<PAGE>
As filed with the Securities and Exchange Commission
on January 30, 1998
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. 13 [X]
And
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [_]
Amendment No. 16 [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.
Washington, D.C. 20006
It is proposed that this filing will become effective (check appropriate box):
[X] Immediately upon filing pursuant [_] on ________ _pursuant
to Rule 485(b), or to Rule 485(b)
[_] 60 days after filing pursuant [_] on _________ pursuant
to Rule 485(a)(1), or to Rule 485(a)(1)
[_] 75 days after filing pursuant [_] on___________pursuant
to Rule 485(a)(2), or to Rule 485(a)(2)
<PAGE>
If appropriate, check the following box:
[_] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
EXPLANATORY NOTE
This Post-Effective Amendment to the Registration Statement (the
"Amendment") of The Griffin Funds, Inc. (the "Company") is being filed to add to
the Company's Registration Statement the audited financial statements and
certain related financial information for the fiscal year ended September 30,
1997, for the Company's Money Market, Tax-Free Money Market, Short-Term Bond,
U.S. Government Income, Municipal Bond, California Tax-Free, Bond, Growth &
Income and Growth Funds.
<PAGE>
The Griffin Funds, Inc.
Cross Reference Sheet
---------------------
Form N-1A Item Number
- ---------------------
Prospectus 1: 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 U.S. California Tax-Free Fund, Griffin
Bond Fund, Griffin Growth & Income Fund and Griffin Growth Fund
<TABLE>
<CAPTION>
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
</TABLE>
Prospectus 2: Griffin Money Market Fund and Griffin Tax Free Money Market
Fund
<TABLE>
<CAPTION>
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 Captions
- ------ --------------------------------------------
10 Cover Page
11 Table of Contents
12 Not Applicable
13 Investment Limitations; Additional Securities and Investment
Policies
14 Directors and Officers; Management Contracts
15 Description of The Griffin Funds
16 Service Providers; Management Contracts
17 Portfolio Transactions and Brokerage
18 Description of The Griffin Funds; Investment Limitations
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Part B Statement of Additional Information Captions
- ------ --------------------------------------------
<S> <C>
19 Valuation of Portfolio Securities; Additional Purchase and
Redemption Information
20 Distributions and Taxes
21 Distribution and Service Plans
22 Performance
23 Independent Auditors and Financial Statements
</TABLE>
<TABLE>
<CAPTION>
Part C Other Information
- ------ -----------------
<S> <C>
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>
<PAGE>
Prospectus January 31, 1998
THE GRIFFIN FUNDS
-------------------- This Prospectus sets forth concisely the informa-
Money Market Fund tion about the nine funds (each a "Fund", collec-
-------------------- tively, the "Funds") currently offered by The Grif-
Tax-Free Money Mar- fin Funds, Inc. ("The Griffin Funds") that a pro-
ket Fund spective investor ought to know before investing in
-------------------- the Funds. The Short-Term Bond Fund, U.S. Govern-
Short-Term Bond ment Income Fund, Municipal Bond Fund, California
Fund Tax-Free Fund, Bond Fund, Growth & Income Fund and
-------------------- Growth Fund (collectively, the "Non-Money Market
U.S. Government In- Funds") offer two classes of shares--Class A Shares
come Fund and Class B Shares. The Money Market Fund and Tax-
-------------------- Free Money Market Fund (collectively, the "Money
Municipal Bond Fund Market Funds") offer only one class of shares.
-------------------- INVESTMENTS IN THE FUNDS ARE NEITHER INSURED NOR
California Tax-Free GUARANTEED BY THE U.S. GOVERNMENT. THERE CAN BE NO
Fund ASSURANCE THAT EITHER OF THE MONEY MARKET FUNDS
-------------------- WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE
Bond Fund OF $1.00 PER SHARE. PLEASE READ THIS PROSPECTUS
-------------------- CAREFULLY BEFORE INVESTING AND KEEP IT FOR FUTURE
Growth & Income REFERENCE.
Fund
--------------------
Growth Fund A Statement of Additional Information dated Janu-
-------------------- ary 31, 1998
("SAI") containing additional information about 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 9
Financial Highlights 15
Investment Policies and Procedures 25
Your Fund Account
TYPES OF ACCOUNTS 35
Different ways to set up an account.
HOW TO PURCHASE SHARES 36
Opening an account and making additional Fund purchases.
HOW TO REDEEM SHARES 38
Redeeming shares and closing your account.
SHAREHOLDER SERVICES 42
DIVIDENDS, CAPITAL GAINS AND TAXES 45
Fund Account Policies
TRANSACTION POLICIES 46
Share price calculations and purchase and redemption policies.
SALES LOAD REDUCTIONS AND WAIVERS 49
CONTINGENT DEFERRED SALES CHARGE 51
The Funds in Detail
STRUCTURE 53
How the Funds are structured.
SERVICE PROVIDERS 53
SUMMARY OF FUND EXPENSES 55
Fund operating costs and how they are calculated.
PERFORMANCE 57
DESCRIPTION OF INVESTMENTS 59
INVESTMENT LIMITATIONS 73
</TABLE>
No person has been authorized to give any information or to make any repre-
sentations not contained in this Prospectus in connection with the offering
made by the Prospectus, and if given or made, such information or representa-
tions must not be relied upon as having been authorized by The Griffin Funds,
Inc. or Griffin Financial. This Prospectus does not constitute an offering by
The Griffin Funds, Inc. in any jurisdiction in which such offering may not law-
fully be made.
2
<PAGE>
Key Fund Facts
THE FUNDS IN BRIEF
INVESTMENT OBJECTIVES AND POLICIES: The Money Market Fund, a diversified fund,
seeks to provide investors with as high a level of current income as is consis-
tent with the preservation of principal and liquidity.
The Tax-Free Money Market Fund, a diversified fund, seeks to provide invest-
ors with as high a level of current income, exempt from federal income taxes,
as is consistent with a portfolio of high quality short-term municipal obliga-
tions selected on the basis of liquidity and stability of capital. As a matter
of fundamental policy, under normal market conditions, the Tax-Free Money Mar-
ket Fund will invest its assets so that at least 80% of its income distribu-
tions are exempt from federal income tax and the federal alternative minimum
tax.
The Money Market Funds may purchase only high quality securities that Griffin
Advisers believes present minimal risks. To be considered high quality, a secu-
rity generally 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 statistical 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 invest-
ments 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 mu-
tual fund, there can be no assurance that the Money Market Funds will achieve
their investment objectives. 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, a diversified fund, 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 assets 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, collateralized mortgage obligations ("CMOs"), for-
eign securities, futures and options.
The U.S. Government Income Fund, a diversified fund, seeks to provide invest-
ors with current income, while preserving capital. Under normal market condi-
tions, at least 65% of the U.S. Government Income Fund's total assets are in-
vested in U.S. Government Obligations (as defined below). Depending on market
conditions, the Fund may invest in U.S. Government Obligations of varying matu-
rities, which may range up to 40 years.
The Municipal Bond Fund, a diversified fund, seeks to provide investors with
a high level of income exempt from federal income taxes, while preserving capi-
tal. It invests primarily in intermediate to long-term investment grade munici-
pal securities. As a matter of fundamental policy, under normal market condi-
tions, at least 80% of the Municipal Bond Fund's total assets will consist of
securities the interest on which is exempt from federal income taxes and which
is not subject to the federal alternative minimum tax.
3
<PAGE>
The California Tax-Free Fund, a non-diversified fund, seeks to provide in-
vestors with a high level of income exempt from federal income taxes and Cali-
fornia personal income taxes, while preserving capital. It invests primarily
in intermediate to long-term, investment grade California municipal securi-
ties. 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 mu-
nicipal 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.
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, the general
economic conditions in California. From time to time, the California Tax-Free
Fund also may concentrate its investments in municipal securities that are re-
lated in a way that economic, business or political developments or changes
affecting one such security would also affect the other securities. For exam-
ple, the Fund may invest in municipal securities the interest on which is paid
from revenues on similar projects. See "Special Factors Affecting the Califor-
nia Tax-Free Fund" in the SAI.
The Bond Fund, a diversified fund, 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 securi-
ties. Under normal market conditions, at least 65% of this Fund's total assets
are invested in bonds, as contrasted with debt instruments with shorter ini-
tial maturities.
The Growth & Income Fund, a diversified fund, 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 po-
tential for capital growth, current income or both. Under normal market condi-
tions, at least 65% of the Growth & Income Fund's total assets is invested in
such common stocks. The Fund may also purchase corporate bonds, notes and de-
bentures, preferred stocks or convertible securities (both debt securities and
preferred stocks) or U.S. Government securities, if Griffin Advisers deter-
mines that their purchase would help further the Fund's investment objective.
The Growth Fund, a diversified fund, seeks to provide investors with long-
term growth of capital. Under normal market conditions, at least 65% of the
Growth Fund's total assets will be invested in the common stock of mid-cap
companies considered to have above-average growth potential. A mid-cap company
is defined as one whose market capitalization, at the time of purchase, falls
within the capitalization 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 con-
sistent with the Fund's investment objective and program.
4
<PAGE>
As with any mutual fund, there can be no assurance that a Fund will achieve
its investment objective. 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 ac-
cept the risks associated with their investment in a Fund.
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."
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 investment 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 Califor-
nia Tax-Free Fund, T. Rowe Price Associates, Inc. ("T. Rowe Price"), as sub-ad-
viser to the Short-Term Bond Fund and Growth Fund, and The Boston Company 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, California 91706. Griffin Advisers, a Califor-
nia 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, 1997
managed assets of approximately $23 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 as-
sets of approximately $125 billion as of September 30, 1997.
TBCAM, which is located at One Boston Place, Boston, Massachusetts 02108, was
established in 1970 and as of December 31, 1997 managed assets of approximately
$21 billion.
As used herein, the "Adviser" shall mean Griffin Advisers, Payden & Rygel, T.
Rowe Price and/or TBCAM as the context may require.
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.
ADMINISTRATOR: Griffin Financial Administrators ("Griffin Administrators")
serves as the administrator of the Funds and provides various administration
and accounting services to
5
<PAGE>
the Funds. Investors Fiduciary Trust Company ("IFTC") provides certain sub-ad-
ministration 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 ("Portfolio Builder Account"). Investments through a
Portfolio Builder Account are governed by the terms and conditions of the
Portfolio Builder Account, which are set forth in a separate Portfolio Builder
Account Client Agreement provided by Griffin Financial to each Portfolio
Builder Account holder. In light of the discretionary asset allocation struc-
ture of investments through the Portfolio Builder Account, certain of the fea-
tures described in this Prospectus are not available to investors purchasing
shares of the Funds through a Portfolio Builder Account. Specifically, shares
of a Fund purchased through a Portfolio Builder Account may be redeemed only
through the Portfolio 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 Portfolio Builder Account. Poten-
tial Portfolio Builder Account holders should refer to the Client Agreement
for more information regarding the Portfolio Builder Account, including infor-
mation 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-
tive 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 generally pro-
vide and who can accept moderate share-price fluctuations. The Short-Term Bond
Fund is designed to provide higher yields than are usually available from
money market funds which have 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 is designed to 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 is intended to pro-
vide higher yields than money market funds and many other fixed-price invest-
ments, but will not provide the same stability of principal as money market
funds. The Bond Fund is designed for investors who are seeking higher yields
than those generally available from short-term investments and who can toler-
ate 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. Over the long-term, investments
in mid-cap growth companies generally offer greater potential for capital ap-
preciation than investments in larger-capitalization companies. However, in-
vestments in mid-cap growth companies generally entail greater risk and vola-
tility than investing in larger, more established companies.
Important Risk Factors
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 a Fund are sub-
ject to equity market risk (i.e., the possibility that common stock prices
will decline over short or even extended periods). The value of fixed income
securities held by a Fund will, generally, tend to decrease when interest
rates rise, and increase when interest rates fall. Accordingly, in periods of
rising interest rates, the yields of investment portfolios comprised primarily
of fixed income securities will, generally, tend to be lower than prevailing
market rates and, in periods of de-
7
<PAGE>
clining interest rates will, generally, tend to be somewhat higher. Shorter-
term fixed income securities generally offer greater stability. Longer-term se-
curities are more sensitive to interest rate changes but generally offer higher
yields. In addition, fixed income securities that are not backed by the United
States Government 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 whether to invest in a Fund, you should consider, among
other things, your investment goals, the Fund's investment objectives and your
tolerance for share price volatility.
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
Maximum 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)* 0.23% 0.00%
12b-1 fees 0.20% 0.20%
Other expenses (after waivers and reimbursements)* 0.32% 0.55%
Total Fund operating expenses (after waivers and
reimbursements)* 0.75% 0.75%
- -------------------------------------------------------------------
</TABLE>
*Griffin Advisers and Griffin Administrators currently intend to voluntarily
waive a portion of their respective fees and reimburse the Funds for certain
expenses. The percentages shown above under "Management fees (after waivers),"
"Other expenses (after waivers and reimbursements)" and "Total Fund operating
expenses (after waivers and reimbursements)" are based on amounts incurred dur-
ing 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%, 0.32% and 1.02%, respectively, for the Money Market Fund
and 0.50%, 0.72% and 1.42%, 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
(as a percentage of
offering price): 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
Maximum 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% 0.15% 0.00% 0.00% 0.10% 0.28% 0.16%
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)** 0.50% 0.35% 0.50% 0.50% 0.40% 0.37% 0.54%
Total Fund operating
expenses (after
waivers and
reimbursements)** 0.75% 0.75% 0.75% 0.75% 0.75% 0.90% 0.95%
- ----------------------------------------------------------------------------------
</TABLE>
*A contingent deferred sales charge of 1.00% of the lesser of the net asset
value at purchase or net asset value at redemption is imposed on redemptions
requested within one year of purchases of $1,000,000 or more. The front-end
sales load is waived on purchases of $1,000,000 or more.
**Griffin Advisers and Griffin Administrators currently intend to voluntarily
waive a portion of their respective fees and reimburse the Funds for certain
expenses. The percentages shown above under "Management fees (after waivers),"
"Other expenses (after waivers and reimbursements)" and "Total Fund operating
expenses (after waivers and reimbursements)" are based on amounts incurred dur-
ing 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%, 0.58% and 1.33%, respectively, for the Short-Term Bond
Fund; 0.50%, 0.47% and 1.22%, respectively, for the U.S. Government Income
Fund; 0.50%, 0.96% and 1.71%, respectively, for the Municipal Bond Fund; 0.50%,
0.47% and 1.22%, respectively, for the California Tax-Free Fund; 0.50%, 0.58%
and 1.33%, respectively, for the Bond Fund; 0.60%, 0.37% and 1.22%, respective-
ly, for the Growth & Income Fund; and 0.60%, 0.54% and 1.39%, 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
Maximum 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% 0.15% 0.00% 0.00% 0.10% 0.28% 0.16%
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)* 0.50% 0.35% 0.50% 0.50% 0.40% 0.37% 0.54%
Total Fund operating
expenses (after
waivers and
reimbursements)* 1.50% 1.50% 1.50% 1.50% 1.50% 1.65% 1.70%
- --------------------------------------------------------------------------------
</TABLE>
*Griffin Advisers and Griffin Administrators currently intend to voluntarily
waive a portion of their respective fees and reimburse the Funds for certain
expenses. The percentages shown above under "Management fees (after waivers),"
"Other expenses (after waivers and reimbursements)" and "Total Fund operating
expenses (after waivers and reimbursements)" are based on amounts incurred dur-
ing 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%, 0.58% and 2.08%, respectively, for the Short-Term Bond
Fund; 0.50%, 0.47% and 1.97%, respectively, for the U.S. Government Income
Fund; 0.50%, 0.96% and 2.46%, respectively, for the Municipal Bond Fund; 0.50%,
0.47% and 1.97%, respectively, for the California Tax-Free Fund; 0.50%, 0.58%
and 2.08%, respectively, for the Bond Fund; 0.60%, 0.37% and 1.97%, respective-
ly, for the Growth & Income Fund; and 0.60%, 0.54% and 2.14%, 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 $ 8 $24 $ 42 $ 93
Tax-Free Money Market $ 8 $24 $ 42 $ 93
Short-Term Bond Fund
Class A (1) $42 $58 $ 75 $125
Class B (2)
Assuming no redemption $15 $47 $ 82 $140
Assuming full redemption (3) $55 $67 $ 82 $140
U.S. Government Income Fund
Class A (4) $52 $68 $ 85 $134
Class B (2)
Assuming no redemption $15 $47 $ 82 $140
Assuming full redemption (3) $65 $77 $102 $140
Municipal Bond Fund
Class A (4) $52 $68 $ 85 $134
Class B (2)
Assuming no redemption $15 $47 $ 82 $140
Assuming full redemption (3) $65 $77 $102 $140
California Tax-Free Fund
Class A (4) $52 $68 $ 85 $134
Class B (2)
Assuming no redemption $15 $47 $ 82 $140
Assuming full redemption (3) $65 $77 $102 $140
- -------------------------------------------------------
</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) $52 $68 $ 85 $134
Class B (2)
Assuming no redemption $15 $47 $ 82 $140
Assuming full redemption (3) $65 $77 $102 $140
Growth & Income Fund
Class A (4) $54 $72 $ 93 $151
Class B (2)
Assuming no redemption $17 $52 $ 90 $157
Assuming full redemption (3) $67 $82 $110 $157
Growth Fund
Class A (4) $54 $74 $ 95 $156
Class B (2)
Assuming no redemption $17 $54 $ 92 $163
Assuming full redemption (3) $67 $84 $112 $163
- -------------------------------------------------------
</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 LESS THAN THOSE SHOWN.
The purpose of the foregoing tables is to help you understand the various
costs and expenses that a shareholder in a Fund will bear directly or
indirectly. Operation of the Funds involves a variety of expenses for
shareholder statements, tax reporting, legal, accounting and other services.
These expenses are paid out of each Fund's assets and are illustrated by the
above tables.
14
<PAGE>
Financial Highlights
The following financial information relating to the Funds has been derived
from the financial statements of The Griffin Funds, and should be read in con-
junction with such financial statements and the related notes that appear in
the Funds' Annual Report, dated September 30, 1997, which is incorporated by
reference in the SAI. The financial statements of The Griffin Funds for the
periods presented have been audited by KPMG Peat Marwick LLP, the independent
auditors to The Griffin Funds, whose report thereon appears in the Annual Re-
port. Further information about, and management's discussion of, the Funds'
performance is contained in the Funds' Annual Report, which may be obtained
upon request and without charge. The Funds' SAI is incorporated by reference
into this Prospectus.
- -------------------------------------------------------------------------------
Financial Highlights
<TABLE>
- --------------------------------------------------------------------------------
<CAPTION>
Money Market
=========================================
Year Year Year Period
Ended Ended Ended Ended
9/30/97 9/30/96 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 0.05 0.05 0.03
Net realized and unrealized gain
(loss) on
investments 0.00 0.00 0.00 0.00
-------- -------- ------- -------
Total from investment operations 0.05 0.05 0.05 0.03
-------- -------- ------- -------
LESS DISTRIBUTIONS:
Distributions from net investment
income (0.05) (0.05) (0.05) (0.03)
Distributions from net realized gain
(loss) 0.00 0.00 0.00 0.00
-------- -------- ------- -------
Total distributions (0.05) (0.05) (0.05) (0.03)
-------- -------- ------- -------
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) 5.12% 5.05% 5.52% 3.36%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $229,774 $184,648 $79,964 $49,988
Ratios to average net assets
(annualized):
Ratio of expenses to average net
assets (i) 0.53% 0.58% 0.42% 0.15%
Ratio of net investment income to
average
net assets (ii) 5.01% 4.92% 5.40% 4.25%
(i) Ratio of expenses to average
net
assets prior to waivers and
reimbursements (g) 1.02% 1.09% 1.29% 1.64%
(ii) Ratio of net investment income
to
average net assets prior to
waivers
and reimbursements (g) 4.52% 4.41% 4.53% 2.76%
Portfolio Turnover Rate N/A N/A N/A N/A
Average Commission Rate Paid 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 specific agreements only
for periods ended after September 30, 1995.
15
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Tax-Free Money Market
=====================================
Year Year Year Period
Ended Ended Ended Ended
9/30/97 9/30/96 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 0.03 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 0.03 0.03 0.03 0.02
------- ------- ------ -------
LESS DISTRIBUTIONS:
Distributions from net investment
income (0.03) (0.03) (0.03) (0.02)
Distributions from net realized gain
(loss) 0.00 0.00 0.00 0.00
------- ------- ------ -------
Total distributions (0.03) (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) 3.02% 3.00% 3.44% 2.22%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $16,161 $11,652 $8,621 $10,633
Ratios to average net assets
(annualized):
Ratio of expenses to average net assets
(i) 0.68% 0.62% 0.44% 0.17%
Ratio of net investment income to
average
net assets (ii) 2.98% 2.93% 3.39% 2.56%
(i) Ratio of expenses to average net
assets prior to waivers and
reimbursements (g) 1.42% 1.53% 1.90% 2.28%
(ii) Ratio of net investment income to
average net assets prior to
waivers
and reimbursements (g) 2.24% 2.02% 1.92% 0.45%
Portfolio Turnover Rate N/A N/A N/A N/A
Average Commission Rate Paid N/A N/A N/A N/A
- -------------------------------------------------------------------------------
</TABLE>
(Footnotes to "Financial Highlights" appear on page 15)
16
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
- ---------------------------------------------------------------------------------------
<CAPTION>
Short-Term Bond
====================================================================================
Class A Class B
- ------------------------------------- -------------------------------------------
Year Year Period Year Year Period
Ended Ended Ended Ended Ended Ended
9/30/97 9/30/96 9/30/95(B) 9/30/97 9/30/96 9/30/95(B)
- ------- ------- ---------- ------- ------- ----------
<S> <C> <C> <C> <C> <C>
$9.98 $10.05 $10.00 $9.98 $10.05 $10.00
- ------- ------- ------ ------ ------ ------
0.56 0.54 0.18 0.50 0.49 0.20
0.11 (0.07) 0.05 0.10 (0.07) 0.05
- ------- ------- ------ ------ ------ ------
0.67 0.47 0.23 0.60 0.42 0.25
- ------- ------- ------ ------ ------ ------
(0.56) (0.54) (0.18) (0.50) (0.49) (0.20)
0.00 0.00 0.00 0.00 0.00 0.00
- ------- ------- ------ ------ ------ ------
(0.56) (0.54) (0.18) (0.50) (0.49) (0.20)
- ------- ------- ------ ------ ------ ------
0.11 (0.07) 0.05 0.10 (0.07) 0.05
- ------- ------- ------ ------ ------ ------
$10.09 $9.98 $10.05 $10.08 $9.98 $10.05
======= ======= ====== ====== ====== ======
6.86% 4.82% 2.32% 6.20% 4.29% 2.51%
$50,153 $19,554 $3,582 $175 $143 $13
0.56% 0.39% 0.00% 1.06% 0.90% 0.00%
5.55% 5.42% 5.91% 5.01% 4.81% 5.54%
1.33% 1.58% 2.76% 2.06% 2.29% 3.33%
4.78% 4.23% 3.15% 4.01% 3.42% 2.21%
23.67% 29.37% 1.05% 23.67% 29.37% 1.05%
N/A N/A N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (cont.)
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
U.S. Government Income
=====================================
Class A
-------------------------------------
Year Year Year Period
Ended Ended Ended Ended
9/30/97 9/30/96 9/30/95 9/30/94(A)
------- ------- ------- ----------
<S> <C> <C> <C> <C>
Net asset value--beginning of period $9.01 $9.24 $8.77 $9.50
------- ------- ------- -------
Income (loss) from investment
operations:
Net investment income 0.57 0.57 0.63 0.56
Net realized and unrealized gain (loss)
on investments 0.18 (0.21) 0.47 (0.73)
------- ------- ------- -------
Total from investment operations 0.75 0.36 1.10 (0.17)
------- ------- ------- -------
LESS DISTRIBUTIONS:
Distributions from net investment
income (0.57) (0.57) (0.63) (0.56)
Distributions from net realized gain
(loss) 0.00 (0.02) 0.00 0.00
------- ------- ------- -------
Total distributions (0.57) (0.59) (0.63) (0.56)
------- ------- ------- -------
Net increase (decrease) in net asset
value 0.18 (0.23) 0.47 (0.73)
------- ------- ------- -------
Net asset value--end of period $9.19 $9.01 $9.24 $8.77
======= ======= ======= =======
Total return (not annualized)(d) 8.62% 4.02% 13.00% (1.83)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $75,605 $43,717 $29,308 $19,158
Ratios to average net assets
(annualized):
Ratio of expenses to average net assets
(i) 0.54% 0.46% 0.21% 0.09%
Ratio of net investment income to
average net assets (ii) 6.384% 6.23% 6.93% 6.24%
(i) Ratio of expenses to average
netassets prior to waivers and
reimbursements (g) 1.22% 1.29% 1.63% 1.83%
(ii) Ratio of net investment income to
average net assets prior to
waivers
and reimbursements (g) 5.71% 5.41% 5.51% 4.49%
Portfolio Turnover Rate 303.81% 101.00% 46.96% 28.20%
Average Commission Rate Paid N/A N/A N/A N/A
- -------------------------------------------------------------------------------
</TABLE>
(Footnotes to "Financial Highlights" appear on page 15)
18
<PAGE>
- --------------------------------------
<TABLE>
- ---------------------------------------------------------------
<CAPTION>
U.S. Government Income
===========================================================================
Class B
---------------------------------------------------------------------------
Year Year Period
Ended Ended Ended
9/30/97 9/30/96 9/30/95(C)
------- ------- ----------
<S> <C> <C>
$9.02 $9.25 $8.67
------ ------ ------
0.53 0.53 0.52
0.18 (0.21) 0.58
------ ------ ------
0.71 0.32 1.10
------ ------ ------
(0.53) (0.53) (0.52)
0.00 (0.02) 0.00
------ ------ ------
(0.53) (0.55) (0.52)
------ ------ ------
0.18 (0.23) 0.58
------ ------ ------
$9.20 $9.02 $9.25
====== ====== ======
8.06% 3.51% 13.08%
$3,946 $3,439 $1,564
1.16% 0.96% 0.79%
5.77% 5.67% 5.71%
2.18% 2.02% 3.19%
4.74% 4.61% 3.31%
303.81% 101.00% 46.96%
N/A N/A N/A
- ---------------------------------------------------------------
</TABLE>
19
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (cont.)
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Bond
=======================================
Class A
---------------------------------------
Year Year Year 8 Period
Ended Ended Ended Ended
9/30/97 9/30/96 9/30/95(E) 9/30/94(A)
------- ------- ---------- ----------
<S> <C> <C> <C> <C>
Net asset value--beginning of period $8.71 $8.99 $8.47 $9.50
------- ------- ------- ------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS:
Net investment income 0.54 0.56 0.58 0.52
Net realized and unrealized gain
(loss) on
investments 0.24 (0.28) 0.52 (1.03)
------- ------- ------- ------
Total from investment operations 0.78 0.28 1.10 (0.51)
------- ------- ------- ------
LESS DISTRIBUTIONS:
Distributions from net investment
income (0.54) (0.56) (0.58) (0.52)
Distributions from net realized gain
(loss) 0.00 0.00 0.00 0.00
------- ------- ------- ------
Total distributions (0.54) (0.56) (0.58) (0.52)
------- ------- ------- ------
Net increase (decrease) in net asset
value 0.24 (0.28) 0.52 (1.03)
------- ------- ------- ------
Net asset value--end of period $8.95 $8.71 $8.99 $8.47
======= ======= ======= ======
Total return (not annualized)(d) 9.19% 3.12% 13.53% (5.49)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $56,923 $27,761 $12,022 $7,539
Ratios to average net assets
(annualized):
Ratio of expenses to average net
assets (i) 0.66% 0.47% 0.21% 0.09%
Ratio of net investment income to
average
net assets (ii) 2.14% 6.25% 6.69% 6.29%
(i) Ratio of expenses to average net
assets prior to waivers and
reimbursements (g) 1.33% 1.42% 2.20% 2.55%
(ii) Ratio of net investment income
to
average net assets prior to
waivers
and reimbursements (g) 1.47% 5.29% 4.70% 3.83%
Portfolio Turnover Rate 117.41% 170.64% 327.31% 26.14%
Average Commission Rate Paid N/A N/A N/A N/A
- -------------------------------------------------------------------------------
</TABLE>
(Footnotes to "Financial Highlights" appear on page 15)
20
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
Bond Municipal Bond
===========================================================================================================
Class B Class A Class B
--------------------------------------------------------------------------- -------------------------------
Year Year Period Year Year Year Period Year Year Period
Ended Ended Ended Ended Ended Ended Ended Ended Ended Ended
9/30/97 9/30/96 9/30/95(C)(E) 9/30/97 9/30/96 9/30/95(F) 9/30/94(A) 9/30/97 9/30/96 9/30/95(C)(F)
------- ------- ------------- ------- --------- ---------- ---------- ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$8.70 $8.98 $8.36 $8.95 $8.98 $8.60 $9.50 $8.96 $8.98 $8.31
------ ------ ------ ------ ------ ------ ------ ------ ----- -----
0.49 0.51 0.49 0.42 0.44 0.47 0.42 0.37 0.40 0.38
0.24 (0.28) 0.62 0.34 (0.03) 0.38 (0.90) 0.33 (0.02) 0.67
------ ------ ------ ------ ------ ------ ------ ------ ----- -----
0.73 0.23 1.11 0.76 0.41 0.85 (0.48) 0.70 0.38 1.05
------ ------ ------ ------ ------ ------ ------ ------ ----- -----
(0.49) (0.51) (0.49) (0.42) (0.44) (0.47) (0.42) (0.37) (0.40) (0.38)
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
------ ------ ------ ------ ------ ------ ------ ------ ----- -----
(0.49) (0.51) (0.49) (0.42) (0.44) (0.47) (0.42) (0.37) (0.40) (0.38)
------ ------ ------ ------ ------ ------ ------ ------ ----- -----
0.24 (0.28) 0.62 0.34 (0.03) 0.38 (0.90) (0.33) (0.02) 0.67
------ ------ ------ ------ ------ ------ ------ ------ ----- -----
$8.94 $8.70 $8.98 $9.29 $8.95 $8.98 $8.60 $(9.29) $8.96 $8.98
====== ====== ====== ====== ====== ====== ====== ====== ===== =====
8.63% 2.62% 13.58% 8.64% 4.64% 10.18% (5.15)% 7.96% 4.22% 12.86%
$433 $412 $150 $9,612 $6,540 $5,512 $2,610 $431 $425 $56
1.13% 0.96% 0.78% 0.55% 0.41% 0.40% 0.25% 1.07% 0.91% 0.90%
2.24% 5.66% 5.56% 4.56% 4.88% 5.26% 5.03% 4.05% 4.27% 4.26%
2.08% 2.15% 4.00% 1.71% 1.95% 3.30% 3.99% 2.47% 2.53% 5.56%
1.33% 4.48% 2.34% 3.40% 3.35% 2.36% 1.29% 2.61% 2.64% (0.40)%
117.41% 170.64% 327.31% 12.95% 9.82% 81.90% 81.42% 12.95% 9.82% 81.90%
N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (cont.)
<TABLE>
- -------------------------------------------------------------------------------------------------
<CAPTION>
California Tax-Free
=======================================================================
Class A Class B
--------------------------------------- ------------------------------
Year Year Year Period Year Year Period
Ended Ended Ended Ended Ended Ended Ended
9/30/97 9/30/96 9/30/95 9/30/94(A) 9/30/97 9/30/96 9/30/95(C)
------- ------- ------- ---------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value--
beginning of period $ 7.93 $7.92 $7.59 $8.50 $ 7.93 $7.92 $7.35
------- ------- ------- ------- ------ ------ -----
INCOME (LOSS) FROM
INVESTMENT OPERATIONS:
Net investment income 0.38 0.40 0.41 0.36 0.34 0.36 0.34
Net realized and
unrealized gain (loss)
oninvestments 0.33 0.01 0.33 (0.91) 0.33 0.01 0.57
------- ------- ------- ------- ------ ------ -----
Total from investment
operations 0.71 0.41 0.74 (0.55) 0.67 0.37 0.91
------- ------- ------- ------- ------ ------ -----
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.38) (0.40) (0.41) (0.36) (0.34) (0.36) (0.34)
Distributions from net
realized gain (loss) 0.00 0.00 0.00 0.00 0.00 0.00 0.00
------- ------- ------- ------- ------ ------ -----
Total distributions (0.38) (0.40) (0.41) (0.36) (0.34) (0.36) (0.34)
------- ------- ------- ------- ------ ------ -----
Net increase (decrease)
in net asset value 0.33 0.01 0.33 (0.91) 0.33 0.01 0.57
------- ------- ------- ------- ------ ------ -----
Net asset value--end of
period $ 8.26 $7.93 $7.92 $7.59 $ 8.26 $7.93 $7.92
======= ======= ======= ======= ====== ====== =====
Total return (not
annualized)(d) 9.19% 5.23% 10.13% (6.56)% 8.63% 4.70% 12.60%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (000) $26,096 $20,876 $19,292 $13,815 $4,725 $3,159 $966
Ratios to average net
assets (annualized):
Ratio of expenses to
average net assets (i) 0.55% 0.38% 0.32% 0.25% 1.08% 0.89% 0.84%
Ratio of net investment
income to average net
assets (ii) 4.72% 4.98% 5.36% 4.70% 4.18% 4.39% 4.47%
(i) Ratio of expenses
to average net
assets prior to
waivers and
reimbursements (g) 1.22% 1.29% 1.65% 2.01% 2.01% 1.98% 2.97%
(ii) Ratio of net
investment income
to average net
assets prior to
waivers and
reimbursements
(g) 4.05% 4.06% 4.03% 2.94% 3.25% 3.30% 2.35%
Portfolio Turnover Rate 34.88% 31.78% 86.69% 73.88% 34.88% 31.78% 86.69%
Average Commission Rate
Paid N/A N/A N/A N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------
</TABLE>
(Footnotes to "Financial Highlights" appear on page 15)
22
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
- --------------------------------------------------------------------------
<CAPTION>
Growth & Income
==========================================================================
Class A Class B
- ----------------------------------------- --------------------------------
Year Year Year Period Year Year Period
Ended Ended Ended Ended Ended Ended Ended
9/30/97 9/30/96 9/30/95(E) 9/30/94(A) 9/30/97 9/30/96 9/30/95(C)(E)
- -------- -------- ---------- ---------- ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
$16.29 $14.30 $11.14 $11.00 $16.26 $14.29 $11.30
- -------- -------- ------- ------- ------- ------- ------
0.20 0.21 0.27 0.23 0.11 0.17 0.23
5.77 2.32 3.22 0.13 5.76 2.28 3.05
- -------- -------- ------- ------- ------- ------- ------
5.97 2.53 3.49 0.36 5.87 2.45 3.28
- -------- -------- ------- ------- ------- ------- ------
(0.20) (0.21) (0.27) (0.22) (0.12) (0.15) (0.23)
(1.14) (0.33) (0.06) 0.00 (1.14) (0.33) (0.06)
- -------- -------- ------- ------- ------- ------- ------
(1.34) (0.54) (0.33) (0.22) (1.26) (0.48) (0.29)
- -------- -------- ------- ------- ------- ------- ------
4.63 1.99 3.16 0.14 4.61 1.97 2.99
- -------- -------- ------- ------- ------- ------- ------
$20.92 $16.29 $14.30 $11.14 $20.87 $16.26 $14.29
======== ======== ======= ======= ======= ======= ======
38.78% 18.08% 31.93% 3.29% 38.08% 17.48% 29.53%
$224,524 $102,485 $38,483 $14,174 $38,069 $16,658 $2,887
0.73% 0.72% 0.43% 0.25% 1.26% 1.22% 1.01%
1.39% 1.49% 2.30% 2.81% 0.60% 0.97% 1.64%
1.22% 1.34% 1.80% 2.17% 1.97% 2.07% 2.92%
0.90% 0.88% 0.93% 0.89% (0.11)% 0.12% (0.27)%
93.14% 66.32% 92.01% 13.90% 93.14% 66.32% 92.01%
$0.0577 $0.0498 N/A N/A $0.0577 $0.0498 N/A
- --------------------------------------------------------------------------
</TABLE>
23
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (cont.)
<TABLE>
- ----------------------------------------------------------------------------------
<CAPTION>
Growth
=============================================================
Class A Class B
------------------------------ ------------------------------
Year Year Period Year Year Period
Ended Ended Ended Ended Ended Ended
9/30/97 9/30/96 9/30/95(B) 9/30/97 9/30/96 9/30/95(B)
------- ------- ---------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value--
beginning of
period $13.76 $11.66 $10.00 $13.70 $11.65 $10.00
------- ------- ------ ------- ------- ------
INCOME (LOSS) FROM
INVESTMENT
OPERATIONS:
Net investment
income (0.04) 0.01 0.03 (0.10) (0.02) 0.03
Net realized and
unrealized gain
(loss)
oninvestments 3.02 2.12 1.63 2.99 2.09 1.62
------- ------- ------ ------- ------- ------
Total from
investment
operations 2.98 2.13 1.66 2.89 2.07 1.65
------- ------- ------ ------- ------- ------
LESS DISTRIBUTIONS:
Distributions from
net investment
income 0.00 (0.03) 0.00 0.00 (0.02) 0.00
Distributions from
net realized gain
(loss) 0.00 0.00 0.00 0.00 0.00 0.00
------- ------- ------ ------- ------- ------
Total
distributions 0.00 (0.03) 0.00 0.00 (0.02) 0.00
------- ------- ------ ------- ------- ------
Net increase
(decrease) in net
asset value 2.98 2.10 1.66 2.89 2.05 1.65
------- ------- ------ ------- ------- ------
Net asset value--
end of period $16.74 $13.76 $11.66 $16.59 $13.70 $11.65
======= ======= ====== ======= ======= ======
Total return (not
annualized)(d) 21.66% 18.35% 16.60% 21.09% 17.80% 16.50%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (000) $58,180 $21,027 $4,187 $4,132 $2,170 $149
Ratios to average
net assets
(annualized):
Ratio of expenses
to average net
assets (i) 0.90% 0.49% 0.00% 1.40% 1.01% 0.00%
Ratio of net
investment income
to average net
assets (ii) (0.13)% 0.21% 1.20% (0.85)% (0.36)% 1.07%
(i) Ratio of
expenses to
average net
assets prior
to waivers
and
reimbursements
(g) 1.39% 1.68% 3.46% 2.14% 2.43% 3.85%
(ii) Ratio of
net
investment
income to
average net
assets
prior to
waivers and
reimbursements
(g) (0.62)% (0.98)% (2.26)% (1.59)% (1.78)% (2.78)%
Portfolio Turnover
Rate 22.37% 16.40% 0.06% 22.37% 16.40% 0.06%
Average Commission
Rate Paid $0.0271 $0.0281 N/A $0.0271 $0.0281 N/A
- ----------------------------------------------------------------------------------
</TABLE>
(Footnotes to "Financial Highlights" appear on page 15)
24
<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 more sig-
nificantly by conditions affecting banks and other financial services companies
than the performance of funds that do not concentrate in the financial services
industry. 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--Variable or Float-
ing Rate Demand Obligations," and "Additional Securities and Investment Prac-
tices--Standby Commitments" in the SAI. Generally, the Fund's investments in
municipal securities will consist of tax, revenue or bond anticipation notes;
tax- exempt commercial 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 purchase restricted securities and illiquid instruments.
The Tax-Free Money Market Fund may temporarily change its investment focus
for defensive purposes. During periods when, in the Adviser's opinion, a tempo-
rary 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. Feder-
ally taxable obligations in which the Fund may invest include obli-
25
<PAGE>
gations issued by the U.S. Government or any of its agencies or instrumentali-
ties, high quality commercial paper, certificates of deposit and repurchase
agreements.
Pursuant to procedures adopted by the Board of Directors, the Money Market
Funds may purchase only high-quality securities that the Adviser believes pres-
ent 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 statistical
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 the Adviser. For
more information 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 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 the
Adviser.
The Short-Term Bond Fund may, however, invest up to 5% of its net assets in
securities rated below investment grade by a nationally recognized statistical
rating organization (or, if not rated, of comparable quality).
Securities with the lowest investment grade rating (e.g., rated BBB by Stan-
dard & Poor's Corporation ("S&P") or Baa by Moody's Investors Service, Inc.
("Moody's")) have speculative characteristics and changes in economic condi-
tions are more likely to lead to a weakened capacity to make principal and in-
terest payments than is the case with higher grade debt obligations. These con-
cerns are heightened in the case of securities rated below investment grade.
See "Additional Securities and Investment Practices--High Yield, High Risk Se-
curities" in the SAI for additional information.
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, collateralized mortgage obligations ("CMOs"),
and dollar-denominated foreign securities. The Short-Term Bond Fund may pur-
chase securities on a when-issued or delayed-delivery basis and may purchase
restricted and illiquid securities. Furthermore, the Short-Term Bond Fund may
engage in repurchase and reverse repurchase transactions, may loan its portfo-
lio securities and may purchase securities issued by other investment compa-
nies. For more information concerning these and other investments that the Fund
may make, see "The Funds in Detail--Description of Investments" and the SAI.
26
<PAGE>
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 a low default risk be-
cause they are issued or guaranteed as to principal and interest by the U.S.
Government, its agencies or instrumentalities, and relatively 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 the Adviser when there is an unexpected or abnormal level of investor
purchases or redemptions of U.S. Government Income Fund shares or because of
unusual market conditions. Permitted investments and investment activities con-
sist of variable or floating rate or inverse floating rate instruments, asset-
backed securities, mortgage-backed securities, CMOs and custodial receipts,
zero coupon bonds, STRIPS, certificates of deposit, commercial paper, repur-
chase agreements, dollar-denominated foreign securities and loans of portfolio
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 illiquid
securities. The U.S. Government Income Fund also may buy and sell options and
futures contracts to generate income for the Fund and for hedging purposes.
Sales of options contracts will be limited to covered options.
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. The portfolio turnover rate for the most
recent fiscal year was 304%, although it generally is not expected to exceed
100% in any year. 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 ba-
sis; such securities, however, are subject to a mark-up. For more information
concerning these and other investments that the Fund may make, see "The Funds
in Detail--Description of Investments" and the SAI.
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
27
<PAGE>
by the Adviser to be of comparable quality. Under normal market conditions, at
least 65% of the Municipal Bond Fund's total assets are invested in investment
grade municipal securities. 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 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 net asset value. Any subsequent
change in any rating by a rating service will not require elimination of any
security from the portfolio 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 secu-
rities that pay interest which is exempt from federal income taxes and which
is not subject to the federal alternative minimum tax. The Adviser will, under
normal market conditions, invest substantially all of the Municipal Bond
Fund's assets in the following types of municipal 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. The Municipal Bond Fund has no restriction on portfolio maturity, but
the dollar-weighted average maturity of the portfolio is expected to be
greater than 10 years. The Municipal Bond Fund may buy or sell securities on a
when-issued or delayed-delivery basis, and may purchase restricted and illiq-
uid securities. The Municipal Bond Fund may also buy and sell options and
futures contracts.
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, CMOs, STRIPS, certifi-
cates of deposit, commercial paper, taxable
municipal securities, repurchase agreements and loans of portfolio securities.
Such temporary investments would most likely be made by the Adviser when there
is an unexpected or abnormal level of investor purchases or redemptions of Mu-
nicipal Bond Fund shares or because of unusual market conditions. The income
from these temporary investments 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 other con-
ditions that affect securities of a similar type or within a single industry.
Therefore, developments affecting a single issuer, industry or type of project
could have a significant effect on the Municipal Bond Fund's performance.
28
<PAGE>
The annual portfolio turnover rate is not a factor in the management of the
Municipal Bond Fund; however, it is not expected to exceed 100% 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 mu-
nicipal securities are effected on a principal basis; such securities, however,
are subject to a mark-up. For more information concerning these and other in-
vestments that the Fund may make, see "The Funds in Detail--Description of In-
vestments" and the SAI.
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 statisti-
cal 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 the Adviser to be
of comparable quality. Securities with the lowest investment grade rating have
speculative characteristics and changes in economic conditions or other circum-
stances are more likely to lead to a weakened capacity to make principal and
interest payments than is the case with higher grade debt obligations.
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 "Special Factors Affecting the California Tax-Free Fund" in the
SAI.
Because the California Tax-Free Fund invests primarily in securities issued
by entities 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 than funds that do not invest a significant portion of their as-
sets in California securities. From mid-1990 to early 1994, California suffered
a recession, resulting in high unemployment rates and recurring budget defi-
cits. Additionally, the state sustained a budget deficit in its Special Fund
for Economic Uncertainties ("SFEU"). Consequently, between October 1991 and
July 1994, the rating agencies reduced the State's credit ratings. Moody's low-
ered its rating from "Aaa" to "A1", S&P lowered its rating from "A+" to "A" and
Fitch Investors Service lowered its rating from "AAA" to "A".
Since the beginning of 1994, the California economy has been steadily recov-
ering from the recession of the early 1990s. Employment has grown by 500,000
additional jobs during 1994 and 1995 and by 400,000 new jobs between the fourth
quarters of 1996 and 1997. Due to the improved economy, the state has had bud-
get surpluses for five consecutive fiscal
29
<PAGE>
years. Additionally, the SFEU is projected by some analysts to have a positive
balance of approximately $553 million as of June 30, 1998. As a result of these
economic improvements, S&P updated its rating of California municipal obliga-
tions to A+ on July 30, 1996, where it remains today. Griffin Advisers will
continue to monitor and evaluate the Fund's investments in light of the events
in California and the Fund's investment objective and policies. For additional
information, see "Special Factors Affecting the California Tax-Free Fund" in
the SAI.
The Adviser will, under normal market conditions, invest substantially all of
the California Tax-Free Fund's assets in the following types of municipal secu-
rities: fixed, variable or floating rate general obligation and revenue bonds
(including municipal lease obligations and resource recovery bonds); zero cou-
pon and asset-backed securities; tax, revenue or bond anticipation notes; and
tax-exempt commercial paper issued by or on behalf of the State of California,
its cities, municipalities, political subdivisions and other public authori-
ties. The California Tax-Free Fund may buy or sell securities on a when-issued
or delayed- delivery basis, and may purchase restricted and illiquid securi-
ties. 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, CMOs, certificates
of deposit, 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 "non-diversified" under the In-
vestment 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. However,
the Fund intends to conduct its operations to qualify as a "regulated invest-
ment company" under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). In order to so 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, and (ii) with respect to 50% of the market value of its total assets,
(A) not more than 5% of the value of its total assets will be invested in the
securities of a single issuer, and (B) the Fund will not own more than 10% of
the outstanding voting securities of a single issuer (since the securities or-
dinarily purchased by the Fund are nonvoting securities, there is typically 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 100% in any
year. A high portfolio turnover rate should not result in the California Tax-
Free Fund paying substantially more
30
<PAGE>
brokerage commissions, since most transactions in municipal securities are ef-
fected on a principal basis; such securities, however, are subject to a mark-
up. For more information concerning these and other investments that the Fund
may make, see "The Funds in Detail--Description of Investments" and the SAI.
The BOND FUND invests in corporate debt securities which are debt obliga-
tions of all types issued by U.S. or foreign corporations, banks or other
business organizations. The debt obligations in which the Fund invests include
bonds, notes, commercial paper, certificates of deposit, convertible bonds,
asset-backed securities, zero coupon bonds and other types of fixed-income in-
struments with fixed or floating interest rates. The Fund may invest in non-
corporate debt obligations issued by U.S. or foreign governments or government
agencies, including U.S. Government Obligations, mortgage-backed securities,
including collateralized mortgage obligations, and money market instruments
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 investment grade by a nationally rec-
ognized statistical rating organization (i.e., are rated in one of the top
four rating categories) or are unrated but are determined by the Adviser to be
of comparable quality. The Bond Fund may also invest up to 5% of its net as-
sets in securities rated below investment grade by a nationally recognized
statistical rating organization (or, if not rated, of comparable quality).
Securities with the lowest investment grade rating (e.g., those rated Baa by
Moody's or BBB by S&P) have speculative characteristics and changes in eco-
nomic 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 concerns are heightened in the case of securi-
ties rated below investment grade. See "Additional Securities and Investment
Practices--High Yield, High Risk Securities" in the SAI for additional infor-
mation. 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 invest-
ments, but generally expects to focus on longer-term bonds. The Bond Fund may
make substantial temporary investments in short-term securities and money mar-
ket instruments for defensive purposes when, in the Adviser's judgment, market
conditions warrant.
In managing the Bond Fund's investments, the Adviser 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 in-
struments. The Bond Fund is not limited to U.S. securities, and may invest
with a global perspective if the Adviser believes foreign securities offer at-
tractive returns. In this regard, the Fund may invest up to 25% of its total
assets in dollar-denominated securities of foreign issuers located in devel-
oped and developing countries. Investments in foreign securities involve cer-
tain risks that are not typically associated with investments in domestic se-
curities. See "The Funds in Detail-- Description of Investments--Foreign Secu-
rities" in this Prospectus, and "Additional Securities and Investment Practic-
es--Foreign Securities" in the SAI. The
31
<PAGE>
Adviser has broad flexibility to vary the Bond Fund's exposure to securities
with different ma-turities, 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 consider 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
Investments--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.
The annual portfolio turnover rate generally is not a factor in the manage-
ment of the Bond Fund; generally, however, it is not expected to exceed 200%.
A high portfolio 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. For more
information concerning these and other investments that the Fund may make, see
"The Funds in Detail--Description of Investments" and the SAI.
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 (i) common stocks which are trading at low valuation
levels relative to their fundamentals, such as price-to-current earnings, ei-
ther relative to the market or to the security's historic price-to-earnings
relationship, (ii) in common stocks which are trading at low prices in rela-
tion to their prospects for long-term growth in dividends and earnings, and
(iii) 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 investments among companies and prevent concentration within in-
dustries.
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 the
Adviser 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 recog-
nized statistical rating organization or, if unrated, are determined by the
Adviser 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 payments than is the case with higher grade debt
obligations. The Growth & Income Fund also may hold a portion of its assets in
cash and money market instruments.
The Growth & Income Fund may engage in repurchase and reverse repurchase
transactions. In addition, the Growth & Income Fund may purchase futures con-
tracts and op-
32
<PAGE>
tions 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 not intend to invest more than 10% of its total assets in such
securities.
At times, the Adviser may judge that conditions in the securities markets
make pursuing the Growth & Income Fund's basic investment strategy inconsistent
with the best interests of the Growth & Income Fund's shareholders. At such
times, the Adviser may temporarily use alternative strategies, primarily de-
signed to reduce fluctuations in the value of the Growth & Income Fund's as-
sets.
In implementing these "defensive" strategies, the Growth & Income Fund may
invest without limit in high quality debt securities or preferred stocks, or in
other securities that the Adviser 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 alternative
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 100%. A
higher portfolio turnover rate may result in higher brokerage costs for the
Fund. For more information regarding the Growth & Income Fund's permissible in-
vestments, see "The Funds in Detail--Description of Investments" and the SAI.
The GROWTH FUND invests primarily in the common stocks of mid-cap companies
that, in the opinion of the Adviser, offer above-average growth potential. Un-
der 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-average growth. The Growth Fund seeks to invest
in mid-cap companies that (i) offer proven products or services, (ii) have a
historical record of above-average earnings growth, (iii) demonstrate the po-
tential to sustain earnings growth, (iv) operate in industries experiencing in-
creasing 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 generally offer the potential for more rapid growth. They also may
offer greater potential for capital appreciation because of their higher growth
rates. In addition, the stocks of mid-cap companies are less actively followed
by securities analysts and may, therefore, at times be undervalued by the mar-
ket in general.
In addition to common stocks, the Growth Fund may invest in preferred stocks,
convertible securities and futures and options. The Growth Fund may invest up
to 25% of its
33
<PAGE>
total assets in dollar-denominated foreign securities. The Growth Fund may pur-
chase securities on a when-issued or delayed-delivery basis, may loan its port-
folio securities and may invest in securities issued by other investment compa-
nies, consistent with the Growth Fund's investment objective and policies. Fur-
thermore, 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 in-
struments.
At times, the Adviser may judge that conditions in the securities markets
make pursuing the Growth Fund's basic investment strategy inconsistent with the
best interests of the Growth Fund's shareholders. At such times, the Adviser
may temporarily use alternative strategies, primarily designed to reduce fluc-
tuations 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 the Adviser considers consistent with such defensive
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% in any year. A
higher portfolio turnover rate may result in higher brokerage costs for the
Fund. For more information concerning these and other investments that the Fund
may make, see "The Funds in Detail--Description of Investments" and the SAI.
34
<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 minimum initial and subsequent investment
amounts. The following summarizes the general attributes of tax laws common to
retirement programs. You should consult your tax adviser for more specific in-
formation.
. Individual Retirement Accounts (IRAs) allow individuals who are not active
participants 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 certain 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.
. New Savings Incentive Match Plans for Employees (SIMPLE Plans) and older
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.
. Spousal IRAs allow a working spouse to make deductible contributions, sub-
ject to certain dollar limitations, to an IRA established by a nonworking
spouse (or by a spouse whose compensation from a job does not exceed $250
for the taxable year).
. Roth IRAs allow individuals, including individuals over the age of 70 1/2,
to take tax-free distributions of the earnings on nondeductible contribu-
tions.
EDUCATION. Education investment accounts allow certain taxpayers to contribute
up to $500 per child per year to an education IRA. Earnings on such contribu-
tions may be distributed tax free if used to pay the child's postsecondary ed-
ucation expenses.
35
<PAGE>
The Tax-Free Money Market Fund, the Municipal Bond Fund and the California
Tax-Free Fund probably are not appropriate investments for tax-exempt institu-
tions or tax-sheltered retirement and education accounts, as such investors
would receive no benefit 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).
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. Corporations, associations, partnerships, institu-
tions and other organizations should contact a Griffin Financial Representa-
tive for more information.
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 38. You also may complete and sign an account
application 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.
36
<PAGE>
From time to time, shares of the Money Market Fund and the Tax-Free Money
Market Fund also may be available for purchase through various sweep and cash
management programs offered by various entities, including Griffin Financial
and its affiliates, on terms specified in those programs.
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 Exchange
("NYSE") is open for business.
Share purchases are effected at the share price next determined after an or-
der and good funds are received and accepted by a Money Market Fund. Share
price is determined at 12:00 noon, Eastern time. Orders received with good
funds before noon, Eastern time, are effective that day and orders received at
or after noon, Eastern time, are effective the following business day. You will
begin to accrue daily dividends the day after becoming a shareholder.
NON-MONEY MARKET FUNDS. Purchase orders for shares of the Non-Money Market
Funds are effected at the NAV next determined (less any applicable sales
charge) after an order and good funds are received and accepted by the Non-
Money Market Fund. The offering price of Class A Shares of each Non-Money Mar-
ket Fund is calculated on each day the NYSE is open for business, and reflects
a sales load of 4.50% with respect to Non-Money Market Funds, other than the
Short-Term Bond Fund, and 3.50% with respect to the Short-Term Bond Fund, un-
less you qualify for a reduction or waiver as described under "Sales Load Re-
ductions 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 sub-
ject to a maximum deferred sales charge of 5.00% with respect to Non-Money Mar-
ket Funds, other than the Short-Term Bond Fund, and 4.00% with respect to the
Short-Term Bond Fund, of the lesser of NAV at purchase or NAV at redemption.
Each day that the NYSE is open for business the NAV is calculated for each
class of shares of each Non-Money Market Fund. 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>
37
<PAGE>
- --------------------------------------------------------------------------------
Purchasing Shares
<TABLE>
- -------------------------------------------------------------------------------------
<CAPTION>
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.
PHONE . Exchange from another . Exchange from another Fund account
1-800-676-4450 Fund account with the with the same registration (identical
same registration name(s), address, and taxpayer ID
(identical name(s), 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 certain
retirement accounts.
. Wire within 24 hours . Wire to: Investors Fiduciary Trust Co.
to: 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
38
<PAGE>
order is received and accepted by a Fund. Except for any applicable contingent
deferred sales charge ("CDSC"), The Griffin Funds impose no charge for redeem-
ing 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 your account(s) 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.
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 may be
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.
39
<PAGE>
Certain purchase, redemption and exchange features (e.g., checkwriting (if
applicable), automatic investment, systematic withdrawal, etc.) generally
available to shareholders of the Money Market Fund and the Tax-Free Money Mar-
ket Fund may not be available to an investor who purchases shares of such Funds
through a sweep or other cash management program offered by various entities,
including Griffin Financial and its affiliates.
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
40
<PAGE>
- --------------------------------------------------------------------------------
Redeeming Shares
<TABLE>
- ---------------------------------------------------------------------------------------------
<CAPTION>
Method Account Type Special Requirements
<C> <S> <C>
PHONE All account types except . Maximum check request: $100,000
1-800-676-4450 certain retirement
accounts
. 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, by all persons required to authorize
Sole Proprietorships, transactions, exactly as their names
UGMA, 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
certain retirement feature before using it. To verify that
accounts 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>
41
<PAGE>
SHAREHOLDER SERVICES
The Griffin Funds provide the following services to help you with your ac-
count:
INFORMATION SERVICES
You may visit a Griffin Financial Representative for information or assis-
tance or you can call a 24-hour toll-free telephone number for automated ac-
count balance information.
Statements and reports that you will receive include the following:
.Confirmation statements (generally after every transaction, except a
reinvestment, that affects your account balance or your account
registration)
.Account statements (quarterly)
.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 Class A Shares 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 difference.
Class B Shares of a Non-Money Market Fund may be exchanged for Class B Shares
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 applicable time pe-
riods, upon a subsequent redemption. When a shareholder exchanges 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 exchanged Class B Shares,
the shareholder will have to pay a deferred sales charge equal to the CDSC ap-
plicable to the previously exchanged Class B Shares. A shareholder who ex-
changes Class B Shares of a Non-Money Market
42
<PAGE>
Fund for shares of the Money Market Fund or the Tax-Free Money Market Fund sub-
sequently 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 Market 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, semi-annual 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.
43
<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 exchange shares of one Fund for shares of another Fund
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, contact your
Griffin Representative or call 1-
800-676-4450 to request the
appropriate form.
44
<PAGE>
DIVIDENDS, CAPITAL GAINS AND TAXES
Income dividends are accrued daily and paid monthly on all of the Funds ex-
cept the Growth & Income Fund and the Growth Fund. Income dividends are de-
clared 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 re-
ceive your distributions. Each Fund offers four options:
1. REINVESTMENT OPTION. Dividend and capital gain distributions will be
automatically reinvested in additional Fund shares of the same class. If
you do not indicate a choice on your application, it will be assumed that
you 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
Each of the Funds intends to qualify as a separate "regulated investment
company" under the Code. Such qualification relieves a Fund of liability for
federal income tax to the extent its net investment income and capital gains
are distributed annually in accordance with the Code. Each of the Funds in-
tends to annually distribute substantially all of its net investment income
and capital gains.
Distributions from net investment income, and net short-term capital gains,
if any, of the Money Market Fund, Short-Term Bond Fund, U.S. Government Income
Fund, Bond Fund, Growth & Income Fund, and Growth Fund, are designated as div-
idend distributions and are taxable to the Fund's shareholders as ordinary in-
come.
Dividends distributed from the Tax-Free Money Market Fund's, Municipal Bond
Fund's and the California Tax-Free Fund's net interest income from tax-exempt
securities will not be subject to federal income taxes. Dividends from the
California Tax-Free Fund will also be exempt from California personal income
tax to the extent such dividends are attributable to instruments that pay in-
terest which would be exempt from California personal income taxes, if such
instruments were held directly by an individual. Dividends attributable to the
Tax-Free Money Market Fund's, Municipal Bond Fund's and the California Tax-
Free Fund's interest income from taxable securities and short-term capital
gain distributions will be taxable as ordinary income.
Distributions from a Fund's net long-term capital gains, if any, are desig-
nated as capital gains distributions. Under the Taxpayer Relief Act of 1997,
noncorporate stockholders may be taxed on all or a portion of their capital
gain distributions at preferential rates.
45
<PAGE>
Dividend and capital gain distributions will be taxable when paid, whether
distributions are taken in cash or are automatically reinvested in additional
Fund shares. However, taxable dividends, if declared in October, November, and
December and distributed in the following January, will be treated as if they
were paid by December 31.
Foreign shareholders may be subject to different tax treatment, including
withholding taxes. In certain circumstances, U.S. resident individuals may also
be subject to backup withholding taxes. See "Distributions and Taxes" in the
SAI.
The foregoing discussion regarding taxes is based on tax laws which were in
effect as of the date of this Prospectus and summarizes only some of the impor-
tant federal tax considerations generally affecting the Funds and their share-
holders. It is not intended as a substitute for careful tax planning. All in-
vestors should consult their own tax advisers with respect to their particular
tax situations, as well as with respect to foreign, state and local taxes. Ad-
ditional tax considerations are discussed in the SAI.
Fund Account Policies
TRANSACTION POLICIES
A single net asset value ("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 add-
ing 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 outstand-
ing. The NAV per class of each of the Non-Money Market Funds is determined by
adding up the value of the investments, cash and other assets attributable to
the class, subtracting all liabilities of such class and dividing the result by
the total number of shares outstanding of such class.
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, Eastern 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., Eastern
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 or under the supervision of the Board of
Directors. Prices used for such valuations may be provided by independent pric-
ing 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 withhold-
46
<PAGE>
ing by the IRS. If these certifications are not made, the IRS can require The
Griffin Funds to withhold 31% of your taxable distributions 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 "Shareholder Services--Ex-
change Privileges." For example, a purchase order may be rejected if, in The
Griffin Funds' opinion, such order is 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 its transfer agent 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:
. 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 may close your account and send the proceeds to you.
Your shares will be redeemed at the NAV on the day your account is closed.
47
<PAGE>
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 4.50% sales charge, you would pay a 4.50% 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 acquisition of
the shares exchanged.
. 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 the Adviser's judgment, the receiving Fund would be un-
able to invest the money effectively in accordance with its investment ob-
jective and policies, 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. Before exchanging into a
Fund you should read its prospectus.
48
<PAGE>
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>
Less than $50,000 3.50% 3.63% 3.00%
$50,000 up to $99,999 3.00% 3.09% 2.50%
$100,000 up to $249,999 2.50% 2.56% 2.00%
$250,000 up to $499,999 2.00% 2.04% 1.50%
$500,000 up to $999,999 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") that Griffin Financial may from time
to time retain. In cases where Non-Money Market Fund shares are sold directly
through Griffin Financial, Griffin Financial may compensate its sales repre-
sentatives based on such Reallowance Amounts.
**A CDSC of 1.00% of the lesser of the NAV at purchase or NAV at redemption is
imposed on redemptions requested within one year of purchase.
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."
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
49
<PAGE>
accordance with the above sales load schedule. To obtain such discount, you
must provide sufficient information at the time of purchase to permit verifica-
tion that the purchase qualifies for the reduced sales load, and confirmation
of the purchase is subject to such verification. The Right of Accumulation may
be modified or discontinued at any time with respect to all Class A Shares pur-
chased 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.
General. Reductions in sales loads also apply to purchases by individual mem-
bers 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 de-
fined in the Investment Company Act of 1940, which has been in existence for
more than six months and which has a primary purpose 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 paragraph, 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 outstand -
50
<PAGE>
ing 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 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, officers and employees (and their spouses and
children under the age of 21) of H.F. Ahmanson & Company and its affiliates.
Such sales also may be made to employee pension, profit sharing, or stock bonus
plans qualified under Section 401(a) of the Code, governmental plans within the
meaning of Section 414(d) of the Code, simplified employee pensions within the
meaning of Section 408(k) of the Code and to any investment advisory, trust or
other fiduciary account (other than an individual retirement account) provided
that such plan, pension or account is sponsored, serviced, administered, main-
tained, managed or advised by H.F. Ahmanson & Company or its affiliates. In ad-
dition, 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 investor paid either an initial
sales charge or a CDSC. However, any such purchase 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 transaction. Class A Shares also may be
purchased without a sales charge by participant-directed employee benefit plans
with at least 25 eligible employees.
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% of the lesser of the NAV at time of purchase or NAV at time
of redemption is imposed on redemptions of Class A Shares of the Non-Money Mar-
ket Funds occurring within one year of purchases totalling $1,000,000 or more
(where an initial sales charge was not paid).
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 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
51
<PAGE>
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 pur-
chased through reinvestment of dividends or capital gains distributions. In
determining whether a CDSC is applicable to a redemption, the calculation will
be made in the manner which results in the lowest possible charge being as-
sessed.
Waivers of the CDSC. 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 distribu-
tion from an IRA or other retirement plan to a shareholder who has reached age
70 1/2, (iii) effected pursuant to The Griffin Funds' right to liquidate a
shareholder's account if the aggregate NAV of the shareholder's Griffin Fund
account is less than the minimum account size, (iv) in connection with the
combination of The Griffin Funds with any other registered investment company
by a merger, acquisition of assets or by any other transaction, or (v) to the
extent the redemption represents continuing, periodic withdrawals under the
Systematic Withdrawal Plan, up to an annual total of 12% of the value of a
shareholder's Class B Share account in a Fund. The CDSC also is waived on re-
demptions of Class B Shares where the entire proceeds of such redemptions are
invested, through a Portfolio Builder Account, in shares of a Griffin Money
Market Fund, Class A Shares of a Non-Money Market Fund or any other Fund
available through a Portfolio Builder Account.
Conversion Feature. 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 distribution and 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 ap-
plied to such converted shares. Any Class B Shares acquired through the rein-
vestment of dividends and distributions will convert on a pro rata basis with
the Class B Shares purchased directly by a shareholder. If a shareholder ex-
changes Class B Shares of a Non-Money Market Fund for Class B Shares of an-
other Non-Money Market Fund during the six-year period, the holding period for
shares so exchanged will be counted toward the holding period for the shares
acquired, and such acquired shares will be subject to the CDSC schedule appli-
cable to the shares originally purchased.
Reinstatement Privilege. A shareholder of a Non-Money Market Fund who re-
deems Class B shares and pays a CDSC may, within 90 days of the date of such
redemption, request that such prior investment in Class B Shares, or a portion
thereof, be reinstated in Class B Shares of the same or another Non-Money Mar-
ket Fund at the NAV next determined after the reinstatement request is re-
ceived by IFTC. A shareholder exercising this privilege will receive pro rata
credit for any CDSC paid in connection with the previous redemption. A rein-
statement of prior investment will be treated as a new investment for purposes
of determining the amount of any CDSC applicable to a subsequent redemption.
52
<PAGE>
A shareholder may not exercise this privilege with the proceeds of a redemption
of shares previously purchased through the reinstatement privilege. The rein-
statement privilege may be terminated or modified at any time.
Other Information. 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 in-
vestors should compare the fees assessed on Class A Shares against those as-
sessed on Class B Shares in light of the amount to be invested and the antici-
pated time that the shares will be owned.
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
GRIFFIN ADVISERS serves the Funds as investment adviser pursuant to an advi-
sory contract. Payden & Rygel acts 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. Payden & Rygel, which had approximately
$23 billion in assets under management as of December 31, 1997, 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
53
<PAGE>
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
approximately $125 billion in assets under management as of September 30, 1997.
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 ap-
proximately $21 billion in assets under management as of December 31, 1997,
provides equity, fixed income and cash management services to investment compa-
nies and other investment accounts. The Funds' sub-advisers have primary re-
sponsibility for choosing investments for the Funds and periodic reports 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 Growth Fund is managed by an In-
vestment Advisory Committee composed of the following members: Richard T.
Whitney, Chairman, Donald J. Peters and K.D. Farrow. As Committee Chairman, Mr.
Whitney has primary responsibility for managing the portfolio and works with
the Committee on developing and executing the Growth Fund's investment program.
Mr. Whitney has been the Chairman of the Growth Fund's Investment Advisory Com-
mittee since March 1996. Mr. Whitney has held the position of Managing Director
of T. Rowe Price since October 1995. From April 1988 to October 1995, Mr.
Whitney was a Vice President of T. Rowe Price.
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 designation.
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 eleven years of invest -
54
<PAGE>
ment experience and serves on the Fixed Income Strategy Committee. Prior to
joining TBCAM in 1994, Mr. Fontaine was Assistant Vice President of Fixed In-
come Securities at Massachusetts Financial Services. Mr. Fontaine graduated
from Hobart William Smith with a B.A. in History and also holds an M.B.A. from
Boston College. He has earned the Chartered Financial Analyst designation, and
is a member of the Boston Security Analysts Society, Inc. Mr. MacBride joined
TBCAM in 1988 and currently serves as a fixed income portfolio manager, the Di-
rector of Fixed Income and the Chairman of the Fixed Income Strategy Committee.
Mr. MacBride is a graduate of Franklin & Marshall College and holds an M.B.A.
from Fordham University. He has served as a manager of the Bond Fund since Jan-
uary 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 Senior Vice President of TBCAM with
eleven 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 B.A. and also holds a M.B.A. from Stanford University. He is
also a member of the Investment Committee of the International Foundation of
Employee Benefits.
GRIFFIN ADMINISTRATORS is the Funds' administrator and provides administra-
tive and accounting services to the Funds.
IFTC is the Funds' custodian and transfer, shareholder service and dividend-
paying agent. IFTC is located at 801 Pennsylvania, Kansas City, Missouri 64105.
IFTC also provides certain sub-administrative services to the Funds.
GRIFFIN FINANCIAL, located at 5000 Rivergrade Road, Irwindale, California
91706, distributes 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.
Expenses 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, and in "Fund Ex-
penses."
55
<PAGE>
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.
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 a 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 as-
sets 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. For
the fiscal year ended September 30, 1997, after waivers, the Money Market
Fund, Growth & Income Fund and the Growth Fund paid management fees to Griffin
Advisers at the rate of 0.01%, 0.11% and 0.12%, respectively, of their average
daily net assets. For the same period, after waivers, the Tax-Free Money Mar-
ket Fund, the Short-Term Bond Fund, the U.S. Government Income Fund, the Bond
Fund, the Municipal Bond Fund and the California Tax-Free Fund paid no manage-
ment fees to Griffin Advisers.
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, print -
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ing and delivering prospectuses to prospective shareholders of a Fund or for
other distribution-related 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 Market and Tax-Free 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 incur 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, 1997, after waivers, the Money Market Fund, the Tax-Free Money
Market Fund, the Short-Term Bond Fund, the U.S. Government Income Fund, the
California Tax-Free Fund, the Bond Fund, the Growth & Income Fund and the
Growth Fund paid administration fees to Griffin Administrators at the rate of
0.20%, 0.14%, 0.17%, 0.20%, 0.18%, 0.20%, 0.20% and 0.20%, respectively, of
their average daily net assets. After waivers, the Municipal Bond Fund paid no
administration fees to Griffin Administrators for the fiscal year ended Septem-
ber 30, 1997.
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 perfor-
mance may be
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advertised in terms of tax-equivalent yield or effective tax-equivalent yield.
These performance figures are based on historical results calculated under uni-
form SEC formulas and should not be considered representative of future perfor-
mance.
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 current 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
The performance of each class of shares of the Non-Money Market Funds may be
advertised in terms of yield and total return. These performance figures are
based on the historical earnings and performance of such class of shares 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) of one share of the class of shares at the beginning 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, provided that total
return data derived pursuant to the calculation described above are also pre-
sented.
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
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that would have been paid by an investor in the class of shares, or by assuming
that a sales charge other than the maximum sales charge (reflecting the volume
discounts set forth above) is assessed, provided that yield data derived pursu-
ant to the calculation described above are also presented.
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.
The annual and semi-annual reports for The Griffin Funds contain additional
performance information and are available upon request by calling The Griffin
Funds at 1-800-676-4450.
DESCRIPTION OF INVESTMENTS
The following pages contain more detailed information about the types of se-
curities in which the Funds may invest and strategies the Advisers may employ
in pursuit of the Funds' investment objectives. A summary of risks and restric-
tions associated with these securities and investment practices is included as
well. Additional information about these securities 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 securities is not required
in the event of a subsequent change in circumstances.
ASSET-BACKED SECURITIES. Each of the Funds may invest in asset-backed securi-
ties. Asset- backed securities arise through the grouping by governmental, gov-
ernment-related, and private organizations of loans, receivables and other as-
sets originated by various lenders. Asset-backed securities acquired by a Fund
may consist of both mortgage and non-mortgage-backed securities. Unlike other
forms of debt securities, which normally provide for periodic payment of inter-
est in fixed amounts with principal paid at maturity or specified call dates,
asset-backed securities provide periodic payments which generally consist of
both interest and principal payments.
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 may not
be 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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Mortgage-backed securities represent an ownership interest in a pool of
mortgage loans, the interest in which is in many cases issued and guaranteed
by an agency or instrumentality of the U.S. Government, though not necessarily
by the U.S. Government itself. One such type of mortgage-backed security is a
Government National Mortgage Association ("GNMA") Certificate. GNMA Certifi-
cates 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 Corpora-
tion ("FHLMC") Participation Certificate. This type of obligation is guaran-
teed 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. Gov-
ernment. Mortgage-backed securities issued by private issuers, whether or not
such obligations are subject to guarantees by the private issuer, may entail
greater risk than obligations directly or indirectly guaranteed by the U.S.
Government. Mortgage-backed securities issued by private issuers will be pur-
chased for a Fund only when the Adviser determines that they are readily mar-
ketable at the time of purchase. Except as limited by their respective invest-
ment objectives and policies, there is no limit on the amount or type of mort-
gage-backed securities the Short-Term Bond Fund, 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. The average life is likely to be substan-
tially 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 performance. The rate of mortgage prepayments,
and hence the average life of the certificates, will be a function of the
level of interest rates, general economic conditions, the location and age of
the mortgage and other social and demographic conditions. These prepayments
tend to increase when interest rates decline, presenting a Fund with more
principal to invest at lower rates. Such prepayments are passed through to the
registered holder with the regular monthly payments of principal and interest
and have the effect of reducing future 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, and all ref-
erences herein to CMOs will include multi-class pass-through securities. Pay-
ments 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 is-
sued 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 sub-
stantially earlier than the stated maturities or final distribution dates, re-
sulting in a loss of all or part of the premium if any has been paid. The prin-
cipal and interest on the underlying mortgages may be allocated among the sev-
eral 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
Short-Term Bond, U.S. Government Income, Municipal Bond, California Tax-Free
and Bond Funds may also invest in inverse or reverse floating CMOs. Inverse 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. According-
ly, 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 income earned on the
Fund's investments due to a decline in interest rates. The Short-Term Bond,
U.S. Government Income, Municipal Bond, California Tax-Free and Bond Funds
would be adversely affected by the purchase of such CMOs in the event of an in-
crease in interest rates since the coupon rate thereon will decrease as inter-
est rates increase, and, like other mortgage-backed securities, the value will
decrease as interest rates increase.
The Short-Term Bond, U.S. Government Income, Municipal Bond, California Tax-
Free and Bond Funds 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,
mortgage 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 consist-
ing solely or primarily of all or a portion of the principal of the underlying
pool of Mortgage Assets. The cash flows and yields on IO and PO classes are ex-
tremely sensitive to the rate of principal payments (including prepayments) 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 experience
greater than anticipated prepayments of principal, an investor in the IO class
may incur substantial losses. Conversely, if the underlying Mortgage Assets ex-
perience slower than anticipated prepayments of principal, the yield on
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a PO class will be affected more severely than would be the case with a tradi-
tional mortgage-backed security.
The Funds also may invest in non-mortgage backed securities including inter-
ests in pools of receivables, such as motor vehicle installment purchase obli-
gations and credit card receivables. Such securities are generally issued as
pass-through certificates, which represent undivided fractional ownership in-
terests in the underlying pool of assets. Such securities also may be debt in-
struments, which also are known as collateralized obligations and are generally
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 the Adviser to be of comparable quality at the time of purchase are
eligible for purchase by the U.S. Government Fund, Municipal Bond Fund, Cali-
fornia Tax-Free Fund, Bond Fund and Growth & Income Fund. In addition, such se-
curities generally will have remaining estimated lives at the time of purchase
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 investment in eq-
uity securities.
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
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of time into a certain quantity of the common stock of the same issuer. Con-
vertible bonds, while usually subordinate to similar non-convertible bonds,
are senior to common stocks in an issuer's capital structure. Convertible
bonds 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 advan-
tage of increases in the price of the issuer's common stock through the con-
version feature. Fluctuations in the convertible bond'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 convert-
ible bonds that are either rated in one of the four highest rating categories
by Moody's, S&P or another nationally recognized statistical rating organiza-
tion, or unrated securities determined by the Adviser, under the supervision
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 In-
come, Municipal Bond and California Tax-Free Funds, may invest in corporate
bonds and notes, which include debt securities issued by domestic corpora-
tions, U.S. dollar-denominated debt securities issued by foreign corporations,
Yankee bonds and supranational obligations. Yankee bonds are U.S. dollar-de-
nominated obligations issued by foreign governments or companies. Suprana-
tional obligations are U.S. dollar-denominated obligations issued by interna-
tional entities such as The World Bank and the Inter-American Development
Bank. A bond generally is an interest-bearing security--an IOU--issued by com-
panies or governmental 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 pro-
ceeds at lower market rates.
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
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changes in interest rate levels. A bond's price usually rises when interest
rates fall, and vice versa, so its yield stays current. 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
under 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 that may be subject to delayed-delivery transactions. See
"Additional Securities and Investment Practices--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 securities with embedded interest
rate derivative products. These Funds will not invest more than 20% of their
respective total assets in derivative municipal obligations. These interest
rate derivative products allow funds to hedge against fluctuations in interest
rates. Invest -
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ment in certain of these instruments (e.g., Inverse Components) may increase
the volatility of these Funds' NAV and market value of these Funds' shares. A
discussion of interest rate derivative products is set forth in the SAI under
"Derivative Municipal Obligations."
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 Instru-
ments. 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 invest-
ors in amounts which are linked to the level of a particular foreign index. Ad-
ditional information concerning Foreign Index Linked Instruments is included in
the SAI.
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 securities of foreign governments, private issuers and supranational organi-
zations that are denominated in and pay interest in U.S. dollars. Such invest-
ments may include, among other securities, American Depositary Receipts (ADRs).
ADRs are receipts typically issued by a U.S. bank or trust company evidencing
ownership of the underlying foreign securities. Designed for use in U.S. secu-
rities markets, ADRs are alternatives to the purchase of the underlying securi-
ties in their national markets and currencies. Investments in foreign securi-
ties involve certain considerations that are not typically associated with in-
vesting in domestic securities. There may be less publicly available informa-
tion about a foreign issuer than about a domestic issuer. Foreign issuers also
are not generally subject to the same accounting, auditing and financial re-
porting standards or governmental supervision as domestic issuers. In addition,
with respect to certain foreign countries, taxes may be withheld at the source
under foreign tax laws, and there is a possibility of expropriation or confis-
catory 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 lo-
cated 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 & In-
come Fund does not intend to invest more than 10% of its total assets, in for-
eign securities.
FUTURES CONTRACTS AND RELATED OPTIONS. To the extent provided under "Investment
Objectives and Policies," the Non-Money Market Funds may invest in futures con-
tracts on securities and indexes, and related options.
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.
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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 particular asset class. Through the use of futures, the
manager can achieve this objective immediately while temporarily deferring in-
dustry and security selection, in the interest of timeliness.
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 also will
be limited to the extent necessary to maintain each Non-Money Market Fund's
qualification 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 securi-
ties. 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 en-
tered 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 as-
surance of liquidity in the secondary market for purposes of closing out fu-
ture 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
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they are valued. Under the supervision of the Board of Directors, the Adviser
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 invest-
ments. Disposing of illiquid investments before maturity may be time-consuming
and expensive and it may be difficult or impossible for a Fund to sell illiq-
uid investments promptly at an acceptable price. See "Additional Securities
and Investment Practices--Illiquid Investments" in the SAI.
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--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 instruments, 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 instruments.
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
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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 termi-
nate, with the possibility of default on the lease obligation and significant
loss to the Fund. A participation interest in a municipal lease obligation rep-
resents 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.
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 purchase and sell options, which can be
either put or call options on securities in which a particular Non-Money Market
Fund may invest directly and are traded on registered domestic securities ex-
changes 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. Purchases of put and call options are limited to 5% of
each Non-Money Market Funds' total assets at the time of purchase. In addition,
each Non-Money Market Fund may write (i.e., sell) covered put and call options
provided such transactions do not exceed 5% of the Fund's total assets at the
time of sale.
OTHER INVESTMENT COMPANIES. All of the Funds may invest in shares of other
open-end management investment companies to the extent consistent with a Fund's
investment objectives and policies and subject to the limitations of Section
12(d)(1) of the Investment Company Act of 1940. Such investment companies can
be expected to charge fees for certain operating expenses, such as investment
advisory and administration fees, 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 market 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% of its total assets in obliga-
tions 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
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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 purchase. The resale
price reflects the 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 experience delays in recovering its cash or disposing of the securi-
ties obtained from the other party. To the extent that in the meantime, the
value of the securities 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 the Adviser. Repurchase agreements are, in
effect, 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 incinera-
tors 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 regulations,
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. Un-
less registered for sale, these securities can only be sold in privately nego-
tiated 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 sells a
portfolio instrument to another party such as a bank or broker-dealer, in re-
turn for cash. At the same time, the Fund agrees to repurchase the instrument
at an agreed upon price and time. Reverse repurchase agreements are, in effect,
borrowings by the Funds. Each Fund expects that it will engage in reverse re-
purchase agreements for the limited purpose of meeting redemptions. Reverse re-
purchase 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 liquid high quality debt instruments in a
segregated account with its custodian in an amount at least equal to its obli-
gations 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 port-
folio securities to broker-dealers and other institutional investors pursuant
to agreements requiring that
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the loans be continuously secured by collateral equal at all times in value to
at least the market value of the securities loaned. There may be risks of de-
lay in receiving additional collateral or in recovering the securities loaned
or even a loss of rights in the collateral should the borrower of the securi-
ties fail financially. However, loans are made only to borrowers deemed by the
Adviser 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. The Adviser 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, the Adviser will consider whether ade-
quate public information about the bank is available and whether the bank may
be subject to unfavorable political or economic developments, currency con-
trols, 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 has been divided into two or more different components. Typically, one
component (the "Auction Component") pays an interest rate that is reset peri-
odically 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 differ-
ence 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 float-
ing rate from the total amount paid
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by the issuer of the tax-exempt security. Either Fund may purchase Auction Com-
ponents without limitation and, with respect to up to 20% of the Fund's total
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
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securities have interest rates that change whenever there is a change in a
designated market-based interest rate, while variable-rate instruments provide
for a specified periodic adjustment in the interest rate.
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 payments; in-
stead 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 calcu-
lating 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 "The Funds in Brief"
section, 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 se-
curities. In addition, any fundamental investment policy may not be changed
without such shareholder approval. If the Board of Directors determines, howev-
er, 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
Set forth below are some of the Money Market Funds' principal investment lim-
itations. 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.
(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 industry.
(3) Each Fund (a) may borrow money for temporary or emergency purposes (not for
leveraging or investment) or engage in reverse repurchase agreements in an
amount not to exceed 10% of its total assets; and (b) may not purchase any
security while borrowings representing more than 5% of its total assets are
outstanding; and
(4) 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.
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Limitations 1, 2 and 4(a) are fundamental investment policies. Except for the
percentage limitation in 4(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, among other
things, obligations of domestic banks, savings and loan associations, consumer
and industrial finance companies, securities brokerage companies, leasing com-
panies and a variety of firms in the insurance field. These obligations include
time deposits, certificates of deposit, bankers' acceptances and commercial pa-
per.
NON-MONEY MARKET FUNDS
Set forth below are some of the Non-Money Market Funds' principal investment
limitations. A complete listing is contained in the SAI. Each Non-Money Market
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 Tax-Free Fund there is no
limitation with respect to municipal obligations (for purposes of this lim-
itation, with respect to the California Tax-Free Fund, 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, and with respect to
the Municipal Bond Fund, 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 activ-
ities 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.
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(3) Borrow money, except that each Fund may borrow money for temporary or emer-
gency purposes (not for leveraging or investment) or engage in reverse re-
purchase 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).
(4) Lend any security or make any 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 instruments or to repurchase agreements.
Each of the above is a fundamental investment policy. If a percentage limita-
tion is satisfied at the time of investment, a later increase or decrease in
such percentage resulting from a change in the value of a Fund's portfolio se-
curities will not constitute a violation of such limitation.
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INVESTMENT ADVISER
Griffin Financial Investment Advisers
5000 Rivergrade Road
Irwindale, California 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, California 91706
TRANSFER AGENT AND CUSTODIAN
Investors Fiduciary Trust Company
801 Pennsylvania
Kansas City, Missouri 64105
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<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, California 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.
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THE GRIFFIN FUNDS
PROSPECTUS JANUARY 31, 1998
................................................................................
MONEY MARKET FUND
The Money Market Fund seeks to provide investors with as high a level of
current income as is consistent with the preservation of principal and
liquidity.
TAX-FREE MONEY MARKET FUND
The Tax-Free Money Market Fund seeks to provide investors with as high a
level of current income, exempt from federal income taxes, as is consistent
with a portfolio of high quality short-term municipal obligations selected on
the basis of liquidity and stability of capital.
Investments in the Money Market Fund and Tax-Free Money Market Fund (each a
"Fund," together the "Funds") are neither insured nor guaranteed by the U.S.
Government. There can be no assurance that either the Money Market Fund or the
Tax-Free Money Market Fund will be able to maintain a stable net asset value of
$1.00 per share.
This Prospectus sets forth concisely the information about the Money Market
Fund and the Tax-Free Money Market Fund of The Griffin Funds, Inc. ("The
Griffin Funds") that a prospective investor ought to know before investing in
the Funds. Please read this Prospectus carefully before investing and keep it
for future reference.
A Statement of Additional Information ("SAI") dated January 31, 1998
containing additional information about 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"),
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 EITHER 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 ("GRIFFIN
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
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE>
KEY FUND FACTS
THE FUNDS IN BRIEF 3
..............................................................................
WHO MAY WANT TO INVEST 4
FUND EXPENSES
FUND EXPENSES 5
FINANCIAL HIGHLIGHTS
FINANCIAL HIGHLIGHTS 6
INVESTMENT POLICIES AND
PROCEDURES
INVESTMENT POLICIES AND PROCEDURES 6
YOUR FUND ACCOUNT
TYPES OF ACCOUNTS 7
Different ways to set up an account.
...........................................................................
HOW TO PURCHASE SHARES 8
Opening an account and making additional Fund purchases.
...........................................................................
HOW TO REDEEM SHARES 10
Redeeming shares and closing your account.
...........................................................................
SHAREHOLDER SERVICES 12
...........................................................................
DIVIDENDS, CAPITAL GAINS AND TAXES 13
FUND ACCOUNT POLICIES
TRANSACTION POLICIES 14
Share price calculations and purchase and redemption policies.
THE FUNDS IN DETAIL
STRUCTURE 16
How the Funds are structured.
...........................................................................
SERVICE PROVIDERS 16
............................................................................
SUMMARY OF FUND EXPENSES 16
Fund operating costs and how they are calculated.
...........................................................................
PERFORMANCE 17
...........................................................................
DESCRIPTION OF INVESTMENTS 17
...........................................................................
INVESTMENT LIMITATIONS 21
No person has been authorized to give any information or to make any
representations not contained in this Prospectus in connection with the
offering made by the Prospectus, and if given or made, such information or
representations must not be relied upon as having been authorized by The
Griffin Funds, Inc. or Griffin Financial. This Prospectus does not constitute
an offering by The Griffin Funds, Inc. in any jurisdiction in which such
offering may not lawfully be made.
<PAGE>
KEY FUND FACTS
THE FUNDS IN BRIEF
INVESTMENT OBJECTIVES AND POLICIES: THE MONEY MARKET FUND, a diversified fund,
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, a diversified fund, seeks to provide
investors with as high a level of current income, exempt from federal income
taxes, as is consistent with a portfolio of high quality short-term municipal
obligations selected on the basis of liquidity 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 Funds may purchase only high quality securities that Griffin 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 nationally
recognized statistical 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
investments 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 can be no assurance that a Fund will achieve
its investment objective. An investment in a Fund is not insured against loss
of principal. The ability of the Funds to achieve a high level of income is
circumscribed by their investment exclusively in high quality, short-term
instruments.
For more detailed information about portfolio practices see "Investment
Policies and Procedures" and "The Funds In Detail -- Description of
Investments" and "-- Investment Limitations."
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 investment adviser, and Payden & Rygel Investment Counsel ("Payden
& Rygel"), as sub-adviser, 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, 1997
managed assets of approximately $23 billion.
As used herein, the "Adviser" means Griffin Advisers and/or Payden & Rygel as
the context requires.
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.
ADMINISTRATOR: Griffin Financial Administrators ("Griffin Administrators")
serves as the administrator of the Funds and provides various administration
and accounting services to the Funds. Investors Fiduciary Trust Company
("IFTC") provides certain sub-administration 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 Funds through a Griffin
Financial Services Portfolio Builder Account ("Portfolio Builder Account").
Investments through a Portfolio Builder Account are governed by the terms and
conditions of the Portfolio Builder Account, which are set forth in a separate
Portfolio Builder Account Client Agreement provided by Griffin Financial to
each Portfolio Builder Account holder. In light of the discretionary asset
allocation structure of investments through the Portfolio Builder Account,
certain of the features described in this Prospectus are not available to all
investors purchasing shares of the Funds through a Portfolio Builder Account.
3
<PAGE>
Specifically, shares of a Fund purchased through a Portfolio Builder Account
may be redeemed only through the Portfolio Builder Account, and the dividend
and distribution options and exchange privileges described in this Prospectus
are not available with respect to shares purchased through a Portfolio Builder
Account. Potential Portfolio Builder Account holders should refer to the Client
Agreement for more information regarding the Portfolio 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 investors
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.
Investments in the Tax-Free Money Market Fund earn federally tax-exempt income
while remaining liquid and diversified.
IMPORTANT RISK FACTORS. Each Fund's ability to achieve its respective
investment objective depends on the successful implementation of its investment
strategies. The Funds' policies are intended to help maintain a stable $1.00
share price. However, the value of the instruments which the Funds may purchase
can change under certain circumstances, such as when interest 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
Fund's share price could deviate (positively or negatively) from $1.00.
Securities with longer maturities generally are more susceptible to price
changes, although they may provide higher yields. Debt securities that are not
backed by the United States Government are subject to credit risk, which is the
risk that the issuer may not be able to pay principal and/or interest when due.
In addition, the market value of fixed income securities in a Fund's portfolio
can, generally, be expected to vary inversely to changes in prevailing interest
rates. Thus, in periods of declining interest rates, the market value of a
Fund's portfolio of fixed income securities will tend to increase, and in
periods of rising interest rates will tend to decrease. Neither of the Funds on
an individual basis constitutes a complete investment plan.
4
<PAGE>
FUND EXPENSES
MONEY MARKET FUND
TAX-FREE MONEY MARKET FUND
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
- -----------------------------------------------------------
TAX-FREE
MONEY MONEY
MARKET MARKET
FUND FUND
- -----------------------------------------------------------
<S> <C> <C>
Maximum sales load
imposed on pur-
chases None None
Maximum sales load
imposed on rein-
vested dividends None None
Maximum deferred
sales load None None
Redemption fees None None
Exchange fees None None
- -----------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
- -----------------------------------------------------------
TAX-FREE
MONEY MONEY
MARKET MARKET
FUND FUND
- -----------------------------------------------------------
<S> <C> <C>
Management fees
(after waivers)* 0.23% 0.00%
12b-1 fees 0.20% 0.20%
Other expenses
(after waivers
and
reimbursements)* 0.32% 0.55%
Total Fund
operating
expenses (after
waivers and
reimbursements)* 0.75% 0.75%
- -----------------------------------------------------------
</TABLE>
* Griffin Advisers and Griffin Administrators currently intend to voluntarily
waive a portion of their respective fees and reimburse the Funds for certain
expenses. The percentages shown above under "Management fees (after waivers),"
"Other expenses (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%, 0.32% and 1.02%, respectively, for the
Money Market Fund and 0.50%, 0.72% and 1.42%, respectively, for the Tax-Free
Money Market Fund. There can be no assurance that the foregoing voluntary fee
waivers and expense reimbursements will continue.
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 if you redeemed your shares after the number
of years indicated:
After 1 year
<TABLE>
<S> <C>
Money Market Fund $ 8
Tax-Free Money Market Fund $ 8
After 3 years
Money Market Fund $24
Tax-Free Money Market Fund $24
After 5 years
Money Market Fund $42
Tax-Free Money Market Fund $42
After 10 years
Money Market Fund $93
Tax-Free Money Market Fund $93
</TABLE>
THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES; ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The purpose of the foregoing tables is to help you understand the various
costs and expenses that a shareholder in a Fund will bear directly or
indirectly. Operation of the Funds involves a variety of expenses for
shareholder statements, tax reporting, legal, accounting and other services.
These expenses are paid out of each Fund's assets and are illustrated by the
above tables.
5
<PAGE>
FINANCIAL HIGHLIGHTS
The following financial information relating to the Funds has been derived from
the financial statements of The Griffin Funds, and should be read in
conjunction with such financial statements and the related notes that appear in
the Funds' Annual Report, dated September 30, 1997, which is incorporated by
reference in the SAI. The financial statements of The Griffin Funds for the
periods presented have been audited by KPMG Peat Marwick LLP, the independent
auditors to The Griffin Funds, whose report thereon appears in the Annual
Report. Further information about, and management's discussion of, the Funds'
performance is contained in the Funds' Annual Report, which may be obtained
upon request and without charge. The Funds' SAI is incorporated by reference
into this Prospectus.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TAX-FREE
MONEY MARKET MONEY MARKET
--------------------------------------- -------------------------------------
YEAR YEAR YEAR PERIOD YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
9/30/97 9/30/96 9/30/95 9/30/94(A) 9/30/97 9/30/96 9/30/95 9/30/94(A)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value--
beginning of period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME (LOSS) FROM
INVESTMENT OPERATIONS:
Net investment income... 0.05 0.05 0.05 0.03 0.03 0.03 0.03 0.02
Total from investment
operations............. 0.05 0.05 0.05 0.03 0.03 0.03 0.03 0.02
LESS DISTRIBUTIONS:
Dividends from net
investment income...... (0.05) (0.05) (0.05) (0.03) (0.03) (0.03) (0.03) (0.02)
Total distributions..... (0.05) (0.05) (0.05) (0.03) (0.03) (0.03) (0.03) (0.02)
Net increase (decrease)
in net asset value..... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Net asset value--end of
period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return (not
annualized)(b)......... 5.12% 5.05% 5.52% 3.36% 3.02% 3.00% 3.44% 2.22%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (000)........... $229,774 $184,648 $79,964 $49,988 $16,161 $11,652 $8,621 $10,633
Ratios to average net
assets (annualized):
Ratio of expenses to
average net assets(i).. 0.53% 0.58% 0.42% 0.15% 0.68% 0.62% 0.44% 0.17%
Ratio of net investment
income to average net
assets(ii)............. 5.01% 4.92% 5.40% 4.25% 2.98% 2.93% 3.39% 2.56%
(i)Ratio of expenses to
average net assets
prior to waivers and
reimbursements(c)..... 1.02% 1.09% 1.29% 1.64% 1.42% 1.53% 1.90% 2.28%
(ii)Ratio of net
investment income to
average net assets
prior to:
waivers and
reimbursements(c)..... 4.52% 4.41% 4.53% 2.76% 2.24% 2.02% 1.92% 0.45%
Portfolio Turnover Rate. N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>
- -------
(a) The Fund commenced operations on October 19, 1993.
(b) Total return represents aggregate total return for the periods indicated.
(c) Ratio reflects fees reduced in connection with specific agreements only for
periods ended after September 30, 1995.
- --------------------------------------------------------------------------------
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,
consisting 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
6
<PAGE>
performance may be affected more significantly by conditions affecting banks
and other financial services companies than the performance of funds that do
not concentrate in the financial services industry. 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,
municipalities, authorities or other political subdivisions, and municipal
obligations 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
exempt 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
municipal instruments with demand features and standby commitments whose
features give them interest rates, maturities and prices similar to short-term
instruments. See "Additional Securities and Investment Practices -- Variable-
or Floating-Rate Demand Obligations," and "Additional Securities and Investment
Practices -- Standby Commitments" in the SAI. Generally, the Fund's investments
in municipal securities will consist of tax, revenue or bond anticipation
notes; tax-exempt commercial 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 purchase restricted securities and illiquid
instruments.
The Tax-Free Money Market Fund may temporarily change its investment focus
for defensive purposes. During periods when, in the Adviser's 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.
Federally taxable obligations in which the Fund may invest include obligations
issued by the U.S. Government or any of its agencies or instrumentalities, high
quality commercial paper, certificates of deposit and repurchase agreements.
Pursuant to procedures adopted by the Board of Directors, the Funds may
purchase only high-quality securities that the Adviser 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 statistical 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 the Adviser. For more
information concerning the instruments in which the Funds may invest, see "The
Funds in Detail -- Description of Investments."
YOUR FUND ACCOUNT
TYPES OF ACCOUNTS
You may set up an account directly in either Fund. 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
accounts. If your employer offers either 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 income and
capital gains from current taxes. In addition, contributions to these accounts
may be tax deductible. Retirement accounts require special applications and
typically have lower minimum initial and subsequent investment amounts. 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 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
certain 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 employees
up to $30,000 per year.
7
<PAGE>
. New Savings Incentive Match Plans for Employees (SIMPLE Plans) and older
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 administrative
requirements.
. 403(b) Custodial Accounts are available to employees of most tax-exempt
institutions, including schools, hospitals, and other charitable
organizations.
. 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.
. Spousal IRAs allow a working spouse to make deductible contributions,
subject to certain dollar limitations, to an IRA established by a nonworking
spouse (or by a spouse whose compensation from a job does not exceed $250
for the taxable year).
. Roth IRAs allow individuals, including individuals over the age of 70 1/2,
to take tax-free distributions of the earnings on NONdeductible
contributions.
EDUCATION
Education investment accounts allow certain taxpayers to contribute up to
$500 per child per year to an education IRA. Earnings on such contributions may
be distributed tax free if used to pay the child's postsecondary education
expenses.
The Tax-Free Money Market Fund is not an appropriate investment for tax-
exempt institutions or tax-sheltered retirement and education accounts, as such
investors would receive no benefit from the tax-exempt status of the Fund's
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).
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
Corporations, associations, partnerships, institutions and other
organizations should contact a Griffin Financial Representative for more
information.
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 9. You also may complete and sign an account
application 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 portfolio of The Griffin Funds (each, a
"Griffin Fund"), you can make further investments in one of the Griffin Funds:
. In person,
. By mailing in an application with a check, or
. By exchanging from another Griffin Fund, subject to the limitations
described in the other Griffin 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 Financial
Representative or call1-800-676-4450 for more information about retirement plan
investment procedures and a retirement application.
If you purchase 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.
From time to time, shares of the Funds also may be available for purchase
through various sweep and cash management programs offered by various entities,
including Griffin Financial and its affiliates, on terms specified in those
programs.
8
<PAGE>
SHARE PRICE
The Funds' share price, referred to as the net asset value ("NAV"), is
calculated every day that the New York Stock Exchange ("NYSE") is open for
business.
Share purchases are effected at the share price next determined after an
order and good funds are received and accepted by a Fund. Share price is
determined at noon, Eastern time. Orders received with good funds before 12:00
noon, Eastern time, are effective that day and orders received at or after
noon, Eastern time, are effective the following business day. You will begin to
accrue daily dividends the day after becoming a shareholder.
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>
- --------------------------------------------------------------------------------
PURCHASING SHARES
- --------------------------------------------------------------------------------
METHOD TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
In Person .BRING YOUR APPLICATION .BRING YOUR CHECK TO A GRIFFIN
AND CHECK TO A GRIFFIN FINANCIAL REPRESENTATIVE. CALL 1-
FINANCIAL REPRESENTATIVE. 800-676-4450 FOR THE REPRESENTATIVE
CALL 1-800-676-4450 FOR NEAREST YOU.
THE REPRESENTATIVE NEAREST
YOU.
Mail .COMPLETE AND SIGN THE .MAKE YOUR CHECK PAYABLE TO "MONEY
APPLICATION. MAKE YOUR MARKET FUND"OR "TAX-FREE MONEY
CHECK PAYABLE TO "MONEY MARKET FUND." INDICATE YOUR FUND
MARKET FUND" OR "TAX-FREE ACCOUNT NUMBER ON YOUR CHECK.
MONEY MARKET FUND."
Mail to: P.O. Box 419245 Mail to (checks only): P.O. Box
Kansas City, Missouri 419647 Kansas City, Missouri 64141
64141
.EXCHANGE BY MAIL: CALL 1-800-676-
4450 FOR INSTRUCTIONS.
Phone 1-800-.EXCHANGE FROM ANOTHER .EXCHANGE FROM ANOTHER GRIFFIN FUND
676-4450 GRIFFIN FUND ACCOUNT WITH ACCOUNT WITH THE SAME REGISTRATION
THE 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 CERTAIN RETIREMENT
ACCOUNTS.
.WIRE WITHIN 24 HOURS TO: .WIRE TO: INVESTORS FIDUCIARY TRUST
INVESTORS FIDUCIARY TRUST CO. ROUTING #101 0036 21 ACCOUNT
CO. ROUTING #101 0036 21 #752-7144 SPECIFY FUND AND INCLUDE
ACCOUNT #752-7144 SPECIFY YOUR ACCOUNT NUMBER AND YOUR NAME.
FUND AND INCLUDE YOUR NEW
ACCOUNT NUMBER AND YOUR
NAME.
Automatic .AUTOMATIC INVESTMENTS ON A REGULAR
Investment BASIS: CALL 1-800-676-4450.
Plans
9
<PAGE>
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
calculated after your order is received and accepted by the Fund.
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
writing, 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
aggregate of at least $1,000 worth of shares in your Griffin Funds account(s)
to keep your account(s) open ($250 for retirement accounts).
To redeem shares by wire, you will need to provide advance authorization.
You may redeem shares through the 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.
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),
securities 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
reasonable 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
may be used to process telephone redemptions: (i) your Social Security number
is requested; (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.
Certain purchase, redemption and exchange features (E.G., checkwriting,
automatic investment, systematic withdrawal, etc.) generally available to
shareholders of a Fund may not be available to an investor who purchases shares
of a Fund through a sweep or other cash management program offered by various
entities, including Griffin Financial and its affiliates.
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
10
<PAGE>
- --------------------------------------------------------------------------------
REDEEMING SHARES
- --------------------------------------------------------------------------------
METHOD ACCOUNT TYPE SPECIAL REQUIREMENTS
Phone 1-800- ALL ACCOUNT TYPES EXCEPT .MAXIMUM CHECK REQUEST: $100,000
676-4450 CERTAIN RETIREMENT
ACCOUNTS
All account types .YOU MAY EXCHANGE TO OTHER GRIFFIN
FUNDS IF BOTH ACCOUNTS ARE
REGISTERED WITH THE SAME NAME(S),
ADDRESS, AND TAXPAYER ID NUMBER.
Mail or in INDIVIDUAL, JOINT .THE LETTER OF INSTRUCTION MUST BE
Person TENANTS, SOLE SIGNED BY ALL persons required to
PROPRIETORSHIPS, UGMA, authorize transactions, exactly as
UTMA their names 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
Conservator, Guardian INSTRUCTIONS.
Wire All account types except .YOU MUST AUTHORIZE IN WRITING THE
certain retirement WIRE FEATURE BEFORE USING IT. TO
accounts VERIFY THAT THE AUTHORIZATION IS IN
PLACE, CALL 1-800-676-4450. MINIMUM
WIRE: $5,000.
.YOUR WIRE REDEMPTION REQUEST 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
retirement CHECKWRITING.
.MINIMUM CHECK AMOUNT: $500.
11
<PAGE>
SHAREHOLDER SERVICES
The Griffin Funds provide the following 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 (generally after every transaction, except a
reinvestment, that affects your account balance or your account
registration)
. Account statements (quarterly)
. 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 either of the Funds
and buy shares of the other Fund or shares of any other Griffin Fund by
telephone or written exchange. Shares of the Fund or Griffin Fund to be
acquired must be registered for sale in the shareholder'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 from a Fund are limited to four per calendar year, and that exchanges
may have tax consequences for you. For complete 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
quarterly basis. Transfers will occur on or about the 5th or 20th day of the
applicable month. The minimum monthly automatic investment amount is $50.
Certain restrictions apply for retirement accounts. Call 1-800-676-4450 for
more information.
SYSTEMATIC WITHDRAWAL PLANS let you set up monthly, quarterly, semi-annual 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
withdrawals 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.
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- --------------------------------------------------------------------------------
REGULAR INVESTMENT PLANS
- --------------------------------------------------------------------------------
AUTOMATIC INVESTMENTS
To transfer money from your bank or depository institution account to a Fund or
a Griffin Fund
MINIMUM FREQUENCY OPENING OR CHANGING AN ACCOUNT
$50 MONTHLY OR .FOR A NEW ACCOUNT, COMPLETE THE APPROPRIATE SECTION
QUARTERLY 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 Griffin
Fund
MINIMUM FREQUENCY OPENING OR CHANGING AN ACCOUNT
$50 EVERY PAY .CHECK THE APPROPRIATE BOX ON THE FUND APPLICATION,
PERIOD 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 exchange shares of one Griffin Fund for shares of another Griffin Fund
MINIMUM FREQUENCY SETTING UP OR CHANGING
$50 MONTHLY, .CHECK THE APPROPRIATE BOX ON THE FUND APPLICATION,
QUARTERLY VISIT A GRIFFIN FINANCIAL OFFICE OR CALL 1-800-676-
OR 4450 FOR AN AUTHORIZATION FORM.
ANNUALLY
.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, .FOR A NEW ACCOUNT, COMPLETE THE APPROPRIATE
QUARTERLY, SECTION ON THE FUND APPLICATION.
SEMIANNUALLY
OR
ANNUALLY
.FOR EXISTING ACCOUNTS, CONTACT YOUR GRIFFIN
REPRESENTATIVE OR CALL 1-800-676-4450 TO REQUEST
THE APPROPRIATE FORM.
- --------------------------------------------------------------------------------
DIVIDENDS, CAPITAL GAINS AND TAXES
Income dividends are accrued daily and paid monthly on both Funds. Capital
gains, if any, are declared and paid annually.
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
automatically reinvested in additional Fund shares. If you do not indicate a
choice on your application, it will be assumed that you have chosen this
option.
2. EARNED-INCOME OPTION. Capital gain distributions will be automatically
reinvested, but you will be sent a check for each dividend distribution.
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<PAGE>
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
Each of the Funds intends to qualify as a separate "regulated investment
company" under the Internal Revenue Code of 1986, as amended (the "Code"). Such
qualification relieves a Fund of liability for federal income tax to the extent
its net investment income and capital gains are distributed annually in
accordance with the Code. Each of the Funds intends to annually distribute
substantially all of its net investment income and capital gains.
Distributions from net investment income, and net short-term capital gains,
if any, of the Money Market Fund are designated as dividend distributions and
are taxable to the Fund's shareholders as ordinary income. Distributions from a
Fund's net long-term capital gains, if any, are designated as capital gain
distributions. Under the Taxpayer Relief Act of 1997, noncorporate stockholders
may be taxed on all or a portion of their capital gain distributions at
preferential rates.
Dividends distributed from the Tax-Free Money Market Fund's net interest
income from tax-exempt securities will not be subject to federal income taxes.
Dividends attributable to the Tax-Free Money Market Fund's interest income from
taxable securities and short-term capital gain distributions will be taxable as
ordinary income. Distributions from the Fund's net long-term capital gains, if
any, are designated as capital gains distributions. Under the Taxpayer Relief
Act of 1997, noncorporate stockholders may be taxed on all or a portion of
their capital gain distributions at preferential rates.
Dividend and capital gain distributions will be taxable when paid, whether
distributions are taken in cash or are automatically reinvested in additional
Fund shares. However, taxable dividends, if declared in October, November, and
December and distributed in the following January, will be treated as if they
were paid by December 31.
Foreign shareholders may be subject to different tax treatment, including
withholding taxes. In certain circumstances, U.S. resident individuals may also
be subject to backup withholding taxes. See "Distributions and Taxes" in the
SAI.
The foregoing discussion regarding taxes is based on tax laws which were in
effect as of the date of this Prospectus and summarizes only some of the
important federal tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning. All
investors should consult their own tax advisers with respect to their
particular tax situations, as well as with respect to foreign, state and local
taxes. Additional tax considerations are discussed in the SAI.
FUND ACCOUNT POLICIES
TRANSACTION POLICIES
Each Fund's net asset value ("NAV") per share is determined on each day the
NYSE is open for trading. Each Fund's NAV is the value of a single share. The
NAV is computed by adding up the value of a Fund's investments, cash and other
assets, subtracting its liabilities, and then dividing the result by the number
of shares outstanding.
Each Fund's portfolio investments are valued on the basis of amortized cost.
The value of assets of each Fund is determined as of 12:00 noon, Eastern time,
on each day the NYSE is open, immediately after the daily declaration of
dividends. Each Fund's offering price (per share) and redemption price of a
share are the Fund's NAV.
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
subject 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
distributions and redemptions.
Each Fund reserves the right to suspend the offering of its shares for a
period of time. The Funds also reserve the right to reject any specific
purchase order, including certain purchases by exchange. See "Shareholder
Services -- Exchange Privileges" in this Prospectus. For example, a purchase
order may be rejected if, in The Griffin Funds' opinion, such order is 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 the Fund. Note that:
14
<PAGE>
. 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 its transfer agent has incurred.
The Funds will in most cases issue share certificates upon request.
You can avoid the collection period associated with check purchases by
purchasing shares by bank wire, U.S. Postal money order, U.S. Treasury check,
Federal 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. Please note
the following:
. 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
redemption 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
retirement 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 may close your account and send the proceeds to you.
Your shares will be redeemed at the NAV on the day your account 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
registered (I.E., with the same name(s), address and Taxpayer Identification
Number.)
. If you exchange into a Griffin Fund with a sales charge, you pay the
percentage point difference between that Griffin 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 Class A Shares of a Griffin Fund with a 4.5% sales
charge, you would pay a 4.5% sales charge.
. If you exchange shares of one of the Funds into Class B Shares of a Griffin
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 Griffin 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 acquisition of the shares
exchanged.
. Exchanges may have tax consequences.
. Because excessive trading can adversely affect a Fund's performance and
shareholders, each of the Funds reserves the right to temporarily or
permanently terminate the exchange privilege of any investor who makes more
than four exchanges between Griffin Funds per calendar year. Accounts under
common ownership 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 person
or group if, in Griffin Advisers' judgment, the receiving Griffin Fund would
be unable to invest the money effectively in accordance with its investment
objective and policies, or would otherwise be adversely affected.
15
<PAGE>
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' prior written notice to shareholders. Before exchanging
into a Griffin Fund, you should read its prospectus.
THE FUNDS IN DETAIL
STRUCTURE
The Griffin Funds was organized as a Maryland corporation on August 5, 1993.
Each Fund is comprised of only one class of shares. The Griffin Funds is
governed by a Board of Directors, which has overall responsibility 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 companies that provide
major services to the Funds and the performance of the Funds.
The Griffin Funds typically will not hold annual shareholders meetings,
although special meetings may be called from time to time. These meetings may
be called to elect or remove directors, change fundamental policies, approve
management contracts or for other purposes. Shareholders not attending these
meetings are encouraged to vote by proxy. Proxy materials, including a voting
card and information about the proposals to be voted on, will be mailed in
advance of a meeting. 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 outstanding voting
securities of the Funds and will assist shareholders in communicating with
other shareholders.
SERVICE PROVIDERS
GRIFFIN ADVISERS serves the Funds as investment adviser. Payden & Rygel acts
as sub-adviser to the Funds and as such has primary responsibility for choosing
investments for the Funds. Payden & Rygel, which had approximately $23 billion
in assets under management as of December 31, 1997, is the sub-adviser to other
separately managed series of The Griffin Funds and 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.
Pursuant to sub-advisory contracts with Griffin Advisers, Payden & Rygel
provides periodic reports on the investment strategy and performance of the
Funds.
GRIFFIN ADMINISTRATORS is the Funds' administrator and provides
administrative and accounting services to the Funds.
IFTC is the Funds' custodian and transfer, shareholder service and dividend-
paying agent. IFTC is located at 801 Pennsylvania, Kansas City, Missouri 64105.
IFTC also provides certain sub-administrative services to the Funds.
GRIFFIN FINANCIAL, located at 5000 Rivergrade Road, Irwindale, California
91706, distributes 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
company, and are affiliates of Home Savings and Savings of America.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR ISSUED,
ENDORSED OR GUARANTEED BY, 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.
SUMMARY OF FUND EXPENSES
Like all mutual funds, the Funds pay expenses related to their operations.
Expenses 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, and in "Fund
Expenses" in this Prospectus.
Griffin Advisers or Griffin Administrators may, from time to time,
voluntarily agree to waive or reimburse the Funds for management fees and other
expenses. Waiver or reimbursement arrangements, which may be terminated at any
time without notice, can enhance a Fund's performance by decreasing its
expenses.
MANAGEMENT FEE
The management fee is calculated and paid to Griffin Advisers every month.
The fee is calculated by multiplying each
16
<PAGE>
Fund's average daily net assets by 0.50% on an annualized basis. Griffin
Advisers, in turn, pays Payden & Rygel for the sub-advisory services provided
to the Funds at the annual rate of 0.25% of the first $25 million of each
Fund's average daily net assets and 0.20% of each Fund's average daily net
assets in excess of $25 million. For the fiscal year ended September 30, 1997,
after waivers, the Money Market Fund paid management fees to Griffin Advisers
at the rate of 0.01% of its average daily net assets. For the same period, the
Tax-Free Money Market Fund did not pay any management fees to Griffin Advisers.
DISTRIBUTION AND SERVICE FEES
Griffin Financial is the distributor ("Distributor") of shares of the Funds.
The Griffin Funds has adopted a Distribution and Services Plan on behalf of
each of the Funds 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
prospectuses to prospective shareholders of a Fund or for other distribution-
related or sales support services. The fees paid under the Plans also can be
used to pay servicing agents for shareholder liaison services, including
responding to customer inquiries and providing information on their
investments. Payments under the Plans may not exceed, on an annual basis, 0.20%
of each Fund's average daily net assets.
OTHER EXPENSES
The Funds incur the following expenses in addition to the management fee and
distribution and services fees.
The Funds contract with Griffin Administrators to provide various
administrative 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 determined by multiplying each Fund's average daily net
assets by 0.20% on an annualized basis. Griffin Administrators, in turn, pays
IFTC for sub-administration services it provides to the Funds. For the fiscal
year ended September 30, 1997, after waivers, the Money Market Fund and the
Tax-Free Money Market Fund paid administration fees to Griffin Administrators
at the rate of .20% and .14%, respectively, of their average daily net assets.
In addition to the management fee and the other fees paid to Griffin
Advisers, Griffin Financial and Griffin Administrators, the Funds pay other
expenses, 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
The 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
under uniform SEC formulas and are not intended to indicate future performance.
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
calculated 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 current 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.
The annual and semi-annual reports for the Griffin Funds contain additional
performance information and are available upon request by calling The Griffin
Funds at 1-800-676-4450.
DESCRIPTION OF INVESTMENTS
The following pages contain more detailed information about the types of
securities in which the Funds may invest and the strategies the Adviser may
employ in pursuit of the Funds' investment objectives. A summary of risks and
restrictions associated with these securities and investment practices is
included as well. Additional information about these securities 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 securities is
not required in the event of a subsequent change in circumstances.
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<PAGE>
BOTH FUNDS
ASSET-BACKED SECURITIES The Funds may invest in asset- backed securities.
Asset-backed securities arise through the grouping by governmental, government-
related, and private organizations of loans, receivables and other assets
originated by various lenders. Asset-backed securities acquired by a Fund may
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 principal paid at maturity or specified call dates, asset-
backed securities provide periodic payments which generally consist of both
interest and principal payments.
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
increase 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.
Mortgage-backed securities represent an ownership interest in a pool of
mortgage loans, the interest in which is in many cases issued and guaranteed by
an agency or instrumentality of the U.S. Government, though not necessarily by
the U.S. Government itself. One such type of mortgage-backed security 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
National 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 timely 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. Mortgage-backed securities issued by private issuers, whether
or not such obligations are subject to guarantees by the private issuer, may
entail greater risk than obligations directly or indirectly guaranteed by the
U.S. Government. Mortgage-backed securities issued by private issuers will be
purchased for the Funds only when the Adviser determines that they are readily
marketable at the time of purchase.
The Funds may invest in non-mortgage backed securities. Non-mortgage backed
securities include 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 generally 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.
Government 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 institution (such as a bank or insurance company) unaffiliated with
the issuers of such securities.
BANKERS' ACCEPTANCES 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.
CERTIFICATES OF DEPOSIT (CDS) 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 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 instruments trade in a developed secondary market,
however, early withdrawal penalties should not affect the ability to dispose of
the investment.
COMMERCIAL PAPER refers to short-term debt obligations issued by banks, broker-
dealers, corporations and other entities for
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<PAGE>
purposes such as financing their current operations. The Funds intend to invest
in commercial paper having maximum maturities of 270 days.
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. A bond generally is an interest-bearing security -- an IOU --
issued by companies or governmental 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.
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
usually rises when interest rates fall, and vice versa, so its yield stays
current. 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 Funds'
weighted average maturity, the maturity of these securities may be shortened
under certain specified conditions. Bonds may be senior or subordinated
obligations. Senior obligations generally have the first claim on a
corporation's earnings and assets and, in the event of liquidation, are paid
before subordinated debt.
DELAYED-DELIVERY TRANSACTIONS. The Funds may purchase securities on a when-
issued or delayed-delivery basis, with payment and delivery taking place at a
future date. The Funds may purchase securities on a delayed-delivery basis to
generate income and to hedge against changes in interest rates and securities'
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 assets.
Ordinarily, the Funds will not earn interest on securities until they are
delivered. The Funds may also purchase 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. See "Additional Securities
and Investment Practices -- Delayed-Delivery Transactions" in the SAI.
DEMAND FEATURES. The 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.
ILLIQUID INVESTMENTS. Each Fund may invest up to 10% 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 supervision 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 -- Illiquid
Investments" in the SAI.
MUNICIPAL SECURITIES. The Funds may invest in municipal securities, which
include general obligation securities, which are backed by the full taxing
power of a municipality, 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 alternative 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.
OTHER INVESTMENT COMPANIES. The Funds may invest in shares of other open-end
management investment companies to the extent consistent with the Funds'
investment objectives and policies and subject to the limitations of Section
12(d)(1) of the Investment Company Act of 1940. Such investment companies can
be expected to charge fees for certain operating expenses, such as
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<PAGE>
investment advisory and administration fees, 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 market 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% 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 Funds will only invest in
the shares of other money market funds after conducting a credit analysis of
such funds.
REPURCHASE TRANSACTIONS. The Funds may participate in repurchase transactions,
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 purchase.
The resale price reflects the 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 experience 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 securities 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 the Adviser. Repurchase
agreements are, in effect, loans of Fund assets.
RESTRICTED SECURITIES. 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 negotiated
transactions or pursuant to an exemption from registration.
REVERSE REPURCHASE TRANSACTIONS. In a reverse repurchase transaction, a Fund
sells 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 repurchase 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 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 liquid 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.
U.S. GOVERNMENT OBLIGATIONS. The Funds may invest in U.S. Government
Obligations, which are securities issued or guaranteed by the U.S. Government,
its agencies and instrumentalities. Not all U.S. Government Obligations are
direct 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, investors 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. 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 rate,
while variable-rate instruments provide for a specified periodic adjustment in
the interest rate.
The Tax-Free Money Market Fund ONLY
BOND ANTICIPATION NOTES normally 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
Fund intends to invest only in notes having a maximum maturity of 397 days.
MUNICIPAL LEASE OBLIGATIONS AND CERTIFICATES OF PARTICIPATION are issued by a
state or local government or authority to acquire land and a wide variety of
equipment and facilities. These obligations
20
<PAGE>
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 possibility 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.
RESOURCE RECOVERY BONDS are a type of revenue bond issued to build facilities
such as solid waste incinerators or waste-to-energy plans. Typically, a private
corporation will be involved, 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 regulations, and project operator tax incentives may affect the
value and credit quality of resource recovery bonds.
STANDBY COMMITMENTS are puts that entitle the security holder to same-day
settlement at amortized cost plus accrued interest. Issuers or financial
intermediaries who provide demand features or standby commitments often support
their ability to buy securities on demand by obtaining letters of credit
("LOCs") or other guarantees from domestic or foreign banks. LOCs also may be
used as credit supports for other types of municipal instruments. The Adviser
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, the Adviser 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 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 is issued by municipalities to help provide short-
term capital or finance operating needs.
TENDER OPTION BONDS 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) receives 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 underlying bond defaults on interest
payments.
ZERO COUPON BONDS are bonds that do not make regular interest payments; 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 Fund 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
The Funds' investment objectives, as set forth in the "The Funds in Brief"
section, are fundamental; that is, they may not be changed without approval by
vote of the holders of a majority of the relevant Fund's outstanding voting
securities. In addition, any fundamental investment policy may not be changed
without such shareholder approval. If the Board of Directors determines,
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.
Set forth below are some of the Funds' principal investment limitations. 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.
(2) Each Fund will not purchase a security (other than U.S. Government
securities) if, as a result, more than 25% of its total assets would be
invested in a
21
<PAGE>
particular industry, except that the Money Market Fund will concentrate more
than 25% of its total assets in the financial services industry.
(3) Each Fund (a) may borrow money for temporary or emergency purposes (not for
leveraging an investment) or engage in reverse repurchase agreements in an
amount not to exceed 10% of its total assets; and (b) may not purchase any
security while borrowings representing more than 5% of its total assets are
outstanding; and
(4) 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 and 4(a) are fundamental investment policies. Except for the
percentage limitation in 4(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
conditions affecting banks and other financial services companies. Companies in
the financial services industry are subject to various risks related to that
industry, 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, among other
things, 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
include time deposits, certificates of deposit, bankers' acceptances and
commercial paper.
22
<PAGE>
INVESTMENT ADVISER
Griffin Financial Investment Advisers
5000 Rivergrade Road
Irwindale, California 91706
SUB-ADVISER
Payden & Rygel Investment Counsel
333 South Grand Avenue, 32nd Floor
Los Angeles, California 90071
SPONSOR AND DISTRIBUTOR
Griffin Financial Services
5000 Rivergrade Road
Irwindale, California 91706
TRANSFER AGENT AND CUSTODIAN
Investors Fiduciary Trust Company
801 Pennsylvania
Kansas City, Missouri 64105
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, California 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.
<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, 1998
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"). This Statement of Additional Information relates to the single
class of shares offered by the Money Market Funds and the Class A and Class B
Shares offered by each Non-Money Market Fund. This Statement of Additional
Information is not a prospectus but should be read in conjunction with the
Funds' current Prospectuses, dated January 31, 1998. All terms used herein that
are defined in the Prospectuses have the meanings assigned in the Prospectuses.
Please retain this Statement of Additional Information for future reference. To
obtain additional copies of this Statement of Additional Information or of the
Funds' Prospectuses, please call The Griffin Funds at 1-800-676-4450.
2
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
<S> <C>
General Information.................................................... 5
Investment Limitations................................................. 5
Money Market Fund................................................. 5
Tax-Free Money Market Fund........................................ 7
Short-Term Bond Fund.............................................. 9
U.S. Government Income Fund....................................... 11
Municipal Bond Fund............................................... 13
California Tax-Free Fund.......................................... 16
Bond Fund......................................................... 18
Growth & Income Fund.............................................. 20
Growth Fund....................................................... 22
Additional Securities and Investment Practices......................... 25
Special Factors Affecting the California Tax-Free Fund................. 55
Portfolio Transactions and Brokerage................................... 60
Valuation of Portfolio Securities...................................... 64
Performance............................................................ 65
Additional Purchase and Redemption Information......................... 82
Distributions and Taxes................................................ 82
Service Providers...................................................... 92
Directors and Officers................................................. 93
Management Contracts................................................... 96
Distribution and Service Plans......................................... 103
Description of The Griffin Funds....................................... 105
Appendix............................................................... 110
</TABLE>
Griffin Financial Investment Advisers ("Griffin Advisers")
- ----------------------------------------------------------
Investment Adviser
------------------
Payden & Rygel Investment Counsel ("Payden & Rygel")
- ----------------------------------------------------
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 Associates, Inc. ("T. Rowe Price")
- ------------------------------------------------
Sub-Adviser to the Short-Term Bond Fund and the Growth Fund
-----------------------------------------------------------
3
<PAGE>
The Boston Company Asset Management, Inc. ("TBCAM")
- ---------------------------------------------------
Sub-Adviser to the Bond Fund and the Growth & Income Fund
Griffin Financial Services ("Griffin Financial")
- ------------------------------------------------
Distributor
Investors Fiduciary Trust Company ("IFTC")
- ------------------------------------------
Transfer Agent and Custodian
----------------------------
4
<PAGE>
GENERAL INFORMATION
The Griffin Funds was organized as a Maryland corporation on August 5,
1993. The Griffin Funds is an open-end management investment company currently
consisting of nine series (the "Funds"). As used herein, the "Adviser" or the
"Advisers" shall mean Griffin Advisers, Payden & Rygel, T. Rowe Price and/or
TBCAM as the context may require.
INVESTMENT LIMITATIONS
The following policies and limitations supplement those set forth in
the Prospectuses. 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 (the "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;
5
<PAGE>
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;
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.
As a matter of non-fundamental policy:
1. 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.
2. 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.
3. The Money Market Fund does not currently intend to make short sales
of securities.
4. 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.
5. The Money Market Fund does not currently intend to purchase the
securities of
6
<PAGE>
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.
6. The Money Market Fund does not currently intend to purchase the
securities of any issuer, if, to its knowledge, those officers and directors of
The Griffin Funds or of Griffin Advisers, who individually own beneficially more
than 1/2 of 1% of the securities of such issuer, together own beneficially 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
7
<PAGE>
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);
9. invest in oil, gas or other mineral exploration, lease or
development programs; or
10. invest its assets so that less than 80% of its income distributions
are exempt from federal income tax and the federal alternative minimum tax.
As a matter of non-fundamental policy:
- --------------------------------------
1. 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.
2. 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.
3. The Tax-Free Money Market Fund does not currently intend to make
short sales of securities.
4. 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 purchases and sales of securities.
5. 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.
6. The Tax-Free Money Market Fund does not currently intend to
purchase the securities of any issuer, if, to its knowledge, those officers and
directors of The Griffin Funds or of Griffin Advisers, who individually own
beneficially more than 1/2 of 1% of the securities of such issuer, together own
beneficially more than 5% of such issuer's securities.
8
<PAGE>
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, any of 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 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
9
<PAGE>
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
10. lend any portfolio security, unless collateral values are
continuously maintained at not less than 100% by marking to market daily.
As a matter of non-fundamental policy:
1. 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.
2. 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 ("AMEX") in excess
of 2% of the value of the Short-Term Bond Fund's net assets.
3. 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 or sales of futures contracts or of
options on futures contracts.
4. The Short-Term Bond Fund does not currently intend to purchase any
securities
10
<PAGE>
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.
5. 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.
6. 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.
7. The Short-Term Bond Fund does not currently intend to purchase or
retain the securities of any issuer, if, to its knowledge, those officers and
directors of The Griffin Funds or of Griffin Advisers, who individually own
beneficially more than 1/2 of 1% of the securities of such issuer, together own
beneficially more than 5% of such issuer's securities.
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
11
<PAGE>
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);
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.
As a matter of non-fundamental policy:
1. 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
12
<PAGE>
valued.
2. 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.
3. The U.S. Government Income Fund does not currently intend to make
short sales of securities; provided, however, that the U.S. Government Income
Fund may purchase or sell futures contracts and may make initial and variation
margin payments in connection with purchases or sales of futures contracts.
4. 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.
5. 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.
6. 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.
7. The U.S. Government Income Fund does not currently intend to
purchase the securities of any issuer, if, to its knowledge, those officers and
directors of The Griffin Funds or of Griffin Advisers, who individually own
beneficially more than 1/2 of 1% of the securities of such issuer, together own
beneficially more than 5% of such issuer's securities.
Investment Limitations of the Municipal Bond Fund
-------------------------------------------------
As a matter of fundamental policy, the Municipal Bond Fund may not:
1. purchase securities of any one issuer (other than securities issued
or guaranteed by
13
<PAGE>
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 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
14
<PAGE>
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.
As a matter of non-fundamental policy:
1. 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 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.
2. 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.
3. 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.
4. 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 purchases 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.
5. 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.
6. 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.
15
<PAGE>
7. The Municipal Bond Fund does not currently intend to purchase the
securities of any issuer, if, to its knowledge, those officers and directors of
The Griffin Funds or of Griffin Advisers, who individually own beneficially more
than 1/2 of 1% of the securities of such issuer, together own beneficially more
than 5% of such issuer's securities.
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 California Tax-Free 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,
16
<PAGE>
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;
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
10. invest its assets so that less than 80% of its income distributions
are exempt from federal income tax and the federal alternative minimum tax.
As a matter of non-fundamental policy:
- -------------------------------------
1. 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.
2. 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.
3. 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 on futures contracts.
17
<PAGE>
4. The California Tax-Free 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 the
California Tax-Free Fund may make initial and variation margin payments in
connection with purchases and sales of futures contracts or of options on
futures contracts.
5. 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 borrowings representing more than 5% of its total assets are
outstanding.
6. 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.
7. The California Tax-Free Fund does not currently intend to purchase
the securities of any issuer, if, to its knowledge, those officers and directors
of The Griffin Funds or of Griffin Advisers, who individually own beneficially
more than 1/2 of 1% of the securities of such issuer, together own beneficially
more than 5% of such issuer's securities.
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;
18
<PAGE>
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;
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.
As a matter of non-fundamental policy:
1. 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.
2. 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.
19
<PAGE>
3. 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 or sales of futures contracts or of options on futures contracts.
4. The Bond Fund does not currently intend to purchase 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.
5. 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.
6. 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.
7. The Bond Fund does not currently intend to purchase or retain the
securities of any issuer, if, to its knowledge, those officers and directors of
The Griffin Funds or of Griffin Advisers, who individually own beneficially more
than 1/2 of 1% of the securities of such issuer, together own beneficially more
than 5% of such issuer's 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,
20
<PAGE>
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 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; or
9. invest in companies for the purpose of exercising control or
management.
As a matter of non-fundamental policy:
21
<PAGE>
1. The Growth & 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 within seven days at approximately the prices
at which they are valued.
2. The Growth & 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 Growth & Income Fund's total assets.
3. The Growth & Income 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.
4. The Growth & 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.
5. The Growth & 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 Fund will not purchase any security while
borrowings representing more than 5% of its total assets are outstanding.
6. The Growth & 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.
7. The Growth & Income Fund does not currently intend to purchase the
securities of any issuer, if, to its knowledge, those officers and directors of
The Griffin Funds or of Griffin Advisers, who individually own beneficially more
than 1/2 of 1% of the securities of such issuer, together own beneficially more
than 5% of such issuer's securities.
Investment Limitations of the Growth Fund
-----------------------------------------
22
<PAGE>
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 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
23
<PAGE>
10. lend any portfolio security, unless collateral values are
continuously maintained at not less than 100% by marking to market daily.
As a matter of non-fundamental policy:
1. 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 are subject to legal or
contractual restrictions on resale or 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.
2. 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 AMEX
in excess of 2% of the value of the Growth Fund's net assets.
3. 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.
4. 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 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.
5. 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.
6. 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
24
<PAGE>
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.
7. The Growth Fund does not currently intend to purchase the
securities of any issuer if those officers and directors of The Griffin Funds or
of Griffin Advisers, who individually own beneficially more than 1/2 of 1% of
the securities of such issuer, together own beneficially more than 5% of such
issuer's securities.
ADDITIONAL SECURITIES AND INVESTMENT PRACTICES
----------------------------------------------
Asset-Backed Securities. Each of the Funds may invest in asset-backed
securities. Asset-backed securities arise through the grouping by governmental,
government-related, and private organizations of loans, receivables, or other
assets originated by various lenders. Asset-backed securities 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 principal paid at maturity or specified call dates, asset-backed
securities generally provide periodic payments which may consist of both
interest and principal payments.
The life of an asset-backed security varies with the prepayment
experience of 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 also effect the life of an asset-backed security. For example, falling
interest rates generally result in an increase 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 a security's average maturity and limit the
potential appreciation in the security's value relative to a conventional debt
security. Consequently, asset-backed securities may not be 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.
Mortgage-backed securities represent an ownership interest in a pool of
mortgage loans. Mortgage pass-through securities may represent participation
interests in pools of residential mortgage loans originated by U.S. governmental
or private lenders and guaranteed, to the extent provided in such securities, by
the U.S. Government or one of its agencies, authorities or instrumentalities.
Such securities, which are ownership interests in the underlying mortgage loans,
differ from conventional debt securities, which provide for periodic payment of
interest in fixed amounts (usually semi-annually) and principal payments at
maturity or on specified call dates. Mortgage pass-through securities provide
for monthly payments that are a "pass-through" of the monthly interest and
principal payments (including any prepayments) made by the individual borrowers
on the pooled mortgage loans, net of any fees paid to the guarantor of such
securities and the servicer of the underlying mortgage loans.
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The guaranteed mortgage pass-through securities in which a Fund may
invest may include those issued or guaranteed by Government National Mortgage
Association ("GNMA"), by Federal National Mortgage Association ("FNMA") and
Federal Home Loan Mortgage Corporation ("FHLMC"). Such Certificates are
mortgage-backed securities which represent a partial ownership interest in a
pool of mortgage loans issued by lenders such as mortgage bankers, commercial
banks and savings and loan associations. Such mortgage loans may have fixed or
adjustable rates of interest.
Mortgage-backed securities issued by private issuers, whether or not
such obligations are subject to guarantees by the private issuer, may entail
greater risk than obligations directly or indirectly guaranteed by the U.S.
Government. Mortgage-backed securities issued by private issuers will be
purchased for a Fund only when the Adviser determines that they are readily
marketable at the time of purchase. Except as limited by their respective
investment objectives and policies, there is no limit on the amount or type of
mortgage-backed securities the Short-Term Bond Fund, 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 yield which will be earned on mortgage-backed securities may vary
from their coupon rates for the following reasons: (i) Certificates may be
issued at a premium or discount, rather than at par; (ii) Certificates may trade
in the secondary market at a premium or discount after issuance; (iii) interest
is earned and compounded monthly which has the effect of raising the effective
yield earned on the Certificates; and (iv) the actual yield of each Certificate
is affected by the prepayment of mortgages included in the mortgage pool
underlying the Certificates and the rate at which principal so prepaid is
reinvested. In addition, prepayment of mortgages included in the mortgage pool
underlying a GNMA Certificate may result in a loss to the Fund.
The average life of mortgage-backed securities varies with the
maturities of the underlying mortgage instruments. The average life may be
substantially less than the original maturity of the mortgage pools underlying
the securities as the result of mortgage prepayments, mortgage refinancings or
foreclosures, which in turn may affect Fund performance. The rate of mortgage
prepayments, and hence the average life of the certificates, will be a function
of the level of interest rates, general economic conditions, the location and
age of the mortgage and other social and demographic conditions. These
prepayments tend to increase when interest rates decline, presenting a Fund with
more principal to invest at lower rates. Such prepayments are passed through to
the registered holder with the regular monthly payments of principal and
interest and have the effect of reducing future 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
mortgage 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, and all
references herein to CMOs will include multi-
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class pass-through 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. CMO and multi-class
pass-through securities may be issued by agencies or instrumentalities of the
U.S. Government or by private organizations.
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, resulting in a loss of all or part of the premium if any has been paid.
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 Short-Term Bond, U.S. Government Income, Municipal Bond, California
Tax-Free and Bond Funds may also invest in inverse or reverse floating CMOs.
Inverse 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 income
earned on the Fund's investments due to a decline in interest rates. The
Short-Term Bond, U.S. Government Income, Municipal Bond, California Tax-Free and
Bond 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 Short-Term Bond, U.S. Government Income, Municipal Bond, California
Tax-Free and Bond Funds 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, mortgage 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")
entitles the holders thereof to receive distributions consisting solely or
primarily 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
consisting solely or primarily of all or a portion of the principal of the
underlying pool of Mortgage Assets. The cash flows and yields on IO and PO
classes are extremely sensitive to the rate of principal payments (including
prepayments) 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
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Mortgage Assets experience 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.
The Funds also may invest in non-mortgage asset-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 pools of assets. Such securities also may
be debt instruments, which are also known as collateralized obligations and are
generally issued as the debt of a special purpose entity organized solely for
the purpose of owning such assets and issuing such debt. Such securities also
may include instruments issued by certain trusts, partnerships or other special
purpose issuers, including pass-through certificates representing participations
in, or debt instruments backed by, the securities and other assets owned by such
issuers.
Non-mortgage-backed securities are not issued or guaranteed by the U.S.
Government 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 institution (such as a bank or insurance company) unaffiliated with
the issuers of such securities.
The purchase of non-mortgage-backed securities raises considerations
peculiar to the financing of the instruments underlying such securities. For
example, most organizations that issue asset-backed securities relating to motor
vehicle installment purchase obligations perfect their interests in their
respective obligations only by filing a financing statement and by having the
servicer of the obligations, which is usually the originator, take custody
thereof. In such circumstances, if the servicer were to sell the same
obligations to another party, in violation of its duty not to do so, there is a
risk that such party could acquire an interest in the obligations superior to
that of the holders of the asset-backed securities. Also, although most such
obligations grant a security interest in the motor vehicle being financed, in
most states the security interest in a motor vehicle must be noted on the
certificate of title to perfect such security interest against competing claims
of other parties. Due to the larger number of vehicles involved, however, the
certificate of title to each vehicle financed, pursuant to the obligations
underlying the asset-backed securities, usually is not amended to reflect the
assignment of the seller's security interest for the benefit of the holders of
the asset-backed securities. Therefore, there is the possibility that recoveries
on repossessed collateral may not, in some cases, be available to support
payments on those securities. In addition, various state and Federal laws give
the motor vehicle owner the right to assert against the holder of the owner's
obligation certain defenses such owner would have against the seller of the
motor vehicle. The assertion of such defenses could reduce payments on the
related asset-backed securities. Insofar as credit card receivables are
concerned, credit card holders are entitled to the protection of a number of
state and Federal consumer credit laws, many of which give such holders the
right to set off certain amounts against balances owed on the credit card,
thereby reducing the amounts paid on such receivables.
The development of non-mortgage backed securities is at an early stage
compared to
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mortgage-backed securities. While the market for asset-backed securities is
becoming increasingly liquid, the market for mortgage-backed securities issued
by certain private organizations and non-mortgage-backed securities is not as
well developed.
Certain Taxable Obligations. The Tax-Free Money Market Fund and the
California Tax-Free Fund each 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. Each Fund will purchase taxable obligations only if such
obligations 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 and the
California Tax-Free Fund's distributions. If such proposals were enacted, the
availability of municipal obligations and the value of the Tax-Free Money Market
Fund's and the California Tax-Free Fund's holdings would be affected and the
Board of Directors would reevaluate the Funds' investment objectives and
policies.
The Tax-Free Money Market Fund and the California Tax-Free Fund each
anticipates being as fully invested as practicable in municipal securities.
However, there may be occasions when, as a result of the maturity of portfolio
securities, sales of fund shares, or in order to meet redemption requests, the
Tax-Free Money Market Fund and 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 Tax-Free Money Market or the California Tax-
Free Fund may be required to sell securities at a loss.
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.
Common Stocks. The Growth & Income Fund's and the Growth 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
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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. Throughout most of 1997, common stocks,
as measured by the S&P 500 Index and other commonly used indices of common stock
performance, were trading at or close to record levels. There can be no
guarantee that such performance will continue.
Under normal market conditions, at least 90% of the Growth & Income 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 medium and smaller
companies because 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 investment in equity securities.
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 bonds, while usually subordinate to similar non-convertible
bonds, are senior to common stocks in an issuer's capital structure. Convertible
bonds 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 bond'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 bonds that are
either rated in one of the four highest rating categories by a Nationally
Recognized Statistical Rating Organization ("NRSRO"), or are 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 will
seek to invest in convertible securities that provide current income and are
issued by companies that have a strong earnings and credit record. These Funds
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 subordinate to similar non-
convertible securities, are senior to common stocks in an issuer's capital
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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.
Corporate Bonds and Notes. All of the Funds (except the U.S. Government
Income Fund, the Municipal Bond Fund and the California Tax-Free Fund) may
invest in corporate bonds and notes, which may 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.
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
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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 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.
Derivative Municipal Obligations. The Municipal Bond Fund and the
California Tax-Free Fund may invest in more recently developed municipal
financing instruments, including (i) custodial receipts or certificates
evidencing ownership of future interest payments, principal payments, or both,
on underlying municipal securities and (ii) 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 these Funds 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. 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
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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 and Poor's Corporation ("S&P") or
Moody's Investor Service, Inc. ("Moody's"), comparably rated by any other
nationally recognized statistical rating organization or, if unrated, of
comparable quality as determined by the Adviser.
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 they 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 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
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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 the Adviser to be of comparable quality at the
time of purchase to instruments rated "investment grade" by any major rating
service.
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
Instruments. 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 differential in
interest rates between particular countries. In the case of Foreign Index
Linked Instruments linking the principal component to a foreign index, the
amount of principal payable by the issuer at maturity will increase or decrease
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 Instrument.
Foreign Index Linked Instruments may be issued by a U.S. governmental agency or
instrumentality or by a private issuer.
Generally, the Foreign Index Linked Instruments which have been issued to
date have been debt instruments closely resembling corporate debt securities,
U.S. Government 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 described in the Prospectus and
in this Statement of Additional Information with respect to mortgage-backed
securities, asset-backed securities or Debt Securities, as the case may be, may
be equally applicable to a given Foreign Index Linked Instrument.
Foreign Index Linked Instruments 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
securities linked to purely domestic indices but also may be more volatile.
Foreign 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
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foreign exchange rates or foreign interest rates. If the Adviser is incorrect in
its prediction as to movements in the direction 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.
Foreign Securities. The Short-Term Bond Fund, the U.S. Government Income
Fund, the Bond Fund, the Growth & Income Fund and the Growth 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. 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 American
Depositary Receipts ("ADRs"), among other securities. ADRs are receipts
typically issued by a U.S. bank or trust company evidencing ownership of the
underlying foreign securities. Designed for use in U.S. securities markets, ADRs
are an alternative to the purchase of the underlying securities in their
national markets and currencies. Most ADRs are traded on U.S. stock exchanges.
Purchases of ADRs by the Funds will be limited to sponsored ADRs. 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.
Certain Risks Associated with Foreign Investments. Foreign investments can
involve significant risks in addition to the risks inherent in U.S. investments.
There may be less publicly available information about a foreign issuer than
about a domestic issuer. 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,
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 involve substantial delays. It may also be difficult to enforce legal
rights in foreign countries, such as obtaining and enforcing a judgment against
a foreign issuer.
Investing abroad also involves different political and economic risks.
Foreign investments may be affected by actions of foreign governments adverse to
the interests of
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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. Taxes may be withheld
at the source under foreign income tax laws. Investments in foreign countries
also involve a risk of local political, economic, or social instability,
military action or unrest, or adverse diplomatic developments. Any such
development could have a material adverse effect on a Fund's investments in, or
the liquidity of, securities of issuers located in such countries. There is no
assurance that the Adviser 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.
Futures Transactions. As their Prospectus provides, each of the Non-Money
Market Funds may engage in transactions in futures contracts and options on
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."
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. At any time
prior to the expiration of a futures contract, however, 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 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 may be closed out only on the exchange or board of trade where the
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contracts were initially traded.
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.
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.
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.
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.
Limitations on Purchase and Sale of Futures Contracts and Options on
Futures Contracts. In general, the Non-Money Market Funds will engage in
transactions in futures contracts and related options only for bona fide hedging
and other appropriate risk management purposes, and not for speculation. In
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addition, with respect to positions in futures and related options that do not
constitute bona fide hedging positions, a Non-Money Market Fund will not enter
into a futures contract or futures option contract if, immediately thereafter,
the aggregate initial margin deposits relating to such positions plus premiums
paid by it for open futures option positions, less the amount by which any such
options are "in-the-money," would exceed 5% of the Fund's total assets. A call
option is "in-the-money" if the value of the futures contract that is the
subject of the option exceeds the exercise price. A put option is "in-the-money"
if the exercise price exceeds the value of the futures contract that is the
subject of the option.
The requirements for qualification as a regulated investment company also
may limit the extent to which a Fund may enter into futures or futures options.
See "Distributions and Taxes."
Risks Associated With Futures and Futures Options. There are several risks
associated with the use of futures contracts and futures options as hedging
techniques. A purchase or sale of a futures contract may result in losses in
excess of the amount invested in the futures contract. There can be no
guarantee that there will be a correlation between price movements in the
hedging vehicle and in the Fund's securities being hedged. In addition, there
are significant differences between the securities and futures markets that
could result in an imperfect correlation between the markets, causing a given
hedge not to achieve its objectives. The degree of imperfection of correlation
depends on circumstances such as variations in speculative market demand for
futures and futures options on securities, including technical influences in
futures trading and futures options, and differences between the financial
instruments being hedged and the instruments underlying the standard contracts
available for trading in such respects as interest rate levels, maturities, and
creditworthiness of issuers. 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. Accordingly, a decision as to whether, when and how to hedge
involves the exercise of skill and judgment, and even a well-conceived hedge may
be unsuccessful to some degree because of market behavior or unexpected interest
rate trends.
Successful use of futures contracts and related options by the Non-Money
Market Funds for hedging purposes is also subject to the ability of the Funds'
adviser and/or 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.
Futures exchanges may limit the amount of fluctuation permitted in certain
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 the
current trading session. Once the daily limit has been reached in a futures
contract subject to the limit, no more trades may be made on that day at a price
beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses because the
limit may work to prevent the liquidation of unfavorable positions. For
example, futures prices have occasionally moved to
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the daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of positions and subjecting some holders
of futures contracts to substantial losses.
While a Fund will establish a futures or futures 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. In addition, certain of the
contracts discussed above are relatively new instruments without a significant
trading history. As a result, there can be no assurance that an active
secondary market will develop or continue to exist.
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, for example, 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. In this regard, 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. Certain Hedging
Transactions that a Fund may use are described under "Futures Transactions,"
"Options" and "Interest Rate Transactions." 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.
High Yield, High Risk Securities. The Short-Term Bond Fund and the Bond
Fund may each invest up to 5% of their respective net assets in securities that
are rated below investment grade by an NRSRO (e.g., lower than Baa by Moody's or
lower than BBB by S&P's) (or, if not rated, of comparable quality), provided
that any such securities also are rated investment grade by at least one other
NRSRO. Securities rated below investment grade by an NRSRO are sometimes
referred to as "high yield" or "junk" bonds. Investors should consider the
following risks associated with high yield securities before investing in these
Funds.
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Investing in high yield securities involves special risks in addition to
the risks associated with investments in higher rated securities. High yield
securities may be regarded as predominantly speculative with respect to the
issuer's continuing ability to meet principal and interest payments. Analysis
of the creditworthiness of issuers of high yield securities may be more complex
than for issuers of high quality debt securities, and the ability of a Fund to
achieve its investment objective may, to the extent of its investments in high
yield securities, be more dependent upon such creditworthiness analysis than
would be the case if the Fund were investing in higher quality securities.
High yield securities may be more susceptible to real or perceived adverse
economic and competitive industry conditions than higher grade securities. The
prices of high yield securities have been found to be less sensitive to interest
rate changes than more highly-rated investments, but more sensitive to adverse
economic downturns or individual corporate developments. A projection of an
economic downturn or of a period of rising interest rates, for example, could
cause a decline in high yield security prices because the advent of a recession
could lessen the ability of a highly leveraged company to make principal and
interest payments on its debt securities. If the issuer of high yield
securities defaults, a Fund may incur additional expenses to seek recovery. In
the case of high yield securities structured as zero coupon or payment-in-kind
securities, the market prices of such securities are affected to a greater
extent by interest rate changes, and therefore tend to be more volatile than
securities which pay interest periodically in cash.
The secondary markets on which high yield securities are traded may be less
liquid than the market for higher grade securities. Less liquidity in the
secondary trading markets could adversely affect and cause large fluctuations in
the daily net asset value of a Fund's shares. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of high yield securities, especially in a thinly-traded
market.
The use of credit ratings as the sole method of evaluating high yield
securities can involve certain risks. For example, credit ratings evaluate the
safety of principal and interest payments, not the market value risk of high
yield securities. Also, credit rating agencies may fail to change credit
ratings in a timely fashion to reflect events since the security was last rated.
The Adviser does not rely solely on credit ratings when selecting securities for
a Fund, it develops its own independent analysis of issuer credit quality. If a
credit rating agency changes the rating of a portfolio security held by a Fund,
the Fund may retain the portfolio security if the Adviser deems it to be in the
best interest of shareholders.
Illiquid Investments. Illiquid instruments 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, the Adviser determines the liquidity of each Fund's
investments and, through reports from the Adviser, the Board monitors
investments in illiquid instruments. In determining the liquidity of a Fund's
investments, the Adviser 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
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trades (including the ability to assign or offset a Fund's rights and
obligations relating to the investment). Investments currently considered by the
Money Market Funds, 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 the Adviser 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 the Adviser 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 and decrease the proportion of illiquid securities in its
portfolio. Similarly, if through a change in values, net assets or other
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 and decrease the proportion of illiquid
securities in its portfolio. However, there can be no assurance that any steps
taken will be successful. Accordingly, the level of illiquidity of a Fund
holding such securities may increase during any such period.
Interest Rate Transactions.
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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
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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 and
decrease the proportion of illiquid securities in its portfolio. 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 net asset value
("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 S & P or
Moody's or comparably rated by any nationally recognized statistical rating
organization. The Adviser 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. The Adviser
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
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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 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.
Whether a Fund's use of swap agreements will be successful in furthering
its investment objective will depend on Griffin Advisers' or the sub-adviser's
ability to predict correctly whether certain types of investments are likely to
produce greater returns than other types of investments. Because they are two-
party contracts and because they may have terms of greater than seven days, swap
agreements may be considered to be illiquid. Moreover, a Fund bears the risk of
loss of the amount expected to be received under a swap agreement in the event
of the default or bankruptcy of a swap agreement counterparty. Certain
restrictions imposed on the Funds by the Internal Revenue Code may limit the
Funds ability to use swap agreements. The swaps market is a relatively new
market and is largely unregulated. It is possible that developments in the
swaps market, including potential government regulation, could adversely affect
a Fund's ability to terminate existing swap agreements or to realize amounts to
be received under such agreements.
Certain swap agreements are exempt from most provisions of the Commodity
Exchange Act ("CEA") and, therefore, are not regulated as futures or commodity
option transactions under the CEA, pursuant to regulations approved by the
Commodity Futures Trading Commission ("CFTC"). To qualify for this exemption, a
swap agreement must be entered into by "eligible participants," which include
the following, provided the participants' total assets exceed established
levels: a bank or trust company, savings association or credit union, insurance
company, investment company subject to regulation under the 1940 Act, commodity
pool, corporation, partnership, proprietorship, organization, trust or other
entity, employee benefit plan, governmental entity, broker-dealer, futures
commission merchant, natural person, or regulated foreign person. To be
eligible, natural persons and most other entities must have total assets
exceeding $10 million; commodity pools and employee benefit plans must have
total assets exceeding $5 million. In addition, an eligible swap transaction
must meet three conditions. First, the swap agreement may not be part of a
fungible class of agreements that are standardized as to their material economic
terms. Second, the creditworthiness of parties with actual or potential
obligations under the swap agreement must be a material consideration in
entering into or determining the terms of the swap agreement, including pricing,
cost or credit enhancement terms. Third, swap agreements may not be entered
into and traded on or through a multilateral transaction execution facility.
This exemption is not exclusive, and participants may continue to rely on
existing exclusions for swaps, such as the Policy Statement issued in July 1989
which recognized a safe harbor for swap transactions from regulation as futures
or commodity option transactions under the CEA or its regulations. The Policy
Statement applies to swap transactions settled in cash that (1) have
individually tailored terms, (2) lack exchange-style offset and the use of a
clearing organization or margin system, (3) are undertaken in conjunction with a
line of business, and (4) are not marketed to the public.
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Letters of Credit. The Tax-Free Money Market Fund and 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 the Adviser, are
of investment quality comparable to other permitted investments of the Fund may
be used for letter of credit-backed investments.
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), or 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 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 the Adviser's 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
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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 compliance with applicable diversification
requirements. 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.
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Municipal Bonds. The Money Market Fund, the Municipal Bond, and the
California Tax-Free 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 Lease Obligations and Certificates of Participation. The Tax-
Free Money Market Fund, 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.
Municipal Notes. The California Tax-Free Fund, the Municipal Bond Fund and
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
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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.
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 NAV per share of the Fund.
The California Tax-Free Fund and the Municipal Bond Fund may also invest
in municipal commercial paper.
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Municipal Securities. The Money Market Funds, 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.
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
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loss.
Some of these instruments may be unrated, but unrated instruments purchased
by a Fund will be determined by the Adviser to be of comparable quality at the
time of purchase to instruments rated "investment grade" by any major rating
service. Where necessary to ensure that an instrument is of comparable "high
quality," a Fund may 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 the
Adviser 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, the Adviser
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.
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
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solely to facilitate portfolio liquidity and do not intend to exercise their
rights thereunder for trading purposes.
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 write
(i.e., sell) covered put and call options in an amount not exceeding 5% of a
Fund's total assets. 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
written by a Fund 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 such Fund's 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
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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.
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. The Adviser 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.
Risks Associated with Options Transactions. The purchase and writing of
options involve certain risks. During the option period, the covered call writer
has, in return for the premium on the option, given up the opportunity to profit
from a price increase in the underlying securities above the exercise price,
but, as long as its obligation as a writer continues, has retained the risk of
loss should the price of the underlying security decline. The writer of an
option has no control over the time when it may be required to fulfill its
obligation as a writer of the option. Once an option writer has received
exercise notice, it cannot effect a closing purchase transaction in order to
terminate its obligation under the option and must deliver the underlying
securities at the exercise price. If a put or call option purchased by a Fund is
not sold when it has remaining value, and if the market price of the underlying
security, in the case of a put, remains equal to or greater than the exercise
price or, in the case of a call, remains less than or equal to the exercise
price, the Fund will lose its entire investment in the option. Also, where a put
or call option on a particular security is purchased to hedge against price
movements in a related security, the price of the put or call option may move
more or less than the price of the related security. There can be no assurance
that a liquid market will exist when a Fund seeks to close out an option
position. Furthermore, if trading restrictions or suspensions are imposed on the
options markets, a Fund may be unable to close out a position.
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
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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
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.
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 the Adviser to be of good standing. Furthermore, they
will only be made if, in the Adviser's judgment, the consideration to be earned
from such loans would justify the risk.
The Adviser 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
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security loaned, to market forces (i.e., capital appreciation or depreciation).
Standby Commitments. The Tax-Free Money Market Fund and the Municipal Bond
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.
These Funds 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 Funds may not transfer a standby commitment to a third
party, although a Fund could sell the underlying municipal security to a third
party at any time. The Funds may purchase standby commitments separate from, or
in conjunction with, the purchase of securities subject to such commitments. In
the latter case, the Funds 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 Funds, 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
Funds; 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 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
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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.
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.
SPECIAL FACTORS AFFECTING THE CALIFORNIA TAX-FREE FUND
The concentration of the California Tax-Free Fund in obligations issued by
governmental units of only one state exposes the Fund to risks greater
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than those of a more diversified portfolio holding securities issued by
governmental units of different states and different regions of the country.
Certain California constitutional amendments, legislative measures,
executive orders, civil actions and voter initiatives, as well as the general
financial condition of the state, could adversely affect the ability of issuers
of California municipal obligations to pay interest and principal on such
obligations and could affect the Fund's ability to meet its investment
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objective. The following information constitutes only a brief summary, does not
purport to be a complete description, and is based on information drawn from
official statements relating to securities offerings of the State of California
and various local agencies, available as of the date of this SAI. While The
Griffin Funds has not independently verified such information, it has no reason
to believe that such information is incorrect in any material respect.
The California Economy and General Information. From mid-1990 to early
1994, the state suffered a recession with the worst economic, fiscal and budget
conditions since the 1930s. Construction, manufacturing (particularly that
related to defense), exports and financial services, among others, were all
severely affected. Job losses had been the worst of any post-war recession.
Unemployment reached 10.1% in January 1994, but fell sharply to 7.7% in October
and November 1994, reflecting the state's recovery from the recession. The
unemployment rate, as measured by several commonly used sources, was
approximately 6.0% in December 1997.
The recession seriously affected California tax revenues, which basically
mirror economic conditions. It also caused increased expenditures for health and
welfare programs. In addition, the state had been facing a structural imbalance
in its budget with the largest programs supported by the General Fund (e.g., K-
12 schools and community colleges--also known as "K-14 schools," health and
welfare, and corrections) growing at rates higher than the growth rates for the
principal revenue sources of the General Fund. As a result, the state
experienced recurring budget deficits in the late 1980s and early 1990s. The
state's Controller reported that expenditures exceeded revenues for four of the
five fiscal years ending with 1991-92. Moreover, California accumulated and
sustained a budget deficit in its Special Fund for Economic Uncertainties
("SFEU") approaching $2.8 billion at its peak on June 30, 1993.
The accumulated budget deficits during the early 1990's, together with
expenditures for school funding which are not reflected in the state's budget,
and reduction of available internal borrowable funds, combined to significantly
deplete the state's cash resources to pay its ongoing expenses. In order to meet
its cash needs, the state has had to rely for several years on a series of
external borrowings, including borrowings past the end of a fiscal year. Such
borrowings are expected to continue in future fiscal years. To meet its cash
flow needs in the 1995-96 fiscal year, California issued $2 billion of revenue
anticipation warrants which matured on June 28, 1996. Because of the state's
deteriorating budget and cash situation, the rating agencies reduced the state's
credit ratings between October 1991 and July 1994. Moody's lowered its rating
from "Aaa" to "A1," S&P lowered its rating from "AAA" to "A" and termed its
outlook as "stable," and Fitch Investors Service lowered its rating from "AAA"
to "A."
However, since the start of 1994, California's economy has been recovering
steadily. Employment has grown in excess of 500,000 during 1994 and 1995, and
400,000 additional jobs were created between the fourth quarter of 1996 and the
fourth quarter of 1997. This trend is projected by some analysts to continue
through the rest of the decade. Because of the improving economy and
California's fiscal austerity, the state has had operating surpluses for its
past five consecutive fiscal years through 1996-97. In addition, the SFEU is
projected to have a positive balance of approximately $553 million as of June
30,
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1998. S&P upgraded its rating of California municipal obligations back to "A+"
on July 30, 1996. As of the date of this SAI, the rating remains "A+."
Local Governments. On December 6, 1994, Orange County, California, became
the largest municipality in the United States to file for protection under the
Federal Bankruptcy laws. The filing stemmed from approximately $1.7 billion in
losses suffered by the county's investment pool because of investments in high
risk "derivative" securities. In September 1995, California's legislature
approved legislation permitting the county to use for bankruptcy recovery $820
million over 20 years in sales taxes previously earmarked for highways, transit,
and development. In June 1996, the county completed an $880 million bond
offering secured by real property owned by the county. In June 1996, the county
emerged from bankruptcy. As of October 31, 1997, the county's investment rating
by S&P was "B".
On January 17, 1994, an earthquake of the magnitude of an estimated 6.8 on
the Richter Scale struck Los Angeles County, California, causing significant
damage to public and private structures and facilities. While county residents
and businesses suffered losses totaling in the billions of dollars, the overall
effect of the earthquake on the county's and California's economy is not
expected to be serious. However, Los Angeles County is experiencing financial
difficulty due in part to the severe operating deficits for the county's health
care system. In August 1995, the credit rating of the county's long-term bonds
was downgraded for the third time since 1992. Although the county has received
federal and state assistance, it is still facing a potential budget gap of
approximately $460 million in the 1997-98 fiscal year.
Even though the state has no existing obligations with respect to either
Orange County or Los Angeles County, the state may be required to intervene and
provide funding if the counties cannot maintain certain programs because of
insufficient resources.
State Finances. California tax revenues and other income are segregated
into the General Fund and approximately 800 Special Funds. The General Fund
consists of the revenues received by the state's Treasury and not required by
law to be credited to any other fund, as well as earnings from state moneys not
allocable to another fund. The General Fund is the principal operating fund for
the majority of governmental activities and is the depository of most major
revenue sources of the state. The General Fund may be expended as the result of
appropriation measures by California's Legislature approved by the Governor, as
well as appropriations pursuant to various constitutional authorizations and
initiative statutes.
The SFEU is funded with General Fund revenues and was established to
protect California from unforeseen revenue reductions and/or unanticipated
expenditure increases. Amounts in the SFEU may be transferred by the state's
Controller to meet cash needs of the General Fund. The Controller is required to
return moneys so transferred without payment of interest as soon as there are
sufficient moneys in the General Fund. Any appropriation made from the SFEU is
deemed, for budgeting and accounting purposes, an appropriation from the General
Fund. For year-end reporting purposes, the Controller is required to add the
balance in the SFEU to the balance in the General Fund to
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show the total moneys then available for General Fund purposes.
Inter-fund borrowing has been used for several years to meet temporary
imbalances of receipts and disbursements in the General Fund. As of June 30,
1996, the General Fund had outstanding loans from the SFEU and other Special
Funds of approximately $1.5 billion.
Changes in California Constitutional and Other Laws. In 1978, California
voters approved an amendment to the California Constitution known as
"Proposition 13," which added Article XIIIA to the California Constitution.
Article XIIIA limits ad valorem taxes on real property and restricts the ability
of taxing authorities to increase real property taxes. However, legislation
passed subsequent to Proposition 13 provided for the redistribution of
California's General Fund surplus to local agencies, the reallocation of
revenues to local agencies and the assumption of certain local obligations by
the state to assist California municipal issuers to raise revenue to pay their
bond obligations. It is unknown whether additional revenue redistribution
legislation will be enacted in the future and whether, if enacted, such
legislation will provide sufficient revenue for such California issuers to pay
their obligations. California is also subject to another Constitutional
Amendment, Article XIIIB, which may have an adverse impact on California state
and municipal issuers. Article XIIIB restricts the state from spending certain
appropriations in excess of an appropriation's limit imposed for each state and
local government entity. If revenues exceed such appropriation's limit, such
revenues must be returned either as revisions in the tax rates or fee schedules.
In 1988, California voters approved "Proposition 98," which amended Article
XIIIB and Article XVI of the state's Constitution. Proposition 98 (as modified
by "Proposition 111," which was enacted in 1990), changed state funding of
public education below the university level and the operation of the state's
appropriations limit, primarily by guaranteeing K-14 schools a minimum share of
General Fund revenues. In 1986, California voters approved "Proposition 62,"
which requires in part that any tax for general governmental purposes imposed by
a local government be approved by a two-thirds vote of the governmental entity's
legislative body and by a majority of its electorate, and that any special tax
imposed by a local government be approved by a two-thirds vote of the
electorate. In September 1995, the California Supreme Court upheld the
constitutionality of Proposition 62, creating uncertainty as to the legality of
certain local taxes enacted by nonchartered cities in California without voter
approval. In 1996, California voters approved "Proposition 218," which added
Articles XIIIC and XIIID to the state's Constitution. Proposition 218 generally
requires voter approval of most tax or fee increases by local governments and
curtails local government use of benefit assessments to fund certain property-
related services to finance infrastructure. Proposition 218 also limits the use
of special assessments or "property-related" fees to services or infrastructure
that confer a "special benefit" to specific property; police, fire and other
services are now deemed to benefit the public at large and, therefore, could not
be funded by special assessments. Finally, the amendments enable the voters to
use their initiative power to repeal previously-authorized taxes, assessments,
fees and charges. It remains to be seen what impact these Articles will have on
the ability of obligors to make payments on existing and future California
security obligations.
Other Information. Certain debt obligations held by the Fund may
59
<PAGE>
be obligations payable solely from lease payments on real or personal property
leased to the state, cities, counties or their various public entities.
California law provides that a lessor may not be required to make payments
during any period that it is denied use and occupancy of the property in
proportion to such loss. Moreover, the lessor only agrees to appropriate funding
for lease payments in its annual budget for each fiscal year. In case of a
default under the lease, the only remedy available against the lessor is that of
reletting the property; no acceleration of lease payments is permitted. Each of
these factors presents a risk that the lease financing obligations held by the
Fund would not be paid in a timely manner.
Certain debt obligations held by the Fund may be obligations payable solely
from the revenues of health care institutions. The method of reimbursement for
indigent care, California's selective contracting with health care providers for
such care and selective contracting by health insurers for care of its
beneficiaries now in effect under California and federal law may adversely
affect these revenues and, consequently, payment on those debt obligations.
There can be no assurance that general economic difficulties or the
financial circumstances of California or its towns and cities or its trading
partners in Asia, where California exports nearly half of $105 billion in total
exports, will not adversely affect the market value of California municipal
securities or the ability of obligors to continue to make payments on such
securities.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Advisers are responsible for decisions to buy and sell securities for
the Funds, the selection of brokers and dealers to effect the transactions and
the negotiation of brokerage commissions. Other than listed securities,
securities purchased and sold by the Funds generally will be traded on a net
basis (i.e., without commission). Purchases and sales of securities on a
securities exchange are effected through brokers who charge a commission for
their services. Brokerage commissions on United States securities exchanges are
subject to negotiation between the Advisers and the broker. Such commissions
vary among different brokers. Also, a particular broker may charge different
commissions according to such factors as the difficulty and size of the
transaction. Fixed income securities and securities traded in the over-the-
counter market are generally traded on a "net" basis with dealers acting as
principal for their own accounts without a stated commission, although the price
of the security usually includes a profit to the dealer. In underwritten
offerings, securities are purchased at a fixed price which includes an amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount. On occasion, certain money market instruments may be
purchased directly from an issuer, in which case no commissions or discounts are
paid.
The Advisers place all orders for the purchase and sale of portfolio
securities, options and futures contracts for the Funds and buys and sells such
securities, options and futures for the Funds through a number of broker-
dealers. In so doing, the Advisers use
60
<PAGE>
their best efforts to obtain for the Funds the most favorable price and
execution available, except to the extent it may be permitted to pay higher
brokerage commissions as further described below. Subject to applicable
limitations of the federal securities laws, the 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 Funds and other accounts over
which an Adviser or its 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). The Advisers maintain listings 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 lists)
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 an Adviser (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 an 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 an Adviser may be useful to the Adviser in carrying
out its obligations to one or more Funds. The receipt of such research enables
the Advisers to avoid the additional expenses that could be incurred if the
Advisers tried to develop comparable information through their own efforts.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, an
Adviser may cause a Fund to pay a broker-dealer which provides "brokerage and
research services" (as defined in such Act) to the Adviser an amount of
commission for effecting a securities transaction for the Fund that is in excess
of the commission that another broker-dealer would have charged for effecting
the transaction. In order to cause the Funds to pay such higher commissions, an
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
61
<PAGE>
of the Adviser to the Fund(s) and their other clients. In reaching this
determination, an 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 Advisers and their affiliates manage several other investment accounts,
some of which may have investment objectives similar to those of one or more
Funds. It is possible that, at times, identical securities will be appropriate
for investment by one or more Funds and by one or more of such investment
accounts. The position of each account, however, in the securities of the same
issuer may vary and the length of time that each account may choose to hold its
investment in the securities of the same issuer likewise may vary. The timing
and amount of purchase by each account will also be determined by its cash
position. If the purchase or sale of securities consistent with the investment
policies of a Fund and one or more of these accounts is considered at or about
the same time, transactions in such securities will be allocated among the
accounts in a manner deemed equitable by the Adviser. There may be circumstances
under which purchases or sales of portfolio securities by an Adviser for one or
more clients will have an adverse effect on other clients of the Adviser.
During the fiscal year ended September 30, 1997, The Griffin Funds, on
behalf of the Growth & Income Fund and the Growth Fund and pursuant to
agreements or understandings, directed $111,160,558 and $3,469, respectively, in
aggregate brokerage transactions to brokers due to research and brokerage
services they provided, and such brokers received related commissions of
approximately $142,634 from the Growth & Income Fund and $16 from the Growth
Fund.
The Board of Directors periodically review the performance of the Advisers
regarding their responsibilities in connection with the placement of portfolio
transactions on behalf of 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 received by each Fund.
62
<PAGE>
Brokerage Commissions. During the fiscal years ended September 30,
---------------------
1995, 1996 and 1997, the Growth and Income Fund and the Growth Fund paid the
brokerage commissions listed below. The other Funds did not pay brokerage
commissions during these periods.
<TABLE>
<CAPTION>
Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended
Fund 9/30/95 9/30/96 9/30/97
---- ----------- ----------- -----------
<S> <C> <C> <C>
Growth & Income Fund $70,409 $222,021* $556,079*
Growth Fund $ 3,621** $ 18,727* $ 37,929*
</TABLE>
- -----------------
* The increase in the brokerage commissions paid by the Fund is primarily the
result of the Fund's growth in assets.
** For the period from commencement of operations on June 12, 1995 through
September 30, 1995.
Securities of Regular Broker-Dealers. In addition, as of the close of
------------------------------------
The Griffin Funds' fiscal year on September 30, 1997, the Funds held securities
of their regular broker-dealers (or the parents thereof) as follows:
<TABLE>
<CAPTION>
Fund Broker-Dealer Amount
- ---- ------------- ------
<S> <C> <C>
Money Market Ford Motor Credit Corp. $ 9,000,000
Chevron Oil Finance $11,000,000
Bond Merrill Lynch $ 431,000
Paine Webber $ 1,066,000
Donaldson, Lufkin & Jenrette $ 295,000
Smith Barney $ 352,000
Bear Stearns $ 483,000
Lehman Brothers $ 1,048,000
J.P. Morgan $ 518,000
Morgan Stanley $ 327,000
Solomon $ 467,000
Short-Term Bond Lehman Brothers $ 155,000
</TABLE>
63
<PAGE>
<TABLE>
<S> <C> <C>
Paine Webber $ 653,000
Bear Stearns $ 31,000
Donaldson, Lufkin & Jenrette $ 1,000,000
Growth State Street Bank & Trust Company $ 323,000
Investment Technology Group $ 259,000
Raymond James Financial $ 275,000
Schwab (Charles) Corp. $ 354,000
Growth and Income Morgan Stanley, Dean Witter, Discover $ 4,038,000
</TABLE>
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 the Adviser's
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 Board of 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
Board of 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.
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
64
<PAGE>
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 latest
quoted 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. From time to time, the "yield" and "effective
yield" of the shares of the Money Market Fund and the Tax-Free Money Market Fund
may be presented in advertisements, sales literature and in reports to
shareholders. The "yield" and "effective yield" of shares of the Money Market
Fund and the Tax-Free Money Market Fund are computed separately according to
formulas prescribed by the Securities and Exchange Commission. The standardized
seven-day yield is computed by determining the net change, exclusive of capital
changes, in the value of a hypothetical pre-existing account in the particular
Fund involved having a balance of one share at the beginning of the period,
dividing the net change in account value by the value of the account at the
beginning of the base period to obtain the base return, and multiplying the base
period return by (365/7). The net change in the value of an account in each Fund
includes the value of additional shares purchased with dividends from the
original share, and dividends declared on both the original share and any such
additional shares; and all fees, other than nonrecurring account or sales
charges, that are charged to shareholder accounts in proportion to the length of
the base period and the Fund's average account size. The capital changes to be
excluded from the calculation of the net change in account value are realized
gains and losses from the sale of securities and unrealized appreciation and
depreciation. The effective annualized yield for shares of a Fund is computed by
compounding the unannualized base period
65
<PAGE>
return (calculated as above) by adding 1 to the base period return, raising the
sum to a power equal to 365 divided by 7, and subtracting 1 from the result.
Yield and Effective Yield. For the seven-day period ended September 30,
-------------------------
1997, the yield and effective yield of the Money Market Fund and the Tax-Free
Money Market Fund were as follows:
<TABLE>
<CAPTION>
Effective
Yield Yield
----- -----
<S> <C> <C>
Money Market Fund 4.91% 5.03%
Tax-Free Money Market Fund 3.25% 3.30%
</TABLE>
Tax-Equivalent Yield. The Tax-Free Money Market Fund also may quote
--------------------
"tax-equivalent yield." 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 yield is 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, 1997, the tax-equivalent
yield of the Tax-Free Money Market Fund (assuming a 39.6% federal tax rate) was
5.39%.
The table below shows the effect of a shareholder's tax status on
effective yield under the federal income tax laws for 1997. 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.
66
<PAGE>
1997 Federal Tax Rates and Tax-Equivalent Yields
------------------------------------------------
<TABLE>
<CAPTION>
Federal
Single Return Joint Return Tax
Taxable Income* Taxable Income* Bracket 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5%
- --------------------- --------------------- ------- ---- ---- ---- ---- ---- ---- ---- ---- ----
Then taxable equivalent yield is:**
Over But Not Over Over But Not Over
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$0 $ 24,650 $0 $41,200 15.0% 2.94% 3.53% 4.12% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65%
$24,651 $ 59,750 $41,201 $99,600 28.0% 3.47% 4.17% 4.86% 5.56% 6.25% 6.94% 7.64% 8.33% 9.03%
$59,751 $124,650 $99,601 $151,750 31.0% 3.62% 4.35% 5.07% 5.80% 6.52% 7.25% 7.97% 8.70% 9.42%
$124,651 $271,050 $151,751 $271,050 36.0% 3.91% 4.69% 5.47% 6.25% 7.03% 7.81% 8.59% 9.38% 10.16%
over $271,050 over $271,050 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 1997 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.
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
67
<PAGE>
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. From time to time, the standardized 30-day
yield of Class A and Class B Shares of the Non-Money Market Funds may be
presented in advertisements, sales literature and in reports to shareholders.
The yield of the Class A and Class B Shares of the Non-Money Market Funds is a
measure of the net investment income per share (as defined) earned over a 30-day
period expressed as a percentage of the maximum offering price of a share of
such classes at the end of the period. Yield figures are determined by dividing
the net investment income per share earned during the specified 30-day period by
the maximum offering price per share on the last day of the period, according to
the following formula:
Yield = 2[(a-b + 1)/6/ - 1]
-------------------
cd
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = average daily number of shares outstanding during the
period that were entitled to receive dividends
d = maximum offering price per share on the last day of the
period
For purposes of yield quotations, income is calculated in accordance
with standardized methods applicable to all stock and bond mutual funds. 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 are
excluded from the calculation.
Income calculated for the purposes of calculating 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, the yield quoted for a Fund may differ from the rate of
distributions a Fund paid over the same period or the rate of income reported in
the Funds' 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.
Yield. For the 30-day period ended September 30, 1997, the standardized
-----
yields of the Class A Shares and Class B Shares of the following Non-Money
Market Funds were as follows:
68
<PAGE>
<TABLE>
<CAPTION>
Fund Class A Shares Class B Shares(1)
---- -------------- -----------------
<S> <C> <C>
U.S. Government Income Fund 6.10%(2) 5.37%
Bond Fund 5.92%(2) 5.20%
California Tax-Free Fund 4.50%(2) 3.77%
Municipal Bond Fund 4.33%(2) 3.60%
Short-Term Bond Fund 5.45%(3) 4.72%
</TABLE>
- ---------------
(1) These figures reflect the deduction of the maximum applicable contingent
deferred sales charge.
(2) These figures reflect the deduction of the maximum initial sales charge with
respect to Class A Shares (4.50%).
(3) These figures reflect the deduction of the maximum initial sales charge with
respect to Class A Shares (3.50%).
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 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.
Tax Equivalent Yield. Tax-equivalent yield is the rate an investor
--------------------
would have to earn from a fully taxable investment after taxes to equal the
tax-free yield of either the California Tax-Free Fund or the Municipal Bond
Fund. 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 thirty-day period ended September 30, 1997, the tax-equivalent
yield (based on an assumed federal tax rate of 39.60%) for the Municipal Bond
Fund and the California Tax-Free Fund were as follows:
<TABLE>
<CAPTION>
Fund Class A Shares(1) Class B Shares(2)
---- ----------------- -----------------
<S> <C> <C>
Municipal Bond Fund 7.17% 5.96%
California Tax-Free Fund 7.45% 6.24%
</TABLE>
- ---------------------
(1) These figures reflect the deduction of the maximum initial sales charge with
respect to Class A Shares (4.50%).
69
<PAGE>
(2) These figures reflect the deduction of the maximum applicable contingent
deferred sales charge.
California Tax-Free Fund. The tables below show the effect of a
shareholder's tax status on the effective yield under federal and state income
tax laws for 1997. 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.
70
<PAGE>
<TABLE>
<CAPTION>
1997 Combined
California and
1997 California 1997 Federal Federal Effective
Single Return Joint Return Marginal Tax Marginal Tax Marginal Tax
Taxable Income* Taxable Income* Bracket Bracket Bracket**
--------------- --------------- ------- ------- ---------
<S> <C> <C> <C> <C>
$18,761 - $24,650 $37,522 - $41,200 6% 15% 20.10%
$24,651 - $26,045 $41,201 - $52,090 6% 28% 32.32%
$26,046 - $32,916 $52,091 - $65,832 8% 28% 33.76%
$32,917 - $59,750 $65,833 - $99,600 9.30% 28% 34.70%
$59,751 - $124,650 $99,601 - $151,750 9.30% 31% 37.42%
</TABLE>
71
<PAGE>
<TABLE>
<CAPTION>
1997 Combined
California and
1997 California 1997 Federal Federal Effective
Single Return Joint Return Marginal Tax Marginal Tax Marginal Tax
Taxable Income* Taxable Income* Bracket Bracket Bracket**
--------------- --------------- ------- ------- ---------
<S> <C> <C> <C> <C>
$124,651 - $271,050 $151,751 - $271,050 9.30% 36% 41.95%
over $271,050 over $271,050 9.30% 39.6% 45.22%
</TABLE>
* Net taxable income after all exemptions, adjustments and deductions.
** Based on rates applicable in 1997 for single filers and married couples
filing jointly (except that marginal rates may be higher for some
individuals due to phase out of exemptions and elimination of
deductions).
Having determined your combined effective tax bracket above, use the table
below to determine the tax equivalent yield for a given tax-free yield.
If your effective combined federal and California income tax rate in 1997
is:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
20.10% 32.32% 33.76% 34.70% 37.42% 41.95% 45.22%
</TABLE>
<TABLE>
<CAPTION>
To match these
tax-free
rates Your taxable investment would have to earn the following yield:
-------------- --------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
2% 2.5% 2.96% 3.02% 3.06% 3.20% 3.45% 3.65%
3% 3.75% 4.43% 4.53% 4.59% 4.79% 5.17% 5.48%
4% 5.01% 5.91% 6.04% 6.13% 6.39% 6.89% 7.30%
5% 6.26% 7.39% 7.55% 7.66% 7.99% 8.61% 9.13%
6% 7.51% 8.87% 9.06% 9.19% 9.59% 10.34% 10.95%
7% 8.76% 10.34% 10.57% 10.72% 11.19% 12.06% 12.78%
</TABLE>
The California income tax rates are those in effect for 1997. The rates
listed reflect the 1997 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. From time to time, the average annual and
cumulative total
72
<PAGE>
return of Class A and Class B shares of the Non-Money Market Funds over stated
periods may be presented in advertisements, sales literature and in reports to
shareholders. Total return measures both the net investment income generated by,
and the effect of any realized or unrealized appreciation or depreciation of the
underlying investments in a Fund. The Funds' average annual and cumulative total
return figures are computed in accordance with the standardized methods
prescribed by the SEC.
Average annual total return is computed by determining the average
annual compounded rates of return over the periods indicated in the
advertisement, sales literature or shareholders' report that would equate the
initial amount invested to the ending redeemable value, according to the
following formula:
P(1 + T)/n/ = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the period of a
hypothetical $1,000 payment made at the beginning of such period
(or fractional portion thereof)
This calculation (i) assumes all dividends and distributions are reinvested at
NAV on the appropriate reinvestment dates as described in the Prospectus, and
(ii) deducts (a) the maximum sales charge from the hypothetical initial $1,000
investment, and (b) all recurring fees, such as advisory and administrative
fees, charged as expenses to all shareholder accounts.
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.
Cumulative total return is computed by finding the cumulative
compounded rate of return over the period indicated in the advertisement, sales
literature and in reports to shareholders that would equate the initial amount
invested to the ending redeemable value, according to the following
formula:
CTR = (ERV-P) 100
-----
P
Where: CTR = cumulative total return
ERV = ending redeemable value at the end of the period of a
hypothetical $1,000 payment made at the beginning of such period
P = a hypothetical initial payment of $1,000.
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<PAGE>
This calculation (i) assumes all dividends and distributions are reinvested at
net asset value on the appropriate reinvestment dates as described in the
Prospectus, and (ii) deducts (a) the maximum sales charge from the hypothetical
initial $1,000 investment, and (b) all recurring fees, such as advisory and
administrative fees, charged as expenses to all shareholder accounts.
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.
Average Annual Total Return. For the indicated periods ended September
30, 1997, 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 10/19/93 Year Ended Since 11/1/94(1)
Fund 9/30/97 Inception(1) 9/30/97 Inception
---- ------- ------------ ------- ---------
<S> <C> <C> <C> <C>
U. S. Government Income Fund 8.62% 5.88% 8.06% 8.38%
Bond Fund 9.19% 4.90% 8.63% 8.42%
</TABLE>
74
<PAGE>
<TABLE>
<CAPTION>
Class A Class B
------- -------
Year Ended Since 10/19/93 Year Ended Since 11/1/94(1)
Fund 9/30/97 Inception(1) 9/30/97 Inception
---- ------- ------------ ------- ---------
<S> <C> <C> <C> <C>
California Tax-Free Fund 9.19% 4.33% 8.63% 8.85%
Municipal Bond Fund 8.64% 4.45% 7.96% 8.53%
Growth & Income Fund 38.78% 22.53% 38.08% 28.98%
<CAPTION>
Class A Class B
------- -------
Year Ended Since 6/12/95 Year Ended Since 6/12/95
Fund 9/30/97 Inception(1) 9/30/97 Inception(1)
---- ------- ------------ ------- ------------
<S> <C> <C> <C> <C>
Short-Term Bond Fund 6.86% 6.09% 6.20% 5.66%
Growth Fund 21.66% 25.18% 21.09% 24.63%
</TABLE>
(1) These figures have been annualized.
For the indicated periods ended September 30, 1997, the total returns
of the Class A and Class B Shares of the Non-Money Market Funds, after deducting
applicable sales charges, were as follows:
75
<PAGE>
<TABLE>
<CAPTION>
Class Class B(3)
---------- ----------
Year Ended Since 10/19/93 Year Ended Since 11/1/94
Fund 9/30/97 Inception(1) 9/30/97 Inception(1)
---- ------- ------------ ------- ------------
<S> <C> <C> <C> <C>
U. S. Government Income Fund 3.73% 4.65% 3.06% 7.50%
Bond Fund 4.28% 3.68% 3.63% 7.54%
California Tax-Free Fund 4.28% 3.12% 3.63% 7.97%
Municipal Bond Fund 3.75% 3.24% 2.96% 7.64%
Growth & Income Fund 32.53% 21.12% 33.08% 28.35%
<CAPTION>
Class A Class B(3)
------- ----------
Year Ended Since 6/12/95 Year Ended Since 6/12/95
Fund 9/30/97 Inception(1) 9/30/97 Inception(1)
---- ------- ------------ ------- ------------
<S> <C> <C> <C> <C>
Short-Term Bond Fund 3.12%(4) 4.46%(4) 2.20% 4.85%
Growth Fund 16.18%(2) 22.70%(2) 16.09% 23.65%
</TABLE>
- ---------------------------
(1) These figures have been annualized.
(2) These figures reflect the deduction of the maximum initial sales charge with
respect to Class A Shares (4.50%).
(3) These figures reflect the deduction of the maximum applicable contingent
deferred sales charge.
(4) These figures reflect the deduction of the maximum initial sales charge with
respect to Class A Shares (3.50%).
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<PAGE>
For the three-year period ended December 31, 1997, the average annual
total returns for the Class A and Class B Shares of the following Non-Money
Market Funds, before deducting applicable sales charges, were:
<TABLE>
<CAPTION>
Fund Class A Class B
---- ------- -------
<S> <C> <C>
U.S. Government Income Fund 9.26% 8.72%
Bond Fund 9.48% 8.85%
California Tax-Free Fund 9.77% 9.23%
Municipal Bond Fund 9.44% 8.90%
Growth & Income Fund 28.26% 27.60%
</TABLE>
For the three year period ended December 31, 1997, the average annual
total returns for the Class A and Class B Shares of the following Non-Money
Market Funds, after deducting applicable sales charges, were:
77
<PAGE>
<TABLE>
<CAPTION>
Fund Class A(1) Class B(2)
---- ---------- ----------
<S> <C> <C>
U.S. Government Income Fund 7.59% 7.86%
Bond Fund 7.81% 8.00%
California Tax-Free Fund 8.10% 8.38%
Municipal Bond Fund 7.78% 8.05%
Growth & Income Fund 26.31% 26.99%
</TABLE>
(1) These figures reflect the deduction of the maximum initial sales charge with
respect to Class A Shares (4.50%).
(2) These figures reflect the deduction of the maximum applicable contingent
deferred sales charge.
Cumulative Total Return. For the periods ended September 30, 1997, the
cumulative 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
------- -------
Six Months Since Six Months Since
Ended Year Ended 10/19/93 Ended Year Ended 11/1/94
Fund 9/30/97 9/30/97 Inception(1) 9/30/97 9/30/97 Inception(1)
---- ------- ------- ------------ ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
U. S. Government Income Fund 6.39% 8.62% 25.33% 6.23% 8.06% 26.48%
Bond Fund 6.75% 9.19% 20.81% 6.35% 8.63% 26.61%
California Tax-Free Fund 6.87% 9.19% 18.24% 6.59% 8.63% 28.07%
Municipal Bond Fund 6.62% 8.64% 18.80% 6.34% 7.96% 26.98%
Growth & Income Fund 25.03% 38.78% 123.32% 24.75% 38.08% 110.13%
<CAPTION>
Class A(2) Class B(3)
--------- ----------
Six Months Since Six Months
Ended Year Ended 10/19/93 Ended Year Ended Since 6/12/95
Fund 9/30/97 9/30/97 Inception(1) 9/30/97 9/30/97 Inception(1)
---- ------- ------- ------------ ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Short-Term Bond Fund 4.57% 6.86% 14.61%(4) 4.18% 6.20% 13.54%
Growth Fund 31.18% 21.66% 64.88%(2) 30.83% 21.09% 66.19%
</TABLE>
For the periods ended September 30, 1997, the cumulative total returns
of the Class
78
<PAGE>
A and Class B Shares of the Non-Money Market Funds, after deducting applicable
sales charges, were as follows:
<TABLE>
<CAPTION>
Class A(2) Class B(3)
Six Months Since Six Months Since
Ended Year Ended 10/19/93 Ended Year Ended 11/1/94
Fund 9/30/97 9/30/97 Inception(1) 9/30/97 9/30/97 Inception(1)
---- ------- ------------ ------------ ------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
U. S. Government Income Fund 1.61% 3.73% 19.69% 1.23% 3.06% 23.48%
Bond Fund 1.96% 4.28% 15.37% 1.35% 3.63% 23.61%
California Tax-Free Fund 2.07% 4.28% 12.92% 1.59% 3.63% 25.07%
Municipal Bond Fund 1.84% 3.75% 13.46% 1.34% 2.96% 23.98%
Growth & Income Fund 19.41% 32.53% 113.27% 19.75% 33.08% 107.13%
<CAPTION>
Class A Class B(3)
Six Months Since Six Months Since
Ended Year Ended 10/19/93 Ended Year Ended 6/12/95
Fund 9/30/97 9/30/97 Inception(1) 9/30/97 9/30/97 Inception(1)
---- ------- ------------ ------------ ------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Short-Term Bond Fund 0.92%(4) 3.12%(4) 10.60%(4) 0.18% 2.20% 10.54%
Growth Fund 25.27%(2) 16.18%(2) 60.32%(2) 25.83% 16.09% 63.19%
</TABLE>
(1) These figures have been annualized.
(2) These figures reflect the deduction of the maximum initial sales charge with
respect to Class A Shares (4.50%).
(3) These figures reflect the deduction of the maximum applicable contingent
deferred sales charge.
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<PAGE>
(4) These figures reflect the deduction of the maximum initial sales charge of
with respect to Class A Shares (3.50%).
For the three year period ended December 31, 1997, the cumulative total
returns for the Class A and Class B Shares of the following Non-Money Market
Funds, before deducting applicable sales charges, were:
<TABLE>
<CAPTION>
Fund Class A Class B
---- ------- -------
<S> <C> <C>
U.S. Government Income Fund 30.42% 28.50%
Bond Fund 31.20% 28.99%
California Tax-Free Fund 32.26% 30.32%
Municipal Bond Fund 31.09% 29.14%
Growth & Income Fund 111.02% 107.77%
</TABLE>
For the three year period ended December 31, 1997, the cumulative total
returns for the Class A and Class B Shares of the following Non-Money Market
Funds, after deducting applicable sales charges, were:
<TABLE>
<CAPTION>
Fund Class A(1) Class B(2)
---- ------- -------
<S> <C> <C>
U.S. Government Income Fund 24.55% 25.50%
Bond Fund 25.30% 25.99%
California Tax-Free Fund 26.31% 27.32%
Municipal Bond Fund 25.20% 26.14%
Growth & Income Fund 101.52% 104.77%
</TABLE>
- ---------------------
(1) These figures reflect the deduction of the maximum initial sales charge with
respect to Class A Shares (4.50%).
(2) These figures reflect the deduction of the maximum applicable contingent
deferred sales charge.
A Fund's performance may be compared in advertising and sales
literature 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") or Morningstar, Inc. ("Morningstar") or other
independent services that monitor 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.
Morningstar rates mutual funds on the basis of risk-adjusted performance.
A Fund's performance also may be compared in advertising and other
sales literature to the performance of other mutual funds tracked by financial
or business publications and periodicals. In addition, each Fund may quote
financial or business publications and periodicals as they relate to Fund
management, investment philosophy, and investment techniques.
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<PAGE>
From time to time, The Griffin Funds may quote the performance or
price-earning ratio of a Fund or Class in advertising and other types of
literature as compared to the performance of the S&P Index, the Dow Jones
Industrial Average, the Lehman Brothers 20+ Treasury Index, the Lehman Brothers
5-7 Year Treasury Index, Donoghue's Money Fund Averages, Real Estate Investment
Averages (as reported by the National Association of Real Estate Investment
Trusts), Gold Investment Averages (provided by World Gold Council), Bank
Averages (which are calculated from figures supplied by the U.S. League of
Savings Institutions based on effective annual rates of interest on both
passbook and certificate accounts), average annualized certificate of deposit
rates (from the Federal Reserve G-13 Statistical Releases or the Bank Rate
Monitor), the Salomon One Year Treasury Benchmark Index, the Consumer Price
Index (as published by the U.S. Bureau of Labor Statistics), other managed or
unmanaged indices or performance data of bonds, municipal securities, stocks or
government securities (including data provided by Ibbotson Associates), or by
other services, companies, publications or persons who monitor mutual funds on
overall performance, risk-adjusted performance, volatility or other criteria.
The S&P Index and the Dow Jones Industrial Average are unmanaged indices of
selected common stocks.
The Funds may use the long-term performance of these capital markets as
published by Ibbotson or similar companies in order to demonstrate general
long-term risk-versus-reward investment scenarios or for other appropriate
comparisons. 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 performance of these capital markets
is based on the returns of several different indices and their respective
returns. Ibbotson calculates standardized performance figures using the same
general methods as the Funds. Performance comparisons could also include the
value of a hypothetical investment in any of the capital markets.
The Funds may reference and discuss their Fund number, Quotron(TM)
number, CUSIP number and current portfolio manager in advertising.
81
<PAGE>
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
If the Board of 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 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, the Advisers may reinvest your distributions at the
then-current NAV. All subsequent distributions will then be reinvested until you
provide the Advisers with alternative instructions.
Taxes. The following information supplements and should be read in
conjunction with the Prospectus section entitled "Taxes." The Prospectus
describes generally the tax treatment of distributions by the Funds. This
section of the SAI includes additional information concerning income taxes.
General. Each Fund intends to qualify as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). As a regulated investment company, each Fund will not be taxed on its
net investment income and capital gains distributed to its shareholders.
Qualification as a regulated investment company under the Code
requires, among other things, that (a) each Fund derive at least 90% of its
annual gross income from dividends, interest, certain payments with respect to
securities loans, gains from the sale or other disposition of stock or
securities or foreign currencies (to the extent such
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<PAGE>
currency gains are directly related to the regulated investment company's
principal business of investing in stock or securities) and other income
(including but not limited to gains from options, futures or forward contracts)
derived with respect to its business of investing in such stock, securities or
currencies; and (b) 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 obligations and the securities of
other regulated investment companies), or in two or more issuers which the Fund
controls and which are determined to be engaged in the same or similar trades or
businesses.
The Funds must also distribute or be deemed to distribute to their
shareholders at least 90% of their net investment income earned in each taxable
year. In general, these distributions must actually or be deemed to be made in
the taxable year. However, in certain circumstances, such distributions may be
made in the 12 months following the taxable year. The Funds intend to pay out
substantially all of their net investment income and net realized capital gains
(if any) for each year.
In addition, a regulated investment company must, in general, derive
less than 30% of its gross income from the sale or other disposition of
securities or options thereon held for less than three months. However, this
restriction has been repealed with respect to a regulated investment company's
taxable years beginning after August 5, 1997.
Excise Tax. A 4% nondeductible excise tax will be imposed on each Fund
(other than to the extent of its tax-exempt interest income) to the extent it
does not meet certain minimum distribution requirements by the end of each
calendar year. Each Fund intends to actually or be deemed to distribute
substantially all of its net investment income and net capital gains by the end
of each calendar year and, thus, expects not to be subject to the excise tax.
83
<PAGE>
Taxation of Fund Investments. Except as provided herein, gains and
losses on the sale of portfolio securities by a Fund will generally be capital
gains and losses. Such gains and losses will ordinarily be long-term capital
gains and losses if the securities have been held by the Fund for more than one
year at the time of disposition of the securities.
Gains recognized on the disposition of a debt obligation (including
tax-exempt obligations purchased after April 30, 1993) purchased by the 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 market discount which
accrued, but was not previously recognized pursuant to an available election,
during the term the Fund held the debt obligation.
If an option granted by a Fund lapses or is terminated through a
closing transaction, such as a repurchase by the Fund of the option from its
holder, the Fund will realize a short-term capital gain or loss, depending on
whether the premium income is greater or less than the amount paid by the Fund
in the closing transaction. Some realized capital losses may be deferred if they
result from a position which is part of a "straddle," discussed below. If
securities are sold by a Fund pursuant to the exercise of a call option written
by it, the Fund will add the premium received to the sale price of the
securities delivered in determining the amount of gain or loss on the sale.
Under Section 1256 of the Code, a Fund will be required to "mark to
market" its positions in "Section 1256 contracts," which generally include
regulated futures contracts and listed options. In this regard, Section 1256
contracts will be deemed to have been sold at market value. Sixty percent (60%)
of any net gain or loss realized on all dispositions of Section 1256 contracts,
including deemed dispositions under the mark-to-market regime, will generally be
treated as long-term capital gain or loss, and the remaining forty percent (40%)
will be treated as short-term capital gain or loss. Transactions that qualify as
designated hedges are excepted from the mark-to-market and 60%/40% rules.
84
<PAGE>
Under Section 988 of the Code, a Fund will generally recognize ordinary
income or loss to the extent gain or loss realized on the disposition of
portfolio securities is attributable to changes in foreign currency exchange
rates. In addition, gain or loss realized on the disposition of a foreign
currency forward contract, futures contract, option or similar financial
instrument, or of foreign currency itself, will generally be treated as ordinary
income or loss. The Funds will attempt to monitor Section 988 transactions,
where applicable, to avoid adverse tax impact.
Offsetting positions held by a regulated investment company involving
certain financial forward, futures or options contracts may be considered, for
tax purposes, to constitute "straddles." "Straddles" are defined to include
"offsetting positions" in actively traded personal property. The tax treatment
of "straddles" is governed by Section 1092 of the Code which, in certain
circumstances, overrides or modifies the provisions of Section 1256. If a
regulated investment company were treated as entering into "straddles" by
engaging in certain financial forward, futures or option contracts, such
straddles could be characterized as "mixed straddles" if the futures, forwards,
or options comprising a part of such straddles were governed by Section 1256 of
the Code. The regulated investment company may make one or more elections with
respect to "mixed straddles." Depending upon which election is made, if any, the
results with respect to the regulated investment company may differ. Generally,
to the extent the straddle rules apply to positions established by the regulated
investment company, losses realized by the regulated investment company may be
deferred to the extent of unrealized gain in any offsetting positions. Moreover,
as a result of the straddle and the conversion transaction rules, short-term
capital loss on straddle positions may be recharacterized as long-term capital
loss, and long-term capital gain may be characterized as short-term capital gain
or ordinary income.
If a Fund enters into a "constructive sale" of any appreciated position
in stock, a partnership interest, or certain debt instruments, the Fund must
recognize gain (but not loss) with respect to that position. For this purpose, a
constructive sale occurs when the Fund enters into one of the following
transactions with respect to the same or substantially identical property: (i) a
short sale; (ii) an offsetting notional principal contract; or (iii) a futures
or forward contract.
If a Fund purchases shares in a "passive foreign investment company"
("PFIC"), the Fund may be subject to federal income tax and an interest charge
imposed by the Internal Revenue Service ("IRS") upon certain distributions from
the PFIC or the Fund's disposition of its PFIC shares. If the Fund invests in a
PFIC, the Fund intends to make an available election to mark-to-market its
interest in PFIC shares. Under the election, the Fund will be treated as
recognizing at the end of each taxable year the difference, if any, between the
fair market value of its interest in the PFIC shares and its basis in such
shares. In some circumstances, the recognition of loss may be suspended. The
Fund will adjust its basis in the PFIC shares by the amount of income (or loss)
recognized. Although such income (or loss) will be taxable to the Fund as
ordinary income (or loss) notwithstanding any distributions by the PFIC, the
Fund will not be subject to federal income tax or the
85
<PAGE>
interest charge with respect to its interest in the PFIC.
Capital Gain Distributions. Distributions which are designated by a
Fund as capital gain distributions will be taxed to shareholders as long-term
capital gain (to the extent such dividends do exceed the Fund's actual net
capital gain for the taxable year), regardless of how long a shareholder has
held Fund shares. Such distributions will be designated as capital gain
distributions in a written notice mailed by the Fund to its shareholders not
later than 60 days after the close of the Fund's taxable year.
The Taxpayer Relief Act of 1997 (the "1997 Act") created several new
categories of capital gains applicable to noncorporate taxpayers. Under prior
law, noncorporate taxpayers were generally taxed at a maximum rate of 28% on net
capital gain (generally, the excess of net long-term capital gain over net
short-term capital loss). Noncorporate taxpayers are now generally taxed at a
maximum rate of 20% on net capital gain attributable to gains realized on the
sale of property held for greater than 18 months, and a maximum rate of 28% on
net capital gain attributable to gain realized on the sale of property held for
greater than one year but not more than 18 months. The 1997 Act retains the
treatment of short-term capital gain or loss (generally, gain or loss
attributable to capital assets held for 1 year or less) and did not affect the
taxation of capital gains in the hands of corporate taxpayers.
Under the 1997 Act, the Treasury is authorized to issue regulations for
application of the reduced capital gains tax rates to pass-through entities,
including regulated investment companies, such as the Funds. The Internal
Revenue Service has published a notice describing temporary regulations to be
issued pursuant to such authority. According to the notice, regulations, when
issued, will permit (but not require) a Fund to designate the portion of its
capital gain distributions, if any, to which the 28% and 20% rates described in
the preceding paragraph apply, based on the net amount of each class of capital
gain realized by the Fund, determined as if the Fund were an individual subject
to a marginal tax rate of 28%. Noncorporate stockholders of the Funds may
therefore qualify for the reduced rate of tax on capital gain dividends paid by
the Funds.
Other Distributions. With respect to the Money Market Funds, Short-Term
Bond Fund, U.S. Government Income Fund, Municipal Bond Fund, California Tax-Free
Fund, and Bond Fund, although dividends will be declared daily based on each
Fund's daily earnings, for federal income tax purposes, the Fund's earnings and
profits will be determined at the end of each taxable year and will be allocated
pro rata over the entire year. For federal income tax purposes, only amounts
paid out of earnings and profits will qualify as dividends. Thus, if during a
taxable year a Fund's declared dividends (as declared daily throughout the year)
exceed the Fund's net income (as determined at the end of the year), only that
portion of the year's distributions which equals the year's earnings and profits
will be deemed to have constituted a dividend. It is expected that each Fund's
net income, on an annual basis, will equal the dividends declared during the
year.
Disposition of Fund Shares.
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<PAGE>
A disposition of Fund shares pursuant to redemption (including a redemption in-
kind) or exchanges will ordinarily result in a taxable capital gain or loss,
depending on the amount received for the shares (or are deemed to receive in the
case of an exchange) and the cost of the shares.
If a shareholder exchanges or otherwise disposes of Fund shares 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 on a new
purchase of shares of the Fund or a different regulated investment company, 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 on the new purchase) for the purpose of determining
the amount of gain or loss on the disposition, but will be treated as having
been incurred in the acquisition of such other shares. Also, any loss realized
on a redemption or exchange of shares of the Fund will be disallowed to the
extent that substantially identical shares are acquired within the 61-day period
beginning 30 days before and ending 30 days after the shares are disposed of.
87
<PAGE>
If a shareholder receives a designated capital gain distribution (to be
treated by the shareholder as long-term capital gain) with respect to any Fund
share and such Fund share is held for six months or less, then (unless otherwise
disallowed) any loss on the sale or exchange of that Fund share will be treated
as long-term capital loss to the extent of the designated capital gain
distribution. In addition, if a shareholder holds Fund shares for six months or
less, any loss on the sale or exchange of those shares will be disallowed to the
extent of the amount of exempt-interest dividends received with respect to the
shares. The Treasury Department is authorized to issue regulations reducing the
six-month holding requirement to a period of not less than the greater of 31
days or the period between regular dividend distributions where a Fund regularly
distributes at least 90% of its net tax-exempt interest, if any. No such
regulations had been issued as of the date of this SAI. The loss disallowance
rules described in this paragraph do not apply to losses realized under a
periodic redemption plan.
Federal Income Tax Rates. As of the printing of this SAI, the maximum
individual tax rate applicable to ordinary income is 39.6% (marginal tax rates
may be higher for some individuals to reduce or eliminate the benefit of
exemptions and deductions); the maximum individual marginal tax rate applicable
to net capital gain is 28% (however, see "Capital Gain Distributions" above);
and the maximum corporate tax rate applicable to ordinary income and net capital
gain is 35% (marginal tax rates may be higher for some corporations to reduce or
eliminate the benefit of lower marginal income tax rates). Naturally, the amount
of tax payable by an individual or corporation will be affected by a combination
of tax laws covering, for example, deductions, credits, deferrals, exemptions,
sources of income and other matters.
Backup Withholding. The Griffin Funds may be required to withhold,
subject to certain exemptions, at a rate of 31% ("backup withholding") on
dividends, capital gain distributions, and redemption proceeds (including
proceeds from exchanges and redemptions in-kind) paid or credited to an
individual Fund shareholder unless the shareholder certifies that the Taxpayer
Identification Number ("TIN") provided is correct and that the shareholder is
not subject to backup withholding. However, The Griffin Funds nevertheless may
withhold if the Internal Revenue Service notifies The Griffin Funds that the
shareholder's TIN is incorrect or that the shareholder is otherwise subject to
backup withholding. Such tax withheld does not constitute any additional tax
imposed on the shareholder, and may be claimed as a credit or refund on the
shareholder's federal income tax return. An investor must provide a valid TIN
upon opening or reopening an account. Failure to furnish a valid TIN to The
Griffin Funds could subject the investor to penalties imposed by the Internal
Revenue Service. Foreign shareholders of the Funds (described below) are
generally not subject to backup withholding.
Foreign Shareholders. Under the Code, distributions of net investment
income by a Fund to a nonresident alien individual, foreign trust (i.e., trust
over which administration a U.S. court is able to exercise primary supervision
and substantial decisions of which one or
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more U.S. persons have authority to control), foreign estate (i.e., the income
of which is not subject to U.S. tax regardless of source), foreign corporation,
or foreign partnership (a "foreign shareholder") will be subject to U.S. income
tax withholding (at a rate of 30% or a lower treaty rate, if applicable).
Withholding will not apply if a dividend distribution paid by a Fund to a
foreign shareholder is "effectively connected" with a U.S. trade or business
(or, if an income tax treaty applies, is attributable to a U.S. permanent
establishment of the foreign shareholder), in which case the reporting and
withholding requirements applicable to U.S. residents will apply. Distributions
of net capital gain generally are not subject to U.S. income tax withholding.
New Regulations. On October 6, 1997, the Treasury Department issued new
regulations (the "New Regulations") which make certain modifications to the
backup withholding, U.S. income tax withholding and information reporting rules
applicable to foreign shareholders. The New Regulations will generally be
effective for payments made after December 31, 1998, subject to certain
transition rules. Among other things, the New Regulations will permit the Funds
to estimate the portion of their distributions qualifying as capital gain
distributions for purposes of determining the portion of such distributions paid
to foreign shareholders which will be subject to U.S. income tax withholding.
Prospective investors are urged to consult their own tax advisors regarding the
New Regulations.
Corporate Shareholders. Corporate shareholders of the Growth & Income
Fund or the Growth Fund may be eligible for the dividends-received deduction on
dividends distributed out of the Fund's net investment income attributable to
dividends received from domestic corporations, which, if received directly by
the corporate shareholder, would qualify for such deduction. 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 during the 90-day period that begins 45 days prior to the date upon which
the shareholder became entitled to the distribution, and the Fund must have held
the shares of corporate stock giving rise to the dividend for at least 46 days
during a 90-day period that begins 45 days prior to the date upon which the Fund
became entitled to the dividend.
Tax-Free Money Market Fund, Municipal Bond Fund and California Tax-Free
Fund (the "Tax-Free Funds"). The Tax-Free Funds intend that at least 50% of the
value of their total assets at the close of each quarter of their taxable years
will consist of obligations the interest on which is exempt from federal income
tax, so that they will qualify under the Code to pay "exempt-interest
dividends." The portion of total dividends paid by a Tax Free Fund with respect
to any taxable year that constitutes exempt-interest dividends will be the same
for all shareholders receiving dividends during such year. Long-term and/or
short-term capital gain distributions will not constitute exempt-interest
dividends and will be taxed as capital gain or ordinary income dividends,
respectively. The exemption of interest income derived from investments in
tax-exempt obligations for federal income tax purposes may not result in a
similar exemption under the laws of a particular state or local taxing
authority.
Not later than 60 days after the close of its taxable year, a Tax-Free
Fund will notify its
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shareholders of the portion of the dividends paid with respect to such taxable
year which constitutes exempt-interest dividends. The aggregate amount of
dividends so designated cannot exceed the excess of the amount of interest
excludable from gross income under Section 103 of the Code received by the Fund
during the taxable year over any amounts disallowed as deductions under Sections
265 and 171(a)(2) of the Code. Finally, interest on indebtedness incurred to
purchase or carry shares of a Tax-Free Fund will not be deductible to the extent
that the Fund's distributions are exempt from federal income tax.
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.
Furthermore, any loss realized by a shareholder upon the sale or redemption of
shares of a Tax-Free Fund held less than six months is disallowed to the extent
of any exempt-interest dividends received by the shareholder.
In addition, the federal alternative minimum tax ("AMT") rules ensure
that at least a minimum amount of tax is paid by taxpayers who obtain
significant benefit from certain tax deductions and exemptions. Some of these
deductions and exemptions have been designated "tax preference items" which must
be added back to taxable income for purposes of calculating AMT. Among the tax
preference items is tax-exempt interest from "private activity bonds" issued
after August 7, 1986. To the extent that a Tax-Free Fund invests in private
activity bonds, its shareholders who pay AMT will be required to report that
portion of Fund dividends attributable to income from the bonds as a tax
preference item in determining their AMT. Shareholders will be notified of the
tax status of distributions made by the Fund. Persons who may be "substantial
users" (or "related persons" of substantial users) of facilities financed by
private activity bonds should consult their tax advisors before purchasing
shares in a Tax-Free Fund. Furthermore, shareholders will not be permitted to
deduct any of their share of a Tax-Free Fund's expenses in computing their AMT.
With respect to a corporate shareholder of such Funds, exempt-interest dividends
paid by a Fund is included in the corporate shareholder's "adjusted current
earnings" as part of its AMT calculation, and may also affect its federal
"environmental tax" liability. As of the printing of this SAI, individuals are
subject to an AMT at a maximum rate of 28% and corporations at a maximum rate of
20%. Shareholders with questions or concerns about AMT should consult their own
tax advisers.
Shares of a Tax-Free Fund would not be suitable for tax-exempt
institutions and may not be suitable for retirement plans qualified under
Section 401 of the Code, H.R. 10 plans and IRAs since such plans and accounts
are generally tax-exempt and, therefore, would not benefit from the exempt
status of dividends from such Funds. Such dividends would be ultimately taxable
to the beneficiaries when distributed to them.
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.
It is the current position of the Staff of the Securities and Exchange
Commission that a
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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. The California Tax-Free Fund
expects to be relieved of liability for federal income tax to the extent its net
investment income and capital gains are distributed annually in accordance with
the Code. The California Tax-Free Fund expects to be exempt from tax in
California on the same basis as it expects under the Code. Moreover, if at the
close of each quarter of the California Tax-Free Fund's taxable year, at least
50% of the value of its total assets consists of obligations the interest on
which, if such obligations were held by an individual, would be exempt from
California personal income tax (under either the laws of California or of the
United States), the California Tax-Free Fund will be entitled to pay dividends
to its shareholders which will be exempt from California personal income tax
(referred to herein as "California exempt-interest dividends"). Under normal
market conditions, the California Tax-Free Fund will invest primarily in
municipal securities of the State of California, its cities, municipalities and
other political authorities so that it can pay California exempt-interest
dividends.
Not later than 60 days after the close of its taxable year, the California
Tax-Free Fund will notify its shareholders of the portion of the dividends paid
which constitutes California exempt-interest dividends with respect to such
taxable year. The total amount of California exempt-interest dividends paid by
the California Tax-Free Fund to all of its shareholders with respect to any
taxable year cannot exceed the amount of interest received by the California
Tax-Free Fund during such year on California municipal securities and other
obligations the interest on which is tax exempt, less any expenses or
expenditures (including any expenditures attributable to the acquisition of
securities of other investment companies). Dividends paid by the California Tax-
Free Fund in excess of this limitation will be treated as ordinary dividends
subject to California personal income tax at ordinary rates.
Long-term and/or short-term capital gain distributions will not constitute
California exempt-interest dividends and will be taxed as capital gains and
ordinary income dividends, respectively. Moreover, interest
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on indebtedness incurred by a shareholder to purchase or carry shares of the
California Tax-Free Fund is not deductible for California personal income tax
purposes to the extent the shareholder receives California exempt-interest
dividends during his or her taxable year. Exempt-interest dividends will be tax
exempt for purposes of the California personal income tax. For corporate
shareholders, dividends will be subject to the corporate franchise taxes in
California.
Other Considerations. Investors should be aware that the investments to
--------------------
be made by the Funds may involve sophisticated tax rules that may result in
income or gain recognition by the Funds without corresponding current cash
receipts. Although the Funds will seek to avoid significant noncash income, such
noncash income could be recognized by the Funds, in which case the Funds may
distribute cash derived from other sources in order to meet the minimum
distribution requirements described above.
The foregoing discussion and the discussions in the Prospectus address
only some of the federal tax considerations generally affecting investments in a
Fund. Each investor is urged to consult his or her tax advisor regarding
specific questions as to federal, state or local taxes and foreign taxes.
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 investment 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, an indirect wholly owned 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 prior to this time did not have any 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, 1997
managed assets of approximately $23 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
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$125 billion as of September 30, 1997.
TBCAM, which is located at One Boston Place, Boston, Massachusetts
02108, was established in 1970 and as of December 31, 1997 managed assets of
approximately $21 billion.
Prior to December 1, 1994, Piper Capital Management Inc., located at
Piper Jaffray Tower, 222 South Ninth Street, Minneapolis, Minnesota 55402,
served as sub-adviser 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.
Custodian and Transfer Agent. IFTC is the Funds' custodian and the
----------------------------
Funds' transfer, shareholder service, and dividend-paying agent. IFTC is located
at 801 Pennsylvania, Kansas City, Missouri 64105.
Administrator and Sub-Administrator. Griffin Financial Administrator is
the administrator of the Funds 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: 72; Retired; Former Director of
Investments, Home Savings of America.
VINCENT F. COVIELLO, Director. Age: 58; Turnberry Capital Corporation,
President, since 1993. Prior thereto, Chairman & CEO, GNA Corp. from January
1980 to March 1993.
*WILLIAM A. HAWKINS, Director, President and Chief Executive Officer. Age:
54; President and CEO, Griffin Financial Services. President & CEO, Griffin
Financial Administrators. President & CEO, Griffin Financial Investment
Advisers.
CARROL R. MCGINNIS, Director. Age: 53; 9225 Katy Freeway, Suite 205,
Houston, Texas 77024. Founder, McGinnis Investments, since 1994. Prior thereto,
various
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positions with Transamerica Fund Management Company and its predecessor
companies during 1969-1993, including President and Chief Operating Officer.
MORTON O. SCHAPIRO, Director. Age: 44; 4535 Lennox Avenue, Sherman Oaks,
California 91423. Dean of the College of Letters, Arts and Sciences and
Professor of Economics, University of Southern California, since 1991. Prior
thereto, Professor of Economics, Williams College, 1980-1991.
RICHIE D. ROWSEY, Senior Vice President. Age: 42; 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: 35; Senior Vice
President & Treasurer, Griffin Financial Services. Senior Vice President &
Treasurer, Griffin Financial Administrators. Senior Vice President & Treasurer,
Griffin Financial Investment Advisers.
DARLENE SPEARS, Vice President. Age: 35; Vice President and Compliance
Administrator, Griffin Financial Services, since June 1996. From 11/92 to 6/96,
Assistant Vice President, Compliance, Great Western Financial Securities; from
March 1992 to November 1992, Compliance Officer, Yaeger Securities, Inc.; and
from May 1985 to March 1992, Senior Compliance Analyst, Sentra Securities
Corporation.
TIM S. GLASSETT, Secretary. Age: 42; First Vice President & Assistant
General Counsel, H.F. Ahmanson & Company. Secretary, Griffin Financial
Administrators. Secretary, Griffin Financial Investment Advisors.
HERBERT L. BOTTS, Assistant Secretary. Age: 39; Vice President & Assistant
Secretary, Griffin Financial Services.
HENRY M. PENA, Assistant Secretary. Age: 33; Assistant Vice President,
Griffin Financial Services.
STEVEN P. MUSON, Assistant Treasurer. Age: 31; Vice President, Griffin
Financial Services, Griffin Financial Investment Advisers and Griffin Financial
Administrators.
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
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Directors from The Griffin Funds during the fiscal year ended September 30,
1997.
<TABLE>
<CAPTION>
Compensation Table
Aggregate Total
Compensation Compensation
Director from The Griffin Funds from The Griffin Funds
-------- ---------------------- ----------------------
<S> <C> <C>
Herschel Cardin $15,000 $15,000
Vincent F. Coviello 15,000 15,000
William A. Hawkins 0 0
Carrol R. McGinnis 15,000 15,000
Morton O. Schapiro 15,000 15,000
</TABLE>
As of January 1, 1998, 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
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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, subject to the overall supervision of the Board of
Directors of The Griffin Funds, and in accordance with each Fund's investment
objective, policies and limitations, Griffin Advisers shall provide the Funds
with a continuous investment program, including investment research and
management with respect to all securities and other investments (including cash
and cash equivalents) of the Funds. Griffin Advisers also is obligated to
furnish to the Board of Directors of The Griffin Funds periodic reports on the
investment activity and performance of each Fund (including financial reports
and analyses detailing each Fund's composition, comparative performance and
securities transactions), and such additional reports and information as the
Board of Directors and officers of The Griffin Funds reasonably request. The
Advisory Contract further provides that Griffin Advisers shall, at its own
expense, employ or associate itself with such persons, including such
sub-investment advisers as may be approved by The Griffin Funds, as Griffin
Advisers believes appropriate to assist it in performing its obligations under
the Contract.
For the services described above, 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 daily net assets of the
Fund. 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 daily net
assets of each Fund.
The Advisory Contract provides that Griffin Advisers shall not be
liable for any action taken or omitted in its reasonable judgment, in good faith
and believed by it to be authorized or within the discretion conferred on it by
the Advisory Contract, provided that the Contract does not protect Griffin
Advisers against any liability to The Griffin Funds or its shareholders arising
by reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties under the Contract or by reason of reckless disregard
of its duties under the Contract.
The Advisory Contract provides that it will continue in effect with
respect to a Fund for a period of two years from its effective date only if
approved at least annually by the vote of (a) a majority of the Fund's
outstanding voting securities (as defined in the 1940 Act) or by the
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Company's Board of Directors, and (b) by the vote, cast in person at a meeting
called for the purpose of voting on the Contract, of a majority of Directors of
The Griffin Funds who are not parties to the Contract or "interested persons"
(as defined in the 1940 Act) of any such party. The Advisory Contract provides
that it will terminate automatically in the event of its assignment (as defined
in the 1940 Act).
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.
Advisory Fees Paid. 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, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
Net
Advisory Fees Paid Advisory Fees Waived
Fund 1997 1996 1995 1997 1996 1995
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Money Market Fund $ 25,333 $0 $22,121 $995,592 $774,401 $307,185
Tax-Free Money Market Fund 0 0 3,384 68,154 53,309 43,485
Short-Term Bond Fund 0 0 0* 161,913 57,125 3,479*
U.S. Government Income Fund 0 0 2,164 303,786 203,770 116,136
Bond Fund 0 0 704 201,308 104,085 42,621
Municipal Bond Fund 0 0 1,201 39,097 31,724 18,955
California Tax-Free Fund 0 0 4,509 131,759 110,625 77,877
Growth & Income Fund 200,000 0 8,818 900,393 485,966 132,670
Growth Fund 50,000 0 0* 199,984 78,987 4,793*
</TABLE>
- ---------------
* For the period from commencement of operations on June 12, 1995 through
September 30, 1995.
At its own expense, Griffin Advisers has retained Evaluation
Associates, Inc. ("EAI") as an investment advisory consultant. Under Griffin
Advisers' arrangement with EAI, EAI periodically provides reports to management
regarding fund performance, monitors developments at each of the sub-advisers
and makes presentations to the Board of Directors of The Griffin Funds regarding
market developments and sub-adviser performance. When so requested by
management, EAI assists management in identifying and selecting investment
sub-advisers for The Griffin Funds. For its services, EAI receives a fee from
Griffin Advisers.
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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
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Growth & Income 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 sub-advisory agreements with TBCAM, pursuant
to which TBCAM has primary responsibility for providing portfolio investment
management services to each of those Funds.
Generally, each sub-advisory agreement provides that, subject to the
overall supervision and control of Griffin Advisers and The Griffin Funds, and
in accordance with the respective Fund's investment objective, policies and
limitations, a sub-adviser is obligated to provide a continuous investment
program, including investment research and management with respect to all
securities and other investments (including cash and cash equivalents) of the
Fund. Each sub-adviser also is obligated to furnish to Griffin Advisers and the
Board of Directors of The Griffin Funds periodic reports on the investment
activity and performance of each Fund, and such additional reports and
information as Griffin Advisers and the Board of Directors of The Griffin Funds
reasonably request.
A management fee is calculated and paid by each Fund to Griffin
Advisers every month. Griffin Advisers, in turn, pays Payden & Rygel, T. Rowe
Price and TBCAM for the sub-advisory services they provide to their respective
funds. Specifically, with respect to the Money Market Fund and the Tax-Free
Money Market Fund, Griffin Advisers pays Payden & Rygel fees at an annual rate
of 0.25% of the first $25 million of each Fund's average daily net assets, and
0.20% of each Fund's average daily net assets in excess of $25 million. With
respect to the U.S. Government Income Fund, the California Tax-Free Fund and the
Municipal Bond Fund, Griffin Advisers pays Payden & Rygel fees at an annual rate
of 0.30% of the first $50 million of each Fund's average daily net assets, 0.25%
of the next $450 million of each Fund's average daily net assets and 0.20% of
each Fund's average daily net assets in excess of $500 million, with a minimum
annual fee of $25,000 for each Fund. With respect to the Short-Term Bond Fund
and the Growth Fund, Griffin Advisers pays T. Rowe Price fees at an annual rate
of 0.30% of the first $50 million of each Fund's average daily net assets, 0.25%
of the next $450 million of each Fund's average daily net assets and 0.20% of
such Fund's average daily net assets in excess of $500 million, with a minimum
annual fee of $25,000 for each Fund. With respect to the Bond Fund and the
Growth & Income Fund, Griffin Advisers pays TBCAM fees at an annual rate of
0.30% of the first $50 million of each Fund's average daily net assets, 0.25% of
the next $450 million of each Fund's average daily net assets and 0.20% of such
Fund's average daily net assets in excess of $500 million. The fees paid to the
sub-advisers are not reduced by any voluntary or mandatory expense
reimbursements that may be put into effect by Griffin Advisers from time to
time.
Generally, each sub-advisory agreement provides that a sub-adviser will
not be liable for any action taken or omitted in its reasonable judgment, in
good faith and believed by it to be authorized or within the discretion
conferred on the sub-adviser by its sub-advisory agreement, provided that the
agreement does not protect a sub-adviser against any liability to Griffin
Advisers, The Griffin Funds or their shareholders arising by reason of willful
misfeasance, bad faith or gross negligence in the performance by the sub-adviser
of its duties under the agreement or by reason of reckless disregard by the
sub-adviser of its duties under the agreement.
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Each sub-advisory agreement provides that it will continue in effect
with respect to a Fund for a period of two years from its effective date only if
approved at least annually by the vote of (a) a majority of the Fund's
outstanding voting securities (as defined in the 1940 Act) or by The Griffin
Funds' Board of Directors, and (b) by the vote, cast in person at a meeting
called for the purpose of voting on the agreement, of a majority of Directors of
The Griffin Funds who are not parties to the agreement or "interested persons"
(as defined in the 1940 Act) of any such party. Each sub-advisory agreement
provides that it will terminate automatically in the event of its assignment (as
defined in the 1940 Act).
Sub-Advisory Fees Paid. The following chart indicates the amount of
-----------------------
sub-advisory fees paid by Griffin Advisers to the respective sub-advisers for
the fiscal years ended September 30, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
Sub-Advisory Fees Paid
Fund 1997 1996 1995
---- ---- ---- ----
<S> <C> <C> <C>
Money Market Fund $420,259 $322,888 $ 144,384
Tax-Free Money Market Fund $ 34,054 27,407 25,138
Short-Term Bond Fund $ 97,434 37,029 7,848/1/
U.S. Government Income Fund $176,906 122,452 71,204
Bond Fund $125,831 62,735 62,513/2/
Municipal Bond Fund $ 25,686 24,996 20,830/2/
California Tax-Free Fund $ 78,959 66,351 49,522
Growth & Income Fund $487,870 288,486 62,513/2/
Growth Fund $124,389 41,560 7,848/1/
</TABLE>
/1/ For the period from commencement of operations on June 12, 1995 through
September 30, 1995.
/2/ Piper Capital Management Inc. ("Piper") served as sub-adviser to the Bond
Fund, the Municipal Bond Fund and the Growth & Income Fund from October 1,
1994 through December 1, 1994. These amounts are in addition to those shown
in the table as being paid to Payden & Rygel and TBCAM during the fiscal
year ended September 30, 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,
100
<PAGE>
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.
Administration Fees Paid. The following chart indicates, for the fiscal
years ended September 30, 1997, 1996 and 1995, the amount of administrative fees
paid by the Funds to Griffin Financial Administrators, the amount of
administrative fees waived by Griffin Financial Administrators, and the amount
of expenses reimbursed by Griffin Financial Administrators:
<TABLE>
<CAPTION>
Net
---
Administration Administration Expenses Reimbursed
-------------- -------------- -------------------
Fees Paid Fees Waived by Administrator
--------- ----------- ----------------
Fund 1997 1996 1995 1997 1996 1995 1997 1996 1995
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Money Market Fund $408,370 $309,760 $104,782 $ 0 $ 0 $ 26,940 $ 0 $ 193 $ 190,837
Tax-Free Money Market Fund 19,088 10,583 16,148 8,174 10,741 2,600 0 11,779 84,781
Short-Term Bond Fund 56,099 0 0* 8,666 22,850 1,392* 1,484 28,021 12,879*
U.S. Government Income Fund 120,675 55,941 17,960 839 25,567 29,360 282 4,234 144,944
Bond Fund 79,977 11,474 6,153 546 30,160 11,177 1,007 12,544 101,890
Municipal Bond Fund 0 2,573 3,319 15,638 10,116 4,743 16,629 39,494 88,657
California Tax-Free Fund 47,733 19,720 12,431 4,971 24,530 20,523 0 10,516 102,916
Growth & Income Fund 366,798 161,988 26,855 0 0 20,308 0 2,961 147,855
Growth Fund 82,820 3,606 0* 508 22,723 1,598* 0 23,094 19,668*
- --------------------
</TABLE>
* For the period from commencement of operations on June 12, 1995 through
September 30, 1995.
IFTC provides certain sub-administrative services to the Funds pursuant
to its Custody Agreement and Transfer Agency Agreement, including performing
transfer
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<PAGE>
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, for which IFTC is entitled to compensation. In this
connection, the Administration Agreement between The Griffin Funds and Griffin
Administrators provides that, at its own expense, Griffin Administrators will
pay all fees due from the Funds to IFTC arising under the Agency Agreement and
the Custody Agreement (except transaction-based fees arising under the Custody
Agreement and out-of-pocket expenses) and otherwise payable by the Funds under
those Agreements. During the fiscal years ended September 30, 1995, 1996 and
1997, the fees paid by Griffin Administrators to IFTC totaled $591,771,
$1,091,694 and $1,501,199, respectively.
Griffin Financial Services, located at 5000 Rivergrade Road, Irwindale,
California 91706, serves as the exclusive distributor ("Distributor") of shares
of the Funds pursuant to a Distribution Agreement between The Griffin Funds and
the Distributor dated September 30, 1993. As Distributor, Griffin Financial
Services engages in a continuous offering of shares of the Funds. 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.
Underwriting Commissions. During the fiscal year ended September 30,
1997, the Distributor received $262,631 in net underwriting discounts and
commissions on sales of Class A Shares, and $86,787 in contingent deferred sales
charges 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, 1997 were retained by the
Distributor.
During the fiscal year ended September 30, 1996, the Distributor
received $294,270 in net underwriting discounts and commissions on sales of
Class A Shares, and $37,853 in contingent deferred sales charges 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, 1996 were retained by the Distributor.
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 charges 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
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<PAGE>
Distributor.
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 Griffin
Funds, 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.
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, 1997, the Money Market Fund
paid $408,370 in distribution and service fees under its Plan to the Distributor
as compensation for distribution and shareholder services. During the fiscal
year ended September 30, 1997, the Tax-Free Money Market Fund incurred $27,262
in distribution and service fees under its Plan, $25,032 of which was waived by
the Distributor.
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
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<PAGE>
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.
Class A Distribution Fees. The following table indicates (i) the fees
-------------------------
incurred by the Class A Shares of the Non-Money Market Funds under the Plans,
(ii) the purposes for which such amounts were spent and (iii) the amount of such
fees that was voluntarily waived by the Distributor during the fiscal year ended
September 30, 1997:
Distribution
and
Service Fees Paid
<TABLE>
<CAPTION>
Fund Net Compensation to Underwriters Waived Fees
---- -------------------------------- -----------
<S> <C> <C>
Short-Term Bond Fund $ 3,660 $ 76,763
U.S. Government Income Fund 102,048 40,716
Bond Fund 31,717 67,859
Municipal Bond Fund 0 18,546
California Tax-Free Fund 23,713 32,308
Growth & Income Fund 394,795 0
Growth Fund 89,352 7,224
</TABLE>
Class B Distribution Fees. The following table indicates (i) the fees
-------------------------
incurred by the Class B Shares of the Non-Money Market Funds under the Plans,
(ii) the purposes for which such amounts were expended and (iii) the amount of
such fees that was voluntarily waived by the Distributor during the fiscal year
ended September 30, 1997:
Distribution
and
Service Fees Paid
<TABLE>
<CAPTION>
Fund Net Compensation to Underwriters Waived Fees
---- -------------------------------- -----------
<S> <C> <C>
Short-Term Bond Fund $ 1,131 $ 1,004
U.S. Government Income Fund 25,107 11,409
Bond Fund 2,557 1,752
Municipal Bond Fund 2,089 1,919
California Tax-Free Fund 24,965 14,468
Growth & Income Fund 198,437 56,372
Growth Fund 22,887 7,449
</TABLE>
General Information. The Funds may participate in joint distribution
activities with any
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<PAGE>
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
funds of The 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.
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,
105
<PAGE>
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 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.
5% OWNERSHIP AS OF JANUARY 8, 1998
----------------------------------
As of January 8, 1998, the following persons were known by The Griffin
Funds to own of record or beneficially (as indicated) 5% or more of the
outstanding shares of the following Funds (and classes):
106
<PAGE>
<TABLE>
<CAPTION>
Name and Type Percentage Percentage
-------- ---- ---------- ----------
Fund; Class Address of Ownership of Class of Fund
- ----------- ------- ------------ -------- -------
<S> <C> <C> <C> <C>
Money Market Fund Home Savings of America FSB Record Holder N/A 29.38%
4900 Rivergrade Road
Irwindale, CA 91706
The Northern Trust Company TR Record Holder N/A 16.59%
Ahmanson Advantage Account
50 S. LaSalle Street
Chicago, IL 60603
Tax-Free Money Home Savings of America FSB Record Holder N/A 11.27%
Market 4900 Rivergrade Road
Irwindale, CA 91706
Municipal Bond Fund Griffin Financial Services Beneficial 10.94% 10.51%
Class A P.O. Box 60070 Owner
Industry, CA 91716
</TABLE>
107
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Class B Margaret Spears Beneficial 7.66% 0.30%
MaryAnn Dunning Owner
Leornard Alcomo JTWROS
215 S.E. Third Avenue, Apt. 405B
Hallandale, FL 33009
Vera Stanislavsky Beneficial 5.42% 0.21%
5400 Yarmouth Avenue Owner
Encino, CA 91316-2309
Sadie Bach Beneficial 8.52% 0.33%
Laurence Bach JTWROS Owner
9601 Sunrise Lakes Blvd., #112
Sunrise, FL 33322-1129
John A. Nelson TTEE Beneficial 13.44% 0.52%
John A. Nelson Living Trust Owner
1126 Caballo Ct
San Jose, CA 95132-2804
Floyd A. Allgaier TTEE Beneficial 24.27% 0.95%
Floyd O. Allgaier Trust Owner
1025 Glen Echo Avenue
San Jose, CA 95125-4316
Be-Fong Shih Beneficial 14.18% 0.55%
4917 Thorntree Owner
Plano, TX 75024-2495
Raymond Galit Beneficial 5.61% 0.22%
Elaine Galit JTTEN Owner
14328 Misty Meadow
Houston, TX 77079-3185
<CAPTION>
Name and Type Percentage Percentage
Fund; Class Address of Ownership of Class of Fund
- ----------- ------- ------------ -------- -------
<S> <C> <C> <C> <C>
Bond Fund Home Savings of America TTEE Beneficial 5.13% 0.04%
Class B Catherine A. Inglove Money Purchase Owner
2677 Centinela Avenue 205
Santa Monica, CA 90405-3145
Robert G. Linnabary Beneficial 6.16% 0.05%
3116 Gingerwood Lane Owner
Lancaster, CA 93536-4797
Short-Term Bond Home Savings of America TTEE Beneficial 23.66% 0.06%
Fund IRA of Friedel B. Erz Owner
Class B 290 Palisades Street
Pasadena, CA 91103-2140
</TABLE>
108
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Kin Llian Chang Beneficial 13.73% 0.04%
Man Ling Chang JTTEN Owner
P.O. Box 9
Santa Monica, CA 90406-0009
H. Fred Bauer TTEE Beneficial 7.99% 0.02%
The Bauer Rev. Living Trust Owner
25201 Sea Vista Drive
Dana Point, CA 92629-1149
Thomas W. Lebanik Beneficial 5.95% 0.02%
27232 Cook Road Owner
Olmstead Township, OH 44138
James T. Lockwood Beneficial 16.43% 0.04%
Donna Lockwood JTWROS Owner
24181 El Tiradore Circle
Mission Viejo, CA 92691
Growth Fund Northern Trust Co. TTEE Record Holder 8.42% 7.87%
Class A Ahmanson Advantage Account
50 S. LaSalle Street
Chicago, IL 60603
Growth & Income Northern Trust Co. TTEE Record Holder 9.52% 8.13%
Fund Ahmanson Advantage Account
Class A 50 S. LaSalle Street
Chicago, IL 60603
</TABLE>
Custodian. IFTC, located at 801 Pennsylvania, 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 Auditors. KPMG Peat Marwick LLP, located at 725 South Figueroa
Street, Los Angeles, California 90017, serves as The Griffin Funds' independent
auditors.
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 financial statements for the fiscal year
ended September 30, 1997, and the report thereon of KPMG Peat Marwick LLP
included in the Annual Report 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.
109
<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.
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
110
<PAGE>
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:
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
111
<PAGE>
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.
112
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
---------------------------------
(a) Financial Statements:
The audited financial statements, listed below for the Funds are
incorporated by reference into the Funds' SAI. The SAI is incorporated
by reference into each Fund's prospectus.
Schedule of Investments at September 30, 1997
Statements of Assets and Liabilities at September 30, 1997
Statements of Operations for the fiscal year ended
September 30, 1997
Statements of Changes in Net Assets for the
periods ended September 30, 1997 and September 30, 1996
Financial Highlights
Notes to Financial Statements
Independent Auditors' Report dated November 7, 1997
Included in Part C:
(b) Exhibits:
<TABLE>
<S> <C>
1 - Articles of Incorporation of The Griffin FundS, Inc. are incorporated
by reference to Registrant's Post-Effective Amendment No. 12
("Amendment No. 12") filed on February 7, 1997
1(a) - Articles Supplementary, filed October 1, 1993, are incorporated by
reference to Amendment No. 12
1(b) - Articles Supplementary, filed October 8, 1993, are incorporated by
reference to Amendment No. 12
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. 12
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 of each Fund are incorporated by reference to
Amendment No. 12
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
</TABLE>
<PAGE>
<TABLE>
<S> <C>
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
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. 12
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, filed herewith
11 - Independent Auditor's Consent, filed herewith
12 - Not Applicable
13 - Investment Letter is incorporated by reference to Pre-Effective
Amendment No. 3
14 - Not Applicable
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
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
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 - Schedules of Performance Quotations are incorporated by reference to
Amendment No. 12
17 - See Exhibit 27
18 - Rule 18f-3 Multi-Class Plan is incorporated by reference to Post-
Effective Amendment No. 10, filed on October 10, 1996
27 - Financial Data Schedules, Filed herewith
</TABLE>
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 2, 1998 the number of record holders of each class of
securities of the Registrant was as follows:
<TABLE>
<CAPTION>
Title of Class Number of Record Holders
-------------- ------------------------
<S> <C>
Money Market Fund 17,296
Tax-Free Money Market Fund 1,148
U.S. Government Income Fund
Class A 12,018
Class B 249
Municipal Bond Fund
Class A 966
Class B 20
California Tax-Free Fund
Class A 1,365
Class B 149
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Title of Class Number of Record Holders
-------------- ------------------------
<S> <C>
Bond Fund
Class A 11,445
Class B 75
Growth & Income Fund
Class A 17,422
Class B 4,865
Growth Fund
Class A 13,782
Class B 821
Short-Term Bond Fund
Class A 12,014
Class B 21
</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.
(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.
----------------------------------------------------
4
<PAGE>
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 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 trustee.
<TABLE>
<CAPTION>
Principal Business(es) During at
Name Position(s) Least the Last Two Fiscal Years
- ---- ----------- -------------------------------
<S> <C> <C>
William A. Hawkins Director, President President, Griffin Financial Services, a securities
& Chief Executive and insurance broker, since 1981; Director,
Officer President and Chief Executive Officer, Griffin
Financial Administrators, since 1993.
Julia D. Whitcup Director, Senior Vice President of Griffin Financial
Senior Vice Services, a securities and insurance broker, since
President & May, 1993; Vice President and Controller of
Chief Financial Griffin Financial Services, 1990-1993; Director,
Officer Senior Vice President and Chief Financial
Officer, Griffin Financial Administrators, since
1993.
Richie D. Rowsey Senior Vice Senior Vice President of Operations,
President Griffin Financial Services, since 1989;
Senior Vice President, Griffin Financial
Administrators, since 1993.
Steven P. Muson Vice President Vice President, Griffin Financial Services and
Griffin Financial Administrators, since 1996;
Assistant Vice President, Griffin Financial
Investment Advisers, Griffin Financial Services
and Griffin Financial Administrators, 1995 to
1996; Senior Accountant, Griffin Financial
Services, 1993-1994.
Darlene L. Spears Vice President Vice President and Compliance Administrator,
Griffin Financial Services, since 1996;
Assistant Vice President, Compliance, Great
Western Financial Securities, 1992 to 1996.
Tim S. Glassett Secretary Senior Vice President of H.F. Ahmanson &
Company, a savings and loan holding company, since 1987.
Diana J. Veloz Assistant Secretary Senior Paralegal and Assistant Secretary,
Home Savings of America, FSB, since December, 1996;
Corporate Paralegal, First Interstate Bank, 1989 to 1996.
</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.
5
<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
Carl W. Forsythe Director None
Kevin M. Twomey Director None
William A. Hawkins Director, President Director,
and Chief Executive President and
Officer Chief Executive
Officer
Robert L. Stevens Director None
Merrill S. Wall Director None
Richie D. Rowsey Senior Vice President Senior Vice
President
Julia D. Whitcup Senior Vice President, Senior Vice
Treasurer and Assistant President &
Secretary Treasurer
Herbert L. Botts Vice President and Assistant
Assistant Treasurer Secretary
Tim S. Glassett Vice President and Secretary
Secretary
Janet Franklin Vice President None
Shawn M. Duffy Vice President None
Richard F. Koning Vice President None
Edward H. Lanzer Vice President None
Richard A. McKusick Vice President None
Theresa M. Probert Vice President None
Richard H. Wallace Vice President None
Steven P. Muson Vice President Assistant
Treasurer
Darlene Spears Vice President and Vice President
Compliance Administrator
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH POSITION WITH
NAME UNDERWRITER REGISTRANT
---- ----------- ----------
<S> <C> <C>
Vic Nicolesu Vice President None
Jill K. Smith-Ely Vice President None
Jane C. Jenner Assistant Vice President None
Maree Moscati Assistant Vice President None
Glenn D. Oscur Assistant Vice President None
Kellie M. McGahney Assistant Vice President None
Henry M. Pena Assistant Vice President None
Michelle Penderson Assistant Vice President None
Diana J. Veloz Assistant Vice President Assistant
Secretary
</TABLE>
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
7
<PAGE>
5000 Rivergrade Road
Irwindale, CA 91706
(Distributor)
(7) Investors Fiduciary Trust Company
801 Pennsylvania
Kansas City, MO 64105
(Transfer Agent and Custodian)
Item 31. Management Services.
-------------------
Other than as set forth under the captions "Management" and "Management
Fee" in the Prospectuses 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.
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 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.
8
<PAGE>
The Griffin Funds, Inc.
Post-Effective Amendment No. 13 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-99.B10 Opinion and Consent of Counsel
EX-99.B11 Consent of Independent Auditor
EX-27 Financial Data Schedules
EX-27.01 Financial Data Schedules for the Money Market Fund
EX-27.02 Financial Data Schedules for the Tax Free Money Market Fund
EX-27.03 Financial Data Schedules for the U.S. Government Income
Fund-Class A
EX-27.04 Financial Data Schedules for the U.S. Government Income
Fund-Class B
EX-27.05 Financial Data Schedules for the California Tax-Free Fund-Class A
EX-27.06 Financial Data Schedules for the California Tax-Free Fund-Class B
EX-27.07 Financial Data Schedules for the Municipal Bond Fund-Class A
EX-27.08 Financial Data Schedules for the Municipal Bond Fund-Class B
EX-27.09 Financial Data Schedules for the Bond Fund-Class A
EX-27.10 Financial Data Schedules for the Bond Fund-Class B
EX-27.11 Financial Data Schedules for the Growth & Income Fund-Class A
EX-27.12 Financial Data Schedules for the Growth & Income Fund-Class B
EX-27.13 Financial Data Schedules for the Short-Term Bond Fund-Class A
EX-27.14 Financial Data Schedules for the Short-Term Bond Fund-Class B
EX-27.15 Financial Data Schedules for the Growth Fund-Class A
EX-27.16 Financial Data Schedules for the Growth Fund-Class B
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 001
<NAME> MONEY MARKET FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 228,135,896
<INVESTMENTS-AT-VALUE> 228,135,896
<RECEIVABLES> 3,825,576
<ASSETS-OTHER> 17,958
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 231,979,430
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,205,330
<TOTAL-LIABILITIES> 2,205,330
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 229,756,933
<SHARES-COMMON-STOCK> 229,756,933
<SHARES-COMMON-PRIOR> 184,630,919
<ACCUMULATED-NII-CURRENT> 17,212
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (45)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 229,774,100
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 11,312,258
<OTHER-INCOME> 0
<EXPENSES-NET> 1,087,410
<NET-INVESTMENT-INCOME> 10,224,848
<REALIZED-GAINS-CURRENT> (45)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 10,224,803
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 10,224,848
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 377,824,042
<NUMBER-OF-SHARES-REDEEMED> 342,482,819
<SHARES-REINVESTED> 9,784,791
<NET-CHANGE-IN-ASSETS> 45,125,969
<ACCUMULATED-NII-PRIOR> 17,212
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,020,925
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,083,257
<AVERAGE-NET-ASSETS> 204,292,000
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0.05
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.53
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 002
<NAME> TAX-FREE MONEY MARKET FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 15,904,944
<INVESTMENTS-AT-VALUE> 15,904,944
<RECEIVABLES> 355,056
<ASSETS-OTHER> 319,956
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 16,579,956
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 418,899
<TOTAL-LIABILITIES> 418,899
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 16,165,750
<SHARES-COMMON-STOCK> 16,165,750
<SHARES-COMMON-PRIOR> 11,656,257
<ACCUMULATED-NII-CURRENT> (29)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (4,664)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 16,161,057
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 498,448
<OTHER-INCOME> 0
<EXPENSES-NET> 193,834
<NET-INVESTMENT-INCOME> 406,673
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 406,673
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 406,673
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 21,135,288
<NUMBER-OF-SHARES-REDEEMED> 17,002,784
<SHARES-REINVESTED> 376,989
<NET-CHANGE-IN-ASSETS> 4,509,493
<ACCUMULATED-NII-PRIOR> (29)
<ACCUMULATED-GAINS-PRIOR> (4664)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 68,154
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 193,834
<AVERAGE-NET-ASSETS> 13,646,000
<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> 0.68
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 031
<NAME> U.S. GOVERNMENT INCOME FUND A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 85,692,866
<INVESTMENTS-AT-VALUE> 86,533,046
<RECEIVABLES> 1,684,046
<ASSETS-OTHER> 17,958
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 88,303,990
<PAYABLE-FOR-SECURITIES> 6,990,736
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 762,837
<TOTAL-LIABILITIES> 7,753,573
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 76,048,902
<SHARES-COMMON-STOCK> 8,334,837
<SHARES-COMMON-PRIOR> 4,852,691
<ACCUMULATED-NII-CURRENT> 7,584
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (310,044)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 840,180
<NET-ASSETS> 80,550,417
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,217,672
<OTHER-INCOME> 0
<EXPENSES-NET> 408,961
<NET-INVESTMENT-INCOME> 3,808,711
<REALIZED-GAINS-CURRENT> 353,405
<APPREC-INCREASE-CURRENT> 1,035,109
<NET-CHANGE-FROM-OPS> 5,197,225
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,597,983
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,772,208
<NUMBER-OF-SHARES-REDEEMED> 1,599,648
<SHARES-REINVESTED> 309,586
<NET-CHANGE-IN-ASSETS> 33,393,862
<ACCUMULATED-NII-PRIOR> 7,584
<ACCUMULATED-GAINS-PRIOR> (663,449)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 303,786
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 767,941
<AVERAGE-NET-ASSETS> 61,059,000
<PER-SHARE-NAV-BEGIN> 9.01
<PER-SHARE-NII> 0.57
<PER-SHARE-GAIN-APPREC> 0.18
<PER-SHARE-DIVIDEND> 0.57
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.19
<EXPENSE-RATIO> 0.54
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 032
<NAME> U.S. GOVERNMENT INCOME FUND B
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 85,692,866
<INVESTMENTS-AT-VALUE> 86,533,046
<RECEIVABLES> 168,4046
<ASSETS-OTHER> 17,958
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 88,303,990
<PAYABLE-FOR-SECURITIES> 6,990,736
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 762,837
<TOTAL-LIABILITIES> 7,753,573
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,963,795
<SHARES-COMMON-STOCK> 428,981
<SHARES-COMMON-PRIOR> 381,467
<ACCUMULATED-NII-CURRENT> 7,584
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (310,044)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 840,180
<NET-ASSETS> 80,550,417
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,217,672
<OTHER-INCOME> 0
<EXPENSES-NET> 408,961
<NET-INVESTMENT-INCOME> 3,808,711
<REALIZED-GAINS-CURRENT> 353,405
<APPREC-INCREASE-CURRENT> 1,035,109
<NET-CHANGE-FROM-OPS> 5,197,225
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 210,727
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 95,320
<NUMBER-OF-SHARES-REDEEMED> 12,152
<SHARES-REINVESTED> 59,958
<NET-CHANGE-IN-ASSETS> 33,393,862
<ACCUMULATED-NII-PRIOR> 7,584
<ACCUMULATED-GAINS-PRIOR> (663,449)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 303,786
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 767,941
<AVERAGE-NET-ASSETS> 61,059,000
<PER-SHARE-NAV-BEGIN> 9.02
<PER-SHARE-NII> 0.53
<PER-SHARE-GAIN-APPREC> 0.18
<PER-SHARE-DIVIDEND> 0.53
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.20
<EXPENSE-RATIO> 1.16
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 041
<NAME> CALIFORNIA TAX-FREE FUND A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 29,704,470
<INVESTMENTS-AT-VALUE> 30,912,786
<RECEIVABLES> 684,186
<ASSETS-OTHER> 23,273
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 31,620,245
<PAYABLE-FOR-SECURITIES> 639,550
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 159,599
<TOTAL-LIABILITIES> 799,149
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 25,283,735
<SHARES-COMMON-STOCK> 3,158,932
<SHARES-COMMON-PRIOR> 2,632,204
<ACCUMULATED-NII-CURRENT> 4,661
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (225,765)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,208,317
<NET-ASSETS> 30,821,096
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,386,704
<OTHER-INCOME> 0
<EXPENSES-NET> 164,253
<NET-INVESTMENT-INCOME> 1,222,451
<REALIZED-GAINS-CURRENT> 208,734
<APPREC-INCREASE-CURRENT> 893,497
<NET-CHANGE-FROM-OPS> 2,324,682
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,057,532
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 953,669
<NUMBER-OF-SHARES-REDEEMED> 499,082
<SHARES-REINVESTED> 72,141
<NET-CHANGE-IN-ASSETS> 6,785,734
<ACCUMULATED-NII-PRIOR> 4,661
<ACCUMULATED-GAINS-PRIOR> (434,499)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 131,759
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 350,362
<AVERAGE-NET-ASSETS> 26,488,000
<PER-SHARE-NAV-BEGIN> 7.93
<PER-SHARE-NII> 0.38
<PER-SHARE-GAIN-APPREC> 0.33
<PER-SHARE-DIVIDEND> 0.38
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.26
<EXPENSE-RATIO> 0.55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 042
<NAME> CALIFORNIA TAX-FREE FUND B
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 29,704,470
<INVESTMENTS-AT-VALUE> 30,912,786
<RECEIVABLES> 684,186
<ASSETS-OTHER> 23,273
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 31,620,245
<PAYABLE-FOR-SECURITIES> 639,550
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 159,599
<TOTAL-LIABILITIES> 799,149
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4,550,148
<SHARES-COMMON-STOCK> 571,839
<SHARES-COMMON-PRIOR> 398,223
<ACCUMULATED-NII-CURRENT> 4,661
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (225,765)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,208,317
<NET-ASSETS> 30,821,096
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,386,704
<OTHER-INCOME> 0
<EXPENSES-NET> 164,253
<NET-INVESTMENT-INCOME> 1,222,451
<REALIZED-GAINS-CURRENT> 208,734
<APPREC-INCREASE-CURRENT> 893,497
<NET-CHANGE-FROM-OPS> 2,324,682
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 164,919
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 228,961
<NUMBER-OF-SHARES-REDEEMED> 67,159
<SHARES-REINVESTED> 11,814
<NET-CHANGE-IN-ASSETS> 6,785,734
<ACCUMULATED-NII-PRIOR> 4,661
<ACCUMULATED-GAINS-PRIOR> (434,499)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 131,759
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 350,362
<AVERAGE-NET-ASSETS> 26,488,000
<PER-SHARE-NAV-BEGIN> 7.93
<PER-SHARE-NII> 0.34
<PER-SHARE-GAIN-APPREC> 0.33
<PER-SHARE-DIVIDEND> 0.34
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.26
<EXPENSE-RATIO> 1.08
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 051
<NAME> MUNICIPAL BOND FUND A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 9,872,547
<INVESTMENTS-AT-VALUE> 10,253,453
<RECEIVABLES> 218,335
<ASSETS-OTHER> 18,666
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 10,490,454
<PAYABLE-FOR-SECURITIES> 386,189
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 61,106
<TOTAL-LIABILITIES> 447,295
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 9,367,536
<SHARES-COMMON-STOCK> 1,035,069
<SHARES-COMMON-PRIOR> 730,424
<ACCUMULATED-NII-CURRENT> 568
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (126,960)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 382,187
<NET-ASSETS> 10,043,159
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 399,855
<OTHER-INCOME> 0
<EXPENSES-NET> 44,818
<NET-INVESTMENT-INCOME> 355,037
<REALIZED-GAINS-CURRENT> 7,016
<APPREC-INCREASE-CURRENT> 296,920
<NET-CHANGE-FROM-OPS> 658,973
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 338,814
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 454,447
<NUMBER-OF-SHARES-REDEEMED> 176,304
<SHARES-REINVESTED> 26,502
<NET-CHANGE-IN-ASSETS> 3,078,173
<ACCUMULATED-NII-PRIOR> 568
<ACCUMULATED-GAINS-PRIOR> (133,976)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 39,097
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 137,190
<AVERAGE-NET-ASSETS> 7,880,000
<PER-SHARE-NAV-BEGIN> 8.95
<PER-SHARE-NII> 0.42
<PER-SHARE-GAIN-APPREC> 0.34
<PER-SHARE-DIVIDEND> 0.42
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.29
<EXPENSE-RATIO> 0.55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 052
<NAME> MUNICIPAL BOND FUND B
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 9,872,547
<INVESTMENTS-AT-VALUE> 10,253,453
<RECEIVABLES> 218,335
<ASSETS-OTHER> 18,666
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 10,490,454
<PAYABLE-FOR-SECURITIES> 386,189
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 61,106
<TOTAL-LIABILITIES> 447,295
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 419,828
<SHARES-COMMON-STOCK> 46,363
<SHARES-COMMON-PRIOR> 47,497
<ACCUMULATED-NII-CURRENT> 568
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (126,960)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 382,187
<NET-ASSETS> 10,043,159
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 399,855
<OTHER-INCOME> 0
<EXPENSES-NET> 44,818
<NET-INVESTMENT-INCOME> 355,037
<REALIZED-GAINS-CURRENT> 7,016
<APPREC-INCREASE-CURRENT> 296,920
<NET-CHANGE-FROM-OPS> 658,973
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 16,223
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11,948
<NUMBER-OF-SHARES-REDEEMED> 14,228
<SHARES-REINVESTED> 1,146
<NET-CHANGE-IN-ASSETS> 3,078,173
<ACCUMULATED-NII-PRIOR> 568
<ACCUMULATED-GAINS-PRIOR> (133,976)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 39,097
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 137,190
<AVERAGE-NET-ASSETS> 7,880,000
<PER-SHARE-NAV-BEGIN> 8.96
<PER-SHARE-NII> 0.37
<PER-SHARE-GAIN-APPREC> 0.33
<PER-SHARE-DIVIDEND> 0.37
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.29
<EXPENSE-RATIO> 1.07
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 061
<NAME> BOND FUND A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 56,277,224
<INVESTMENTS-AT-VALUE> 56,945,262
<RECEIVABLES> 3,796,763
<ASSETS-OTHER> 17,958
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 60,759,983
<PAYABLE-FOR-SECURITIES> 2,900,705
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 503,413
<TOTAL-LIABILITIES> 3,404,118
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 56,446,092
<SHARES-COMMON-STOCK> 6,359,983
<SHARES-COMMON-PRIOR> 3,188,670
<ACCUMULATED-NII-CURRENT> 1,645
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (191,512)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 668,038
<NET-ASSETS> 57,355,865
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,715,866
<OTHER-INCOME> 0
<EXPENSES-NET> 265,678
<NET-INVESTMENT-INCOME> 2,450,188
<REALIZED-GAINS-CURRENT> 270,780
<APPREC-INCREASE-CURRENT> 908,922
<NET-CHANGE-FROM-OPS> 3,629,890
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,426,201
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,150,730
<NUMBER-OF-SHARES-REDEEMED> 1,209,786
<SHARES-REINVESTED> 230,369
<NET-CHANGE-IN-ASSETS> 29,182,093
<ACCUMULATED-NII-PRIOR> 1,645
<ACCUMULATED-GAINS-PRIOR> (462,292)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 201,308
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 540,288
<AVERAGE-NET-ASSETS> 40,397,000
<PER-SHARE-NAV-BEGIN> 8.71
<PER-SHARE-NII> 0.54
<PER-SHARE-GAIN-APPREC> 0.24
<PER-SHARE-DIVIDEND> 0.54
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.95
<EXPENSE-RATIO> 0.66
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 062
<NAME> BOND FUND B
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 56,277,224
<INVESTMENTS-AT-VALUE> 56,945,262
<RECEIVABLES> 3,796,763
<ASSETS-OTHER> 17,958
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 60,759,983
<PAYABLE-FOR-SECURITIES> 2,900,705
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 503,413
<TOTAL-LIABILITIES> 3,404,118
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 431,602
<SHARES-COMMON-STOCK> 48,367
<SHARES-COMMON-PRIOR> 47,393
<ACCUMULATED-NII-CURRENT> 1,645
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (191,512)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 668,038
<NET-ASSETS> 57,355,865
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,715,866
<OTHER-INCOME> 0
<EXPENSES-NET> 265,678
<NET-INVESTMENT-INCOME> 2,450,188
<REALIZED-GAINS-CURRENT> 270,780
<APPREC-INCREASE-CURRENT> 908,922
<NET-CHANGE-FROM-OPS> 3,629,890
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 23,987
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 12,640
<NUMBER-OF-SHARES-REDEEMED> 13,567
<SHARES-REINVESTED> 1,901
<NET-CHANGE-IN-ASSETS> 29,182,093
<ACCUMULATED-NII-PRIOR> 1,645
<ACCUMULATED-GAINS-PRIOR> (462,292)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 201,308
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 540,288
<AVERAGE-NET-ASSETS> 40,397,000
<PER-SHARE-NAV-BEGIN> 8.70
<PER-SHARE-NII> 0.49
<PER-SHARE-GAIN-APPREC> 0.24
<PER-SHARE-DIVIDEND> 0.49
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.94
<EXPENSE-RATIO> 1.13
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 071
<NAME> GROWTH & INCOME FUND A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 226,881,466
<INVESTMENTS-AT-VALUE> 263,677,767
<RECEIVABLES> 4,315,502
<ASSETS-OTHER> 17,958
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 268,011,227
<PAYABLE-FOR-SECURITIES> 205,556
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,212,572
<TOTAL-LIABILITIES> 5,418,128
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 166,457,839
<SHARES-COMMON-STOCK> 10,732,969
<SHARES-COMMON-PRIOR> 6,292,564
<ACCUMULATED-NII-CURRENT> 5,222
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 29,590,059
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 36,796,301
<NET-ASSETS> 262,593,099
<DIVIDEND-INCOME> 3,037,358
<INTEREST-INCOME> 353,089
<OTHER-INCOME> 0
<EXPENSES-NET> 1,435,905
<NET-INVESTMENT-INCOME> 1,954,542
<REALIZED-GAINS-CURRENT> 31,497,187
<APPREC-INCREASE-CURRENT> 27,136,675
<NET-CHANGE-FROM-OPS> 60,588,404
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,816,999
<DISTRIBUTIONS-OF-GAINS> 8,171,142
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,046,362
<NUMBER-OF-SHARES-REDEEMED> 2,189,429
<SHARES-REINVESTED> 583,472
<NET-CHANGE-IN-ASSETS> 143,449,628
<ACCUMULATED-NII-PRIOR> 30,277
<ACCUMULATED-GAINS-PRIOR> 7,530,714
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,100,393
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,395,266
<AVERAGE-NET-ASSETS> 186,898,000
<PER-SHARE-NAV-BEGIN> 16.29
<PER-SHARE-NII> 0.20
<PER-SHARE-GAIN-APPREC> 5.77
<PER-SHARE-DIVIDEND> 0.20
<PER-SHARE-DISTRIBUTIONS> 1.14
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 20.92
<EXPENSE-RATIO> 0.73
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 072
<NAME> GROWTH & INCOME FUND B
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 226,881,466
<INVESTMENTS-AT-VALUE> 263,677,767
<RECEIVABLES> 4,315,502
<ASSETS-OTHER> 17,958
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 268,011,227
<PAYABLE-FOR-SECURITIES> 205,556
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,212,572
<TOTAL-LIABILITIES> 5,418,128
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 29,743,678
<SHARES-COMMON-STOCK> 1,823,989
<SHARES-COMMON-PRIOR> 1,024,339
<ACCUMULATED-NII-CURRENT> 5,222
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 29,590,059
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 36,796,301
<NET-ASSETS> 262,593,099
<DIVIDEND-INCOME> 3,037,358
<INTEREST-INCOME> 353,089
<OTHER-INCOME> 0
<EXPENSES-NET> 1,435,905
<NET-INVESTMENT-INCOME> 1,954,542
<REALIZED-GAINS-CURRENT> 31,497,187
<APPREC-INCREASE-CURRENT> 27,136,675
<NET-CHANGE-FROM-OPS> 60,588,404
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 162,598
<DISTRIBUTIONS-OF-GAINS> 1,266,700
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 900,142
<NUMBER-OF-SHARES-REDEEMED> 109,363
<SHARES-REINVESTED> 84,273
<NET-CHANGE-IN-ASSETS> 143,449,628
<ACCUMULATED-NII-PRIOR> 30,277
<ACCUMULATED-GAINS-PRIOR> 7,530,714
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,100,393
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,395,266
<AVERAGE-NET-ASSETS> 186,898,000
<PER-SHARE-NAV-BEGIN> 16.26
<PER-SHARE-NII> 0.11
<PER-SHARE-GAIN-APPREC> 5.76
<PER-SHARE-DIVIDEND> 0.12
<PER-SHARE-DISTRIBUTIONS> 1.14
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 20.87
<EXPENSE-RATIO> 1.26
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 081
<NAME> SHORT-TERM BOND FUND A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 47,398,875
<INVESTMENTS-AT-VALUE> 47,687,742
<RECEIVABLES> 3,603,336
<ASSETS-OTHER> 13,775
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 51,304,853
<PAYABLE-FOR-SECURITIES> 652,452
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 324,243
<TOTAL-LIABILITIES> 976,695
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 49,904,148
<SHARES-COMMON-STOCK> 4,972,204
<SHARES-COMMON-PRIOR> 1,958,317
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (37,925)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 288,867
<NET-ASSETS> 50,328,158
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,983,158
<OTHER-INCOME> 0
<EXPENSES-NET> 182,221
<NET-INVESTMENT-INCOME> 1,800,937
<REALIZED-GAINS-CURRENT> 7,108
<APPREC-INCREASE-CURRENT> 370,620
<NET-CHANGE-FROM-OPS> 2,178,665
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,790,243
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,948,575
<NUMBER-OF-SHARES-REDEEMED> 1,090,055
<SHARES-REINVESTED> 155,367
<NET-CHANGE-IN-ASSETS> 30,631,811
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (45,033)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 161,913
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 432,717
<AVERAGE-NET-ASSETS> 32,507,000
<PER-SHARE-NAV-BEGIN> 9.98
<PER-SHARE-NII> 0.56
<PER-SHARE-GAIN-APPREC> 0.11
<PER-SHARE-DIVIDEND> 0.56
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.09
<EXPENSE-RATIO> 0.56
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 082
<NAME> SHORT-TERM BOND FUND B
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 47,398,875
<INVESTMENTS-AT-VALUE> 47,687,742
<RECEIVABLES> 3,603,336
<ASSETS-OTHER> 13,775
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 51,304,853
<PAYABLE-FOR-SECURITIES> 652,452
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 324,243
<TOTAL-LIABILITIES> 976,695
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 173,068
<SHARES-COMMON-STOCK> 17,395
<SHARES-COMMON-PRIOR> 14,309
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (37,925)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 288,867
<NET-ASSETS> 50,328,158
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,983,158
<OTHER-INCOME> 0
<EXPENSES-NET> 182,221
<NET-INVESTMENT-INCOME> 1,800,937
<REALIZED-GAINS-CURRENT> 7,108
<APPREC-INCREASE-CURRENT> 370,620
<NET-CHANGE-FROM-OPS> 2,178,665
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 10,694
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 16,298
<NUMBER-OF-SHARES-REDEEMED> 14,241
<SHARES-REINVESTED> 1,029
<NET-CHANGE-IN-ASSETS> 30,631,811
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (45,033)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 161,913
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 432,717
<AVERAGE-NET-ASSETS> 32,507,000
<PER-SHARE-NAV-BEGIN> 9.98
<PER-SHARE-NII> 0.50
<PER-SHARE-GAIN-APPREC> 0.10
<PER-SHARE-DIVIDEND> 0.50
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.08
<EXPENSE-RATIO> 1.06
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 091
<NAME> GROWTH FUND A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 50,407,576
<INVESTMENTS-AT-VALUE> 65,341,695
<RECEIVABLES> 524,597
<ASSETS-OTHER> 13,775
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 65,880,067
<PAYABLE-FOR-SECURITIES> 116,398
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,452,145
<TOTAL-LIABILITIES> 3,568,543
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 45,467,806
<SHARES-COMMON-STOCK> 3,475,205
<SHARES-COMMON-PRIOR> 1,528,277
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,335,754)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 14,934,119
<NET-ASSETS> 62,311,524
<DIVIDEND-INCOME> 184,132
<INTEREST-INCOME> 43,340
<OTHER-INCOME> 0
<EXPENSES-NET> 388,514
<NET-INVESTMENT-INCOME> (161,042)
<REALIZED-GAINS-CURRENT> (1,043,448)
<APPREC-INCREASE-CURRENT> 11,832,565
<NET-CHANGE-FROM-OPS> 10,628,075
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,767,036
<NUMBER-OF-SHARES-REDEEMED> 820,139
<SHARES-REINVESTED> 31
<NET-CHANGE-IN-ASSETS> 39,113,989
<ACCUMULATED-NII-PRIOR> 12,110
<ACCUMULATED-GAINS-PRIOR> (292,306)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 249,984
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 603,911
<AVERAGE-NET-ASSETS> 41,501,000
<PER-SHARE-NAV-BEGIN> 13.76
<PER-SHARE-NII> (0.04)
<PER-SHARE-GAIN-APPREC> 3.02
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 16.74
<EXPENSE-RATIO> 0.90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 092
<NAME> GROWTH FUND B
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 50,407,576
<INVESTMENTS-AT-VALUE> 65,341,695
<RECEIVABLES> 524,597
<ASSETS-OTHER> 13,775
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 65,880,067
<PAYABLE-FOR-SECURITIES> 116,398
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,452,145
<TOTAL-LIABILITIES> 3,568,543
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,241,878
<SHARES-COMMON-STOCK> 249,059
<SHARES-COMMON-PRIOR> 158,347
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,335,754)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 14,934,119
<NET-ASSETS> 62,311,524
<DIVIDEND-INCOME> 184,132
<INTEREST-INCOME> 43,340
<OTHER-INCOME> 0
<EXPENSES-NET> 388,514
<NET-INVESTMENT-INCOME> (161,042)
<REALIZED-GAINS-CURRENT> (1,043,448)
<APPREC-INCREASE-CURRENT> 11,832,565
<NET-CHANGE-FROM-OPS> 10,628,075
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 110,567
<NUMBER-OF-SHARES-REDEEMED> 19,860
<SHARES-REINVESTED> 5
<NET-CHANGE-IN-ASSETS> 39,113,989
<ACCUMULATED-NII-PRIOR> 12,110
<ACCUMULATED-GAINS-PRIOR> (292,306)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 249,984
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 603,911
<AVERAGE-NET-ASSETS> 41,501,000
<PER-SHARE-NAV-BEGIN> 13.70
<PER-SHARE-NII> (0.10)
<PER-SHARE-GAIN-APPREC> 2.99
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 16.59
<EXPENSE-RATIO> 1.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
EX-99.B10
Opinion and Consent of Counsel
<PAGE>
[MORRISON & FOERSTER LLP LETTERHEAD]
January 30, 1998
The Griffin Funds, Inc.
5000 Rivergrade Road
Irwindale, California 91706
Re: Post-Effective Amendment No. 13 to
The Griffin Funds, Inc. Registration Statement on Form N-1A
-----------------------------------------------------------
Gentlemen:
We refer to Post-Effective Amendment No. 13 and Amendment No. 16 to the
Registration Statement on Form N-1A (SEC File Nos. 33-67148 and 811-7948) (the
"Registration Statement") of The Griffin Funds, Inc. (the "Company") relating to
the registration of an indefinite number of shares of common stock of the
Company's nine portfolios, namely the 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
Bond 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
its series and the authorization and issuance of shares of its series. 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 also assumed the genuineness of all signatures and authenticity of all
items submitted to us as originals and the conformity with all items submitted
to us as copies.
Based upon and subject to the foregoing, we are of the opinion that:
The issuance and sale of the Shares by the Company has been duly and
validly authorized, and assuming delivery by sale or in accord with the
Company's dividend reinvestment plan in accordance with the description set
forth in the Funds' current prospectuses under the Securities Act of 1933, as
amended, the Shares will be legally issued, fully paid and nonassessable by the
Company.
<PAGE>
We consent to the inclusion of this opinion as an exhibit to the
Registration Statement.
In addition, we hereby consent to the use of our name and to the reference
to the our firm under the heading "Legal Counsel" in the Prospectuses 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>
EX-99.B11
Auditor's Consent - KPMG Peat Marwick
<PAGE>
Consent of Independent Auditors
The Board of Directors
The Griffin Funds, Inc.
We consent to incorporation by reference in The Griffin Funds, Inc.'s Post
Effective Amendment No. 13 to the Registration Statement No. 33-67148 filed on
Form N-1A under the Securities Act of 1933 and Amendment No. 16 to the
Registration Statement No. 811-7948 filed on Form N-1A under the Investment
Company Act of 1940 of our report dated November 7, 1997, on the financial
statements and financial highlights of 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. as of September 30, 1997 and for the
periods indicated therein, which report has been incorporated by reference into
the Statement of Addition Information.
We also consent to the reference to our firm under the heading "Financial
Highlights" in the Prospectuses and under the headings "Independent Auditors"
and "Financial Statements" in the Statement of Additional Information.
KPMG Peat Marwick LLP
Los Angeles, California
January 29, 1998
