<PAGE>
As filed with the Securities and Exchange Commission on January 31, 1996
Registration No. 33-67148; 811-7948
-----------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [_]
Post-Effective Amendment No. 9 [x]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [_]
Amendment No. 12 [x]
(Check appropriate box or boxes)
________________________________
THE GRIFFIN FUNDS, INC.
(Exact Name of Registrant as specified in Charter)
5000 Rivergrade Road
Irwindale, California 91706
(Address of Principal Executive Offices, including Zip Code)
________________________________
Registrant's Telephone Number, including Area Code: (800) 333-4437
William A. Hawkins
5000 Rivergrade Road
Irwindale, California 91706
(Name and Address of Agent for Service)
With a copy to:
Robert M. Kurucza, Esq.
Morrison & Foerster LLP
2000 Pennsylvania Ave., N.W., Suite 5500
Washington, D.C. 20006
It is proposed that this filing will become effective (check appropriate box):
<TABLE>
<S> <C> <C> <C>
[x] Immediately upon filing pursuant to Rule 485(b), or [_] on ___________ pursuant to Rule 485(b), or
[_] 60 days after filing pursuant to Rule 485(a), or [_] on ___________ pursuant to Rule 485(a)(1)
[_] 75 days after filing pursuant to paragraph (a)(2) [_] on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[_] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
</TABLE>
No filing fee is required under the Securities Act of 1933 because an indefinite
number of shares of the Registrant's Common Stock, par value $.001 per share,
has previously been registered pursuant to Rule 24f-2 under the Investment
Company Act of 1940, as amended. The Registrant filed on October 26, 1995 the
notice required by Rule 24f-2 for its fiscal year ended September 30, 1995.
<PAGE>
Cross Reference Sheet
---------------------
The Griffin Funds, Inc.
-----------------------
<TABLE>
<CAPTION>
Form N-1A Item Number
- ---------------------
Part A Prospectus Captions
------ -------------------
<S> <C>
1 Cover Page
2 Key Fund Facts; Fund Expenses;
The Funds In Detail
3 Financial Highlights; Performance
4 Key Fund Facts; Investment Policies and
Procedures; The Funds in Detail
5 Key Fund Facts; Investment Policies and
Procedures; The Funds in Detail
5A Not Applicable
6 Your Fund Account
7 Key Fund Facts; Your Fund Account; Fund
Account Policies
8 Key Fund Facts; Your Fund Account; Fund
Account Policies
9 Not Applicable
Part B Statement of Additional Information
------ -----------------------------------
10 Cover Page
11 Table of Contents
12 Not Applicable
13 Investment Limitations
14 Directors and Officers; Management
Contracts
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form N-1A Item Number
- ---------------------
Part A Prospectus Captions
------ -------------------
<S> <C>
15 Miscellaneous
16 Service Providers; Management
Contracts
17 Portfolio Transactions
18 Description of the Company; Investment Limitations
19 Valuation of Portfolio Securities; Additional Purchase and
Redemption Information
20 Distributions and Taxes
21 Distribution and Service Plans
22 Performance
23 Independent Auditor and Reports
Part C Other Information
------ -----------------
24-32 Information required to be included in Part C is set forth
under the appropriate Item, so numbered, in Part C of This
Document
</TABLE>
2
<PAGE>
The Registrant is filing this Post-Effective Amendment solely for the
purpose of updating the financial information contained in the Registration
Statement of The Griffin Funds, Inc. and making certain other non-material
changes.
3
<PAGE>
-----------------------------
Prospectus January 31, 1996
-----------------------------
- ---------------------------
THE GRIFFIN FUNDS This prospectus sets forth concisely the informa-
- --------------------------- tion about the nine funds (each a "Fund", collec-
Money Market Fund tively the "Funds") currently offered by The Grif-
- --------------------------- fin Funds, Inc. ("The Griffin Funds") that a pro-
Tax-Free Money Market Fund spective investor ought to know before investing in
- --------------------------- the Funds. The Short-Term Bond Fund, U.S. Govern-
Short-Term Bond Fund ment Income Fund, Municipal Bond Fund, California
- --------------------------- Tax-Free Fund, Bond Fund, Growth & Income Fund and
U.S. Government Income Fund Growth Fund (collectively, the "Non-Money Market
- --------------------------- Funds") offer two classes of shares--Class A Shares
Municipal Bond Fund and Class B Shares. The Money Market Fund and Tax-
- --------------------------- Free Money Market Fund (collectively, the "Money
California Tax-Free Fund Market Funds") offer only one class of shares.
- --------------------------- INVESTMENTS IN THE MONEY MARKET FUNDS ARE NEITHER
Bond Fund INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT.
- --------------------------- THERE CAN BE NO ASSURANCE THAT EITHER OF THE MONEY
Growth & Income Fund MARKET FUNDS WILL BE ABLE TO MAINTAIN A STABLE NET
- --------------------------- ASSET VALUE OF $1.00 PER SHARE. PLEASE READ THIS
Growth Fund PROSPECTUS CAREFULLY BEFORE INVESTING AND KEEP IT
- --------------------------- FOR FUTURE REFERENCE.
A Statement of Additional Information dated
January 31, 1996 ("SAI") regarding the Funds has been filed with the Securities
and Exchange Commission ("SEC") and is incorporated herein by reference. The SAI
is available free upon request by calling The Griffin Funds at 1-800-676-4450.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR ISSUED,
ENDORSED OR GUARANTEED BY, HOME SAVINGS OF AMERICA, FSB ("HOME SAVINGS"), SAV-
INGS OF AMERICA OR ANY OF THEIR AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE
U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. AN INVESTMENT IN ANY OF THE
FUNDS INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
GRIFFIN FINANCIAL INVESTMENT ADVISERS ("GRIFFIN ADVISERS") IS THE INVESTMENT
ADVISER AND, TOGETHER WITH ITS AFFILIATES, PROVIDES CERTAIN OTHER SERVICES TO
THE FUNDS, FOR WHICH THEY ARE COMPENSATED. GRIFFIN FINANCIAL SERVICES ("GRIF-
FIN FINANCIAL") IS THE SPONSOR AND DISTRIBUTOR FOR THE FUNDS. GRIFFIN ADVISERS
AND GRIFFIN FINANCIAL ARE BOTH AFFILIATED WITH HOME SAVINGS AND SAVINGS OF
AMERICA.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE AC-
CURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
<TABLE>
<S> <C>
Key Fund Facts
THE FUNDS IN BRIEF 3
WHO MAY WANT TO INVEST 6
Fund Expenses
FUND EXPENSES 9
Financial Highlights
FINANCIAL HIGHLIGHTS 16
Investment Policies and Procedures
INVESTMENT POLICIES AND PROCEDURES 20
Your Fund Account
TYPES OF ACCOUNTS 29
Different ways to set up an account.
HOW TO PURCHASE SHARES 30
Opening an account and making additional Fund purchases.
HOW TO REDEEM SHARES 32
Redeeming shares and closing your account.
SHAREHOLDER SERVICES 35
DIVIDENDS, CAPITAL GAINS AND TAXES 38
Fund Account Policies
TRANSACTION POLICIES 39
Share price calculations and purchase and redemption policies.
SALES LOAD REDUCTIONS AND WAIVERS 42
CONTINGENT DEFERRED SALES CHARGE 44
The Funds in Detail
STRUCTURE 46
How the Funds are structured.
SERVICE PROVIDERS 46
SUMMARY OF FUND EXPENSES 48
Fund operating costs and how they are calculated.
PERFORMANCE 50
DESCRIPTION OF INVESTMENTS 52
INVESTMENT LIMITATIONS 67
</TABLE>
2
<PAGE>
Key Fund Facts
THE FUNDS IN BRIEF
INVESTMENT OBJECTIVES AND POLICIES: The Money Market Fund, an open-end, diver-
sified management investment company, seeks to provide investors with as high
a level of current income as is consistent with the preservation of principal
and liquidity.
The Tax-Free Money Market Fund, an open-end, diversified management invest-
ment company, seeks to provide investors with as high a level of current in-
come, exempt from federal income taxes, as is consistent with a portfolio of
high quality short-term municipal obligations selected on the basis of liquid-
ity and stability of capital. As a matter of fundamental policy, under normal
market conditions, the Tax-Free Money Market Fund will invest its assets so
that at least 80% of its income distributions are exempt from federal income
tax and the federal alternative minimum tax.
The Money Market Funds may purchase only high-quality securities that Grif-
fin Advisers believes present minimal risks. To be considered high quality, a
security generally must be rated in accordance with applicable rules in one of
the two highest categories for short-term securities by at least two nation-
ally recognized rating services (or by one, if only one rating service has
rated the security) or, if unrated, be judged to be of equivalent quality by
Griffin Advisers.
The Money Market Fund and Tax-Free Money Market Fund must limit their in-
vestments to securities with remaining maturities of 397 days or less and must
maintain a dollar-weighted average maturity of 90 days or less. As with any
mutual fund, there is no assurance that the Money Market Funds will achieve
their respective goals. The ability of the Money Market Funds to achieve a
high level of income is circumscribed by their investment exclusively in high
quality, short-term instruments.
The Short-Term Bond Fund, an open-end, diversified management investment
company, seeks to provide investors with the highest level of current income
consistent with minimal fluctuation of principal value and liquidity. Under
normal market conditions, at least 65% of the Short-Term Bond Fund's total as-
sets will be invested in bonds. The Fund's dollar-weighted average effective
maturity will not exceed three years. The Fund also may invest in other types
of securities, including bank obligations, mortgage-backed securities, collat-
eralized mortgage obligations ("CMOs"), foreign securities, futures and op-
tions.
The U.S. Government Income Fund, an open-end, diversified management invest-
ment company, seeks to provide investors with current income, while preserving
capital. Under normal market conditions, at least 65% of the U.S. Government
Income Fund's total assets are invested in U.S. Government Obligations. De-
pending on market conditions, this Fund may invest in U.S. Government Obliga-
tions of varying maturities, which may range up to 40 years.
The Municipal Bond Fund, an open-end, diversified management investment com-
pany, seeks to provide investors with a high level of income exempt from fed-
eral income taxes, while preserving capital. It invests primarily in interme-
diate to long-term investment grade municipal securities. As a matter of fun-
damental policy, under normal market conditions, at least 80% of the Municipal
Bond Fund's total assets will consist of securities the
3
<PAGE>
interest on which is exempt from federal income taxes and which is not subject
to the federal alternative minimum tax.
The California Tax-Free Fund, an open-end, non-diversified management in-
vestment company, seeks to provide investors with a high level of income ex-
empt from federal income taxes and California personal income taxes, while
preserving capital. It invests primarily in intermediate to long-term, invest-
ment grade California municipal securities. As a matter of fundamental policy,
under normal market conditions, at least 80% of the California Tax-Free Fund's
total assets are invested in municipal securities that pay interest which is
exempt from federal income taxes and which is not subject to the federal al-
ternative minimum tax. In addition, under normal market conditions, at least
65% of the California Tax-Free Fund's total assets are invested in municipal
securities that pay interest which is exempt from California personal income
taxes.
Because the California Tax-Free Fund "concentrates," i.e., invests at least
25% of its total assets, in securities issued by or on behalf of the State of
California, its cities, municipalities and other public authorities, the Fund
is particularly dependent on, and may be adversely affected by, general eco-
nomic conditions in California. See "Special Factors Affecting the California
Tax-Free Fund" in the SAI. From time to time the California Tax-Free Fund also
may concentrate its investments in municipal securities that are related in a
way that economic, business or political developments or changes affecting one
such security would also affect the other securities, for example, municipal
securities the interest on which is paid from revenues on similar projects.
See "Special Factors Affecting the California Tax-Free Fund" in the SAI.
The Bond Fund, an open-end, diversified management investment company, seeks
to provide investors with as high a level of current income as is consistent
with prudent investment management, preservation of capital and liquidity. It
invests in a variety of debt securities. Under normal market conditions, at
least 65% of this Fund's total assets are invested in bonds, as contrasted
with debt instruments with shorter initial maturities.
The Growth & Income Fund, an open-end, diversified management investment
company, seeks to provide investors with capital growth and current income.
The Growth & Income Fund seeks to achieve its objective by investing primarily
in common stocks that offer potential for capital growth, current income or
both. Under normal market conditions, at least 65% of the Growth & Income
Fund's total assets is invested in such common stocks. The Fund may also pur-
chase corporate bonds, notes and debentures, preferred stocks or convertible
securities (both debt securities and preferred stocks) or U.S. Government se-
curities, if Griffin Advisers determines that their purchase would help fur-
ther the Fund's investment objective.
The Growth Fund, an open-end, diversified management investment company,
seeks to provide investors with long-term growth of capital. Under normal mar-
ket conditions, at least 65% of the Growth Fund's total assets will be in-
vested in the common stock of mid-cap companies considered to have above-aver-
age growth potential. A mid-cap company is defined as one whose market capi-
talization, at the time of purchase, falls within the capital-
4
<PAGE>
ization range of companies included in the S&P 400 Mid-Cap Index. The Fund
also may invest in foreign securities, convertible securities and warrants, if
Griffin Advisers determines that their purchase would be consistent with the
Fund's investment objective and program.
For more detailed information about the portfolio practices of the Funds,
see "Investment Policies and Procedures" and "The Funds in Detail--Description
of Investments" and "--Investment Limitations."
An investment in a Fund is not insured against loss of principal. When
prices of the securities that a Fund owns decline, so does the value of that
Fund's shares. Therefore, investors should be prepared to accept some risk
with the money they invest in a Fund. The Growth & Income Fund's and Growth
Fund's portfolios are subject to credit and interest rate risks as well as eq-
uity market risk (i.e., the possibility that common stock prices will fluctu-
ate or decline over short or even extended periods). As with any mutual fund,
there can be no assurance that a Fund will achieve its investment objective.
MANAGEMENT: Subject to the general supervision of the Board of Directors of
The Griffin Funds and in accordance with each Fund's investment policies,
Griffin Advisers, as adviser, Payden & Rygel Investment Counsel ("Payden &
Rygel"), as sub-adviser to the Money Market Fund, the Tax-Free Money Market
Fund, the U.S. Government Income Fund, the Municipal Bond Fund and the Cali-
fornia Tax-Free Fund, T. Rowe Price Associates, Inc. ("T. Rowe Price"), as
sub-adviser to the Short-Term Bond Fund and Growth Fund, and The Boston Com-
pany Asset Management, Inc. ("TBCAM"), as sub-adviser to the Bond Fund and
Growth & Income Fund, manage investments for the Funds. Griffin Advisers, a
subsidiary of Griffin Financial Services of America, which is a subsidiary of
H.F. Ahmanson & Company, a savings and loan holding company, and an affiliate
of Home Savings and Savings of America, is located at 5000 Rivergrade Road,
Irwindale, CA 91706. Griffin Advisers, a California corporation, was organized
on July 22, 1993.
Payden & Rygel, which is located at 333 South Grand Avenue, 32nd Floor, Los
Angeles, California 90071, was established in 1983 and as of December 31, 1995
managed assets of approximately $20 billion.
T. Rowe Price, which is located at 100 East Pratt Street, Baltimore, Mary-
land 21202, was established in 1937 and, together with its affiliates, managed
assets of approximately $70 billion as of December 31, 1995.
TBCAM, which is located at One Boston Place, Boston, Massachusetts 02108,
was established in 1970 and as of December 31, 1995 managed assets of approxi-
mately $14 billion.
SPONSOR AND DISTRIBUTOR: Griffin Financial, a registered broker-dealer, is the
sponsor and distributor of the Funds. In this capacity, Griffin Financial has
the exclusive right to distribute shares of the Funds. Griffin Financial is a
subsidiary of Griffin Financial Services of America, which is a subsidiary of
H.F. Ahmanson & Company and an affiliate of Griffin Advisers, Home Savings and
Savings of America.
5
<PAGE>
ADMINISTRATOR: Griffin Financial Administrators ("Griffin Administrators")
serves as the administrator of the Funds and provides various administrative
and accounting services to the Funds. Investors Fiduciary Trust Company
("IFTC") provides certain sub-administrative services to the Funds.
HOW TO PURCHASE AND REDEEM SHARES: For a description of how to purchase and
redeem shares, see "Your Fund Account--How to Purchase Shares," and "--How to
Redeem Shares" in this prospectus.
Customers of Griffin Financial may invest in the Money Market Funds or Class
A Shares of the Non-Money Market Funds through a Griffin Financial Services
Portfolio Builder Account ("Builder Account"). Investments through a Builder
Account are governed by the terms and conditions of the Builder Account, which
are set forth in a separate Portfolio Builder Account Client Agreement pro-
vided by Griffin Financial to each Builder Account holder. In light of the
discretionary asset allocation structure of investments through the Builder
Account, certain of the features described in this Prospectus are not avail-
able to investors purchasing shares of the Funds through a Builder Account.
Specifically, shares of a Fund purchased through a Builder Account may be re-
deemed only through the Builder Account, and the dividend and distribution op-
tions and exchange privileges described in this Prospectus are not available
with respect to shares purchased through a Builder Account. Potential Builder
Account holders should refer to the Client Agreement for more information re-
garding the Builder Account, including information about fees and expenses.
WHO MAY WANT TO INVEST
The Money Market Fund is designed as a convenient vehicle for those invest-
ors seeking to obtain the yields available from money market instruments while
maintaining liquidity. The Money Market Fund makes it possible for investors
to participate in a more diversified portfolio of money market instruments
than the amount of their investments might otherwise permit.
The Tax-Free Money Market Fund offers investors a convenient way to invest
in a professionally managed portfolio of short-term municipal obligations. In-
vestments in the Tax-Free Money Market Fund earn federally tax-exempt income
while remaining liquid and diversified.
Each Money Market Fund's ability to achieve its respective investment objec-
tives depends on the successful implementation of its investment strategies.
The Money Market Funds' policies are intended to help maintain a stable $1.00
share price; however, the value of the instruments which the Money Market
Funds may purchase can change under certain circumstances, such as when inter-
est rates or issuers' creditworthiness change, or if an issuer or guarantor of
a security fails to pay interest or principal when due. If these changes in
value are material, a Money Market Fund's share price could deviate (posi-
6
<PAGE>
tively or negatively) from $1.00. Securities with longer maturities generally
are more susceptible to price changes, although they may provide higher
yields.
The Short-Term Bond Fund is designed for investors who are seeking higher
income than money market funds or similar investment vehicles provide and who
can accept moderate share-price fluctuations. The Short-Term Bond Fund should
provide higher yields than are usually available from money market funds hav-
ing more stable prices.
The U.S. Government Income Fund is designed for investors seeking income and
preservation of capital rather than capital growth. The U.S. Government Income
Fund should provide higher yields than are usually available from shorter-term
investments having more stable prices.
The Municipal Bond Fund is designed for investors who are interested in re-
ducing the effect of federal income taxes on their investment income. Such in-
vestors may find that the Municipal Bond Fund produces higher after-tax re-
turns than comparable taxable investments.
The California Tax-Free Fund is designed for investors seeking income free
from federal and California state personal income taxes.
The Bond Fund is designed as an investment vehicle for the long-term invest-
or. The Bond Fund seeks current income and does not seek the higher returns
that lower-quality investments may provide. The Bond Fund, which focuses on
longer-term bonds, is exposed to a higher level of interest rate risk than
other funds that invest in shorter-term securities.
The Bond Fund's investments may be affected by changes in the credit stand-
ing of the issuers of its portfolio securities, and may decline in value if
such an issuer's creditworthiness deteriorates. The Bond Fund invests primar-
ily in investment grade securities. Investment grade securities are securities
that are rated in the top four rating categories by one of the nationally rec-
ognized rating services, and unrated securities determined by Griffin Advisers
to be of equivalent quality. Securities rated in the lowest investment grade
category (for example, those rated Baa by Moody's Investors Service, Inc.
("Moody's") or BBB by Standard & Poor's Corporation ("S&P")) possess specula-
tive characteristics and are more likely to be affected by economic changes
and changes in the financial conditions of issuers. Generally, investment
grade debt securities involve less credit risk and lower yields than lower-
rated debt securities.
The Bond Fund is intended to provide higher yields than money market funds
and many other fixed-price investments, but will not provide the same stabil-
ity of principal as money market funds. The Bond Fund is designed for invest-
ors who are seeking higher yields than those available from short-term invest-
ment and who can tolerate a higher level of share price fluctuation.
The Growth & Income Fund is designed for investors seeking a diversified
portfolio offering the opportunity for capital growth while also providing
current income.
The Growth Fund is designed for investors seeking a diversified portfolio
offering the opportunity for capital growth. Investments in mid-cap growth
companies should offer
7
<PAGE>
greater potential for capital appreciation than investments in larger-capital-
ization companies. However, investments in mid-cap growth companies generally
entail greater risk and volatility than investing in larger, more established
companies.
None of the Funds on an individual basis constitutes a complete investment
plan. Each Non-Money Market Fund's share price, yield and total return will
fluctuate, and when you redeem your shares your investment may be worth more or
less than your original cost. The equity securities held by the Growth & Income
Fund and the Growth Fund are subject to equity market risk (i.e., the possibil-
ity that common stock prices will decline over short or even extended periods).
The value of debt securities held by the Non-Money Market Funds will tend to
decrease when interest rates rise, and increase when interest rates fall.
Shorter-term obligations generally offer greater stability. Longer-term bonds
are more sensitive to interest rate changes but generally offer higher yields.
In addition, debt securities that are not backed by the United States Govern-
ment are subject to credit risk, which is the risk that the issuer may not be
able to pay principal and/or interest when due.
When considering investing in a Fund, you should consider both the antici-
pated level of income and the potential for share price volatility, as these
two factors determine the total return of the Funds.
An additional risk in investing in the Short-Term Bond Fund or the Growth
Fund is that these Funds have no operating history. An additional risk of in-
vesting in any of the Funds is the fact that Griffin Advisers has no previous
experience in advising a mutual fund, although the Funds' sub-advisers have had
prior advisory experience. See "The Funds In Detail--Service Providers."
8
<PAGE>
Fund Expenses
MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
Shareholder Transaction Expenses
<TABLE>
- -------------------------------------------------------------------
<CAPTION>
Tax-Free
Money Money
Market Market
Fund Fund
- -------------------------------------------------------------------
<S> <C> <C>
Maximum sales load imposed on purchases None None
Maximum sales load imposed on reinvested dividends None None
Deferred sales load None None
Redemption fees None None
Exchange fees None None
- -------------------------------------------------------------------
Annual Fund Operating Expenses
(as a percentage of average net assets)
- -------------------------------------------------------------------
<CAPTION>
Tax-Free
Money Money
Market Market
Fund Fund
- -------------------------------------------------------------------
<S> <C> <C>
Management fees (after waivers)* 0.00% 0.00%
12b-1 fees 0.20% 0.20%
Other expenses (after waivers and reimbursements)* 0.40% 0.40%
Total Fund operating expenses (after waivers and
reimbursements)* 0.60% 0.60%
- -------------------------------------------------------------------
</TABLE>
*Griffin Advisers and Griffin Administrators each has agreed to waive or reim-
burse all or a portion of its respective fees in circumstances in which any
Fund's expenses that are subject to limitations imposed under state securities
laws and regulations exceed such limitations. See "Management Contracts" in the
SAI with respect to state law limitations on expenses. In addition, Griffin Ad-
visers and Griffin Administrators currently intend to voluntarily waive a por-
tion of their respective fees and reimburse the Funds for certain expenses. The
percentages shown above under "Management fees (after waivers)," "Other ex-
penses (after waivers and reimbursements)" and "Total Fund operating expenses
(after waivers and reimbursements)" are based on amounts incurred during the
most recent fiscal year, restated to reflect voluntary fee waivers and expense
reimbursements that are expected to continue during the current fiscal year.
Absent such voluntary waivers and reimbursements, these percentages are ex-
pected to be 0.50%, 0.37% and 1.07%, respectively, for the Money Market Fund
and 0.50%, 1.02% and 1.72%, respectively, for the Tax-Free Money Market Fund.
There can be no assurance that the foregoing voluntary fee waivers and expense
reimbursements will continue.
9
<PAGE>
NON-MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
Shareholder Transaction Expenses for Class A Shares
<TABLE>
- ----------------------------------------------------------------------------------
<CAPTION>
U.S.
Short- Govern-
Term Ment Municipal California Growth
Bond Income Bond Tax-Free Bond & Income Growth
Fund Fund Fund Fund Fund Fund Fund
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Maximum sales load
imposed on purchases: 3.50% 4.50% 4.50% 4.50% 4.50% 4.50% 4.50%
Maximum sales load
imposed on reinvested
dividends: None None None None None None None
Deferred sales load:* None None None None None None None
Redemption fees: None None None None None None None
Exchange fees: None None None None None None None
- ----------------------------------------------------------------------------------
Annual Fund Operating Expenses For Class A Shares
(as a percentage of average net assets)
- ----------------------------------------------------------------------------------
<CAPTION>
U.S.
Short- Govern-
Term Ment Municipal California Growth
Bond Income Bond Tax-Free Bond & Income Growth
Fund Fund Fund Fund Fund Fund Fund
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Management fees (after
waivers)** 0.00% 0.00% 0.00% 0.00% 0.00% 0.10% 0.00%
12b-1 fees (including
service fees)*** 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Other expenses (after
waivers and
reimbursements)** 0.25% 0.35% 0.25% 0.25% 0.35% 0.45% 0.45%
Total Fund operating
expenses (after
waivers and
reimbursements)** 0.50% 0.60% 0.50% 0.50% 0.60% 0.80% 0.70%
- ----------------------------------------------------------------------------------
</TABLE>
*A contingent deferred sales charge of 1.00% is imposed on redemptions re-
quested within one year of purchases of $1,000,000 or more.
**Griffin Advisers and Griffin Administrators each has agreed to waive or reim-
burse all or a portion of its respective fees in circumstances in which any
Fund's expenses that are subject to limitations imposed under state securities
laws and regulations exceed such limitations. See "Management Contracts" in the
SAI with respect to state law limitations on expenses. In addition, Griffin Ad-
visers and Griffin Administrators currently intend to voluntarily waive a por-
tion of their respective fees and reimburse the Funds for certain expenses. The
percentages shown above under "Management fees (after waivers)," "Other ex-
penses (after waivers and reimbursements)" and "Total Fund operating expenses
(after waivers and reimbursements)" are based on amounts incurred during the
most recent fiscal year, restated to reflect voluntary fee waivers and expense
reimbursements that are expected to continue during the current fiscal year.
Absent such voluntary waivers and reimbursements these percentages are expected
to be 0.50%, 1.02% and 1.77%, respectively, for the Short-Term Bond Fund;
0.50%, 0.56% and 1.31%, respectively, for the U.S. Government Income Fund;
0.50%, 1.23% and 1.98%, respectively, for the Municipal Bond Fund; 0.50%, 0.59%
and 1.34%, respectively, for the California Tax-Free Fund; 0.50%, 0.79% and
1.54%, respectively, for the Bond Fund; 0.60%, 0.50% and 1.35%, respectively,
for the Growth & Income Fund; and 0.60%, 0.91% and 1.76%, respectively, for the
Growth Fund. There can be no assurance that the foregoing voluntary fee waivers
and expense reimbursements will continue.
***See "Summary of Fund Expenses--Distribution and Service Fees." Long-term
holders of Class A Shares could pay more in distribution-related charges than
the economic equivalent of the maximum front-end sales charge applicable to mu-
tual funds sold by members of the National Association of Securities Dealers,
Inc.
10
<PAGE>
- --------------------------------------------------------------------------------
Shareholder Transaction Expenses for Class B Shares
<TABLE>
- -----------------------------------------------------------------------------------
<CAPTION>
U.S.
Short- Govern-
Term Ment Municipal California Growth
Bond Income Bond Tax-Free Bond & Income Growth
Fund Fund Fund Fund Fund Fund Fund
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Maximum sales load
imposed on purchases: None None None None None None None
Maximum sales load
imposed on reinvested
dividends: None None None None None None None
Deferred sales load* (as
a percentage of the
lesser of net asset
value at purchase or
net asset value at
redemption):
Redemption during year
1: 4.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00%
Redemption during year
2: 3.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00%
Redemption during year
3: 2.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00%
Redemption during year
4: 1.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00%
Redemption during year
5: 0.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00%
Redemption during year
6: 0.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
Redemption after year 6: 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Redemption Fees: None None None None None None None
Exchange Fees: None None None None None None None
- -----------------------------------------------------------------------------------
</TABLE>
*See "Contingent Deferred Sales Charge."
11
<PAGE>
- --------------------------------------------------------------------------------
Annual Fund Operating Expenses for Class B Shares
(as a percentage of average net assets)
<TABLE>
- --------------------------------------------------------------------------------
<CAPTION>
U.S.
Short- Govern-
Term Ment Municipal California Growth
Bond Income Bond Tax-Free Bond & Income Growth
Fund Fund Fund Fund Fund Fund Fund
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Management fees
(after waivers)* 0.00% 0.00% 0.00% 0.00% 0.00% 0.10% 0.00%
12b-1 fees (including
service fees)** 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
Other expenses
(after waivers and
reimbursements)* 0.25% 0.35% 0.25% 0.25% 0.35% 0.45% 0.45%
Total Fund operating
expenses (after
waivers and
reimbursements)* 1.25% 1.35% 1.25% 1.25% 1.35% 1.55% 1.45%
- --------------------------------------------------------------------------------
</TABLE>
*Griffin Advisers and Griffin Administrators each has agreed to waive or reim-
burse all or a portion of its respective fees in circumstances in which any
Fund's expenses that are subject to limitations imposed under state securities
laws and regulations exceed such limitations. See "Management Contracts" in the
SAI with respect to state law limitations on expenses. In addition, Griffin Ad-
visers and Griffin Administrators currently intend to voluntarily waive a por-
tion of their respective fees and reimburse the Funds for certain expenses. The
percentages shown above under "Management fees (after waivers)," "Other ex-
penses (after waivers and reimbursements)" and "Total Fund operating expenses
(after waivers and reimbursements)" are based on amounts incurred during the
most recent fiscal year, restated to reflect voluntary fee waivers and expense
reimbursements that are expected to continue during the current fiscal year.
Absent such voluntary waivers and reimbursements these percentages are expected
to be 0.50%, 1.02% and 2.52%, respectively, for the Short-Term Bond Fund;
0.50%, 0.56% and 2.06%, respectively, for the U.S. Government Income Fund;
0.50%, 1.23% and 2.73%, respectively, for the Municipal Bond Fund; 0.50%, 0.59%
and 2.09%, respectively, for the California Tax-Free Fund; 0.50%, 0.79% and
2.29%, respectively, for the Bond Fund; 0.60%, 0.50% and 2.10%, respectively,
for the Growth & Income Fund; and 0.60%, 0.91% and 2.51%, respectively, for the
Growth Fund. There can be no assurance that the foregoing voluntary fee waivers
and expense reimbursements will continue.
**See "Summary of Fund Expenses--Distribution and Service Fees." Long-term
holders of Class B Shares could pay more in distribution-related charges than
the economic equivalent of the maximum front-end sales charge applicable to mu-
tual funds sold by members of the National Association of Securities Dealers,
Inc.
12
<PAGE>
EXAMPLE: Assume hypothetically that each Fund's annual return is 5% and that
its operating expenses are as described in the above table for the periods
shown below. For every $1,000 you invested, the following shows the amounts you
would have paid in total expenses (including sales charge) after the number of
years indicated:
<TABLE>
- -----------------------------------------------------
<CAPTION>
After After After After
One Three Five Ten
Year Years Years Years
- -----------------------------------------------------
<S> <C> <C> <C> <C>
Money-Market $ 6 $19 $34 $ 75
Tax-Free Money Market $ 6 $19 $34 $ 75
Short-Term Bond Fund
Class A (1) $40 $51 $62 $ 96
Class B (2)
Assuming no redemption $13 $40 $69 $112
Assuming full redemption (3) $53 $60 $69 $112
U.S. Government Income Fund
Class A (4) $51 $63 $77 $117
Class B (2)
Assuming no redemption $14 $43 $74 $123
Assuming full redemption (3) $64 $73 $94 $123
Municipal Bond Fund
Class A (4) $50 $60 $72 $105
Class B (2)
Assuming no redemption $13 $40 $69 $112
Assuming full redemption (3) $63 $70 $89 $112
California Tax-Free Fund
Class A (4) $50 $60 $72 $105
Class B (2)
Assuming no redemption $13 $40 $69 $112
Assuming full redemption (3) $63 $70 $89 $112
- -----------------------------------------------------
</TABLE>
(1) Assumes deduction at the time of purchase of the maximum 3.50% initial
sales charge.
(2) Ten year figures assume conversion of Class B Shares to Class A Shares at
end of sixth year.
(3) Assumes deduction at the time of redemption of the maximum applicable
contingent deferred sales charge.
(4) Assumes deduction at the time of purchase of the maximum 4.50% initial
sales charge.
13
<PAGE>
<TABLE>
- -----------------------------------------------------
<CAPTION>
After After After After
One Three Five Ten
Year Years Years Years
- -----------------------------------------------------
<S> <C> <C> <C> <C>
Bond Fund
Class A (4) $ 51 $63 $ 77 $117
Class B (2)
Assuming no redemption $ 14 $43 $ 74 $123
Assuming full redemption (3) $ 64 $73 $ 94 $123
Growth & Income Fund
Class A (4) $ 53 $69 $ 88 $140
Class B (2)
Assuming no redemption $ 16 $49 $ 85 $147
Assuming full redemption (3) $ 66 $79 $105 $147
Growth Fund
Class A (4) $ 52 $66 $ 82 $128
Class B (2)
Assuming no redemption $ 15 $46 $ 80 $135
Assuming full redemption (3) $ 65 $76 $100 $135
- -----------------------------------------------------
</TABLE>
(1) Assumes deduction at the time of purchase of the maximum 3.50% initial
sales charge.
(2) Ten year figures assume conversion of Class B Shares to Class A Shares at
end of sixth year.
(3) Assumes deduction at the time of redemption of the maximum applicable
contingent deferred sales charge.
(4) Assumes deduction at the time of purchase of the maximum 4.50% initial
sales charge.
THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES; ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
The foregoing sets forth the basis on which payments are made. Operation of
the Funds involves a variety of expenses for shareholder statements, tax re-
porting, legal, accounting and other services. These costs are paid out of each
Fund's assets.
14
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
15
<PAGE>
Financial Highlights
The following financial information relating to the Funds has been derived
from the financial statements of The Griffin Funds. The financial statements
of The Griffin Funds for the periods presented have been audited by KPMG Peat
Marwick LLP, the independent auditor to The Griffin Funds.
- -------------------------------------------------------------------------------
Financial Highlights
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Tax-Free
Money Market Money Market
=================== ===================
Year Period Year Period
Ended Ended Ended Ended
9/30/95 9/30/94(A) 9/30/95 9/30/94(A)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value--beginning of period $1.00 $1.00 $1.00 $1.00
------- ------- ------ -------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS:
Net investment income 0.05 0.03 0.03 0.02
Net realized and unrealized gain
(loss) on investments 0.00 0.00 0.00 0.00
------- ------- ------ -------
Total from investment operations 0.05 0.03 0.03 0.02
------- ------- ------ -------
LESS DISTRIBUTIONS:
Dividends from net investment income (0.05) (0.03) (0.03) (0.02)
Distributions from net realized gain
(loss) 0.00 0.00 0.00 0.00
------- ------- ------ -------
Total distributions (0.05) (0.03) (0.03) (0.02)
------- ------- ------ -------
Net increase (decrease) in net asset
value 0.00 0.00 0.00 0.00
------- ------- ------ -------
Net asset value--end of period $1.00 $1.00 $1.00 $1.00
======= ======= ====== =======
Total return (not annualized)(d) 5.52% 3.36% 3.44% 2.22%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $79,964 $49,988 $8,621 $10,633
Ratios to average net assets
(annualized):
Ratio of expenses to average net
assets (i) 0.42% 0.15% 0.44% 0.17%
Ratio of net investment income to
average net assets (ii) 5.40% 4.25% 3.39% 2.56%
(i) Ratio of expenses to average net
assets prior to waivers and
reimbursements (g) 1.29% 1.64% 1.90% 2.28%
(ii) Ratio of net investment income
to average net assets prior to
waivers and reimbursements (g) 4.53% 2.76% 1.92% 0.45%
Portfolio Turnover Rate N/A N/A N/A N/A
- -------------------------------------------------------------------------------
</TABLE>
(a)The fund commenced operations on October 19, 1993.
(b)The fund commenced operations on June 12, 1995.
(c)Class B shares were not offered until November 1, 1994.
(d) Total return represents aggregate total return for the period indicated
and does not reflect the deduction of any applicable sales charge.
(e) The fund was managed by Piper Capital Management, Inc. until December 1,
1994 when The Boston Company Asset Management, Inc. assumed management
responsibilities.
(f) The fund was managed by Piper Capital Management, Inc. until December 1,
1994 when Payden & Rygel Investment Counsel assumed management
responsibilities.
(g) Ratio reflects fees reduced in connection with Custodial Earnings Credits
only for periods ended September 30, 1995.
16
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
- ------------------------------------------------------------------------------------------
<CAPTION>
Short-Term
Bond U.S. Government Income Bond
====================== =============================== ===================================
Class A Class B Class A Class B Class A Class B
- ---------- ---------- ------------------- ---------- --------------------- -------------
Period Period Year Period Period Year Period Period
Ended Ended Ended Ended Ended Ended Ended Ended
9/30/95(B) 9/30/95(B) 9/30/95 9/30/94(A) 9/30/95(C) 9/30/95(E) 9/30/94(A) 9/30/95(C)(E)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$10.00 $10.00 $8.77 $9.50 $8.67 $8.47 $9.50 $8.36
------ ------ ------- ------- ------ ------- ------ ------
0.18 0.20 0.63 0.56 0.52 0.58 0.52 0.49
0.05 0.05 0.47 (0.73) 0.58 0.52 (1.03) 0.62
------ ------ ------- ------- ------ ------- ------ ------
0.23 0.25 1.10 (0.17) 1.10 1.10 (0.51) 1.11
------ ------ ------- ------- ------ ------- ------ ------
(0.18) (0.20) (0.63) (0.56) (0.52) (0.58) (0.52) (0.49)
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
------ ------ ------- ------- ------ ------- ------ ------
(0.18) (0.20) (0.63) (0.56) (0.52) (0.58) (0.52) (0.49)
------ ------ ------- ------- ------ ------- ------ ------
0.05 0.05 0.47 (0.73) 0.58 0.52 (1.03) 0.62
------ ------ ------- ------- ------ ------- ------ ------
$10.05 $10.05 $9.24 $8.77 $9.25 $8.99 $8.47 $8.98
====== ====== ======= ======= ====== ======= ====== ======
2.32% 2.51% 13.00% (1.83)% 13.08% 13.53% (5.49)% 13.58%
$3,582 $13 $29,308 $19,158 $1,564 $12,022 $7,539 $150
0.00% 0.00% 0.21% 0.09% 0.79% 0.21% 0.09% 0.78%
5.91% 5.54% 6.93% 6.24% 5.71% 6.69% 6.29% 5.56%
2.76% 3.33% 1.63% 1.83% 3.19% 2.20% 2.55% 4.00%
3.15% 2.21% 5.51% 4.49% 3.31% 4.70% 3.83% 2.34%
1.05% 1.05% 46.96% 28.20% 46.96% 327.31% 26.14% 327.31%
- ------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (cont.)
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Municipal Bond
===================================
Class A Class B
--------------------- -------------
Year Period Period
Ended Ended Ended
9/30/95(F) 9/30/94(A) 9/30/95(C)(F)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value--beginning of period $8.60 $9.50 $8.31
------ ------ -----
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.47 0.42 0.38
Net realized and unrealized gain (loss)
on investments 0.38 (0.90) 0.67
------ ------ -----
Total from investment operations 0.85 (0.48) 1.05
------ ------ -----
LESS DISTRIBUTIONS:
Dividends from net investment income (0.47) (0.42) (0.38)
Distributions from net realized gain
(loss) 0.00 0.00 0.00
------ ------ -----
Total distributions (0.47) (0.42) (0.38)
------ ------ -----
Net increase (decrease) in net asset value 0.38 (0.90) 0.67
------ ------ -----
Net asset value--end of period $8.98 $8.60 $8.98
====== ====== =====
Total return (not annualized)(d) 10.18% (5.15)% 12.86%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $5,512 $2,610 $56
Ratios to average net assets
(annualized):
Ratio of expenses to average net assets
(i) 0.40% 0.25% 0.90%
Ratio of net investment income to average
net assets (ii) 5.26% 5.03% 4.26%
(i) Ratio of expenses to average net
assets prior to waivers and
reimbursements (g) 3.30% 3.99% 5.56%
(ii) Ratio of net investment income to
average net assets prior to waivers
and reimbursements (g) 2.36% 1.29% (0.40)%
Portfolio Turnover Rate 81.90% 81.42% 81.90%
- -------------------------------------------------------------------------------
</TABLE>
(Footnotes to "Financial Highlights" appear on page 16)
18
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
- -----------------------------------------------------------------------------------------
<CAPTION>
California Tax-Free Growth & Income Growth
=============================== =================================== =====================
Class A Class B Class A Class B Class A Class B
- ------------------- ---------- --------------------- ------------- ---------- ----------
Year Period Period Year Period Period Period Period
Ended Ended Ended Ended Ended Ended Ended Ended
9/30/95 9/30/94(A) 9/30/95(C) 9/30/95(E) 9/30/94(A) 9/30/95(C)(E) 9/30/95(B) 9/30/95(B)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$7.59 $8.50 $7.35 $11.14 $11.00 $11.30 $10.00 $10.00
- ------- ------- ----- ------- ------- ------ ------ ------
0.41 0.36 0.34 0.27 0.23 0.23 0.03 0.03
0.33 (0.91) 0.57 3.22 0.13 3.05 1.63 1.62
- ------- ------- ----- ------- ------- ------ ------ ------
0.74 (0.55) 0.91 3.49 0.36 3.28 1.66 1.65
- ------- ------- ----- ------- ------- ------ ------ ------
(0.41) (0.36) (0.34) (0.27) (0.22) (0.23) 0.00 0.00
0.00 0.00 0.00 (0.06) 0.00 (0.06) 0.00 0.00
- ------- ------- ----- ------- ------- ------ ------ ------
(0.41) (0.36) (0.34) (0.33) (0.22) (0.29) 0.00 0.00
- ------- ------- ----- ------- ------- ------ ------ ------
0.33 (0.91) 0.57 3.16 0.14 2.99 1.66 1.65
- ------- ------- ----- ------- ------- ------ ------ ------
$7.92 $7.59 $7.92 $14.30 $11.14 $14.29 $11.66 $11.65
======= ======= ===== ======= ======= ====== ====== ======
10.13% (6.56)% 12.60% 31.93% 3.29% 29.53% 16.60% 16.50%
$19,292 $13,815 $966 $38,483 $14,174 $2,887 $4,187 $149
0.32% 0.25% 0.84% 0.43% 0.25% 1.01% 0.00% 0.00%
5.36% 4.70% 4.47% 2.30% 2.81% 1.64% 1.20% 1.07%
1.65% 2.01% 2.97% 1.80% 2.17% 2.92% 3.46% 3.85%
4.03% 2.94% 2.35% 0.93% 0.89% (0.27)% (2.26)% (2.78)%
86.69% 73.88% 86.69% 92.01% 13.90% 92.01% 0.06% 0.06%
- -----------------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
Investment Policies and Procedures
The MONEY MARKET FUND invests in high quality U.S. dollar-denominated money
market instruments, including (i) bank obligations, consisting of certificates
of deposit and bankers' acceptances of U.S. and foreign banks; (ii) commercial
paper; (iii) U.S. Government obligations; and (iv) other debt obligations, con-
sisting of municipal obligations, corporate bonds, asset-backed securities and
securities issued by special purpose entities. The Money Market Fund also may
engage in repurchase and reverse repurchase transactions. In addition, the Fund
may buy or sell securities on a when-issued or delayed-delivery basis and may
purchase restricted and illiquid instruments.
The Fund will concentrate (i.e. invest more than 25% of its total assets) in
the financial services industry. Because the Fund concentrates its investments
in the financial services industry, its performance may be affected by condi-
tions affecting banks and other financial services companies. See "The Funds in
Detail--Investment Limitations."
The TAX-FREE MONEY MARKET FUND invests in high quality, short-term municipal
obligations selected on the basis of liquidity and stability of principal.
These include municipal obligations issued by states or their counties, munici-
palities, authorities or other political subdivisions, and municipal obliga-
tions issued by territories or possessions of the U.S. such as Puerto Rico.
As a matter of fundamental policy, under normal market conditions, the Fund
will invest its assets so that at least 80% of its income distributions are ex-
empt from federal income tax and the federal alternative minimum tax.
The Tax-Free Money Market Fund invests in high quality, short-term municipal
securities but it may also invest in high quality, long-term fixed, variable or
floating rate municipal instruments (including tender option bonds) and munici-
pal instruments with demand features and standby commitments whose features
give them interest rates, maturities and prices similar to short-term instru-
ments. See "Additional Securities and Investment Practices Shared by Certain
Funds--Variable or Floating Rate Demand Obligations," and "Additional Securi-
ties and Investment Practices of the Tax-Free Money Market Fund Only--Standby
Commitments" in the SAI. Generally, the Fund's investments in municipal securi-
ties will consist of tax, revenue or bond anticipation notes; tax-exempt com-
mercial paper, general obligation or revenue bonds (including municipal lease
obligations and resource recovery bonds); and zero coupon bonds. The Fund may
buy or sell securities on a when-issued or delayed-delivery basis, and may pur-
chase restricted securities and illiquid instruments.
The Tax-Free Money Market Fund may temporarily change its investment focus
for defensive purposes. During periods when, in Griffin Advisers' opinion, a
temporary defensive posture in the market is appropriate, the Fund may hold
cash that is not earning interest or invest in obligations whose interest may
be federally taxable. Under such circumstances, the Fund may temporarily invest
so that less than 80% of its income distributions are federally tax-free. Fed-
erally taxable obligations consist of obligations issued by the U.S. Government
or any of its agencies or instrumentalities, high-quality commercial paper,
certificates of deposit and repurchase agreements.
20
<PAGE>
Pursuant to procedures adopted by the Board of Directors, the Money Market
Funds may purchase only high-quality securities that Griffin Advisers believes
present minimal credit risks. To be considered high quality, a security must be
rated in accordance with applicable rules in one of the two highest categories
for short-term securities by at least two nationally recognized rating services
(or by one, if only one rating service has rated the security) or, if unrated,
must be judged to be of equivalent quality by Griffin Advisers. For more infor-
mation concerning the instruments in which the Money Market Funds may invest,
see "The Funds in Detail--Description of Investments."
The SHORT-TERM BOND FUND invests primarily in short- and intermediate-term
corporate and government bonds and mortgage-related debt securities. Under nor-
mal market conditions, the Short-Term Bond Fund will invest at least 65% of its
total assets in bonds. The Short-Term Bond Fund utilizes a systematic invest-
ment approach and will maintain an average dollar-weighted effective maturity
of three years or less. The Short-Term Bond Fund will not purchase any security
whose effective maturity, average life or tender date measured from the date of
settlement exceeds seven years. Securities purchased by the Fund will be rated
investment grade by a nationally recognized statistical rating organization or,
if unrated, will be of equivalent quality as determined by Griffin Advisers.
Securities with the lowest investment grade rating (e.g., rated BBB by Standard
& Poor's Corporation or Baa by Moody's Investors Service, Inc.) have specula-
tive characteristics and changes in economic conditions are more likely to lead
to a weakened capacity to make principal and interest payments than is the case
with higher grade debt obligations.
In addition to debt securities issued by corporate and government issuers,
the Short-Term Bond Fund may invest in a variety of mortgage-backed securities,
including securities issued by the Government National Mortgage Association
("GNMA"), the Federal Home Loan Mortgage Corporation ("FHLMC") and the Federal
National Mortgage Association ("FNMA"). In addition, the Short-Term Bond Fund
may invest in bank obligations, CMOs, and dollar-denominated foreign securi-
ties. The Short-Term Bond Fund may purchase securities on a when-issued or de-
layed delivery basis and may purchase restricted and illiquid securities. Fur-
thermore, the Short-Term Bond Fund may engage in repurchase and reverse repur-
chase transactions, may loan its portfolio securities and may purchase securi-
ties issued by other investment companies, consistent with the Short-Term Bond
Fund's investment objectives and policies.
The annual portfolio turnover rate is not a factor in the management of the
Short-Term Bond Fund; however, it is not expected to exceed 100% in any year.
The U.S. GOVERNMENT INCOME FUND invests primarily in a portfolio consisting
of intermediate and long-term U.S. Government Obligations, including U.S. Trea-
sury bonds, notes and bills and other bonds and obligations issued or guaran-
teed by the U.S. Government, government-sponsored enterprises or federal agen-
cies such as the Government National Mortgage Association ("GNMA"), the Federal
Home Loan Mortgage Corporation ("FHLMC") and the Federal National Mortgage As-
sociation ("FNMA"). Under normal market conditions, at least 65% of the value
of the U.S. Government Income Fund's total assets will be invested in U.S. Gov-
ernment Obligations. U.S. Government Obligations have
21
<PAGE>
a low default risk because they are issued or guaranteed as to principal and
interest by the U.S. Government, its agencies or instrumentalities, and rela-
tively low purchase and sale transaction costs. With respect to U.S. Government
Obligations supported only by the credit of the issuing agency, there is no
guarantee that the U.S. Government will provide support to such agencies.
The U.S. Government Income Fund may temporarily invest some of its assets in
cash reserves or certain high-quality, money market instruments or may engage
in other investment activities. Such temporary investments would more likely be
made by Griffin Advisers when there is an unexpected or abnormal level of in-
vestor purchases or redemptions of U.S. Government Income Fund shares or be-
cause of unusual market conditions. Permitted investments and investment activ-
ities consist of variable or floating rate or inverse floating rate instru-
ments, asset backed securities, mortgage backed securities and custodial re-
ceipts, zero coupon bonds, STRIPS, certificates of deposit, commercial paper,
repurchase agreements, dollar-denominated foreign securities and loans of port-
folio securities. The U.S. Government Income Fund may buy and sell securities
on a when-issued or delayed delivery basis and may purchase restricted and il-
liquid securities. The U.S. Government Income Fund also may buy and sell op-
tions and futures contracts to generate income for the Fund and for hedging
purposes. Sales of options contracts will be limited to covered options. See
"Investment Limitations" in the SAI.
The U.S. Government Income Fund may invest in obligations of any maturity.
The annual portfolio turnover rate generally is not a factor in the management
of the U.S. Government Income Fund; however, it is not expected to exceed 300%.
A high portfolio turnover rate should not result in the U.S. Government Income
Fund paying substantially more in brokerage commissions since most transactions
in U.S. Government securities are effected on a principal basis; such securi-
ties, however, are subject to a mark-up.
The MUNICIPAL BOND FUND invests primarily in intermediate to long-term in-
vestment grade municipal securities that are rated at the date of purchase in
the top four rating groups by one of the nationally recognized statistical rat-
ing organizations, such as obligations rated AAA/Aaa, AA/Aa, A/A and BBB/Baa by
S&P or Moody's, respectively. The Municipal Bond Fund also may invest in
unrated municipal securities that are determined by Griffin Advisers to be of
comparable quality. Under normal market conditions, at least 65% of the Munici-
pal Bond Fund's total assets are invested in investment grade municipal securi-
ties. Securities with the lowest investment grade rating have speculative char-
acteristics 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 debt obligations.
These rating limitations apply at the time of acquisition of a security based
on the last previous determination of NAV. Any subsequent change in any rating
by a rating service will not require elimination of any security from the port-
folio of the Fund.
As a matter of fundamental policy, at least 80% of the Municipal Bond Fund's
total assets are invested (under normal market conditions) in municipal securi-
ties that pay interest which is exempt from federal income taxes and which is
not subject to the federal
22
<PAGE>
alternative minimum tax. Griffin Advisers will, under normal market condi-
tions, invest substantially all of the Municipal Bond Fund's assets in the
following types of municipal securities: fixed, variable or floating rate gen-
eral obligation and revenue bonds (including municipal lease obligations and
resource recovery bonds); zero coupon and asset-backed securities; tax, reve-
nue or bond anticipation notes; and tax-exempt commercial paper. The Municipal
Bond Fund has no restriction on portfolio maturity, but the dollar-weighted
average of the portfolio is expected to be greater than 15 years. The Munici-
pal Bond Fund may buy or sell securities on a when-issued or delayed delivery
basis, and may purchase restricted and illiquid securities. The Municipal Bond
Fund may also buy and sell options and futures contracts. See "Investment Lim-
itations" in the SAI.
The Municipal Bond Fund may temporarily invest some of its assets in cash
reserves or certain high-quality, taxable money market instruments, or may en-
gage in other investment activities. Permitted taxable investments and invest-
ment activities consist of U.S. Government Obligations, STRIPS, certificates
of deposit, commercial paper, taxable municipal securities, repurchase agree-
ments and loans of portfolio securities. Such temporary investments would most
likely be made by Griffin Advisers when there is an unexpected or abnormal
level of investor purchases or redemptions of Municipal Bond Fund shares or
because of unusual market conditions. The income from these temporary invest-
ments and investment activities would be subject to federal income taxes.
The Municipal Bond Fund may invest any portion of its assets in industrial
revenue bonds ("IRBs") backed by private issuers, and may invest up to 25% of
its total assets in IRBs related to a single industry. The Municipal Bond Fund
may also invest 25% or more of its total assets in municipal securities whose
revenue sources are from similar types of projects, e.g., education, electric
utilities, healthcare, housing, transportation, or water, sewer and gas utili-
ties. There may be economic, business or political developments or changes
that affect all securities of a similar type. Therefore, developments affect-
ing a single issuer, industry or type of project could have a significant ef-
fect on the Municipal Bond Fund's performance.
The annual portfolio turnover rate is not a factor in the management of the
Municipal Bond Fund; however, it is not expected to exceed 300% in any year. A
high portfolio turnover rate should not result in the Municipal Bond Fund's
paying substantially more brokerage commissions, since most transactions in
municipal securities are effected on a principal basis; such securities, how-
ever, are subject to a mark-up.
The CALIFORNIA TAX-FREE FUND invests primarily in intermediate to long-term,
investment grade California municipal securities that are rated at the date of
purchase in the top four rating categories by a nationally recognized statis-
tical rating organization, such as obligations rated AAA/Aaa, AA/Aa, A/A and
BBB/Baa by S&P or Moody's respectively. The California Tax-Free Fund also may
invest in unrated municipal securities that are determined by Griffin Advisers
to be of comparable quality. Securities with the lowest investment grade rat-
ing 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 debt obli-
gations.
23
<PAGE>
As a matter of fundamental policy, at least 80% of the California Tax-Free
Fund's total assets are invested (under normal market conditions) in municipal
securities that pay interest which is exempt from federal income taxes and
which is not subject to the federal alternative minimum tax. In addition, under
normal market conditions, at least 65% of the California Tax-Free Fund's total
assets are invested in municipal securities that pay interest which is exempt
from California personal income taxes. The California Tax-Free Fund may invest
25% or more of its assets in California municipal securities that are related
in such a way that an economic, business or political development or change af-
fecting one such security would also affect the other securities, for example,
municipal securities the interest on which is paid from revenues of similar
projects. See "Investment Limitations--Special Factors Affecting the California
Tax-Free Fund" in the SAI.
Because the California Tax-Free Fund invests primarily in securities issued
by entities located within the State, the Fund is more susceptible to changes
in value due to political or economic changes affecting the State of California
or its subdivisions. For additional information, see "Investment Limitations--
Special Factors Affecting the California Tax-Free Fund."
Griffin Advisers will, under normal market conditions, invest substantially
all of the California Tax-Free Fund's assets in the following types of munici-
pal securities: fixed, variable or floating rate general obligation and revenue
bonds (including municipal lease obligations and resource recovery bonds); zero
coupon and asset-backed securities; tax, revenue or bond anticipation notes;
and tax-exempt commercial paper issued by or on behalf of the State of Califor-
nia, its cities, municipalities, political subdivisions and other public au-
thorities. The California Tax-Free Fund may buy or sell securities on a when-
issued or delayed delivery basis, and may purchase restricted and illiquid se-
curities. The California Tax-Free Fund may also buy and sell options and
futures contracts.
The California Tax-Free Fund may temporarily invest some of its assets in
cash reserves or certain high-quality, taxable money market instruments, or may
engage in other investment activities. Permitted taxable investments and in-
vestment activities consist of U.S. Government Obligations, certificates of de-
posit, STRIPS, commercial paper, taxable municipal securities, repurchase
agreements, interest rate swaps, interest rate caps and floors, and loans of
portfolio securities. Such temporary investments would most likely be made when
there is an unexpected or abnormal level of investor purchases or redemptions
of California Tax-Free Fund shares or because of unusual market conditions. The
income from these temporary investments and investment activities would be sub-
ject to federal income taxes and California personal income taxes.
The California Tax-Free Fund is classified as a non-diversified company under
the Investment Company Act of 1940 and as such is not limited in the proportion
of its assets that it may invest in the obligations of a single issuer. Howev-
er, the Fund intends to conduct its operations to qualify as a "regulated in-
vestment company" under Subchapter M of the Internal Revenue Code. In order to
qualify, among other requirements, the Fund will limit its investments so that
(i) not more than 25% of the market value of the Fund's total assets will be
invested in the securities of a single issuer within a single State, and
24
<PAGE>
(ii) with respect to 50% of the market value of its total assets, not more than
5% of the value of its total assets will be invested in the securities of a
single issuer within a single State, and (iii) the Fund will not own more than
10% of the outstanding voting securities of a single issuer (since the securi-
ties ordinarily purchased by the Fund are nonvoting securities, there is typi-
cally no limit on the percentage of an issuer's obligations that the Fund may
own).
The annual portfolio turnover rate is not a factor in the management of the
California Tax-Free Fund; however, it is not expected to exceed 300% in any
year. A high portfolio turnover rate should not result in the California Tax-
Free Fund paying substantially more brokerage commissions, since most transac-
tions in municipal securities are effected on a principal basis; such securi-
ties, however, are subject to a mark-up.
The BOND FUND invests in corporate debt securities which are debt obligations
of all types issued by U.S. or foreign corporations, banks or other business
organizations. These consist of bonds, notes, commercial paper, certificates of
deposit, convertible bonds, asset-backed securities, zero coupon bonds and
other types of fixed-income instruments with fixed or floating interest rates.
Non-corporate debt instruments are issued by U.S. or foreign governments or
government agencies, and include U.S. Government Obligations, mortgage-backed
securities, including collateralized mortgage obligations, and money market in-
struments such as repurchase agreements. The Bond Fund may also buy and sell
options and futures contracts.
Under normal market conditions, at least 65% of the Bond Fund's total assets
will be invested in bonds, and at least 65% of its total assets will be in-
vested in debt securities that are rated in the top four rating categories by a
nationally recognized statistical rating organization or are unrated but are
determined by Griffin Advisers to be of comparable quality. Securities with the
lowest investment grade rating have speculative characteristics and changes in
economic conditions or other circumstances are more likely to lead to a weak-
ened capacity to make principal and interest payments than is the case with
higher grade debt obligations. The Bond Fund does not currently intend to pur-
chase debt securities below investment grade quality. The Bond Fund may pur-
chase instruments issued or guaranteed by foreign governments or governmental
entities of any credit quality. In general, investment grade debt securities
involve less credit risk and lower yields than lower-rated debt securities.
The Bond Fund has no specific limitations on the maturity of its investments,
but generally expects to focus on longer-term bonds. The Bond Fund may make
substantial temporary investments in short-term securities and money market in-
struments for defensive purposes when, in Griffin Advisers' judgment, market
conditions warrant.
In managing the Bond Fund's investments, Griffin Advisers takes into account
a variety of factors, including the outlook for interest rates, credit condi-
tions and relative yields and returns for various types of fixed-income instru-
ments. The Bond Fund is not limited to U.S. securities, and may invest with a
global perspective if Griffin Advisers believes foreign securities offer at-
tractive returns. The Fund may invest up to 25% of its total assets in dollar-
denominated securities of foreign issuers located in developed and developing
25
<PAGE>
countries. Investments in foreign securities involve certain risks that are not
typically associated with investments in domestic securities. See "The Funds in
Detail--Description of Investments--Foreign Securities. " Griffin Advisers has
broad flexibility to vary the Bond Fund's exposure to securities with different
maturities, yields, credit quality and other characteristics based on its judg-
ment on how to best seek the Bond Fund's objective. The Bond Fund may also con-
sider the potential for capital appreciation when selecting investments. To
manage its investment exposure, the Bond Fund may invest in options, futures
contracts and other investments linked to security prices, interest rates or
other financial indicators. See "The Funds in Detail--Description of Invest-
ments--Futures Contracts and Related Options." More detailed information about
these securities is contained in the SAI. These contracts will be used only as
a hedge against interest rate and securities price changes. Some of the Bond
Fund's investments may have returns linked to commodity prices, which may help
manage the impact of inflation on the Fund's portfolio. For information on the
securities mentioned above and other investments the Fund may make, including
STRIPS, when-issued securities or delayed delivery transactions, illiquid in-
vestments, restricted securities and securities loans, see "The Funds in De-
tail--Description of Investments" and the SAI.
The annual portfolio turnover rate generally is not a factor in the manage-
ment of the Bond Fund; however, it is not expected to exceed 300%. A high port-
folio turnover rate should not result in higher brokerage costs for the Bond
Fund, since most transactions in debt securities are effected on a principal
basis; such securities, however, are subject to a mark-up.
The GROWTH & INCOME FUND invests primarily in common stocks that offer the
potential for capital growth, current income or both. Under normal market con-
ditions, at least 65% of the Fund's total assets is invested in common stocks.
Emphasis is placed on common stocks which are trading at low valuation levels
relative to their fundamentals such as price-to-current earnings either rela-
tive to the market or to the security's historic price-to-earnings relation-
ship, in common stocks which are trading at low prices in relation to their
prospects for long term growth in dividends and earnings, and in common stocks
of issuers that have historically paid above-average or growing dividends. The
Growth & Income Fund invests in common stocks so as to diversify its invest-
ments among companies and prevent concentration among industries.
The Growth & Income Fund also may purchase corporate bonds, notes and deben-
tures, asset backed securities, preferred stocks, convertible securities (both
debt securities and preferred stocks) and U.S. Government securities if Griffin
Advisers determines that their purchase would help achieve the Growth & Income
Fund's investment objective. The Growth & Income Fund may invest up to 25% of
its assets in corporate bonds and notes of investment grade quality (i.e. that
are rated in one of the top four rating categories by a nationally recognized
statistical rating organization or, if unrated, are determined by Griffin Ad-
visers to be of equivalent quality). Securities with the lowest investment
grade rating have speculative characteristics and changes in economic condi-
tions or other circumstances are more likely to lead to a weakened capacity to
make principal and interest
26
<PAGE>
payments than is the case with higher grade debt obligations. The Growth & In-
come Fund also may hold a portion of its assets in cash and money market in-
struments.
The Growth & Income Fund may engage in repurchase and reverse repurchase
transactions. In addition, the Growth & Income Fund may purchase futures con-
tracts and options on futures contracts, and may purchase or write options on
securities. The Growth & Income Fund may invest in dollar-denominated foreign
securities, although it does intend to invest more than 10% of its total assets
in such securities. For more information regarding the Growth & Income Fund's
permissible investments, see "The Fund in Detail--Description of Investments."
At times, Griffin Advisers may judge that conditions in the securities mar-
kets make pursuing the Growth & Income Fund's basic investment strategy incon-
sistent with the best interests of the Growth & Income Fund's shareholders. At
such times, Griffin Advisers may temporarily use alternative strategies, pri-
marily designed to reduce fluctuations in the value of the Growth & Income
Fund's assets.
In implementing these "defensive" strategies, the Growth & Income Fund may
invest without limit in high quality debt securities or preferred stocks, or
invest in other securities that Griffin Advisers considers consistent with such
defensive strategies. When the Growth & Income Fund is in a temporary defensive
position, it may not be pursuing its investment objective. It is impossible to
predict when, or for how long, the Growth & Income Fund will pursue these al-
ternative strategies.
The annual portfolio turnover rate generally is not a factor in the manage-
ment of the Growth & Income Fund; however, it is not expected to exceed 300%. A
high portfolio turnover rate may result in higher brokerage costs for the Fund.
The GROWTH FUND invests primarily in the common stocks of mid-cap companies
that offer above-average growth potential. Under normal market conditions, the
Growth Fund will invest at least 65% of its total assets in the common stocks
of mid-cap companies that are considered to offer the potential for above-aver-
age growth. The Growth Fund utilizes a systematic investment approach and seeks
to invest in mid-cap companies that (i) offer proven products or services, (ii)
have a historical record of earnings growth that is above average, (iii) demon-
strate the potential to sustain earnings growth, (iv) operate in industries ex-
periencing increasing demand, and/or (v) are believed to be reasonably valued
in the market.
Mid-cap growth companies are often still in the early, more dynamic phase of
a company's life cycle, but have enough corporate history that they are no
longer considered new or emerging. They are usually mature enough to have es-
tablished organizational structures and the depth of management needed to ex-
pand their operations. In addition, these companies generally have sufficient
financial resources and access to capital to finance any future growth.
While investing in mid-cap growth companies generally entails greater risk
and volatility than investing in larger, more-established companies, mid-cap
companies are expected to offer the potential for more rapid growth. They also
may offer greater potential
27
<PAGE>
for capital appreciation because of their higher growth rates. In addition,
the stocks of mid-cap companies are less actively followed by securities ana-
lysts and may, therefore, at times be undervalued by the market in general.
In addition to common stocks, the Growth Fund may invest in preferred
stocks, dollar-denominated foreign securities, convertible securities and
futures and options. The Growth Fund may invest up to 25% of its total assets
in dollar-denominated foreign securities. The Growth Fund may purchase securi-
ties on a when-issued or delayed delivery basis, may loan its portfolio secu-
rities and may invest in securities issued by other investment companies, con-
sistent with the Growth Fund's investment objective and policies. Furthermore,
the Growth Fund may invest in restricted and illiquid securities. The Growth
Fund also may hold a portion of its assets in cash and money market instru-
ments.
At times, Griffin Advisers may judge that conditions in the securities mar-
kets make pursuing the Growth Fund's basic investment strategy inconsistent
with the best interests of the Growth Fund's shareholders. At such times,
Griffin Advisers may temporarily use alternative strategies, primarily de-
signed to reduce fluctuations in the value of the Growth Fund's assets.
In implementing these "defensive" strategies, the Growth Fund may invest
without limit in high quality debt securities or preferred stocks, or invest
in other securities that Griffin Advisers considers consistent with such de-
fensive strategies. When the Growth Fund is in a temporary defensive position,
it may not be pursuing its investment objective. It is impossible to predict
when, or for how long, the Fund will pursue these alternative strategies.
The annual portfolio turnover rate generally is not a factor in the manage-
ment of the Fund; however, it is not expected to exceed 100%.
28
<PAGE>
Your Fund Account
TYPES OF ACCOUNTS
You may set up an account directly in any of the Funds. The various types of
accounts that can be established with The Griffin Funds are described below.
Remember: The account guidelines may not apply to certain retirement ac-
counts. If your employer offers any of the Funds through a retirement program,
contact your employer for more information. Otherwise, call The Griffin Funds
directly, or contact your Griffin Financial Representative.
INDIVIDUAL OR JOINT TENANTS. Individual accounts are owned by one person.
Joint accounts can have two or more owners (tenants).
RETIREMENT. Retirement plans can help individuals to "shelter" investment in-
come and capital gains from current taxes. In addition, contributions to these
accounts may be tax deductible. Retirement accounts require special applica-
tions and typically have lower minimums. The following summarizes the general
attributes of tax laws common to retirement programs. You should consult your
tax adviser for more specific information.
. Individual Retirement Accounts (IRAs) allow individuals who are not active
participants (and who do not have a spouse who is an active participant)
in certain types of retirement plans and who are under age 70 1/2 with
earned income to make deductible contributions to an IRA subject to cer-
tain dollar limitations.
. Rollover IRAs offer special tax advantages for certain distributions from
employer-sponsored retirement plans.
. Keogh or Corporate Profit Sharing and Money Purchase Pension Plans allow
self-employed individuals or small business owners (and their employees)
to make tax deductible contributions for themselves and any eligible em-
ployees up to $30,000 per year.
. 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 plan, together with fewer adminis-
trative requirements.
. 403(b) Custodial Accounts are available to employees of most tax-exempt
institutions, including schools, hospitals and other charitable organiza-
tions.
. 401(k) Programs allow employees of a company which has established such a
program to contribute a percentage of their wages on a tax-deferred basis.
These accounts need to be established by the trustee of the plan.
The Tax-Free Money Market, the Municipal Bond Fund and the California Tax-Free
Fund probably are not appropriate investments for tax-exempt institutions or
tax-sheltered retirement accounts, since such investors would receive no bene-
fit from the tax-exempt status of any of these Funds' dividends.
GIFTS OR TRANSFER TO MINORS (UGMA, UTMA). These custodial accounts enable a
donor to give or otherwise transfer money to a child and to obtain certain tax
benefits. A donor can give up to $10,000 a year per child without having such
contributions be subject to federal gift tax. Depending on applicable state
laws, a custodial account can be established under either the Uniform Gifts to
Minors Act (UGMA) or the Uniform Transfers to Minors Act (UTMA).
29
<PAGE>
TRUST. The trust must be established before an account can be opened. You may
have to provide additional materials or sign additional documents.
BUSINESS OR ORGANIZATION. For investment needs of corporations, associations,
partnerships, institutions or other organizations. Ask your Griffin Financial
Representative.
HOW TO PURCHASE SHARES
If you are a new investor in the Funds, you may open your account in person or
by wire as described on page 31. You also may complete and sign an account ap-
plication and mail it together with your check. If you need an application,
call 1-800-676-4450 or contact your Griffin Financial Representative.
If you are already an investor in any Fund, you can make further investments
in one of the Funds:
. In person,
. By mailing in an application with a check, or
. By exchanging from another Fund, subject to the limitations described in
the other Fund's prospectus.
You can arrange withdrawals from your checking or savings deposit account to
open a new Fund account or to add to an existing Fund account, subject to the
terms of the deposit account.
If you are a first-time investor through a tax-sheltered retirement plan,
such as an IRA, you will need a special application. Ask your Griffin Finan-
cial Representative or call 1-800-676-4450 for more information about retire-
ment plan investment procedures and a retirement application.
If you buy shares by check, and then redeem those shares by any method other
than by exchange to another Griffin Fund, the redemption proceeds will be
mailed upon clearance of your purchase check, which may take up to fifteen
days.
All purchases made by check should be in U.S. dollars and be made payable to
the appropriate Griffin Fund. Third party checks, except those payable to an
existing shareowner who is a natural person (as opposed to a corporation or
partnership), credit cards and cash will not be accepted.
SHARE PRICE
MONEY MARKET FUNDS. The Money Market Funds' share price, referred to as the
net asset value ("NAV"), is calculated every day that the New York Stock Ex-
change ("NYSE") is open for business.
Shares are purchased at the next share price determined after an order and
good funds are received and accepted by a Money Market Fund. Share price is
determined at noon New York time. Orders received with good funds before noon
New York time are effective that day and orders received at or after noon New
York time are effective the following business day. You will begin to accrue
daily dividends the day after becoming a shareholder.
30
<PAGE>
NON-MONEY MARKET FUNDS. Each day that the NYSE is open for business the NAV is
calculated for each class of shares of each Non-Money Market Fund. The offering
price of Class A Shares also is calculated on each day the NYSE is open for
business, which reflects the sales load charged on purchases of Class A Shares
of 4.50% with respect to Non-Money Market Funds other than the Short-Term Bond
Fund, or 3.50% with respect to the Short-Term Bond Fund, unless you qualify for
a reduction or waiver as described under "Sales Load Reductions and Waivers."
The amount remaining after deduction of any applicable sales load is invested
at NAV. Class B Shares are offered at NAV but are subject to a maximum deferred
sales charge of 5.00% with respect to Non-Money Market Funds other than the
Short-Term Bond Fund, or 4.00% with respect to the Short-Term Bond Fund, of the
lesser of NAV at purchase or NAV at redemption. NAV is determined as of the
close of regular trading on the NYSE.
MINIMUM INVESTMENT AMOUNTS
FOR NEW ACCOUNTS
<TABLE>
<S> <C>
Minimum total initial investment $1,000
Minimum investment per Fund $250
For retirement accounts $250
FOR ADDITIONAL INVESTMENTS $100
For retirement accounts $100
Through automatic investment $50
- ----------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Purchasing Shares
- --------------------------------------------------------------------------------
Method To Open an Account To Add to an Account
<C> <S> <C>
IN PERSON . Bring your application . Bring your check to a Griffin
and check to a Griffin Financial Representative. Call
Financial 1-800-676-4450 for the
Representative. Call Representative nearest you.
1-800-676-4450 for the
Representative nearest
you.
MAIL . Complete and sign the . Make your check payable to "Money
application. Make your Market Fund," "Tax-Free Money
check payable to Market Fund," "Short-Term Bond
"Money Market Fund," Fund," "U.S. Government Income
"Tax-Free Money Market Fund," "Municipal Bond Fund,"
Fund," "Short-Term "California Tax-Free Fund," "Bond
Bond Fund," "U.S. Fund," "Growth & Income Fund," or
Government Income "Growth Fund." Indicate your Fund
Fund," "Municipal Bond account number on your check.
Fund," "California
Tax-Free Fund," "Bond
Fund," "Growth &
Income Fund," or
"Growth Fund."
Mail to: Mail to (checks only):
P.O. Box 419245 P.O. Box 419647
Kansas City, Missouri Kansas City, Missouri 64141
64141
. Exchange by mail:
call 1-800-676-4450 for instructions.
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Purchasing Shares (cont'd)
- -------------------------------------------------------------------------------
Method To Open an Account To Add to an Account
<C> <C> <S>
PHONE . Exchange from another . Exchange from another Fund account
1-800-676-4450 Fund account with the with the same registration
same registration (identical name(s), address, and
(identical name(s), taxpayer ID number).
address, and taxpayer
ID number).
WIRE . Call 1-800-676-4450 to
set up your account
and to arrange a wire
transaction. Not
available for
retirement accounts.
. Wire within 24 hours . Wire to: Investors Fiduciary Trust
to: Co. Routing #101 0036 21
Investors Fiduciary Account #752-7144
Trust Co. Specify Fund and include your
Routing #101 0036 21 account number and your name.
Account #752-7144
Specify Fund and
include your new
account number and
your name.
AUTOMATIC . Automatic investments on a regular
INVESTMENT PLANS basis: Call 1-800-676-4450.
- -------------------------------------------------------------------------------
</TABLE>
HOW TO REDEEM SHARES
You can take money out of your Fund account at any time by redeeming some or
all of your shares. Your shares will be redeemed at the next share price calcu-
lated after your order is received and accepted by a Fund. Except for any ap-
plicable contingent deferred sales charge ("CDSC"), The Griffin Funds impose no
charge for redeeming shares.
To redeem shares in a non-retirement account, you may use any of the methods
described in this section.
To redeem shares in a retirement account, your request must be made in writ-
ing, except for exchanges to other Griffin Funds, which can be requested by
phone or in writing. Call 1-800-676-4450 for a retirement distribution form.
If you are redeeming some but not all of your shares, you must leave an ag-
gregate of at least $1,000 worth of shares in your Griffin Funds account(s) to
keep it open ($250 for retirement accounts).
To redeem shares by wire, you will need to provide advance authorization.
You may redeem shares of the Money Market Funds through the Money Market
Funds' checkwriting service. There is no charge for this service and you may
write an unlimited number of checks. The minimum check amount is $500. You may
not use the checkwriting service if you have set up a systematic withdrawal
plan. In addition, you should not write a check for the entire value of your
account or close your account by writing a check.
32
<PAGE>
Certain redemption requests must include a signature guarantee. A signature
guarantee is designed for your protection. Your request must be made in writing
and must include a signature guarantee in any of the following situations:
.You wish to redeem more than $100,000 worth of shares,
. Your account registration has changed within the last 60 days,
. The check is not being mailed to the address on your account (record
address),
. The check is not being made payable to the account holder, or
. The redemption proceeds are being transferred to a Griffin Fund account
registered in a different name.
You can obtain a signature guarantee from a bank, broker (including Griffin
Financial offices), dealer, credit union (if authorized under state law), secu-
rities exchange or association, clearing agency, or savings association. A
notary public cannot provide a signature guarantee.
The Griffin Funds, Griffin Financial and the transfer agent are not liable
for damages resulting from following instructions communicated by telephone
that they reasonably believe to be genuine. The Griffin Funds will employ rea-
sonable procedures to confirm that instructions communicated by telephone are
genuine. If The Griffin Funds fails to do so, it may be liable for any losses
due to unauthorized or fraudulent instructions. The following procedures are
used to process telephone redemptions: (i) your Social Security number is re-
quested; (ii) the dollar amount of the transaction is confirmed by reading it
back to you; (iii) the address of record or predesignated account number for
the distribution is confirmed; and (iv) you are given a control number so that
the transaction can be traced should you have any questions.
REDEEMING SHARES IN WRITING
Write a "letter of instruction" with:
. Your name,
. The Fund's name,
. Your Fund account number,
. The dollar amount or number of shares to be redeemed, and
. Any other applicable requirements listed in the following table.
Unless otherwise instructed, The Griffin Funds will send a check to the record
address. Mail your instructions to:
The Griffin Funds, Inc.
P.O. Box 419245
Kansas City, Missouri 64141
33
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Redeeming Shares
- ---------------------------------------------------------------------------------------------
Method Account Type Special Requirements
<C> <S> <C>
PHONE All account types except . Maximum check request: $100,000
1-800-676-4450 retirement
All account types . You may exchange to other Funds if
both accounts are registered with the
same name(s), address, and taxpayer
ID number.
MAIL OR IN PERSON Individual, Joint . The letter of instruction must be signed
Tenants, Sole by all persons required to authorize
Proprietorships, UGMA, transactions, exactly as their names
UTMA appear on the account.
Retirement accounts . The account owner should complete a
retirement distribution form. Call
1-800-676-4450 to request one.
Trust . The trustee must sign the letter in this
capacity. If the trustee is not named in
the account registration, provide a copy
of the trust document certified within
the last 60 days.
Business or Organization . At least one person authorized (by
corporate resolution or other action) to
act on behalf of the account must sign
the letter.
. Include a corporate resolution with
corporate seal or a signature guarantee.
Executor, Administrator, . Call 1-800-676-4450 for instructions.
Conservator, Guardian
WIRE All account types except . You must authorize in writing the wire
retirement feature before using it. To verify that
the authorization is in place, call
1-800-676-4450. Minimum wire: $5,000.
. Your wire redemption must be received
by The Griffin Funds before 4 p.m.
Eastern time for money to be wired
on the next business day.
CHECKWRITING All account types except .Call 1-800-676-4450 to apply for checkwriting.
(MONEY MARKET retirement .Minimum check amount: $500.
FUNDS ONLY)
- ---------------------------------------------------------------------------------------------
</TABLE>
34
<PAGE>
SHAREHOLDER SERVICES
The Griffin Funds provide a variety of services to help you with your account.
INFORMATION SERVICES
You may visit a Griffin Financial Representative for information or assistance
or you can call a 24-hour toll-free telephone number for automated account
balance information.
Statements and reports that you will receive include the following:
.Confirmation statements (after every transaction, except a reinvestment,
that affects your account balance or your account registration)
.Account statements (monthly)
.Fund reports (every six months)
To reduce expenses, only one copy of most Fund reports will be mailed to
you, even if you have more than one Fund account. Call 1-800-676-4450 if you
need additional copies of any Fund reports or historical account information.
TRANSACTION SERVICES
EXCHANGE PRIVILEGES allow you to redeem your shares in any of the Funds and
buy shares of any other Fund by telephone or written exchange. Class A Shares
of a Non-Money Market Fund may be exchanged for shares of the same class of
another Non-Money Market Fund or for shares of the Money Market Fund or the
Tax-Free Money Market Fund in an identically registered account at respective
NAVs, provided that, if the other Fund charges a sales load on the purchase of
the class of shares being acquired that is higher than the sales load that you
have paid in connection with the shares you are exchanging, you pay the dif-
ference.
Class B Shares of a Non-Money Market Fund may be exchanged for shares of the
same class of another Non-Money Market Fund or for shares of the Money Market
Fund or the Tax-Free Money Market Fund in an identically registered account at
respective NAVs. The CDSC will not be imposed with respect to exchanges of
Class B Shares for shares of another Fund but will be imposed, subject to ap-
plicable time periods, upon a subsequent redemption. When a shareholder ex-
changes Class B Shares of a Non-Money Market Fund for shares of the same class
of another Non-Money Market Fund or for shares of the Money Market Fund or the
Tax-Free Money Market Fund, the remaining period of time (if any) that the
CDSC is in effect will be computed from the time of the initial purchase of
the previously-held shares. Accordingly, if a shareholder exchanges Class B
Shares of a Non-Money Market Fund for shares of the Money Market Fund or the
Tax-Free Money Market Fund, and redeems the shares of the Money Market Fund or
the Tax-Free Money Market Fund within six years (or four years with respect to
the Short-Term Bond Fund) of the receipt of the purchase order for the ex-
changed Class B Shares, the shareholder will have to pay a deferred sales
charge equal to the CDSC applicable to the previously exchanged Class B
Shares. A shareholder who exchanges Class B Shares of
35
<PAGE>
a Non-Money Market Fund for shares of the Money Market Fund or the Tax-Free
Money Market Fund subsequently may re-exchange the acquired shares of the Money
Market Fund or the Tax-Free Money Market Fund only for Class B Shares of a Non-
Money Market Fund. If the shareholder re-exchanges the shares of the Money Mar-
ket Fund or the Tax-Free Money Market Fund for Class B Shares of such a Non-
Money Market Fund, the remaining period of time (if any) that the CDSC is in
effect will be computed from the shareholder's initial purchase of Class B
Shares.
Shares of the Fund to be acquired must be registered for sale in the share-
holder's state of residence. Investors should obtain and read the Prospectus
for the Fund into which they desire to exchange before submitting an exchange
order. Please remember that exchanges between Funds are limited to four per
calendar year, and that exchanges may have tax consequences for you. For com-
plete policies and restrictions governing exchanges, including circumstances
under which a shareholder's exchange privilege may be suspended or revoked, see
"Fund Account Policies--Transaction Policies."
AUTOMATIC INVESTMENT plans can help you in pursuing your financial goals by
providing a convenient way to invest money regularly. The Griffin Funds lets
you transfer money into your Fund account automatically on a monthly or quar-
terly basis. Transfers will occur on or about the 5th or 20th day of the appli-
cable month. The minimum monthly automatic investment amount is $50. Certain
restrictions apply for retirement accounts. Call 1-800-676-4450 for more infor-
mation.
SYSTEMATIC WITHDRAWAL plans let you set up monthly, quarterly, semiannual or
annual redemptions from your account. The minimum eligible account size for
this service is $10,000 and the minimum withdrawal amount is $50. Fund shares
will be redeemed as necessary to meet withdrawal payments. Remember that with-
drawals may result in a gain or loss for tax purposes, may involve the use of
principal and may deplete all of the shares in your account.
36
<PAGE>
- --------------------------------------------------------------------------------
Regular Investment Plans
- --------------------------------------------------------------------------------
AUTOMATIC INVESTMENTS
To transfer money from your bank or depository institution account to a Fund
Minimum Frequency Opening or changing an Account
- --------------------------------------------------------------------------------
$50 Monthly or quarterly . For a new account, complete the
appropriate section on the Fund
application.
. For existing accounts, contact your
Griffin Representative or call
1-800-676-4450 for an application.
. To change the amount or frequency
of your investment, visit a Griffin
Financial office or call 1-800-676-
4450 at least ten business days
prior to your next scheduled
investment date.
- --------------------------------------------------------------------------------
DIRECT DEPOSIT
To send all or a portion of your paycheck or Social Security check to a Fund
Minimum Frequency Opening or changing an Account
- --------------------------------------------------------------------------------
$50 Every pay period . Check the appropriate box on the
fund application, visit a Griffin
Financial office or call 1-800-676-
4450 for an authorization form.
. Changes require a new authorization
form.
- --------------------------------------------------------------------------------
GRIFFIN AUTOMATIC EXCHANGES
To transfer money from one Fund to another
Minimum Frequency Setting up or changing
- --------------------------------------------------------------------------------
$50 Monthly, quarterly or . Check the appropriate box on the
annually Fund application, visit a Griffin
Financial office or call 1-800-676-
4450 for an authorization form.
. To change the amount or frequency
of your investment, visit a Griffin
Financial office or call 1-800-676-
4450
- --------------------------------------------------------------------------------
Systematic Withdrawal Plans
- --------------------------------------------------------------------------------
AUTOMATIC REDEMPTIONS
To redeem shares on a regular basis
Minimum Frequency Setting up or changing
- --------------------------------------------------------------------------------
$50 Monthly, quarterly, . For a new account, complete the
semiannually or appropriate section on the Fund
annually application.
. For existing accounts, call 1-800-
676-4450 to request the appropriate
form.
37
<PAGE>
DIVIDENDS, CAPITAL GAINS AND TAXES
Income dividends are accrued daily and paid monthly on all of the Funds except
the Growth & Income Fund and the Growth Fund. Income dividends are declared
and paid quarterly on the Growth & Income Fund and annually on the Growth
Fund. Capital gains, if any, are declared and paid annually on all Funds.
DISTRIBUTION OPTIONS
When you open an account, specify on your application how you want to receive
your distributions. Each Fund offers four options:
1. REINVESTMENT OPTION. Dividend and capital gain distributions will be auto-
matically reinvested in additional Fund shares of the same class. If you
do not indicate a choice on your application, you will be assumed to have
chosen this option.
2. EARNED-INCOME OPTION. Capital gain distributions will be automatically re-
invested in shares of the same class, but you will be sent a check for
each dividend distribution.
3. CASH OPTION. A check for each dividend and capital gain distribution will
be sent to you.
4. DESIGNATED DISTRIBUTION OPTION. Dividend and capital gain distributions
will be automatically invested in shares of the same class of another
Griffin Fund owned through an identically registered account. Visit a
Griffin Financial office or call 1-800-676-4450 for more information.
TAXES
The following is a brief discussion of certain federal income tax considera-
tions. Further information is contained in the SAI. All investors should con-
sult their individual tax advisers with respect to their particular tax situa-
tions as well as the state and local tax status of investments in shares of
the Funds.
Each of the Funds intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). By
complying with the applicable provisions of the Code, the Funds will not be
subject to federal income taxes with respect to net investment income and net
realized capital gains distributed to their shareholders.
Corporate shareholders of the Growth & Income Fund and the Growth Fund may
be eligible for the dividends-received deduction on the dividends (excluding
the net capital gain dividends) paid by such Funds to the extent that such
Funds' income is derived from dividends (which, if received directly, would
qualify for such deduction) received from domestic corporations. In order to
qualify for the dividends-received deduction, a corporate shareholder must
hold the Fund shares paying the dividends upon which the deduction is based
for at least 46 days.
Unless a shareholder is exempt from taxation or entitled to tax deferral,
all dividends derived from net investment income, except exempt-interest divi-
dends, and distributions from capital gains are taxable when they are paid,
whether they are received in cash or reinvested in additional shares of a
Fund, regardless of how long the shareholder has held the shares.
38
<PAGE>
With respect to the Tax-Free Money Market Fund, Municipal Bond Fund and the
California Tax-Free Fund, if certain conditions are met, federally tax-free in-
terest earned by these Funds will be free from federal income taxes when dis-
tributed as dividends ("exempt-interest dividends"). If the Funds earn feder-
ally taxable income from any of their investments, this income would be dis-
tributed as taxable dividends. Distributions from the Funds' short-term capital
gains, if any, will generally be federally taxable as dividends, and long-term
capital gain distributions, if any, are federally taxable as long-term capital
gains. In addition, interest on indebtedness incurred or continued to purchase
or carry shares of the Tax-Free Money Market Fund, Municipal Bond Fund and the
California Tax-Free Fund will not be deductible to the extent that the Funds'
distributions are exempt from income tax.
It is anticipated that dividends from the California Tax-Free Fund will also
be exempt from California corporate and personal income tax (although not from
California franchise tax).
If the Tax-Free Money Market Fund, Municipal Bond Fund or California Tax-Free
Fund should hold certain private activity bonds issued after August 7, 1986,
shareholders of such Funds must include, as an item of tax preference, the por-
tion of dividends paid by the Fund that is attributable to interest on such
bonds in their federal alternative minimum taxable income for purposes of de-
termining liability (if any) for the 28% alternative minimum tax applicable to
individuals and the 20% alternative minimum tax and the environmental tax ap-
plicable to corporations. Corporate shareholders must also take all exempt-in-
terest dividends into account in determining certain adjustments for federal
alternative minimum and environmental tax purposes. The environmental tax ap-
plicable to corporations is imposed at the rate of 0.12% on the excess of the
corporation's modified federal alternative minimum taxable income over
$2,000,000.
Taxes are not withheld from distributions to U.S. investors if certain Inter-
nal Revenue Service ("IRS") requirements regarding Taxpayer Identification Num-
bers (TINs) are met. Non-resident aliens and other foreign shareholders may be
subject to U.S. withholding tax at rates up to 31% on distributions.
Each year, the Funds will notify shareholders as to the amount and federal
tax status, and with respect to the California Tax-Free Fund, the California
tax status, of all dividends and capital gains paid during the prior year.
Fund Account Policies
TRANSACTION POLICIES
A single NAV for each of the Money Market Funds and an NAV per share for each
class of the Non-Money Market Funds is determined each day that the NYSE is
open for trading. Each Money Market Fund's NAV is the value of a single share.
The NAV for each Money Market Fund is computed 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 shares outstanding. The NAV per class
of each of the Non-Money Market Funds is deter-
39
<PAGE>
mined by dividing the total assets attributable to a class of shares of a Fund
less all liabilities of such class by the total number of shares outstanding of
such class of the Fund.
Each Money Market Fund's portfolio investments are valued on the basis of am-
ortized cost. The value of assets of each Money Market Fund is determined as of
12:00 noon New York time on each day the NYSE is open, immediately after the
daily declaration of dividends. Each Money Market Fund's offering price (per
share) and redemption price of a share are the Fund's NAV.
The value of assets of each Non-Money Market Fund is determined as of the
close of regular trading on the NYSE, which is currently 4:00 p.m. New York
time. Except for debt obligations with remaining maturities of 60 days or less,
which are valued at amortized cost (unless the Board of Directors determines
amortized cost does not reflect the securities' fair value), assets are valued
at current market prices, or if such prices are not readily available, at fair
value as determined in good faith by the Board of Directors. Prices used for
such valuations may be provided by independent pricing services.
On your account application, you will be asked to certify that your Social
Security or Taxpayer Identification Number is correct and that you are not sub-
ject to backup withholding by the IRS. If these certifications are not made,
the IRS can require The Griffin Funds to withhold 31% of your taxable distribu-
tions and redemptions.
Each Fund reserves the right to suspend the offering of its shares for a pe-
riod of time. The Funds also reserve the right to reject any specific purchase
order, including certain purchases by exchange. See "Exchange Privileges" on
page 35. For example, purchase orders may be rejected if, in The Griffin Funds'
opinion, an order or orders are of a size that would disrupt management of a
Fund.
Orders to buy shares will be processed at the next NAV calculated after your
order and good funds are received and accepted by a Fund. Note that:
. All of your purchases must be made in U.S. dollars and checks must be drawn
on U.S. banks.
. The Funds do not accept cash.
. When making a purchase with more than one check, each check must have a
value of at least $50.
. Each Fund reserves the right to limit the number of checks processed at one
time.
. If your check does not clear, or if payment is not received for any tele-
phone purchase, your purchase will be cancelled and you could be liable for
any losses or fees that a Fund or IFTC has incurred.
The Funds will in most cases issue share certificates upon request.
You can avoid the collection period associated with check purchases by pur-
chasing shares by bank wire, U.S. Postal money order, U.S. Treasury check, Fed-
eral Reserve check or Direct Deposit.
When you place an order to redeem shares, your shares will be redeemed at the
next NAV calculated after your request is received and accepted, net of any ap-
plicable CDSC. Please note the following:
40
<PAGE>
. Normally, redemption proceeds will be mailed to you on the next business
day, although the Funds may take up to seven days to pay you.
. If you purchase shares by check, and then seek to redeem those shares by
any method other than through an exchange to another Griffin Fund, the re-
demption proceeds will be mailed upon clearance of your purchase check,
which may take up to fifteen days.
. Redemptions may be suspended or payment dates postponed on days when the
NYSE is closed, when trading on the NYSE is restricted, or as authorized by
the SEC.
If your Griffin Fund total account balance falls below $1,000 ($250 for re-
tirement accounts) as a result of redeeming shares, and The Griffin Funds
elects to close your account, you will be given 30 days' notice to reestablish
the minimum balance. If you do not increase your balance to the minimum account
size, The Griffin Funds reserves the right to close your account and send the
proceeds to you. Your shares will be redeemed at the NAV on the day your ac-
count is closed.
As a shareholder, you have the option of exchanging shares of the Funds for
shares of other Griffin Funds, subject to the following:
. The Fund you are exchanging into must be registered for sale in your state
of residence.
. You may only exchange between Funds with accounts that are identically reg-
istered (i.e., with the same name(s), address and Taxpayer Identification
Number).
. If you exchange into a Fund with a sales charge, you pay the percentage
point difference between the Fund's sales charge and any sales charge you
have previously paid in connection with the shares you are exchanging. For
example, if you paid no sales charge on your shares and you exchange them
into a Fund with a 4 1/2% sales charge, you would pay a 4 1/2% sales
charge.
. If you exchange shares of a Money Market Fund into Class B Shares of a Non-
Money Market Fund that imposes a contingent deferred sales charge ("CDSC"),
you will be subject to the CDSC applicable to such shares upon redemption
of the Class B Shares acquired through the exchange. In addition, if you
acquire Class B Shares of a Non-Money Market Fund through such an exchange,
the remaining period of time that the CDSC applicable to the acquired Class
B Shares remains in effect will be computed from the time of the exchange.
. Exchanges may have tax consequences.
. Because excessive trading can adversely affect fund performance and share-
holders, the Funds reserve the right to temporarily or permanently termi-
nate the exchange privilege of any investor who makes more than four ex-
changes between Griffin Funds per calendar year. Accounts under common own-
ership or control, including accounts with the same Taxpayer Identification
Number, will be counted together for purposes of the four exchange limit.
. Each Fund also reserves the right to refuse exchange purchases by any per-
son or group if, in Griffin Advisers' judgment, the receiving Fund would be
unable to invest
41
<PAGE>
the money effectively in accordance with its investment objective and poli-
cies, or would otherwise potentially be adversely affected.
Although The Griffin Funds will attempt to give you prior notice whenever it
is reasonably able to do so, these restrictions may be imposed at any time. The
Funds reserve the right to terminate or modify the exchange privilege in the
future, upon 60 days' written notice to shareholders. Remember that exchanges
generally have tax consequences.
SALES LOAD REDUCTIONS AND WAIVERS
SALES LOAD--CLASS A SHARES
Sales loads relating to the purchase of Class A Shares in each of the Non-Money
Market Funds are as follows:
- --------------------------------------------------------------------------------
Class a Shares of all Non-Money Market Funds Except the Short-Term Bond Fund
<TABLE>
- ----------------------------------------------------------
<CAPTION>
Sales Agent
Sales Load Sales Load Allowance
as % of as % of as % of
Offering Net Amount Offering
Amount of Purchase Price Invested Price*
- ----------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000 4.50% 4.71% 4.00%
$50,000 up to $99,999 4.00% 4.17% 3.50%
$100,000 up to $249,999 3.50% 3.63% 3.00%
$250,000 up to $499,999 2.50% 2.56% 2.25%
$500,000 up to $999,999 2.00% 2.04% 1.75%
$1,000,000 and over 0.00%** 0.00%** 0.00%
- ----------------------------------------------------------
- ----------------------------------------------------------
Class a Shares of the Short-Term Bond Fund
- ----------------------------------------------------------
<CAPTION>
Sales Agent
Sales Load Sales Load Allowance
as % of as % of as % of
Offering Net Amount Offering
Amount of Purchase Price Invested Price*
- ----------------------------------------------------------
<S> <C> <C> <C>
To $50,000 3.50% 3.63% 3.00%
$50,000-$100,000 3.00% 3.09% 2.50%
$100,000-$250,000 2.50% 2.56% 2.00%
$250,000-$500,000 2.00% 2.04% 1.50%
$500,000-$1,000,000 1.50% 1.52% 1.00%
$1,000,000 and over 0.00%** 0.00%** 0.00%
- ----------------------------------------------------------
</TABLE>
*Griffin Financial, as distributor, reallows the percentage amounts indicated
to Selling Agents ("Reallowance Amounts"). In cases where Non-Money Market Fund
shares are sold directly through Griffin Financial, Griffin Financial may com-
pensate its sales representatives based on such Reallowance Amounts.
**A CDSC of 1.00% is imposed on redemptions requested within one year of pur-
chase.
Class B Shares are not subject to a front-end sales load. However, Class B
Shares are subject to a CDSC when redeemed within six years (or four years with
respect to the Short-Term Bond Fund) from the receipt of a purchase order. For
further information, see "Contingent Deferred Sales Charge--Class B Shares."
42
<PAGE>
REDUCED SALES LOAD--CLASS A SHARES
Volume Discounts are also available to you based on the combined dollar amount
you invest in Class A Shares of any of the Non-Money Market Funds.
The Right of Accumulation allows you to combine the amount being invested in
Class A Shares of a Non-Money Market Fund with the aggregate NAV of the Class A
Shares you own in any of the other Non-Money Market Funds to determine reduced
sales loads in accordance with the above sales load schedule. To obtain such
discount, you must provide sufficient information at the time of purchase to
permit verification that the purchase qualifies for the reduced sales load, and
confirmation of the purchase is subject to such verification. The Right of Ac-
cumulation may be modified or discontinued at any time with respect to all
Class A Shares purchased thereafter.
A Statement of Intention allows you to purchase Class A Shares of the Non-
Money Market Funds over a 13-month period at reduced sales loads based on the
total amount you intend to purchase plus the aggregate NAV of Class A Shares in
any of the Griffin Funds you already own. Each investment you make during the
period receives the reduced sales load applicable to the total amount of the
intended investment. If such amount is not invested within the period, you must
pay the difference between the sales loads applicable to the purchases made and
the charges previously paid.
The Reinvestment Privilege allows you to reinvest proceeds from a redemption
of Class A Shares of a Non-Money Market Fund in Class A Shares of such Fund or
in Class A Shares of another Non-Money Market Fund, without a sales load,
within 90 days after the redemption. The Class A Shares of the Non-Money Market
Fund to be acquired must be registered for sale in your state of residence. The
amount that may be so reinvested may not exceed the amount of the redemption
proceeds, and a written order for the purchase of the Class A Shares must be
received by the Non-Money Market Fund or IFTC within 90 days after the effec-
tive date of the redemption.
If you realize a gain on the redemption, the reinvestment will not affect the
amount of any federal capital gains tax payable on the gain. If you realize a
loss on the redemption, the reinvestment may cause some or all of the loss to
be disallowed as a tax deduction, depending on the number of Class A Shares
purchased by reinvestment and the period of time that has elapsed after the re-
demption, although for tax purposes, the amount disallowed is added to the cost
of the Class A Shares acquired upon the reinvestment.
Reductions in sales loads apply to purchases by a single "person," including
an individual, members of a family unit, consisting of a husband, wife and
children under the age of 21 purchasing securities for their own account, or a
trustee or other fiduciary purchasing for a single fiduciary account or single
trust estate.
Reductions in sales loads also apply to purchases by individual members of a
"qualified group." The reductions are based on the aggregate dollar amount of
Class A Shares purchased by all members of the qualified group. For purposes of
this paragraph, a qualified group consists of a "company," as defined in the
Investment Company Act of 1940, which has been in existence for more than six
months and which has a primary purpose
43
<PAGE>
other than acquiring shares of the Non-Money Market Funds at a reduced sales
load, and the "related parties" of such company. For purposes of this para-
graph, a "related party" of a company is: (i) any individual or other company
who directly or indirectly owns, controls or has the power to vote five percent
or more of the outstanding voting securities of such company; (ii) any other
company of which such company directly or indirectly owns, controls or has the
power to vote five percent of more of its outstanding voting securities; (iii)
any other company under common control with such company; (iv) any executive
officer, director or partner of such company or of a related party; and (v) any
partnership of which such company is a partner.
The Griffin Funds may sell Class A Shares of the Non-Money Market Funds at a
purchase price equal to the NAV of such shares, without a sales load, to direc-
tors, officers and employees (and their spouses and children under the age of
21) of The Griffin Funds and its affiliates. The Griffin Funds also may sell
Class A Shares of the Non-Money Market Funds at a purchase price equal to the
NAV of such shares, without a sales load, to present and retired directors, of-
ficers and employees (and their spouses and children under the age of 21) of
H.F. Ahmanson & Company and its affiliates if H.F. Ahmanson & Company and/or
the respective affiliates agree. Such sales also may be made to employee bene-
fit and thrift plans for such persons and to any investment advisory, trust or
other fiduciary account (other than an individual retirement account) main-
tained, managed or advised by H.F. Ahmanson & Company or its affiliates. Such
sales also may be made to individuals who acquire Class A Shares of the Non-
Money Market Funds through the Griffin Financial Services Portfolio Builder Ac-
count or other mutual fund asset allocation account offered by Griffin Finan-
cial or its affiliates. In addition, Class A Shares may be purchased without a
sales charge to the extent such a purchase is made with the entire proceeds
from the redemption of shares of a non-affiliated mutual fund on which the in-
vestor paid either an initial sales charge or a CDSC. However, any such pur-
chase must be made within 60 days from the date of the prior redemption and The
Griffin Funds must receive a copy of the confirmation of the redemption trans-
action.
To qualify for a reduced sales charge, an investor must notify The Griffin
Funds that the purchase being made qualifies for a reduced sales charge at the
time of purchase.
CONTINGENT DEFERRED SALES CHARGE
CLASS A SHARES
A CDSC of 1.00% is imposed on redemptions of Class A Shares of the Non-Money
Market Funds occurring within one year of purchases totalling $1,000,000 or
more.
CLASS B SHARES
Class B Shares of the U.S. Government Income, Municipal Bond, California Tax-
Free, Bond, Growth & Income and Growth Funds which are redeemed within one,
two, three, four, five or six years of the date of receipt of a purchase order
will be subject to a CDSC
44
<PAGE>
equal to 5%, 4%, 3%, 3%, 2% or 1%, respectively, of an amount equal to the
lesser of the NAV at the time of purchase for the Class B Shares being redeemed
or the NAV of such shares at the time of redemption. Class B Shares of the
Short-Term Bond Fund which are redeemed within one, two, three or four years of
the date of receipt of a purchase order will be subject to a CDSC equal to 4%,
3%, 2% or 1%, respectively, of an amount equal to the lesser of the NAV at the
time of purchase for the Class B Shares being redeemed or the NAV of such
shares at the time of redemption. Accordingly, a CDSC will not be imposed on
amounts representing increases in NAV above the NAV at the time of purchase. In
addition, a charge will not be assessed on Class B Shares purchased through re-
investment of dividends or capital gains distributions. In determining whether
a CDSC is applicable to a redemption, the calculation will be made in the man-
ner which results in the lowest possible charge being assessed.
The CDSC is waived on redemptions of Class B Shares (i) following the death
or disability (as defined in the Code) of a shareholder, (ii) to the extent
that the redemption represents a minimum required distribution from an IRA or
other retirement plan to a shareholder who has reached age 70 1/2, (iii) ef-
fected pursuant to The Griffin Funds' right to liquidate a shareholder's ac-
count if the aggregate NAV of the shareholder's Griffin Fund account is less
than the minimum account size, or (iv) in connection with the combination of
The Griffin Funds with any other registered investment company by a merger, ac-
quisition of assets or by any other transaction.
Class B Shares which have been outstanding for six years will automatically
convert to Class A Shares on the first day after the six year anniversary of
the issuance of the shares and, consequently, will no longer be subject to the
service fees applicable to Class B Shares. Such conversion will be on the basis
of the relative NAVs of the two classes, without the imposition of any sales
charge or other charge except that the 12b-1 fee applicable to the Class A
Shares shall thereafter be applied to such converted shares. Any Class B Shares
acquired through the reinvestment of dividends and distributions will convert
on a pro rata basis with the Class B Shares purchased directly by a sharehold-
er. If a shareholder exchanges Class B Shares of a Non-Money Market Fund for
Class B Shares of another Non-Money Market Fund during the six-year period, the
holding period for shares so exchanged will be counted toward the holding pe-
riod for the shares acquired, and such acquired shares will be subject to the
CDSC schedule applicable to the shares originally purchased.
If you are seeking to invest $1,000,000 or more in the Funds you should not
purchase Class B Shares as no sales load (other than any applicable CDSC) is
charged on such an investment in Class A Shares. Other investors should compare
the fees assessed on Class A Shares against those assessed on Class B Shares in
light of the amount to be invested and the anticipated time that the shares
will be owned.
45
<PAGE>
The Funds in Detail
STRUCTURE
The Griffin Funds was organized as a Maryland corporation on August 5, 1993.
Each Money Market Fund is comprised of only one class of shares. Each Non-Money
Market Fund is comprised of two classes of shares--Class A Shares and Class B
Shares. The classes have identical rights with respect to the portfolio of
which they are a part, but certain matters affect each class differently. Cur-
rently, the only such matters are the differing sales loads, distribution and
servicing fees, exchange privileges and conversion rights described in this
Prospectus.
The Griffin Funds is governed by a Board of Directors, which has overall re-
sponsibility for the management of the Funds and is responsible for protecting
the interests of shareholders. The directors meet periodically throughout the
year to oversee each Fund's activities and review arrangements with the compa-
nies that provide major services to the Funds and the performance of the Funds.
The Funds typically will not hold annual shareholders meetings, although spe-
cial meetings may be called from time to time. These meetings may be called to
elect or remove directors, change fundamental policies, approve management con-
tracts or for other purposes. Shareholders not attending these meetings are en-
couraged to vote by proxy. Proxy materials, including a voting card and infor-
mation about the proposals to be voted on, will be mailed in advance of a meet-
ing. Shareholders are entitled to one vote for each share owned. The Griffin
Funds will hold special meetings of shareholders for the purpose of voting on
the question of removal of a director or directors if requested in writing by
the holders of at least 10% of its outstanding voting securities, and will as-
sist shareholders in communicating with other shareholders.
SERVICE PROVIDERS
The Funds are advised by Griffin Advisers, which manages the Funds' investments
pursuant to an advisory contract. Griffin Advisers has no previous experience
in advising mutual funds. Payden & Rygel acts as sub-adviser to the Money Mar-
ket Fund, the Tax-Free Money Market Fund, the U.S. Government Income Fund, the
Municipal Bond Fund and the California Tax-Free Fund. Payden & Rygel, with over
$20 billion in assets under management as of December 31, 1995, is the sub-ad-
viser to a fixed income global mutual fund unaffiliated with The Griffin Funds,
as well as to a series of group trusts, and several pooled accounts for a wide
variety of clients. T. Rowe Price acts as sub-adviser to the Short-Term Bond
Fund and the Growth Fund. T. Rowe Price had over $70 billion in assets under
management as of December 31, 1995. TBCAM, an indirect wholly owned subsidiary
of Mellon Bank Corporation, acts as sub-adviser to the Bond Fund and the Growth
& Income Fund. TBCAM, which had approximately $14 billion in assets under man-
agement as of December 31, 1995, provides equity, fixed income and cash manage-
ment services to investment companies and other investment accounts. The Funds'
sub-advisers have pri
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mary responsibility for choosing investments for the Funds. Pursuant to sub-
advisory contracts with Griffin Advisers, the sub-advisers provide periodic re-
ports on the investment strategy and performance of the Funds.
PAYDEN & RYGEL is primarily responsible for the portfolio management of the
Money Market Fund, the Tax-Free Money Market Fund, the U.S. Government Income
Fund, the Municipal Bond Fund and the California Tax-Free Fund. All investment
decisions for such Funds are made by an investment committee and no person(s)
is primarily responsible for making recommendations to that committee. The com-
mittee consists of five investment professionals who primarily use a fundamen-
tal approach supported by extensive quantitative analysis.
T. ROWE PRICE is primarily responsible for the portfolio management of the
Growth Fund and the Short-Term Bond Fund. The portfolio manager for the Growth
Fund is Jonathan M. Greene. Mr. Greene has served as the portfolio manager of
the Growth Fund since the Fund's inception. Mr. Greene is a vice president and
systematic equity portfolio manager of T. Rowe Price and is a member of the Nu-
clear Decommissioning Trust asset allocation committee. Prior to joining T.
Rowe Price in 1974, Mr. Greene served as a Navy Lieutenant and nuclear propul-
sion engineer on the staff of Admiral H.G. Rickover in the Naval Reactors Divi-
sion of the U.S.A.E.C. Mr. Greene has earned an A.B. from Dartmouth College, a
B.E. and M.E. from the Thayer School of Engineering, Dartmouth College, and an
M.B.A. from The Amos Tuck School, Dartmouth College.
The portfolio manager for the Short-Term Bond Fund is Edmund M. Notzon, III.
Mr. Notzon has served as the portfolio manager for the Short-Term Bond Fund
since the Fund's inception. Mr. Notzon is a vice president of T. Rowe Price and
a senior portfolio manager in T. Rowe Price's Taxable Bond Department, and
serves as a portfolio manager of several separately managed fixed income and
asset allocation portfolios. Prior to joining T. Rowe Price in 1989, Mr. Notzon
was a charter member of the U.S. Senior Executive Service and the Director of
the Analysis and Evaluation Division of the Office of Water Regulation and
Standards of the U.S. Environmental Protection Agency. Mr. Notzon has earned a
B.S. in mathematics from the Massachusetts Institute of Technology and an M.S.
in statistics and Ph.D. in operations research from Stanford University. Mr.
Notzon also has completed Harvard University's Program for Senior Managers in
Government and has achieved the Chartered Financial Analyst accreditation.
TBCAM is primarily responsible for the portfolio management of the Bond Fund
and the Growth & Income Fund. The Bond Fund is co-managed by Matthew N. Fon-
taine and Arthur J. MacBride III. Mr. Fontaine has served as a portfolio man-
ager of the Bond Fund since March, 1995. Mr. Fontaine is a Vice President of
TBCAM with nine years of investment experience and serves on the Fixed Income
Strategy Committee. Prior to joining TBCAM in 1994, Mr. Fontaine was Assistant
Vice President of Fixed Income Securities at Massachusetts Financial Services.
Mr. Fontaine graduated from Hobart William Smith with a BA in History and also
holds an MBA from Boston College. He has earned the Chartered Financial Analyst
designation, and is a member of the Boston Security Analysts Society,
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Inc. Mr. MacBride joined TBCAM in 1988 and currently serves as a fixed income
portfolio manager, the Director of Fixed Income and the Chairman of the Fixed
Income Strategy Committee. Mr. MacBride is a graduate of Franklin & Marshall
College and holds an MBA from Fordham University. He has served as a manager of
the Bond Fund since January 1996. The portfolio manager for the Growth & Income
Fund is Quinn R. Stills. Mr. Stills has served as the portfolio manager of the
Growth & Income Fund since March, 1995. Mr. Stills is a Vice President of TBCAM
with nine years of investment experience and serves on the Equity Policy Group.
Prior to joining TBCAM in 1990, Mr. Stills worked as an analyst for Kidder,
Peabody & Company. Previously he was an associate at Drexel Burnham Lambert as
well as a futures analyst at Goldman, Sachs & Company. Mr. Stills graduated
from Vassar with a BA and also holds a MBA from Stanford University. He is also
a member of the Investment Committee of the International Foundation of Em-
ployee Benefits.
GRIFFIN ADMINISTRATORS is the Funds' administrator and provides administra-
tive and accounting services to the Funds.
IFTC is the Funds' transfer, shareholder service and dividend-paying agent.
IFTC is located at 127 West 10th Street, Kansas City, Missouri 64105. IFTC also
provides certain administrative services to the Funds.
GRIFFIN FINANCIAL, located at 5000 Rivergrade Road, Irwindale, CA 91706, dis-
tributes and markets the Funds.
Griffin Advisers, Griffin Financial and Griffin Administrators are wholly-
owned subsidiaries of Griffin Financial Services of America, which is a wholly-
owned subsidiary of H.F. Ahmanson & Company, a savings and loan holding compa-
ny, and are affiliates of Home Savings and Savings of America.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR ISSUED, EN-
DORSED OR GUARANTEED BY, HOME SAVINGS, SAVINGS OF AMERICA OR ANY OF THEIR AF-
FILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S. GOVERNMENT, THE FEDERAL DE-
POSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMEN-
TAL AGENCY.
SUMMARY OF FUND EXPENSES
Like all mutual funds, the Funds pay expenses related to their operations. Ex-
penses charged to a Fund and paid out of a Fund's assets are reflected in its
share price or dividends.
Each Fund pays a management fee to Griffin Advisers for managing its assets.
The Funds also pay other expenses, which are described below.
Griffin Advisers or Griffin Administrators may, from time to time, voluntar-
ily agree to waive or reimburse the Funds for management fees and other ex-
penses. Waiver or reimbursement arrangements, which may be terminated at any
time without notice, can enhance a Fund's performance by decreasing its ex-
penses.
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MANAGEMENT FEE
The management fee is calculated and paid to Griffin Advisers every month. The
fee for each of the Funds except the Growth & Income Fund and the Growth Fund
is calculated by multiplying each Fund's average daily net assets by 0.50% on
an annualized basis. The management fee for the Growth & Income Fund and the
Growth Fund is calculated by multiplying each Fund's average daily net assets
by 0.60% on an annualized basis. Griffin Advisers, in turn, pays Payden &
Rygel, T. Rowe Price and TBCAM for their respective sub-advisory services pro-
vided to the Funds. Payden & Rygel is paid an annual rate of 0.25% of the
first $25 million of each of the Money Market Funds' average daily net assets,
and 0.20% of each of the Money Market Funds' average daily net assets in ex-
cess of $25 million. Payden & Rygel is paid an annual rate of 0.30% of the
first $50 million of each of the U.S. Government Income, Municipal Bond and
California Tax-Free Funds' average daily net assets, 0.25% of each such Fund's
next $450 million and 0.20% of each such Fund's assets in excess of $500 mil-
lion with a minimum annual fee of $25,000 for each Fund. T. Rowe Price is paid
at the annual rate of 0.30% of the first $50 million of each of the Short-Term
Bond and Growth Funds' average daily net assets, 0.25% of each such Fund's
next $450 million and 0.20% of each such Fund's assets in excess of $500 mil-
lion with a minimum annual fee of $25,000 for each Fund. TBCAM is paid at the
annual rate of 0.30% of the first $50 million of each of the Bond and Growth &
Income Funds' average daily net assets, 0.25% of each such Fund's next $450
million and 0.20% of each such Fund's assets in excess of $500 million. While
the management fee of 0.60% for the Growth & Income Fund and the Growth Fund
combined with the administrative fee of 0.20% is higher than most management
fees, the Funds believe that the management fees are consistent with those
charged by comparable funds. For the fiscal year ended September 30, 1995, af-
ter waivers, the Money Market Fund, the Tax-Free Money Market Fund, the U.S.
Government Income Fund, the Municipal Bond Fund, the California Tax-Free Fund,
the Bond Fund and the Growth & Income Fund paid management fees to Griffin Ad-
visers at the rate of 0.03%, 0.04%, 0.01%, 0.03%, 0.03%, 0.01% and 0.04%, re-
spectively, of their daily net assets. After waivers, the Short-Term Bond Fund
and the Growth Fund paid no management fees to Griffin Advisers for this peri-
od.
DISTRIBUTION AND SERVICE FEES
Griffin Financial is the distributor ("Distributor") of shares of the Funds.
The Griffin Funds has adopted Distribution and Services Plans on behalf of the
Money Market Fund, the Tax-Free Money Market Fund, and each Non-Money Market
Fund's Class A Shares and Distribution Plans on behalf of each Non-Money Mar-
ket Fund's Class B Shares under the SEC's Rule 12b-1 (the "Plans"). Under the
Plans, the Distributor may receive compensatory payments and/or reimbursements
to defray all or part of the cost of preparing, printing and delivering pro-
spectuses to prospective shareholders of a Fund or for other distribution-re-
lated or sales support services. Payments under a Plan may not exceed, on an
annual basis, 0.20% of the average daily net assets of each of the Money Mar-
ket and Tax-Free
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Money Market Funds, 0.25% of the average daily net assets of the Class A Shares
of a Non-Money Market Fund and 0.75% of the average daily net assets of the
Class B Shares of a Non-Money Market Fund.
The fees paid under a Plan for the Money Market Fund, the Tax-Free Money Mar-
ket Fund and Class A Shares of each of the Non-Money Market Funds also can be
used to pay servicing agents for shareholder liaison services, including re-
sponding to customer inquiries and providing information on their investments.
A separate service fee is imposed on Class B Shares of the Non-Money Market
Funds which may not exceed 0.25% of the average daily net assets of the Class B
shares of a Non-Money Market Fund represented by Class B Shares owned by in-
vestors with whom the servicing agent maintains a servicing relationship.
OTHER EXPENSES
The Funds have the following expenses in addition to the management fee and
distribution and service fees.
The Funds contract with Griffin Administrators to provide various administra-
tive and accounting services. These services include processing shareholder
transactions and calculating the Funds' share prices. The administrative fee is
determined and paid to Griffin Administrators every month. The fee is deter-
mined by multiplying each Fund's average daily net assets by 0.20% on an
annualized basis. Griffin Administrators, in turn, pays IFTC for
subadministration services it provides to the Funds. For the fiscal year ended
September 30, 1995, after waivers, the Money Market Fund, the Tax-Free Money
Market Fund, the U.S. Government Income Fund, the Municipal Bond Fund, the Cal-
ifornia Tax-Free Fund, the Bond Fund and the Growth & Income Fund paid adminis-
tration fees to Griffin Administrators at the rate of 0.16%, 0.17%, 0.08%,
0.08%, 0.08%, 0.07% and 0.11%, respectively, of their daily net assets. After
waivers, the Short-Term Bond Fund and the Growth Fund paid no administration
fees to Griffin Administrators for the fiscal year ended September 30, 1995.
In addition to the management fee and the other fees paid to Griffin Advis-
ers, Griffin Financial and Griffin Administrators, the Funds pay other ex-
penses, such as legal, audit and custodian fees, proxy solicitation costs and
the compensation of directors who are not affiliated with Griffin Advisers,
Griffin Financial or Griffin Administrators.
PERFORMANCE
MONEY MARKET FUNDS
The Money Market Funds' performance may be advertised in terms of current yield
or effective yield. In addition, the Tax-Free Money Market Fund's performance
may be advertised in terms of tax-equivalent yield or effective tax-equivalent
yield. These performance figures are based on historical results calculated un-
der uniform SEC formulas and are not intended to indicate future performance.
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Yield refers to the income generated by an investment in a Fund over a seven-
day period, expressed as an annual percentage rate. Effective yields are calcu-
lated similarly, but assume that the income earned from a Fund is reinvested in
the Fund. Because of the effects of compounding, effective yields are slightly
higher than yields. The tax-equivalent yield and the effective tax-equivalent
yield of the Tax-Free Money Market Fund show the level of taxable yield needed
to produce an after-tax equivalent of the Fund's tax-free yield. This is done
by increasing the Fund's yield (calculated as above) by the amount necessary to
reflect the payment of federal income tax at a stated tax rate. The application
of the stated income tax rate results in a higher yield figure.
NON-MONEY MARKET FUNDS
From time to time, The Griffin Funds may advertise various performance data of
the Non-Money Market Funds, including yield and total return information with
respect to a class of shares of a Non-Money Market Fund. Total return and yield
information of a class of shares is based on the historical earnings and per-
formance of such class of shares of a Non-Money Market Fund and should not be
considered representative of future performance.
The total return of a class of shares of a Non-Money Market Fund will be cal-
culated by subtracting (i) the public offering price (which includes the maxi-
mum sales charge for shares) of one share of the class of shares at the begin-
ning of the period, from (ii) the NAV at the end of the period for the share
held at the beginning of the period (assuming reinvestment of all dividends and
capital gain distributions), and dividing by (iii) the public offering price
per share of the class of shares at the beginning of the period. The resulting
percentage indicates the positive or negative rate of return that an investor
would have earned from reinvested dividends and capital gain distributions and
changes in share price during the period for the class of shares. The Non-Money
Market Funds may also, at times, calculate total return of a class of shares
based on NAV per share of a class of shares (rather than the public offering
price), in which case the figures would not reflect the effect of any sales
charges that would have been paid by an investor in the class of shares, pro-
vided that total return data derived pursuant to the calculation described
above are also presented.
The yield of a class of shares of a Non-Money Market Fund will be computed by
dividing its net investment income per share earned during a specified period
by its public offering price per share (which includes the maximum sales
charge) on the last day of such period and annualizing the result. Tax-equiva-
lent yield for the Municipal Bond Fund and the California Tax-Free Fund, which
assumes that a stated income tax rate has been applied to non-exempt income to
derive the tax-exempt portion of the relevant Fund's yield, also may be adver-
tised. For purposes of sales literature, these yields may also, at times, be
calculated on the basis of the NAV per share of the class (rather than the pub-
lic offering price), in which case the figures would not reflect the effect of
any sales charges that would have been paid by an investor in the class of
shares, or by assuming that a
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<PAGE>
sales charge other than the maximum sales charge (reflecting the volume dis-
counts set forth above) is assessed, provided that yield data derived pursuant
to the calculation described above are also presented. The annual report for
The Griffin Funds contains additional performance information and is available
upon request by calling The Griffin Funds at 1-800-676-4450.
Because of differences in the fees and/or expenses borne by Class B Shares of
the Non-Money Market Funds, the net yield on such shares can be expected, at
any given time, to be lower than the net yield on Class A Shares. Standardized
yield quotations will be computed separately for Class A Shares and Class B
Shares.
DESCRIPTION OF INVESTMENTS
The following pages contain more detailed information about the types of in-
struments in which the Funds may invest, and strategies Griffin Advisers may
employ in pursuit of the Funds' investment objectives. A summary of risks and
restrictions associated with these instrument types and investment practices is
included as well. Additional information about these instruments and investment
practices is contained in the SAI. Except as specifically noted, policies and
limitations are considered at the time of purchase; the sale of instruments is
not required in the event of a subsequent change in circumstances.
ASSET BACKED SECURITIES. All Funds may invest in Asset Backed Securities, which
arise through the grouping by governmental, government-related, and private or-
ganizations of loans, receivables and other assets originated by various lend-
ers. Asset Backed Securities acquired by a Fund consist of both mortgage and
non-mortgage backed securities. Unlike other forms of debt securities, which
normally provide for periodic payment of interest in fixed amounts with princi-
pal paid at maturity or specified call dates, Asset Backed Securities provide
periodic payments which generally consist of both interest and principal pay-
ments.
The life of an Asset Backed Security varies with the prepayment experience
with respect to the underlying debt instruments. The rate of such prepayments,
and hence the life of an Asset Backed Security, will be primarily a function of
current market interest rates, although other economic and demographic factors
may be involved. For example, falling interest rates generally result in an in-
crease in the rate of prepayments of mortgage loans while rising interest rates
generally decrease the rate of prepayments. An acceleration in prepayments in
response to sharply falling interest rates will shorten the security's average
maturity and limit the potential appreciation in the security's value relative
to a conventional debt security. Consequently, Asset Backed Securities are not
as effective in locking in high, long-term yields. Conversely, in periods of
sharply rising rates, prepayments are generally slow, increasing the security's
average life and its potential for price appreciation.
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<PAGE>
Mortgage backed securities represent an ownership interest in a pool of resi-
dential mortgage loans, the interest on which is in most cases issued and guar-
anteed by an agency or instrumentality of the U.S. Government, though not nec-
essarily by the U.S. Government itself. One such type of mortgage backed secu-
rity is a Government National Mortgage Association ("GNMA") Certificate. GNMA
Certificates are backed as to the timely payment of principal and interest by
the full faith and credit of the U.S. Government. Another type is a Federal Na-
tional Mortgage Association ("FNMA") Certificate, the principal and interest of
which are guaranteed only by FNMA itself, not by the full faith and credit of
the U.S. Government. Another type is a Federal Home Loan Mortgage Corporation
("FHLMC") Participation Certificate. This type of obligation is guaranteed by
FHLMC as to payment of principal and interest. However, like a FNMA security,
it is not guaranteed by the full faith and credit of the U.S. Government. Mort-
gage backed securities issued by private issuers, whether or not such obliga-
tions are subject to guarantees by the private issuer, may entail greater risk
than obligations directly or indirectly guaranteed by the U.S. Government. Such
securities will be purchased for the Funds only when Griffin Advisers deter-
mines that they are readily marketable at the time of purchase. There is no
limit on the amount or type of mortgage-backed securities the U.S. Government
Income Fund, Municipal Bond Fund, California Tax-Free Fund, Bond Fund or Growth
& Income Fund may purchase, except that the California Tax-Free Fund will not
purchase any mortgage backed securities issued by private issuers.
The average life of mortgage backed securities varies with the maturities of
the underlying mortgage instruments, which have maximum maturities of 40 years.
The average life is likely to be substantially less than the original maturity
of the mortgage pools underlying the securities due to mortgage prepayments,
mortgage refinancings or foreclosures, which in turn may affect Fund perfor-
mance. The rate of mortgage prepayments, and hence the average life of the cer-
tificates, will be a function of the level of interest rates, general economic
conditions, the location and age of the mortgage and other social and demo-
graphic conditions. These prepayments tend to increase when interest rates de-
cline, presenting a Fund with more principal to invest at lower rates. Such
prepayments also are passed through to the registered holder with the regular
monthly payments of principal and interest and have the effect of reducing fu-
ture payments. The converse also tends to be the case when interest rates rise.
The Short-Term Bond Fund, U.S. Government Income Fund, Municipal Bond Fund,
California Tax-Free Fund and Bond Fund also may invest in collateralized mort-
gage obligations ("CMOs") and multi-class pass-through mortgage securities.
Multi-class pass-through mortgage securities are equity interests in a trust
comprised of mortgage loans or other mortgage backed securities. Payments of
principal and interest on underlying collateral provide the funds to pay debt
service on the CMO or make scheduled distributions on the multi-class pass-
through security. CMOs and multi-class pass-through securities may be issued by
agencies or instrumentalities of the U.S. Government or by private
organizations.
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In a CMO, a series of bonds or certificates is issued in multiple classes.
Each class of CMOs, often referred to as a "tranche," is issued at a specific
coupon rate and has a stated maturity or final distribution date. Principal
prepayments on collateral underlying a CMO may cause a class to be retired
substantially earlier than the stated maturities or final distribution dates.
The principal and interest on the underlying mortgages may be allocated among
the several classes of a series of a CMO in many ways. One or more tranches of
a CMO may have coupon rates which reset periodically at a specified increment
over an index such as the London Interbank Offered Rate ("LIBOR"). These
floating rate CMOs are typically issued with lifetime caps on the coupon rate
thereon. The Funds may also invest in inverse or reverse floating CMOs. In-
verse or reverse floating CMOs constitute a tranche of a CMO with a coupon
rate that moves in the reverse direction to an applicable index such as LIBOR.
Accordingly, the coupon rate thereon will increase as interest rates decrease.
Inverse or reverse floating CMOs are typically more volatile than fixed or
floating rate tranches of CMOs. Investments in inverse or reverse floating
CMOs would be purchased to attempt to protect against a reduction in the in-
come earned on the Fund's investments due to a decline in interest rates. The
Funds would be adversely affected by the purchase of such CMOs in the event of
an increase in interest rates since the coupon rate thereon will decrease as
interest rates increase, and, like other mortgage backed securities, the value
will decrease as interest rates increase.
The Non-Money Market Funds other than the Growth & Income Fund and the
Growth Fund may invest in Stripped Mortgage Backed Securities ("SMBS"), which
are derivative multi-class mortgage securities. SMBS may be issued by agencies
or instrumentalities of the U.S. Government or by private originators of, or
investors in, mortgage loans, including savings and loan associations, mort-
gage bankers, commercial banks and special subsidiaries of the foregoing. The
Short Term Bond Fund may invest up to 10% of its net assets in SMBS.
There are generally two classes of SMBS, one of which (the "IO class") enti-
tles the holders thereof to receive distributions consisting solely or primar-
ily of all or a portion of the interest on the underlying pool of mortgage
loans or mortgage-backed securities ("Mortgage Assets") and the other of which
(the "PO class") entitles the holders thereof to receive distributions con-
sisting solely or primarily of all or a portion of the principal of the under-
lying pool of Mortgage Assets. The cash flows and yields on IO and PO classes
are extremely sensitive to the rate of principal payments (including prepay-
ments) on the related underlying Mortgage Assets. For example, a rapid or slow
rate of principal payments may have a material adverse effect on the yield to
maturity of IOs or POs, respectively. If the underlying Mortgage Assets expe-
rience greater than anticipated prepayments of principal, an investor in the
IO class may incur substantial losses. Conversely, if the underlying Mortgage
Assets experience slower than anticipated prepayments of principal, the yield
on a PO class will be affected more severely than would be the case with a
traditional mortgage-backed security.
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All of the Funds also may invest in non-mortgage backed securities including
interests in pools of receivables, such as motor vehicle installment purchase
obligations and credit card receivables. Such securities are generally issued
as pass-through certificates, which represent undivided fractional ownership
interests in the underlying pool of assets. Such securities also may be debt
instruments, which also are known as collateralized obligations and are gener-
ally issued as the debt of a special purpose entity organized solely for the
purpose of owning such assets and issuing such debt.
Non-mortgage backed securities are not issued or guaranteed by the U.S. Gov-
ernment or its agencies or instrumentalities; however, the payment of principal
and interest on such obligations may be guaranteed up to certain amounts and
for a certain time period by a letter of credit issued by a financial institu-
tion (such as a bank or insurance company) unaffiliated with the issuers of
such securities. Only readily marketable non-mortgage backed securities that
are rated "A" or better by S&P, or "A" or better by Moody's or that are deter-
mined by Griffin Advisers to be of comparable quality at the time of purchase
are eligible for purchase by the U.S. Government Fund, Municipal Bond Fund,
California Tax-Free Fund, Bond Fund and Growth & Income Fund. In addition, such
securities generally will have remaining estimated lives at the time of pur-
chase of five years or less.
BANKERS' ACCEPTANCES. The Money Market Funds may invest in Bankers Acceptances,
which are negotiable obligations of a bank to pay a draft which has been drawn
on it by a customer. These obligations are drawn on large banks and usually
backed by goods in international trade.
BOND ANTICIPATION NOTES. The Tax-Free Money Market Fund, Municipal Bond Fund
and California Tax-Free Fund may invest in Bond Anticipation Notes, which nor-
mally provide interim financing in advance of an issue of bonds or notes, the
proceeds of which are used to repay the anticipation notes. Tax revenue and
bond anticipation notes are unsecured. The Tax-Free Money Market Fund intends
to invest only in notes having a maximum maturity of 397 days.
CERTIFICATES OF DEPOSIT (CDS). All of the Funds may invest in CDs, which are
negotiable certificates representing a depository institution's obligation to
repay funds deposited with it, earning specified rates of interest over a given
period of time. The Money Market Funds intend to invest in negotiable CDs with
a stated maturity of 397 days or less. Many CDs by their terms are not
withdrawable; others impose penalties upon early withdrawal. Because such in-
struments trade in a developed secondary market, however, early withdrawal pen-
alties should not affect the ability to dispose of the investment.
COMMERCIAL PAPER. All of the Funds may invest in commercial paper, which refers
to short-term debt obligations issued by banks, broker-dealers, corporations
and other entities for
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purposes such as financing their current operations. The Money Market Funds in-
tend to invest in commercial paper having maximum maturities of 270 days.
COMMODITY-LINKED BONDS. The Bond Fund may invest in Commodity-Linked Bonds,
which are bonds indexed to gold, silver, other precious metals, oil, coal and
other commodities meeting certain internationally recognized specifications.
COMMON AND PREFERRED STOCKS. The Growth Fund may invest in common and preferred
stocks, which represent shares of ownership in a company. Generally, preferred
stock has a specified dividend and ranks after bonds and before common stocks
in its claim on income for dividend payments and on assets should the company
be liquidated. After other claims are satisfied, common stockholders partici-
pate in company profits on a pro rata basis; profits may be paid out in divi-
dends or reinvested in the company to help it grow. Increases and decreases in
earnings are usually reflected in a company's stock price, so common stocks
generally have the greatest appreciation and depreciation potential of all cor-
porate securities. While most preferred stocks pay a dividend, the Growth Fund
may purchase preferred stock where the issuer has omitted, or is in danger of
omitting, payment of its dividend. Such investments would be made primarily for
their capital appreciation potential.
The Growth Fund may invest in warrants, which are options to buy a stated
number of shares of common stock at a specified price at any time during the
life of the warrants (generally, two or more years).
The Growth & Income Fund also may invest in common stocks. Under normal mar-
ket conditions, at least 90% of the Growth & Income Fund's equity securities,
including, for this purpose, convertible securities, will be issued by large
companies (i.e., companies with a market capitalization of more than $1 bil-
lion). Both the Growth Fund and the Growth & Income Fund may invest in equity
securities of medium and smaller sized companies (i.e., those companies with at
least $250 million but less than $1 billion in market capitalization) which may
have the potential to generate high levels of future revenue and earnings
growth and where the investment opportunity may not be fully reflected in the
price of the securities. Investment in securities of such companies may involve
greater risks than investments in larger companies. There may be some addi-
tional risks associated with investments in medium and smaller companies be-
cause their shares tend to be less liquid than securities of larger companies.
Further, shares of medium and small companies are generally more sensitive to
purchase and sale transactions and changes in the issuer's financial condition
and, therefore, the prices of such stocks may be more volatile than those of
larger company stocks. The Growth & Income Fund's investments in medium and
smaller companies is not expected to exceed 10% of the Fund's equity securi-
ties.
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CONVERTIBLE BONDS. The Bond Fund may invest in convertible bonds, which are
fixed-income debt securities which may be converted at a stated price within a
specified period of time into a certain quantity of the common stock of the
same issuer. Convertible securities, while usually subordinate to similar non-
convertible securities, are senior to common stocks in an issuer's capital
structure. Convertible securities offer flexibility by providing the investor
with a steady income stream (generally yielding a lower amount than similar
non-convertible securities and a higher amount than common stocks) as well as
the opportunity to take advantage of increases in the price of the issuer's
common stock through the conversion feature. Fluctuations in the convertible
security's price can reflect changes in the market value of the common stock
or changes in market interest rates. At most, 5% of the Bond Fund's net assets
will be invested in convertible securities that are not either rated in the
four highest rating categories by Moody's, S&P or another nationally recog-
nized statistical rating organization, or unrated securities determined by the
Adviser, under the direction of the Board of Directors, to be of comparable
quality.
CONVERTIBLE SECURITIES. The Growth & Income Fund and the Growth Fund may pur-
chase convertible securities that are fixed-income debt securities or pre-
ferred stocks, and which may be converted at a stated price within a specified
period of time into a certain quantity of the common stock of the same issuer.
The Growth & Income Fund will seek to invest in convertible securities that
provide current income and that are issued by companies that have a strong
earnings and credit record. Convertible securities, while usually subordinate
to similar non-convertible securities, are senior to common stock in an is-
suer's capital structure. Convertible securities offer flexibility by provid-
ing the investor with a steady income stream (generally yielding a lower
amount than similar non-convertible securities and a higher amount than common
stocks) as well as the opportunity to take advantage of increases in the price
of the issuer's common stock through the conversion feature. Fluctuations in
the convertible security's price can reflect changes in the market value of
the issuer's common stock or changes in market interest rates.
CORPORATE BONDS AND NOTES. All of the Funds except the U.S. Government Income,
Municipal Bond and California Tax-Free Funds may invest in corporate bonds and
notes, which include debt securities issued by domestic corporations, U.S.
dollar-denominated debt securities issued by foreign corporations, Yankee
bonds and supranational obligations. Yankee bonds are U.S. dollar-denominated
obligations issued by foreign governments or companies. Supranational obliga-
tions are U.S. dollar-denominated obligations issued by international entities
such as The World Bank and the Inter-American Development Bank. A bond gener-
ally is an interest-bearing security--an IOU--issued by companies or govern-
mental units. The issuer has a contractual obligation to pay interest at a
stated rate on specific dates and to repay principal (the bond's face value)
on a specified date. An issuer may have the right to redeem or "call" a bond
before maturity, and the investor may have to reinvest the proceeds at lower
market rates.
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A bond's annual interest income, set by its coupon rate, is usually fixed for
the life of the bond. Its yield (income as a percent of current price) will
fluctuate to reflect the changes in interest rate levels. A bond's price usu-
ally rises when interest rates fall, and vice versa, so its yield stays cur-
rent. Bonds may be unsecured (backed by the issuer's general creditworthiness
only) or secured (also backed by specified collateral).
Certain bonds have interest rates that are adjusted periodically which tend
to minimize fluctuations in their principal value. In calculating the Fund's
weighted average maturity the maturity of these securities may be shortened un-
der certain specified conditions. Bonds may be senior or subordinated obliga-
tions. Senior obligations generally have the first claim on a corporation's
earnings and assets and, in the event of liquidation, are paid before subordi-
nated debt.
The Growth & Income Fund may invest up to 25% of its assets in corporate
bonds and notes of investment grade quality. Securities with the lowest invest-
ment grade rating have speculative characteristics and changes in economic con-
ditions 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 debt
obligations.
DELAYED DELIVERY TRANSACTIONS. All of the Funds may participate in Delayed De-
livery Transactions, which involve securities that are purchased on a when-is-
sued or delayed delivery basis, with payment and delivery taking place at a fu-
ture date. The Money Market Funds purchase securities on a delayed delivery ba-
sis to generate income and to hedge against changes in interest rates and secu-
rities' prices. The market value of securities purchased in this way may change
before the delivery date, which could affect the market value of a Fund's as-
sets. Ordinarily, a Fund will not earn interest on securities until they are
delivered. The Funds may also buy and sell securities on a forward commitment
basis. When delayed delivery purchases are outstanding, a Fund will set aside
cash or liquid high quality debt instruments in a segregated custodial account
to cover its purchase obligations. There is no limit on the amount of Non-Money
Market Fund assets subject to delayed delivery transactions. See "Additional
Securities and Investment Practices Shared by Certain Funds--Delayed Delivery
Transactions" in the SAI.
DEMAND FEATURES. The Money Market Funds may invest in securities with demand
features, which are puts that entitle a security holder to repayment of the
principal amount of the underlying security on no more than 30 days' notice at
any time or at specified intervals not exceeding 397 days.
DERIVATIVE MUNICIPAL OBLIGATIONS. The Municipal Bond Fund and California Tax-
Free Fund may invest in derivative municipal obligations, which include custo-
dial receipts or certificates evidencing ownership of future interest payments,
principal payments or both on underlying municipal securities. Derivative mu-
nicipal obligations also include municipal
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securities with embedded interest rate derivative products. These Funds will
not invest more than 20% of their respective total assets in derivative munic-
ipal obligations. A discussion of interest rate derivative products is set
forth in the SAI under "Derivative Municipal Obligations." These interest rate
derivative products allow funds to hedge against fluctuations in interest
rates. Investment in certain of these instruments (e.g., Inverse Components)
may increase the volatility of these Funds' NAV and market value of these
Funds' shares.
DOLLAR-DENOMINATED FOREIGN SECURITIES. Each of the Short-Term Bond Fund, the
Bond Fund, the Growth & Income Fund, the U.S. Government Income Fund and the
Growth Fund may invest in foreign securities, which are securities of foreign
governments, private issuers and supranational organizations that are denomi-
nated in and pay interest in U.S. dollars. Investments in foreign securities
involve certain considerations that are not typically associated with invest-
ing in domestic securities. There may be less publicly available information
about a foreign issuer than about a domestic issuer. Foreign issuers also are
not generally subject to the same accounting, auditing and financial reporting
standards or governmental supervision as domestic issuers. In addition, with
respect to certain foreign countries, interest may be withheld at the source
under foreign income tax laws, and there is a possibility of expropriation or
confiscatory taxation, political or social instability or diplomatic develop-
ments that could adversely affect investments in, the liquidity of, and the
ability to enforce contractual obligations with respect to, securities of is-
suers located in those countries. Each of the Short-Term Bond Fund, the Bond
Fund and the Growth Fund may invest up to 25% of its total assets, and the
Growth & Income Fund does not intend to invest more than 10% of its total as-
sets, in foreign securities.
FOREIGN INDEX LINKED INSTRUMENTS. The U.S. Government Income Fund and the Bond
Fund may invest up to 10% of their total assets in Foreign Index Linked In-
struments. Foreign Index Linked Instruments are fixed income securities which
are issued by U.S. issuers (including U.S. subsidiaries of foreign issuers)
and are denominated in U.S. dollars but return principal and/or pay interest
to investors in amounts which are linked to the level of a particular foreign
index. A foreign index may be based upon the exchange rate of a particular
currency or currencies or the differential between two currencies, or the
level of interest rates in a particular country or countries or the differen-
tial in interest rates between particular countries. In the case of Foreign
Index Linked Instruments linking the principal amount to a foreign index, the
amount of principal payable by the issuer at maturity will increase or de-
crease in response to changes in the level of the foreign index during the
term of the Foreign Index Linked Instrument. In the case of Foreign Index
Linked Instruments linking the interest component to a foreign index, the
amount of interest payable will adjust periodically in response to changes in
the level of the foreign index during the term of the Foreign Index Linked In-
strument. Foreign Index Linked Instruments may be issued by a U.S. governmen-
tal agency or instrumentality or by a private issuer.
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The Foreign Index Linked Instruments which have been issued to date have
been debt instruments closely resembling corporate debt securities, U.S. Gov-
ernment Obligations or zero-coupon bonds ("Debt Securities") except for the
benchmark to which payments of principal or interest are tied. In the future,
other Foreign Index Linked Instruments may be created backed by mortgages or
other assets which closely resemble mortgage backed securities or asset backed
securities. Therefore, the risks previously described in this Prospectus, with
respect to mortgage backed securities, asset backed securities or Debt Securi-
ties, as the case may be, may also be equally applicable to a Foreign Index
Linked Instrument.
Foreign Index Linked Instruments also present certain risks not applicable
to mortgage backed securities, asset based securities or Debt Securities. Such
Foreign Index Linked Instruments may offer higher yields than comparable secu-
rities linked to purely domestic indices but also may be more volatile. For-
eign Index Linked Instruments are relatively recent innovations for which the
market has not yet been fully developed and, accordingly, they typically are
less liquid than comparable securities linked to purely domestic indices. In
addition, the value of Foreign Index Linked Instruments will be affected by
fluctuations in foreign exchange rates or in foreign interest rates. If Grif-
fin Advisers is incorrect in its prediction as to the movements in the direc-
tion of particular foreign currencies or foreign interest rates, the return
realized by a Fund on a Foreign Index Linked Instrument may be lower than if
the Fund had invested in a similarly rated domestic security. Foreign currency
gains and losses with respect to Foreign Index Linked Instruments may affect
the amount and timing of income recognized by the Funds.
FUTURES CONTRACTS AND RELATED OPTIONS are contracts for the future delivery of
securities (based on a specific security or index) and options on such con-
tracts. A futures contract obligates either party to pay, and entitles the
other party to receive, while the contract is outstanding, cash payments based
on the value of the security or on the level of the securities index.
The Non-Money Market Funds may engage in transactions in such futures con-
tracts in an effort to hedge against market risks and/or manage cash flow into
the Non-Money Market Funds. For example, when interest rates are expected to
rise or market values of portfolio securities are expected to fall, the Non-
Money Market Funds can seek through the sale of futures contracts to offset a
decline in the value of their portfolio securities. When interest rates are
expected to fall or market values are expected to rise, the Non-Money Market
Funds, through the purchase of such contracts, can attempt to secure better
rates or prices for the Non-Money Market Funds than might later be available
in the market when they effect anticipated purchases. Alternatively, futures
may be used to manage cash flows into and out of the Non-Money Market Funds.
For example, the investment manager may wish to be fully invested in a partic-
ular asset class. Through the use of futures, the manager can achieve this ob-
jective immediately while temporarily deferring industry and security selec-
tion, in the interest of timeliness.
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The acquisition of put and call options on futures contracts will give the
Non-Money Market Funds the right (but not the obligation), for a specified
price, to sell or to purchase, respectively, the underlying futures contract
upon exercise of the option at any time during the option period.
Aggregate initial margin deposits for futures contracts, and premiums paid
for related options, may not exceed 5% of each Non-Money Market Fund's total
assets, and the value of securities that are the subject of such futures and
options (both for receipt and delivery) may not exceed 30% of the market value
of each Non-Money Market Fund's total assets. Futures transactions will be
limited to the extent necessary to maintain each Non-Money Market Fund's qual-
ification as a regulated investment company.
Futures transactions involve brokerage costs and require the Non-Money Mar-
ket Funds to segregate cash or liquid high quality debt instruments to cover
contracts that would require the Non-Money Market Funds to purchase securities
or currencies. All such contracts will be fully collateralized by the assets
in the segregated account, which will be maintained by the custodian. The Non-
Money Market Funds may lose the expected benefit of futures transactions if
interest rates, exchange rates or securities prices move in an unanticipated
manner. Such losses are potentially significant and unanticipated changes may
result in poorer overall performance than if the Non-Money Market Funds had
not entered into any futures transactions. In addition, the value of a Non-
Money Market Fund's futures positions may not prove to be perfectly or even
highly correlated with the value of its portfolio securities, limiting the
Non-Money Market Fund's ability to hedge effectively against interest rate,
exchange rate and/or market risk and giving rise to additional risks. There is
no assurance of liquidity in the secondary market for purposes of closing out
future positions. Where a liquid secondary market does not exist, a Non-Money
Market Fund is unlikely to be able to control losses by closing out futures
positions. Finally, gains and losses on investments in options and futures de-
pend on Griffin Advisers' ability to predict correctly the direction of inter-
est rates and other economic factors. The potential loss from the use of
futures transactions can exceed a Non-Money Market Fund's initial investments
in such contracts.
ILLIQUID INVESTMENTS. Each of the Money Market Funds may invest up to 10% of
its net assets, and each of the Non-Money Market Funds may invest up to 15% of
its net assets in illiquid investments. Illiquid investments are those that
may not be sold or disposed of in the ordinary course of business within seven
days at approximately the price at which they are valued. Under the supervi-
sion of the Board of Directors, Griffin Advisers determines the liquidity of
each Fund's investments. The absence of a trading market can make it difficult
to ascertain a market value for illiquid investments. Disposing of illiquid
investments before maturity may be time-consuming and expensive and it may be
difficult or impossible for a Fund to sell illiquid investments promptly at an
acceptable price. See "Additional Securities and Investment Practices Shared
by Certain Funds--Illiquid Investments" in the SAI.
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INTEREST ONLY AND PRINCIPAL ONLY OBLIGATIONS. Each of the U.S. Government In-
come Fund, Municipal Bond Fund, California Tax-Free Fund and Bond Fund may
make limited investments (not exceeding 20% of the relevant Fund's total as-
sets) in separately traded principal and interest components of securities is-
sued by the United States Treasury or which are restructured in the secondary
market. The principal and interest components of selected U.S. Treasury secu-
rities are traded independently under the Separate Trading of Registered In-
terest and Principal of Securities program ("STRIPS"). Under the STRIPS pro-
gram, the principal and interest components are individually numbered and sep-
arately issued by the U.S. Treasury at the request of depository financial in-
stitutions, which then trade the component parts independently. STRIPS, par-
ticularly the interest component, are more volatile than coupon-bearing U.S.
Treasury securities with comparable maturities.
INTEREST RATE SWAPS AND INTEREST RATE CAPS AND FLOORS. The Municipal Bond
Fund, California Tax-Free Fund and Short-Term Bond Fund may participate in in-
terest rate swaps and interest rate caps and floors, which are transactions
that preserve a return or a spread on a particular investment or that protect
against an increase in the price of securities anticipated for purchase at a
later date. See "Additional Securities and Investment Practices of Specific
Funds--Interest Rate Transactions" in the SAI.
MONEY MARKET INSTRUMENTS refer to instruments with remaining maturities of one
year or less. Each of the Funds will hold a certain portion of its assets in
money market securities, including repurchase agreements, rated in the two
highest rating categories, maturing in one year or less. For temporary, defen-
sive purposes, the Funds may invest without limitation in such securities.
This reserve position provides flexibility in meeting redemptions, expenses,
and the timing of new investments, and serves as a short-term defense during
periods of unusual market volatility.
MUNICIPAL LEASE OBLIGATIONS AND CERTIFICATES OF PARTICIPATION. The Tax-Free
Money Market Fund, Municipal Bond Fund and California Tax-Free Fund may invest
in municipal lease obligations and certificates of participation, which are
issued by a state or local government or authority to acquire land and a wide
variety of equipment and facilities. These obligations typically are not fully
backed by the municipality's credit, and their interest may become taxable if
the lease is assigned. In certain instances, if funds are not appropriated for
the following year's lease payments, a lease may terminate, with the possibil-
ity of default on the lease obligation and significant loss to the Fund. A
participation interest in a municipal lease obligation represents a specified,
undivided interest in the obligation in proportion to the purchased interest
in the total amount of the obligation and may have limited marketability.
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MUNICIPAL SECURITIES. The Money Market Funds, Municipal Bond Fund and Califor-
nia Tax-Free Fund may invest in Municipal Securities, which include general ob-
ligation securities, which are backed by the full taxing power of a municipali-
ty, and revenue securities, which are backed by revenues of a specific tax,
project or facility. Industrial revenue bonds are a type of revenue bond backed
by the credit and security of a private issuer and may involve greater risk.
Private activity municipal securities, which may be subject to the federal al-
ternative minimum tax, include securities issued to finance housing and other
construction projects, student loans, and privately owned solid waste disposal
and water and sewage treatment facilities.
OPTIONS. The Non-Money Market Funds may invest in options, which can be either
put or call options on securities in which a Non-Money Market Fund may invest
directly and are traded on registered domestic securities exchanges or result
from separate, privately negotiated transactions with primary U.S. Government
securities dealers recognized by the Board of Governors of the Federal Reserve
System. The Growth & Income Fund may purchase or write options. Purchases of
put and call options will be limited to 5% of the Growth & Income Fund's total
assets. Purchases of covered put and call options are limited to 5% of each of
the other Non-Money Market Funds' total assets; there is no limit on such Funds
with respect to the writing of covered put and call options.
OTHER INVESTMENT COMPANIES. All of the Funds may invest in shares of other
open-end management investment companies with consistent investment objectives,
subject to the limitations of Section 12(d)(1) of the Investment Company Act of
1940, provided that any such purchases will be limited to temporary investments
in shares of unaffiliated investment companies and Griffin Advisers will waive
its advisory fees for that portion of a Fund's assets so invested, except when
such purchase is part of a plan of merger, consolidation, reorganization or ac-
quisition. Such investment companies can be expected to charge fees for certain
operating expenses that would be in addition to those charged by the Funds. The
Tax-Free Money Market Fund may invest in shares of another tax-free money mar-
ket fund provided, however, that the Tax-Free Money Market Fund may only invest
in a tax-free money market fund with a fundamental policy of investing, under
normal conditions, at least 80 percent of its total assets in obligations that
are exempt from federal income taxes and that are not subject to the federal
alternative minimum tax. The Money Market Funds will only invest in the shares
of other money market funds after conducting a credit analysis of such funds.
REPURCHASE TRANSACTIONS. All of the Funds may participate in repurchase trans-
actions, which are transactions involving a purchase of a security by a Fund
that simultaneously commits to resell that security to the seller at an agreed
upon price on an agreed upon date within a number of days from the date of pur-
chase. The resale price reflects the
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purchase price plus an agreed upon incremental amount. In the event of the
bankruptcy of the other party to a repurchase agreement, a Fund could experi-
ence delays in recovering its cash or disposing of the securities obtained
from the other party. To the extent that in the meantime, the value of the se-
curities purchased may have decreased, a Fund could experience a loss. In all
cases, the creditworthiness of the other party to a transaction is reviewed
and found satisfactory by Griffin Advisers. Repurchase agreements are, in ef-
fect, loans of Fund assets.
RESOURCE RECOVERY BONDS. The Tax-Free Money Market Fund, Municipal Bond Fund
and California Tax-Free Fund may invest in Resource Recovery Bonds, which are
a type of revenue bond issued to build facilities such as solid waste inciner-
ators or waste-to-energy plants. Typically, a private corporation will be in-
volved, at least during the construction phase, and the revenue stream will be
secured by fees or rents paid by municipalities for the use of facilities. The
viability of a resource recovery project, environmental protection regula-
tions, and project operator tax incentives may affect the value and credit
quality of resource recovery bonds.
RESTRICTED SECURITIES. All of the Funds may purchase securities which cannot
be sold to the public without registration under the Securities Act of 1933.
Unless registered for sale these securities can only be sold in privately ne-
gotiated transactions or pursuant to an exemption from registration.
REVERSE REPURCHASE TRANSACTIONS. All of the Funds may participate in reverse
repurchase transactions. In a reverse repurchase transaction, a Fund temporar-
ily transfers possession of a portfolio instrument to another party such as a
bank or broker-dealer, in return for cash. At the same time, the Fund agrees
to repurchase the instrument at an agreed upon price and time. Reverse repur-
chase agreements are, in effect, borrowings by the Funds. Each Fund expects
that it will engage in reverse repurchase agreements for the limited purpose
of meeting redemptions. Reverse repurchase agreements may increase the risk of
fluctuation in the market value of each Fund's assets or in its yield. As a
matter of fundamental policy, each Money Market Fund may not engage in reverse
repurchase agreements in an amount exceeding 10% of its total assets. When a
Fund enters into a reverse repurchase transaction, it will place cash or liq-
uid high quality debt instruments in a segregated account with its custodian
in an amount at least equal to its obligations under the reverse repurchase
transaction.
SECURITIES LENDING. To increase return on portfolio securities, the Short-Term
Bond Fund, Bond Fund, Growth & Income Fund and Growth Fund may lend their
portfolio securities to broker-dealers and other institutional investors pur-
suant to agreements requiring that the loans be continuously secured by col-
lateral equal at all times in value to at least the
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market value of the securities loaned. There may be risks of delay in receiv-
ing additional collateral or in recovering the securities loaned or even a
loss of rights in the collateral should the borrower of the securities fail
financially. However, loans are made only to borrowers deemed by Griffin Ad-
visers to be of good standing and when, in its judgment, the income to be
earned from the loan justifies the attendant risks. The aggregate of all out-
standing loans of a Fund may not exceed 33 1/3% of the value of its total as-
sets.
STANDBY COMMITMENTS. The Tax-Free Money Market Fund, the Municipal Bond and
the California Tax-Free Fund may invest in standby commitments, which are puts
that entitle the security holder to same-day settlement at amortized cost plus
accrued interest. Issuers or financial intermediaries who provide demand fea-
tures or standby commitments often support their ability to buy securities on
demand by obtaining letters of credit ("LOCs") or other guarantees from domes-
tic or foreign banks. LOCs also may be used as credit supports for other types
of municipal instruments. Griffin Advisers may rely upon its evaluation of a
bank's credit in determining whether to purchase an instrument supported by an
LOC. In evaluating a foreign bank's credit, Griffin Advisers will consider
whether adequate public information about the bank is available and whether
the bank may be subject to unfavorable political or economic developments,
currency controls, or other governmental restrictions that might affect the
bank's ability to honor its credit commitment.
TAX AND REVENUE ANTICIPATION NOTES. The Tax-Free Money Market Fund, Municipal
Bond Fund and California Tax-Free Fund may invest in Tax and Revenue Anticipa-
tion Notes, which are issued by municipalities in expectation of future tax or
other revenues, and are payable from those specific taxes or revenues.
TAX-EXEMPT COMMERCIAL PAPER. The Tax-Free Money Market Fund, the Municipal
Bond Fund and the California Tax-Free Fund may purchase tax-exempt commercial
paper, which is issued by municipalities to help provide short-term capital or
finance operating needs.
TAX-EXEMPT SECURITIES. The Municipal Bond and California Tax-Free Funds may
invest in tax-exempt securities, which include those on which the interest
rate on which has been divided into two or more different components. Typical-
ly, one component (the "Auction Component") pays an interest rate that is re-
set periodically through an auction process or by reference to an interest
rate index and is essentially a variable or floating rate obligation. A second
component (the "Inverse Component") pays a residual interest rate based on the
difference between the total interest paid by the issuer on the municipal se-
curities and the rate paid on the Auction Component. Inverse Components may
also pay a rate of interest determined by subtracting a multiple of a variable
or floating rate from the total amount paid by the issuer of the tax-exempt
security. Either Fund may purchase Auction
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Components without limitation and, with respect to up to 20% of the Fund's to-
tal assets, may purchase Inverse Components. Because the interest rate paid to
holders of Inverse Components is generally determined by subtracting a variable
or floating rate from a predetermined amount, the interest rate paid to Inverse
Component holders will decrease as such variable or floating rate increases and
increase as such variable or floating rate decreases. Moreover, the extent of
the increases and decreases in the value of an Inverse Component in response to
changes in market rates of interest generally will be larger than comparable
changes in the value of an equal principal amount of a fixed rate municipal se-
curity having similar credit quality, redemption provisions and maturity. In-
vestments in Inverse Components may therefore increase the volatility of the
NAV of Fund shares.
TENDER OPTION BONDS. The Tax-Free Money Market Fund may invest in tender option
bonds, which are created by coupling an intermediate or long-term, fixed rate
tax-exempt bond with a tender agreement that gives the holder the option to
tender the bond at its face value. In return for providing the tender option,
the sponsor (usually a bank, broker-dealer or other financial institution) re-
ceives periodic fees equal to the difference between the bond's fixed coupon
rate and the rate that would cause the bond, coupled with the tender option, to
trade at par value. Subject to applicable regulatory requirements, the Fund may
buy tender option bonds if the tender option agreement gives the Fund the right
to tender the bond to its sponsor no less frequently than once every 397 days.
A sponsor may terminate a tender option if, for example, the issuer of the un-
derlying bond defaults on interest payments.
U.S. GOVERNMENT OBLIGATIONS. All of the Funds may invest in U.S. Government Ob-
ligations, which are securities issued or guaranteed by the U.S. Government,
its agencies and instrumentalities. Not all U.S. Government Obligations are di-
rect obligations of the U.S. Treasury. Payment of their principal and interest
may be backed by the full faith and credit of the United States (e.g., U.S.
Treasury bills and GNMA certificates) or solely by the issuing or guaranteeing
agency or instrumentality itself (e.g., FNMA notes). In the latter case, in-
vestors must look to the agency or instrumentality issuing or guaranteeing the
obligation for ultimate repayment. GNMA certificates and FNMA notes represent
ownership interests in a pool of mortgages and the resulting cash flow from
those mortgages. The stated maturities of these obligations may be shortened by
unscheduled prepayments of principal and interest on the underlying mortgages,
thereby affecting a Fund's yield.
VARIABLE OR FLOATING RATE INSTRUMENTS. All of the Funds may invest in variable
or floating rate instruments (including notes purchased directly from issuers),
which bear variable or floating interest rates and may carry a demand feature
that permits holders to demand full payment from the issuers or certain
financial intermediaries. Floating rate securities have interest rates that
change whenever there is a change in a designated market-based interest
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rate, while variable rate instruments provide for a specified periodic
adjustment in the interest rate. These formulas generally are designed to
result in a market value for the instrument that approximates its par value.
These formulas also limit the increase or decrease in the amount of interest
received on the debt instruments.
ZERO COUPON BONDS. The Tax-Free Money Market Fund, U.S. Government Income
Fund, Municipal Bond Fund, California Tax-Free Fund and Bond Fund may invest
in zero coupon bonds, which are bonds that do not make regular interest pay-
ments; instead they are sold at a deep discount from their face value and are
redeemed at face value when they mature. Because zero coupon bonds do not pay
current income, their prices can be very volatile when interest rates change.
In calculating dividends, the Funds will take into account as income a portion
of the difference between a zero coupon bond's purchase price and its face
value.
INVESTMENT LIMITATIONS
Each Fund's investment objective, as set forth in the "Funds in Brief" sec-
tion, is fundamental; that is, it may not be changed without approval by vote
of the holders of a majority of the relevant Fund's outstanding voting securi-
ties. In addition, any fundamental investment policy may not be changed with-
out such shareholder approval. If The Griffin Funds' Board of Directors deter-
mines, however, that a Fund's investment objective can best be achieved by a
substantive change in a non-fundamental investment policy or strategy, the
Board may make such change without shareholder approval and will disclose any
such material changes in the then current prospectus. Any policy that is not
specified in a Fund's Prospectus, or in the SAI, as being fundamental, is non-
fundamental.
MONEY MARKET FUNDS
The following summarizes each Money Market Fund's principal investment limita-
tions. A complete listing is contained in the SAI.
(1) Each Fund normally may not invest more than 5% of its total assets in the
securities (other than U.S. Government securities) of any one issuer. Un-
der certain conditions, however, each Fund may invest up to 10% of its to-
tal assets in the first tier securities of a single issuer for up to three
days.
(2) Each Fund will not purchase a security (other than U.S. Government securi-
ties) if, as a result, more than 25% of its total assets would be invested
in a particular industry, except that the Money Market Fund will concen-
trate more than 25% of its total assets in the financial services indus-
try.
(3) Each Fund may not purchase more than 10% of the outstanding voting securi-
ties of any one issuer (other than U.S. Government securities).
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(4) Each Fund may not invest more than 5% of the value of its total assets in
the securities (other than U.S. Government securities) of issuers having a
record, together with predecessors, of less than three years of continuous
operation.
(5) Each Fund (a) may borrow money for temporary or emergency purposes or en-
gage in reverse repurchase agreements in an amount not to exceed 10% of its
total assets; and (b) may not purchase any security while borrowings repre-
senting more than 5% of its total assets are outstanding; and
(6) Each Fund (a) may make securities or other loans to other parties, but not
in excess of 33 1/3% of its total assets, and (b) may engage in repurchase
agreements.
Limitations 1, 2, 5 and 6(a) are fundamental limitations. Each Money Market
Fund's investment policies and limitations, unless otherwise indicated, are not
fundamental, and may be changed without shareholder approval. Except for the
percentage limitation in 6(a), these limitations and policies are considered at
the time of purchase; the sale of securities is not required in the event of a
subsequent change in circumstances.
Because the Money Market Fund concentrates more than 25% of its total assets
in the financial services industry, its performance may be affected by condi-
tions affecting banks and other financial services companies. Companies in the
financial services industry are subject to various risks related to that indus-
try, such as governmental regulation, changes in interest rates and exposure on
loans, including loans to foreign borrowers.
Investments in the financial services industry will consist of obligations of
domestic banks, savings and loan associations, consumer and industrial finance
companies, securities brokerage companies, leasing companies and a variety of
firms in the insurance field. These obligations will consist of time deposits,
certificates of deposit, bankers' acceptances and commercial paper.
NON-MONEY MARKET FUNDS
The following summarizes each Non-Money Market Fund's principal investment lim-
itations. A complete listing is contained in the SAI. Each Fund may not:
(1) Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of the Fund's
total assets would be invested in the securities of such issuer, or more
than 10% of the issuer's outstanding voting securities would be owned by
the Fund, except that up to 25% of the value of the Fund's total assets may
be invested without regard to these limitations, and except that this re-
striction does not apply to the California Tax-Free Fund, which is a non-
diversified fund.
(2) Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of purchase to be invested in the securi-
ties of one or more issuers conducting their principal business activities
in the same industry, provided that (a) there is no limitation with respect
to U.S. Government Obligations and repurchase agreements secured by such
obligations; (b) with respect to the California
68
<PAGE>
Tax-Free Fund and the Municipal Bond Fund, there is no limitation with re-
spect to municipal obligations (for purposes of this limitation, private
activity bonds that are backed only by the assets and revenues of a non-
governmental user shall not be deemed to be municipal obligations); (c)
wholly owned finance companies will be considered to be in the industries
of their parents if their activities are primarily related to financing
the activities of the parents; and (d) utilities will be divided according
to their services, for example, gas, gas transmission, electric and gas,
electric and telephone will each be considered a separate industry.
(3) Make loans, borrow money or issue senior securities, except under certain
circumstances, and subject to certain percentage limitations, specified in
the SAI.
If a percentage limitation is satisfied at the time of investment, a later in-
crease or decrease in such percentage resulting from a change in the value of
a Fund's portfolio securities will not constitute a violation of such limita-
tion.
In order to permit the sale of a Fund's shares in certain states, a Fund may
make commitments that are more restrictive than the investment policies and
limitations described above and in the SAI. Such commitments may have an ef-
fect on the investment performance of the Funds. Should a Fund determine that
any such commitment is no longer in the best interests of the Fund, it may re-
voke the commitment and cease sales of its shares in the state involved.
69
<PAGE>
INVESTMENT ADVISER
Griffin Financial Investment Advisers
5000 Rivergrade Road
Irwindale, CA 91706
SUB-ADVISER TO THE MONEY MARKET FUND, TAX-FREE MONEY MARKET FUND, U.S.
GOVERNMENT INCOME FUND, MUNICIPAL BOND FUND AND CALIFORNIA TAX-FREE FUND
Payden & Rygel Investment Counsel
333 South Grand Avenue, 32nd Floor
Los Angeles, California 90071
SUB-ADVISER TO THE BOND FUND AND GROWTH & INCOME FUND
The Boston Company Asset Management, Inc.
One Boston Place
Boston, Massachusetts 02108
SUB-ADVISER TO THE SHORT-TERM BOND FUND AND GROWTH FUND
T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, Maryland 21202
SPONSOR AND DISTRIBUTOR
Griffin Financial Services
5000 Rivergrade Road
Irwindale, CA 91706
TRANSFER AGENT AND CUSTODIAN
Investors Fiduciary Trust Company
127 West 10th Street
Kansas City, Missouri 64105
70
<PAGE>
INDEPENDENT AUDITOR
KPMG Peat Marwick LLP
725 South Figueroa Street
Los Angeles, California 90017
LEGAL COUNSEL
Morrison & Foerster LLP
2000 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
For more information about the Funds, simply call (800) 676-4450, or write:
Griffin Financial Services
5000 Rivergrade Road
Irwindale, CA 91706
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION, ANY STATE
SECURITIES COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
71
<PAGE>
The Griffin Portfolio Builder
NEW ACCOUNT APPLICATION
FOR ISO USE ONLY:
Complete both sides of this application. Mail to REP. NAME:
The Griffin Funds, P.O. Box 419245, Kansas City,
Missouri 64141 or return to a Griffin REP.#:BRANCH#:
representative at any Home Savings or Savings of
America branch. Please read the prospectus for more
information on the optional features listed below.
FOR HELP WITH THIS APPLICATION CALL THE GRIFFIN GFS ACCT.#:
FUNDS AT 1-800-876-4450.
[_] NEW APPLICATION[_] CHANGE TO EXISTING ACCOUNT
NUMBER _____________________________________________
1 Account Ownership
Check one box only and complete the information requested on the right. Please
use blue or black ink and print clearly.
[_] Individual
Owner's name _________________ Social Security number ___________
[_] Joint tenant*
Joint owner's name ___________ Social Security number ___________
Joint owner's name __________ Social Security number ___________
[_] Gift/transfer to a minor
Custodian's name _____________ under the __ (state)
UGMA.
Minor's name _________________ Social Security number ___________
[_] Trust Trustee's name _______________ Tax ID number ____________________
Trustee's name _______________
As trustees of (name of Date of Trust ____________________
trust) _______________________
[_] Corporation
Name _________________________
[_] Partnership
Tax ID number _______________
[_] Other
An authorized officer or
partner must sign in SECTION
7.
* The account will be registered as "joint tenants with right of survivorship"
unless otherwise specified.
2 Mailing Address
Street Address _____________________________________ Daytime phone ____________
City __________________________ State Zip ______ Evening phone ____________
State of residence (if different from
above) _________________________________
Citizenship of owner:
[_] U.S.
[_] Resident alien
[_] Non-resident alien: country of tax
residence _______________________________________
3 Strategy Selection
Minimum initial investment amount: $10,000 per strategy. Please make check
payable to The Griffin Funds.
Indicate investment purchase in the following strategies:
AMOUNT AMOUNT
- --------------------------------------------------------------------------------
CONSERVATIVE STRATEGY
$ ____
TAX-ADVANTAGED CONSERVATIVE
STRATEGY
$ ____
TAX-ADVANTAGED MODERATE STRATEGY
$ ____
MODERATE STRATEGY $ ____
TAX-ADVANTAGED BALANCED STRATEGY
$ ____
BALANCED STRATEGY $ ____
(available to California
GROWTH STRATEGY $ ____ residents only)
HIGH-GROWTH STRATEGY$ ____
4 Bank Account Information and Authorization
Please complete this section if you have requested that payments be made
directly to your bank, and attach a blank voided check or preprinted deposit
slip; if you have selected the automatic investment feature; or if you may at
anytime request that redemption proceeds be credited to your bank account. THIS
INFORMATION IS REQUIRED FOR ANY SPECIAL USE PRIVILEGE, AUTOMATIC CLEARING HOUSE
(ACH) OR ELECTRONIC FUNDS TRANSFER ACTIVITIES.
Name of bank _______________________ Bank account number _____________________
Address of bank ____________________ ABA/bank routing number (if known) ______
Signature __________________________ Date ____________________________________
Application continued on reverse side
[LOGO OF GRIFFIN FUNDS APPEARS HERE]
<PAGE>
- --------------------------------------------------------------------------------
5 Optional Features
- --------------------------------------------------------------------------------
AUTOMATIC INVESTMENT PLAN (DOLLAR COST AVERAGING)
You may invest automatically on a regular basis directly from your bank account
to The Griffin Funds. To establish this feature, complete the information below
and in SECTION 4 and attach a blank voided check or preprinted deposit slip.
Automatic investments will be debited from your account on or about the 5th or
20th. Investments will begin approximately two weeks after this application is
received. MINIMUM INVESTMENT AMOUNT IS $100.00.
[_] I authorize you to charge my bank account and make payments to The Griffin
Funds upon instructions from The Griffin Funds. Your right for making payments
for these charges shall be the same as if each charge were made and signed per-
sonally by me. This authority shall remain in effect until you receive written
notice from me changing its terms or revoking it. Until such change is made, I
agree that you are fully protected in paying any charge under this authority,
and if a charge is not made, whether intentionally or inadvertently, you shall
have no liability whatsoever.
Signature __________________________________________ Date ___________________
Joint Owner ________________________________________ Date ___________________
Specify amount $ Date (choose one) [_] 5th [_] 20th How often?
(choose one) [_] Monthly [_] Quarterly
DIRECT DEPOSITS
You may invest directly from your paycheck or your Social Security check. The
minimum investment is $100 per pay period.
[_] Check here to establish this feature. An authorization form will be sent to
you.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
You may have your dividends and capital gains distributions reinvested into
your Money Market Fund or Tax-Free Money Market Fund Account. To establish this
feature, check the appropriate box below:
Reinvest all dividends and capital gains distributions into my:
[_] Money Market Fund Account [_] Tax-Free Money Market Fund Account
SYSTEMATIC WITHDRAWALS
This feature is available only on accounts with $10,000 or more. Systematic
withdrawals must be $50 or more. Withdrawals are made on or about the 25th day
of the month (or the next business day). Shares will be redeemed in accordance
with the hierarchy described in Section 13 of the Client Agreement. To elect
this feature, complete the following:
Specify amount $ __________
Beginning date (month/year): / How
often? [_] Monthly [_] Quarterly [_] Semi-annually [_] Annually
WITHDRAWALS WILL BE MAILED TO YOU UNLESS YOU INDICATE OTHERWISE.
[_] Send withdrawals to other individual (complete PAYMENTS TO OTHERS Section
below)
[_] Deposit withdrawals in my bank account (complete SECTION 4)
PAYMENTS TO OTHERS
This option is available only for systematic withdrawals.
Send to: Name __________________________________________________________________
Street Address _____________________ City ____________ State Zip _________
6 Telephone Exchanges and Redemptions
By telephone, you have the ability to make redemptions or exchanges between
Funds with the same ownership. This privilege is automatic, unless you indicate
otherwise.
IF YOU DO NOT WANT THIS FEATURE, CHECK AND INITIAL
HERE: [_] INITIALS _________________________________
7 Signature
Your application cannot be processed if you do not provide a Social Security or
Taxpayer Identification Number in Section 1 or fail to provide signatures of
all registered owners.
I have read the applicable prospectus and this application and agree to the
terms. I authorize the instructions given on this form. I certify, under penal-
ties of perjury that:
[_] I am a U.S. citizen or resident alien, and that 1) the Social Security or
Taxpayer Identification Number shown is correct, and 2) that the IRS has never
notified me that I am subject to 31% backup withholding or has notified me
that I am no longer subject to backup withholding.
[_] I am an exempt foreign citizen, and I am not a U.S. citizen or resident
alien.
Signature __________________________ Joint Owner _____________________________
Additional Owner(s) ________________ Date ____________________________________
If you have a Griffin Funds representative, please and branch location _______
indicate his/her name _____________________________
SF-24049-7 (REV. B 1/96)
[LOGO OF GRIFFIN FUNDS APPEARS HERE]
<PAGE>
THE GRIFFIN FUNDS, INC.
MONEY MARKET FUND
TAX-FREE MONEY MARKET FUND
SHORT-TERM BOND FUND
U.S. GOVERNMENT INCOME FUND
MUNICIPAL BOND FUND
CALIFORNIA TAX-FREE FUND
BOND FUND
GROWTH & INCOME FUND
GROWTH FUND
STATEMENT OF ADDITIONAL INFORMATION
JANUARY 31, 1996
The Griffin Funds, Inc. ("The Griffin Funds") is a professionally managed, open-
end investment company. This Statement of Additional Information contains
information about each of The Griffin Funds' investment portfolios -- the Money
Market Fund, the Tax-Free Money Market Fund (the "Money Market Funds"), the
Short-Term Bond Fund, the U.S. Government Income Fund, the Municipal Bond Fund,
the California Tax-Free Fund, the Bond Fund, the Growth & Income Fund and the
Growth Fund (the "Non-Money Market Funds") (collectively, the "Funds") and
relates to the single class of shares offered by the Money Market Funds and the
two classes of shares offered by each Non-Money Market Fund -- Class A Shares
and Class B Shares. This Statement of Additional Information is not a
prospectus but should be read in conjunction with the Funds' current Prospectus,
dated January 31, 1996, as supplemented from time to time. All terms used
herein that are defined in the Prospectus will have the meanings assigned in the
Prospectus. Please retain this Statement of Additional Information for future
reference. To obtain additional copies of this Statement of Additional
Information or of the Funds' Prospectus, please call The Griffin Funds at 1-800-
676-4450.
<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
<S> <C>
General Information...................................................................... 3
Investment Limitations................................................................... 3
Money Market Fund...................................................................... 3
Tax-Free Money Market Fund............................................................. 5
Short-Term Bond Fund................................................................... 6
U.S. Government Income Fund............................................................ 9
Municipal Bond Fund.................................................................... 11
California Tax-Free Fund............................................................... 13
Bond Fund.............................................................................. 15
Growth & Income Fund................................................................... 17
Growth Fund............................................................................ 19
Additional Securities and Investment Practices Shared by Certain Funds................. 21
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
<S> <C>
Additional Securities and Investment Practices of Specific Funds........................ 28
Additional Securities and Investment Practices of the Tax Free Money Market Fund Only... 37
Additional Securities and Investment Practices of the Bond Fund Only.................... 41
Additional Securities and Investment Practices of the Growth & Income Fund Only......... 42
Special Factors Affecting the California Tax-Free Fund.................................. 42
Portfolio Transactions................................................................... 54
Valuation of Portfolio Securities........................................................ 56
Performance.............................................................................. 57
Additional Purchase and Redemption Information........................................... 63
Distributions and Taxes.................................................................. 64
Service Providers........................................................................ 68
Directors and Officers................................................................... 69
Management Contracts..................................................................... 71
Distribution and Service Plans........................................................... 74
Description of The Griffin Funds......................................................... 77
Appendix................................................................................. 80
</TABLE>
Investment Adviser
- ------------------
Griffin Financial Investment Advisers ("Griffin Advisers")
Sub-Adviser to the Money Market Fund, the Tax-Free Money Market Fund, the U.S.
- ------------------------------------------------------------------------------
Government Income Fund, the Municipal Bond Fund and the California Tax-Free Fund
- --------------------------------------------------------------------------------
Payden & Rygel Investment Counsel ("Payden & Rygel")
Sub-Adviser to the Growth Fund and the Short-Term Bond Fund
- -----------------------------------------------------------
T. Rowe Price Associates, Inc. ("T. Rowe Price")
Sub-Adviser to the Bond Fund and the Growth & Income Fund
- ---------------------------------------------------------
The Boston Company Asset Management, Inc. ("TBCAM")
Distributor
- -----------
Griffin Financial Services ("Griffin Financial")
Transfer Agent and Custodian
- ----------------------------
Investors Fiduciary Trust Company ("IFTC")
2
<PAGE>
GENERAL INFORMATION
The Griffin Funds was organized as a Maryland corporation on August 5,
1993. The Griffin Funds is an open-end, series management investment company.
INVESTMENT LIMITATIONS
The following policies and limitations supplement those set forth in the
Prospectus. Unless otherwise noted, whenever an investment policy or limitation
states a maximum percentage of a Fund's assets that may be invested in any
security or other asset, or sets forth a policy regarding quality standards,
such percentage limitation or standard shall be determined immediately after and
as a result of the Fund's acquisition of such security or other asset.
Accordingly, subsequent changes in values, net assets or other circumstances
will not be considered when determining whether the investment complies with the
Fund's investment policies and limitations.
Each Fund's fundamental investment policies and limitations may not be
changed without approval by a "majority of the outstanding voting securities"
(as defined in the Investment Company Act of 1940 ("1940 Act")) of the Fund.
However, except for investment limitations described as being fundamental, the
investment policies and limitations described in this Statement of Additional
Information are not fundamental and may be changed without shareholder approval.
INVESTMENT LIMITATIONS OF THE MONEY MARKET FUND
-----------------------------------------------
AS A MATTER OF FUNDAMENTAL POLICY, THE MONEY MARKET FUND MAY NOT:
1. purchase the securities of any issuer (other than securities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities) if, as
a result thereof, more than 5% of its total assets would be invested in the
securities of that issuer, except as permitted under Rule 2a-7;
2. issue senior securities, except as permitted under the 1940 Act or
applicable SEC rules, regulations or orders;
3. borrow money, except that the Money Market Fund may borrow money for
temporary or emergency purposes (not for leveraging or investment) or engage in
reverse repurchase agreements in an amount not exceeding 10% of the value of its
total assets (including the amount borrowed) less liabilities (other than
borrowings). Any borrowings that come to exceed 10% of the value of the Money
Market Fund's total assets will be reduced within three days (not including
Sundays and holidays) to the extent necessary to comply with the 10% limitation.
The Money Market Fund will not make additional investments in securities while
borrowings equal or exceed 5% of Fund assets;
4. underwrite securities issued by others, except to the extent that
disposition of securities purchased by the Money Market Fund in accordance with
its investment objective, policies and restrictions, either directly from an
issuer or from an underwriter for an issuer may be considered an underwriting
within the meaning of the Securities Act of 1933;
3
<PAGE>
5. purchase the securities of any issuer (other than securities issued
or guaranteed by the U.S. Government, or any of its agencies or
instrumentalities) if, as a result, more than 25% of the Money Market Fund's
total assets would be invested in the securities of companies whose principal
business activities are in the same industry, except that it will invest more
than 25% of its total assets in the financial services industry;
6. purchase or sell real estate (including real estate limited
partnerships), or securities issued by real estate investment trusts;
7. purchase or sell commodities, or commodity (futures) contracts;
8. lend any security or make any other loan if, as a result, more than
33-1/3% of its total assets would be lent to other parties (but the Fund may
purchase debt securities or enter into repurchase agreements without regard to
this limitation);
9. invest in oil, gas or other mineral exploration, lease or development
programs; or
10. invest in companies for the purpose of exercising control or
management.
THE FOLLOWING INVESTMENT lIMITATIONS ARE NOT FUNDAMENTAL, AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL.
(i) The Money Market Fund does not currently intend to purchase any
security if, as a result, more than 10% of its total assets would be invested in
securities that are deemed to be illiquid because they are subject to legal or
contractual restrictions on resale or because they cannot be sold or disposed of
in the ordinary course of business at approximately the prices at which they are
valued.
(ii) The Money Market Fund does not currently intend to purchase warrants,
valued at the lower of cost or market, in excess of 5% of the value of the Money
Market Fund's total assets.
(iii) The Money Market Fund does not currently intend to make short sales
of securities.
(iv) The Money Market Fund does not currently intend to purchase any
securities on margin, except for such short-term credits as are necessary for
the clearance of purchases and sales of securities.
(v) The Money Market Fund does not currently intend to purchase the
securities of any issuer (other than securities issued or guaranteed by domestic
or foreign governments or political subdivisions thereof) if, as a result, more
than 5% of its total assets would be invested in the securities of business
enterprises that, including predecessors, have a record of less than three years
of continuous operation.
(vi) The Money Market Fund does not currently intend to purchase the
securities of any issuer if those officers and directors of The Griffin Funds
and those officers and directors of Griffin Advisers
4
<PAGE>
who, individually, own more than 1/2 of 1% of the securities of such issuer
together own more than 5% of such issuer's securities.
INVESTMENT LIMITATIONS OF THE TAX-FREE MONEY MARKET FUND
--------------------------------------------------------
AS A MATTER OF FUNDAMENTAL POLICY, THE TAX-FREE MONEY MARKET FUND MAY NOT:
1. purchase the securities of any issuer (other than securities issued
or guaranteed by the U.S. Government, or any of its agencies or
instrumentalities) if, as a result thereof, (a) more than 5% of its total assets
would be invested in the securities of that issuer, or (b) the Tax-Free Money
Market Fund would hold more than 10% of the outstanding voting securities of any
issuer;
2. issue senior securities, except as permitted under the 1940 Act or
applicable SEC rules, regulations or orders;
3. borrow money, except that the Tax-Free Money Market Fund may borrow
money for temporary or emergency purposes (not for leveraging or investment) or
engage in reverse repurchase agreements in an amount not exceeding 10% of the
value of its total assets (including the amount borrowed) less liabilities
(other than borrowings). Any borrowings that come to exceed 10% of the value of
the Tax-Free Money Market Fund's total assets will be reduced within three days
(not including Sundays and holidays) to the extent necessary to comply with the
10% limitation. The Tax-Free Money Market Fund will not make additional
investments in securities while borrowings equal or exceed 5% of Fund assets;
4. underwrite securities issued by others, except to the extent that the
purchase of municipal bonds in accordance with the Tax-Free Money Market Fund's
investment objective, policies, and restrictions, either directly from the
issuer, or from an underwriter for an issuer, may be considered an underwriting
within the meaning of the Securities Act of 1933;
5. purchase the securities of any issuer (other than securities issued
or guaranteed by the U.S. Government or any of its agencies or
instrumentalities, or tax-exempt obligations issued or guaranteed by a U.S.
territory or possession or a state or local government, or a political
subdivision of any of the foregoing) if, as a result, more than 25% of the Tax-
Free Money Market Fund's total assets would be invested in the securities of
companies whose principal business activities are in the same industry;
6. purchase or sell real estate (including real estate limited
partnerships), but this shall not prevent the Tax-Free Money Market Fund from
investing in municipal bonds or other obligations secured by real estate or
interests therein;
7. purchase or sell commodities or commodity contracts;
8. lend any security or make any other loan if, as a result, more than
33-1/3% of its total assets would be lent to other parties (but the Fund may
purchase debt securities or enter into repurchase agreements without regard to
this limitation); or
5
<PAGE>
9. invest in oil, gas or other mineral exploration, lease or development
programs.
THE FOLLOWING LIMITATIONS ARE NOT FUNDAMENTAL, AND MAY BE CHANGED WITHOUT
SHAREHOLDER APPROVAL.
(i) The Tax-Free Money Market Fund does not currently intend to purchase
any security if, as a result, more than 10% of its total assets would be
invested in securities that are deemed to be illiquid because they are subject
to legal or contractual restrictions on resale or because they cannot be sold or
disposed of in the ordinary course of business at approximately the prices at
which they are valued.
(ii) The Tax-Free Money Market Fund does not currently intend to purchase
warrants, valued at the lower of cost or market, in excess of 5% of the value of
the Tax-Free Money Market Fund's total assets.
(iii) The Tax-Free Money Market Fund does not currently intend to make
short sales of securities.
(iv) The Tax-Free Money Market Fund does not currently intend to purchase
any securities on margin, except for such short-term credits as are necessary
for the clearance of purchase and sales of securities.
(v) The Tax-Free Money Market Fund does not currently intend to purchase
the securities of any issuer (other than securities issued or guaranteed by
domestic or foreign governments or political subdivisions thereof) if, as a
result, more than 5% of its total assets would be invested in the securities of
business enterprises that, including predecessors, have a record of less than
three years of continuous operation.
(vi) The Tax-Free Money Market Fund does not currently intend to purchase
the securities of any issuer if those officers and directors of The Griffin
Funds and those officers and directors of Griffin Advisers who individually own
more than 1/2 of 1% of the securities of such issuer together own more than 5%
of such issuer's securities.
For purposes of the foregoing limitations, Griffin Advisers identifies the
issuer of a security depending on its terms and conditions. In identifying the
issuer, Griffin Advisers will consider the entity or entities responsible for
payment of interest and repayment of principal and the source of such payments;
the way in which assets and revenues of an issuing political subdivision are
separated from those of other political entities; and whether a governmental
body is guaranteeing the security.
INVESTMENT LIMITATIONS OF THE SHORT-TERM BOND FUND
--------------------------------------------------
AS A MATTER OF FUNDAMENTAL POLICY, THE SHORT-TERM BOND FUND MAY NOT:
1. purchase securities of any one issuer (other than securities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of the Short-Term
Bond Fund's total assets would be invested in the securities of such
6
<PAGE>
issuer, or more than 10% of the issuer's outstanding voting securities would be
owned by the Fund, except that up to 25% of the value of the Fund's total assets
may be invested without regard to these limitations;
2. purchase any securities which would cause 25% or more of the value of
the Short-Term Bond Fund's total assets at the time of purchase to be invested
in the securities of one or more issuers conducting their principal business
activities in the same industry, provided that (a) there is no limitation with
respect to U.S. Government Obligations and repurchase agreements secured by such
obligations; (b) wholly owned finance companies will be considered to be in the
industries of their parents if their activities are primarily related to
financing the activities of the parents; and (c) utilities will be divided
according to their services (for example, gas, gas transmission, electric and
gas, electric and telephone will each be considered a separate industry);
3. issue senior securities, except as permitted under the 1940 Act or
applicable SEC rules, regulations or orders;
4. borrow money, except that the Short-Term Bond Fund may borrow money
for temporary or emergency purposes (not for leveraging or investment) or engage
in reverse repurchase agreements in an amount not exceeding 33-1/3% of the value
of its total assets (including the amount borrowed) less liabilities (other than
borrowings). Any borrowings that come to exceed 33-1/3% of the value of the
Short-Term Bond Fund's total assets will be reduced within three days (not
including Sundays and holidays) to the extent necessary to comply with the 33-
1/3% limitation;
5. underwrite securities issued by others, except to the extent that
disposition of securities purchased by the Short-Term Bond Fund in accordance
with its investment objective, policies and restrictions, either directly from
an issuer or from an underwriter for an issuer, may be considered an
underwriting within the meaning of the Securities Act of 1933;
6. purchase or sell real estate, including real estate limited
partnerships, (but this shall not prevent the Short-Term Bond Fund from
investing in marketable securities backed by real estate mortgages or issued by
companies such as real estate investment trusts which deal in real estate or
interests therein);
7. purchase or sell physical commodities unless acquired as a result of
ownership of securities of other instruments (but this shall not prevent the
Short-Term Bond Fund from purchasing or selling options and futures contracts or
from investing in securities or other instruments backed by physical
commodities);
8. lend any security or make any other loan if, as a result, more than
33-1/3% of its total assets would be lent to other parties (but this limitation
does not apply to purchases of debt securities or to repurchase agreements);
9. invest in oil, gas, or other mineral exploration, leasing or
development programs or leases; or
7
<PAGE>
10. lend any portfolio security unless collateral values are continuously
maintained at not less than 100% by marking to market daily.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL, AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL.
(i) The Short-Term Bond Fund does not currently intend to make short
sales of securities; provided, however, that the Short-Term Bond Fund may
purchase or sell futures contracts and may make initial and variation margin
payments in connection with purchases and sales of futures contracts or of
options on futures contracts.
(ii) The Short-Term Bond Fund does not currently intend to purchase
warrants, valued at the lower of cost or market, in excess of 5% of the value of
the Short-Term Bond Fund's total assets, or warrants which are not listed on the
New York Stock Exchange ("NYSE") or American Stock Exchange ("ASE") in excess of
2% of the value of the Short-Term Bond Fund's net assets.
(iii) The Short-Term Bond Fund does not currently intend to purchase
securities on margin, except that it may obtain such short-term credits as are
necessary for the clearance of transactions, and provided that margin payments
in connection with futures contracts and options on futures contracts shall not
constitute purchasing securities on margin.
(iv) The Short-Term Bond Fund may borrow money only (a) from a bank or
from a registered investment company or (b) by engaging in reverse repurchase
agreements with any party. The Short-Term Bond Fund will not purchase any
security while borrowings representing more than 5% of its total assets are
outstanding.
(v) The Short-Term Bond Fund does not currently intend to purchase any
security if, as a result, more than 15% of its total assets would be invested in
securities that are deemed to be illiquid because they are subject to legal or
contractual restrictions on resale, or because they cannot be sold or disposed
of in the ordinary course of business at approximately the prices at which they
are valued.
(vi) The Short-Term Bond Fund does not currently intend to purchase the
securities of any issuer (other than securities issued or guaranteed by domestic
or foreign governments or political subdivisions thereof, securities of pooled
investment vehicles and mortgage or asset-backed securities) if, as a result,
more than 5% of its total assets would be invested in the securities of business
enterprises that, including predecessors, have a record of less than three years
of continuous operation.
(vii) The Short-Term Bond Fund does not currently intend to purchase or
retain the securities of any issuer other than the Short-Term Bond Fund, if, to
its knowledge, those directors and officers of The Griffin Funds or of Griffin
Advisers who individually own beneficially more than 1/2 of 1% of such issuer,
together own beneficially more than 5% of such outstanding securities.
8
<PAGE>
INVESTMENT LIMITATIONS OF THE U.S. GOVERNMENT INCOME FUND
---------------------------------------------------------
AS A MATTER OF FUNDAMENTAL POLICY, THE U.S. GOVERNMENT INCOME FUND MAY NOT:
1. purchase securities of any one issuer (other than securities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of the U.S.
Government Income Fund's total assets would be invested in the securities of
such issuer, or more than 10% of the issuer's outstanding voting securities
would be owned by the Fund, except that up to 25% of the value of the Fund's
total assets may be invested without regard to these limitations;
2. purchase any securities which would cause 25% or more of the value of
the U.S. Government Income Fund's total assets at the time of purchase to be
invested in the securities of one or more issuers conducting their principal
business activities in the same industry, provided that (a) there is no
limitation with respect to U.S. Government Obligations and repurchase agreements
secured by such obligations; (b) wholly owned finance companies will be
considered to be in the industries of their parents if their activities are
primarily related to financing the activities of the parents; and (c) utilities
will be divided according to their services (for example, gas, gas transmission,
electric and gas, electric and telephone will each be considered a separate
industry);
3. issue senior securities, except as permitted under the 1940 Act or
applicable SEC rules, regulations or orders;
4. borrow money, except that the U.S. Government Income Fund may borrow
money for temporary or emergency purposes (not for leveraging or investment) or
engage in reverse repurchase agreements in an amount not exceeding 33-1/3% of
the value of its total assets (including the amount borrowed) less liabilities
(other than borrowings). Any borrowings that come to exceed 33-1/3% of the
value of the U.S. Government Income Fund's total assets will be reduced within
three days (not including Sundays and holidays) to the extent necessary to
comply with the 33-1/3% limitation;
5. underwrite securities issued by others, except to the extent that
disposition of securities purchased by the U.S. Government Income Fund in
accordance with its investment objective, policies and restrictions, either
directly from an issuer or from an underwriter for an issuer, may be considered
an underwriting within the meaning of the Securities Act of 1933;
6. purchase or sell real estate (including real estate limited
partnerships), but this shall not prevent the U.S. Government Income Fund from
investing in marketable securities backed by real estate mortgages or issued by
companies such as real estate investment trusts which deal in real estate or
interests therein;
7. purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent the
U.S. Government Income Fund from purchasing or selling options and futures
contracts or from investing in securities or other instruments backed by
physical commodities);
9
<PAGE>
8. invest in oil, gas or other mineral exploration, leasing or
development programs; or
9. invest in companies for the purpose of exercising control or
management.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL, AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL.
(i) The U.S. Government Income Fund may borrow money only (a) from a bank
or from a registered investment company or (b) by engaging in reverse repurchase
agreements with any party. The U.S. Government Income Fund will not purchase any
security while borrowings representing more than 5% of its total assets are
outstanding.
(ii) The U.S. Government Income Fund does not currently intend to
purchase warrants, valued at the lower of cost or market, in excess of 5% of the
value of the U.S. Government Income Fund's total assets.
(iii) The U.S. Government Income Fund does not currently intend to make
short sales of securities; provided, however, that it may purchase or sell
futures contracts and may make initial and variation margin payments in
connection with purchases or sales of futures contracts or of options on futures
contracts and may make initial and variation margin payments in connection with
purchases or sales of futures contracts or of options on futures contracts.
(iv) The U.S. Government Income Fund does not currently intend to purchase
any securities on margin, except for such short-term credits as are necessary
for the clearance of purchases and sales of securities; provided, however, that
it may purchase or sell futures contracts and may make initial and variation
margin payments in connection with purchases or sales of futures contracts or of
options on futures contracts.
(v) The U.S. Government Income Fund does not currently intend to purchase
the securities of any issuer (other than securities issued or guaranteed by
domestic or foreign governments or political subdivisions thereof) if, as a
result, more than 5% of its total assets would be invested in the securities of
business enterprises that, including predecessors, have a record of less than
three years of continuous operation.
(vi) The U.S. Government Income Fund does not currently intend to purchase
the securities of any issuer if those officers and directors of The Griffin
Funds and those officers and directors of Griffin Advisers who individually own
more than 1/2 of 1% of the securities of such issuer together own more than 5%
of such issuer's securities.
(vii) The U.S. Government Income Fund does not currently intend to purchase
any security if, as a result, more than 15% of its total assets would be
invested in securities that are deemed to be illiquid because they are subject
to legal or contractual restrictions on resale or because they cannot be sold or
disposed of in the ordinary course of business at approximately the prices at
which they are valued.
10
<PAGE>
INVESTMENT LIMITATIONS OF THE MUNICIPAL BOND FUND
-------------------------------------------------
AS A MATTER OF FUNDAMENTAL INVESTMENT POLICY, THE MUNICIPAL BOND FUND MAY NOT:
1. purchase securities of any one issuer (other than securities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of the Municipal Bond
Fund's total assets would be invested in the securities of such issuer, or more
than 10% of the issuer's outstanding voting securities would be owned by the
Fund, except that up to 25% of the value of the Fund's total assets may be
invested without regard to these limitations;
2. purchase any securities which would cause 25% or more of the value of
the Municipal Bond Fund's total assets at the time of purchase to be invested in
the securities of one or more issuers conducting their principal business
activities in the same industry, provided that (a) there is no limitation with
respect to U.S. Government Obligations and repurchase agreements secured by such
obligations; (b) there is no limitation with respect to municipal obligations
(for purposes of this limitation, Industrial Development Revenue bonds that are
backed only by the assets and revenues of a non-governmental user shall not be
deemed to be municipal obligations); (c) wholly owned finance companies will be
considered to be in the industries of their parents if their activities are
primarily related to financing the activities of the parents; and (d) utilities
will be divided according to their services (for example, gas, gas transmission,
electric and gas, electric and telephone will each be considered a separate
industry);
3. issue senior securities, except as permitted under the 1940 Act or
applicable SEC rules, regulations or orders;
4. borrow money, except that the Municipal Bond Fund may borrow money
for temporary or emergency purposes (not for leveraging or investment) or engage
in reverse repurchase agreements in an amount not exceeding 33-1/3% of the value
of its total assets (including the amount borrowed) less liabilities (other than
borrowings). Any borrowings that come to exceed 33-1/3% of the value of the
Municipal Bond Fund's total assets will be reduced within three days (not
including Sundays and holidays) to the extent necessary to comply with the 33-
1/3% limitation;
5. underwrite securities issued by others, except to the extent that the
disposition of securities purchased by the Municipal Bond Fund in accordance
with its investment objective, policies, and restrictions, either directly from
the issuer, or from an underwriter for an issuer, may be considered an
underwriting within the meaning of the Securities Act of 1933;
6. purchase or sell real estate (including real estate limited
partnerships), but this shall not prevent the Municipal Bond Fund from investing
in municipal bonds or other obligations secured by real estate or interests
therein;
7. purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent the
Municipal Bond Fund from purchasing or selling
11
<PAGE>
options and futures contracts or from investing in securities or other
instruments backed by physical commodities);
8. lend any security or make any other loan if, as a result, more than
33-1/3% of its total assets would be lent to other parties, but this limitation
does not apply to purchases of debt securities or to repurchase agreements;
9. invest in oil, gas, or other mineral exploration, leasing or
development programs; or
10. invest in companies for the purpose of exercising control or
management.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL.
(i) The Municipal Bond Fund does not currently intend to purchase the
securities of any issuer, if, to its knowledge, those directors and officers of
The Griffin Funds or of Griffin Advisers who individually own beneficially more
than 1/2 of 1% of the outstanding securities of such issuer, together own
beneficially more than 5% of such outstanding securities.
(ii) The Municipal Bond Fund does not currently intend to purchase
warrants, valued at the lower of cost or market, in excess of 5% of the value of
the Municipal Bond Fund's total assets.
(iii) The Municipal Bond Fund does not currently intend to make short sales
of securities; provided however that the Municipal Bond Fund may purchase or
sell futures contracts and may make initial and variation margin payments in
connection with purchases or sales of futures contracts or of options on futures
contracts.
(iv) The Municipal Bond Fund does not currently intend to purchase any
securities on margin, except for such short-term credits as are necessary for
the clearance of purchase and sales of securities; provided however that the
Municipal Bond Fund may make initial and variation margin payments in connection
with purchases or sales of futures contracts or of options on futures contracts.
(v) The Municipal Bond Fund may borrow money only (a) from a bank or from
a registered investment company or (b) by engaging in reverse repurchase
agreements with any party. The Municipal Bond Fund will not purchase any
security while borrowings representing more than 5% of its total assets are
outstanding.
(vi) The Municipal Bond Fund does not currently intend to purchase the
securities of any issuer (other than securities issued or guaranteed by domestic
or foreign governments or political subdivisions thereof) if, as a result, more
than 5% of its total assets would be invested in the securities of business
enterprises that, including predecessors, have a record of less than three years
of continuous operation.
(vii) The Municipal Bond Fund does not currently intend to purchase any
security if, as a result, more than 15% of its total assets would be invested in
securities that are deemed to be illiquid because
12
<PAGE>
they are subject to legal or contractual restrictions on resale or because they
cannot be sold or disposed of in the ordinary course of business at
approximately the prices at which they are valued.
For purposes of the foregoing limitations, Griffin Advisers identifies the
issuer of a security depending on its terms and conditions. In identifying the
issuer, Griffin Advisers will consider the entity or entities responsible for
payment of interest and repayment of principal and the source of such payments;
the way in which assets and revenues of an issuing political subdivision are
separated from those of other political entities; and whether a governmental
body is guaranteeing the security.
INVESTMENT LIMITATIONS OF THE CALIFORNIA TAX-FREE FUND
------------------------------------------------------
AS A MATTER OF FUNDAMENTAL POLICY, THE CALIFORNIA TAX-FREE FUND MAY NOT:
1. issue senior securities, except as permitted under the 1940 Act or
applicable SEC rules, regulations or orders;
2. borrow money, except that the California Tax-Free Fund may borrow
money for temporary or emergency purposes (not for leveraging or investment) in
an amount not to exceed 33-1/3% of the value of its total assets (including the
amount borrowed) less liabilities (other than borrowings). Any borrowings that
come to exceed 33-1/3% of the fund's total assets by reason of a decline in net
assets will be reduced within three days (not including Sundays and holidays) to
the extent necessary to comply with the 33-1/3% limitation;
3. underwrite any issue of securities, except to the extent that the
disposition of securities purchased by the California Tax-Free Fund in
accordance with its investment objective, policies, and limitations, either
directly from the issuer, or from an underwriter for an issuer, may be deemed to
be underwriting;
4. purchase any securities which would cause 25% or more of the value of
the California Tax-Free Fund's total assets at the time of purchase to be
invested in the securities of one or more issuers conducting their principal
business activities in the same industry, provided that (a) there is no
limitation with respect to U.S. Government Obligations and repurchase agreements
secured by such obligations; (b) there is no limitation with respect to
municipal obligations (for purposes of this limitation, private activity bonds
that are backed only by the assets and revenues of a non-governmental user shall
not be deemed to be municipal obligations); (c) wholly owned finance companies
will be considered to be in the industries of their parents if their activities
are primarily related to financing the activities of the parents; and (d)
utilities will be divided according to their services, for example, gas, gas
transmission, electric and gas, electric and telephone will each be considered a
separate industry;
5. purchase or sell real estate (including real estate limited
partnerships), but this shall not prevent the California Tax-Free Fund from
investing in municipal bonds or other obligations secured by real estate or
interests therein;
13
<PAGE>
6. purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent the
California Tax-Free Fund from purchasing or selling options and futures
contracts or from investing in securities or other instruments backed by
physical commodities);
7. lend any security or make any other loan if, as a result, more than
33-1/3% of its total assets would be lent to other parties, but this limitation
does not apply to purchases of debt securities or to repurchase agreements;
8. invest in oil, gas or other mineral exploration, leasing or
development programs;
9. invest in companies for the purpose of exercising control or
management; or
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL.
(i) To meet federal tax requirements for qualification as a "regulated
investment company," the California Tax-Free Fund limits its investments so that
at the close of each quarter of its taxable year: (a) with regard to at least
50% of total assets, no more than 5% of total assets are invested in the
securities of a single issuer, and (b) no more than 25% of total assets are
invested in the securities of a single issuer. Limitations (a) and (b) do not
apply to "Government securities" as defined for federal tax purposes.
(ii) The California Tax-Free Fund does not currently intend to purchase a
security if, as a result, more than 5% of its total assets would be invested in
industrial revenue bonds where payment of principal and interest are the
responsibility of a company with less than three years' operating history.
(iii) The California Tax-Free Fund does not currently intend to purchase
warrants, valued at the lower of cost or market, in excess of 5% of the value of
the California Tax-Free Fund's total assets.
(iv) The California Tax-Free Fund does not currently intend to make short
sales of securities; provided, however, that the California Tax-Free Fund may
purchase and sell futures contracts, and may make initial and variation margin
payments in connection with purchases or sales of futures contracts or of
options in futures contracts.
(v) The California Tax-Free Fund does not currently intend to purchase
any securities on margin; provided, however, that the California Tax-Free Fund
may make initial and variation margin payments in connection with purchases and
sales of futures contracts or options on futures contracts.
(vi) The California Tax-Free Fund may borrow money only (a) from a bank or
from a registered investment company or (b) by engaging in reverse repurchase
agreement with any party. The California Tax-Free Fund will not purchase any
security while borrowing representing more than 5% of its total assets are
outstanding.
14
<PAGE>
(vii) The California Tax-Free Fund does not currently intend to purchase
the securities of any issuer, if, to its knowledge, those directors and officers
of The Griffin Funds or of Griffin Advisers who individually own beneficially
more than 1/2 of 1% of such issuer, together own beneficially more than 5% of
such outstanding securities.
For purposes of the foregoing limitations, Griffin Advisers identifies the
issuer of a security depending on its terms and conditions. In identifying the
issuer, Griffin Advisers will consider the entity or entities responsible for
payment of interest and repayment of principal and the source of such payments,
the way in which assets and revenues of an issuing political subdivision are
separated from those of other political entities, and whether a governmental
body is guaranteeing the security.
INVESTMENT LIMITATIONS OF THE BOND FUND
---------------------------------------
AS A MATTER OF FUNDAMENTAL POLICY, THE BOND FUND MAY NOT:
1. purchase securities of any one issuer (other than securities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of the Bond Fund's
total assets would be invested in the securities of such issuer, or more than
10% of the issuer's outstanding voting securities would be owned by the Fund,
except that up to 25% of the value of the Fund's total assets may be invested
without regard to these limitations;
2. purchase any securities which would cause 25% or more of the value of
the Bond Fund's total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business activities
in the same industry, provided that (a) there is no limitation with respect to
U.S. Government Obligations and repurchase agreements secured by such
obligations; (b) wholly owned finance companies will be considered to be in the
industries of their parents if their activities are primarily related to
financing the activities of the parents; and (c) utilities will be divided
according to their services (for example, gas, gas transmission, electric and
gas, electric and telephone will each be considered a separate industry);
3. issue senior securities, except as permitted under the 1940 Act or
applicable SEC rules, regulations or orders;
4. borrow money, except that the Bond Fund may borrow money for
temporary or emergency purposes (not for leveraging or investment) or engage in
reverse repurchase agreements in an amount not exceeding 33-1/3% of the value of
its total assets (including the amount borrowed) less liabilities (other than
borrowings). Any borrowings that come to exceed 33-1/3% of the value of the Bond
Fund's total assets will be reduced within three days (not including Sundays and
holidays) to the extent necessary to comply with the 33-1/3% limitation;
5. underwrite securities issued by others, except to the extent that
disposition of securities purchased by the Bond Fund in accordance with its
investment objective, policies and restrictions, either directly from an issuer
or from an underwriter for an issuer, may be considered an underwriting within
the meaning of the Securities Act of 1933;
15
<PAGE>
6. purchase or sell real estate, including real estate limited
partnerships, (but this shall not prevent the Bond Fund from investing in
marketable securities backed by real estate mortgages or issued by companies
such as real estate investment trusts which deal in real estate or interests
therein);
7. purchase or sell physical commodities unless acquired as a result of
ownership of securities of other instruments (but this shall not prevent the
Bond Fund from purchasing or selling options and futures contracts or from
investing in securities or other instruments backed by physical commodities);
8. lend any security or make any other loan if, as a result, more than
33-1/3% of its total assets would be lent to other parties (but this limitation
does not apply to purchases of debt securities or to repurchase agreements); or
9. invest in oil, gas, or other mineral exploration, leasing or
development programs or leases.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL, AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL.
(i) The Bond Fund does not currently intend to make short sales of
securities; provided, however, that the Bond Fund may purchase or sell futures
contracts and may make initial and variation margin payments in connection with
purchases and sales of futures contracts or of options on futures contracts.
(ii) The Bond Fund does not currently intend to purchase warrants, valued
at the lower of cost or market, in excess of 5% of the value of the Bond Fund's
total assets.
(iii) The Bond Fund does not currently intend to purchase securities on
margin, except that it may obtain such short-term credits as are necessary for
the clearance of transactions, and provided that margin payments in connection
with futures contracts and options on futures contracts shall not constitute
purchasing securities on margin.
(iv) The Bond Fund may borrow money only (a) from a bank or from a
registered investment company or (b) by engaging in reverse repurchase
agreements with any party. The Bond Fund will not purchase any security while
borrowings representing more than 5% of its total assets are outstanding.
(v) The Bond Fund does not currently intend to purchase any security if,
as a result, more than 15% of its total assets would be invested in securities
that are deemed to be illiquid because they are subject to legal or contractual
restrictions on resale, or because they cannot be sold or disposed of in the
ordinary course of business at approximately the prices at which they are
valued.
(vi) The Bond Fund does not currently intend to purchase the securities of
any issuer (other than securities issued or guaranteed by domestic or foreign
governments or political subdivisions thereof) if, as a result, more than 5% of
its total assets would be invested in the securities of business enterprises
that, including predecessors, have a record of less than three years of
continuous operation.
16
<PAGE>
(vii) The Bond Fund does not currently intend to purchase or retain the
securities of any issuer other than the Bond Fund, if, to its knowledge, those
directors and officers of The Griffin Funds or of Griffin Advisers who
individually own beneficially more than 1/2 of 1% of such issuer, together own
beneficially more than 5% of such outstanding securities.
INVESTMENT LIMITATIONS OF THE GROWTH & INCOME FUND
--------------------------------------------------
AS A MATTER OF FUNDAMENTAL POLICY, THE GROWTH & INCOME FUND MAY NOT:
1. purchase securities of any one issuer (other than securities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of the Fund's total
assets would be invested in the securities of such issuer, or more than 10% of
the issuer's outstanding voting securities would be owned by the Fund, except
that up to 25% of the value of the Fund's total assets may be invested without
regard to these limitations;
2. purchase any securities which would cause 25% or more of the value of
the Fund's total assets at the time of purchase to be invested in the securities
of one or more issuers conducting their principal business activities in the
same industry, provided that (a) there is no limitation with respect to U.S.
Government obligations and repurchase agreements secured by such obligations;
(b) wholly owned finance companies will be considered to be in the industries of
their parents if their activities are primarily related to financing the
activities of the parents; and (c) utilities will be divided according to their
services (for example, gas, gas transmission, electric and gas, electric and
telephone will each be considered a separate industry);
3. issue senior securities except as permitted under the 1940 Act or
applicable Securities and Exchange Commission ("SEC") rules, regulations or
orders;
4. borrow money, except that the Fund may borrow money for temporary or
emergency purposes (not for leveraging or investment) or engage in reverse
repurchase agreements in an amount not exceeding 33-1/3% of the value of its
total assets (including the amount borrowed) less liabilities (other than
borrowings). Any borrowings that come to exceed 33-1/3% of the value of the
Fund's total assets will be reduced within three days (not including Sundays and
holidays) to the extent necessary to comply with the 33-1/3% limitation;
5. underwrite securities issued by others, except to the extent that
disposition of securities purchased by the Fund in accordance with its
investment objective, policies and restrictions, either directly from an issuer
or from an underwriter for an issuer may be considered an underwriting within
the meaning of the Securities Act of 1933;
6. purchase or sell real estate (including real estate limited
partnerships), but this shall not prevent the Fund from investing in marketable
securities backed by real estate mortgages or issued by companies such as real
estate investment trusts which deal in real estate or interests therein;
17
<PAGE>
7. lend any security or make any other loan if, as a result, more than
33-1/3% of its total assets would be lent to other parties (but this limitation
does not apply to purchases of debt securities or to repurchase agreements);
8. invest in oil, gas or other mineral exploration, leasing or
development programs; or
9. invest in companies for the purpose of exercising control or
management.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL, AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL.
(i) The Fund may borrow money only (a) from a bank or from a registered
investment company, or (b) by engaging in reverse repurchase agreements with any
party. The Fund will not purchase any security while borrowings representing
more than 5% of its total assets are outstanding.
(ii) The Fund does not currently intend to purchase warrants, valued at
the lower of cost or market, in excess of 5% of the value of the Fund's total
assets.
(iii) The Fund does not currently intend to make short sales of securities;
provided, however, that the Fund may purchase or sell futures contracts and may
make initial and variation margin payments in connection with purchases or sales
of futures contracts or of options on futures contracts.
(iv) The Fund does not currently intend to purchase any securities on
margin, except for such short-term credits as are necessary for the clearance of
purchases and sales of securities; provided, however that this limitation shall
not limit the Fund's ability to purchase or sell futures contracts.
(v) The Fund does not currently intend to purchase any security if, as a
result, more than 15% of its total assets would be invested in securities that
are deemed to be illiquid because they cannot be sold or disposed of in the
ordinary course of business within seven days at approximately the prices at
which they are valued.
(vi) The Fund does not currently intend to purchase the securities of any
issuer (other than securities issued or guaranteed by domestic or foreign
governments or political subdivisions thereof) if, as a result, more than 5% of
its total assets would be invested in the securities of business enterprises
that, including predecessors, have a record of less than three years of
continuous operation.
(vii) The Fund does not currently intend to purchase the securities of any
issuer if those officers and directors of The Griffin Funds and those officers
and directors of Griffin Advisers, who individually, own more than one half of
1% of the securities of such issuer, together own more than 5% of such issuer's
securities.
18
<PAGE>
INVESTMENT LIMITATIONS OF THE GROWTH FUND
-----------------------------------------
AS A MATTER OF FUNDAMENTAL POLICY, THE GROWTH FUND MAY NOT:
1. purchase securities of any one issuer (other than securities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of the Fund's total
assets would be invested in the securities of such issuer, or more than 10% of
the issuer's outstanding voting securities would be owned by the Fund, except
that up to 25% of the value of the Fund's total assets may be invested without
regard to these limitations;
2. purchase any securities which would cause 25% or more of the value of
the Fund's total assets at the time of purchase to be invested in the securities
of one or more issuers conducting their principal business activities in the
same industry, provided that (a) there is no limitation with respect to U.S.
Government obligations and repurchase agreements secured by such obligations;
(b) wholly owned finance companies will be considered to be in the industries of
their parents if their activities are primarily related to financing the
activities of the parents; and (c) utilities will be divided according to their
services (for example, gas, gas transmission, electric and gas, electric and
telephone will each be considered a separate industry);
3. issue senior securities except as permitted under the 1940 Act or
applicable Securities and Exchange Commission ("SEC") rules, regulations or
orders;
4. borrow money, except that the Fund may borrow money for temporary or
emergency purposes (not for leveraging or investment) or engage in reverse
repurchase agreements in an amount not exceeding 33-1/3% of the value of its
total assets (including the amount borrowed) less liabilities (other than
borrowings). Any borrowings that come to exceed 33-1/3% of the value of the
Fund's total assets will be reduced within three days (not including Sundays and
holidays) to the extent necessary to comply with the 33-1/3% limitation;
5. underwrite securities issued by others, except to the extent that
disposition of securities purchased by the Fund in accordance with its
investment objective, policies and restrictions, either directly from an issuer
or from an underwriter for an issuer may be considered an underwriting within
the meaning of the Securities Act of 1933;
6. purchase or sell real estate (including real estate limited
partnerships), but this shall not prevent the Fund from investing in marketable
securities backed by real estate mortgages or issued by companies such as real
estate investment trusts which deal in real estate or interests therein;
7. lend any security or make any other loan if, as a result, more than
33-1/3% of its total assets would be lent to other parties (but this limitation
does not apply to purchases of debt securities or to repurchase agreements);
8. invest in oil, gas or other mineral exploration, leasing or
development programs;
9. invest in companies for the purpose of exercising control or
management; or
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10. lend any portfolio security unless collateral values are continuously
maintained at not less than 100% by marking to market daily.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL, AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL.
(i) The Growth Fund may borrow money only (a) from a bank or from a
registered investment company, or (b) by engaging in reverse repurchase
agreements with any party. The Growth Fund will not purchase any security while
borrowings representing more than 5% of its total assets are outstanding.
(ii) The Growth Fund does not currently intend to purchase warrants,
valued at the lower of cost or market, in excess of 5% of the value of the
Growth Fund's total assets, or warrants which are not listed on the NYSE or ASE
in excess of 2% of the value of the Growth Fund's net assets.
(iii) The Growth Fund does not currently intend to make short sales of
securities; provided, however, that the Growth Fund may purchase or sell futures
contracts and may make initial and variation margin payments in connection with
purchases or sales of futures contracts or of options on futures contracts.
(iv) The Growth Fund does not currently intend to purchase any securities
on margin, except for such short-term credits as are necessary for the clearance
of purchases and sales of securities; provided, however that this limitation
shall not limit the Growth Fund's ability to purchase or sell futures contracts.
(v) The Growth Fund does not currently intend to purchase any security
if, as a result, more than 15% of its total assets would be invested in
securities that are deemed to be illiquid because they cannot be sold or
disposed of in the ordinary course of business within seven days at
approximately the prices at which they are valued.
(vi) The Growth Fund does not currently intend to purchase the securities
of any issuer (other than securities issued or guaranteed by domestic or foreign
governments or political subdivisions thereof, securities of pooled investment
vehicles and mortgage or asset-backed securities) if, as a result, more than 5%
of its total assets would be invested in the securities of business enterprises
that, including predecessors, have a record of less than three years of
continuous operation.
(vii) The Growth Fund does not currently intend to purchase the securities
of any issuer if those officers and directors of The Griffin Funds and those
officers and directors of Griffin Advisers, who individually, own more than one
half of 1% of the securities of such issuer, together own more than 5% of such
issuer's securities.
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ADDITIONAL SECURITIES AND INVESTMENT PRACTICES SHARED BY CERTAIN FUNDS
----------------------------------------------------------------------
CONVERTIBLE BONDS. The Short-Term Bond Fund, the Bond Fund and the Growth
Fund may invest in Convertible Bonds which are fixed-income debt securities
which may be converted at a stated price within a specified period of time into
a certain quantity of the common stock of the same issuer. Convertible
securities, while usually subordinate to similar non-convertible securities, are
senior to common stocks in an issuer's capital structure. Convertible
securities offer flexibility by providing the investor with a steady income
stream (generally yielding a lower amount than similar non-convertible
securities and a higher amount than common stocks) as well as the opportunity to
take advantage of increases in the price of the issuer's common stock through
the conversion feature. Fluctuations in the convertible security's price can
reflect changes in the market value of the common stock or changes in market
interest rates. At most, 5% of the Bond Fund's net assets will be invested in
convertible securities that are not either rated in the four highest rating
categories by a Nationally Recognized Statistical Rating Organization ("NRSRO"),
or unrated securities determined by Griffin Advisers, under the direction of the
Board of Directors, to be of comparable quality.
DELAYED DELIVERY TRANSACTIONS. Each of the Funds may buy and sell
securities on a delayed delivery or when-issued basis without limitation. These
transactions involve a commitment by a Fund to purchase or sell specific
securities at a predetermined price and/or yield, with payment and delivery
taking place after the customary settlement period for that type of security
(and more than seven days in the future). Typically, no interest accrues to the
purchaser until the security is delivered.
When purchasing securities on a delayed delivery basis, a Fund assumes the
rights and risks of ownership, including the risk of price and yield
fluctuations. Because a Fund is not required to pay for securities until the
delivery date, these risks are in addition to the risks associated with a Fund's
other investments. If a Fund remains substantially fully invested at a time
when delayed delivery purchases are outstanding, the delayed delivery purchases
may result in a form of leverage. When delayed delivery purchases are
outstanding, a Fund will set aside cash or other liquid high quality assets in a
segregated custodial account to cover its purchase obligations. When a Fund has
sold a security on a delayed delivery basis, the Fund does not participate in
further gains or losses with respect to the security. If the other party to a
delayed delivery transaction fails to deliver or pay for the securities, a Fund
could miss a favorable price or yield opportunity, or could suffer a loss.
Each of the Funds may renegotiate delayed delivery transactions after they
are entered into, and may sell underlying securities before they are delivered,
which may result in capital gains or losses.
A Fund may purchase securities on a "when-issued" basis and may purchase or
sell 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 securities purchased by the purchaser and, thus, no interest
accrues to the purchaser from the transaction. If a Fund 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 can incur a
gain or loss. The use of when-issued transactions
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and forward commitments enables a Fund to hedge against anticipated changes in
interest rates and prices. A Fund also may enter into such transactions to
generate income. In such instances, a Fund agrees to resell its purchase
commitment to a third-party seller at the current market price on the date of
sale and concurrently enters into another purchase commitment for such
securities at a later date. As an inducement for a Fund to "roll over" its
purchase commitment, the Fund receives a negotiated fee. The purchase of
securities with a settlement date occurring on the Pacific Securities
Association approved settlement date is considered a normal delivery and not a
"when-issued" or "forward commitment" purchase.
DOLLAR-DENOMINATED FOREIGN SECURITIES. The Short-Term Bond Fund, the Bond
Fund, the Growth Fund, the U.S. Government Income Fund and the Growth & Income
Fund may invest in Dollar-Denominated Foreign Securities which are securities of
foreign governmental and private issuers that are denominated in and pay
interest in U.S. dollars. Investments in foreign securities involve certain
considerations that are not typically associated with investing in domestic
securities. There may be less publicly available information about a foreign
issuer than about a domestic issuer. Foreign issuers also are not generally
subject to the same accounting, auditing and financial reporting standards or
governmental supervision as domestic issuers. In addition, with respect to
certain foreign countries, interest may be withheld at the source under foreign
income tax laws, and there is a possibility of expropriation or confiscatory
taxation, political or social instability or diplomatic developments that could
adversely affect investments in, the liquidity of, and the ability to enforce
contractual obligations with respect to, securities of issuers located in those
countries.
FUTURES CONTRACTS. Each of the Non-Money Market Funds may engage in
transactions in futures contracts in an effort to hedge against market risks
and/or manage cash flow into a Non-Money Market Fund. A futures contract is a
bilateral agreement providing for the purchase and sale of a specified type and
amount of a financial instrument, or, in the case of futures contracts on
indexes of securities, for the making and acceptance of a cash settlement, at a
stated time in the future for a fixed price. By its terms, a futures contract
provides for a specified settlement date on which, in the case of the majority
of interest rate futures contracts, the fixed income securities underlying a
contract are delivered by the seller and paid for by the purchaser, or on which,
in the case of a stock index futures contract, an amount equal to a dollar
amount multiplied by the difference between the value of a stock index at the
close of the last trading day of the contract and the value of such index at the
time the futures contract was originally entered into is settled between the
purchaser and seller in cash. The purchase or sale of a futures contract
differs from the purchase or sale of a security in that no purchase price is
paid or received at the time the contract is entered into. Instead, an amount
of cash or cash equivalents, the value of which may vary but is generally equal
to 2% or less of the value of the contract, must be deposited with the broker as
initial deposit or "margin." Subsequent payments to and from the broker,
referred to as "variation margin," are made on a daily basis as the value of the
index underlying the futures contract fluctuates, making positions in the
futures contract more or less valuable, a process known as "marking to the
market."
At any time prior to the expiration of a futures contract, a Fund may elect
to close out the Fund's position by taking an opposite position, subject to the
availability of a secondary market, which will operate to terminate the initial
position. At that time, a final determination of variation margin is
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made and any loss experienced by the Fund is required to be paid to the exchange
clearing corporation, while any profit due to the Fund must be delivered to it.
Futures contracts differ from options in that they are bilateral
agreements, with both the purchaser and the seller equally obligated to complete
the transaction. Futures contracts call for settlement only on the expiration
date, and cannot be "exercised" at any other time during their term.
The prices of futures contracts are volatile and are influenced, among
other things, by actual and anticipated changes in the market and interest
rates, which in turn are affected by fiscal and monetary policies and national
and international political and economic events. Most United States futures
exchanges limit the amount of fluctuation permitted in futures contract prices
during a single trading day. The daily limit establishes the maximum amount
that the price of a futures contract may vary either up or down from the
previous day's settlement price at the end of a trading session. The daily
limit governs only price movement during a particular trading day and therefore
does not limit potential losses, because the limit may prevent the liquidation
of unfavorable positions. Futures contract prices have occasionally moved 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.
A purchase or sale of a futures contract may result in losses in excess of
the amount invested in the futures contract (i.e., margin payments). However,
- -
the Fund would presumably have sustained comparable losses if, instead of the
futures contract, it had invested in the underlying financial instrument and
sold it after the decline. Furthermore, in the case of a futures contract
purchase, in order to be certain that the Fund has sufficient assets to satisfy
its obligations under a futures contract, the Fund earmarks to the futures
contract money market instruments equal in value to the current value of the
underlying instrument less the margin deposit.
Futures contracts may be closed out only on the exchange or board of trade
where the contracts were initially traded. Although the Fund intends to
purchase or sell futures contracts only on exchanges or boards of trade where
there appears to be an active market, there is no assurance that a liquid market
on an exchange or board of trade will exist for any particular contract at any
particular time. In such event, it might not be possible to close a futures
contract, and in the event of adverse price movements, the Fund would continue
to be required to make daily cash payments of variation margin.
A decision as to whether, when, and how to hedge involves skill and
judgment, and even a well-conceived hedge may be unsuccessful to some degree
because of unexpected market behavior, market or interest rate trends. There
are several risks in connection with the use by a Fund of futures contracts as a
hedging device. One risk arises because of the imperfect correlation between
movements in the prices of the futures contracts and movements in the prices of
the underlying instruments which are the subject of the hedge. The Funds'
adviser and sub-adviser will, however, attempt to reduce this risk by entering
into futures contracts whose movements, in their judgment, will have a
significant correlation with movements in the prices of the Fund's underlying
instruments sought to be hedged.
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Successful use of futures contracts by the Funds for hedging purposes is
also subject to the ability of the Funds' adviser and sub-adviser to predict
correctly movements in the direction of the market. It is possible that, when a
Fund has sold futures to hedge its portfolio against a decline in the market,
the index, indices, or instruments, underlying futures might advance and the
value of the underlying instruments held in the Fund's portfolio might decline.
It is also possible that if a Fund were to hedge against the possibility of a
decline in the market (adversely affecting the underlying instruments held in
its portfolio) and prices instead increased, the Fund would lose part or all of
the benefit of increased value of those underlying instruments that it hedged,
because it would have offsetting losses in its futures positions.
In addition to the possibility that there might be an imperfect
correlation, or no correlation at all, between price movements in the futures
contracts and the portion of the portfolio being hedged, the price movements of
futures contracts might not correlate perfectly with price movements in the
underlying instruments due to certain market distortions.
ILLIQUID INVESTMENTS are investments that may not be sold or disposed of in
the ordinary course of business within seven days at approximately the prices at
which they are valued. Under the supervision of the Board of Directors, Griffin
Advisers determines the liquidity of each Fund's investments and, through
reports from Griffin Advisers, the Board monitors investments in illiquid
instruments. In determining the liquidity of a Fund's investments, Griffin
Advisers may consider various factors including (1) the frequency of trades and
quotations, (2) the number of dealers and prospective purchasers in the
marketplace, (3) dealer undertakings to make a market, (4) the nature of the
security (including any demand or tender features) and (5) the nature of the
marketplace for trades (including the ability to assign or offset a Fund's
rights and obligations relating to the investment). Investments considered by
the Money Market Funds to be illiquid may include repurchase agreements not
entitling the holder to payment of principal and interest within seven days, and
restricted securities and time deposits determined by Griffin Advisers to be
illiquid. Investments currently considered by the Short-Term Bond Fund, the
Municipal Bond Fund, the California Tax-Free Fund, the Bond Fund and the Growth
Fund to be illiquid include repurchase agreements not entitling the holder to
payment of principal and interest within seven days, and restricted securities
and time deposits determined by Griffin Advisers to be illiquid. Investments
currently considered by U.S. Government Income Fund to be illiquid include over-
the-counter options. Investments that may be considered by the Growth & Income
Fund to be illiquid include repurchase agreements not entitling the holder to
payment of principal and interest within seven days, loans and other direct debt
instruments, over-the-counter options, non-government stripped fixed-rate
mortgage-backed securities, restricted securities, government-stripped fixed-
rate mortgage-backed securities, and swap agreements determined by Griffin
Advisers to be illiquid. However, with respect to over-the-counter options that
the Growth & Income Fund writes, all or a portion of the value of the underlying
instrument may be illiquid depending on the assets held to cover the option and
nature and terms of any agreement the Fund may have to close out the option
before expiration.
If through a change in values, net assets or other circumstances, a Money
Market Fund were in a position where more than 10% of its net assets were
invested in illiquid securities, it would seek to take appropriate steps to
protect liquidity. Similarly, if through a change in values, net assets or
other
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circumstances, a Non-Money Market Fund were in a position where more than 15% of
its total assets were invested in illiquid securities, it would seek to take
appropriate steps to protect liquidity.
OPTIONS. The Non-Money Market Funds may purchase put and call options in
an amount not exceeding 5% of a Fund's total assets. The Funds may also sell
put and call options. Such options may relate to particular securities or to
various stock or bond indexes. Purchasing options is a specialized investment
technique that entails a substantial risk of a complete loss of the amount paid
as premiums to the writer of the option.
Call options written by a Fund give the holder the right to buy the
underlying securities from the Fund at a fixed exercise price up to a stated
expiration date or, in the case of certain options, on such date. Put options
give the holder the right to sell the underlying securities to the Fund during
the term of the option at a fixed exercise price up to a stated expiration date
or, in the case of certain options, on such date. Call options are "covered" by
a Fund, for example, when it owns the underlying securities, and put options are
"covered" by a Fund, for example, when it has established a segregated account
of cash, cash equivalents or securities which can be liquidated promptly to
satisfy any obligation of a Fund to purchase the underlying securities. A Fund
also may write combinations of puts and calls on the same underlying security.
A Fund will receive a premium from writing a put or call option, which
increases the gross income of a Fund in the event the option expires unexercised
or is closed out at a profit. The amount of the premium will reflect, among
other things, the relationship of the exercise price to the market price and
volatility of the underlying security, the remaining term of the option, supply
and demand and interest rates. By writing a call option, a Fund limits its
opportunity to profit from any increase in the market value of the underlying
security above the exercise price of the option. By writing a put option, a
Fund assumes the risk that it may be required to purchase the underlying
security for an exercise price higher than its then current market value,
resulting in a potential capital loss unless the security subsequently
appreciates in value.
A Fund may terminate an option that it has written prior to its expiration
by entering into a closing purchase transaction in which the Fund purchases an
option having the same terms as the option written. It is possible, however,
that illiquidity in the options markets may make it difficult from time to time
for a Fund to close out its written option positions.
A Fund also may purchase put or call options in anticipation of changes in
interest rates which may adversely affect the value of their portfolio or the
prices of securities that the Fund wants to purchase at a later date. The
premium paid for a put or call option plus any transaction costs will reduce the
benefit, if any, realized by a Fund upon exercise of the option and, unless the
price of the underlying security changes sufficiently, the option may expire
without value.
A Fund may write and purchase options on securities both for hedging
purposes and for speculative purposes, in an effort to increase current income.
Options on securities that are written or purchased by a Fund will be traded on
U.S. and foreign exchanges and over-the-counter.
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The staff of the SEC has taken the position that purchased over-the-counter
options and assets used to cover written over-the-counter options are illiquid
and, therefore, together with other illiquid securities, cannot exceed 15% of a
Fund's net assets. Griffin Advisers intends to limit a Fund's writing of over-
the-counter options in accordance with the following procedure. Each Fund
intends to write over-the-counter options only with primary U.S. Government
securities dealers recognized by the Federal Reserve Bank of New York. Also,
the contracts that a Fund has in place with such primary dealers will provide
that the Fund has the absolute right to repurchase an option it writes at any
time at a price which represents the fair market value, as determined in good
faith through negotiation between the parties, but which in no event will exceed
a price determined pursuant to a formula in the contract. Although the specific
formula may vary between contracts with different primary dealers, the formula
will generally be based on a multiple of the premium received by a Fund for
writing the option, plus the amount, if any, of the option's intrinsic value
(i.e., the amount that the option is in-the-money). The formula also may
- -
include a factor to account for the difference between the price of the security
and the strike price of the option, if the option is written out-of-the-money.
A Fund will treat all or a part of the formula price as illiquid for purposes of
the 15% test imposed by the SEC staff.
OPTIONS ON FUTURES CONTRACTS. The Non-Money Market Funds may engage in
transactions in options on futures contracts in an effort to hedge against
market risks and/or manage cash flow into the Non-Money Market Funds. An option
on a futures contract gives the purchaser (the "holder") the right, but not the
obligation, to enter into a "long" position in the underlying futures contract
(i.e., a purchase of such futures contract) in the case of an option to purchase
- -
(a "call" option), or a "short" position in the underlying futures contract
(i.e., a sale of such futures contract) in the case of an option to sell (a
- -
"put" option), at a fixed price (the "strike price") up to a stated expiration
date. The holder pays a non-refundable purchase price for the option, known as
the "premium." The maximum amount of risk the purchaser of the option assumes
is equal to the premium plus related transaction costs, although this entire
amount may be lost. Upon exercise of the option by the holder, the exchange
clearing corporation establishes a corresponding long position in the case of a
put option. In the event that an option is exercised, the parties will be
subject to all the risks associated with the trading of futures contracts, such
as payment of variation margin deposits. In addition, the writer of an option
on a futures contract, unlike the holder, is subject to initial and variation
margin requirements on the option position.
An option, whether based on a futures contract, a stock index or an equity
security, becomes worthless to the holder when it expires. A position in an
option may be terminated by the purchaser or seller prior to expiration by
effecting a closing purchase or sale transaction subject to the availability of
a secondary market, which is the purchase or sale of an option of the same
series (i.e., the same exercise price and expiration date) as the option
- -
previously purchased or sold. The difference between the premiums paid and
received represents the party's profit or loss on the transaction.
The use of futures contracts and options does involve certain transaction
costs and risks. A Fund's ability effectively to hedge all or a portion of its
portfolio through transactions in futures, options on futures or options on
stock indexes depends on the degree to which movements in the value of the
securities or index underlying such hedging instrument correlate with movements
in the value of the relevant portion of the Fund's holdings. The trading of
futures and options on indexes involves the additional risk of imperfect
correlation between movements in the futures or option price and the value
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of the underlying index. While a Fund will establish a future or option position
only if there appears to be a liquid secondary market therefor, there can be no
assurance that such a market will exist for any particular futures or option
contract at any specific time. In such event, it may not be possible to close
out a position held by a Fund, which could require such Fund to purchase or sell
the instrument underlying the position, make or receive a cash settlement, or
meet ongoing variation margin requirements. Investments in futures contracts on
fixed income securities and related indexes involve the risk that if the
adviser's investment judgment concerning the general direction of interest rates
is incorrect, a Fund's overall performance may be poorer than if it had not
entered into any such contract. Income earned from transactions in futures
contracts and options thereon would be treated in part as a short-term, and in
part as a long-term, capital gain and, if not offset by net realized capital
losses, generally would be subject to federal income taxes.
REPURCHASE AGREEMENTS. In a repurchase agreement, a Fund purchases a
security and simultaneously commits to resell that security to the seller at an
agreed-upon price on an agreed-upon date. The resale price reflects the
purchase price plus an agreed-upon incremental amount which is unrelated to the
coupon rate or maturity of the purchased security. A repurchase agreement
involves the obligation of the seller to pay the agreed-upon price, which
obligation is in effect secured by the value (at least equal to the amount of
the agreed-upon resale price and marked to market daily) of the underlying
security. Each Fund may engage in repurchase agreements with respect to any
security in which it is authorized to invest. While it does not presently
appear possible to eliminate all risks from these transactions (particularly the
possibility of a decline in the market value of the underlying securities, as
well as delays and costs to the Funds in connection with bankruptcy
proceedings), it is the policy of each Fund to limit repurchase agreements to
those parties whose creditworthiness has been reviewed and found satisfactory by
Griffin Advisers.
RESTRICTED SECURITIES. Each Fund may purchase restricted securities that
generally can be sold in privately negotiated transactions, pursuant to an
exemption from registration under the Securities Act of 1933, or in a registered
public offering. Where registration is required, a Fund may be obligated to pay
all or part of the registration expense and a considerable period may elapse
between the time it decides to seek registration and the time a Fund may be
permitted to sell a security under an effective registration statement. If
during such a period, adverse market conditions were to develop, a Fund might
obtain a less favorable price than prevailed when it decided to seek
registration of the security. The Growth Fund and the Short-Term Bond Fund may
each invest up to 5% of its net assets in restricted securities.
VARIABLE OR FLOATING-RATE INSTRUMENTS. Each Money Market Fund may invest
in variable or floating-rate instruments that ultimately mature in more than 397
days, if a Fund acquires a right to sell the securities that meets certain
requirements set forth in Rule 2a-7 under the 1940 Act. Variable-rate
instruments (including instruments subject to a demand feature) that mature in
397 days or less may be deemed to have maturities equal to the period remaining
until the next readjustment of the interest rate. Other variable-rate
instruments with demand features may be deemed to have a maturity equal to the
longer of the period remaining until the next readjustment of the interest rate
or the period remaining until the principal amount can be recovered through
demand. A floating-rate instrument subject to a demand feature may be deemed to
have a maturity equal to the period remaining until the principal amount can be
recovered through demand.
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ADDITIONAL SECURITIES AND INVESTMENT PRACTICES OF SPECIFIC FUNDS
----------------------------------------------------------------
SECURITIES LENDING. The Short-Term Bond Fund, the Bond Fund, the Growth &
Income Fund and the Growth Fund may lend securities to parties such as broker-
dealers or institutional investors.
Securities lending allows a Fund to retain ownership of the securities
loaned and, at the same time, to earn additional income. Since there may be
delays in the recovery of loaned securities, or even a loss of rights in
collateral supplied should the borrower fail financially, loans will be made
only to parties deemed by Griffin Advisers to be of good standing. Furthermore,
they will only be made if, in Griffin Advisers' judgment, the consideration to
be earned from such loans would justify the risk.
Griffin Advisers understands that it is the current view of the SEC staff
that a Fund may engage in loan transactions only under the following conditions:
(1) the Fund must receive a 100% collateral in the form of cash or cash
equivalents (e.g., U.S. Treasury bills or notes) from the borrower; (2) the
- -
borrower must increase the collateral whenever the market value of the
securities loaned (determined on a daily basis) rises above the value of the
collateral; (3) after giving notice, the Fund must be able to terminate the loan
at any time; (4) the Fund must receive reasonable interest on the loan or a flat
fee from the borrower, as well as amounts equivalent to any dividends, interest,
or other distributions on the securities loaned and to any increase in market
value; (5) the Fund may pay only reasonable custodian fees in connection with
the loan; and (6) the Board of Directors must be able to vote proxies on the
securities loaned, either by terminating the loan or by entering into an
alternate arrangement with the borrower.
Cash received through loan transactions may be invested in any security in
which the Fund is authorized to invest. Investing this cash subjects that
investment, as well as the security loaned, to market forces (i.e., capital
- -
appreciation or depreciation).
LOANS AND OTHER DIRECT DEBT INSTRUMENTS. The Short-Term Bond Fund, the
Municipal Bond Fund, the California Tax-Free Fund, the Bond Fund and the Growth
& Income Fund may invest in loans and other direct debt instruments. Direct
debt instruments are interests in amounts owed by a corporate, governmental, or
other borrower to lenders or lending syndicates (loans and loan participation)
to suppliers of goods or services (trade claims or other receivables), to other
parties. Direct debt instruments are subject to the Funds' policies regarding
the quality of debt securities.
Purchasers of loans and other forms of direct indebtedness depend primarily
upon the creditworthiness of the borrower for payment of principal and interest.
Direct debt instruments may not be rated by any nationally recognized rating
service. If a Fund does not receive scheduled interest or principal payments on
such indebtedness, the Fund's share price and yield could be adversely affected.
Loans that are fully secured offer the Fund more protection than an unsecured
loan in the event of non-payment of scheduled interest or principal. However,
there is no assurance that the liquidation of collateral from a secured loan
would satisfy the borrower's obligations, or that the collateral can be
liquidated.
Investments in loans through direct assignment of a financial institution's
interests with respect to a loan may involve additional risks to the Funds. For
example, if a loan is foreclosed, a Fund would
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become part owner of any collateral, and would bear the costs of liabilities
associated with owning and disposing of the collateral. In addition, it is
conceivable that under emerging legal theories of lender liability, a Fund could
be held liable as a co-lender. Direct debt instruments may also involve a risk
of insolvency of the lending bank or other intermediary. Direct debt instruments
that are not in the form of securities may offer less legal protection to a Fund
in the event of fraud or misrepresentation. In the absence of definitive
regulatory guidance, the Funds rely on Griffin Advisers' research in an attempt
to avoid situations where fraud or misrepresentation could adversely affect the
Funds.
A loan is often administered by a bank or other financial institution which
acts as agent for all holders. The agent administers the terms of the loan, as
specified in the loan agreement. Unless, under the terms of the loan or other
indebtedness, a Fund has direct recourse against the borrower, it may have to
rely on the agent to apply appropriate credit remedies against a borrower. If
assets held by the agent for the benefit of a Fund were determined to be subject
to the claims of the agent's general creditors, the Fund might incur certain
costs and delays in realizing payment on the loan or loan participation and
could suffer a loss of principal or interest.
Direct indebtedness purchased by the Funds may include letters of credit,
revolving credit facilities, or other standby financing commitments obligating a
Fund to pay additional cash on demand. These commitments may have the effect of
requiring a Fund to increase its investment in a borrower at a time when it
would not otherwise have done so. The Funds will set aside appropriate liquid
assets in a segregated custodial account to cover their potential obligations
under standby financing commitments.
Each Fund limits the amount of total assets that it will invest in any one
issuer or in issuers within the same industry (see limitations for each Fund).
For purposes of these limitations, each Fund generally will treat the borrower
as the "issuer" of indebtedness held by the Fund. In the case of loan
participations where a bank or other lending institution serves as financial
intermediary between a Fund and the borrower, if the participation does not
shift to the Fund the direct debtor-creditor relationship with the borrower, SEC
interpretations require the Fund, in appropriate circumstances, to treat both
the lending bank or other lending institution and the borrower as "issuers" for
the purposes of determining whether the Fund has invested more than 5% of its
total assets in a single issuer. Treating a financial intermediary as an issuer
of indebtedness may restrict a Fund's ability to invest in indebtedness related
to a single financial intermediary, or a group of intermediaries engaged in the
same industry, even if the underlying borrowers represent many different
companies and industries.
FOREIGN INVESTMENTS. The U.S. Government Income Fund and the Bond Fund may
invest in foreign securities or foreign obligations. Foreign investments can
involve significant risks in addition to the risks inherent in U.S. investments.
The value of securities denominated in or indexed to foreign currencies, and of
dividends and interest from such securities, can change significantly when
foreign currencies strengthen or weaken relative to the U.S. dollar. Foreign
securities markets generally have less trading volume and less liquidity than
U.S. markets, and prices on some foreign markets can be highly volatile. Many
foreign countries lack uniform accounting and disclosure standards comparable to
those applicable to U.S. companies, and it may be more difficult to obtain
reliable information regarding an issuer's financial condition and operations.
In addition, the costs of foreign investing,
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including withholding taxes, brokerage commissions, and custodial costs, are
generally higher than for U.S. investments.
Foreign markets may offer less protection to investors than U.S. markets.
Foreign issuers, brokers, and securities markets may be subject to less
government supervision. Foreign security trading practices, including those
involving the release of assets in advance of payment, may involve increased
risks in the event of a failed trade or the insolvency of a broker-dealer, and
may become substantial delays. It may also be difficult to enforce legal rights
in foreign countries.
Investing abroad also involves different political and economic risks.
Foreign investments may be affected by actions of foreign governments adverse to
the interests of U.S. investors, including the possibility of expropriation or
nationalization of assets, confiscatory taxation, restrictions on U.S.
investment or on the ability to repatriate assets or convert currency into U.S.
dollars, or other government intervention. There may be a greater possibility
of default by foreign governments or foreign government-sponsored enterprises.
Investments in foreign countries also involve a risk of local political,
economic, or social instability, military action or unrest, or adverse
diplomatic developments. There is no assurance that Griffin Advisers will be
able to anticipate these potential events or counter their effects.
The considerations noted above generally are intensified for investments in
developing countries. Developing countries may have relatively unstable
governments, economies based on only a few industries, and securities markets
that trade a small number of securities.
The U.S. Government Income Fund, the Bond Fund and the Growth & Income Fund
may invest in foreign securities that impose restrictions on transfer within the
U.S. or to U.S. persons. Although securities subject to transfer restrictions
may be marketable abroad, they may be less liquid than foreign securities of the
same class that are not subject to such restrictions.
American Depository Receipts and European Depository Receipts (ADRs and
EDRs) are certificates evidencing ownership of shares of a foreign-based issuer
held in trust by a bank or similar financial institution. Designed for use in
U.S. and European securities markets, respectively, ADRs and EDRs are
alternatives to the purchase of the underlying securities in their national
markets and currencies. Purchases of ADRs by the Funds will be limited to
sponsored ADRs.
MUNICIPAL SECURITIES. The Municipal Bond Fund and the California Tax-Free
Fund may invest in certain Municipal Securities. The two principal
classifications of municipal securities are "general obligation" securities and
"revenue" securities. General obligation securities are secured by the issuer's
pledge of its full faith credit and taxing power for the payment of principal
and interest. Revenue securities are payable only from the revenues derived
from a particular facility or class of facilities or, in some cases, from the
proceeds of a special excise tax or other specific revenue source such as the
user of the facility being financed. Industrial Development Revenue bonds held
by a Fund are in most cases revenue securities and are not payable from the
unrestricted revenues of the issuer. Consequently, the credit quality of
Industrial Development Revenue bonds is usually directly related to the credit
standing of the corporate user of the facility involved.
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Municipal securities may include "moral obligation" bonds, which are
normally issued by special purpose public authorities. If the issuer of moral
obligation bonds is unable to meet its debt service obligations from current
revenues, it may draw on a reserve fund, the restoration of which is a moral
commitment but not a legal obligation of the state or municipality which created
the issuer.
Municipal securities may include variable or floating or inverse floating
rate instruments issued by industrial development authorities and other
governmental entities. While there may not be an active secondary market with
respect to a particular instrument purchased by a Fund, a Fund may demand
payment of the principal and accrued interest on the instrument or may resell it
to a third party as specified in the instruments. The absence of an active
secondary market, however, could make it difficult for a Fund to dispose of the
instrument if the issuer defaulted on its payment obligation or during periods
the Fund is not entitled to exercise its demand rights, and the Fund could, for
these or other reasons, suffer a loss.
Some of these instruments may be unrated, but unrated instruments purchased
by a Fund will be determined by Griffin Advisers to be of comparable quality at
the time of purchase to instruments rated "investment grade" by any major rating
service.
Municipal securities may include participations in privately arranged loans
to municipal borrowers, some of which may be referred to as "municipal leases."
Generally such loans are unrated, in which case they will be determined by
Griffin Advisers to be of comparable quality at the time of purchase to rated
instruments that may be acquired by a Fund. Frequently, privately arranged
loans have variable interest rates and may be backed by a bank letter of credit.
In other cases, they may be unsecured or may be secured by assets not easily
liquidated. Moreover, such loans in most cases are not backed by the taxing
authority of the issuers and may have limited marketability or may be marketable
only by virtue of a provision requiring repayment following demand by the
lender. Such loans made by a Fund may have a demand provision permitting the
Fund to require payment within seven days. Participations in such loans,
however, may not have such a demand provision and may not be otherwise
marketable. To the extent these securities are illiquid, they will be subject
to each Fund's limitation on investments in illiquid securities. Recovery of an
investment in any such loan that is illiquid and payable on demand may depend on
the ability of the municipal borrower to meet an obligation for full repayment
of principal and payment of accrued interest within the demand period, normally
seven days or less (unless a Fund determines that a particular loan issue,
unlike most such loans, has a readily available market). As it deems
appropriate, Griffin Advisers will establish procedures to monitor the credit
standing of each such municipal borrower, including its ability to meet
contractual payment obligations.
Municipal securities may include units of participation in trusts holding
pools of tax-exempt leases. Municipal participation interests may be purchased
from financial institutions, and give the purchaser an undivided interest in one
or more underlying municipal securities. To the extent that municipal
participation interests are considered to be "illiquid securities," such
instruments are subject to each Fund's limitation on the purchase of illiquid
securities. Municipal leases and participating interests therein which may take
the form of a lease or an installment sales contract, are issued by state and
local governments and authorities in order to acquire a wide variety of
equipment and facilities. Interest payments on qualifying leases are exempt
from Federal income taxes.
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In addition, these Funds may acquire "stand-by commitments" from banks or
broker/dealers with respect to municipal securities held in their portfolios.
Under a stand-by commitment, a dealer would agree to purchase at a Fund's option
specified Municipal Securities at a specified price. A Fund will acquire stand-
by commitments solely to facilitate portfolio liquidity and do not intend to
exercise their rights thereunder for trading purposes.
MUNICIPAL BONDS. The California Tax-Free Fund and the Municipal Bond Fund
may invest in municipal bonds, a type of municipal security. Municipal bonds
are debt obligations issued to obtain funds for various public purposes,
including the construction of a wide range of public facilities such as bridges,
highways, housing, hospitals, mass transportation, schools, streets, and water
and sewer works. Other purposes for which municipal bonds may be issued include
the refunding of outstanding obligations and obtaining funds for general
operating expenses or to loan to other public institutions and facilities.
Industrial development bonds are a specific type of revenue bond backed by the
credit and security of a private user. Certain types of industrial development
bonds are issued by or on behalf of public authorities to obtain funds to
provide privately-operated housing facilities, sports facilities, convention or
trade show facilities, an airport, mass transit, port or parking facilities, air
or water pollution control facilities and certain local facilities for water
supply, gas, electricity, or sewage or solid waste disposal. Assessment bonds,
wherein a specially created district or project area levies a tax (generally on
its taxable property) to pay for an improvement or project may be considered a
variant of either category. There are, of course, other variations in the types
of municipal bonds, both within a particular classification and between
classifications, depending on numerous factors.
MUNICIPAL NOTES. The California Tax-Free Fund and the Municipal Bond Fund
may invest in municipal notes. Municipal notes include, but are not limited to,
tax anticipation notes ("Tans"), bond anticipation notes ("Bans"), revenue
anticipation notes ("Ran") and construction loan notes. Notes sold as interim
financing in anticipation of collection of taxes, a bond sale or receipt of
other revenues are usually general obligations of the issuer.
TANS. An uncertainty in a municipal issuer's capacity to raise taxes
as a result of such things as a decline in its tax base or a rise in
delinquencies could adversely affect the issuer's ability to meet its
obligations on outstanding Tans. Furthermore, some municipal issuers mix
various tax proceeds into a general fund that is used to meet obligations other
than those of the outstanding TANs. Use of such a general fund to meet various
obligations could affect the likelihood of making payments on TANs.
BANS. The ability of a municipal issuer to meet its obligations on
its BANs is primarily dependent on the issuer's adequate access to the longer
term municipal bond market and the likelihood that the proceeds of such bond
sales will be used to pay the principal of, and interest on, BANs.
RANS. A decline in the receipt of certain revenues, such as
anticipated revenues from another level of government, could adversely affect an
issuer's ability to meet its obligations on outstanding RANs. In addition, the
possibility that the revenues would, when received, be used to meet other
obligations could affect the ability of the issuer to pay the principal of, and
interest on, RANs.
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The values of outstanding municipal securities will vary as a result of
changing market evaluations of the ability of their issuers to meet the interest
and principal payments (i.e., credit risk). Such values will also change in
- -
response to changes in the interest rates payable on new issues of municipal
securities (i.e., market risk). Should such interest rates rise, the values of
- -
outstanding securities, including those held in the Fund's portfolio, will
decline and (if purchased at par value) they would sell at a discount. If
interests rates fall, the values of outstanding securities will generally
increase and (if purchased at par value) they would sell at a premium. Changes
in the value of municipal securities held in the Fund's portfolio arising from
these or other factors will cause changes in the net asset value ("NAV") per
share of the Fund.
The California Tax-Free Fund and the Municipal Bond Fund may also invest in
municipal commercial paper.
MUNICIPAL LEASE OBLIGATIONS AND CERTIFICATES OF PARTICIPATION. The
Municipal Bond Fund and the California Tax-Free Fund may invest a portion of
their assets in municipal leases and participation interests therein. These
obligations, which may take the form of a lease, an installment purchase, or a
conditional sales contract, are issued by state and local governments and
authorities in order to acquire land and a wide variety of equipment and
facilities. Generally, the Funds will not hold such obligations directly as a
lessor of the property, but will purchase a participation interest in a
municipal obligation from a bank or other third party. A participation interest
gives the Funds a specified, undivided interest in the obligation in proportion
to its purchased interest in the total amount of the obligation.
Municipal leases frequently have risks distinct from those associated with
general obligation or revenue bonds. State constitutions and statutes set forth
requirements that states or municipalities must meet to incur debt. These may
include voter referenda, interest rate limits or public sale requirements.
Leases, installment purchases or conditional sales contracts (which normally
provide for title to the leased asset to pass to the governmental issuer) have
evolved as a means for governmental issuers to acquire property and equipment
without meeting their constitutional and statutory requirements for the issuance
of debt. Many leases and contracts include "non-appropriation clauses"
providing that the governmental issuer has no obligation to make future payments
under the lease or contract unless money is appropriated for such purpose by the
appropriate legislative body on a yearly or other periodic basis. Non-
appropriation clauses free the issuer from debt issuance limitations.
DERIVATIVE MUNICIPAL OBLIGATIONS. The Municipal Bond Fund and the
California Tax-Free Fund may also invest in more recently developed municipal
financing instruments, including custodial receipts or certificates evidencing
ownership of future interest payments, principal payments or both on underlying
municipal securities and municipal securities that contain embedded interest
rate derivative products. These types of obligations are referred to herein as
"Derivative Municipal Obligations." The Municipal Bond Fund and the California
Tax-Free Fund will not invest more than 20% of their respective total assets in
Derivative Municipal Obligations.
Derivative Municipal Obligations in which a Fund may invest include
municipal securities that contain embedded interest rate derivative products
such as interest rate swaps or caps ("Embedded Derivative Municipal
Obligations"). A discussion of interest rate derivative products is set forth
below.
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Embedded Derivative Municipal Obligations in essence consist of a fixed-rate,
long-term bond and a derivative contract, such as an interest rate cap
agreement. By combining these two types of securities, a municipal issuer is
able to issue a tax-exempt bond, typically with a long maturity, the coupon
payments on which vary according to a formula based on an interest rate index.
For example, in an Embedded Derivative Municipal Obligation containing an
interest rate cap, during the term of the embedded cap the investor receives the
coupon rate on the underlying long-term bond less the cost of the cap for so
long as interest rates remain below the level of the cap. When interest rates
rise above that level, the investor receives the long-term bond coupon less the
cost of the cap plus the amount by which an index specified in the cap agreement
exceeds the cap level. This type of instrument would allow a Fund to hedge
against a rise in short-term interest rates.
Embedded Derivative Municipal Obligations offer advantages over investing
separately in a traditional municipal security and an interest rate derivative
contract. In an Embedded Derivative Municipal Obligation, because the municipal
issuer is the issuer of the interest rate derivative contract, the entire amount
of interest payable on the obligation is expected to be tax-exempt. Any income
from an interest rate derivative contract purchased separately would be taxable
to a Fund. An Embedded Derivative Municipal Obligation purchased by a Fund
would be accompanied by a tax opinion stating that the entire amount of interest
payable on the obligation is tax-exempt. Because final regulations have not
been adopted by the U.S. Department of the Treasury with respect to these types
of hybrid obligations, however, it is possible that the Internal Revenue Service
might find a portion of the interest to be taxable. In addition, Embedded
Derivative Municipal Obligations may not be readily marketable. All bonds
underlying Embedded Derivative Municipal Obligations will be rated, at the time
of purchase, A or better by Standard & Poor's Corporation or Moody's Investors
Services, Inc., or comparably rated by any other nationally recognized
statistical rating organization or, if unrated, of comparable quality as
determined by Griffin Advisers.
Derivative Municipal Obligations also include custodial receipts or
certificates underwritten by securities dealers or banks that evidence ownership
of future interest payments, principal payments or both on certain municipal
securities (such receipts or certificates are referred to herein as "Custodial
Receipts"). The underwriter of Custodial Receipts typically purchases municipal
securities and deposits the securities in an irrevocable trust or custodial
account with a custodian bank, which then issues receipts or certificates that
evidence ownership of the periodic unmatured coupon payments and the final
principal payment on the obligations. Although under the terms of a Custodial
Receipt a Fund typically would be authorized to assert its rights directly
against the issuer of the underlying obligation, the Fund could be required to
assert through the custodian bank those rights as may exist against the
underlying issuer. Thus, in the event the underlying issuer fails to pay
principal and/or interest when due, the Fund may be subject to delays, expenses
and risks that are greater than those that would have been involved if the Fund
had purchased a direct obligation of the issuer. In addition, in the event that
the trust or custodial account in which the underlying security has been
deposited is determined to be an association taxable as a corporation, instead
of a non-taxable entity, it would be subject to state income tax (but not
federal income tax) on the income it earned on the underlying security, and the
yield on the security paid to the Fund and its shareholders would be reduced by
the amount of taxes paid. Furthermore, amounts paid by the trust or custodial
account to the Fund would lose their tax-exempt character and become taxable,
for federal and state purposes, in the hands of the Fund and its shareholders.
However, Custodial Receipts in which a Fund will invest will be accompanied by a
tax
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opinion stating that interest payable on the receipts is tax exempt. If a Fund
invests in Custodial Receipts, it is possible that a portion of the discount at
which the Fund purchases the receipts might have to be accrued as taxable income
during the period that a Fund holds the receipts.
With respect to certain types of Custodial Receipts, the interest on the
underlying municipal securities is divided into two or more different
components. Typically, one component (the "Auction Component") pays an interest
rate that is reset periodically through an auction process or by reference to an
interest rate index and is essentially a variable or floating-rate obligation.
A second component (the "Inverse Component") pays a residual interest rate based
on the difference between the total interest paid by the issuer on the municipal
securities and the rate paid on the Auction Component. Inverse Components may
also pay a rate of interest determined by subtracting a multiple of a variable
or floating rate from the total amount paid by the issuer of the municipal
securities. Because the interest rate paid to holders of Inverse Components is
generally determined by subtracting a variable or floating rate from a
predetermined amount, the interest rate paid to Inverse Component holders will
decrease as such variable or floating rate increases and increase as such
variable or floating rate decreases. Moreover, the extent of the increases and
decreases in the value of an Inverse Component in response to changes in market
rates of interest generally will be larger than comparable changes in the value
of an equal principal amount of a fixed rate municipal security having similar
credit quality, redemption provisions and maturity. Investments in Inverse
Components may therefore increase the volatility of the NAV and market value of
a Fund's shares.
Some of these instruments may be unrated, but unrated instruments purchased
by a Fund will be determined by Griffin Advisers to be of comparable quality at
the time of purchase to instruments rated "investment grade" by any major rating
service.
HEDGING AND ADDITIONAL INCOME STRATEGIES. The Municipal Bond Fund and
California Tax-Free Fund may utilize various other investment strategies to
hedge against market risk, facilitate portfolio management and increase income.
These consist of interest rate swaps; caps and floors; futures; and put and call
transactions (collectively, "Hedging Transactions"). Hedging Transactions may
be used to attempt to protect against possible declines in the market value of a
Fund's portfolio resulting from downward trends in the debt securities markets
(generally due to a rise in interest rates), to protect a 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 a Fund's portfolio, to establish a position in the securities markets as a
temporary substitute for purchasing particular securities or to increase income.
For example, in order to decrease the duration (a measure of price volatility in
response to interest rate changes) of a Fund's portfolio, rather than sell
longer-term portfolio securities and purchase shorter-term securities, the Fund
might enter into futures contracts for the sale of debt securities or enter into
an interest rate swap where the Fund receives floating-rate payments in exchange
for making fixed-rate payments. Any or all of these techniques may be used at
any time. There is no particular strategy that requires use of one technique
rather than another. The use of any Hedging Transaction is a function of market
conditions. The Hedging Transactions that a Fund may use are described below.
Further, Hedging Transactions may be used by the Municipal Bond Fund and the
California Tax-Free Fund in the future as they are developed to the extent
deemed appropriate by the Board of Directors.
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INTEREST RATE TRANSACTIONS. The Short-Term Bond Fund, Municipal Bond Fund
and California Tax-Free Fund may enter into interest rate swaps and may purchase
and sell interest rate caps and floors. Each Fund expects to enter into these
transactions primarily to preserve a return or spread on a particular investment
or portion of its portfolio, as a duration management technique or to protect
against any increase in the price of securities a Fund anticipates purchasing at
a later date. 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. The purchase of an
interest rate cap entitles the purchaser, to the extent that a specified index
exceeds a predetermined interest rate, to receive payments of interest on a
contractually-based principal amount from the party selling such interest rate
cap. The purchase of an interest rate floor entitles the purchaser, to the
extent that a specified index falls below a predetermined interest rate, to
receive payments of interest on a contractually-based principal amount from the
party selling such interest rate floor.
The Short-Term Bond Fund, Municipal Bond Fund and California Tax-Free Fund
may enter into interest rate swaps, caps and floors on either an asset-based or
liability-based basis, depending upon whether a Fund is hedging its assets or
its liabilities, and will usually enter into interest rate swaps on a net basis,
i.e., the two payment streams are netted out, with a Fund receiving or paying,
- - -
as the case may be, only the net amount of the two payments. The net amount of
the excess, if any, of a Fund's obligations over its entitlements with respect
to each interest rate swap will be accrued on a daily basis and an amount of
cash or high-quality liquid debt securities having an aggregate NAV at least
equal to the accrued excess will be maintained in a segregated account by a
Fund's custodian. If a Fund enters into an interest rate swap on other than a
net basis, the Fund will maintain a segregated account in the full amount
accrued on a daily basis of the Fund's obligations with respect to the swap. To
the extent a Fund sells (i.e., writes) caps and floors, it will maintain in a
- -
segregated account cash or high-quality liquid debt securities having an
aggregate NAV at least equal to the full amount, accrued on a daily basis, of
the Fund's obligations with respect to any caps or floors. A Fund will not
enter into any interest rate swap, cap or floor transaction unless the contra-
party has either long-term unsecured debt rated at least A- by Standard & Poor's
Corporation or Moody's Investors Services, Inc. or comparably rated by any
nationally recognized statistical rating organization. Griffin Advisers will
monitor the creditworthiness of contra-parties on an ongoing basis. If there is
a default by the other party to such a transaction, a Fund will 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 principals and as agents utilizing
standardized swap documentation. Griffin Advisers has determined that, as a
result, the swap market has become relatively liquid. Caps and floors are more
recent innovations for which standardized documentation has not yet been
developed and, accordingly, they are less liquid than swaps.
Interest rate transactions do not involve the delivery of securities or
other underlying assets or principal. Accordingly, the risk of loss with
respect to interest rate swaps is limited to the net amount of interest payments
that a Fund is contractually obligated to make. If the other party to an
interest rate swap defaults, a Fund's risk of loss consists of the net amount of
interest payments that the Fund contractually is entitled to receive.
Therefore, there is no specific limit on the amount of interest rate swap
transactions that may be entered into by a Fund. The aggregate purchase price
of caps and floors held by a Fund may not exceed 5% of a Fund's assets. A Fund
may sell (i.e., write) caps and floors
- -
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without limitation, subject to the segregated account requirement described
above. However, because interest rate swaps and the purchase and sale of
interest rate caps and floors as currently constructed may generate taxable
income, the Municipal Bond Fund and California Tax-Free Fund do not expect
currently to engage in such transactions to any significant degree.
LETTERS OF CREDIT. The Municipal Bond Fund may purchase debt obligations,
including municipal securities, certificates of participation, commercial paper
and other short-term obligations, backed by an irrevocable letter of credit of a
bank, savings and loan association or insurance company which assumes the
obligation for payment of principal and interest in the event of default by the
issuer. Only banks, savings and loan associations and insurance companies
which, in the opinion of Griffin Advisers, are of investment quality comparable
to other permitted investments of such Fund may be used for letter of credit-
backed investments.
CERTAIN TAXABLE OBLIGATIONS. The California Tax-Free Fund may invest up to
20% of its total assets in fixed-income obligations whose interest is subject to
federal income tax or the federal alternative minimum tax. In addition, the
California Tax-Free Fund may invest a portion of its assets in obligations whose
interest is subject to California income tax. The California Tax-Free Fund will
purchase taxable obligations only if they meet its quality requirements as set
forth in its Prospectus.
Proposals to restrict or eliminate the federal income tax exemption for
interest on municipal obligations are introduced before Congress from time to
time. Proposals also may be introduced before state legislatures that would
affect the state tax treatment of the California Tax-Free Fund's distributions.
If such proposals were enacted, the availability of municipal obligations and
the value of the California Tax-Free Fund's holdings would be affected and the
Directors would reevaluate the Fund's investment objective and policies.
The California Tax-Free Fund anticipates being as fully invested as
practicable in municipal securities; however, there may be occasions when as a
result of maturities of portfolio securities, sales of fund shares, or in order
to meet redemption requests, the California Tax-Free Fund may hold cash that is
not earning income. In addition, there may be occasions when, in order to raise
cash to meet redemptions, the California Tax-Free Fund may be required to sell
securities at a loss.
ADDITIONAL SECURITIES AND INVESTMENT PRACTICES
----------------------------------------------
OF THE TAX-FREE MONEY MARKET FUND ONLY
--------------------------------------
FEDERALLY TAXABLE OBLIGATIONS. The Tax-Free Money Market Fund may invest
up to 20% of its total assets in fixed-income obligations whose interest is
subject to federal income tax or the federal alternative minimum tax. Taxable
obligations purchased by the Tax-Free Money Market Fund will meet the quality
requirements as set forth in its Prospectus.
Proposals to restrict or eliminate the federal income tax exemption for
interest on municipal obligations are introduced before Congress from time to
time. Proposals also may be introduced before state legislatures that would
affect the state tax treatment of the Tax-Free Money Market Fund's
distributions. If such proposals were enacted, the availability of municipal
obligations and the value of
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the Tax-Free Money Market Fund's holdings would be affected and the Directors
would reevaluate the fund's investment objective and policies.
The Tax-Free Money Market Fund anticipates being as fully invested as
practicable in municipal securities; however, there may be occasions when as a
result of maturities of portfolio securities, sales of fund shares, or in order
to meet redemption requests, the Tax-Free Money Market Fund may hold cash that
is not earning income. In addition, there may be occasions when, in order to
raise cash to meet redemptions, the Tax-Free Money Market Fund may be required
to sell securities at a loss.
LETTERS OF CREDIT. The Tax-Free Money Market Fund may purchase debt
obligations, including municipal securities, certificates of participation,
commercial paper and other short-term obligations, backed by an irrevocable
letter of credit of a bank, savings and loan association or insurance company
which assumes the obligation for payment of principal and interest in the event
of default by the issuer. Only banks, savings and loan associations and
insurance companies which, in the opinion of Griffin Advisers, are of investment
quality comparable to other permitted investments of the Fund may be used for
letter of credit-backed investments.
MUNICIPAL NOTES. The Tax-Free Money Market Fund may invest in municipal
notes. Municipal notes include, but are not limited to, tax anticipation notes
("TANs"), bond anticipation notes ("BANs"), revenue anticipation notes ("RANs")
and construction loan notes. Notes sold as interim financing in anticipation of
collection of taxes, a bond sale or receipt of other revenues are usually
general obligations of the issuer.
TANS. An uncertainty in a municipal issuer's capacity to raise taxes as a
result of such things as a decline in its tax base or a rise in delinquencies
could adversely affect the issuer's ability to meet its obligations on
outstanding TANs. Furthermore, some municipal issuers mix various tax proceeds
into a general fund that is used to meet obligations other than those of the
outstanding TANs. Use of such a general fund to meet various obligations could
affect the likelihood of making payments on TANs.
BANS. The ability of a municipal issuer to meet its obligations on its
BANs is primarily dependent on the issuer's adequate access to the longer term
municipal bond market and the likelihood that the proceeds of such bond sales
will be used to pay the principal of, and interest on, BANs.
RANS. A decline in the receipt of certain revenues, such as anticipated
revenues from another level of government, could adversely affect an issuer's
ability to meet its obligations on outstanding RANs. In addition, the
possibility that the revenues would, when received, be used to meet other
obligations could affect the ability of the issuer to pay the principal of, and
interest on, RANs.
MUNICIPAL SECURITIES. The two principal classifications of municipal
securities are "general obligation" securities and "revenue" securities.
General obligation securities are secured by the issuer's pledge of its full
faith, credit, and taxing power for the payment of principal and interest.
Revenue securities are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise tax or other specific revenue source such as the user of the
facility being financed. Private activity bonds held by the Fund are in most
cases revenue securities and are not payable from the unrestricted revenues of
the issuer. Consequently, the credit
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quality of private activity bonds is usually directly related to the credit
standing of the corporate user of the facility involved.
Municipal securities may include "moral obligation" bonds, which are
normally issued by special purpose public authorities. If the issuer of moral
obligation bonds is unable to meet its debt service obligations from current
revenues, it may draw on a reserve fund, the restoration of which is a moral
commitment but not a legal obligation of the state or municipality which created
the issuer.
Municipal securities may include variable or floating rate instruments
issued by industrial development authorities and other governmental entities.
While there may not be an active secondary market with respect to a particular
instrument purchased by the Fund, the Fund may demand payment of the principal
and accrued interest on the instrument or may resell it to a third party as
specified in the instruments. The absence of an active secondary market,
however, could make it difficult for the Fund to dispose of the instrument if
the issuer defaulted on its payment obligation or during periods the Fund is not
entitled to exercise its demand rights, and the Fund could, for these or other
reasons, suffer a loss.
Some of these instruments may be unrated, but unrated instruments purchased
by the Fund will be determined by Griffin Advisers to be of comparable quality
at the time of purchase to instruments rated "high quality" by any major rating
service. Where necessary to ensure that an instrument is of comparable "high
quality," the Fund will require that an issuer's obligation to pay the principal
of the note may be backed by an unconditional bank letter or line of credit,
guarantee or commitment to lend.
Municipal securities may include participations in privately arranged loans
to municipal borrowers, some of which may be referred to as "municipal leases."
Generally such loans are unrated, in which case they will be determined by
Griffin Advisers, under the supervision of the Board of Directors, to be of
comparable quality at the time of purchase to rated instruments that may be
acquired by the Fund. In determining whether an unrated municipal lease
satisfies these quality requirements, Griffin Advisers will consider, among
other factors, the likelihood that the lease will be canceled. Frequently,
privately arranged loans have variable interest rates and may be backed by a
bank letter of credit. In other cases, they may be unsecured or may be secured
by assets not easily liquidated. Moreover, such loans in most cases are not
backed by the taxing authority of the issuers and may have limited marketability
or may be marketable only by virtue of a provision requiring repayment following
demand by the lender. Such loans made by the Fund may have a demand provision
permitting the Fund to require payment within seven days. Participations in
such loans, however, may not have such a demand provision and may not be
otherwise marketable. To the extent these securities are illiquid, they will be
subject to the Fund's limitation on investments in illiquid securities.
Recovery of an investment in any such loan that is illiquid and payable on
demand may depend on the ability of the municipal borrower to meet an obligation
for full repayment of principal and payment of accrued interest within the
demand period, normally seven days or less (unless the Fund determines that a
particular loan issue, unlike most such loans, has a readily available market).
As it deems appropriate, Griffin Advisers will establish procedures to monitor
the credit standing of each such municipal borrower, including its ability to
meet contractual payment obligations.
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Municipal securities may include units of participation in trusts holding
pools of tax-exempt leases. Municipal participation interests may be purchased
from financial institutions, and give the purchaser an undivided interest in one
or more underlying municipal security. To the extent that municipal
participation interests are considered to be "illiquid securities," such
instruments are subject to the Fund's limitation on the purchase of illiquid
securities. Municipal leases and participation interests therein which may take
the form of a lease or an installment sales contract, are issued by state and
local governments and authorities to acquire a wide variety of equipment and
facilities. Interest payments on qualifying leases are exempt from Federal
income taxes.
In addition, the Fund may acquire "stand-by commitments" from banks or
broker/dealers with respect to municipal securities held in its portfolio.
Under a stand-by commitment, a dealer would agree to purchase at the Fund's
option specified Municipal Securities at a specified price. The Funds will
acquire stand-by commitments solely to facilitate portfolio liquidity and do not
intend to exercise their rights thereunder for trading purposes.
STANDBY COMMITMENTS. The Tax-Free Money Market Fund may invest in Standby
Commitments which are puts that entitle holders to same day settlement at an
exercise price equal to the amortized cost of the underlying security plus
accrued interest, if any, at the time of exercise. The Tax-Free Money Market
Fund may acquire standby commitments to enhance the liquidity of portfolio
securities, but only when the issuers of the commitments are deemed to present
minimal risk of default.
Ordinarily the Tax-Free Money Market Fund may not transfer a standby
commitment to a third party, although it could sell the underlying municipal
security to a third party at any time. The Tax-Free Money Market Fund may
purchase standby commitments separate from or in conjunction with the purchase
of securities subject to such commitments. In the latter case, the Tax-Free
Money Market Fund would pay a higher price for the securities acquired, thus
reducing their yield to maturity. Standby commitments will not affect the
dollar-weighted average maturity of the Tax-Free Money Market Fund, or the
valuation of the securities underlying the commitments.
Standby commitments are subject to certain risks, including the ability of
issuers of standby commitments to pay for securities at the time the commitments
are exercised; the fact that standby commitments are not marketable by the Tax-
Free Money Market Fund; and the possibility that the maturities of the
underlying securities may be different from those of the commitments.
VARIABLE OR FLOATING RATE DEMAND OBLIGATIONS (VRDOS/FRDOS). The Tax-Free
Money Market Fund may invest in VRDOs/FRDOs which are tax-exempt obligations
that bear variable or floating interest rates and carry rights that permit
holders to demand payment of the unpaid principal balance plus accrued interest
from the issuers or certain financial intermediaries. Floating rate securities
have interest rates that change whenever there is a change in a designated base
rate while variable rate instruments provide for a specified periodic adjustment
in the interest rate. These formulas are designed to result in a market value
for the VRDO or FRDO that approximates its par value.
A demand instrument with a conditional demand feature must have received
both a short-term and a long-term high quality rating or, if unrated, have been
determined to be of comparable quality pursuant to procedures adopted by the
Board of Directors. A demand instrument with an
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<PAGE>
unconditional demand feature may be acquired solely in reliance upon a short-
term high quality rating or, if unrated, upon a finding of comparable short-term
quality pursuant to procedures adopted by the Board of Directors.
The Tax-Free Money Market Fund may invest in fixed-rate bonds subject to
third party puts and in participation interests in such bonds held by a bank in
trust or otherwise. These bonds and participation interests have tender options
or demand features that permit the Tax-Free Money Market Fund to tender (or put)
its bonds to an institution at periodic intervals and to receive the principal
amount thereof. The Tax-Free Money Market Fund considers variable rate
instruments structured in this way (Participating VRDOs) to be essentially
equivalent to other VRDOs that it purchases. The Internal Revenue Service has
not ruled whether the interest on Participating VRDOs is tax-exempt, and,
accordingly the Tax-Free Money Market Fund intends to purchase these instruments
based on opinions of bond counsel.
A variable rate instrument that matures in 397 days or less may be deemed
to have a maturity equal to the period remaining until the next readjustment of
the interest rate. A variable rate instrument that matures in greater than 397
days but that is subject to a demand feature that is 397 days or less may be
deemed to have a maturity equal to the longer of the period remaining until the
next readjustment of the interest rate or the period remaining until the
principal amount can be recovered through demand. A floating rate instrument
that is subject to a demand feature may be deemed to have a maturity equal to
the period remaining until the principal amount may be recovered through demand.
The Tax-Free Money Market Fund may purchase a demand instrument with a remaining
final maturity in excess of 397 days only if the demand feature can be exercised
on no more than 30 days' notice (a) at any time or (b) at specific intervals not
exceeding 397 days.
ADDITIONAL SECURITIES AND INVESTMENT PRACTICES OF THE BOND FUND ONLY
--------------------------------------------------------------------
COMMODITY-LINKED BONDS. As a hedging strategy, the Bond Fund may invest in
commodity-indexed bonds involving gold, silver, other precious metals, oil, coal
and other commodities meeting certain internationally recognized specifications.
Commodity-indexed bonds, unlike futures contracts, can be of medium or long
duration and are usually interest bearing. Settlement prices can reflect
average, median or peak commodity prices over a reasonable period preceding
redemption, unlike futures contracts, which are settled on the basis of the
price prevailing at closeout. Commodity-indexed bonds are primarily issued by
corporations (for example, an oil or pipeline company might issue oil-indexed
bonds to hedge their exposure to oil price fluctuations) and investment banking
firms. These securities are typically privately placed, but some are publicly
offered and traded on the stock exchanges. Purchases of commodity-linked bonds
will be limited to less than 5% of Fund assets.
CORPORATE BONDS AND NOTES include debt securities issued by domestic
corporations, U.S. dollar-denominated debt securities issued by foreign
corporations, Yankee bonds and supranational obligations. Yankee bonds are U.S.
dollar-denominated obligations issued by foreign governments or companies.
Supranational obligations are U.S. dollar-denominated obligations issued by
international entities such as The World Bank and the Inter-American Development
Bank.
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ADDITIONAL SECURITIES AND INVESTMENT PRACTICES
----------------------------------------------
OF THE GROWTH & INCOME FUND ONLY
--------------------------------
COMMON STOCKS. The Fund's investments in common stocks will be diversified
among industries and companies. Emphasis will be placed on common stocks which
are trading at low valuation levels relative to their fundamentals such as price
to current earnings either relative to the market or to the security's historic
price-to-earnings relationship, in common stocks which are trading at low prices
in relation to their prospects for long term growth in dividends and earnings,
and in common stocks of issuers that have historically paid above-average or
growing dividends.
Under normal market conditions, at least 90% of the Fund's equity
securities, including, for this purpose, the convertible securities described
below, will be issued by large companies (i.e., companies with a market
capitalization of more than $1 billion). Some investments (not to exceed 10% of
the Fund's equity securities) also may be made in equity securities of medium
and smaller sized companies (i.e., those companies with at least $250 million
but less than $1 billion in capitalization) which may have the potential to
generate high levels of future revenue and earnings growth and where the
investment opportunity may not be fully reflected in the price of the securities
but which may involve greater risks than investments in larger companies. There
may be some additional risks associated with investments in smaller companies
because their shares tend to be less liquid than securities of larger companies.
Further, shares of small companies are generally more sensitive to purchase and
sale transactions and changes in the issuer's financial condition and,
therefore, the prices of such stocks may be more volatile than those of larger
company stocks.
CONVERTIBLE SECURITIES. The Fund will seek to invest in convertible
securities that provide current income and are issued by companies that have a
strong earnings and credit record. The Fund may purchase convertible securities
that are fixed-income debt securities or preferred stocks, and which may be
converted at a stated price within a specified period of time into a certain
quantity of the common stock of the same issuer. Convertible securities, while
usually are subordinate to similar non-convertible securities, are senior to
common stocks in an issuer's capital structure. Convertible securities offer
flexibility by providing the investor with a steady income stream (generally
yielding a lower amount than similar non-convertible securities and a higher
amount than common stocks) as well as the opportunity to take advantage of
increases in the price of the issuer's common stock through the conversion
feature. Fluctuations in the convertible security's price can reflect changes
in the market value of the common stock or changes in market interest rates.
SPECIAL FACTORS AFFECTING THE CALIFORNIA TAX-FREE FUND
------------------------------------------------------
Certain California constitutional amendments, legislative measures,
executive orders, administrative regulations, and voter initiatives, as
discussed below, could adversely affect the market values and marketability of,
or result in default of, existing obligations, including obligations that may be
held by the California Tax-Free Fund. Obligations of the state or local
governments may also be affected by budgetary pressures affecting the State and
economic conditions in the State. Interest income to the Fund could also be
adversely affected. The following highlights only some of the more significant
financial trends and problems, and is based on information drawn from official
statements and prospectuses relating to securities offerings of the State of
California, its agencies or
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instrumentalities, as available on the date of this Statement of Additional
Information. Griffin Advisers has not independently verified any of the
information contained in such official statements and other publicly available
documents, but is not aware of any fact which would render such information
inaccurate.
CONSTITUTIONAL LIMITATIONS ON TAXES AND APPROPRIATIONS:
LIMITATION ON TAXES. The ability of California state and municipal issuers to
obtain revenue sufficient to pay owed obligations is limited by California
Constitutional and other laws. Certain obligations held by the California Tax-
Free Fund may be obligations of issuers that rely in whole or in part, directly
or indirectly, on ad valorem property taxes as a source of revenue. The taxing
-- -------
powers of California local governments and districts are limited by Article
XIIIA of the California Constitution, enacted by the voters in 1978 and commonly
known as "Proposition 13." Briefly, XIIIA limits to 1% of full cash value the
rate of ad valorem property taxes on real property and generally restricts the
-- -------
assessed valuation of property to increases of up to two percent per year,
except upon new construction or change of ownership (subject to a number of
exemptions). Taxing entities may, however, raise ad valorem taxes above the 1%
-- -------
limit to pay debt service on voter-approved bonded indebtedness.
Under Article XIIIA, the basic 1% ad valorem tax levy is applied against
-- -------
the assessed value of property as of the owner's date of acquisition (or as of
March 1, 1975 if acquired earlier), subject to certain adjustments. This system
has resulted in widely varying amounts of tax on similarly situated properties.
Several lawsuits were filed challenging the acquisition-based assessment system
of Proposition 13, but on June 18, 1992, the U.S. Supreme Court announced a
decision upholding Proposition 13.
Article XIIIA prohibits local governments from raising revenues through ad
--
valorem property taxes above the 1%, and requires voters of any government unit
- -------
to give 2/3 approval to levy any "special tax." However, court decisions have
allowed a non-voter-approved levy of "general taxes" that was not dedicated to a
specific use. In response to those decisions, the voters of the State in 1986
adopted an initiative statute which imposed significant new limits on the
ability of local entities to raise or levy general taxes, except by receiving
majority local voter approval. Significant elements of this initiative,
"Proposition 62," have been overturned in recent court cases, but efforts may
continue to further restrict the ability of local government agencies to levy or
raise taxes.
APPROPRIATIONS LIMITS. The State is subject to an annual appropriations
limit imposed by Article XIII B of the State Constitution (the "Appropriations
Limit"). Article XIII B prohibits the State from spending "appropriations
subject to limitation" in excess of the Appropriations Limit. Article XIII B,
originally adopted in 1979, was modified substantially by Propositions 98 and
111 in 1988 and 1990, respectively. "Appropriations subject to limitation,"
with respect to the State, are authorizations to spend "proceeds of taxes,"
which consist of tax revenues, and certain other funds, including proceeds from
regulatory licenses, user charges or other fees to the extent that such proceeds
exceed "the cost reasonably borne by that entity in providing the regulation,
product or service," but "proceeds of taxes" exclude most State subventions to
local governments, tax refunds and some benefit payments such as unemployment
insurance. No limit is imposed on appropriations of funds which are not
"proceeds of taxes," such as reasonable user charges or fees, and certain other
non-tax funds.
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Not included in the Appropriations Limit are appropriations for the debt
service costs of bonds existing or authorized by January 1, 1979, or
subsequently authorized by the voters, appropriations required to comply with
mandates of courts or the federal government and, pursuant to Proposition 111,
appropriations for qualified capital outlay projects and appropriations of
revenues derived from any increase in gasoline taxes and motor vehicle weight
fees above January 1, 1990 levels. In addition, a number of recent initiatives
were structured or proposed to create new tax revenues dedicated to certain
specific uses, with such new taxes expressly exempted from the Article XIII B
limits (e.g., increased cigarette and tobacco taxes enacted by Proposition 99 in
1988). The Appropriations Limit may also be exceeded in cases of emergency.
However, unless the emergency arises from civil disturbance or natural disaster
declared by the Governor, and the appropriations are approved by two-thirds of
the Legislature, the Appropriations Limit for the next three years must be
reduced by the amount of excess.
The State's Appropriations Limit in each year is based on the limit for the
prior year, adjusted annually for changes in State per capita personal income
and changes in population, and adjusted, when applicable, for any transfer of
financial responsibility of providing services to or from another unit of
government. The measurement of change in population is a blended average of
statewide overall population growth, and change in attendance at local school
and community college ("K-14") districts. As amended by Proposition 111, the
Appropriations Limit is tested over consecutive two-year periods. Any excess of
the aggregate "proceeds of taxes" received over such two-year period above the
combined Appropriations Limits for those two years is divided equally between
transfers to K-14 districts and refunds to taxpayers.
As originally enacted in 1979, the State's Appropriations Limit was based
on 1978-79 Fiscal Year authorizations to expend proceeds of taxes and was
adjusted annually to reflect changes in cost-of-living and population (using
different definitions, which were modified by Proposition 111). Starting in the
1991-92 Fiscal Year, the State's Appropriations Limit was recalculated by taking
the actual 1986-87 Fiscal Year limit, and applying the annual adjustments as if
Proposition 111 had been in effect. This recalculation resulted in an increase
of $1 billion to the State's Appropriations Limit in the 1990-91 Fiscal Year.
The Legislature has enacted legislation to implement Article XIII B which
defines certain terms used in Article XIII B and sets forth the methods for
determining the Appropriations Limit. California Government Code Section 7912
requires an estimate of the Appropriations Limit to be included in the
Governor's Budget, and thereafter to be subject to the budget process and
established in the Budget 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 (kindergarten through twelfth plus two-year
community colleges) a minimum share of General Fund Revenues. Proposition 98,
as modified by Proposition 111, guarantees K-14 schools a certain amount of
funds, which is determined by taking the greater of amounts calculated under
three different tests. This guaranteed amount can be suspended for a one-year
period through a two-thirds vote of both houses of the State Legislature, with
the Governor's concurrence. In the fall of 1989, such a suspension was enacted
to avoid having the minimum guaranteed share of revenues generated by a special
supplemental sales tax enacted for earthquake relief go to K-14 schools.
Proposition 98 also contains provisions
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transferring certain State tax revenues in excess of the Article XIIIB limit to
K-14 schools.
During the recession, General Fund revenues for several years were less
than originally projected, so that the original Proposition 98 appropriations
turned out to be higher than the minimum percentage provided in the law. The
Legislature responded to these developments by designating the "extra"
Proposition 98 payments in one year as a "loan" from future years' Proposition
98 entitlements, and also intended that the "extra payments would not be
included in the Proposition 98 "base" for calculating future years'
entitlements. By implementing these actions, per-pupil funding from Proposition
98 sources stayed almost constant at approximately $4,220 from Fiscal Year 1991-
92 to Fiscal Year 1993-94.
In 1992, a lawsuit was filed, called California Teachers' Association v.
Gould, which challenged the validity of these off-budget loans. As part of the
negotiations leading to the 1995-96 Budget Act, an oral agreement was reached to
settle this case. It is expected that a formal settlement reflecting these
conditions will be entered into in the near future.
The oral agreement provides that both the State and K-14 schools share in
the repayment of prior years' emergency loans to schools. Of the total $1.76
billion in loans, the State will repay $935 million, 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 appropriation that count toward satisfying
the Proposition 98 guarantee, or from "below" the current base. Repayments are
spread over the eight-year period of 1994-95 through 2001-02 to mitigate any
adverse fiscal impact. Once a court settlement is reached, and the Director of
Finance certifies that such a settlement has occurred, $360 million in
appropriations from the 1995-96 Fiscal Year to schools will be disbursed in
August 1996.
OBLIGATIONS OF THE STATE OF CALIFORNIA. As of October 1, 1995, the State
had approximately $18.4 billion of general obligation bonds outstanding and $3.3
billion remained authorized but unissued.
ECONOMY. California's economy is the largest among the 50 states and one
of the largest in the world. The State's population of over 32 million,
represents over 12% of the total United States population. Total employment is
about 14 million, the majority of which is in the service, trade, and
manufacturing sectors.
Since the start of the 1990-91 Fiscal Year, the State entered a sustained
economic recession, the most severe in the State since the 1930s. Construction,
manufacturing (especially aerospace), exports and financial services, among
others, have all been severely affected. Job losses have been the worst of any
post-war recession and have continued through the end of 1993. The trough of
the recession is estimated to have occurred in late 1993, later than for the
nation as a whole. Although a steady recovery has been underway since 1994,
pre-recession job levels are not expected to be reached for several more years.
The Department of Finance foresees slow recovery from the recession in
California beginning in 1994. Both the California and national economic
recoveries are much weaker than in previous business cycles, and could be harmed
by several factors, including rising interest rates.
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The accumulated budget deficits over the past several years, together with
expenditures for school funding which have not been reflected in the budget, and
reduction of available internal borrowable funds, have combined to significantly
deplete the State's cash resources to pay its ongoing expenses. In order to
meet its cash needs, the State has issued over the past five fiscal years short
term obligations, such as revenue anticipation warrants, and depended upon
external borrowings, including borrowings extending into the subsequent fiscal
year, to repay such obligations. The State anticipates that it will not have to
resort to cross-year borrowing during the 1995-96 Fiscal Year.
The recession has seriously affected State tax revenues, which basically
mirror economic conditions. It has also caused increased expenditures for
health and welfare programs. The State has also been facing a structural
imbalance in its budget with the largest programs supported by the General Fund
- -- K-12 schools and community colleges, health and welfare, and corrections --
which have grown at rates higher than the growth rates for the principal revenue
sources of the General Fund. As a result, the State has experienced recurring
budget deficits. However, due to an improving economy, the State had the
smallest nominal "budget gap" in many years in the 1995-96 Budget. The 1995-96
Budget Act projected revenues and transfer of $44.1 billion, and expenditures of
$43.4 billion. The Department of Finance projects that after repaying the last
carryover budget deficit, there will be a positive balance of $28 million in the
budget reserve, the Special Fund for Economic Uncertainties, at June 30, 1996.
The Department of Finance also projects cash flow borrowings in the 1995-96
Fiscal Year will be the smallest in many years, comprising about $2 billion of
notes to be issued in April 1996, maturing by June 30, 1996. With full payment
of $4 billion of revenue anticipation warrants on April 25, 1996, the Department
does not project further borrowing over the end of the fiscal year. The
available internal borrowable cash resources for the General Fund are projected
at almost $2 billion.
In July of 1994, all three of the rating agencies rating the State's long-
term debt lowered their ratings of the State's general obligation bonds.
Moody's Investor Service lowered its rating from "Aa" to "A1," Standard & Poor's
Ratings Group lowered its rating from "A+" to "A" and termed its outlook as
"stable," and Fitch Investors Service lowered its rating from "AA" to "A." The
rating agencies stated that the revisions were justified by the State's
continuing deferral of substantial portions of its estimated $3.8 billion
accumulated deficit, continuing structural budgeting constraints including a
funding guarantee for K-111 education, overly optimistic expectation of federal
aid to balance fiscal year 1995's budget and fiscal year 1996's cash flow
projecting, and reliance upon a trigger mechanism to reduce spending if the
plan's assumptions prove incorrect.
On January 17, 1994, a major earthquake measuring an estimated 6.8 on the
Richter Scale struck the Los Angeles metropolitan area. Significant property
damage to private and public facilities occurred in a four-county area including
northern Los Angeles County, Ventura County, and parts of Orange and San
Bernardino Counties, which were declared as State and federal disaster areas by
January 18. Current estimates of total property damage (private and public) are
in the range of $15-$20 billion. The effects of earthquake are not expected to
have a material impact on the State's overall economic performance.
Despite such damage, on the whole, the vast majority of structures in the
areas, including large manufacturing and commercial buildings survived the
earthquake with minimal or no damage, validating the cumulative effect of strict
building codes and thorough preparation for such an
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<PAGE>
emergency by the State and local agencies. Damage to State facilities included
transportation corridors and facilities such as certain highways, which have
reopened and the campus of California State University at Northridge which has
also reopened.
On December 6, 1994, Orange County, California and the Orange County
Investment Pools (the "Pooled Funds") filed for federal bankruptcy protection
under chapter 9 of the U.S. Bankruptcy Code following reports that the Pooled
Funds had suffered significant investment losses, causing a liquidity crisis for
such Pooled Funds and Orange County. Following such filing, the outstanding
debt securities of Orange County were downgraded by the major rating agencies to
below investment grade. More than 180 other public entities, most of which, but
not all, are located in Orange County were also depositors in the Pooled Funds.
Orange County has reported the Pooled Funds lost approximately $1.69 billion, or
23 percent of their initial deposits of approximately $7.5 billion. Many of the
entities which deposited money in the Pooled Funds, including Orange County,
face interim and extended cash flow difficulties due to the bankruptcy filing
and may be required to reduce programs or capital projects. The California Tax-
Free Fund had none of its aggregate assets invested in direct unenhanced Orange
County obligations. It remains unclear what long-term effect such action by
Orange County and the Pooled Funds may have on the market for California
municipal securities in general and the market for the obligations of Orange
County and its related entities.
RECENT STATE FINANCIAL RESULTS. The principal sources of State General
Fund revenues in 1993-94 were the California personal income tax (44% of General
Fund revenues), the sales tax (35%), bank and corporation taxes (12%), and the
gross premium tax on insurance (3%). The State maintains a Special Fund for
Economic Uncertainties (the SFEU), derived from General Fund revenues, as a
reserve to meet cash needs of the General Fund, but which is required to be
replenished as soon as sufficient revenues are available. Year-end balances in
the SFEU are included for financial reporting purposes in the General Fund
balance.
FISCAL YEARS PRIOR TO 1994-95. In the years following enactment of the
federal Tax Reform Act of 1986, and conforming changes to the State's tax laws,
taxpayer behavior became much more difficult to predict, and the State
experienced a series of fiscal years in which revenue came in significantly
higher or lower than original estimates. 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. This
date essentially coincided with the start of the recent recession, 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 will 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
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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 and to close large
"budget gaps" which were identified. The Legislature and Governor eventually
agreed on a number of different steps to produce Budget Acts in the years 1991-
92 to 1993-94, including:
. significant cuts in health and welfare program expenditures;
. transfers of program responsibilities and funding from the State to
reduction in mandates on local government;
. 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;
. reduction in growth of support for higher education programs,
coupled with increases in student fees;
. revenue increases (particularly in the 1991-92 Fiscal Year budget),
most of which were for a short duration;
. 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
. various one-time adjustments and accounting changes.
Despite these budget actions, as noted, the effects of the recession led to
large, unanticipated deficits in the budget reserve, the SFEU, as compared to
projected positive balances. By the 1993-94 Fiscal Year, the accumulated
deficit was so large that it was impractical to budget to retire it in one year,
so a two-year program was implemented, using the issuance of revenue
anticipation warrants to carry a portion of the deficit over the end of the
fiscal year. When the economy failed to recover sufficiently in 1993-94, a
second two-year plan was implemented in 1994-95.
Another consequence of the accumulated budget deficits, together with other
factors such as disbursement of funds to local school districts "borrowed" from
future fiscal years and hence not shown in the annual budget, was to
significantly reduce the State's cash resources available to pay its ongoing
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 was forced to issue 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.
The State's cash condition became so serious in late spring of 1992 that
the State Controller was required to issue revenue anticipation warrants
maturing in the following fiscal year in order to pay the State's continuing
obligations. The State was forced to rely increasingly on external debt markets
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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.
1994-95 FISCAL YEAR
The 1994-95 Fiscal Year represented the fourth consecutive year the
Governor and Legislature were faced with a very difficult budget environment to
produce a balanced budget. The Governor's Budget Proposal, as updated in May
and June 1994, recognized that the accumulated deficit could not be repaid in
one year, and proposed a two-year solution designed to eliminate the accumulated
budget deficit, estimated at about $1.8 billion at June 30, 1994, by June 30,
1996.
The 1994-95 Budget Act, signed by the Governor on July 8, 1994, projected
General Fund revenues and transfers of $41.9 billion, $2.1 billion more than
actual revenues received in 1993-94, and expenditures of $40.9 billion, an
increase of $1.6 billion from the prior year. The revenue estimates partly
reflected the Administration's forecast of an improving economy. The principal
features of the 1994-95 Budget Act were the following:
1. Receipt of additional federal aid of about $760 million for costs of
refugee assistance and costs of incarceration and medical care for
illegal immigrants. Analysis of the federal Fiscal Year 1995 budget by
the Department of Finance indicates that about $98 million was
appropriated for California to offset costs of incarceration of illegal
immigrants, less than the $356 million which was assumed in the State's
1994-95 Budget Act. Because of timing considerations in applying for
these federal funds, the Department of Finance estimates that about $33
million of these funds will be received during the State's 1994-95
Fiscal Year, with the balance received in the following fiscal year. It
does not appear that the federal budget contains any of the additional
$400 million in funding for refugee assistance and health costs which
were also assumed in the 1994-95 Budget Act.
2. Reductions of approximately $1.1 billion in health and welfare costs.
Certain of these actions have been blocked so far by legal challenges;
see "LITIGATION" below.
3. A General Fund increase of approximately $38 million in support for the
University of California and $65 million for California State
University, accompanied by student fee increases for both the
University of California and California State University.
4. Proposition 98 funding for K-14 schools was increased by $526 million
from 1993-94 Fiscal Year levels, representing an increase for
enrollment growth and inflation. Consistent with previous budget
agreements, Proposition 98 funding provided approximately $4,217 per
student for K-12 schools, equal to the level in the prior three years.
5. Additional miscellaneous cuts ($500 million), fund transfers ($255
million), and adjustment to prior years' legislation concerning
property tax shifts for local government ($300 million).
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The 1994-95 Budget Act contained no tax increases. Under legislation
enacted for the 1993-94 Budget Act, the renters' tax credit was suspended for
two years (1993 and 1994). A ballot proposition to permanently restore the
renters' tax credit after this year failed at the June 1994 election. The
Legislature enacted a further one-year suspension of the renters' tax credit,
for 1995, saving about $390 million in the 1995-96 Fiscal Year.
The 1994-95 Budget Act assumed that the State would use a cash flow
borrowing program in 1994-95 which combined one-year notes and two-year
warrants, which were issued in the summer of 1994. Issuance of the warrants
allowed the State to defer repayment of approximately $1.0 billion of its
accumulated budget deficit into the 1995-96 Fiscal year. No automatic spending
cuts were required under the Budget Adjustment Law.
Reports by the Department of Finance in May, 1995 indicate that, with
economic recovery well underway in the State, General Fund revenues for the
entire 1994-95 Fiscal Year were above projections, and expenditures were below
projections because of slower than anticipated health/welfare caseload growth
and school enrollments. The aggregate effect improved the budget picture by
about $500 million, leaving an estimated budget deficit of about $630 million at
June 30, 1995.
1995-96 FISCAL YEAR
1995-96 Budget Act - For the first time in four years, the State entered
the upcoming fiscal year with strengthening revenues and reduced caseload growth
based on an improving economy. The State entered the 1995-96 Budget
negotiations with the smallest nominal "budget gap" to be closed in many years.
Nonetheless, serious policy differences between the Governor and Legislature
prevented timely enactment of the budget. The 1995-96 Budget Act was signed by
the Governor on August 3, 1995, 34 days after the start of the fiscal year. The
Budget Act projects General Fund revenues and transfers of $44.1 billion, a 3.5
percent increase from the prior year. Expenditures are budgeted at $43.4
billion, a 4 percent increase. The Department of Finance projects that, after
repaying the last of the carryover budget deficit, there will be a positive
balance of $28 million in the budget reserve, the Special Fund for Economic
Uncertainties, at June 30, 1996. The Budget Act also projects Special Fund
revenues of $12.7 billion and appropriates Special Fund expenditures of $13.0
billion.
The Department of Finance projects cash flow borrowings in the 1995-96
Fiscal Year will be the smallest in many years, comprising about $2 billion of
notes to be issued in April, 1996, and maturing by June 30, 1996. With full
payment of $4 billion of revenue anticipation warrants on April 25, 1996, the
Department sees no further need for borrowing over the end of the fiscal year.
The available internal borrowable cash resources of the General Fund at June 30,
1996 are projected at almost $2 billion, which estimate is subject to comment by
the State Controller.
The following are the principal features of the Budget Act:
1. Proposition 98 funding for schools and community colleges will increase
by about $1.0 billion (General Fund) and $1.2 billion total above
revised 1994-95 levels. Because of higher than projected revenues in
1994-95, an additional $543 million ($91 per K-12 ADA)
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is appropriated to the 1994-95 Proposition 98 entitlement. A large part
of this is a block grant of about $54 per pupil for any one-time
purpose. Per-pupil expenditures are projected to increase by another
$126 in 1995-96 to $4,435. For the first time in several years, a full
2.7 percent cost of living allowance is funded. The budget compromise
anticipates a settlement of the CTA v. Gould litigation. See "STATE
FINANCES--Proposition 98."
2. Cuts in health and welfare costs totaling about $0.9 billion. Some of
these cuts (totaling about $500 million) would require federal
legislative approval.
3. A 3.5 percent increase in funding for the University of California ($90
million General Fund) and the California State University system ($24
million General Fund).
4. The Budget assumes receipt of $473 million in new federal aid for costs
of illegal immigrants, above commitments already made by the federal
government. This amount is much less than estimates made in the summer
of 1994 as part of the two-year budget proposal, and somewhat lower
than the estimates in the January 1995 Governor's Budget.
5. General Fund support for the Department of Corrections is increased by
about 8 percent over the prior year, reflecting estimates of increased
prison population, but funding is less than proposed in the Governor's
Budget.
DEFICIT RETIREMENT AND DEFICIT REDUCTION PLANS
A key feature of the 1993-94 Budget Act was a plan to retire by December
31, 1994 the $2.8 billion budget deficit which had been accumulated by June 30,
1993 (the "Deficit Retirement Plan"). This 18-month plan used existing
statutory authority to borrow $2.8 billion externally. The 1993-94 Budget Act
provided that $1.6 billion of the deficit elimination loan would be repaid by
December 23, 1993 from a portion of the proceeds of the $2.0 billion 1993
Revenue Anticipation Warrants issued on June 23, 1993. Legislation enacted with
the 1993-94 Budget Act (Chapter 63, Statutes of 1993) directed the State
Controller to issue $1.2 billion of registered reimbursement warrants in the
1993-94 Fiscal Year to fund the balance of the accumulated deficit. Pursuant to
this directive, the State issued $1.2 billion of 1994 Revenue Anticipation
Warrants, Series A (the "Series A Warrants") in February 1994, which matured on
December 21, 1994. The law also created in the State Treasury a Deficit
Retirement Fund. The State Controller transferred from the General Fund to the
Deficit Retirement Fund the sum of $1.2 billion in two equal installments on
September 15, 1994 and December 15, 1994, which moneys were used to retire the
Series A Warrants.
The Deficit Retirement Plan anticipated a combined program to balance the
budget over the 1993-94 and 1994-95 Fiscal Years, and projected a General Fund
balance of $260 million on June 30, 1995. Because fiscal conditions did not
improve as projected in the 1993-94 Fiscal Year, the revenue assumptions of the
Deficit Retirement Plan could not be met, and the Governor indicated in the June
1994 Revision that the General Fund condition would be about $1 billion worse at
June 30, 1994 than was projected at the start of the year. Accordingly, the
1994-95 Budget Act anticipates deferring retirement of about $1 billion of the
carryover budget deficit to the 1995-96 Fiscal Year, when it is intended to be
fully retired. This 22-month Deficit Reduction Plan uses existing statutory
authority to
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borrow $4 billion externally of which approximately $1 billion is the carryover
budget deficit. In addition, Chapter 136, Statutes of 1994, created in the State
Treasury the Warrant Payment Fund. The State Controller is directed to transfer
from the General Fund to the Warrant Payment Fund in September 1995, November
1995, January 1996 and April 1996 in four equal installments the amount
necessary to retire the $4.0 billion of revenue anticipation warrants maturing
on April 25, 1996. As set forth in the Department of Finance's May Revision to
the Governor's Budget, released on May 21, 1995, the Department projects that,
despite some slowdown in the national economy, California will continue steady
economic growth, as it recovers from the recent recession.
Reports issued by the Department of Finance through October, 1995 indicate
that the State economy continued solid growth through the first quarter, despite
continuing job losses in defense-related industries and restructuring in the
financial services sector. Employment and retail sales were both higher than
year-earlier figures, and unemployment was almost a full percentage point less
than the summer of 1994, although still above the national average. Residential
construction has been weak through the summer, although there were signs of
improvement in August, 1995. Nonresidential construction has been running
almost 7 percent above 1994 levels which were, however, depressed.
OBLIGATIONS OF OTHER ISSUERS.
STATE ASSISTANCE. Property tax revenues received by local governments
declined more than 50% following passage of Proposition 13. Subsequently, the
California Legislature enacted measures to provide for the redistribution of the
State's General Fund surplus to local agencies; the reallocation of certain
State revenues to local agencies; and the assumption of certain governmental
functions by the State to assist municipal issuers to raise revenues. It is not
known whether additional revenue redistribution legislation will be enacted in
the future and, if enacted, whether such legislation would provide adequate
revenue for such California issuers to pay their obligations. Total local
assistance from the State's General Fund totaled approximately $33.0 billion in
FY 1991-92 (about 75% of General Fund expenditures) and has been budgeted at
$31.1 billion for FY 1992-93, including the effect of implementing reductions in
certain aid programs. To reduce State General Fund support for school
districts, the 1992-93 Budget Act caused local governments to transfer $1.3
billion of property tax revenues to school districts, representing loss of
almost half the post-Proposition 13 "bailout" aid. The Governor has proposed in
his 1993-94 Budget that local governments transfer a further $2.5 billion of
property taxes to school districts, with the possibility that they could raise
taxes at the local level to make up some of the shortfall.
To the extent the State should be constrained by its Article XIIIB
appropriations limit, or its obligation to conform to Proposition 98, or other
considerations, the absolute level, or the rate of growth, of State assistance
to local governments may continue to be reduced. Any such reductions in State
aid could compound the serious fiscal constraints already experienced by many
local governments, particularly counties. At least one rural county (Butte)
publicly announced that it might enter bankruptcy proceedings in August 1990,
although such plans were put off after the Governor approved legislation to
provide additional funds for the county. Other counties have also indicated
that their budgetary condition is extremely grave. A school district (Richmond
Unified) recently filed for protection under bankruptcy laws, but the petition
was later dismissed; other school districts have indicated financial stress,
although none has threatened bankruptcy.
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ASSESSMENT BONDS. Municipal obligations which are assessment bonds or
Mello-Roos bonds may be adversely affected by a general decline in real estate
values or a slow-down in real estate sales activity. In many cases, such bonds
are secured by land which is undeveloped at the time of issuance but anticipated
to be developed within a few years after issuance. In the event of such
reduction or slowdown, such development may not occur or may be delayed, thereby
increasing the risk of a default on the bonds. Because the special assessments
or taxes securing these bonds are not the personal liability of the owners of
the property assessed, the lien on the property is the only security for the
bonds. Moreover, in most cases the issuer of these bonds is not required to
make payments on the bonds in the event of delinquency in the payment of
assessments or taxes, except for amounts, if any, in a reserve fund established
for the bonds.
CALIFORNIA LONG-TERM LEASE OBLIGATIONS. Certain California long-term lease
obligations, though typically payable from the general fund of the municipality,
are subject to "abatement" in the event the facility being leased is unavailable
for beneficial use and occupancy by the municipality during the term of the
lease. Abatement is not a default, and there may be no remedies available to
the holders of the certificates evidencing the lease obligation in the event
abatement occurs. The most common causes of abatement are failure to complete
construction of the facility before the end of the period during which lease
payments have been capitalized and uninsured casualty losses to the facility
(e.g., due to earthquake). In the event abatement occurs with respect to a
----
lease obligation, lease payments may be interrupted (if all available insurance
proceeds and reserves are exhausted) and the certificates may not be paid when
due.
Several years ago, the Richmond Unified School District ("RUSD") entered
into a lease transaction in which certain existing properties of the RUSD were
sold and leased back in order to obtain funds to cover operating deficits.
Following a fiscal crisis in which the RUSD's finances were taken over by a
State receiver (including a brief period under bankruptcy court protection), the
RUSD failed to make rental payments on this lease, resulting in a lawsuit by the
Trustee for the Certificate of Participation holder, in which the State was
named defendant (on the grounds that it controlled the RUSD's finances). One of
the defenses raised in answer to this lawsuit was the invalidity of the original
lease transaction. The trial court has upheld the validity of the RUSD's lease
but an appeal has been filed by the State. Any ultimate judgment against the
Trustee may have implications for lease transactions of a similar nature by
other California entities.
OTHER CONSIDERATIONS. The repayment of Industrial Development Securities
secured by real property may be affected by California laws limiting foreclosure
rights of creditors. Health Care and Hospital Securities may be affected by
changes in State regulations governing cost reimbursements to health care
providers under Medi-Cal (the State's Medicaid program), including risks related
to the policy of awarding exclusive contracts to certain hospitals.
Limitations on ad valorem property taxes may particularly affect "tax
-- -------
allocation" bonds issued by California redevelopment agencies. Such bonds are
secured solely by the increase in assessed valuation of a redevelopment project
area after the start of redevelopment activity. In the event that assessed
values in the redevelopment project decline (for example, because of major
natural disaster such as an earthquake), the tax increment revenue may be
insufficient to make principal and interest
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payments on those bonds. Both Moody's Investors Services, Inc. and Standard &
Poor's Corporation suspended ratings on California tax allocation bonds after
the enactment of Articles XIIIA and XIIIB, and only resumed such ratings on a
selective basis.
Proposition 87, approved by California voters in 1988, requires that all
revenues produced by a tax rate increase go directly to the taxing entity which
increased such tax to repay that entity's general obligation indebtedness. As a
result, redevelopment agencies (which, typically, are the Issuers of Tax
Allocation Securities) no longer receive an increase in tax increment when taxes
on property in the project area are increased to repay voter-approved bonded
indebtedness.
Substantially all of California is within an active geologic region subject
to major seismic activity. Any California Municipal Obligation in the
California Tax-Free Fund could be affected by an interruption of revenues
because of damaged facilities or, consequently, income tax deductions for
casualty losses or property tax assessment reductions. Compensatory financial
assistance could be constrained by the inability of (i) an issuer to have
obtained earthquake insurance coverage at reasonable rates; (ii) an insurer to
perform on its contracts of insurance in the event of widespread losses; or
(iii) the federal or State government to appropriate sufficient funds within
their respective budget limitations.
The October 1989 Northern California earthquake is estimated to have
resulted in a $2 billion (0.3%) reduction in personal income statewide, but wage
effects were minor and largely offset by reconstruction activity. The federal
government committed approximately $3.5 billion to earthquake relief, and,
shortly after the event, the California Legislature enacted, in special session,
a temporary increase in the sales tax rate to finance relief efforts. The
earthquake was not expected to materially affect California's economy.
Because of the complex nature of Articles XIIIA and XIIIB of the California
Constitution (described briefly above), the ambiguities and possible
inconsistencies in their terms, and the impossibility of predicting future
appropriations or changes in population and the cost of living, and the
probability of continuing legal challenges, it is not currently possible to
determine fully the impact of Article XIIIA or Article XIIIB, or the outcome of
any pending litigation with respect to those provisions on California
obligations in the California Tax-Free Fund or on the ability of the State or
local governments to pay debt service on such obligations. Legislation has been
or may be introduced (either in the Legislature or by initiative) which would
modify existing taxes or other revenue-raising measures or which either would
further limit or, alternatively would increase the abilities of state and local
governments to impose new taxes or increase existing taxes. It is not presently
possible to predict the extent to which any such legislation will be enacted, or
if enacted, how it would affect California municipal obligations. It is also
not presently possible to predict the extent of future allocations of state
revenues to local governments or the abilities of state or local governments to
pay the interest on, or repay the principal of, such California municipal
obligations in light of future fiscal circumstances.
PORTFOLIO TRANSACTIONS
All orders for the purchase or sale of portfolio securities are placed on
behalf of the Funds by Griffin Advisers (either directly or through the sub-
advisers) pursuant to authority under the Advisory
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Contract. Other than listed securities, securities purchased and sold by the
Funds generally will be traded on a net basis (i.e., without commission).
Subject to applicable limitations of the federal securities laws, Griffin
Advisers will consider, in selecting broker-dealers, various relevant factors,
including, but not limited to, the size and type of the transaction; the nature
and character of the markets for the security to be purchased or sold; the
execution efficiency, settlement capability and financial condition of the
broker-dealer firm; the broker-dealer's execution services rendered on a
continuing basis; and the reasonableness of any commissions.
The Funds may execute portfolio transactions with broker-dealers who
provide research and execution services to The Griffin Funds and other accounts
over which Griffin Advisers or a sub-adviser or their affiliates exercise
investment discretion. Such services may include advice concerning the value of
securities; the advisability of investing in, purchasing or selling securities;
the availability of securities or the purchasers or sellers of securities;
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and performance of accounts; and
effecting securities transactions and performing functions incidental thereto
(such as clearance and settlement). Griffin Advisers maintains a listing of
broker-dealers who provide such services on a regular basis. However, as many
transactions on behalf of the Funds are placed with broker-dealers (including
broker-dealers on the list) without regard to the furnishing of such services,
it is not possible to estimate the proportion of such transactions directed to
such broker-dealers solely because such services were provided. The selection
of such broker-dealers is generally made by Griffin Advisers (to the extent
possible consistent with execution considerations) based upon the quality of
research and execution services provided.
The receipt of research from broker-dealers that execute transactions on
behalf of the Funds may be useful to Griffin Advisers or a sub-adviser in
rendering investment management services to the Funds and/or their other
clients, and conversely, such research provided by broker-dealers who have
executed transaction orders on behalf of other clients of Griffin Advisers or
the sub-advisers may be useful to Griffin Advisers or the sub-advisers in
carrying out their obligations to the Funds. The receipt of such research
enables Griffin Advisers or the sub-advisers to avoid the additional expenses
that could be incurred if Griffin Advisers or the sub-advisers tried to develop
comparable information through their own efforts.
Subject to applicable limitations of the federal securities laws, broker-
dealers may receive commissions for agency transactions that are in excess of
the amount of commissions charged by other broker-dealers in recognition of
their research and execution services. In order to cause the Funds to pay such
higher commissions, Griffin Advisers (or a sub-adviser) must determine in good
faith that such commissions are reasonable in relation to the value of the
brokerage and research services provided by such executing broker-dealers viewed
in terms of a particular transaction or the overall responsibilities of Griffin
Advisers (or the sub-adviser) to the Funds and their other clients. In reaching
this determination, Griffin Advisers (or the sub-adviser) will not attempt to
place a specific dollar value on the brokerage and research services provided or
to determine what portion of the compensation should be related to those
services.
The Directors periodically review the performance of Griffin Advisers (or
the sub-adviser) regarding their responsibilities in connection with the
placement of portfolio transactions on behalf of
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each Fund and review the commissions paid by each Fund over representative
periods of time to determine if they are reasonable in relation to the benefits
of each Fund.
From time to time the Directors will review whether the recapture for the
benefit of the Funds of some portion of the brokerage commission or similar fees
paid by each Fund on portfolio transactions is legally permissible and
advisable. The Funds seek to recapture soliciting broker-dealer fees on the
tender of portfolio securities, but at present no other recapture arrangements
are in effect. The Directors intend to continue to review whether recapture
opportunities are available and are legally permissible and, if so, to
determine, in the exercise of their business judgment, whether it would be
advisable to seek such recapture.
During the fiscal year ended September 30, 1995, Griffin Growth & Income
Fund paid $70,409 in brokerage commissions, and during the period from
commencement of operations on June 12, 1995 to September 30, 1995 Griffin Growth
Fund paid $3,621 in brokerage commissions. In addition, as of the close of The
Griffin Funds' fiscal year on September 30, 1995, the Bond Fund and the Growth &
Income Fund held securities of their regular broker-dealers with a market value
as follows: Bond Fund: Smith Barney Holding Corporation ($149,477); Merrill
Lynch ($216,888); and PaineWebber Group ($304,500); Growth & Income Fund:
BankAmerica Corporation ($413,138).
VALUATION OF PORTFOLIO SECURITIES
MONEY MARKET FUNDS. Each Money Market Fund values its investments on the
basis of amortized cost. This technique involves valuing an instrument at its
cost as adjusted for amortization of premium or accretion of discount rather
than its value based on current market quotations or appropriate substitutes
which reflect current market conditions. The amortized cost value of an
instrument may be higher or lower than the price the Fund would receive if it
sold the instrument.
Valuing each Fund's instruments on the basis of amortized cost and use of
the term "money market fund" are permitted by Rule 2a-7 under the 1940 Act. The
Funds must adhere to certain conditions under Rule 2a-7; these conditions are
summarized in the Prospectus.
The Board of Directors of The Griffin Funds oversees Griffin Advisers'
adherence to SEC rules concerning money market funds, and has established
procedures designed to stabilize each Fund's net asset value ("NAV") at $1.00
per share. At such intervals as they deem appropriate, the Directors consider
the extent to which NAV calculated by using market valuations would deviate from
$1.00 per share. In the event such deviation from the Fund's amortized cost per
share exceeds 1/2 of 1 percent, the Board of Directors will promptly consider
what corrective action, if any, should be initiated. If the Directors believe
that a deviation from the Fund's amortized cost per share may result in material
dilution or other unfair results to shareholders, the Directors have agreed to
take such corrective action, if any, as they deem appropriate to eliminate or
reduce, to the extent reasonably practicable, the dilution or unfair results.
Such corrective action could include selling portfolio instruments prior to
maturity to realize capital gain or losses or to shorten average portfolio
maturity; withholding dividends; redeeming shares in kind; establishing NAV by
using available market quotations; and such other measures as the Directors may
deem appropriate.
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During periods of declining interest rates, a Fund's yield based on
amortized cost may be higher than the yield based on market valuations. Under
these circumstances, a shareholder in a Fund may be able to obtain a somewhat
higher yield than would result if the Fund utilized market valuations to
determine its NAV. The converse would apply in a period of rising interest
rates.
NON-MONEY MARKET FUNDS. Securities owned by each Fund are appraised by
various methods depending on the market or exchange on which they trade.
Securities traded on the New York Stock Exchange or the American Stock Exchange
are appraised at the last sale price, or if no sale has occurred, at the closing
bid price. Securities traded on other exchanges are appraised as nearly as
possible in the same manner. Securities and other assets for which exchange
quotations are not readily available are valued on the basis of closing over-
the-counter bid prices, if available, or at their fair value as determined in
good faith under consistently applied procedures under the general supervision
of the Board of Directors. Debt obligations with remaining maturities of 60
days or less are valued either at amortized cost (unless the Board of Directors
determines that amortized cost does not reflect the securities' fair value) or
at original cost plus accrued interest.
Foreign securities are valued at the last sale price in the principal
market where they are traded, or, if last sale prices are unavailable, at the
last bid price available prior to the time a Fund's NAV is determined. Foreign
security prices are furnished by quotation services who express the value of
securities in their local currency and are then translated from the local
currency into U.S. dollars at current exchange rates. Any changes in the value
of forward contracts due to exchange rate fluctuations are included in the
determination of NAV.
PERFORMANCE
The Funds may quote performance in various ways. All performance
information supplied by the Funds in advertising is historical and is not
intended to indicate future returns. A Fund's yield and total return fluctuate
in response to market conditions and other factors.
YIELD CALCULATIONS
------------------
MONEY MARKET FUNDS. To compute a Fund's yield for a period, the net change
in value of a hypothetical account containing one share reflects the value of
additional shares purchased with dividends from the original share and dividends
declared on both the original share and any additional shares. The net change
is then divided by the value of the account at the beginning of the period to
obtain a base period return. This base period return is annualized to obtain a
current annualized yield. A Fund may also calculate a compound effective yield
by compounding the base period return over a one year period. In addition to
the current yield, a Fund may quote yields based on any historical seven-day
period. Each Fund's yields are calculated on the same basis as other money
market funds, as required by applicable regulations.
For the 7-day period ending September 30, 1995, the yield and effective
yield were 5.32% and 5.46%, respectively, for the Money Market Fund and 3.99%
and 4.07%, respectively, for the Tax-Free Money Market Fund.
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The Tax-Free Money Market Fund's tax-equivalent yield is the rate an
investor would have to earn from a fully taxable investment to equal the Tax-
Free Money Market Fund's tax-free yield. Tax-equivalent yields are calculated
by dividing the Tax-Free Money Market Fund's yield by the result of one minus a
stated federal or combined federal and state tax rate. (If only a portion of
the Tax-Free Money Market Fund's yield is tax-exempt, only that portion is
adjusted in the calculation.) For the 7-day period ending September 30, 1995,
the tax-equivalent yield of the Tax-Free Money Market Fund (assuming a 31%
federal tax rate) was 5.78%.
The table below shows the effect of a shareholder's tax status on effective
yield under the federal income tax laws for 1995. It shows the approximate
yield a taxable security must earn at various income brackets to produce after-
tax yields equivalent to those of tax-exempt obligations, yielding from 2.5% to
6.5%. Of course, no assurance can be given that the Tax-Free Money Market Fund
will achieve any specific tax-exempt yield. While the Tax-Free Money Market
Fund invests principally in obligations whose interest is exempt from federal
income tax, other income received by the Tax-Free Money Market Fund may be
taxable.
1995 FEDERAL TAX RATES AND TAX-EQUIVALENT YIELDS
------------------------------------------------
<TABLE>
<CAPTION>
IF INDIVIDUAL TAX-EXEMPT YIELD IS:
FEDERAL
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
TAX 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5%
TAXABLE INCOME* BRACKET
--------------- -------
SINGLE RETURN JOINT RETURN THEN TAXABLE EQUIVALENT YIELD IS:**
- ------------------------------------------------------------------------------------------------------------------------------------
OVER BUT NOT OVER OVER BUT NOT OVER
$ 0 $ 23,350 $0 $ 39,000 15.0% 2.94% 3..53% 4.12% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65%
$ 23,350 $ 56,550 $39,000 $ 94,250 28.0% 3.47% 4.17% 4.86% 5.56% 6.25% 6.94% 7.64% 8.33% 9.03%
$ 56,550 $117,950 $94,250 $143,600 31.0% 3.62% 4.35% 5.07% 5.80% 6.52% 7.25% 7.97% 8.70% 9.42%
$117,950 $256,500 $143,600 $256,500 36.0% 3.91% 4.69% 5.47% 6.25% 7.03% 7.81% 8.59% 9.38% 10.16%
OVER $256,500 OVER $256,500 39.6% 4.14% 4.97% 5.79% 6.62% 7.45% 8.28% 9.11% 9.93% 10.76%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Net taxable income after all exemptions, adjustments and deductions.
** Based on 1995 tax rates (effective rates may be higher for some individuals
due to phase out of exemptions and elimination of deductions).
The Tax-Free Money Market Fund may invest a portion of its assets in
obligations that are subject to federal income tax. When the Tax-Free Money
Market Fund invests in these obligations, its tax-equivalent yield may be lower.
In the table above, tax-equivalent yields are calculated assuming investments
are 100% federally tax-free.
Yield information may be useful in reviewing a Fund's performance and in
providing a basis for comparison with other investment alternatives. However, a
Fund's yield fluctuates, unlike investments that pay a fixed interest rate over
a stated period of time. When comparing investment alternatives, investors
should also note the quality and maturity of the portfolio securities of the
respective investment companies they have chosen to consider.
58
<PAGE>
Investors should recognize that in periods of declining interest rates each
Fund's yield will tend to be somewhat higher than prevailing market rates, and
in periods of rising interest rates each Fund's yield will tend to be somewhat
lower. Also, when interest rates are falling, the inflow of net new money to
each Fund from the continuous sale of its shares will likely be invested in
instruments producing lower yields than the balance of the Fund's holdings,
thereby reducing such Fund's current yield. In periods of rising interest
rates, the opposite can be expected to occur.
NON-MONEY MARKET FUNDS. Yields for the Funds used in advertising are
computed by dividing the Funds' interest and dividend income for a given 30-day
or one month period, net of expenses, by the average number of shares entitled
to receive distributions during the period, dividing this figure by the Funds'
maximum offering price per share at the end of the period, and annualizing the
result (assuming compounding of income) in order to arrive at an annual
percentage rate. Income is calculated for purposes of yield quotations in
accordance with standardized methods applicable to all stock and bond yield
calculations. Dividends from equity investments are treated as if they were
accrued on a daily basis, solely for the purposes of yield calculations. In
general, interest income is reduced with respect to bonds trading at a premium
over their par value by subtracting a portion of the premium from income on a
daily basis, and is increased with respect to bonds trading at a discount by
adding a portion of the discount to daily income. Capital gains and losses
generally are excluded from the calculation.
Income calculated for the purposes of determining a Fund's yield differs
from income as determined for other accounting purposes. Because of the
different accounting methods used, and because of the compounding assumed in
yield calculations, a Fund's yield may not equal its distribution rate, the
income paid to your account, or the rate of income reported in the Fund's
financial statements.
Yield information may be useful in reviewing the Funds' performance and in
providing a basis for comparison with other investment alternatives. However,
each Fund's yield fluctuates, unlike investments that pay a fixed interest rate
over a stated period of time. When comparing investment alternatives, investors
should also note the quality and maturity of the portfolio securities of the
respective investment companies they have chosen to consider.
For the 30-day period ending September 30, 1995, the Class A Shares of the
U.S. Government Income Fund, Municipal Bond Fund, California Tax-Free Fund and
Bond Fund had yields of 6.40%, 4.88%, 5.05% and 6.01%, respectively. And, for
the 30-day period ending September 30, 1995, the Class B Shares of the U.S.
Government Income Fund, Municipal Bond Fund, California Tax-Free Fund and Bond
Fund had yields of 6.19%, 4.61%, 4.76% and 5.77%, respectively. For the 30-day
period ended September 30, 1995, the yields of Class A Shares and Class B Shares
of the Growth & Income Fund were 1.68% and 1.27%, respectively. For the 30-day
period ended September 30, 1995, the yields of the Class A Shares and Class B
Shares of the Short-Term Bond Fund were 5.71% and 5.91%, respectively.
Investors should recognize that in periods of declining interest rates the
Funds' yields will tend to be somewhat lower. Also, when interest rates are
falling, the inflow of net new money to a Fund from the continuous sale of its
shares will likely be invested in instruments producing lower yields than
59
<PAGE>
the balance of the Funds' holdings, thereby reducing the Funds' current yields.
In periods of rising interest rates, the opposite can be expected to occur.
CALIFORNIA TAX-FREE FUND. The California Tax-Free Fund's tax-equivalent
yield is the rate an investor would have to earn from a fully taxable investment
after taxes to equal the Fund's tax-free yield. Tax-equivalent yields are
calculated by dividing a fund's yield by the result of one minus a stated
federal or combined federal and state tax rate. (If only a portion of the
fund's yield is tax-exempt, only that portion is adjusted in the calculation.)
For the 30-day period ending September 30, 1995, the Class A Shares of the
Municipal Bond Fund and the California Tax-Free Fund produced a tax-equivalent
yield of 7.07% and 7.32%, respectively, based on an assumed federal tax rate of
31%. And, for the 30-day period ending September 30, 1995, the Class B Shares
of the Municipal Bond Fund and the California Tax-Free Fund produced a tax-
equivalent yield of 6.68% and 6.90%, respectively, based on an assumed federal
tax rate of 31%.
The tables below show the effect of a shareholder's tax status on the
effective yield under federal and state income tax laws for 1995. They show the
approximate yield a taxable security must provide at various income brackets to
produce after-tax yields equivalent to those of tax-exempt obligations yielding
from 2.0% to 7.0%. Of course, no assurance can be given that the California Tax-
Free Fund will achieve any specific tax-exempt yield. While the Fund invests
principally in obligations whose interest is exempt from federal and state
income tax, other income received by the Fund may be taxable. The Fund does not
take into account local taxes, if any, payable on fund distributions.
<TABLE>
<CAPTION>
1995 Combined
California and
1995 Federal Federal Effective
Single Return Joint Return Marginal Tax Marginal Tax
Taxable Income* Taxable Income* Bracket Bracket**
--------------- --------------- ------- ---------
<S> <C> <C> <C>
$18,068 - $23,350 $36,136 - $39,000 15% 20.1%
$23,351 - $31,700 $39,001 - $63,400 28% 33.76%
$31,701 - $56,550 $63401 - $94,250 28% 34.70%
$56,551 - $109,936 $94,251 - $143,600 31% 37.42%
$109,937 - $117,950 31% 37.9%
$143,601 - $219,872 36% 41.95%
$117,951 - 219,872 $219,873 - $256,500 36% 42.4%
$219,873 - $256,000 36% 43.04%
$256,501 - $439,744 39.6% 45.64%
over $256,000 over $439,744 39.6% 46.24%
</TABLE>
* Net taxable income after all exemptions, adjustments and deductions.
** Based on rates applicable in 1995 and assuming one exemption for single
filers and two exemptions for married couples filing jointly (except that
effective rates may be higher for some individuals due to phase out of
exemptions and elimination of deductions).
60
<PAGE>
Having determined your combined effective tax bracket above, use the
table below to determine the tax equivalent yield for a given tax-free yield.
<TABLE>
<CAPTION>
If your effective combined federal and California income tax rate in 1995 is:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
20.10% 33.76% 34.70% 37.42% 37.90% 41.95% 42.40% 43.04% 45.64% 46.24%
To match Your taxable investment would have to earn the following yield
these tax-
free rates:
2% 2.50% 3.02% 3.06% 3.20% 3.22% 3.45% 3.47% 3.51% 3.68% 3.72%
3% 3.75% 4.53% 4.59% 4.79% 4.83% 5.17% 5.21% 5.27% 5.52% 5.58%
4% 5.01% 6.04% 6.13% 6.39% 6.44% 6.89% 6.94% 7.02% 7.36% 7.44%
5% 6.26% 7.55% 7.66% 7.99% 8.05% 8.61% 8.68% 8.78% 0.20% 9.30%
6% 7.51% 9.06% 9.19% 9.59% 9.66% 10.34% 10.42% 10.53% 11.04% 11.16%
7% 8.76% 10.57% 10.72% 11.19% 11.27% 12.06% 12.15% 12.29% 12.88% 13.02%
</TABLE>
The California income tax rates are those in effect for 1995. The rates
listed reflect the 1995 inflation adjusted tax brackets. The Fund may invest a
portion of its assets in obligations that are subject to state or federal income
taxes. When the Fund invests in these obligations, its tax-equivalent yields
will be lower. In the table above, tax-equivalent yields are calculated
assuming investments are 100% federally and state tax-free.
TOTAL RETURN CALCULATIONS. Total returns quoted in advertising reflect all
aspects of each of the Fund's returns, including the effect of reinvesting
dividends and capital gain distributions (if any), and any change in a Fund's
NAV over the period. Average annual total returns are calculated by determining
the growth or decline in value of a hypothetical historical investment in a fund
over a stated period, and then calculating the annually compounded percentage
rate that would have produced the same result if the rate of growth or decline
in the value had been constant over the period. For example, a cumulative total
return of 100% over ten years would produce an average annual return of 7.18%,
which is the steady annual rate that would equal 100% growth on a compounded
basis in ten years. While average annual total returns are a convenient means
of comparing investment alternatives, investors should realize that a fund's
performance is not constant over time, but changes from year to year, and that
average annual total returns represent averaged figures as opposed to the actual
year-to-year performance of a Fund.
In addition to average total annual returns, the Funds may quote unaveraged
or cumulative total returns reflecting the simple change in value of an
investment over a stated period. Average annual and cumulative total returns
may be quoted as a percentage or as a dollar amount, and may be calculated for a
single investment, a series of investments, or a series of redemptions over any
time period. Total returns may be broken down into their components of income
and capital (including capital gains and changes in share price, if any) in
order to illustrate the relationship of these factors and their contributions to
total return. Total returns, yields, and other performance information may be
quoted numerically or in a table, graph, or similar illustration.
61
<PAGE>
For the periods ended September 30, 1995, the average annual total returns
of the Class A and Class B Shares of the Non-Money Market Funds, before
deducting applicable sales charges, were as follows:
<TABLE>
<CAPTION>
Class A Class B
Year Ended Since Inception Since Inception
Fund 9/30/95 (10/13/93)(1) (11/1/94)(2)
---- ---------- ------------- ------------
<S> <C> <C> <C>
U.S. Government Income Fund 13.00% 5.46% 13.08%
Bond Fund 13.53% 3.68% 13.58%
California Tax-Free Fund 10.13% 1.48% 12.60%
Municipal Bond Fund 10.18% 2.28% 12.86%
Growth & Income Fund 31.93% 17.19% 29.53%
</TABLE>
<TABLE>
<CAPTION>
Class A Class B
Since Inception Since Inception
Fund (6/12/95)(2) (6/12/95)(2)
---- ------------ ------------
<S> <C> <C>
Short-Term Bond Fund 2.32% 2.51%
Growth Fund 16.60% 16.50%
</TABLE>
_____________________
(1) These figures have been annualized.
(2) These figures have not been annualized.
For the periods ended September 30, 1995, the average annual total returns
of the Class A and Class B Shares of the Non-Money Market Funds, after deducting
applicable sales charges, were as follows:
<TABLE>
<CAPTION>
Class A(3) Class B(3)
Year Ended Since Inception Since Inception
Fund 9/30/95 (10/13/93)(1) (11/1/94)(2)
---- ---------- ------------- ------------
<S> <C> <C> <C>
U.S. Government Income Fund 7.95% 2.99% 8.08%
Bond Fund 8.41% 1.25% 8.58%
California Tax-Free Fund 5.15% -0.88% 7.60%
Municipal Bond Fund 5.16% -0.12% 7.86%
Growth & Income Fund 26.05% 14.45% 24.54%
</TABLE>
<TABLE>
<CAPTION>
Class A Class B
Since Inception Since Inception
Fund (6/12/95)(2) (6/12/95)(2)
---- ------------- ----------------
<S> <C> <C>
Short-Term Bond Fund -1.24%(4) -1.49%(4)
Growth Fund 11.37%(3) 11.50%(3)
</TABLE>
___________________
(1) These figures have been annualized.
(2) These figures have not been annualized.
(3) Total return figures reflect the deduction of the maximum initial sales
charge with respect to Class A Shares (4.50%) and the maximum deferred
sales charge with respect to Class B Shares (5.00%).
(4) Total return figures reflect the deduction of the maximum initial sales
charge with respect to Class A Shares (3.50%) and the maximum deferred
sales charge with respect to Class B Shares (4.00%).
62
<PAGE>
A Fund's performance may be compared in advertising to the performance of
other mutual funds in general or to the performance of particular types of
mutual funds, especially those with similar objectives. Such comparisons may be
expressed as mutual fund rankings prepared by Lipper Analytical Services, Inc.
("Lipper," sometimes also referred to as "Lipper Analytical Services"), an
independent service located in Summit, New Jersey that monitors the performance
of mutual funds. The Lipper performance analysis ranks funds on the basis of
total return, assuming reinvestment of distributions, but does not take sales
charges or redemptions fees into consideration, and is prepared without regard
to tax consequences.
The Funds may reference and discuss their Fund number, Quotron(TM) number,
CUSIP number and current portfolio manager in advertising.
From time to time, in reports and promotional literature, a Fund's
performance also may be compared to other mutual funds tracked by financial or
business publications and periodicals. For example, each Fund may quote
Morningstar, Inc. in its advertising materials. Morningstar, Inc. is a mutual
fund rating service that rates mutual funds on the basis of risk-adjusted
performance. In addition, each Fund may quote financial or business
publications and periodicals as they relate to fund management, investment
philosophy, and investment techniques.
Ibbotson Associates of Chicago, Illinois ("Ibbotson") provides historical
returns of the capital markets in the United States, including common stocks,
small capitalization stocks, long-term corporate bonds, intermediate-term
government bonds, long-term government bonds, Treasury bills, the U.S. rate of
inflation (based on the Consumer Price Index ("CPI")) and a combination of
various capital markets. The Funds may use the long-term performance of these
capital markets in order to demonstrate general long-term risk-versus-reward
investment scenarios. The performance of these capital markets is based on the
returns of several different indices and their respective returns. Ibbotson
calculates total returns in the same method as the funds. Performance
comparisons could also include the value of a hypothetical investment in any of
the capital markets.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
If the Directors determine that existing conditions make cash payments
undesirable, redemption payments may be made in whole or in part in securities
or other property, valued for this purpose as they are valued in computing a
Fund's NAV. Shareholders receiving securities or other property on redemption
may realize a gain or loss for tax purposes, and will incur any costs of sale,
as well as the associated inconveniences.
Pursuant to Rule 11a-3 under the 1940 Act, each Fund is required to give
shareholders at least 60 days' written notice prior to terminating or modifying
its exchange privilege. Under the Rule, the 60 day notification requirement may
be waived if (i) the only effect of a modification would be to reduce or
eliminate an administrative fee, redemption fee, or deferred sales charge
ordinarily payable at the time of exchange, or (ii) if a Fund temporarily
suspends the redemption of the shares to be exchanged as permitted under the
1940 Act or by the SEC, or the fund to be acquired suspends the sale
63
<PAGE>
of its shares because it is unable to invest amounts effectively in accordance
with its investment objective and policies.
DISTRIBUTIONS AND TAXES
DISTRIBUTIONS. If you request to have distributions mailed to you and the
U.S. Postal Service cannot deliver your checks, or if your checks remain
uncashed for six months, Griffin Advisers may reinvest your distributions at the
then-current NAV. All subsequent distributions will then be reinvested until
you provide Griffin Advisers with alternative instructions.
TAXES. Qualification of each Fund as a regulated investment company under
the Internal Revenue Code of 1986, as amended (the "Code"), requires, among
other things, that (a) at least 90% of the Fund's annual gross income be derived
from payments with respect to securities loans, dividends, interest and gains
from the sale or other disposition of securities or options thereon; (b) the
Fund derive less than 30% of its gross income from gains from the sale or other
disposition of securities or options thereon held for less than three months;
and (c) the Fund diversify its holdings so that, at the end of each quarter of
the taxable year, (i) at least 50% of the market value of the Fund's assets is
represented by cash, government securities and other securities limited in
respect of any one issuer to an amount not greater than 5% of the Fund's assets
and 10% of the outstanding voting securities of such issuer, and (ii) not more
than 25% of the value of its assets is invested in the securities of any one
issuer (other than U.S. Government securities and the securities of other
regulated investment companies), or of two or more issuers which the Fund
controls and which are determined to be engaged in the same, similar or related
trades or businesses. As a regulated investment company, the Funds will not be
subject to federal income tax on net investment income or net capital gains
distributed to shareholders, provided they distribute to shareholders at least
90% of their respective net investment income (and tax-exempt income in the case
of the Tax-Free Money Market Fund, the Municipal Bond Fund and the California
Tax-Free Fund) earned in each year.
A 4% nondeductible federal excise tax will be imposed on each Fund (other
than to the extent of a Fund's tax-exempt income) to the extent it does not meet
certain minimum distribution requirements by the end of each calendar year.
Each Fund intends to distribute substantially all of its net investment income
and net capital gains and, thus, does not expect to be subject to the excise
tax. Dividends and distributions declared payable as of a date in October,
November or December of any calendar year are deemed under the Code to have been
received by shareholders on December 31 of that year if the dividend is actually
paid in the following January. Such dividends will, accordingly, be subject to
income tax for the taxable year in which December 31 falls.
Corporate shareholders of the Growth & Income Fund or the Growth Fund may
be eligible for the dividends-received deduction on the dividends (excluding the
net capital gains dividends) paid by a Fund to the extent that the Fund's income
is derived from dividends (which, if received directly, would qualify for such
deduction) received from domestic corporations. In order to qualify for the
dividends-received deduction, a corporate shareholder must hold the Fund shares
paying the dividends upon which the deduction is based for at least 46 days.
64
<PAGE>
In general, gain or loss recognized by a Fund on the disposition of a
capital asset will be a capital gain or loss. However, gain recognized on the
disposition of a debt obligation (including, with respect to obligations
purchased after April 30, 1993, tax-exempt obligations) purchased by a Fund at a
market discount (generally, at a price less than its principal amount) will be
treated as ordinary income to the extent of the portion of the market discount,
not previously included in taxable income, which accrued during the period of
time the Fund held the debt obligation.
Depending upon state law, a portion of a Fund's dividends attributable to
interest income derived from U.S. Government securities may be exempt from state
and local taxation. The Funds will provide information on the portion of the
Funds' dividends, if any, that qualify for this exemption.
Any loss realized on a redemption or exchange of shares of the Fund will be
disallowed to the extent shares are reacquired within the 61-day period
beginning 30 days before and ending 30 days after the shares are disposed of.
In addition, if a shareholder exchanges or otherwise disposes of shares of a
Fund within 90 days of having acquired such shares, and if, as a result of
having acquired those shares, the shareholder subsequently pays a reduced sales
charge for shares of the Fund, or of a different Fund, the sales charge
previously incurred acquiring the Fund's shares shall not be taken into account
(to the extent such previous sales charges do not exceed the reduction in sales
charges) for the purpose of determining the amount of gain or loss on the
exchange, but will be treated as having been incurred in the acquisition of such
other shares.
As of the date of this statement of additional information, the maximum
marginal federal individual stated tax rate applicable to ordinary income is
39.6% (effective rates may be higher for some individuals due to phase out of
exemptions and elimination of deductions), the maximum individual tax rate
applicable to net capital gains is 28%; and the maximum corporate tax rate
applicable to ordinary income and net capital gains is 35%. However, to
eliminate the benefit of lower marginal corporate income tax rates, corporations
which have taxable income in excess of $100,000 for a taxable year will be
required to pay an additional amount of income tax of up to $11,750 and
corporations which have taxable income in excess of $15,000,000 for a taxable
year will be required to pay an additional amount of income tax of up to
$100,000.
In addition, the alternative minimum tax rate for noncorporate taxpayers is
26% on taxable excess (alternative minimum taxable income, less the applicable
exemption amount) up to $175,000. The alternative minimum tax rate on taxable
excess exceeding $175,000 is 28%. The corporate alternative minimum tax rate is
20%.
Income and dividends received by each of the Short-Term Bond Fund, the Bond
Fund, the Growth & Income Fund and the Growth Fund from sources within foreign
countries may be subject to withholding and other taxes imposed by such
countries. Tax conventions between certain countries and the United States may
reduce or eliminate such taxes. Because not more than 50% of the value of the
total assets of the each of the Short-Term Bond Fund, the Bond Fund, the Growth
& Income Fund and the Growth Fund is expected to consist of securities of
foreign issuers, a Fund will not be eligible to elect to "pass through" foreign
tax credits to shareholders.
65
<PAGE>
If for any taxable year a Fund does not qualify for the special tax
treatment afforded regulated investment companies, all of its taxable income
will be subject to tax at regular corporate rates (without any deduction for
distributions to its shareholders). In such event, dividend distributions would
be taxable to shareholders to the extent of earnings and profits.
Investors who fail to furnish a valid Taxpayer Identification Number
("TIN") to a Fund, or for whom a Fund receives an IRS notice that the TIN which
has been supplied is incorrect or that the investor is subject to withholding,
are subject to withholding on dividend distributions (other than exempt-interest
dividends) and redemption proceeds (including proceeds from exchanges).
MONEY MARKET FUND. The Funds may distribute short-term capital gains once
a year or more often as necessary to maintain their NAVs at $1.00 per share or
to comply with distribution requirements under federal tax law. The Funds do
not anticipate earning long-term capital gains on securities held by a Fund.
TAX-FREE MONEY MARKET FUND, MUNICIPAL BOND FUND AND CALIFORNIA TAX-FREE
FUND. To the extent that the Tax-Free Money Market, Municipal Bond and
California Tax-Free Fund's income is derived from federally tax-exempt interest,
provided certain conditions are met, the dividends declared by these Funds are
also federally tax-exempt. Shareholders are required to report tax-exempt
income on their federal tax returns. Shareholders who earn other income, such
as social security benefits, may be subject to federal income tax on up to 85%
of such benefits to the extent that their income, including tax-exempt income,
exceeds certain base amounts. Shares of the Tax-Free Money Market Fund, the
Municipal Bond Fund and the California Tax-Free Fund would generally not be
suitable for tax-exempt institutions or tax-deferred retirement plans (e.g.
plans qualified under Section 401 of the Internal Revenue Code, Keogh-type plans
and individual retirement accounts.) Such retirement plans would not gain any
benefit from the tax-exempt nature of those Funds' dividends because such
dividends would be ultimately taxable to the beneficiaries when distributed to
them.
Any loss realized by a shareholder upon the sale or redemption of shares of
a Fund held less than six months is disallowed to the extent of any exempt-
interest dividends received by the shareholder. In addition, interest on
indebtedness incurred by a shareholder to purchase or carry shares of a Fund is
not deductible for federal income tax purposes if the Fund distributes exempt-
interest dividends during the shareholder's taxable year.
These Funds purchase municipal obligations based on opinions of bond
counsel regarding the federal income tax status of the obligations. These
opinions generally will be based on covenants by the issuers regarding
continuing compliance with federal tax requirements. If the issuer of an
obligation fails to comply with its covenants at any time, interest on the
obligation could become federally taxable retroactive to the date the obligation
was issued.
Shareholders who may be "substantial users" (or related persons of
substantial users) with respect to municipal securities held by the Tax-Free
Money Market Fund, the Municipal Bond Fund or the California Tax-Free Fund or
who may be subject to the alternative minimum tax should consult their tax
advisers to determine whether exempt-interest dividends paid by the Funds with
respect to such obligations retain their federal tax exclusions.
66
<PAGE>
Interest on certain "private activity" bonds is subject to the federal
Alternative Minimum Tax ("AMT"). Interest from private activity bonds is a tax
preference item for the purposes of determining whether a taxpayer is subject to
the AMT and the Amount of AMT to be paid, if any. Private activity securities
issued after August 7, 1986 to benefit a private or industrial user or to
finance a private facility are affected by this rule. Shareholders will not be
permitted to deduct any of their share of Fund expenses in computing alternative
minimum taxable income. Further, under the Code federal exempt-interest
dividends are includable in adjusted current earnings in calculating corporate
alternative minimum taxable income.
It is the current position of the Staff of the Securities and Exchange
Commission that a fund which uses the word "tax-free" in its name must have a
fundamental policy requiring that during periods of normal market conditions
either (i) 80% of the fund's total assets will be invested in securities that
pay interest which is exempt from federal income taxes and which is not subject
to the federal alternative minimum tax, or (ii) 80% of the fund's income
distributions will be exempt from federal income taxes and not subject to the
federal alternative minimum tax.
CALIFORNIA TAX-FREE FUND -- CALIFORNIA TAXES. As long as the California
Tax-Free Fund continues to qualify as a regulated investment company as
described above, it will incur no California income or franchise tax liability
on income and capital gains distributed to shareholders. California personal
income tax law provides that exempt-interest dividends paid by a regulated
investment company, or series thereof, from interest on obligations which are
exempt from California personal income tax are excludable from gross income.
For the Fund to qualify to pay exempt-interest dividends, at least 50% of the
value of the Fund's total assets must consist of such obligations at the close
of each quarter of its fiscal year. The Fund intends to qualify to pay exempt-
interest dividends; if, however, it does not, no part of its dividends will be
exempt from California corporate or personal income tax.
Distributions to shareholders derived from interest on other types of
obligations and short-term capital gains will be taxed as dividends, and long-
term capital gain distributions will be taxed as long-term capital gains.
California has an alternative minimum tax (AMT) similar to the federal AMT.
The California AMT, however, does not include interest from private activity
municipal obligations as an item of tax preference.
Interest on indebtedness incurred by a shareholder to purchase or carry
Fund shares is not deductible for California corporate or personal income tax
purposes if the Fund distributes California exempt-interest dividends during the
shareholder's taxable year.
FOREIGN SHAREHOLDERS. Under the Code, distributions of net investment
income by the Funds to a nonresident alien individual, nonresident alien
fiduciary of a trust or estate, foreign corporation, or foreign partnership (a
"foreign shareholder") will be subject to U.S. withholding tax (at a rate of 31%
or a lower treaty rate). Withholding will not apply if a dividend paid by one
of the Funds to a foreign
67
<PAGE>
shareholder is "effectively connected" with a U.S. trade or business, in which
case the reporting and withholding requirement applicable to U.S. citizens or
domestic corporations will apply.
OTHER CONSIDERATIONS. The foregoing summarizes some of the important tax
considerations generally affecting a Fund and its shareholders as of the date of
this Statement of Additional Information. Each year, shareholders will be
notified as to the amount and federal tax status of all dividends and capital
gains paid during the prior year. Such distributions may be subject to state
and local taxes. Shareholders are encouraged to consult their own tax advisors
for information concerning their particular tax situation.
SERVICE PROVIDERS
Management. Subject to the general supervision of the Board of Directors
----------
of The Griffin Funds and in accordance with each Fund's investment policies,
Griffin Advisers serves as adviser to the Funds. Payden & Rygel serves as sub-
adviser to the Money Market Fund, the Tax-Free Money Market Fund, the U.S.
Government Income Fund, the Municipal Bond Fund and the California Tax-Free
Fund. T. Rowe Price serves as sub-adviser to the Growth Fund and the Short-Term
Bond Fund. TBCAM serves as sub-adviser to the Bond Fund and the Growth & Income
Fund.
Griffin Advisers, a subsidiary of H.F. Ahmanson & Company, a savings and
loan holding company, and an affiliate of Home Savings of America and Savings of
America, is located at 5000 Rivergrade Road, Irwindale, California 91706.
Griffin Advisers, a California corporation, was organized in July, 1993 and had
no prior experience advising investment companies.
Payden & Rygel, which is located at 333 South Grand, 32nd Floor, Los
Angeles, California 90071, was founded in 1983 and as of December 31, 1995
managed assets of approximately $20 billion.
T. Rowe Price, which is located at 100 East Pratt Street, Baltimore,
Maryland 21202, was established in 1937 and, together with its affiliates,
managed assets of approximately $70 billion as of December 31, 1995.
TBCAM, which is located at One Boston Place, Boston, Massachusetts 02108,
was established in 1970 and as of December 31, 1995 managed assets of
approximately $14 billion.
Prior to December 1, 1994, Piper Capital Management Inc., located at Piper
Jaffray Tower, 222 South Ninth Street, Minneapolis, MN 55402, served as sub-
advisor to the Growth & Income Fund, the Municipal Bond Fund and the Bond Fund.
Sponsor and Distributor: Griffin Financial, a registered broker-dealer, is
-----------------------
the sponsor and distributor of the Funds. In this capacity, Griffin Financial
has the exclusive right to distribute shares of the Funds. Griffin Financial is
a subsidiary of H.F. Ahmanson & Company and an affiliate of Griffin Advisers,
Home Savings of America and Savings of America.
68
<PAGE>
Transfer Agent: IFTC is the Funds' transfer, shareholder service, and
---------------
dividend-paying agent. IFTC is located at 127 West 10th Street, Kansas City,
Missouri 64105.
Administrator and Sub-Administrator: Griffin Financial Administrators
-----------------------------------
serves as the administrator of the Funds pursuant to an Administration Agreement
and provides various administrative and accounting services to the Funds. IFTC
also provides certain sub-administrative services to the Funds.
DIRECTORS AND OFFICERS
The Directors and Executive Officers of The Griffin Funds are listed below.
Except as indicated, each individual has held the office shown or other office
in the same company for the last five years. Unless otherwise noted, the
business address of each Director and Officer is 5000 Rivergrade Road,
Irwindale, California 91706, which is also the address of Griffin Advisers.
Those Directors who are "interested persons" (as defined in the 1940 Act) by
virtue of their affiliation with either The Griffin Funds or Griffin Advisers,
are indicated by an asterisk (*).
HERSCHEL CARDIN, Director. Age: 69; Retired; Former Director of
--------
Investments, Home Savings of America.
VINCENT F. COVIELLO, Director. Age: 56; Turnberry Capital Corporation, c/o
--------
Bogle & Gates, Two Union Square, Suite 5100, Seattle, Washington 98101.
President, Turnberry Capital since 1993. Prior thereto, Chairman & CEO, GNA
Corp. from January 1980 to March 1993.
*WILLIAM A. HAWKINS, Director, President and Chief Executive Officer. Age:
-----------------------------------------------
53; President and CEO, Griffin Financial Services. President & CEO, Griffin
Financial Administrators. President & CEO, Griffin Financial Investment
Advisers.
MORTON O. SCHAPIRO, Director. Age: 42; 4535 Lennox Avenue, Sherman Oaks,
--------
California 91423. Dean of the College of Letters, Arts and Sciences, University
of Southern California since 1991. Prior thereto, Associate Professor of
Economics, Williams College, 1980-1991.
RICHIE D. ROWSEY, Senior Vice President. Age: 41; Senior Vice President,
---------------------
Griffin Financial Services. Senior Vice President, Griffin Financial
Administrators. Senior Vice President, Griffin Financial Investment Advisers.
JULIA D. WHITCUP, Senior Vice President & Treasurer. Age: 34; Senior Vice
---------------------------------
President & Treasurer, Griffin Financial Services. Senior Vice President &
Treasurer, Griffin Financial Administrators. Senior Vice President & Treasurer,
Griffin Financial Investment Advisers.
TIM S. GLASSETT, Secretary. Age: 39; Senior Vice President & Assistant
---------
General Counsel, H.F. Ahmanson & Company. Secretary, Griffin Financial
Administrators. Secretary, Griffin Financial Investment Advisors.
69
<PAGE>
ANNE P. BANDUCCI, Assistant Secretary. Age: 36; Assistant Secretary, H.F.
-------------------
Ahmanson & Company.
HERBERT L. BOTTS, Assistant Secretary. Age: 38; Vice President & Assistant
-------------------
Secretary, Griffin Financial Services.
CHERYL A. RIVERA, Assistant Secretary. Age: 28; Assistant Secretary, H.F.
-------------------
Ahmanson & Company.
HENRY M. PENA, Assistant Secretary. Age: 32; Assistant Vice President,
-------------------
Griffin Financial Services.
PHILIP MCKINLEY, Vice President. Age: 37, Vice President and Compliance
--------------
Administrator, Griffin Financial Services.
STEVEN P. MUSON, Assistant Treasurer. Age: 29; Assistant Vice President,
-------------------
Griffin Financial Services.
Directors who are not affiliated with The Griffin Funds or Griffin Advisers
are entitled to receive from The Griffin Funds an annual retainer of $5,000 and,
generally, a fee of $2,500 for each Board of Directors and Board Committee
meeting attended, Directors are reimbursed for all out-of-pocket expenses
relating to attendance at Board of Directors' and Board Committee meetings.
Directors who are affiliated with The Griffin Funds or Griffin Advisers do not
receive compensation from The Griffin Funds, but are reimbursed for all out-of-
pocket expenses relating to attendance at meetings. The table below indicates
the total compensation received by the following Directors from The Griffin
Funds during the fiscal year ended September 30, 1995.
COMPENSATION TABLE
------------------
<TABLE>
<CAPTION>
Aggregate Total
Compensation Compensation
Director from The Griffin Funds from The Griffin Funds
- -------- ---------------------- ----------------------
<S> <C> <C>
Herschel Cardin $17,500 $17,500
Vincent F. Coviello $15,000 $15,000
William A. Hawkins $ 0 $ 0
William R. Pierskalla* $12,500 $12,500
Morton O. Schapiro $17,500 $17,500
</TABLE>
______________________
*Mr. Pierskalla resigned his position as a Director of The Griffin Funds in 1995
in order to accept a position as a Director of a holding company of a
commercial bank.
70
<PAGE>
As of January 10, 1996, the Directors and Officers of The Griffin Funds as
a group, owned less than 1% of the outstanding shares of The Griffin Funds.
The Griffin Funds has adopted a Code of Ethics which, among other things,
prohibits each access person of The Griffin Funds from purchasing or selling
securities when such person knows or should have known that, at the time of the
transaction, the security (i) was being considered for purchase or sale by a
Fund, or (ii) was being purchased or sold by a Fund. For purposes of the Code
of Ethics, an access person means (i) a Director or officer of The Griffin
Funds, (ii) any employee of The Griffin Funds (or any company in a control
relationship with The Griffin Funds) who, in the course of his/her regular
duties, obtains information about, or makes recommendations with respect to, the
purchase or sale of securities by The Griffin Funds, and (iii) any natural
person in a control relationship with The Griffin Funds who obtains information
concerning recommendations made to The Griffin Funds regarding the purchase or
sale of securities. Portfolio managers and other persons who assist in the
investment process are subject to additional restrictions, including a
requirement that they disgorge to The Griffin Funds any profits realized on
short-term trading (i.e., the purchase/sale or sale/purchase of securities
- -
within any 60-day period). The above restrictions do not apply to purchases or
sales of certain types of securities, including money market instruments and
certain U.S. Government securities. To facilitate enforcement, the Code of
Ethics generally requires that the access persons of The Griffin Funds, other
than the "disinterested" Directors, submit reports to the designated compliance
person of The Griffin Funds regarding transactions involving securities which
are eligible for purchase by a Fund.
MANAGEMENT CONTRACTS
INVESTMENT ADVISER. The Griffin Funds employs Griffin Advisers to furnish
investment advisory and other services to each Fund. The Advisory Contract
provides that Griffin Advisers shall manage the investing and reinvesting of the
assets of each Fund, subject to the overall supervision of the Board of
Directors of The Griffin Funds, in accordance with its investment objective,
policies and limitations. Griffin Advisers provides to The Griffin Funds
investment guidance and policy direction in connection with its management of
each Fund's portfolio. It also furnishes The Griffin Funds with periodic
reports on the investment strategy and performance of each Fund and additional
reports and information as the Board of Directors and officers of The Griffin
Funds reasonably request.
Griffin Advisers or its affiliates pay certain expenses of The Griffin
Funds, including the costs of printing and distributing all materials relating
to each Fund prepared by it, or at its request, other than such costs relating
to proxy statements, prospectuses, shareholder reports and other materials
distributed to existing or prospective shareholders on behalf of each Fund.
For these services and the payment by Griffin Advisers of The Griffin
Funds' expenses, each Fund, other than the Growth & Income Fund and the Growth
Fund, pays a monthly management fee to Griffin Advisers at the annual rate of
0.50% of the average net assets of the Fund throughout the month pursuant to an
Investment Advisory Contract approved by the initial shareholder of the Funds on
October 7, 1993. The Growth & Income Fund and the Growth Fund each pay a
monthly management fee to Griffin Advisers at the annual rate of 0.60% of the
average net assets of each Fund.
71
<PAGE>
The following chart indicates the amount of advisory fees paid by the Funds
to Griffin Advisers and the amount of advisory fees voluntarily waived by
Griffin Advisers for the fiscal years ended September 30, 1995 and September 30,
1994.
<TABLE>
<CAPTION>
ADVISORY FEES PAID ADVISORY FEES WAIVED
FUND 1995 1994 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Money Market Fund $22,121 $2,186 $307,185 $78,124
Tax-Free Money Market Fund $3,384 $1,811 $43,485 $25,936
Short-Term Bond Fund $0* N/A $3,479* N/A
U.S. Government Income Fund $2,164 $0 $116,136 $61,121
Bond Fund $704 $0 $42,621 $21,374
Municipal Bond Fund $1,201 $0 $18,955 $9,355
California Tax-Free Fund $4,509 $0 $77,876 $40,186
Growth & Income Fund $8,818 $401 $132,670 $45,968
Growth Fund $0* N/A $4,793* N/A
</TABLE>
_________________________
* The Short-Term Bond Fund and the Growth Fund each commenced operations on
June 12, 1995.
ADMINISTRATOR AND DISTRIBUTOR. Each Fund employs Griffin Financial
Administrators to provide, at its expense, certain administrative services in
connection with the operation of the Funds. Under the Administration Agreement
with The Griffin Funds, Griffin Financial Administrators furnishes office space
and certain facilities required for conducting the business for each Fund.
Griffin Financial Administrators also exercises general supervision over the
operation of the Fund, including coordination of the services performed by
Griffin Advisers, transfer and dividend disbursing agents, custodians,
independent accountants and legal counsel. Griffin Financial Administrators
supervises all regulatory compliance, including compilation of information for
documents such as reports to, and filings with, the SEC and state securities
commissions.
Griffin Financial Administrators also supervises the preparation of
periodic reports on the performance of its obligations under the administration
agreement and statements of each Fund that are distributed to each of the
Griffin Funds' officers and to the Board of Directors. It also supervises the
preparation of additional reports and proxy statements. Griffin Financial
Administrators handles all administrative services reasonably necessary for the
operation of each Fund, other than those services that are to be provided by
Griffin Advisers pursuant to the Advisory Agreement and by the transfer and
dividend disbursing agent.
For these services and the payment by Griffin Financial Administrators of
certain of The Griffin Funds' expenses, each Fund pays a monthly administrative
fee to Griffin Financial Administrators at the annual rate of 0.20% of the
average daily value of the Fund's net assets during the preceding month.
The following chart indicates, for the fiscal years ended September 30,
1995 and September 30, 1994, the amount of administration fees paid by the Funds
to Griffin Financial Administrators, the amount of administration fees waived by
Griffin Financial Administrators, and the amount of expenses reimbursed by
Griffin Financial Administrators:
72
<PAGE>
<TABLE>
<CAPTION>
ADMINISTRATION ADMINISTRATION EXPENSES REIMBURSED
FEES PAID FEES WAIVED BY ADMINISTRATOR
FUND 1995 1994 1995 1994 1995 1994
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Money Market Fund $104,782 $0 $26,940 $32,124 $190,837 $121,963
Tax-Free Money Market Fund $16,148 $0 $2,600 $11,099 $ 84,781 $ 77,096
Short-Term Bond Fund $0* N/A $1,392* N/A $ 12,879* N/A
U.S. Government Income Fund $17,960 $0 $29,360 $24,448 $144,944 $109,136
Bond Fund $6,153 $0 $11,177 $8,550 $101,890 $ 68,947
Municipal Bond Fund $3,319 $0 $4,743 $3,742 $ 88,657 $ 57,155
California Tax-Free Fund $12,431 $0 $20,523 $16,074 $102,916 $ 86,348
Growth & Income Fund $26,855 $0 $20,308 $15,456 $147,855 $ 87,476
Growth Fund $0* N/A $1,598* N/A $ 19,668* N/A
</TABLE>
___________________
* The Short-Term Bond Fund and the Growth Fund each commenced operations on
June 12, 1995.
IFTC provides certain subadministrative services to the Funds pursuant to
its Custody Agreement and Transfer Agency Agreement, including performing
transfer agency, dividend disbursing and shareholder servicing functions for
each Fund, calculating each Fund's NAV and dividends, maintaining The Griffin
Funds' general accounting records and administering The Griffin Funds'
securities lending program.
Griffin Financial Services, located at 5000 Rivergrade Road, Irwindale,
California 91706, serves as the distributor ("Distributor") of shares of the
Funds pursuant to a Distribution Agreement between The Griffin Funds and the
Distributor dated September 30, 1993. Under the Distribution Agreement, the
Distributor may offer and sell shares of the Funds to or through securities
dealers, banks and other depository institutions that have entered into sales
support agreements with the Distributor.
During the fiscal year ended September 30, 1994, the Distributor received
$2,194,512 in net underwriting discounts and commissions in connection with
sales of shares of The Griffin Funds. No portion of this amount was retained by
the Distributor, but was paid out to sales representatives. And, during the
fiscal year ended September 30, 1995, the Distributor received $232,710 in net
underwriting discounts and commissions on sales of Class A Shares, and $1,016 in
contingent deferred sales changes on redemptions of Class B Shares. All
underwriting discounts and commissions and contingent deferred sales charges
received by the Distributor during the fiscal year ended September 30, 1995 were
retained by the Distributor.
SUB-ADVISERS. On behalf of the Money Market Fund, the Tax-Free Money
Market Fund, the U.S. Government Income Fund, the Municipal Bond Fund and the
California Tax-Free Fund, Griffin Advisers has entered into sub-advisory
agreements with Payden & Rygel, pursuant to which Payden & Rygel has primary
responsibility for providing portfolio investment management services to each of
those Funds. On behalf of the Short-Term Bond Fund and the Growth Fund, Griffin
Advisers has entered into sub-advisory agreements with T. Rowe Price, pursuant
to which T. Rowe Price has primary responsibility for providing portfolio
investment management services to each of those Funds. And, on behalf of the
Bond Fund and the Growth & Income Fund, Griffin Advisers has entered into
73
<PAGE>
sub-advisory agreements with TBCAM, pursuant to which TBCAM has primary
responsibility for providing portfolio investment management services to each of
those Funds.
A management fee is calculated and paid by each Fund to Griffin Advisers
every month. The fee is calculated by multiplying the average net assets of
each Fund (other than the Growth & Income Fund and the Growth Fund) by 0.50% on
an annualized basis. The management fee for the Growth & Income Fund and the
Growth Fund is calculated by multiplying each Fund's average daily net assets by
0.60% on an annualized basis. Griffin Advisers, in turn, pays Payden & Rygel,
T. Rowe Price and TBCAM for the respective sub-advisory services they provide to
their respective funds. The fees paid to the sub-advisers are not reduced by
any voluntary or mandatory expense reimbursements that may be effected by
Griffin Advisers from time to time. The sub-advisory agreements for the Money
Market Fund, the Tax-Free Money Market Fund, U.S. Government Income Fund and the
California Tax-Free Fund were approved by the sole shareholder of the Funds on
October 7, 1993. The sub-advisory agreement for the Bond Fund and the Municipal
Bond Fund were approved by the shareholders of such Funds at special meetings
held on December 27, 1994. The sub-advisory agreement for the Growth & Income
Fund was approved by shareholders of the Fund at a special meeting held on
January 23, 1995. The sub-advisory agreements for the Short-Term Bond Fund and
the Growth Fund were approved by the sole shareholder of the Funds on June 12,
1995.
To comply with the California Code of Regulations, Griffin Advisers will
reimburse a Fund if and to the extent that a Fund's aggregate annual operating
expenses exceed specified percentages of its average net assets. The applicable
percentages are 2-1/2% of the first $30 million, 2% of the next $70 million, and
1-1/2% of average net assets in excess of $100 million. When calculating a
Fund's expenses for purposes of this regulation, a Fund may exclude interest,
taxes, brokerage commissions, and extraordinary expenses, as well as a portion
of its distribution plan expenses.
DISTRIBUTION AND SERVICE PLANS
As indicated in the Prospectus, each Fund has adopted one or more Plans
under Section 12(b) of the 1940 Act and Rule 12b-1 thereunder (the "Rule"). The
Plans for the Money Market Fund and the Tax-Free Money Market Fund, and the
Class A Shares of the U.S. Government Income Fund, the Municipal Bond Fund, the
California Tax-Free Fund, the Bond Fund and the Growth & Income Fund were
adopted on September 30, 1993 by the Board of Directors, including a majority of
the Directors who were not "interested persons" (as defined in the 1940 Act) of
the Funds and who had no direct or indirect financial interest in the operation
of the Plans or in any agreement related to the Plan (the "Qualified
Directors"), and were approved by the sole shareholder of each Fund on October
7, 1993. The Plans for the Class B Shares of the U.S. Government Income Fund,
the Municipal Bond Fund, the California Tax-Free Fund, the Bond Fund and the
Growth & Income Fund were adopted by the Board of Directors of the Company,
including a majority of the Qualified Directors, on September 30, 1993 and were
approved by the sole shareholder of the Class B Shares of each Fund on November
1, 1994. The Plans for the Class A and Class B Shares of the Growth Fund and
the Short-Term Bond Fund were adopted by the Board of Directors of The Griffin
Funds on May 11, 1995, and by the sole shareholder of each Fund on June 12,
1995.
74
<PAGE>
MONEY MARKET FUNDS. Under the Plans adopted by the Money Market Funds, the
Distributor may receive compensatory payments and/or reimbursements to defray
all or part of the cost of preparing, printing and delivering prospectuses to
prospective shareholders of each Fund or for other distribution-related or sales
support services. Payments under the Plans may not exceed, on an annual basis,
0.20% of each Fund's average daily net assets. The fees paid under the Plans
can be used to pay servicing agents for shareholder liaison services, including
responding to customer inquiries and providing information on their investments.
During the fiscal year ended September 30, 1995, the Money Market Fund
incurred $131,722 in distribution and service fees under its Plan, of which
amount $49,061 was waived by the Distributor. Of the $82,661 in distribution
and service fees paid by the Money Market Fund during the fiscal year ended
September 30, 1995, $73,568 was spent in connection with advertising the Fund
and $9,093 was spent in connection with printing and mailing prospectuses. And,
during the fiscal year ended September 30, 1995, the Tax Free Money Market Fund
incurred $18,748 in distribution and service fees under its Plan, of which
amount $5,984 was waived by the Distributor. Of the $12,764 in distribution and
service fees paid by the Tax-Free Money Market Fund during the fiscal year ended
September 30, 1995, $11,360 was spent in connection with advertising the Fund
and $1,404 was spent in connection with printing and mailing prospectuses.
NON-MONEY MARKET FUNDS. Under the Plans adopted by the Non-Money Market
Funds, the Distributor may receive compensatory payments and/or reimbursements
to defray all or part of the cost of preparing, printing, and delivering
prospectuses to prospective shareholders of each Fund or for other distribution-
related or sales support services. Payments under the Plans may not exceed, on
an annual basis, 0.25% of each Fund's average daily net assets of the Class A
Shares and 0.75% of each Fund's average daily net assets of the Class B Shares.
The fee paid under the Plans for the Class A Shares of each Fund also can be
used to pay servicing agents for shareholder liaison services, including
responding to customer inquiries and providing information on their investments.
A separate fee of up to 0.25% of the average daily net assets of the Class B
Shares of the Fund represented by Class B Shares owned by investors with whom
the servicing agent maintains a servicing relationship is imposed on the Class B
Shares of the Funds.
The following table indicates the fees incurred by the Class A Shares of
the Non-Money Market Funds under the Plans, the purposes for which such amounts
were spent and the amount of such fees that was voluntarily waived by the
Distributor during the fiscal year ended September 30, 1995:
75
<PAGE>
<TABLE>
<CAPTION>
Distribution
and
Funds Service Fees Paid Waived Fees
----- ----------------- -----------
Printing and
Advertising Mailing Prospectuses
----------- --------------------
<S> <C> <C> <C>
Short-Term Bond Fund $0 $0 $1,735
U.S. Government Income Fund $10,703 $1,323 $46,378
Bond Fund $4,046 $500 $17,024
Municipal Bond Fund $4,446 $550 $5,066
California Tax-Free Fund $19,618 $2,425 $18,539
Growth & Income Fund $28,476 $3,520 $25,084
Growth Fund $0 $0 $1,951
</TABLE>
The following table indicates the fees incurred by the Class B Shares of
the Non-Money Market Funds under the Plans, the purposes for which such amounts
were expended and the amount of such fees that was voluntarily waived by the
Distributor during the fiscal year ended September 30, 1995:
<TABLE>
<CAPTION>
Distribution
and
Funds Service Fees Paid Waived Fees
----- ----------------- -----------
Printing and
Advertising Mailing Prospectuses
----------- --------------------
<S> <C> <C> <C>
Short-Term Bond Fund $0 $0 $19
U.S. Government Income Fund $1,380 $171 $1,434
Bond Fund $172 $21 $175
Municipal Bond Fund $28 $3 $35
California Tax-Free Fund $1,232 $152 $1,061
Growth & Income Fund $4,017 $497 $2,980
Growth Fund $0 $0 $184
</TABLE>
GENERAL INFORMATION. The Funds may participate in joint distribution
activities with any of the other funds of The Griffin Funds, in which event
expenses reimbursed out of the assets of the Funds may be attributable, in part,
to the distribution-related activities of another Griffin Fund. Generally, the
expenses attributable to joint distribution activities will be allocated among
each Fund and other Griffin Funds in proportion to their relative net asset
sizes, although The Griffin Funds' Board of Directors may allocate such expenses
in any other manner that it deems fair and equitable.
The Plans will continue in effect from year to year if such continuance is
approved by a majority vote of both the Directors of The Griffin Funds and the
Qualified Directors. Any distribution agreement related to the Plan also must
be approved by such vote of the Directors and the Qualified Directors.
Distribution agreements will terminate automatically if assigned, and may be
terminated at any time, without payment of any penalty, by a vote of a majority
of the outstanding voting securities of the Fund involved. The Plans may not be
amended to increase materially the amounts payable thereunder without the
approval of a majority of the outstanding voting securities of the applicable
Fund, and no material amendment to a Plan may be made except by a majority of
both the Directors of The Griffin Funds and the Qualified Directors.
76
<PAGE>
The Plans require that the Treasurer of The Griffin Funds shall provide to
the Directors, and the Directors shall review, at least quarterly, a written
report of the amounts expended (and purposes therefor) under the Plan. The Rule
also requires that the selection and nomination of Directors who are not
"interested persons" of The Griffin Funds be made by such disinterested
Directors.
DESCRIPTION OF THE GRIFFIN FUNDS
Each Fund is a portfolio of The Griffin Funds, Inc., an open-end management
investment company organized as a Maryland corporation on August 5, 1993. The
Griffin Funds' Articles of Incorporation permit the Directors to create
additional series. Currently there are nine portfolios of The Griffin Funds:
the Money Market Fund, Tax-Free Money Market Fund, Growth & Income Fund, U.S.
Government Income Fund, Municipal Bond Fund, California Tax-Free Fund, Bond
Fund, Short-Term Bond Fund and Growth Fund.
In the event that Griffin Advisers ceases to be the investment adviser to
The Griffin Funds or a Fund, the right of The Griffin Funds or Fund to use the
identifying name "Griffin" may be withdrawn.
The assets of The Griffin Funds received for the issue or sale of shares of
each Fund and all income, earnings, profits and proceeds thereof, subject only
to the rights of creditors, are especially allocated to such Fund, and
constitute the underlying assets of such Fund. The underlying assets of each
Fund are segregated on the books of account, and are to be charged with the
liabilities with respect to such Fund and with a share of the general expenses
of The Griffin Funds. Expenses with respect to The Griffin Funds are to be
allocated in proportion to the asset value of the respective Funds, except where
allocations of direct expense can otherwise be fairly made. The officers of The
Griffin Funds, subject to the general supervision of the Board of Directors,
have the power to determine which expenses are allocable to a given Fund, or
which are general or allocable to all of the Funds. In the event of the
dissolution or liquidation of The Griffin Funds, shareholders of each Fund are
entitled to receive as a class the underlying assets of such Fund available for
distribution.
The Money Market Funds offer only one class of shares. Each of the Non-
Money Market Funds is comprised of two classes of shares, Class A Shares and
Class B Shares. With respect to matters that affect one class of a Non-Money
Market Fund but not another, the shareholders vote as a class; for example, the
approval of a Plan. Subject to the foregoing, all shares of a Fund have equal
voting rights and will be voted in the aggregate, and not by series, except
where voting by a series is required by law or where the matter involved only
affects one series. For example, a change in a Fund's fundamental investment
policies would be voted upon only by shareholders of that Fund and not
shareholders of The Griffin Funds' other investment portfolios. Additionally,
approval of an advisory contract is a matter to be determined separately by
portfolio. Approval by the shareholders of one portfolio is effective as to
that portfolio whether or not sufficient votes are received from the
shareholders of the other portfolios to approve the proposal as to those
portfolios. As used in the Prospectus and in this Statement of Additional
Information, the term "majority," when referring to approvals to be obtained
from shareholders of a Fund, means the vote of the lesser of (i) 67% of the
shares of the Fund represented at a meeting if the holders of more than 50% of
the outstanding shares of the Fund are present in person or by proxy, or (ii)
more than 50% of the outstanding shares of the Fund. The term "majority," when
referring to the approvals to be obtained from shareholders of The
77
<PAGE>
Griffin Funds as a whole, means the vote of the lesser of (i) 67% of The Griffin
Funds' shares represented at a meeting if the holders of more than 50% of The
Griffin Funds' outstanding shares are present in person or by proxy, or (ii)
more than 50% of The Griffin Funds' outstanding shares. Shareholders are
entitled to one vote for each full share held and fractional votes for
fractional shares held.
The Funds may dispense with annual meetings of shareholders in any year in
which it is not required to elect Directors under the 1940 Act. However, The
Griffin Funds has undertaken to hold a special meeting of its shareholders for
the purpose of voting on the question of removal of a Director or Directors if
requested in writing by the holders of at least 10% of The Griffin Funds'
outstanding voting securities, and to assist in communicating with other
shareholders as required by Section 16(c) of the 1940 Act.
Shareholders are not entitled to any preemptive rights. All shares, when
issued, will be fully paid and non-assessable by The Griffin Funds.
As of January 10, 1996, the following persons were known by The Griffin
Funds to own of record the indicated percentage of the shares of the Funds:
MONEY MARKET FUND: Bankers Trust Company, Trustee, Ahmanson Advantage Account,
P.O. Box 712039, Los Angeles, CA 90071 -- 37.33%; H.F. Ahmanson & Co. Inc., C/O
Home Savings of America FSB, Attn: Magy Hanna, 4900 Rivergrade Road, Irwindale,
CA 91706 -- 5.75%; TAX-FREE MONEY MARKET FUND: Mark Schankerman, 6062 Charae
Street, San Diego, CA 92122 -- 5.15%; U.S. GOVERNMENT INCOME FUND - CLASS A
SHARES: Bankers Trust Company, N.A., Trustee, Ahmanson Advantage Account, P.O.
Box 712039, Los Angeles, CA 90071 -- 14.64%; MUNICIPAL BOND FUND - CLASS A
SHARES: Griffin Financial Services, Attn: Finance (Seed Account), P.O. Box
60070, City Industry, CA 91716 -- 19.74%; Leah S. Glickfield, Lynne D. Arbaugh,
JTWROS, 3750 Galt Ocean Drive. #606, Ft. Lauderdale, FL 33308 --- 10.06%;
MUNICIPAL BOND FUND - CLASS B SHARES: Caroline Prager, Joan Rachlin JTWROS, 251
Berkley Road #212, Hollywood, FL 33024 --- 14.63%; Denny D. Aracilla, Jr., 5630
Auden Street, Houston, TX 77005 --- 5.46%; John A. Nelson TTEE, U/A 04/06/95,
John A Nelson Living Trust, 1126 Caballo Court, San Jose, CA 95132 ---76.58%;
CALIFORNIA TAX-FREE FUND - CLASS A SHARES: Griffin Financial Services, Attn:
Finance (Seed Account), P.O. Box 60070, City Industry, CA 91716 -- 5.71%;
CALIFORNIA TAX-FREE FUND - CLASS B SHARES: James L. McFarland Trustee, U/A
1/18/91, The James McFarland Trust, 1705 North Naomi Street, Burbank, CA 91505 -
- - 6.58%; Roger M. and Rosella McCray TT U/A DTT 01091987, The McCray Family
Trust, 9949 Potter Street, Bellflower, CA 90706 --- 5.69%; BOND FUND - CLASS A
SHARES: Bankers Trust Company, N.A., Trustee, Ahmanson Advantage Account, P.O.
Box 712039, Los Angeles, CA 90071 -- 18.13%; Griffin Financial Services, Attn:
Finance (Seed Account), P.O. Box 60070, City Industry, CA 91716 -- 13.20%; BOND
FUND - CLASS B SHARES: Home Savings of America, Trustee, IRA of John G. Verina,
271 E. Gainsborough Road, Thousand Oaks, CA 91360 -- 9.51%; Josephine Marre
TTEE, U/A 10/17/95, The Josephine Marie Marre Revocable Trust, P.O. Box 295,
Santa Ynez, CA 93460 --- 7.10%; Karen E. Wilkie, 8203 Dillon, Houston, TX 77061
- --- 7.95%; Robert G. Linnbary, 3116 Gingerwood Lane, Lancaster, CA 93536 ---
15.35%; Wilbur A Bradenand, Ruth Bradenand JTWROS, 1054 Savannah Drive, San
Jose, CA 95117 --- 10.23%; Inez M. Walton, 18002 E Aberdeen Lane, Villa Park, CA
92667 --- 7.74%; William Rupert, Janice Zara Rupert TTEES, U/A 00/00/00, William
and Janice Zara Rupert Family Trust, 25212 Rotella Avenue, Valencia, CA 91355 --
- - 10.15%;
78
<PAGE>
Home Savings of America TTEE, IRA of Betty J. McFarland, 510 North
Jackson Street, Apt. 305, Glendale, CA 91206 --- 5.05%; GRIFFIN SHORT-TERM BOND
FUND - CLASS A SHARES: Griffin Financial Services, P.O. Box 60070, City of
Industry, CA 91716 --- 20.52%; GRIFFIN SHORT-TERM BOND FUND - CLASS B SHARES:
Home Savings of America TTEE, IRA of Richard A. Leach, 21855 Herencia, Mission
Viejo, CA 92692 --- 61.10%; Home Savings of America TTEE, IRA of Paul M. Hook,
14484 Harmony Lane, Victorville, CA 92392 --- 11.01%; Home Savings of America
TTEE, IRA of Lyn G. Willoughby, 995 Pamona Road, Apt. 74, Corona, CA 91720 ---
27.28%; GRIFFIN GROWTH FUND - CLASS A SHARES: Griffin Financial Services, P.O.
Box 60070, City of Industry, CA 91716 ---22.42%; GRIFFIN GROWTH & INCOME FUND -
CLASS A SHARES: Bankers Trust Company, Trustee, Ahmanson Advantage Account, P.O.
Box 712039, Los Angeles, CA 90071 --- 8.44%.
CUSTODIAN. IFTC, located at 127 West 10th Street, Kansas City, Missouri
64105 is custodian of the assets of The Griffin Funds. The custodian is
responsible for safekeeping of The Griffin Funds' assets and the appointment of
subcustodian banks and clearing agencies. The custodian takes no part in
determining the investment policies of The Griffin Funds or in deciding which
securities are purchased or sold by The Griffin Funds. The Company may,
however, invest in obligations of the custodian and may purchase securities from
or sell securities to the custodian.
INDEPENDENT AUDITOR. KPMG Peat Marwick LLP, located at 725 South Figueroa
Street, Los Angeles, California 90017, serves as The Griffin Funds' independent
auditor.
LEGAL COUNSEL. Morrison & Foerster LLP, located at 2000 Pennsylvania
Avenue, N.W., Suite 5500, Washington, D.C. 20006, serves as legal counsel to The
Griffin Funds.
FINANCIAL STATEMENTS. The Annual Report for the fiscal year ended
September 30, 1995, and the report thereon of KPMG Peat Marwick LLP are
incorporated by reference in this Statement of Additional Information. The
Letter to Shareholders contained in such Annual Report is not incorporated by
reference and is not a part of the registration statement or this Statement of
Additional Information.
79
<PAGE>
APPENDIX
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S COMMERCIAL PAPER RATINGS:
PRIME-1 -- issuers (or related institutions) have a superior capacity for
repayment of short-term promissory obligations. Prime-1 repayment capacity will
normally be evidenced by the following characteristics:
. Leading market positions in well established industries.
. High rates of return on funds employed.
. Conservative capitalization structures with moderate reliance on debt and
ample asset protection.
. Broad margins in earnings coverage of fixed financial charges with high
internal cash generation.
. Well-established access to a range of financial markets and assured
sources of alternate liquidity.
PRIME-2 -- issuers (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above 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 alternate liquidity is maintained.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S CORPORATE AND 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 edge." 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 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.
80
<PAGE>
BAA -- Bonds that are rated Baa are considered 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.
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S COMMERCIAL PAPER RATINGS:
A-1 -- This designation indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues determined
to possess overwhelming safety characteristics will be denoted with a plus (+)
sign designation.
A-2 -- Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as high as for issues
designated A-1.
Description of Standard & Poor's Corporation's corporate and municipal bond
RATINGS:
AAA -- Debt rated AAA has the highest rating assigned by Standard & Poor's
Corporation. Capacity to pay interest and repay principal is extremely strong.
AA -- Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated debt issues only in small degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits 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
debt in this category than for those in higher-rated categories.
DESCRIPTIONS OF FITCH INVESTORS SERVICE, INC.'S COMMERCIAL PAPER RATINGS:
FITCH-1 -- (Highest Grade) Commercial paper assigned this rating is
regarded as having the strongest degree of assurance for timely payment.
FITCH-2 -- (Very Good Grade) Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than the strongest
issues.
Description of Fitch Investors Service, Inc.'s corporate and municipal bond
RATINGS:
81
<PAGE>
AAA -- rated bonds are considered to be investment grade and are of the
highest quality. The obligor has an extraordinary ability to pay interest and
repay principal, which is unlikely to be affected by foreseeable events.
AA -- rated bonds are considered to be investment grade and of high
quality. The obligor's ability to pay interest and repay principal, while very
strong, is somewhat less than AAA rated securities or more subject to change
over the term of the issue.
A -- rated bonds 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.
DESCRIPTION OF DUFF AND PHELPS' COMMERCIAL PAPER RATINGS:
DUFF 1 -- Very high certainty of timely payment. Liquidity factors are
excellent and supported by strong fundamental protection factors. Risk factors
are minor.
DUFF 2 -- Good certainty of timely payment. Liquidity and company
fundamentals are sound. Although ongoing internal funds needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
DESCRIPTION OF DUFF AND PHELPS' CORPORATE AND MUNICIPAL BOND RATINGS:
AAA -- Bonds that are rated AAA are of the highest credit quality. The
risk factors are considered to be negligible, being only slightly more than for
risk-free U.S. Treasury debt.
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to time
because of economic conditions.
A -- Bonds that are rated A have protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
82
<PAGE>
ANNUAL REPORT
[LOGO OF THE GRIFFIN FUNDS]
SEPTEMBER 30, 1995
<PAGE>
TABLE OF CONTENTS
Message to Shareholders 1
Glossary of Terms 2
Performance Highlights of the Funds 3
MANAGEMENT DISCUSSIONS AND SCHEDULES OF INVESTMENTS
The Griffin Money Market Fund 4
The Griffin Tax-Free Money Market Fund 5
The Griffin Short-Term Bond Fund 7
The Griffin U.S. Government Income Fund 10
The Griffin Bond Fund 13
The Griffin Municipal Bond Fund 17
The Griffin California Tax-Free Fund 21
The Griffin Growth & Income Fund 25
The Griffin Growth Fund 29
FINANCIAL STATEMENTS
Statements of Assets and Liabilities 35
Statements of Operations 37
Statements of Changes in Net Assets 39
Financial Highlights 41
Notes to Financial Statements 43
Independent Auditors Report 50
---------------------
Special Meetings of Shareholders 51
Distributions 51
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR ISSUED, ENDORSED
OR GUARANTEED BY HOME SAVINGS OF AMERICA, FSB ("HOME SAVINGS"), SAVINGS OF
AMERICA OR ANY OF THEIR AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD OR ANY OTHER GOVERNMENTAL AGENCY. AN INVESTMENT IN ANY OF THE FUNDS
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
<PAGE>
Dear Fellow Shareholder:
Favorable reports on the U.S. economy and adherence to our value-based
investment discipline helped The Griffin Funds, Inc. ("The Griffin Funds") post
strong returns during its second fiscal year. While the financial markets
provided much of the gains for each of The Griffin Funds over the past twelve
months, our disciplined approach to investing provided the framework for adding
value to the investment process. The success of this approach is evidenced in
the superior performance of the funds relative to their respective peer groups.
The Griffin Growth & Income Fund for example, continued to be a star performer,
ranking ninth among four hundred funds with similar investment objectives as
determined by Morningstar, Inc. The other funds followed suit, with returns
that place them in the top twenty to thirty percent among funds with comparable
investment objectives tracked by Morningstar, Inc.
Market Overview
A myriad of economic factors, including the largest shrinkage in payrolls in
four years, weak new home sales, as well as sluggish retail sales, industrial
production and durable goods orders helped bolster the financial markets in
1995. These indications of a slowdown in economic growth, which historically
reduce inflationary pressures, drove interest rates down during the first nine
months of 1995. Strong corporate earnings and a favorable interest rate
environment helped the U.S. stock market post strong returns for the twelve
months ended September 30, 1995. The Standard & Poor's 500 Composite Index,
commonly used as a yardstick for the overall stock market's performance,
finished the period with a total return of 29.71%, well above its historical
average annual return of roughly 12%. The municipal bond market overcame
several significant obstacles during the year, including the bankruptcy
declaration by Orange County, California and talks of federal tax reform, to
produce significant positive returns.
Caution for the Future
Coming on the heels of a difficult year during which many investments
declined in value, the past twelve months have been a welcome change. However,
it is unlikely that the performance we've seen during the past months can be
sustained. Staying with an investment program through these market ups and
downs requires patience and dedication to long-range goals. It's important to
keep in mind that daily, monthly, and even yearly fluctuations are a normal
part of the financial markets. Unfortunately, these fluctuations are not always
predictable, and past results cannot be used as a guarantee of future
performance. It also is important to remember that mutual funds
are not insured or guaranteed by any agency of the U.S. government.
Managing Risk
There are several strategies an investor can utilize to help mitigate the
effects of market volatility. Selection of an investment program whose goals
are compatible with your own is the first step. The Griffin Funds were created
for those investors who seek a consistent, careful and committed approach to
investing in the capital markets. A second strategy you can employ is a
systematic, regular investment of the same amount of money over a period of
time, called "dollar cost averaging." Purchasing shares in installments reduces
exposure to extremes in price and introduces discipline, affording greater
peace of mind. A third risk-diminishing strategy is to diversify your
investment holdings across a variety of asset classes, since different types of
securities often respond in dissimilar ways to changes in the economic
environment. We are pleased to have launched a new program this year, the
Griffin Portfolio Builder Account. This asset allocation system seeks to target
each investor's personal goals by tailoring a combination of investment
vehicles which best conforms to those objectives, utilizing The Griffin Funds'
portfolios along with a third-party international equity fund.
New Products and Services
We at The Griffin Funds are committed to providing the right products and
services to meet your investment needs. We've expanded our family by
introducing two new funds: the Griffin Growth Fund and the Griffin Short-Term
Bond Fund. The Griffin Growth Fund was developed for more aggressive investors
seeking to capitalize on the growth of mid-sized companies, while the Griffin
Short-Term Bond Fund was created for more conservative investors seeking income
with some protection from market fluctuations. For those investors who want to
put all of their money to work without paying a sales charge up-front, we
instituted Class B shares. Class B shares are subject to a contingent deferred
sales charge if redeemed before the end of certain holding periods, and carry a
higher ongoing level of expenses than Class A shares. Finally, our customer
service representatives have just completed extensive training which emphasized
a thirty-three point plan for providing courteous and efficient processing of
your individual requests.
Thank you for selecting The Griffin Funds for your financial management
needs. We will do our best to continue to deserve your confidence and loyalty.
Sincerely,
/s/ William A. Hawkins
William A. Hawkins
Chairman
The Griffin Funds, Inc.
1
<PAGE>
GLOSSARY OF TERMS
American Depositary Receipt (ADR)
Receipt for shares of foreign-based corporations held in the vault of a U.S.
bank. These securities allow Americans to purchase shares of foreign companies
without accessing overseas markets. These securities are denominated and pay
dividends in U.S. Dollars, and are typically stocks of large multinational
corporations.
"Asked" or "Offering" Price
The price at which a mutual fund's shares can be purchased, usually the
current Net Asset Value (NAV) per share, plus sales charges, if any.
Capital Gain Distribution
Payments to mutual fund shareholders representing profits realized on the
sale of the fund's securities. For tax purposes, these gains are considered
long-term and are thus taxed at a maximum federal tax rate of 28%.
Commercial Paper
Short-term obligations issued by banks, corporations and others to investors
who wish to put uninvested cash into short-term instruments.
Custodian
The organization, usually a bank or trust company, that keeps custody of
securities and other assets of a mutual fund.
Exempt Interest Dividends
Payments to mutual fund shareholders representing interest on the fund's
securities which are exempt from federal and/or state income taxes. Exempt
interest dividends will be designated in the back of the annual report.
Net Asset Value Per Share
The market value of one share of a mutual fund. NAV equals the fund's total
assets minus total liabilities divided by the number of shares outstanding.
Ordinary Income Dividends
Payments to mutual fund shareholders representing dividends, interest and
short-term capital gains on the fund's securities, after deducting operating
expenses. These payments are taxed at the shareholder's ordinary federal tax
rate.
Total Return
Dividend income plus capital appreciation or depreciation. Total return is
normally stated two ways. Cumulative or aggregate total return represents the
change in value of an investment over time. Average annual total return
represents the average annual rate of return required to reach the cumulative
return over a period of time greater than one year.
Yankee Bonds
Dollar denominated bonds issued in the U.S. by foreign banks and
corporations.
Yield Curve
The relationship between interest rates and length of maturity. A yield
curve is said to be steep when longer-term bonds pay a great deal more interest
than short-term bonds. A yield curve is said to be flat when investors do not
receive much more interest income from the purchase of a longer-term bond.
2
<PAGE>
PERFORMANCE HIGHLIGHTS OF THE FUNDS (Unaudited)
The table below provides yield and total return information for the periods
ended September 30, 1995 for The Griffin Funds. The seven day yields of the
money market funds refer to the income generated by an investment in a Fund
over a seven day period, expressed as an annual percentage rate. The seven day
effective yields are calculated similarly but assume that the income earned
from a Fund is reinvested in the Fund. The total returns indicate the
percentage an investment in a Fund would have changed in value had shares been
purchased at the beginning of each period, with all dividends and capital gains
being reinvested. The table also indicates the average performance of mutual
funds with investment objectives that are similar to each of the respective
non-money market funds of The Griffin Funds. For each of the non-money market
funds, the group average reflects the performance of a universe of mutual funds
tracked by Morningstar, Inc. Additional information with respect to the
Morningstar, Inc. group average performance information provided below is
included in the appropriate Fund's "Management Discussion." The mutual fund
averages do not reflect the imposition of sales charges, but do reflect the
reinvestment of all dividends and capital gains, if any. Of course, past
performance is not an indicator of future results.
For Periods Ended September 30, 1995
<TABLE>
<CAPTION>
Seven Day
Seven Day Effective
Yield Yield
--------- ---------
<S> <C> <C>
Money Market Fund(1)............. 5.32% 5.46%
Tax-Free Money Market Fund(1).... 3.99% 4.07%
<CAPTION>
Class A Class B
-------------------------------- -------------------------
Since Since
Past Six Past Inception Past Six Inception
Months Year (10/19/93)(2) Months (11/1/94)
--------- ------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
U.S. Government Income Fund............... 7.29% 13.00% 5.46% 7.12% 13.08%
U.S. Government Income Fund (incl.
sales charge)(3)........................ 2.46% 7.95% 2.99% 2.12% 8.08%
Average U.S. Government General Bond
Fund.................................... 6.50% 10.85% n/a 6.50% n/a
Bond Fund................................. 8.41% 13.53% 3.68% 8.01% 13.58%
Bond Fund (incl. sales charge)(3)......... 3.58% 8.41% 1.25% 3.01% 8.58%
Average High Quality Bond Fund............ 6.47% 10.56% n/a 6.47% n/a
California Tax-Free Fund.................. 4.55% 10.13% 1.48% 4.27% 12.60%
California Tax-Free Fund (incl. sales
charge)(3).............................. -0.19% 5.15% -0.88% -0.73% 7.60%
Average California Municipal Bond Fund.... 4.29% 9.20% n/a 4.29% n/a
Municipal Bond Fund....................... 4.52% 10.18% 2.28% 4.20% 12.86%
Municipal Bond Fund (incl. sales charge)
(3)..................................... -0.23% 5.16% -0.12% -0.80% 7.86%
Average Municipal Bond Fund............... 4.31% 9.06% n/a 4.31% n/a
Growth & Income Fund...................... 19.63% 31.93% 17.19% 19.37% 29.54%
Growth & Income Fund (incl. sales charge)
(3)..................................... 14.23% 26.05% 14.45% 14.37% 24.54%
Average Growth & Income Fund.............. 16.02% 23.50% n/a 16.02% n/a
<CAPTION>
Class A Class B
-------------------------------- -------------------------
Since Since
Past Six Past Inception Past Six Inception
Months Year (6/12/95) Months (6/12/95)
--------- ------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Short-Term Bond Fund...................... n/a n/a 2.32% n/a 2.51%
Short-Term Bond Fund (incl. sales charge)
(4)..................................... n/a n/a -1.24% n/a -1.49%
Growth Fund............................... n/a n/a 16.60% n/a 16.50%
Growth Fund (incl. sales charge)(3)....... n/a n/a 11.37% n/a 11.50%
</TABLE>
(1) Investments in the Money Market Funds are neither insured nor guaranteed by
the U.S. Government. There can be no assurance that either of the Money
Market Funds will be able to maintain a stable net asset value of $1.00 per
share.
(2) This figure has been annualized.
(3) The deduction of the maximum initial sales charge with respect to Class A
shares (4.5%) and the deduction of a contingent deferred sales charge of 5%
with respect to Class B shares has been factored into these calculations.
(4) The deduction of the maximum initial sales charge with respect to Class A
shares (3.5%) and the deduction of a contingent deferred sales charge of 4%
with respect to Class B shares has been factored into these calculations.
3
<PAGE>
Schedule of Investments
GRIFFIN MONEY MARKET FUND
September 30, 1995
[PIE CHART APPEARS HERE]
Corporate Notes 8%
Asset Backed Securities 4%
Commercial Paper 49%
U.S. Agency Discount Notes 39%
Investment Categories Reflect Percentages of Invesments in Securities
<TABLE>
<CAPTION>
Principal Market
Name Of Issuer Amount Value (a)
- --------------------------------------------------------------------------------
(Percentages of each invesment category relate to total net assets)
<S> <C> <C>
Asset-Backed Securities (4.4%):
Financial Services (4.4%):
Navistar Financial Corporation,
5.90%, 5/20/96 $1,233,014 $1,232,705
Olympic Auto Receivables Trust
5.76%, 9/15/96 2,000,000 2,000,000
6.25%, 3/15/96 274,543 274,465
----------
3,507,170
----------
Total Asset-Backed Securities
(cost: $3,507,170) 3,507,170
----------
Commercial Paper (48.6%):
Financial Services (36.1%):
Abbey National North America
Corporation, 5.67%, 11/07/95 (b) 3,000,000 2,982,518
American Express, 6.08%, 11/20/95 3,000,000 3,000,000
American General Finance Corporation,
5.67%, 11/17/95 4,000,000 4,000,000
American Telephone & Telegraph
Capital Corporation, 5.63%,
11/22/95 (b) 4,000,000 3,967,471
Bayerische Vereinsbank, 5.68%,
10/04/95 (b) 3,000,000 2,998,580
Canadian Wheat Board, 5.55%,
12/18/95 (b) 4,000,000 3,951,900
Export Developmental Corporation,
5.50%, 10/25/95 (b) 4,000,000 3,985,333
General Electric Capital Corporation,
5.74%, 10/30/95 4,000,000 4,000,000
----------
28,885,802
----------
Industrial Conglomerate (2.5%):
Shell Oil Company, 5.82%,
11/20/95 (b) 2,000,000 1,983,833
----------
Manufacturing (5.0%):
Dupont, 5.66%, 10/06/95 (b) 4,000,000 3,996,856
----------
Telecommunications (5.0%):
Bell Atlantic Network Funding
Corporation, 5.72%, 10/12/95 (b) 4,000,000 3,993,009
----------
Total Commercial Paper (cost:$38,859,500) 38,859,500
----------
Corporate Notes (7.9%):
Financial Services (7.9%):
CIT Group Holdings, 8.88%, 6/15/96 $3,265,000 $3,330,343
Comerica Bank Note, 6.20%, 5/28/96 3,000,000 3,005,717
----------
6,336,060
----------
Total Corporate Notes (cost: $6,336,060) 6,336,060
----------
U.S. Government And Agency Securities (39.0%):
Federal Home Loan Bank Notes (25.3%):
5.43%, 3/15/96 (b) 5,000,000 4,874,808
5.51%, 12/26/95 (b) 2,000,000 1,973,674
5.60%, 10/02/95 (b) 5,000,000 4,999,222
6.23%, 4/24/96 (b) 4,000,000 3,995,235
6.30%, 10/02/95 (b) 4,380,000 4,379,234
----------
20,222,173
----------
Federal Home Loan Mortgage
Discount Notes (5.0%):
5.53%, 10/03/95 (b) 4,000,000 3,998,771
----------
Federal National Mortgage Association
Notes (8.7%):
5.57%, 10/16/95 (b) 5,000,000 4,988,396
6.43%, 4/18/96 2,000,000 2,000,955
----------
6,989,351
----------
Total U.S. Government And Agency Securities
(cost: $31,210,295) 31,210,295
----------
Repurchase Agreements (0.0%):
State Street Bank & Trust Co. Master
Repurchase Agreement, 4.5%, 10/02/95,
102% Collateralized by
U.S. Government Securities 7,000 7,000
----------
Total Repurchase Agreements (cost:$7,000) 7,000
----------
Total Investments In Securities
(cost: $79,920,025) (c) (99.9%) 79,920,025
Other Assets Less Liabilities (0.1%) 43,978
----------
Net Assets (100%) $79,964,003
==========
</TABLE>
- --------------------
Notes to Schedule of Investments
(a) Securities are valued in accordance with procedures described in note 1
to the financial statements.
(b) Rate represents annualized yield to maturity at September 30, 1995.
(c) Cost is the same for federal income tax purposes.
See accompanying notes to financial statements.
4
<PAGE>
Schedule of Investments
GRIFFIN TAX-FREE MONEY MARKET FUND
September 30, 1995
[PIE CHART APPEARS HERE]
Pre-refunded 15%
Revenues 6%
Variable Rate Demand Notes 46%
Commercial Paper 22%
Other 11%
Invesment Categories Reflect Percentages of Investments in Securities
<TABLE>
<CAPTION>
Principal Market
Name Of Issuer Amount Value (a)
- ------------------------------------------------------------------------------
(Percentages of each invesment category relate to total net assets)
<S> <C> <C>
Municipal Short-Term Securities (99.8%):
Alabama (3.5%):
Phenix City, Alabama Industrial Development
Board Environmental Improvement
Revenue, Mead Coated Board
Project-A, 4.80%, 10/02/95 $300,000 $300,000
--------
Arizona (1.1%):
Maricopa County, Arizona Pollution
Control Corporation - Arizona
Public Service Co. Project, 4.45%,
10/02/95 (b) 100,000 100,000
--------
California (3.5%):
California Higher Education Loan
Authority, Student Loan Revenue
5/1/94, 4.35%, 10/04/95 (b) 300,000 300,000
--------
Colorado (3.5%):
Colorado Student Obligation Board
Authority Student Loan Revenue,
4.30%, 10/04/95 (b) 300,000 300,000
--------
Florida (3.5%):
Orlando, Florida Utilities Community
Water & Electric Revenue, 8.50%,
Prerefunded to 10/01/95 300,000 306,000
--------
Georgia (3.5%):
Burke County, Georgia Development
Authority - Oglethorpe Power
Corporation Project, 3.60%, 12/05/95 300,000 300,000
--------
Hawaii (4.2%):
Hawaii State Department of Budget
& Finance Special Purpose Mortgage
Revenue, 7.70%,
Prerefunded to 7/01/96 350,000 366,872
--------
Indiana (1.1%):
Indianapolis, Indiana Multi-Family
Revenue Housing, Canal Square
Project, 4.25%, 10/04/95 (b) 100,000 100,000
--------
Kansas (7.0%):
Burlington, Kansas Pollution Control,
Kansas City Power & Light
Project B, 3.70%, 11/01/95 300,000 300,000
Kansas State Department of Transportation
Highway Revenue, 4.45%, 10/04/95 (b) 300,000 300,000
--------
600,000
--------
Louisiana (1.1%):
East Baton Rouge Parish, Louisiana
Pollution Control Revenue, Georgia-
Pacific Corporation, 4.35%,
10/04/95 (b) 100,000 100,000
--------
Massachusetts (8.1%):
Massachusetts State, General Obligation,
4.60%, 10/04/95 (b) 400,000 400,000
Massachusetts State Water Resources
Authority, 3.65%, 11/06/95 300,000 300,000
--------
700,000
--------
Michigan (9.3%):
Delta County, Michigan Economic
Development Corporation Environmental
Improvement Revenue, Mead Escanaba
Paper, 3.55%, 10/12/95 400,000 400,000
University of Michigan Hospital
Revenue, 4.50%, 10/02/95 (b) 400,000 400,000
--------
800,000
--------
Minnesota (3.5%):
Rochester, Minnesota Health Care
Facilities - Mayo Foundation/Mayo
Medical Center Revenue,
3.80%, 10/26/95 300,000 300,000
--------
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
Schedule of Investments
GRIFFIN TAX-FREE MONEY MARKET FUND (Continued)
September 30, 1995
<TABLE>
<CAPTION>
Principal Market
Name Of Issuer Amount Value (a)
- ------------------------------------------------------------------------------
<S> <C> <C>
Mississippi (3.5%):
Jackson County, Mississippi Industrial
Sewer Facilities Revenue,
Chevron USA Incorporated Project,
4.60%, 10/04/95 (b) $300,000 $300,000
--------
Missouri (7.0%):
Columbia, Missouri Special Revenue
4.40%, 10/04/95 100,000 100,000
Missouri Higher Education Loan
Authority, Student Loan Senior Lein
Revenue, 4.88%, 2/15/96 500,000 500,802
--------
600,802
--------
Nevada (3.5%):
Clark County, Nevada Airport Improvement
Revenue, 4.35%, 10/04/95 (b) 100,000 100,000
Clark County, Nevada Industrial
Development Revenue, Nevada
Cogeneration I Project,
4.60%, 10/02/95 (b) 200,000 200,000
--------
300,000
--------
North Carolina (3.5%):
North Carolina Eastern Municipal
Power Agency - Power System
Revenue, 3.80%, 11/02/95 300,000 300,000
--------
Pennsylvania (4.6%):
Pennsylvania State Higher Education,
4.50%, 10/04/95 (b) 300,000 300,000
St. Mary Hospital Authority Langhorne
Pennsylvania Hospital Revenue,
Franciscan Health Sys, 4.75%,
10/02/95 (b) 100,000 100,000
--------
400,000
--------
Tennessee (4.8%):
Knox County, Tennessee General Obligation,
3.75%, 3/01/96 260,000 260,000
Metropolitan Government Nashville
& Davidson County Tennessee Water &
Sewer, 8.75%, Prerefunded to 1/01/96 150,000 154,807
--------
414,807
--------
Texas (15.9%):
Austin, Texas Utilities Systems
Revenue, 7.75%, Prerefunded to 5/15/96 400,000 416,308
Grapevine, Texas Industrial Development
Corporation Revenue,
American Airlines Project,
4.75%, 10/02/95 (b) 100,000 100,000
Hunt County, Texas Health Facilities
Development Corporation, Universal
Health Services of Greenville, Inc-
4.40%, 10/04/95 (b) 300,000 300,000
Southwest Higher Education Authority
Inc, Southern Methodist
University, 4.40%, 10/02/95 (b) 200,000 200,000
Texas State Tax & Revenue Anticipation
Notes, 4.75%, 8/30/96 350,000 352,152
----------
1,368,460
----------
Virginia (4.1%):
Virginia State Housing Development
Authority Commonwealth Mortgage,
3.55%, 11/16/95 350,000 350,000
----------
Total Municipal Short-Term Securities
(cost: $8,606,941) 8,606,941
----------
Total Investments In Securities
(cost: $8,606,941) (c) (99.8%) 8,606,941
Other Assets Less Liabilities (0.2%) 14,393
----------
Net Assets (100%) $8,621,334
==========
</TABLE>
- -------------
Notes to Schedule of Investments
(a) Securities are valued in accordance with procedures described in note 1
to the financial statements.
(b) These variable rate securities have maturities greater than one year but
are redeemable upon demand. For purposes of calculating the fund's
weighted average maturity, the length to maturity of these investments
is considered to be the greater of the period until the interest rate is
adjusted or until the principal can be recovered by demand.
(c) Cost is the same for federal income tax purposes.
See accompanying notes to financial statements.
6
<PAGE>
MANAGEMENT DISCUSSION
GRIFFIN SHORT-TERM BOND FUND
Portfolio Manager: Edmund M. Notzon, III,
T. Rowe Price Associates, Inc.
What were the significant market factors that affected performance?
Yields on short term bonds dropped significantly during the second quarter
of 1995, as the fixed income market became more optimistic about a cut in the
Federal Funds Rate. While the Federal Reserve Board uses this rate to guide the
amount banks charge each other for overnight investments, the fixed income
market uses the rate as a gauge of the prospect for inflation in the near
future. The Federal Reserve Board lowered the Federal Funds Rate to 5.75% in
July, the first rate cut in three years. Since then long-term interest rates
have remained fairly stable at historically low levels, with moderate growth in
the economy and little inflationary pressure. These economic factors bode well
for investors, as inflation tends to erode the value of their fixed income
investments.
What strategies and techniques were implemented since the Fund commenced
operations?
The Fund commenced operations on June 12, 1995, and shortly thereafter a
diverse portfolio was created consisting of Treasury bonds, U.S. agency bonds,
corporate bonds and federally-guaranteed mortgage securities. Our favorable
outlook for the U.S. economy led us to slightly overweight our position in
corporate bonds relative to the Fund's benchmark, the Merrill Lynch
1-4.99 Year Government/Corporate Index. We also initiated a position in
federally-guaranteed mortgage-backed securities which should perform well if
interest rates stabilize.
What themes can be seen in the current portfolio (industry weightings) and
why?
We have a 5% position in industrial bonds, a 1% position in utility
corporate bonds, and a 10% position in financial corporate bonds. The larger
holdings in industrial and financial bonds reflect their relative value and
greater availability in the market. We also have slightly more interest rate
sensitivity than the market to reflect our view that rates are unlikely to rise
sharply in the near future.
What individual security holdings changed since the Fund commenced operations?
All (except one) of our trades have been to add positions to the portfolio,
thus increasing the diversification of the fund. As the fund increases in size,
we will continue to add new corporate names.
What is the strategy for the next six to twelve months?
We have no present plans to change the structure of the portfolio. If
mortgage prepayments appeared likely to speed up (due to interest rates
decreasing further), we might decrease our mortgage exposure and increase the
interest rate sensitivity of the portfolio. If interest rates appeared likely
to increase, we might increase our mortgage exposure and decrease both the
corporate bond exposure and the interest rate sensitivity of the portfolio. In
both cases, we are unlikely to carry a significant cash position.
7
<PAGE>
THE GRIFFIN SHORT-TERM BOND FUND
The two charts below show the performance of both classes of shares of the
Griffin Short-Term Bond Fund compared with the Merrill Lynch
Government/Corporate 1-4.99 Year Index and the Lipper Short-Term High Quality
Bond Fund Average. If you had invested $10,000 in Class A shares of the Griffin
Short-Term Bond Fund when the fund commenced operations on June 12, 1995,
reinvesting all dividends, the top chart would track the value of your
investment through the period ended September 30, 1995. If you had invested
$10,000 in Class B shares of the Fund when they were first offered on June 12,
1995, assuming all dividends were reinvested, the bottom chart would track the
performance of your investment through the period ended September 30, 1995. The
Merrill Lynch Government/Corporate 1-4.99 Year Index is an unmanaged index of
debt obligations with maturities ranging from one to five years. The Lipper
Short-Term High Quality Bond Fund Average is based on a universe of mutual
funds tracked by Lipper Analytical Services, Inc. that have investment
objectives similar to The Griffin Short-Term Bond Fund. It is important to keep
in mind that fund performance reflects the deduction of the maximum front-end
sales charge of 3.5% with respect to Class A shares and the deduction of the
maximum contingent deferred sales charge (CDSC) of 4% with respect to Class B
shares, while no such charges are deducted from the indexes. Of course, past
performance is not an indicator of future results.
Griffin Short-Term Bond Fund Class A
[CHART APPEARS HERE]
AVERAGE ANNUAL TOTAL RETURNS*
(reflects deduction of 3.5% sales charge)
One year ................. N/A
Since inception .......... -1.24%
VALUE OF $10,000 INVESTED
<TABLE>
<CAPTION>
Lipper
Griffin Short-Term Bond Fund Merrill Lynch Govt./Corp. 1 - 4.99 Year Index Short-Term High Quality Bond Fund Average
Dollar Dollar Dollar
Months Value Months Value Months Value
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Initial $9,650 Initial $10,000 Initial $10,000
Jun '95 $9,722 Jun '95 $10,065 Jul $10,024
Jul $9,758 Jul $10,091 Aug $10,093
Aug $9,826 Aug $10,160 Sep $10,145
Sep $9,873 Sep $10,218
</TABLE>
* During the period certain fees and expenses were waived and reimbursed by the
Advisor, Administrator and Distributor. In the absence of these
reimbursements, the total return would have been lower.
Griffin Short-Term Bond Fund Class B
[CHART APPEARS HERE]
AVERAGE ANNUAL TOTAL RETURNS*
(reflects deduction of 4% sales charge)
One year ................. N/A
Since inception .......... -1.49%
VALUE OF $10,000 INVESTED
<TABLE>
<CAPTION>
Lipper
Griffin Short-Term Bond Fund Merrill Lynch Govt./Corp. 1 - 4.99 Year Index Short-Term High Quality Bond Fund Average
Dollar Dollar Dollar
Months Value Months Value Months Value
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Initial $10,000 Initial $10,000 Initial $10,000
Jun '95 $10,079 Jun '95 $10,065 Jul $10,024
Jul $10,118 Jul $10,091 Aug $10,093
Aug $10,192 Aug $10,160 Sep $10,145
Sep $9,851 Sep $10,218
</TABLE>
* During the period certain fees and expenses were waived and reimbursed by the
Advisor, Administrator and Distributor. In the absence of these
reimbursements, the total return would have been lower.
8
<PAGE>
Schedule of Investments
GRIFFIN SHORT-TERM BOND FUND
September 30, 1995
[PIE CHART APPEARS HERE]
Cash 3%
U.S. Treasury Notes 71%
Corporate Bonds 17%
U.S. Agency Securities 10%
Invesment Categories Reflect Percentages of Invesments in Securities
<TABLE>
<CAPTION>
Principal Market
Name Of Issuer Amount Value (a)
- ------------------------------------------------------------------------------
(Percentages of each investment category relate to total net assets)
<S> <C> <C>
Corporate Bonds (15.9%):
Banking (5.0%):
Bankers Trust - New York, 7.25%, 11/01/96 $30,000 $30,338
First Chicago, 9.00%, 6/15/99 30,000 32,475
MBNA Corporation, 6.88%, 10/01/99 10,000 10,163
Northern Trust, 9.00%, 5/15/98 100,000 106,250
-----------
179,226
-----------
Electric Utilities (0.8%):
Alabama Power, 6.38%, 8/01/99 30,000 30,150
-----------
Financial Services (4.7%):
Associates Corporation, 6.75%, 7/15/97 37,000 37,272
Associates Corporation, 6.75%, 10/15/99 16,000 16,200
Bear Stearns Company, 9.13%, 4/15/98 30,000 31,875
Ford Motor Credit Corporation,
9.38%, 12/15/97 50,000 53,015
General Motors Acceptance Corporation,
8.38%, 5/01/97 30,000 30,938
-----------
169,300
-----------
Industrial Conglomerate (4.6%):
Lockheed Martin Corporation,
9.38%, 10/15/99 71,000 78,194
Mobil Corporation, 6.50%, 2/15/97 15,000 15,075
Texaco Capital, 9.00%, 12/15/99 65,000 71,003
-----------
164,272
-----------
Retailing (0.8%)
Wal-Mart Stores, 5.50%, 9/15/97 30,000 29,663
-----------
Total Corporate Bonds
(cost: $570,485) 572,611
-----------
U.S. Government And Agency Securities (77.3%):
U.S. Treasury Notes (67.9%):
4.75%, 2/15/97 100,000 98,603
5.75%, 10/31/97 150,000 149,729
6.00%, 12/31/97 400,000 401,280
6.00%, 10/15/99 100,000 100,209
6.13%, 5/15/98 200,000 201,154
6.25%, 8/31/96 100,000 100,440
6.38%, 1/15/99 225,000 227,923
6.50%, 5/15/97 100,000 101,043
6.88%, 3/31/00 150,000 154,985
7.25%, 11/30/96 100,000 101,616
7.25%, 2/15/98 150,000 154,500
7.38%, 11/15/97 350,000 360,318
8.13%, 2/15/98 100,000 104,931
8.25%, 7/15/98 170,000 180,100
----------
2,436,831
----------
U.S. Agency Securities (9.4%):
Federal Home Loan Bank (1.9%):
6.84%, 4/20/99 70,000 70,024
----------
Federal Home Loan Mortgage
Corporation (7.5%)
6.00%, 4/01/99 217,393 215,830
7.75%, 11/07/01 50,000 53,828
----------
269,658
----------
Total U.S. Government And Agency Securities
(cost: $2,767,388) 2,776,513
----------
Short-Term Securities (2.8%):
Repurchase Agreements (2.8%)
State Street Bank & Trust Co. Master Repurchase
Agreement, 4.5%, 10/02/95, 102% Collateralized
by U.S. Government Securities 102,000 102,000
----------
Total Short-Term Securities
(cost: $102,000) 102,000
----------
Total Investments In Securities
(cost: $3,439,873)(b)(96.0%) 3,451,124
Other Assets Less Liabilities (4.0%) 144,434
----------
Net Assets (100%) $3,595,558
==========
</TABLE>
- ------------------
Notes to Schedule of Investments
(a) Securities are valued in accordance with procedures described in note 1
to the financial statements.
(b) Cost is the same for federal income tax purposes. The aggregate gross
unrealized appreciation and depreciation of investments in securities
based on this cost as follows:
Gross unrealized appreciation $12,138
Gross unrealized depreciation (887)
-------
Net unrealized appreciation $11,251
=======
See accompanying notes to financial statements.
9
<PAGE>
MANAGEMENT DISCUSSION
GRIFFIN U.S. GOVERNMENT INCOME FUND
Portfolio Manager: Executive Policy Committee,
Payden & Rygel Investment Counsel
What were the significant market factors that affected performance?
The most significant factor that affected the Fund's performance over the
past year was the cyclical shift in policy by the Federal Reserve Board (the
"Fed") from that of monetary restraint to a policy of interest rate easing. The
latter represented the first reduction in the Federal Funds Rate, the overnight
rate at which banks lend to each other, in three years and caused interest
rates to drop significantly for bonds of all maturities.
During much of 1994 the U.S. economy appeared to be heading toward more
robust economic growth. In an effort to control economic expansion, and to
reduce the risk of inflation, the Fed implemented seven consecutive increases
in the Federal Funds Rate, culminating with an increase to 6.0% in February
1995. Growth in the economy began to show signs of slowing in the first half of
1995, in part due to the increases in short term interest rates and inventory
accumulation, both of which acted as a drag on the manufacturing sector. The
slowing economy, coupled with consistently low inflation, set the stage for the
Fed to reverse its previous position and lower short term borrowing rates in
July, sending yields on U.S. Treasury bonds downward. The sharp drop in the
yield on the 30-year Treasury bond, which amounted to a change of nearly 1.5%
from the prior year, provided equity-like returns for fixed income investors.
What strategies and techniques were implemented during the year?
The Fund implemented two distinct strategies during the past year. During
the first four months of the year, we adopted a more conservative approach
while striving to maintain an attractive yield. This strategy was achieved
primarily by holding mortgage-backed securities that had been carefully
screened to reduce the risk of prepayment. As the interest rate environment
improved in the second half of the year, the Fund gradually implemented the
second strategy by extending its duration. This strategy was implemented by
increasing the proportion of U.S. Treasury securities in the portfolio. This
shift in portfolio composition benefited the Fund as interest rates fell,
producing strong returns for the period. Treasuries generally outperform
mortgage-backed securities during periods of declining interest rates as more
homeowners refinance their mortgages, forcing the investors who held those
mortgages to reinvest at lower yield levels.
What themes can be seen in the current portfolio and why?
The most significant theme of the Fund's portfolio is the overweighting in
U.S. Treasury securities. Currently, 36% of the portfolio is invested in U.S.
Treasury notes and bonds, and 64% is invested in mortgage pass-through
securities issued by U.S. Government agencies. This mix stood at 18% U.S.
Treasury securities and 82% mortgages for most of 1994. The current composition
of the Fund's portfolio indicates our optimistic view on interest rates.
What individual security holdings changed significantly during the year?
The most significant security holdings that changed during the year were the
inclusion of long maturity U.S. Treasury issues. The Fund was positioned with
approximately an 18% position in 25-30 year U.S. Treasury bonds at fiscal
year-end.
What is the strategy for the next six to twelve months?
Our strategy will remain much the same over the next six to twelve months.
Our outlook for a low inflation, slow growth economy is consistent with the
current portfolio's structure and duration. We may continue to add Treasury
securities in lieu of the more defensive mortgage-backed securities in the
short run. However, given the significant structural change in interest rates
that was experienced this year, any future changes will be modest. Although we
remain optimistic about the next year, we do not necessarily believe that we
will experience the total returns that were realized during the last six months.
10
<PAGE>
GRIFFIN U.S. GOVERNMENT INCOME FUND
The two charts below show the performance of both classes of shares of the
Griffin U.S. Government Income Fund compared with the Lehman Brothers
Government Bond Index and the Morningstar U.S. Government Bond Fund Average.
If you had invested $10,000 in Class A shares of the Griffin U.S. Government
Income Fund when the fund commenced operations on October 19, 1993, reinvesting
all dividends, the top chart would track the value of your investment through
the period ended September 30, 1995. If you had invested $10,000 in Class B
shares of the Fund when they were first offered on November 1, 1994, assuming
all dividends were reinvested, the bottom chart would track the performance of
your investment through the period ended September 30, 1995. The Lehman
Brothers Government Bond Index is an unmanaged index of debt obligations issued
by the U.S. Treasury and its agencies. The Morningstar U.S. Government Bond
Fund Average is based on a universe of approximately 374 mutual funds tracked
by Morningstar, Inc. that have investment objectives similar to that of the
Griffin U.S. Government Income Fund. It is important to keep in mind that fund
performance reflects the deduction of the maximum front-end sales charge of
4.5% with respect to Class A shares and the deduction of the maximum contingent
deferred sales charge (CDSC) of 5% with respect to Class B shares, while no
such charges are deducted from the indexes. Of course, past performance is not
an indicator of future results.
Griffin U.S. Government Income Fund Class A
AVERAGE ANNUAL TOTAL RETURNS*
(reflects deduction of 4.5% sales charge)
One year..................................... 7.95%
Since inception.............................. 2.99%
VALUE OF $10,000 INVESTED
<TABLE>
<CAPTION>
Griffin U.S. Government Lehman Bros. Government Morningstar U.S.
Income Fund Bond Index Government Bond Fund Average
Dollar Dollar Dollar
Months Value Months Value Months Value
- ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Initial $9,550 Initial $10,000 Initial $10,000
Nov $9,530 Nov $9,884 Nov $9,919
Dec $9,601 Dec $9,923 Dec $9,963
Jan '94 $9,720 Jan '94 $10,059 Jan '94 $10,064
Feb $9,586 Feb $9,845 Feb $9,903
Mar $9,316 Mar $9,624 Mar $9,709
Apr $9,242 Apr $9,548 Apr $9,623
May $9,282 May $9,535 May $9,601
Jun $9,289 Jun $9,513 Jun $9,575
Jul $9,445 Jul $9,688 Jul $9,705
Aug $9,464 Aug $9,690 Aug $9,714
Sep $9,375 Sep $9,554 Sep $9,600
Oct $9,355 Oct $9,547 Oct $9,584
Nov $9,358 Nov $9,530 Nov $9,551
Dec $9,449 Dec $9,588 Dec $9,603
Jan '95 $9,615 Jan '95 $9,766 Jan '95 $9,752
Feb $9,836 Feb $9,976 Feb $9,943
Mar $9,874 Mar $10,039 Mar $9,993
Apr $9,989 Apr $10,171 Apr $10,103
May $10,304 May $10,581 May $10,419
Jun $10,389 Jun $10,662 Jun $10,478
Jul $10,332 Jul $10,623 Jul $10,451
Aug $10,480 Aug $10,747 Aug $10,557
Sep $10,594 Sep $10,850 Sep $10,642
</TABLE>
* During the period certain fees and expenses were waived and reimbursed by the
Advisor, Administrator and Distributor. In the absence of these
reimbursements, the total return would have been lower.
Griffin U.S. Government Income Fund Class B
AVERAGE ANNUAL TOTAL RETURNS*
(reflects deduction of 5% CDSC)
One year..................................... N/A
Since inception.............................. 8.08%
VALUE OF $10,000 INVESTED
<TABLE>
<CAPTION>
Griffin U.S. Government Lehman Bros. Government Morningstar U.S.
Income Fund Bond Index Government Bond Fund Average
Dollar Dollar Dollar
Months Value Months Value Months Value
- ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Initial $10,000 Initial $10,000 Initial $10,000
Nov $10,027 Nov $9,982 Nov $9,966
Dec $10,114 Dec $10,043 Dec $10,020
Jan '95 $10,288 Jan '95 $10,230 Jan '95 $10,176
Feb $10,521 Feb $10,450 Feb $10,375
Mar $10,557 Mar $10,515 Mar $10,427
Apr $10,687 Apr $10,653 Apr $10,542
May $11,007 May $11,083 May $10,872
Jun $11,092 Jun $11,168 Jun $10,933
Jul $11,039 Jul $11,127 Jul $10,905
Aug $11,180 Aug $11,257 Aug $11,016
Sep $10,808 Sep $11,365 Sep $11,104
</TABLE>
* During the period certain fees and expenses were waived and reimbursed by the
Advisor, Administrator and Distributor. In the absence of these
reimbursements, the total return would have been lower.
11
<PAGE>
Schedule of Investments
GRIFFIN U.S GOVERNMENT INCOME FUND
September 30, 1995
[PIE CHART APPEARS HERE]
U.S. Treasury Notes 15%
U.S. Treasury Bonds 18%
GNMA 52%
Agency Discount Notes 8%
Other 7%
Investment Categories Reflect Percentages of Investments in Securities
<TABLE>
<CAPTION>
Principal Market
Name Of Issuer Amount Value (a)
- ------------------------------------------------------------------------------
(Percentages of each investment category relate to total net assets)
<S> <C> <C>
Mortgage-Backed Securities (55.1%):
Government National Mortgage Association
(52.0%):
6.50%, 10/15/23-1/15/24 $1,917,730 $1,851,204
7.00%, 1/15/23-1/15/24 5,060,563 5,006,774
7.50%, 6/15/17-9/15/24 3,786,601 3,827,988
8.00%, 10/15/24-12/15/24 986,080 1,015,041
9.50%, 8/15/09-8/15/20 3,502,747 3,737,938
11.00%, 2/15/10-10/15/18 357,567 399,132
12.50%, 12/15/10-6/15/15 116,787 134,560
13.00%, 8/15/12 66,627 77,454
-----------
16,050,091
-----------
Collateralized Mortgage Obligations (3.1%):
Federal Home Loan Mortgage
Corporation (2.0%):
Series 80, Class E, 8.60%, 6/15/19 353,907 359,506
Series 76, Class F, 9.13%, 6/15/20 258,581 267,200
-----------
626,706
-----------
Federal National Mortgage Association (1.1%):
Series 1989-48, Class G, 8.00%, 3/25/18 338,579 343,235
-----------
Total Mortgage-Backed Securities
(cost: $17,029,421) 17,020,032
-----------
U.S. Government and Agency Securities (36.6%):
Federal National Mortgage
Association (3.7%):
8.10%, 8/12/19 1,000,000 1,136,740
-----------
U.S. Treasury Notes (14.6%):
6.13%, 5/15/98 500,000 502,885
6.25%, 5/31/00 1,200,000 1,211,916
6.88%, 10/31/96 375,000 379,369
7.50%, 2/15/05 1,200,000 1,307,688
7.88%, 11/15/04 1,000,000 1,113,020
-----------
4,514,878
-----------
U.S. Treasury Bonds (18.3%):
7.25%, 8/15/22 1,000,000 1,074,540
7.50%, 11/15/16 1,000,000 1,098,000
7.88%, 2/15/21 1,500,000 1,720,080
8.00%, 11/15/21 1,500,000 1,747,080
-----------
5,639,700
-----------
Total U.S. Treasury Notes and Bonds
(cost: $11,060,964) 11,291,318
-----------
Short-Term Securities (7.6%):
Federal National Mortgage Association
Discount Notes (7.6%):
6.30%, 10/02/95 (b) 2,345,000 2,344,590
Total Short-Term Securities (cost:$2,344,590) 2,344,590
-----------
Total Investments In Securities
(cost: $30,434,974)(c)(99.3%) 30,655,940
Other Assets Less Liabilities (0.7%) 215,631
-----------
Net Assets (100%) $30,871,571
===========
</TABLE>
- ------------------
Notes to Schedule of Investments
(a) Securities are valued in accordance with procedures described in note 1
to the financial statements.
(b) Rate represents annualized yield to maturity at September 30, 1995.
(c) Cost is the same for federal income tax purposes. The aggregate gross
unrealized appreciation and depreciation of investments in securities
based on this cost were as follows:
Gross unrealized appreciation $389,244
Gross unrealized depreciation (168,278)
--------
Net unrealized appreciation $220,966
========
See accompanying notes to financial statements.
12
<PAGE>
MANAGEMENT DISCUSSION
GRIFFIN BOND FUND
Portfolio Manager: Matthew N. Fontaine and
Arthur J. MacBride, The Boston Company Asset Management, Inc.
What were the significant factors that affected performance?
For the first nine months of the fiscal year, we evaluated the performance
of the Griffin Bond Fund against the Lehman Brothers Government/Corporate Bond
Index. Beginning June 30, 1995, it was decided that the Fund's portfolio would
place a greater emphasis on corporate bonds and lesser emphasis on U.S.
Government issues. In light of this, we decided that, going forward, the Lehman
Brothers Corporate Bond Index would be a better benchmark against which to
evaluate the Fund's performance than the Lehman Brothers Corporate/Government
Bond Index. Although the line graph describing the performance of the Fund
during the past year includes both the Lehman Brothers Corporate Bond Index and
the Lehman Brothers Corporate/Government Bond Index, future annual reports will
illustrate the Fund's performance against only the Lehman Brothers Corporate
Bond Index. It should be noted that the Bond Fund was positioned with less
interest rate sensitivity than its respective benchmark for the first seven
months of the Fund's year because we expected the volatility of the fixed
income markets in 1994 to continue. This conservative strategy was primarily
responsible for the respective underperformance during the period.
What strategies and techniques were implemented during the year?
The Boston Company Asset Management, Inc. assumed sub-advisory
responsibilities for the Fund from Piper Capital Management, Inc. on December
1, 1994. Since then, the Fund has had less of an emphasis on cyclical
industries such as steel, paper and chemicals because we feel that pricing
power has peaked in these commodity products at this point in the cycle. We
have, however, maintained an overweighted position in the financial services
sector. This sector has added value due to improved profitability in the
brokerage industry stemming from the significant returns in both the equity and
fixed income markets over the last nine months, and an improved corporate
underwriting calendar. Strategically, we extended the duration of the portfolio
(so as to be neutral to the Lehman Brothers Corporate Bond Index) at the end of
April as more signs of economic slowing and moderating inflation became
apparent.
What themes can be seen in the current portfolio (industry weightings) and
why?
Currently the portfolio duration is positioned neutral to its benchmark
index because we feel that interest rates are unlikely to move out of their
current trading range. The portfolio is underweighted in corporate bonds
relative to the Lehman Brothers Corporate Bond Index because we feel that
corporate spreads are unsustainably tight and that investors are not being paid
to own many cyclical corporate issuers, especially at the longer maturity
range. In addition, the portfolio's corporate bond holdings have a higher
average quality than the Lehman Brothers Corporate Bond Index. Currently the
portfolio has approximately 20% in mortgage-backed securities which are trading
at attractive historical levels.
What individual security holdings changed significantly during the year?
During the year the portfolio reduced its holdings of mortgage-backed
securities, and the percentage in corporate securities was increased to
approximately 65%. The portfolio has increased holdings in Yankee securities
(dollar denominated securities of foreign issuers) such as Midland Bank, Abbey
National, Aegon, China International Trust, Repsol International, and Carter
Holt Harvey, which should help to diversify the corporate holdings in the event
of a U.S. economic slowdown. We also reduced the portfolio's holdings of
certain collateralized mortgage obligations that rebounded from 1994 levels and
no longer offered attractive risk/return attributes.
What is the strategy for the next six to twelve months?
For the remainder of 1995 we expect the economy to continue growing at a
somewhat slower pace than the last twelve months. The Bond Fund continues to
underweight corporate securities. We have taken this defensive position
relative to the Lehman Brothers Corporate Bond Index because we feel that the
combination of a slowing economy and increased corporate issuance will cause
credit spreads to widen. We expect corporate issuance to accelerate due to the
recent decline in interest rates. We will look to take advantage of this
widening in corporate credit spreads by purchasing securities that meet our
consistent criteria. We will continue to focus on fundamental credit research,
which is the main component of our corporate philosophy. We feel this
disciplined process will provide a high level of current income consistent with
prudent investment management, preservation of capital and liquidity.
13
<PAGE>
GRIFFIN BOND FUND
The two charts below show the performance of both classes of shares of the
Griffin Bond Fund compared with the Lehman Brothers Government/Corporate Bond
Index, the Lehman Corporate Bond Index and the Morningstar Corporate High
Quality Bond Fund Average. If you had invested $10,000 in Class A shares of the
Griffin Bond Fund when the fund commenced operations on October 19, 1993,
reinvesting all dividends, the top chart would track the value of your
investment through the period ended September 30, 1995. If you had invested
$10,000 in Class B shares of the Fund when they were first offered on November
1, 1994, assuming all dividends were reinvested, the bottom chart would track
the performance of your investment through the period ended September 30, 1995.
The Lehman Brothers Government/Corporate Bond Index is an unmanaged index of
U.S. Treasury and agency securities and investment grade corporate debt
securities. The Lehman Brothers Corporate Bond Index is an unmanaged index of
only investment grade corporate debt securities. The Morningstar Corporate
High Quality Bond Fund Average is based on a universe of approximately 210
mutual funds tracked by Morningstar, Inc. that have investment objectives
similar to that of the Griffin Bond Fund. It is important to keep in mind that
fund performance reflects the deduction of the maximum front-end sales charge
of 4.5% with respect to Class A shares and the deduction of the maximum
contingent deferred sales charge (CDSC) of 5% with respect to Class B shares,
while no such charges are deducted from the indexes. Of course, past
performance is not an indicator of future results.
Griffin Bond Fund Class A
[CHART APPEARS HERE]
AVERAGE ANNUAL TOTAL RETURNS*
(reflects deduction of 4.5% sales charge)
One year.................... 8.41%
Since Inception............. 1.25%
VALUE OF $10,000 INVESTED
<TABLE>
<CAPTION>
Lehman Bros. Morningstar Corporate
Griffin Bond Fund Lehman Bros. Corporate Bond Index Government/Corporate Bond Index High Quality Bond Fund Average
Dollar Dollar Dollar Dollar
Months Value Months Value Months Value Months Value
- ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Initial $9,550 Initial $10,000 Initial $10,000 Initial $10,000
Nov $9,361 Nov $9,806 Nov $9,903 Nov $9,931
Dec $9,412 Dec $9,864 Dec $9,946 Dec $9,978
Jan '94 $9,552 Jan '94 $10,055 Jan '94 $10,096 Jan '94 $10,080
Feb $9,381 Feb $9,818 Feb $9,876 Feb $9,943
Mar $9,139 Mar $9,516 Mar $9,634 Mar $9,794
Apr $9,008 Apr $9,425 Apr $9,554 Apr $9,729
May $8,996 May $9,390 May $9,536 May $9,718
Jun $8,981 Jun $9,367 Jun $9,514 Jun $9,708
Jul $9,146 Jul $9,603 Jul $9,705 Jul $9,830
Aug $9,166 Aug $9,614 Aug $9,709 Aug $9,845
Sep $9,025 Sep $9,435 Sep $9,562 Sep $9,765
Oct $9,004 Oct $9,413 Oct $9,552 Oct $9,760
Nov $8,981 Nov $9,398 Nov $9,534 Nov $9,740
Dec $9,034 Dec $9,476 Dec $9,597 Dec $9,782
Jan '95 $9,207 Jan '95 $9,677 Jan '95 $9,782 Jan '95 $9,910
Feb $9,408 Feb $9,956 Feb $10,008 Feb $10,078
Mar $9,452 Mar $10,037 Mar $10,076 Mar $10,140
Apr $9,584 Apr $10,206 Apr $10,216 Apr $10,246
May $9,963 May $10,687 May $10,644 May $10,533
Jun $10,034 Jun $10,783 Jun $10,729 Jun $10,596
Jul $9,984 Jul $10,736 Jul $10,687 Jul $10,585
Aug $10,116 Aug $10,909 Aug $10,824 Aug $10,686
Sep $10,247 Sep $11,038 Sep $10,934 Sep $10,796
</TABLE>
* During the period certain fees and expenses were waived and reimbursed by the
Advisor, Administrator and Distributor. In the absence of these
reimbursements, the total return would have been lower.
Griffin Bond Fund Class B
[CHART APPEARS HERE]
AVERAGE ANNUAL TOTAL RETURNS*
(reflects deduction of 5% CDSC)
One year.................... N/A
Since Inception............. 8.58%
VALUE OF $10,000 INVESTED
<TABLE>
<CAPTION>
Lehman Bros. Morningstar Corporate
Griffin Bond Fund Lehman Bros. Corporate Bond Index Government/Corporate Bond Index High Quality Bond Fund Average
Dollar Dollar Dollar Dollar
Months Value Months Value Months Value Months Value
- ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Initial $10,000 Initial $10,000 Initial $10,000 Initial $10,000
Nov $10,012 Nov $9,984 Nov $9,982 Nov $9,980
Dec $10,066 Dec $10,066 Dec $10,048 Dec $10,023
Jan '95 $10,240 Jan '95 $10,280 Jan '95 $10,241 Jan '94 $10,154
Feb $10,472 Feb $10,576 Feb $10,478 Feb $10,326
Mar $10,516 Mar $10,662 Mar $10,549 Mar $10,390
Apr $10,659 Apr $10,842 Apr $10,695 Apr $10,498
May $11,076 May $11,353 May $11,143 May $10,793
Jun $11,135 Jun $11,455 Jun $11,232 Jun $10,857
Jul $11,075 Jul $11,405 Jul $11,189 Jul $10,846
Aug $11,230 Aug $11,589 Aug $11,332 Aug $10,949
Sep $10,858 Sep $11,725 Sep $11,447 Sep $11,062
</TABLE>
* During the period certain fees and expenses were waived and reimbursed by the
Advisor, Administrator and Distributor. In the absence of these
reimbursements, the total return would have been lower.
14
<PAGE>
Schedule of Invesments
GRIFFIN BOND FUND
September 30, 1995
[PIE CHART APPEARS HERE]
U.S. Treasury Bonds 8%
U.S. Agency Securities 21%
Corporate Bonds 66%
Other 5%
Investment Categories Reflect Percentages of Investments in Securities
<TABLE>
<CAPTION>
Principal Market
Name Of Issuer Amount Value (a)
- ------------------------------------------------------------------------------
(Percentages of each investment category relate to total net assets)
<S> <C> <C>
Asset Backed Securities (1.1%)
Corporate (1.1%):
General Motor Acceptance Corporation
Grantor Trust, 6.30%, 6/15/99 $128,744 $128,985
----------
128,985
----------
Total Asset Backed Securities (cost: $128,682) 128,985
----------
Corporate Bonds (66.2%):
Banking (6.9%):
Chemical Banking Corporation,
7.13%, 3/01/05 250,000 253,940
Midland Bank, 8.63%, 12/15/04 (b) 175,000 194,079
Nationsbank Corporation, 5.38%, 4/15/00 200,000 190,704
Norwest Corporation, 7.70%, 11/15/97 200,000 206,072
----------
844,795
----------
Electric Utilities (2.3%):
Florida Power & Light, 5.38%, 4/01/00 155,000 148,995
Virginia Electric & Power, 8.88%, 6/01/99 125,000 134,358
----------
283,353
----------
Financial Services (24.1%):
Abbey National First Capital
Corporation, 8.20%, 10/15/04 (b) 175,000 190,563
Aegon, 8.00%, 8/15/06 (b) 214,000 232,389
American Express Credit, 7.88%, 12/01/96 50,000 50,909
Associates Corporation, 10.75%, 11/01/95 50,000 50,159
BHP Finance, 7.00%, 12/01/97 (b) 200,000 202,634
Charles Schwab Corporation, 6.30%, 9/30/03 250,000 235,478
China International Trust, 9.00%,
10/15/06(b) 150,000 163,500
Ford Motor Credit Corp., Ford -
Global Bond, 6.25%, 2/26/98 350,000 350,298
Golden West Financial, 7.88%, 1/15/02 175,000 183,218
Lincoln National Corporation,
7.25%, 5/15/05 120,000 123,000
Merrill Lynch, 6.25%, 1/15/06 230,000 216,888
Morgan J.P. & Company, 7.63%, 11/15/98 250,000 259,318
Paine Webber Group, 7.31%, 8/09/00 300,000 304,500
Repsol International Finance,
7.00%, 8/01/05 (b) 200,000 204,500
Smith Barney Holdings Incorporated,
6.00%, 3/15/97 150,000 149,477
----------
2,916,831
----------
Industrial Conglomerate (29.2%):
American Brands, 7.50%, 5/15/99 120,000 123,827
American Home Products
7.70%, 2/15/00 90,000 94,064
7.90%, 2/15/05 180,000 194,261
Carter Holt Harvey, 8.38%, 4/15/15 (b) 128,000 138,616
Coca-Cola Co., 7.88%, 9/15/98 200,000 208,712
Columbia/HCA Healthcare,
6.91%, 6/15/05 200,000 200,634
CRS America Incorporated, 6.88%, 7/21/05 150,000 150,563
General Foods, 6.00%, 6/15/01 200,000 191,854
General Motors Corp., 9.63%, 12/01/00 350,000 394,580
GTE Corporation, 8.85%, 3/01/98 200,000 210,768
International Business Machines
Corporation, 6.38%, 6/15/00 200,000 200,138
International Paper, 9.70%, 3/15/00 160,000 179,186
Lockheed Martin Corporation,
4.88%, 2/15/96 200,000 199,250
Pepsico Inc., 7.75%, 10/01/98 300,000 310,812
Sears Roebuck Company, 9.25%, 4/15/95 110,000 117,206
Tele-Communications Inc., 7.38%, 2/15/00 200,000 203,148
Wal-Mart Stores, 8.63%, 4/01/01 200,000 219,720
WMX Technologies Incorporated,
8.25%, 11/15/99 200,000 212,802
----------
3,550,141
----------
Transportation (3.7%):
Federal Express
9.75%, 5/15/96 50,000 51,003
10.00%, 9/01/98 175,000 190,918
Southwest Airlines, 7.88%, 9/01/07 200,000 213,372
----------
455,293
----------
Total Corporate Bonds
(cost: $7,933,048) 8,050,413
----------
Collateralized Mortgage Obligations (1.6%):
U.S. Agency (1.1%):
Federal Home Loan Mortgage Corporation(c):
Series 1439, Class QA, inverse
COFI floater, 10.77%, 11/15/22 22,616 19,733
Series 1435, Class FA, LIBOR
floater, 7.24%, 12/15/22 114,463 118,397
----------
138,130
----------
</TABLE>
See accompanying notes to financial statements.
15
<PAGE>
Schedule of Invesments
GRIFFIN BOND FUND
September 30, 1995
<TABLE>
<CAPTION>
Principal Market
Name Of Issuer Amount Value (a)
- ------------------------------------------------------------------------------
<S> <C> <C>
Corporate (0.5%):
Security Pacific National Bank,
9.30%, 8/25/19 $64,024 $66,765
-----------
66,765
-----------
Total Collateralized Mortgage Obligations
(cost: $204,205) 204,895
-----------
U.S. Government And Agency Securities (29.4%):
U.S. Government Securities (8.1%):
U.S. Treasury Strips (8.1%):
6.80%, 8/15/21 (d) 5,570,000 986,948
-----------
U.S. Agency Securities (21.3%):
Government National Mortgage
Association (11.3%):
8.00%, 9/15/25 1,107,600 1,141,172
8.50%, 10/15/25 230,000 239,559
-----------
1,380,731
Federal National Mortgage Association (10.0%):
7.50%, 6/01/10 - 10/01/25 780,000 789,745
8.00%, 9/01/10 410,850 422,789
----------
1,212,534
----------
Total U.S. Government And Agency Securities
(cost: $3,557,669) 3,580,213
----------
Short-Term Securities (1.8%):
Repurchase Agreement (1.8%):
State Street Bank & Trust Co. Master
Repurchase Agreement, 4.5%, 10/02/95,
102% Collateralized by U.S.
Government Securities 218,000 218,000
----------
Total Short-Term Securities
(cost: $218,000) 218,000
----------
Total Investments In Securities
(cost: $12,041,604)(e)(100.1%) 12,182,506
Other Assets Less Liabilities (-0.1%) (10,846)
----------
Net Assets (100%) $12,171,660
==========
</TABLE>
Notes to Schedule of Investments
(a) Securities are valued in accordance with procedures described in note 1
to the financial statements.
(b) U.S. dollar denominated securities issued by foreign corporations and/or
governments.
(c) Descriptions of certain collateralized mortgage obligations are as
follows:
LIBOR - London InterBank Offered Rate.
COFI (11th District) - Cost of Funds Index of the Federal Reserve's 11th
District.
Inverse floater - represent securities that pay interest at rates that
increase (decrease) with a decline (increase) in a specific
index. Interest rate disclosed was in effect on September 30, 1995.
Floater - represent securities that pay interest at rates that increase
(decrease) with an increase (decrease) in a specific index. Interest
rate disclosed was in effect on September 30, 1995.
(d) Rate on these zero coupon bonds represents annualized yield to maturity
at September 30, 1995.
(e) Cost is the same for federal income tax purposes. The aggregate gross
unrealized appreciation and depreciation of investments in securities
based on this cost were as follows:
Gross unrealized appreciation $156,896
Gross unrealized depreciation (15,994)
--------
Net unrealized appreciation $140,902
========
See accompanying notes to financial statements.
16
<PAGE>
MANAGEMENT DISCUSSION
GRIFFIN MUNICIPAL BOND FUND
Portfolio Manager: Executive Policy Committee,
Payden & Rygel Investment Counsel
What were the significant market factors that affected performance?
Many of the factors that affected the performance of the Municipal Bond Fund
also impacted the California Tax-Free Fund. These factors include the solvency
of municipalities across the nation, the change in fiscal policy by the Federal
Reserve Board, and the threat of federal tax reform. The first two of these
issues is discussed in more detail under the Management Discussion of the
Griffin California Tax-Free Fund, so we'll concentrate on the latter for the
Municipal Bond Fund.
The uncertainty surrounding the tax reform debate impacted the municipal
market significantly during the past year. Beginning in April 1995 when senior
Congressional leaders in Washington began to talk seriously about this issue,
the municipal bond market reacted negatively. By the end of the first hundred
days of the new Republican Congress, the tax reform movement had gained
additional momentum. Many investors feared that tax reform would eliminate the
benefits of the income derived from municipal securities, and they took to the
sidelines while the new Congress worked through the details. Long term
municipal yields have remained high due to the continued uncertainty, and
shorter maturities have rallied as investors have placed emphasis on these
securities.
What strategies and techniques were implemented during the year?
The Fund had a defensive position at the end of the fourth quarter of 1994
as we shortened duration and held higher-coupon bonds. As bond valuations
reached historically low levels, we reallocated the Fund's assets into longer
non-callable bonds. Non-callable bonds are especially valuable when interest
rates decline because they cannot be repurchased by their issuers before the
final maturity date. These securities participated more fully in the 1995
interest rate rally.
What themes can be seen in the current portfolio and why?
The Griffin Municipal Bond Fund is structured to capture the yield available
from longer maturity bonds and benefit from positive price performance as
interest rates decline. The inclusion of longer, non-callable bonds further
contributes to this portfolio structure theme.
The second theme pertains to mitigation of credit risk. The Fund holds
geographically diverse securities, with no single state representing more than
13% of the Fund's portfolio. Nearly a quarter of the Fund's assets are invested
in bonds whose principal and interest payments are insured by an outside,
non-governmental, agency. Most of the revenue bonds held by the Fund are backed
by user fees for essential services, which provide strong support for the
underlying securities. The Fund has attempted to limit its holdings in general
obligation bonds to a number of top credit quality issuers, and has sought
additional diversification through allocating purchases among different regions
of the country.
What individual security holdings changed significantly during the year?
Payden & Rygel took over management of the portfolio on December 1, 1994
from Piper Capital Management, Inc. We took this opportunity to increase the
geographical diversification away from the Midwest, and added exposure to the
Southeast and Southwest, two regions that are showing solid economic growth. We
also swapped out some callable issues to reduce the portfolio's exposure to
interest rate declines. Of the securities sold during the year approximately
three quarters were callable, compared to one third of the securities purchased
were subject to similar provisions.
What is the strategy for the next six to twelve months?
Because our outlook calls for benign inflation and slow growth over the next
several quarters, we will maintain the current structure and duration targets
of the Fund. The Griffin Municipal Bond Fund is a diversified fund that invests
in intermediate to long-term investment grade municipal securities. While our
outlook remains positive for the fixed income markets, we cannot guarantee that
the recent strong performance will continue at the same rate.
17
<PAGE>
GRIFFIN MUNICIPAL BOND FUND
The two charts below show the performance of both classes of shares of the
Griffin Municipal Bond Fund compared with the Lehman Brothers Municipal Bond
Index and the Morningstar Municipal Bond Fund Average. If you had invested
$10,000 in Class A shares of the Griffin Municipal Bond Fund when the fund
commenced operations on October 19, 1993, reinvesting all dividends, the top
chart would track the value of your investment through the period ended
September 30, 1995. If you had invested $10,000 in Class B shares of the Fund
when they were first offered on November 1, 1994, assuming all dividends were
reinvested, the bottom chart would track the performance of your investment
through the period ended September 30, 1995. The Lehman Brothers Municipal Bond
Index is an unmanaged index of debt obligations issued by U.S. states and
municipalities. The Morningstar Municipal Bond Fund Average is based on a
universe of approximately 495 mutual funds tracked by Morningstar, Inc. that
have investment objectives similar to that of the Griffin Municipal Bond Fund.
It is important to keep in mind that fund performance reflects the deduction of
the maximum front-end sales charge of 4.5% with respect to Class A shares and
the deduction of the maximum contingent deferred sales charge (CDSC) of 5% with
respect to Class B shares, while no such charges are deducted from the indexes.
Of course, past performance is not an indicator of future results.
Grifffin Municipal Bond Fund Class A
[CHART APPEARS HERE]
AVERAGE ANNUAL TOTAL RETURNS*
(reflects deduction of 4.5% sales charge)
One year.................... 5.16%
Since Inception............. -0.12%
VALUE OF $10,000 INVESTED
<TABLE>
<CAPTION>
Griffin Municipal Bond Fund Lehman Bros. Municipal Bond Index Morningstar Municipal Bond Fund Average
Dollar Dollar Dollar
Months Value Months Value Months Value
- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Initial $9,550 Initial $10,000 Initial $10,000
Nov $9,423 Nov $9,798 Nov $9,917
Dec $9,641 Dec $10,005 Dec $10,097
Jan '94 $9,773 Jan '94 $10,119 Jan '94 $10,204
Feb $9,465 Feb $9,857 Feb $9,967
Mar $8,941 Mar $9,456 Mar $9,604
Apr $9,019 Apr $9,536 Apr $9,640
May $9,068 May $9,619 May $9,717
Jun $9,006 Jun $9,560 Jun $9,671
Jul $9,213 Jul $9,735 Jul $9,819
Aug $9,235 Aug $9,769 Aug $9,846
Sep $9,058 Sep $9,626 Sep $9,716
Oct $8,858 Oct $9,454 Oct $9,568
Nov $8,665 Nov $9,283 Nov $9,401
Dec $8,888 Dec $9,487 Dec $9,590
Jan '95 $9,165 Jan '95 $9,759 Jan '95 $9,825
Feb $9,430 Feb $10,043 Feb $10,075
Mar $9,548 Mar $10,158 Mar $10,160
Apr $9,547 Apr $10,170 Apr $10,171
May $9,852 May $10,495 May $10,443
Jun $9,679 Jun $10,404 Jun $10,364
Jul $9,774 Jul $10,502 Jul $10,436
Aug $9,894 Aug $10,636 Aug $10,541
Sep $9,980 Sep $10,703 Sep $10,598
</TABLE>
* During the period certain fees and expenses were waived and reimbursed by the
Advisor, Administrator and Distributor. In the absence of these
reimbursements, the total return would have been lower.
Griffin Municipal Bond Fund Class B
[CHART APPEARS HERE]
AVERAGE ANNUAL TOTAL RETURNS*
(reflects deduction of 5% CDSC)
One year.................... N/A
Since Inception............. 7.86%
VALUE OF $10,000 INVESTED
<TABLE>
<CAPTION>
Griffin Municipal Bond Fund Lehman Bros. Municipal Bond Index Morningstar Municipal Bond Fund Average
Dollar Dollar Dollar
Months Value Months Value Months Value
- ------ ------ ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C>
Initial $10,000 Initial $10,000 Initial $10,000
Nov $9,846 Nov $9,819 Nov $9,826
Dec $10,083 Dec $10,035 Dec $10,024
Jan '95 $10,405 Jan '95 $10,322 Jan '94 $10,269
Feb $10,701 Feb $10,622 Feb $10,530
Mar $10,830 Mar $10,745 Mar $10,619
Apr $10,825 Apr $10,757 Apr $10,630
May $11,167 May $11,101 May $10,915
Jun $10,963 Jun $11,004 Jun $10,832
Jul $11,065 Jul $11,109 Jul $10,908
Aug $11,206 Aug $11,250 Aug $11,017
Sep $10,786 Sep $11,321 Sep $11,076
</TABLE>
* During the period certain fees and expenses were waived and reimbursed by the
Advisor, Administrator and Distributor. In the absence of these
reimbursements, the total return would have been lower.
18
<PAGE>
Schedule of Investments
GRIFFIN MUNICIPAL BOND FUND
September 30, 1995
[PIE CHART APPEARS HERE]
General Obligations 46%
Transportation 12%
Water Revenue 10%
Electric 9%
Sewer 6%
Other 17%
Investment Categories Reflect Percentages of Investments in Securities
<TABLE>
<CAPTION>
Principal Market
Name Of Issuer Amount Value (a)
- ------------------------------------------------------------------------------
(Percentages of each investment category relate to total net assets)
<S> <C> <C>
Municipal Long-Term Securities (92.1%):
Arizona (3.8%):
Phoenix, Arizona, Series A,
6.25%, 7/01/17 $200,000 $213,000
--------
California (5.7%):
California State Department of Water
Resources, 6.00%, 12/01/06 140,000 151,025
California State General Obligation,
6.60%, 2/01/10 150,000 165,000
--------
316,025
--------
Florida (6.3%):
Dade County, Florida Aviation
Revenue, 5.50%, 10/01/07 200,000 204,000
Florida State Board of Education
Capital Outlay Public Education,
Series B, 5.75%, 6/01/15 150,000 148,500
--------
352,500
--------
Georgia (3.2%):
Georgia State General Obligation,
7.20%, 3/01/08 150,000 180,000
--------
Illinois (1.9%):
Will County, Illinois Community,
District #161 Summit Hill,
6.10%, 1/01/09 100,000 103,500
--------
Indiana (1.9%):
Wa-Nee Elementary/High School
Building Corporation,
6.50%, 7/15/10 100,000 105,500
--------
Louisiana (1.9%):
Louisiana Public Facilities Authority
Revenue, General Health Project
6.20%, 11/01/09 $100,000 104,125
--------
Massachusetts (9.9%):
Massachusetts Bay Transportation
Authority General Transportation
System, 5.60%, 3/01/08 200,000 206,250
Massachusetts State General
Obligation, Series A,
5.75%, 2/01/15 150,000 148,875
Massachusetts State Water Resources
Authority, 6.00%, 8/01/14 100,000 101,000
Massachusetts State Water Resources
Authority, 5.50%, 11/01/15 100,000 94,375
--------
550,500
--------
Michigan (1.2%):
Michigan State Hospital Financing
Authority, 5.88%, 7/01/14 75,000 69,094
--------
Nevada (1.9%):
Nevada State General Obligation,
5.80%, 7/15/08 100,000 103,750
--------
New Jersey (3.8%):
New Jersey State General Obligation,
6.00%, 2/15/11 200,000 210,750
--------
New York (2.0%):
New York State Environmental
Facilities Corporation Pollution
Control Revenue Revolving Fund,
6.80%, 6/15/01 100,000 111,000
--------
Ohio (3.7%):
Ohio State Water Development
Authority Revenue, Fresh Water
Series, 5.70%, 6/01/09 200,000 205,000
--------
Oregon (1.9%):
Oregon State Department of
Transportation Revenue, Regional
Light Rail Fund - Westside
Project, 6.25%, 6/01/09 100,000 106,000
--------
Pennsylvania (4.6%)
Commonwealth of Pennsylvania, General
Obligation, 5.20%, 6/15/04 250,000 256,250
--------
</TABLE>
See accompanying notes to financial statements.
19
<PAGE>
Schedule of Investments
GRIFFIN MUNICIPAL BOND FUND (Continued)
September 30, 1995
<TABLE>
<CAPTION>
Principal Market
Name Of Issuer Amount Value (a)
- ------------------------------------------------------------------------------
<S> <C> <C>
Puerto Rico (3.8%):
Puerto Rico Electric Power Authority
Power Revenue, 6.13%, 7/01/08 $200,000 $212,750
----------
South Carolina (3.5%):
Columbia, South Carolina Water
Works & Sewer Systems Revenue,
5.38%, 2/01/12 200,000 195,000
----------
South Dakota (1.9%):
South Dakota Housing Development
Authority, Homeownership
Mortgage, 6.65%, 5/01/14 100,000 103,500
----------
Tennessee (3.5%):
Shelby County, Tennessee, General
Obligation, 5.63%, 4/01/13 200,000 197,250
----------
Texas (12.8%):
Austin, Texas General Obligation,
5.70%, 9/01/07 200,000 211,750
Harris County, Texas Tax and Revenue
Certificate of Obligation, 6.00%,
12/15/10 200,000 212,000
San Antonio, Texas Electric &
Gas Revenue, 5.00%, 2/01/14 100,000 90,000
Texas Municipal Power Agency
Revenue, 5.25%, 9/01/08 200,000 198,500
----------
712,250
----------
Virginia (2.2%):
Virginia State Transportation
Board Revenue, North Virginia
Transportation District
Program, 6.25%, 5/15/12 120,000 124,650
----------
Washington (3.7%):
Washington State General Obligation,
5.75%, 9/01/09 200,000 205,750
----------
Wisconsin (7.0%):
Wisconsin State Transportation,
5.50%, 7/01/14 200,000 188,500
Wisconsin State General Obligation,
5.13%, 11/01/07 200,000 199,250
----------
387,750
----------
Total Municipal Long-Term Securities
(cost: $5,025,870) 5,125,894
----------
Municipal Short-Term Securities (5.4%):
Minnesota (1.8%):
Beltrami County, Minnesota Environmental
Control Revenue, Northwood Panelboard
Company Project, 4.65%, 10/02/95 (b) 100,000 100,000
----------
Texas (3.6%):
Grapevine, Texas Industrial Development
Corporation, Multiple Mode -
American Airlines-B4, 4.75%, 10/02/95 (b) 200,000 200,000
----------
Total Municipal Short-Term Securities
(cost: $300,000) 300,000
----------
Total Investments In Securities
(cost: $5,325,870) (c) (97.5%) 5,425,894
Other Assets Less Liabilities (2.5%) 142,235
----------
Net Assets (100%) $5,568,129
==========
Long Futures Contracts
- ----------------------
<CAPTION>
Unrealized
Number of Notional Appreciation
Contracts Description Contract Value (Depreciation)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
2 Municipal Bond, December 1995 $230,563 ($2,375)
</TABLE>
Notes to Schedule of Investments
(a) Securities are valued in accordance with procedures described in note 1
to the financial statements.
(b) These variable rate securities have maturities greater than one year but
are redeemable upon demand. For purposes of calculating the fund's
weighted average maturity, the length to maturity of these investments
is considered to be the greater of the period until the interest rate is
adjusted or until the principal can be recovered by demand. These
securities were pledged as collateral for futures contracts.
(c) Cost is the same for federal income tax purposes. The aggregate gross
unrealized appreciation and depreciation of investments in securities
based on this cost were as follows:
Gross unrealized appreciation $115,448
Gross unrealized depreciation (17,799)
--------
Net unrealized appreciation $97,649
========
See accompanying notes to financial statements.
20
<PAGE>
MANAGEMENT DISCUSSION
GRIFFIN CALIFORNIA TAX-FREE FUND
Portfolio Manager: Executive Policy Committee,
Payden & Rygel Investment Counsel
What were the significant market factors that affected performance?
The three most significant factors that affected the performance of the Fund
over the past year were changes in the fiscal policy of the Federal Reserve
Board, the bankruptcy declaration by Orange County and the fear of federal tax
reform. The tax reform issue is described in more detail under the Management
Discussion of the Griffin Municipal Bond Fund.
The Federal Reserve Board lowered short term interest rates for the first
time in three years, reversing the aggressive tightening that was implemented
during 1994. Municipal bond yields (and prices) are generally related to a
percentage of U.S. Treasury yields, and therefore are sensitive to changes in
the taxable bond markets. As a result of the Federal Reserve Board's change in
fiscal policy, the fixed income market psychology turned positive, and the
municipal bond market participated in the strong rally. Interest rates on long
term municipal bonds declined significantly from their peak in November of
1994, leading to favorable performance for the California Tax-Free Fund.
The Orange County bankruptcy announcement in December 1994 was a shot across
the bow to the municipal bond market. Bonds issued within the State's borders
experienced significant short-term volatility, and the importance of financial
flexibility and in-depth credit analysis of each issuer took on renewed
importance. After a brief period of uncertainty, though, the municipal market
regained its strength, as the issues relating to the bankruptcy filing were
addressed throughout the year.
What strategies and techniques were implemented during the year?
At the beginning of the fiscal year the Fund emphasized a defensive
strategy, which was implemented by holding municipal bonds with above market
coupons. This strategy led to a reduction in duration and a diminished exposure
to changes in interest rates. Toward the end of 1994 municipal bond valuations
were at historically low levels. During the year, as the market rallied, we
reallocated the fund's assets into longer non-callable bonds from cash and
shorter maturity securities. These longer non-callable bonds participated more
fully in this bullish interest rate environment and thus produced historically
high returns for the year.
What themes can be seen in the current portfolio and why?
We have structured the current portfolio to capture the yield available from
longer maturity securities while maintaining our exposure to positive interest
rate movements. We continue to focus on high credit quality bonds in the Fund,
and have maintained a "AA" average credit quality. It is important to note that
we did not own any securities issued by municipalities in Orange County, nor do
we own securities issued by the County of Los Angeles. We focus on revenue
bonds issued with respect to essential services and which have a strong revenue
stream, and we avoid many of the California counties that are burdened with the
enormous financial pressures imposed by Proposition 13, and the growing health
and welfare services they must provide.
What individual security holdings changed significantly during the year?
We increased the fund's holdings of general obligation bonds of the State of
California during the year. Subsequent to the state's downgrade to a rating of
Al/A a year ago, economic prospects for the State have improved and the State
Treasurer has overseen an improved balance sheet. We purchased these bonds when
yield differentials for the State general obligations were attractive compared
to other bonds.
What is the strategy for the next six to twelve months?
The California Tax-Free Fund seeks to provide investors with a high level of
income exempt from federal income taxes and California personal income taxes,
while preserving capital. It invests primarily in intermediate to long-term
investment grade municipal securities. Our strategy will be to maintain our
current exposure to changes in interest rates. We feel the recent low inflation
levels and moderate economic growth indicate a stable or declining interest
rate environment for the next six months. Although we remain optimistic about
the next year, we do not necessarily believe that we will experience the total
returns that were realized during the last six months.
21
<PAGE>
GRIFFIN CALIFORNIA TAX-FREE FUND
The two charts below show the performance of both classes of shares of the
Griffin California Tax-Free Fund compared with the Lehman Brothers California
Municipal Bond Index and the Morningstar California Municipal Bond Fund
Average. If you had invested $10,000 in Class A shares of the Griffin
California Tax-Free Fund when the fund commenced operations on October 19,
1993, reinvesting all dividends, the top chart would track the value of your
investment through the period ended September 30, 1995. If you had invested
$10,000 in Class B shares of the Fund when they were first offered on November
1, 1994, assuming all dividends were reinvested, the bottom chart would track
the performance of your investment through the period ended September 30, 1995.
The Lehman Brothers California Municipal Bond Index is an unmanaged index of
debt obligations issued by the State of California and its municipalities. The
Morningstar California Municipal Bond Fund Average is based on a universe of
approximately 162 mutual funds tracked by Morningstar, Inc. that have
investment objectives similar to that of the Griffin California Tax-Free Fund.
It is important to keep in mind that fund performance reflects the deduction of
the maximum front-end sales charge of 4.5% with respect to Class A shares and
the deduction of the maximum contingent deferred sales charge (CDSC) of 5% with
respect to Class B shares, while no such charges are deducted from the indexes.
Of course, past performance is not an indicator of future results.
Griffin California Tax-Free Fund Class A
AVERAGE ANNUAL TOTAL RETURNS*
(reflects deduction of 4.5% sales charge)
One year.................... 5.15%
Since Inception............. -0.88%
VALUE OF $10,000 INVESTED
<TABLE>
<CAPTION>
Griffin California Tax-Free Fund Lehman Bros. California Morningstar California Municipal
Municipal Bond Index Bond Fund Average
Dollar Dollar Dollar
Months Value Months Value Months Value
- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Initial $9,550 Initial $10,000 Initial $10,000
Nov $9,306 Nov $9,772 Nov $9,891
Dec $9,548 Dec $9,984 Dec $10,088
Jan '94 $9,645 Jan '94 $10,099 Jan '94 $10,195
Feb $9,272 Feb $9,820 Feb $9,941
Mar $8,828 Mar $9,376 Mar $9,524
Apr $8,872 Apr $9,447 Apr $9,545
May $8,928 May $9,532 May $9,623
Jun $8,847 Jun $9,451 Jun $9,564
Jul $9,024 Jul $9,637 Jul $9,738
Aug $9,050 Aug $9,672 Aug $9,760
Sep $8,924 Sep $9,517 Sep $9,611
Oct $8,727 Oct $9,340 Oct $9,433
Nov $8,590 Nov $9,195 Nov $9,242
Dec $8,737 Dec $9,348 Dec $9,399
Jan '95 $9,041 Jan '95 $9,660 Jan '95 $9,687
Feb $9,332 Feb $9,983 Feb $9,977
Mar $9,400 Mar $10,094 Mar $10,063
Apr $9,395 Apr $10,095 Apr $10,070
May $9,682 May $10,449 May $10,384
Jun $9,495 Jun $10,308 Jun $10,245
Jul $9,584 Jul $10,408 Jul $10,311
Aug $9,737 Aug $10,539 Aug $10,423
Sep $9,828 Sep $10,618 Sep $10,495
</TABLE>
* During the period certain fees and expenses were waived and reimbursed by the
Advisor, Administrator and Distributor. In the absence of these
reimbursements, the total return would have been lower.
Griffin California Tax-Free Fund Class B
ANNUAL TOTAL RETURNS*
(reflects deduction of 5% CDSC)
One year.................... N/A
Since Inception............. 7.60%
VALUE OF $10,000 INVESTED
<TABLE>
<CAPTION>
Griffin California Tax-Free Fund Lehman Bros. California Morningstar California Municipal
Municipal Bond Index Bond Fund Average
Dollar Dollar Dollar
Months Value Months Value Months Value
- ------ ------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C>
Initial $10,000 Initial $10,000 Initial $10,000
Nov $9,886 Nov $9,844 Nov $9,797
Dec $10,050 Dec $10,008 Dec $9,964
Jan '95 $10,382 Jan '95 $10,342 Jan '94 $10,268
Feb $10,726 Feb $10,688 Feb $10,576
Mar $10,799 Mar $10,807 Mar $10,667
Apr $10,775 Apr $10,808 Apr $10,675
May $11,114 May $11,187 May $11,008
Jun $10,894 Jun $11,036 Jun $10,860
Jul $10,991 Jul $11,143 Jul $10,930
Aug $11,162 Aug $11,283 Aug $11,049
Sep $10,760 Sep $11,368 Sep $11,125
</TABLE>
* During the period certain fees and expenses were waived and reimbursed by the
Advisor, Administrator and Distributor. In the absence of these
reimbursements, the total return would have been lower.
22
<PAGE>
Schedule of Investments
GRIFFIN CALIFORNIA TAX-FREE FUND
September 30, 1995
[PIE CHART APPEARS HERE]
General Obligations 30%
Water 10%
Sales Tax 11%
Sewer 6%
Housing 11%
Leasing 6%
Other 8%
Airport 10%
Transportation 8%
Investment Categories Reflect Percentages of Investments in Securities
<TABLE>
<CAPTION>
Principal Market
Name of Issuer Amount Value (a)
- -----------------------------------------------------------------------------
(Percentages of each investment category relate to total net assets)
<S> <C> <C>
Municipal Long-Term Securities (97.0%):
Airport Revenue (10.4%):
Los Angeles, California Department of
Airports, 6.50%, 5/15/04 $1,430,000 $1,590,875
Port of Oakland, California Port Revenue,
Capital Appreciation, Zero Coupon,
11/01/08 1,045,000 508,131
----------
2,099,006
----------
Electric Revenue (3.7%):
Puerto Rico Electric Power Authority
Power Revenue, Series U,
6.00%, 7/01/14 750,000 744,375
----------
General Obligations (29.5%):
State of California, 5.50%, 4/01/13 2,000,000 1,927,500
State of California, 6.00%, 8/01/10 550,000 567,875
State of California, 6.60%, 2/01/10 1,000,000 1,100,000
City of Los Angeles, California,
5.80%, 9/01/07 700,000 728,875
East Bay, California Regional
Park District, 5.50%, 9/01/00 500,000 525,625
Folsom, California School Facilities
Project, 6.00%, 8/01/10 300,000 309,750
Puerto Rico Commonwealth,
5.65%, 7/01/15 800,000 805,000
----------
5,964,625
----------
Housing Revenue (11.3%):
California Housing Finance Agency
Revenue, Home Mortgage,
6.50%, 2/01/08 1,070,000 1,144,900
California Housing Finance Agency
Revenue, Multi-Unit Rental
Housing, 6.88%, 8/01/24 500,000 515,625
Perris, California Single Family Mortgage
Revenue Bonds, GNMA Mortgage Backed
Securities, 6.20%, 6/01/23(b) 3,000,000 567,780
----------
2,228,305
----------
Public Improvements (9.0%):
California State Public Works
Board Leasing Revenue, Various
University of California Projects,
6.60%, 12/01/22 500,000 569,375
Sacramento, California Certificates
of Participation, Public Facilities
Project, 6.00%, 7/01/12 750,000 747,187
Santa Barbara, County California
Certificates of Participation,
6.40%, 2/01/11 500,000 505,000
----------
1,821,562
----------
Sewer Revenue (4.1%):
San Francisco, California City
& County Sewer Revenue Capital
Appreciation, 5.87%, 10/01/10 (b) 500,000 212,500
San Francisco, California City &
County Sewer Revenue,
5.90%, 10/01/08 600,000 621,750
----------
834,250
----------
Transportation Revenue (17.6%):
Contra Costa, California Transportation
Authority Sales Tax Revenue,
5.60%, 3/01/09 800,000 806,000
Riverside County, California Transportation
Community Sales Tax Revenue,
5.75%, 6/01/08 500,000 521,250
San Diego County, California Regional
Transportation Community Sales
Tax Revenue, 4.75%, 4/01/08 765,000 721,013
San Francisco, California Bay
Area Rapid Transit District Sales
Tax Revenue, 5.35%, 7/01/07 1,500,000 1,507,500
----------
3,555,763
----------
</TABLE>
See accompanying notes to financial statements.
23
<PAGE>
Schedule of Investments
GRIFFIN CALIFORNIA TAX-FREE FUND (Continued)
September 30, 1995
<TABLE>
<CAPTION>
Principal Market
Name of Issuer Amount Value (a)
- -----------------------------------------------------------------------------
<S> <C> <C>
University/Education Revenue (1.9%):
University of California Certificate
of Participation, UCLA Center
Chiller/Cogeneration Project,
6.00%, 11/01/21 $400,000 $ 386,500
-----------
386,500
-----------
Water Revenue (9.5%):
California State Department of Water
Resources, 6.00%, 12/01/06 500,000 539,375
Los Angeles, California Department
of Water & Power, Waterworks
Revenue, 6.20%, 7/01/12 600,000 617,250
Metropolitan Water District of Southern
California, 5.75%, 7/01/09 750,000 770,625
-----------
1,927,250
-----------
Total Municipal Long-Term Securities
(cost: $19,171,271) 19,561,636
-----------
Municipal Short-Term Securities (1.5%):
Industrial Development Revenue-Pollution
Control (1.5%):
California Pollution Control Authority
Resource Recovery Revenue,
4.65%, 10/02/95 (c) 200,000 200,000
California Pollution Control
Financing Authority, Shell Oil Company
Project A, 4.30%, 10/02/95 (c) 100,000 100,000
-----------
300,000
-----------
Total Municipal Short-Term Securities
(cost: $300,000) 300,000
-----------
Total Investments In Securities
(cost: $19,471,271)(d)(98.5%) 19,861,636
Other Assets Less Liabilities (1.5%) 395,846
-----------
Net Assets (100%) $20,257,482
===========
</TABLE>
Long Futures Contracts
- ----------------------
<TABLE>
<CAPTION>
Unrealized
Number of Notional Appreciation
Contracts Description Contract Value (Depreciation)
- -------------------------------------------------------------------------------
<C> <S> <C> <C>
2 Municipal Bond, December 1995 $229,875 ($1,687)
</TABLE>
- ------------------------------
Notes to Schedule of Investments
(a) Securities are valued in accordance with procedures described in note 1 to
the financial statements.
(b) Rate on these zero coupon bonds represents annualized yield to maturity at
September 30, 1995.
(c) These variable rate securities have maturities greater than one year but
are redeemable upon demand. For purposes of calculating the Fund's weighted
average maturity, the length to maturity of these investments is considered
to be the greater of the period until the interest rate is adjusted or
until the principal can be recovered by demand. These securities were
pledged as collateral for futures contracts.
(d) Cost is the same for federal income tax purposes. The aggregate gross
unrealized appreciation and depreciation of investment in securities based
on this cost were as follows:
Gross unrealized appreciation $445,193
Gross unrealized depreciation (56,516)
Net unrealized appreciation $388,677
========
See accompanying notes to financial statements.
-24-
<PAGE>
MANAGEMENT DISCUSSION
GRIFFIN GROWTH & INCOME FUND
Portfolio Manager: Quinn R. Stills,
The Boston Company Asset Management, Inc.
What were the significant factors that affected performance?
The Griffin Growth & Income Fund's performance over the past year was driven
by its holdings in financial services, basic industries, and health care. For
perspective, the financial services sector of the portfolio appreciated 56%,
basic industries rose 43%, and health care rose 46% for the twelve months ended
September 30, 1995. The rise in financial services was fueled by declining
interest rates, share repurchases and merger activity. Basic industry companies
benefited from sharply higher pricing, a weaker U.S. currency and increased
operating leverage created by previous restructurings. Health care companies
benefited from growth in new products and a weak dollar. Investors also pushed
these shares higher because of the diminished threat of draconian government
regulation.
What strategies and techniques were implemented during the year?
During the year, we invested heavily in statistically inexpensive companies
that possessed improving fundamentals. We similarly invested in several
multi-industry companies whose individual subsidiaries were worth more as
separate entities than as a single conglomeration. This strategy positioned the
portfolio to take advantage of the rally in the shares of certain banks, paper
companies and multinational conglomerates. In addition, we kept the portfolio
underweighted in technology shares because of the risks and volatility inherent
in many companies in that sector. As a result of this strategy, significant
returns were achieved in financial services, capital goods, health care and
consumer non-durable companies.
What themes can be seen in the current portfolio (industry weightings) and
why?
Investments for the Growth & Income Fund are selected using a bottom-up
approach, emphasizing the analysis of individual companies rather than broader
economic trends. Our bottom-up approach, however, has led to a significant
overweight in financial services and an underweight in technology and consumer
non-durables. The sector weights are driven by our quest for the most
outstanding values in the market at any given point in time.
What individual security holdings changed significantly during the year?
On December 1, 1994 The Boston Company Asset Management, Inc. took over
sub-advisory responsibilities of the Fund from Piper Capital Management, Inc.
Although, at that time, many of the fund's holdings were in financially strong
companies, we thought there were better opportunities in other areas of the
market. During the month of December approximately 80% of the portfolio was
sold, and new stocks were purchased. This transition was done with an eye
towards minimizing trading costs, and did not result in the realization of net
capital gains. During the following ten months, we realized profits from
selling significant positions in stocks including Intel and Aetna Life and
Casualty Company. We also initiated significant positions in AT&T and Dean
Witter Discover.
What is the strategy for the next six to twelve months?
Looking ahead, we plan to pursue the same strategy that has served us well
in the past; namely, we will invest in inexpensive, undervalued companies that
possess an improving set of fundamentals. We will continue to construct well
diversified portfolios to help protect the Fund from a shortfall in any one
company. Finally, we will continue to emphasize investments in companies where
we have identified a clear catalyst that will unlock the values and propel the
shares to higher levels for our clients. We must caution, however, that future
returns may not meet current levels of performance.
25
<PAGE>
GRIFFIN GROWTH & INCOME FUND
The two charts below show the performance of both classes of shares of the
Griffin Growth & Income Fund compared with the Standard & Poor's 500 Composite
Index (S&P 500) and the Morningstar Growth & Income Fund Average. If you had
invested $10,000 in Class A shares of the Griffin Growth & Income Fund when the
fund commenced operations on October 19, 1993, reinvesting all dividends, the
top chart would track the value of your investment through the period ended
September 30, 1995. If you had invested $10,000 in Class B shares of the Fund
when they were first offered on November 1, 1994, assuming all dividends were
reinvested, the bottom chart would track the performance of your investment
through the period ended September 30, 1995. The S&P 500 is an unmanaged index
of 500 large capitalization publicly traded stocks. The Morningstar Growth &
Income Fund Average is based on a universe of approximately 400 mutual funds
tracked by Morningstar, Inc. that have investment objectives similar to that of
the Griffin Growth & Income Fund. It is important to keep in mind that fund
performance reflects the deduction of the maximum front-end sales charge of 4.5%
with respect to Class A shares and the deduction of the maximum contingent
deferred sales charge (CDSC) of 5% with respect to Class B shares, while no such
charges are deducted from the indexes. Of course, past performance is not an
indicator of future results.
Griffin Growth & Income Fund Class A
[CHART APPEARS HERE]
AVERAGE ANNUAL TOTAL RETURNS*
(reflects deduction of 4.5% sales charge)
One year.................... 26.05%
Since Inception............. 14.45%
VALUE OF $10,000 INVESTED
<TABLE>
<CAPTION>
Griffin Growth & Income Fund S&P 500 Morningstar Growth & Income Fund Average
Dollar Dollar Dollar
Months Value Months Value Months Value
- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Initial $9,550 Initial $10,000 Initial $10,000
Nov $9,619 Nov $9,943 Nov $9,873
Dec $9,692 Dec $10,063 Dec $10,072
Jan '94 $10,022 Jan '94 $10,405 Jan '94 $10,382
Feb $9,761 Feb $10,122 Feb $10,164
Mar $9,392 Mar $9,681 Mar $9,740
Apr $9,436 Apr $9,805 Apr $9,840
May $9,716 May $9,965 May $9,940
Jun $9,489 Jun $9,721 Jun $9,707
Jul $9,787 Jul $10,040 Jul $9,975
Aug $10,112 Aug $10,452 Aug $10,345
Sep $9,865 Sep $10,196 Sep $10,113
Oct $10,059 Oct $10,424 Oct $10,226
Nov $9,776 Nov $10,045 Nov $9,849
Dec $9,928 Dec $10,194 Dec $9,951
Jan '95 $10,108 Jan '95 $10,458 Jan '95 $10,109
Feb $10,511 Feb $10,865 Feb $10,491
Mar $10,879 Mar $11,186 Mar $10,765
Apr $11,195 Apr $11,515 Apr $11,025
May $11,636 May $11,975 May $11,397
Jun $11,915 Jun $12,251 Jun $11,642
Jul $12,368 Jul $12,658 Jul $12,028
Aug $12,513 Aug $12,689 Aug $12,102
Sep $13,014 Sep $13,225 Sep $12,489
</TABLE>
* During the period certain fees and expenses were waived and reimbursed by the
Advisor, Administrator and Distributor. In the absence of these
reimbursements, the total return would have been lower.
Griffin Growth & Income Fund Class B
[CHART APPEARS HERE]
AVERAGE ANNUAL TOTAL RETURNS*
(reflects deduction of 5% CDSC)
One year.................... N/A
Since Inception............. 24.54%
VALUE OF $10,000 INVESTED
<TABLE>
<CAPTION>
Griffin Growth & Income Fund S&P 500 Morningstar Growth & Income Fund Average
Dollar Dollar Dollar
Months Value Months Value Months Value
- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Initial $10,000 Initial $10,000 Initial $10,000
Nov $9,770 Nov $9,636 Nov $9,631
Dec $9,917 Dec $9,779 Dec $9,730
Jan '95 $10,087 Jan '95 $10,032 Jan '95 $9,885
Feb $10,490 Feb $10,423 Feb $10,259
Mar $10,852 Mar $10,731 Mar $10,526
Apr $11,157 Apr $11,046 Apr $10,781
May $11,598 May $11,488 May $11,144
Jun $11,868 Jun $11,753 Jun $11,384
Jul $12,329 Jul $12,143 Jul $11,762
Aug $12,464 Aug $12,173 Aug $11,834
Sep $12,453 Sep $12,687 Sep $12,212
</TABLE>
* During the period certain fees and expenses were waived and reimbursed by the
Advisor, Administrator and Distributor. In the absence of these
reimbursements, the total return would have been lower.
26
<PAGE>
Schedule of Investments
GRIFFIN GROWTH & INCOME FUND
September 30, 1995
[PIE CHART APPEARS HERE]
Capital Goods 12%
Energy 9%
Consumer Services 11%
Health Care 10%
Financial Services 17%
Consumer/Non-Durable 9%
Technology 5%
Utilities 11%
Cash 6%
Miscellaneous 10%
Investment Categories Reflect Percentages of Investments in Securities
<TABLE>
<CAPTION>
Number of Market
Name of Issuer Shares Value (a)
- -----------------------------------------------------------------------------
(Percentages of each investment category relate to total net assets)
<S> <C> <C>
Common Stocks (93.1%):
Basic Industries (3.9%):
Boise Cascade Corporation 3,000 $ 121,125
Bowater Incorporated 2,500 116,563
Champion International 3,600 193,950
Grace (WR) & Company 13,100 874,425
Praxair Incorporated 9,400 251,450
Rayonier Incorporated 1,600 62,600
----------
1,620,113
----------
Capital Goods (11.6%):
Alcatel Alsthom ADR 2,400 40,800
Avnet Incorporated 4,300 221,988
Corning Incorporated 17,000 486,625
General Electric 5,900 376,125
ITT Corporation 5,200 644,800
Lockheed Martin Corporation 12,200 818,925
Philips Electronics N.V. 19,900 970,125
Raytheon Company 1,400 119,000
Rockwell International 10,100 477,225
TRW Incorporated 4,400 327,250
Varity Corporation (b) 7,200 320,400
----------
4,803,263
----------
Consumer/Durable (2.0%):
Black & Decker 7,000 238,875
Ford Motor Company 19,300 600,713
----------
839,588
----------
Consumer/Non-Durable (8.6%):
Archer-Daniels-Midland Company 14,000 215,250
Dial Corporation Arizona 16,000 398,475
Fruit of the Loom Incorporated (b) 13,400 276,375
Liz Claiborne 18,100 457,025
Loews Corporation 2,500 363,750
Philip Morris Companies Inc. 11,800 985,300
Polaroid Corporation 4,500 178,875
RJR Nabisco Holdings 15,900 514,763
Sherwin-Williams Company 4,000 140,000
V.F. Corporation 400 20,400
----------
3,550,213
----------
Consumer Services (10.9%):
American Stores 12,100 343,338
Cox Communications CLA (b) 268 5,427
Dillard Department Stores 12,300 392,063
Eckerd Corp. (b) 4,200 168,000
Kroger Company 12,100 412,913
Limited Inc. 22,300 423,700
May Department Stores 5,700 249,375
Melville Corporation 11,500 396,750
Multimedia Inc. 2,800 121,800
Price/Costco Inc. (b) 11,200 191,800
Rite Aid Corp. 14,800 414,400
Sears Roebuck & Company 5,900 217,563
Tandy Corporation 9,100 552,825
Times Mirror Company CLA 4,654 133,803
Toys R Us 15,200 410,400
Waban Incorporated (b) 4,700 88,713
----------
4,522,870
----------
Energy (9.1%):
Amerada Hess 3,400 165,325
Dresser Industries Inc. 8,800 210,100
Exxon 9,600 693,600
Horsham Corporation 23,000 301,875
Mapco Incorporated 5,800 298,700
Mobil Corporation 2,500 249,063
Oryx Energy Company 28,700 373,100
Repsol SA ADR 12,500 396,875
Royal Dutch Petroleum ADR 1,700 208,675
Tosco Corporation 11,000 379,500
Union Texas Petro Holdings Inc. 9,900 180,675
YPF Sociedad ADR 15,900 286,200
----------
3,743,688
----------
Financial Services (16.9%):
Ace Limited ADR 7,000 240,625
Allstate Corporation 1,901 67,239
American Express 17,900 794,313
American International Group 2,850 242,250
Bank of Boston 15,000 714,375
BankAmerica Corporation 6,900 413,138
Chase Manhattan Corporation 10,800 660,150
Dean Witter Discover 15,500 871,875
First Chicago Corporation 12,000 823,500
Fleet Financial Group 9,100 343,525
</TABLE>
See accompanying notes to financial statements.
27
<PAGE>
Schedule of Investments
GRIFFIN GROWTH & INCOME FUND (Continued)
September 30, 1995
<TABLE>
<CAPTION>
Number of Market
Name of Issuer Shares Value (a)
- ------------------------------------------------------------------------------
<S> <C> <C>
Mid Ocean Ltd. ADR 3,500 $ 120,750
Morgan, J.P. 4,000 309,500
Republic New York Corporation 7,400 432,900
Shawmut National 10,800 363,150
St. Paul Companies 9,800 572,075
-----------
6,969,365
-----------
Health Care (9.9%):
Allergan Inc. 7,100 236,963
Baxter International Inc. 10,900 448,263
Bristol-Myers Squibb 3,000 218,625
Columbia/HCA Healthcare 7,452 362,354
Guidant Corp. 7,157 209,334
Lilly (Eli) & Company 4,049 363,936
Pharmacia Aktiebol ADR 10,300 308,035
Schering-Plough 9,600 494,400
Smithkline Beecham PLC ADR 8,000 405,000
Tenet Healthcare 33,000 573,375
Upjohn Company 11,000 490,875
-----------
4,111,160
-----------
Real Estate Investment Trusts (1.0%):
Associated Estates Realty 2,100 43,050
Avalon Properties 2,000 40,750
Camden Property Trust 2,100 46,463
Home Properties of New York 2,500 42,500
Liberty Property Trust 2,700 57,375
Oasis Residential 3,000 67,500
Smith Charles E Residential 1,200 27,750
Storage USA 2,300 71,013
Summit Properties 1,600 30,200
-----------
426,601
-----------
Technology (5.1%):
Apple Computer Inc. 6,000 223,500
Conner Peripherals (b) 10,400 172,900
Digital Equipment (b) 4,800 219,000
International Business Machines 9,900 934,313
Sun Microsystems Inc. (b) 9,000 567,000
-----------
2,116,713
-----------
Transportation (3.4%):
Burlington Northern Santa Fe 2,200 159,500
Canadian Pacific Limited ORD PAR 51,000 816,000
Pittson Services 15,300 413,100
-----------
1,388,600
-----------
<CAPTION>
Shares or
Principal Market
Name of Issuer Amount Value (a)
- ------------------------------------------------------------------------------
<S> <C> <C>
Utilities (10.7%):
AT & T Corporation 7,700 506,275
CMS Energy Corporation 15,300 401,625
GTE Corporation 15,400 604,450
Illinova Corporation Holding Co. 14,800 401,450
MCI Communications 26,000 677,625
NYNEX Corp. 9,700 463,175
Pacific Enterprises 11,000 276,375
Pinnacle West Capital 15,100 396,375
Public Service Company of New Mexico 8,600 140,825
Unicom Corporation 11,400 344,850
Western Resources 6,000 195,750
-----------
4,408,775
-----------
Total Common Stocks (cost: $32,644,365) 38,500,949
-----------
Preferred Stocks (0.1%):
Consumer Services (0.1%):
Times Mirror Company SER B PFD 1,646 39,710
-----------
Total Preferred Stocks (cost: $32,893) 39,710
-----------
Short-Term Securities (6.3%):
Repurchase Agreement (6.3%):
State Street Bank & Trust Co. Master
Repurchase Agreement, 4.5%, 10/2/95,
102% Collateralized by U.S. Government
Securities $2,606,000 2,606,000
-----------
Total Short-Term Securities (cost: $2,606,000) 2,606,000
-----------
Total Investments in Securities
(cost: $35,283,258)(c) (99.5%) 41,146,659
Other Assets Less Liabilities (0.5%) 223,679
Net Assets (100%) $41,370,338
===========
</TABLE>
- -----------------------------
Notes to Schedule of Investments
(a) Securities are valued in accordance with procedures described in note 1 to
the financial statements.
(b) Currently non-income producing.
(c) Cost is the same for federal income tax purposes. The aggregate gross
unrealized appreciation and depreciation of investments in securities based
on this cost were as follows:
Gross unrealized appreciation $6,170,042
Gross unrealized depreciation (306,641)
----------
Net unrealized appreciation $5,863,401
==========
See accompanying notes to financial statements.
28
<PAGE>
MANAGEMENT DISCUSSION
GRIFFIN GROWTH FUND
Portfolio Manager: Jonathan M. Greene,
T. Rowe Price Associates, Inc.
What were the significant market factors that affected performance?
For most of the third quarter of 1995 (the fund commenced operations on June 12,
1995), small and middle capitalization stocks generally outperformed larger
capitalization stocks. Growth stocks were in favor during the quarter, and
generally outperformed other types of investments as increases in quarterly
earnings fueled investors' desire for fast growing companies.
What strategies and techniques were implemented since the Fund commenced
operations?
The Fund began operations on June 12th and the cash was quickly put to work in a
broadly diversified portfolio (over two hundred companies). We generally avoid
making "big bets" on individual companies. A "big bet" would be investing on the
order of 3% to 5% of the Fund's assets in a single company. Given our fondness
for diversification, we prefer holdings on the order of 1% in a single company
at the time of purchase. We also remained essentially "fully invested," with
minimal cash positions, since we don't believe that timing the market is a
worthwhile endeavor.
What themes can be seen in the current portfolio (industry weightings) and why?
The most dominant theme in terms of industry weighting is the portfolio's
technology exposure. The portfolio has about 10% more in technology issues than
the Fund's benchmark, the Standard & Poors Mid Cap 400 Index (28% versus about
18% for the index). However, given our opinion that technology stocks have
already had very good performance for the year, we elected to maintain a
relatively conservative technology posture versus other middle capitalization
growth funds, many of which have a 35% to 40% technology exposure.
What individual security holdings changed since the Fund commenced operations?
The portfolio was initially invested in a broad array of middle capitalization
growth stocks. Subsequent cash inflows (net subscriptions) have been invested
gradually in the company stocks already in the portfolio, as well as
diversifying into new names. There was only one sale from the portfolio, which
amounted to only a minor adjustment to our stock allocations.
What is the strategy for the next six to twelve months?
We plan to continue to run the portfolio as structured. We will maintain the
broad diversification and relatively conservative commitment to technology
issues. This approach falls between the benchmark S&P Mid Cap 400 and a more
typical mid cap growth fund. We don't believe that the market will continue
without a correction of some sort, and such a correction could be particularly
violent in the technology sector. Growth stocks in general and smaller
capitalization issues tend to be more volatile than the overall market. Thus, in
a broad market downturn this portfolio could experience significant negative
volatility. Nevertheless, going forward, we also will continue to maintain a
"fully invested" posture (less than 5% cash reserves) because we believe that
trying to time the market would be a mistake.
29
<PAGE>
GRIFFIN GROWTH FUND
The two charts below show the performance of both classes of shares of the
Griffin Growth Fund compared with the Standard and Poor's MidCap 400 Index and
the Lipper Mid-Cap Equity Fund Average. If you had invested $10,000 in Class A
shares of the Griffin Growth Fund when the Fund commenced operations on June 12,
1995, reinvesting all dividends, the top chart would track the value of your
investment through the period ended September 30, 1995. If you had invested
$10,000 in Class B shares of the Fund when they were first offered on June 12,
1995, assuming all dividends were reinvested, the bottom chart would track the
performance of your investment through the period ended September 30, 1995. The
Standard and Poor's MidCap 400 Index is an unmanaged index of 400 publicly
traded, middle capitalization stocks. The Lipper Mid-Cap Equity Fund Average is
based on a universe of mutual funds tracked by Lipper Analytical Services, Inc.
that have investment objectives similar to that of the Griffin Growth Fund. It
is important to keep in mind that fund performance reflects the deduction of
the maximum front-end sales charge of 4.5% with respect to Class A shares and
the deduction of the maximum contingent deferred sales charge (CDSC) of 5% with
respect to Class B shares, while no such charges are deducted from the indexes.
Of course, past performance is not an indicator of future results.
AVERAGE ANNUAL TOTAL RETURNS*
(reflects deduction of 4.5% sales charge)
One year ................................ N/A
Since Inception ......................... 11.37%
VALUE OF $10,000 INVESTED
<TABLE>
<CAPTION>
Griffin Growth Fund S&P MidCap 400 Index Lipper Mid-Cap Equity Average
Dollar Dollar Dollar
Months Value Months Value Months Value
- ------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Initial $9,550 Initial $10,000 Initial $10,000
Jun $9,827 Jun $10,265 Jul $10,777
Jul $10,524 Jul $10,800 Aug $10,918
Aug $10,715 Aug $11,000 Sep $11,261
Sep $11,137 Sep $11,266
</TABLE>
* During the period certain fees and expenses were waived and reimbursed by
the Advisor, Administrator and Distributor. In the absence of these
reimbursements, the total return would have been lower.
AVERAGE ANNUAL TOTAL RETURNS*
(reflects deduction of 5% CDSC)
One year ............................... N/A
Since Inception ........................ 11.50%
VALUE OF $10,000 INVESTED
<TABLE>
<CAPTION>
Griffin Growth Fund S&P MidCap 400 Index Lipper Mid-Cap Equity Average
Dollar Dollar Dollar
Months Value Months Value Months Value
- ------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Initial $10,000 Initial $10,000 Initial $10,000
Jun $10,270 Jun $10,265 Jul $10,777
Jul $11,020 Jul $10,800 Aug $10,918
Aug $11,220 Aug $11,000 Sep $11,261
Sep $11,150 Sep $11,266
</TABLE>
* During the period certain fees and expenses were waived and reimbursed by
the Advisor, Administrator and Distributor. In the absence of these
reimbursements, the total return would have been lower.
30
<PAGE>
Schedule of Investments
GRIFFIN GROWTH FUND
September 30, 1995
[PIE CHART APPEARS HERE]
Media & Communications 7%
Computer Software 5%
Capital Equipment 5%
Communications Equipment 5%
Consumer Cyclicals 5%
Electronics 6%
Financial Services 13%
Health Care 11%
Business Services 7%
Resources 6%
Retailing 7%
Technology 6%
Cash 8%
Other 9%
Investment Categories Reflect Percentages of Investments in Securities
<TABLE>
<CAPTION>
Number of Market
Name of Issuer Shares Value (a)
- --------------------------------------------------------------------------------
(Percentages of each investment category relate to total net assets)
<S> <C> <C>
Common Stocks (94.8%):
Business Services (7.2%):
American List Corp. 200 $5,725
CUC International 800 27,900
Equifax Inc. 500 20,938
First Financial Management 400 39,050
H & R Block 200 7,600
Kelly Services CL A 400 10,700
Manpower (b) 400 11,600
Heritage Media Corp. CL A(b) 200 6,025
Medaphis (b) 800 22,000
Mutual Risk Management LTD 700 27,650
Paychex Inc. 800 37,000
Reuters Holdings ADR B 700 37,013
Robert Half International Inc. (b) 400 13,650
Sanifill Inc. (b) 200 6,550
SEI Corp. 100 2,050
Service Corp International 500 19,563
Sylvan Learnings Systems (b) 200 6,350
United American Healthcare (b) 300 3,338
Western Waste Industries (b) 400 8,000
-------
312,702
-------
Capital Equipment (5.0%):
Agco Corp. 400 18,200
Alco Standard Corp. 500 42,375
Alamo Group Inc. 700 12,600
American Power Conversion (b) 200 2,450
Anixter International Inc. (b) 400 16,550
Briggs and Stratton 400 16,100
Cascade Corp. 300 4,575
Commercial Metals Co. 300 8,100
Danaher Corp. 300 9,825
Danka Business Systems Inc. ADR 200 7,200
Greenfield Industries Inc. 300 9,225
Kennametal Inc. 400 14,500
Littlefuse Inc. (b) 300 9,750
Parker Hannifin 500 19,000
Teleflex Inc. 400 16,200
Trimas Corporation 200 4,150
Watts Industries CL A 200 4,975
-------
215,775
-------
Communications Equipment (5.3%):
Andrew Corp. (b) 500 30,563
Aspect Telecommunications Corp. (b) 800 21,600
Cidco Inc. (b) 100 3,525
Coherent Communications Systems Corp. (b) 300 8,250
DSC Communications (b) 400 23,700
Ericsson L.M. Telephone Co. ADR (b) 1,700 41,650
General Instrument Corp. (b) 600 18,000
Glenayre Technologies Inc. (b) 250 18,000
Stratacom Inc. 300 16,575
Tellabs Inc. (b) 300 12,638
US Robotics Corp. (b) 400 34,100
-------
228,601
-------
Computer Communications (3.1%)
Ascend Communications Inc. (b) 100 8,000
Bay Networks Inc. (b) 400 21,350
Cabletron Systems Inc. (b) 400 26,350
Cascade Communications (b) 200 9,850
Cisco Systems Inc. (b) 500 34,500
Network General Corp. (b) 400 16,500
3Com Corp. (b) 400 18,200
-------
134,750
-------
Computer Services (1.3%):
America Online Inc. (b) 300 20,625
Cerner Corp. (b) 200 6,850
Control Data Systems Inc. (b) 300 3,638
GTech Holdings (b) 200 6,025
HBO & Co. 300 18,750
------
55,888
------
Computer Software (5.3%):
Acclaim Entertainment (b) 100 2,563
Adobe Systems Inc. 500 25,875
BMC Software Inc. (b) 400 18,400
Broderbund Software Inc. (b) 300 22,838
Eletronic Arts Inc. (b) 100 3,675
FTP Software Inc. (b) 200 5,550
Informix Corp. (b) 300 9,750
Intuit (b) 200 9,400
Macromedia (b) 300 17,138
Minnesota Educational Computers (b) 400 10,800
Netmanaged Inc. (b) 300 7,125
Oracle Corp. (b) 800 30,700
Parametric Technology (b) 100 6,150
People Soft Inc. (b) 100 9,088
Sierra On-Line (b) 300 11,775
Sybase Inc. (b) 700 22,488
Symantec Corp. (b) 400 12,000
</TABLE>
See accompanying notes to financial statements.
31
<PAGE>
Schedule of Investments
GRIFFIN GROWTH FUND (Continued)
September 30, 1995
<TABLE>
<CAPTION>
Number of Market
Name of Issuer Shares Value (a)
- -----------------------------------------------------------------------------
<S> <C> <C>
Synopsys Inc. (b) 200 $ 6,150
--------
231,465
--------
Consumer Cyclicals (5.2%):
Bed Bath & Beyond (b) 600 18,300
Clayton Homes Inc. 200 4,750
Harley-Davidson Inc. 400 9,750
Harman International Industries 410 20,090
Lafarge Corp. 500 9,188
Lennar Corp. 200 4,350
Lilly Industries CL A 600 7,575
National Health Investors 500 15,125
Oakwood Homes Corp. 800 28,200
Rouse 1,000 21,875
Security Capital Pacific Trust 700 13,300
Shaw Industries Inc. 500 7,375
Sherwin-Williams Co. (b) 400 14,000
Sturm Ruger & Co. Inc. 300 9,375
Superior Industries International 300 8,063
USG Corporation (b) 500 14,000
Wabash National Corp. 400 14,150
Williams Sonoma Inc. (b) 200 4,150
--------
223,616
--------
Consumer/Non-Durable (3.1%):
Callaway Golf Co. 700 10,850
Coors Adolph Co. CL B 100 1,813
Goodmark Foods 500 9,250
Hormel Food Corp. 500 13,188
Kellwood Co. 400 8,250
Lancaster Colony 365 12,410
Mattel Inc. 500 14,688
Mondavi Robert Corp. (b) 200 5,100
Nautica Enterprises (b) 250 8,563
Promus Hotel Corp. (b) 100 2,275
Ultratech Stepper Inc. (b) 200 8,450
Unifi Inc. 400 9,800
Unitog Co. 300 7,125
Westwood One Inc. (b) 300 5,325
Wolverine World Wide 600 16,425
--------
133,512
--------
Electronics (5.9%):
Atmel Corporation (b) 400 13,500
Integrated Device Technology (b) 1,000 25,000
International Rectifier Corp. (b) 300 12,075
Linear Technology Corp. 1,100 45,650
LSI Logic Corp. (b) 400 23,100
Maxim Integrated Products (b) 700 51,800
Microchip Technology (b) 400 15,150
Molex Incorporated Class A 625 20,938
Vishay Intertechnology (b) 600 25,200
Xilinx Inc. (b) 500 24,063
--------
256,476
--------
Financial Services (13.4%):
Advanta Corp CL B 200 8,500
Ambac Inc. 400 17,600
Bank of New York Co. Inc. 700 32,550
Bank South Corp. 300 8,438
Baybanks Inc. 300 22,763
City National Inc. 700 9,275
Crestar Financial Corp. 300 16,763
Equitable of Iowa Companies 500 18,500
Finova Group Inc. 500 22,250
First AMR Corp-Tenn 600 25,875
First Bank Systems 700 33,688
First USA Inc. 300 16,275
Foothill Group Inc. CL A (b) 500 14,938
Franklin Resources Inc. 400 23,050
Green Tree Financial Corp. 700 42,700
HFS Inc. (b) 00 36,663
J S B Financial Inc. 200 6,275
Mercury Finance Co. 1,200 29,250
MGIC Investment Corporation 600 34,350
Midlantic Corporation Inc. 200 10,850
North American Mortgage Co. 600 15,600
Progressive Corporation 500 22,375
Quick & Reilly Group 300 13,763
Raymond James Financial Inc. 100 2,175
Roosevelt Financial Group Inc. 200 3,525
Charles Schwab Corporation 1,600 44,800
State Street Boston Corporation 400 16,000
United Asset Management Corporation 200 8,025
Zurich Reinsurance Centre Holdings (b) 600 17,850
--------
574,666
--------
Health Care (11.1%):
Amgen (b) 1,100 54,840
Amsco International (b) 600 11,925
Amway Asia Pacific LTD. 400 14,950
Biogen Inc. (b) 600 36,000
Cardinal Health Inc. 700 38,763
Cordis Corp. (b) 400 33,900
Forest Laboratories Inc. (b) 300 13,350
Health Management Association CL A (b) 500 16,063
Healthcare & Retirement Corp. (b) 700 22,488
Horizons/CMS Healthcare (b) 500 11,375
Humana Inc. (b) 600 12,075
Medtronic Inc. 400 21,500
Mid Atlantic Medical Services Inc. (b) 600 11,775
Mylan Laboratories Inc. 600 12,000
Omnicare Inc. 400 15,600
Ornda Healthcorp (b) 100 2,125
Owens & Minor Inc. 100 1,288
Oxford Health Plans Inc. (b) 200 14,550
Roberts Pharmaceutical (b) 200 4,700
Summit Technology (b) 100 4,575
Sybron International Corp. (b) 400 16,100
</TABLE>
See accompanying notes to financial statements.
32
<PAGE>
Schedule of Investments
GRIFFIN GROWTH FUND (Continued)
September 30, 1995
<TABLE>
<CAPTION>
Number of Market
Name of Issuer Shares Value (a)
- -------------------------------------------------------------------------------
<S> <C> <C>
United HealthCare Corp. 900 $43,988
Universal Health Services CL A 200 6,850
U S Healthcare Inc. 500 17,688
Value Health Inc. (b) 100 2,650
Vencor Inc. (b) 1,100 35,200
-------
476,318
-------
Media & Communications (6.8%):
Belo (A.H.) Corp. 400 13,750
Carmike Cinemas CL A (b) 1,100 24,200
Catalina Marketing (b) 300 18,600
Cellular Communications of Puerto Rico (b) 300 9,150
Centennial Cellular Corp. CL A(b) 200 3,900
Central Newspapers Inc. 100 3,050
Clear Channel Communications Inc.(b) 500 37,875
Comcast Corp. CL A 1,100 22,000
Frontier Corp. 600 15,975
Gaylord Entertainment 400 10,850
LCI International Inc. (b) 500 19,625
Paging Network Inc. 400 19,200
Reynolds & Reynolds 400 13,750
TCA Cable TV Inc. 300 8,625
US Cellular Corp. (b) 100 3,650
Viacom Inc - CL B 800 39,800
Vodafone Group ADR 700 28,700
-------
292,700
-------
Resources (6.3%):
Airgas Inc. (b) 1,000 26,625
Apache Corp. 600 15,750
B J Services Co. 600 15,150
Crompton & Knowles Corp. 300 4,463
Devon Energy Corporation 400 8,750
Great Lakes Chemical 200 13,525
Louisiana Pacific Corp. 300 7,238
Magma Copper (b) 600 11,250
Noble Affiliates 700 18,463
Pioneer Group Inc. 100 2,738
Pride Petroleum Services Inc. (b) 800 8,000
Sealed Air (b) 300 16,538
Schulman A Inc. 500 12,500
Smith International 700 12,163
Sonat Inc. 600 19,200
Tosco Corp. 300 10,350
Triton Energy Corp. (b) 100 4,838
United Meridian Corp. (b) 600 10,275
Wellman Inc. 300 7,350
Willamette Industries 500 33,375
Worthington Industries Inc. 700 12,863
-------
271,404
-------
Retailing (7.4%):
Apple South Inc. 200 4,550
Applebees International Inc. 200 5,450
Autozone Inc. (b) 400 10,200
Brinker International Inc. (b) 400 5,950
Circuit City Stores Inc. 500 15,813
Dollar General Corp. 1,200 35,250
Fingerhut Companies Inc. 200 3,225
General Nutrition Companies Inc. (b) 300 13,500
Harrah's Entertainment Inc. (b) 200 5,850
Heilig Meyers Inc. 300 6,975
La Quinta Inns Inc. 500 14,000
Lands' End Inc. (b) 800 12,600
Lowes Companies Inc. 400 12,000
Marcus, Inc. 300 10,613
Michael's Stores Inc. (b) 500 8,125
Mirage Resorts (b) 500 16,438
Office Depot Inc. (b) 1,000 30,125
Outback Steakhouse Inc. (b) 500 15,375
Pep Boys-Manny, Moe & Jack 400 10,850
Safeway Inc. (b) 400 16,700
Sbarro Inc. 600 13,800
Starbucks Corp. (b) 200 7,575
The Men's Wearhouse Inc. (b) 200 7,200
Viking Office Products (b) 600 25,050
Zale Corp. (b) 900 12,488
-------
319,702
-------
Technology (6.1%):
Applied Materials Inc. (b) 200 20,450
Ceridian Corporation (b) 700 31,063
Cognex Corp. (b) 100 4,825
Compaq Computer Corp. (b) 600 29,025
EMC Corp.-Mass 600 10,875
KLA Instruments (b) 100 8,025
Lam Research Corp. (b) 400 23,800
Seagate Technology (b) 600 25,275
Sensormatic Electronics 500 11,500
Silicon Graphics (b) 600 20,625
Sun Microsystems Inc. (b) 400 25,200
Symbol Technology (b) 400 13,250
Tektronix Inc. 400 23,600
Thermo Electron Corporation (b) 400 18,550
-------
266,063
-------
Transportation (2.5%):
Air Express International 400 10,100
American Freightways (b) 100 1,500
Atlantic Southeast Airlines 400 9,350
Carnival 800 19,200
Comair Holdings Inc. 500 13,250
Fritz Co. Inc.(b) 100 7,369
Kansas City Southern Industries Inc. 400 18,200
M S Carrier Inc. (b) 400 6,400
Werner Enterprises Inc. 500 10,375
Wisconsin Central Transportation (b) 200 13,350
-------
109,094
-------
</TABLE>
See accompanying notes to financial statements.
33
<PAGE>
Schedule of Investments
GRIFFIN GROWTH FUND (Continued)
September 30, 1995
<TABLE>
<CAPTION>
Shares or
Principal Market
Name of Issuer Amount Value (a)
- -----------------------------------------------------------------------------
<S> <C> <C>
Total Common Stocks
(cost: $3,748,109) $4,102,732
----------
Rights (0.0%):
Telecommunication (0.0%):
L.M. Ericsson Telephone Rights (b) 1,700 1,944
----------
Total Rights (cost: $0) 1,944
----------
Short-Term Securities (8.2%):
Repurchase Agreement (8.2%)
State Street Bank & Trust Co.
Master Repurchase Agreement, 4.5%,
10/2/95, 102% Collateralized by U.S.
Government Securities $354,000 354,000
Total Short-Term Securities
(cost: $354,000) 354,000
----------
Total Investments in Securities
(cost: $4,102,109)(c) (103.0%) 4,458,676
Other Assets Less Liabilities (-3.0%) (122,946)
----------
Net Assets (100%) $4,335,730
==========
</TABLE>
- --------------------------------
Notes to Schedule of Investments
(a) Securities are valued in accordance with procedures described in note 1 to
the financial statements.
(b) Currently non-income producing.
(c) Cost is the same for federal income tax purposes. The aggregate gross
unrealized appreciation and depreciation of investments in securities based
on this cost were as follows:
Gross unrealized appreciation $410,730
Gross unrealized depreciation (54,183)
--------
Net unrealized appreciation $356,567
========
See accompanying notes to financial statements.
34
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
September 30, 1995
<TABLE>
<CAPTION>
Money Tax-Free Short-Term
Market Money Bond
ASSETS Fund Market Fund Fund
----------- ----------- -----------
<S> <C> <C> <C>
Investments:
In securities, at market value* (note 1)................. $79,920,025 $8,606,941 $3,451,124
Cash....................................................... 283 36,206 307
Receivables:
Dividends and Interest................................... 427,870 64,842 67,547
Fund shares old.......................................... 190,947 3,013 86,752
Investment securities sold............................... 0 200,000 24,384
Other receivables........................................ 0 0 0
Organization expenses, net of amortization (note 1)........ 52,220 52,220 24,129
----------- ---------- ----------
Total assets........................................... 80,591,345 8,963,222 3,654,243
----------- ---------- ----------
LIABILITIES
Distributions to shareholders.............................. 349,494 23,459 15,418
Fund shares redeemed....................................... 192,473 2,258 19,129
Payable for securities purchased........................... 0 260,758 0
Payable for organizational expenses........................ 52,220 52,220 24,129
Other accrued expenses..................................... 33,155 3,193 9
----------- ---------- ----------
Total liabilities...................................... 627,342 341,888 58,685
----------- ---------- ----------
NET ASSETS............................................. $79,964,003 $8,621,334 $3,595,558
=========== ========== ==========
Net assets consist of:
Capital stock, Class A or single class................... 79,956 8,627 357
Capital stock, Class B................................... N/A N/A 1
Additional paid in capital, Class A or single class...... 79,876,185 8,617,501 3,570,925
Additional paid in capital, Class B...................... N/A N/A 13,160
Undistributed net investment income...................... 0 0 0
Undistributed net realized gain (loss) on investments
and future contracts.................................... 7,862 (4,794) (136)
Net unrealized appreciation (depreciation) of
investments and futures contracts....................... 0 0 11,251
----------- ---------- ----------
NET ASSETS............................................. $79,964,003 $8,621,334 $3,595,558
=========== ========== ==========
Computation of net asset value and offering price (note 4):
Net assets, Class A or single class...................... $79,964,003 $8,621,334 $3,582,366
Shares outstanding, Class A or single class.............. 79,956,473 8,626,128 356,327
Net asset value, Class A or single class................. $1.00 $1.00 $10.05
Maximum offering price, Class A or single class.......... $1.00 $1.00 $10.41
Net assets, Class B...................................... N/A N/A $13,192
Shares outstanding, Class B.............................. N/A N/A 1,313
Net asset value and offering price, Class B.............. N/A N/A $10.05
* Investments in securities at identified cost............. $79,920,025 $8,606,941 $3,439,873
</TABLE>
See accompanying notes to financial statements.
35
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
September 30, 1995
<TABLE>
<CAPTION>
ASSETS
U.S. Municipal
Government Bond Bond
Income Fund Fund Fund
----------- ----------- ----------
<S> <C> <C> <C>
Investments:
In securities, at market value* (note 1)................. $30,655,940 $12,182,506 $5,425,894
Cash....................................................... 2,770 17 87,092
Receivables:
Dividends and Interest................................... 333,877 158,810 71,605
Fund shares sold......................................... 87,104 69,983 5,037
Investment securities sold............................... 0 2,330,558 0
Other receivables........................................ 229 0 2,812
Organization expenses, net of amortization (note 1)........ 52,220 52,220 52,220
----------- ----------- ----------
Total assets........................................... 31,132,140 14,794,094 5,644,660
----------- ----------- ----------
LIABILITIES
Distributions to shareholders.............................. 160,923 59,403 22,662
Fund shares redeemed....................................... 38,182 19,832 55
Payable for securities purchased........................... 0 2,486,854 0
Payable for organizational expenses........................ 52,220 52,220 52,220
Other accrued expenses..................................... 9,244 4,125 1,594
----------- ----------- ----------
Total liabilities........................................ 260,569 2,622,434 76,531
----------- ----------- ----------
NET ASSETS............................................... $30,871,571 $12,171,660 $5,568,129
=========== =========== ==========
Net assets consist of:
Capital stock, Class A or single class................... 3,173 1,338 614
Capital stock, Class B................................... 169 17 6
Additional paid in capital, Class A or single class...... 29,001,354 11,944,620 5,521,717
Additional paid in capital, Class B...................... 1,548,635 148,765 54,691
Undistributed net investment income...................... 6,286 1,644 568
Undistributed net realized gain (loss) on investments
and future contracts.................................... 90,988 (65,626) (107,116)
Net unrealized appreciation (depreciation) of
investments and futures contracts....................... 220,966 140,902 97,649
----------- ----------- ----------
NET ASSETS............................................. $30,871,571 $12,171,660 $5,568,129
=========== =========== ==========
Computation of net asset value and offering price (note 4):
Net assets, Class A or single class...................... $29,307,963 $12,021,529 $5,512,067
Shares outstanding, Class A or single class.............. 3,171,919 1,337,451 614,143
Net asset value, Class A or single class................. $9.24 $8.99 $8.98
Maximum offering price, Class A or single class.......... $9.68 $9.41 $9.40
Net assets, Class B...................................... $ 1,563,608 $150,131 $56,062
Shares outstanding, Class B.............................. 169,102 16,176 6,245
Net asset value and offering price, Class B.............. $9.25 $8.98 $8.98
* Investments in securities at identified cost............. $30,434,974 $12,041,604 $5,325,870
<CAPTION>
ASSETS
California Growth &
Tax-Free Income Growth
Fund Fund Fund
----------- ----------- ----------
<S> <C> <C> <C>
Investments:
In securities, at market value* (note 1)................. $19,861,636 $41,146,659 $4,458,676
Cash....................................................... 28,164 673 643
Receivables:
Dividends and Interest................................... 316,534 88,522 1,563
Fund shares sold......................................... 139,926 255,823 77,666
Investment securities sold............................... 0 255,224 0
Other receivables........................................ 2,812 0 40
Organization expenses, net of amortization (note 1)........ 52,220 52,220 24,129
----------- ----------- ----------
Total assets........................................... 20,401,292 41,799,121 4,562,717
----------- ----------- ----------
LIABILITIES
Distributions to shareholders.............................. 83,321 0 0
Fund shares redeemed....................................... 2,152 123,736 51,564
Payable for securities purchased........................... 0 234,245 151,294
Payable for organizational expenses........................ 52,220 52,220 24,129
Other accrued expenses..................................... 6,117 18,582 0
----------- ----------- ----------
Total liabilities...................................... 143,810 428,783 226,987
----------- ----------- ----------
NET ASSETS............................................. $20,257,482 $41,370,338 $4,335,730
=========== =========== ==========
Net assets consist of:
Capital stock, Class A or single class................... 2,436 2,693 359
Capital stock, Class B................................... 122 202 13
Additional paid in capital, Class A or single class...... 19,427,781 31,962,416 3,827,762
Additional paid in capital, Class B...................... 954,684 2,652,451 141,824
Undistributed net investment income...................... 4,662 7,809 9,708
Undistributed net realized gain (loss) on investments
and future contracts.................................... (520,880) 881,366 (503)
Net unrealized appreciation (depreciation) of
investments and futures contracts....................... 388,677 5,863,401 356,567
----------- ----------- ----------
NET ASSETS............................................. $20,257,482 $41,370,338 $4,335,730
=========== =========== ==========
Computation of net asset value and offering price (note 4):
Net assets, Class A or single class...................... $19,291,900 $38,483,312 $4,186,502
Shares outstanding, Class A or single class.............. 2,436,233 2,691,747 359,063
Net asset value, Class A or single class................. $7.92 $14.30 $11.66
Maximum offering price, Class A or single class.......... $8.29 $14.97 $12.21
Net assets, Class B...................................... $965,582 $ 2,887,026 $149,228
Shares outstanding, Class B.............................. 121,916 202,018 12,806
Net asset value and offering price, Class B.............. $7.92 $14.29 $11.65
* Investments in securities at identified cost............. $19,471,271 $35,283,258 $4,102,109
</TABLE>
See accompanying notes to financial statements.
36
<PAGE>
STATEMENTS OF OPERATIONS
For the year ended September 30, 1995 (except as indicated)
<TABLE>
<CAPTION>
Money Tax-Free Short-Term
Market Money Bond
Fund Market Fund Fund*
========== =========== ===========
<S> <C> <C> <C>
Investment income:
Interest............................................................ $3,840,881 $355,855 $41,698
Dividends (net of foreign withholding taxes of $8,868
and $37 for the Growth & Income Fund and Growth Fund,
respectively)...................................................... 0 0 0
---------- ----------- -----------
Total Income.................................................... 3,840,881 355,855 41,698
---------- ----------- -----------
Expenses:
Advisory fees (note 2).............................................. 329,306 46,869 3,479
Administration and accounting fees (note 2)......................... 131,722 18,748 1,392
Distribution fees (note 2).......................................... 131,722 18,748 1,754
Amortization of organization expenses............................... 17,108 17,108 1,554
Legal and audit fees................................................ 86,993 42,348 6,103
Registration fees................................................... 13,494 3,236 1,120
Directors' fees..................................................... 8,766 8,766 833
Shareholder reports................................................. 31,495 1,810 934
Insurance expense................................................... 19,466 3,503 0
Custodian fees...................................................... 11,278 4,166 713
Printing and postage................................................ 70,440 12,697 1,629
---------- ----------- -----------
Total expenses.................................................. 851,790 177,999 19,511
Less:
Waived fees (note 2)................................................ (383,186) (52,069) (6,625)
Reimbursement from administrator (note 2)........................... (190,837) (84,781) (12,879)
Expense reductions (note 5)......................................... (852) (2,354) (7)
---------- ----------- -----------
Net expenses.................................................... 276,915 38,795 0
---------- ----------- -----------
Net investment income........................................... 3,563,966 317,060 41,698
---------- ----------- -----------
Realized and unrealized gain (loss) on investments:
Net realized gain (loss) on sale of investments..................... 7,862 (4,765) (136)
Net realized loss on sale of futures contracts...................... 0 0 0
Net change in unrealized appreciation of investments................ 0 0 11,251
Net change in unrealized depreciation of futures contracts.......... 0 0 0
---------- ----------- -----------
Net realized and unrealized gain (loss) on investments.......... 7,862 (4,765) 11,115
---------- ----------- -----------
Net increase in net assets resulting from operations............ $3,571,828 $312,295 $52,813
========== =========== ===========
</TABLE>
*Since commencement of operations on June 12, 1995.
See accompanying notes to financial statements.
37
<PAGE>
<TABLE>
<CAPTION>
U.S. Municipal
Government Bond Bond
Income Fund Fund Fund
=========== ========= ===========
<S> <C> <C> <C>
Investment income:
Interest............................................................ $1,689,160 $598,445 $225,171
Dividends (net of foreign withholding taxes of $8,868
and $37 for the Growth & Income Fund and Growth Fund,
respectively)...................................................... 0 0 0
---------- ---------- --------
Total Income.................................................... 1,689,160 598,445 225,171
---------- ---------- --------
Expenses:
Advisory fees (note 2).............................................. 118,300 43,325 20,156
Administration and accounting fees (note 2)......................... 47,320 17,330 8,062
Distribution fees (note 2).......................................... 61,389 21,938 10,128
Amortization of organization expenses............................... 17,108 17,108 17,108
Legal and audit fees................................................ 56,344 47,940 44,558
Registration fees................................................... 13,029 7,577 7,237
Directors' fees..................................................... 8,766 8,766 8,766
Shareholder reports................................................. 10,906 4,428 982
Insurance expense................................................... 6,386 2,547 915
Custodian fees...................................................... 13,399 3,757 3,588
Printing and postage................................................ 37,595 16,630 12,061
---------- ---------- --------
Total expenses.................................................. 390,542 191,346 133,561
Less:
Waived fees (note 2)................................................ (193,308) (70,997) (28,799)
Reimbursement from administrator (note 2)........................... (144,944) (101,890) (88,657)
Expense reductions (note 5)......................................... (1,365) (328) (3,450)
---------- ---------- --------
Net expenses.................................................... 50,925 18,131 12,655
---------- ---------- --------
Net investment income........................................... 1,638,235 580,314 212,516
---------- ---------- --------
Realized and unrealized gain (loss) on investments:
Net realized gain (loss) on sale of investments..................... 90,910 (36,089) (1,240)
Net realized loss on sale of futures contracts...................... 0 0 0
Net change in unrealized appreciation of investments................ 1,217,932 567,176 183,698
Net change in unrealized depreciation of futures contracts.......... 0 0 (2,375)
---------- ---------- --------
Net realized and unrealized gain (loss) on investments.......... 1,308,842 531,087 180,083
---------- ---------- --------
Net increase in net assets resulting from operations............ $2,947,077 $1,111,401 $392,599
========== ========== ========
<CAPTION>
California Growth &
Tax-Free Income Growth
Fund Fund Fund*
========== ========== =========
<S> <C> <C> <C>
Investment income:
Interest............................................................ $ 933,737 $ 96,329 $ 4,751
Dividends (net of foreign withholding taxes of $8,868
and $37 for the Growth & Income Fund and Growth Fund,
respectively)...................................................... 0 549,275 4,957
---------- ---------- --------
Total Income.................................................... 933,737 645,604 9,708
---------- ---------- --------
Expenses:
Advisory fees (note 2).............................................. 82,385 141,488 4,793
Administration and accounting fees (note 2)......................... 32,954 47,163 1,598
Distribution fees (note 2).......................................... 43,027 64,574 2,135
Amortization of organization expenses............................... 17,108 17,108 1,554
Legal and audit fees................................................ 51,335 63,458 6,401
Registration fees................................................... 2,104 14,725 1,241
Directors' fees..................................................... 8,766 8,766 833
Shareholder reports................................................. 6,505 24,478 1,203
Insurance expense................................................... 4,569 4,946 0
Custodian fees...................................................... 2,978 17,362 6,714
Printing and postage................................................ 23,844 30,989 1,728
---------- ---------- --------
Total expenses.................................................. 275,575 435,057 28,200
Less:
Waived fees (note 2)................................................ (117,999) (181,042) (8,526)
Reimbursement from administrator (note 2)........................... (102,916) (147,855) (19,668)
Expense reductions (note 5)......................................... (2,728) (45) (6)
---------- ---------- --------
Net expenses.................................................... 51,932 106,115 0
---------- ---------- --------
Net investment income........................................... 881,805 539,489 9,708
---------- ---------- --------
Realized and unrealized gain (loss) on investments:
Net realized gain (loss) on sale of investments..................... (37,256) 905,872 (503)
Net realized loss on sale of futures contracts...................... (15,101) 0 0
Net change in unrealized appreciation of investments................ 747,931 5,835,264 356,567
Net change in unrealized depreciation of futures contracts.......... (1,688) 0 0
---------- ---------- --------
Net realized and unrealized gain (loss) on investments.......... 693,886 6,741,136 356,064
---------- ---------- --------
Net increase in net assets resulting from operations............ $1,575,691 $7,280,625 $365,772
========== ========== ========
</TABLE>
See accompanying notes to financial statements.
38
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
For the periods ended September 30, 1995 and September 30, 1994
<TABLE>
<CAPTION>
Tax-Free Short-Term U.S. Government
Money Market Fund Money Market Fund Bond Fund Income Fund
------------------------- ---------------------- ---------- ----------------------
Year Period Year Period Period Year Period
Ended Ended Ended Ended Ended Ended Ended
9/30/95 9/30/94* 9/30/95 9/30/94* 9/30/95** 9/30/95 9/30/94*
----------- ----------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Increase in net assets:
Operations:
Net investment income............ $ 3,563,966 $ 691,357 $ 317,060 $ 142,718 $ 41,698 $ 1,638,235 $ 766,091
Net realized gain (loss)
on sale of investments.......... 7,862 0 (4,765) 0 (136) 90,910 7,170
Net realized loss on sale of
futures contracts............... 0 0 0 0 0 0 0
Net change in unrealized
appreciation (depreciation)
of investments.................. 0 0 9 0 11,251 1,217,932 (996,966)
Net change in unrealized
depreciation of futures
contracts....................... 0 0 0 0 0 0 0
----------- ----------- ----------- ----------- ---------- ----------- -----------
Net increase (decrease) in
net assets resulting from
operations.................. 3,571,828 691,357 312,295 142,718 52,813 2,947,077 (233,705)
----------- ----------- ----------- ----------- ---------- ----------- -----------
Distributions to shareholders:
From net investment income
Class A or Single Class.......... (3,563,929) (691,726) (317,060) (142,747) (41,587) (1,617,207) (763,368)
Class B.......................... N/A N/A N/A N/A (111) (17,465) 0
From realized gain on investments
Class A or Single Class.......... 0 0 0 0 0 (7,074) 0
Class B.......................... N/A N/A N/A N/A 0 (18) 0
----------- ----------- ----------- ----------- ---------- ----------- -----------
Total distributions.......... (3,563,929) (691,726) (317,060) (142,747) (41,698) (1,641,764) (763,368)
----------- ----------- ----------- ----------- ---------- ----------- -----------
Net increase (decrease) in net
assets resulting from capital
share transactions (note 4)............ 29,968,679 49,887,794 (2,006,540) 10,532,668 3,584,443 10,407,829 20,045,502
----------- ----------- ----------- ----------- ---------- ----------- -----------
Increase in net assets....... 29,976,578 49,887,425 (2,011,305) 10,532,639 3,595,558 11,713,142 19,058,429
----------- ----------- ----------- ----------- ---------- ----------- -----------
Net assets:
Beginning net assets................. 49,987,425 100,000 10,632,639 100,000 0 19,158,429 100,000
----------- ----------- ----------- ----------- ---------- ----------- -----------
Ending net assets (including
undistributed net investment
income of $0; $0; $0; $0; $0;
$6,286; $2,723; $1,644; $3,170;
$568; $1,099; $4,662; $5,559;
$7,809; $12,512 and $9,708,
respectively)....................... $79,964,003 $49,987,425 $ 8,621,334 $10,632,639 $3,595,558 $30,871,571 $19,158,429
=========== =========== =========== =========== ========== =========== ===========
</TABLE>
*Since commencement of operations on October 19, 1993.
**Since commencement of operations on June 12, 1995.
See accompanying notes to financial statements.
39
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
For the periods ended September 30, 1995 and September 30, 1994
<TABLE>
<CAPTION>
California
Bond Fund Municipal Bond Fund Tax-Free Fund
---------------------- ---------------------- -----------------------
Year Period Year Period Year Period
Ended Ended Ended Ended Ended Ended
9/30/95 9/30/94* 9/30/95 9/30/94* 9/30/95 9/30/94*
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Increase in net assets:
Operations:
Net investment income............ $580,314 $270,185 $212,516 $94,487 $881,805 $380,207
Net realized gain (loss)
on sale of investments.......... (36,089) (29,537) (1,240) (105,876) (37,256) (468,522)
Net realized loss on sale of
futures contracts............... 0 0 0 0 (15,101) 0
Net change in unrealized
appreciation (depreciation)
of investments.................. 567,176 (426,275) 183,698 (83,674) 747,931 (357,565)
Net change in unrealized
depreciation of futures
contracts....................... 0 0 (2,375) 0 (1,688) 0
----------- ---------- ---------- ---------- ----------- ------------
Net increase (decrease) in
net assets resulting from
operations.................. 1,111,401 (185,627) 392,599 (95,063) 1,575,691 (445,880)
----------- ---------- ---------- ---------- ----------- ------------
Distributions to shareholders:
From net investment income
Class A or Single Class.......... (579,743) (267,015) (212,765) (93,388) (871,571) (374,648)
Class B.......................... (2,096) 0 (282) 0 (11,133) 0
From realized gain on investments
Class A or Single Class.......... 0 0 0 0 0 0
Class B.......................... 0 0 0 0 0 0
----------- ---------- ---------- ---------- ----------- ------------
Total distributions.......... (581,839) (267,015) (213,047) (93,388) (882,704) (374,648)
----------- ---------- ---------- ---------- ----------- ------------
Net increase (decrease) in net
assets resulting from capital
share transactions (note 4)............ 4,103,204 7,891,536 2,778,752 2,698,276 5,749,069 14,535,954
----------- ---------- ---------- ---------- ----------- ------------
Increase in net assets....... 4,632,766 7,438,894 2,958,304 2,509,825 6,442,056 13,715,426
----------- ---------- ---------- ---------- ----------- ------------
Net assets:
Beginning net assets................. 7,538,894 100,000 2,609,825 100,000 13,815,426 100,000
----------- ---------- ---------- ---------- ----------- ------------
Ending net assets (including
undistributed net investment
income of $0; $0; $0; $0; $0;
$6,286; $2,723; $1,644; $3,170;
$568; $1,099; $4,662; $5,559;
$7,809; $12,512 and $9,708,
respectively)....................... $12,171,660 $7,538,894 $5,568,129 $2,609,825 $20,257,482 $13,815,426
=========== ========== ========== ========== =========== ===========
<CAPTION>
Growth & Income
Fund Growth Fund
---------------------- -------------
Year Period Period
Ended Ended Ended
9/30/95 9/30/94* 9/30/95**
---------- ----------- ------------
<S> <C> <C> <C>
Increase in net assets:
Operations:
Net investment income............ $ 539,489 $ 218,219 $ 9,708
Net realized gain (loss)
on sale of investments.......... 905,872 56,599 (503)
Net realized loss on sale of
futures contracts............... 0 0 0
Net change in unrealized
appreciation (depreciation)
of investments.................. 5,835,264 28,136 356,567
Net change in unrealized
depreciation of futures
contracts....................... 0 0 0
----------- ----------- ----------
Net increase (decrease) in
net assets resulting from
operations.................. 7,280,625 302,954 365,772
----------- ----------- ----------
Distributions to shareholders:
From net investment income
Class A or Single Class.......... (525,863) (205,702) 0
Class B.......................... (18,368) 0 0
From realized gain on investments
Class A or Single Class.......... (79,572) 0 0
Class B.......................... (1,498) 0 0
----------- ----------- ----------
Total distributions.......... (625,301) (205,702) 0
----------- ----------- ----------
Net increase (decrease) in net
assets resulting from capital
share transactions (note 4)............ 20,541,065 13,976,697 3,969,958
----------- ----------- ----------
Increase in net assets....... 27,196,389 14,073,949 4,335,730
----------- ----------- ----------
Net assets:
Beginning net assets................. 14,173,949 100,000 0
----------- ----------- ----------
Ending net assets (including
undistributed net investment
income of $0; $0; $0; $0; $0;
$6,286; $2,723; $1,644; $3,170;
$568; $1,099; $4,662; $5,559;
$7,809; $12,512 and $9,708,
respectively)....................... $41,370,338 $14,173,949 $4,335,730
=========== =========== ==========
</TABLE>
See accompanying notes to financial statements.
40
<PAGE>
FINANCIAL HIGHLIGHTS
Supplemental information for a share outstanding throughout the periods is as
follows:
<TABLE>
<CAPTION>
Tax-Free Short-Term
Money Market Money Market Bond U.S. Government Income
================ ================ ================= =========================
Class A Class B Class A Class B
------- ------- -------------- -------
Period Period Period Period Period Period
Year Ended Year Ended Ended Ended Year Ended Ended
Ended 9/30/94 Ended 9/30/94 9/30/95 9/30/95 Ended 9/30/94 9/30/95
9/30/95 (a) 9/30/95 (a) (b) (b) 9/30/95 (a) (c)
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value - beginning of period........ $1.00 $1.00 $1.00 $1.00 $10.00 $10.00 $8.77 $9.50 $8.67
------ ------ ------ ------ ------- ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income...................... 0.05 0.03 0.03 0.02 0.18 0.20 0.63 0.56 0.52
Net realized and unrealized gain (loss)
on investments........................... 0.00 0.00 0.00 0.00 0.05 0.05 0.47 (0.73) 0.58
------ ------ ------ ------ ------- ------ ------ ------ ------
Total from investment operations....... 0.05 0.03 0.03 0.02 0.23 0.25 1.10 (0.17) 1.10
------ ------ ------ ------ ------- ------ ------ ------ ------
Less distributions:
Dividends from net investment income....... (0.05) (0.03) (0.03) (0.02) (0.18) (0.20) (0.63) (0.56) (0.52)
Distributions from net realized gain (loss) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
------ ------ ------ ------ ------- ------ ------ ------ ------
Total distributions.................... (0.05) (0.03) (0.03) (0.02) (0.18) (0.20) (0.63) (0.56) (0.52)
------ ------ ------ ------ ------- ------ ------ ------ ------
Net increase (decrease)
in net asset value.................... 0.00 0.00 0.00 0.00 0.05 0.05 0.47 (0.73) 0.58
------ ------ ------ ------ ------- ------ ------ ------ ------
Net asset value - end of period........ $1.00 $1.00 $1.00 $1.00 $10.05 $10.05 $9.24 $8.77 $9.25
====== ====== ====== ====== ======= ====== ====== ====== ======
Total return (not annualized)(d)............. 5.52% 3.36% 3.44% 2.22% 2.32% 2.51% 13.00% (1.83)% 13.08%
Ratios/supplemental data:
Net assets, end of period (000)............ $79,964 $49,988 $8,621 $10,633 $3,582 $13 $29,308 $19,158 $1,564
Ratios to average net assets (annualized):
Ratio of expenses to average
net assets (i)........................... 0.42% 0.15% 0.44% 0.17% 0.00% 0.00% 0.21% 0.09% 0.79%
Ratio of net investment income to
average net assets (ii).................. 5.40% 4.25% 3.39% 2.56% 5.91% 5.54% 6.93% 6.24% 5.71%
(i) Ratio of expenses to average
net assets prior to waivers
and reimbursements (g)............ 1.29% 1.64% 1.90% 2.28% 2.76% 3.33% 1.63% 1.83% 3.19%
(ii) Ratio of net investment income
to average net assets prior to
waivers and reimbursements (g).... 4.53% 2.76% 1.92% 0.45% 3.15% 2.21% 5.51% 4.49% 3.31%
Portfolio Turnover Rate.................... N/A N/A N/A N/A 1.05% 1.05% 46.96% 28.20% 46.96%
</TABLE>
(a) The fund commenced operations on October 19, 1993.
(b) The fund commenced operations on June 12, 1995.
(c) Class B shares were not offered until November 1, 1994.
(d) Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charge.
(e) The fund was managed by Piper Capital Management, Inc. until December 1,
1994 when The Boston Company Asset Management, Inc. assumed management
responsibilities.
(f) The fund was managed by Piper Capital Management, Inc. until December 1,
1994 when Payden & Rygel Investment Counsel assumed management
responsibilities.
(g) Ratio reflects fees reduced in connection with Expense Reduction only for
periods ended September 30, 1995.
See accompanying notes to financial statements.
41
<PAGE>
<TABLE>
<CAPTION>
Bond Municipal Bond
========================================== =========================================
Class A Class B Class A Class B
------------------------ ------------- ----------------------- -------------
Year Period Period Year Period Period
Ended Ended Ended Ended Ended Ended
9/30/95(e) 9/30/94(a) 9/30/95(c)(e) 9/30/95(f) 9/30/94(a) 9/30/95(c)(f)
----------- ---------- ------------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value - beginning of period..... 8.47 $9.50 $8.36 $8.60 $9.50 $8.31
----------- ---------- ------------- ---------- ---------- -------------
Income (loss) from investment operations:
Net investment income................... 0.58 0.52 0.49 0.47 0.42 0.38
Net realized and unrealized gain (loss)
on investments........................ 0.52 (1.03) 0.62 0.38 (0.90) 0.67
----------- ---------- ------------- ---------- ---------- -------------
Total from investment operations.... 1.10 (0.51) 1.11 0.85 (0.48) 1.05
----------- ---------- ------------- ---------- ---------- -------------
Less distributions:
Dividends from net investment income.... (0.58) (0.52) (0.49) (0.47) (0.42) (0.38)
Distributions from net realized gain
(loss)................................. 0.00 0.00 0.00 0.00 0.00 0.00
----------- ---------- ------------- ---------- ---------- -------------
Total distributions................. (0.58) (0.52) (0.49) (0.47) (0.42) (0.38)
----------- ---------- ------------- ---------- ---------- -------------
Net increase (decrease)
in net asset value................. 0.52 (1.03) 0.62 0.38 (0.90) 0.67
----------- ---------- ------------- ---------- ---------- -------------
Net asset value - end of period..... $8.99 $8.47 $8.98 $8.98 $8.60 $8.98
========== ========= ============ ========= ========== ===========
Total return (not annualized)(d).......... 13.53% (5.49)% 13.58% 10.18% (5.15)% 12.86%
Ratios/supplemental data:
Net assets, end of period (000)......... $12,022 $7,539 $ 150 $5,512 $2,610 $56
Ratios to average net assets
(annualized):
Ratio of expenses to average
net assets (i)........................ 0.21% 0.09% 0.78% 0.40% 0.25% 0.90%
Ratio of net investment income to
average net assets (ii)............... 6.69% 6.29% 5.56% 5.26% 5.03% 4.26%
(i) Ratio of expenses to average
net assets prior to waivers
and reimbursements (g)......... 2.20% 2.55% 4.00% 3.30% 3.99% 5.56%
(ii) Ratio of net investment income
to average net assets prior to
waivers and reimbursements (g). 4.70% 3.83% 2.34% 2.36% 1.29% (0.40)%
Portfolio Turnover Rate................. 327.31% 26.14% 327.31% 81.90% 81.42% 81.90%
<CAPTION>
California Tax-Free Growth & Income
========================================== =========================================
Class A Class B Class A Class B
------------------------ ------------- ----------------------- -------------
Year Period Period Year Period Period
Ended Ended Ended Ended Ended Ended
9/30/95 9/30/94(a) 9/30/95(c) 9/30/95(e) 9/30/94(a) 9/30/95(c)(e)
----------- ---------- ------------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value - beginning of period..... $7.59 $8.50 $7.35 $11.14 $11.00 $11.30
----------- ---------- ------------- ---------- ---------- -------------
Income (loss) from investment operations:
Net investment income................... 0.41 0.36 0.34 0.27 0.23 0.23
Net realized and unrealized gain (loss)
on investments........................ 0.33 (0.91) 0.57 3.22 0.13 3.05
----------- ---------- ------------- ---------- ---------- -------------
Total from investment operations.... 0.74 (0.55) 0.91 3.49 0.36 3.28
----------- ---------- ------------- ---------- ---------- -------------
Less distributions:
Dividends from net investment income.... (0.41) (0.36) (0.34) (0.27) (0.22) (0.23)
Distributions from net realized gain
(loss)............................... 0.00 0.00 0.00 (0.06) 0.00 (0.06)
----------- ---------- ------------- ---------- ---------- -------------
Total distributions................. (0.41) (0.36) (0.34) (0.33) (0.22) (0.29)
----------- ---------- ------------- ---------- ---------- -------------
Net increase (decrease)
in net asset value................. 0.33 (0.91) 0.57 3.16 0.14 2.99
----------- ---------- ------------- ---------- ---------- -------------
Net asset value - end of period..... $7.92 $7.59 $7.92 $14.30 $11.14 $14.29
========== ========== ============ ========= ======== =============
Total return (not annualized)(d).......... 10.13% (6.56)% 12.60% 31.93% 3.29% 29.53%
Ratios/supplemental data:
Net assets, end of period (000)......... $19,292 $13,815 $966 $38,483 $14,174 $2,887
Ratios to average net assets
(annualized):
Ratio of expenses to average
net assets (i)........................ 0.32% 0.25% 0.84% 0.43% 0.25% 1.01%
Ratio of net investment income to
average net assets (ii)............... 5.36% 4.70% 4.47% 2.30% 2.81% 1.64%
(i) Ratio of expenses to average
net assets prior to waivers
and reimbursements (g)......... 1.65% 2.01% 2.97% 1.80% 2.17% 2.92%
(ii) Ratio of net investment income
to average net assets prior to
waivers and reimbursements (g). 4.03% 2.94% 2.35% 0.93% 0.89% (0.27)%
Portfolio Turnover Rate................. 86.69% 73.88% 86.69% 92.01% 13.90% 92.01%
<CAPTION>
Growth
============================
Period Period
Ended Ended
9/30/95(b) 9/30/95(b)
---------- ----------
<S> <C> <C>
Net asset value - beginning of period..... $10.00 $10.00
-------- ---------
Income (loss) from investment operations:
Net investment income................... 0.03 0.03
Net realized and unrealized gain (loss)
on investments........................ 1.63 1.62
-------- ---------
Total from investment operations.... 1.66 1.65
-------- ---------
Less distributions:
Dividends from net investment income.... 0.00 0.00
Distributions from net realized gain
(loss)................................. 0.00 0.00
-------- ---------
Total distributions................. 0.00 0.00
-------- ---------
Net increase (decrease)
in net asset value................. 1.66 1.65
-------- ---------
Net asset value - end of period..... $11.66 $11.65
======== =========
Total return (not annualized)(d).......... 16.60% 16.50%
Ratios/supplemental data:
Net assets, end of period (000)......... $4,187 $149
Ratios to average net assets
(annualized):
Ratio of expenses to average
net assets (i)........................ 0.00% 0.00%
Ratio of net investment income to
average net assets (ii)............... 1.20% 1.07%
(i) Ratio of expenses to average
net assets prior to waivers
and reimbursements (g)......... 3.46% 3.85%
(ii) Ratio of net investment income
to average net assets prior to
waivers and reimbursements (g). (2.26)% (2.78)%
Portfolio Turnover Rate................. 0.06% 0.06%
</TABLE>
See accompanying notes to financial statements.
42
<PAGE>
Notes to Financial Statements
(1) Significant Accounting Policies
Organization
- ------------
The Griffin Funds, Inc. (the "Company") is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment company.
As described in note 4, the Money Market Fund and Tax-Free Money Market Fund
are authorized to offer one class of shares, and each of the other series is
authorized to issue shares of Class A and Class B. The Company commenced
operations on October 19, 1993 and consists of a non-diversified fund, the
California Tax-Free Fund, and eight separate diversified funds (collectively,
the "Funds"):
. The Money Market Fund
. The Tax-Free Money Market Fund
. The Short-Term Bond Fund
. The U.S. Government Income Fund
. The Bond Fund
. The Municipal Bond Fund
. The Growth & Income Fund
. The Growth Fund
The Money Market Fund and Tax-Free Money Market Fund commenced offering
shares on October 19, 1993. The U.S. Government Income Fund, Bond Fund,
Municipal Bond Fund, California Tax-Free Fund, and Growth & Income Fund
commenced offering Class A shares on October 19, 1993, and offered Class B
shares beginning on November 1, 1994. The Short-Term Bond Fund and Growth Fund
commenced offering Class A shares and Class B shares on June 12, 1995. The two
classes of shares differ principally in their respective sales charges,
shareholder servicing fees and distribution fees. Shareholders of each class
also may bear certain expenses that pertain to each class. All shareholders
bear the common expenses of the Funds, and earn income from the portfolio, pro
rata based on the average daily net assets of each class, without distinction
between share classes. Dividends are declared separately for each class. Gains
are allocated to each class pro rata based upon net assets of each class on the
date of distribution. No class has preferential dividend rights; differences in
per share dividend rates are generally due to differences in separate class
expenses, including distribution and shareholder servicing fees and from
relative weightings of pro rata income and gain allocations. The California
Tax-Free Fund concentrates its investments in a single state and therefore may
have more exposure to credit risk related to the State of California than a
fund with a broader geographical diversification.
The following significant accounting policies are consistently followed by
the Company in the preparation of its financial statements, and such policies
are in conformity with generally accepted accounting principles for investment
companies.
Security Valuation
- ------------------
For the Funds other than the Money Market Fund and Tax-Free Money Market
Fund, investments in securities for which the primary market is a national
securities exchange or the NASDAQ National Market System are stated at the last
reported sale price on the day of valuation or, if no sale has occurred, at the
closing bid price. U.S. Government obligations are valued at the mean between
the last reported bid and ask prices. In the absence of any sale of such
securities on the valuation date and in the case of other securities, excluding
debt securities maturing in 60 days or less, the valuations are based on the
latest quoted bid prices. Debt securities maturing in 60 days or less are
valued at amortized cost, which approximates market value. Securities for which
quotations are not readily available are valued on the basis of closing
over-the-counter bid prices, if available, or at their fair value as determined
by policies set by the Board of Directors. Security prices are obtained
primarily from pricing sources in accordance with the policies described above.
The Money Market Fund and Tax-Free Money Market Fund use the amortized cost
method to value their portfolio securities and attempt to maintain constant net
asset values of $1.00 per share. The amortized cost method involves valuing a
security at its cost and amortizing any discount or premium over the period
until maturity, which approximates market value.
Security Transactions
- ---------------------
The Company records security transactions on the trade date. Dividend income
is recognized on the ex-dividend date, and interest income is recognized on a
daily accrual
43
<PAGE>
basis. Realized gains or losses are reported on the basis of identified cost of
securities delivered. Bond discounts and premiums are amortized as required by
the Internal Revenue Code.
Futures Contracts
- -----------------
Each of the Funds except the Money Market Fund and Tax-Free Money Market
Fund may purchase futures contracts to gain exposure to market changes as this
may be more efficient or cost effective than actually buying the securities. A
futures contract is an agreement between two parties to buy and sell a security
at a set price on a future date and is exchange traded. Upon entering into such
a contract, a fund is required to pledge to the broker an amount of cash, U.S.
Government securities or other high-quality debt securities equal to the
minimum "initial margin" requirements of the exchange. Pursuant to the contract,
the fund agrees to receive from or pay to the broker an amount of cash equal to
the daily fluctuation in the value of the contract. Such receipts or payments
are known as "variation margin" and are recorded by the fund as unrealized gains
or losses. When the contract is closed, the fund records a realized gain or
loss equal to the difference between the value of the contract at the time it
was opened and the value at the time it was closed. Pursuant to regulations
and/or published positions of the Securities and Exchange Commission, the fund
is required to segregate cash or high-quality, liquid debt instruments in
connection with futures transactions in an amount generally equal to the entire
value of the underlying contracts. Risks of entering into futures contracts
include the possibility that there may be an illiquid market and that a change
in the value of the contract may not correlate with changes in the value of the
underlying securities. Futures contracts, if any, are detailed in the
Schedules of Investments for each of the Funds.
Repurchase Agreements
- ---------------------
Transactions involving purchases of securities under agreements to resell
("repurchase agreements") are treated as collateralized financing transactions
and are recorded at their contracted resale amounts. These repurchase
agreements, if any, are detailed in the Schedule of Investments for each of the
Funds. The prospectuses require that these investments be fully collateralized
based on values that are marked to market daily. The collateral is held by an
agent bank under a tri-party agreement. It is the adviser's responsibility to
value collateral daily and to obtain additional collateral as necessary to
maintain market value equal to or greater than the resale price. The repurchase
agreements held in the Funds at September 30, 1995 are collateralized by U.S.
Treasury or federal agency obligations, and were entered into on September 29,
1995.
Distributions to Shareholders
- -----------------------------
Dividends to shareholders from net investment income are declared daily and
distributed monthly for the Money Market Fund, Tax-Free Money Market Fund,
Short-Term Bond Fund, U.S. Government Income Fund, Bond Fund, Municipal Bond
Fund and California Tax-Free Fund. Dividends to shareholders from the net
investment income of the Growth & Income Fund are declared and distributed
quarterly, and with respect to the Growth Fund, are declared and distributed
annually. Dividends to shareholders are recorded on ex-dividend date. Each fund
makes distributions from net realized securities gains, if any, once a year.
Federal Income Taxes
- --------------------
The Company's policy for each fund is to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to distribute substantially all of its taxable income and any net realized
capital gain to its shareholders. The following net capital loss carry forward
amounts are available to the Funds as of September 30, 1994:
<TABLE>
<CAPTION>
Net Capital Loss Year of Expiration
- -------------------------------------------------------------------
<S> <C> <C>
Bond Fund $ 36,190 2003
Municipal Bond Fund $ 81,464 2003
California Tax-Free Fund $505,778 2003
</TABLE>
Due to the timing of dividend distributions and the differences in
accounting for income and realized gains (losses) for financial statement and
Federal income tax purposes, the fiscal year in which amounts are distributed
may differ from the year in which the income and realized gains (losses) were
recorded by the fund. The differences between the income and gains distributed
on a
44
<PAGE>
book versus tax basis, if any, are shown as excess distributions of net
investment income and net realized gain on sales of investments in the
accompanying Statements of Changes in Net Assets. The Board of Directors will
not declare capital gain distributions until the net capital loss carry forwards
have been utilized.
Organization Expenses
- ---------------------
Griffin Financial Administrators, the Funds' administrator, has incurred
expenses in connection with the organization and initial registration of the
Funds. These expenses were charged to the individual Funds and are being
amortized by the Funds on a straight-line basis over 60 months from the date
the Funds commenced operations. For each of the Money Market Fund, Tax-Free
Money Market Fund, U.S. Government Income Fund, Bond Fund, Municipal Bond Fund,
California Tax-Free Fund and Growth & Income Fund $52,220 is due to the
administrator. For each of the Short-Term Bond Fund and Growth Fund $24,129 is
due to the administrator.
(2) Agreements and Other Transactions with Affiliates
The Company has entered into an advisory contract on behalf of the Funds
with Griffin Financial Investment Advisers ("GFIA"). Pursuant to the contract,
GFIA furnishes to the Funds investment guidance and policy direction in
connection with portfolio management of the Funds. Under the contract, the
Growth & Income Fund and Growth Fund pay GFIA a monthly advisory fee calculated
by multiplying the fund's average daily net assets by 0.60% on an annualized
basis. Each of the other Funds pays a monthly advisory fee to GFIA based on an
annualized rate of 0.50% of the Fund's average daily net assets. GFIA has
entered into sub-advisory agreements with Payden & Rygel Investment Counsel
("Payden & Rygel") with respect to the Money Market Fund, Tax-Free Money Market
Fund, U.S. Government Income Fund, Municipal Bond Fund and the California
Tax-Free Fund, with The Boston Company Asset Management, Inc. ("TBCAM") with
respect to the Bond Fund and the Growth & Income Fund, and with T. Rowe Price
Associates, Inc. ("T. Rowe Price") with respect to the Short-Term Bond Fund and
Growth Fund. Pursuant to such sub-advisory agreements, Payden & Rygel, TBCAM
and T. Rowe Price are primarily responsible for the daily management of the
respective fund's portfolios. GFIA pays Payden & Rygel, TBCAM and T. Rowe Price
sub-advisory fees for the Funds out of the advisory fees discussed above. GFIA
has voluntarily waived a portion of its fees to limit Fund expenses. For the
periods ended September 30, 1995, advisory fees were incurred by the Funds as
follows:
<TABLE>
<CAPTION>
Funds Advisory fees Waived fees
- --------------------------------------------------------------------
<S> <C> <C>
Money Market $329,306 $307,185
Tax-Free Money Market 46,869 43,485
Short-Term Bond 3,479 3,479
U.S. Government Income 118,300 116,136
Bond 43,325 42,621
Municipal Bond 20,156 18,955
California Tax-Free 82,385 77,876
Growth & Income 141,488 132,670
Growth 4,793 4,793
</TABLE>
The Company has entered into contracts on behalf of the Funds with Griffin
Financial Administrators ("GFA") whereby GFA is responsible for providing
administration, custody, transfer agency and portfolio accounting services for
the Funds. GFA is compensated for its services by each of the Funds on a
monthly basis based on an annualized rate of 0.20% of the Funds' average daily
net assets. GFA has waived a portion of its fees to limit Fund expenses. For
the periods ended September 30, 1995, administration fees were incurred by the
Funds as follows:
<TABLE>
<CAPTION>
Administration
Funds and Accounting fees Waived fees
- ----------------------------------------------------------------------------
<S> <C> <C>
Money Market $131,722 $26,940
Tax-Free Money Market 18,748 2,600
Short-Term Bond 1,392 1,392
U.S. Government Income 47,320 29,360
Bond 17,330 11,177
Municipal Bond 8,062 4,743
California Tax-Free 32,954 20,523
Growth & Income 47,163 20,308
Growth 1,598 1,598
</TABLE>
In addition, GFA has reimbursed the Funds for certain operating expenses.
45
<PAGE>
The Company has entered into distribution and service agreements on behalf
of the Funds with Griffin Financial Services ("GFS"). Under the agreements, GFS
may receive compensatory payments and/or reimbursements for shareholder, sales
support and other distribution-related services in an amount not to exceed, on
an annualized basis, 0.20% of a fund's average daily net assets for the Money
Market Fund and Tax-Free Money Market Fund, and 0.25% of the average daily net
assets of Class A shares for each of the other Funds. GFS has waived a portion
of its fees to limit fund expenses. For the period ended September 30, 1995,
the shares of the money market Funds, and the Class A shares of the non-money
market, Funds incurred distribution and service fees as follows:
<TABLE>
<CAPTION>
Distribution
and
Funds Service fees Waived fees
- -------------------------------------------------------------------
<S> <C> <C>
Money Market $131,722 $49,061
Tax-Free Money Market 18,748 5,984
Class A Shares
Short-Term Bond 1,735 1,735
U.S. Government Income 58,404 46,378
Bond 21,570 17,024
Municipal Bond 10,062 5,066
California Tax-Free 40,582 18,539
Growth & Income 57,080 25,084
Growth 1,951 1,951
</TABLE>
The Company has entered into separate distribution and service agreements
with GFS for Class B shares of the Funds. Under the agreements, GFS may receive
compensatory payments and/or reimbursements for shareholder, sales support and
other distribution-related services. GFS may receive, on an annualized basis,
up to 0.75% of the average daily net assets of a Fund's Class B shares in
distribution fees, and up to 0.25% of the average daily net assets of a Fund's
Class B shares in servicing fees. GFS has waived a portion of its fees to limit
fund expenses. For the period ended September 30, 1995, Class B shares of the
Funds incurred distribution and servicing fees as follows:
<TABLE>
<CAPTION>
Distribution
Funds and Servicing fees Waived fees
- ----------------------------------------------------------------------------
<S> <C> <C>
Short-Term Bond $19 $19
U.S. Government Income 2,985 1,434
Bond 368 175
Municipal Bond 66 35
California Tax-Free 2,445 1,061
Growth & Income 7,494 2,980
Growth 184 184
</TABLE>
Reimbursed expenses and waived fees continue at the discretion of the
investment adviser, administrator and distributor. All officers and one
director of the Funds are employees of GFS, but received no compensation from
the Company. For the twelve months ended September 30, 1995, GFS was paid
$232,710 in front-end sales charges on sales of Class A shares. GFS was paid
$1,016 in contingent deferred sales charges on Class B share redemption's during
the period from when Class B shares were first offered on November 1, 1994
through September 30, 1995.
46
<PAGE>
(3) Purchases and Sales of Securities Exclusive of Short-Term Investments
<TABLE>
<CAPTION>
U.S. California Growth &
Short-Term Government Bond Municipal Tax-Free Income Growth
Bond Fund Income Fund Fund Bond Fund Fund Fund Fund
---------- ----------- --------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Aggregate purchases and sales of:
Common and Preferred Stock:
Purchases at cost.................. $0 $0 $0 $0 $0 $38,890,897 $3,750,348
Sales proceeds..................... 0 0 0 0 0 19,506,153 1,737
U.S. Treasury Obligations:
Purchases at cost.................. 2,430,925 18,815,711 17,614,291 0 0 0 0
Sales proceeds..................... 0 9,732,600 18,598,395 0 0 809,594 0
U.S. Agency Securities:
Purchases at cost.................. 348,626 3,935,089 6,123,535 0 0 0 0
Sales proceeds..................... 0 437,921 4,182,248 0 0 0 0
Municipal Bonds:
Purchases at cost.................. 0 0 0 5,453,334 19,941,458 0 0
Sales proceeds..................... 0 0 0 3,033,926 13,447,796 0 0
Other Long-Term Securities:
Purchases at cost.................. 596,148 0 8,281,854 0 0 0 0
Sales proceeds..................... 24,375 0 5,024,867 0 0 224,000 0
</TABLE>
All Funds not reflected in this schedule traded exclusively in short-term
securities.
(4) Capital Shares Transactions
As of September 30, 1995, the Company was authorized to issue 10 billion
shares of $0.001 par value capital stock. As of September 30, 1995, each Fund,
except the Money Market Fund and the Tax-Free Money Market Fund, was authorized
to issue 250 million shares of $.001 par value capital stock as Class A shares
and 250 million shares of $.001 par value capital stock as Class B shares. The
Money Market Fund and Tax-Free Money Market Fund were each authorized to issue
1 billion shares of $.001 par value capital stock of a single class. Each
non-money market fund except the Short-Term Bond Fund and the Growth Fund
issued Class A shares beginning October 19, 1993, and Class B shares beginning
November 1, 1994. The Short-Term Bond Fund and the Growth Fund issued both
Class A shares and Class B shares beginning June 12, 1995. Transactions in
capital shares were as follows:
<TABLE>
<CAPTION>
Tax-Free
Money Market Fund Money Market Fund
----------------------------- -------------------------
Shares Amount Shares Amount
------------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
October 19, 1993:....................... 100,000 $100,000 100,000 $100,000
Shares sold and exchanged in........... 72,605,269 72,605,269 16,498,412 16,498,412
Shares issued in reinvestment
of dividends......................... 472,814 472,814 104,463 104,463
Shares redeemed and exchanged
out.................................. (23,190,289) (23,190,289) (6,070,207) (6,070,207)
------------- ------------ ----------- -----------
September 30, 1994:..................... 49,987,794 49,987,794 10,632,668 10,632,668
Shares sold and exchanged in........... 128,270,814 128,270,814 9,117,127 9,117,127
Shares issued in
reinvestment of dividends............ 3,221,262 3,221,262 253,397 253,397
Shares redeemed and
exchanged out......................... (101,523,397) (101,523,397) (11,377,064) (11,377,064)
------------- ------------ ----------- -----------
September 30, 1995:..................... 79,956,473 $79,956,473 8,626,128 $8,626,128
============= ============ =========== ===========
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
Class A Class B
--------------------- --------------------
Shares Amount Shares Amount
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Short-Term Bond Fund
June 12, 1995:...................................... 0 $0 0 $0
Shares sold and exchanged in........................ 357,932 3,587,401 1,308 13,110
Shares issued in reinvestment
of dividends...................................... 642 6,451 5 51
Shares redeemed and
exchanged out.................................... (2,247) (22,570) 0 0
-------- ---------- -------- --------
September 30, 1995:................................. 356,327 $3,571,282 1,313 $13,161
======== ========== ======== ========
<CAPTION>
Class A Class B
--------------------- ---------------------
Shares Amount Shares Amount
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Government Income Fund
October 19, 1993:................................... 10,526 $100,000 0 $0
Shares sold and exchanged in...................... 2,381,791 21,884,027 0 0
Shares issued in reinvestment
of dividends.................................... 42,914 386,248 0 0
Shares redeemed and
exchanged out...................................... (249,758) (2,224,773) 0 0
--------- ----------- ------- ----------
September 30, 1994:................................. 2,185,473 20,145,502 0 0
Shares sold and exchanged in...................... 1,497,104 13,426,162 169,026 1,548,141
Shares issued in reinvestment
of dividends.................................... 94,521 846,597 610 5,594
Shares redeemed and
exchanged out................................... (605,179) (5,413,734) (534) (4,931)
--------- ----------- ------- ----------
September 30, 1995:................................. 3,171,919 $29,004,527 169,102 $1,548,804
========= =========== ======= ==========
<CAPTION>
Class A Class B
--------------------- --------------------
Shares Amount Shares Amount
---------- --------- ---------- --------
<S> <C> <C> <C> <C>
Bond Fund
October 19, 1993:................................... 10,526 $100,000 0 $0
Shares sold and exchanged in........................ 923,054 8,261,497 0 0
Shares issued in reinvestment
of dividends...................................... 18,839 165,007 0 0
Shares redeemed and exchanged out................... (62,099) (534,968) 0 0
--------- ----------- ------- ----------
September 30, 1994:................................. 890,320 7,991,536 0 0
Shares sold and exchanged in........................ 574,418 5,036,334 16,592 147,685
Shares issued in reinvestment
of dividends...................................... 37,552 325,866 124 1,097
Shares redeemed and
exchanged out..................................... (164,839) (1,407,778) 0 0
--------- ----------- ------- ----------
September 30, 1995:................................. 1,337,451 $11,945,958 16,716 $148,782
========= =========== ======= ==========
<CAPTION>
Class A Class B
--------------------- --------------------
Shares Amount Shares Amount
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Municipal Bond Fund
October 19, 1993:................................... 10,526 $100,000 0 $0
Shares sold and exchanged in........................ 306,403 2,812,394 0 0
Shares issued in reinvestment
of dividends...................................... 6,634 59,658 0 0
Shares redeemed and
exchanged out..................................... (20,062) (173,776) 0 0
--------- ----------- ------- ----------
September 30, 1994:................................. 303,501 2,798,276 0 0
Shares sold and exchanged in........................ 337,591 2,960,842 6,239 54,649
Shares issued in reinvestment
of dividends...................................... 11,986 104,877 6 48
Shares redeemed and
exchanged out..................................... (38,935) (341,664) 0 0
--------- ----------- ------- ----------
September 30, 1995:................................. 614,143 $5,522,331 6,245 $54,697
========= =========== ======= ==========
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
Class A Class B
----------------------- -----------------------
Shares Amount Shares Amount
----------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
California Tax-Free Fund
October 19, 1993:.................................... 11,765 $100,000 0 $0
Shares sold and exchanged in......................... 1,958,684 15,689,194 0 0
Shares issued in reinvestment
of dividends....................................... 25,833 202,361 0 0
Shares redeemed and exchanged
out................................................ (175,206) (1,355,601) 0 0
----------- ----------- ----------- ---------
September 30, 1994:.................................. 1,821,076 14,635,954 0 0
Shares sold and exchanged in......................... 909,928 7,028,365 121,227 949,445
Shares issued in reinvestment
of dividends...................................... 59,055 452,430 689 5,361
Shares redeemed and
exchanged out...................................... (353,826) (2,686,532) 0 0
----------- ----------- ----------- ---------
September 30, 1995:.................................. 2,436,233 $19,430,217 121,916 $954,806
=========== =========== =========== =========
<CAPTION>
Class A Class B
----------------------- -----------------------
Shares Amount Shares Amount
----------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Growth & Income Fund
October 19, 1993:.................................... 9,091 $100,000 0 $0
Shares sold and exchanged in......................... 1,308,893 14,483,466 0 0
Shares issued in reinvestment
of dividends........................................ 17,712 194,135 0 0
Shares redeemed and
exchanged out........................................ (63,571) (700,904) 0 0
----------- ----------- ----------- ---------
September 30, 1994:.................................. 1,272,125 14,076,697 0 0
----------- ----------- ----------- ---------
Shares sold and exchanged in......................... 1,585,316 19,955,586 201,975 2,652,912
Shares issued in reinvestment
of dividends....................................... 44,798 560,011 1,467 19,234
Shares redeemed and
exchanged out...................................... (210,492) (2,627,185) (1,424) (19,493)
----------- ----------- ----------- ---------
September 30, 1995:.................................. 2,691,747 $31,965,109 202,018 $2,652,653
=========== =========== =========== =========
<CAPTION>
Class A Class B
----------------------- -----------------------
Shares Amount Shares Amount
----------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Growth Fund
June 12, 1995:....................................... 0 $0 0 $0
Shares sold and exchanged in......................... 363,549 3,880,406 12,806 141,837
Shares issued in reinvestment
of dividends....................................... 0 0 0 0
Shares redeemed and
exchanged out...................................... (4,486) (52,285) 0 0
----------- ----------- ----------- ---------
September 30, 1995:.................................. 359,063 $3,828,121 12,806 $141,837
=========== =========== =========== =========
</TABLE>
(5) Custodial Earnings Credits
In accordance with the Custody Agreement between the Company, GFA and
Investors Fiduciary Trust Company (the "Custodian"), the Custodian provides
credits ("Earnings Credits") which are used to offset custodial expenses. These
Earnings Credits are calculated each month by multiplying the average daily
cash balance in each fund by three quarters of a money market rate set by State
Street Bank & Trust Co., the funds' sub-custodian. The amount of such Earnings
Credits for the Funds is reflected in the "Expense Reductions" in the Statements
of Operations. Ratios of expenses to average daily net assets shown in the
financial highlights table are calculated without the Earnings Credits for the
periods ended September 30, 1995.
49
<PAGE>
THE SHAREHOLDERS AND BOARD OF DIRECTORS
The Griffin Funds, Inc.:
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments of the Griffin Money Market Fund,
Griffin Tax-Free Money Market Fund, Griffin Short-Term Bond Fund, Griffin U.S.
Government Income Fund, Griffin Bond Fund, Griffin Municipal Bond Fund, Griffin
California Tax-Free Fund, Griffin Growth & Income Fund, and the Griffin Growth
Fund, constituting The Griffin Funds, Inc. (the Funds) as of September 30, 1995
and the related statements of operations for the year then ended, except for
the Griffin Short-Term Bond Fund and the Griffin Growth Fund which are for the
period from June 12, 1995 (commencement of operations) to September 30, 1995,
and the statements of changes in net assets and the financial highlights for
the period from October 19, 1993 (commencement of operations) to September 30,
1994 and the year ended September 30, 1995 for the Griffin Money Market Fund,
Griffin Tax-Free Money Market Fund, Griffin U.S. Government Income Fund,
Griffin Bond Fund, Griffin Municipal Bond Fund, Griffin California Tax-Free
Fund and the Griffin Growth & Income Fund and for the period from June 12, 1995
(commencement of operations) to September 30, 1995 for the Griffin Short-Term
Bond Fund and the Griffin Growth Fund. These financial statements and financial
highlights are the responsibility of the Funds' management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
September 30, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and the financial highlights
referred to above present fairly, in all material respects, the financial
position of each of the funds constituting The Griffin Funds, Inc. as of
September 30, 1995, the results of their operations, the changes in their net
assets and the financial highlights for the periods indicated above in
conformity with generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
Los Angeles, California
November 10, 1995
50
<PAGE>
SPECIAL MEETINGS OF SHAREHOLDERS
On December 27, 1994, a Special Meeting of Shareholders of the Municipal
Bond Fund of The Griffin Funds, Inc. (the "Company") was held. The purpose of
this meeting was to approve a Sub-Advisory Agreement between Griffin Financial
Investment Advisers ("GFIA") and Payden & Rygel Investment Counsel with respect
to the Municipal Bond Fund ("Proposal I"). With respect to Proposal I, at the
meeting, 188,802.860 votes were cast in favor of the proposal, 954.425 votes
were cast against the proposal and 14,435.86 votes abstained. No broker
non-votes were recorded.
On December 27, 1994, a Special Meeting of Shareholders of the Bond Fund of
the Company was held. The purpose of this meeting was to approve a Sub-Advisory
Agreement between GFIA and The Boston Company Asset Management, Inc. ("TBCAM")
with respect to the Bond Fund ("Proposal II"). With respect to Proposal II, at
the meeting, 513,572.880 votes were cast in favor of the proposal, 5,832.661
votes were cast against the proposal and 23,182.196 votes abstained. No broker
non-votes were recorded.
On December 27, 1994, a Special Meeting of Shareholders of the Growth &
Income Fund of the Company was scheduled to be held, but was adjourned until
January 23, 1995 at which time the meeting was held. The purpose of the meeting
was to approve a Sub-Advisory Agreement between GFIA and TBCAM with respect to
the Growth & Income Fund ("Proposal III"). With respect to Proposal III, at the
meeting, 614,252.187 votes were cast in favor of the proposal, 17,272.141 votes
were cast against the proposal and 49,413.016 votes abstained. No broker
non-votes were recorded.
DISTRIBUTIONS (Unaudited)
The following information for federal income tax purposes is presented below
as an aid to shareholders in reporting the distributions shown below. By early
February 1996, each shareholder will receive a breakdown of income earned by
investment category on a calendar-year basis, as well as a summary of the
states from which the income was earned. Shareholders should consult a tax
adviser as to how to report these distributions on state and local levels.
Of the distributions made from net investment income the following
percentages represent income derived from municipal securities, and therefore
qualify as exempt interest dividends:
Tax-Free Money Market Fund 100%
Municipal Income Fund 100%
California Tax-Free Fund 100%
A portion of this income may be subject to the alternative minimum tax.
Of the distributions made by the following Fund the corresponding percentage
represents the amount of each distribution which will qualify for the dividends
received deduction available to corporate shareholders:
Growth & Income Fund 98.15%
51
<PAGE>
THE GRIFFIN FUNDS, INC.
BOARD OF DIRECTORS
Herschel Cardin
Vincent F. Coviello
William A. Hawkins (Chairman)
Morton O. Schapiro
OFFICERS
William A. Hawkins, President
Richie D. Rowsey, Senior Vice President
Julia D. Whitcup, Senior Vice President & Treasurer
Tim S. Glassett, Secretary
Anne P. Banducci, Assistant Secretary
Herbert L. Botts, Assistant Secretary
Steven P. Muson, Assistant Treasurer
Henry M. Pena, Assistant Secretary
Cheryl A. Rivera, Assistant Secretary
TRANSFER AGENT AND CUSTODIAN
Investors Fiduciary Trust Company (IFTC)
127 West 10th Street
Kansas City, MO 64105-1716
INVESTMENT ADVISOR
Griffin Financial Investment Advisers
5000 Rivergrade Road
Irwindale, CA 91706
SUB-ADVISORS
Payden & Rygel Investment Counsel
333 South Grand Avenue
Los Angeles, CA 90071
The Boston Company Asset Management, Inc.
One Boston Place
Boston, MA 02108
T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, MD 21202
LEGAL COUNSEL
Morrison & Foerster
2000 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
This report and the financial statements contained herein are submitted for the
general information of the shareholders of The Griffin Funds, Inc. If this
report used for promotional purposes, distribution of the report must be
accompanied or preceded by a current prospectus. The prospectus contains more
detailed information about The Griffin Funds, Inc. Read the prospectus carefully
before you invest or send money.
52
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
---------------------------------
(a) Financial Statements:
Included in Part A:
Per Share Income and Capital Changes
Included in Part B:
Audited financial statements, including:
Schedule of Investments at September 30, 1995
Statements of Assets and Liabilities at September 30, 1995
Statements of Operations for the fiscal year ended
September 30, 1995 for Money Market Fund, Tax-Free
Money Market Fund, U.S. Government Income Fund,
Bond Fund, Municipal Bond Fund, California Tax-Free
Fund and Growth & Income Fund
Statements of Operations for the period from June 12, 1995
(commencement of operations) through September 30, 1995
for Short-Term Bond Fund and Growth Fund
Statements of Changes in Net Assets for the
periods ended September 30, 1995 and September 30, 1994
Financial Highlights
Notes to Financial Statements
Independent Auditor's Report dated November 10,
1995
Included in Part C:
Consent of Independent Auditor
(b) Exhibits:
1 - Articles of Incorporation of The Griffin Funds, Inc. are
incorporated by reference to Registrant's Initial
Registration Statement filed on August 6, 1993
1(a) - Articles Supplementary, filed October 1, 1993 is incorporated
by reference to Registrant's Post-Effective Amendment No. 2
("Amendment No. 2")
<PAGE>
1(b) - Articles Supplementary, filed October 8, 1993, is
incorporated by reference to Amendment No. 2
1(c) - Articles Supplementary relating to the establishment of the
Growth Fund and the Short-Term Bond Fund, filed May 25, 1995,
are incorporated by reference to Amendment No. 5
2 - By-Laws of The Griffin Funds, Inc. are incorporated by
reference to Registrant's Initial Registration Statement
filed on August 6, 1993
3 - Not applicable
4 - Not applicable
5(a) - Investment Advisory Agreement, dated October 13, 1993,
between The Griffin Funds and Griffin Financial Investment
Advisers ("Griffin Advisers") on behalf each Fund is
incorporated by reference to Amendment No. 2
5(b) - Sub-Advisory Agreement for the California Tax-Free Fund,
dated October 13, 1993, between Griffin Advisers and Payden &
Rygel Investment Counsel ("Payden & Rygel") is incorporated
by reference to Amendment No. 2
5(d) - Sub-Advisory Agreement for the Money Market Fund, dated
October 13, 1993, between Griffin Advisers and Payden & Rygel
is incorporated by reference to Amendment No. 2
5(f) - Sub-Advisory Agreement for the Tax-Free Money Market Fund,
dated October 13, 1993, between Griffin Advisers and Payden &
Rygel is incorporated by reference to Amendment No. 2
5(g) - Sub-Advisory Agreement for the U.S. Government Income Fund,
dated October 13, 1993, between Griffin Advisers and Payden &
Rygel is incorporated by reference to Amendment No. 2
5(i) - Form of Sub-Advisory Agreement for the Municipal Bond Fund
between Griffin Advisers and Payden & Rygel is incorporated
by reference to Amendment No. 2
5(j) - Form of Sub-Advisory Agreement for the Bond Fund between
Griffin Advisers and The Boston Company Asset Management,
Inc. ("TBCAM") is incorporated by reference to Amendment No.
2
5(k) - Form of Sub-Advisory Agreement for the Growth & Income Fund
between Griffin Advisers and TBCAM is incorporated by
reference to Amendment No. 2
2
<PAGE>
5(l) - First Amendment to Investment Advisory Agreement, dated May
31, 1995, between The Griffin Funds, Inc. and Griffin
Advisers is incorporated by reference to Amendment No. 5
5(m) - Form of Sub-Advisory Agreement for the Growth Fund between
Griffin Advisers and T. Rowe Price Associates, Inc. ("T. Rowe
Price") is incorporated by reference to Amendment No. 5
5(n) - Form of Sub-Advisory Agreement for the Short-Term Bond Fund
between Griffin Advisers and T. Rowe Price is incorporated by
reference to Amendment 5
6 - Distribution Agreement between The Griffin Funds, Inc. and
Griffin Financial Services is incorporated by reference to
Amendment No. 2
7 - Not applicable
8 - Custody Agreement, dated October 8, 1993, between The Griffin
Funds, Inc. and Investors Fiduciary Trust Company is
incorporated by reference to Amendment No. 2
9(a) - Administration Agreement between The Griffin Funds and
Griffin Administrators is incorporated by reference to
Amendment No. 2
9(b) - Agency Agreement, dated October 8, 1993, between The Griffin
Funds, Inc. and Investors Fiduciary Trust Company is
incorporated by reference to Amendment No. 2
9(b) - Form of Servicing Agreement is incorporated by reference to
Registrant's Pre-Effective Amendment No. 3, filed on October
8, 1993 ("Pre-Effective Amendment No. 3")
10 - Opinion and Consent of Counsel is filed herewith
11 - Auditors' Consent is filed herewith
12 - Not Applicable
13 - Investment Letter is incorporated by reference to Pre-
Effective Amendment No. 3
14 - Not Applicable
3
<PAGE>
15(a)- Distribution Plans for the Class B Shares of Bond Fund,
California Tax-Free Fund, Growth & Income Fund, Municipal Bond
Fund and U.S. Government Income Fund are incorporated by
reference to Amendment No. 2
15(b)- Distribution and Services Plans for the Class A Shares of Bond
Fund, California Tax-Free Fund, Growth & Income Fund,
Municipal Bond Fund and U.S. Government Income Fund are
incorporated by reference to Amendment No. 2
15(c)- Distribution and Services Plans for the Money Market Fund and
the Tax-Free Money Market Fund are incorporated by reference
to Amendment No. 2
15(d)- Services Plans for the Class B Shares of Bond Fund, California
Tax-Free Fund, Growth & Income Fund, Municipal Bond Fund and
U.S. Government Income Fund are incorporated by reference to
Amendment No. 2
15(e)- Distribution Plans for the Class B Shares of Growth Fund and
Short-Term Bond Fund, dated May 11, 1995, are incorporated by
reference to Amendment No. 5
15(f)- Distribution and Services Plans for the Class A Shares of
Growth Fund and Short-Term Bond Fund, dated May 11, 1995, are
incorporated by reference to Amendment No. 5
15(g)- Services Plans for the Class B Shares of Growth Fund and
Short-Term Bond Fund, dated May 11, 1995, are incorporated by
reference to Amendment No. 5
16 - Not Applicable
17 - Not Applicable
18 - Not Applicable
Item 25. Persons Controlled by or under Common Control with Registrant.
-------------------------------------------------------------
No person is controlled by or under common control with Registrant.
Item 26. Number of Holders of Securities.
-------------------------------
As of January 12, 1996, the number of record holders of each class of
securities of the Registrant was as follows:
4
<PAGE>
<TABLE>
<CAPTION>
Title of Class Number of Record Holders
-------------- ------------------------
<S> <C>
Money Market Fund 5,224
Tax-Free Money Market Fund 292
U.S. Government Income Fund
Class A 2,544
Class B 135
Municipal Bond Fund
Class A 179
Class B 5
California Tax-Free Fund
Class A 633
Class B 55
Bond Fund
Class A 1,792
Class B 28
Growth & Income Fund
Class A 4,826
Class B 688
Growth Fund
Class A 1,792
Class B 107
Short-Term Bond Fund
Class A 1,559
Class B 4
</TABLE>
Item 27. Indemnification.
---------------
Article VIII of the Registrant's Articles of Incorporation provides
that:
(g) Notwithstanding any provision of law requiring the authorization
of any action by a greater proportion than a majority of the
total number of shares of any series or class, or of all classes
or series of capital stock, or by the total number of such
shares, such action shall be valid and effective if authorized by
the affirmative vote of the holders of a majority of the total
number of shares outstanding and entitled to vote thereon.
5
<PAGE>
(h) The Corporation shall indemnify (1) its Directors and officers,
whether serving the Corporation or at its request any other
entity, to the full extent required or permitted by the General
Laws of the State of Maryland now or hereafter in force,
including the advance of expenses under the procedures and to the
full extent permitted by law, and (2) its other employees and
agents to such extent as shall be authorized by the Board of
Directors or the Corporation's By-Laws and be permitted by law.
The foregoing rights of indemnification shall not be exclusive of
any other rights to which those seeking indemnification may be
entitled. The Board of Directors may take such action as is
necessary to carry out these indemnification provisions and is
expressly empowered to adopt, approve and amend from time to time
such By-Laws, resolutions or contracts implementing such
provisions or such further indemnification arrangements as may be
permitted by law. No amendment of these Articles of Incorporation
of the Corporation shall limit or eliminate the right to
indemnification provided hereunder with respect to acts or
omissions occurring prior to such amendment or repeal. Nothing
contained herein shall be construed to authorize the Corporation
to indemnify any Director or officer of the Corporation against
any liability to the Corporation or to any holders of securities
of the Corporation to which he is subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard
of the duties involved in the conduct of his office. Any
indemnification by the Corporation shall be consistent with the
requirements of law, including the 1940 Act.
(i) To the fullest extent permitted by Maryland statutory and
decisional law and the 1940 Act, as amended or interpreted, no
Director or officer of the Corporation shall be personally liable
to the Corporation or its stockholders for money damages;
provided, however, that nothing herein shall be construed to
protect any Director or officer of the Corporation against any
liability to which such Director 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 his office. No amendment, modification or repeal of
this Article VIII shall adversely affect any right or protection
of a Director or officer that exists at the time of such
amendment, modification or repeal.
Item 28. Business and Other Connections of Investment Adviser.
-----------------------------------------------------
Griffin Financial Investment Advisers serves as investment adviser to
all of the Registrant's investment portfolios.
To the knowledge of Registrant, none of the directors or executive
officers of Griffin Financial Investment Advisers except those set forth below,
is or has been at any time during the past two fiscal years engaged in any other
business, profession, vocation or employment of a substantial nature. Set forth
below are the names and principal businesses of the directors and
6
<PAGE>
executive officers of Griffin Financial Investment Advisers who are or during
the past two fiscal years have been engaged in any other business, profession,
vocation or employment of a substantial nature for their own account or in the
capacity of director, officer, employee, partner or director.
<TABLE>
<CAPTION>
Principal Business(es) During at
Name Position(s) Least the Last Two Fiscal Years
- ---- ----------- --------------------------------
<S> <C> <C>
William A. Hawkins President & CEO; President, Griffin Financial
Director Services, a securities and insurance broker, since
1981.
Julia D. Whitcup Director; Senior Vice President of Griffin
Senior Vice Financial Services, a securities
President & and insurance broker, since May,
Chief Financial 1993; Vice President and
Officer Controller of Griffin Financial Services, since
1990.
Richie D. Rowsey Senior Vice Senior Vice President of
President Operations of Griffin Financial Services, since
1989.
Tim S. Glassett Secretary Senior Vice President of H.F. Ahmanson &
Company, a savings and loan holding company,
since 1987.
Philip H. McKinley Vice President Vice President, Griffin Financial Services, since
1994; Senior Operations Officer, Mercantile
National Bank, 1991-1994.
Anne P. Banducci Assistant Assistant Secretary, Griffin Financial Services,
Secretary since 1984; Attorney, H.F. Ahmanson &
Company, since 1984
</TABLE>
The principal business address of Griffin Financial Services is 5000
Rivergrade Road, Irwindale, California 91706, and the principal business address
of H.F. Ahmanson & Company is 4900 Rivergrade Road, Irwindale, California 91706.
Item 29. Principal Underwriters.
----------------------
(a) Griffin Financial Services acts as distributor for the
Registrant. Griffin Financial Services is a California
Corporation.
7
<PAGE>
(b) The following individuals, each of whose principal business
address is 5000 Rivergrade Road, Irwindale, CA 91706, are the
directors and officers of Griffin Financial Services:
<TABLE>
<CAPTION>
POSITION WITH POSITION WITH
NAME UNDERWRITER REGISTRANT
---- ----------- ----------
<S> <C> <C>
Anne-Drue M. Anderson Director None
Clifford S. Collins Director None
Kevin M. Twomey Director None
Frederic J. Forster Director None
William A. Hawkins Director, President Director,
and Chief Executive President and
Officer Chief Executive
Officer
Edward A. McGrath Director None
Robert L. Stevens Director None
Merrill S. Wall Director None
Richie D. Rowsey Senior Vice President Senior Vice
President
Julia D. Whitcup Director, Senior Vice Senior Vice
President and Chief President &
Financial Officer Treasurer
Beverly J. Piraino Senior Vice President None
Herbert L. Botts Vice President and Assistant
Secretary
Tim S. Glassett Vice President and Secretary
Secretary
Tamara L. Kuchenbacher Vice President None
Joan C. Amadeo Vice President None
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH POSITION WITH
NAME UNDERWRITER REGISTRANT
---- ----------- ----------
<S> <C> <C>
Brian W. Nelson Vice President None
Constantino R. Raz Vice President None
Philip McKinley Vice President None
Laura L. Gemmirig Assistant Vice President None
David A. Jabczenski Assistant Vice President None
Brent R. Kanitra Assistant Vice President None
Edward H. Lanzner Assistant Vice President None
Richard A. McKusick Assistant Vice President None
Bradley C. Towers Assistant Vice President None
Donna V. Gross Assistant Vice President None
Leslie J. Harrison Assistant Vice President None
Kellie M. McGahuey Assistant Vice President None
Steven P. Muson Assistant Vice President Assistant
Treasurer
Philip H. White Assistant Vice President None
Henry M. Pena Assistant Vice President Assistant
Secretary
Algis R. Posius Assistant Vice President None
Jill K. Smith-Ely Assistant Vice President None
Anne P. Banducci Assistant Secretary Assistant
Secretary
</TABLE>
9
<PAGE>
Item 30. Location of Accounts and Records.
--------------------------------
Persons maintaining physical possession of accounts, books and other
documents required to be maintained by Section 31(a) of the Investment Company
Act of 1940 and the rules promulgated thereunder are as follows:
(1) Griffin Financial Investment Advisers
5000 Rivergrade Road
Irwindale, CA 91706
(Adviser)
(2) Payden & Rygel Investment Counsel
333 South Grand, 32nd Floor
Los Angeles, CA 90071
(Sub-Adviser)
(3) The Boston Company Asset Management,
Inc.
One Boston Place
Boston, MA 02108
(Sub-Adviser)
(4) T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, MD 21202
(Sub-Adviser)
(5) Griffin Financial Administrators
5000 Rivergrade Road
Irwindale, CA 91706
(Administrator)
(6) Griffin Financial Services
5000 Rivergrade Road
Irwindale, CA 91706
(Distributor)
Item 31. Management Services.
-------------------
Other than as set forth under the captions "Management" and
"Management Fee" in the Prospectus constituting Part A of this Registration
Statement and "Management Contracts" in the Statement of Additional Information
constituting Part B of this Registration Statement, Registrant is not a party to
any management-related service contract.
10
<PAGE>
Item 32. Undertakings.
------------
(a) Not Applicable.
(b) Not Applicable.
(c) Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the
provisions set forth above in response to Item 27, or otherwise,
the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is
against public policy as expressed in such Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities
being registered, the 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 Act and will be governed by the final
adjudication of such issue.
(d) Registrant undertakes to hold a special meeting of its
shareholders for the purpose of voting on the question of removal
of a director or directors if requested in writing by the holders
of at least 10% of the Registrant's outstanding voting
securities, and to assist in communicating with other
shareholders as required by Section 16(c) of the Investment
Company Act of 1940.
(e) Registrant undertakes to furnish each person to whom a prospectus
is delivered with a copy of the Registrant's latest annual report
to shareholders, when such annual report is issued, containing
information called for by Item 5A of Form N-1A, upon request and
without charge.
11
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all the
requirements for effectiveness of this Post-Effective Amendment to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Amendment to its Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Irwindale, State of California on the 31st day of January, 1996.
THE GRIFFIN FUNDS, INC.
By: /s/ William A. Hawkins
-------------------------
William A. Hawkins
President
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment to the Registration Statement has been signed below by the
following persons in the capacities and on the date indicated:
SIGNATURES TITLE DATE
---------- ----- ----
/s/ William A. Hawkins Director, Principal Executive January 31, 1996
- ------------------------
William A. Hawkins Officer, Principal Financial
Officer and Principal
Accounting Officer
* Director January 31, 1996
- ------------------------
Herschel Cardin
* Director January 31, 1996
- ------------------------
Vincent F. Coviello
* Director January 31, 1996
- ------------------------
Morton O. Schapiro
*By: /s/ William A. Hawkins
----------------------
William A. Hawkins
President
Attorney-in-Fact
<PAGE>
THE GRIFFIN FUNDS, INC.
POST-EFFECTIVE AMENDMENT NO. 9 TO
REGISTRATION STATEMENT ON FORM N-1A
UNDER THE SECURITIES ACT OF 1933
AND UNDER THE INVESTMENT COMPANY ACT OF 1940
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
EX-27 - Article 6 - Money Market Fund
EX-27.1 - Article 6 - Tax-Free Money Market Fund
EX-27.2 - Article 6 - U.S. Government Income Fund
EX-27.3 - Article 6 - U.S. Government Income Fund B
EX-27.4 - Article 6 - California Tax-Free Fund
EX-27.5 - Article 6 - California Tax-Free Fund B
EX-27.6 - Article 6 - Municipal Bond Fund
EX-27.7 - Article 6 - Municipal Bond Fund B
EX-27.8 - Article 6 - Bond Fund
EX-27.9 - Article 6 - Bond Fund B
EX-27.10 - Article 6 - Growth & Income Fund
EX-27.11 - Article 6 - Growth & Income Fund B
EX-27.12 - Article 6 - Short-Term Bond Fund
EX-27.13 - Article 6 - Short-Term Bond Fund B
EX-27.14 - Article 6 - Growth Fund
EX-27.15 - Article 6 - Growth Fund B
EX-99.B10 - Opinion and Consent of Counsel
EX-99.B11 - Auditor's Consent
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000910424
<NAME> THE GRIFFIN FUNDS INC.
<SERIES>
<NAME> MONEY MARKET FUND
<NUMBER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 79,920,025
<INVESTMENTS-AT-VALUE> 79,920,025
<RECEIVABLES> 618,817
<ASSETS-OTHER> 283
<OTHER-ITEMS-ASSETS> 52,220
<TOTAL-ASSETS> 80,591,345
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 627,342
<TOTAL-LIABILITIES> 627,342
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 79,876,185
<SHARES-COMMON-STOCK> 79,956,473
<SHARES-COMMON-PRIOR> 49,987,794
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 7,862
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 79,964,003
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,840,881
<OTHER-INCOME> 0
<EXPENSES-NET> 276,915
<NET-INVESTMENT-INCOME> 3,563,966
<REALIZED-GAINS-CURRENT> 7,862
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 3,571,828
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,563,929
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 128,270,814
<NUMBER-OF-SHARES-REDEEMED> 101,523,397
<SHARES-REINVESTED> 3,221,262
<NET-CHANGE-IN-ASSETS> 29,968,679
<ACCUMULATED-NII-PRIOR> 0
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<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 329,306
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 850,938
<AVERAGE-NET-ASSETS> 65,954,000
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0.05
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<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .42
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000910424
<NAME> THE GRIFFIN FUNDS INC.
<SERIES>
<NAME> TAX-FREE MONEY MARKET FUND
<NUMBER> 2
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 8,606,941
<INVESTMENTS-AT-VALUE> 8,606,941
<RECEIVABLES> 267,855
<ASSETS-OTHER> 36,206
<OTHER-ITEMS-ASSETS> 52,220
<TOTAL-ASSETS> 8,963,222
<PAYABLE-FOR-SECURITIES> 260,758
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 81,130
<TOTAL-LIABILITIES> 341,888
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 8,617,501
<SHARES-COMMON-STOCK> 8,626,128
<SHARES-COMMON-PRIOR> 10,632,668
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (4,794)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 8,621,334
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 355,855
<OTHER-INCOME> 0
<EXPENSES-NET> 38,795
<NET-INVESTMENT-INCOME> 317,060
<REALIZED-GAINS-CURRENT> (4,765)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 312,295
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 317,060
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9,117,127
<NUMBER-OF-SHARES-REDEEMED> 11,377,064
<SHARES-REINVESTED> 253,397
<NET-CHANGE-IN-ASSETS> (2,006,540)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 46,869
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 175,645
<AVERAGE-NET-ASSETS> 9,366,000
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0.03
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .44
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000910424
<NAME> THE GRIFFIN FUNDS INC.
<SERIES>
<NAME> U.S. GOVERNMENT INCOME FUND
<NUMBER> 031
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 30,434,974
<INVESTMENTS-AT-VALUE> 30,655,940
<RECEIVABLES> 421,210
<ASSETS-OTHER> 2,770
<OTHER-ITEMS-ASSETS> 52,220
<TOTAL-ASSETS> 31,132,140
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 260,569
<TOTAL-LIABILITIES> 260,569
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 29,001,354
<SHARES-COMMON-STOCK> 3,171,919
<SHARES-COMMON-PRIOR> 2,185,473
<ACCUMULATED-NII-CURRENT> 6,286
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 90,988
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 220,966
<NET-ASSETS> 29,307,963
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,689,160
<OTHER-INCOME> 0
<EXPENSES-NET> 50,925
<NET-INVESTMENT-INCOME> 1,638,235
<REALIZED-GAINS-CURRENT> 90,910
<APPREC-INCREASE-CURRENT> 1,217,932
<NET-CHANGE-FROM-OPS> 2,947,077
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,617,207
<DISTRIBUTIONS-OF-GAINS> 7,074
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,497,104
<NUMBER-OF-SHARES-REDEEMED> 605,179
<SHARES-REINVESTED> 94,521
<NET-CHANGE-IN-ASSETS> 986,446
<ACCUMULATED-NII-PRIOR> 2,723
<ACCUMULATED-GAINS-PRIOR> 7,170
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 118,300
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 389,177
<AVERAGE-NET-ASSETS> 23,333,750
<PER-SHARE-NAV-BEGIN> 8.77
<PER-SHARE-NII> 0.63
<PER-SHARE-GAIN-APPREC> 0.47
<PER-SHARE-DIVIDEND> 0.63
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.24
<EXPENSE-RATIO> .21
<AVG-DEBT-OUTSTANDING> 0
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000910424
<NAME> THE GRIFFIN FUNDS INC.
<SERIES>
<NUMBER> 32
<NAME> U.S. GOVERNMENT INCOME FUND B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1995
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<INVESTMENTS-AT-VALUE> 30,655,940
<RECEIVABLES> 421,210
<ASSETS-OTHER> 2,770
<OTHER-ITEMS-ASSETS> 52,220
<TOTAL-ASSETS> 31,132,140
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 260,569
<TOTAL-LIABILITIES> 260,569
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,548,635
<SHARES-COMMON-STOCK> 169,102
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 6,286
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 90,988
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 220,966
<NET-ASSETS> 1,563,608
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,689,160
<OTHER-INCOME> 0
<EXPENSES-NET> 50,925
<NET-INVESTMENT-INCOME> 1,638,235
<REALIZED-GAINS-CURRENT> 90,910
<APPREC-INCREASE-CURRENT> 1,217,932
<NET-CHANGE-FROM-OPS> 2,947,077
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 17,465
<DISTRIBUTIONS-OF-GAINS> 18
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 169,026
<NUMBER-OF-SHARES-REDEEMED> 534
<SHARES-REINVESTED> 610
<NET-CHANGE-IN-ASSETS> 169,102
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 118,300
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 389,177
<AVERAGE-NET-ASSETS> 326,244
<PER-SHARE-NAV-BEGIN> 8.67
<PER-SHARE-NII> 0.52
<PER-SHARE-GAIN-APPREC> 0.58
<PER-SHARE-DIVIDEND> 0.52
<PER-SHARE-DISTRIBUTIONS> 0
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<PER-SHARE-NAV-END> 9.25
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000910424
<NAME> THE GRIFFIN FUNDS INC.
<SERIES>
<NUMBER> 41
<NAME> CALIFORNIA TAX-FREE FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 19,471,272
<INVESTMENTS-AT-VALUE> 19,861,636
<RECEIVABLES> 459,272
<ASSETS-OTHER> 28,164
<OTHER-ITEMS-ASSETS> 52,220
<TOTAL-ASSETS> 20,401,292
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 143,810
<TOTAL-LIABILITIES> 143,810
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 19,427,781
<SHARES-COMMON-STOCK> 2,436,233
<SHARES-COMMON-PRIOR> 1,821,076
<ACCUMULATED-NII-CURRENT> 4,662
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (520,880)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 388,677
<NET-ASSETS> 19,291,900
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 933,737
<OTHER-INCOME> 0
<EXPENSES-NET> 51,932
<NET-INVESTMENT-INCOME> 881,805
<REALIZED-GAINS-CURRENT> (52,357)
<APPREC-INCREASE-CURRENT> 746,243
<NET-CHANGE-FROM-OPS> 1,575,691
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 871,571
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 909,928
<NUMBER-OF-SHARES-REDEEMED> 353,826
<SHARES-REINVESTED> 59,055
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<ACCUMULATED-GAINS-PRIOR> (468,522)
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<OVERDIST-NET-GAINS-PRIOR> 0
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 272,847
<AVERAGE-NET-ASSETS> 16,209,887
<PER-SHARE-NAV-BEGIN> 7.59
<PER-SHARE-NII> 0.41
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</TABLE>
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<PAGE>
<ARTICLE> 6
<CIK> 0000910424
<NAME> THE GRIFFIN FUNDS INC.
<SERIES>
<NUMBER> 42
<NAME> CALIFORNIA TAX-FREE FUND B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 19,471,272
<INVESTMENTS-AT-VALUE> 19,861,636
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<TOTAL-LIABILITIES> 143,810
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 954,684
<SHARES-COMMON-STOCK> 121,916
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 4,662
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (520,880)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 388,677
<NET-ASSETS> 965,582
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 933,737
<OTHER-INCOME> 0
<EXPENSES-NET> 51,932
<NET-INVESTMENT-INCOME> 881,805
<REALIZED-GAINS-CURRENT> (52,357)
<APPREC-INCREASE-CURRENT> 746,243
<NET-CHANGE-FROM-OPS> 1,575,691
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 11,133
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 121,227
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 689
<NET-CHANGE-IN-ASSETS> 121,916
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 82,385
<INTEREST-EXPENSE> 0
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<AVERAGE-NET-ASSETS> 267,140
<PER-SHARE-NAV-BEGIN> 7.35
<PER-SHARE-NII> 0.34
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<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000910424
<NAME> THE GRIFFIN FUNDS INC.
<SERIES>
<NUMBER> 51
<NAME> MUNICIPAL BOND FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 5,325,870
<INVESTMENTS-AT-VALUE> 5,425,894
<RECEIVABLES> 79,454
<ASSETS-OTHER> 87,092
<OTHER-ITEMS-ASSETS> 52,220
<TOTAL-ASSETS> 5,644,660
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 76,531
<TOTAL-LIABILITIES> 76,531
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,521,717
<SHARES-COMMON-STOCK> 614,143
<SHARES-COMMON-PRIOR> 303,501
<ACCUMULATED-NII-CURRENT> 568
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (107,116)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 97,649
<NET-ASSETS> 5,512,067
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 225,171
<OTHER-INCOME> 0
<EXPENSES-NET> 12,655
<NET-INVESTMENT-INCOME> 212,516
<REALIZED-GAINS-CURRENT> (1,240)
<APPREC-INCREASE-CURRENT> 181,323
<NET-CHANGE-FROM-OPS> 392,599
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 212,765
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 337,591
<NUMBER-OF-SHARES-REDEEMED> 38,935
<SHARES-REINVESTED> 11,986
<NET-CHANGE-IN-ASSETS> 310,642
<ACCUMULATED-NII-PRIOR> 1,099
<ACCUMULATED-GAINS-PRIOR> (105,876)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 20,156
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 130,111
<AVERAGE-NET-ASSETS> 4,023,963
<PER-SHARE-NAV-BEGIN> 8.60
<PER-SHARE-NII> 0.47
<PER-SHARE-GAIN-APPREC> 0.38
<PER-SHARE-DIVIDEND> 0.47
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
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<PAGE>
<ARTICLE> 6
<CIK> 0000910424
<NAME> THE GRIFFIN FUNDS INC.
<SERIES>
<NUMBER> 52
<NAME> MUNICIPAL BOND FUND B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 5,325,870
<INVESTMENTS-AT-VALUE> 5,425,894
<RECEIVABLES> 79,454
<ASSETS-OTHER> 87,092
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<TOTAL-ASSETS> 5,644,660
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 76,531
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
[MORRISON & FOERSTER LLP LETTERHEAD]
January 26, 1996
The Griffin Funds, Inc.
5000 Rivergrade Road
Irwindale, California 91706
Re: Post-Effective Amendment No. 9 to The Griffin Funds, Inc.
Registration Statement on Form N-1A
----------------------------------------------------------
Gentlemen:
We refer to Post-Effective Amendment No. 9 and Amendment No. 12 to the
Registration Statement on Form N-1A (SEC File Nos. 33-67148;811-7948) (the
"Registration Statement") of The Griffin Funds, Inc., a Maryland corporation
(the "Company"), relating to the registration of an indefinite number of shares
of common stock of the Company's nine portfolios, namely Griffin Money Market
Fund, Griffin Tax-Free Money Market Fund, Griffin Short-Term Bond Fund, Griffin
U.S. Government Income Fund, Griffin Municipal Bond Fund, Griffin California
Tax-Free Fund, Griffin Bond Fund, Griffin Growth & Income Fund and Griffin
Growth Fund (collectively, the "Shares").
We have been requested by the Company to furnish this opinion as Exhibit 10
to the Registration Statement.
We have examined documents relating to the organization of the Company and
the authorization and issuance of shares of the Funds. We have also made such
inquiries of the Company and examined such questions of law as we have deemed
necessary for the purpose of rendering the opinion set forth herein. We have
assumed the genuineness of all signatures and the authenticity of all items
submitted to us as originals and the conformity with originals of all items
submitted to us as copies.
Based upon and subject to the foregoing, we are of the opinion that:
<PAGE>
The Griffin Funds, Inc.
January 26, 1996
Page Two
The issuance and sale of the Shares have been duly and validly authorized
by all appropriate corporate action and, assuming delivery by sale or in accord
with the Company's dividend reinvestment plan in accordance with the Company's
then-current Registration Statement under the Securities Act of 1933, the Shares
will be validly issued, fully paid and nonassessable.
We consent to the inclusion of this opinion as an exhibit to the
Registration Statement.
In addition, we consent to the use of our name and to the reference to our
firm under the heading "Legal Counsel" in the Prospectus and Statement of
Additional Information, which are included as part of the Registration
Statement.
Very truly yours,
/s/ Morrison & Foerster LLP
MORRISON & FOERSTER LLP
<PAGE>
INDEPENDENT AUDITOR'S CONSENT
-----------------------------
The Board of Directors and Shareholders
The Griffin Funds, Inc.:
We consent to incorporation by reference in The Griffin Funds, Inc. Post-
Effective Amendment No. 9 to the Registration Statement Number 33-67148 on Form
N-1A under the Securities Act of 1933 and Amendment No. 12 to the Registration
Statement Number 811-7948 on Form N-1A under the Investment Company Act of 1940
of our report dated November 10, 1995, on the statements of assets and
liabilities, including the schedules of investments, of the Griffin Money Market
Fund, Griffin Tax-Free Money Market Fund, Griffin Short-Term Bond Fund, Griffin
U.S. Government Income Fund, Griffin Bond Fund, Griffin Municipal Bond Fund,
Griffin California Tax-Free Fund, Griffin Growth & Income Fund, and the Griffin
Growth Fund, constituting The Griffin Funds, Inc. (the Funds) as of September
30, 1995 and the related statements of operations for the year then ended,
except for the Griffin Short-Term Bond Fund and the Griffin Growth Fund which
are for the period from June 12, 1995 (commencement of operations) to September
30, 1995, and the statements of changes in net assets and the financial
highlights for the period from October 19, 1993 (commencement of operations) to
September 30, 1994 and the year ended September 30, 1995 for the Griffin Money
Market Fund, Griffin Tax-Free Money Market Fund, Griffin U.S. Government Income
Fund, Griffin Bond Fund, Griffin Municipal Bond Fund, Griffin California Tax-
Free Fund and the Griffin Growth & Income Fund and for the period from June 12,
1995 (commencement of operations) to September 30, 1995 for the Griffin Short-
Term Bond Fund and the Griffin Growth Fund.
We also consent to the reference to our firm under the headings "Financial
Highlights" and "Independent Auditor" in the prospectus, and under the headings
"Independent Auditor" and "Financial Statements" in the Statement of Additional
Information incorporated by reference into the prospectus for The Griffin Funds,
Inc.
/s/ KPMG Peat Marwick LLP
January 30, 1996
Los Angeles, California
