FUND
CLASS A SHARES 7/18/90
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
CLASS B SHARES 6/30/94
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
CLASS S SHARES 6/30/94
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
- --------------------------------------------------------------------------------------------------------
CALIFORNIA MUNICIPAL FUND
CLASS A SHARES 7/25/89
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
CLASS B SHARES 6/30/94
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
CLASS S SHARES 6/30/94
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
- --------------------------------------------------------------------------------------------------------
CALIFORNIA INSURED INTERMEDIATE MUNICIPAL
FUND
CLASS A SHARES 4/4/94
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
CLASS B SHARES 6/30/94
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
CLASS S SHARES 6/30/94
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
- --------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 242
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Aggregate
Since Date Total Return
of from Date of
One Year Five Year Inception Inception
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FLORIDA INSURED MUNICIPAL FUND
CLASS A SHARES 6/7/93
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
CLASS B SHARES 6/30/94
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
CLASS S SHARES 6/30/94
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
- --------------------------------------------------------------------------------------------------------
NATIONAL MUNICIPAL FUND
CLASS A SHARES 7/18/90
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
CLASS B SHARES 6/30/94
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
CLASS S SHARES 6/30/94
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
- --------------------------------------------------------------------------------------------------------
GROWTH AND INCOME FUND
CLASS A SHARES 7/25/89
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
CLASS B SHARES 6/30/94
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
CLASS S SHARES 6/30/94
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
- --------------------------------------------------------------------------------------------------------
GROWTH FUND
CLASS A SHARES 4/5/93
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
CLASS B SHARES 6/30/94
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
CLASS S SHARES 6/30/94
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
- --------------------------------------------------------------------------------------------------------
INTERNATIONAL GROWTH FUND
CLASS A SHARES 7/18/90
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
CLASS B SHARES 6/30/94
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
CLASS S SHARES 6/30/94
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
- --------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 243
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Aggregate
Since Date Total Return
of from Date of
One Year Five Year Inception Inception
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHORT TERM GLOBAL GOVERNMENT FUND
CLASS A SHARES 2/11/92
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
CLASS B SHARES 6/30/94
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
CLASS S SHARES 6/30/94
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
- --------------------------------------------------------------------------------------------------------
EMERGING GROWTH FUND
CLASS A SHARES 7/18/90
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
CLASS B SHARES 6/30/94
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
CLASS S SHARES 6/30/94
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
- --------------------------------------------------------------------------------------------------------
TARGET MATURITY 2002 FUND
CLASS A SHARES 3/20/95
Adjusted for Maximum Sales Charge
Not Adjusted for Sales Charge
- --------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
* Based on a maximum sales charge of 4.5%
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 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 Trust'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
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<PAGE> 244
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:
[THE FOLLOWING IS A TABULAR REPRESENTATION THAT REPLACES GRAPHIC MATERIAL FOR
EDGAR FILING PURPOSES.]
The following replaces a bar graph that indicates years of investment
in increments of five years beginning at five years and ending at twenty years
on the horizontal axis and amount of total return for "Tax-Deferred Growth
(after-tax contributions and tax-deferred earnings)" and for "Conventional
Savings Plan (after-tax contributions and earnings)" on the vertical axis.
IRAs CAN HELP YOU EARN MORE
For $100,000 compounded annually at 8%
$146,933+ $215,892+ $466,096+
$128,359++ $164,761++ $271,461++
---------- ---------- ----------
5 Years 10 Years 20 Years
+ 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
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<PAGE> 245
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 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 Trust'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 Trust'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-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%
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<PAGE> 246
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 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.
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<PAGE> 247
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 a Fund accrues interest or other
receivables (or accrues expenses or other liabilities) denominated in a foreign
currency and the time the 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 Fund's investment company
taxable income to be distributed to its shareholders as ordinary income.
Many futures contracts entered into by a Fund, certain forward foreign
currency contracts, and all listed nonequity options written or purchased by the
Fund will be governed by Section 1256 of the Code. On the last trading day of a
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 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 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 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
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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 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 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
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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
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.
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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 Trust'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 Trust and Sierra Services. To compensate
Sierra Services for the distribution-related services it provides, and
broker-dealers authorized by Sierra Services, the Trust 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 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 Trust 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 Trust 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
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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 under the Plans
and purpose for which such expenditures were made.
For the fiscal years ended June 30, 1997, 1996 and 1995, Sierra
Services received distribution fees totaling (after waivers of fees) $_________,
$6,430,836 and $6,715,281, respectively, in the aggregate, from the Funds under
the Class A Plan. For the same periods, Sierra Services received $_____,$0 and
$58,212, respectively, representing contingent deferred sales charges on
redemptions of Class A Shares of the Funds. In addition, for the fiscal years
ended June 30, 1997, 1996 and 1995, Sierra Services received $________, $637,291
and $7,099,863, respectively, representing compensation from front-end sales
charges on Fund shares sold. For each fiscal year ended June 30, 1997, 1996 and
1995, Sierra Services voluntarily waived no distribution fees in the aggregate.
During the fiscal year ended June 30, 1997, Sierra Services incurred
distribution and operating expenses with respect to Class A Shares of the Funds
totaling $__________ consisting of $_______ for advertising; $_______ for
marketing promotion; $_________ for preparation, printing and distribution of
sales literature and shareholders reports; $_______ for fulfillment; $_______
for seminars; $_________ for salaries to the Sierra Services' personnel;
$_________ in commissions and additional compensation to the Sierra Services'
personnel; $_______ for occupancy; $______ for telephone; and $_______ in
administration expenses.
Sierra Services serves as distributor of Class B and S Shares of the
Trust. For the fiscal year ended June 30, 1997, Sierra services received
distribution fees from the Funds totaling $_______, in the aggregate under the
Class B Distribution Plan and _______, in the aggregate under the Class S
Distribution Plan. For the same period, Sierra services received $______,
representing CDSC on redemptions of Class B Shares of the Funds and $______,
representing CDSC on redemptions of Class S Shares of the Funds. For the fiscal
year ended June 30, 1997, 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 Trust. For the fiscal year
ended June 30, 1997, FDI received distribution fees from the Funds totaling
$_______, in the aggregate under the Class B Distribution Plan and $_______, in
the aggregate under the Class S Distribution Plan. For the same period, FDI
received $_______, representing CDSC on redemptions of Class B Shares of the
Funds and $_______, representing CDSC on redemptions of Class S Shares of the
Funds. For the fiscal year ended June 30, 1997 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.
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.
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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 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.
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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 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.
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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 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.
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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.
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.
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FINANCIAL STATEMENTS*
The following are the audited financial statements for the fiscal year ended
June 30, 1997, and the Report of Independent Accountants of Price Waterhouse LLP
dated August ___, 1997 relating to the financial statements and financial
highlights of each of the fund series constituting the Sierra Trust Funds.
* To be filed by amendment.
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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, 1997.
*Financial Statements (included in Part B)
(i) The following audited Financial Statements as of June
30, 1997 and the Report of Price Waterhouse, LLP
dated August ____, 1997 are hereby incorporated by
reference to the Statement of Additional Information
from Form N-30D, the Annual Report to Shareholders,
as filed with the Securities and Exchange Commission
on August ____, 1997 with
Accession Number ______________________.
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
* To be filed by amendment.
(b) Exhibits (See numbered footnotes at end of list of Exhibits)
1(a) Master Trust Agreement of the Registrant dated February 22,
1989, originally filed as an exhibit to Registration Statement
on Form N-1A March 10, 1989, is filed herewith.
1(a)-1 Amendment No. 1, to Master Trust Agreement, dated May 10, 1989
was originally filed as an exhibit to Pre-Effective Amendment
No. 1 on May 12, 1989 and is filed herewith.
1(a)-2 Amendment No. 2, to Master Trust Agreement, dated May 22, 1989
was originally filed as an exhibit to Pre-Effective Amendment
No. 3 on July 6, 1989 and is filed herewith.
1(a)-3 Amendment No. 3, to Master Trust Agreement, dated May 24, 1989
was originally filed as an exhibit to Pre-Effective Amendment
No. 3 on July 6, 1989 and is filed herewith.
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1(a)-4 Amendment No. 4, to Master Trust Agreement, dated May 7, 1990
was originally filed as an exhibit to Post-Effective Amendment
("PEA") No. 2 on May 9, 1990 and is filed herewith.
1(a)-5 Amendment No. 5, to Master Trust Agreement, dated December 4,
1991 was originally filed as an exhibit to PEA No. 8 on
December 5, 1991 and is filed herewith.
1(a)-6 Amendment No. 6, to Master Trust Agreement, dated January 30,
1992 was originally filed as an exhibit to PEA No. 10 on
October 14, 1992 and is filed herewith.
1(a)-7 Amendment No. 7, to Master Trust Agreement, dated September
10, 1992 was originally filed as an exhibit to PEA No. 10 on
October 14, 1992 and is filed herewith.
1(a)-8 Amendment No. 8, to Master Trust Agreement, dated September
22, 1993 was originally filed as an exhibit to PEA No. 16 on
March 15, 1994 and is filed herewith.
1(a)-9 Amendment No. 9, to Master Trust Agreement, dated March 13,
1994 was originally filed as an exhibit to PEA No. 16 on March
15, 1994 and is filed herewith.
1(a)-10 Amendment No. 10, to Master Trust Agreement, dated January 20,
1995 was originally filed as an exhibit to PEA No. 21 on
September 1, 1995 and is filed herewith.
1(a)-11 Amendment No. 11, to Master Trust Agreement, dated July 19,
1996 is incorporated by reference to Exhibit 1(l) of PEA No.
23 filed with the SEC on August 30, 1996.
2(a) By-Laws of the Registrant, dated February 22, 1989, were filed
as Exhibit 2 to Registration Statement on Form N-1A March 10,
1989.
2(b) By-laws of the Registrant, as amended through November 18,
1992 are filed herewith.
3 Not Applicable
4 Not Applicable
5(a)-1 Investment Advisory Agreement, dated July 7, 1989, with
respect to the Global Money Fund was originally filed as
Exhibit 5(a) to PEA No. 1 on January 30, 1990 and is filed
herewith.
5(a)-1.1 Amendment, dated June 30, 1994, to the Investment Advisory
Agreement relating to the Global Money Fund, was originally
filed as Exhibit 5(r) to PEA No. 17 on September 1, 1994 and
is filed herewith.
5(a)-2 Investment Advisory Agreement ,dated July 7, 1989, with
respect to the U.S. Government Money Fund was originally filed
as Exhibit 5(a) to PEA No. 1 on January 30, 1990 and is filed
herewith.
5(a)-2.1 Amendment, dated June 30, 1994, to the Investment Advisory
Agreement relating to the U.S. Government Money Fund, was
originally filed as Exhibit 5(s) to PEA No. 17 on September 1,
1994 and is filed herewith.
5(a)-3 Investment Advisory Agreement, dated July 7, 1989, with
respect to the California Money Fund was originally filed as
Exhibit 5(a) to PEA No. 1 on January 30, 1990 and is filed
herewith.
5(a)-3.1 Amendment, dated June 30, 1994, to the Investment Advisory
Agreement relating to the California Money Fund, was
originally filed as Exhibit 5(x) to PEA No. 17 on September 1,
1994 and is filed herewith.
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5(a)-4 Investment Advisory Agreement, dated July 7, 1989, with
respect to the U.S. Government Fund was originally filed as
Exhibit 5(a) to PEA No. 1 on January 30, 1990 and is filed
herewith.
5(a)-4.1 Amendment, dated June 30, 1994, to the Investment Advisory
Agreement relating to the U.S. Government Fund was originally
filed as Exhibit 5(t) to PEA No. 17 on September 1, 1994 and
is filed herewith.
5(a)-5 Investment Advisory Agreement, dated July 7, 1989, with
respect to the California Municipal Fund was originally filed
as Exhibit 5(a) to PEA No. 1 on January 30, 1990 and is filed
herewith.
5(a)-5.1 Amendment, dated June 30, 1994, to the Investment Advisory
Agreement relating to the California Municipal Fund, was
originally filed as Exhibit 5(q) to PEA No. 17 on September 1,
1994 and is filed herewith.
5(a)-6 Investment Advisory Agreement, dated July 7, 1989, with
respect to the Growth and Income Fund was filed as Exhibit
5(a) to PEA No. 1 on January 30, 1990 and replaced by Exhibit
5(a)-6.1.
5(a)-6.1 Investment Advisory Agreement, dated October 22, 1993, with
respect to the Growth and Income Fund, originally filed as
Exhibit 5(l) to PEA No. 18 on October 28, 1994, replaces
Exhibit 5(a)-6 and is filed herewith.
5(a)-7 Investment Advisory Agreement, dated July 18, 1990, with
respect to the Corporate Income Fund was originally filed as
Exhibit 5(b) to PEA No. 4 on October 29, 1990 and is filed
herewith.
5(a)-8 Investment Advisory Agreement, dated July 18, 1990, with
respect to the National Municipal Fund was originally filed as
Exhibit 5(b) to PEA No. 4 on October 29, 1990 and is filed
herewith.
5(a)-8.1 Amendment, dated June 30, 1994, to the Investment Advisory
Agreement relating to the National Municipal Fund, was
originally filed as Exhibit 5(v) to PEA No. 17 on September 1,
1994 and is filed herewith.
5(a)-9 Investment Advisory Agreement, dated July 18, 1990, with
respect to the Emerging Growth Fund (formerly the Equity
Opportunity Fund) was originally filed as Exhibit 5(b) to PEA
No. 4 on October 29, 1990 and replaced by Exhibit 5(a)-9.1.
5(a)-9.1 Investment Advisory Agreement, dated October 22, 1993, with
respect to the Emerging Growth Fund, originally filed as
Exhibit 5(l) to PEA No. 18 on October 28, 1994, replaces
Exhibit 5(a)-9 and is filed herewith.
5(a)-10 Investment Advisory Agreement, dated July 18, 1990, with
respect to the International Growth Fund (formerly the
Strategic International Fund) was originally filed as Exhibit
5(b) to PEA No. 4 on October 29, 1990 and replaced by Exhibit
5(a)-10.1.
5(a)-10.1 Investment Advisory Agreement, dated November 1, 1994, with
respect to the International Growth Fund was originally filed
as Exhibit 5(y) to PEA No. 21 on September 1, 1995 and is
filed herewith.
5(a)-11 Investment Advisory Agreement, dated February 3, 1992, with
respect to the Short Term Global Government Fund was
originally filed as Exhibit 5(c) to PEA No. 9 on August 31,
1992 and is filed herewith.
5(a)-11.1 Amendment, dated June 30, 1994, to the Investment Advisory
Agreement relating to the Short Term Global Government Fund,
was originally filed as Exhibit 5(w) to PEA No. 17 on
September 1, 1994 and is filed herewith.
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5(a)-12 Investment Advisory Agreement, dated April 1, 1993, with
respect to the Growth Fund was originally filed as Exhibit
5(i) to PEA No. 18 on October 28, 1994.
5(a)-13 Investment Advisory Agreement, dated June 2, 1993, with
respect to the Florida Insured Municipal Fund was originally
filed as Exhibit 5(j) to PEA No. 18 on October 28, 1994.
5(a)-13.1 Amendment, dated June 30, 1994, to the Investment Advisory
Agreement relating to the Florida Insured Municipal Fund, was
originally filed as Exhibit 5(u) to PEA No. 17 on September 1,
1994.
5(a)-14 Investment Advisory Agreement, dated September 6, 1993, with
respect to the Short Term High Quality Bond Fund was
originally filed as Exhibit 5(l) to PEA No. 18 on October 28,
1994.
5(a)-15 Investment Advisory Agreement, dated April 1, 1994, with
respect to the California Insured Intermediate Municipal Fund
was originally filed as Exhibit 5(n) to PEA No. 18 on October
28, 1994.
5(a)-15.1 Amendment, dated June 30, 1994, to the Investment Advisory
Agreement relating to the California Insured Intermediate
Municipal Fund, was originally filed as Exhibit 5(p) to PEA
No. 17 on September 1, 1994.
5(a)-16 Investment Advisory Agreement, dated March 17, 1995, with
respect to the Target Maturity 2002 Fund was originally filed
as Exhibit 5(aa) to PEA No. 21 on September 1, 1995.
5(b)-1 Investment Sub-Advisory Agreement, dated July 7, 1989, with
respect to the Global Money Fund was originally filed as
Exhibit 5(b) to PEA No. 1 on January 30, 1990.
5(b)-2 Investment Sub-Advisory Agreement, dated July 7, 1989, with
respect to the U.S. Government Money Fund was originally filed
as Exhibit 5(b) to PEA No. 1 on January 30, 1990.
5(b)-3 Investment Sub-Advisory Agreement, dated July 7, 1989, with
respect to the California Money Fund was originally filed as
Exhibit 5(b) to PEA No. 1 on January 30, 1990.
5(b)-4 Investment Sub-Advisory Agreement, dated July 7, 1989, with
respect to the California Municipal Fund was originally filed
as Exhibit 5(b) to PEA No. 1 on January 30, 1990 and replaced
by Exhibit 5(b)-4.1.
5(b)-4.1 Investment Sub-Advisory Agreement, dated July 25, 1991, with
respect to the California Municipal Fund was originally filed
as Exhibit 5(e) to PEA No. 6 on August 29, 1991 and replaced
by Exhibit 5(b)-4.2.
5(b)-4.2 Investment Sub-Advisory Agreement, dated February 17, 1993,
with respect to the California Municipal Fund was originally
filed as Exhibit 5(gg) to PEA No. 21 on September 1, 1995 and
replaced by Exhibit 5(b)-4.3.
5(b)-4.3 Investment Sub-Advisory Agreement, dated October 31, 1996,
with respect to the California Municipal Fund, National
Municipal Fund, Florida Insured Municipal Fund and California
Insured Intermediate Municipal Fund is filed herewith.
5(b)-5 Investment Sub-Advisory Agreement, dated July 7, 1989, with
respect to the U.S. Government Fund was originally filed as
Exhibit 5(b) to PEA No. 1 on January 30, 1990 and replaced by
Exhibit 5(b)-5.1.
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5(b)-5.1 Investment Sub-Advisory Agreement, dated February 17, 1993,
with respect to the U.S. Government Fund was originally filed
as Exhibit 5(cc) to PEA No. 21 on September 1, 1995 and
replaced by Exhibit 5(b)-5.2.
5(b)-5.2 Investment Sub-Advisory Agreement, dated December 8, 1994,
with respect to the U.S. Government Fund was originally filed
as Exhibit 5(dd) to PEA No. 21 on September 1, 1995 and
replaced by Exhibit 5(b)-5.3.
5(b)-5.3 Investment Sub-Advisory Agreement, dated February 28, 1995,
with respect to the U.S. Government Fund was originally filed
as Exhibit 5(ee) to PEA No. 21 on September 1, 1995.
5(b)-6 Investment Sub-Advisory Agreement, dated July 7, 1989, with
respect to the Growth and Income Fund was originally filed as
Exhibit 5(b) to PEA No. 1 on January 30, 1990 and replaced by
Exhibit 5(b)-6.1.
5(b)-6.1 Investment Sub-Advisory Agreement, dated September 20, 1993,
with respect to the Growth and Income Fund was originally
filed as Exhibit 5(m) to PEA No. 18 on October 28, 1994.
5(b)-7 Investment Sub-Advisory Agreement, dated July 18, 1990, with
respect to the Corporate Income Fund was originally filed as
Exhibit 5(d) to PEA No. 4 on October 29, 1990.
5(b)-8 Investment Sub-Advisory Agreement, dated July 18, 1990, with
respect to the National Municipal Fund was originally filed as
Exhibit 5(d) to PEA No. 4 on October 29, 1990 and replaced by
exhibit 5(b)-8.1.
5(b)-8.1 Investment Sub-Advisory Agreement, dated February 17, 1993,
with respect to the National Municipal Fund was originally
filed as Exhibit 5(hh) to PEA No. 21 on September 1, 1995.
[Exhibit 5(b)-8.1 is replaced by the Investment Sub-Advisory
Agreement dated October 31, 1996 with respect to the
California Municipal Fund, National Municipal Fund, Florida
Insured Municipal Fund and California Insured Intermediate
Municipal Fund filed herewith as Exhibit 5(b)-4.3]
5(b)-9 Investment Sub-Advisory Agreement, dated July 18, 1990, with
respect to the Emerging Growth Fund (formerly the Equity
Opportunity Fund) was originally filed as Exhibit 5(d) to PEA
No. 4 on October 29, 1990 and replaced by Exhibit 5(b)-9.1.
5(b)-9.1 Investment Sub-Advisory Agreement, dated September 20, 1993,
with respect to the Emerging Growth Fund was originally filed
as Exhibit 5(m) to PEA No. 18 on October 28, 1994.
5(b)-10 Investment Sub-Advisory Agreement, dated July 18, 1990, with
respect to the International Growth Fund (formerly the
Strategic International Fund) was originally filed as Exhibit
5(d) to PEA No. 4 on October 29, 1990 and replaced by Exhibit
5(b)-10.1.
5(b)-10.1 Investment Sub-Advisory Agreement, dated November 1, 1994,
with respect to the International Growth Fund was originally
filed as Exhibit 5(z) to PEA No. 21 on September 1, 1995 and
replaced by Exhibit 5(b)-10.2.
5(b)-10.2 Investment Sub-Advisory Agreement, dated April 8, 1996, with
respect to the International Growth Fund is incorporated by
reference to Exhibit 5(ii) of PEA No. 23 filed with the SEC on
August 30, 1996.
5(b)-11 Investment Sub-Advisory Agreement, dated February 3, 1992,
with respect to the Short Term Global Government Fund was
originally filed as Exhibit 5(g) to PEA No. 9 on August 31,
1992.
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5(b)-12 Investment Sub-Advisory Agreement, dated April 2, 1993, with
respect to the Growth Fund was originally filed as Exhibit
5(ff) to PEA No. 21 on September 1, 1995 and replaced by
Exhibit 5(b)-12.1.
5(b)-12.1 Amended and Restated Investment Sub-Advisory Agreement, dated
November 22, 1993, with respect to the Growth Fund was
originally filed as Exhibit 5(h) to PEA No. 21 on September 1,
1995.
5(b)-13 Investment Sub-Advisory Agreement, dated June 7, 1993, with
respect to the Florida Insured Municipal Fund was originally
filed as Exhibit 5(k) to PEA No. 18 on October 28, 1994.
[Exhibit 5(b)-13 is replaced by the Investment Sub-Advisory
Agreement dated October 31, 1996 with respect to the
California Municipal Fund, National Municipal Fund, Florida
Insured Municipal Fund and California Insured Intermediate
Municipal Fund filed herewith as Exhibit 5(b)-4.3]
5(b)-14 Investment Sub-Advisory Agreement, dated September 6, 1993,
with respect to the Short Term High Quality Bond Fund was
originally filed as Exhibit 5(m) to PEA No. 18 on October 28,
1994.
5(b)-15 Investment Sub-Advisory Agreement, dated April 1, 1994, with
respect to the California Insured Intermediate Municipal Fund
was originally filed as Exhibit 5(o) to PEA No. 21 on
September 1, 1995.
[Exhibit 5(b)-15 is replaced by the Investment Sub-Advisory
Agreement dated October 31, 1996 with respect to the
California Municipal Fund, National Municipal Fund, Florida
Insured Municipal Fund and California Insured Intermediate
Municipal Fund filed herewith as Exhibit 5(b)-4.3]
5(b)-16 Investment Sub-Advisory Agreement, dated March 17, 1995, with
respect to the Target Maturity 2002 Fund was originally filed
as Exhibit 5(bb) to PEA No. 21 on September 1, 1995.
6(a)-1 Distribution Agreement (Class A Shares), dated July 7, 1989,
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 was filed as Exhibit
6(a) to PEA No. 1 on January 30, 1990 and replaced by Exhibit
6(a)-1.9.
6(a)-1.1 Supplement to Distribution Agreement, dated July 18, 1990,
relating to the National Municipal Fund, Corporate Income
Fund, Emerging Growth Fund and International Growth Fund was
filed as Exhibit 6(b) to PEA No. 4 on October 29, 1990 and
replaced by Exhibit 6(a)-1.9.
6(a)-1.2 Supplement to Distribution Agreement relating to the Short
Term Global Government Fund was filed as Exhibit 6(c) to PEA
No. 9 on August 31, 1992 and replaced by Exhibit 6(a)-1.9.
6(a)-1.3 Amendment No. 1 to Distribution Agreement, dated January 2,
1991, was filed as Exhibit 6(c) to PEA No. 7 on October 28,
1991 and replaced by Exhibit 6(a)-1.9.
6(a)-1.4 Form of Supplement to Distribution Agreement relating to the
Growth Fund was filed as Exhibit 6(e) to PEA No. 12 on March
25, 1993 and replaced by Exhibit 6(a)-1.9.
6(a)-1.5 Form of Supplement to Distribution Agreement relating to the
Florida Insured Municipal Fund was filed as Exhibit 6(f) to
PEA No. 12 on March 25, 1993 and replaced by Exhibit 6(a)-1.9.
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6(a)-1.6 Supplement to Distribution Agreement, dated October 29, 1993,
relating to the Short Term High Quality Bond Fund was filed as
Exhibit 6(g) to PEA No. 21 on September 1, 1995 and replaced
by Exhibit 6(a)-1.9.
6(a)-1.7 Supplement to Distribution Agreement, dated April 1, 1994,
relating to the California Insured Intermediate Municipal Fund
was filed as Exhibit 6(h) to PEA 21 on September 1, 1995 and
replaced by Exhibit 6(a)-1.9.
6(a)-1.8 Supplement to Distribution Agreement, dated March 17, 1995,
relating to the Target Maturity 2002 Fund was filed as Exhibit
6(j) to PEA No. 22 on August 30, 1996 and replaced by Exhibit
6(a)-1.9
6(a)-1.9 Class A Distribution Agreement, dated July 7, 1989, with
Sierra Investment Services Corporation, as amended and
supplemented July 1, 1995 is incorporated by reference to
Exhibit 6(m) of PEA No. 24 filed with the SEC on October 30,
1996.
6(b)-1 Amended and Restated Class B and S Distribution Agreement with
Funds Distributor, Inc., dated December 20, 1995, relating to
all series Funds of Registrant is incorporated by reference to
Exhibit 6(l) of PEA No. 23 filed with the SEC on August 30,
1996 and replaced by Exhibit 6(b)-2.
6(b)-2 Class B and Class S Distribution Agreement with Sierra
Investment Services Corporation, dated December 20, 1995,
relating to all series Funds of Registrant, is incorporated by
reference to Exhibit 6(k) of PEA No. 23 filed with the SEC on
August 30, 1996.
7 Not Applicable
8(a)-1 Custody Agreement, dated July 7, 1989, 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 was originally filed as Exhibit 8(a) to PEA No. 3
on July 9, 1990.
8(a)-1.1 Amendment No. 1 to Custody Agreement, dated February 5, 1991,
was originally filed as Exhibit 8(c) to PEA No. 6 on August
29, 1991.
8(a)-1.2 Supplement to Custody, Transfer Agency and Registrar and
Sub-Administration Agreements, dated July 18, 1990, relating
to the Corporate Income Fund, National Municipal Fund,
Emerging Growth Fund and International Growth Fund was
originally filed as Exhibit 8(b) to PEA No. 6 on August 29,
1991.
8(a)-1.3 Supplement to Custody, Transfer Agency and Registrar and
Sub-Administration Agreements, dated February 3, 1992,
relating to the Short Term Global Government Fund was
originally filed as Exhibit 8(c) to PEA No. 9 on August 31,
1992.
8(a)-1.4 Form of Supplement to Custody, Transfer Agency and Registrar
and Sub-Administration Agreements, dated April 1, 1993,
relating to the Growth Fund was filed as Exhibit 8(f) to PEA
No. 12 on March 25, 1993.
8(a)-1.5 Form of Supplement to Custody, Transfer Agency and Registrar,
and Sub-Administration Agreements, dated June 2, 1993,
relating to the Florida Insured Municipal Fund was filed as
Exhibit 8(g) to PEA No. 12 on March 25, 1993.
8(a)-1.6 Supplement to Custody, Transfer Agency and Registrar, and
Sub-Administration Agreements, dated October 29, 1993,
relating to the Short Term High Quality Bond Fund was
originally filed as Exhibit 8(h) to PEA No. 21 on September 1,
1995.
8(a)-1.7 Supplement to Custody, Transfer Agency and Registrar, and
Sub-Administration Agreements, dated April 1, 1994, relating
to the California Insured Intermediate Municipal Fund was
filed as Exhibit 8(i) to PEA No. 21 on September 1, 1995.
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8(a)-1.8 Revised Custodian, Transfer Agency and Registrar and
Sub-Administration Fees, dated July 18, 1990, relating to each
Fund of the Registrant was originally filed as Exhibit 8(k) to
PEA 21 on September 1, 1995.
8(a)-1.9 Supplement to Custody, Transfer Agency and Registrar, and
Sub-Administration Agreements, dated March 17, 1995, relating
to the Target Maturity 2002 Fund was originally filed as
Exhibit 8(j) to PEA No. 22 on October 30, 1995.
8(a)-1.10 Supplement to Custody and Sub-Administration Agreement, dated
February 3, 1992, relating to the Short Term Global Government
Fund is incorporated by reference to Exhibit 8(l) of PEA 24
filed with the SEC on October 30, 1996.
8(b) Sub-Custodian Agreement, dated March 11, 1994, was originally
filed as Exhibit 8(e) to PEA No. 21 on September 1, 1995.
9(a)-1 Transfer Agency and Registrar Agreement, dated June 1, 1989,
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 was originally filed
as Exhibit 9(a) to PEA No. 6 on August 29, 1991 and replaced
by 9(a)-2. [Supplemented by Exhibits 8(a)-1.2, 8(a)-1.3,
8(a)-1.4, 8(a)-1.5, 8(a)-1.6, 8(a)-1.7, 8(a)- 1.8 and
8(a)-1.9]
9(a)-1.1 Amendment to Transfer Agency and Registrar Agreement, for GW
Short Term Global Government Fund, dated February 3, 1992 was
originally filed as Exhibit 9(l) to PEA No.
21 on September 1, 1995 and replaced by Exhibit 9(a)-3.
9(a)-1.2 Amendment to Transfer Agency and Registrar Agreement, for GW
Sierra Trust Funds, dated March 12, 1992 was originally filed
as Exhibit 9(m) to PEA No. 21 on September 1, 1995 and
replaced by Exhibit 9(a)-3.
9(a)-2 Transfer Agency and Registrar Agreement dated as of January 1,
1992, is incorporated by reference to Exhibit 9(n) of PEA No.
24 filed with the SEC on October 30, 1996 and is replaced by
Exhibit 9(a)-3.
9(a)-3 Transfer Agency and Services Agreement dated May 1, 1996, is
filed herewith.
9(b)-1 Sub-Administration Agreement, dated July 7, 1989, 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 was originally filed as Exhibit
9(d) to PEA No. 6 on August 29, 1991. [Supplemented by
Exhibits 8(a)-1.2, 8(a)-1.3, 8(a)-1.4, 8(a)-1.5, 8(a)-1.6,
8(a)-1.7, 8(a)- 1.8, 8(a)-1.9 and 8(a)-1.10]
9(b)-2 Form of Sub-Administration Agreement, dated May 1, 1997,
relating to each investment fund of the Trust is filed
herewith.
9(c)-1 Administration Agreement, dated December 14, 1989, was filed
as Exhibit 9(b) to PEA No. 1 on January 30, 1990 and replaced
by Exhibit 9(c)-2.
9(c)-1.1 Supplement to Administration Agreement, dated July 18, 1990,
was filed as Exhibit 9(c) to PEA No. 6 on August 31, 1991 and
replaced by Exhibit 9(c)-2.
9(c)-1.2 Supplement to Administration Agreement was filed as Exhibit
9(d) to PEA No. 9 on August 31, 1992 and replaced by Exhibit
9(c)-2.
9(c)-1.3 Supplement to Administration Agreement, dated October 29,
1993, was filed as Exhibit 9(h) to PEA No. 21 on September 1,
1995 and replaced by Exhibit 9(c)-2.
9(c)-1.4 Supplement to Administration Agreement, dated April 1, 1994,
was filed as Exhibit 9(i) to PEA No. 21 on September 1, 1995
and replaced by Exhibit 9(c)-2.
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9(c)-2 Administration Agreement, dated July 1, 1994, relating to all
series funds of the Registrant was originally filed as Exhibit
9(b) to PEA No. 22 filed on October 30, 1995 and replaced by
Exhibit 9(c)-3.
9(c)-3 Administration Agreement dated July 1, 1996, relating to all
series funds of the Registrant, is incorporated by reference
to Exhibit 9(p) of PEA No. 24 filed with the SEC on October
30, 1996.
9(d) Service Agency Agreement with The Shareholder Services Group,
Inc., dated September 1, 1993, is incorporated by reference to
Exhibit 9(q) of PEA No. 24 filed on October 30, 1996.
10(a) Consent and Opinions of Counsel, dated July 3, 1989, 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 was
originally filed as Exhibit 10 to Pre-Effective Amendment No.
3 on July 6, 1989.
10(b) Consent and Opinions of Counsel, dated July 6, 1990, relating
to the GW Sierra Trust Funds, Corporate Income Fund, National
Municipal Fund, Emerging Growth Fund and International Growth
Fund was originally filed as an exhibit to PEA No. 3 on July
9, 1990.
10(c) Consents and Opinions of Counsel, dated October 24, 1991,
relating to the registration of shares pursuant to Rule 24e-2
was originally filed as an exhibit to PEA No. 7 on October 28,
1991.
10(d) Consents and Opinions of Counsel, dated December 2, 1991
relating to the Short Term Global Government Fund was
originally filed as an exhibit to PEA No. 8 on December 5,
1991.
10(e) Consent and Opinion of Counsel, dated June 20, 1997, relating
to the registration of shares pursuant to Rule 24e-2 is filed
herewith.
11 Consent of Independent Accountants is incorporated by
reference to PEA No. 24 filed with the SEC on October 30,
1996.
12 Not Applicable
13(a) Purchase Agreement, dated July 10, 1989, 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 was originally filed as Exhibit 13
to PEA No. 1 on January 30, 1990.
13(b) Purchase Agreement, dated July 6, 1990, relating to the
Corporate Income Fund, National Municipal Fund, Emerging
Growth Fund and International Growth Fund was originally filed
as an exhibit to PEA No. 3 on July 9, 1990.
13(c) Form of Purchase Agreement relating to the Short Term Global
Government Fund is filed herewith.
14 Copies of Model Retirement Plans were originally filed as an
exhibit to Pre-Effective Amendment No. 3 on July 6, 1989.
15(a)-1 Distribution Plan as of July 7, 1989 was filed as Exhibit 15
to Pre-Effective Amendment No. 3 on July 6, 1989 and replaced
by Exhibit 15(a)-1.1.
15(a)-1.1 Distribution Plan dated July 7, 1989, as amended January 2,
1991 was filed as Exhibit 15(b) to PEA No. 7 on October 28,
1991 and replaced by Exhibit 15(a)-1.2.
15(a)-1.2 Class A Distribution Plan, dated July 7, 1989 and amended
December 14, 1992, was filed as Exhibit 15(a) to PEA No. 22 on
October 30, 1995 and replaced by Exhibit 15(a)-1.3.
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15(a)-1.3 Class A Distribution Plan, dated July 7, 1989 and amended July
1, 1995, is incorporated by reference to Exhibit 15(e) of PEA
No. 24 filed with the SEC on October 30, 1996.
15(b)-1 Class B Distribution Plan was filed as Exhibit 15(c) to PEA
No. 17 on September 1, 1994 and replaced by Exhibit 15(b)-1.1.
15(b)-1.1 Amended and Restated Class B Distribution Plan, dated December
20, 1995, is incorporated by reference to Exhibit 15(c) of PEA
No. 23 filed with the SEC on August 30, 1996.
15(c)-1 Class S Distribution Plan was filed as Exhibit 15(d) to PEA
No. 17 on September 1, 1994 and replaced by Exhibit 15(c)-1.1.
15(c)-1.1 Amended and Restated Class S Distribution Plan, dated December
20, 1995, is incorporated by reference to Exhibit 15(d) of PEA
No. 23 filed with the SEC on August 30, 1996.
16(a) Certain Performance Data relating to the California Municipal
Fund was originally filed as Exhibit 16 to PEA No. 1 on
January 30, 1990.
16(b) Certain Performance Data relating to the California Money
Fund, U.S. Government Fund, California Municipal Fund and
Growth and Income Fund was originally filed as an exhibit to
PEA No. 2 on May 9, 1990.
16(c) Certain Performance Data relating to the U.S. Government Fund,
California Municipal Fund and Growth and Income Fund was
originally filed as an exhibit to PEA No. 4 on October 29,
1990.
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 was originally filed as an
exhibit to PEA No. 5 on December 28, 1990.
16(e) Certain Performance Data relating to the National Municipal
Fund, Corporate Income Fund, Emerging Growth Fund and
International Growth Fund was originally filed as an exhibit
to PEA No. 7 on October 28, 1991.
16(f) Certain Performance Data relating to the Short Term Global
Government Fund is filed herewith.
17 Financial Data Schedule are filed herewith.
18 Rule 18f-3 Multiple Class Plan, dated June 13, 1995 was
originally filed as Exhibit 17 to PEA No. 21 on September 1,
1995.
19 Not Applicable
20 Not Applicable
21 Not Applicable
22 Not Applicable
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: Arthur H. Bernstein, David E. Anderson, Edmond R.
Davis, John W. English and Alfred E. Osborne, Jr. are
incorporated by reference to PEA No. 24 filed on October 30,
1996.
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<PAGE> 269
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 20, 1997
CLASS CLASS CLASS CLASS
"A" "B" "S" "I"
<S> <C> <C> <C> <C>
Shares of the Global Money Fund, without
par value............................................ 18,102 75 2,045 5
Shares of the U.S. Government Money
Fund, without par value.............................. 2,288 29 11 1
Shares of the California Money Fund,
without par value.................................... 2,115 5 2 1
Shares of the U.S. Government Fund,
without par value.................................... 16,331 1,314 1,827 4
Shares of the Corporate Income Fund,
without par value.................................... 14,006 1,945 412 2
Shares of the California Municipal Fund,
without par value.................................... 7,568 728 3 1
Shares of the National Municipal Fund,
without par value.................................... 5,356 216 2 2
Shares of the Growth and Income Fund,
without par value.................................... 18,739 6,240 2,120 4
Shares of the Emerging Growth Fund,
without par value.................................... 23,489 7,901 1,839 2
Shares of the International Growth Fund,
without par value.................................... 10,422 1,830 2,063 3
Shares of the Short Term Global
Government Fund, without par value................... 4,012 194 67 1
Shares of the Growth Fund, without par
value................................................ 16,596 6,555 2,083 3
Shares of the Florida Insured Municipal
Fund, without par value.............................. 612 156 3 1
Shares of the Short Term High Quality
Bond Fund, without par Value......................... 1,860 362 121 2
</TABLE>
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<PAGE> 270
<TABLE>
<S> <C> <C> <C> <C>
Shares of the California Insured
Intermediate Municipal Fund, without par
value................................................ 1,059 538 2 1
Target Maturity 2002 Fund............................ N/A 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 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").
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
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<PAGE> 271
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 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.
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<PAGE> 272
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.
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
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<PAGE> 273
investment companies. Warburg provides investment 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)
(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)
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<PAGE> 274
(6) First Data Investor Services Group, Inc.
One Exchange Place
53 State Street
Boston, Massachusetts 02109
(with respect to their services as a
sub-administrator)
(7) First Data Investor Services Group, Inc.
4400 Computer Drive
Westboro, Massachusetts 01581
(with respect to their services as a
transfer agent)
(8) Alliance Capital Management L.P.
1345 Avenue of the Americas
New York, New York 10105
(with respect to their services as
investment sub-advisor)
(9) Van Kampen American Capital Management Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
(with respect to their services as
investment sub-advisor)
(10) J.P. Morgan Investment Management Inc.
522 Fifth Avenue
New York, New York 10036
(with respect to their services as
investment sub-advisor)
(11) TCW Funds Management, Inc.
865 South Figueroa Street, Suite 1800
Los Angeles, California 90017
(with respect to their services as
investment sub-advisor)
(12) Scudder, Stevens & Clark, Inc.
Two International Place
Boston, Massachusetts 02110
(with respect to their services as
investment sub-advisor)
(13) BlackRock Financial Management, Inc.
345 Park Avenue
New York, New York 10154
(with respect to their services as
investment sub-advisor)
(14) Sierra Investment Services Corporation
9301 Corbin Avenue
Northridge, California 91324
(with respect to their services as a
principal underwriter)
(15) Janus Capital Corporation
100 Fillmore Street, Suite 300
Denver, Colorado 80206
(with respect to their services as
investment sub-advisor)
(16) Warburg, Pincus Counsellors, Inc.
466 Lexington Avenue
New York, N.Y. 10017-3147
(with respect to their services as
investment sub-advisor)
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<PAGE> 275
(17) 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> 276
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended (the
"1933 Act"), and the Investment Company Act of 1940, as amended, the Registrant
has duly caused this Post-Effective Amendment No. 26 to the Registrant's
Registration Statement File No. 33-27489 to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of Northridge and State of
California on the 27th day of August, 1997.
SIERRA TRUST FUNDS
By: /s/ James H. Overholt
----------------------------
James H. Overholt
President
Pursuant to the requirements of the 1933 Act, as amended, this
Post-Effective Amendment No. 26 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/ James H. Overholt President August 27,1997
-----------------------------------
James H. Overholt
(Principal Executive Officer)
/s/ Keith B. Pipes Executive Vice President, August 27,1997
----------------------------------- Treasurer and Secretary
Keith B. Pipes
(Principal Financial and Accounting Officer)
* Trustee August 27,1997
-----------------------------------
David E. Anderson
* Chairman of the Board and August 27,1997
----------------------------------- Trustee
Arthur H. Bernstein
* Trustee August 27 ,1997
-----------------------------------
Edmond R. Davis
* Trustee August 27,1997
-----------------------------------
John W. English
* Trustee August 27,1997
-----------------------------------
Alfred E. Osborne, Jr., Ph.D.
</TABLE>
*By: /s/ Keith B. Pipes
---------------------------------
Keith B. Pipes
Attorney-In-Fact
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<PAGE> 277
EXHIBIT INDEX
<TABLE>
<CAPTION>
EDGAR
Exhibit Exhibit
No. No. Description
- ------- ------- -----------
<S> <C> <C>
Ex-99.B 1(a) Master Trust Agreement of the Registrant dated February 22, 1989, originally filed as
an exhibit to Registration Statement on Form N-1A March 10, 1989, is filed herewith.
Ex-99.B 1(a)-1 Amendment No. 1, to Master Trust Agreement, dated May 10, 1989 was originally filed
as an exhibit to Pre-Effective Amendment No. 1 on May 12, 1989 and is filed herewith.
Ex-99.B 1(a)-2 Amendment No. 2, to Master Trust Agreement, dated May 22, 1989 was originally filed
as an exhibit to Pre-Effective Amendment No. 3 on July 6, 1989 and is filed herewith.
Ex-99.B 1(a)-3 Amendment No. 3, to Master Trust Agreement, dated May 24, 1989 was originally filed
as an exhibit to Pre-Effective Amendment No. 3 on July 6, 1989 and is filed herewith.
Ex-99.B 1(a)-4 Amendment No. 4, to Master Trust Agreement, dated May 7, 1990 was originally filed
as an exhibit to Post-Effective Amendment ("PEA") No. 2 on May 9, 1990 and is filed
herewith.
Ex-99.B 1(a)-5 Amendment No. 5, to Master Trust Agreement, dated December 4, 1991 was originally
filed as an exhibit to PEA No. 8 on December 5, 1991 and is filed herewith.
Ex-99.B 1(a)-6 Amendment No. 6, to Master Trust Agreement, dated January 30, 1992 was originally
filed as an exhibit to PEA No. 10 on October 14, 1992 and is filed herewith.
Ex-99.B 1(a)-7 Amendment No. 7, to Master Trust Agreement, dated September 10, 1992 was
originally filed as an exhibit to PEA No. 10 on October 14, 1992 and is filed herewith.
Ex-99.B 1(a)-8 Amendment No. 8, to Master Trust Agreement, dated September 22, 1993 was
originally filed as an exhibit to PEA No. 16 on March 15, 1994 and is filed herewith.
Ex-99.B 1(a)-9 Amendment No. 9, to Master Trust Agreement, dated March 13, 1994 was originally
filed as an exhibit to PEA No. 16 on March 15, 1994 and is filed herewith.
Ex-99.B 1(a)-10 Amendment No. 10, to Master Trust Agreement, dated January 20, 1995 was originally
filed as an exhibit to PEA No. 21 on September 1, 1995 and is filed herewith.
1(a)-11 Amendment No. 11, to Master Trust Agreement, dated July 19, 1996 is incorporated by
reference to Exhibit 1(l) of PEA No. 23 filed with the SEC on August 30, 1996.
2(a) By-Laws of the Registrant, dated February 22, 1989, were filed as Exhibit 2 to
Registration Statement on Form N-1A March 10, 1989.
Ex-99.B 2(b) By-laws of the Registrant, as amended through November 18, 1992 are filed herewith.
3 Not Applicable
4 Not Applicable
Ex-99.B 5(a)-1 Investment Advisory Agreement, dated July 7, 1989, with respect to the Global Money
Fund was originally filed as Exhibit 5(a) to PEA No. 1 on January 30, 1990 and is filed
herewith.
</TABLE>
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<PAGE> 278
<TABLE>
<S> <C> <C>
Ex-99.B 5(a)-1.1 Amendment, dated June 30, 1994, to the Investment Advisory Agreement relating to the
Global Money Fund, was originally filed as Exhibit 5(r) to PEA No. 17 on September 1,
1994 and is filed herewith.
Ex-99.B 5(a)-2 Investment Advisory Agreement ,dated July 7, 1989, with respect to the U.S.
Government Money Fund was originally filed as Exhibit 5(a) to PEA No. 1 on January
30, 1990 and is filed herewith.
Ex-99.B 5(a)-2.1 Amendment, dated June 30, 1994, to the Investment Advisory Agreement relating to the
U.S. Government Money Fund, was originally filed as Exhibit 5(s) to PEA No. 17 on
September 1, 1994 and is filed herewith.
Ex-99.B 5(a)-3 Investment Advisory Agreement, dated July 7, 1989, with respect to the California
Money Fund was originally filed as Exhibit 5(a) to PEA No. 1 on January 30, 1990 and
is filed herewith.
Ex-99.B 5(a)-3.1 Amendment, dated June 30, 1994, to the Investment Advisory Agreement relating to the
California Money Fund, was originally filed as Exhibit 5(x) to PEA No. 17 on
September 1, 1994 and is filed herewith.
Ex-99.B 5(a)-4 Investment Advisory Agreement, dated July 7, 1989, with respect to the U.S.
Government Fund was originally filed as Exhibit 5(a) to PEA No. 1 on January 30,
1990 and is filed herewith.
Ex-99.B 5(a)-4.1 Amendment, dated June 30, 1994, to the Investment Advisory Agreement relating to the
U.S. Government Fund was originally filed as Exhibit 5(t) to PEA No. 17 on September
1, 1994 and is filed herewith.
Ex-99.B 5(a)-5 Investment Advisory Agreement, dated July 7, 1989, with respect to the California
Municipal Fund was originally filed as Exhibit 5(a) to PEA No. 1 on January 30, 1990
and is filed herewith.
Ex-99.B 5(a)-5.1 Amendment, dated June 30, 1994, to the Investment Advisory Agreement relating to the
California Municipal Fund, was originally filed as Exhibit 5(q) to PEA No. 17 on
September 1, 1994 and is filed herewith.
5(a)-6 Investment Advisory Agreement, dated July 7, 1989, with respect to the Growth and
Income Fund was filed as Exhibit 5(a) to PEA No. 1 on January 30, 1990 and replaced
by Exhibit 5(a)-6.1.
Ex-99.B 5(a)-6.1 Investment Advisory Agreement, dated October 22, 1993, with respect to the Growth
and Income Fund, originally filed as Exhibit 5(l) to PEA No. 18 on October 28, 1994,
replaces Exhibit 5(a)-6 and is filed herewith.
Ex-99.B 5(a)-7 Investment Advisory Agreement, dated July 18, 1990, with respect to the Corporate
Income Fund was originally filed as Exhibit 5(b) to PEA No. 4 on October 29, 1990 and
is filed herewith.
Ex-99.B 5(a)-8 Investment Advisory Agreement, dated July 18, 1990, with respect to the National
Municipal Fund was originally filed as Exhibit 5(b) to PEA No. 4 on October 29, 1990
and is filed herewith.
Ex-99.B 5(a)-8.1 Amendment, dated June 30, 1994, to the Investment Advisory Agreement relating to the
National Municipal Fund, was originally filed as Exhibit 5(v) to PEA No. 17 on
September 1, 1994 and is filed herewith.
5(a)-9 Investment Advisory Agreement, dated July 18, 1990, with respect to the Emerging
Growth Fund (formerly the Equity Opportunity Fund) was originally filed as Exhibit
5(b) to PEA No. 4 on October 29, 1990 and replaced by Exhibit 5(a)-9.1.
</TABLE>
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<PAGE> 279
<TABLE>
<S> <C> <C>
Ex-99.B 5(a)-9.1 Investment Advisory Agreement, dated October 22, 1993, with respect to the Emerging
Growth Fund, originally filed as Exhibit 5(l) to PEA No.18 on October 28, 1994,
replaces Exhibit 5(a)-9 and is filed herewith.
5(a)-10 Investment Advisory Agreement, dated July 18, 1990, with respect to the International
Growth Fund (formerly the Strategic International Fund) was originally filed as Exhibit
5(b) to PEA No. 4 on October 29, 1990 and replaced by Exhibit 5(a)-10.1.
Ex-99.B 5(a)-10.1 Investment Advisory Agreement, dated November 1, 1994, with respect to the
International Growth Fund was originally filed as Exhibit 5(y) to PEA No. 21 on
September 1, 1995 and is filed herewith.
Ex-99.B 5(a)-11 Investment Advisory Agreement, dated February 3, 1992, with respect to the Short
Term Global Government Fund was originally filed as Exhibit 5(c) to PEA No. 9 on
August 31, 1992 and is filed herewith.
Ex-99.B 5(a)-11.1 Amendment, dated June 30, 1994, to the Investment Advisory Agreement relating to the
Short Term Global Government Fund, was originally filed as Exhibit 5(w) to PEA No.
17 on September 1, 1994 and is filed herewith.
5(a)-12 Investment Advisory Agreement, dated April 1, 1993, with respect to the Growth Fund
was originally filed as Exhibit 5(i) to PEA No. 18 on October 28, 1994.
5(a)-13 Investment Advisory Agreement, dated June 2, 1993, with respect to the Florida Insured
Municipal Fund was originally filed as Exhibit 5(j) to PEA No. 18 on October 28, 1994.
5(a)-13.1 Amendment, dated June 30, 1994, to the Investment Advisory Agreement relating to the
Florida Insured Municipal Fund, was originally filed as Exhibit 5(u) to PEA No. 17 on
September 1, 1994.
5(a)-14 Investment Advisory Agreement, dated September 6, 1993, with respect to the Short
Term High Quality Bond Fund was originally filed as Exhibit 5(l) to PEA No. 18 on
October 28, 1994.
5(a)-15 Investment Advisory Agreement, dated April 1, 1994, with respect to the California
Insured Intermediate Municipal Fund was originally filed as Exhibit 5(n) to PEA No. 18
on October 28, 1994.
5(a)-15.1 Amendment, dated June 30, 1994, to the Investment Advisory Agreement relating to the
California Insured Intermediate Municipal Fund, was originally filed as Exhibit 5(p) to
PEA No. 17 on September 1, 1994.
5(a)-16 Investment Advisory Agreement, dated March 17, 1995, with respect to the Target
Maturity 2002 Fund was originally filed as Exhibit 5(aa) to PEA No. 21 on September
1, 1995.
5(b)-1 Investment Sub-Advisory Agreement, dated July 7, 1989, with respect to the Global
Money Fund was originally filed as Exhibit 5(b) to PEA No. 1 on January 30, 1990.
5(b)-2 Investment Sub-Advisory Agreement, dated July 7, 1989, with respect to the U.S.
Government Money Fund was originally filed as Exhibit 5(b) to PEA No. 1 on January
30, 1990.
5(b)-3 Investment Sub-Advisory Agreement, dated July 7, 1989, with respect to the California
Money Fund was originally filed as Exhibit 5(b) to PEA No. 1 on January 30, 1990.
</TABLE>
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<PAGE> 280
<TABLE>
<S> <C> <C>
5(b)-4 Investment Sub-Advisory Agreement, dated July 7, 1989, with respect to the California
Municipal Fund was originally filed as Exhibit 5(b) to PEA No. 1 on January 30, 1990
and replaced by Exhibit 5(b)-4.1.
5(b)-4.1 Investment Sub-Advisory Agreement, dated July 25, 1991, with respect to the
California Municipal Fund was originally filed as Exhibit 5(e) to PEA No. 6 on August
29, 1991 and replaced by Exhibit 5(b)-4.2.
5(b)-4.2 Investment Sub-Advisory Agreement, dated February 17, 1993, with respect to the
California Municipal Fund was originally filed as Exhibit 5(gg) to PEA No. 21 on
September 1, 1995 and replaced by Exhibit 5(b)-4.3.
Ex-99.B 5(b)-4.3 Investment Sub-Advisory Agreement, dated October 31, 1996, with respect to the
California Municipal Fund, National Municipal Fund, Florida Insured Municipal Fund
and California Insured Intermediate Municipal Fund is filed herewith.
5(b)-5 Investment Sub-Advisory Agreement, dated July 7, 1989, with respect to the U.S.
Government Fund was originally filed as Exhibit 5(b) to PEA No. 1 on January 30,
1990 and replaced by Exhibit 5(b)-5.1.
5(b)-5.1 Investment Sub-Advisory Agreement, dated February 17, 1993, with respect to the U.S.
Government Fund was originally filed as Exhibit 5(cc) to PEA No. 21 on September 1,
1995 and replaced by Exhibit 5(b)-5.2.
5(b)-5.2 Investment Sub-Advisory Agreement, dated December 8, 1994, with respect to the U.S.
Government Fund was originally filed as Exhibit 5(dd) to PEA No. 21 on September 1,
1995 and replaced by Exhibit 5(b)-5.3.
5(b)-5.3 Investment Sub-Advisory Agreement, dated February 28, 1995, with respect to the U.S.
Government Fund was originally filed as Exhibit 5(ee) to PEA No. 21 on September 1,
1995.
5(b)-6 Investment Sub-Advisory Agreement, dated July 7, 1989, with respect to the Growth
and Income Fund was originally filed as Exhibit 5(b) to PEA No. 1 on January 30, 1990
and replaced by Exhibit 5(b)-6.1.
5(b)-6.1 Investment Sub-Advisory Agreement, dated September 20, 1993, with respect to the
Growth and Income Fund was originally filed as Exhibit 5(m) to PEA No. 18 on October
28, 1994.
5(b)-7 Investment Sub-Advisory Agreement, dated July 18, 1990, with respect to the
Corporate Income Fund was originally filed as Exhibit 5(d) to PEA No. 4 on October
29, 1990.
5(b)-8 Investment Sub-Advisory Agreement, dated July 18, 1990, with respect to the National
Municipal Fund was originally filed as Exhibit 5(d) to PEA No. 4 on October 29, 1990
and replaced by exhibit 5(b)-8.1.
5(b)-8.1 Investment Sub-Advisory Agreement, dated February 17, 1993, with respect to the
National Municipal Fund was originally filed as Exhibit 5(hh) to PEA No. 21 on
September 1, 1995.
[Exhibit 5(b)-8.1 is replaced by the Investment Sub-Advisory Agreement dated October
31, 1996 with respect to the California Municipal Fund, National Municipal Fund,
Florida Insured Municipal Fund and California Insured Intermediate Municipal Fund
filed herewith as Exhibit 5(b)-4.3]
5(b)-9 Investment Sub-Advisory Agreement, dated July 18, 1990, with respect to the Emerging
Growth Fund (formerly the Equity Opportunity Fund) was originally filed as Exhibit
5(d) to PEA No. 4 on October 29, 1990 and replaced by Exhibit 5(b)-9.1.
</TABLE>
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5(b)-9.1 Investment Sub-Advisory Agreement, dated September 20, 1993, with respect to the
Emerging Growth Fund was originally filed as Exhibit 5(m) to PEA No. 18 on October
28, 1994.
5(b)-10 Investment Sub-Advisory Agreement, dated July 18, 1990, with respect to the
International Growth Fund (formerly the Strategic International Fund) was originally
filed as Exhibit 5(d) to PEA No. 4 on October 29, 1990 and replaced by Exhibit 5(b)-
10.1.
5(b)-10.1 Investment Sub-Advisory Agreement, dated November 1, 1994, with respect to the
International Growth Fund was originally filed as Exhibit 5(z) to PEA No. 21 on
September 1, 1995 and replaced by Exhibit 5(b)-10.2.
5(b)-10.2 Investment Sub-Advisory Agreement, dated April 8, 1996, with respect to the
International Growth Fund is incorporated by reference to Exhibit 5(ii) of PEA No. 23
filed with the SEC on August 30, 1996.
5(b)-11 Investment Sub-Advisory Agreement, dated February 3, 1992, with respect to the Short
Term Global Government Fund was originally filed as Exhibit 5(g) to PEA No. 9 on
August 31, 1992.
5(b)-12 Investment Sub-Advisory Agreement, dated April 2, 1993, with respect to the Growth
Fund was originally filed as Exhibit 5(ff) to PEA No. 21 on September 1, 1995 and
replaced by Exhibit 5(b)-12.1.
5(b)-12.1 Amended and Restated Investment Sub-Advisory Agreement, dated November 22,
1993, with respect to the Growth Fund was originally filed as Exhibit 5(h) to PEA No.
21 on September 1, 1995.
5(b)-13 Investment Sub-Advisory Agreement, dated June 7, 1993, with respect to the Florida
Insured Municipal Fund was originally filed as Exhibit 5(k) to PEA No. 18 on October
28, 1994.
[Exhibit 5(b)-13 is replaced by the Investment Sub-Advisory Agreement dated October
31, 1996 with respect to the California Municipal Fund, National Municipal Fund,
Florida Insured Municipal Fund and California Insured Intermediate Municipal Fund
filed herewith as Exhibit 5(b)-4.3]
5(b)-14 Investment Sub-Advisory Agreement, dated September 6, 1993, with respect to
the Short Term High Quality Bond Fund was originally filed as Exhibit 5(m) to PEA No.
18 on October 28, 1994.
5(b)-15 Investment Sub-Advisory Agreement, dated April 1, 1994, with respect to the
California Insured Intermediate Municipal Fund was originally filed as Exhibit 5(o) to
PEA No. 21 on September 1, 1995.
[Exhibit 5(b)-15 is replaced by the Investment Sub-Advisory Agreement dated October
31, 1996 with respect to the California Municipal Fund, National Municipal Fund,
Florida Insured Municipal Fund and California Insured Intermediate Municipal Fund
filed herewith as Exhibit 5(b)-4.3]
5(b)-16 Investment Sub-Advisory Agreement, dated March 17, 1995, with respect to the Target
Maturity 2002 Fund was originally filed as Exhibit 5(bb) to PEA No. 21 on September
1, 1995.
6(a)-1 Distribution Agreement (Class A Shares), dated July 7, 1989, 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 was filed as Exhibit
6(a) to PEA No. 1 on January 30, 1990 and replaced by Exhibit 6(a)-1.9.
</TABLE>
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<TABLE>
<S> <C> <C>
6(a)-1.1 Supplement to Distribution Agreement, dated July 18, 1990, relating to the National
Municipal Fund, Corporate Income Fund, Emerging Growth Fund and International
Growth Fund was filed as Exhibit 6(b) to PEA No. 4 on October 29, 1990 and replaced
by Exhibit 6(a)-1.9.
6(a)-1.2 Supplement to Distribution Agreement relating to the Short Term Global Government
Fund was filed as Exhibit 6(c) to PEA No. 9 on August 31, 1992 and replaced by
Exhibit 6(a)-1.9.
6(a)-1.3 Amendment No. 1 to Distribution Agreement, dated January 2, 1991, was filed as
Exhibit 6(c) to PEA No. 7 on October 28, 1991 and replaced by Exhibit 6(a)-1.9.
6(a)-1.4 Form of Supplement to Distribution Agreement relating to the Growth Fund was filed
as Exhibit 6(e) to PEA No. 12 on March 25, 1993 and replaced by Exhibit 6(a)-1.9.
6(a)-1.5 Form of Supplement to Distribution Agreement relating to the Florida Insured
Municipal Fund was filed as Exhibit 6(f) to PEA No. 12 on March 25, 1993 and
replaced by Exhibit 6(a)-1.9.
6(a)-1.6 Supplement to Distribution Agreement, dated October 29, 1993, relating to the Short
Term High Quality Bond Fund was filed as Exhibit 6(g) to PEA No. 21 on September
1, 1995 and replaced by Exhibit 6(a)-1.9.
6(a)-1.7 Supplement to Distribution Agreement, dated April 1, 1994, relating to the California
Insured Intermediate Municipal Fund was filed as Exhibit 6(h) to PEA 21 on September
1, 1995 and replaced by Exhibit 6(a)-1.9.
6(a)-1.8 Supplement to Distribution Agreement, dated March 17, 1995, relating to the Target
Maturity 2002 Fund was filed as Exhibit 6(j) to PEA No. 22 on August 30, 1996 and
replaced by Exhibit 6(a)-1.9
6(a)-1.9 Class A Distribution Agreement, dated July 7, 1989, with Sierra Investment Services
Corporation, as amended and supplemented July 1, 1995 is incorporated by reference to
Exhibit 6(m) of PEA No. 24 filed with the SEC on October 30, 1996.
6(b)-1 Amended and Restated Class B and S Distribution Agreement with Funds Distributor,
Inc., dated December 20, 1995, relating to all series Funds of Registrant is incorporated
by reference to Exhibit 6(l) of PEA No. 23 filed with the SEC on August 30, 1996 and
replaced by Exhibit 6(b)-2.
6(b)-2 Class B and Class S Distribution Agreement with Sierra Investment Services
Corporation, dated December 20, 1995, relating to all series Funds of Registrant, is
incorporated by reference to Exhibit 6(k) of PEA No. 23 filed with the SEC on August
30, 1996.
7 Not Applicable
8(a)-1 Custody Agreement, dated July 7, 1989,
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 was originally filed
as Exhibit 8(a) to PEA No. 3 on July 9, 1990.
8(a)-1.1 Amendment No. 1 to Custody Agreement, dated February 5, 1991, was originally filed
as Exhibit 8(c) to PEA No. 6 on August 29, 1991.
8(a)-1.2 Supplement to Custody, Transfer Agency and Registrar and Sub-Administration
Agreements, dated July 18, 1990, relating to the Corporate Income Fund,
National Municipal Fund, Emerging Growth Fund and International Growth Fund was
originally filed as Exhibit 8(b) to PEA No. 6 on August 29, 1991.
</TABLE>
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<TABLE>
<S> <C> <C>
8(a)-1.3 Supplement to Custody, Transfer Agency and Registrar and Sub-Administration
Agreements, dated February 3, 1992, relating to the Short Term Global Government
Fund was originally filed as Exhibit 8(c) to PEA No. 9 on August 31, 1992.
8(a)-1.4 Form of Supplement to Custody, Transfer Agency and Registrar and Sub-
Administration Agreements, dated April 1, 1993, relating to the Growth Fund
was filed as Exhibit 8(f) to PEA No. 12 on March 25, 1993.
8(a)-1.5 Form of Supplement to Custody, Transfer Agency and Registrar, and Sub-
Administration Agreements, dated June 2, 1993, relating to the Florida Insured
Municipal Fund was filed as Exhibit 8(g) to PEA No. 12 on March 25, 1993.
8(a)-1.6 Supplement to Custody, Transfer Agency and Registrar, and Sub-Administration
Agreements, dated October 29, 1993, relating to the Short Term High Quality Bond
Fund was originally filed as Exhibit 8(h) to PEA No. 21 on September 1, 1995.
8(a)-1.7 Supplement to Custody, Transfer Agency and Registrar, and Sub-Administration
Agreements, dated April 1, 1994, relating to the California Insured Intermediate
Municipal Fund was filed as Exhibit 8(i) to PEA No. 21 on September 1, 1995.
8(a)-1.8 Revised Custodian, Transfer Agency and Registrar and Sub-Administration Fees, dated
July 18, 1990, relating to each Fund of the Registrant was originally filed as Exhibit
8(k) to PEA 21 on September 1, 1995.
8(a)-1.9 Supplement to Custody, Transfer Agency and Registrar, and Sub-Administration
Agreements, dated March 17, 1995, relating to the Target Maturity 2002 Fund was
originally filed as Exhibit 8(j) to PEA No. 22 on October 30, 1995.
8(a)-1.10 Supplement to Custody and Sub-Administration Agreement, dated February 3, 1992,
relating to the Short Term Global Government Fund is incorporated by reference to
Exhibit 8(l) of PEA 24 filed with the SEC on October 30, 1996.
8(b) Sub-Custodian Agreement, dated March 11, 1994, was originally filed as Exhibit 8(e)
to PEA No. 21 on September 1, 1995.
9(a)-1 Transfer Agency and Registrar Agreement, dated June 1, 1989, 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 was originally filed as
Exhibit 9(a) to PEA No. 6 on August 29, 1991 and replaced by 9(a)-2.
[Supplemented by Exhibits 8(a)-1.2, 8(a)-1.3, 8(a)-1.4, 8(a)-1.5, 8(a)-1.6, 8(a)-1.7,
8(a)-1.8 and 8(a)-1.9]
9(a)-1.1 Amendment to Transfer Agency and Registrar Agreement, for GW Short Term Global
Government Fund, dated February 3, 1992 was originally filed as Exhibit 9(l) to PEA
No. 21 on September 1, 1995 and replaced by Exhibit 9(a)-3.
9(a)-1.2 Amendment to Transfer Agency and Registrar Agreement, for GW Sierra Trust Funds,
dated March 12, 1992 was originally filed as Exhibit 9(m) to PEA No. 21 on September
1, 1995 and replaced by Exhibit 9(a)-3.
9(a)-2 Transfer Agency and Registrar Agreement dated as of January 1, 1992, is incorporated
by reference to Exhibit 9(n) of PEA No. 24 filed with the SEC on October 30, 1996 and
is replaced by Exhibit 9(a)-3.
Ex-99.B 9(a)-3 Transfer Agency and Services Agreement dated May 1, 1996, is filed herewith.
</TABLE>
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<TABLE>
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9(b)-1 Sub-Administration Agreement, dated July 7, 1989, 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 was originally filed as Exhibit
9(d) to PEA No. 6 on August 29, 1991.
[Supplemented by Exhibits 8(a)-1.2, 8(a)-1.3, 8(a)-1.4, 8(a)-1.5, 8(a)-1.6, 8(a)-1.7,
8(a)-1.8, 8(a)-1.9 and 8(a)-1.10]
Ex-99.B 9(b)-2 Form of Sub-Administration Agreement, dated May 1, 1997, relating to each
investment fund of the Trust is filed herewith.
9(c)-1 Administration Agreement, dated December 14, 1989, was filed as Exhibit 9(b) to PEA
No. 1 on January 30, 1990 and replaced by Exhibit 9(c)-2.
9(c)-1.1 Supplement to Administration Agreement, dated July 18, 1990, was filed as Exhibit
9(c) to PEA No. 6 on August 31, 1991 and replaced by Exhibit 9(c)-2.
9(c)-1.2 Supplement to Administration Agreement was filed as Exhibit 9(d) to PEA No. 9 on
August 31, 1992 and replaced by Exhibit 9(c)-2.
9(c)-1.3 Supplement to Administration Agreement, dated October 29, 1993, was filed as Exhibit
9(h) to PEA No. 21 on September 1, 1995 and replaced by Exhibit 9(c)-2.
9(c)-1.4 Supplement to Administration Agreement, dated April 1, 1994, was filed as Exhibit 9(i)
to PEA No. 21 on September 1, 1995 and replaced by Exhibit 9(c)-2.
9(c)-2 Administration Agreement, dated July 1, 1994, relating to all series funds of the
Registrant was originally filed as Exhibit 9(b) to PEA No. 22 filed on October 30, 1995
and replaced by Exhibit 9(c)-3.
9(c)-3 Administration Agreement dated July 1, 1996, relating to all series funds of the
Registrant, is incorporated by reference to Exhibit 9(p) of PEA No. 24 filed with the
SEC on October 30, 1996.
9(d) Service Agency Agreement with The Shareholder Services Group, Inc., dated September
1, 1993, is incorporated by reference to Exhibit 9(q) of PEA No. 24 filed on October
30, 1996.
10(a) Consent and Opinions of Counsel, dated July 3, 1989, 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 was
originally filed as Exhibit 10 to Pre-Effective Amendment No. 3 on July 6, 1989.
10(b) Consent and Opinions of Counsel, dated July 6, 1990, relating to the GW Sierra Trust
Funds, Corporate Income Fund, National Municipal Fund, Emerging Growth Fund and
International Growth Fund was originally filed as an exhibit to PEA No. 3 on July 9,
1990.
10(c) Consents and Opinions of Counsel, dated October 24, 1991, relating to the registration
of shares pursuant to Rule 24e-2 was originally filed as an exhibit to PEA No. 7 on
October 28, 1991.
10(d) Consents and Opinions of Counsel, dated December 2, 1991 relating to the Short Term
Global Government Fund was originally filed as an exhibit to PEA No. 8 on December
5, 1991.
Ex-99.B 10(e) Consent and Opinion of Counsel, dated June 20, 1997, relating to the registration of
shares pursuant to Rule 24e-2 is filed herewith.
11 Consent of Independent Accountants is incorporated by reference to PEA No. 24 filed
with the SEC on October 30, 1996.
</TABLE>
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12 Not Applicable
13(a) Purchase Agreement, dated July 10, 1989, 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 was originally filed as Exhibit 13 to PEA
No. 1 on January 30, 1990.
13(b) Purchase Agreement, dated July 6, 1990, relating to the Corporate Income Fund,
National Municipal Fund, Emerging Growth Fund and International Growth Fund was
originally filed as an exhibit to PEA No. 3 on July 9, 1990.
Ex-99.B 13(c) Form of Purchase Agreement relating to the Short Term Global Government Fund is
filed herewith.
14 Copies of Model Retirement Plans were originally filed as an exhibit to Pre-Effective
Amendment No. 3 on July 6, 1989.
15(a)-1 Distribution Plan as of July 7, 1989 was filed as Exhibit 15 to Pre-Effective
Amendment No. 3 on July 6, 1989 and replaced by Exhibit 15(a)-1.1.
15(a)-1.1 Distribution Plan dated July 7, 1989, as amended January 2, 1991 was filed as Exhibit
15(b) to PEA No. 7 on October 28, 1991 and replaced by Exhibit 15(a)-1.2.
15(a)-1.2 Class A Distribution Plan, dated July 7, 1989 and amended December 14, 1992, was
filed as Exhibit 15(a) to PEA No. 22 on October 30, 1995 and replaced by Exhibit
15(a)-1.3.
15(a)-1.3 Class A Distribution Plan, dated July 7, 1989 and amended July 1, 1995, is
incorporated by reference to Exhibit 15(e) of PEA No. 24 filed with the SEC on
October 30, 1996.
15(b)-1 Class B Distribution Plan was filed as Exhibit 15(c) to PEA No. 17 on September 1,
1994 and replaced by Exhibit 15(b)-1.1.
15(b)-1.1 Amended and Restated Class B Distribution Plan, dated December 20, 1995, is
incorporated by reference to Exhibit 15(c) of PEA No. 23 filed with the SEC on
August 30, 1996.
15(c)-1 Class S Distribution Plan was filed as Exhibit 15(d) to PEA No. 17 on September 1,
1994 and replaced by Exhibit 15(c)-1.1.
15(c)-1.1 Amended and Restated Class S Distribution Plan, dated December 20, 1995, is
incorporated by reference to Exhibit 15(d) of PEA No. 23 filed with the SEC on
August 30, 1996.
16(a) Certain Performance Data relating to the California Municipal Fund was originally filed
as Exhibit 16 to PEA No. 1 on January 30, 1990.
16(b) Certain Performance Data relating to the California Money Fund, U.S. Government
Fund, California Municipal Fund and Growth and Income Fund was originally filed as
an exhibit to PEA No. 2 on May 9, 1990.
16(c) Certain Performance Data relating to the U.S. Government Fund, California Municipal
Fund and Growth and Income Fund was originally filed as an exhibit to PEA No. 4 on
October 29, 1990.
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 was originally filed as an
exhibit to PEA No. 5 on December 28, 1990.
</TABLE>
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16(e) Certain Performance Data relating to the National Municipal Fund, Corporate Income
Fund, Emerging Growth Fund and International Growth Fund was originally filed as an
exhibit to PEA No. 7 on October 28, 1991.
Ex-99.B 16(f) Certain Performance Data relating to the Short Term Global Government Fund is filed
herewith.
Ex-99.B 17 Financial Data Schedule are filed herewith.
18 Rule 18f-3 Multiple Class Plan, dated June 13, 1995 was originally filed as Exhibit 17
to PEA No. 21 on September 1, 1995.
19 Not Applicable
20 Not Applicable
21 Not Applicable
22 Not Applicable
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: Arthur H. Bernstein, David E. Anderson, Edmond R. Davis, John
W. English and Alfred E. Osborne, Jr. are incorporated by reference to PEA No. 24
filed on October 30, 1996.
</TABLE>
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<PAGE> 1
EXHIBIT 1(a)
THE GW INVESTMENT FUNDS
MASTER TRUST AGREEMENT
FEBRUARY 22, 1989
<PAGE> 2
THE GW INVESTMENT FUNDS
MASTER TRUST AGREEMENT
<TABLE>
<CAPTION>
ARTICLE I. NAME AND DEFINITIONS PAGE
<S> <C> <C>
Section 1.1 Name 2
Section 1.2 Definitions 2
a) "Trust" 2
b) "Trustees" 2
c) "Shares" 2
d) "Series" 2
e) "Shareholder" 2
f) "1940 Act" 2
g) "Commission" 2
h) "Declaration of Trust" 2
i) "By-Laws" 2
ARTICLE II. PURPOSE OF THE TRUST 2
ARTICLE III. THE TRUSTEES 3
Section 3.1 Number, Designation, Election, Term, etc. 3
a) Initial Trustees 3
b) Number 3
c) Election and Term 3
d) Resignation and Retirement 3
e) Removal 3
f) Vacancies 4
g) Effect of Death, Resignation, etc. 4
h) No Accounting 4
Section 3.2 Powers of Trustees 4
a) Investments 5
b) Disposition of Assets 5
c) Ownership Powers 5
d) Subscription 6
e) Form of Holding 6
f) Reorganization, etc. 6
g) Voting Trusts, etc. 6
h) Compromise 6
</TABLE>
(i)
<PAGE> 3
<TABLE>
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i) Partnerships, etc. 6
j) Borrowing and Security 6
k) Guarantees, etc. 6
l) Insurance 7
Section 3.3 Certain Contracts 7
a) Advisory 8
b) Administration 8
c) Distribution 8
d) Custodian and Depository 8
e) Transfer and Dividend 8
Disbursing Agency
f) Shareholder Servicing 8
g) Accounting 8
Section 3.4 Payment of Trust Expenses and Compensation
of Trustees 9
Section 3.5 Ownership of Assets of the Trust 10
ARTICLE IV. SHARES 10
Section 4.1 Description of Shares 10
Section 4.2 Establishment and Designation of
Sub-Trusts 11
a) Assets Belonging to Sub-Trusts 11
b) Liabilities Belonging to 12
Sub-Trusts
c) Dividends 13
d) Liquidation 13
e) Voting 13
f) Redemption by Shareholder 14
g) Redemption by Trust 14
h) Net Asset Value 14
i) Transfer 15
j) Equality 15
k) Fractions 15
l) Conversion of Rights 15
Section 4.3 Ownership of Shares 16
Section 4.4 Investment in the Trust 16
</TABLE>
(ii)
<PAGE> 4
<TABLE>
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Section 4.5 No Pre-emptive Rights 16
Section 4.6 Status of Shares and Limitation of 16
Personal Liability
ARTICLE V. SHAREHOLDERS' VOTING POWERS AND MEETINGS 17
Section 5.1 Voting Powers 17
Section 5.2 Meetings 17
Section 5.3 Record Dates 18
Section 5.4 Quorum and Required Vote 18
Section 5.5 Action by Written Consent 18
Section 5.6 Inspection of Records 19
Section 5.7 Additional Provisions 19
ARTICLE VI. LIMITATION OF LIABILITY; INDEMNIFICATION 20
Section 6.1 Trustees, Shareholders, etc. Not
Personally Liable; Notice 20
Section 6.2 Trustee's Good Faith Action; Expert 20
Advice; No Bond of Surety
Section 6.3 Indemnification of Shareholders 21
Section 6.4 Indemnification of Trustees, Officers,
etc. 21
Section 6.5 Compromise Payment 22
Section 6.6 Indemnification Not Exclusive, etc. 23
Section 6.7 Liability of Third Persons Dealing with 23
Trustees
ARTICLE VII. MISCELLANEOUS 23
Section 7.1 Duration and Termination of Trust 23
</TABLE>
(iii)
<PAGE> 5
<TABLE>
<S> <C> <C>
Section 7.2 Reorganization 24
Section 7.3 Amendments 24
Section 7.4 Resident Agent 24
Section 7.5 Filing of Copies; References; Headings 25
Section 7.6 Applicable Law 25
</TABLE>
(iv)
<PAGE> 6
THE GW INVESTMENT FUNDS
CROSS-REFERENCE SHEET
Pursuant to CMR 116.00:
116.03 (a) Name of organization or trust:
The GW Investment Funds
(b) Date of organization:
February 22, 1989
(c) Names and address of the trustees:
Patricia L. Bickimer
One Exchange Place - 9th Floor
Boston, MA 02108
Peter Meenan
One Exchange Place - 9th Floor
Boston, MA 02108
(d) Original signatures of all trustees:
See page 26.
(e) Principal place of business:
One Exchange Place
Boston, MA 02108
(f) Statement that beneficial interest is
divided into transferable certificates of
participation or shares;
See Section 4.1, pages 10-11.
(g) Ability to merge:
See Section 7.2, page 24.
<PAGE> 7
THE GW INVESTMENT FUNDS
MASTER TRUST AGREEMENT
AGREEMENT AND DECLARATION OF TRUST made at Boston,
Massachusetts this 22nd day of February, 1989, by the Trustees hereunder, and
by the holders of shares of beneficial interest to be issued hereunder as
hereinafter provided.
WITNESSETH
WHEREAS this Trust has been formed to carry on the business of an investment
company; and
WHEREAS this Trust is authorized to issue its shares of
beneficial interest in separate series, each separate series to be a Sub-Trust
hereunder, all in accordance with the provisions hereinafter set forth; and
WHEREAS the Trustees have agreed to manage all property coming
into their hands as trustees of a Massachusetts business trust in accordance
with the provisions hereinafter set forth.
NOW, THEREFORE, the Trustees hereby declare that they will
hold all cash, securities and other assets which they may from time to time
acquire in any manner as Trustees hereunder IN TRUST to manage and dispose of
the same upon the following terms and conditions for the benefit of the holders
from time to time of shares of beneficial interest in this Trust or Sub-Trusts
created hereunder as hereinafter set forth.
-1-
<PAGE> 8
ARTICLE I
NAME AND DEFINITIONS
Section 1.1 Name. This Trust shall be known as "The GW
Investment Funds" and the Trustees shall conduct the business of the Trust
under that name or any other name or names as they may from time to time
determine.
Section 1.2 Definitions. Whenever used herein, unless
otherwise required by the context or specifically provided:
(a) The "Trust" refers to the Massachusetts business
trust established by this Trust Agreement, as amended from time to time,
inclusive of each and every Sub-Trust established hereunder;
(b) "Trustees" refers to the Trustees of the Trust and of
each Sub-Trust hereunder named herein or elected in accordance with Article
III;
(c) "Shares" refers to the transferable units of interest
into which the beneficial interest in the Trust and each Sub-Trust of the
Trust (as the context may require) shall be divided from time to time;
(d) "Series" refers to Series of Shares established and
designated under or in accordance with the provisions of Article IV, each of
which Series shall be a Sub-Trust of the Trust;
(e) "Shareholder" means a record owner of Shares;
(f) The "1940 Act" refers to the Investment Company Act
of 1940 and the Rules and Regulations thereunder, all as amended from time to
time;
(g) The term "Commission" shall have the meaning given it
in the 1940 Act;
(h) "Declaration of Trust" shall mean this Agreement and
Declaration of Trust as amended or restated from time to time; and
(i) "By-Laws" shall mean the By-Laws of the Trust as
amended from time to time.
-2-
<PAGE> 9
ARTICLE II
PURPOSE OF TRUST
The purpose of the Trust is to operate as an investment
company and to offer Shareholders of the Trust and each Sub-Trust of the Trust
one or more investment programs primarily in securities and debt instruments.
ARTICLE III
THE TRUSTEES
Section 3.1 Number, Designation, Election, Term, etc.
(a) Initial Trustees. Upon the execution of this
Declaration of Trust or a counterpart hereof or some other writing in which he
accepts such Trusteeship and agrees to the provisions hereof, each of Peter
Meenan and Patricia L. Bickimer, shall become a Trustee hereof and of each
Sub-Trust hereunder.
(b) Number. The Trustees serving as such, whether named
above or hereafter becoming a Trustee, may increase or decrease (to not less
than two) the number of Trustees to a number other than the number theretofore
determined. No decrease in the number of Trustees shall have the effect of
removing any Trustee from office prior to the expiration of his term, but the
number of Trustees may be decreased in conjunction with the removal of a
Trustee pursuant to subsection (e) of this Section 3.1.
(c) Election and Term. The Trustees shall be elected by
the Shareholders of the Trust at the first meeting of Shareholders following
the initial public offering of shares of the Trust. Each Trustee, whether
named above or hereafter becoming a Trustee, shall serve as a Trustee of the
Trust and of each Sub-Trust hereunder during the lifetime of this Trust and
until its termination as hereinafter provided except as such Trustee sooner
dies, resigns or is removed. Subject to Section 16(a) of the 1940 Act, the
Trustees may elect their own successors and may, pursuant to Section 3.1(f)
hereof, appoint Trustees to fill vacancies.
(d) Resignation and Retirement. Any Trustee may resign
his trust or retire as a Trustee, by written instrument signed by him and
delivered to the other Trustees or to any officer of the Trust, and such
resignation or retirement shall take effect upon such delivery or upon such
later date as is specified in such instrument and shall be effective as to the
Trust and each Sub-Trust hereunder.
(e) Removal. Any Trustee may be removed with or without
cause at any time:
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(i) by written instrument, signed by at least two-thirds of the number of
Trustees prior to such removal, specifying the date upon which such removal
shall become effective; or (ii) by vote of Shareholders holding not less than
two-thirds of the Shares then outstanding, cast in person or by proxy at any
meeting called for the purpose; or (iii) by a written declaration signed by
Shareholders holding not less than two-thirds of the Shares then outstanding
and filed with the Trust's Custodian. Any such removal shall be effective as
to the Trust and each Sub-Trust hereunder.
(f) Vacancies. Any vacancy or anticipated vacancy
resulting from any reason, including without limitation the death, resignation,
retirement, removal or incapacity of any of the Trustees, or resulting from an
increase in the number of Trustees by the other Trustees may (but so long as
there are at least two remaining Trustees, need not unless required by the 1940
Act) be filled by a majority of the remaining Trustees, subject to the
provisions of Section 16(a) of the 1940 Act, through the appointment in writing
of such other person as such remaining Trustees in their discretion shall
determine and such appointment shall be effective upon the written acceptance
of the person named therein to serve as a Trustee and agreement by such person
to be bound by the provisions of this Declaration of Trust, except that any
such appointment in anticipation of a vacancy to occur by reason of retirement,
resignation, or increase in number of Trustees to be effective at a later date
shall become effective only at or after the effective date of said retirement,
resignation, or increase in number of Trustees. As soon as any Trustee so
appointed shall have accepted such appointment and shall have agreed in writing
to be bound by this Declaration of Trust and the appointment is effective, the
Trust estate shall vest in the new Trustee, together with the continuing
Trustees, without any further act or conveyance.
(g) Effect of Death, Resignation, etc. The death,
resignation, retirement, removal, or incapacity of the Trustees, or any one of
them, shall not operate to annul or terminate the Trust or any Sub-Trust
hereunder or to revoke or terminate any existing agency or contract created or
entered into pursuant to the terms of this Declaration of Trust.
(h) No Accounting. Except to the extent required by the
1940 Act or under circumstances which would justify his removal for cause, no
person ceasing to be a Trustee as a result of his death, resignation,
retirement, removal or incapacity (nor the estate of any such person) shall be
required to make an accounting to the Shareholders or remaining Trustees upon
such cessation.
Section 3.2. Powers of Trustees. Subject to the provisions
of this Declaration of Trust, the business of the Trust shall be managed by the
Trustees, and they shall have all powers necessary or convenient to carry out
that responsibility and the purpose of the Trust. Without limiting the
foregoing, the Trustees may adopt By-Laws not inconsistent with this
Declaration of Trust providing for the conduct of the business and affairs of
the Trust and may amend and repeal them to the extent that such By-Laws do not
reserve that right to the Shareholders; they may from time to time in
accordance with the provisions of Section 4.1 hereof establish Sub-Trusts, each
such Sub-Trust to operate as a separate and distinct investment medium and with
separately defined investment objectives and policies and distinct investment
purpose; they may as they
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consider appropriate elect and remove officers and appoint and terminate agents
and consultants and hire and terminate employees, any one or more of the
foregoing of whom may be a Trustee, and may provide for the compensation of all
of the foregoing; they may appoint from their own number, and terminate, any
one or more committees consisting of two or more Trustees, including without
implied limitation an executive committee, which may, when the Trustees are not
in session and subject to the 1940 Act, exercise some or all of the power and
authority of the Trustees as the Trustees may determine; in accordance with
Section 3.3 they may employ one or more advisers, administrators, distributor,
depositories and custodians and may authorize any depository or custodian to
employ subcustodians or agents and to deposit all or any part of such assets in
a system or systems for the central handling of securities and debt
instruments, retain transfer, dividend, accounting or Shareholder servicing
agents or any of the foregoing, provide for the distribution of Shares by the
Trust through one or more distributors, principal underwriters or otherwise,
set record dates or times for the determination of Shareholders or various of
them with respect to various matters; they may compensate or provide for the
compensation of the Trustees, officers, advisers, administrators, custodians,
other agents, consultants and employees of the Trust or the Trustees on such
terms as they deem appropriate; and in general they may delegate to any officer
of the Trust, to any committee of the Trustees and to any employee, adviser,
administrator, distributor, depository, custodian, transfer and dividend
disbursing agent, or any other agent or consultant of the Trust such authority,
powers, functions and duties as they consider desirable or appropriate for the
conduct of the business and affairs of the Trust, including without implied
limitation the power and authority to act in the name of the Trust and of the
Trustees, to sign documents and to act as attorney-in-fact for the Trustees.
Without limiting the foregoing and to the extent not
inconsistent with the 1940 Act or other applicable law, the Trustees shall have
power and authority for and on behalf of the Trust and each separate Sub-Trust
established hereunder:
(a) Investments. To invest and reinvest cash and other
property, and to hold cash or other property uninvested without in any event
being bound or limited by any present or future law or custom in regard to
investments by trustees;
(b) Disposition of Assets. To sell, exchange, lend,
pledge, mortgage, hypothecate, write options on and lease any or all of the
assets of the Trust;
(c) Ownership Powers. To vote or give assent, or
exercise any rights of ownership, with respect to stock or other securities,
debt instruments or property; and to execute and deliver proxies or powers of
attorney to such person or persons as the Trustees shall deem proper, granting
to such person or persons such power and discretion with relation to
securities, debt instruments or property as the Trustees shall deem proper;
(d) Subscription. To exercise powers and rights of
subscription or otherwise which in any manner arise out of ownership of
securities or debt instruments;
(e) Form of Holding. To hold any security, debt
instrument or property in a
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form not indicating any trust, whether in bearer, unregistered or other
negotiable form, or in the name of the Trustees or of the Trust or of any
Sub-Trust or in the name of a custodian, subcustodian or other depository or a
nominee or nominees or otherwise;
(f) Reorganization, etc. To consent to or participate in
any plan for the reorganization, consolidation or merger of any corporation or
issuer, any security or debt instrument of which is or was held in the Trust;
to consent to any contract, lease, mortgage, purchase or sale of property by
such corporation or issuer, and to pay calls or subscriptions with respect to
any security or debt instrument held in the Trust;
(g) Voting Trusts, etc. To join with other holders of
any securities or debt instruments in acting through a committee, depository,
voting trustee or otherwise, and in that connection to deposit any security or
debt instrument with, or transfer any security or debt instrument to, any
committee, depository or trustee, and to delegate to them such power and
authority with relation to any security or debt instrument (whether or not so
deposited or transferred) as the Trustees shall deem proper, and to agree to
pay, and to pay, such portion of the expenses and compensation of such
committee, depository or trustee as the Trustees shall deem proper;
(h) Compromise. To compromise, arbitrate or otherwise
adjust claims in favor of or against the Trust or any Sub-Trust of any matter
in controversy, including but not limited to claims for taxes;
(i) Partnerships, etc. To enter into joint ventures,
general or limited partnerships and any other combinations or associations;
(j) Borrowing and Security. To borrow funds and to
mortgage and pledge the assets of the Trust or any part thereof to secure
obligations arising in connection with such borrowing;
(k) Guarantees, etc. To endorse or guarantee the payment
of any notes or other obligations of any person; to make contracts of guaranty
or suretyship, or otherwise assume liability for payment thereof; and to
mortgage and pledge the Trust property or any part thereof to secure any of or
all such obligations;
(l) Insurance. To purchase and pay for entirely out of
Trust property such insurance as they may deem necessary or appropriate for the
conduct of the business, including, without limitation, insurance policies
insuring the assets of the Trust and payment of distributions and principal on
its portfolio investments, and insurance policies insuring the Shareholders,
Trustees, officers, employees, agents, consultants, investment advisers,
managers, administrators, distributors, principal underwriters, or independent
contractors, or any thereof (or any person connected therewith), of the Trust
individually against all claims and liabilities of every nature arising by
reason of holding, being or having held any such office or position, or by
reason of any action alleged to have been taken or omitted by any such person
in any such capacity, including
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any action taken or omitted that may be determined to constitute negligence,
whether or not the Trust would have the power to indemnify such person against
such liability; and
Except as otherwise provided by the 1940 Act or other
applicable law, this Declaration of Trust or the By-Laws, any action to be
taken by the Trustees on behalf of the Trust or any Sub-Trust may be taken by a
majority of the Trustees present at a meeting of Trustees (a quorum, consisting
of at least a majority of the Trustees then in office, being present), within
or without Massachusetts, including any meeting held by means of a conference
telephone or other communications equipment by means of which all persons
participating in the meeting can hear each other at the same time and
participation by such means shall constitute presence in person at a meeting,
or by written consents of a majority of the Trustees then in office (or such
larger or different number as may be required by the 1940 Act or other
applicable law).
Section 3.3 Certain Contracts. Subject to compliance with
the provisions of the 1940 Act, but notwithstanding any limitations of present
and future law or custom in regard to delegation of powers by trustees
generally, the Trustees may, at any time and from time to time and without
limiting the generality of their powers and authority otherwise set forth
herein, enter into one or more contracts with any one or more corporations,
trusts, associations, partnerships, limited partnerships, other types of
organizations, or individuals ("Contracting Party"), to provide for the
performance and assumption of some or all of the following services, duties and
responsibilities to, for or on behalf of the Trust and/or any Sub-Trust, and/or
the Trustees, and to provide for the performance and assumption of such other
services, duties and responsibilities in addition to those set forth below as
the Trustees may determine appropriate:
(a) Advisory. Subject to the general supervision of the
Trustees and in conformity with the stated policy of the Trustees with respect
to the investments of the Trust or of the assets belonging to any Sub-Trust of
the Trust (as that phrase is defined in subsection (a) of Section 4.2), to
manage such investments and assets, make investment decisions with respect
thereto, and to place purchase and sale orders for portfolio transactions
relating to such investments and assets;
(b) Administration. Subject to the general supervision
of the Trustees and in conformity with any policies of the Trustees with
respect to the operations of the Trust and each Sub-Trust, to supervise all or
any part of the operations of the Trust and each Sub-Trust, and to provide all
or any part of the administrative and clerical personnel, office space and
office equipment and services appropriate for the efficient administration and
operations of the Trust and each Sub-Trust;
(c) Distribution. To distribute the Shares of the Trust
and each Sub-Trust, to be principal underwriter of such Shares, and/or to act
as agent of the Trust and each Sub-Trust in the sale of Shares and the
acceptance or rejection of orders for the purchase of Shares;
(d) Custodian and Depository. To act as depository for
and to maintain custody of the property of the Trust and each Sub- Trust and
accounting records in connection
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therewith;
(e) Transfer and Dividend Disbursing Agency. To maintain
records of the ownership of outstanding Shares, the issuance and redemption and
the transfer thereof, and to disburse any dividends declared by the Trustees
and in accordance with the policies of the Trustees and/or the instructions of
any particular Shareholder to reinvest any such dividends;
(f) Shareholder Servicing. To provide service with
respect to the relationship of the Trust and its Shareholders, records with
respect to Shareholders and their Shares, and similar matters; and
(9) Accounting. To handle all or any part of the
accounting responsibilities, whether with respect to the Trust's properties,
Shareholders or otherwise.
The same person may be the Contracting Party for some or all
of the services, duties and responsibilities to, for and of the Trust and/or
the Trustees, and the contracts with respect thereto may contain such terms
interpretive of or in addition to the delineation of the services, duties and
responsibilities provided for, including provisions that are not inconsistent
with the 1940 Act relating to the standard of duty of and the rights to
indemnification of the Contracting Party and others, as the Trustees may
determine. Nothing herein shall preclude, prevent or limit the Trust or a
Contracting Party from entering into sub-contractual arrangements relative to
any of the matters referred to in Sections 3.3(a) through (g) hereof.
The fact that:
(i) any of the Shareholders, Trustees, or
officers of the Trust is a shareholder, director, officer,
partner, trustee, employee, manager, adviser, principal
underwriter or distributor or agent of or for any Contracting
Party, or of or for any parent or affiliate of any Contracting
Party or that the Contracting Party or any parent or affiliate
thereof is a Shareholder or has an interest in the Trust or
any Sub-Trust, or that
(ii) any Contracting Party may have a contract
providing for the rendering of any similar services to one or
more other corporations, trusts, associations, partnerships,
limited partnerships or other organizations, or have other
business or interests,
shall not affect the validity of any contract for the performance and
assumption of services, duties and responsibilities to, for or of the Trust or
any Sub-Trust and/or the Trustees or disqualify any Shareholder, Trustee or
officer of the Trust from voting upon or executing the same or create any
liability or accountability to the Trust, any Sub-Trust or its Shareholders,
provided that in the case of any relationship or interest referred to in the
preceding clause (i) on the part of any Trustee or officer of the Trust either
(x) the material facts as to such relationship or interest have been disclosed
to or are known by the Trustees not having any such relationship or interest
and the
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contract involved is approved in good faith by a majority of such Trustees not
having any such relationship or interest (even though such unrelated or
disinterested Trustees are less than a quorum of all of the Trustees), (y) the
material facts as to such relationship or interest and as to the contract have
been disclosed to or are known by the Shareholders entitled to vote thereon and
the contract involved is specifically approved in good faith by vote of the
Shareholders, or (z) the specific contract involved is fair to the Trust as of
the time it is authorized, approved or ratified by the Trustees or by the
Shareholders.
Section 3.4 Payment of Trust Expenses and Compensation of
Trustees. The Trustees are authorized to pay or to cause to be paid out of the
principal or income of the Trust or any Sub-Trust, or partly out of principal
and partly out of income, and to charge or allocate the same to, between or
among such one or more of the Sub-Trusts that may be established and designated
pursuant to Article IV, as the Trustees deem fair and as is consistent with
applicable federal and state law, all expenses, fees, charges, taxes and
liabilities incurred or arising in connection with the Trust or any Sub-Trust,
or in connection with the management thereof, including, but not limited to,
the Trustees' compensation and such expenses and charges for the services of
the Trust's officers, employees, investment adviser, administrator,
distributor, principal underwriter, auditor, counsel, depository, custodian,
transfer agent, dividend disbursing agent, accounting agent, Shareholder
servicing agent, and such other agents, consultants, and independent
contractors and such other expenses and charges as the Trustees may deem
necessary or proper to incur. Without limiting the generality of any other
provision hereof, the Trustees shall be entitled to reasonable compensation
from the Trust for their services as Trustees and may fix the amount of such
compensation.
Section 3.5 Ownership of Assets of the Trust. Title to all
of the assets of the Trust shall at all times be considered as vested in the
Trustees.
ARTICLE IV
SHARES
Section 4.1 Description of Shares. The beneficial interest
in the Trust shall be divided into Shares, all without par value and of one
class, but the Trustees shall have the authority from time to time to divide
the class of Shares into two or more Series of Shares (each of which Series of
Shares shall be a separate and distinct Sub-Trust of the Trust, including
without limitation those Sub-Trusts specifically established and designated in
section 4.2), as they deem necessary or desirable. Each Sub-Trust shall be
deemed to be a separate trust established under, and subject to the terms of,
this Declaration of Trust. The Trustees shall have exclusive power without the
requirement of shareholder approval to establish and designate such separate
and distinct Sub-Trusts, and to fix and determine the relative rights and
preferences as between the shares of the separate Sub-Trusts as to right of
redemption and the price, terms and manner of redemption, special and relative
rights as to dividends and other distributions and on liquidation, sinking or
purchase fund provisions, conversion rights, and conditions under which the
several Sub-Trusts shall have separate voting rights or no voting rights.
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The number of authorized Shares and the number of Shares of
each Sub-Trust that may be issued is unlimited, and the Trustees may issue
Shares of any Sub-Trust for such consideration and on such terms as they may
determine (or for no consideration if pursuant to a Share dividend or
split-up), all without action or approval of the Shareholders. All Shares when
so issued on the terms determined by the Trustees shall be fully paid and
non-assessable (but may be subject to mandatory contribution back to the Trust
as provided in subsection (h) of Section 4.2). The Trustees may classify or
reclassify any unissued Shares or any Shares previously issued and reacquired
of any Sub-Trust into one or more Sub-Trusts that may be established and
designated from time to time. The Trustees may hold as treasury Shares,
reissue for such consideration and on such terms as they may determine, or
cancel, at their discretion from time to time, any Shares of any Sub-Trust as
reacquired by the Trust.
The Trustees may from time to time close the transfer books or
establish record dates and times for the purposes of determining the holders of
Shares entitled to be treated as such, to the extent provided or referred to in
Section 5.3.
The establishment and designation of any Sub-Trust in addition
to that established and designated in Section 4.2 shall be effective upon the
execution by a majority of the then Trustees of an instrument setting forth
such establishment and designation and the relative rights and preferences of
the Shares of such Sub-Trust, or as otherwise provided in such instrument. At
any time that there are no Shares outstanding of any particular Sub-Trust
previously established and designated the Trustees may by an instrument
executed by a majority of their number abolish that Sub-Trust and the
establishment and designation thereof. Each instrument referred to in this
paragraph shall have the status of an amendment to this Declaration of Trust.
Any Trustee, officer or other agent of the Trust, and any
organization in which any such person is interested may acquire, own, hold and
dispose of Shares of any Sub-Trust of the Trust to the same extent as if such
person were not a Trustee, officer or other agent of the Trust; and the Trust
may issue and sell or cause to be issued and sold and may purchase Shares of
any Sub-Trust from any such person or any such organization subject only to the
general limitations, restrictions or other provisions applicable to the sale or
purchase of Shares of such Sub-Trust generally.
Section 4.2 Establishment and Designation of Sub-Trusts.
Without limiting the authority of the Trustees set forth in Section 4.1 to
establish and designate any further Sub-Trusts, the Trustees hereby establish
and designate five Sub-Trusts: the "U.S. Government Money Market Fund", the
"California Tax Exempt Money Market Fund", the "Federal Tax Exempt Money Market
Fund", the "U.S. Government Securities Fund" and the "California Tax Exempt
Income Fund." The Shares of each of the U.S. Government Money Market Fund, the
California Tax Exempt Money Market Fund, the Federal Tax Exempt Money Market
Fund, the U.S. Government Securities Fund and the California Tax Exempt Income
Fund and any Shares of any further Sub-Trusts that may from time to time be
established and designated by the Trustees shall (unless the Trustees otherwise
determine with respect to some further Sub-Trust at the time of establishing
and designating the same) have the following relative rights and preferences:
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(a) Assets Belonging to Sub-Trusts. All consideration
received by the Trust for the issue or sale of Shares of a particular
Sub-Trust, together with all assets in which such consideration is invested or
reinvested, all income, earnings, profits, and proceeds thereof, including any
proceeds derived from the sale, exchange or liquidation of such assets, and any
funds or payments derived from any reinvestment of such proceeds in whatever
form the same may be, shall be held by the Trustees in trust for the benefit of
the holders of Shares of that Sub-Trust and shall irrevocably belong to that
Sub-Trust for all purposes, and shall be so recorded upon the books of account
of the Trust. Such consideration, assets, income, earnings, profits, and
proceeds thereof, including any proceeds derived from the sale, exchange or
liquidation of such assets, and any funds or payments derived from any
reinvestment of such proceeds, in whatever form the same may be, together with
any General Items allocated to that Sub-Trust as provided in the following
sentence, are herein referred to as "assets belonging to" that Sub-Trust. In
the event that there are any assets, income, earnings, profits, and proceeds
thereof, funds, or payments which are not readily identifiable as belonging to
any particular Sub-Trust (collectively "General Items"), the Trustees shall
allocate such General Items to and among any one or more of the Sub-Trusts
established and designated from time to time in such manner and on such basis
as they, in their sole discretion, deem fair and equitable; and any General
Items so allocated to a particular Sub-Trust shall belong to that Sub-Trust.
Each such allocation by the Trustees shall be conclusive and binding upon the
Shareholders of all Sub-Trusts for all purposes.
(b) Liabilities Belonging to Sub-Trusts. The assets
belonging to each particular Sub-Trust shall be charged with the liabilities in
respect of that Sub-Trust and all expenses, costs, charges and reserves
attributable to that Sub-Trust, and any general liabilities, expenses, costs,
charges or reserves of the Trust which are not readily identifiable as
belonging to any particular Sub-Trust shall be allocated and charged by the
Trustees to and among any one or more of the Sub-Trusts established and
designated from time to time in such manner and on such basis as the Trustees
in their sole discretion deem fair and equitable. The liabilities, expenses,
costs, charges and reserves allocated and so charged to a Sub-Trust are herein
referred to as "liabilities belonging to" that Sub-Trust. Each allocation of
liabilities, expenses, costs, charges and reserves by the Trustees shall be
conclusive and binding upon the Shareholders of all Sub-Trusts for all
purposes. Any creditor of any Sub-Trust may look only to the assets of that
Sub-Trust to satisfy such creditor's debt.
The Trustees shall have full discretion, to the extent not
inconsistent with the 1940 Act, to determine which items shall be treated as
income and which items as capital; and each such determination and allocation
shall be conclusive and binding upon the Shareholders.
(c) Dividends. Dividends and distributions on Shares of
a particular Sub-Trust may be paid with such frequency as the Trustees may
determine; which may be daily or otherwise pursuant to a standing resolution or
resolutions adopted only once or with such frequency as the Trustees may
determine, to the holders of Shares of that Sub-Trust, from such of the income
and capital gains, accrued or realized, from the assets belonging to that
Sub-Trust, as the Trustees may determine, after providing for actual and
accrued liabilities belonging to that Sub-Trust. All dividends and
distributions on Shares of a particular Sub-Trust shall be distributed pro rata
to the
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holders of Shares of that Sub-Trust in proportion to the number of Shares of
that Sub-Trust held by such holders at the date and time of record established
for the payment of such dividends or distributions, except that in connection
with any dividend or distribution program or procedure the Trustees may
determine that no dividend or distribution shall be payable on Shares as to
which the Shareholder's purchase order and/or payment have not been received by
the time or times established by the Trustees under such program or procedure.
Such dividends and distributions may be made in cash or Shares of that
Sub-Trust or a combination thereof as determined by the Trustees or pursuant to
any program that the Trustees may have in effect at the time for the election
by each Shareholder of the mode of the making of such dividend or distribution
to that Shareholder. Any such dividend or distribution paid in Shares will be
paid at the net asset value thereof as determined in accordance with subsection
(h) of Section 4.2.
(d) Liquidation. In the event of the liquidation or
dissolution of the Trust, the Shareholders of each Sub-Trust that has been
established and designated shall be entitled to receive, when and as declared
by the Trustees, the excess of the assets belonging to that Sub-Trust over the
liabilities belonging to that Sub-Trust. The assets so distributable to the
Shareholders of any particular Sub-Trust shall be distributed among such
Shareholders in proportion to the number of Shares of that Sub-Trust held by
them and recorded on the books of the Trust. The liquidation of any particular
Sub-Trust may be authorized by vote of a majority of the Trustees then in
office subject to the approval of a majority of the outstanding voting Shares
of that Sub-Trust, as defined in the 1940 Act.
(e) Voting. On each matter submitted to a vote of the
Shareholders, each holder of a Share of each Sub-Trust shall be entitled to one
vote for each whole Share and to a proportionate fractional vote for each
fractional Share standing in his name on the books of the Trust. The Trustees
shall cause each matter required or permitted to be voted upon at a meeting or
by written consent of Shareholders to be submitted to a vote of all classes of
outstanding Shares entitled to vote thereon (irrespective of class), unless the
1940 Act or other applicable law or regulations require that the actions of the
Shareholders be taken by a separate vote of one or more classes, or the
Trustees determine that any matter to be submitted to a vote of Shareholders
affects only the rights or interests of one or more (but not all) classes of
outstanding Shares, in which case only the Shareholders of the class or classes
so affected shall be entitled to vote thereon.
(f) Redemption by Shareholder. Each holder of Shares of
a particular Sub-Trust shall have the right at such times as may be permitted
by the Trust, but no less frequently than once each week, to require the Trust
to redeem all or any part of his Shares of that Sub-Trust at a redemption price
equal to the net asset value per Share of that Sub-Trust next determined in
accordance with subsection (h) of this Section 4.2 after the Shares are
properly tendered for redemption. Payment of the redemption price shall be in
cash; provided, however, that if the Trustees determine, which determination
shall be conclusive, that conditions exist which make payment wholly in cash
unwise or undesirable, the Trust may make payment wholly or partly in
securities or other assets belonging to the Sub-Trust of which the Shares being
redeemed are part at the value of such securities or assets used in such
determination of net asset value.
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Notwithstanding the foregoing, the Trust may postpone payment
of the redemption price and may suspend the right of the holders of Shares of
any Sub-Trust to require the Trust to redeem Shares of that Sub-Trust during
any period or at any time when and to the extent permissible under the 1940
Act.
(g) Redemption by Trust. Each Share of each Sub-Trust
that has been established and designated is subject to redemption by the Trust
at the redemption price which would be applicable if such Share was then being
redeemed by the Shareholder pursuant to subsection (f) of this Section 4.2:
(a) at any time, if the Trustees determine in their sole discretion that
failure to so redeem may have materially adverse consequences to the holders of
the Shares of the Trust or any Sub-Trust thereof, or (b) upon such other
conditions as may from time to time be determined by the Trustees and set forth
in the then current Prospectus of the Trust with respect to maintenance of
Shareholder accounts of a minimum amount. Upon such redemption the holders of
the Shares so redeemed shall have no further right with respect thereto other
than to receive payment of such redemption price.
(h) Net Asset Value. The net asset value per Share of
any Sub-Trust shall be the quotient obtained by dividing the value of the net
assets of that Sub-Trust (being the value of the assets belonging to that
Sub-Trust less the liabilities belonging to that Sub-Trust) by the total
number of Shares of that Sub-Trust outstanding, all determined in accordance
with the methods and procedures, including without limitation those with
respect to rounding, established by the Trustees from time to time.
The Trustees may determine to maintain the net asset value per
Share of any Sub-Trust at a designated constant dollar amount and in connection
therewith may adopt procedures not inconsistent with the 1940 Act for the
continuing declarations of income attributable to that Sub-Trust as dividends
payable in additional Shares of that Sub-Trust at the designated constant
dollar amount and for the handling of any losses attributable to that
Sub-Trust. Such procedures may provide that in the event of any loss each
Shareholder shall be deemed to have contributed to the capital of the Trust
attributable to that Sub-Trust his pro rata portion of the total number of
Shares required to be cancelled in order to permit the net asset value per
Share of that Sub-Trust to be maintained, after reflecting such loss, at the
designated constant dollar amount. Each Shareholder of the Trust shall be
deemed to have agreed, by his investment in any Sub-Trust with respect to which
the Trustees shall have adopted any such procedure, to make the contribution
referred to in the preceding sentence in the event of any such loss.
(i) Transfer. All Shares of each particular Sub-Trust
shall be transferable, but transfers of Shares of a particular Sub-Trust will
be recorded on the Share transfer records of the Trust applicable to that
Sub-Trust only at such times as Shareholders shall have the right to require
the Trust to redeem Shares of that Sub-Trust and at such other times as may be
permitted by the Trustees.
(j) Equality. All Shares of each particular Sub-Trust
shall represent an equal proportionate interest in the assets belonging to that
Sub-Trust (subject to the liabilities belonging
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to that Sub-Trust), and each Share of any particular Sub-Trust shall be equal
to each other Share of that Sub-Trust; but the provisions of this sentence
shall not restrict any distinctions permissible under subsection (c) of this
Section 4.2 that may exist with respect to dividends and distributions on
Shares of the same Sub-Trust. The Trustees may from time to time divide or
combine the Shares of any particular Sub-Trust into a greater or lesser number
of Shares of that Sub-Trust without thereby changing the proportionate
beneficial interest in the assets belonging to that Sub-Trust or in any way
affecting the rights of Shares of any other Sub-Trust.
(k) Fractions. Any fractional Share of any Sub-Trust, if
any such fractional Share is outstanding, shall carry proportionately all the
rights and obligations of a whole Share of that Sub-Trust, including rights and
obligations with respect to voting, receipt of dividends and distributions,
redemption of Shares, and liquidation of the Trust.
(l) Conversion Rights. Subject to compliance with the
requirements of the 1940 Act, the Trustees shall have the authority to provide
that holders of Shares of any Sub-Trust shall have the right to convert said
Shares into shares of one or more other Sub-Trust in accordance with such
requirements and procedures as may be established by the Trustees.
Section 4.3 Ownership of Shares. The ownership of Shares
shall be recorded on the books of the Trust or of a transfer or similar agent
for the Trust, which books shall be maintained separately for the Shares of
each Sub-Trust that has been established and designated. No certificate
certifying the ownership of Shares need be issued except as the Trustees may
otherwise determine from time to time. The Trustees may make such rules as
they consider appropriate for the issuance of Shares certificates, the use of
facsimile signatures, the transfer of Shares and similar matters. The record
books of the Trust as kept by the Trust or any transfer or similar agent, as
the case may be, shall be conclusive as to who are the Shareholders and as to
the number of Shares of each Sub-Trust held from time to time by each such
Shareholder.
Section 4.4 Investments in the Trust. The Trustees may
accept investments in the Trust and each Sub-Trust thereof from such persons
and on such terms and for such consideration, not inconsistent with the
provisions of the 1940 Act, as they from time to time authorize. The Trustees
may authorize any distributor, principal underwriter, custodian, transfer agent
or other person to accept orders for the purchase of Shares that conform to
such authorized terms and to reject any purchase orders for Shares whether or
not conforming to such authorized terms.
Section 4.5 No Pre-emptive Rights. Shareholders shall have
no pre-emptive or other right to subscribe to any additional Shares or other
securities issued by the Trust.
Section 4.6 Status of Shares and Limitation of Personal
Liability. Shares shall be deemed to be personal property giving only the
rights provided in this instrument. Every Shareholder by virtue of having
become a Shareholder shall be held to have expressly assented and agreed to the
terms hereof and to have become a party hereto. The death of a Shareholder
during the continuance of the Trust shall not operate to terminate the Trust or
any Sub-Trust
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<PAGE> 21
thereof nor entitle the representative of any deceased Shareholder to an
accounting or to take any action in court or elsewhere against the Trust or the
Trustees, but only to the rights of said decedent under this Trust. Ownership
of Shares shall not entitle the Shareholder to any title in or to the whole or
any part of the Trust property or right to call for a partition or division of
the same or for an accounting, nor shall the ownership of Shares constitute the
Shareholders partners. Neither the Trust nor the Trustees, nor any officer,
employee or agent of the Trust shall have any power to bind personally any
Shareholder, nor except as specifically provided herein to call upon any
Shareholder for the payment of any sum of money or assessment whatsoever other
than such as the Shareholder may at any time personally agree to pay.
ARTICLE V
SHAREHOLDERS' VOTING POWERS AND MEETINGS
Section 5.1 Voting Powers. The Shareholders shall have power
to vote only (i) for the election or removal of Trustees as provided in Section
3.1, (ii) with respect to any contract with a Contracting Party as provided in
Section 3.3 as to which Shareholder approval is required by the 1940 Act, (iii)
with respect to any termination or reorganization of the Trust or any Sub-Trust
to the extent and as provided in Sections 7.1 and 7.2, (iv) with respect to any
amendment of this Declaration of Trust to the extent and as provided in Section
7.3, (v) to the same extent as the stockholders of a Massachusetts business
corporation as to whether or not a court action, proceeding or claim should or
should not be brought or maintained derivatively or as a class action on behalf
of the Trust or any Sub-Trust thereof or the Shareholders (provided, however,
that a shareholder of a particular Sub-Trust shall not be entitled to a
derivative or class action on behalf of any other Sub-Trust (or shareholder of
any other Sub-Trust) of the Trust) and (vi) with respect to such additional
matters relating to the Trust as may be required by the 1940 Act, this
Declaration of Trust, the By-Laws or any registration of the Trust with the
Commission (or any successor agency) or any state, or as the Trustees may
consider necessary or desirable. There shall be no cumulative voting in the
election of Trustees. Shares may be voted in person or by proxy. A proxy with
respect to Shares held in the name of two or more persons shall be valid if
executed by any one of them unless at or prior to exercise of the proxy the
Trust receives a specific written notice to the contrary from any one of them.
A proxy purporting to be executed by or on behalf of a Shareholder shall be
deemed valid unless challenged at or prior to its exercise and the burden of
proving invalidity shall rest on the challenger. Until Shares are issued, the
Trustees may exercise all rights of Shareholders and may take any action
required by law, this Declaration of Trust or the By-Laws to be taken by
Shareholders.
Section 5.2 Meetings. Meetings of Shareholders may be called
by the Trustees from time to time for the purpose of taking action upon any
matter requiring the vote or authority of the Shareholders as herein provided
or upon any other matter deemed by the Trustees to be necessary or desirable.
Written notice of any meeting of Shareholders shall be given or caused to be
given by the Trustees by mailing such notice at least seven days before such
meeting, postage prepaid, stating the time, place and purpose of the meeting,
to each Shareholder at the
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<PAGE> 22
Shareholder's address as it appears on the records of the Trust. The Trustees
shall promptly call and give notice of a meeting of Shareholders for the
purpose of voting upon removal of any Trustee of the Trust when requested to do
so in writing by Shareholders holding not less than 10% of the Shares then
outstanding. If the Trustees fail to call or give notice of any meeting of
Shareholders for a period of 30 days after written application by Shareholders
holding at least 10% of the Shares then outstanding requesting a meeting be
called for any other purpose requiring action by the Shareholders as provided
herein or in the By-Laws, then Shareholders holding at least 10% of the Shares
then outstanding may call and give notice of such meeting, and thereupon the
meeting shall be held in the manner provided for herein in case of call thereof
by the Trustees.
Section 5.3 Record Dates. For the purpose of determining the
Shareholders who are entitled to vote or act at any meeting or any adjournment
thereof, or who are entitled to participate in any dividend or distribution, or
for the purpose of any other action, the Trustees may from time to time close
the transfer books for such period, not exceeding 30 days (except at or in
connection with the termination of the Trust), as the Trustees may determine;
or without closing the transfer books the Trustees may fix a date and time not
more than 60 days prior to the date of any meeting of Shareholders or other
action as the date and time of record for the determination of Shareholders
entitled to vote at such meeting or any adjournment thereof or to be treated as
Shareholders of record for purposes of such other action, and any shareholder
who was a Shareholder at the date and time so fixed shall be entitled to vote
at such meeting or any adjournment thereof or to be treated as a Shareholder of
record for purposes of such other action, even though he has since that date
and time disposed of his Shares, and no Shareholder becoming such after that
date and time shall be so entitled to vote at such meeting or any adjournment
thereof or to be treated as a Shareholder of record for purposes of such other
action.
Section 5.4 Quorum and Required Vote. A majority of the
Shares entitled to vote shall be a quorum for the transaction of business at a
Shareholders' meeting, but any lesser number shall be sufficient for
adjournments. Any adjourned session or sessions may be held, within a
reasonable time after the date set for the original meeting without the
necessity of further notice. A majority of the Shares voted, at a meeting of
which a quorum is present shall decide any questions and a plurality shall
elect a Trustee, except when a different vote is required or permitted by any
provision of the 1940 Act or other applicable law or by this Declaration of
Trust or the By-Laws.
Section 5.5 Action by Written Consent. Subject to the
provisions of the 1940 Act and other applicable law, any action taken by
Shareholders may be taken without a meeting if a majority of Shareholders
entitled to vote on the matter (or such larger proportion thereof as shall be
required by the 1940 Act or by any express provision of this Declaration of
Trust or the By-Laws) consent to the action in writing and such written
consents are filed with the records of the meetings of Shareholders. Such
consent shall be treated for all purposes as a vote taken at a meeting of
Shareholders.
Section 5.6 Inspection of Records. The records of the Trust
shall be open to
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<PAGE> 23
inspection by Shareholders to the same extent as is permitted stockholders of a
Massachusetts business corporation under the Massachusetts Business Corporation
Law.
Section 5.7 Additional Provisions. The By-Laws may include
further provisions for Shareholders' votes and meetings and related matters not
inconsistent with the provisions hereof.
ARTICLE VI
LIMITATION OF LIABILITY; INDEMNIFICATION
Section 6.1 Trustees, Shareholders, etc. Not Personally
Liable; Notice. All persons extending credit to, contracting with or having
any claim against the Trust shall look only to the assets of the Sub-Trust with
which such person dealt for payment under such credit, contract or claim; and
neither the Shareholders of any Sub-Trust nor the Trustees nor any of the
Trust's officers, employees or agents, whether past, present or future, nor any
other Sub-Trust shall be personally liable therefor. Every note, bond,
contract, instrument, certificate or undertaking and every other act or thing
whatsoever executed or done by or on behalf of the Trust, any Sub-Trust or the
Trustees or any of them in connection with the Trust shall be conclusively
deemed to have been executed or done only by or for the Trust (or the
Sub-Trust) or the Trustees and not personally. Nothing in this Declaration of
Trust shall protect any Trustee or officer against any liability to the Trust
or the Shareholders to which such Trustee or officer would otherwise be subject
by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of the office of Trustee or of
such officer.
Every note, bond, contract, instrument, certificate or
undertaking made or issued by the Trustees or by any officers or officer shall
give notice that this Declaration of Trust is on file with the Secretary of the
Commonwealth of Massachusetts and shall recite to the effect that the same was
executed or made by or on behalf of the Trust or by them as Trustees or Trustee
or as officers or officer and not individually and that the obligations of such
instrument are not binding upon any of them or the Shareholders individually
but are binding only upon the assets and property of the Trust, or the
particular Sub-Trust in question, as the case may be, but the omission thereof
shall not operate to bind any Trustees or Trustee or officers or officer or
Shareholders or Shareholder individually.
Section 6.2 Trustee's Good Faith Action; Expert Advice; No
Bond or Surety. The exercise by the Trustees of their powers and discretions
hereunder shall be binding upon everyone interested. A Trustee shall be liable
for his own willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of the office of Trustee, and
for nothing else, and shall not be liable for errors of judgment or mistakes of
fact or law. Subject to the foregoing, (a) the Trustees shall not be
responsible or liable in any event for any neglect or wrongdoing of any
officer, agent, employee, consultant, adviser, administrator, distributor or
principal underwriter, custodian or transfer, dividend disbursing, Shareholder
servicing,
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<PAGE> 24
accounting agent or any other service provider of the Trust, nor shall any
Trustee be responsible for the act or omission of any other Trustee; (b) the
Trustees may take advice of counsel or other experts with respect to the
meaning and operation of this Declaration of Trust and their duties as
Trustees, and shall be under no liability for any act or omission in accordance
with such advice or for failing to follow such advice; and (c) in discharging
their duties, the Trustees, when acting in good faith, shall be entitled to
rely upon the books of account of the Trust and upon written reports made to
the Trustees by any officer appointed by them, any independent public
accountant, and (with respect to the subject matter of the contract involved)
any officer, partner or responsible employee of a Contracting Party appointed
by the Trustees pursuant to Section 3.3. The Trustees as such shall not be
required to give any bond or surety or any other security for the performance
of their duties.
Section 6.3 Indemnification of Shareholders. In case any
Shareholder (or former Shareholder) of any Sub-Trust of the Trust shall be
charged or held to be personally liable for any obligation or liability of the
Trust solely by reason of being or having been a Shareholder and not because of
such Shareholder's acts or omissions or for some other reason, said Sub-Trust
(upon proper and timely request by the Shareholder) shall assume the defense
against such charge and satisfy any judgment thereon, and the Shareholder or
former Shareholder (or his heirs, executors, administrators or other legal
representatives or in the case of a corporation or other entity, its corporate
or other general successor) shall be entitled out of the assets of said
Sub-Trust estate to be held harmless from and indemnified against all loss and
expense arising from such liability.
Section 6.4 Indemnification of Trustees, Officers, etc. The
Trust shall indemnify (from the assets of the Sub-Trust or Sub-Trusts in
question) each of its Trustees and officers (including persons who serve at the
Trust's request as directors, officers or trustees of another organization in
which the Trust has any interest as a shareholder, creditor or otherwise
[hereinafter referred to as a "Covered Person"]) against all liabilities,
including but not limited to amounts paid in satisfaction of judgments, in
compromise or as fines and penalties, and expenses, including reasonable
accountants' and counsel fees, incurred by any Covered Person in connection
with the defense or disposition of any action, suit or other proceeding,
whether civil or criminal, before any court or administrative or legislative
body, in which such Covered Person may be or may have been involved as a party
or otherwise or with which such person may be or may have been threatened,
while in office or thereafter, by reason of being or having been such a Trustee
or officer, director or trustee, except with respect to any matter as to which
it has been determined that such Covered Person (i) did not act in good faith
in the reasonable belief that such Covered Person's action was in or not
opposed to the best interests of the Trust or (ii) had acted with willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of such Covered Person's office (either and both of the
conduct described in (i) and (ii) being referred to hereafter as "Disabling
Conduct"). A determination that the Covered Person is entitled to
indemnification may be made by (i) a final decision on the merits by a court or
other body before whom the proceeding was brought that the person to be
indemnified was not liable by reason of
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Disabling Conduct, (ii) dismissal of a court action or an administrative
proceeding against a Covered Person for insufficiency of evidence of Disabling
Conduct, or (iii) a reasonable determination, based upon a review of the facts,
that the indemnitee was not liable by reason of Disabling Conduct by (a) a vote
of a majority of a quorum of Trustees who are neither "interested persons" of
the Trust as defined in section 2(a)(19) of the 1940 Act nor parties to the
proceeding, or (b) an independent legal counsel in a written opinion.
Expenses, including accountants' and counsel fees so incurred by any such
Covered Person (but excluding amounts paid in satisfaction of judgments, in
compromise or as fines or penalties), may be paid from time to time by the
Sub-Trust in question in advance of the final disposition of any such action,
suit or proceeding, provided that the Covered Person shall have undertaken to
repay the amounts so paid to the Sub-Trust in question if it is ultimately
determined that indemnification of such expenses is not authorized under this
Article VI and (i) the Covered Person shall have provided security for such
undertaking, (ii) the Trust shall be insured against losses arising by reason
of any lawful advances, or (iii) a majority of a quorum of the disinterested
Trustees who are not a party to the proceeding, or an independent legal counsel
in a written opinion, shall have determined, based on a review of readily
available facts (as opposed to a full trial-type inquiry), that there is reason
to believe that the Covered Person ultimately will be found entitled to
indemnification.
Section 6.5 Compromise Payment. As to any matter disposed of
by a compromise payment by any such Covered Person referred to in Section 6.4,
pursuant to a consent decree or otherwise, no such indemnification either for
said payment or for any other expenses shall be provided unless such
indemnification shall be approved (a) by a majority of the disinterested
Trustees who are not a party to the proceeding or (b) by an independent legal
counsel in a written opinion. Approval by the Trustees pursuant to clause (a)
or by independent legal counsel pursuant to clause (b) shall not prevent the
recovery from any Covered Person of any amount paid to such Covered Person in
accordance with any of such clauses as indemnification if such Covered Person
is subsequently adjudicated by a court of competent jurisdiction not to have
acted in good faith in the reasonable belief that such Covered Person's action
was in or not opposed to the best interests of the Trust or to have been liable
to the Trust or its Shareholders by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
such Covered Person's office.
Section 6.6 Indemnification Not Exclusive, etc. The right of
indemnification provided by this Article VI shall not be exclusive of or affect
any other rights to which any such Covered Person may be entitled. As used in
this Article VI, "Covered Person" shall include such person's heirs, executors
and administrators, an "interested Covered Person" is one against whom the
action, suit or other proceeding in question or another action, suit or other
proceeding on the same or similar grounds is then or has been pending or
threatened, and a "disinterested" person is a person against whom none of such
actions, suits or other proceedings or another action, suit or other proceeding
on the same or similar grounds is then or has been pending or threatened.
Nothing contained in this article shall affect any rights to indemnification to
which personnel of the Trust, other than Trustees and officers, and other
persons may be entitled by contract or otherwise under law, nor the power of
the Trust to purchase and maintain liability insurance on behalf of any such
person.
Section 6.7 Liability of Third Persons Dealing with Trustees.
No person dealing
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with the Trustees shall be bound to make any inquiry concerning the validity of
any transaction made or to be made by the Trustees or to see to the application
of any payments made or property transferred to the Trust or upon its order.
ARTICLE VII
MISCELLANEOUS
Section 7.1 Duration and Termination of Trust. Unless
terminated as provided herein, the Trust shall continue without limitation of
time and, without limiting the generality of the foregoing, no change,
alteration or modification with respect to any Sub-Trust shall operate to
terminate the Trust. The Trust may be terminated at any time by a majority of
the Trustees then in office subject to a favorable vote of a majority of the
outstanding voting securities, as defined in the 1940 Act, Shares of each
Sub-Trust voting separately by Sub-Trust.
Upon termination, after paying or otherwise providing for all
charges, taxes, expenses and liabilities, whether due or accrued or anticipated
as may be determined by the Trustees, the Trust shall in accordance with such
procedures as the Trustees consider appropriate reduce the remaining assets to
distributable form in cash, securities or other property, or any combination
thereof, and distribute the proceeds to the Shareholders, in conformity with
the provisions of subsection (d) of Section 4.2.
Section 7.2 Reorganization. The Trust may merge or
consolidate with any other corporation, partnership, association, trust or
other organization and the Trustees may sell, convey, and transfer the assets
of the Trust, or the assets belonging to any one or more Sub-Trusts, to
another trust, partnership, association or corporation organized under the laws
of any state of the United States, or to the Trust to be held as assets
belonging to another Sub-Trust, in exchange for cash, shares or other
securities (including, in the case of a transfer to another Sub-Trust of the
Trust, Shares of such other Sub-Trust) with such transfer being made subject
to, or with the assumption by the transferee of, the liabilities belonging to
each Sub-Trust the assets of which are so transferred; provided, however, that
no assets belonging to any particular Sub-Trust shall be so transferred unless
the terms of such transfer shall have first been approved at a meeting called
for the purpose by the affirmative vote of the holders of a majority of the
outstanding voting Shares, as defined in the 1940 Act, of that Sub-Trust. Any
such consolidation or merger shall require approval by the affirmative vote of
the holders of a majority of the outstanding voting Shares, as defined in the
1940 Act, of the Trust (or each Sub-Trust affected thereby, as the case may
be), except that such affirmative vote of the holders of Shares shall not be
required if the Trust (or Sub-Trust affected thereby, as the case may be) shall
be the survivor of such consolidation or merger.
Section 7.3 Amendments. All rights granted to the
Shareholders under this Declaration of Trust are granted subject to the
reservation of the right to amend this Declaration of Trust as herein provided,
except that no amendment shall repeal the limitations on personal
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liability of any Shareholder or Trustee or repeal the prohibition of assessment
upon the Shareholders without the express consent of each Shareholder or
Trustee involved. Subject to the foregoing, the provisions of this Declaration
of Trust (whether or not related to the rights of Shareholders) may be amended
at any time, so long as such amendment does not adversely affect the rights of
any Shareholder with respect to which such amendment is or purports to be
applicable and so long as such amendment is not in contravention of applicable
law, including the 1940 Act, by an instrument in writing signed by a majority
of the then Trustees (or by an officer of the Trust pursuant to the vote of a
majority of such Trustees). Any amendment to this Declaration of Trust that
adversely affects the rights of Shareholders may be adopted at any time by an
instrument in writing signed by a majority of the then Trustees (or by an
officer of the Trust pursuant to a vote of a majority of such Trustees) when
authorized to do so by the vote in accordance with subsection (e) of Section
4.2 of Shareholders holding a majority of the Shares entitled to vote. Subject
to the foregoing, any such amendment shall be effective as provided in the
instrument containing the terms of such amendment or, if there is no provision
therein with respect to effectiveness, upon the execution of such instrument
and of a certificate (which may be a part of such instrument) executed by a
Trustee or officer of the Trust to the effect that such amendment has been duly
adopted.
Section 7.4 Resident Agent. The Trust may appoint and
maintain a resident agent in the Commonwealth of Massachusetts.
Section 7.5 Filing of Copies; References; Headings. The
original or a copy of this instrument and of each amendment hereto shall be
kept at the office of the Trust where it may be inspected by any Shareholder.
A copy of this instrument and of each amendment hereto shall be filed by the
Trust with the Secretary of the Commonwealth of Massachusetts and with the
Boston City Clerk, as well as any other governmental office where such filing
may from time to time be required, but the failure to make any such filing
shall not impair the effectiveness of this instrument or any such amendment.
Anyone dealing with the Trust may rely on a certificate by an officer of the
Trust as to whether or not any such amendments have been made, as to the
identities of the Trustees and officers, and as to any matters in connection
with the Trust hereunder; and, with the same effect as if it were the original,
may rely on a copy certified by an officer of the Trust to be a copy of this
instrument or of any such amendments. In this instrument and in any such
amendment, references to this instrument, and all expressions like "herein",
"hereof" and "hereunder" shall be deemed to refer to this instrument as a whole
as the same may be amended or affected by any such amendments. The masculine
gender shall include the feminine and neuter genders. Headings are placed
herein for convenience of reference only and shall not be taken as a part
hereof or control or affect the meaning, construction or effect of this
instrument. This instrument may be executed in any number of counterparts each
of which shall be deemed an original.
Section 7.6 Applicable Law. This Declaration of Trust is
made in the Commonwealth of Massachusetts, and it is created under and is to be
governed by and construed and administered according to the laws of said
Commonwealth, including the Massachusetts Business Corporation Law as the same
may be amended from time to time, to which reference is
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<PAGE> 28
made with the intention that matters not specifically covered herein or as to
which an ambiguity may exist shall be resolved as if the Trust were a business
corporation organized in Massachusetts, but the reference to said Business
Corporation Law is not intended to give the Trust, the Trustees, the
Shareholders or any other person any right, power, authority or responsibility
available only to or in connection with an entity organized in corporate form.
The Trust shall be of the type referred to in Section 1 of Chapter 182 of the
Massachusetts General Laws and of the type commonly called a Massachusetts
business trust, and without limiting the provisions hereof, the Trust may
exercise all powers which are ordinarily exercised by such a trust.
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<PAGE> 29
IN WITNESS WHEREOF, the undersigned have hereunto set their
hands and seals in the City of Boston, Massachusetts for themselves and their
assigns, as of the day and year first above written.
/s/ Peter Meenan
-----------------------------------
Peter Meenan, as Trustee
and not individually
/s/ Patricia Bickimer
-----------------------------------
Patricia L. Bickimer, as Trustee
and not individually
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<PAGE> 1
Exhibit 1(a)-1
AMENDMENT NO. 1 TO MASTER TRUST AGREEMENT
DATED FEBRUARY 22, 1989
The undersigned, a trustee of The GW Sierra Trust Funds (the "Fund"),
does hereby certify that at a meeting of the Board of Trustees held on May 10,
1989, the following resolutions were unanimously approved by the trustees of
the Fund and that said resolutions continue in full force and effect as of the
date hereof:
WHEREAS, Article VII, Section 7.3 of the Fund's Master Trust
Agreement dated as of February 22, 1989 (the "Master Trust Agreement")
provides that, until such time as a Registration Statement under the
Securities Act of 1933, as amended, covering the first public offering
of securities of the Fund shall have become effective, the Master
Trust Agreement may be amended in any respect by the affirmative vote
of a majority of the trustees;
RESOLVED, that pursuant to the authorization described above,
the Master Trust Agreement shall be amended in the following respect:
Article I of the Master Trust Agreement is amended to
change the name of the Fund from "The GW Investment Funds" to
"The GW Sierra Trust Funds", and all other appropriate
references in the Master Trust Agreement are amended to
reflect the fact that the name of the Fund is "The GW Sierra
Trust Funds";
FURTHER RESOLVED, that any officer of the Fund be, and each of
them hereby is, authorized to execute, seal and deliver any and all
documents, instruments, certificates, papers and writings; to file the
same with any public official including, without limitation, the
Secretary of the Commonwealth of Massachusetts and the Boston City
Clerk; and to do any and all other acts, in the name of the Fund and
on its behalf, as may be required or desirable in connection with or
in furtherance of the foregoing resolution; and
FURTHER RESOLVED, that the foregoing amendment to the Master
Trust Agreement shall be effective upon the filing of an instrument
containing the same with the Secretary of the Commonwealth of
Massachusetts and the Boston City Clerk.
<PAGE> 2
WITNESS my hand and seal this 10th day of May, 1989.
/s/ Patricia L. Bickimer
-------------------------------
Patricia L. Bickimer
Trustee
COMMONWEALTH OF MASSACHUSETTS )
) ss.
CITY OF BOSTON )
Then personally appeared Patricia L. Bickimer, Trustee of Trustee of
The GW Sierra Trust Funds, and acknowledged this instrument to be her free act
and deed this 10th day of May, 1989.
/s/ Annamarie D'Angelo
-------------------------------
Notary Public
My commission expires: 11/17/89
<PAGE> 1
EXHIBIT 1(a)-2
GW SIERRA TRUST FUNDS
(A Massachusetts Business Trust)
CERTIFICATE OF CLASSIFICATION OF SHARES
I, Patricia L. Bickimer, do hereby certify as follows:
(1) That I am duly elected Treasurer, Chief Financial Officer and
Secretary of GW Sierra Trust Funds (the "Trust");
(2) That in such capacity I have examined the records of actions
taken by the Board of Trustees of the Trust by unanimous written consent on May
22, 1989;
(3) That the following resolutions were duly adopted by unanimous
written consent:
RESOLVED, that pursuant to Section 4.1 of the Master Trust
Agreement of the Trust, an additional series of units of beneficial
interest in the Trust, classified as Class F Shares, representing
interests in the GW Growth and Income Fund be, and hereby is,
established; and
FURTHER RESOLVED, that each Share of Class F created under the
foregoing resolution shall have all of the preferences, conversion and
other rights, voting powers, restrictions, limitations as to
dividends, qualifications and terms and conditions of redemption that
are set forth in the Declaration of Trust with respect to Shares of
any class; and
FURTHER RESOLVED, that the remaining five Classes of shares,
formerly representing interests in the U.S. Government Money Market
Fund (Class A), The California Tax Exempt Money Market Fund (Class B),
The Federal Tax Exempt Money Market Fund (Class C), The U.S.
Government Securities Fund (Class D) and The California Tax Exempt
Income Fund (Class E), now represent interests in the GW Global Income
Money Market Fund, GW U.S. Government Money Market Fund, GW California
Municipal Money Market Fund, GW U.S. Government Securities Fund and GW
California Municipal Income Fund.
(4) That the foregoing resolutions remain in full force and effect
on the date hereof.
/s/ Patricia L. Bickimer
--------------------------------
Patricia L. Bickimer
Dated: May 22, 1989
Subscribed and Sworn to before me on this 22nd day of May, 1989.
Annamarie D'Angelo
--------------------------------
Notary Public
My Commission Expires: 11/17/89
<PAGE> 1
Exhibit 1(a)-3
AMENDMENT NO. 3 TO MASTER TRUST AGREEMENT
dated February 22, 1989
The undersigned, as secretary of GW Sierra Trust Funds (the "Fund"),
does hereby certify that at a Special Meeting of the Board of Trustees held on
May 24, 1989, the following resolutions were unanimously approved by the
trustees of the Fund and that said resolutions continue in full force and effect
as of the date hereof:
WHEREAS, Article VII, Section 7.3 of the Fund's Master Trust
Agreement dated as of February 22, 1989 (the "Master Trust Agreement")
provides that the Master Trust Agreement may be amended by the
affirmative vote of a majority of the trustees;
VOTED, that pursuant to the authorization described above, the
Master Trust Agreement shall be amended in the following respect:
Article I of the Master Trust Agreement is amended to change
the name of the Fund from "The GW Sierra Trust Funds" to "GW
Sierra Trust Fund", and all other appropriate references in
the Master Trust Agreement are amended to reflect the fact
that the name of the Fund is "GW Sierra Trust Funds"; and
further
VOTED, that any officer of the Fund be, and each of them
hereby is, authorized to execute, seal and deliver any and all
documents, instruments, certificates, papers and writings; to file the
same with any public official including, without limitation, the
Secretary of the Commonwealth of Massachusetts and the Boston City
Clerk; and to do any and all other acts, in the name of the fund and on
its behalf, as may be required or desirable in connection with or in
furtherance of the foregoing resolution; and further
WITNESS my hand and seal this 24th day of May, 1989.
/s/ Patricia L. Bickimer
-------------------------------------
Patricia L. Bickimer
Secretary
<PAGE> 2
COMMONWEALTH OF MASSACHUSETTS )
) ss.
CITY OF BOSTON )
Then personally appeared Patricia L. Bickimer, Secretary of GW Sierra
Trust Funds, and acknowledged this instrument to be her free act and deed this
24th day of May, 1989.
/s/ Annamarie D'Angelo
--------------------------------
Notary Public
My commission expires: 11/17/89
<PAGE> 1
EXHIBIT 1(a)-4
GW SIERRA TRUST FUNDS
AMENDMENT NO. 4 TO MASTER TRUST AGREEMENT
(DESIGNATION OF ADDITIONAL SUB-TRUSTS)
The undersigned, Assistant Secretary of GW Sierra Trust Funds (the
"Company"), does hereby certify that pursuant to Article IV, Section 4.1, and
Article VII, Section 7.3, of the Master Trust Agreement dated February 22,
1989, as amended, the following votes were duly adopted by vote of at least a
majority of the Trustees at a Meeting of the Board of Trustees held on May 7,
1990, and that said votes remain in full force and effect on the date hereof:
VOTED, that Section 4.2 of the Master Trust Agreement, as heretofore
amended, be further amended so as to establish and designate four new
Sub-Trusts, to be known as GW National Municipal Income Fund (Class G), GW
Corporate Income Fund (Class H), GW Equity Opportunity Fund (Class I), and GW
Strategic International Fund (Class J); that the number of shares of each such
Sub-Trust which the Company is authorized to issue is an unlimited number of
shares of beneficial interest, without par value, with the shares of beneficial
interest, without par value, with the shares of each such Sub-Trust having such
relative rights and preferences as are set forth in the Master Trust Agreement,
as amended; and that the Company is hereby authorized and empowered to issue,
for such consideration as it deems appropriate (but not less than their net
asset value) an unlimited number of shares of beneficial interest of each such
Sub-Trust; and further
VOTED, that the proper officers of the Company be, and each of them
hereby is, authorized and empowered to execute all instruments and documents
and to take all actions as they or any one of them in his or her sole
discretion deems necessary and appropriate to carry out the intents and
purposes of the foregoing vote, the execution of such instruments and documents
or the taking of such actions to be deemed conclusive evidence of said
officer's authority.
Dated: May 7, 1990
/s/ Patricia L.Bickimer
----------------------------------
Patricia L. Bickimer
Assistant Secretary
Subscribed and sworn to before me this 7th day of May, 1990
/s/ Annamarie D'Angelo
----------------------------------
Notary Public: Annamarie D'Angelo
My Commission Expires: 11/1/96
<PAGE> 1
EXHIBIT 1(a)-5
GW SIERRA TRUST FUNDS
AMENDMENT NO. 5 TO MASTER TRUST AGREEMENT
(DESIGNATION OF ADDITIONAL SUB-TRUSTS)
The undersigned, Assistant Secretary of GW Sierra Trust Funds (the
"Company") does hereby certify that pursuant to Article IV, Section 4.1, and
Article VII, Section 7.3, of the Master Trust Agreement dated February 22,
1989, as amended, the following votes were duly adopted by vote of at least a
majority of the Trustees at a Meeting of the Board of Trustees held on November
5, 1991, and that said votes remain in full force and effect on the date
hereof:
VOTED, that Section 4.2 of the Master Trust Agreement, as heretofore
amended, be further amended so as to establish and designate a new Sub-Trust,
to be known as GW Short Term Global Government Income Fund (Class K); that the
number of shares of the Sub-Trust which the Company is authorized to issue is
an unlimited number of shares of beneficial interest, without par value, with
the shares of the Sub-Trust having such relative rights and preferences as are
set forth in the Master Trust Agreement, as amended; and that the Company is
hereby authorized and empowered to issue, for such consideration as it deems
appropriate (but not less than their net asset value) an unlimited number of
shares of beneficial interest of the Sub-Trust; and further
VOTED, that the proper officers of the Company be, and each of them
hereby is, authorized and empowered to execute all instruments and documents
and to take all actions as they or any one of them in his or her sole
discretion deems necessary and appropriate to carry out the intents and
purposes of the foregoing vote, the execution of such instruments and documents
or the taking of such actions to be deemed conclusive evidence of said
officer's authority.
Dated: December 4, 1991
/s/ Patricia L. Bickimer
----------------------------------
Patricia L. Bickimer
Assistant Secretary
Subscribed and sworn to before me this 4th day of December, 1991,
/s/ Mary A. Bucci
----------------------------------
Notary Public: Mary A. Bucci
My Commission Expires: 7/31/92
<PAGE> 1
EXHIBIT 1(a)-6
GW SIERRA TRUST FUNDS
AMENDMENT NO. 6 TO MASTER TRUST AGREEMENT
(Change of Name of Sub-Trust from "GW Short Term Global Government
Income Fund" to "GW Short Term Global Government Fund)
The undersigned, Assistant Secretary of GW Sierra Trust Funds,
(the "Fund"), does hereby certify that pursuant to Article VII, Section 7.3 of
the fund's Master Trust Agreement dated February 22, 1989, as amended, (the
"Master Trust Agreement") the following votes were duly adopted by written
consent by at least a majority of the Trustees of the Fund.
VOTED: That the name of the Sub-Trust previously established and designated
pursuant to Section 4.2 of the Fund's Master Trust Agreement be
changed from its current name of "GW Short Term Global Government
Income Fund" to "GW Short Term Global Government Fund"; and
FURTHER
VOTED: That the proper officers of the Fund are each hereby authorized and
empowered to execute all instruments and documents and to take all
actions, including the filing of an Amendment to the Fund's Master
Trust Agreement with the Secretary of State of The Commonwealth of
Massachusetts, as they or any one of them in his or her sole
discretion deems necessary or appropriate to carry out the intents and
purposes of the foregoing votes.
WITNESS my hand and seal this 30th day of January, 1992.
/s/ Patricia L. Bickimer
----------------------------------
Patricia L. Bickimer
Assistant Secretary
<PAGE> 1
EXHIBIT 1(a)-7
GW SIERRA TRUST FUNDS
AMENDMENT NO. 7 TO MASTER TRUST AGREEMENT
(Change of Names)
The undersigned, Assistant Secretary of GW Sierra Funds (the
"Company"), does hereby certify that pursuant to Article IV, Sections 4.1 and
4.2, and Article VII, Section 7.3, of the Master Trust Agreement dated February
22, 1989, as amended, the following votes were duly adopted by vote of at least
a majority of the Trustees at a Meeting of the Board of Trustees held on August
11, 1992, and that said votes remain in full force and effect on the date
hereof:
VOTED: That, pursuant to the authorization in Article I and VII of the GW
Sierra Trust Funds Master Trust Agreement (the "Master Trust
Agreement"), the Master Trust Agreement shall be amended in the
following respect:
Article I of the Master Trust Agreement is amended to change
the name of the GW Sierra Trust Funds (the "Fund") from "GW
Sierra Trust Funds" to the "Sierra Trust Funds", and all other
appropriate references in the Master Trust Agreement are
amended to reflect the fact that the name of the Fund is
"Sierra Trust Funds";
FURTHER
VOTED: That the names of the Sub-Trusts previously established and designated
pursuant to Sections 4.1 and 4.2 of the Master Trust Agreement be
changed from their current names as follows:
<TABLE>
<CAPTION>
Name Changed From Name Changed To
----------------- ---------------
<S> <C> <C>
1. GW U.S. Government Money Market Fund U.S. Government Money Fund
2. GW California Municipal Money Market Fund California Money Fund
3. GW Global Income Money Market Fund Global Money Fund
4. GW Short Term Global Government Fund Short Term Global Government Fund
5. GW U.S. Government Securities Fund U.S. Government Fund
6. GW Corporate Income Fund Corporate Income Fund
7. GW California Municipal Income Fund California Municipal Fund
8. GW National Municipal Income Fund National Municipal Fund
9. GW Growth and Income Fund Growth and Income Fund
10. GW Strategic International Fund International Growth Fund
11. GW Equity Opportunity Fund Emerging Growth Fund
</TABLE>
<PAGE> 2
FURTHER
VOTED: That any officer of the Fund be, and each of them hereby is, authorized
to execute, seal and deliver any and all documents, instruments,
certificates, papers and writings; to file the same with any public
official including, without limitation, the Secretary of the
Commonwealth of Massachusetts and the Boston City Clerk; and to do any
and all other acts, in the name of the Fund and on its behalf, as may
be required or desirable in connection with or in furtherance of the
foregoing resolutions; and
FURTHER
VOTED: That the foregoing amendment to the Master Trust Agreement shall be
effective upon the later of (i) the filing of an instrument containing
the same with the Secretary of the Commonwealth of Massachusetts and
the Boston City Clerk, and (ii) the date the post-effective amendment
of the registration statement or statements of the Fund that
incorporate the foregoing name changes becomes effective pursuant to
the Securities Act of 1933, as amended, and the Investment Company Act
of 1940, as amended, and the rules and regulations adopted thereunder
by the U.S. Securities and Exchange Commission.
Dated: September 10, 1992
/s/ Richard W. Grant
----------------------------------
Richard W. Grant
Assistant Secretary
Subscribed and sworn to before me this 10th day of September, 1992.
/s/ Rosemary Pasquariello
----------------------------------
Notary Public:
My Commission Expires:
<PAGE> 1
EXHIBIT 1(a)-8
SIERRA TRUST FUNDS
AMENDMENT NO. 8
TO
MASTER TRUST AGREEMENT
(Change of Address)
The undersigned, being a Trustee of Sierra Trust Funds (the "Trust"),
created and existing under a Master Trust Agreement dated February 22, 1989
(the "Original Master Trust Agreement"), a copy of which is on file in the
office of the Secretary of the Commonwealth of Massachusetts and the Boston
City Clerk, and having been duly authorized to execute this Amendment No. 8 by
vote of the Trustees of the Trust does hereby consent to and adopt the
following amendment to the Original Master Trust Agreement:
1. The principal address of the Trust, formerly:
888 South Figueroa Street, Suite 1100
Los Angeles, California 90017
is hereby changed to:
9301 Corbin Avenue, Suite 333
Northridge, California 91324
The main phone number is (800) 222-5852.
The foregoing Amendment shall become effective upon the filing of an
original executed copy of this instrument with the Secretary of the
Commonwealth of Massachusetts.
Subscribed this 22nd day of September, 1993, under penalties of
perjury.
Signature: /s/ F. Brian Cerini
------------------------------
F. Brian Cerini, Trustee
<PAGE> 1
EXHIBIT 1(a)-9
SIERRA TRUST FUNDS
AMENDMENT NO. 9 TO MASTER TRUST AGREEMENT
(DESIGNATION OF ADDITIONAL FUNDS (OR SUB-TRUSTS) AND CLASSES OF SHARES)
Pursuant to Article IV of the Master Trust Agreement dated
February 22, 1989, as amended (the "Master Trust Agreement"), of Sierra Trust
Funds (the "Trust"), the Trustees of the Trust hereby designate the following
series of Shares (as defined in the Master Trust Agreement) (each of such
series and each of the other series of the Trust, a "Fund," referred to in the
Master Trust Agreement as a "Sub-Trust"), and the following classes of Shares
of each Fund of the Trust, to have the following special and relative rights:
1. The following Funds shall be designated as follows:
Growth and Income Fund
Short Term High Quality Bond Fund
Growth Fund
Florida Insured Municipal Fund
California Insured Intermediate Municipal Fund
2. Each of such Funds in Paragraph 1 above shall have the
relative rights and preferences set forth in Article IV of the Master Trust
Agreement.
3. The Shares of each Fund shall be classified into three classes
of Shares: Class A Shares, Class B Shares and Class S Shares. The Shares of
each Fund issued and outstanding as of the date that such Fund issues any Class
A Shares, Class B Shares or Class S Shares shall be treated for all purposes as
Class A Shares. Each of the Class A Shares, Class B Shares and Class S Shares
of a Fund shall have the relative rights and preferences of Shares of such Fund
as set forth in Article IV of the Master Trust Agreement; provided that each of
such classes of Shares of a Fund may differ from each other class of Shares of
such Fund in the following respects, as described in the prospectuses and
statements of additional information of the Funds: (i) the amount of fees
permitted by different distribution plans adopted pursuant to Rule 12b-1 under
the Investment Company Act of 1940, as amended ("Rule 12b-1"); (ii) the
shareholder servicing expenses permitted by non-Rule 12b-1 shareholder
servicing plans; (iii) voting rights with respect to the Rule 12b-1 Plan of
each class; (iv) different designations; (v) the impact of any incremental
transfer agency fees directly attributable to a particular class of Shares; and
(vi) different exchange privileges or conversion features.
<PAGE> 2
IN WITNESS WHEREOF, the undersigned have executed this instrument as
of the 13th day of March, 1994.
\s\ David E. Anderson \s\ Arthur H. Bernstein, Esq.
- ---------------------------------- ----------------------------------
David E. Anderson Arthur H. Bernstein, Esq.
\s\ F. Brian Cerini \s\ Edmond R. Davis, Esq.
- ---------------------------------- ----------------------------------
F. Brian Cerini Edmond R. Davis, Esq.
\s\ John W. English
- ----------------------------------
John W. English
<PAGE> 1
EXHIBIT 1(a)-10
SIERRA TRUST FUNDS
AMENDMENT NO. 10 TO MASTER TRUST AGREEMENT
(DESIGNATION OF ADDITIONAL FUNDS (OR SUB-TRUSTS) AND CLASSES OF SHARES)
Pursuant to Article IV of the Master Trust Agreement dated
February 22, 1989, as amended (the "Master Trust Agreement"), of Sierra Trust
Funds (the "Trust"), the Trustees of the Trust hereby designate an additional
series of Shares (as defined in the Master Trust Agreement) (such series and
each of the other series of the Trust, a "Fund," referred to in the Master
Trust Agreement as a "Sub-Trust"), and the following classes of Shares of the
additional Fund of the Trust, to have the following special and relative
rights:
1. The additional Fund shall be designated as follows:
Target Maturity Fund 2002
2. Shares of the additional Fund in Paragraph 1 above shall have
the relative rights and preferences set forth in Article IV of the Master Trust
Agreement.
3. The Shares of the Fund shall be classified into one class of
shares: Class A Shares.
IN WITNESS WHEREOF, the undersigned have executed this
instrument as of the 20th day of January, 1995.
\s\ David E. Anderson \s\ Arthur H. Bernstein, Esq.
- ---------------------------------- ----------------------------------
David E. Anderson Arthur H. Bernstein, Esq.
\s\ F. Brian Cerini \s\ Edmond R. Davis, Esq.
- ---------------------------------- ----------------------------------
F. Brian Cerini Edmond R. Davis, Esq.
\s\ John W. English
- ----------------------------------
John W. English
<PAGE> 1
EXHIBIT 2(b)
BY-LAWS
OF
SIERRA TRUST FUNDS
(formerly, THE GW INVESTMENT FUNDS)
(as amended through November 18, 1992)
ARTICLE 1
Agreement and Declaration of Trust and Principal Office
1.1 Agreement and Declaration of Trust. These By-Laws
shall be subject to the Master Trust Agreement, as from time to time in effect
(the "Master Trust Agreement"), of Sierra Trust Funds, a Massachusetts business
trust established by the Master Trust Agreement, as amended (the "Trust").
1.2 Principal Office of the Trust. The principal
office of the Trust shall be located in Boston, Massachusetts.
ARTICLE 2
Meetings of Trustees
2.1 Chairman. The Trustees may appoint one member of
the Board of Trustees to serve as Chairman thereof. The Chairman of the
Trustees may but need not be a shareholder. Unless the Trustees otherwise
provide, the Chairman of the Trustees, or, if there is none, or in the absence
of the Chairman, such person as the Trustees shall designate shall preside at
all meetings of the Trustees.
2.2 Regular Meetings. Regular meetings of the
Trustees may be held without call or notice at such places and at such times as
the Trustees may from time to time determine, provided that notice of the first
regular meeting following any such determination shall be given to absent
Trustees.
2.3 Special Meetings. Special meetings of the
Trustees may be held at any time and at any place designated in the call of the
meeting when called by the Chairman of the Trustees, the President or the
Treasurer or by two or more Trustees, sufficient notice thereof being given to
each Trustee by the Secretary or an Assistant Secretary or by the officer of
the Trustees calling the meeting.
<PAGE> 2
2.4 Notice. It shall be sufficient notice to a
Trustee of a special meeting to send notice by mail at least forty-eight hours
or by telegram at least twenty-four hours before the meeting addressed to the
Trustee at his or her usual or last known business or residence address or to
give notice to him or her in person or by telephone at least twenty-four hours
before the meeting. Notice of a meeting need not be given to any Trustee if a
written waiver of notice, executed by him or her before or after the meeting,
is filed with the records of the meeting, or to any Trustee who attends the
meeting without protesting prior thereto or at its commencement the lack of
notice to him or her. Neither notice of a meeting nor a waiver of a notice
need specify the purposes of the meeting.
2.5 Quorum. At any meeting of the Trustees a majority
of the Trustees then in office shall constitute a quorum. Any meeting may be
adjourned from time to time by a majority of the votes cast upon the question,
whether or not a quorum is present, and the meeting may be held as adjourned
without further notice.
2.6 Participation by Telephone. One or more of the
Trustees or of any committee of the Trustees may participate in a meeting
thereof by means of a conference telephone or similar communications equipment
allowing all persons participating in the meeting to hear each other at the
same time. Participation by such means shall constitute presence in person at
a meeting.
ARTICLE 3
Officers
3.1 Enumeration; Qualification. The officers of the
Trust shall be a President, a Treasurer, a Secretary and such other officers,
including Vice Presidents, if any, as the Trustees from time to time may in
their discretion elect. The Trust may also have such agents as the Trustees
from time to time in their discretion may appoint. Any officer may be but none
need be a Trustee or shareholder. Any two or more offices may be held by the
same person.
3.2 Election. The President, the Treasurer and the
Secretary shall be elected annually by the Trustees. Other officers, if any,
may be elected or appointed by the Trustees at any time. Vacancies in any
office may be filled at any time.
3.3 Tenure. The President, the Treasurer and the
Secretary shall hold office until their respective successors are chosen and
qualified, or in each case until he or she sooner dies, resigns, is removed or
becomes disqualified. Each other officer shall hold office and each agent
shall retain authority at the pleasure of the Trustees.
3.4 Powers. Subject to the other provisions of these
By-Laws, each officer shall have, in addition to the duties and powers herein
and in the Master Trust Agreement set forth, such duties and powers as are
commonly incident to the office occupied by him or her as if
-2-
<PAGE> 3
the Trust were organized as a Massachusetts business corporation and such other
duties and powers as the Trustees may from time to time designate.
3.5 President. Unless the Trustees otherwise provide,
the President shall preside at all meetings of the shareholders. The President
shall be the chief executive officer.
3.6 Treasurer. The Treasurer shall be the chief
financial and accounting officer of the Trust, and shall, subject to the
provisions of the Master Trust Agreement and to any arrangement made by the
Trustees with a custodian, investment adviser or manager, or transfer,
shareholder servicing or similar agent, be in charge of the valuable papers,
books of account and accounting records of the Trust, and shall have such other
duties and powers as may be designated from time to time by the Trustees or by
the President.
3.7 Secretary. The Secretary shall record all
proceedings of the shareholders and the Trustees in books to be kept therefor,
which books or a copy thereof shall be kept at the principal office of the
Trust or at the office of the Fund's counsel. In the absence of the Secretary
from any meeting of the shareholders or Trustees, an assistant secretary, or if
there be none or if he or she is absent, a temporary secretary chosen at such
meeting shall record the proceedings thereof in the aforesaid books.
3.8 Resignations and Removals. Any Trustee or officer
may resign at any time by written instrument signed by him or her and delivered
to the Chairman, the President or the Secretary or to a meeting of the
Trustees. Such resignation shall be effective upon receipt unless specified to
be effective at some other time. The Trustees may remove any officer elected
by them with or without cause. Except to the extent expressly provided in a
written agreement with the Trust, no Trustee or officer resigning and no
officer removed shall have any right to any compensation for any period
following his or her resignation or removal.
-3-
<PAGE> 4
ARTICLE 4
Committees
4.1 General. The Trustees, by vote of a majority of
the Trustees then in office, may elect from their number an Executive Committee
or other committees and may delegate thereto some or all of their powers except
those which by law, by the Master Trust Agreement, or by these By-Laws may not
be delegated. Except as the Trustees may otherwise determine, any such
committee may make rules for the conduct of its business, but unless otherwise
provided by the Trustees or in such rules, its business shall be conducted so
far as possible in the same manner as is provided by these By-Laws for the
Trustees themselves. All members of such committees shall hold such offices at
the pleasure of the Trustees. The Trustees may abolish any such committee at
any time. Any committee to which the Trustees delegate any of their powers or
duties shall keep records of its meetings and shall report its action to the
Trustees. The Trustees shall have power to rescind any action of any
committee, but no such rescission shall have retroactive effect.
ARTICLE 5
Reports
5.1 General. The Trustees and officers shall render
reports at the time and in the manner required by the Master Trust Agreement or
any applicable law. Officers and Committees shall render such additional
reports as they may deem desirable or as may from time to time be required by
the Trustees.
ARTICLE 6
Seal
6.1 General. The seal of the Trust shall consist of a
flat-faced die with the word "Massachusetts", together with the name of the
Trust and the year of its organization cut or engraved thereon, but, unless
otherwise required by the Trustees, the seal shall not be necessary to be
placed on, and its absence shall not impair the validity of, any document,
instrument or other paper executed and delivered by or on behalf of the Trust.
-4-
<PAGE> 5
ARTICLE 7
Execution of Papers
7.1 General. Except as the Trustees may generally or
in particular cases authorize the execution thereof in some other manner, all
deeds, leases, contracts, notes and other obligations made by the Trustees
shall be signed by the President, any Vice President, or by the Treasurer and
need not bear the seal of the Trust.
ARTICLE 8
Issuance of Share Certificates
8.1 Share Certificates. In lieu of issuing
certificates for shares, the Trustees or the transfer agent may either issue
receipts therefor or may keep accounts upon the books of the Trust for the
record holders of such shares, who shall in either case be deemed, for all
purposes hereunder, to be the holders of certificates for such shares as if
they had accepted such certificates and shall be held to have expressly
assented and agreed to the terms hereof.
The Trustees may at any time authorize the issuance of share
certificates. In that event, each shareholder shall be entitled to a
certificate stating the number of shares owned by him, in such form as shall be
prescribed from time to time by the Trustees. Such certificate shall be signed
by the President or a Vice President and by the Treasurer or Assistant
Treasurer. Such signatures may be facsimiles if the certificate is signed by a
transfer agent, or by a registrar, other than a Trustee, officer or employee of
the Trust. In case any officer who has signed or whose facsimile signature has
been placed on such certificate shall cease to be such officer before such
certificate is issued, it may be issued by the Trust with the same effect as if
he were such officer at the time of its issue.
8.2 Loss of Certificates. In case of the alleged loss
or destruction or the mutilation of a share certificate, a duplicate
certificate may be issued in place thereof, upon such terms as the Trustees
shall prescribe.
8.3 Issuance of New Certificate to Pledgee. A pledgee
of shares transferred as collateral security shall be entitled to a new
certificate if the instrument of transfer substantially describes the debt or
duty that is intended to be secured thereby. Such new certificate shall
express on its face that it is held as collateral security, and the name of the
pledgor shall be stated thereon, who alone shall be liable as a shareholder,
and entitled to vote thereon.
8.4 Discontinuance of Issuance of Certificates. The
Trustees may at any time discontinue the issuance of share certificates and
may, by written notice to each shareholder, require the surrender of share
certificates to the Trust for cancellation. Such surrender and cancellation
shall not affect the ownership of shares in the Trust.
-5-
<PAGE> 6
ARTICLE 9
Custodian
9.1 General. The Trust shall at all times employ a
bank or trust company having a capital, surplus and undivided profits of at
least Two Million Dollars ($2,000,000) as Custodian of the capital assets of
the Trust. The Custodian shall be compensated for its services by the Trust
and upon such basis as shall be agreed upon from time to time between the Trust
and the Custodian.
ARTICLE 10
Dealings with Trustees and Officers
Any Trustee, officer or other agent of the Trust may acquire,
own and dispose of shares of the Trust to the same extent as if he were not a
trustee, officer or agent; and the Trustees may accept subscriptions to
purchase shares or repurchase shares from any firm or company in which any one
or more of them are interested.
ARTICLE 11
Shareholders
11.1 Meetings. A meeting of the shareholders of the
Trust shall be held whenever called by the Trustees and whenever election of a
Trustee or Trustees by shareholders is required by the provisions of section
16(a) of the Investment Company Act of 1940 for that purpose. The Trustees
shall promptly call and give notice of a meeting of shareholders for the
purpose of voting upon removal of any Trustee of the Trust when requested to do
so in writing by shareholders holding not less than 10% of the shares then
outstanding. Meetings of shareholders for any other purpose shall also be
called by the Trustees when requested in writing by shareholders holding at
least 10% of the shares then outstanding, or if the Trustees shall fail to call
or give notice of any meeting of shareholders for a period of 30 days after
such application, then shareholders holding at least 10% of the shares then
outstanding may call and give notice of such meeting.
11.2 Record Dates. For the purpose of determining the
shareholders who are entitled to vote or act at any meeting or any adjournment
thereof, or who are entitled to receive payment of any dividend or of any other
distribution, the Trustees may from time to time fix a time, which shall be not
more than 60 days before the date of any meeting of shareholders or the date
for the payment of any dividend or of any other distribution, as the record
date for determining the shareholders having the right to notice of and to vote
at such meeting and any adjournment thereof or the right to receive such
dividend or distribution, and in such case only
-6-
<PAGE> 7
shareholders of record on such record date shall have such right,
notwithstanding any transfer of shares on the books of the Trust after the
record date; or without fixing such record date the Trustees may for any such
purposes close the register or transfer books for all or any part of such
period.
ARTICLE 12
Amendments to the By-Laws
12.1 General. These By-Laws may be amended or
repealed, in whole or in part, by a majority of the Trustees then in office at
any meeting of the Trustees, or by one or more writings signed by such a
majority.
ARTICLE 13
Declaration of Trust
The Master Trust Agreement establishing The GW Investment
Funds dated February 22, 1989, a copy of which, together with all amendments
thereto, is on file in the office of the Secretary of the Commonwealth of
Massachusetts, provides that the name Sierra Trust Funds (formerly The GW
Investment Funds) refers to the Trustees under the Master Trust Agreement
collectively as Trustees, but not as individuals or personally; and no Trustee,
shareholder, officer, employee or agent of Sierra Trust Funds shall be held to
any personal liability, nor shall resort be had to their private property, for
the satisfaction of any obligation or claim or otherwise, in connection with
the affairs of Sierra Trust Funds, but the Trust Estate only shall be liable.
-7-
<PAGE> 1
Exhibit 5(a)-1
INVESTMENT ADVISORY AGREEMENT
July 7, 1989
Great Western Financial
Advisors Corporation
888 South Figueroa Street, Suite 1100
Los Angeles, California 90017
Dear Sirs:
GW Sierra Trust Funds (the "Company"), an unincorporated business trust
organized under the laws of the Commonwealth of Massachusetts, hereby agrees
with Great Western Financial Advisors Corporation ("GW Advisors"), a corporation
organized under the laws of the state of California, as follows:
1. Investment Description; Appointment
The Company desires to employ the capital of GW Global Income Money
Market Fund (the "Fund") by investing and reinvesting in investments of the kind
and in accordance with the limitations specified in its Master Trust Agreement,
as amended, and in its Prospectus and Statement of Additional Information
relating to the Fund as from time to time in effect, and in such manner and to
such extent as may from time to time be approved by the Board of Trustees of the
Company. Copies of the Company's Prospectus, Statement of Additional Information
and Master Trust Agreement, as amended, have been or will be submitted to GW
Advisors. The Company agrees to provide copies of all amendments to the
Company's Prospectus, Statement of Additional Information and Master Trust
Agreement to GW Advisors on an on-going basis. The Company desires to employ and
hereby appoints GW Advisors to act as investment advisor to the Fund. GW
Advisors accepts the appointment and agrees to furnish the services described
herein for the compensation set forth below.
2. Services as Investment Advisor
Subject to the supervision and direction of the Board of Trustees of
the Company, GW Advisors has general oversight responsibility for the investment
advisory services provided to the Fund and will exercise this responsibility in
accordance with the Company's Master Trust Agreement, the Investment
<PAGE> 2
Company Act of 1940 and the Investment Advisers Act of 1940, as the same may
from time to time be amended, and with the Fund's investment objective(s) and
policies as stated in the Company's Prospectus and Statement of Additional
Information relating to the Fund as from time to time in effect. In connection
therewith, GW Advisors will, among other things, (a) participate in the
formulation of the Fund's investment policies, (b) analyze economic trends
affecting the Fund, (c) monitor the expenses incurred by the Fund, (d) monitor
the brokerage and research services (as those terms are defined in Section 28(e)
of the Securities Act of 1934) that are provided to the Fund and may be
considered by the Fund's investment sub-adviser in selecting brokers or dealers
to execute particular transactions and (e) monitor and evaluate the services
provided by the Fund's investment sub-adviser under its investment sub-advisory
agreement, including, without limitation, the sub-advisor's adherence to the
Fund's investment objective(s) and policies and the Fund's investment
performance.
3. Information Provided to the Company
GW Advisors will keep the Company informed of developments materially
affecting the Fund, and will, on its own initiative, furnish the Company from
time to time with whatever information GW Advisors believes is appropriate for
this purpose.
4. Standard of Care
GW Advisors shall exercise its best judgment in rendering the services
described in paragraph 2 above. GW Advisors 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 Investment Company Act of 1940)
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.
5. Compensation
(a) In consideration of the services rendered pursuant to this
Agreement, the Company will pay GW Advisors on the first business day of each
month a fee for the previous month at the annual rate of .50% of the Fund's
average daily net assets, out of which fee GW Advisors shall pay to the
sub-investment
-2-
<PAGE> 3
advisor of the Fund (the "Sub-Advisor") the fee required under the Investment
Sub-Advisory Agreement relating to the Fund among the Company, GW Advisors and
the Sub-Advisor. The fee for the period from the date the Company's initial
registration statement is declared effective by the Securities and Exchange
Commission to the end of the month during which the initial registration
statement is declared effective shall be prorated according to the proportion
that such period bears to the full monthly period.
(b) If in any month the aggregate average daily net assets of the Fund
together with the Company's GW U.S. Government Money Market and GW California
Municipal Money Market Funds (collectively, the "Money Market Funds") is greater
than $500 million, the fee to be paid to GW Advisors hereunder, net of amounts
payable to the Sub-Advisor, on the Fund's average daily net assets will be
reduced to .40% with respect to the Fund's prorated portion of the aggregate
average daily net assets of all the Money Market Funds in excess of $500 million
calculated by multiplying its average daily net assets by a fraction, the
numerator of which is such net assets and the denominator of which is the
aggregate average daily net assets of the Company Funds.
(c) Upon any termination of this Agreement before the end of a month,
the fee for such part of that month shall be prorated according to the
proportion that 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 GW Advisors, the value of the Fund's net assets
shall be computed at the times and in the manner specified in the Company's
Prospectus or Statement of Additional Information relating to the Fund as from
time to time in effect.
6. Expenses
GW Advisors will bear all expenses in connection with the performance
of its services under this Agreement, including, without limitation, payment of
the sub-advisory fee to the Sub-Advisor. The Company will bear certain other
expenses to be incurred in its operation, including but not limited to:
organizational expenses; taxes, interest, brokerage fees and commissions, if
any; fees of trustees of the Company who are not officers, directors, or
employees of GW Advisors, the Company's sub-investment advisors, the Fund's
sub-administrator or any of their affiliates; Securities and Exchange Commission
fees and state Blue Sky qualification fees; out-of-pocket expenses of
custodians, transfer and dividend disbursing agents and the Company's
sub-administrator and transaction charges of custodians; insurance premiums;
outside auditing and legal
-3-
<PAGE> 4
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, the Fund pays a distribution fee pursuant
to the terms of a Distribution Plan adopted under Rule 12b-1 of the Investment
Company Act of 1940.
7. Reimbursement to the Company
If in any fiscal year of the Fund the aggregate expenses of the Fund
(including fees pursuant to this Agreement, the sub-advisory agreement with the
Sub-Advisor and the Fund's administration and sub-administration agreements, but
excluding interest, taxes, brokerage, distribution fees relating to the Fund
paid pursuant to the Company's Distribution Plan and, if permitted by the
relevant state securities commissions, extraordinary expenses) exceed the
expense limitations of any state having jurisdiction over the Fund, GW Advisors
will reimburse the Fund for the excess expense to the extent required by state
law. A fee reduction pursuant to this paragraph 7, if any, will be estimated and
reconciled monthly. GW Advisors shall not be required to reimburse any amount in
excess of the advisory fee paid to it pursuant to this Agreement.
8. Services to Other Companies or Accounts
The Company understands that GW Advisors now acts as investment adviser
to the other investment funds of the Company, and may act in the future as
investment adviser to fiduciary and other managed accounts and as investment
adviser to one or more other investment companies or series of investment
companies, and the Company has no objection to GW Advisors so acting. The
Company understands that the persons employed by GW Advisors to assist in the
performance of GW Advisors' duties hereunder will not devote their full time to
such service and nothing contained herein shall be deemed to limit or restrict
the right of GW Advisors or any affiliate of GW Advisors to engage in and devote
time and attention to other businesses or to render services of whatever kind or
nature.
9. Term of Agreement
This Agreement shall become effective as of the date the Fund commences
its investment operations and shall continue for an initial two-year term and
shall continue thereafter so long
-4-
<PAGE> 5
as such continuance is specifically approved at least annually by (i) the Board
of Trustees of the Company or (ii) a vote of a "majority" (as defined in the
Investment Company Act of 1940) of the Fund's outstanding voting securities,
provided that in either event the continuance is also approved by a majority of
the Board of Trustees who are not "interested persons" (as defined in said Act)
of any party to this Agreement, by vote cast in person at a meeting called for
the purpose of voting on such approval. This Agreement is terminable, without
penalty, on 60 days' written notice, by the Board of Trustees of the Company or
by vote of holders of a majority of the Fund's shares, or upon 90 days' written
notice, by GW Advisors. This Agreement will also terminate automatically in the
event of its assignment (as defined in said Act). GW Advisors agrees to notify
the Company of any circumstances that might result in this Agreement being
deemed to be assigned.
10. Representations of the Company and GW Advisors
The Company represents that (i) a copy of its Master Trust Agreement,
dated February 22, 1989, together with all amendments thereto, is on file in the
office of the Secretary of the Commonwealth of Massachusetts, (ii) the
appointment of GW Advisors has been duly authorized and (iii) it has acted and
will continue to act in conformity with the requirements of the Investment
Company Act of 1940 and other applicable laws.
GW Advisors represents that it is authorized to perform the services
described herein.
11. Limitation of Liability
This Agreement has been executed on behalf of the Company by the
undersigned officer of the Company in his capacity as an officer of the Company.
The obligations of this Agreement shall be binding upon the assets and property
of the Fund only and not upon the assets and property of any other investment
fund of the Company and shall not be binding upon any Trustee, officer or
shareholder of the Fund and/or the Company individually.
12. Entire Agreement
This Agreement constitutes the entire agreement between the parties
hereto.
13. Governing Law
This Agreement shall be governed in accordance with the laws of the
State of Massachusetts.
-5-
<PAGE> 6
If the foregoing accurately sets forth our agreement, kindly indicate
your acceptance hereof by signing and returning the enclosed copy hereof.
Very truly yours,
GW SIERRA TRUST FUNDS
By: /s/
---------------------------------
President
Accepted:
GREAT WESTERN FINANCIAL ADVISORS CORPORATION
By: /s/
----------------------------------
Title: President
-6-
<PAGE> 1
Exhibit 5(a)-1.1
AMENDMENT OF INVESTMENT ADVISORY AGREEMENT
June 30, 1994
Sierra Investment Advisors Corporation
9301 Corbin Avenue, Suite 333
P.O. Box 1160
Northridge, California 91328-1160
Dear Sirs:
Sierra Trust Funds (the "Company," formerly known as GW Sierra Trust
Funds), an unincorporated business trust organized under the laws of the
Commonwealth of Massachusetts, hereby agrees with Sierra Investment Advisors
Corporation ("Sierra Advisors," formerly known as Great Western Financial
Advisors Corporation), a corporation organized under the laws of the State of
California, to amend as follows the Investment Advisory Agreement (the
"Agreement") by and between the Company and Sierra Advisors dated July 7, 1989
with respect to employing the capital of the Global Money Fund (the "Fund," a
series investment fund of the Company, formerly known as the GW Global Income
Money Market Fund):
1. Amendment of Investment Advisory Agreement
Section 5 of the Agreement is amended by adding the following Section
5(d) at the end of the section: "(d) Notwithstanding the compensation payable to
Sierra Advisors as provided above, the Company shall not pay to Sierra Advisors
annually more than 0.40% of the average daily net assets of the Fund calculated
on a trailing three-month basis."
2. Effective Date
This amendment to the Agreement shall be effective as of July 1, 1994.
<PAGE> 2
Sierra Investment Advisors Corporation
June 30, 1994
Page 2
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/ Brian Cerini
----------------------------------
Name: Brian Cerini
Title: President
Accepted:
SIERRA INVESTMENT ADVISORS CORPORATION
By /s/ Michael D. Goth
----------------------------------
Name: Michael D. Goth
Title: Chief Operating Officer
<PAGE> 1
EXHIBIT 5(a)-2
INVESTMENT ADVISORY AGREEMENT
July 7, 1989
Great Western Financial
Advisors Corporation
888 South Figueroa Street, Suite 1100
Los Angeles, California 90017
Dear Sirs:
GW Sierra Trust Funds (the "Company"), an unincorporated business trust
organized under the laws of the Commonwealth of Massachusetts, hereby agrees
with Great Western Financial Advisors Corporation ("GW Advisors"), a corporation
organized under the laws of the state of California, as follows:
1. Investment Description; Appointment
The Company desires to employ the capital of GW U.S. Government Money
Market Fund (the "Fund") by investing and reinvesting in investments of the kind
and in accordance with the limitations specified in its Master Trust Agreement,
as amended, and in its Prospectus and Statement of Additional Information
relating to the Fund as from time to time in effect, and in such manner and to
such extent as may from time to time be approved by the Board of Trustees of the
Company. Copies of the Company's Prospectus, Statement of Additional Information
and Master Trust Agreement, as amended, have been or will be submitted to GW
Advisors. The Company agrees to provide copies of all amendments to the
Company's Prospectus, Statement of Additional Information and Master Trust
Agreement to GW Advisors on an on-going basis. The Company desires to employ and
hereby appoints GW Advisors to act as investment advisor to the Fund. GW
Advisors accepts the appointment and agrees to furnish the services described
herein for the compensation set forth below.
2. Services as Investment Advisor
Subject to the supervision and direction of the Board of Trustees of
the Company, GW Advisors has general oversight responsibility for the investment
advisory services provided to the Fund and will exercise this responsibility in
accordance with the Company's Master Trust Agreement, the Investment
<PAGE> 2
Company Act of 1940 and the Investment Advisers Act of 1940, as the same may
from time to time be amended, and with the Fund's investment objective(s) and
policies as stated in the Company's Prospectus and Statement of Additional
Information relating to the Fund as from time to time in effect. In connection
therewith, GW Advisors will, among other things, (a) participate in the
formulation of the Fund's investment policies, (b) analyze economic trends
affecting the Fund, (c) monitor the expenses incurred by the Fund, (d) monitor
the brokerage and research services (as those terms are defined in Section 28(e)
of the Securities Act of 1934) that are provided to the Fund and may be
considered by the Fund's investment sub-adviser in selecting brokers or dealers
to execute particular transactions and (e) monitor and evaluate the services
provided by the Fund's investment sub-adviser under its investment sub-advisory
agreement, including, without limitation, the sub-advisor's adherence to the
Fund's investment objective(s) and policies and the Fund's investment
performance.
3. Information Provided to the Company
GW Advisors will keep the Company informed of developments materially
affecting the Fund, and will, on its own initiative, furnish the Company from
time to time with whatever information GW Advisors believes is appropriate for
this purpose.
4. Standard of Care
GW Advisors shall exercise its best judgment in rendering the services
described in paragraph 2 above. GW Advisors 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 Investment Company Act of 1940)
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.
5. Compensation
(a) In consideration of the services rendered pursuant to this
Agreement, the Company will pay GW Advisors on the first business day of each
month a fee for the previous month at the annual rate of .50% of the Fund's
average daily net assets, out of which fee GW Advisors shall pay to the
sub-investment
-2-
<PAGE> 3
advisor of the Fund (the "Sub-Advisor") the fee required under the Investment
Sub-Advisory Agreement relating to the Fund among the Company, GW Advisors and
the Sub-Advisor. The fee for the period from the date the Company's initial
registration statement is declared effective by the Securities and Exchange
Commission to the end of the month during which the initial registration
statement is declared effective shall be prorated according to the proportion
that such period bears to the full monthly period.
(b) If in any month the aggregate average daily net assets of the Fund
together with the Company's GW U.S. Government Money Market and GW California
Municipal Money Market Funds (collectively, the "Money Market Funds") is greater
than $500 million, the fee to be paid to GW Advisors hereunder, net of amounts
payable to the Sub-Advisor, on the Fund's average daily net assets will be
reduced to .40% with respect to the Fund's prorated portion of the aggregate
average daily net assets of all the Money Market Funds in excess of $500 million
calculated by multiplying its average daily net assets by a fraction, the
numerator of which is such net assets and the denominator of which is the
aggregate average daily net assets of the Company Funds.
(c) Upon any termination of this Agreement before the end of a month,
the fee for such part of that month shall be prorated according to the
proportion that 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 GW Advisors, the value of the Fund's net assets
shall be computed at the times and in the manner specified in the Company's
Prospectus or Statement of Additional Information relating to the Fund as from
time to time in effect.
6. Expenses
GW Advisors will bear all expenses in connection with the performance
of its services under this Agreement, including, without limitation, payment of
the sub-advisory fee to the Sub-Advisor. The Company will bear certain other
expenses to be incurred in its operation, including but not limited to:
organizational expenses; taxes, interest, brokerage fees and commissions, if
any; fees of trustees of the Company who are not officers, directors, or
employees of GW Advisors, the Company's sub-investment advisors, the Fund's
sub-administrator or any of their affiliates; Securities and Exchange Commission
fees and state Blue Sky qualification fees; out-of-pocket expenses of
custodians, transfer and dividend disbursing agents and the Company's
sub-administrator and transaction charges of custodians; insurance premiums;
outside auditing and legal
-3-
<PAGE> 4
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, the Fund pays a distribution fee pursuant
to the terms of a Distribution Plan adopted under Rule 12b-1 of the Investment
Company Act of 1940.
7. Reimbursement to the Company
If in any fiscal year of the Fund the aggregate expenses of the Fund
(including fees pursuant to this Agreement, the sub- advisory agreement with the
Sub-Advisor and the Fund's administration and sub-administration agreements, but
excluding interest, taxes, brokerage, distribution fees relating to the Fund
paid pursuant to the Company's Distribution Plan and, if permitted by the
relevant state securities commissions, extraordinary expenses) exceed the
expense limitations of any state having jurisdiction over the Fund, GW Advisors
will reimburse the Fund for the excess expense to the extent required by state
law. A fee reduction pursuant to this paragraph 7, if any, will be estimated and
reconciled monthly. GW Advisors shall not be required to reimburse any amount in
excess of the advisory fee paid to it pursuant to this Agreement.
8. Services to Other Companies or Accounts
The Company understands that GW Advisors now acts as investment adviser
to the other investment funds of the Company, and may act in the future as
investment adviser to fiduciary and other managed accounts and as investment
adviser to one or more other investment companies or series of investment
companies, and the Company has no objection to GW Advisors so acting. The
Company understands that the persons employed by GW Advisors to assist in the
performance of GW Advisors' duties hereunder will not devote their full time to
such service and nothing contained herein shall be deemed to limit or restrict
the right of GW Advisors or any affiliate of GW Advisors to engage in and devote
time and attention to other businesses or to render services of whatever kind or
nature.
9. Term of Agreement
This Agreement shall become effective as of the date the
Fund commences its investment operations and shall continue for
an initial two-year term and shall continue thereafter so long
-4-
<PAGE> 5
as such continuance is specifically approved at least annually by (i) the Board
of Trustees of the Company or (ii) a vote of a "majority" (as defined in the
Investment Company Act of 1940) of the Fund's outstanding voting securities,
provided that in either event the continuance is also approved by a majority of
the Board of Trustees who are not "interested persons" (as defined in said Act)
of any party to this Agreement, by vote cast in person at a meeting called for
the purpose of voting on such approval. This Agreement is terminable, without
penalty, on 60 days' written notice, by the Board of Trustees of the Company or
by vote of holders of a majority of the Fund's shares, or upon 90 days' written
notice, by GW Advisors. This Agreement will also terminate automatically in the
event of its assignment (as defined in said Act). GW Advisors agrees to notify
the Company of any circumstances that might result in this Agreement being
deemed to be assigned.
10. Representations of the Company and GW Advisors
The Company represents that (i) a copy of its Master Trust Agreement,
dated February 22, 1989, together with all amendments thereto, is on file in the
office of the Secretary of the Commonwealth of Massachusetts, (ii) the
appointment of GW Advisors has been duly authorized and (iii) it has acted and
will continue to act in conformity with the requirements of the Investment
Company Act of 1940 and other applicable laws.
GW Advisors represents that it is authorized to perform the services
described herein.
11. Limitation of Liability
This Agreement has been executed on behalf of the Company by the
undersigned officer of the Company in his capacity as an officer of the Company.
The obligations of this Agreement shall be binding upon the assets and property
of the Fund only and not upon the assets and property of any other investment
fund of the Company and shall not be binding upon any Trustee, officer or
shareholder of the Fund and/or the Company individually.
12. Entire Agreement
This Agreement constitutes the entire agreement between the parties
hereto.
13. Governing Law
This Agreement shall be governed in accordance with the laws of the
State of Massachusetts.
-5-
<PAGE> 6
If the foregoing accurately sets forth our agreement, kindly indicate
your acceptance hereof by signing and returning the enclosed copy hereof.
Very truly yours,
GW SIERRA TRUST FUNDS
By: /s/
---------------------------------
President
Accepted: /s/
----------------------------
GREAT WESTERN FINANCIAL ADVISORS CORPORATION
By: President
---------------------------------
Title: President
-6-
<PAGE> 1
EXHIBIT 5(a)-2.1
AMENDMENT OF INVESTMENT ADVISORY AGREEMENT
June 30, 1994
Sierra Investment Advisors Corporation
9301 Corbin Avenue, Suite 333
P.O. Box 1160
Northridge, California 91328-1160
Dear Sirs:
Sierra Trust Funds (the "Company," formerly known as GW Sierra Trust
Funds), an unincorporated business trust organized under the laws of the
Commonwealth of Massachusetts, hereby agrees with Sierra Investment Advisors
Corporation ("Sierra Advisors," formerly known as Great Western Financial
Advisors Corporation), a corporation organized under the laws of the State of
California, to amend as follows the Investment Advisory Agreement (the
"Agreement") by and between the Company and Sierra Advisors dated July 7, 1989
with respect to employing the capital of the U.S. Government Money Fund (the
"Fund," a series investment fund of the Company, formerly known as the GW U.S.
Government Money Market Fund):
1. Amendment of Investment Advisory Agreement
Section 5 of the Agreement is amended by adding the following Section
5(d) at the end of the section: "(d) Notwithstanding the compensation payable to
Sierra Advisors as provided above, the Company shall not pay to Sierra Advisors
annually more than 0.40% of the average daily net assets of the Fund calculated
on a trailing three-month basis."
2. Effective Date
This amendment to the Agreement shall be effective as of July 1, 1994.
<PAGE> 2
Sierra Investment Advisors Corporation
June 30, 1994
Page 2
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/ Brian Cerini
----------------------------------
Name: Brian Cerini
Title: President
Accepted:
SIERRA INVESTMENT ADVISORS CORPORATION
By: /s/ Michael D. Goth
----------------------------------
Name: Michael D. Goth
Title: Chief Operating Officer
<PAGE> 1
EXHIBIT 5(a)-3
INVESTMENT ADVISORY AGREEMENT
July 7, 1989
Great Western Financial
Advisors Corporation
888 South Figueroa Street, Suite 1100
Los Angeles, California 90017
Dear Sirs:
GW Sierra Trust Funds (the "Company"), an unincorporated business trust
organized under the laws of the Commonwealth of Massachusetts, hereby agrees
with Great Western Financial Advisors Corporation ("GW Advisors"), a corporation
organized under the laws of the state of California, as follows:
1. Investment Description; Appointment
The Company desires to employ the capital of GW California Municipal
Money Market Fund (the "Fund") by investing and reinvesting in investments of
the kind and in accordance with the limitations specified in its Master Trust
Agreement, as amended, and in its Prospectus and Statement of Additional
Information relating to the Fund as from time to time in effect, and in such
manner and to such extent as may from time to time be approved by the Board of
Trustees of the Company. Copies of the Company's Prospectus, Statement of
Additional Information and Master Trust Agreement, as amended, have been or will
be submitted to GW Advisors. The Company agrees to provide copies of all
amendments to the Company's Prospectus, Statement of Additional Information and
Master Trust Agreement to GW Advisors on an on-going basis. The Company desires
to employ and hereby appoints GW Advisors to act as investment advisor to the
Fund. GW Advisors accepts the appointment and agrees to furnish the services
described herein for the compensation set forth below.
2. Services as Investment Advisor
Subject to the supervision and direction of the Board of Trustees of
the Company, GW Advisors has general oversight responsibility for the investment
advisory services provided to the Fund and will exercise this responsibility in
accordance with the Company's Master Trust Agreement, the Investment Company Act
of 1940 and the Investment Advisers Act of 1940, as the same may from time to
time be amended, and with the Fund's
<PAGE> 2
investment objective(s) and policies as stated in the Company's Prospectus and
Statement of Additional Information relating to the Fund as from time to time in
effect. In connection therewith, GW Advisors will, among other things, (a)
participate in the formulation of the Fund's investment policies, (b) analyze
economic trends affecting the Fund, (c) monitor the expenses incurred by the
Fund, (d) monitor the brokerage and research services (as those terms are
defined in Section 28(e) of the Securities Act of 1934) that are provided to the
Fund and may be considered by the Fund's investment sub-adviser in selecting
brokers or dealers to execute particular transactions and (e) monitor and
evaluate the services provided by the Fund's investment sub-adviser under its
investment sub-advisory agreement, including, without limitation, the
sub-advisor's adherence to the Fund's investment objective(s) and policies and
the Fund's investment performance.
3. Information Provided to the Company
GW Advisors will keep the Company informed of developments materially
affecting the Fund, and will, on its own initiative, furnish the Company from
time to time with whatever information GW Advisors believes is appropriate for
this purpose.
4. Standard of Care
GW Advisors shall exercise its best judgment in rendering the services
described in paragraph 2 above. GW Advisors 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 Investment Company Act of 1940)
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.
5. Compensation
(a) In consideration of the services rendered pursuant to this
Agreement, the Company will pay GW Advisors on the first business day of each
month a fee for the previous month at the annual rate of .50% of the Fund's
average daily net assets, out of which fee GW Advisors shall pay to the
sub-investment advisor of the Fund (the "Sub-Advisor") the fee required under
the Investment Sub-Advisory Agreement relating to the Fund
-2-
<PAGE> 3
among the Company, GW Advisors and the Sub-Advisor. The fee for the period from
the date the Company's initial registration statement is declared effective by
the Securities and Exchange Commission to the end of the month during which the
initial registration statement is declared effective shall be prorated according
to the proportion that such period bears to the full monthly period.
(b) If in any month the aggregate average daily net assets of the Fund
together with the Company's GW U.S. Government Money Market and GW California
Municipal Money Market Funds (collectively, the "Money Market Funds") is greater
than $500 million, the fee to be paid to GW Advisors hereunder, net of amounts
payable to the Sub-Advisor, on the Fund's average daily net assets will be
reduced to .40% with respect to the Fund's prorated portion of the aggregate
average daily net assets of all the Money Market Funds in excess of $500 million
calculated by multiplying its average daily net assets by a fraction, the
numerator of which is such net assets and the denominator of which is the
aggregate average daily net assets of the Company Funds.
(c) Upon any termination of this Agreement before the end of a month,
the fee for such part of that month shall be prorated according to the
proportion that 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 GW Advisors, the value of the Fund's net assets
shall be computed at the times and in the manner specified in the Company's
Prospectus or Statement of Additional Information relating to the Fund as from
time to time in effect.
6. Expenses
GW Advisors will bear all expenses in connection with the performance
of its services under this Agreement, including, without limitation, payment of
the sub-advisory fee to the Sub-Advisor. The Company will bear certain other
expenses to be incurred in its operation, including but not limited to:
organizational expenses; taxes, interest, brokerage fees and commissions, if
any; fees of trustees of the Company who are not officers, directors, or
employees of GW Advisors, the Company's sub-investment advisors, the Fund's
sub-administrator or any of their affiliates; Securities and Exchange Commission
fees and state Blue Sky qualification fees; out-of-pocket expenses of
custodians, transfer and dividend disbursing agents and the Company's
sub-administrator and transaction charges of custodians; insurance premiums;
outside auditing and legal expenses; costs of maintenance of the Company's
existence; costs attributable to investor services, including, without
-3-
<PAGE> 4
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, the Fund
pays a distribution fee pursuant to the terms of a Distribution Plan adopted
under Rule 12b-1 of the Investment Company Act of 1940.
7. Reimbursement to the Company
If in any fiscal year of the Fund the aggregate expenses of the Fund
(including fees pursuant to this Agreement, the sub-advisory agreement with the
Sub-Advisor and the Fund's administration and sub-administration agreements, but
excluding interest, taxes, brokerage, distribution fees relating to the Fund
paid pursuant to the Company's Distribution Plan and, if permitted by the
relevant state securities commissions, extraordinary expenses) exceed the
expense limitations of any state having jurisdiction over the Fund, GW Advisors
will reimburse the Fund for the excess expense to the extent required by state
law. A fee reduction pursuant to this paragraph 7, if any, will be estimated and
reconciled monthly. GW Advisors shall not be required to reimburse any amount in
excess of the advisory fee paid to it pursuant to this Agreement.
8. Services to Other Companies or Accounts
The Company understands that GW Advisors now acts as investment adviser
to the other investment funds of the Company, and may act in the future as
investment adviser to fiduciary and other managed accounts and as investment
adviser to one or more other investment companies or series of investment
companies, and the Company has no objection to GW Advisors so acting. The
Company understands that the persons employed by GW Advisors to assist in the
performance of GW Advisors' duties hereunder will not devote their full time to
such service and nothing contained herein shall be deemed to limit or restrict
the right of GW Advisors or any affiliate of GW Advisors to engage in and devote
time and attention to other businesses or to render services of whatever kind or
nature.
9. Term of Agreement
This Agreement shall become effective as of the date the Fund commences
its investment operations and shall continue for an initial two-year term and
shall continue thereafter so long as such continuance is specifically approved
at least annually
-4-
<PAGE> 5
by (i) the Board of Trustees of the Company or (ii) a vote of a "majority" (as
defined in the Investment Company Act of 1940) of the Fund's outstanding voting
securities, provided that in either event the continuance is also approved by a
majority of the Board of Trustees who are not "interested persons" (as defined
in said Act) of any party to this Agreement, by vote cast in person at a meeting
called for the purpose of voting on such approval. This Agreement is terminable,
without penalty, on 60 days' written notice, by the Board of Trustees of the
Company or by vote of holders of a majority of the Fund's shares, or upon 90
days' written notice, by GW Advisors. This Agreement will also terminate
automatically in the event of its assignment (as defined in said Act). GW
Advisors agrees to notify the Company of any circumstances that might result in
this Agreement being deemed to be assigned.
10. Representations of the Company and GW Advisors
The Company represents that (i) a copy of its Master Trust Agreement,
dated February 22, 1989, together with all amendments thereto, is on file in the
office of the Secretary of the Commonwealth of Massachusetts, (ii) the
appointment of GW Advisors has been duly authorized and (iii) it has acted and
will continue to act in conformity with the requirements of the Investment
Company Act of 1940 and other applicable laws.
GW Advisors represents that it is authorized to perform the services
described herein.
11. Limitation of Liability
This Agreement has been executed on behalf of the Company by the
undersigned officer of the Company in his capacity as an officer of the Company.
The obligations of this Agreement shall be binding upon the assets and property
of the Fund only and not upon the assets and property of any other investment
fund of the Company and shall not be binding upon any Trustee, officer or
shareholder of the Fund and/or the Company individually.
12. Entire Agreement
This Agreement constitutes the entire agreement between the parties
hereto.
13. Governing Law
This Agreement shall be governed in accordance with the laws of the
State of Massachusetts.
-5-
<PAGE> 6
If the foregoing accurately sets forth our agreement, kindly indicate
your acceptance hereof by signing and returning the enclosed copy hereof.
Very truly yours,
GW SIERRA TRUST FUNDS
By: /s/
---------------------------------
President
Accepted:
GREAT WESTERN FINANCIAL ADVISORS CORPORATION
By: /s/
---------------------------------
Title: President
-6-
<PAGE> 1
EXHIBIT 5(a)-3.1
AMENDMENT OF INVESTMENT ADVISORY AGREEMENT
June 30, 1994
Sierra Investment Advisors Corporation
9301 Corbin Avenue, Suite 333
P.O. Box 1160
Northridge, California 91328-1160
Dear Sirs:
Sierra Trust Funds (the "Company," formerly known as GW Sierra Trust
Funds), an unincorporated business trust organized under the laws of the
Commonwealth of Massachusetts, hereby agrees with Sierra Investment Advisors
Corporation ("Sierra Advisors," formerly known as Great Western Financial
Advisors Corporation), a corporation organized under the laws of the State of
California, to amend as follows the Investment Advisory Agreement (the
"Agreement") by and between the Company and Sierra Advisors dated July 7, 1989
with respect to employing the capital of the California Money Fund (the "Fund,"
a series investment fund of the Company, formerly known as the GW California
Municipal Money Market Fund):
1. Amendment of Investment Advisory Agreement
Section 5 of the Agreement is amended by adding the following Section
5(d) at the end of the section: "(d) Notwithstanding the compensation payable to
Sierra Advisors as provided above, the Company shall not pay to Sierra Advisors
annually more than 0.40% of the average daily net assets of the Fund calculated
on a trailing three-month basis."
2. Effective Date
This amendment to the Agreement shall be effective as of July 1, 1994.
<PAGE> 2
Sierra Investment Advisors Corporation
June 30, 1994
Page 2
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/ Brian Cerini
----------------------------------
Name: Brian Cerini
Title: President
Accepted:
SIERRA INVESTMENT ADVISORS CORPORATION
By: /s/ Michael D. Goth
----------------------------------
Name: Michael D. Goth
Title: Chief Operating Officer
-2-
<PAGE> 1
EXHIBIT 5(a)-4
INVESTMENT ADVISORY AGREEMENT
July 7, 1989
Great Western Financial
Advisors Corporation
888 South Figueroa Street, Suite 1100
Los Angeles, California 90017
Dear Sirs:
GW Sierra Trust Funds (the "Company"), an unincorporated business trust
organized under the laws of the Commonwealth of Massachusetts, hereby agrees
with Great Western Financial Advisors Corporation ("GW Advisors"), a corporation
organized under the laws of the state of California, as follows:
1. Investment Description; Appointment
The Company desires to employ the capital of GW U.S. Government
Securities Fund (the "Fund") by investing and reinvesting in investments of the
kind and in accordance with the limitations specified in its Master Trust
Agreement, as amended, and in its Prospectus and Statement of Additional
Information relating to the Fund as from time to time in effect, and in such
manner and to such extent as may from time to time be approved by the Board of
Trustees of the Company. Copies of the Company's Prospectus, Statement of
Additional Information and Master Trust Agreement, as amended, have been or will
be submitted to GW Advisors. The Company agrees to provide copies of all
amendments to the Company's Prospectus, Statement of Additional Information and
Master Trust Agreement to GW Advisors on an on-going basis. The Company desires
to employ and hereby appoints GW Advisors to act as investment advisor to the
Fund. GW Advisors accepts the appointment and agrees to furnish the services
described herein for the compensation set forth below.
2. Services as Investment Advisor
Subject to the supervision and direction of the Board of Trustees of
the Company, GW Advisors has general oversight responsibility for the investment
advisory services provided to the Fund and will exercise this responsibility in
accordance with the Company's Master Trust Agreement, the Investment Company Act
of 1940 and the Investment Advisers Act of 1940, as the same may from time to
time be amended, and with the Fund's
<PAGE> 2
investment objective(s) and policies as stated in the Company's Prospectus and
Statement of Additional Information relating to the Fund as from time to time in
effect. In connection therewith, GW Advisors will, among other things, (a)
participate in the formulation of the Fund's investment policies, (b) analyze
economic trends affecting the Fund, (c) monitor the expenses incurred by the
Fund, (d) monitor the brokerage and research services (as those terms are
defined in Section 28(e) of the Securities Act of 1934) that are provided to the
Fund and may be considered by the Fund's investment sub-adviser in selecting
brokers or dealers to execute particular transactions and (e) monitor and
evaluate the services provided by the Fund's investment sub-adviser under its
investment sub-advisory agreement, including, without limitation, the
sub-advisor's adherence to the Fund's investment objective(s) and policies and
the Fund's investment performance.
3. Information Provided to the Company
GW Advisors will keep the Company informed of developments materially
affecting the Fund, and will, on its own initiative, furnish the Company from
time to time with whatever information GW Advisors believes is appropriate for
this purpose.
4. Standard of Care
GW Advisors shall exercise its best judgment in rendering the services
described in paragraph 2 above. GW Advisors 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 Investment Company Act of 1940)
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.
5. Compensation
In consideration of the services rendered pursuant to this Agreement,
the Company will pay GW Advisors on the first business day of each month a fee
for the previous month at the annual rate of .60% of the Fund's average daily
net assets up to $500 million, and .50% of the Fund's average daily net assets
in excess of $500 million, out of which fee GW Advisors shall pay to the
sub-investment advisor of the Fund (the
-2-
<PAGE> 3
"Sub-Advisor") the fee required under the Investment Sub-Advisory Agreement
relating to the Fund among the Company, GW Advisors and the Sub-Advisor. The fee
for the period from the date the Company's initial registration statement is
declared effective by the Securities and Exchange Commission to the end of the
month during which the initial registration statement is declared effective
shall be prorated according to the proportion that such period bears to the full
monthly period. Upon any termination of this Agreement before the end of a
month, the fee for such part of that month shall be prorated according to the
proportion that 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 GW Advisors, the value of the Fund's net assets
shall be computed at the times and in the manner specified in the Company's
Prospectus or Statement of Additional Information relating to the Fund as from
time to time in effect.
6. Expenses
GW Advisors will bear all expenses in connection with the performance
of its services under this Agreement, including, without limitation, payment of
the sub-advisory fee to the Sub- Advisor. The Company will bear certain other
expenses to be incurred in its operation, including but not limited to:
organizational expenses; taxes, interest, brokerage fees and commissions, if
any; fees of trustees of the Company who are not officers, directors, or
employees of GW Advisors, the Company's sub-investment advisors, the Fund's
sub-administrator or any of their affiliates; Securities and Exchange Commission
fees and state Blue Sky qualification fees; out-of-pocket expenses of
custodians, transfer and dividend disbursing agents and the Company's
sub-administrator and transaction charges of custodians; insurance premiums;
outside auditing and legal expenses; costs of maintenance of the Company's
existence; costs attributable to investor services, including, without
limitation, telephone and personnel expenses; costs of preparing 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, the Fund
pays a distribution fee pursuant to the terms of a Distribution Plan adopted
under Rule 12b-1 of the Investment Company Act of 1940.
7. Reimbursement to the Company
If in any fiscal year of the Fund the aggregate expenses of the Fund
(including fees pursuant to this Agreement, the
-3-
<PAGE> 4
sub-advisory agreement with the Sub-Advisor and the Fund's administration and
sub-administration agreements, but excluding interest, taxes, brokerage,
distribution fees relating to the Fund paid pursuant to the Company's
Distribution Plan and, if permitted by the relevant state securities
commissions, extraordinary expenses) exceed the expense limitations of any state
having jurisdiction over the Fund, GW Advisors will reimburse the Fund for the
excess expense to the extent required by state law. A fee reduction pursuant to
this paragraph 7, if any, will be estimated and reconciled monthly. GW Advisors
shall not be required to reimburse any amount in excess of the advisory fee paid
to it pursuant to this Agreement.
8. Services to Other Companies or Accounts
The Company understands that GW Advisors now acts as investment adviser
to the other investment funds of the Company, and may act in the future as
investment adviser to fiduciary and other managed accounts and as investment
adviser to one or more other investment companies or series of investment
companies, and the Company has no objection to GW Advisors so acting. The
Company understands that the persons employed by GW Advisors to assist in the
performance of GW Advisors' duties hereunder will not devote their full time to
such service and nothing contained herein shall be deemed to limit or restrict
the right of GW Advisors or any affiliate of GW Advisors to engage in and devote
time and attention to other businesses or to render services of whatever kind or
nature.
9. Term of Agreement
This Agreement shall become effective as of the date the Fund commences
its investment operations and shall continue for an initial two-year term and
shall continue thereafter so long as such continuance is specifically approved
at least annually by (i) the Board of Trustees of the Company or (ii) a vote of
a "majority" (as defined in the Investment Company Act of 1940) of the Fund's
outstanding voting securities, provided that in either event the continuance is
also approved by a majority of the Board of Trustees who are not "interested
persons" (as defined in said Act) of any party to this Agreement, by vote cast
in person at a meeting called for the purpose of voting on such approval. This
Agreement is terminable, without penalty on 60 days' written notice, by the
Board of Trustees of the Company or by vote of holders of a majority of the
Fund's shares, or upon 90 days' written notice, by GW Advisors. This Agreement
will also terminate automatically in the event of its assignment (as defined in
said Act). GW Advisors agrees to notify the Company of any circumstances that
might result in this Agreement being deemed to be assigned.
-4-
<PAGE> 5
10. Representations of the Company and GW Advisors
The Company represents that (i) a copy of its Master Trust Agreement,
dated February 22, 1989, together with all amendments thereto, is on file in the
office of the Secretary of the Commonwealth of Massachusetts, (ii) the
appointment of GW Advisors has been duly authorized and (iii) it has acted and
will continue to act in conformity with the requirements of the Investment
Company Act of 1940 and other applicable laws.
GW Advisors represents that it is authorized to perform the services
described herein.
11. Limitation of Liability
This Agreement has been executed on behalf of the Company by the
undersigned officer of the Company in his capacity as an officer of the Company.
The obligations of this Agreement shall be binding upon the assets and property
of the Fund only and not upon the assets and property of any other investment
fund of the Company and shall not be binding upon any Trustee, officer or
shareholder of the Fund and/or the Company individually.
12. Entire Agreement
This Agreement constitutes the entire agreement between the parties
hereto.
13. Governing Law
This Agreement shall be governed in accordance with the laws of the
State 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,
GW SIERRA TRUST FUNDS
By: /s/
---------------------------------
President
Accepted:
WESTERN FINANCIAL ADVISORS CORPORATION
By: /s/
---------------------------------
Title: President
-5-
<PAGE> 1
Exhibit 5(a)-4.1
AMENDMENT OF INVESTMENT ADVISORY AGREEMENT
June 30, 1994
Sierra Investment Advisors Corporation
9301 Corbin Avenue, Suite 333
P.O. Box 1160
Northridge, California 91328-1160
Dear Sirs:
Sierra Trust Funds (the "Company," formerly known as GW Sierra Trust
Funds), an unincorporated business trust organized under the laws of the
Commonwealth of Massachusetts, hereby agrees with Sierra Investment Advisors
Corporation ("Sierra Advisors," formerly known as Great Western Financial
Advisors Corporation), a corporation organized under the laws of the State of
California, to amend as follows the Investment Advisory Agreement (the
"Agreement") by and between the Company and Sierra Advisors dated July 7, 1989
with respect to employing the capital of the U.S. Government Fund (the "Fund," a
series investment fund of the Company, formerly known as the GW U.S. Government
Securities Fund):
1. Amendment of Investment Advisory Agreement
Section 5 of the Agreement is amended by adding the following at the
end of the section: "Notwithstanding the compensation payable to Sierra Advisors
as provided above, the Company shall not pay to Sierra Advisors annually more
than 0.55% of the average daily net assets of the Fund calculated on a trailing
three-month basis."
2. Effective Date
This amendment to the Agreement shall be effective as of July 1, 1994.
<PAGE> 2
Sierra Investment Advisors Corporation
June 30, 1994
Page 2
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: President
Accepted:
SIERRA INVESTMENT ADVISORS CORPORATION
By: /s/ Michael D. Goth
----------------------------------
Name: Michael D. Goth
Title: Chief Operating Officer
<PAGE> 1
EXHIBIT 5(a)-5
INVESTMENT ADVISORY AGREEMENT
July 7, 1989
Great Western Financial
Advisors Corporation
888 South Figueroa Street, Suite 1100
Los Angeles, California 90017
Dear Sirs:
GW Sierra Trust Funds (the "Company"), an unincorporated business trust
organized under the laws of the Commonwealth of Massachusetts, hereby agrees
with Great Western Financial Advisors Corporation ("GW Advisors"), a corporation
organized under the laws of the state of California, as follows:
1. Investment Description; Appointment
The Company desires to employ the capital of GW California Municipal
Income Fund (the "Fund") by investing and reinvesting in investments of the kind
and in accordance with the limitations specified in its Master Trust Agreement,
as amended, and in its Prospectus and Statement of Additional Information
relating to the Fund as from time to time in effect, and in such manner and to
such extent as may from time to time be approved by the Board of Trustees of the
Company. Copies of the Company's Prospectus, Statement of Additional Information
and Master Trust Agreement, as amended, have been or will be submitted to GW
Advisors. The Company agrees to provide copies of all amendments to the
Company's Prospectus, Statement of Additional Information and Master Trust
Agreement to GW Advisors on an on-going basis. The Company desires to employ and
hereby appoints GW Advisors to act as investment advisor to the Fund. GW
Advisors accepts the appointment and agrees to furnish the services described
herein for the compensation set forth below.
2. Services as Investment Advisor
Subject to the supervision and direction of the Board of Trustees of
the Company, GW Advisors has general oversight responsibility for the investment
advisory services provided to the Fund and will exercise this responsibility in
accordance with the Company's Master Trust Agreement, the Investment Company Act
of 1940 and the Investment Advisers Act of 1940, as the same may from time to
time be amended, and with the Fund's
<PAGE> 2
investment objective(s) and policies as stated in the Company's Prospectus and
Statement of Additional Information relating to the Fund as from time to time in
effect. In connection therewith, GW Advisors will, among other things, (a)
participate in the formulation of the Fund's investment policies, (b) analyze
economic trends affecting the Fund, (c) monitor the expenses incurred by the
Fund, (d) monitor the brokerage and research services (as those terms are
defined in Section 28(e) of the Securities Act of 1934) that are provided to the
Fund and may be considered by the Fund's investment sub-adviser in selecting
brokers or dealers to execute particular transactions and (e) monitor and
evaluate the services provided by the Fund's investment sub-adviser under its
investment sub-advisory agreement, including, without limitation, the
sub-advisor's adherence to the Fund's investment objective(s) and policies and
the Fund's investment performance.
3. Information Provided to the Company
GW Advisors will keep the Company informed of developments materially
affecting the Fund, and will, on its own initiative, furnish the Company from
time to time with whatever information GW Advisors believes is appropriate for
this purpose.
4. Standard of Care
GW Advisors shall exercise its best judgment in rendering the services
described in paragraph 2 above. GW Advisors 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 Investment Company Act of 1940)
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.
5. Compensation
In consideration of the services rendered pursuant to this Agreement,
the Company will pay GW Advisors on the first business day of each month a fee
for the previous month at the annual rate of .65% of the Fund's average daily
net assets up to $500 million, and .50% of the Fund's average daily net assets
in excess of $500 million, out of which fee GW Advisors shall pay to the
sub-investment advisor of the Fund (the
-2-
<PAGE> 3
"Sub-Advisor") the fee required under the Investment Sub-Advisory Agreement
relating to the Fund among the Company, GW Advisors and the Sub-Advisor. The fee
for the period from the date the Company's initial registration statement is
declared effective by the Securities and Exchange Commission to the end of the
month during which the initial registration statement is declared effective
shall be prorated according to the proportion that such period bears to the full
monthly period. Upon any termination of this Agreement before the end of a
month, the fee for such part of that month shall be prorated according to the
proportion that 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 GW Advisors, the value of the Fund's net assets
shall be computed at the times and in the manner specified in the Company's
Prospectus or Statement of Additional Information relating to the Fund as from
time to time in effect.
6. Expenses
GW Advisors will bear all expenses in connection with the performance
of its services under this Agreement, including, without limitation, payment of
the sub-advisory fee to the Sub-Advisor. The Company will bear certain other
expenses to be incurred in its operation, including but not limited to:
organizational expenses; taxes, interest, brokerage fees and commissions, if
any; fees of trustees of the Company who are not officers, directors, or
employees of GW Advisors, the Company's sub-investment advisors, the Fund's
sub-administrator or any of their affiliates; Securities and Exchange Commission
fees and state Blue Sky qualification fees; out-of-pocket expenses of
custodians, transfer and dividend disbursing agents and the Company's
sub-administrator and transaction charges of custodians; insurance premiums;
outside auditing and legal expenses; costs of maintenance of the Company's
existence; costs attributable to investor services, including, without
limitation, telephone and personnel expenses; costs of preparing 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, the Fund
pays a distribution fee pursuant to the terms of a Distribution Plan adopted
under Rule 12b-1 of the Investment Company Act of 1940.
7. Reimbursement to the Company
If in any fiscal year of the Fund the aggregate expenses of the Fund
(including fees pursuant to this Agreement, the
-3-
<PAGE> 4
sub-advisory agreement with the Sub-Advisor and the Fund's administration and
sub-administration agreements, but excluding interest, taxes, brokerage,
distribution fees relating to the Fund paid pursuant to the Company's
Distribution Plan and, if permitted by the relevant state securities
commissions, extraordinary expenses) exceed the expense limitations of any state
having jurisdiction over the Fund, GW Advisors will reimburse the Fund for the
excess expense to the extent required by state law. A fee reduction pursuant to
this paragraph 7, if any, will be estimated and reconciled monthly. GW Advisors
shall not be required to reimburse any amount in excess of the advisory fee paid
to it pursuant to this Agreement.
8. Services to Other Companies or Accounts
The Company understands that GW Advisors now acts as investment adviser
to the other investment funds of the Company, and may act in the future as
investment adviser to fiduciary and other managed accounts and as investment
adviser to one or more other investment companies or series of investment
companies, and the Company has no objection to GW Advisors so acting. The
Company understands that the persons employed by GW Advisors to assist in the
performance of GW Advisors' duties hereunder will not devote their full time to
such service and nothing contained herein shall be deemed to limit or restrict
the right of GW Advisors or any affiliate of GW Advisors to engage in and devote
time and attention to other businesses or to render services of whatever kind or
nature.
9. Term of Agreement
This Agreement shall become effective as of the date the Fund commences
its investment operations and shall continue for an initial two-year term and
shall continue thereafter so long as such continuance is specifically approved
at least annually by (i) the Board of Trustees of the Company or (ii) a vote of
a "majority" (as defined in the Investment Company Act of 1940) of the Fund's
outstanding voting securities, provided that in either event the continuance is
also approved by a majority of the Board of Trustees who are not "interested
persons" (as defined in said Act) of any party to this Agreement, by vote cast
in person at a meeting called for the purpose of voting on such approval. This
Agreement is terminable, without penalty, on 60 days' written notice, by the
Board of Trustees of the Company or by vote of holders of a majority of the
Fund's shares, or upon 90 days' written notice, by GW Advisors. This Agreement
will also terminate automatically in the event of its assignment (as defined in
said Act). GW Advisors agrees to notify the Company of any circumstances that
might result in this Agreement being deemed to be assigned.
-4-
<PAGE> 5
10. Representations of the Company and GW Advisors
The Company represents that (i) a copy of its Master Trust Agreement,
dated February 22, 1989, together with all amendments thereto, is on file in the
office of the Secretary of the Commonwealth of Massachusetts, (ii) the
appointment of GW Advisors has been duly authorized and (iii) it has acted and
will continue to act in conformity with the requirements of the Investment
Company Act of 1940 and other applicable laws.
GW Advisors represents that it is authorized to perform the services
described herein.
11. Limitation of Liability
This Agreement has been executed on behalf of the Company by the
undersigned officer of the Company in his capacity as an officer of the Company.
The obligations of this Agreement shall be binding upon the assets and property
of the Fund only and not upon the assets and property of any other investment
fund of the Company and shall not be binding upon any Trustee, officer or
shareholder of the Fund and/or the Company individually.
12. Entire Agreement
This Agreement constitutes the entire agreement between the parties
hereto.
13. Governing Law
This Agreement shall be governed in accordance with the laws of the
State 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,
GW SIERRA TRUST FUNDS
By: /s/
---------------------------------
President
Accepted:
GREAT WESTERN FINANCIAL ADVISORS CORPORATION
By: /s/
---------------------------------
Title: President
-5-
<PAGE> 1
EXHIBIT 5(a)-5.1
AMENDMENT OF INVESTMENT ADVISORY AGREEMENT
June 30, 1994
Sierra Investment Advisors Corporation
9301 Corbin Avenue, Suite 333
P.O. Box 1160
Northridge, California 91328-1160
Dear Sirs:
Sierra Trust Funds (the "Company," formerly known as GW Sierra Trust
Funds), an unincorporated business trust organized under the laws of the
Commonwealth of Massachusetts, hereby agrees with Sierra Investment Advisors
Corporation ("Sierra Advisors," formerly known as Great Western Financial
Advisors Corporation), a corporation organized under the laws of the State of
California, to amend as follows the Investment Advisory Agreement (the
"Agreement") by and between the Company and Sierra Advisors dated July 7, 1989
with respect to employing the capital of the California Municipal Fund (the
"Fund," a series investment fund of the Company, formerly known as the GW
California Municipal Income Fund):
1. Amendment of Investment Advisory Agreement
Section 5 of the Agreement is amended by adding the following at the
end of the section: "Notwithstanding the compensation payable to Sierra Advisors
as provided above, the Company shall not pay to Sierra Advisors annually more
than 0.55% of the average daily net assets of the Fund calculated on a trailing
three-month basis."
2. Effective Date
This amendment to the Agreement shall be effective as of July 1, 1994.
<PAGE> 2
Sierra Investment Advisors Corporation
June 30, 1994
Page 2
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: President
Accepted:
SIERRA INVESTMENT ADVISORS CORPORATION
By: /s/ Michael D. Goth
----------------------------------
Name: Michael D. Goth
Title: Chief Operating Officer
<PAGE> 1
Exhibit 5(a)-6.1
INVESTMENT ADVISORY AGREEMENT
Growth and Income Fund
October 22, 1993
Sierra Investment Advisors Corporation
9301 Corbin Avenue, Suite 333
P.O. Box 1160
Northridge, California 91328-1160
Dear Sirs:
Sierra Trust Funds (the "Company"), an unincorporated business trust
organized under the laws of the Commonwealth of Massachusetts, hereby agrees
with Sierra Investment Advisors Corporation ("Sierra Advisors"), a corporation
organized under the laws of the state of California, as follows:
1. Investment Description; Appointment
The Company desires to employ the capital of the Company's Growth and
Income Fund (the "Fund") by investing and reinvesting in investments of the kind
and in accordance with the limitations specified in its Master Trust Agreement,
as amended, and in its Prospectus and Statement of Additional Information
relating to the Fund as from time to time in effect, and in such manner and to
such extent as may from time to time be approved by the Board of Trustees of the
Company. Copies of the Fund's Prospectus and Statement of Additional Information
and the Company's Master Trust Agreement, as amended, have been or will be
submitted to Sierra Advisors. The Company agrees to provide copies of all
amendments to the Fund's Prospectus and Statement of Additional Information and
the Company's Master Trust Agreement to Sierra Advisors on an on-going basis.
The Company desires to employ and hereby appoints Sierra Advisors to act as
investment advisor to the Fund. Sierra Advisors accepts the appointment and
agrees to furnish the services described herein for the compensation set forth
below.
2. Services as Investment Advisor
Subject to the supervision and direction of the Board of Trustees of
the Company, Sierra Advisors has general oversight responsibility for the
investment advisory services provided to the Fund and will exercise this
responsibility in accordance with the Company's Master Trust Agreement, the
Investment Company Act of 1940, and the Investment Advisers Act of 1940, as the
same may from time to time be amended, and with the Fund's investment
objective(s) and policies as stated in the Fund's Prospectus and Statement of
Additional Information relating to the Fund as from
<PAGE> 2
time to time in effect. In connection therewith, Sierra Advisors will, among
other things, (a) participate in the formulation of the Fund's investment
policies, (b) analyze economic trends affecting the Fund, (c) monitor the
expenses incurred by the Fund, (d) monitor the brokerage and research services
(as those terms are defined in Section 28(e) of the Securities Act of 1934, as
amended), as amended, that are provided to the Fund and may be considered by the
Fund's investment sub-advisor in selecting brokers or dealers to execute
particular transactions and (e) monitor and evaluate the services provided by
the Fund's investment sub-advisor under its investment sub-advisory agreement,
including, without limitation, the sub-advisor's adherence to the Fund's
investment objective(s) and policies and the Fund's investment performance.
3. Information Provided to the Company
Sierra Advisors will keep the Company informed of developments
materially affecting the Fund, and will, on its own initiative, furnish the
Company from time to time with whatever information Sierra Advisors believes is
appropriate for this purpose.
4. Standard of Care
Sierra Advisors shall exercise its best judgment in rendering the
services described in paragraph 2 above. Sierra Advisors 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 Investment
Company Act of 1940, as amended) 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 (each such breach, act or omission described in (a) or (b) shall be
referred to as "Disqualifying Conduct").
5. Compensation
In consideration of the services rendered pursuant to this Agreement,
the Company will pay Sierra Advisors on the first business day of each month a
fee for the previous month at the annual rate of .80% of the Fund's average
daily net assets up to $100 million, .75% of the Fund's average daily net assets
between $100 million and $200 million, .70% of the Fund's average daily net
assets between $200 million and $400 million, .65% of the Fund's average daily
net assets between $400 million and $500 million, and .575% of the Fund's
average daily net assets in excess of $500 million, out of which fee Sierra
Advisors shall pay to the sub-investment advisor of the Fund (the "Sub-Advisor")
the fee required
2
<PAGE> 3
under the Investment Sub-Advisory Agreement relating to the Fund among the
Company, Sierra Advisors and the Sub-Advisor. Upon any termination of this
Agreement before the end of a month, the fee for such part of that month shall
be prorated according to the proportion that 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 Advisors, the
value of the Fund's net assets shall be computed at the times and in the manner
specified in the Fund's Prospectus or Statement of Additional Information
relating to the Fund as from time to time in effect.
6. Expenses
Sierra Advisors will bear all expenses in connection with the
performance of its services under this Agreement, including, without limitation,
payment of the sub-advisory fee to the Sub Advisor. The Company will bear
certain other expenses to be incurred in its operation, including but not
limited to: organizational expenses; taxes, interest, brokerage fees and
commissions, if any; fees of trustees of the Company who are not officers,
directors, or employees of Sierra Advisors, the Company's sub-investment
advisors, the Fund's sub-administrator or any of their affiliates; Securities
and Exchange Commission fees and state Blue Sky qualification fees;
out-of-pocket expenses of custodians, transfer and dividend disbursing agents
and the Company's sub-administrator and transaction charges of custodians;
insurance premiums; outside auditing and legal expenses; costs of maintenance of
the Company's existence; costs attributable to investor services, including,
without limitation, telephone and personnel expenses; costs of preparing 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,
the Fund pays a distribution fee pursuant to the terms of a Distribution Plan
adopted under Rule 12b-1 of the Investment Company Act of 1940, as amended.
7. Reimbursement to the Company
If in any fiscal year of the Fund the aggregate expenses of the Fund
(including fees pursuant to this Agreement, the sub-advisory agreement with the
Sub-Advisor and the Fund's administration and sub-administration agreements, but
excluding interest, taxes, brokerage, distribution fees relating to the Fund
paid pursuant to the Company's Distribution Plan and, if permitted by the
relevant state securities commissions, extraordinary expenses) exceed the
expense limitations of any state having jurisdiction over the Fund, Sierra
Advisors will reimburse the Fund for the excess expense to the extent required
by state law. A fee reduction pursuant to this paragraph 7, if any, will be
estimated
3
<PAGE> 4
and reconciled monthly. Sierra Advisors shall not be required to reimburse any
amount in excess of the advisory fee paid to it pursuant to this Agreement.
8. Services to Other Companies or Accounts
The Company understands that Sierra Advisors now acts as investment
adviser to the other investment funds of the Company, and may act in the future
as investment adviser to fiduciary and other managed accounts and as investment
adviser to one or more other investment companies or series of investment
companies, and the Company has no objection to Sierra Advisors so acting. The
Company understands that the persons employed by Sierra Advisors to assist in
the performance of Sierra Advisors' duties hereunder will not devote their full
time to such service and nothing contained herein shall be deemed to limit or
restrict the right of Sierra Advisors or any affiliate of Sierra Advisors to
engage in and devote time and attention to other businesses or to render
services of whatever kind or nature.
9. Term of Agreement
This Agreement shall become effective as of October 22, 1993, and shall
continue for an initial two-year term and shall continue thereafter so long as
such continuance is specifically approved at least annually by (i) the Board of
Trustees of the Company or (ii) a vote of a "majority" (as defined in the
Investment Company Act of 1940, as amended) of the Fund's outstanding voting
securities, provided that in either event the continuance is also approved by a
majority of the Board of Trustees who are not "interested persons" (as defined
in said Act) of any party to this Agreement, by vote cast in person at a meeting
called for the purpose of voting on such approval. This Agreement is terminable,
without penalty, on 60 days' written notice, by the Board of Trustees of the
Company or by vote of holders of a majority of the Fund's shares, or upon 90
days' written notice, by Sierra Advisors. This Agreement will also terminate
automatically in the event of its assignment (as defined in said Act). Sierra
Advisors agrees to notify the Company of any circumstances that might result in
this Agreement being deemed to be assigned.
10. Representations of the Company and Sierra Advisors
The Company represents that (i) a copy of its Master Trust Agreement,
dated February 22, 1989, together with all amendments thereto, is on file in the
office of the Secretary of the Commonwealth of Massachusetts, (ii) the
appointment of Sierra Advisors has been duly authorized and (iii) it has acted
and will continue to act in conformity with the requirements of the Investment
Company Act of 1940, as amended, and other applicable laws.
4
<PAGE> 5
Sierra Advisors represents that it is authorized to perform the
services described herein.
11. Indemnification
The Company shall indemnify and hold harmless Sierra Advisors from and
against any and all claims, losses, liabilities or damages (including reasonable
attorneys' fees other related expenses), howsoever arising from or in connection
with this Agreement or the performance by Sierra Advisors of its duties
hereunder; provided, however, that nothing contained herein shall require that
Sierra Advisors be indemnified for Disqualifying Conduct.
12. Limitation of Liability
This Agreement has been executed on behalf of the Company by the
undersigned officer of the Company in his capacity as an officer of the Company.
The obligations of this Agreement shall be binding upon the assets and property
of the Fund only and not upon the assets and property of any other investment
fund of the Company and shall not be binding upon any Trustee, officer or
shareholder of the Fund and/or the Company individually.
13. Entire Agreement
This Agreement constitutes the entire agreement between the parties
hereto.
14. Governing Law
This Agreement shall be governed in accordance with 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/ Keith Pipes
--------------------------------
Name: Keith Pipes
Title: Executive Vice President,
Treasurer & Secretary
Accepted:
SIERRA INVESTMENT ADVISORS CORPORATION
By: /s/ Michael D. Goth
------------------------------
Name: Michael D. Goth
Title: Chief Operating Officer
5
<PAGE> 1
EXHIBIT 5(a)-7
INVESTMENT ADVISORY AGREEMENT
July 18, 1990
Great Western Financial
Advisors Corporation
888 South Figueroa Street, Suite 1100
Los Angeles, California 90017
Dear Sirs:
GW Sierra Trust Funds (the "Company"), an unincorporated business trust
organized under the laws of the Commonwealth of Massachusetts, hereby agrees
with Great Western Financial Advisors Corporation ("GW Advisors"), a corporation
organized under the laws of the state of California, as follows:
1. Investment Description; Appointment
The company desires to employ the capital of GW Corporate Income Fund
(the "Fund") by investing and reinvesting in investments of the kind and in
accordance with the limitations specified in its Master Trust Agreement, as
amended, and in its Prospectus and Statement of Additional Information relating
to the Fund as from time to time in effect, and in such manner and to such
extent as may from time to time be approved by the Board of Trustees of the
Company. Copies of the Fund's Prospectus and Statement of Additional Information
and the Company's Master Trust Agreement, as amended, have been or will be
submitted to GW Advisors. The Company agrees to provide copies of all amendments
to the Fund's Prospectus and Statement of Additional Information and the
Company's Master Trust Agreement to GW Advisors on an on-going basis. The
Company desires to employ and hereby appoints GW Advisors to act as investment
advisor to the Fund. GW Advisors accepts the appointment and agrees to furnish
the services described herein for the compensation set forth below.
2. Services as Investment Advisor
Subject to the supervision and direction of the Board of Trustees of
the Company, GW Advisors has general oversight responsibility for the investment
advisory services provided to the Fund and will exercise this responsibility in
accordance with the Company's Master Trust Agreement, the Investment Company Act
of 1940 and the Investment Advisers Act of 1940, as the same may from time to
time be amended, and with the Fund's investment objective(s) and policies as
stated in the Fund's Prospectus and Statement of Additional Information relating
to the Fund as from time to time in effect. In connection
<PAGE> 2
therewith, GW Advisors will, among other things, (a) participate in the
formulation of the Fund's investment policies, (b) analyze economic trends
affecting the Fund, (c) monitor the expenses incurred by the Fund, (d) monitor
the brokerage and research services (as those terms are defined in Section 28(e)
of the Securities Act of 1934) that are provided to the Fund and may be
considered by the Fund's investment sub-advisor in selecting brokers or dealers
to execute particular transactions and (e) monitor and evaluate the services
provided by the Fund's investment sub-advisor under its investment sub-advisory
agreement, including, without limitation, the sub-advisor's adherence to the
Fund's investment objective(s) and policies and the Fund's investment
performance.
3. Information Provided to the Company
GW Advisors will keep the Company informed of developments materially
affecting the Fund, and will, on its own initiative, furnish the Company from
time to time with whatever information GW Advisors believes is appropriate for
this purpose.
4. Standard of Care
GW Advisors shall exercise its best judgment in rendering the services
described in paragraph 2 above. GW Advisors 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 Investment Company Act of 1940,
as amended) 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 (each such
breach, act or omission described in (a) or (b) shall be referred to as
"Disqualifying Conduct").
5. Compensation
In consideration of the services rendered pursuant to this Agreement,
the Company will pay GW Advisors on the first business day of each month a fee
for the previous month at the annual rate of .65% of the Fund's average daily
net assets up to $500 million, and .50% of the Fund's average daily net assets
in excess of $500 million, out of which fee GW Advisors shall pay to the
sub-investment advisor of the Fund (the
<PAGE> 3
"Sub-Advisor") the fee required under the Investment Sub-Advisory Agreement
relating to the Fund among the Company, GW Advisors and the Sub-Advisor. Upon
any termination of this Agreement before the end of the month, the fee for such
part of that month shall be prorated according to the proportion that 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 GW
Advisors, the value of the Fund's net assets shall be computed at the times and
in the manner specified in the Fund's Prospectus or Statement of Additional
Information relating to the Fund as from time to time in effect.
6. Expenses
GW Advisors will bear all expenses in connection with the performance
of its services under this Agreement, including, without limitation, payment of
the sub-advisory fee to the Sub-Advisor. The Company will bear certain other
expenses to be incurred in its operation, including but not limited to:
organizational expenses; taxes, interest, brokerage fees and commissions, if
any; fees of trustees of the Company who are not officers, directors, or
employees of GW Advisors, the Company's sub-investment advisors, the Fund's
sub-administrator or any of their affiliates; Securities and Exchange Commission
fees and state Blue Sky qualification fees; out-of-pocket expenses of
custodians, transfer and dividend disbursing agents and the Company's
sub-administrator and transaction charges of custodians; insurance premiums;
outside auditing and legal expenses; costs of maintenance of the Company's
existence; costs attributable to investor services, including, without
limitation, telephone and personnel expenses; costs of preparing 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, the Fund
pays a distribution fee pursuant to the terms of a Distribution Plan adopted
under Rule 12b-1 of the Investment Company Act of 1940, as amended.
7. Reimbursement to the Company
If in any fiscal year of the Fund the aggregate expenses of the Fund
(including fees pursuant to this Agreement, the sub-advisory agreement with the
Sub-Advisor and the Fund's
<PAGE> 4
administration and sub-administration agreements, but excluding interest, taxes,
brokerage, distribution fees relating to the Fund paid pursuant to the Company's
Distribution Plan and, if permitted by the relevant state securities
commissions, extraordinary expenses) exceed the expense limitations of any state
having jurisdiction over the Fund, GW Advisors will reimburse the Fund for the
excess expense to the extent required by state law. A fee reduction pursuant to
this paragraph 7, if any, will be estimated and reconciled monthly. GW Advisors
shall not be required to reimburse any amount in excess of the advisory fee paid
to it pursuant to this Agreement.
8. Services to Other Companies or Accounts
The Company understands that GW Advisors now acts as investment adviser
to the other investment funds of the Company, and may act in the future as
investment adviser to fiduciary and other managed accounts and as investment
adviser to one or more other investment companies or series of investment
companies, and the Company has no objection to GW Advisors so acting. The
Company understands that the persons employed by GW Advisors to assist in the
performance of GW Advisors' duties hereunder will not devote their full time to
such service and nothing contained herein shall be deemed to limit or restrict
the right of GW Advisors or any affiliate of GW Advisors to engage in and devote
time and attention to other businesses or to render services of whatever kind or
nature.
9. Term of Agreement
This Agreement shall become effective as of the date the Fund commences
its investment operations and shall continue for an initial two-year term and
shall continue thereafter so long as such continuance is specifically approved
at least annually by (i) the Board of Trustees of the Company or (ii) a vote of
a "majority" (as defined in the Investment Company Act of 1940, as amended) of
the Fund's outstanding voting securities, provided that in either event the
continuance is also approved by a majority of the Board of Trustees who are not
"interested persons" (as defined in said Act) of any party to this Agreement, by
vote cast in person at a meeting called for the purpose of voting on such
approval. This Agreement is terminable, without penalty, on 60 days' written
notice, by the Board of Trustees of the Company or by vote of holders of a
majority of the Fund's shares, or upon 90 days' written notice, by GW Advisors.
This Agreement will also terminate automatically in the event of its assignment
(as defined in said Act). GW Advisors agrees to notify the Company of any
circumstances that might result in this Agreement being deemed to be assigned.
<PAGE> 5
10. Representations of the Company and GW Advisors
The Company represents that (i) a copy of its Master Trust Agreement,
dated February 22, 1989, together with all amendments thereto, is on file in the
office of the Secretary of the Commonwealth of Massachusetts, (ii) the
appointment of GW Advisors has been duly authorized and (iii) it has acted and
will continue to act in conformity with the requirements of the Investment
Company Act of 1940, as amended, and other applicable laws.
GW Advisors represents that it is authorized to perform the services
described herein.
11. Indemnification
The Company shall indemnify and hold harmless GW Advisors from and
against any and all claims, losses, liabilities or damages (including reasonable
attorneys fees and other related expenses), howsoever arising from or in
connection with this Agreement or the performance by GW Advisors of its duties
hereunder; provided, however, that nothing contained herein shall require that
GW Advisors be indemnified for Disqualifying Conduct.
12. Limitation of Liability
This Agreement has been executed on behalf of the Company by the
undersigned officer of the Company in his capacity as an officer of the Company.
The obligations of this Agreement shall be binding upon the assets and property
of the Fund only and not upon the assets and property of any other investment
fund of the Company and shall not be binding upon any Trustee, officer or
shareholder of the Fund and/or the Company individually.
13. Entire Agreement
This Agreement constitutes the entire agreement between the parties
hereto.
14. Governing Law
This Agreement shall be governed in accordance with the laws of the
Commonwealth of Massachusetts.
<PAGE> 6
If the foregoing accurately sets forth our agreement, kindly indicate
your acceptance hereof by signing and returning the enclosed copy hereof.
Very truly yours,
GW SIERRA TRUST FUNDS
By: /s/
----------------------------------
President
Accepted:
GREAT WESTERN FINANCIAL ADVISORS CORPORATION
By: /s/
--------------------------------------
Title: President
<PAGE> 1
Exhibit 5(a)-8
INVESTMENT ADVISORY AGREEMENT
July 18, 1990
Great Western Financial
Advisors Corporation
888 South Figueroa Street, Suite 1100
Los Angeles, California 90017
Dear Sirs:
GW Sierra Trust Funds (the "Company"), an unincorporated business trust
organized under the laws of the Commonwealth of Massachusetts, hereby agrees
with Great Western Financial Advisors Corporation ("GW Advisors"), a corporation
organized under the laws of the state of California, as follows:
1. Investment Description; Appointment
The Company desires to employ the capital of GW National Municipal
Income Fund (the "Fund") by investing and reinvesting in investments of the kind
and in accordance with the limitations specified in its Master Trust Agreement,
as amended, and in its Prospectus and Statement of Additional Information
relating to the Fund as from time to time in effect, and in such manner and to
such extent as may from time to time be approved by the Board of Trustees of the
Company. Copies of the Fund's Prospectus and Statement of Additional Information
and the Company's Master Trust Agreement, as amended, have been or will be
submitted to GW Advisors. The Company agrees to provide copies of all amendments
to the Fund's Prospectus and Statement of Additional Information and the
Company's Master Trust Agreement to GW Advisors on an on-going basis. The
Company desires to employ and hereby appoints GW Advisors to act as investment
advisor to the Fund. GW Advisors accepts the appointment and agrees to furnish
the services described herein for the compensation set forth below.
2. Services as Investment Advisor
Subject to the supervision and direction of the Board of Trustees of
the Company, GW Advisors has general oversight responsibility for the investment
advisory services provided to the Fund and will exercise this responsibility in
accordance with the Company's Master Trust Agreement, the Investment Company Act
of 1940 and the Investment Advisers Act of 1940, as the same may from time to
time be amended, and with the Fund's
<PAGE> 2
investment objective(s) and policies as stated in the Fund's Prospectus and
Statement of Additional Information relating to the Fund as from time to time in
effect. In connection therewith, GW Advisors will, among other things, (a)
participate in the formulation of the Fund's investment policies, (b) analyze
economic trends affecting the Fund, (c) monitor the expenses incurred by the
Fund, (d) monitor the brokerage and research services (as those terms are
defined in Section 28(e) of the Securities Act of 1934) that are provided to the
Fund and may be considered by the Fund's investment sub-advisor in selecting
brokers or dealers to execute particular transactions and (e) monitor and
evaluate the services provided by the Fund's investment sub-advisor under its
investment sub-advisory agreement, including, without limitation, the
sub-advisor's adherence to the Fund's investment objective(s) and policies and
the Fund's investment performance.
3. Information Provided to the Company
GW Advisors will keep the Company informed of developments materially
affecting the Fund, and will, on its own initiative, furnish the Company from
time to time with whatever information GW Advisors believes is appropriate for
this purpose.
4. Standard of Care
GW Advisors shall exercise its best judgment in rendering the services
described in paragraph 2 above. GW Advisors 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 Investment Company Act of 1940,
as amended) 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 (each such
breach, act or omission described in (a) or (b) shall be referred to as
"Disqualifying Conduct").
5. Compensation
In consideration of the services rendered pursuant to this Agreement,
the Company will pay GW Advisors on the first business day of each month a fee
for the previous month at the annual rate of .60% of the Fund's average daily
net assets up to $500 million, and .45% of the Fund's average daily net assets
in excess of $500 million, out of which fee GW Advisors shall pay to the
sub-investment advisor of the Fund (the "Sub-Advisor") the fee required under
the Investment Sub-Advisory Agreement relating to the Fund among the Company, GW
Advisors and the Sub-Advisor. Upon any termination of this
<PAGE> 3
Agreement before the end of a month, the fee for such part of that month shall
be prorated according to the proportion that 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 GW Advisors, the value
of the Fund's net assets shall be computed at the times and in the manner
specified in the Fund's Prospectus or Statement of Additional Information
relating to the Fund as from time to time in effect.
6. Expenses
GW Advisors will bear all expenses in connection with the performance
of its services under this Agreement, including, without limitation, payment of
the sub-advisory fee to the Sub-Advisor. The Company will bear certain other
expenses to be incurred in its operation, including but not limited to:
organizational expenses; taxes, interest, brokerage fees and commissions, if
any; fees of trustees of the Company who are not officers, directors, or
employees of GW Advisors, the Company's sub-investment advisors, the Fund's
sub-administrator or any of their affiliates; Securities and Exchange Commission
fees and state Blue Sky qualification fees; out-of-pocket expenses of
custodians, transfer and dividend disbursing agents and the Company's
sub-administrator and transaction charges of custodians; insurance premiums;
outside auditing and legal expenses; costs of maintenance of the Company's
existence; costs attributable to investor services, including, without
limitation, telephone and personnel expenses; costs of preparing 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, the Fund
pays a distribution fee pursuant to the terms of a Distribution Plan adopted
under Rule 12b-1 of the Investment Company Act of 1940, as amended.
7. Reimbursement to the Company
If in any fiscal year of the Fund the aggregate expenses of the Fund
(including fees pursuant to this Agreement, the sub-advisory agreement with the
Sub-Advisor and the Fund's
<PAGE> 4
administration and sub-administration agreements, but excluding interest, taxes,
brokerage, distribution fees relating to the Fund paid pursuant to the Company's
Distribution Plan and, if permitted by the relevant state securities
commissions, extraordinary expenses) exceed the expense limitations of any
state having jurisdiction over the Fund, GW Advisors will reimburse the Fund for
the excess expense to the extent required by state law. A fee reduction pursuant
to this paragraph 7, if any, will be estimated and reconciled monthly. GW
Advisors shall not be required to reimburse any amount in excess of the advisory
fee paid to it pursuant to this Agreement.
8. Services to Other Companies or Accounts
The Company understands that GW Advisors now acts as investment adviser
to the other investment funds of the Company, and may act in the future as
investment adviser to fiduciary and other managed accounts and as investment
adviser to one or more other investment companies or series of investment
companies, and the Company has no objection to GW Advisors so acting. The
Company understands that the persons employed by GW Advisors to assist in the
performance of GW Advisors' duties hereunder will not devote their full time to
such service and nothing contained herein shall be deemed to limit or restrict
the right of GW Advisors or any affiliate of GW Advisors to engage in and devote
time and attention to other businesses or to render services of whatever kind or
nature.
9. Term of Agreement
This Agreement shall become effective as of the date the Fund commences
its investment operations and shall continue for an initial two-year term and
shall continue thereafter so long as such continuance is specifically approved
at least annually by (i) the Board of Trustees of the Company or (ii) a vote of
a "majority" (as defined in the Investment Company Act of 1940, as amended) of
the Fund's outstanding voting securities, provided that in either event the
continuance is also approved by a majority of the Board of Trustees who are not
"interested persons" (as defined in said Act) of any party to this Agreement, by
vote cast in person at a meeting called for the purpose of voting on such
approval. This Agreement is terminable, without penalty, on 60 days' written
notice, by the Board of Trustees of the Company or by vote of holders of a
majority of the Fund's shares, or upon 90 days' written notice, by GW Advisors.
This Agreement will also terminate automatically in the event of its assignment
(as defined in said Act). GW Advisors agrees to notify the Company of any
circumstances that might result in this Agreement being deemed to be assigned.
<PAGE> 5
10. Representations of the Company and GW Advisors
The Company represents that (i) a copy of its Master Trust Agreement,
dated February 22, 1989, together with all amendments thereto, is on file in the
office of the Secretary of the Commonwealth of Massachusetts, (ii) the
appointment of GW Advisors has been duly authorized and (iii) it has acted and
will continue to act in conformity with the requirements of the Investment
Company Act of 1940, as amended, and other applicable laws.
GW Advisors represents that it is authorized to perform the services
described herein.
11. Indemnification
The Company shall indemnify and hold harmless GW Advisors from and
against any and all claims, losses, liabilities or damages (including reasonable
attorneys fees and other related expenses), howsoever arising from or in
connection with this Agreement or the performance by GW Advisors of its duties
hereunder; provided, however, that nothing contained herein shall require that
GW Advisors be indemnified for Disqualifying Conduct.
12. Limitation of Liability
This Agreement has been executed on behalf of the Company by the
undersigned officer of the Company in his capacity as an officer of the Company.
The obligations of this Agreement shall be binding upon the assets and property
of the Fund only and not upon the assets and property of any other investment
fund of the Company and shall not be binding upon any Trustee, officer or
shareholder of the Fund and/or the Company individually.
13. Entire Agreement
This Agreement constitutes the entire agreement between the parties
hereto.
14. Governing Law
This Agreement shall be governed in accordance with the laws of the
Commonwealth of Massachusetts.
<PAGE> 6
If the foregoing accurately sets forth our agreement, kindly indicate
your acceptance hereof by signing and returning the enclosed copy hereof.
Very truly yours,
GW SIERRA TRUST FUNDS
By: /s/ [SIG]
----------------------------------
President
Accepted:
GREAT WESTERN FINANCIAL ADVISORS CORPORATION
By: /s/ [SIG]
----------------------------------
Title: President
<PAGE> 1
Exhibit 5(a)-8.1
AMENDMENT OF INVESTMENT ADVISORY AGREEMENT
June 30, 1994
Sierra Investment Advisors Corporation
9301 Corbin Avenue, Suite 333
P.O. Box 1160
Northridge, California 91328-1160
Dear Sirs:
Sierra Trust Funds (the "Company," formerly known as GW Sierra Trust
Funds), an unincorporated business trust organized under the laws of the
Commonwealth of Massachusetts, hereby agrees with Sierra Investment Advisors
Corporation ("Sierra Advisors," formerly known as Great Western Financial
Advisors Corporation), a corporation organized under the laws of the State of
California, to amend as follows the Investment Advisory Agreement (the
"Agreement") by and between the Company and Sierra Advisors dated July 18, 1990
with respect to employing the capital of the National Municipal Fund (the
"Fund," a series investment fund of the Company, formerly known as the GW
National Municipal Income Fund):
1. Amendment of Investment Advisory Agreement
Section 5 of the Agreement is amended by adding the following at the
end of the section: "Notwithstanding the compensation payable to Sierra Advisors
as provided above, the Company shall not pay to Sierra Advisors annually more
than 0.55% of the average daily net assets of the Fund calculated on a trailing
three-month basis."
2. Effective Date
This amendment to the Agreement shall be effective as of July 1, 1994.
<PAGE> 2
Sierra Investment Advisors Corporation
June 30, 1994
Page 2
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: President
Accepted:
SIERRA INVESTMENT ADVISORS CORPORATION
By: /s/ MICHAEL D. GOTH
----------------------------------
Name: Michael D. Goth
Title: Chief Operating Officer
<PAGE> 1
Exhibit 5(a)-9.1
INVESTMENT ADVISORY AGREEMENT
Emerging Growth Fund
October 22, 1993
Sierra Investment Advisors Corporation
9301 Corbin Avenue, Suite 333
P.O. Box 1160
Northridge, California 91328-1160
Dear Sirs:
Sierra Trust Funds (the "Company"), an unincorporated business trust
organized under the laws of the Commonwealth of Massachusetts, hereby agrees
with Sierra Investment Advisors Corporation ("Sierra Advisors"), a corporation
organized under the laws of the state of California, as follows:
1. Investment Description; Appointment
The Company desires to employ the capital of the Company's Emerging
Growth Fund (the "Fund") by investing and reinvesting in investments of the kind
and in accordance with the limitations specified in its Master Trust Agreement,
as amended, and in its Prospectus and Statement of Additional Information
relating to the Fund as from time to time in effect, and in such manner and to
such extent as may from time to time be approved by the Board of Trustees of the
Company. Copies of the Fund's Prospectus and Statement of Additional Information
and the Company's Master Trust Agreement, as amended, have been or will be
submitted to Sierra Advisors. The Company agrees to provide copies of all
amendments to the Fund's Prospectus and Statement of Additional Information and
the Company's Master Trust Agreement to Sierra Advisors on an on-going basis.
The Company desires to employ and hereby appoints Sierra Advisors to act as
investment advisor to the Fund. Sierra Advisors accepts the appointment and
agrees to furnish the services described herein for the compensation set forth
below.
2. Services as Investment Advisor
Subject to the supervision and direction of the Board of Trustees of
the Company, Sierra Advisors has general oversight responsibility for the
investment advisory services provided to the Fund and will exercise this
responsibility in accordance with the Company's Master Trust Agreement, the
Investment Company Act of 1940, and the Investment Advisers Act of 1940, as the
same may from time to time be amended, and with the Fund's investment
objective(s) and policies as stated in the Fund's Prospectus and Statement of
Additional Information relating to the Fund as from
-1-
<PAGE> 2
time to time in effect. In connection therewith, Sierra Advisors will, among
other things, (a) participate in the formulation of the Fund's investment
policies, (b) analyze economic trends affecting the Fund, (c) monitor the
expenses incurred by the Fund, (d) monitor the brokerage and research services
(as those terms are defined in Section 28(e) of the Securities Act of 1934, as
amended) that are provided to the Fund and may be considered by the Fund's
investment sub-advisor in selecting brokers or dealers to execute particular
transactions and (e) monitor and evaluate the services provided by the Fund's
investment sub-advisor under its investment sub-advisory agreement, including,
without limitation, the sub-advisor's adherence to the Fund's investment
objective(s) and policies and the Fund's investment performance.
3. Information Provided to the Company
Sierra Advisors will keep the Company informed of developments
materially affecting the Fund, and will, on its own initiative, furnish the
Company from time to time with whatever information Sierra Advisors believes is
appropriate for this purpose.
4. Standard of Care
Sierra Advisors shall exercise its best judgment in rendering the
services described in paragraph 2 above. Sierra Advisors 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 Investment
Company Act of 1940, as amended) 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 (each such breach, act or omission described in (a) or (b) shall be
referred to as "Disqualifying Conduct").
5. Compensation
In consideration of the services rendered pursuant to this Agreement,
the Company will pay Sierra Advisors on the first business day of each month a
fee for the previous month at the annual rate of .90% of the Fund's average
daily net assets up to $100 million, .85% of the Fund's average daily net assets
between $100 million and $500 million, and .75% of the Fund's average daily net
assets in excess of $500 million, out of which fee Sierra Advisors shall pay to
the sub-investment advisor of the Fund (the "Sub-Advisor") the fee required
under the Investment Sub-Advisory Agreement relating to the Fund among the
Company, Sierra Advisors and the Sub-Advisor. Upon any termination of this
Agreement before the end of a month, the fee for such part of that month shall
be
-2-
<PAGE> 3
prorated according to the proportion that 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 Advisors, the value of the
Fund's net assets shall be computed at the times and in the manner specified in
the Fund's Prospectus or Statement of Additional Information relating to the
Fund as from time to time in effect.
6. Expenses
Sierra Advisors will bear all expenses in connection with the
performance of its services under this Agreement, including, without limitation,
payment of the sub-advisory fee to the Sub-Advisor. The Company will bear
certain other expenses to be incurred in its operation, including but not
limited to: organizational expenses; taxes, interest, brokerage fees and
commissions, if any; fees of trustees of the Company who are not officers,
directors, or employees of Sierra Advisors, the Company's sub-investment
advisors, the Fund's sub-administrator or any of their affiliates; Securities
and Exchange Commission fees and state Blue Sky qualification fees;
out-of-pocket expenses of custodians, transfer and dividend disbursing agents
and the Company's sub-administrator and transaction charges of custodians;
insurance premiums; outside auditing and legal expenses; costs of maintenance of
the Company's existence; costs attributable to investor services, including,
without limitation, telephone and personnel expenses; costs of preparing 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,
the Fund pays a distribution fee pursuant to the terms of a Distribution Plan
adopted under Rule 12b-1 of the Investment Company Act of 1940, as amended.
7. Reimbursement to the Company
If in any fiscal year of the Fund the aggregate expenses of the Fund
(including fees pursuant to this Agreement, the sub-advisory agreement with the
Sub-Advisor and the Fund's administration and sub-administration agreements, but
excluding interest, taxes, brokerage, distribution fees relating to the Fund
paid pursuant to the Company's Distribution Plan and, if permitted by the
relevant state securities commissions, extraordinary expenses) exceed the
expense limitations of any state having jurisdiction over the Fund, Sierra
Advisors will reimburse the Fund for the excess expense to the extent required
by state law. A fee reduction pursuant to this paragraph 7, if any, will be
estimated and reconciled monthly. Sierra Advisors shall not be required to
reimburse any amount in excess of the advisory fee paid to it pursuant to this
Agreement.
-3-
<PAGE> 4
8. Services to Other Companies or Accounts
The Company understands that Sierra Advisors now acts as investment
adviser to the other investment funds of the Company, and may act in the future
as investment adviser to fiduciary and other managed accounts and as investment
adviser to one or more other investment companies or series of investment
companies, and the Company has no objection to Sierra Advisors so acting. The
Company understands that the persons employed by Sierra Advisors to assist in
the performance of Sierra Advisors' duties hereunder will not devote their full
time to such service and nothing contained herein shall be deemed to limit or
restrict the right of Sierra Advisors or any affiliate of Sierra Advisors to
engage in and devote time and attention to other businesses or to render
services of whatever kind or nature.
9. Term of Agreement
This Agreement shall become effective as of October 22, 1993, and shall
continue for an initial two-year term and shall continue thereafter so long as
such continuance is specifically approved at least annually by (i) the Board of
Trustees of the Company or (ii) a vote of a "majority" (as defined in the
Investment Company Act of 1940, as amended) of the Fund's outstanding voting
securities, provided that in either event the continuance is also approved by a
majority of the Board of Trustees who are not "interested persons" (as defined
in said Act) of any party to this Agreement, by vote cast in person at a meeting
called for the purpose of voting on such approval. This Agreement is terminable,
without penalty, on 60 days' written notice, by the Board of Trustees of the
Company or by vote of holders of a majority of the Fund's shares, or upon 90
days' written notice, by Sierra Advisors. This Agreement will also terminate
automatically in the event of its assignment (as defined in said Act). Sierra
Advisors agrees to notify the Company of any circumstances that might result in
this Agreement being deemed to be assigned.
10. Representations of the Company and Sierra Advisors
The Company represents that (i) a copy of its Master Trust Agreement,
dated February 22, 1989, together with all amendments thereto, is on file in the
office of the Secretary of the Commonwealth of Massachusetts, (ii) the
appointment of Sierra Advisors has been duly authorized and (iii) it has acted
and will continue to act in conformity with the requirements of the Investment
Company Act of 1940, as amended, and other applicable laws.
Sierra Advisors represents that it is authorized to perform the
services described herein.
-4-
<PAGE> 5
11. Indemnification
The Company shall indemnify and hold harmless Sierra Advisors from and
against any and all claims, losses, liabilities or damages (including reasonable
attorneys fees other related expenses), howsoever arising from or in connection
with this Agreement or the performance by Sierra Advisors of its duties
hereunder; provided, however, that nothing contained herein shall require that
Sierra Advisors be indemnified for Disqualifying Conduct.
12. Limitation of Liability
This Agreement has been executed on behalf of the Company by the
undersigned officer of the Company in his capacity as an officer of the Company.
The obligations of this Agreement shall be binding upon the assets and property
of the Fund only and not upon the assets and property of any other investment
fund of the Company and shall not be binding upon any Trustee, officer or
shareholder of the Fund and/or the Company individually.
13. Entire Agreement
This Agreement constitutes the entire agreement between the parties
hereto.
14. Governing Law
This Agreement shall be governed in accordance with 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\ KEITH PIPES
--------------------------------------
Name: Keith Pipes
Title: Executive Vice President,
Treasurer & Secretary
Accepted:
SIERRA INVESTMENT ADVISORS CORPORATION
By: \s\ MICHAEL D. GOTH
-------------------------------------
Name: Michael D. Goth
Title: Chief Operating Officer
-5-
<PAGE> 1
Exhibit 5(a)-10.1
INVESTMENT ADVISORY AGREEMENT
November 1, 1994
Sierra Investment Advisors Corporation
9301 Corbin Avenue, Suite 333
P.O. Box 1160
Northridge, California 91328-1160
Dear Sirs:
Sierra Trust Funds (the "Company"), an unincorporated business trust
organized under the laws of the Commonwealth of Massachusetts, hereby agrees
with Sierra Investment Advisors Corporation ("Sierra Advisors"), a corporation
organized under the laws of the state of California, as follows:
1. Investment Description; Appointment
The Company desires to employ the capital of the Company's
International Growth Fund (the "Fund") by investing and reinvesting in
investments of the kind and in accordance with the limitations specified in its
Master Trust Agreement, as amended, and in its Prospectus and Statement of
Additional Information relating to the Fund as from time to time in effect, and
in such manner and to such extent as may from time to time be approved by the
Board of Trustees of the Company. Copies of the Fund's Prospectus and Statement
of Additional Information and the Company's Master Trust Agreement, as amended,
have been or will be submitted to Sierra Advisors. The Company agrees to provide
copies of all amendments to the Fund's Prospectus and Statement of Additional
Information and the Company's Master Trust Agreement to Sierra Advisors on an
on-going basis. The Company desires to employ and hereby appoints Sierra
Advisors to act as investment advisor to the Fund. Sierra Advisors accepts the
appointment and agrees to furnish the services described herein for the
compensation set forth below.
2. Services as Investment Advisor
Subject to the supervision and direction of the Board of Trustees of
the Company, Sierra Advisors has general oversight responsibility for the
investment advisory services provided to the Fund and will exercise this
responsibility in accordance with the Company's Master Trust Agreement, the
Investment Company Act of 1940 and the Investment Advisors Act of 1940, as the
same may from time to time be amended, and with the Fund's investment
objective(s) and policies as stated in the Fund's Prospectus and Statement of
Additional Information relating to the Fund as from
<PAGE> 2
time to time in effect. In connection therewith, Sierra Advisors will, among
other things, (a) participate in the formulation of the Fund's investment
policies, (b) analyze economic trends affecting the Fund, (c) monitor the
expenses incurred by the Fund, (d) monitor the brokerage and research services
(as those terms are defined in Section 28(e) of the Securities Act of 1934) that
are provided to the Fund and may be considered by the Fund's investment
sub-advisor in selecting brokers or dealers to execute particular transactions
and (e) monitor and evaluate the services provided by the Fund's investment
sub-advisor under its investment sub-advisory agreement, including, without
limitation, the sub-advisor's adherence to the Fund's investment objective(s)
and policies and the Fund's investment performance.
3. Information Provided to the Company
Sierra Advisors will keep the Company informed of developments
materially affecting the Fund, and will, on its own initiative, furnish the
Company from time to time with whatever information Sierra Advisors believes is
appropriate for this purpose.
4. Standard of Care
Sierra Advisors shall exercise its best judgment in rendering the
services described in paragraph 2 above. Sierra Advisors 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 Investment
Company Act of 1940, as amended) 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 (each such breach, act or omission described in (a) or (b) shall be
referred to as "Disqualifying Conduct").
5. Compensation
In consideration of the services rendered pursuant to this Agreement,
the Company will pay Sierra Advisors on the first business day of each month a
fee for the previous month at the annual rate of 0.95% of the Fund's average net
assets up to $50 million, 0.85% of the Fund's average net assets between $50
million and $125 million and 0.65% of the Fund's average net assets exceeding
$125 million, out of which fee Sierra Advisors shall pay to the sub-investment
advisor of the Fund (the "Sub-Advisor") the fee required under the Investment
Sub-Advisory Agreement relating to the Fund among the Company, Sierra Advisors
2
<PAGE> 3
and the Sub-Advisor. Upon any termination of this Agreement before the end of a
month, the fee for such part of that month shall be prorated according to the
proportion that 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 Advisors, the value of the Fund's net assets
shall be computed at the times and in the manner specified in the Fund's
Prospectus or Statement of Additional Information relating to the Fund as from
time to time in effect.
6. Expenses
Sierra Advisors will bear all expenses in connection with the
performance of its services under this Agreement, including, without limitation,
payment of the sub-advisory fee to the Sub-Advisor. The Company will bear
certain other expenses to be incurred in its operation, including but not
limited to: organizational expenses; taxes, interest, brokerage fees and
commissions, if any; fees of trustees of the Company who are not officers,
directors, or employees of Sierra Advisors, the Company's sub-investment
advisors, the Fund's sub-administrator or any of their affiliates; Securities
and Exchange Commission fees and state Blue Sky qualification fees;
out-of-pocket expenses of custodians, transfer and dividend disbursing agents
and the Company's sub-administrator and transaction charges of custodians;
insurance premiums; outside auditing and legal expenses; costs of maintenance of
the Company's existence; costs attributable to investor services, including,
without limitation, telephone and personnel expenses; costs of preparing 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,
the Fund pays a distribution fee pursuant to the terms of a Distribution Plan
adopted under Rule 12b-1 of the Investment Company Act of 1940, as amended.
7. Reimbursement to the Company
If in any fiscal year of the Fund the aggregate expenses of the Fund
(including fees pursuant to this Agreement, the sub-advisory agreement with the
Sub-Advisor and the Fund's administration and sub-administration agreements, but
excluding interest, taxes, brokerage, distribution fees relating to the Fund
paid pursuant to the Company's Distribution Plan and, if permitted by the
relevant state securities commissions, extraordinary expenses) exceed the
expense limitations of any state having jurisdiction over the Fund, Sierra
Advisors will reimburse the Fund for the excess expense to the extent required
by state law. A fee reduction pursuant to this paragraph 7, if
3
<PAGE> 4
any, will be estimated and reconciled monthly. Sierra Advisors shall not be
required to reimburse any amount in excess of the advisory fee paid to it
pursuant to this Agreement.
8. Services to Other Companies or Accounts
The Company understands that Sierra Advisors now acts as investment
adviser to the other investment funds of the Company, and may act in the future
as investment adviser to fiduciary and other managed accounts and as investment
adviser to one or more other investment companies or series of investment
companies, and the Company has no objection to Sierra Advisors so acting. The
Company understands that the persons employed by Sierra Advisors to assist in
the performance of Sierra Advisors' duties hereunder will not devote their full
time to such service and nothing contained herein shall be deemed to limit or
restrict the right of Sierra Advisors or any affiliate of Sierra Advisors to
engage in and devote time and attention to other businesses or to render
services of whatever kind or nature.
9. Term of Agreement
This Agreement shall become effective as of the date first written
above and shall continue for an initial two-year term and shall continue
thereafter so long as such continuance is specifically approved at least
annually by (i) the Board of Trustees of the Company or (ii) a vote of a
"majority" (as defined in the Investment Company Act of 1940, as amended) of the
Fund's outstanding voting securities, provided that in either event the
continuance is also approved by a majority of the Board of Trustees who are not
"interested persons" (as defined in said Act) of any party to this Agreement, by
vote cast in person at a meeting called for the purpose of voting on such
approval. This Agreement is terminable, without penalty, on 60 days' written
notice, by the Board of Trustees of the Company or by vote of holders of a
majority of the Fund's shares, or upon 90 days' written notice, by Sierra
Advisors. This Agreement will also terminate automatically in the event of its
assignment (as defined in said Act). Sierra Advisors agrees to notify the
Company of any circumstances that might result in this Agreement being deemed to
be assigned.
10. Representations of the Company and Sierra Advisors
The Company represents that (i) a copy of its Master Trust Agreement,
dated February 22, 1989, together with all amendments thereto, is on file in the
office of the Secretary of the Commonwealth of Massachusetts, (ii) the
appointment of Sierra Advisors has been duly authorized and (iii) it has acted
and will continue to act in conformity with the requirements of the Investment
Company Act of 1940, as amended, and other applicable laws.
4
<PAGE> 5
Sierra Advisors represents that it is authorized to perform the
services described herein.
11. Limitation of Liability
This Agreement has been executed on behalf of the Company by the
undersigned officer of the Company in his capacity as an officer of the Company.
The obligations of this Agreement shall be binding upon the assets and property
of the Fund only and not upon the assets and property of any other investment
fund of the Company and shall not be binding upon any Trustee, officer or
shareholder of the Fund and/or the Company individually.
12. Entire Agreement
This Agreement constitutes the entire agreement between the parties
hereto.
14. Governing Law
This Agreement shall be governed in accordance with 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/ KEITH B. PIPES
---------------------------------------
Name: Keith B. Pipes
Title: Executive Vice President
Accepted:
SIERRA INVESTMENT ADVISORS CORPORATION
By /s/ MICHAEL D. GOTH
--------------------------------------
Name: Michael D. Goth
Title: Chief Operating Officer
5
<PAGE> 1
Exhibit 5(a)-11
INVESTMENT ADVISORY AGREEMENT
February 3, 1992
Great Western Financial
Advisors Corporation
888 South Figueroa Street, Suite 1100
Los Angeles, California 90017
Dear Sirs:
GW Sierra Trust Funds (the "Company"), an unincorporated business trust
organized under the laws of the Commonwealth of Massachusetts, hereby agrees
with Great Western Financial Advisors Corporation ("GW Advisors"), a corporation
organized under the laws of the State of California, as follows:
1. Investment Description; Appointment
The Company desires to employ the capital of GW Short Term Global
Government Fund (the "Fund") by investing and reinvesting in investments of the
kind and in accordance with the limitations specified in its Master Trust
Agreement, as amended, and in its Prospectus and Statement of Additional
Information relating to the Fund as from time to time in effect, and in such
manner and to such extent as may from time to time be approved by the Board of
Trustees of the Company. Copies of the Fund's Prospectus and Statement of
Additional Information and the Company's Master Trust Agreement, as amended (the
"Master Trust Agreement"), have been or will be submitted to GW Advisors. The
Company agrees to provide copies of all amendments to the Fund's Prospectus and
Statement of Additional Information and the Company's Master Trust Agreement to
GW Advisors on an on-going basis. The Company desires to employ and hereby
appoints GW Advisors to act as investment advisor to the Fund. GW Advisors
accepts the appointment and agrees to furnish the services described herein for
the compensation set forth below.
2. Services as Investment Advisor
Subject to the supervision and direction of the Board of Trustees of
the Company, GW Advisors has general oversight responsibility for the investment
advisory services provided to the Fund and will exercise this responsibility in
accordance with the Company's Master Trust Agreement, the Investment Company Act
of 1940 and the Investment Advisers Act of 1940, as the same may
from time to time be amended, and with the Fund's
<PAGE> 2
investment objective(s) and policies as stated in the Fund's Prospectus and
Statement of Additional Information relating to the Fund as from time to time in
effect. In connection therewith, GW Advisors will, among other things, (a)
participate in the formulation of the Fund's investment policies, (b) analyze
economic trends affecting the Fund, (c) monitor the expenses incurred by the
Fund, (d) monitor the brokerage and research services (as those terms are
defined in Section 28(e) of the Securities Act of 1934) that are provided to the
Fund and may be considered by the Fund's investment sub-advisor in selecting
brokers or dealers to execute particular transactions and (e) monitor and
evaluate the services provided by the Fund's investment sub-advisor under its
investment sub-advisory agreement, including, without limitation, the
sub-advisor's adherence to the Fund's investment objective(s) and policies and
the Fund's investment performance.
3. Information Provided to the Company
GW Advisors will keep the Company informed of developments materially
affecting the Fund, and will, on its own initiative, furnish the Company from
time to time with whatever information GW Advisors believes is appropriate for
this purpose.
4. Standard of Care
GW Advisors shall exercise its best judgment in rendering the services
described in paragraph 2 above. GW Advisors 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 Investment Company Act of 1940,
as amended) 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 (each such
breach, act or omission described in (a) or (b) shall be referred to as
"Disqualifying Conduct").
5. Compensation
In consideration of the services rendered pursuant to this Agreement,
the Company will pay GW Advisors on the first business day of each month a fee
for the previous month at the annual rate of .75% of the Fund's average net
assets up to $500 million and .65% of the Fund's average net assets exceeding
$500 million, out of which fee GW Advisors shall pay to the sub-investment
advisor of the Fund (the "Sub-Advisor") the fee
2
<PAGE> 3
required under the Investment Sub-Advisory Agreement relating to the Fund among
the Company, GW Advisors and the Sub-Advisor. Upon any termination of this
Agreement before the end of a month, the fee for such part of that month shall
be prorated according to the proportion that 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 GW Advisors, the value
of the Fund's net assets shall be computed at the times and in the manner
specified in the Fund's Prospectus or Statement of Additional Information
relating to the Fund as from time to time in effect.
6. Expenses
GW Advisors will bear all expenses in connection with the performance
of its services under this Agreement, including, without limitation, payment of
the sub-advisory fee to the Sub-Advisor. The Company will bear certain other
expenses to be incurred in its operation, including but not limited to:
organizational expenses; taxes, interest, brokerage fees and commissions, if
any; fees of trustees of the Company who are not officers, directors, or
employees of GW Advisors, the Company's sub-investment advisors, the Fund's
sub-administrator or any of their affiliates; Securities and Exchange Commission
fees and state Blue Sky qualification fees; out-of-pocket expenses of
custodians, transfer and dividend disbursing agents and the Company's
sub-administrator and transaction charges of custodians; insurance premiums;
outside auditing and legal expenses; costs of maintenance of the Company's
existence; costs attributable to investor services, including, without
limitation, telephone and personnel expenses; costs of preparing 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, the Fund
pays a distribution fee pursuant to the terms of a Distribution Plan, as amended
(the "Distribution Plan") adopted pursuant to Rule 12b-1 of the Investment
Company Act of 1940, as amended.
7. Reimbursement to the Company
If in any fiscal year of the Fund the aggregate expenses of the Fund
(including fees pursuant to this Agreement, the sub-advisory agreement with the
Sub-Advisor and the Fund's
3
<PAGE> 4
administration and sub-administration agreements, but excluding interest, taxes,
brokerage, distribution fees relating to the Fund paid pursuant to the Company's
Distribution Plan and, if permitted by the relevant state securities
commissions, extraordinary expenses) exceed the expense limitations of any state
having jurisdiction over the Fund, GW Advisors will reimburse the Fund for the
excess expense to the extent required by state law. A fee reduction pursuant to
this paragraph 7, if any, will be estimated and reconciled monthly. GW Advisors
shall not be required to reimburse any amount in excess of the advisory fee paid
to it pursuant to this Agreement.
8. Services to Other Companies or Accounts
The Company understands that GW Advisors now acts as investment adviser
to the other investment funds of the Company, and may act in the future as
investment adviser to fiduciary and other managed accounts and as investment
adviser to one or more other investment companies or series of investment
companies, and the Company has no objection to GW Advisors so acting. The
Company understands that the persons employed by GW Advisors to assist in the
performance of GW Advisors' duties hereunder will not devote their full time to
such service and nothing contained herein shall be deemed to limit or restrict
the right of GW Advisors or any affiliate of GW Advisors to engage in and devote
time and attention to other businesses or to render services of whatever kind or
nature.
9. Term of Agreement
This Agreement shall become effective as of the date the Fund commences
its investment operations and shall continue for an initial two-year term and
shall continue thereafter so long as such continuance is specifically approved
at least annually by (i) the Board of Trustees of the Company or (ii) a vote of
a "majority" (as defined in the Investment Company Act of 1940, as amended) of
the Fund's outstanding voting securities, provided that in either event the
continuance is also approved by a majority of the Board of Trustees who are not
"interested persons" (as defined in said Act) of any party to this Agreement, by
vote cast in person at a meeting called for the purpose of voting on such
approval. This Agreement is terminable, without penalty, on 60 days' written
notice, by the Board of Trustees of the Company or by vote of holders of a
majority of the Fund's shares, or upon 90 days' written notice, by GW Advisors.
This Agreement will also terminate automatically in the event of its assignment
(as defined in said Act). GW Advisors agrees to notify the Company of any
circumstances that might result in this Agreement being deemed to be assigned.
4
<PAGE> 5
10. Representations of the Company and GW Advisors
The Company represents that (i) a copy of its Master Trust Agreement,
dated February 22, 1989, together with all amendments thereto, is on file in the
office of the Secretary of the Commonwealth of Massachusetts, (ii) the
appointment of GW Advisors has been duly authorized and (iii) it has acted and
will continue to act in conformity with the requirements of the Investment
Company Act of 1940, as amended, and other applicable laws.
GW Advisors represents that it is authorized to perform the services
described herein.
11. Indemnification
The Company shall indemnify and hold harmless GW Advisors from and
against any and all claims, losses, liabilities or damages (including reasonable
attorneys' fees and other related expenses), howsoever arising from or in
connection with this Agreement or the performance by GW Advisors of its duties
hereunder; provided, however, that nothing contained herein shall require that
GW Advisors be indemnified for Disqualifying Conduct.
12. Limitation of Liability
This Agreement 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 Agreement shall be binding upon the assets and
property of the Fund only and not upon the assets and property of any other
investment fund of the Company and shall not be binding upon any Trustee,
officer or shareholder of the Fund and/or the Company individually.
13. Entire Agreement
This Agreement constitutes the entire agreement between the parties
hereto.
14. Governing Law
This Agreement shall be governed in accordance with the laws of the
Commonwealth of Massachusetts.
5
<PAGE> 6
If the foregoing accurately sets forth our agreement, kindly indicate
your acceptance hereof by signing and returning the enclosed copy hereof.
Very truly yours,
GW SIERRA TRUST FUNDS
By: /s/ F. Brian Cerini
-----------------------------
President
Accepted:
GREAT WESTERN FINANCIAL ADVISORS CORPORATION
By: /s/
-----------------------------------------
Title: President
6
<PAGE> 1
Exhibit 5(a)-11.1
AMENDMENT OF INVESTMENT ADVISORY AGREEMENT
June 30, 1994
Sierra Investment Advisors Corporation
9301 Corbin Avenue, Suite 333
P.O. Box 1160
Northridge, California 91328-1160
Dear Sirs:
Sierra Trust Funds (the "Company," formerly known as GW Sierra Trust
Funds), an unincorporated business trust organized under the laws of the
Commonwealth of Massachusetts, hereby agrees with Sierra Investment Advisors
Corporation ("Sierra Advisors," formerly known as Great Western Financial
Advisors Corporation), a corporation organized under the laws of the State of
California, to amend as follows the Investment Advisory Agreement (the
"Agreement") by and between the Company and Sierra Advisors dated February 3,
1992 with respect to employing the capital of the Short Term Global Government
Fund (the "Fund," a series investment fund of the Company, formerly known as the
GW Short Term Global Government Fund):
1. Amendment of Investment Advisory Agreement
Section 5 of the Agreement is amended by deleting the first sentence of
Section 5 and adding the following sentence in place of the deleted sentence:
"In consideration of the services rendered pursuant to this Agreement, the
Company will pay Sierra Advisors on the first business day of each month a fee
for the previous month at the annual rate of 0.65% of the Fund's average net
assets up to $500 million and .55% of the Fund's average net assets exceeding
$500 million, out of which fee Sierra Advisors shall pay to the sub-investment
advisor of the Fund (the "Sub-Advisor") the fee required under the Investment
Sub-Advisory Agreement relating to the Fund among the Company, Sierra Advisors
and the Sub-Advisor."
2. Effective Date
This amendment to the Agreement shall be effective as of July 1, 1994.
<PAGE> 2
Sierra Investment Advisors Corporation
June 30, 1994
Page 2
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: President
Accepted:
SIERRA INVESTMENT ADVISORS CORPORATION
By: MICHAEL D. GOTH
-------------------------------------
Name: Michael D. Goth
Title: Chief Operating Officer
<PAGE> 1
Exhibit 5(b)-4.3
INVESTMENT SUB-ADVISORY AGREEMENT
Effective as of October 31, 1996
Van Kampen American Capital Management, Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Dear Sirs:
Sierra Trust Funds (the "Company"), an unincorporated business trust
organized under the laws of the Commonwealth of Massachusetts, and Sierra
Investment Advisors Corporation ("Sierra Advisors"), a corporation organized
under the laws of the state of California, hereby agree with Van Kampen American
Capital Management Inc. (the "Sub-Advisor"), a corporation organized under the
laws of the state of Delaware, as follows:
1. INVESTMENT DESCRIPTION; APPOINTMENT
The Company desires to employ the capital of the Company's investment
funds listed on Annex A hereto (individually, a "Fund" and collectively, the
"Funds") by investing and reinvesting in investments of the kind and in
accordance with the limitations specified in its Master Trust Agreement, as
amended, and in their Prospectus and Statement of Additional Information
relating to the Funds as in effect and which may be amended from time to time,
and in such manner and to such extent as may from time to time be approved by
the Board of Trustees of the Company. Copies of the Funds' Prospectus and
Statement of Additional Information and the Company's Master Trust Agreement, as
amended, have been or will be submitted to the Sub-Advisor. The Company agrees
to provide copies of all amendments to the Funds' Prospectus and Statement of
Additional Information and the Company's Master Trust Agreement to the Sub-
Advisor on an on-going basis. The Company desires to employ and hereby appoints
the Sub-Advisor to act as investment sub-advisor to the Funds. The Sub-Advisor
accepts the appointment and agrees to furnish the services described herein for
the compensation set forth below.
2. SERVICES AS INVESTMENT SUB-ADVISOR
Subject to the supervision of the Board of Trustees of the Company and
of Sierra Advisors, the Funds' investment adviser, the Sub-Advisor will (a) act
in conformity with the Company's Master Trust Agreement, the Investment Company
Act of 1940, the Investment Advisers Act of 1940 and the Internal Revenue Code
of 1986, as the same may from time to time be amended, (b) make investment
decisions for the Funds in accordance with the Funds' investment objectives and
policies as stated in the Funds' Prospectus and Statement of Additional
<PAGE> 2
Information as in effect and, after notice to the Sub-Advisor, and which may be
amended from time to time, (c) place purchase and sale orders on behalf of the
Funds to effectuate the investment decisions made, (d) maintain books and
records with respect to the securities transactions of the Funds and will
furnish the Company's Board of Trustees such periodic, regular and special
reports as the Board may request; and (e) treat confidentially and as
proprietary information of the Company, all records and other information
relative to the Company and prior, present or potential shareholders; and will
not use such records and information for any purpose other than performance of
its responsibilities and duties hereunder, except after prior notification to
and approval in writing by the Company, which approval shall not be unreasonably
withheld and such records may not be withheld where the Sub-Advisor may be
exposed to civil or criminal contempt proceedings for failure to comply, when
requested to divulge such information by duly constituted authorities, or when
so requested by the Company. In providing those services, the Sub-Advisor will
supervise the Funds' investments and conduct a continual program of investment,
evaluation and, if appropriate, sale and reinvestment of the Funds' assets. In
addition, the Sub-Advisor will furnish the Funds or Sierra Advisors with
whatever statistical information the Funds or Sierra Advisors may reasonably
request with respect to the instruments that the Funds may hold or contemplate
purchasing.
3. BROKERAGE
In executing transactions for the Funds and selecting brokers or
dealers, the Sub-Advisor will use its best efforts to seek the best overall
terms available and shall execute or direct the execution of all such
transactions in a manner permitted by law and in a manner that is in the best
interest of the Funds and their shareholders. In assessing the best overall
terms available for any Funds transactions, the Sub-Advisor will consider all
factors it deems relevant including, but not limited to, breadth of the market
in the security, the price of the security, the financial condition and
execution capability of the broker or dealer and the reasonableness of any
commission for the specific transaction and on a continuing basis. Pursuant to
its investment determinations for the Funds, in placing orders with brokers and
dealers, the Sub-Advisor will attempt to obtain the best net price and the most
favorable execution of its orders. Consistent with this obligation, when the
execution and price offered by two or more brokers or dealers are comparable,
the Sub-Advisor may, in its discretion, purchase and sell portfolio securities
to and from brokers and dealers who provide the Company with research advice and
other services.
4. INFORMATION PROVIDED TO THE COMPANY
The Sub-Advisor will keep the Company and Sierra Advisors informed of
developments materially affecting the Funds, and will on its own initiative,
furnish the Company and Sierra Advisors on at least a quarterly basis with
whatever information the Sub-Advisor believes is appropriate for this purpose.
-2-
<PAGE> 3
5. STANDARD OF CARE
The Sub-Advisor shall exercise its best judgment in rendering the
services described in paragraphs 2 and 3 above. The Sub-Advisor shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Funds 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
Investment Company Act of 1940, as amended) 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 (each such breach, act or omission described in (a) or (b) shall be
referred to as "Disqualifying Conduct").
6. COMPENSATION
In consideration of the services rendered pursuant to this Agreement,
Sierra Advisors will pay the Sub-Advisor on the first business day of each month
a fee for the previous month the fees detailed in Annex A attached to this
Agreement. The Sub-Advisor shall have no right to obtain compensation directly
from the Funds or the Company for services provided hereunder and agrees to look
solely to Sierra Advisors for payment of fees due. Upon any termination of this
Agreement before the end of a month, the fee for such part of that month shall
be prorated according to the proportion that 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 the Sub-Advisor, the
value of the Funds' net assets shall be computed at the times and in the manner
specified in the Funds' Prospectus or Statement of Additional Information
relating to the Funds as from time to time in effect.
Should it be determined that the Investment Sub-Advisory Agreements
between the Trust, Advisor and Sub-Advisor for the Funds listed in Annex A, are
terminated as a result of the assignment thereof prior to the effective date of
this Agreement, compensation hereunder shall commence as of the date of such
termination.
7. EXPENSES
The Sub-Advisor will bear all expenses in connection with the
performance of its services under this Agreement, which expenses shall not
include brokerage fees or commissions in connection with the effectuation of
securities transactions. The Company will bear certain other expenses to be
incurred in its operation, including but not limited to: organizational
expenses, taxes, interest, brokerage fees and commissions, if any; fees of
trustees of the Company who are not officers, directors or employees of the
Sub-Advisor, Sierra Advisors, the Funds' sub-administrator or any of their
affiliates; Securities and Exchange Commission fees and state Blue Sky
qualification fees; out-of-pocket expenses of custodians, transfer and dividend
disbursing
-3-
<PAGE> 4
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 Funds and of the
officers or Board of Trustees of the Company; and any extraordinary expenses. In
addition, the Funds pay a distribution fee pursuant to the terms of a
Distribution Plan adopted under Rule 12b-1 of the Investment Company Act of
1940, as amended.
8. SERVICES TO OTHER COMPANIES OR ACCOUNTS
The Company understands that the Sub-Advisor now acts, will continue to
act and may act in the future as investment adviser to fiduciary and other
managed accounts and as investment adviser to one or more other investment
companies or series of investment companies, and the Company has no objection to
the Sub-Advisor so acting, provided that whenever the Funds and one or more
other accounts or investment companies advised by the Sub-Advisor have available
funds for investment, investments suitable and appropriate for each will be
allocated in accordance with procedures believed to be equitable to each entity.
Similarly, opportunities to sell securities will be allocated in an equitable
manner. The Company recognizes that in some cases this procedure may limit the
size of the position that may be acquired or disposed of for the Funds. In
addition, the Company understands that the persons employed by the Sub-Advisor
to assist in the performance of the Sub-Advisor's duties hereunder will not
devote their full time to such service and nothing contained herein shall be
deemed to limit or restrict the right of the Sub-Advisor or any affiliate of
the Sub-Advisor to engage in and devote time and attention to other business or
to render services of whatever kind or nature.
9. TERM OF AGREEMENT
This Agreement shall become effective as of the date first written
above, shall continue for a period of two years thereafter, and shall continue
in effect for a period of more than two years thereafter only so long as such
continuance is specifically approved at least annually by (i) the Board of
Trustees of the Company or (ii) a vote of a "majority" (as defined in the
Investment Company Act of 1940, as amended) of the Funds' outstanding voting
securities, provided that in either event the continuance is also approved by a
majority of the Board of Trustees who are not "interested persons" (as defined
in said Act) of any party to this Agreement, by vote cast in person at a meeting
called for the purpose of voting on such approval. This Agreement is terminable,
without penalty, on 30 days' written notice, by Sierra Advisors, the Board of
Trustees of the Company or by vote of holders of a majority of the Funds'
shares, or upon 90 days' written notice, by the Sub-Advisor and, will terminate
automatically upon any termination of the advisory agreement between the Company
and Sierra Advisors. In addition, this Agreement will also terminate
automatically in the event of its assignment (as defined in said
-4-
<PAGE> 5
Act). The Sub-Advisor agrees to notify the Company of any circumstances that
might result in this Agreement being deemed to be assigned.
10. REPRESENTATIONS OF THE COMPANY AND THE SUB-ADVISOR
The Company represents that (i) a copy of its Master Trust Agreement,
dated February 22, 1989, together with all amendments thereto, is on file in the
office of the Secretary of the Commonwealth of Massachusetts, (ii) the
appointment of the Sub-Advisor has been duly authorized, and (iii) it has acted
and will continue to act in conformity with the Investment Company Act of 1940,
as amended, and other applicable laws.
Sierra Advisors represents that (i) it is authorized to perform the
services herein, (ii) the appointment of the Sub-Advisor has been duly
authorized, and (iii) it will act in conformity with the Investment Company Act
of 1940, as amended, and other applicable laws.
The Sub-Advisor represents that it is authorized to perform the
services described herein.
11. INDEMNIFICATION
Sierra Advisors shall indemnify and hold harmless the Sub-Advisor from
and against any and all claims, losses, liabilities or damages (including
reasonable attorneys' fees and other related expenses), howsoever arising from
or in connection with this Agreement or the performance by the Sub-Advisor of
its duties hereunder; provided, however, that nothing contained herein shall
require that the Sub-Advisor be indemnified for Disqualifying Conduct.
12. AMENDMENT OF THIS AGREEMENT
No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought. No amendment of this Agreement shall be effective with respect to any
Fund until approved by vote of a majority of the outstanding voting securities
of such Fund.
13. LIMITATION OF LIABILITY
This Agreement has been executed on behalf of the Company by the
undersigned officer of the Company in his capacity as an officer of the Company.
The obligations of this Agreement shall be binding upon the assets and property
of the Fund only and not upon the assets and property of any other investment
fund of the Company and shall not be binding upon any Trustee, officer or
shareholder of the Fund and/or the Company individually.
-5-
<PAGE> 6
14. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the parties
hereto.
15. 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
Dated: 02/21/97 By /s/ F. BRIAN CERINI
------------------- --------------------------------------
Name: F. Brian Cerini
Title: Chairman and President
SIERRA INVESTMENT ADVISORS
CORPORATION
Dated: Feb. 21, 1997 By /s/ F. MICHAEL D. GOTH
------------------- --------------------------------------
Name: Michael D. Goth
Title: Chief Operating Officer
Accepted:
VAN KAMPEN AMERICAN CAPITAL MANAGEMENT INC.
By /s/ EDWARD A. TREICHEL Dated: 3/10/97
---------------------------------------- --------------------
Name: Edward A. Treichel
Title: Senior Vice President
-6-
<PAGE> 7
ANNEX A
For the services provided and expenses assumed pursuant to the
Agreement, the Sub-Advisor will be paid a monthly fee, absent fee waivers, based
upon each Fund's average daily net assets as follows:
<TABLE>
<CAPTION>
After After
50; 75; After After
First next next 100; 125; Over
FUND 50* 25 25 next 25 next 25 150
- ---- ----- ----- ----- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
California Municipal Fund(1)......................... .20% .20% .20% .20% .20% .15%
--- --- ---- ---- ---- ----
National Municipal Fund(1)........................... .20% .20% .20% .20% .20% .15%
--- --- ---- ---- ---- ----
Florida Insured Municipal Fund....................... .20% .20% .125% .125% .125% .125%
--- --- ---- ---- ---- ----
California Insured Intermediate
Municipal Fund................................... .20% .20% .125% .125% .125% .125%
--- --- ---- ---- ---- ----
</TABLE>
* Amount of assets in millions of dollars ($Mil.)
(1) 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.
-7-
<PAGE> 1
Exhibit 9(a)-3
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;
(c) "Board of Directors" shall mean the Board of Directors or
Board of Trustees of each Fund, as the case may be;
1
<PAGE> 2
(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.
Article 2 Appointment of FDISG.
2
<PAGE> 3
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 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
<PAGE> 4
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 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.
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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. Nothwithstanding 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.
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.
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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 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.
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<PAGE> 7
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
(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
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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
(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
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<PAGE> 9
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
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.
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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 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
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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 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.
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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
(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 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.
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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
Sierra Asset Management Portfolios (as the case may be)
9301 Corbin Avenue
Northridge, California 91324
Attention: __________________
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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.
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.
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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.
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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: /s/ Keith B. Pipes
--------------------------------------
Keith B. Pipes
Title: Executive Vice President
-----------------------------------
SIERRA PRIME INCOME FUND
By: /s/ Keith B. Pipes
-------------------------------------
Keith B. Pipes
Title: Executive Vice President
-----------------------------------
SIERRA ASSET MANAGEMENT PORTFOLIOS
By: /s/ Keith B. Pipes
--------------------------------------
Keith B. Pipes
Title: Executive Vice President
-----------------------------------
FIRST DATA INVESTOR SERVICES GROUP, INC.
By: /s/ Jerry Kokos
--------------------------------------
Gerald G. Kokos
Title: Executive VP
-----------------------------------
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Exhibit 1
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
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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.
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(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, FDISG shall perform all the customary services of
a transfer agent, registrar, dividend
19
<PAGE> 20
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 accounts, 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.
CATEGORY COMPONENTS (TO BE REPORTED INDIVIDUALLY)
- -------- ----------------------------------------
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%
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
C. Complete within 5 days of receipt
- Maintenance
21
<PAGE> 22
PRINT MAIL *
D. Mailed on day of receipt
- Shareholder Checks
E. Mailed within one day of receipt
- Confirms
F. 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 Profolio 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.
Subsequent Account Sliding Scale:
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
*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
Comodity 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 responsible for the pro rata share of the stated annual
dedicated System Development Team fee.
Incremental systems resources will be billed at a rate of $100.00
per hour
23
<PAGE> 24
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.
<PAGE> 1
Exhibit 9(b)-2
FORM OF
SUB-ADMINISTRATION AGREEMENT
May 1, 1997
First Data Investor Services Group, Inc.
One Exchange Place
53 State Street
Boston, MA 02109
Ladies and Gentlemen:
Sierra Fund Administration Corporation ("Sierra
Administration"), a corporation organized under the laws of the State of
California hereby confirms its agreement with First Data Investor Services
Group, Inc. ("First Data"), a corporation organized under the laws of the
Commonwealth of Massachusetts, regarding sub-administration services to be
provided by First Data in connection with each of the investment funds offered
from time to time by Sierra Trust Funds (individually, a "Fund," and together,
the "Funds"). First Data agrees to provide services upon the following terms and
conditions:
1. Investment Description; Appointment
Sierra Trust Funds, an unincorporated business trust organized under
the laws of the Commonwealth of Massachusetts (the "Trust"), desires to employ
the Trust's capital by investing and reinvesting (a) investments of the kind and
in accordance with the limitations specified in (i) the Trust's Master Trust
Agreement dated February 22, 1989, as amended from time to time (the "Trust
Agreement"), and (ii) the prospectus(es) (the "Prospectus") and Statement of
Additional Information relating to the Funds contained in the Trust'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 Trust's Board of Trustees.
Copies of the Prospectus, the Statement of Additional Information and the Trust
Agreement have been submitted to Sierra Administration and First Data. The Trust
has agreed with Sierra Administration to provide copies of all amendments to the
Prospectus, the Statement of Additional Information and the Trust Agreement to
Sierra Administration and the sub-administrator on an on-going basis. Sierra
Administration as the administrator, desires to employ and hereby appoints First
Data to act as the Funds' sub-administrator. First Data accepts this appointment
and agrees to furnish the services described herein for the compensation set
forth below.
<PAGE> 2
2. Services as Sub-Administrator
Subject to the supervision and direction of Sierra Administration, the
Trust's administrator, First Data will, at the direction of and to the extent
specifically delegated to it from time to time by Sierra Administration, (a)
supply the Trust with office facilities (which may be in First Data'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 value of shares of each Fund, (ii) applicable
sales charges and (iii) distribution fees), internal auditing and legal
services, internal executive and administrative services, and stationery and
office supplies; (b) prepare reports to the Trust's shareholders and materials
for the Board of Trustees of the Trust; (c) prepare tax returns and reports to
and filings with the Securities and Exchange Commission and state regulatory
authorities; and (d) assist in other aspects of the administration of the Trust.
3. Compensation
(a) Sierra Administration will compensate First Data for its
services rendered under this Agreement in accordance with the fees set forth in
Schedule A attached hereto.
(b) The parties hereto will agree upon the compensation for
acting as sub-administrator for any Fund hereafter established and designated,
and at the time that First Data commences serving as such for said Fund, such
agreement shall be reflected in a revised Schedule A hereto, dated and signed by
an officer of each party hereto.
4. Expenses
First Data will bear all expenses in connection with the performance of
its services under this Agreement. The Trust 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 Trust
who are not officers, directors or employees of each Fund's advisor,
sub-advisor, administrator 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 disbursing agents
and First Data and transaction charges of custodians; insurance premiums;
outside auditing and legal expenses; costs of maintenance of the Trust'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 Trust and of the officers or Board of
Trustees of the Trust; and any extraordinary expenses. In addition, each Fund
pays a distribution fee pursuant to the terms of a Distribution Plan adopted
under Rule 12b-1 of the Investment Company Act of 1940, as amended (the "1940
Act").
2
<PAGE> 3
5. Standard of Care
First Data shall exercise its best judgment in rendering the services
listed in Paragraph 2 above. First Data 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 negligence on its part in the
performance of its duties or from reckless disregard by it of its obligations
and duties under this Agreement (each such breach, act or omission described in
(a) or (b) shall be referred to as "Disqualifying Conduct").
6. Term of Agreement
This Agreement shall become effective as of the date of this Agreement,
as indicated 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 Trust or Sierra Administration or upon 90 days' written notice, by First
Data.
7. Service to Other Companies or Accounts
Sierra Administration understands that First Data now acts, will
continue to act and may act in the future as administrator and/or
sub-administrator to other investment companies or series of investment
companies, and the Trust has no objection to First Data's so acting. Sierra
Administration understands that the persons employed by First Data to assist in
the performance of First Data's duties under this Agreement may not devote their
full time to such service and nothing contained in this Agreement shall be
deemed to limit or restrict the right of First Data or any affiliate of First
Data to engage in and devote time and attention to other businesses or to render
services of whatever kind or nature.
8. Representations of the Trust
The Trust has represented to Sierra Administration 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 First Data has been duly
authorized and (iii) it has acted and will continue to act in conformity with
the requirements of the 1940 Act and other applicable laws.
3
<PAGE> 4
9. Indemnification
Sierra Administration shall indemnify and hold harmless First Data from
and against any and all claims, losses, liabilities or damages (including
reasonable attorney's fees and other related expenses), howsoever arising from
or in connection with this Agreement or the performance by First Data of its
duties hereunder; provided, however, that nothing contained herein shall require
that First Data be indemnified for Disqualifying Conduct.
10. Limitation of Liability
This Agreement has been executed on behalf of Sierra Administration by
the undersigned officer of Sierra Administration in his capacity as an officer.
The obligations of this Agreement with respect to each Fund shall be binding
only upon the assets and property of each such Fund and not upon the assets and
property of any other investment fund (i.e., Fund) of the Trust and shall not be
binding upon any Trustee, officer or shareholder of the Trust and/or the Trust
individually.
11. 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 First
Data 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. First Data may, in its sole discretion,
engage subcontractors to perform any of the obligations contained in this
Agreement to be performed by First Data.
12. Entire Agreement
This Agreement constitutes the entire agreement between the parties
hereto.
13. Governing Law
This Agreement shall be governed in accordance with the laws of the
Commonwealth of Massachusetts.
4
<PAGE> 5
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 FUND
ADMINISTRATION CORPORATION
By:
----------------------------------------
Name: Keith B. Pipes
Title: Chief Financial Officer, Treasurer and
Secretary
Accepted:
FIRST DATA INVESTOR SERVICES GROUP, INC.
By:
------------------------------------
Name: Janet Shore
Title: Vice President, Division Manager
5
<PAGE> 6
SCHEDULE A
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
Target Maturity 2002 Fund
FEE SCHEDULE*
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSET GROSS BASIS POINTS MAXIMUM NET BASIS
ASSET INCREMENT LEVEL (INCREMENTAL ASSETS) WAIVER (1) POINTS
----------------- ----- -------------------- ---------- ---------
<S> <C> <C> <C> <C>
$1.6B $1,710,000 $200,000 $1,510,000
Next $1.3B $2.9B 4.52 BP $300,000 3.75 BP
Next $1.7B $4.6B 4.29 BP $400,000 3.70 BP
Next $3.1B $7.7B 3.62 BP $800,000 2.33 BP
</TABLE>
* All fees are per annum.
(1) First Data will participate with Sierra Administration and Sierra
Investment Advisors Corporation ("Sierra Advisors") in waiving fees as
specified below and will reduce the waivers in conjunction with Sierra
Administration and Sierra Advisors reducing their waivers as measured
by the residual revenue to Sierra Administration and Sierra Advisors as
defined below.
6
<PAGE> 7
SCHEDULE A
(CONTINUED)
<TABLE>
<CAPTION>
POST WAIVER
ASSET MEASUREMENT NET
LEVEL POINTS (2) WAIVER
----- ---------- ------
<S> <C> <C>
$1.6B <.20% of ANA* $200,000
>.20% of ANA $100,000
>.25% of ANA $ 0
$2.9B <.20% of ANA $300,000
>.20% of ANA $150,000
>.25% of ANA $ 0
$4.6B <.20% of ANA $400,000
>.20% of ANA $200,000
>.25% of ANA $ 0
$7.7B <.20% of ANA $800,000
>.20% of ANA $400,000
>.25% of ANA $ 0
</TABLE>
(2) Advisory Fee and Administrative Fee, net of amounts paid to
subadvisors, subadministrator and amounts waived to the Fund
* ANA = Average Net Assets
7
<PAGE> 1
EXHIBIT 10(e)
[LETTERHEAD OF MORGAN, LEWIS & BOCKIUS LLP]
June 20, 1997
Sierra Trust Funds
9301 Corbin Avenue
Northridge, California 91324
Re: Registration of Additional Securities for Sierra Trust Funds
(File Nos. 33-27489 and 811-5775)
Ladies and Gentlemen:
Sierra Trust Funds (the "Fund") is a busines trust organized under the laws of
the Commonwealth of Massachusetts with its principal executive offices in
Northridge, California. The Fund is an open-end management investment company
with diversified and nondiversified series registered with the Securities and
Exchange Commission (the "Commission") under the Investment Company Act of
1940, as amended (the "1940 Act"). This opinion relates to the registration of
shares of beneficial interest, without par value, related to the Fund's net
redemptions incurred during the fiscal year ended June 30, 1996 which are now
being registered pursuant to Rule 24e-2 under the 1940 Act.
We have reviewed all proceedings taken by the Fund in connection with the offer
and sale of an unlimited number of the shares of beneficial interest, without
par value, which have been offered under prospectuses included as part of the
Fund's Registration Statement on Form N-1A as amended to the date hereof, which
has been filed with the Commission under the Securities Act of 1933, as amended
and the 1940 Act (collectively, the "Registration Statement").
We are of the opinion that such shares of beneficial interest sold pursuant to
the Registration Statement will be, when issued in return for payment described
in the Fund's prospectuses included as part of the Fund's Registration
Statement, legally issued, fully paid and nonassessable by the Fund.
Very truly yours.
/s/ Morgan, Lewis & Bockius LLP
- ----------------------------------
Morgan, Lewis & Bockius LLP
<PAGE> 1
Exhibit 13(c)
FORM OF
PURCHASE AGREEMENT
Sierra Trust Funds (the "Company"), a Massachusetts Business Trust, and
Shearson Lehman Hutton, Inc. ("Shearson") a Delaware Corporation, hereby agree
as follows:
1. The Company hereby offers Shearson, and Shearson hereby purchases,
one (1) share, without par value, at $_____ per share in the Company's Short
Term Global Government Fund (the "Portfolio"). The share is the "initial share"
of the Portfolio. Shearson hereby acknowledges receipt of a purchase
confirmation reflecting the purchase of one (1) share, and the Company hereby
acknowledges receipt from Shearson of funds in the amount of $______ in full
payment for the share.
2. Shearson represents and warrants to the Company that the share is
being acquired for investment purposes and not for the purpose of distribution.
3. Shearson agrees that if it or any direct or indirect transferee of
the share redeems the share prior to the fifth anniversary of the date the
Company begins its investment activities, Shearson will pay to the Company an
amount equal to the number resulting from multiplying the Company's total
unamortized organizational expenses by a fraction, the numerator of which is
equal to the number of shares redeemed by Shearson or such transferee and the
denominator of which is equal to the number of shares outstanding as of the date
of such redemption, as long as the administrative position of the staff of the
Securities and Exchange Commission requires such reimbursement.
4. 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.
5. This Agreement has been executed on behalf of the Company by the
undersigned officer of the Company in his capacity as an officer of the Company.
The obligations of this Agreement shall be binding only upon the assets and
property of the Portfolios and not upon the assets and property of any other
portfolio of the Company and shall not be binding upon any Trustee, officer or
shareholder of the Portfolio and/or the Company individually.
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the ____ day of _________, 1993.
SIERRA TRUST FUNDS
Attest:
By:
- ---------------------------------- ---------------------------------
(SEAL) SHEARSON LEHMAN HUTTON, INC.
Attest:
By:
- ---------------------------------- ---------------------------------
-2-
<PAGE> 1
Exhibit 16(f)
SIERRA SHORT TERM GLOBAL GOVERNMENT FUND
TOTAL RETURN
For the period ending June 30, 1997
<TABLE>
<CAPTION>
AFTER 3.50%
SALES CHARGE
BASED ON NAV APPLIED
------------ ------------
<S> <C> <C>
From Fund
Inception 2/11/92
to 6/30/97 6.22% 5.52%
</TABLE>
NOTE: All returns for periods beyond 12 months have been annualized.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 011
<NAME> SIERRA TRUST GLOBAL MONEY CL-A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 190,219,001
<INVESTMENTS-AT-VALUE> 190,219,001
<RECEIVABLES> 2,694,405
<ASSETS-OTHER> 6,013
<OTHER-ITEMS-ASSETS> 109,268
<TOTAL-ASSETS> 193,028,687
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,501,118
<TOTAL-LIABILITIES> 1,501,118
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 104,650,207
<SHARES-COMMON-STOCK> 104,654,469
<SHARES-COMMON-PRIOR> 153,677,036
<ACCUMULATED-NII-CURRENT> 368
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 20,439
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 104,301,904
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 9,691,001
<OTHER-INCOME> 0
<EXPENSES-NET> 1,332,276
<NET-INVESTMENT-INCOME> 8,358,725
<REALIZED-GAINS-CURRENT> 28,755
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 8,387,480
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (6,014,055)
<DISTRIBUTIONS-OF-GAINS> (6,663)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 432,669,575
<NUMBER-OF-SHARES-REDEEMED> (487,335,380)
<SHARES-REINVESTED> 5,643,238
<NET-CHANGE-IN-ASSETS> 16,471,185
<ACCUMULATED-NII-PRIOR> 8,033
<ACCUMULATED-GAINS-PRIOR> 969
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 701,336
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,033,516
<AVERAGE-NET-ASSETS> 125,822,670
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
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<NAME> SIERRA TRUST GLOBAL MONEY CL-B
<S> <C>
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<NUMBER> 013
<NAME> SIERRA TRUST GLOBAL MONEY CL-S
<S> <C>
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<TABLE> <S> <C>
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<NUMBER> 014
<NAME> SIERRA TRUST GLOBAL MONEY CL-I
<S> <C>
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<TABLE> <S> <C>
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<NUMBER> 021
<NAME> SIERRA TRUST US GOVT MONEY CL-A
<S> <C>
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<TABLE> <S> <C>
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<NAME> SIERRA TRUST US GOVT MONEY CL-B
<S> <C>
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<TABLE> <S> <C>
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<NAME> SIERRA TRUST US GOVT MONEY CL-S
<S> <C>
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<NAME> SIERRA TRUST US GOVT MONEY CL-I
<S> <C>
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<TABLE> <S> <C>
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<NUMBER> 031
<NAME> SIERRA TRUST CALIFORNIA MONEY CL-A
<S> <C>
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<TABLE> <S> <C>
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<NAME> SIERRA TRUST CALIFORNIA MONEY CL-B
<S> <C>
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<NAME> SIERRA TRUST CALIFORNIA MONEY CL-I
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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-I
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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 SHORT TERM GLOB CL-I
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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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<NAME> SIERRA TRUST US GOVT CL-S
<S> <C>
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<NAME> SIERRA TRUST US GOVT CL-I
<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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<NAME> SIERRA TRUST CALIFORNIA MUNI CL-A
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<NAME> SIERRA TRUST CALIFORNIA MUNI CL-B
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<NAME> SIERRA TRUST FLORIDA INSURED MUNI CL-A
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<NAME> SIERRA TRUST GROWTH & INCOME CL-A
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<TABLE> <S> <C>
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<SERIES>
<NUMBER> 062
<NAME> SIERRA TRUST GROWTH & INCOME CL-B
<S> <C>
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</TABLE>
<TABLE> <S> <C>
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<SERIES>
<NUMBER> 063
<NAME> SIERRA TRUST GROWTH & INCOME CL-S
<S> <C>
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<TABLE> <S> <C>
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<SERIES>
<NUMBER> 064
<NAME> SIERRA TRUST GROWTH & INCOME CL-I
<S> <C>
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<TABLE> <S> <C>
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<SERIES>
<NUMBER> 121
<NAME> SIERRA TRUST GROWTH CL-A
<S> <C>
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<TABLE> <S> <C>
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<NUMBER> 122
<NAME> SIERRA TRUST GROWTH CL-B
<S> <C>
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<NAME> SIERRA TRUST GROWTH CL-S
<S> <C>
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<NAME> SIERRA TRUST GROWTH CL-I
<S> <C>
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<NAME> SIERRA TRUST EMERGING GROWTH CL-A
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<NAME> SIERRA TRUST EMERGING GROWTH CL-B
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<NAME> SIERRA TRUST EMERGING GROWTH CL-S
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<NAME> SIERRA TRUST EMERGING GROWTH CL-I
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<NAME> SIERRA TRUST INT'L GROWTH CL-A
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<NAME> SIERRA TRUST INT'L GROWTH CL-B
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<NAME> SIERRA TRUST INT'L GROWTH CL-S
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<NAME> SIERRA TRUST INT'L GROWTH CL-I
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<NAME> SIERRA TRUST TARGET MATURITY 2002 CL-A
<S> <C>
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<NET-CHANGE-FROM-OPS> 206,314
<EQUALIZATION> 0
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<DISTRIBUTIONS-OF-GAINS> (14,491)
<DISTRIBUTIONS-OTHER> 0
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<NUMBER-OF-SHARES-REDEEMED> (67,265)
<SHARES-REINVESTED> 20,369
<NET-CHANGE-IN-ASSETS> (308,834)
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<PER-SHARE-NII> 0.62
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<PER-SHARE-DIVIDEND> (0.71)
<PER-SHARE-DISTRIBUTIONS> (0.05)
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<PER-SHARE-NAV-END> 10.69
<EXPENSE-RATIO> 0.72
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
