Exhibit I
POWER OF ATTORNEY
FOR
SECURITIES AND EXCHANGE COMMISSION
AND RELATED FILINGS
________________________________
Each of the undersigned Trustees and Officers of CNI CHARTER FUNDS (the “Trust”) hereby appoints SOFIA ROSALA and VERNON KOZLEN (with full power to each of them to act alone), his or her attorney–in–fact and agent, in all capacities, to execute and to file any documents relating to the Registration Statement of the Trust on Form N–14 (Registration No. 333-140100) under the Investment Company Act of 1940, under the Securities Act of 1933, and under the laws of all states and other domestic and foreign jurisdictions, including any and all amendments thereto, covering the registration statement and the sale of shares by the Trust, including all exhibits and any and all documents required to be filed with respect thereto with any regulatory authority, including applications for exemptive orders rulings or filings of proxy materials. Each of the undersigned grants to each of said attorneys full authority to do every act necessary to be done in order to effectuate the same as fully, to all intents and purposes, as he could do if personally present, thereby ratifying all that said attorneys–in–fact and agents may lawfully do or cause to be done by virtue hereof.
Each undersigned Trustee hereby executes this Power of Attorney as of this 28th day of February, 2007.
________________
William R. Sweet
Trustee
Exhibit J
PROXY CARD
CNI CHARTER FUNDS
TECHNOLOGY GROWTH FUND
This proxy is solicited by the Board of Trustees of CNI Charter Funds (the “Trust”) for use at a special meeting of shareholders of the Technology Growth Fund (the “Fund”) to be held on March 28, 2007.
The undersigned hereby appoints Valerie Y. Lewis and Richard A. Weiss, and each of them, as attorneys and proxies of the undersigned, with the power of substitution and resubstitution, to attend, and to vote all shares of the Fund at the above-referenced meeting of shareholders and any adjournment or adjournments thereof, and to vote all shares of the Fund that the undersigned may be entitled to vote with respect to the following proposals in accordance with the specifications indicated, if any, and with all the powers which the undersigned would possess if personally present, hereby revoking any prior proxy to vote at such meeting. The undersigned hereby acknowledges receipt of the notice of special meeting of shareholders of the Fund and the combined proxy statement and prospectus dated March 7, 2007.
Note: Please sign exactly as name(s) appear(s) hereon. Corporate or partnership proxies should be signed in full corporate or partnership name by an authorized officer. Each joint owner should sign personally. When signing as a fiduciary, please give full title as such.
__________________________________ | __________________________________ |
Signature | Signature of joint owner, if any |
_____________________________, 2007
Date
VOTE THIS PROXY CARD TODAY!
This proxy will be voted as specified below with respect to the action to be taken on each of the following proposals. In the absence of any specification, this proxy will be voted in favor of each proposal. The Board of Trustees recommends that you vote FOR each of the proposals below.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS.
Example: x
1. To approve the Agreement and Plan of Reorganization whereby the Technology Growth Fund of CNI Charter Funds (the “Trust”) will be reorganized into the Large Cap Growth Equity Fund series of the Trust.
2. | In their discretion, on any other matter that may properly come before the meeting. |
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY
IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
Exhibit K
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CNI CHARTER FUNDS(SM) [LOGO OMITTED](R)
[GRAPHIC OMITTED]
Institutional Class
Large Cap Growth Equity Fund
Large Cap Value Equity Fund
RCB Small Cap Value Fund
Corporate Bond Fund
Government Bond Fund
California Tax Exempt Bond Fund
High Yield Bond Fund
PROSPECTUS DATED JANUARY 31, 2007
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
CNI CHARTER FUNDS(SM) [LOGO OMITTED](R)
PROSPECTUS DATED JANUARY 31, 2007
Institutional Class
Large Cap Growth Equity Fund
Large Cap Value Equity Fund
RCB Small Cap Value Fund
Corporate Bond Fund
Government Bond Fund
California Tax Exempt Bond Fund
High Yield Bond Fund
INVESTMENT MANAGER:
City National Asset Management, Inc.
- --------------------------------------------------------------------------------
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
MUTUAL FUND SHARES ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY. MUTUAL
FUND SHARES ARE NOT BANK DEPOSITS, NOR ARE THEY OBLIGATIONS OF, OR ISSUED,
ENDORSED OR GUARANTEED BY CITY NATIONAL BANK. INVESTING IN MUTUAL FUNDS INVOLVES
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
table of contents
THE FUNDS
Large Cap Growth Equity Fund
(the "Large Cap Growth Fund")...........................................1
Large Cap Value Equity Fund
(the "Large Cap Value Fund")............................................3
RCB Small Cap Value Fund...................................................5
Corporate Bond Fund........................................................8
Government Bond Fund......................................................10
California Tax Exempt Bond Fund...........................................13
High Yield Bond Fund......................................................16
MANAGEMENT OF THE FUNDS.......................................................19
ADDITIONAL INVESTMENT STRATEGIES AND RELATED RISKS............................22
HOW TO BUY, SELL AND EXCHANGE SHARES..........................................23
DIVIDENDS AND TAXES ..........................................................27
FINANCIAL HIGHLIGHTS .........................................................29
IMPORTANT TERMS TO KNOW.......................................................36
PRIVACY PRINCIPLES............................................................37
FOR MORE INFORMATION..................................................back cover
More detailed information on all subjects covered in this simplified prospectus
is contained within the Statement of Additional Information ("SAI"). Investors
seeking more in-depth explanations of the Funds described herein should request
the SAI and review it before purchasing shares.
This Prospectus offers Institutional Class shares of the Large Cap Growth Fund,
the Large Cap Value Fund, the RCB Small Cap Value Fund, the Corporate Bond Fund,
the Government Bond Fund, the California Tax Exempt Bond Fund and the High Yield
Bond Fund (each a "Fund" and together, the "Funds"), series of CNI Charter
Funds. Only financial institutions and financial intermediaries may purchase
Institutional Class shares for their own accounts or on behalf of their
customers. The Funds offer other classes of shares which are subject to the same
management fees and other expenses but may be subject to different distribution
fees, shareholder servicing fees and/or sales loads.
large cap growth fund
OUR GOAL
The Large Cap Growth Fund seeks to provide capital appreciation by investing in
large U.S. corporations and U.S. dollar denominated American Depository Receipts
of large foreign corporations with the potential for growth. The goal of the
Large Cap Growth Fund can only be changed with shareholder approval.
PRINCIPAL STRATEGY
We purchase a diversified portfolio, at least 80% of which consists of equity
securities of large U.S. corporations and U.S. dollar denominated American
Depository Receipts of large foreign corporations. Large corporations are
defined for this purpose as companies with market capitalizations at the time of
purchase in the range of those market capitalizations of companies included in
the S&P 500/Citigroup Growth Index (over time the range varies, and was $1.3
billion to $427 billion as of December 31, 2006). We use a combination of
quantitative and fundamental analysis to select companies with share price
growth potential that may not be recognized by the market at large. Although the
Large Cap Growth Fund is not an index fund, we seek to manage the portfolio's
overall risk characteristics to be similar to those of the S&P 500/Citigroup
Growth Index.
PRINCIPAL RISKS OF INVESTING IN THE LARGE CAP GROWTH FUND
As with any mutual fund, there are risks to investing. We cannot guarantee that
we will meet our investment goal. The Large Cap Growth Fund will expose you to
risks that could cause you to lose money. Here are the principal risks to
consider:
MARKET RISK - By investing in stocks, the Large Cap Growth Fund may expose you
to a sudden decline in a holding's share price or an overall decline in the
stock market. In addition, as with any stock fund, the value of your investment
will fluctuate on a day-to-day and a cyclical basis with movements in the stock
market, as well as in response to the activities of individual companies. In
addition, individual companies may report poor results or be negatively affected
by industry and/or economic trends and developments. The Large Cap Growth Fund
is also subject to the risk that its principal market segment, large
capitalization growth stocks, may underperform other equity market segments or
the market as a whole.
FOREIGN SECURITIES - Foreign stocks tend to be more volatile than U.S. stocks,
and are subject to risks that are not typically associated with domestic stocks.
For example, such investments may be adversely affected by changes in currency
rates and exchange control regulations, future political and economic
developments and the possibility of seizure or nationalization of companies, or
the imposition of withholding taxes on income. Foreign markets tend to be more
volatile than the U.S. market due to economic and political instability and
regulatory conditions in some countries.
PAST PERFORMANCE
The bar chart and the performance table that follow illustrate some of the risks
and volatility of an investment in the Institutional Class shares of the Large
Cap Growth Fund for the indicated periods. Of course, the Large Cap Growth
Fund's past performance (before and after taxes) does not necessarily indicate
how the Large Cap Growth Fund will perform in the future.
CNI CHARTER FUNDS | PAGE 1
This bar chart shows the performance of the Large Cap Growth Fund's
Institutional Class shares based on a calendar year.
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
-10.10% -21.91% 23.17% 5.89% 3.00% 8.70%
----------------------------------------------------
2001 2002 2003 2004 2005 2006
Best Quarter Worst Quarter
13.36% -14.64%
(Q4 2001) (Q2 2002)
This table shows the Large Cap Growth Fund's average annual total returns for
the periods ending December 31, 2006. The table also shows how the Fund's
performance compares with the returns of an index comprised of companies similar
to those held by the Fund.
Since
Inception
Large Cap Growth Fund One Year Five Years (1/14/00)
- --------------------------------------------------------------------------------
Return Before Taxes 8.70% 2.66% -2.77%
Return After Taxes on
Distributions(1) 8.60% 2.62% -2.80%
Return After Taxes on
Distributions and Sale
of Fund Shares(1) 5.65% 2.27% -2.34%
S&P 500/Citigroup
Growth Index(2) 11.01% 1.87% -3.38%(3)
(1) After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state
and local taxes. Actual after-tax returns depend on an investor's tax
situation and may differ from those shown. The after-tax returns shown are
not relevant to investors who hold their Fund shares through tax-deferred
arrangements, such as 401(k) plans or individual retirement accounts.
(2) Reflects no deduction for fees, expenses or taxes.
(3) The index comparison shown begins on January 31, 2000.
FEES AND EXPENSES OF THE LARGE CAP GROWTH FUND
This table describes the fees and expenses you may pay if you buy and hold
Institutional Class shares of the Large Cap Growth Fund. You pay no sales
charges or transaction fees for buying or selling Institutional Class shares of
the Large Cap Growth Fund.
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Management Fee* 0.65%
Other Expenses
Shareholder Servicing Fee 0.25%
Other Fund Expenses 0.10%
Total Other Expenses 0.35%
- --------------------------------------------------------------------------------
Total Annual Fund Operating
Expenses** 1.00%
* The "Management Fee" is an annual fee, payable monthly out of the Large
Cap Growth Fund's net assets.
** THE INVESTMENT MANAGER HAS VOLUNTARILY AGREED TO LIMIT ITS FEES OR
REIMBURSE THE LARGE CAP GROWTH FUND FOR EXPENSES TO THE EXTENT NECESSARY
TO KEEP INSTITUTIONAL CLASS TOTAL ANNUAL FUND OPERATING EXPENSES FOR THE
CURRENT FISCAL YEAR AT OR BELOW 1.05%. Any fee reductions or
reimbursements may be repaid to the investment manager within 3 years
after they occur if such repayments can be achieved within the Large Cap
Growth Fund's then current expense limit, if any, for that year and if
certain other conditions are satisfied.
EXAMPLE
The Example is intended to help you compare the cost of investing in the Large
Cap Growth Fund with the cost of investing in other mutual funds. It assumes
that you invest $10,000 in Institutional Class shares of the Large Cap Growth
Fund for the time periods indicated and then redeem all of your shares at the
end of those periods. The Example also assumes that your investment has a 5%
return each year and that the Large Cap Growth Fund's operating expenses remain
the same. The Example should not be considered a representation of past or
future expenses or performance. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
$102 $318 $552 $1,225
- --------------------------------------------------------------------------------
CNI CHARTER FUNDS | PAGE 2
large cap value fund
OUR GOALS
The Large Cap Value Fund seeks to provide capital appreciation and moderate
income consistent with current returns available in the marketplace by investing
in large U.S. corporations and U.S. dollar denominated American Depository
Receipts of large foreign corporations which are undervalued. The goals of the
Large Cap Value Fund can only be changed with shareholder approval.
PRINCIPAL STRATEGY
We purchase a diversified portfolio, at least 80% of which consists of equity
securities of large U.S. corporations and U.S. dollar denominated American
Depository Receipts of large foreign corporations. Large corporations are
defined for this purpose as companies with market capitalizations at the time of
purchase in the range of those market capitalizations of companies included in
the S&P 500/Citigroup Value Index (over time the range varies, and was $1.3
billion to $387 billion as of December 31, 2006). We use a combination of
quantitative and fundamental analysis to select companies with share price
growth potential that may not be recognized by the market at large. Although the
Large Cap Value Fund is not an index fund, we seek to manage the portfolio's
overall risk characteristics to be similar to those of the S&P 500/Citigroup
Value Index.
PRINCIPAL RISKS OF INVESTING IN THE LARGE CAP VALUE FUND
As with any mutual fund, there are risks to investing. We cannot guarantee that
we will meet our investment goals. The Large Cap Value Fund will expose you to
risks that could cause you to lose money. Here are the principal risks to
consider:
MARKET RISK - By investing in stocks, the Large Cap Value Fund may expose you to
a sudden decline in a holding's share price or an overall decline in the stock
market. In addition, as with any stock fund, the value of your investment will
fluctuate on a day-to-day and a cyclical basis with movements in the stock
market, as well as in response to the activities of individual companies. In
addition, individual companies may report poor results or be negatively affected
by industry and/or economic trends and developments. The Large Cap Value Fund is
also subject to the risk that its principal market segment, large capitalization
value stocks, may underperform other equity market segments or the market as a
whole.
FOREIGN SECURITIES - Foreign stocks tend to be more volatile than U.S. stocks,
and are subject to risks that are not typically associated with domestic stocks.
For example, such investments may be adversely affected by changes in currency
rates and exchange control regulations, future political and economic
developments and the possibility of seizure or nationalization of companies, or
the imposition of withholding taxes on income. Foreign markets tend to be more
volatile than the U.S. market due to economic and political instability and
regulatory conditions in some countries.
PAST PERFORMANCE
The bar chart and the performance table that follow illustrate some of the risks
and volatility of an investment in the Institutional Class shares of the Large
Cap Value Fund for the indicated periods. Of course, the Large Cap Value Fund's
past performance (before and after taxes) does not necessarily indicate how the
Large Cap Value Fund will perform in the future.
CNI CHARTER FUNDS | PAGE 3
This bar chart shows the performance of the Large Cap Value Fund's Institutional
Class shares based on a calendar year.
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
-11.78% -20.07% 32.90% 13.43% 7.91% 20.15%
----------------------------------------------------
2001 2002 2003 2004 2005 2006
Best Quarter Worst Quarter
18.81% -19.54%
(Q2 2003) (Q3 2002)
This table shows the Large Cap Value Fund's average annual total returns for the
periods ending December 31, 2006. The table also shows how the Fund's
performance compares with the returns of an index comprised of companies similar
to those held by the Fund.
Since
Inception
Large Cap Value Fund One Year Five Years (1/14/00)
- --------------------------------------------------------------------------------
Return Before Taxes 20.15% 9.33% 5.29%
Return After Taxes on
Distributions(1) 18.66% 8.62% 4.41%
Return After Taxes on
Distributions and Sale
of Fund Shares(1) 14.19% 7.91% 4.25%
S&P 500/Citigroup
Value Index(2) 20.80% 10.43% 6.72%(3)
(1) After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state
and local taxes. Actual after-tax returns depend on an investor's tax
situation and may differ from those shown. The after-tax returns shown are
not relevant to investors who hold their Fund shares through tax-deferred
arrangements, such as 401(k) plans or individual retirement accounts.
(2) Reflects no deduction for fees, expenses or taxes.
(3) The index comparison shown begins on January 31, 2000.
FEES AND EXPENSES OF THE LARGE CAP VALUE FUND
This table describes the fees and expenses you may pay if you buy and hold
Institutional Class shares of the Large Cap Value Fund. You pay no sales charges
or transaction fees for buying or selling Institutional Class shares of the
Large Cap Value Fund.
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Management Fee* 0.62%
Other Expenses
Shareholder Servicing Fee 0.25%
Other Fund Expenses 0.10%
Total Other Expenses 0.35%
- --------------------------------------------------------------------------------
Total Annual Fund Operating
Expenses** 0.97%
* The "Management Fee" is an annual fee, payable monthly out of the Large
Cap Value Fund's net assets.
** THE INVESTMENT MANAGER HAS VOLUNTARILY AGREED TO LIMIT ITS FEES OR
REIMBURSE THE LARGE CAP VALUE FUND FOR EXPENSES TO THE EXTENT NECESSARY TO
KEEP INSTITUTIONAL CLASS TOTAL ANNUAL FUND OPERATING EXPENSES FOR THE
CURRENT FISCAL YEAR AT OR BELOW 1.00%. Any fee reductions or
reimbursements may be repaid to the investment manager within 3 years
after they occur if such repayments can be achieved within the Large Cap
Value Fund's then current expense limit, if any, for that year and if
certain other conditions are satisfied.
EXAMPLE
The Example is intended to help you compare the cost of investing in the Large
Cap Value Fund with the cost of investing in other mutual funds. It assumes that
you invest $10,000 in Institutional Class shares of the Large Cap Value Fund for
the time periods indicated and then redeem all of your shares at the end of
those periods. The Example also assumes that your investment has a 5% return
each year and that the Large Cap Value Fund's operating expenses remain the
same. The Example should not be considered a representation of past or future
expenses or performance. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
$99 $309 $536 $1,190
- --------------------------------------------------------------------------------
CNI CHARTER FUNDS | PAGE 4
rcb small cap value fund
OUR GOAL
The RCB Small Cap Value Fund seeks capital appreciation primarily through
investment in smaller U.S. corporations which are considered undervalued. The
goal of the RCB Small Cap Value Fund can only be changed with shareholder
approval.
PRINCIPAL STRATEGY
We purchase a diversified portfolio, at least 80% of which consists of equity
securities of smaller U.S. corporations. Smaller corporations are defined for
this purpose as companies with market capitalizations at the time of purchase in
the range of $50 million to $5 billion.
The overall investment philosophy of the RCB Small Cap Value Fund involves a
value-oriented focus on preservation of capital over the long term and a
"bottom-up" approach, analyzing companies on their individual characteristics,
prospects and financial conditions. We determine the universe of potential
companies for investment through a systematic screening of companies for
attractive valuation characteristics and the prospects of fundamental changes,
as well as information we derive from a variety of sources, including, but not
limited to, regional brokerage research, trade publications and industry
conferences. We evaluate companies within this universe for fundamental
characteristics such as:
o Return on capital trends;
o Cash flow and/or earnings growth;
o Free cash flow;
o Balance sheet integrity; and
o Intrinsic value analysis.
Our research effort also includes an investigation of the strength of the
business franchises of these companies and the commitment of management to
shareholders through direct contacts and company visits. Factors that may cause
the sale of the RCB Small Cap Value Fund's portfolio holdings include
disappointment in management or changes in the course of business, changes in a
company's fundamentals, or our assessment that a particular company's stock is
extremely overvalued. A 15% or greater decline in a company's stock price as
compared to its industry peer group would result in an intensive re-evaluation
of the holding and a possible sale.
The RCB Small Cap Value Fund anticipates that it will have a low rate of
portfolio turnover. This means that the RCB Small Cap Value Fund has the
potential to be a tax-efficient investment, as low turnover should result in the
realization and the distribution to shareholders of lower capital gains. This
anticipated lack of frequent trading should also lead to lower transaction
costs, which could help to improve performance.
PRINCIPAL RISKS OF INVESTING IN THE RCB SMALL CAP VALUE FUND
As with any mutual fund, there are risks to investing. We cannot guarantee that
we will meet our investment goal. The RCB Small Cap Value Fund will expose you
to risks that could cause you to lose money. Here are the principal risks to
consider:
MARKET RISK - By investing in stocks, the RCB Small Cap Value Fund may expose
you to a sudden decline in a holding's share price or an overall decline in the
stock market. In addition, as with any stock fund, the value of your investment
in the RCB Small Cap Value Fund will fluctuate on a day-to-day and a cyclical
basis with movements in the stock market, as well as in response to the
activities of
CNI CHARTER FUNDS | PAGE 5
individual companies. In addition, individual companies may report poor results
or be negatively affected by industry and/or economic trends and developments.
The RCB Small Cap Value Fund is also subject to the risk that its principal
market segment, small capitalization value stocks, may underperform other equity
market segments or the market as a whole.
SMALLER CAPITALIZED COMPANIES - The RCB Small Cap Value Fund primarily invests
in smaller capitalized companies. We believe that smaller capitalized companies
generally have greater earnings and sales growth potential than larger
capitalized companies. The level of risk will be increased to the extent that
the RCB Small Cap Value Fund has significant exposure to smaller capitalized or
unseasoned companies (those with less than a three-year operating history).
Investments in smaller capitalized companies may involve greater risks, such as
limited product lines, markets and financial or managerial resources. In
addition, the securities of smaller capitalized companies may have few market
makers, wider spreads between their quoted bid and asked prices, and lower
trading volume, resulting in greater price volatility and less liquidity than
the securities of larger capitalized companies. Further, the RCB Small Cap Value
Fund may hold a significant percentage of a company's outstanding shares, which
means that the RCB Small Cap Value Fund may have to sell such investments at
discounts from quoted prices.
FOCUS - The RCB Small Cap Value Fund holds a relatively small number of
securities positions, each representing a relatively large portion of the RCB
Small Cap Value Fund's capital. Losses incurred in such positions could have a
material adverse effect on the RCB Small Cap Value Fund's overall financial
condition. The RCB Small Cap Value Fund's performance may also differ materially
from the relevant benchmarks, which hold many more stocks than the RCB Small Cap
Value Fund and may be focused on different sectors or industries than the RCB
Small Cap Value Fund.
PAST PERFORMANCE
The bar chart and the performance table that follow illustrate some of the risks
and volatility of an investment in the Institutional Class shares of the RCB
Small Cap Value Fund for the indicated periods. Of course, the RCB Small Cap
Value Fund's past performance (before and after taxes) does not necessarily
indicate how the RCB Small Cap Value Fund will perform in the future.
Institutional Class shares of the RCB Small Cap Value Fund commenced operations
on October 3, 2001. In the bar chart and the performance table, performance
results for the period from October 1, 2001 through October 2, 2001 are for the
Class R shares of the RCB Small Cap Value Fund, which were initially issued in
connection with the reorganization of the RCB Small Cap Fund (the "Predecessor
Fund") on October 1, 2001. Performance results for the period before October 1,
2001 are for the Predecessor Fund, which commenced operations on September 30,
1998. Institutional Class shares' annual returns would have been substantially
similar to those of the Class R shares because shares of each Class are invested
in the same portfolio of securities, and differ only to the extent that the
expenses of Institutional Class shares are lower because they do not include
Class R shares' Rule 12b-1 fees and expenses. Therefore, performance would have
been higher than that of the Class R shares. Class R shares of the RCB Small Cap
Value Fund are not offered by this Prospectus.
CNI CHARTER FUNDS | PAGE 6
This bar chart shows the performance of the RCB Small Cap Value Fund's
Institutional Class shares based on a calendar year.
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
17.85% 12.87% 21.46% -10.60% 48.26% 19.69% -1.37% 13.74%
------------------------------------------------------------------------
1999 2000 2001 2002 2003 2004 2005 2006
Best Quarter Worst Quarter
27.87% -20.19%
(Q2 2003) (Q3 2002)
This table shows the average annual total returns for the periods ending
December 31, 2006. The table also shows how the Fund's performance compares with
the returns of indices comprised of companies similar to those held by the Fund.
RCB Small Cap Since Inception
Value Fund One Year Five Years (9/30/98)
- --------------------------------------------------------------------------------
Return Before Taxes 13.74% 12.22% 17.05%
Return After Taxes
on Distributions(1) 13.48% 11.94% 16.58%
Return After Taxes
on Distributions
and Sale of Fund
Shares(1) 9.27% 10.67% 15.14%
Russell 2000 Index(2) 18.37% 11.39% 11.21%
Russell 2000 Value
Index(2) 23.48% 15.37% 14.59%
Russell 2500 Value
Index(2) 20.18% 15.51% 14.59%
(1) After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state
and local taxes. Actual after-tax returns depend on an investor's tax
situation and may differ from those shown. The after-tax returns shown are
not relevant to investors who hold their Fund shares through tax-deferred
arrangements, such as 401(k) plans or individual retirement accounts.
(2) Reflects no deduction for fees, expenses or taxes.
FEES AND EXPENSES OF THE RCB SMALL CAP VALUE FUND
This table describes the fees and expenses you may pay if you buy and hold
Institutional Class shares of the RCB Small Cap Value Fund. You pay no sales
charges or transaction fees for buying or selling Institutional Class shares of
the RCB Small Cap Value Fund.
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Management Fee* 0.85%
Other Expenses
Shareholder Servicing Fee 0.25%
Other Fund Expenses 0.11%
Total Other Expenses 0.36%
- --------------------------------------------------------------------------------
Total Annual Fund Operating Expenses** 1.21%
* The "Management Fee" is an annual fee, payable monthly out of the RCB
Small Cap Value Fund's net assets.
** THE INVESTMENT MANAGER HAS VOLUNTARILY AGREED TO LIMIT ITS FEES OR
REIMBURSE THE RCB SMALL CAP VALUE FUND FOR EXPENSES TO THE EXTENT
NECESSARY TO KEEP INSTITUTIONAL CLASS TOTAL ANNUAL FUND OPERATING EXPENSES
FOR THE CURRENT FISCAL YEAR AT OR BELOW 1.24%. Any fee reductions or
reimbursements may be repaid to the investment manager within 3 years
after they occur if such repayments can be achieved within the RCB Small
Cap Value Fund's then current expense limit, if any, for that year and if
certain other conditions are satisfied.
EXAMPLE
The Example is intended to help you compare the cost of investing in the RCB
Small Cap Value Fund with the cost of investing in other mutual funds. It
assumes that you invest $10,000 in Institutional Class shares of the RCB Small
Cap Value Fund for the time periods indicated and then redeem all of your shares
at the end of those periods. The Example also assumes that your investment has a
5% return each year and that the RCB Small Cap Value Fund's operating expenses
remain the same. The Example should not be considered a representation of past
or future expenses or performance. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
$123 $384 $665 $1,466
- --------------------------------------------------------------------------------
CNI CHARTER FUNDS | PAGE 7
corporate bond fund
OUR GOALS
The Corporate Bond Fund seeks to provide current income (as the primary
component of a total return intermediate duration strategy) by investing in a
diversified portfolio of fixed income securities. The goals of the Corporate
Bond Fund can only be changed with shareholder approval.
PRINCIPAL STRATEGY
We purchase a diversified portfolio of fixed income securities, at least 80% of
which consists of investment grade corporate notes, bonds and debentures that
are nationally traded, including U.S. government and agency securities and
corporate issues of domestic and international companies denominated in U.S.
dollars. We may also purchase mortgage backed and asset backed instruments whose
maturities and durations are consistent with an intermediate-term strategy. We
actively manage the average duration of the portfolio in accordance with our
expectations of interest rate changes as driven by economic trends. The average
duration of the portfolio will typically range from two to six years. We will
typically invest in corporate issues with a minimum credit rating from Moody's
Investors Service or Standard & Poor's Corporation of Baa or BBB, mortgage
backed and asset backed instruments with a minimum rating of Aa or AA and
corporate commercial paper issued by issuers with a minimum credit rating of A1
or P1. We may retain a security after it has been downgraded below the minimum
credit rating if we determine that it is in the best interests of the Corporate
Bond Fund. The Corporate Bond Fund may also invest in the shares of money market
mutual funds whose objectives are consistent with those of the Corporate Bond
Fund.
PRINCIPAL RISK OF INVESTING IN THE CORPORATE BOND FUND
As with any mutual fund, there are risks to investing. We cannot guarantee that
we will meet our investment goals. The Corporate Bond Fund may expose you to
certain risks that could cause you to lose money. The principal risk to consider
is:
MARKET RISK - The prices of fixed income securities respond to economic
developments, particularly interest rate changes, as well as to perceptions
about the creditworthiness of individual issuers, including governments.
Generally, fixed income securities will decrease in value if interest rates rise
and vice versa, with lower rated securities more volatile than higher rated
securities. The average duration of these securities affects risk as well, with
longer term securities generally more volatile than shorter term securities. In
addition, the Corporate Bond Fund is subject to the risk that its market
segment, fixed income securities, may underperform other fixed income market
segments or the markets as a whole. Economic or political changes may adversely
affect the ability of issuers to repay principal and to make interest payments
on securities owned by the Corporate Bond Fund. Changes in the financial
condition of issuers also may adversely affect the value of the Corporate Bond
Fund's securities. The Corporate Bond Fund may invest in bonds rated below
investment grade, which involve greater risks of default or downgrade and are
more volatile than investment grade securities. The Corporate Bond Fund is not a
money market fund.
PAST PERFORMANCE
The bar chart and the performance table that follow illustrate some of the risks
and volatility of an investment in the Institutional Class shares of the
Corporate Bond Fund for the indicated periods. Of course, the Corporate Bond
Fund's past performance (before and after taxes) does not necessarily indicate
how the Corporate Bond Fund will perform in the future.
CNI CHARTER FUNDS | PAGE 8
This bar chart shows the performance of the Corporate Bond Fund's Institutional
Class shares based on a calendar year.
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
8.49% 7.51% 5.29% 2.40% 1.29% 3.72%
-----------------------------------------------
2001 2002 2003 2004 2005 2006
Best Quarter Worst Quarter
4.49% -2.59%
(Q3 2001) (Q2 2004)
This table shows the Corporate Bond Fund's average annual total returns for the
periods ending December 31, 2006. The table also shows how the Fund's
performance compares with the returns of an index comprised of fixed income
securities similar to those held by the Fund.
Since Inception
Corporate Bond Fund One Year Five Years (1/14/00)
- --------------------------------------------------------------------------------
Return Before Taxes 3.72% 4.02% 5.45%
Return After Taxes on
Distributions(1) 2.23% 2.41% 3.54%
Return After Taxes on
Distributions and Sale
of Fund Shares(1) 2.40% 2.50% 3.52%
Lehman Intermediate
U.S. Corporate
Index(2) 4.57% 5.45% 6.72%(3)
(1) After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state
and local taxes. Actual after-tax returns depend on an investor's tax
situation and may differ from those shown. The after-tax returns shown are
not relevant to investors who hold their Fund shares through tax-deferred
arrangements, such as 401(k) plans or individual retirement accounts.
(2) Reflects no deduction for fees, expenses or taxes.
(3) The index comparison shown begins on January 31, 2000.
FEES AND EXPENSES OF THE CORPORATE BOND FUND
This table describes the fees and expenses you may pay if you buy and hold
Institutional Class shares of the Corporate Bond Fund. You pay no sales charges
or transaction fees for buying or selling Institutional Class shares of the
Corporate Bond Fund.
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Management Fee* 0.40%
Other Expenses
Shareholder Servicing Fee 0.25%
Other Fund Expenses 0.10%
Total Other Expenses 0.35%
- --------------------------------------------------------------------------------
Total Annual Fund Operating
Expenses** 0.75%
* The "Management Fee" is an annual fee, payable monthly out of the
Corporate Bond Fund's net assets.
** THE INVESTMENT MANAGER HAS VOLUNTARILY AGREED TO LIMIT ITS FEES OR
REIMBURSE THE CORPORATE BOND FUND FOR EXPENSES TO THE EXTENT NECESSARY TO
KEEP INSTITUTIONAL CLASS TOTAL ANNUAL FUND OPERATING EXPENSES FOR THE
CURRENT FISCAL YEAR AT OR BELOW 0.75%. Any fee reductions or
reimbursements may be repaid to the investment manager within 3 years
after they occur if such repayments can be achieved within the Corporate
Bond Fund's then current expense limit, if any, for that year and if
certain other conditions are satisfied.
EXAMPLE
The Example is intended to help you compare the cost of investing in the
Corporate Bond Fund with the cost of investing in other mutual funds. It assumes
that you invest $10,000 in Institutional Class shares of the Corporate Bond Fund
for the time periods indicated and then redeem all of your shares at the end of
those periods. The Example also assumes that your investment has a 5% return
each year and that the Corporate Bond Fund's operating expenses remain the same.
The Example should not be considered a representation of past or future expenses
or performance. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
$77 $240 $417 $930
- --------------------------------------------------------------------------------
CNI CHARTER FUNDS | PAGE 9
government bond fund
OUR GOALS
The Government Bond Fund seeks to provide current income (as the primary
component of a total return intermediate duration strategy) by investing
primarily in U.S. Government securities. The goals of the Government Bond Fund
can only be changed with shareholder approval.
PRINCIPAL STRATEGY
We purchase a diversified portfolio, at least 80% of which consists of U.S.
Government securities either issued or guaranteed by the U.S. Government or its
agencies or instrumentalities. We may also purchase mortgage backed and asset
backed instruments issued by the U.S. Government or government sponsored
agencies whose maturity and duration are consistent with an intermediate-term
strategy. In certain cases, securities issued by government-sponsored agencies
may not be guaranteed or insured by the U.S. Government.
We actively manage the average duration of the portfolio in accordance with our
expectations of interest rate changes as driven by economic trends. The average
duration of the portfolio will typically range from two to six years. The
Government Bond Fund may also invest in the shares of money market mutual funds
whose objectives are consistent with those of the Government Bond Fund.
PRINCIPAL RISKS OF INVESTING IN THE GOVERNMENT BOND FUND
As with any mutual fund, there are risks to investing. We cannot guarantee that
we will meet our investment goals. The Government Bond Fund may expose you to
certain risks that could cause you to lose money. The principal risks to
consider are:
MARKET RISK - The prices of fixed income securities respond to economic
developments, particularly interest rate changes, as well as to perceptions
about the creditworthiness of individual issuers, including governments.
Generally, fixed income securities will decrease in value if interest rates rise
and vice versa, with lower rated securities more volatile than higher rated
securities. The average duration of these securities affects risk as well, with
longer term securities generally more volatile than shorter term securities. In
addition, the Government Bond Fund is subject to the risk that its market
segment, government fixed income securities, may underperform other fixed income
market segments or the markets as a whole. Economic or political changes may
adversely affect the ability of issuers to repay principal and to make interest
payments on securities owned by the Government Bond Fund. Changes in the
financial condition of issuers also may adversely affect the value of the
Government Bond Fund's securities. The Government Bond Fund may invest in bonds
rated below investment grade, which involve greater risks of default or
downgrade and are more volatile than investment grade securities. The Government
Bond Fund is not a money market fund.
CNI CHARTER FUNDS | PAGE 10
GOVERNMENT-SPONSORED ENTITIES RISK - Although the Government Bond Fund invests
in securities issued by government-sponsored entities, such as mortgage-related
securities, such securities may not be guaranteed or insured by the U.S.
Government and may only be supported by the credit of the issuing agency. For
example, the Federal National Mortgage Association guarantees full and timely
payment of all interest and principal of its pass-through securities, and the
Federal Home Loan Mortgage Corporation guarantees timely payment of interest and
ultimate collection of principal of its pass-through securities, but such
securities are not backed by the full faith and credit of the U.S. Government.
The principal and interest on Government National Mortgage Association ("GNMA")
pass-through securities are guaranteed by GNMA and backed by the full faith and
credit of the U.S. Government. In order to meet its obligations under a
guarantee, GNMA is authorized to borrow from the U.S. Treasury with no
limitations as to amount.
PAST PERFORMANCE
The bar chart and the performance table that follow illustrate some of the risks
and volatility of an investment in the Institutional Class shares of the
Government Bond Fund for the indicated periods. Of course, the Government Bond
Fund's past performance (before and after taxes) does not necessarily indicate
how the Government Bond Fund will perform in the future.
This bar chart shows the performance of the Government Bond Fund's Institutional
Class shares based on a calendar year.
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
7.58% 8.71% 1.22% 1.65% 1.50% 3.71%
----------------------------------------------------
2001 2002 2003 2004 2005 2006
Best Quarter Worst Quarter
4.74% -1.39%
(Q3 2001) (Q2 2004)
This table shows the Government Bond Fund's average annual total returns for the
periods ending December 31, 2006. The table also shows how the Fund's
performance compares with the returns of an index comprised of fixed income
securities similar to those held by the Fund.
Since Inception
Government Bond Fund One Year Five Years (1/14/00)
- --------------------------------------------------------------------------------
Return Before Taxes 3.71% 3.32% 4.80%
Return After Taxes on
Distributions(1) 2.26% 2.02% 3.22%
Return After Taxes
on Distributions
and Sale of Fund
Shares(1) 2.39% 2.10% 3.17%
Lehman Intermediate
U.S. Government
Bond Index(2) 3.83% 3.92% 5.59%(3)
(1) After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state
and local taxes. Actual after-tax returns depend on an investor's tax
situation and may differ from those shown. The after-tax returns shown are
not relevant to investors who hold their Fund shares through tax-deferred
arrangements, such as 401(k) plans or individual retirement accounts.
(2) Reflects no deduction for fees, expenses or taxes.
(3) The index comparison shown begins on January 31, 2000.
CNI CHARTER FUNDS | PAGE 11
FEES AND EXPENSES OF THE GOVERNMENT BOND FUND
This table describes the fees and expenses you may pay if you buy and hold
Institutional Class shares of the Government Bond Fund. You pay no sales charges
or transaction fees for buying or selling Institutional Class shares of the
Government Bond Fund.
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Management Fee* 0.43%
Other Expenses
Shareholder Servicing Fee 0.25%
Other Fund Expenses 0.10%
Total Other Expenses 0.35%
- --------------------------------------------------------------------------------
Total Annual Fund Operating
Expenses** 0.78%
* The "Management Fee" is an annual fee, payable monthly out of the
Government Bond Fund's net assets.
** THE INVESTMENT MANAGER HAS VOLUNTARILY AGREED TO LIMIT ITS FEES OR
REIMBURSE THE GOVERNMENT BOND FUND FOR EXPENSES TO THE EXTENT NECESSARY TO
KEEP INSTITUTIONAL CLASS TOTAL ANNUAL FUND OPERATING EXPENSES FOR THE
CURRENT FISCAL YEAR AT OR BELOW 0.70%. Any fee reductions or
reimbursements may be repaid to the investment manager within 3 years
after they occur if such repayments can be achieved within the Government
Bond Fund's then current expense limit, if any, for that year and if
certain other conditions are satisfied.
EXAMPLE
The Example is intended to help you compare the cost of investing in the
Government Bond Fund with the cost of investing in other mutual funds. It
assumes that you invest $10,000 in Institutional Class shares of the Government
Bond Fund for the time periods indicated and then redeem all of your shares at
the end of those periods. The Example also assumes that your investment has a 5%
return each year and that the Government Bond Fund's operating expenses remain
the same. The Example should not be considered a representation of past or
future expenses or performance. Although your actual costs may be higher or
lower, based on these assumptions your cost would be:
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
$80 $249 $433 $966
- --------------------------------------------------------------------------------
CNI CHARTER FUNDS | PAGE 12
california tax exempt bond fund
OUR GOALS
The California Tax Exempt Bond Fund seeks to provide current income exempt from
federal and California state income tax (as the primary component of a total
return strategy) by investing primarily in California municipal bonds. The goals
of the California Tax Exempt Bond Fund can only be changed with shareholder
approval.
PRINCIPAL STRATEGY
We purchase a portfolio, at least 80% of which consists of investment grade,
intermediate-term municipal bond obligations, including general obligation
bonds, revenue bonds, notes and obligations issued by the State of California
and its agencies, by various counties, cities and regional or special districts
in California, and by various other sectors in the municipal bond market. The
California Tax Exempt Bond Fund may also invest in short-term tax exempt
commercial paper, floating rate notes or the shares of money market mutual funds
whose objectives are consistent with those of the California Tax Exempt Bond
Fund. The California Tax Exempt Bond Fund invests at least 80% of its net assets
in intermediate-term, high quality municipal bonds and notes, and at least 80%
of its total assets in debt securities, the interest from which is expected to
be exempt from federal and California state personal income taxes. We actively
manage the average duration of the portfolio in accordance with our expectations
of interest rate changes as driven by economic trends. The average duration of
the portfolio will typically range from three to eight years. We will typically
invest in issues with a minimum credit rating from Moody's Investors Service or
Standard & Poor's Corporation of Baa or BBB, issues carrying credit enhancements
such as insurance by the major bond insurance companies with an underlying
minimum credit rating of Baa or BBB and short term notes with a rating from
Moody's of MIG1 or VMIG1 or from Standard & Poor's of SP1 or A1. We may retain a
security after it has been downgraded below the minimum credit rating if we
determine that it is in the best interests of the California Tax Exempt Bond
Fund.
PRINCIPAL RISKS OF INVESTING IN THE CALIFORNIA TAX EXEMPT BOND FUND
As with any mutual fund, there are risks to investing. We cannot guarantee that
we will meet our investment goals. The California Tax Exempt Bond Fund may
expose you to certain risks that could cause you to lose money. Here are the
principal risks to consider:
MARKET RISK - The prices of fixed income securities respond to economic
developments, particularly interest rate changes, as well as to perceptions
about the creditworthiness of individual issuers, including governments.
Generally, fixed income securities will decrease in value if interest rates rise
and vice versa, with lower rated securities more volatile than higher rated
securities. The average duration of these securities affects risk as well, with
longer term securities generally more volatile than shorter term securities. In
addition, the California Tax Exempt Bond Fund is subject to the risk that its
market segment, municipal debt securities, may underperform other market
segments or the markets as a whole. Economic or political changes may adversely
affect the ability of issuers to repay principal and to make interest payments
on securities owned by the California Tax Exempt Bond Fund. Changes in the
financial condition of issuers also may adversely affect the value of the
California Tax Exempt Bond Fund's securities. The California Tax Exempt Bond
Fund may invest in bonds rated below investment grade, which involve greater
risks of default or downgrade and are more volatile than investment grade
securities. The California Tax Exempt Bond Fund is not a money market fund.
CNI CHARTER FUNDS | PAGE 13
GOVERNMENT RISK - State and local governments rely on taxes and, to some extent,
revenues from private projects financed by municipal securities to pay interest
and principal on municipal debt. Poor statewide or local economic results,
changing political sentiments, legislation, policy changes or voter-based
initiatives at the state or local level, erosion of the tax base or revenues of
the state or one or more local governments, seismic or other natural disasters,
or other economic or credit problems affecting the state generally or a
particular issuer may reduce tax revenues and increase the expenses of
California municipal issuers, making it more difficult for them to meet their
obligations. Actual or perceived erosion of the creditworthiness of California
municipal issuers may also reduce the value of the California Tax Exempt Bond
Fund's holdings.
NON-DIVERSIFICATION - The California Tax Exempt Bond Fund is non-diversified,
which means that it may invest in the securities of relatively few issuers. As a
result, the California Tax Exempt Bond Fund may be more susceptible to a single
adverse economic or regulatory occurrence affecting one or more of these
issuers, and may experience increased volatility due to its investments in those
securities. In addition, the California Tax Exempt Bond Fund will be more
susceptible to factors which adversely affect issuers of California obligations
than a mutual fund which does not have as great a concentration in California
municipal obligations. See the SAI for more detailed information regarding
California developments.
PAST PERFORMANCE
The bar chart and the performance table that follow illustrate some of the risks
and volatility of an investment in the Institutional Class shares of the
California Tax Exempt Bond Fund for the indicated periods. Of course, the
California Tax Exempt Bond Fund's past performance (before and after taxes) does
not necessarily indicate how the California Tax Exempt Bond Fund will perform in
the future.
This bar chart shows the performance of the California Tax Exempt Bond Fund's
Institutional Class shares based on a calendar year.
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
3.99% 8.37% 3.02% 2.21% 1.46% 3.35%
-----------------------------------------------
2001 2002 2003 2004 2005 2006
Best Quarter Worst Quarter
4.33% -1.85%
(Q3 2002) (Q2 2004)
This table shows the California Tax Exempt Bond Fund's average annual total
returns for the periods ending December 31, 2006. The table also shows how the
Fund's performance compares with the returns of an index comprised of fixed
income securities similar to those held by the Fund.
California Tax Since Inception
Exempt Bond Fund One Year Five Years (1/14/00)
- --------------------------------------------------------------------------------
Return Before Taxes 3.35% 3.65% 4.32%
Return After Taxes on
Distributions(1) 3.35% 3.47% 4.14%
Return After Taxes on
Distributions and Sale
of Fund Shares(1) 3.21% 3.48% 4.11%
Lehman CA
Intermediate -
Short Municipal
Index(2) 3.62% 3.91% 4.65%(3)
(1) After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state
and local taxes. Actual after-tax returns depend on an investor's tax
situation and may differ from those shown. The after-tax returns shown are
not relevant to investors who hold their Fund shares through tax-deferred
arrangements, such as 401(k) plans or individual retirement accounts.
(2) Reflects no deduction for fees, expenses or taxes.
(3) The index comparison shown begins on January 31, 2000.
CNI CHARTER FUNDS | PAGE 14
FEES AND EXPENSES OF THE CALIFORNIA TAX EXEMPT BOND FUND
This table describes the fees and expenses you may pay if you buy and hold
Institutional Class shares of the California Tax Exempt Bond Fund. You pay no
sales charges or transaction fees for buying or selling Institutional Class
shares of the California Tax Exempt Bond Fund.
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Management Fee* 0.27%
Other Expenses
Shareholder Servicing Fee 0.25%
Other Fund Expenses 0.10%
Total Other Expenses 0.35%
- --------------------------------------------------------------------------------
Total Annual Fund Operating
Expenses** 0.62%
* The "Management Fee" is an annual fee, payable monthly out of the
California Tax Exempt Bond Fund's net assets.
** THE INVESTMENT MANAGER HAS VOLUNTARILY AGREED TO LIMIT ITS FEES OR
REIMBURSE THE CALIFORNIA TAX EXEMPT BOND FUND FOR EXPENSES TO THE EXTENT
NECESSARY TO KEEP INSTITUTIONAL CLASS TOTAL ANNUAL FUND OPERATING EXPENSES
FOR THE CURRENT FISCAL YEAR AT OR BELOW 0.50%. Any fee reductions or
reimbursements may be repaid to the investment manager within 3 years
after they occur if such repayments can be achieved within the California
Tax Exempt Bond Fund's then current expense limit, if any, for that year
and if certain other conditions are satisfied.
EXAMPLE
The Example is intended to help you compare the cost of investing in the
California Tax Exempt Bond Fund with the cost of investing in other mutual
funds. It assumes that you invest $10,000 in Institutional Class shares of the
California Tax Exempt Bond Fund for the time periods indicated and then redeem
all of your shares at the end of those periods. The Example also assumes that
your investment has a 5% return each year and that the California Tax Exempt
Bond Fund's expenses remain the same. The Example should not be considered a
representation of past or future expenses or performance. Although your actual
costs may be higher or lower, based on these assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
$63 $199 $346 $774
- --------------------------------------------------------------------------------
CNI CHARTER FUNDS | PAGE 15
high yield bond fund
OUR GOAL
The High Yield Bond Fund seeks to maximize total return by investing primarily
in fixed income securities rated below investment grade (i.e., "junk bonds").
The goal of the High Yield Bond Fund can only be changed with shareholder
approval.
PRINCIPAL STRATEGY
We purchase a diversified portfolio, at least 80% of which consists of fixed
income securities rated below investment grade, including corporate bonds and
debentures, convertible and preferred securities and zero coupon obligations. We
may also invest in fixed income securities rated below investment grade that are
issued by governments and agencies, both U.S. and foreign. We may also invest in
equity securities. We seek to invest in securities that offer a high current
yield as well as total return potential. In an effort to control risks, we
purchase investments diversified across issuers, industries and sectors. The
average maturity of the High Yield Bond Fund's investments will vary. There is
no limit on the maturity or on the credit quality of any security.
PRINCIPAL RISKS OF INVESTING IN THE HIGH YIELD BOND FUND
As with any mutual fund, there are risks to investing. We cannot guarantee that
we will meet our investment goal. The High Yield Bond Fund may expose you to
certain risks that could cause you to lose money. Here are the principal risks
to consider:
MARKET RISK - The prices of fixed income securities respond to economic
developments, particularly interest rate changes, as well as to perceptions
about the creditworthiness of individual issuers, including governments.
Generally, fixed income securities will decrease in value if interest rates rise
and vice versa, with lower rated securities (such as those in which the High
Yield Bond Fund primarily invests) more volatile than higher rated securities.
The average maturity and duration of these securities affects risk as well, with
longer term securities generally more volatile than shorter term securities. In
addition, the High Yield Bond Fund is subject to the risk that its market
segment, high yield fixed income securities, may underperform other market
segments or the markets as a whole. Economic or political changes may adversely
affect the ability of issuers to repay principal and to make interest payments
on securities owned by the High Yield Bond Fund. Changes in the financial
condition of issuers could have a material adverse effect on the value of the
High Yield Bond Fund's securities. The High Yield Bond Fund is not a money
market fund.
HIGH YIELD ("JUNK") BONDS - High yield bonds involve greater risks of default or
downgrade and are more volatile than investment grade securities. High yield
bonds involve a greater risk of price declines than investment grade securities
due to actual or perceived changes in an issuer's creditworthiness. In addition,
issuers of high yield bonds may be more susceptible than other issuers to
economic downturns, which may result in a weakened capacity of the issuer to
make principal or interest payments. High yield bonds are subject to a greater
risk that the issuer may not be able to pay interest or dividends and ultimately
to repay principal upon maturity. Discontinuation of these payments could have a
substantial adverse effect on the market value of the security.
CNI CHARTER FUNDS | PAGE 16
FOREIGN SECURITIES - The High Yield Bond Fund may invest in foreign securities.
Foreign investments may be subject to risks that are not typically associated
with investing in domestic securities. For example, such investments may be
adversely affected by changes in currency rates and exchange control
regulations, future political and economic developments and the possibility of
seizure or nationalization of companies, or the imposition of withholding taxes
on income. Foreign markets tend to be more volatile than the U.S. market due to
economic and political instability and regulatory conditions in some countries.
The High Yield Bond Fund may invest in foreign securities denominated in foreign
currencies, whose value may decline against the U.S. dollar.
EQUITY SECURITIES - The value of the High Yield Bond Fund's equity investments
will fluctuate on a day-to-day and a cyclical basis with movements in the stock
market, as well as in response to the activities of individual companies. In
addition, individual companies may report poor results or be negatively affected
by industry and/or economic trends and developments.
PAST PERFORMANCE
The bar chart and the performance table that follow illustrate some of the risks
and volatility of an investment in the Institutional Class shares of the High
Yield Bond Fund for the indicated periods. Of course, the High Yield Bond Fund's
past performance (before and after taxes) does not necessarily indicate how the
High Yield Bond Fund will perform in the future.
This bar chart shows the performance of the High Yield Bond Fund's Institutional
Class shares based on a calendar year.
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
9.40% 2.38% 19.65% 11.35% 1.30% 9.58%
-----------------------------------------------
2001 2002 2003 2004 2005 2006
Best Quarter Worst Quarter
8.11% -3.17%
(Q4 2001) (Q2 2002)
This table shows the High Yield Bond Fund's average annual total returns for the
periods ending December 31, 2006. The table also shows how the Fund's
performance compares with the returns of an index comprised of fixed income
securities similar to those held by the Fund.
Since Inception
High Yield Bond Fund One Year Five Years (1/14/00)
- --------------------------------------------------------------------------------
Return Before Taxes 9.58% 8.65% 7.59%
Return After Taxes on
Distributions(1) 6.75% 5.53% 4.20%
Return After Taxes
on Distributions
and Sale of Fund
Shares(1) 6.14% 5.50% 4.35%
Citigroup High Yield
Market Index(2) 11.55% 10.16% 7.29%(3)
(1) After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state
and local taxes. Actual after-tax returns depend on an investor's tax
situation and may differ from those shown. The after-tax returns shown are
not relevant to investors who hold their Fund shares through tax-deferred
arrangements, such as 401(k) plans or individual retirement accounts.
(2) Reflects no deduction for fees, expenses or taxes.
(3) The index comparison shown begins on January 31, 2000.
CNI CHARTER FUNDS | PAGE 17
FEES AND EXPENSES OF THE HIGH YIELD BOND FUND
This table describes the fees and expenses you may pay if you buy and hold
Institutional Class shares of the High Yield Bond Fund. You pay no sales charges
or transaction fees for buying or selling Institutional Class shares of the High
Yield Bond Fund.
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Management Fee* 0.75%
Other Expenses
Shareholder Servicing Fee 0.25%
Other Fund Expenses 0.10%
Total Other Expenses 0.35%
- --------------------------------------------------------------------------------
Total Annual Fund Operating
Expenses** 1.10%
* The "Management Fee" is an annual fee, payable monthly out of the High
Yield Bond Fund's net assets.
** THE INVESTMENT MANAGER HAS VOLUNTARILY AGREED TO LIMIT ITS FEES OR
REIMBURSE THE HIGH YIELD BOND FUND FOR EXPENSES TO THE EXTENT NECESSARY TO
KEEP INSTITUTIONAL CLASS TOTAL ANNUAL FUND OPERATING EXPENSES FOR THE
CURRENT FISCAL YEAR AT OR BELOW 1.00%. Any fee reductions or
reimbursements may be repaid to the investment manager within 3 years
after they occur if such repayments can be achieved within the High Yield
Bond Fund's then current expense limit, if any, for that year and if
certain other conditions are satisfied.
EXAMPLE
The Example is intended to help you compare the cost of investing in the High
Yield Bond Fund with the cost of investing in other mutual funds. It assumes
that you invest $10,000 in Institutional Class shares of the High Yield Bond
Fund for the time periods indicated and then redeem all of your shares at the
end of those periods. The Example also assumes that your investment has a 5%
return each year and that the High Yield Bond Fund's operating expenses remain
the same. The Example should not be considered a representation of past or
future expenses or performance. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
$112 $350 $606 $1,340
- --------------------------------------------------------------------------------
CNI CHARTER FUNDS | PAGE 18
management of the funds
INVESTMENT MANAGER
City National Asset Management, Inc. ("CNAM") provides the Funds with investment
management services. CNAM's address is City National Center, 400 North Roxbury
Drive, Beverly Hills, California 90210.
CNAM is a wholly owned subsidiary of City National Bank ("CNB"), a federally
chartered commercial bank founded in the early 1950s with approximately $5.2
billion in assets as of December 31, 2006. CNB is itself a wholly owned
subsidiary of City National Corporation, a New York Stock Exchange listed
company. CNB has provided trust and fiduciary services, including investment
management services, to individuals and businesses for over 40 years. CNB
currently provides investment management services to individuals, pension and
profit sharing plans, endowments and foundations. As of December 31, 2006, CNB
and its affiliates had approximately $48.6 billion in assets under
administration, which includes $27.8 billion in assets under management.
CNAM received for its investment management services a fee at the annual rate of
0.65% of average daily net assets of the Large Cap Growth Fund, 0.62% of average
daily net assets of the Large Cap Value Fund, 0.85% of average daily net assets
of the RCB Small Cap Value Fund, 0.40% of average daily net assets of the
Corporate Bond Fund, 0.36% of average daily net assets of the Government Bond
Fund, 0.16% of average daily net assets of the California Tax Exempt Bond Fund
and 0.66% of average daily net assets of the High Yield Bond Fund for the fiscal
year ended September 30, 2006. These fees reflect fee waivers or reimbursements
of fees waived by CNAM in prior years.
A discussion regarding the basis of the Board of Trustees' approval of the
Funds' investment advisory agreement with CNAM is available in the Funds'
Semi-Annual Report for the most recent fiscal period ended March 31.
PORTFOLIO MANAGERS
Richard A. Weiss and Brian L. Garbe serve as portfolio managers for the Large
Cap Value Fund and Large Cap Growth Fund. Rodney J. Olea and William C. Miller
serve as portfolio managers for the Corporate Bond Fund. Rodney J. Olea and Paul
C. Single serve as portfolio managers for the Government Bond Fund. Rodney J.
Olea and Alan Remedios serve as portfolio managers for the California Tax Exempt
Bond Fund.
RICHARD A. WEISS is President and Chief Investment Officer of CNAM. Mr. Weiss
has nearly two decades of investment management experience and has designed and
implemented quantitatively disciplined equity, fixed income, and international
investment strategies. Prior to joining the Funds' predecessor investment
manager, CNB, in 1999, Mr. Weiss was Executive Vice President and Chief
Investment Officer at Sanwa Bank California. Mr. Weiss holds a Master's in
Business Administration ("MBA"), with an emphasis in Finance and Econometrics
from the University of Chicago, and an undergraduate degree in Finance from The
Wharton School at the University of Pennsylvania.
BRIAN L. GARBE is Senior Vice President and Director of Research of CNAM. Mr.
Garbe has over 15 years of experience in the investment field and currently
oversees the creation, analysis and production of asset allocation, sector
rotation and stock selection strategies for CNAM. Prior to joining CNB in 1999,
Mr. Garbe was Vice President and Director of Research at Sanwa Bank California.
Mr. Garbe holds an MBA from the Anderson Graduate School of Management at
University of California, Los Angeles ("UCLA") and an undergraduate degree in
Applied Mathematics from UCLA.
CNI CHARTER FUNDS | PAGE 19
RODNEY J. OLEA is Senior Vice President and Director of Fixed Income of CNAM.
Mr. Olea has over 20 years of portfolio management experience and currently
oversees the creation, analysis, and management of taxable and tax-free fixed
income portfolios and bond selection strategies for CNAM. Mr. Olea has been with
CNB since 1994. Mr. Olea has a degree in Economics from UCLA.
WILLIAM C. MILLER, JR. is Vice President and Senior Fixed Income Portfolio
Manager for CNAM. Mr. Miller has over 10 years of investment management
experience and specializes in the research, analysis, and selection of fixed
income securities. Prior to joining CNB in 2001, Mr. Miller was Investment
Officer with Fiduciary Trust International of California and, from 1995 to 1998,
was an Associate with Pacific Investment Management Company. Mr. Miller, a
Chartered Financial Analyst, holds a Bachelor's degree with a concentration in
Finance from California State University, Fullerton.
PAUL C. SINGLE is Vice President and Senior Fixed Income Portfolio Manager for
CNAM. Mr. Single has over 23 years of institutional investment management
experience and specializes in investment grade taxable fixed income securities.
Prior to joining CNB in 2003, Mr. Single was Principal and Portfolio Manager of
Wells Capital Management.
ALAN REMEDIOS is Vice President and Senior Fixed Income Portfolio Manager for
CNAM. Mr. Remedios has over 16 years of investment management experience and
specializes in the research, analysis, and selection of fixed income securities
for CNAM. Prior to joining CNB in 1999, Mr. Remedios was Vice President and
Portfolio Manager at U.S. Trust Company. Mr. Remedios, a Chartered Financial
Analyst, holds a degree in Finance from California State Polytechnic University.
SUB-ADVISORS
REED CONNER & BIRDWELL LLC ("RCB"), a wholly owned subsidiary of City National
Corporation, currently serves as the RCB Small Cap Value Fund's sub-advisor,
providing investment advisory and portfolio management services pursuant to a
sub-advisory agreement with CNAM. RCB's address is 11111 Santa Monica Blvd.,
Suite 1700, Los Angeles, California 90025. As of December 31, 2006, RCB managed
assets of approximately $3.66 billion for individual and institutional
investors. RCB and its predecessor have been engaged in the investment advisory
business for over 45 years.
Jeffrey Bronchick, Executive Vice President, Principal and Chief Investment
Officer and Thomas D. Kerr, Principal and Vice President, Portfolio Management
and Research, are principally responsible for the management of the RCB Small
Cap Value Fund. They have been associated with RCB or its predecessor since 1989
and 1994, respectively.
A discussion regarding the basis of the Board of Trustees' approval of CNAM's
sub-advisory agreement with RCB is available in the Funds' Semi-Annual Report
for the most recent fiscal period ended March 31.
HALBIS CAPITAL MANAGEMENT (USA), INC. ("Halbis Capital USA") currently serves as
the High Yield Bond Fund's sub-advisor, providing investment advisory and
portfolio management services pursuant to a sub-advisory agreement with CNAM.
Halbis Capital USA's principal offices are located at 452 Fifth Avenue, New
York, NY 10018. It was formed in June, 2005, and is a wholly-owned subsidiary of
Halbis Capital Management (UK), Ltd., which in turn is ultimately a part of HSBC
Group, plc, one of the world's largest banking and financial services
organizations.
Halbis Capital USA provides investment advisory services relating to U.S. fixed
income, high yield fixed income, emerging markets fixed income and alternative
investment products. Halbis Capital USA is one of a number of HSBC Group
subsidiaries (collectively referred to as "HSBC Group Investment
CNI CHARTER FUNDS | PAGE 20
Businesses") engaged in investment advisory and fund management activities in
many countries throughout the world. As of December 31, 2006, HSBC Group
Investment Businesses managed assets of approximately $328.5 billion worldwide,
and Halbis Capital USA managed assets of approximately $7.6 billion.
The High Yield Bond Fund is managed by Richard J. Lindquist, CFA, a Managing
Director and the head of the high yield management team at Halbis Capital USA.
The high yield management team, including Mr. Lindquist, joined HSBC Investments
May 1, 2005. Mr. Lindquist was previously a Managing Director and the head of
the high yield management team at Credit Suisse Asset Management, LLC ("CSAM").
He joined CSAM in 1995 as a result of the acquisition of CS First Boston
Investment Management, where he had been since 1989. Previously, he managed high
yield portfolios at Prudential Insurance Company of America and a high yield
mutual fund at T. Rowe Price Associates. Mr. Lindquist holds a BS in Finance
from Boston College and an MBA in Finance from the University of Chicago
Graduate School of Business.
A discussion regarding the basis of the Board of Trustees' approval of CNAM's
sub-advisory agreement with Halbis Capital USA is available in the Funds' Annual
Report for the fiscal year ended September 30, 2005.
OTHER SUB-ADVISORS. Under current law, the appointment of a new sub-advisor
generally would require the approval of a Fund's shareholders. Although CNAM
does not currently intend to replace any of the current sub-advisors, the Funds
have received an exemptive order from the Securities and Exchange Commission
(the "SEC"). This order would permit CNAM, subject to certain conditions
required by the SEC, to replace any sub-advisor, other than RCB, with a new
unaffiliated, third-party sub-advisor with the approval of the Board of Trustees
but without obtaining shareholder approval. Shareholders, however, will be
notified of any change in any of the sub-advisors and be provided with
information regarding the new sub-advisor. An order from the SEC granting this
exemption benefits shareholders by enabling the Funds to operate in a less
costly and more efficient manner. CNAM has the ultimate responsibility to
monitor any sub-advisors and recommend their hiring, termination and
replacement. CNAM may also terminate any sub-advisor and assume direct
responsibility for the portfolio management of that Fund with the approval of
the Board of Trustees but without obtaining shareholder approval.
ADMINISTRATOR
SEI Investments Global Funds Services (the "Administrator") serves as
administrator and fund accountant to the Funds. The Administrator is located at
One Freedom Valley Drive, Oaks, Pennsylvania 19456.
DISTRIBUTOR
SEI Investments Distribution Co. (the "Distributor") serves as the Funds'
distributor pursuant to a distribution agreement with the Funds. The Distributor
is located at One Freedom Valley Drive, Oaks, Pennsylvania 19456 and can be
reached at 1-888-889-0799.
SHAREHOLDER SERVICING FEES
The Funds have adopted a shareholder service plan that allows the Funds to pay
fees to broker-dealers and other financial intermediaries (including CNB) for
services provided to Institutional Class shareholders. Because these fees are
paid out of the Funds' assets continuously, over time these fees will increase
the cost of your investment. Shareholder servicing fees under that plan, as a
percentage of average daily net assets, are 0.25% for Institutional Class shares
of the Funds, a portion or all of which may be received by CNB or its
affiliates.
CNI CHARTER FUNDS | PAGE 21
additional investment strategies and related risks
The following risks of the Funds referred to below are related to investment
strategies that are material but not fundamental strategies of the Funds. These
risks are in addition to the principal risks of the Funds discussed above. See
risks described with respect to each Fund under the section entitled "The
Funds."
FOREIGN SECURITIES - The Large Cap Growth Fund, the Large Cap Value Fund, the
RCB Small Cap Value Fund and the High Yield Bond Fund may invest in foreign
securities. Foreign investments may be subject to risks that are not typically
associated with investing in domestic companies. For example, such investments
may be adversely affected by changes in currency rates and exchange control
regulations, future political and economic developments and the possibility of
seizure or nationalization of companies, or the imposition of withholding taxes
on income. Foreign stock markets tend to be more volatile than the U.S. market
due to economic and political instability and regulatory conditions in some
countries. These foreign securities may be denominated in foreign currencies,
whose value may decline against the U.S. dollar.
DEFENSIVE INVESTMENTS - The strategies described in this prospectus are those
the Funds use under normal circumstances. At the discretion of each Fund's
portfolio managers, we may invest up to 100% of the Fund's assets in cash or
cash equivalents for temporary defensive purposes. No Fund is required or
expected to take such a defensive posture. But if used, such a stance may help a
Fund minimize or avoid losses during adverse market, economic or political
conditions. During such a period, a Fund may not achieve its investment
objective. For example, should the market advance during this period, a Fund may
not participate as much as it would have if it had been more fully invested.
PORTFOLIO TURNOVER - Each Fund will sell a security when its portfolio manager
believes it is appropriate to do so, regardless of how long a Fund has owned
that security. Buying and selling securities generally involves some expense to
a Fund, such as commissions paid to brokers and other transaction costs. By
selling a security, a Fund may realize taxable capital gains that it will
subsequently distribute to shareholders. Generally speaking, the higher a Fund's
annual portfolio turnover, the greater its brokerage costs and the greater the
likelihood that it will realize taxable capital gains. On the other hand, a Fund
may from time to time realize commission costs in order to engage in tax
minimization strategies if the result is a greater enhancement to the value of a
Fund share than the transaction cost to achieve it. Increased brokerage costs
may adversely affect a Fund's performance. Also, unless you are a tax-exempt
investor or you purchase shares through a tax-deferred account, the distribution
of capital gains may affect your after-tax return. Annual portfolio turnover of
100% or more is considered high.
SECTOR CONCENTRATION - From time to time a Fund may invest a significant portion
of its total assets in various industries in one or more sectors of the economy.
To the extent a Fund's assets are invested in a sector of the economy, the Fund
will be subject to market and economic factors impacting companies in that
sector.
SMALLER CAPITALIZED COMPANIES - The RCB Small Cap Value Fund will invest in
smaller capitalized companies. CNAM believes that smaller capitalized companies
generally have greater earnings and sales growth potential than larger
capitalized companies. The level of risk will be increased to the extent that a
Fund has significant exposure to smaller capitalized or unseasoned companies
(those with less than a three-year operating history). Investments in smaller
capitalized companies may involve greater risks, such as limited product lines,
markets and financial or managerial resources. In addition, the securities of
smaller capitalized companies may have few market makers, wider spreads between
their quoted bid and asked prices, and lower trading volume, resulting in
greater price volatility and less liquidity than the securities of larger
capitalized companies.
CNI CHARTER FUNDS | PAGE 22
how to buy, sell and exchange shares
Here are the details you should know about how to purchase, sell (sometimes
called "redeem") and exchange shares:
Shares of the Funds are offered only through approved broker-dealers or other
financial institutions (each an "Authorized Institution"). Your Authorized
Institution is responsible for maintaining your individual account records,
processing your order correctly and promptly, keeping you advised regarding the
status of your individual account, confirming your transactions and ensuring
that you receive copies of the Funds' prospectuses. You will also generally have
to address your correspondence or questions regarding the Funds to your
Authorized Institution.
HOW TO BUY SHARES
To purchase shares of a Fund, you should contact your Authorized Institution and
follow its procedures, including acceptable methods of payment and deadlines for
receipt by the Authorized Institution of your share purchase instructions. Your
Authorized Institution may charge a fee for its services, in addition to the
fees charged by the Funds. A Fund may reject any purchase order if it is
determined that accepting the order would not be in the best interest of the
Fund or its shareholders.
FOREIGN INVESTORS
The Funds do not generally accept investments by non-U.S. persons. Non-U.S.
persons may be permitted to invest in the Funds subject to the satisfaction of
enhanced due diligence.
CUSTOMER IDENTIFICATION AND VERIFICATION
To help the government fight the funding of terrorism and money laundering
activities, Federal law requires all financial institutions to obtain, verify,
and record information that identifies each person who opens an account.
What this means to you: when you open an account, your Authorized Institution
will ask you for certain information, which includes your name, address, date of
birth, and other information that will allow us to identify you. This
information is subject to verification to ensure the identity of all persons
opening a mutual fund account. Please contact your Authorized Institution for
more information.
The Funds are required by law to reject your investment if the required
identifying information is not provided.
In certain instances, the Authorized Institution is required to collect
documents on behalf of the Funds to fulfill their legal obligation. Documents
provided in connection with your application will be used solely to establish
and verify a customer's identity.
Attempts to collect missing information required on the application will be
performed by contacting you. If this information is unable to be obtained within
a timeframe established in the sole discretion of the Funds, your application
will be rejected.
Upon receipt of your application in proper form (or upon receipt of all
identifying information required on the application), your investment will be
accepted and your order will be processed at the net asset value per share
next-determined after receipt of your application in proper form.
However, the Funds reserve the right to close your account if it is unable to
verify your identity. Attempts to verify your identity will be performed within
a timeframe established in the sole discretion of the Funds. If the Funds are
unable to verify your identity, the Funds reserve the right to liquidate your
account at the then-current day's price and remit proceeds to you via check. The
Funds reserve the
CNI CHARTER FUNDS | PAGE 23
further right to hold your proceeds until clearance of your original check. In
such an instance, you may be subject to a gain or loss on Fund shares and will
be subject to corresponding tax implications.
ANTI-MONEY LAUNDERING PROGRAM
Customer identification and verification is part of the Funds' overall
obligation to deter money laundering under Federal law. The Funds have adopted
an Anti-Money Laundering Compliance Program designed to prevent the Funds from
being used for money laundering or the financing of terrorist activities. In
this regard, the Funds reserve the right to (i) refuse, cancel or rescind any
purchase or exchange order, (ii) freeze any account and/or suspend account
services or (iii) involuntarily close your account in cases of threatening
conduct or suspected fraudulent or illegal activity. These actions will be taken
when, in the sole discretion of Fund management, they are deemed to be in the
best interest of the Funds or in cases when the Funds are requested or compelled
to do so by governmental or law enforcement authority. If your account is closed
at the request of governmental or law enforcement authority, you may not receive
proceeds of the redemption if the Funds are required to withhold such proceeds.
HOW TO SELL SHARES
You may sell your shares only through your Authorized Institution. To sell
shares of a Fund, you should contact your Authorized Institution and follow its
procedures, including deadlines for receipt by the Authorized Institution of
your share redemption instructions. Your Authorized Institution may charge a fee
for its services, in addition to the fees charged by the Funds.
Normally, the Funds will make payment on your redemption request as promptly as
possible after receiving your request, but it may take up to seven business
days.
We generally pay sale (redemption) proceeds in cash. However, under conditions
where cash redemptions are detrimental to a Fund and its shareholders, we
reserve the right to make redemptions in readily marketable securities rather
than cash (a "redemption in kind"). It is highly unlikely that your shares would
ever be redeemed in kind, but if they were, you would probably have to pay
transaction costs to sell the securities distributed to you, as well as taxes on
any capital gains from the sale as with any redemption.
The Funds may suspend your right to redeem your shares if the New York Stock
Exchange (the "NYSE") or the Federal Reserve restricts trading, the SEC declares
an emergency or for other reasons, as permitted by federal securities laws.
Please see the SAI for a more detailed discussion.
HOW TO EXCHANGE SHARES
You may exchange Institutional Class shares of a Fund for Institutional Class
shares of any other CNI Charter Fund in which you are eligible to invest on any
business day. When you exchange shares, you are really selling your shares and
buying other shares, so your sale price and purchase price will be based on the
price or net asset value ("NAV") of the relevant Funds next calculated after we
receive your exchange request. To exchange shares of a Fund, you should contact
your Authorized Institution.
FREQUENT PURCHASES AND REDEMPTIONS OF FUND SHARES
The Funds' Board of Trustees has adopted policies and procedures with respect to
frequent purchases and redemptions of Fund shares. The Funds discourage
short-term or other excessive trading (such as market timing) into and out of
the Funds because such trading may harm performance by disrupting portfolio
management strategies and by increasing expenses. The Funds do not accommodate
frequent purchases and redemptions of Fund shares and reserve the right to
restrict, reject or cancel,
CNI CHARTER FUNDS | PAGE 24
without any prior notice, any purchase or exchange order, including transactions
representing excessive trading and transactions accepted by any shareholder's
Authorized Institution.
SEI Investments Management Corporation (d.b.a. SEI Institutional Transfer
Agency), transfer agent to the Funds (the "Transfer Agent"), has procedures in
place designed to detect and prevent market timing activity. CNAM also
participates in the enforcement of the Funds' market timing prevention policy by
monitoring transaction activity in the Funds. CNAM and the Transfer Agent
currently monitor for various patterns in trading activity in client accounts,
including omnibus accounts, such as a purchase and sale of shares of a Fund (a
"round trip") within 30 days, multiple round trips within several months, and
four exchanges per quarter. These parameters are subject to change.
Shareholders seeking to engage in excessive trading practices may use a variety
of strategies to avoid detection and, despite the efforts of the Funds to
prevent excessive trading, there is no guarantee that the Funds or their
transfer agents will be able to identify such shareholders or curtail their
trading practices. The ability of the Funds and their agents to detect and
curtail excessive trading practices may also be limited by operational systems
and technological limitations. In addition, the Funds receive purchase, exchange
and redemption orders through financial intermediaries and cannot always know or
reasonably detect excessive trading which may be facilitated by these
intermediaries or by their use of omnibus account arrangements. However, the
Funds' distributor has received assurances from each financial intermediary
which sells shares of the Funds that it has procedures in place to monitor for
excessive trading.
GENERAL INFORMATION
How and when we calculate each Fund's NAV determines the price at which you will
buy or sell shares. We calculate the NAV of each Fund as of the close of trading
on the NYSE every day the NYSE is open. Shares may be purchased or sold on any
day that the NYSE is open for business. The Funds reserve the right to open for
business on days the NYSE is closed but the Federal Reserve Bank of New York is
open. Shares, however, cannot be purchased or sold by Federal Reserve wire on
days when either the NYSE or Federal Reserve is closed. The NYSE usually closes
at 4:00 p.m. Eastern time on weekdays, except for holidays.
On any business day when the Bond Market Association (the "BMA") recommends that
the securities markets close early, each of the Corporate Bond Fund, the
Government Bond Fund, the California Tax Exempt Bond Fund and the High Yield
Bond Fund (each a "Bond Fund") reserves the right to close at or prior to the
BMA recommended closing time. If a Bond Fund does so, it will not grant same
business day credit for purchase and redemption orders received after the Bond
Fund's closing time and credit will be given to the next business day.
If we receive your purchase, redemption or exchange order from your Authorized
Institution before close of trading on the NYSE, we will price your order at
that day's NAV. If we receive your order after close of trading on the NYSE, we
will price your order at the next day's NAV. In some cases, however, you may
have to transmit your request to your Authorized Institution by an earlier time
in order for your request to be effective that day. This allows your Authorized
Institution time to process your request and transmit it to the Funds before
close of trading on the NYSE.
CNI CHARTER FUNDS | PAGE 25
HOW WE CALCULATE NAV
NAV for one share of a Fund is the value of that share's portion of the net
assets (i.e., assets less liabilities) of that Fund. We calculate each Fund's
NAV by dividing the total net value of its assets by the number of outstanding
shares. We base the value of each Fund's investments on its market value,
usually the last price reported for each security before the close of the market
that day. A market price may not be available for securities that trade
infrequently. If market prices are not readily available or considered to be
unreliable, fair value prices may be determined by the Funds' Fair Value
Committee in good faith using methods approved by the Board of Trustees. For
instance, if trading in a security has been halted or suspended or a security
has been delisted from a national exchange, a security has not been traded for
an extended period of time, or a significant event with respect to a security
occurs after the close of the market or exchange on which the security
principally trades and before the time the Funds calculate NAV, the Fair Value
Committee will determine the security's fair value. In determining the fair
value of a security, the Fair Value Committee will consider CNAM's (or the
relevant sub-advisor's) valuation recommendation and information supporting the
recommendation, including factors such as the type of security, last trade
price, fundamental analytical data relating to the security, forces affecting
the market in which the security is purchased and sold, the price and extent of
public trading in similar securities of the issuer or comparable companies, and
other relevant factors. Valuing securities at fair value involves greater
reliance on judgment than valuation of securities based on readily available
market quotations. A fund that uses fair value to price securities may value
those securities higher or lower than another fund using market quotations or
fair value to price the same securities. There can be no assurance that the fund
could obtain the fair value assigned to a security if it were to sell the
security at approximately the time at which the fund determines its net asset
value. The NAV may vary for different share classes of the same Fund. More
details about how we calculate the NAV for each Fund are in the SAI.
PURCHASE AND ACCOUNT BALANCE MINIMUMS
There are no minimum purchase or minimum shareholder account balance
requirements; however, you will have to comply with the purchase and account
balance minimums of your Authorized Institution. The Funds may require each
Authorized Institution to meet certain aggregate investment levels before it may
open an account with the Funds on behalf of its customers. Contact your
Authorized Institution for more information.
CNI CHARTER FUNDS | PAGE 26
dividends and taxes
DIVIDENDS
For the Corporate Bond Fund, the Government Bond Fund, the California Tax Exempt
Bond Fund and the High Yield Bond Fund, we will declare investment income daily
and distribute it monthly as a dividend to shareholders. For the Large Cap
Growth Fund and the Large Cap Value Fund, we will declare and distribute
investment income, if any, quarterly as a dividend to shareholders. For the RCB
Small Cap Value Fund, we will declare and distribute investment income, if any,
annually as a dividend to shareholders. The Funds make distributions of capital
gains, if any, at least annually. If you own Fund shares on a Fund's record
date, you will be entitled to receive the distribution. Following their fiscal
year end (September 30), the Funds may make additional distributions to avoid
the imposition of a tax.
We will automatically reinvest your dividends and capital gains distributions in
additional full or fractional shares, unless you instruct your Authorized
Institution in writing prior to the date of the dividend or distribution of your
election to receive payment in cash. Your election will be effective for all
dividends and distributions paid after your Authorized Institution receives your
written notice. To cancel your election, please send your Authorized Institution
written notice. Proceeds from dividends or distributions will normally be wired
to your Authorized Institution on the business day after dividends or
distributions are credited to your account.
TAXES
PLEASE CONSULT YOUR TAX ADVISOR REGARDING YOUR SPECIFIC QUESTIONS ABOUT FEDERAL,
STATE AND LOCAL INCOME TAXES. Below, we have summarized some important tax
issues that affect the Funds and their shareholders. This summary is based on
current tax laws, which may change.
Each Fund will distribute substantially all of its net investment income and
capital gains, if any. The dividends and distributions you receive may be
subject to federal, state and local taxation, unless you invest solely through a
tax-advantaged account such as an IRA or a 401(k) plan. Distributions you
receive from a Fund may be taxable whether or not you reinvest them in the
Funds. Income distributions are generally taxable at ordinary income tax rates.
Capital gains distributions are generally taxable at the rates applicable to
capital gains. EACH SALE OR EXCHANGE OF FUND SHARES IS A TAXABLE EVENT.
Capital gains may be taxable at different rates depending upon the length of
time a Fund holds its assets. We will inform you about the character of any
dividends and capital gains upon payment. After the close of each calendar year,
we will advise you of the tax status of distributions. Any redemption of a
Fund's shares or any exchange of a Fund's shares for another Fund will be
treated as a sale, and any gain on the transaction may be taxable.
You must provide your Authorized Institution with your social security or tax
identification number on your account application form and specify whether or
not you are subject to backup withholding. Otherwise, you may be subject to
backup withholding at a rate of 28%.
CNI CHARTER FUNDS | PAGE 27
If you plan to purchase shares of a Fund, check if it is planning to make a
distribution in the near future. If you do not check, and you buy shares of the
Fund just before a distribution, you will pay full price for the shares but
receive a portion of your purchase price back as a taxable distribution. This is
called "buying a dividend." Unless you hold the Fund in a tax-deferred account,
you will have to include the distribution in your gross income for tax purposes,
even though you may have not participated in the Fund's appreciation.
The California Tax Exempt Bond Fund intends to continue paying what the Internal
Revenue Code of 1986, as amended (the "Code"), calls "exempt-interest dividends"
to shareholders by maintaining, as of the close of each quarter of its taxable
year, at least 50% of the value of its assets in California municipal bonds. If
that Fund satisfies this requirement, any distributions paid to shareholders
from its net investment income will be exempt from federal income tax, to the
extent that that Fund derives its net investment income from interest on
municipal bonds. Any distributions paid from other sources of net investment
income, such as market discounts on certain municipal bonds, will be treated as
ordinary income by the Code.
More information about taxes is contained in the SAI.
CNI CHARTER FUNDS | PAGE 28
financial highlights
The following financial highlights tables are intended to help you understand
the Funds' financial performance. For each of the Funds, information for the
years or periods indicated below has been audited by KPMG LLP, whose report,
along with the Funds' financial statements, are included in the Funds' 2006
Annual Report (available upon request; see the back cover of this Prospectus).
Information presented in the financial highlights tables is for an Institutional
Class share outstanding throughout each period. The total return figures in the
tables represent the rate an investor would have earned (or lost) on an
Institutional Class investment in each Fund (assuming reinvestment of all
dividends and distributions).
LARGE CAP GROWTH FUND
Year ended Year ended Year ended Year ended Year ended
Sept. 30, 2006(1) Sept. 30, 2005(1) Sept. 30, 2004(1) Sept. 30, 2003(1) Sept. 30, 2002
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE
BEGINNING OF PERIOD $ 7.43 $ 6.76 $ 6.37 $ 5.25 $ 6.36
- --------------------------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss) 0.02 0.04 0.01 0.01 --
Net Realized and Unrealized
Gains (Losses) on Securities 0.32 0.67 0.38 1.12 (1.11)
- --------------------------------------------------------------------------------------------------------------------------------
Total from Operations 0.34 0.71 0.39 1.13 (1.11)
- --------------------------------------------------------------------------------------------------------------------------------
Dividends from
Net Investment Income (0.02) (0.04) (0.00)(2) (0.01) --
- --------------------------------------------------------------------------------------------------------------------------------
Total Dividends (0.02) (0.04) (0.00)(2) (0.01) --
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE
END OF PERIOD $ 7.75 $ 7.43 $ 6.76 $ 6.37 $ 5.25
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN* 4.59% 10.55% 6.20% 21.51% (17.45%)
Net Assets End of Period (000's) $ 35,842 $ 34,164 $ 25,575 $ 22,249 $ 14,195
Ratio of Expenses to
Average Net Assets(3) 0.99% 0.98% 1.01% 1.05% 1.05%
Ratio of Net Investment Income
(Loss) to Average Net Assets 0.27% 0.57% 0.10% 0.16% (0.04%)
Ratio of Expenses to Average
Net Assets (Excluding Waivers
& Recaptured Fees) 1.00% 1.00% 1.01% 1.03% 1.09%
Portfolio Turnover Rate 34% 27% 50% 43% 31%
_____________________
* Returns are for the period indicated and have not been annualized. Fee
waivers were in effect; if they had not been in effect, performance would
have been lower. Returns shown do not reflect the deduction of taxes that
a shareholder would pay on fund distributions or the redemption of fund
shares.
(1) Per share calculations are based on Average Shares outstanding throughout
the period.
(2) Amount represents less than $0.01 per share.
(3) Ratio includes waivers and previously waived investment advisory fees
recovered. The impact of the recovered fees may cause a higher net expense
ratio.
CNI CHARTER FUNDS | PAGE 29
LARGE CAP VALUE FUND
Year ended Year ended Year ended Year ended Year ended
Sept. 30, 2006(1) Sept. 30, 2005(1) Sept. 30, 2004(1) Sept. 30, 2003 Sept. 30, 2002
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE
BEGINNING OF PERIOD $ 9.54 $ 8.77 $ 7.41 $ 6.04 $ 7.63
- --------------------------------------------------------------------------------------------------------------------------------
Net Investment Income 0.13 0.10 0.08 0.07 0.07
Net Realized and Unrealized
Gains (Losses) on Securities 1.21 1.13 1.36 1.37 (1.47)
- --------------------------------------------------------------------------------------------------------------------------------
Total from Operations 1.34 1.23 1.44 1.44 (1.40)
- --------------------------------------------------------------------------------------------------------------------------------
Dividends from
Net Investment Income (0.13) (0.10) (0.08) (0.07) (0.07)
Distributions from
Realized Capital Gains (0.39) (0.36) -- -- (0.12)
- --------------------------------------------------------------------------------------------------------------------------------
Total Dividends & Distributions (0.52) (0.46) (0.08) (0.07) (0.19)
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE END OF PERIOD $ 10.36 $ 9.54 $ 8.77 $ 7.41 $ 6.04
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN* 14.50% 14.39% 19.40% 24.03% (18.88%)
Net Assets End of Period (000's) $ 92,946 $ 42,974 $ 38,344 $ 33,016 $ 23,325
Ratio of Expenses to
Average Net Assets(2) 0.96% 0.96% 0.97% 1.00% 1.00%
Ratio of Net Investment Income
to Average Net Assets 1.36% 1.12% 0.92% 1.12% 0.90%
Ratio of Expenses to Average
Net Assets (Excluding Waivers
& Recaptured Fees) 0.97% 0.97% 0.97% 1.00% 1.05%
Portfolio Turnover Rate 31% 34% 36% 39% 42%
_____________________
* Returns are for the period indicated and have not been annualized. Fee
waivers were in effect; if they had not been in effect, performance would
have been lower. Returns shown do not reflect the deduction of taxes that
a shareholder would pay on fund distributions or the redemption of fund
shares.
(1) Per share calculations are based on Average Shares outstanding throughout
the period.
(2) Ratio includes waivers and previously waived investment advisory fees
recovered. The impact of the recovered fees may cause a higher net expense
ratio.
CNI CHARTER FUNDS | PAGE 30
RCB SMALL CAP VALUE FUND
Year ended Year ended Year ended Year ended Period ended
Sept. 30, 2006(1) Sept. 30, 2005(1) Sept. 30, 2004(1) Sept. 30, 2003(1) Sept. 30, 2002(2)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE
BEGINNING OF PERIOD $ 28.58 $ 27.30 $ 21.92 $ 15.06 $ 17.11
- -----------------------------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss) 0.06 0.07 0.06 (0.04) (0.07)
Net Realized and Unrealized
Gains (Losses) on Securities 0.05 2.58 5.40 6.90 (1.98)
- -----------------------------------------------------------------------------------------------------------------------------------
Total from Operations 0.11 2.65 5.46 6.86 (2.05)
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends from
Net Investment Income (0.07) -- -- -- --
Distributions from
Realized Capital Gains (0.37) (1.37) (0.08) -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Total Dividends & Distributions (0.44) (1.37) (0.08) -- --
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE END OF PERIOD $ 28.25 $ 28.58 $ 27.30 $ 21.92 $ 15.06
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN* 0.40% 9.87% 24.97% 45.55% (11.98%)
Net Assets End of Period (000's) $ 13,435 $ 13,975 $ 8,955 $ 6,236 $ 1,768
Ratio of Expenses to
Average Net Assets(3)(4) 1.20% 1.18% 1.21% 1.24% 1.24%
Ratio of Net Investment Income
(Loss) to Average Net Assets(3) 0.20% 0.26% 0.23% (0.20%) (0.46%)
Ratio of Expenses to Average
Net Assets (Excluding Waivers
& Recaptured Fees)(3) 1.21% 1.20% 1.20% 1.24% 1.28%
Portfolio Turnover Rate 66% 41% 40% 65% 39%
_____________________
* Returns are for the period indicated and have not been annualized. Fee
waivers were in effect; if they had not been in effect, performance would
have been lower. Returns shown do not reflect the deduction of taxes that
a shareholder would pay on fund distributions or the redemption of fund
shares.
(1) Per share calculations are based on Average Shares outstanding throughout
the period.
(2) RCB Small Cap Value Fund Institutional Class shares commenced operations
on October 3, 2001.
(3) Annualized for periods less than one year.
(4) Ratio includes waivers and previously waived investment advisory fees
recovered. The impact of the recovered fees may cause a higher net expense
ratio.
CNI CHARTER FUNDS | PAGE 31
CORPORATE BOND FUND
Year ended Year ended Year ended Year ended Year ended
Sept. 30, 2006(1) Sept. 30, 2005(1) Sept. 30, 2004(1) Sept. 30, 2003 Sept. 30, 2002
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE
BEGINNING OF PERIOD $ 10.27 $ 10.60 $ 10.89 $ 10.65 $ 10.72
- --------------------------------------------------------------------------------------------------------------------------------
Net Investment Income 0.42 0.40 0.41 0.46 0.53
Net Realized and Unrealized
Gains (Losses) on Securities (0.10) (0.27) (0.18) 0.24 0.09
- --------------------------------------------------------------------------------------------------------------------------------
Total from Operations 0.32 0.13 0.23 0.70 0.62
- --------------------------------------------------------------------------------------------------------------------------------
Dividends from
Net Investment Income (0.42) (0.40) (0.41) (0.46) (0.53)
Distributions from
Realized Capital Gains -- (0.06) (0.11) -- (0.16)
- --------------------------------------------------------------------------------------------------------------------------------
Total Dividends & Distributions (0.42) (0.46) (0.52) (0.46) (0.69)
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE
END OF PERIOD $ 10.17 $ 10.27 $ 10.60 $ 10.89 $ 10.65
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN* 3.19% 1.26% 2.15% 6.74% 6.06%
Net Assets End of Period (000's) $ 55,290 $ 51,193 $ 47,080 $ 42,256 $ 40,807
Ratio of Expenses to
Average Net Assets(2) 0.75% 0.75% 0.75% 0.75% 0.75%
Ratio of Net Investment Income
to Average Net Assets 4.14% 3.80% 3.82% 4.30% 5.04%
Ratio of Expenses to Average
Net Assets (Excluding Waivers) 0.75% 0.76% 0.79% 0.78% 0.82%
Portfolio Turnover Rate 25% 25% 57% 66% 55%
_____________________
* Returns are for the period indicated and have not been annualized. Fee
waivers were in effect; if they had not been in effect, performance would
have been lower. Returns shown do not reflect the deduction of taxes that
a shareholder would pay on fund distributions or the redemption of fund
shares.
(1) Per share calculations are based on Average Shares outstanding throughout
the period.
(2) Ratio includes waivers and previously waived investment advisory fees
recovered. The impact of the recovered fees may cause a higher net expense
ratio.
CNI CHARTER FUNDS | PAGE 32
GOVERNMENT BOND FUND
Year ended Year ended Year ended Year ended Year ended
Sept. 30, 2006(1) Sept. 30, 2005(1) Sept. 30, 2004(1) Sept. 30, 2003(1) Sept. 30, 2002
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE
BEGINNING OF PERIOD $ 10.40 $ 10.62 $ 10.93 $ 11.02 $ 10.80
- ---------------------------------------------------------------------------------------------------------------------------------
Net Investment Income 0.41 0.31 0.25 0.36 0.44
Net Realized and Unrealized
Gains (Losses) on Securities (0.12) (0.16) (0.17) (0.07) 0.34
- ---------------------------------------------------------------------------------------------------------------------------------
Total from Operations 0.29 0.15 0.08 0.29 0.78
- ---------------------------------------------------------------------------------------------------------------------------------
Dividends from
Net Investment Income (0.41) (0.31) (0.25) (0.37) (0.44)
Distributions from
Realized Capital Gains -- (0.06) (0.14) (0.01) (0.12)
- ---------------------------------------------------------------------------------------------------------------------------------
Total Dividends & Distributions (0.41) (0.37) (0.39) (0.38) (0.56)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE
END OF PERIOD $ 10.28 $ 10.40 $ 10.62 $ 10.93 $ 11.02
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN* 2.89% 1.42% 0.81% 2.68% 7.53%
Net Assets End of Period (000's) $ 35,671 $ 28,132 $ 20,901 $ 15,596 $ 14,502
Ratio of Expenses to
Average Net Assets 0.70% 0.70% 0.70% 0.70% 0.70%
Ratio of Net Investment Income
to Average Net Assets 4.04% 2.98% 2.39% 3.26% 4.11%(2)
Ratio of Expenses to Average
Net Assets (Excluding Waivers) 0.78% 0.79% 0.81% 0.81% 0.86%
Portfolio Turnover Rate 62% 58% 169% 54% 70%
_____________________
* Returns are for the period indicated and have not been annualized. Fee
waivers were in effect; if they had not been in effect, performance would
have been lower. Returns shown do not reflect the deduction of taxes that
a shareholder would pay on fund distributions or the redemption of fund
shares.
(1) Per share calculations are based on Average Shares outstanding throughout
the period.
(2) Ratios reflect the impact of significant changes in average net assets and
the effects of annualization.
CNI CHARTER FUNDS | PAGE 33
CALIFORNIA TAX EXEMPT BOND FUND
Year ended Year ended Year ended Year ended Year ended
Sept. 30, 2006(1) Sept. 30, 2005(1) Sept. 30, 2004(1) Sept. 30, 2003 Sept. 30, 2002
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE
BEGINNING OF PERIOD $ 10.26 $ 10.41 $ 10.60 $ 10.83 $ 10.50
- ---------------------------------------------------------------------------------------------------------------------------------
Net Investment Income 0.29 0.28 0.27 0.31 0.36
Net Realized and Unrealized
Gains (Losses) on Securities 0.03 (0.11) (0.06) (0.04) 0.41
- ---------------------------------------------------------------------------------------------------------------------------------
Total from Operations 0.32 (0.17) 0.21 0.27 0.77
- ---------------------------------------------------------------------------------------------------------------------------------
Dividends from
Net Investment Income (0.29) (0.28) (0.27) (0.31) (0.35)
Distributions from
Realized Capital Gains (0.04) (0.04) (0.13) (0.19) (0.09)
- ---------------------------------------------------------------------------------------------------------------------------------
Total Dividends & Distributions (0.33) (0.32) (0.40) (0.50) (0.44)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE
END OF PERIOD $ 10.25 $ 10.26 $ 10.41 $ 10.60 $ 10.83
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN* 3.18% 1.65% 2.00% 2.63% 7.58%
Net Assets End of Period (000's) $ 26,074 $ 22,768 $ 17,789 $ 14,546 $ 16,147
Ratio of Expenses to
Average Net Assets(2) 0.50% 0.50% 0.50% 0.50% 0.50%
Ratio of Net Investment Income
to Average Net Assets 2.85% 2.70% 2.55% 2.91% 3.33%
Ratio of Expenses to Average
Net Assets (Excluding Waivers) 0.62% 0.63% 0.65% 0.65% 0.70%
Portfolio Turnover Rate 0.43% 54% 51% 68% 90%
_____________________
* Returns are for the period indicated and have not been annualized. Fee
waivers were in effect; if they had not been in effect, performance would
have been lower. Returns shown do not reflect the deduction of taxes that
a shareholder would pay on fund distributions or the redemption of fund
shares.
(1) Per share calculations are based on Average Shares outstanding throughout
the period.
(2) Ratio includes waivers and previously waived investment advisory fees
recovered. The impact of the recovered fees may cause a higher net expense
ratio.
CNI CHARTER FUNDS | PAGE 34
HIGH YIELD BOND FUND
Year ended Year ended Year ended Year ended Year ended
Sept. 30, 2006(1) Sept. 30, 2005(1) Sept. 30, 2004(1) Sept. 30, 2003 Sept. 30, 2002
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE
BEGINNING OF PERIOD $ 9.04 $ 9.31 $ 8.95 $ 8.16 $ 8.57
- ---------------------------------------------------------------------------------------------------------------------------------
Net Investment Income 0.68 0.71 0.72 0.76 0.83
Net Realized and Unrealized
Gains (Losses) on Securities (0.08) (0.27) 0.36 0.79 (0.40)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from Operations 0.60 0.44 1.08 1.55 0.43
- ---------------------------------------------------------------------------------------------------------------------------------
Dividends from
Net Investment Income (0.68) (0.71) (0.72) (0.76) (0.84)
- ---------------------------------------------------------------------------------------------------------------------------------
Total Dividends (0.68) (0.71) (0.72) (0.76) (0.84)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE
END OF PERIOD $ 8.96 $ 9.04 $ 9.31 $ 8.95 $ 8.16
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN* 6.90% 4.85% 12.47% 19.75% 4.80%
Net Assets End of Period (000's) $ 20,887 $ 22,588 $ 22,860 $ 13,387 $ 10,020
Ratio of Expenses to
Average Net Assets(2) 1.00% 1.00% 1.00% 1.00% 1.00%
Ratio of Net Investment Income
to Average Net Assets 7.58% 7.71% 7.87% 8.84% 9.48%
Ratio of Expenses to Average
Net Assets (Excluding Waivers) 1.10% 1.11% 1.14% 1.13% 1.18%
Portfolio Turnover Rate 23% 46% 35% 36% 30%
_____________________
* Returns are for the period indicated and have not been annualized. Fee
waivers were in effect; if they had not been in effect, performance would
have been lower. Returns shown do not reflect the deduction of taxes that
a shareholder would pay on fund distributions or the redemption of fund
shares.
(1) Per share calculations are based on Average Shares outstanding throughout
the period.
(2) Ratio includes waivers and previously waived investment advisory fees
recovered. The impact of the recovered fees may cause a higher net expense
ratio.
CNI CHARTER FUNDS | PAGE 35
important terms to know
QUALITY -- the credit rating given to a security by a nationally recognized
statistical rating organization.
YIELD -- the interest rate you would receive if you kept your investment in a
Fund for a year. It is based on the current interest rate for a trailing
seven-day period.
EFFECTIVE YIELD -- the interest rate, compounded weekly, you would receive if
you kept your investment in a Fund for a year.
DURATION -- the sensitivity of a debt security to changes in interest rates. It
takes into account both interest payments and payment at maturity.
S&P 500/CITIGROUP GROWTH INDEX -- measures the performance of all of the stocks
in the Standard & Poor's 500 that are classified as growth stocks. A proprietary
methodology is used to score constituents, which are weighted according to their
market capitalization.
S&P 500/CITIGROUP VALUE INDEX -- measures the performance of all of the stocks
in the Standard & Poor's 500 that are classified as value stocks. A proprietary
methodology is used to score constituents, which are weighted according to their
market capitalization.
RUSSELL 2000 INDEX -- measures the performance of the 2,000 smallest companies
in the Russell 3000 Index, which measures the performance of the 3,000 largest
U.S. companies based on total market capitalization.
RUSSELL 2000 VALUE INDEX -- measures the performance of those Russell 2000
companies that have low price-to-book ratios and low forecasted growth values.
The Index is reconstituted annually effective the last Friday of June each year.
The Index is designed so that approximately 50% of the Russell 2000 market
capitalization is in the Value Index.
RUSSELL 2500 VALUE INDEX -- measures the performance of those Russell 2500
companies (the 2,500 smallest companies in the Russell 3000 Index) that have low
price-to-book ratios and low forecasted growth values. The Index is rebalanced
annually effective the last Friday of June each year. The Index is designed so
that approximately 50% of the Russell 2500 market capitalization is in the Value
Index.
LEHMAN INTERMEDIATE U.S. CORPORATE INDEX -- comprised of fixed income securities
issued by corporations which have a fixed rate coupon, have between 1 and 10
years to maturity, at least $150 million par outstanding, an investment grade
rating from Moody's Investors Service (Baa3 or better), and are publicly
registered. The composition of the Index is rebalanced monthly to include the
universe of securities meeting the above criteria.
LEHMAN INTERMEDIATE U.S. GOVERNMENT BOND INDEX -- comprised of securities issued
by the U.S. Government and U.S. Government agencies which have a fixed rate
coupon have between 1 and 10 years to maturity, and at least $150 million par
outstanding. The composition of the Index is rebalanced monthly to include the
universe of securities meeting the above criteria.
LEHMAN CA INTERMEDIATE-SHORT MUNICIPAL INDEX -- comprised of California
state-specific municipal issues which have a fixed rate coupon, have between 1
and 10 years to maturity, an investment grade rating from Moody's Investors
Service (Baa3 or better), and are publicly registered. The individual issues
must also have at least $5 million par outstanding and be part of a deal of $50
million or more. The composition of the Index is rebalanced monthly to include
the universe of securities meeting the above criteria.
CITIGROUP HIGH YIELD MARKET INDEX -- comprised of cash-pay deferred-interest and
Rule 144A bonds with remaining maturities of at least one year and a minimum
amount outstanding of U.S. $100 million The issuers are domiciled in either the
United States or Canada.
CNI CHARTER FUNDS | PAGE 36
privacy principles
CNI Charter Funds and its affiliates know our shareholders expect and rely upon
us to maintain the confidentiality and privacy of all of the information about
them in our possession and control. Maintaining the trust and confidence of our
shareholders is our highest priority. We have adopted and published the CNI
Charter Funds Statement of Privacy Principles to guide our conduct when we
collect, use, maintain or release shareholder information and to assist our
shareholders and others to better understand our privacy practices in general
and as they apply to nonpublic personal information in particular. Certain
information regarding the Funds' Privacy Principles is summarized below.
We will obey all applicable laws respecting the privacy of nonpublic personal
information and will comply with the obligations of the law respecting nonpublic
personal information provided to us. We collect, use and retain the information,
including nonpublic personal information, about our shareholders and prospective
shareholders that we believe is necessary for us to understand and better meet
their financial needs and requests, to administer and maintain their accounts,
to provide them with our products and services, to anticipate their future
needs, to protect them and us from fraud or unauthorized transactions, and to
meet legal requirements.
We may share information regarding our shareholders with our affiliates as
permitted by law because some of our products and services are delivered through
or in conjunction with our affiliates. We instruct our colleagues to limit the
availability of all shareholder information within our organization to those
colleagues responsible for servicing the needs of the shareholder and those
colleagues who reasonably need such information to perform their duties and as
required or permitted by law.
We do provide shareholder information, including nonpublic personal information,
to our vendors and other outside service providers whom we use when appropriate
or necessary to perform and enhance our shareholder services. When we provide
shareholder information to anyone outside our organization, we only do so as
required or permitted by law. We require all of our vendors and service
providers who receive shareholder information from us to agree to maintain the
information in confidence, to limit the use and dissemination of the information
to the purpose for which it is provided and to abide by the law. To the extent
permitted by law, we undertake to advise a shareholder of any government or
other legal process served on us requiring disclosure of information about that
shareholder.
Except as stated above, we limit our disclosure of nonpublic personal
information to third parties to the following circumstances: (i) when requested
to do so by the shareholder; (ii) when necessary, in our opinion, to effect,
administer, or enforce a shareholder initiated transaction; and (iii) when
required or permitted to do so by law or regulation, including authorized
requests from government agencies and if we are the victim of fraud or otherwise
suffer loss caused by the unlawful act of the shareholder.
A full copy of CNI Charter Funds' Statement of Privacy Principles is available
at WWW.CNICHARTERFUNDS.COM. Should you have any questions regarding the Funds'
Privacy Principles, please contact your investment professional or the Funds at
1-888-889-0799.
CNI CHARTER FUNDS | PAGE 37
For More Information
CNI CHARTER FUNDS
Additional information is available free of charge in the Statement of
Additional Information ("SAI"). The SAI is incorporated by reference (legally
considered part of this document). In the Funds' Annual Report, you will find a
discussion of the market conditions and investment strategies that significantly
affected the Funds' performance during their last fiscal year. Additional
information about the Funds' investments is available in the Funds' Annual and
Semi-Annual Reports. To receive a free copy of this Prospectus, the SAI, or the
Annual and Semi-Annual Reports (when available), please contact:
SEI Investments Distribution Co.
One Freedom Valley Drive
Oaks, Pennsylvania 19456
1-888-889-0799
Information about the Funds may be reviewed and copied:
o at the SEC's Public Reference Room in Washington, D.C. at 1-202-942-8090;
o on the EDGAR database on the SEC's Internet site at www.sec.gov; or
o by written request (including duplication fee) to the Public Reference
Section of the SEC, Washington, D.C. 20549-6009 or by electronic request
at publicinfo@sec.gov.
For the current seven-day yield, or if you have questions about the Funds,
please call 1-888-889-0799.
The Funds' Investment Company Act file number: 811-07923.
CNI-PS-004-0600
- --------------------------------------------------------------------------------
CNI CHARTER FUNDS(SM) [LOGO OMITTED](R)
[GRAPHIC OMITTED]
Class A
Large Cap Growth Equity Fund
Large Cap Value Equity Fund
RCB Small Cap Value Fund
Corporate Bond Fund
Government Bond Fund
California Tax Exempt Bond Fund
High Yield Bond Fund
PROSPECTUS DATED JANUARY 31, 2007
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
CNI CHARTER FUNDS(SM) [LOGO OMITTED](R)
PROSPECTUS DATED JANUARY 31, 2007
Class A
Large Cap Growth Equity Fund
Large Cap Value Equity Fund
RCB Small Cap Value Fund
Corporate Bond Fund
Government Bond Fund
California Tax Exempt Bond Fund
High Yield Bond Fund
INVESTMENT MANAGER:
City National Asset Management, Inc.
- --------------------------------------------------------------------------------
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
MUTUAL FUND SHARES ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY. MUTUAL
FUND SHARES ARE NOT BANK DEPOSITS, NOR ARE THEY OBLIGATIONS OF, OR ISSUED,
ENDORSED OR GUARANTEED BY CITY NATIONAL BANK. INVESTING IN MUTUAL FUNDS INVOLVES
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
table of contents
THE FUNDS
Large Cap Growth Equity Fund
(the "Large Cap Growth Fund") ..........................................1
Large Cap Value Equity Fund
(the "Large Cap Value Fund") ...........................................3
RCB Small Cap Value Fund ..................................................5
Corporate Bond Fund .......................................................8
Government Bond Fund .....................................................10
California Tax Exempt Bond Fund ..........................................13
High Yield Bond Fund .....................................................16
MANAGEMENT OF THE FUNDS ......................................................19
ADDITIONAL INVESTMENT STRATEGIES AND RELATED RISKS ...........................23
HOW TO BUY, SELL AND EXCHANGE SHARES .........................................24
DIVIDENDS ....................................................................27
TAXES ........................................................................28
FINANCIAL HIGHLIGHTS .........................................................29
IMPORTANT TERMS TO KNOW ......................................................36
PRIVACY PRINCIPLES ...........................................................37
FOR MORE INFORMATION .................................................back cover
More detailed information on all subjects covered in this simplified prospectus
is contained within the Statement of Additional Information ("SAI"). Investors
seeking more in-depth explanations of the Funds described herein should request
the SAI and review it before purchasing shares.
This Prospectus offers Class A shares of the Large Cap Growth Fund, the Large
Cap Value Fund, the RCB Small Cap Value Fund, the Corporate Bond Fund, the
Government Bond Fund, the California Tax Exempt Bond Fund and the High Yield
Bond Fund (each a "Fund" and together, the "Funds"), series of CNI Charter
Funds. Class A shares are intended for individual investors, partnerships,
corporations, and other accounts that have diversified investment needs. The
Funds offer other classes of shares which are subject to the same management
fees and other expenses but may be subject to different distribution fees,
shareholder servicing fees and/or sales loads.
large cap growth fund
OUR GOAL
The Large Cap Growth Fund seeks to provide capital appreciation by investing in
large U.S. corporations and U.S. dollar denominated American Depository Receipts
of large foreign corporations with the potential for growth. The goal of the
Large Cap Growth Fund can only be changed with shareholder approval.
PRINCIPAL STRATEGY
We purchase a diversified portfolio at least 80% of which consists of equity
securities of large U.S. corporations and U.S. dollar denominated American
Depository Receipts of large foreign corporations. Large corporations are
defined for this purpose as companies with market capitalizations at the time of
purchase in the range of those market capitalizations of companies included in
the S&P 500/Citigroup Growth Index (over time the range varies, and was $1.3
billion to $427 billion as of December 31, 2006). We use a combination of
quantitative and fundamental analysis to select companies with share price
growth potential that may not be recognized by the market at large. Although the
Large Cap Growth Fund is not an index fund, we seek to manage the portfolio's
overall risk characteristics to be similar to those of the S&P 500/Citigroup
Growth Index.
PRINCIPAL RISKS OF INVESTING IN THE LARGE CAP GROWTH FUND
As with any mutual fund, there are risks to investing. We cannot guarantee that
we will meet our investment goal. The Large Cap Growth Fund will expose you to
risks that could cause you to lose money. Here are the principal risks to
consider:
MARKET RISK - By investing in stocks, the Large Cap Growth Fund may expose you
to a sudden decline in a holding's share price or an overall decline in the
stock market. In addition, as with any stock fund, the value of your investment
will fluctuate on a day-to-day and a cyclical basis with movements in the stock
market, as well as in response to the activities of individual companies. In
addition, individual companies may report poor results or be negatively affected
by industry and/or economic trends and developments. The Large Cap Growth Fund
is also subject to the risk that its principal market segment, large
capitalization growth stocks, may underperform other equity market segments or
the market as a whole.
FOREIGN SECURITIES - Foreign stocks tend to be more volatile than U.S. stocks,
and are subject to risks that are not typically associated with domestic stocks.
For example, such investments may be adversely affected by changes in currency
rates and exchange control regulations, future political and economic
developments and the possibility of seizure or nationalization of companies, or
the imposition of withholding taxes on income. Foreign markets tend to be more
volatile than the U.S. market due to economic and political instability and
regulatory conditions in some countries.
PAST PERFORMANCE
The bar chart and the performance table that follow illustrate some of the risks
and volatility of an investment in the Class A shares of the Large Cap Growth
Fund for the indicated periods. Of course, the Large Cap Growth Fund's past
performance (before and after taxes) does not necessarily indicate how the Large
Cap Growth Fund will perform in the future.
CNI CHARTER FUNDS | PAGE 1
This bar chart shows the performance of the Large Cap Growth Fund's Class A
shares based on a calendar year.
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
-10.25% -22.28% 22.96% 5.74% 2.81% 8.41%
------------------------------------------------------------------------
2001 2002 2003 2004 2005 2006
Best Quarter Worst Quarter
13.43% -14.85%
(Q4 2001) (Q2 2002)
This table shows the Large Cap Growth Fund's average annual total returns for
the periods ending December 31, 2006. The table also shows how the Fund's
performance compares with the returns of an index comprised of companies similar
to those held by the Fund.
Since
Large Cap Growth Fund One Year Five Years Inception
- --------------------------------------------------------------------------------
Return Before Taxes 8.41% 2.41% -3.01%(3)
Return After Taxes on
Distributions(1) 8.39% 2.39% -3.02%(3)
Return After Taxes on
Distributions and
Sale of Fund Shares(1) 5.46% 2.05% -2.52%(3)
S&P 500/Citigroup
Growth Index(2) 11.01% 1.87% -3.38%(4)
(1) After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state
and local taxes. Actual after-tax returns depend on an investor's tax
situation and may differ from those shown. The after-tax returns shown are
not relevant to investors who hold their Fund shares through tax-deferred
arrangements, such as 401(k) plans or individual retirement accounts.
(2) Reflects no deduction for fees, expenses or taxes.
(3) Since January 14, 2000. Class A shares commenced operations on March 28,
2000. Prior to March 28, 2000, performance for Class A shares is based on
the performance of the Institutional Class shares of the Large Cap Growth
Fund. Institutional Class shares, which were first offered on January 14,
2000, are not offered in this prospectus. However, because they are
invested in the same portfolio of securities, the annual returns for the
two classes would be substantially similar. The performance of the
Institutional Class shares does not reflect the Class A shares' Rule 12b-1
fees and expenses. With those adjustments, performance would be lower than
as shown above.
(4) The index comparison shown begins on January 31, 2000.
FEES AND EXPENSES OF THE LARGE CAP GROWTH FUND
This table describes the fees and expenses you may pay if you buy and hold Class
A shares of the Large Cap Growth Fund. You pay no sales charges or transaction
fees for buying or selling Class A shares of the Large Cap Growth Fund.
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Management Fee* 0.65%
Distribution (12b-1) Fees 0.25%
Other Expenses
Shareholder Servicing Fee 0.25%
Other Fund Expenses 0.10%
Total Other Expenses 0.35%
- --------------------------------------------------------------------------------
Total Annual Fund Operating
Expenses** 1.25%
* The "Management Fee" is an annual fee, payable monthly out of the Large
Cap Growth Fund's net assets.
** THE INVESTMENT MANAGER HAS VOLUNTARILY AGREED TO LIMIT ITS FEES OR
REIMBURSE THE LARGE CAP GROWTH FUND FOR EXPENSES TO THE EXTENT NECESSARY
TO KEEP CLASS A TOTAL ANNUAL FUND OPERATING EXPENSES FOR THE CURRENT
FISCAL YEAR AT OR BELOW 1.30%. Any fee reductions or reimbursements may be
repaid to the investment manager within 3 years after they occur if such
repayments can be achieved within the Large Cap Growth Fund's then current
expense limit, if any, for that year and if certain other conditions are
satisfied.
EXAMPLE
The Example is intended to help you compare the cost of investing in the Large
Cap Growth Fund with the cost of investing in other mutual funds. It assumes
that you invest $10,000 in Class A shares of the Large Cap Growth Fund for the
time periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Large Cap Growth Fund's operating expenses remain the same. The
Example should not be considered a representation of past or future expenses or
performance. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
$127 $397 $686 $1,511
- --------------------------------------------------------------------------------
CNI CHARTER FUNDS | PAGE 2
large cap value fund
OUR GOALS
The Large Cap Value Fund seeks to provide capital appreciation and moderate
income consistent with current returns available in the marketplace by investing
in large U.S. corporations and U.S. dollar denominated American Depository
Receipts of large foreign corporations which are undervalued. The goals of the
Large Cap Value Fund can only be changed with shareholder approval.
PRINCIPAL STRATEGY
We purchase a diversified portfolio, at least 80% of which consists of equity
securities of large U.S. corporations and U.S. dollar denominated American
Depository Receipts of large foreign corporations. Large corporations are
defined for this purpose as companies with market capitalizations at the time of
purchase in the range of those market capitalizations of companies included in
the S&P 500/Citigroup Value Index (over time the range varies, and was $1.3
billion to $387 billion as of December 31, 2006). We use a combination of
quantitative and fundamental analysis to select companies with share price
growth potential that may not be recognized by the market at large. Although the
Large Cap Value Fund is not an index fund, we seek to manage the portfolio's
overall risk characteristics to be similar to those of the S&P 500/Citigroup
Value Index.
PRINCIPAL RISKS OF INVESTING IN THE LARGE CAP VALUE FUND
As with any mutual fund, there are risks to investing. We cannot guarantee that
we will meet our investment goals. The Large Cap Value Fund will expose you to
risks that could cause you to lose money. Here are the principal risks to
consider:
MARKET RISK - By investing in stocks, the Large Cap Value Fund may expose you to
a sudden decline in a holding's share price or an overall decline in the stock
market. In addition, as with any stock fund, the value of your investment will
fluctuate on a day-to-day and a cyclical basis with movements in the stock
market, as well as in response to the activities of individual companies. In
addition, individual companies may report poor results or be negatively affected
by industry and/or economic trends and developments. The Large Cap Value Fund is
also subject to the risk that its principal market segment, large capitalization
value stocks, may underperform other equity market segments or the market as a
whole.
FOREIGN SECURITIES - Foreign stocks tend to be more volatile than U.S. stocks,
and are subject to risks that are not typically associated with domestic stocks.
For example, such investments may be adversely affected by changes in currency
rates and exchange control regulations, future political and economic
developments and the possibility of seizure or nationalization of companies, or
the imposition of withholding taxes on income. Foreign markets tend to be more
volatile than the U.S. market due to economic and political instability and
regulatory conditions in some countries.
PAST PERFORMANCE
The bar chart and the performance table that follow illustrate some of the risks
and volatility of an investment in the Class A shares of the Large Cap Value
Fund for the indicated periods. Of course, the Large Cap Value Fund's past
performance (before and after taxes) does not necessarily indicate how the Large
Cap Value Fund will perform in the future.
CNI CHARTER FUNDS | PAGE 3
This bar chart shows the performance of the Large Cap Value Fund's Class A
shares based on a calendar year.
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
-12.07% -20.40% 32.82% 13.07% 7.66% 19.88%
-------------------------------------------------------------------------
2001 2002 2003 2004 2005 2006
Best Quarter Worst Quarter
18.75% -19.59%
(Q2 2003) (Q3 2002)
This table shows the Large Cap Value Fund's average annual total returns for the
periods ending December 31, 2006. The table also shows how the Fund's
performance compares with the returns of an index comprised of companies similar
to those held by the Fund.
Since
Large Cap Value Fund One Year Five Years Inception
- --------------------------------------------------------------------------------
Return Before Taxes 19.88% 9.06% 5.05%(3)
Return After Taxes on
Distributions(1) 18.49% 8.41% 4.23%(3)
Return After Taxes on
Distributions and
Sale of Fund Shares(1) 14.03% 7.71% 4.08%(3)
S&P 500/Citigroup
Value Index(2) 20.80% 10.43% 6.72%(4)
(1) After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state
and local taxes. Actual after-tax returns depend on an investor's tax
situation and may differ from those shown. The after-tax returns shown are
not relevant to investors who hold their Fund shares through tax-deferred
arrangements, such as 401(k) plans or individual retirement accounts.
(2) Reflects no deduction for fees, expenses or taxes.
(3) Since January 14, 2000. Class A Shares commenced operations on April 13,
2000. Prior to April 13, 2000, performance for Class A shares is based on
the performance of the Institutional Class shares of the Large Cap Value
Fund. Institutional Class shares, which were first offered on January 14,
2000, are not offered in this prospectus. However, because they are
invested in the same portfolio of securities, the annual returns for the
two classes would be substantially similar. The performance of the
Institutional Class shares does not reflect the Class A shares' Rule 12b-1
fees and expenses. With those adjustments, performance would be lower than
as shown above.
(4) The index comparison shown begins on January 31, 2000.
FEES AND EXPENSES OF THE LARGE CAP VALUE FUND
This table describes the fees and expenses you may pay if you buy and hold Class
A shares of the Large Cap Value Fund. You pay no sales charges or transaction
fees for buying or selling Class A shares of the Large Cap Value Fund.
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Management Fee* 0.62%
Distribution (12b-1) Fees 0.25%
Other Expenses
Shareholder Servicing Fee 0.25%
Other Fund Expenses 0.10%
Total Other Expenses 0.35%
- --------------------------------------------------------------------------------
Total Annual Fund Operating
Expenses** 1.22%
* The "Management Fee" is an annual fee, payable monthly out of the Large
Cap Value Fund's net assets.
** THE INVESTMENT MANAGER HAS VOLUNTARILY AGREED TO LIMIT ITS FEES OR
REIMBURSE THE LARGE CAP VALUE FUND FOR EXPENSES TO THE EXTENT NECESSARY TO
KEEP CLASS A TOTAL ANNUAL FUND OPERATING EXPENSES FOR THE CURRENT FISCAL
YEAR AT OR BELOW 1.25%. Any fee reductions or reimbursements may be repaid
to the investment manager within 3 years after they occur if such
repayments can be achieved within the Large Cap Value Fund's then current
expense limit, if any, for that year and if certain other conditions are
satisfied.
EXAMPLE
The Example is intended to help you compare the cost of investing in the Large
Cap Value Fund with the cost of investing in other mutual funds. It assumes that
you invest $10,000 in Class A shares of the Large Cap Value Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Large Cap Value Fund's operating expenses remain the same. The
Example should not be considered a representation of past or future expenses or
performance. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
$124 $387 $670 $1,477
- --------------------------------------------------------------------------------
CNI CHARTER FUNDS | PAGE 4
rcb small cap value fund
OUR GOAL
The RCB Small Cap Value Fund seeks capital appreciation primarily through
investment in smaller U.S. corporations which are considered undervalued. The
goal of the RCB Small Cap Value Fund can only be changed with shareholder
approval.
PRINCIPAL STRATEGY
We purchase a diversified portfolio, at least 80% of which consists of equity
securities of smaller U.S. corporations. Smaller corporations are defined for
this purpose as companies with market capitalizations at the time of purchase in
the range of $50 million to $5 billion.
The overall investment philosophy of the RCB Small Cap Value Fund involves a
value-oriented focus on preservation of capital over the long term and a
"bottom-up" approach, analyzing companies on their individual characteristics,
prospects and financial conditions. We determine the universe of potential
companies for investment through a systematic screening of companies for
attractive valuation characteristics and the prospects of fundamental changes,
as well as information we derive from a variety of sources, including, but not
limited to, regional brokerage research, trade publications and industry
conferences. We evaluate companies within this universe for fundamental
characteristics such as:
o Return on capital trends;
o Cash flow and/or earnings growth;
o Free cash flow;
o Balance sheet integrity; and
o Intrinsic value analysis.
Our research effort also includes an investigation of the strength of the
business franchises of these companies and the commitment of management to
shareholders through direct contacts and company visits. Factors that may cause
the sale of the RCB Small Cap Value Fund's portfolio holdings include
disappointment in management or changes in the course of business, changes in a
company's fundamentals, or our assessment that a particular company's stock is
extremely overvalued. A 15% or greater decline in a company's stock price as
compared to its industry peer group would result in an intensive re-evaluation
of the holding and a possible sale.
The RCB Small Cap Value Fund anticipates that it will have a low rate of
portfolio turnover. This means that the RCB Small Cap Value Fund has the
potential to be a tax-efficient investment, as low turnover should result in the
realization and the distribution to shareholders of lower capital gains. This
anticipated lack of frequent trading should also lead to lower transaction
costs, which could help to improve performance.
PRINCIPAL RISKS OF INVESTING IN THE RCB SMALL CAP VALUE FUND
As with any mutual fund, there are risks to investing. We cannot guarantee that
we will meet our investment goal. The RCB Small Cap Value Fund will expose you
to risks that could cause you to lose money. Here are the principal risks to
consider:
MARKET RISK - By investing in stocks, the RCB Small Cap Value Fund may expose
you to a sudden decline in a holding's share price or an overall decline in the
stock market. In addition, as with any stock fund, the value of your investment
in the RCB Small Cap Value Fund will fluctuate on a day-to-day and a cyclical
basis with movements in the stock market, as well as in response to the
activities of individual companies. In addition, individual
CNI CHARTER FUNDS | PAGE 5
companies may report poor results or be negatively affected by industry and/or
economic trends and developments. The RCB Small Cap Value Fund is also subject
to the risk that its principal market segment, small capitalization value
stocks, may underperform other equity market segments or the market as a whole.
SMALLER CAPITALIZED COMPANIES - The RCB Small Cap Value Fund primarily invests
in smaller capitalized companies. We believe that smaller capitalized companies
generally have greater earnings and sales growth potential than larger
capitalized companies. The level of risk will be increased to the extent that
the RCB Small Cap Value Fund has significant exposure to smaller capitalized or
unseasoned companies (those with less than a three-year operating history).
Investments in smaller capitalized companies may involve greater risks, such as
limited product lines, markets and financial or managerial resources. In
addition, the securities of smaller capitalized companies may have few market
makers, wider spreads between their quoted bid and asked prices, and lower
trading volume, resulting in greater price volatility and less liquidity than
the securities of larger capitalized companies. Further, the RCB Small Cap Value
Fund may hold a significant percentage of a company's outstanding shares, which
means that the RCB Small Cap Value Fund may have to sell such investments at
discounts from quoted prices.
FOCUS - The RCB Small Cap Value Fund holds a relatively small number of
securities positions, each representing a relatively large portion of the RCB
Small Cap Value Fund's capital. Losses incurred in such positions could have a
material adverse effect on the RCB Small Cap Value Fund's overall financial
condition. The RCB Small Cap Value Fund's performance may also differ materially
from the relevant benchmarks, which hold many more stocks than the RCB Small Cap
Value Fund and may be focused on different sectors or industries than the RCB
Small Cap Value Fund.
PAST PERFORMANCE
The bar chart and the performance table that follow illustrate some of the risks
and volatility of an investment in the Class A shares of the RCB Small Cap Value
Fund for the indicated periods. Of course, the RCB Small Cap Value Fund's past
performance (before and after taxes) does not necessarily indicate how the RCB
Small Cap Value Fund will perform in the future.
Class A Shares of the RCB Small Cap Value Fund commenced operations on October
3, 2001. In the bar chart and the performance table, performance results for the
period from October 1, 2001 through October 2, 2001 are for the Class R shares
of the RCB Small Cap Value Fund, which were initially issued in connection with
the reorganization of the RCB Small Cap Fund (the "Predecessor Fund") on October
1, 2001. Performance results for the period before October 1, 2001 are for the
Predecessor Fund, which commenced operations on September 30, 1998. Class A
shares' annual returns would have been substantially similar to those of the
Class R shares because shares of each Class are invested in the same portfolio
of securities. Class R shares of the RCB Small Cap Value Fund are not offered by
this Prospectus.
CNI CHARTER FUNDS | PAGE 6
This bar chart shows the performance of the RCB Small Cap Value Fund's Class A
shares based on a calendar year.
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
17.85% 12.87% 21.52% -10.80% 47.81% 19.42% -1.61% 13.46%
- -------------------------------------------------------------------------------
1999 2000 2001 2002 2003 2004 2005 2006
Best Quarter Worst Quarter
27.83% -20.21%
(Q2 2003) (Q3 2002)
This table shows the average annual total returns for the periods ending
December 31, 2006. The table also shows how the Fund's performance compares with
the returns of indices comprised of companies similar to those held by the Fund.
RCB Small Cap Since Inception
Value Fund One Year Five Years (9/30/98)
- --------------------------------------------------------------------------------
Return Before Taxes 13.46% 11.94% 16.89%
Return After Taxes
on Distributions(1) 13.21% 11.67% 16.41%
Return After Taxes
on Distributions
and Sale of Fund
Shares(1) 9.09% 10.42% 14.98%
Russell 2000 Index(2) 18.37% 11.39% 11.21%
Russell 2000 Value
Index(2) 23.48% 15.37% 14.59%
Russell 2500 Value
Index(2) 20.18% 15.51% 14.59%
(1) After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state
and local taxes. Actual after-tax returns depend on an investor's tax
situation and may differ from those shown. The after-tax returns shown are
not relevant to investors who hold their Fund shares through tax-deferred
arrangements, such as 401(k) plans or individual retirement accounts.
(2) Reflects no deduction for fees, expenses or taxes.
FEES AND EXPENSES OF THE RCB SMALL CAP VALUE FUND
This table describes the fees and expenses you may pay if you buy and hold Class
A shares of the RCB Small Cap Value Fund. You pay no sales charges or
transaction fees for buying or selling Class A shares of the RCB Small Cap Value
Fund.
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Management Fee* 0.85%
Distribution (12b-1) Fees 0.25%
Other Expenses
Shareholder Servicing Fee 0.25%
Other Fund Expenses 0.11%
Total Other Expenses 0.36%
- --------------------------------------------------------------------------------
Total Annual Fund Operating Expenses** 1.46%
* The "Management Fee" is an annual fee, payable monthly out of the RCB
Small Cap Value Fund's net assets.
** THE INVESTMENT MANAGER HAS VOLUNTARILY AGREED TO LIMIT ITS FEES OR
REIMBURSE THE RCB SMALL CAP VALUE FUND FOR EXPENSES TO THE EXTENT
NECESSARY TO KEEP CLASS A TOTAL ANNUAL FUND OPERATING EXPENSES FOR THE
CURRENT FISCAL YEAR AT OR BELOW 1.49%. Any fee reductions or
reimbursements may be repaid to the investment manager within 3 years
after they occur if such repayments can be achieved within the RCB Small
Cap Value Fund's then current expense limit, if any, for that year and if
certain other conditions are satisfied.
EXAMPLE
The Example is intended to help you compare the cost of investing in the RCB
Small Cap Value Fund with the cost of investing in other mutual funds. It
assumes that you invest $10,000 in Class A shares of the RCB Small Cap Value
Fund for the time periods indicated and then redeem all of your shares at the
end of those periods. The Example also assumes that your investment has a 5%
return each year and that the RCB Small Cap Value Fund's operating expenses
remain the same. The Example should not be considered a representation of past
or future expenses or performance. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
$149 $462 $797 $1,746
- --------------------------------------------------------------------------------
CNI CHARTER FUNDS | PAGE 7
corporate bond fund
OUR GOALS
The Corporate Bond Fund seeks to provide current income (as the primary
component of a total return intermediate duration strategy) by investing in a
diversified portfolio of fixed income securities. The goals of the Corporate
Bond Fund can only be changed with shareholder approval.
PRINCIPAL STRATEGY
We purchase a diversified portfolio of fixed income securities, at least 80% of
which consists of investment grade corporate notes, bonds and debentures that
are nationally traded, including U.S. government and agency securities and
corporate issues of domestic and international companies denominated in U.S.
dollars. We may also purchase mortgage backed and asset backed instruments whose
maturities and durations are consistent with an intermediate term strategy. We
actively manage the average duration of the portfolio in accordance with our
expectations of interest rate changes as driven by economic trends. The average
duration of the portfolio will typically range from two to six years. We will
typically invest in corporate issues with a minimum credit rating from Moody's
Investors Service or Standard & Poor's Corporation of Baa or BBB, mortgage
backed and asset backed instruments with a minimum rating of Aa or AA and
corporate commercial paper issued by issuers with a minimum credit rating of A1
or P1. We may retain a security after it has been downgraded below the minimum
credit rating if we determine that it is in the best interests of the Corporate
Bond Fund. The Corporate Bond Fund may also invest in the shares of money market
mutual funds whose objectives are consistent with those of the Corporate Bond
Fund.
PRINCIPAL RISK OF INVESTING IN THE CORPORATE BOND FUND
As with any mutual fund, there are risks to investing. We cannot guarantee that
we will meet our investment goals. The Corporate Bond Fund may expose you to
certain risks that could cause you to lose money. The principal risk to consider
is:
MARKET RISK - The prices of fixed income securities respond to economic
developments, particularly interest rate changes, as well as to perceptions
about the creditworthiness of individual issuers, including governments.
Generally, fixed income securities will decrease in value if interest rates rise
and vice versa, with lower rated securities more volatile than higher rated
securities. The average duration of these securities affects risk as well, with
longer term securities generally more volatile than shorter term securities. In
addition, the Corporate Bond Fund is subject to the risk that its market
segment, fixed income securities, may underperform other fixed income market
segments or the markets as a whole. Economic or political changes may adversely
affect the ability of issuers to repay principal and to make interest payments
on securities owned by the Corporate Bond Fund. Changes in the financial
condition of issuers also may adversely affect the value of the Corporate Bond
Fund's securities. The Corporate Bond Fund may invest in bonds rated below
investment grade, which involve greater risks of default or downgrade and are
more volatile than investment grade securities. The Corporate Bond Fund is not a
money market fund.
PAST PERFORMANCE
The bar chart and the performance table that follow illustrate some of the risks
and volatility of an investment in the Class A shares of the Corporate Bond Fund
for the indicated periods. Of course, the Corporate Bond Fund's past performance
(before and after taxes) does not necessarily indicate how the Corporate Bond
Fund will perform in the future.
CNI CHARTER FUNDS | PAGE 8
This bar chart shows the performance of the Corporate Bond Fund's Class A shares
based on a calendar year.
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
8.22% 7.34% 5.03% 2.14% 0.94% 3.57%
---------------------------------------------------------------------
2001 2002 2003 2004 2005 2006
Best Quarter Worst Quarter
4.42% -2.56%
(Q3 2001) (Q2 2004)
This table shows the Corporate Bond Fund's average annual total returns for the
periods ending December 31, 2006. The table also shows how the Fund's
performance compares with the returns of an index comprised of fixed income
securities similar to those held by the Fund.
Since
Corporate Bond Fund One Year Five Years Inception
- --------------------------------------------------------------------------------
Return Before Taxes 3.57% 3.78% 5.26%(3)
Return After Taxes on
Distributions(1) 2.16% 2.27% 3.39%(3)
Return After Taxes on
Distributions and
Sale of Fund Shares(1) 2.30% 2.35% 3.37%(3)
Lehman Intermediate
U.S. Corporate
Index(2) 4.57% 5.45% 6.72%(4)
(1) After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state
and local taxes. Actual after-tax returns depend on an investor's tax
situation and may differ from those shown. The after-tax returns shown are
not relevant to investors who hold their Fund shares through tax-deferred
arrangements, such as 401(k) plans or individual retirement accounts.
(2) Reflects no deduction for fees, expenses or taxes.
(3) Since January 14, 2000. Class A shares commenced operations on April 13,
2000. Prior to April 13, 2000, performance for Class A shares is based on
the performance of the Institutional Class shares of the Corporate Bond
Fund. Institutional Class shares, which were first offered on January 14,
2000, are not offered in this prospectus. However, because they are
invested in the same portfolio of securities, the annual returns for the
two classes would be substantially similar. The performance of the
Institutional Class shares does not reflect the Class A shares' Rule 12b-1
fees and expenses. With those adjustments, performance would be lower than
as shown above.
(4) The index comparison shown begins on January 31, 2000.
FEES AND EXPENSES OF THE CORPORATE BOND FUND
This table describes the fees and expenses you may pay if you buy and hold Class
A shares of the Corporate Bond Fund. You pay no sales charges or transaction
fees for buying or selling Class A shares of the Corporate Bond Fund.
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Management Fee* 0.40%
Distribution (12b-1) Fees 0.25%
Other Expenses
Shareholder Servicing Fee 0.25%
Other Fund Expenses 0.10%
Total Other Expenses 0.35%
- --------------------------------------------------------------------------------
Total Annual Fund Operating Expenses** 1.00%
* The "Management Fee" is an annual fee, payable monthly out of the
Corporate Bond Fund's net assets.
** THE INVESTMENT MANAGER HAS VOLUNTARILY AGREED TO LIMIT ITS FEES OR
REIMBURSE THE CORPORATE BOND FUND FOR EXPENSES TO THE EXTENT NECESSARY TO
KEEP CLASS A TOTAL ANNUAL FUND OPERATING EXPENSES FOR THE CURRENT FISCAL
YEAR AT OR BELOW 1.00%. Any fee reductions or reimbursements may be repaid
to the investment manager within 3 years after they occur if such
repayments can be achieved within the Corporate Bond Fund's then current
expense limit, if any, for that year and if certain other conditions are
satisfied.
EXAMPLE
The Example is intended to help you compare the cost of investing in the
Corporate Bond Fund with the cost of investing in other mutual funds. It assumes
that you invest $10,000 in Class A shares of the Corporate Bond Fund for the
time periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Corporate Bond Fund's operating expenses remain the same. The
Example should not be considered a representation of past or future expenses or
performance. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
$102 $318 $552 $1,225
- --------------------------------------------------------------------------------
CNI CHARTER FUNDS | PAGE 9
government bond fund
OUR GOALS
The Government Bond Fund seeks to provide current income (as the primary
component of a total return intermediate duration strategy) by investing
primarily in U.S. Government securities. The goals of the Government Bond Fund
can only be changed with shareholder approval.
PRINCIPAL STRATEGY
We purchase a diversified portfolio, at least 80% of which consists of U.S.
Government securities either issued or guaranteed by the U.S. Government or its
agencies or instrumentalities. We may also purchase mortgage backed and asset
backed instruments issued by the U.S. Government or government sponsored
agencies whose maturity and duration are consistent with an intermediate term
strategy. In certain cases, securities issued by government-sponsored agencies
may not be guaranteed or insured by the U.S. Government.
We actively manage the average duration of the portfolio in accordance with our
expectations of interest rate changes as driven by economic trends. The average
duration of the portfolio will typically range from two to six years. The
Government Bond Fund may also invest in the shares of money market mutual funds
whose objectives are consistent with those of the Government Bond Fund.
PRINCIPAL RISKS OF INVESTING IN THE GOVERNMENT BOND FUND
As with any mutual fund, there are risks to investing. We cannot guarantee that
we will meet our investment goals. The Government Bond Fund may expose you to
certain risks that could cause you to lose money. The principal risks to
consider are:
MARKET RISK - The prices of fixed income securities respond to economic
developments, particularly interest rate changes, as well as to perceptions
about the creditworthiness of individual issuers, including governments.
Generally, fixed income securities will decrease in value if interest rates rise
and vice versa, with lower rated securities more volatile than higher rated
securities. The average duration of these securities affects risk as well, with
longer term securities generally more volatile than shorter term securities. In
addition, the Government Bond Fund is subject to the risk that its market
segment, government fixed income securities, may underperform other fixed income
market segments or the markets as a whole. Economic or political changes may
adversely affect the ability of issuers to repay principal and to make interest
payments on securities owned by the Government Bond Fund. Changes in the
financial condition of issuers also may adversely affect the value of the
Government Bond Fund's securities. The Government Bond Fund may invest in bonds
rated below investment grade, which involve greater risks of default or
downgrade and are more volatile than investment grade securities. The Government
Bond Fund is not a money market fund.
CNI CHARTER FUNDS | PAGE 10
GOVERNMENT-SPONSORED ENTITIES RISK - Although the Government Bond Fund invests
in securities issued by government-sponsored entities, such as mortgage-related
securities, such securities may not be guaranteed or insured by the U.S.
Government and may only be supported by the credit of the issuing agency. For
example, the Federal National Mortgage Association guarantees full and timely
payment of all interest and principal of its pass-through securities, and the
Federal Home Loan Mortgage Corporation guarantees timely payment of interest and
ultimate collection of principal of its pass-through securities, but such
securities are not backed by the full faith and credit of the U.S. Government.
The principal and interest on Government National Mortgage Association ("GNMA")
pass-through securities are guaranteed by GNMA and backed by the full faith and
credit of the U.S. Government. In order to meet its obligations under a
guarantee, GNMA is authorized to borrow from the U.S. Treasury with no
limitations as to amount.
PAST PERFORMANCE
The bar chart and the performance table that follow illustrate some of the risks
and volatility of an investment in the Class A shares of the Government Bond
Fund for the indicated periods. Of course, the Government Bond Fund's past
performance (before and after taxes) does not necessarily indicate how the
Government Bond Fund will perform in the future.
This bar chart shows the performance of the Government Bond Fund's Class A
shares based on a calendar year.
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
7.27% 8.56% 1.33% 1.40% 1.15% 3.44%
--------------------------------------------------------------------
2001 2002 2003 2004 2005 2006
Best Quarter Worst Quarter
4.51% -1.54%
(Q3 2001) (Q2 2004)
This table shows the Government Bond Fund's average annual total returns for the
periods ending December 31, 2006. The table also shows how the Fund's
performance compares with the returns of an index comprised of fixed income
securities similar to those held by the Fund.
Since
Government Bond Fund One Year Five Years Inception
- --------------------------------------------------------------------------------
Return Before Taxes 3.44% 3.14% 4.57%(3)
Return After Taxes
on Distributions(1) 2.09% 1.94% 3.05%(3)
Return After Taxes
on Distributions
and Sale of Fund
Shares(1) 2.22% 2.00% 3.00%(3)
Lehman Intermediate
U.S. Government
Bond Index(2) 3.83% 3.92% 5.59%(4)
(1) After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state
and local taxes. Actual after-tax returns depend on an investor's tax
situation and may differ from those shown. The after-tax returns shown are
not relevant to investors who hold their Fund shares through tax-deferred
arrangements, such as 401(k) plans or individual retirement accounts.
(2) Reflects no deduction for fees, expenses or taxes.
(3) Since January 14, 2000. Class A shares commenced operations on April 13,
2000. Prior to April 13, 2000, performance for Class A shares is based on
the performance of the Institutional Class shares of the Government Bond
Fund. Institutional Class shares, which were first offered on January 14,
2000, are not offered in this prospectus. However, because they are
invested in the same portfolio of securities, the annual returns for the
two classes would be substantially similar. The performance of the
Institutional Class shares does not reflect the Class A shares' Rule 12b-1
fees and expenses. With those adjustments, performance would be lower than
as shown above.
(4) The index comparison shown begins on January 31, 2000.
CNI CHARTER FUNDS | PAGE 11
FEES AND EXPENSES OF THE GOVERNMENT BOND FUND
This table describes the fees and expenses you may pay if you buy and hold Class
A shares of the Government Bond Fund. You pay no sales charges or transaction
fees for buying or selling Class A shares of the Government Bond Fund.
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Management Fee* 0.43%
Distribution (12b-1) Fees 0.25%
Other Expenses
Shareholder Servicing Fee 0.25%
Other Fund Expenses 0.10%
Total Other Expenses 0.35%
- --------------------------------------------------------------------------------
Total Annual Fund Operating Expenses** 1.03%
* The "Management Fee" is an annual fee, payable monthly out of the
Government Bond Fund's net assets.
** THE INVESTMENT MANAGER HAS VOLUNTARILY AGREED TO LIMIT ITS FEES OR
REIMBURSE THE GOVERNMENT BOND FUND FOR EXPENSES TO THE EXTENT NECESSARY TO
KEEP CLASS A TOTAL ANNUAL FUND OPERATING EXPENSES FOR THE CURRENT FISCAL
YEAR AT OR BELOW 0.95%. Any fee reductions or reimbursements may be repaid
to the investment manager within 3 years after they occur if such
repayments can be achieved within the Government Bond Fund's then current
expense limit, if any, for that year and if certain other conditions are
satisfied.
EXAMPLE
The Example is intended to help you compare the cost of investing in the
Government Bond Fund with the cost of investing in other mutual funds. It
assumes that you invest $10,000 in Class A shares of the Government Bond Fund
for the time periods indicated and then redeem all of your shares at the end of
those periods. The Example also assumes that your investment has a 5% return
each year and that the Government Bond Fund's operating expenses remain the
same. The Example should not be considered a representation of past or future
expenses or performance. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
$105 $328 $569 $1,259
- --------------------------------------------------------------------------------
CNI CHARTER FUNDS | PAGE 12
california tax exempt bond fund
OUR GOALS
The California Tax Exempt Bond Fund seeks to provide current income exempt from
federal and California state income tax (as the primary component of a total
return strategy) by investing primarily in California municipal bonds. The goals
of the California Tax Exempt Bond Fund can only be changed with shareholder
approval.
PRINCIPAL STRATEGY
We purchase a portfolio, at least 80% of which consists of investment grade,
intermediate-term municipal bond obligations, including general obligation
bonds, revenue bonds, notes and obligations issued by the State of California
and its agencies, by various counties, cities and regional or special districts
in California, and by various other sectors in the municipal bond market. The
California Tax Exempt Bond Fund may also invest in short-term tax exempt
commercial paper, floating rate notes or the shares of money market mutual funds
whose objectives are consistent with those of the California Tax Exempt Bond
Fund. The California Tax Exempt Bond Fund invests at least 80% of its net assets
in intermediate-term, high quality municipal bonds and notes, and at least 80%
of its total assets in debt securities, the interest from which is expected to
be exempt from federal and California state personal income taxes. We actively
manage the average duration of the portfolio in accordance with our expectations
of interest rate changes as driven by economic trends. The average duration of
the portfolio will typically range from three to eight years. We will typically
invest in issues with a minimum credit rating from Moody's Investors Service or
Standard & Poor's Corporation of Baa or BBB, issues carrying credit enhancements
such as insurance by the major bond insurance companies with an underlying
minimum credit rating of Baa or BBB and short term notes with a rating from
Moody's of MIG1 or VMIG1 or from Standard & Poor's of SP1 or A1. We may retain a
security after it has been downgraded below the minimum credit rating if we
determine that it is in the best interests of the California Tax Exempt Bond
Fund.
PRINCIPAL RISKS OF INVESTING IN THE CALIFORNIA TAX EXEMPT BOND FUND
As with any mutual fund, there are risks to investing. We cannot guarantee that
we will meet our investment goals. The California Tax Exempt Bond Fund may
expose you to certain risks that could cause you to lose money. Here are the
principal risks to consider:
MARKET RISK - The prices of fixed income securities respond to economic
developments, particularly interest rate changes, as well as to perceptions
about the creditworthiness of individual issuers, including governments.
Generally, fixed income securities will decrease in value if interest rates rise
and vice versa, with lower rated securities more volatile than higher rated
securities. The average duration of these securities affects risk as well, with
longer term securities generally more volatile than shorter term securities. In
addition, the California Tax Exempt Bond Fund is subject to the risk that its
market segment, municipal debt securities, may underperform other market
segments or the markets as a whole. Economic or political changes may adversely
affect the ability of issuers to repay principal and to make interest payments
on securities owned by the California Tax Exempt Bond Fund. Changes in the
financial condition of issuers also may adversely affect the value of the
California Tax Exempt Bond Fund's securities. The California Tax Exempt Bond
Fund may invest in bonds rated below investment grade, which involve greater
risks of default or downgrade and are more volatile than investment grade
securities. The California Tax Exempt Bond Fund is not a money market fund.
CNI CHARTER FUNDS | PAGE 13
GOVERNMENT RISK - State and local governments rely on taxes and, to some extent,
revenues from private projects financed by municipal securities to pay interest
and principal on municipal debt. Poor statewide or local economic results,
changing political sentiments, legislation, policy changes or voter-based
initiatives at the state or local level, erosion of the tax base or revenues of
the state or one or more local governments, seismic or other natural disasters,
or other economic or credit problems affecting the state generally or a
particular issuer may reduce tax revenues and increase the expenses of
California municipal issuers, making it more difficult for them to meet their
obligations. Actual or perceived erosion of the creditworthiness of California
municipal issuers may also reduce the value of the California Tax Exempt Bond
Fund's holdings.
NON-DIVERSIFICATION - The California Tax Exempt Bond Fund is non-diversified,
which means that it may invest in the securities of relatively few issuers. As a
result, the California Tax Exempt Bond Fund may be more susceptible to a single
adverse economic or regulatory occurrence affecting one or more of these
issuers, and may experience increased volatility due to its investments in those
securities. In addition, the California Tax Exempt Bond Fund will be more
susceptible to factors which adversely affect issuers of California obligations
than a mutual fund which does not have as great a concentration in California
municipal obligations. See the SAI for more detailed information regarding
California developments.
PAST PERFORMANCE
The bar chart and the performance table that follow illustrate some of the risks
and volatility of an investment in the Class A shares of the California Tax
Exempt Bond Fund for the indicated periods. Of course, the California Tax Exempt
Bond Fund's past performance (before and after taxes) does not necessarily
indicate how the California Tax Exempt Bond Fund will perform in the future.
This bar chart shows the performance of the California Tax Exempt Bond Fund's
Class A shares based on a calendar year.
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
3.95% 8.08% 2.85% 1.94% 1.20% 3.08%
-------------------------------------------------------------------
2001 2002 2003 2004 2005 2006
Best Quarter Worst Quarter
4.26% -1.91%
(Q3 2002) (Q2 2004)
This table shows the California Tax Exempt Bond Fund's average annual total
returns for the periods ending December 31, 2006. The table also shows how the
Fund's performance compares with the returns of an index comprised of fixed
income securities similar to those held by the Fund.
California Tax Exempt Since
Bond Fund One Year Five Years Inception
- --------------------------------------------------------------------------------
Return Before Taxes 3.08% 3.41% 4.11%(3)
Return After Taxes on
Distributions(1) 3.08% 3.23% 4.35%(3)
Return After Taxes on
Distributions and Sale
of Fund Shares(1) 2.94% 3.23% 4.31%(3)
Lehman CA
Intermediate -
Short Municipal
Index(2) 3.62% 3.91% 4.65%(4)
(1) After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state
and local taxes. Actual after-tax returns depend on an investor's tax
situation and may differ from those shown. The after-tax returns shown are
not relevant to investors who hold their Fund shares through tax-deferred
arrangements, such as 401(k) plans or individual retirement accounts.
(2) Reflects no deduction for fees, expenses or taxes.
(3) Since January 14, 2000. Class A shares commenced operations on April 13,
2000. Prior to April 13, 2000, performance for Class A shares is based on
the performance of the Institutional Class shares of the California Tax
Exempt Bond Fund. Institutional Class shares, which were first offered on
January 14, 2000, are not offered in this prospectus. However, because
they are invested in the same portfolio of securities, the annual returns
for the two classes would be substantially similar. The performance of the
Institutional Class shares does not reflect the Class A shares' Rule 12b-1
fees and expenses. With those adjustments, performance would be lower than
as shown above.
(4) The index comparison shown begins on January 31, 2000.
CNI CHARTER FUNDS | PAGE 14
FEES AND EXPENSES OF THE CALIFORNIA TAX EXEMPT BOND FUND
This table describes the fees and expenses you may pay if you buy and hold Class
A shares of the California Tax Exempt Bond Fund. You pay no sales charges or
transaction fees for buying or selling Class A shares of the California Tax
Exempt Bond Fund.
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Management Fee* 0.27%
Distribution (12b-1) Fees 0.25%
Other Expenses
Shareholder Servicing Fee 0.25%
Other Fund Expenses 0.10%
Total Other Expenses 0.35%
- --------------------------------------------------------------------------------
Total Annual Fund Operating Expenses** 0.87%
* The "Management Fee" is an annual fee, payable monthly out of the
California Tax Exempt Bond Fund's net assets.
** THE INVESTMENT MANAGER HAS VOLUNTARILY AGREED TO LIMIT ITS FEES OR
REIMBURSE THE CALIFORNIA TAX EXEMPT BOND FUND FOR EXPENSES TO THE EXTENT
NECESSARY TO KEEP CLASS A TOTAL ANNUAL FUND OPERATING EXPENSES FOR THE
CURRENT FISCAL YEAR AT OR BELOW 0.75%. Any fee reductions or
reimbursements may be repaid to the investment manager within 3 years
after they occur if such repayments can be achieved within the California
Tax Exempt Bond Fund's then current expense limit, if any, for that year
and if certain other conditions are satisfied.
EXAMPLE
The Example is intended to help you compare the cost of investing in the
California Tax Exempt Bond Fund with the cost of investing in other mutual
funds. It assumes that you invest $10,000 in Class A shares of the California
Tax Exempt Bond Fund for the time periods indicated and then redeem all of your
shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the California Tax Exempt Bond
Fund's operating expenses remain the same. The Example should not be considered
a representation of past or future expenses or performances. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
$89 $278 $482 $1,073
- --------------------------------------------------------------------------------
CNI CHARTER FUNDS | PAGE 15
high yield bond fund
OUR GOAL
The High Yield Bond Fund seeks to maximize total return by investing primarily
in fixed income securities rated below investment grade (I.E., "junk bonds").
The goal of the High Yield Bond Fund can only be changed with shareholder
approval.
PRINCIPAL STRATEGY
We purchase a diversified portfolio, at least 80% of which consists of fixed
income securities rated below investment grade, including corporate bonds and
debentures, convertible and preferred securities and zero coupon obligations. We
may also invest in fixed income securities rated below investment grade that are
issued by governments and agencies, both U.S. and foreign. We may also invest in
equity securities. We seek to invest in securities that offer a high current
yield as well as total return potential. In an effort to control risks, we
purchase investments diversified across issuers, industries and sectors. The
average maturity of the High Yield Bond Fund's investments will vary. There is
no limit on the maturity or on the credit quality of any security.
PRINCIPAL RISKS OF INVESTING IN THE HIGH YIELD BOND FUND
As with any mutual fund, there are risks to investing. We cannot guarantee that
we will meet our investment goal. The High Yield Bond Fund may expose you to
certain risks that could cause you to lose money. Here are the principal risks
to consider:
MARKET RISK - The prices of fixed income securities respond to economic
developments, particularly interest rate changes, as well as to perceptions
about the creditworthiness of individual issuers, including governments.
Generally, fixed income securities will decrease in value if interest rates rise
and vice versa, with lower rated securities (such as those in which the High
Yield Bond Fund primarily invests) more volatile than higher rated securities.
The average maturity and duration of these securities affects risk as well, with
longer term securities generally more volatile than shorter term securities. In
addition, the High Yield Bond Fund is subject to the risk that its market
segment, high yield fixed income securities, may underperform other market
segments or the markets as a whole. Economic or political changes may adversely
affect the ability of issuers to repay principal and to make interest payments
on securities owned by the High Yield Bond Fund. Changes in the financial
condition of issuers could have a material adverse effect on the value of the
High Yield Bond Fund's securities. The High Yield Bond Fund is not a money
market fund.
HIGH YIELD ("JUNK") BONDs - High yield bonds involve greater risks of default or
downgrade and are more volatile than investment grade securities. High yield
bonds involve a greater risk of price declines than investment grade securities
due to actual or perceived changes in an issuer's creditworthiness. In addition,
issuers of high yield bonds may be more susceptible than other issuers to
economic downturns, which may result in a weakened capacity of the issuer to
make principal or interest payments. High yield bonds are subject to a greater
risk that the issuer may not be able to pay interest or dividends and ultimately
to repay principal upon maturity. Discontinuation of these payments could have a
substantial adverse effect on the market value of the security.
CNI CHARTER FUNDS | PAGE 16
FOREIGN SECURITIES - The High Yield Bond Fund may invest in foreign securities.
Foreign investments may be subject to risks that are not typically associated
with investing in domestic securities. For example, such investments may be
adversely affected by changes in currency rates and exchange control
regulations, future political and economic developments and the possibility of
seizure or nationalization of companies, or the imposition of withholding taxes
on income. Foreign markets tend to be more volatile than the U.S. market due to
economic and political instability and regulatory conditions in some countries.
The High Yield Bond Fund may invest in foreign securities denominated in foreign
currencies, whose value may decline against the U.S. dollar.
EQUITY SECURITIES - The value of the High Yield Bond Fund's equity investments
will fluctuate on a day-to-day and a cyclical basis with movements in the stock
market, as well as in response to the activities of individual companies. In
addition, individual companies may report poor results or be negatively affected
by industry and/or economic trends and developments.
PAST PERFORMANCE
The bar chart and the performance table that follow illustrate some of the risks
and volatility of an investment in the Class A shares of the High Yield Bond
Fund for the indicated periods. Of course, the High Yield Bond Fund's past
performance (before and after taxes) does not necessarily indicate how the High
Yield Bond Fund will perform in the future.
This bar chart shows the performance of the High Yield Bond Fund's Class A
shares based on a calendar year.
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
9.20% 2.07% 19.16% 11.13% 1.00% 9.25%
---------------------------------------------------------------------
2001 2002 2003 2004 2005 2006
Best Quarter Worst Quarter
8.03% -3.24%
(Q4 2001) (Q2 2002)
This table shows the High Yield Bond Fund's average annual total returns for the
periods ending December 31, 2006. The table also shows how the Fund's
performance compares with the returns of an index comprised of fixed income
securities similar to those held by the Fund.
Since Inception
High Yield Bond Fund One Year Five Years (1/14/00)
- --------------------------------------------------------------------------------
Return Before Taxes 9.25% 8.32% 7.26%
Return After Taxes on
Distributions(1) 6.54% 5.33% 4.00%
Return After Taxes
on Distributions
and Sale of Fund
Shares(1) 5.94% 5.30% 4.15%
Citigroup High Yield
Market Index(2) 11.55% 10.16% 7.29%(3)
(1) After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state
and local taxes. Actual after-tax returns depend on an investor's tax
situation and may differ from those shown. The after-tax returns shown are
not relevant to investors who hold their Fund shares through tax-deferred
arrangements, such as 401(k) plans or individual retirement accounts.
(2) Reflects no deduction for fees, expenses or taxes.
(3) The index comparison shown begin on January 31, 2000.
CNI CHARTER FUNDS | PAGE 17
FEES AND EXPENSES OF THE HIGH YIELD BOND FUND
This table describes the fees and expenses you may pay if you buy and hold Class
A shares of the High Yield Bond Fund. You pay no sales charges or transaction
fees for buying or selling Class A shares of the High Yield Bond Fund.
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Management Fee* 0.75%
Distribution (12b-1) Fees 0.30%
Other Expenses
Shareholder Servicing Fee 0.25%
Other Fund Expenses 0.10%
Total Other Expenses 0.35%
- --------------------------------------------------------------------------------
Total Annual Fund Operating Expenses** 1.40%
* The "Management Fee" is an annual fee, payable monthly out of the High
Yield Bond Fund's net assets.
** THE INVESTMENT MANAGER HAS VOLUNTARILY AGREED TO LIMIT ITS FEES OR
REIMBURSE THE HIGH YIELD BOND FUND FOR EXPENSES TO THE EXTENT NECESSARY TO
KEEP CLASS A TOTAL ANNUAL FUND OPERATING EXPENSES FOR THE CURRENT FISCAL
YEAR AT OR BELOW 1.30%. Any fee reductions or reimbursements may be repaid
to the investment manager within 3 years after they occur if such
repayments can be achieved within the High Yield Bond Fund's then current
expense limit, if any, for that year and if certain other conditions are
satisfied.
EXAMPLE
The Example is intended to help you compare the cost of investing in the High
Yield Bond Fund with the cost of investing in other mutual funds. It assumes
that you invest $10,000 in Class A shares of the High Yield Bond Fund for the
time periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the High Yield Bond Fund's operating expenses remain the same. The
Example should not be considered a representation of past or future expenses or
performance. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
$143 $443 $766 $1,680
- --------------------------------------------------------------------------------
CNI CHARTER FUNDS | PAGE 18
management of the funds
INVESTMENT MANAGER
City National Asset Management, Inc. ("CNAM") provides the Funds with investment
management services. CNAM's address is City National Center, 400 North Roxbury
Drive, Beverly Hills, California 90210.
CNAM is a wholly owned subsidiary of City National Bank ("CNB"), a federally
chartered commercial bank founded in the early 1950s with approximately $5.2
billion in assets as of December 31, 2006. CNB is itself a wholly owned
subsidiary of City National Corporation, a New York Stock Exchange listed
company. CNB has provided trust and fiduciary services, including investment
management services, to individuals and businesses for over 40 years. CNB
currently provides investment management services to individuals, pension and
profit sharing plans, endowments and foundations. As of December 31, 2006, CNB
and its affiliates had approximately $48.6 billion in assets under
administration, which includes $27.8 billion in assets under management.
CNAM received for its investment management services a fee at the annual rate of
0.65% of average daily net assets of the Large Cap Growth Fund, 0.62% of average
daily net assets of the Large Cap Value Fund, 0.85% of average daily net assets
of the RCB Small Cap Value Fund, 0.40% of average daily net assets of the
Corporate Bond Fund, 0.36% of average daily net assets of the Government Bond
Fund, 0.16% of average daily net assets of the California Tax Exempt Bond Fund
and 0.66% of average daily net assets of the High Yield Bond Fund for the fiscal
year ended September 30, 2006. These fees reflect fee waivers or reimbursements
of fees waived by CNAM in prior years.
A discussion regarding the basis of the Board of Trustees' approval of the
Funds' investment advisory agreement with CNAM is available in the Funds'
Semi-Annual Report for the most recent fiscal period ended March 31.
PORTFOLIO MANAGERS
Richard A. Weiss and Brian L. Garbe serve as portfolio managers for the Large
Cap Value Fund and the Large Cap Growth Fund. Rodney J. Olea and William C.
Miller serve as portfolio managers for the Corporate Bond Fund. Rodney J. Olea
and Paul C. Single serve as portfolio managers for the Government Bond Fund.
Rodney J. Olea and Alan Remedios serve as portfolio managers for the California
Tax Exempt Bond Fund.
RICHARD A. WEISS is President and Chief Investment Officer of CNAM. Mr. Weiss
has nearly two decades of investment management experience and has designed and
implemented quantitatively disciplined equity, fixed income, and international
investment strategies. Prior to joining the Funds' predecessor investment
manager, CNB, in 1999, Mr. Weiss was Executive Vice President and Chief
Investment Officer at Sanwa Bank California. Mr. Weiss holds a Master's in
Business Administration ("MBA"), with an emphasis in Finance and Econometrics
from the University of Chicago, and an undergraduate degree in Finance from The
Wharton School at the University of Pennsylvania.
BRIAN L. GARBE is Senior Vice President and Director of Research of CNAM. Mr.
Garbe has over 15 years of experience in the investment field and currently
oversees the creation, analysis and production of asset allocation, sector
rotation and stock selection strategies for CNAM. Prior to joining CNB in 1999,
Mr. Garbe was Vice President and Director of Research at Sanwa Bank California.
Mr. Garbe holds an MBA from the Anderson Graduate School of Management at
University of California, Los Angeles ("UCLA") and an undergraduate degree in
Applied Mathematics from UCLA.
CNI CHARTER FUNDS | PAGE 19
RODNEY J. OLEA is Senior Vice President and Director of Fixed Income of CNAM.
Mr. Olea has over 20 years of portfolio management experience and currently
oversees the creation, analysis, and management of taxable and tax-free fixed
income portfolios and bond selection strategies for CNAM. Mr. Olea has been with
CNB since 1994. He has a degree in Economics from UCLA.
WILLIAM C. MILLER, JR. is Vice President and Senior Fixed Income Portfolio
Manager for CNAM. Mr. Miller has over 10 years of investment management
experience and specializes in the research, analysis, and selection of fixed
income securities. Prior to joining CNB in 2001, Mr. Miller was Investment
Officer with Fiduciary Trust International of California and, from 1995 to 1998,
was an Associate with Pacific Investment Management Company. Mr. Miller, a
Chartered Financial Analyst, holds a Bachelor's degree with a concentration in
Finance from California State University, Fullerton.
PAUL C. SINGLE is Vice President and Senior Fixed Income Portfolio Manager for
CNAM. Mr. Single has over 23 years of institutional investment management
experience and specializes in investment grade taxable fixed income securities.
Prior to joining CNB in 2003, Mr. Single was Principal and Portfolio Manager of
Wells Capital Management.
ALAN REMEDIOS is Vice President and Senior Fixed Income Portfolio Manager for
CNAM. Mr. Remedios has over 16 years of investment management experience and
specializes in the research, analysis, and selection of fixed income securities
for CNAM. Prior to joining CNB in 1999, Mr. Remedios was Vice President and
Portfolio Manager at U.S. Trust Company. Mr. Remedios, a Chartered Financial
Analyst, holds a degree in Finance from California State Polytechnic University.
SUB-ADVISORS
REED CONNER & BIRDWELL LLC ("RCB"), a wholly owned subsidiary of City National
Corporation, currently serves as the RCB Small Cap Value Fund's sub-advisor,
providing investment advisory and portfolio management services pursuant to a
sub-advisory agreement with CNAM. RCB's address is 11111 Santa Monica Blvd.,
Suite 1700, Los Angeles, California 90025. As of December 31, 2006, RCB managed
assets of approximately $3.66 billion for individual and institutional
investors. RCB and its predecessor have been engaged in the investment advisory
business for over 45 years.
Jeffrey Bronchick, Executive Vice President, Principal and Chief Investment
Officer, and Thomas D. Kerr, Principal and Vice President, Portfolio Management
and Research, are principally responsible for the management of the RCB Small
Cap Value Fund. They have been associated with RCB or its predecessor since 1989
and 1994, respectively.
A discussion regarding the basis of the Board of Trustees' approval of CNAM's
sub-advisory agreement with RCB is available in the Funds' Semi-Annual Report
for the most recent fiscal period ended March 31.
HALBIS CAPITAL MANAGEMENT (USA), INC. ("Halbis Capital USA") currently serves as
the High Yield Bond Fund's sub-advisor, providing investment advisory and
portfolio management services pursuant to a sub-advisory agreement with CNAM.
Halbis Capital USA's principal offices are located at 452 Fifth Avenue, New
York, NY 10018. It was formed in June, 2005, and is a wholly-owned subsidiary of
Halbis Capital Management (UK), Ltd., which in turn is ultimately a part of HSBC
Group, plc, one of the world's largest banking and financial services
organizations.
Halbis Capital USA provides investment advisory services relating to U.S. fixed
income, high yield fixed income, emerging markets fixed income and alternative
investment products. Halbis Capital USA is one of a number of HSBC Group
subsidiaries (collectively referred to as "HSBC Group Investment Businesses")
engaged in investment advisory and fund
CNI CHARTER FUNDS | PAGE 20
management activities in many countries throughout the world. As of December 31,
2006, HSBC Group Investment Businesses managed assets of approximately $328.5
billion worldwide, and Halbis Capital USA managed assets of approximately $7.6
billion.
The High Yield Bond Fund is managed by Richard J. Lindquist, CFA, a Managing
Director and the head of the high yield management team at Halbis Capital USA.
The high yield management team, including Mr. Lindquist, joined HSBC Investments
May 1, 2005. Mr. Lindquist was previously a Managing Director and the head of
the high yield management team at Credit Suisse Asset Management, LLC ("CSAM").
He joined CSAM in 1995 as a result of the acquisition of CS First Boston
Investment Management, where he had been since 1989. Previously, he managed high
yield portfolios at Prudential Insurance Company of America and a high yield
mutual fund at T. Rowe Price Associates. Mr. Lindquist holds a BS in Finance
from Boston College and an MBA in Finance from the University of Chicago
Graduate School of Business.
A discussion regarding the basis of the Board of Trustees' approval of CNAM's
sub-advisory agreement with Halbis Capital USA is available in the Funds' Annual
Report for the fiscal year ended September 30, 2005.
OTHER SUB-ADVISORS. Under current law, the appointment of a new sub-advisor
generally would require the approval of a Fund's shareholders. Although CNAM
does not currently intend to replace any of the current sub-advisors, the Funds
have received an exemptive order from the Securities and Exchange Commission
(the "SEC"). This order would permit CNAM, subject to certain conditions
required by the SEC, to replace any sub-advisor, other than RCB, with a new
unaffiliated, third-party sub-advisor with the approval of the Board of Trustees
but without obtaining shareholder approval. Shareholders, however, will be
notified of any change in any of the sub-advisors and be provided with
information regarding any new sub-advisor. An order from the SEC granting this
exemption benefits shareholders by enabling the Funds to operate in a less
costly and more efficient manner. CNAM has the ultimate responsibility to
monitor any sub-advisors and recommend their hiring, termination and
replacement. CNAM may also terminate any sub-advisor and assume direct
responsibility for the portfolio management of that Fund with the approval of
the Board of Trustees but without obtaining shareholder approval.
ADMINISTRATOR
SEI Investments Global Funds Services (the "Administrator") serves as
administrator and fund accountant to the Funds. The Administrator is located at
One Freedom Valley Drive, Oaks, Pennsylvania 19456.
DISTRIBUTOR
SEI Investments Distribution Co. (the "Distributor") serves as the Funds'
distributor pursuant to a distribution agreement with the Funds. The Distributor
is located at One Freedom Valley Drive, Oaks, Pennsylvania 19456 and can be
reached at 1-888-889-0799.
DISTRIBUTION OF FUND SHARES
The Funds have adopted a plan (the "Plan") for their Class A shares under Rule
12b-1 of the Investment Company Act of 1940, as amended. The Plan allows the
Funds to pay to the Distributor distribution fees of 0.25% of average daily net
assets for the sale and distribution of their Class A shares (0.30% for the High
Yield Bond Fund). The Distributor may pay some or all of such distribution fees
to broker-dealers and other financial intermediaries (including CNB and its
affiliates) as compensation for providing distribution-related services.
Although the Funds do not have a front-end load, because the distribution fees
are paid out of the Funds' assets on an ongoing basis, over time these fees will
increase the cost of your investment and may cost you more than paying other
types of sales charges.
CNI CHARTER FUNDS | PAGE 21
The Distributor may, from time to time in its sole discretion, institute one or
more promotional incentive programs for dealers, which will be paid for by the
Distributor from any distribution fees it receives or from any other source
available to it. Under any such program, the Distributor may provide cash or
non-cash compensation as recognition for past sales or encouragement for future
sales that may include the following: merchandise, travel expenses, prizes,
meals, and lodgings, and gifts that do not exceed $100 per year, per individual.
SHAREHOLDER SERVICING FEES
The Funds have adopted a shareholder service plan that allows the Funds to pay
fees to broker-dealers and other financial intermediaries (including CNB) for
services provided to Class A shareholders. Because these fees are paid out of
the Funds' assets, over time these fees will also increase the cost of your
investment. Shareholder servicing fees under that plan, as a percentage of
average daily net assets, are 0.25% for Class A shares of the Funds, a portion
or all of which may be received by CNB or its affiliates.
CNI CHARTER FUNDS | PAGE 22
additional investment strategies and related risks
The following risks of the Funds referred to below are related to investment
strategies that are material but not fundamental strategies of the Funds. These
risks are in addition to the principal risks of the Funds discussed above. See
risks described with respect to each Fund under the section entitled "The
Funds."
FOREIGN SECURITIES - The Large Cap Growth Fund, the Large Cap Value Fund, the
RCB Small Cap Value Fund and the High Yield Bond Fund may invest in foreign
securities. Foreign investments may be subject to risks that are not typically
associated with investing in domestic companies. For example, such investments
may be adversely affected by changes in currency rates and exchange control
regulations, future political and economic developments and the possibility of
seizure or nationalization of companies, or the imposition of withholding taxes
on income. Foreign stock markets tend to be more volatile than the U.S. market
due to economic and political instability and regulatory conditions in some
countries. These foreign securities may be denominated in foreign currencies,
whose value may decline against the U.S. dollar.
DEFENSIVE INVESTMENTS - The strategies described in this prospectus are those
the Funds use under normal circumstances. At the discretion of each Fund's
portfolio managers, we may invest up to 100% of the Fund's assets in cash or
cash equivalents for temporary defensive purposes. No Fund is required or
expected to take such a defensive posture. But if used, such a stance may help a
Fund minimize or avoid losses during adverse market, economic or political
conditions. During such a period, a Fund may not achieve its investment
objective. For example, should the market advance during this period, a Fund may
not participate as much as it would have if it had been more fully invested.
PORTFOLIO TURNOVER - Each Fund will sell a security when its portfolio manager
believes it is appropriate to do so, regardless of how long a Fund has owned
that security. Buying and selling securities generally involves some expense to
a Fund, such as commissions paid to brokers and other transaction costs. By
selling a security, a Fund may realize taxable capital gains that it will
subsequently distribute to shareholders. Generally speaking, the higher a Fund's
annual portfolio turnover, the greater its brokerage costs and the greater the
likelihood that it will realize taxable capital gains. On the other hand, a Fund
may from time to time realize commission costs in order to engage in tax
minimization strategies if the result is a greater enhancement to the value of a
Fund share than the transaction cost to achieve it. Increased brokerage costs
may adversely affect a Fund's performance. Also, unless you are a tax-exempt
investor or you purchase shares through a tax-deferred account, the distribution
of capital gains may affect your after-tax return. Annual portfolio turnover of
100% or more is considered high.
SECTOR CONCENTRATION - From time to time a Fund may invest a significant portion
of its total assets in various industries in one or more sectors of the economy.
To the extent a Fund's assets are invested in a sector of the economy, the Fund
will be subject to market and economic factors impacting companies in that
sector.
SMALLER CAPITALIZED COMPANIES - The RCB Small Cap Value Fund will invest in
smaller capitalized companies. CNAM believes that smaller capitalized companies
generally have greater earnings and sales growth potential than larger
capitalized companies. The level of risk will be increased to the extent that a
Fund has significant exposure to smaller capitalized or unseasoned companies
(those with less than a three-year operating history). Investments in smaller
capitalized companies may involve greater risks, such as limited product lines,
markets and financial or managerial resources. In addition, the securities of
smaller capitalized companies may have few market makers, wider spreads between
their quoted bid and asked prices, and lower trading volume, resulting in
greater price volatility and less liquidity than the securities of larger
capitalized companies.
CNI CHARTER FUNDS | PAGE 23
how to buy, sell and exchange shares
Here are the details you should know about how to purchase, sell (sometimes
called "redeem") and exchange shares:
Shares of the Funds are offered only through approved broker-dealers or other
financial institutions (each an "Authorized Institution"). Your Authorized
Institution is responsible for maintaining your individual account records,
processing your order correctly and promptly, keeping you advised regarding the
status of your individual account, confirming your transactions and ensuring
that you receive copies of the Funds' prospectuses. You will also generally have
to address your correspondence or questions regarding the Funds to your
Authorized Institution.
HOW TO BUY SHARES
To purchase shares of a Fund, you should contact your Authorized Institution and
follow its procedures, including acceptable methods of payment and deadlines for
receipt by the Authorized Institution of your share purchase instructions. Your
Authorized Institution may charge a fee for its services, in addition to the
fees charged by the Funds. A Fund may reject any purchase order if it is
determined that accepting the order would not be in the best interest of the
Fund or its shareholders.
FOREIGN INVESTORS
The Funds do not generally accept investments by non-U.S. persons. Non-U.S.
persons may be permitted to invest in the Funds subject to the satisfaction of
enhanced due diligence.
CUSTOMER IDENTIFICATION AND VERIFICATION
To help the government fight the funding of terrorism and money laundering
activities, Federal law requires all financial institutions to obtain, verify,
and record information that identifies each person who opens an account.
What this means to you: when you open an account, your Authorized Institution
will ask you for certain information, which includes your name, address, date of
birth, and other information that will allow us to identify you. This
information is subject to verification to ensure the identity of all persons
opening a mutual fund account. Please contact your Authorized Institution for
more information.
The Funds are required by law to reject your investment if the required
identifying information is not provided.
In certain instances, the Authorized Institution is required to collect
documents on behalf of the Funds to fulfill their legal obligation. Documents
provided in connection with your application will be used solely to establish
and verify a customer's identity.
Attempts to collect missing information required on the application will be
performed by contacting you. If this information is unable to be obtained within
a timeframe established in the sole discretion of the Funds, your application
will be rejected.
Upon receipt of your application in proper form (or upon receipt of all
identifying information required on the application), your investment will be
accepted and your order will be processed at the net asset value per share
next-determined after receipt of your application in proper form.
However, the Funds reserve the right to close your account if it is unable to
verify your identity. Attempts to verify your identity will be performed within
a timeframe established in the sole discretion of the Funds. If the Funds are
unable to verify your identity, the Funds reserve the right to liquidate your
account at the then-current day's price and remit
CNI CHARTER FUNDS | PAGE 24
proceeds to you via check. The Funds reserve the further right to hold your
proceeds until clearance of your original check. In such an instance, you may be
subject to a gain or loss on Fund shares and will be subject to corresponding
tax implications.
ANTI-MONEY LAUNDERING PROGRAM
Customer identification and verification is part of the Funds' overall
obligation to deter money laundering under Federal law. The Funds have adopted
an Anti-Money Laundering Compliance Program designed to prevent the Funds from
being used for money laundering or the financing of terrorist activities. In
this regard, the Funds reserve the right to (i) refuse, cancel or rescind any
purchase or exchange order, (ii) freeze any account and/or suspend account
services or (iii) involuntarily close your account in cases of threatening
conduct or suspected fraudulent or illegal activity. These actions will be taken
when, in the sole discretion of Fund management, they are deemed to be in the
best interest of the Funds or in cases when the Funds are requested or compelled
to do so by governmental or law enforcement authority. If your account is closed
at the request of governmental or law enforcement authority, you may not receive
proceeds of the redemption if the Funds are required to withhold such proceeds.
HOW TO SELL SHARES
You may sell your shares only through your Authorized Institution. To sell
shares of a Fund, you should contact your Authorized Institution and follow its
procedures, including deadlines for receipt by the Authorized Institution of
your share redemption instructions. Your Authorized Institution may charge a fee
for its services, in addition to the fees charged by the Funds.
Normally, the Funds will make payment on your redemption request as promptly as
possible after receiving your request, but it may take up to seven business
days.
We generally pay sale (redemption) proceeds in cash. However, under conditions
where cash redemptions are detrimental to a Fund and its shareholders, we
reserve the right to make redemptions in readily marketable securities rather
than cash (a "redemption in kind"). It is highly unlikely that your shares would
ever be redeemed in kind, but if they were, you would probably have to pay
transaction costs to sell the securities distributed to you, as well as taxes on
any capital gains from the sale as with any redemption.
The Funds may suspend your right to redeem your shares if the New York Stock
Exchange (the "NYSE") or the Federal Reserve restricts trading, the SEC declares
an emergency or for other reasons, as permitted by federal securities laws.
Please see the SAI for a more detailed discussion.
HOW TO EXCHANGE SHARES
You may exchange Class A shares of a Fund for Class A shares of any other CNI
Charter Fund in which you are eligible to invest on any business day. When you
exchange shares, you are really selling your shares and buying other shares, so
your sale price and purchase price will be based on the price or net asset value
("NAV") of the relevant Funds next calculated after we receive your exchange
request. To exchange shares of a Fund, you should contact your Authorized
Institution.
FREQUENT PURCHASES AND REDEMPTIONS OF FUND SHARES
The Funds' Board of Trustees has adopted policies and procedures with respect to
frequent purchases and redemptions of Fund shares. The Funds discourage
short-term or other excessive trading (such as market timing) into and out of
the Funds because such trading may harm performance by disrupting portfolio
management strategies and by increasing expenses. The Funds do not accommodate
frequent purchases and redemptions of Fund shares and reserve the right to
restrict, reject or cancel, without any prior notice, any purchase or exchange
CNI CHARTER FUNDS | PAGE 25
order, including transactions representing excessive trading and transactions
accepted by any shareholder's Authorized Institution.
SEI Investments Management Corporation (d.b.a. SEI Institutional Transfer
Agency), transfer agent to the Funds (the "Transfer Agent"), has procedures in
place designed to detect and prevent market timing activity. CNAM also
participates in the enforcement of the Funds' market timing prevention policy by
monitoring transaction activity in the Funds. CNAM and the Transfer Agent
currently monitor for various patterns in trading activity in client accounts,
including omnibus accounts, such as a purchase and sale of shares of a Fund (a
"round trip") within 30 days, multiple round trips within several months, and
four exchanges per quarter. These parameters are subject to change.
Shareholders seeking to engage in excessive trading practices may use a variety
of strategies to avoid detection and, despite the efforts of the Funds to
prevent excessive trading, there is no guarantee that the Funds or their
transfer agents will be able to identify such shareholders or curtail their
trading practices. The ability of the Funds and their agents to detect and
curtail excessive trading practices may also be limited by operational systems
and technological limitations. In addition, the Funds receive purchase, exchange
and redemption orders through financial intermediaries and cannot always know or
reasonably detect excessive trading which may be facilitated by these
intermediaries or by their use of omnibus account arrangements. However, the
Funds' distributor has received assurances from each financial intermediary
which sells shares of the Funds that it has procedures in place to monitor for
excessive trading.
GENERAL INFORMATION
How and when we calculate each Fund's NAV determines the price at which you will
buy or sell shares. We calculate the NAV of each Fund as of the close of trading
on the NYSE every day the NYSE is open. Shares may be purchased or sold on any
day that the NYSE is open for business. The Funds reserve the right to open for
business on days the NYSE is closed but the Federal Reserve Bank of New York is
open. Shares, however, cannot be purchased or sold by Federal Reserve wire on
days when either the NYSE or Federal Reserve is closed. The NYSE usually closes
at 4:00 p.m. Eastern time on weekdays, except for holidays.
On any business day when the Bond Market Association (the "BMA") recommends that
the securities markets close early, each of the Corporate Bond Fund, the
Government Bond Fund, the California Tax Exempt Bond Fund and the High Yield
Bond Fund (each, a "Bond Fund") reserves the right to close at or prior to the
BMA recommended closing time. If a Bond Fund does so, it will not grant same
business day credit for purchase and redemption orders received after the Bond
Fund's closing time and credit will be given on the next business day.
If we receive your purchase, redemption or exchange order from your Authorized
Institution before close of trading on the NYSE, we will price your order at
that day's NAV. If we receive your order after close of trading on the NYSE, we
will price your order at the next day's NAV. In some cases, however, you may
have to transmit your request to your Authorized Institution by an earlier time
in order for your request to be effective that day. This allows your Authorized
Institution time to process your request and transmit it to the Funds before
close of trading on the NYSE.
HOW WE CALCULATE NAV
NAV for one share of a Fund is the value of that share's portion of the net
assets (I.E., assets less liabilities) of that Fund. We calculate each Fund's
NAV by dividing the total net value of its assets by the number of outstanding
shares. We base the value of each Fund's investments on its market value,
usually the last price reported for each security before the close of the market
that day. A market price may not be available for securities that trade
infrequently. If market prices are not readily available or considered to be
unreliable, fair value prices may be determined by the Funds' Fair Value
Committee in good faith using methods approved by the Board
CNI CHARTER FUNDS | PAGE 26
of Trustees. For instance, if trading in a security has been halted or suspended
or a security has been delisted from a national exchange, a security has not
been traded for an extended period of time, or a significant event with respect
to a security occurs after the close of the market or exchange on which the
security principally trades and before the time the Funds calculate NAV, the
Fair Value Committee will determine the security's fair value. In determining
the fair value of a security, the Fair Value Committee will consider CNAM's (or
the relevant sub-advisor's) valuation recommendation and information supporting
the recommendation, including factors such as the type of security, last trade
price, fundamental analytical data relating to the security, forces affecting
the market in which the security is purchased and sold, the price and extent of
public trading in similar securities of the issuer or comparable companies, and
other relevant factors. Valuing securities at fair value involves greater
reliance on judgment than valuation of securities based on readily available
market quotations. A fund that uses fair value to price securities may value
those securities higher or lower than another fund using market quotations or
fair value to price the same securities. There can be no assurance that the fund
could obtain the fair value assigned to a security if it were to sell the
security at approximately the time at which the fund determines its net asset
value. The NAV may vary for different share classes of the same Fund. More
details about how we calculate the NAV for each Fund are in the SAI.
PURCHASE AND ACCOUNT BALANCE MINIMUMS
There are no minimum purchase or minimum shareholder account balance
requirements; however, you will have to comply with the purchase and account
balance minimums of your Authorized Institution. The Funds may require each
Authorized Institution to meet certain aggregate investment levels before it may
open an account with the Funds on behalf of its customers. Contact your
Authorized Institution for more information.
dividends
For the Corporate Bond Fund, the Government Bond Fund, the California Tax Exempt
Bond Fund and the High Yield Bond Fund, we will declare investment income daily
and distribute it monthly as a dividend to shareholders. For the Large Cap
Growth Fund and the Large Cap Value Fund, we will declare and distribute
investment income, if any, quarterly as a dividend to shareholders. For the RCB
Small Cap Value Fund, we will declare and distribute investment income, if any,
annually as a dividend to shareholders. The Funds make distributions of capital
gains, if any, at least annually. If you own Fund shares on a Fund's record
date, you will be entitled to receive the distribution. Following their fiscal
year end (September 30), the Funds may make additional distributions to avoid
the imposition of a tax.
We will automatically reinvest your dividends and capital gains distributions in
additional full or fractional shares, unless you instruct your Authorized
Institution in writing prior to the date of the dividend or distribution of your
election to receive payment in cash. Your election will be effective for all
dividends and distributions paid after your Authorized Institution receives your
written notice. To cancel your election, please send your Authorized Institution
written notice. Proceeds from dividends or distributions will normally be wired
to your Authorized Institution on the business day after dividends or
distributions are credited to your account.
CNI CHARTER FUNDS | PAGE 27
taxes
PLEASE CONSULT YOUR TAX ADVISOR REGARDING YOUR SPECIFIC QUESTIONS ABOUT FEDERAL,
STATE AND LOCAL INCOME TAXES. Below, we have summarized some important tax
issues that affect the Funds and their shareholders. This summary is based on
current tax laws, which may change.
Each Fund will distribute substantially all of its net investment income and
capital gains, if any. The dividends and distributions you receive may be
subject to federal, state and local taxation, unless you invest solely through a
tax-advantaged account such as an IRA or a 401(k) plan. Distributions you
receive from a Fund may be taxable whether or not you reinvest them in the
Funds. Income distributions are generally taxable at ordinary income tax rates.
Capital gains distributions are generally taxable at the rates applicable to
capital gains. EACH SALE OR EXCHANGE OF FUND SHARES IS A TAXABLE EVENT.
Capital gains may be taxable at different rates depending upon the length of
time a Fund holds its assets. We will inform you about the character of any
dividends and capital gains upon payment. After the close of each calendar year,
we will advise you of the tax status of distributions. Any redemption of a
Fund's shares or any exchange of a Fund's shares for another Fund will be
treated as a sale, and any gain on the transaction may be taxable.
You must provide your Authorized Institution with your social security or tax
identification number on your account application form and specify whether or
not you are subject to backup withholding. Otherwise, you may be subject to
backup withholding at a rate of 28%.
If you plan to purchase shares of a Fund, check if it is planning to make a
distribution in the near future. If you do not check, and you buy shares of the
Fund just before a distribution, you will pay full price for the shares but
receive a portion of your purchase price back as a taxable distribution. This is
called "buying a dividend." Unless you hold the Fund in a tax-deferred account,
you will have to include the distribution in your gross income for tax purposes,
even though you may have not participated in the Fund's appreciation.
The California Tax Exempt Bond Fund intends to continue paying what the Internal
Revenue Code of 1986, as amended (the "Code"), calls "exempt-interest dividends"
to shareholders by maintaining, as of the close of each quarter of its taxable
year, at least 50% of the value of its assets in California municipal bonds. If
that Fund satisfies this requirement, any distributions paid to shareholders
from its net investment income will be exempt from federal income tax, to the
extent that that Fund derives its net investment income from interest on
municipal bonds. Any distributions paid from other sources of net investment
income, such as market discounts on certain municipal bonds, will be treated as
ordinary income by the Code.
More information about taxes is contained in the SAI.
CNI CHARTER FUNDS | PAGE 28
financial highlights
The following financial highlights tables are intended to help you understand
the Funds' financial performance. For each of the Funds, information for the
years or periods indicated below has been audited by KPMG LLP, whose report,
along with the Funds' financial statements, are included in the Funds' 2006
Annual Report (available upon request; see the back cover of this Prospectus).
Information presented in the financial highlights tables is for a Class A share
outstanding throughout each period. The total return figures in the tables
represent the rate an investor would have earned (or lost) on a Class A
investment in each Fund (assuming reinvestment of all dividends and
distributions).
LARGE CAP GROWTH FUND
Year ended Year ended Year ended Year ended Year ended
Sept. 30, 2006(1) Sept. 30, 2005(1) Sept. 30, 2004(1) Sept. 30, 2003(1) Sept. 30, 2002
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE
BEGINNING OF PERIOD $ 7.35 $ 6.69 $ 6.32 $ 5.21 $ 6.33
- ----------------------------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss) -- 0.02 (0.01) (0.01) (0.02)
Net Realized and Unrealized
Gains (Losses) on Securities 0.33 0.67 0.38 1.12 (1.10)
- ----------------------------------------------------------------------------------------------------------------------------------
Total from Operations 0.33 0.69 0.37 1.11 (1.12)
- ----------------------------------------------------------------------------------------------------------------------------------
Dividends from Net
Investment Income (0.00)(2) (0.03) (0.00)(2) -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total Dividends (0.00)(2) (0.03) (0.00)(2) -- --
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE END OF PERIOD $ 7.68 $ 7.35 $ 6.69 $ 6.32 $ 5.21
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN* 4.55% 10.28% 5.87% 21.31% (17.69%)
Net Assets End of Period (000's) $ 10,363 $ 8,278 $ 5,223 $ 1,965 $ 798
Ratio of Expenses to
Average Net Assets(3) 1.24% 1.23% 1.26% 1.30% 1.30%
Ratio of Net Investment Income
(Loss) to Average Net Assets 0.03% 0.33% (0.14%) (0.09%) (0.29%)
Ratio of Expenses to Average
Net Assets (Excluding Waivers
& Recaptured Fees) 1.25% 1.25% 1.26% 1.29% 1.34%
Portfolio Turnover Rate 34% 27% 50% 43% 31%
_____________________
* Returns are for the period indicated and have not been annualized. Fee
waivers were in effect; if they had not been in effect, performance would
have been lower. Returns shown do not reflect the deduction of taxes that
a shareholder would pay on fund distributions or the redemption of fund
shares.
(1) Per share calculations are based on Average Shares outstanding throughout
the period.
(2) Amount represents less than $0.01 per share.
(3) Ratio includes waivers and previously waived investment fees. The impact
of the recovered fees may cause a higher net expense ratio.
CNI CHARTER FUNDS | PAGE 29
LARGE CAP VALUE FUND
Year ended Year ended Year ended Year ended Year ended
Sept. 30, 2006(1) Sept. 30, 2005(1) Sept. 30, 2004(1) Sept. 30, 2003 Sept. 30, 2002
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE
BEGINNING OF PERIOD $ 9.53 $ 8.76 $ 7.41 $ 6.04 $ 7.62
- ----------------------------------------------------------------------------------------------------------------------------------
Net Investment Income 0.11 0.09 0.05 0.06 0.05
Net Realized and Unrealized
Gains (Losses) on Securities 1.20 1.12 1.36 1.37 (1.46)
- ----------------------------------------------------------------------------------------------------------------------------------
Total from Operations 1.31 1.21 1.41 1.43 (1.41)
- ----------------------------------------------------------------------------------------------------------------------------------
Dividends from
Net Investment Income (0.10) (0.08) (0.06) (0.06) (0.05)
Distributions from
Realized Capital Gains (0.39) (0.36) -- -- (0.12)
- ----------------------------------------------------------------------------------------------------------------------------------
Total Dividends & Distributions (0.49) (0.44) (0.06) (0.06) (0.17)
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE
END OF PERIOD $ 10.35 $ 9.53 $ 8.76 $ 7.41 $ 6.04
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN* 14.24% 14.14% 19.01% 23.75% (18.97%)
Net Assets End of Period (000's) $ 13,104 $ 10,664 $ 6,281 $ 1,792 $ 769
Ratio of Expenses to
Average Net Assets(2) 1.21% 1.21% 1.22% 1.25% 1.25%
Ratio of Net Investment Income
to Average Net Assets 1.13% 0.87% 0.64% 0.84% 0.65%
Ratio of Expenses to Average
Net Assets (Excluding Waivers
& Recaptured Fees) 1.22% 1.22% 1.22% 1.25% 1.30%
Portfolio Turnover Rate 31% 34% 36% 39% 42%
_____________________
* Returns are for the period indicated and have not been annualized. Fee
waivers were in effect; if they had not been in effect, performance would
have been lower. Returns shown do not reflect the deduction of taxes that
a shareholder would pay on fund distributions or the redemption of fund
shares.
(1) Per share calculations are based on Average Shares outstanding throughout
the period.
(2) Ratio includes waivers and previously waived investment fees. The impact
of the recovered fees may cause a higher net expense ratio.
CNI CHARTER FUNDS | PAGE 30
RCB SMALL CAP VALUE FUND
Year ended Year ended Year ended Year ended Period ended
Sept. 30, 2006(1) Sept. 30, 2005(1) Sept. 30, 2004(1) Sept. 30, 2003(1) Sept. 30, 2002(2)
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE
BEGINNING OF PERIOD $ 28.31 $ 27.13 $ 21.84 $ 15.04 $ 17.11
- ------------------------------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss) (0.01) 0.00 (0.02) (0.08) (0.05)
Net Realized and Unrealized
Gains (Losses) on Securities 0.05 2.55 5.39 6.88 (2.02)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from Operations 0.04 2.55 5.37 6.80 (2.07)
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends from
Net Investment Income 0.00(3) -- -- -- --
Distributions from
Realized Capital Gains (0.37) (1.37) (0.08) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total Dividends & Distributions (0.37) (1.37) (0.08) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE
END OF PERIOD $ 27.98 $ 28.31 $ 27.13 $ 21.84 $ 15.04
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN* 0.17% 9.55% 24.64% 45.21% (12.10%)
Net Assets End of Period (000's) $ 10,470 $ 12,754 $ 7,551 $ 2,384 $ 410
Ratio of Expenses to
Average Net Assets(4)(5) 1.45% 1.43% 1.49% 1.49% 1.49%
Ratio of Net Investment Income
(Loss) to Average Net Assets(4) (0.04%) 0.01% (0.07%) (0.45%) (0.74%)
Ratio of Expenses to Average
Net Assets (Excluding Waivers
& Recaptured Fees)(4) 1.46% 1.45% 1.48% 1.49% 1.53%
Portfolio Turnover Rate 66% 41% 40% 65% 39%
_____________________
* Returns are for the period indicated and have not been annualized. Fee
waivers were in effect; if they had not been in effect, performance would
have been lower. Returns shown do not reflect the deduction of taxes that
a shareholder would pay on fund distributions or the redemption of fund
shares.
(1) Per share calculations are based on Average Shares outstanding throughout
the period.
(2) RCB Small Cap Value Fund Class A shares commenced operations on October 3,
2001.
(3) Amount represents less than $0.01 per share.
(4) Annualized for periods less than one year.
(5) Ratio includes waivers and previously waived investment fees. The impact
of the recovered fees may cause a higher net expense ratio.
CNI CHARTER FUNDS | PAGE 31
CORPORATE BOND FUND
Year ended Year ended Year ended Year ended Year ended
Sept. 30, 2006(1) Sept. 30, 2005(1) Sept. 30, 2004(1) Sept. 30, 2003 Sept. 30, 2002
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE
BEGINNING OF PERIOD $ 10.27 $ 10.61 $ 10.89 $ 10.65 $ 10.73
- ----------------------------------------------------------------------------------------------------------------------------------
Net Investment Income 0.39 0.37 0.37 0.44 0.50
Net Realized and Unrealized
Gains (Losses) on Securities (0.10) (0.28) (0.16) 0.23 0.08
- ----------------------------------------------------------------------------------------------------------------------------------
Total from Operations 0.29 0.09 0.21 0.67 0.58
- ----------------------------------------------------------------------------------------------------------------------------------
Dividends from
Net Investment Income (0.39) (0.37) (0.38) (0.43) (0.50)
Distributions from
Realized Capital Gains -- (0.06) (0.11) -- (0.16)
- ----------------------------------------------------------------------------------------------------------------------------------
Total Dividends & Distributions (0.39) (0.43) (0.49) (0.43) (0.66)
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE
END OF PERIOD $ 10.17 $ 10.27 $ 10.61 $ 10.89 $ 10.65
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN* 2.93% 0.91% 1.99% 6.47% 5.69%
Net Assets End of Period (000's) $ 1,332 $ 1,530 $ 1,522 $ 830 $ 544
Ratio of Expenses to
Average Net Assets(2) 1.00% 1.00% 1.00% 1.00% 1.00%
Ratio of Net Investment Income
to Average Net Assets 3.88% 3.55% 3.51% 4.00% 4.71%
Ratio of Expenses to Average
Net Assets (Excluding Waivers) 1.00% 1.01% 1.04% 1.03% 1.07%
Portfolio Turnover Rate 25% 25% 57% 66% 55%
_____________________
* Returns are for the period indicated and have not been annualized. Fee
waivers were in effect; if they had not been in effect, performance would
have been lower. Returns shown do not reflect the deduction of taxes that
a shareholder would pay on fund distributions or the redemption of fund
shares.
(1) Per share calculations are based on Average Shares outstanding throughout
the period.
(2) Ratio includes waivers and previously waived investment fees. The impact
of the recovered fees may cause a higher net expense ratio.
CNI CHARTER FUNDS | PAGE 32
GOVERNMENT BOND FUND
Year ended Year ended Year ended Year ended Year ended
Sept. 30, 2006(1) Sept. 30, 2005(1) Sept. 30, 2004(1) Sept. 30, 2003(1) Sept. 30, 2002
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE
BEGINNING OF PERIOD $ 10.42 $ 10.64 $ 10.95 $ 11.01 $ 10.77
- ----------------------------------------------------------------------------------------------------------------------------------
Net Investment Income 0.39 0.29 0.23 0.33 0.43
Net Realized and Unrealized
Gains (Losses) on Securities (0.12) (0.17) (0.17) (0.04) 0.34
- ----------------------------------------------------------------------------------------------------------------------------------
Total from Operations 0.27 0.12 0.06 0.29 0.77
- ----------------------------------------------------------------------------------------------------------------------------------
Dividends from
Net Investment Income (0.39) (0.28) (0.23) (0.34) (0.41)
Distributions from
Realized Capital Gains -- (0.06) (0.14) (0.01) (0.12)
- ----------------------------------------------------------------------------------------------------------------------------------
Total Dividends & Distributions (0.39) (0.34) (0.37) (0.35) (0.53)
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE
END OF PERIOD $ 10.30 $ 10.42 $ 10.64 $ 10.95 $ 11.01
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN* 2.63% 1.16% 0.55% 2.71% 7.47%
Net Assets End of Period (000's) $ 1,782 $ 554 $ 436 $ 18 $ 525
Ratio of Expenses to
Average Net Assets(2) 0.95% 0.95% 0.95% 0.95% 0.95%
Ratio of Net Investment Income
to Average Net Assets 3.81% 2.70% 2.14% 3.00% 3.70%
Ratio of Expenses to Average
Net Assets (Excluding Waivers) 1.03% 1.04% 1.06% 1.06% 1.11%
Portfolio Turnover Rate 62% 58% 169% 54% 70%
_____________________
* Returns are for the period indicated and have not been annualized. Fee
waivers were in effect; if they had not been in effect, performance would
have been lower. Returns shown do not reflect the deduction of taxes that
a shareholder would pay on fund distributions or the redemption of fund
shares.
(1) Per share calculations are based on Average Shares outstanding throughout
the period.
(2) Ratio includes waivers and previously waived investment fees. The impact
of the recovered fees may cause a higher net expense ratio.
CNI CHARTER FUNDS | PAGE 33
CALIFORNIA TAX EXEMPT BOND FUND
Year ended Year ended Year ended Year ended Year ended
Sept. 30, 2006(1) Sept. 30, 2005(1) Sept. 30, 2004(1) Sept. 30, 2003 Sept. 30, 2002
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE
BEGINNING OF PERIOD $ 10.29 $ 10.44 $ 10.62 $ 10.85 $ 10.51
- ----------------------------------------------------------------------------------------------------------------------------------
Net Investment Income 0.26 0.25 0.24 0.27 0.33
Net Realized and Unrealized
Gains (Losses) on Securities 0.02 (0.11) (0.05) (0.02) 0.43
- ----------------------------------------------------------------------------------------------------------------------------------
Total from Operations 0.28 0.14 0.19 0.25 0.76
- ----------------------------------------------------------------------------------------------------------------------------------
Dividends from
Net Investment Income (0.26) (0.25) (0.24) (0.29) (0.33)
Distributions for
Realized Capital Gains (0.04) (0.04) (0.13) (0.19) (0.09)
- ----------------------------------------------------------------------------------------------------------------------------------
Total Dividends & Distributions (0.30) (0.29) (0.37) (0.48) (0.42)
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE
END OF PERIOD $ 10.27 $ 10.29 $ 10.44 $ 10.62 $ 10.85
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN* 2.81% 1.39% 1.84% 2.37% 7.40%
Net Assets End of Period (000's) $ 1,134 $ 1,487 $ 2,439 $ 732 $ 13
Ratio of Expenses to
Average Net Assets(2) 0.75% 0.75% 0.75% 0.75% 0.75%
Ratio of Net Investment Income
to Average Net Assets 2.59% 2.43% 2.29% 2.62% 3.05%
Ratio of Expenses to Average
Net Assets (Excluding Waivers) 0.87% 0.88% 0.90% 0.90% 0.95%
Portfolio Turnover Rate 43% 54% 51% 68% 90%
_____________________
* Returns are for the period indicated and have not been annualized. Fee
waivers were in effect; if they had not been in effect, performance would
have been lower. Returns shown do not reflect the deduction of taxes that
a shareholder would pay on fund distributions or the redemption of fund
shares.
(1) Per share calculations are based on Average Shares outstanding throughout
the period.
(2) Ratio includes waivers and previously waived investment fees. The impact
of the recovered fees may cause a higher net expense ratio.
CNI CHARTER FUNDS | PAGE 34
HIGH YIELD BOND FUND
Year ended Year ended Year ended Year ended Year ended
Sept. 30, 2006(1) Sept. 30, 2005(1) Sept. 30, 2004(1) Sept. 30, 2003 Sept. 30, 2002
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE
BEGINNING OF PERIOD $ 9.04 $ 9.31 $ 8.95 $ 8.16 $ 8.57
- ----------------------------------------------------------------------------------------------------------------------------------
Net Investment Income 0.65 0.69 0.70 0.74 0.81
Net Realized and Unrealized
Gains (Losses) on Securities (0.08) (0.27) 0.35 0.78 (0.40)
- ----------------------------------------------------------------------------------------------------------------------------------
Total from Operations 0.57 0.42 1.05 1.52 0.41
- ----------------------------------------------------------------------------------------------------------------------------------
Dividends from
Net Investment Income (0.65) (0.69) (0.69) (0.73) (0.82)
- ----------------------------------------------------------------------------------------------------------------------------------
Total Dividends (0.65) (0.69) (0.69) (0.73) (0.82)
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE
END OF PERIOD $ 8.96 $ 9.04 $ 9.31 $ 8.95 $ 8.16
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN* 6.58% 4.54% 12.14% 19.39% 4.49%
Net Assets End of Period (000's) $ 20,045 $ 21,028 $ 20,655 $ 16,878 $ 9,397
Ratio of Expenses to
Average Net Assets(2) 1.30% 1.30% 1.30% 1.30% 1.30%
Ratio of Net Investment Income
to Average Net Assets 7.28% 7.41% 7.56% 8.44% 9.03%
Ratio of Expenses to Average
Net Assets (Excluding Waivers) 1.40% 1.41% 1.44% 1.43% 1.48%
Portfolio Turnover Rate 23% 46% 35% 36% 30%
_____________________
* Returns are for the period indicated and have not been annualized. Fee
waivers were in effect; if they had not been in effect, performance would
have been lower. Returns shown do not reflect the deduction of taxes that
a shareholder would pay on fund distributions or the redemption of fund
shares.
(1) Per share calculations are based on Average Shares outstanding throughout
the period.
(2) Ratio includes waivers and previously waived investment fees. The impact
of the recovered fees may cause a higher net expense ratio.
CNI CHARTER FUNDS | PAGE 35
important terms to know
QUALITY -- the credit rating given to a security by a nationally recognized
statistical rating organization.
YIELD -- the interest rate you would receive if you kept your investment in a
Fund for a year. It is based on the current interest rate for a trailing
seven-day period.
EFFECTIVE YIELD -- the interest rate, compounded weekly, you would receive if
you kept your investment in a Fund for a year.
DURATION -- the sensitivity of a debt security to changes in interest rates. It
takes into account both interest payments and payment at maturity.
S&P 500/CITIGROUP GROWTH INDEX -- measures the performance of all of the stocks
in the Standard & Poor's 500 that are classified as growth stocks. A proprietary
methodology is used to score constituents, which are weighted according to their
market capitalization.
S&P 500/CITIGROUP VALUE INDEX -- measures the performance of all of the stocks
in the Standard & Poor's 500 that are classified as value stocks. A proprietary
methodology is used to score constituents, which are weighted according to their
market capitalization.
RUSSELL 2000 INDEX -- measures the performance of the 2,000 smallest companies
in the Russell 3000 Index, which measures the performance of the 3,000 largest
U.S. companies based on total market capitalization.
RUSSELL 2000 VALUE INDEX -- measures the performance of those Russell 2000
companies that have low price-to-book ratios and low forecasted growth values.
The Index is reconstituted annually effective the last Friday of June each year.
The Index is designed so that approximately 50% of the Russell 2000 market
capitalization is in the Value Index.
RUSSELL 2500 VALUE INDEX -- measures the performance of those Russell 2500
companies (the 2,500 smallest companies in the Russell 3000 Index) that have low
price-to-book ratios and low forecasted growth values. The Index is rebalanced
annually effective the last Friday of June each year. The Index is designed so
that approximately 50% of the Russell 2500 market capitalization is in the Value
Index.
LEHMAN INTERMEDIATE U.S. CORPORATE INDEX -- comprised of fixed income securities
issued by corporations which have a fixed rate coupon, have between 1 and 10
years to maturity, at least $150 million par outstanding, an investment grade
rating from Moody's Investors Service (Baa3 or better), and are publicly
registered. The composition of the Index is rebalanced monthly to include the
universe of securities meeting the above criteria.
LEHMAN INTERMEDIATE U.S. GOVERNMENT BOND INDEX -- comprised of securities issued
by the U.S. Government and U.S. Government agencies which have a fixed rate
coupon, between 1 and 10 years to maturity, and at least $150 million par
outstanding. The composition of the Index is rebalanced monthly to include the
universe of securities meeting the above criteria.
LEHMAN CA INTERMEDIATE-SHORT MUNICIPAL INDEX -- comprised of California
state-specific municipal issues which have a fixed rate coupon, have between 1
and 10 years to maturity, an investment grade rating from Moody's Investors
Service (Baa3 or better), and are publicly registered. The individual issues
must also have at least $5 million par outstanding and be part of a deal of $50
million or more. The composition of the Index is rebalanced monthly to include
the universe of securities meeting the above criteria.
CITIGROUP HIGH YIELD MARKET INDEX -- comprised of cash-pay deferred-interest and
Rule 144A bonds with remaining maturities of at least one year and a minimum
amount outstanding of US $100 million. The issuers are domiciled in either the
United States or Canada.
CNI CHARTER FUNDS | PAGE 36
privacy principles
CNI Charter Funds and its affiliates know our shareholders expect and rely upon
us to maintain the confidentiality and privacy of all of the information about
them in our possession and control. Maintaining the trust and confidence of our
shareholders is our highest priority. We have adopted and published the CNI
Charter Funds Statement of Privacy Principles to guide our conduct when we
collect, use, maintain or release shareholder information and to assist our
shareholders and others to better understand our privacy practices in general
and as they apply to nonpublic personal information in particular. Certain
information regarding the Funds' Privacy Principles is summarized below.
We will obey all applicable laws respecting the privacy of nonpublic personal
information and will comply with the obligations of the law respecting nonpublic
personal information provided to us. We collect, use and retain the information,
including nonpublic personal information, about our shareholders and prospective
shareholders that we believe is necessary for us to understand and better meet
their financial needs and requests, to administer and maintain their accounts,
to provide them with our products and services, to anticipate their future
needs, to protect them and us from fraud or unauthorized transactions, and to
meet legal requirements.
We may share information regarding our shareholders with our affiliates as
permitted by law because some of our products and services are delivered through
or in conjunction with our affiliates. We instruct our colleagues to limit the
availability of all shareholder information within our organization to those
colleagues responsible for servicing the needs of the shareholder and those
colleagues who reasonably need such information to perform their duties and as
required or permitted by law.
We do provide shareholder information, including nonpublic personal information,
to our vendors and other outside service providers whom we use when appropriate
or necessary to perform and enhance our shareholder services. When we provide
shareholder information to anyone outside our organization, we only do so as
required or permitted by law. We require all of our vendors and service
providers who receive shareholder information from us to agree to maintain the
information in confidence, to limit the use and dissemination of the information
to the purpose for which it is provided and to abide by the law. To the extent
permitted by law, we undertake to advise a shareholder of any government or
other legal process served on us requiring disclosure of information about that
shareholder.
Except as stated above, we limit our disclosure of nonpublic personal
information to third parties to the following circumstances: (i) when requested
to do so by the shareholder; (ii) when necessary, in our opinion, to effect,
administer, or enforce a shareholder initiated transaction; and (iii) when
required or permitted to do so by law or regulation, including authorized
requests from government agencies and if we are the victim of fraud or otherwise
suffer loss caused by the unlawful act of the shareholder.
A full copy of CNI Charter Funds' Statement of Privacy Principles is available
at WWW.CNICHARTERFUNDS.COM. Should you have any questions regarding the Funds'
Privacy Principles, please contact your investment professional or the Funds at
1-888-889-0799.
CNI CHARTER FUNDS | PAGE 37
For More Information
CNI CHARTER FUNDS
Additional information is available free of charge in the Statement of
Additional Information ("SAI"). The SAI is incorporated by reference (legally
considered part of this document). In the Funds' Annual Report, you will find a
discussion of the market conditions and investment strategies that significantly
affected the Funds' performance during their last fiscal year. Additional
information about the Funds' investments is available in the Funds' Annual and
Semi-Annual Reports. To receive a free copy of this Prospectus, the SAI, or the
Annual and Semi-Annual Reports (when available), please contact:
SEI Investments Distribution Co.
One Freedom Valley Drive
Oaks, Pennsylvania 19456
1-888-889-0799
Information about the Funds may be reviewed and copied:
o at the SEC's Public Reference Room in Washington, D.C. at 1-202-942-8090;
o on the EDGAR database on the SEC's Internet site at www.sec.gov; or
o by written request (including duplication fee) to the Public Reference
Section of the SEC, Washington, D.C. 20549-6009 or by electronic request
at publicinfo@sec.gov.
For the current seven-day yield, or if you have questions about the Funds,
please call 1-888-889-0799.
The Funds' Investment Company Act File Number: 811-07923.
CNI-PS-005-0600
Exhibit L
STATEMENT OF ADDITIONAL INFORMATION
CNI CHARTER FUNDS
400 North Roxbury Drive, Beverly Hills, California 90210
LARGE CAP GROWTH EQUITY FUND
LARGE CAP VALUE EQUITY FUND
TECHNOLOGY GROWTH FUND
RCB SMALL CAP VALUE FUND
CORPORATE BOND FUND
GOVERNMENT BOND FUND
CALIFORNIA TAX EXEMPT BOND FUND
HIGH YIELD BOND FUND
PRIME MONEY MARKET FUND
GOVERNMENT MONEY MARKET FUND
CALIFORNIA TAX EXEMPT MONEY MARKET FUND
Institutional Class, Class A, Class S and Class R Shares
January 31, 2007
Mutual fund shares are not insured or guaranteed by the U.S. Government, the
Federal Deposit Insurance Corporation or any other governmental agency. Mutual
fund shares are not bank deposits, nor are they obligations of, or issued,
endorsed or guaranteed by City National Bank ("CNB"). Investing in mutual funds
and other securities involves risks, including possible loss of principal.
This Statement of Additional Information ("SAI") is not a prospectus. It should
be read in conjunction with the Prospectuses dated January 31, 2007, which may
be amended from time to time, for the Large Cap Growth Equity Fund (the "Large
Cap Growth Fund"), the Large Cap Value Equity Fund (the "Large Cap Value Fund"),
the Technology Growth Fund, the RCB Small Cap Value Fund (the "Small Cap Value
Fund"), the Corporate Bond Fund, the Government Bond Fund, the California Tax
Exempt Bond Fund (the "California Bond Fund"), the High Yield Bond Fund, the
Prime Money Market Fund (the "Prime Money Fund"), the Government Money Market
Fund (the "Government Money Fund") and the California Tax Exempt Money Market
Fund (the "California Money Fund").
The Large Cap Growth Fund, the Large Cap Value Fund, the Technology Growth Fund
and the Small Cap Value Fund are referred to herein as the "Equity Funds." The
Corporate Bond Fund, the Government Bond Fund, the California Bond Fund and the
High Yield Bond Fund are referred to herein as the "Bond Funds." The Prime Money
Fund, the Government Money Fund and the California Money Fund are referred to
herein as the "Money Funds." The Equity Funds, the Bond Funds and the Money
Funds are referred to herein as the "Funds."
Each Fund is a series of CNI Charter Funds (the "Trust"), an open-end,
management investment company. Each Fund other than the California Bond Fund is
a diversified portfolio; the California Bond Fund is a non-diversified
portfolio. Audited financial statements for each of the Funds contained in the
Annual Report to Shareholders of the Funds for the fiscal year ended September
30, 2006, are incorporated herein by reference. Audited financial statements for
the predecessor to the Small Cap Value Fund, the RCB Small Cap Fund (a series of
Professionally Managed Portfolios) contained in the Annual Reports to
Shareholders of the RCB Small Cap Fund for the fiscal periods ending September
30, 2001 and June 30, 2001, are also incorporated herein by reference.
The AHA Limited Maturity Fixed Income Fund, AHA Full Maturity Fixed Income Fund,
AHA Balanced Fund, AHA Diversified Equity Fund and AHA Socially Responsible
Equity Fund series of the Trust (collectively, the "AHA Funds") are offered
through separate prospectuses and a separate
CNI-SX-003-0300
statement of additional information. Audit financial statements for each of the
AHA Funds are contained in a separate Annual Report to Shareholders for the
fiscal year ended September 30, 2006.
To obtain a free copy of the above-referenced Prospectuses or Annual Report for
the Funds, please call 1-888-889-0799 or visit www.cnicharterfunds.com. To
obtain a free copy of the above-referenced Prospectuses, Statement of Additional
Information or Annual Reports for the AHA Funds, please call 1-800-445-1341 or
visit www.ahafunds.org.
-2-
TABLE OF CONTENTS
Page
GENERAL INFORMATION...........................................................4
INVESTMENT TECHNIQUES AND RISK CONSIDERATIONS.................................4
INVESTMENT RESTRICTIONS......................................................31
MANAGEMENT OF THE TRUST......................................................36
PORTFOLIO TRANSACTIONS.......................................................53
DISTRIBUTIONS AND TAXES......................................................58
SHARE PRICE CALCULATION......................................................64
DISTRIBUTION PLAN............................................................67
SHAREHOLDER SERVICES AGREEMENT...............................................69
DEALER COMMISSIONS...........................................................70
EXPENSES.....................................................................71
CODE OF ETHICS...............................................................71
DISCLOSURE OF PORTFOLIO HOLDINGS.............................................71
PROXY VOTING.................................................................72
GENERAL INFORMATION..........................................................74
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES..........................75
PERFORMANCE INFORMATION......................................................82
PURCHASE AND REDEMPTION OF SHARES............................................85
OTHER INFORMATION............................................................87
FINANCIAL STATEMENTS.........................................................87
APPENDIX A - RATINGS OF INVESTMENT SECURITIES...............................A-1
-3-
GENERAL INFORMATION
The various classes of shares of each Fund commenced operations on the following
dates:
- ------------------------------------------------------------------------------------------
Fund Institutional Class A Class S Class R
Class
- ------------------------------------------------------------------------------------------
Large Cap Growth Fund 1/14/00 3/28/00 N/A N/A
- ------------------------------------------------------------------------------------------
Large Cap Value Fund 1/14/00 4/13/00 N/A N/A
- ------------------------------------------------------------------------------------------
Small Cap Value Fund 10/3/01 10/3/01 N/A 10/1/01(*)
- ------------------------------------------------------------------------------------------
Technology Growth Fund 10/3/00 10/23/00 N/A N/A
- ------------------------------------------------------------------------------------------
Corporate Bond Fund 1/14/00 4/13/00 N/A N/A
- ------------------------------------------------------------------------------------------
Government Bond Fund 1/14/00 4/13/00 N/A N/A
- ------------------------------------------------------------------------------------------
California Bond Fund 1/14/00 4/13/00 N/A N/A
- ------------------------------------------------------------------------------------------
High Yield Bond Fund 1/14/00 1/14/00 N/A N/A
- ------------------------------------------------------------------------------------------
Prime Money Fund 3/23/98 10/18/99 10/26/99 N/A
- ------------------------------------------------------------------------------------------
Government Money Fund 4/3/00 6/21/99 10/6/99 N/A
- ------------------------------------------------------------------------------------------
California Money Fund 4/3/00 6/21/99 11/12/99 N/A
- ------------------------------------------------------------------------------------------
In 2000, the fiscal year-end for the Trust was changed from October 31 to
September 30.
(*)The Small Cap Value Fund commenced operations on October 1, 2001, the date of
its acquisition of the assets and liabilities of a series of Professionally
Managed Portfolios, a registered investment company (the "RCB Predecessor
Fund"), for which Reed Conner & Birdwell LLC ("RCB") served as investment
adviser, and which had the same investment objective, policies and strategies as
the Small Cap Value Fund. As compared with the Small Cap Value Fund, the RCB
Predecessor Fund had different service providers, a different board of trustees
and a different fee structure. In addition, the fiscal year end of the RCB
Predecessor Fund was June 30 while the Small Cap Value Fund's fiscal year ends
September 30. As of the date of the acquisition, all of the issued and
outstanding shares of the RCB Predecessor Fund were converted into Class R
shares of the Small Cap Value Fund. The RCB Predecessor Fund commenced
operations on September 30, 1998.
City National Asset Management, Inc. ("CNAM, Inc." or the "Investment Manager")
serves as investment manager to the Funds. Each of Halbis Capital Management
(USA), Inc. ("Halbis") and Reed Conner & Birdwell LLC ("RCB" and together with
Halbis, the "Sub-Advisers") serves as a sub-adviser to one of the Funds, as
described more fully below.
INVESTMENT TECHNIQUES AND RISK CONSIDERATIONS
The Prospectuses show the principal strategies and risks of investing in each
Fund. This SAI shows additional strategies and risks of the Funds that an
investor should also consider.
PRIME MONEY FUND
The Prime Money Fund invests generally in the following types of U.S.
dollar-denominated money market instruments, which are deemed to mature in 397
days or less in accordance with federal securities regulations and which CNAM,
Inc. has determined present minimal credit risk:
- Commercial paper, including asset-backed commercial paper,
rated in one of the two highest rating categories by Moody's
Investors Services ("Moody's"), Standard and Poor's
Corporation ("S&P"), Fitch IBCA, Duff and Phelps Inc.
("Fitch"), or any other nationally recognized statistical
rating organization
-4-
("NRSRO"); or commercial paper or notes of issuers with an
unsecured debt issue outstanding currently rated in one of the
two highest rating categories by any NRSRO where the
obligation is on the same or a higher level of priority and
collateralized to the same extent as the rated issue.
- Other corporate obligations such as publicly traded bonds,
debentures, and notes rated in one of the two highest rating
categories by any NRSRO and other similar securities which, if
unrated by any NRSRO, are determined by the Investment
Manager, using guidelines approved by the Board of Trustees of
the Trust (the "Board of Trustees" or the "Board"), to be at
least equal in quality to one or more of the above referenced
securities.
- Obligations of, or guaranteed by, the U.S. or Canadian
governments, their agencies or instrumentalities.
- Repurchase agreements involving obligations that are suitable
for investment under the categories listed above.
- Certificates of deposit, time deposits, notes and bankers'
acceptances of U.S. domestic banks (including their foreign
branches), Canadian chartered banks, U.S. branches of foreign
banks and foreign branches of foreign banks having total
assets of $5 billion or greater.
GOVERNMENT MONEY FUND
It is a fundamental policy of the Government Money Fund to invest, under normal
conditions, in (1) U.S. Treasury obligations, (2) obligations issued or
guaranteed as to principal and interest by the agencies or instrumentalities of
the U.S. Government, and (3) repurchase agreements involving these obligations.
CALIFORNIA MONEY FUND
It is a fundamental policy of the California Money Fund to invest, under normal
conditions, at least 80% of its net assets in municipal securities that pay
interest that, in the opinion of bond counsel, is exempt from federal and
California state personal income tax and that is not a preference item for
purposes of the federal alternative minimum tax (the "AMT"). These constitute
municipal obligations of the State of California and its political subdivisions
of municipal authorities and municipal obligations issued by territories or
possessions of the United States. The California Money Fund may invest, under
normal conditions, up to 20% of its net assets in (1) municipal securities the
interest on which is a preference item for purposes of the AMT (although the
California Money Fund has no present intention of investing in such securities),
and (2) taxable investments.
The California Money Fund will not invest 25% or more of its total assets in
municipal securities the interest on which is derived from revenues of similar
type projects. This restriction does not apply to municipal securities in any of
the following categories: public housing authorities, general obligations of
states and localities, state and local housing finance authorities, or municipal
utilities systems.
MONEY FUND RISKS
The Money Funds will invest in securities which the Investment Manager has
determined, according to procedures approved by the Board and factors set forth
under Rule 2a-7 under the Investment
-5-
Company Act of 1940, as amended (the "1940 Act"), to present minimal credit
risk. The ratings assigned to commercial paper and other corporate obligations,
as well as the guidelines approved by the Board, are intended to enable the
Investment Manager to minimize the credit risk with respect to the securities in
the Money Funds' portfolios, but there can be no absolute assurance that the
Investment Manager will be successful in this regard. If issuer defaults
nevertheless occur representing a sufficiently large portion of a Money Fund's
portfolios, the Money Fund may be unable to maintain stable net asset values of
$1.00 per share.
CALIFORNIA BOND FUND
The California Bond Fund invests in obligations either issued by or on behalf of
states, territories and possessions of the United States and the District of
Columbia and their political subdivisions, agencies, authorities and
instrumentalities, including industrial development bonds, as well as
obligations of certain agencies and instrumentalities of the U.S. Government -
in each case that pay interest that, in the opinion of bond counsel to the
issuer, is exempt from federal income tax ("Municipal Securities") or exempt
from federal and California personal income tax ("California Municipal
Securities"). Thus, this Fund generally will have a lower return than if it
primarily purchases higher yielding taxable securities. Generally, the value of
the Municipal Securities and California Municipal Securities held by this Fund
will fluctuate inversely with interest rates.
The California Bond Fund is a "non-diversified" investment company under the
1940 Act. This means that, with respect to 50% of its total assets, it may not
invest more than 5% of its total assets in the securities of any one issuer
(other than the U.S. Government). The balance of its total assets may be
invested in as few as two issuers. Thus, up to 25% of the Fund's total assets
may be invested in the securities of any one issuer. For purposes of this
limitation, a security is considered to be issued by the governmental entity (or
entities) the assets and revenues of which back the security, or, with respect
to an industrial development bond, that is backed only by the assets and
revenues of a non-governmental user, by such non-governmental user. In certain
circumstances, the guarantor of a guaranteed security also may be considered to
be an issuer in connection with such guarantee. By investing in a portfolio of
municipal securities, a shareholder in the California Bond Fund enjoys greater
diversification than an investor holding a single municipal security. The
investment return on a non-diversified portfolio, however, typically is
dependent upon the performance of a smaller number of issuers relative to the
number of issuers held in a diversified portfolio. If the financial condition or
market assessment of certain issuers changes, this Fund's policy of acquiring
large positions in the obligations of a relatively small number of issuers may
affect the value of its portfolio to a greater extent than if its portfolio were
fully diversified.
PERMITTED INVESTMENTS
Equity Securities. The Equity Funds will, and the Bond Funds may, invest in
equity securities. Equity securities represent ownership interests in a company
or corporation, and include common stock, preferred stock, warrants and other
rights to acquire such instruments. Investments in equity securities in general
are subject to market risks and fluctuation in value due to earnings, economic
conditions and other factors that may cause their prices to fluctuate over time.
The value of convertible equity securities is also affected by prevailing
interest rates, the credit quality of the issuer and any call provisions.
Fluctuations in the values of equity securities in which a Fund invests will
cause the net asset value of the Fund to fluctuate.
Investments in small or middle capitalization companies involve greater risk
than is customarily associated with larger, more established companies due to
the greater business risks of small size,
-6-
limited markets and financial resources, narrow product lines and the frequent
lack of depth of management. The securities of small or medium-sized companies
are often traded over-the-counter, and may not be traded in volumes typical of
securities traded on a national securities exchange. Consequently, the
securities of smaller companies may have limited market stability and may be
subject to more abrupt or erratic market movements than securities of larger,
more established companies or the market averages in general.
Preferred stock is a blend of the characteristics of a bond and common stock. It
can offer the higher yield of a bond and has priority over common stock in
equity ownership, but does not have the seniority of a bond and, unlike common
stock, its participation in the issuer's growth may be limited. Preferred stock
has preference over common stock in the receipt of dividends and in any residual
assets after payment to creditors should the issuer be dissolved. Although the
dividend is set at a fixed annual rate, in some circumstances it can be changed
or omitted by the issuer.
Fixed Income Securities. The Money Funds and the Bond Funds will, and the Equity
Funds may, invest in fixed income securities. Fixed income securities are debt
obligations issued by the U.S. Government and its agencies, corporations,
municipalities and other borrowers. The market values of the Funds' fixed income
investments will change in response to interest rate changes and other factors.
During periods of falling interest rates, the values of outstanding fixed income
securities generally rise. Conversely, during periods of rising interest rates,
the values of such securities generally decline. Investors should recognize
that, in periods of declining interest rates, the returns of the Funds which
invest in debt securities will tend to be somewhat higher than prevailing market
rates, and in periods of rising interest rates, the returns of the Funds which
invest in debt securities will tend to be somewhat lower. Also, when interest
rates are falling, the inflow of net new money to these Funds from the
continuous sale of their shares will likely be invested in portfolio instruments
producing lower yields than the balance of the portfolios, thereby reducing
these Funds' current returns. In periods of rising interest rates, the opposite
can be expected to occur. Changes in the ability of an issuer to make payments
of interest and principal, in the market's perception of the issuer's
creditworthiness, and in the rating of any fixed income security by recognized
rating agencies also affect the market value of that issuer's debt securities.
Changes in the value of portfolio securities will not necessarily affect cash
income derived from these securities, but will affect the Funds' net asset
values. See attached Appendix A for a discussion of fixed income ratings.
These Funds' performance also may be affected by changes in market or economic
conditions and other circumstances affecting the financial services industry.
Government regulation of banks, savings and loan associations, and finance
companies may limit both the amounts and types of loans and other financial
commitments these entities can make and the interest rates and fees they can
charge. The profitability of the financial services industry, which is largely
dependent on the availability and, cost of capital funds, has fluctuated in
response to volatility in interest rate levels. In addition, the financial
services industry is subject to risks resulting from general economic conditions
and the potential exposure to credit losses.
Corporate Bonds. The Corporate Bond Fund and the Prime Money Fund may invest in
corporate bonds. Corporations issue bonds and notes to raise money for working
capital or for capital expenditures such as plant construction, equipment
purchases and expansion. In return for the money loaned to the corporation by
shareholders, the corporation promises to pay bondholders interest and to repay
the principal amount of the bond or note.
Low Grade, High Yield Debt. There is no bottom limit on the ratings of
high-yield securities that may be purchased or held by the High Yield Bond Fund.
In addition, the High Yield Bond Fund may invest in unrated securities. Lower
rated securities are defined as securities below the fourth highest
-7-
rating category by an NRSRO, as discussed in the appendix attached hereto. Such
obligations are speculative and may be in default. Credit ratings evaluate the
safety of principal and interest payments of securities, not their market
values. The rating of an issuer is also heavily weighted by past developments
and does not necessarily reflect probable future conditions. There is frequently
a lag between the time a rating is assigned and the time it is updated. As
credit rating agencies may fail to timely change credit ratings of securities to
reflect subsequent events, the Investment Manager or Sub-Adviser will also
monitor issuers of such securities.
Fixed income securities are subject to the risk of an issuer's ability to meet
principal and interest payments on the obligation (credit risk), and may also be
subject to price volatility due to such factors as interest rate sensitivity,
market perception of the creditworthiness of the issuer and general market
liquidity (market risk). Lower rated or unrated (i.e., high yield) securities
are more likely to react to developments affecting market and credit risk than
are more highly rated securities, which primarily react to movements in the
general level of interest rates. The market values of fixed-income securities
tend to vary inversely with the level of interest rates. Yields and market
values of high yield securities will fluctuate over time, reflecting not only
changing highest rates but the market's perception of credit quality and the
outlook for economic growth. When economic conditions appear to be
deteriorating, medium to lower rated securities may decline in value due to
heightened concern over credit quality, regardless of prevailing interest rates.
Investors should carefully consider the relative risks of investing in high
yield securities and understand that such securities are not generally meant for
short-term investing.
Adverse economic developments can disrupt the market for high yield securities,
and severely affect the ability of issuers, especially highly leveraged issuers,
to service their debt obligations or to repay their obligations upon maturity
which may lead to a higher incidence of default on such securities. In addition,
the secondary market for high yield securities, which is concentrated in
relatively few market makers, may not be as liquid as the secondary market for
more highly rated securities. As a result, the High Yield Bond Fund's advisers
could find it more difficult to sell these securities or may be able to sell the
securities only at prices lower than if such securities were widely traded.
Furthermore, the Trust may experience difficulty in valuing certain securities
at certain times. Prices realized upon the sale of such lower rated or unrated
securities, under these circumstances, may be less than the prices used in
calculating the High Yield Bond Fund's net asset value.
Prices for high yield securities may be affected by legislative and regulatory
developments. These laws could adversely affect the High Yield Bond Fund's net
asset value and investment practices, the secondary market value for high yield
securities, the financial condition of issuers of these securities and the value
of outstanding high yield securities.
Lower rated or unrated debt obligations also present risks based on payment
expectations. If an issuer calls the obligations for redemption, the High Yield
Bond Fund may have to replace the security with a lower yielding security,
resulting in a decreased return for investors. If the High Yield Bond Fund
experiences unexpected net redemptions, it may be forced to sell its higher
rated securities, resulting in a decline in the overall credit quality of the
High Yield Bond Fund's investment portfolio and increasing the exposure of the
High Yield Bond Fund to the risks of high yield securities.
Variable and Floating Rate Instruments. The Money Funds and the Bond Funds may
invest in variable and floating rate instruments. Certain of the obligations
purchased by these Funds may carry variable or floating rates of interest and
may involve a conditional or unconditional demand feature. Such obligations may
include variable amount master demand notes. Such instruments bear interest at
rates which are not fixed, but which vary with changes in specified market rates
or indices. The interest rates on these securities may be reset daily, weekly,
quarterly or at some other interval, and
-8-
may have a floor or ceiling on interest rate changes. There is a risk that the
current interest rate on such obligations may not accurately reflect existing
market interest rates. A demand instrument with a demand notice period exceeding
seven days may be considered illiquid if there is no secondary market for such
security.
Convertible Securities and Warrants. The Equity Funds and the High Yield Bond
Fund may invest in convertible securities and warrants. A convertible security
is a fixed-income security (a debt instrument or a preferred stock) 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 or a different issuer. Convertible
securities are senior to common stocks in an issuer's capital structure, but are
usually subordinated to similar non-convertible securities. While providing a
fixed income stream (generally higher in yield than the income derivable from
common stock but lower than that afforded by a similar nonconvertible security),
a convertible security also affords an investor the opportunity, through its
conversion feature, to participate in the capital appreciation attendant upon a
market price advance in the convertible security's underlying common stock.
A warrant gives the holder a right to purchase at any time during a specified
period a predetermined number of shares of common stock at a fixed price. Unlike
convertible debt securities or preferred stock, warrants do not pay fixed
dividends. Investments in warrants involve certain risks, including the possible
lack of a liquid market for resale of the warrants, potential price fluctuations
as a result of speculation or other factors, and failure of the price of the
underlying security to reach or have reasonable prospects of reaching a level at
which the warrant can be prudently exercised (in which event the warrant may
expire without being exercised, resulting in a loss of the Fund's entire
investment therein).
Section 4(2) Commercial Paper. The Funds may invest in Section 4(2) commercial
paper. Section 4(2) commercial paper is issued in reliance on an exemption from
registration under Section 4(2) of the Securities Act of 1933, as amended (the
"1933 Act"). Any resale of such commercial paper must be in an exempt
transaction, usually to an institutional investor through the issuer or
investment dealers who make a market on such commercial paper. Rule 144A under
the 1933 Act establishes a safe harbor from the registration requirements of the
1933 Act for resales of certain securities to qualified institutional buyers.
Institutional markets for restricted securities sold pursuant to Rule 144A in
many cases provide both readily ascertainable values for restricted securities
and the ability to liquidate an investment to satisfy share redemption orders.
Such markets might include automated systems for the trading, clearance and
settlement of unregistered securities of domestic and foreign issuers, such as
the PORTAL System sponsored by the National Association of Securities Dealers,
Inc. An insufficient number of qualified buyers interested in purchasing Rule
144A eligible restricted securities, however, could adversely affect the
marketability of such portfolio securities and result in a Fund's inability to
dispose of such securities promptly or at favorable prices. Commercial paper and
short-term notes will consist of issues rated at the time of purchase "A-2" or
higher by Standard & Poor's Ratings Group, "Prime-1" or "Prime-2" by Moody's
Investors Service, Inc., or similarly rated by another NRSRO if unrated, will be
determined by the Investment Manager (or the relevant Sub-adviser) to be of
comparable quality. These rating symbols are described in the Appendix.
To the extent that the Investment Manager (or Sub-Adviser), pursuant to the
guidelines approved by the Board, determines a Rule 144A eligible security to be
liquid, such a security would not be subject to a Fund's percentage limit on
illiquid securities investment.
Illiquid Securities. The Funds may invest in illiquid securities. Historically,
illiquid securities have included securities subject to contractual or legal
restrictions on resale because they have not been
-9-
registered under the 1933 Act, securities which are otherwise not readily
marketable and repurchase agreements having a maturity of longer than seven
days. Restricted securities are securities that may not be sold freely to the
public absent registration under the 1933 Act, or an exemption from
registration.
The Board has delegated the function of making day-to-day determinations of
liquidity to the Investment Manager (or Sub-Adviser, if any) pursuant to
guidelines approved by the Board. The Investment Manager (or Sub-Adviser) will
take into account a number of factors in reaching liquidity decisions,
including, but not limited to: (1) the frequency of trades for the security, (2)
the number of dealers willing and ready to purchase and sell the security, (3)
whether any dealers have agreed to make a market in the security, (4) the number
of other potential purchasers for the security, and (5) the nature of the
securities and the nature of the marketplace trades.
No Money Fund will purchase illiquid securities, including time deposits and
repurchase agreements maturing in more than seven days, if, as a result of the
purchase, more than 10% of the Fund's net assets valued at the time of the
transaction are invested in such securities. No Equity Fund or Bond Fund will
purchase illiquid securities, including time deposits and repurchase agreements
maturing in more than seven days, if, as a result of the purchase, more than 15%
of the Fund's net assets valued at the time of the transaction are invested in
such securities. Each Fund will monitor the level of liquidity and take
appropriate action, if necessary, to attempt to maintain adequate liquidity. The
investment policy on the purchase of illiquid securities is non-fundamental.
Mortgage-Related Securities and Derivative Securities. The Corporate Bond Fund,
the Government Bond Fund and the High Yield Bond Fund may invest in
mortgage-related securities. A mortgage-related security is an interest in a
pool of mortgage loans and is considered a derivative security. Most
mortgage-related securities are pass-through securities, which means that
investors receive payments consisting of a pro rata share of both principal and
interest (less servicing and other fees), as well as unscheduled prepayments, as
mortgages in the underlying mortgage pool are paid off by the borrowers. Certain
mortgage-related securities are subject to high volatility. These Funds use
these derivative securities in an effort to enhance return and as a means to
make certain investments not otherwise available to these Funds.
Agency Mortgage-Related Securities. The dominant issuers or guarantors
of mortgage-related securities today are Government National Mortgage
Association ("GNMA"), Federal National Mortgage Association ("FNMA") and the
Federal Home Loan Mortgage Corporation ("FHLMC"). GNMA creates pass-through
securities from pools of government-guaranteed or -insured (Federal Housing
Authority or Veterans Administration) mortgages. FNMA and FHLMC issue
pass-through securities from pools of conventional and federally insured and/or
guaranteed residential mortgages. The principal and interest on GNMA
pass-through securities are guaranteed by GNMA and backed by the full faith and
credit of the U.S. Government. FNMA guarantees full and timely payment of all
interest and principal, and FHLMC guarantees timely payment of interest and
ultimate collection of principal of its pass-through securities. Securities from
FNMA and FHLMC are not backed by the full faith and credit of the U.S.
Government but are generally considered to offer minimal credit risks. The
yields provided by these mortgage-related securities have historically exceeded
the yields on other types of Government Securities with comparable "lives"
largely due to the risks associated with prepayment.
Adjustable rate mortgage securities ("ARMs") are pass-through securities
representing interests in pools of mortgage loans with adjustable interest rates
determined in accordance with a predetermined interest rate index and which may
be subject to certain limits. The adjustment feature of ARMs tends to lessen
their interest rate sensitivity.
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Mortgage-Related Securities - GNMA. GNMA is a wholly owned corporate
instrumentality of the U.S. Government within the Department of Housing and
Urban Development. The National Housing Act of 1934, as amended (the "Housing
Act"), authorizes GNMA to guarantee the timely payment of the principal of, and
interest on, securities that are based on and backed by a pool of specified
mortgage loans. For these types of securities to qualify for a GNMA guarantee,
the underlying collateral must be mortgages insured by the FHA under the Housing
Act, or Title V of the Housing Act of 1949, as amended ("VA Loans"), or be pools
of other eligible mortgage loans. The Housing Act provides that the full faith
and credit of the U.S. Government is pledged to the payment of all amounts that
may be required to be paid under any guarantee. In order to meet its obligations
under a guarantee, GNMA is authorized to borrow from the U.S. Treasury with no
limitations as to amount.
GNMA pass-through securities may represent a proportionate interest in one or
more pools of the following types of mortgage loans: (1) fixed-rate level
payment mortgage loans; (2) fixed-rate graduated payment mortgage loans; (3)
fixed-rate growing equity mortgage loans; (4) fixed-rate mortgage loans secured
by manufactured (mobile) homes; (5) mortgage loans on multifamily residential
properties under construction; (6) mortgage loans on completed multifamily
projects; (7) fixed-rate mortgage loans as to which escrowed funds are used to
reduce the borrower's monthly payments during the early years of the mortgage
loans ("buydown" mortgage loans); (8) mortgage loans that provide for
adjustments on payments based on periodic changes in interest rates or in other
payment terms of the mortgage loans; and (9) mortgage-backed serial notes.
Mortgage-Related Securities - FNMA. FNMA is a federally chartered and
privately owned corporation established under the Federal National Mortgage
Association Charter Act. FNMA was originally organized in 1938 as a U.S.
Government agency to add greater liquidity to the mortgage market. FNMA was
transformed into a private sector corporation by legislation enacted in 1968.
FNMA provides funds to the mortgage market primarily by purchasing home mortgage
loans from local lenders, thereby providing them with funds for additional
lending. FNMA acquires funds to purchase loans from investors that may not
ordinarily invest in mortgage loans directly, thereby expanding the total amount
of funds available for housing.
Each FNMA pass-through security represents a proportionate interest in one or
more pools of FHA Loans, VA Loans or conventional mortgage loans (that is,
mortgage loans that are not insured or guaranteed by any U.S. Government
agency). The loans contained in those pools consist of one or more of the
following: (1) fixed-rate level payment mortgage loans; (2) fixed-rate growing
equity mortgage loans; (3) fixed-rate graduated payment mortgage loans; (4)
variable-rate mortgage loans; (5) other adjustable-rate mortgage loans; and (6)
fixed-rate mortgage loans secured by multifamily projects.
Mortgage-Related Securities - FHLMC. FHLMC is a corporate
instrumentality of the United States established by the Emergency Home Finance
Act of 1970, as amended. FHLMC was organized primarily for the purpose of
increasing the availability of mortgage credit to finance needed housing. The
operations of FHLMC currently consist primarily of the purchase of first lien,
conventional, residential mortgage loans and participation interests in mortgage
loans and the resale of the mortgage loans in the form of mortgage-backed
securities.
The mortgage loans underlying FHLMC securities typically consist of fixed-rate
or adjustable-rate mortgage loans with original terms to maturity of between 10
and 30 years, substantially all of which are secured by first liens on
one-to-four-family residential properties or multifamily projects. Each mortgage
loan must include whole loans, participation interests in whole loans and
undivided interests in whole loans and participation in another FHLMC security.
-11-
Privately Issued Mortgage-Related Securities. Mortgage-related
securities offered by private issuers include pass-through securities comprised
of pools of conventional residential mortgage loans; mortgage-backed bonds which
are considered to be obligations of the institution issuing the bonds and are
collateralized by mortgage loans; and bonds and "CMOs" collateralized by
mortgage-related securities issued by GNMA, FNMA, FHLMC or by pools of
conventional mortgages, multifamily or commercial mortgage loans.
Each class of a CMO is issued at a specific fixed or floating coupon rate and
has a stated maturity or final distribution date. Principal prepayments on the
collateral pool may cause the various classes of a CMO to be retired
substantially earlier than their stated maturities or final distribution dates.
The principal of and interest on the collateral pool may be allocated among the
several classes of a CMO in a number of different ways. Generally, the purpose
of the allocation of the cash flow of a CMO to the various classes is to obtain
a more predictable cash flow to some of the individual tranches than exists with
the underlying collateral of the CMO. As a general rule, the more predictable
the cash flow is on a CMO tranche, the lower the anticipated yield will be on
that tranche at the time of issuance relative to prevailing market yields on
mortgage-related securities. Certain classes of CMOs may have priority over
others with respect to the receipt of prepayments on the mortgages.
Parallel pay CMOs are structured to provide payments of principal on each
payment date to more than one class. These simultaneous payments are taken into
account in calculating the stated maturity date or final distribution date of
each class which, like the other CMO structures, must be retired by its stated
maturity date or final distribution date, but may be retired earlier. Planned
amortization class CMOs ("PAC Bonds") are parallel pay CMOs that generally
require payments of a specified amount of principal on each payment date; the
required principal payment on PAC Bonds have the highest priority after interest
has been paid to all classes.
Privately issued mortgage-related securities generally offer a higher rate of
interest (but greater credit and interest rate risk) than U.S. Government and
agency mortgage-related securities because they offer no direct or indirect
governmental guarantees. Many issuers or servicers of mortgage-related
securities guarantee or provide insurance for timely payment of interest and
principal, however. Some mortgage-related securities are offered through private
placements that are restricted as to further sale. The value of these securities
may be very volatile.
Adjustable-Rate Mortgage-Related Securities. Because the interest rates
on the mortgages underlying ARMs reset periodically, yields of such portfolio
securities will gradually align themselves to reflect changes in market rates.
Unlike fixed-rate mortgages, which generally decline in value during periods of
rising interest rates, ARMs allow a Fund to participate in increases in interest
rates through periodic adjustments in the coupons of the underlying mortgages,
resulting in both higher current yields and low price fluctuations. Furthermore,
if prepayments of principal are made on the underlying mortgages during periods
of rising interest rates, a Fund may be able to reinvest such amounts in
securities with a higher current rate of return. During periods of declining
interest rates, of course, the coupon rates may readjust downward, resulting in
lower yields to a Fund. Further, because of this feature, the value of ARMs is
unlikely to rise during periods of declining interest rates to the same extent
as fixed rate instruments.
Other Mortgage-Related Securities. Other mortgage-related securities
include securities other than those described above that directly or indirectly
represent a participation in, or are secured by and payable from, mortgage loans
on real property, including mortgage dollar rolls, CMO residuals or stripped
mortgage-backed securities ("SMBS"). Other mortgage-related securities may be
equity or debt securities 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, homebuilders, mortgage
-12-
banks, commercial banks, investment banks, partnerships, trusts and special
purpose entities of the foregoing.
CMO residuals are mortgage securities 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, homebuilders, mortgage banks,
commercial banks, investment banks and special purpose entities of the
foregoing.
The cash flow generated by the mortgage assets underlying a series of CMOs is
applied first to make required payments of principal and interest on the CMOs
and second to pay the related administrative expenses of the issuer. The
residual in a CMO structure generally represents the interest in any excess cash
flow remaining after making the foregoing payments. Each payment of such excess
cash flow to a holder of the related CMO residual represents income and/or a
return of capital. The amount of residual cash flow resulting from a CMO will
depend on, among other things, the characteristics of the mortgage assets, the
coupon rate of each class of CMO, prevailing interest rates, the amount of
administrative expenses and the prepayment experience on the mortgage assets. In
particular, the yield to maturity on CMO residuals is extremely sensitive to
prepayments on the related underlying mortgage assets, in the same manner as an
interest-only ("IO") class of stripped mortgage-backed securities. In addition,
if a series of a CMO includes a class that bears interest at an adjustable rate,
the yield to maturity on the related CMO residual will also be extremely
sensitive to changes in the level of the index upon which interest rate
adjustments are based. As described below with respect to stripped
mortgage-backed securities, in certain circumstances a Fund may fail to recoup
fully its initial investment in a CMO residual.
CMO residuals are generally purchased and sold by institutional investors
through several investment banking firms acting as brokers or dealers. The CMO
residual market has only very recently developed and CMO residuals currently may
not have the liquidity of other more established securities trading in other
markets. Transactions in CMO residuals are generally completed only after
careful review of the characteristics of the securities in question. In
addition, CMO residuals may, or pursuant to an exemption therefrom, may not have
been registered under the 1933 Act. CMO residuals, whether or not registered
under the 1933 Act, may be subject to certain restrictions on transferability,
and may be deemed "illiquid" and subject to a Fund's limitations on investment
in illiquid securities.
SMBS 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 banks, commercial banks, investment banks and special purpose entities
of the foregoing.
SMBS are usually structured with two classes that receive different proportions
of the interest and principal distributions on a pool of mortgage assets. A
common type of SMBS will have one class receiving some of the interest and most
of the principal from the mortgage assets, while the other class will receive
most of the interest and the remainder of the principal. In the most extreme
case, one class will receive all of the interest (the "IO" class), while the
other class will receive all of the principal (the principal-only or "PO"
class). The yield to maturity on an IOs, POs and other mortgage securities that
are purchased at a substantial premium or discount generally are extremely
sensitive not only to changes in prevailing interest rates but also to the rate
of principal payments (including prepayments) on the related underlying mortgage
assets, and a rapid rate of principal payments may have a material adverse
effect on such securities' yield to maturity. If the underlying mortgage assets
experience greater than anticipated prepayments of principal, a Fund may fail to
fully recoup its initial investment in these securities even if the securities
have received the highest rating by an NRSRO.
-13-
Although SMBS are purchased and sold by institutional investors through several
investment banking firms acting as brokers or dealers, established trading
markets have not developed and, accordingly, these securities may be deemed
"illiquid" and subject to a Fund's limitations on investment in illiquid
securities.
The value of derivative securities known as "floaters" and "inverse floaters"
vary in response to interest rates. These securities may be illiquid and their
values may be very volatile.
Asset-Backed Commercial Paper. The Prime Money Fund and the California Money
Fund each can invest a portion of its assets in asset-backed commercial paper
and other Eligible Securities (as that term is defined below). The credit
quality of most asset-backed commercial paper depends primarily on the credit
quality of the assets underlying such securities, how well the entity issuing
the security is insulated from the credit risk of the originator (or any other
affiliated entities), and the amount and quality of any credit support provided
to the securities.
The Prime Money Fund and the California Money Fund each intends to obtain
repayment of asset-backed commercial paper from an identified pool of assets
including automobile receivables, credit-card receivables, and other types of
assets. Asset-backed commercial paper is issued by a special purpose vehicle
(usually a corporation) that has been established for the purpose of issuing the
commercial paper and purchasing the underlying pool of assets. The issuer of
commercial paper bears the direct risk of prepayment on the receivables
constituting the underlying pool of assets.
In an effort to lessen the effect of failures by obligors on these underlying
assets to make payments, such securities may contain elements of credit support.
Credit support for asset-backed securities may be based on the underlying assets
or credit enhancements provided by a third party. Credit enhancement techniques
include letters of credit, insurance bonds, limited guarantees and
over-collateralization.
Credit support falls into two classes: liquidity protection and protection
against ultimate default on the underlying assets. Liquidity protection refers
to the provision of advances, generally by the entity administering the pool of
assets, to ensure that scheduled payments on the underlying pool are made in a
timely fashion. Protection against ultimate default ensures payment on at least
a portion of the assets in the pool. This protection may be provided through
guarantees, insurance policies, letters of credit obtained from third parties,
various means of structuring the transaction, or a combination of such
approaches. The degree of credit support provided on each issue is based
generally on historical information respecting the level of credit risk
associated with such payments. Delinquency or loss in excess of that anticipated
could adversely affect the return on an investment in an asset-backed security.
Asset-Backed Securities. The Prime Money Fund, the California Money Fund, the
Corporate Bond Fund and the High Yield Bond Fund may invest in asset-backed
securities. These types of securities represent a direct or indirect
participation in, or are secured by and payable from, pools of assets, such as
motor vehicle installment sales contracts, installment loan contracts, leases of
various types of real and personal property, and receivables from revolving
credit (e.g., credit card) agreements. Payments or distributions of principal
and interest on asset-backed securities may be supported by credit enhancements,
such as various forms of cash collateral accounts or letters of credit. These
securities are subject to the risk of prepayment. Prepayments of principal of
asset-backed securities affect the average life of the asset-backed securities
in a Fund's portfolio. Prepayments are affected by the level of interest rates
and other factors, including general economic conditions. In periods of rising
interest rates, the prepayment rate tends to decrease, lengthening the average
life of a pool of asset-backed securities. In periods of falling interest rates,
the prepayment rate tends to increase, shortening the
-14-
average life of a pool. Reinvestment of prepayments may occur at higher or lower
interest rates than the original investment, affecting the Fund's yield. Thus,
asset-backed securities may have less potential for capital appreciation in
periods of falling interest rates than other fixed-income securities of
comparable duration, although they may have a comparable risk of decline in
market value in periods of rising interest rates. Payment of principal and
interest may be largely dependent upon the cash flows generated by the assets
backing the securities.
Variable Rate Demand Notes. The Bond Funds and the Money Funds may invest in
variable rate demand notes ("VRDNs"). VRDNs are tax-exempt obligations that
contain a floating or variable interest rate adjustment formula and an
unconditional right of demand to receive payment of the unpaid principal balance
plus accrued interest upon a short notice period prior to specified dates,
generally at 30-, 60-, 90-, 180-, or 365-day intervals. The interest rates are
generally adjustable at intervals ranging from daily to one year. Adjustment
formulas are designed to maintain the market value of the VRDN at approximately
the par value of the VRDN upon the adjustment date. The adjustments typically
are based upon the prime rate of a bank or some other appropriate interest rate
adjustment index.
The Bond Funds also may invest in VRDNs in the form of participation interests
("Participating VRDNs") in variable rate tax-exempt obligations held by a
financial institution, typically a commercial bank ("institution").
Participating VRDNs provide a Fund with a specified undivided interest (up to
100%) of the underlying obligation and the right to demand payment of the unpaid
principal balance plus accrued interest on the Participating VRDNs from the
institution upon a specified number of days' notice, not to exceed seven. In
addition, the Participating VRDN is backed by an irrevocable letter of credit or
guaranty of the institution. A Fund has an undivided interest in the underlying
obligation and thus participates on the same basis as the institution in such
obligation except that the institution typically retains fees out of the
interest paid on the obligation for servicing the obligation, providing the
letter of credit and issuing the repurchase commitment.
Participating VRDNs may be unrated or rated, and their creditworthiness may be a
function of the creditworthiness of the issuer, the institution furnishing the
irrevocable letter of credit, or both. Accordingly, these Funds may invest in
such VRDNs, the issuers or underlying institutions of which the Investment
Manager (or Sub-Adviser) believes are creditworthy and satisfy the quality
requirements of these Funds. The Investment Manager (or Sub-Adviser)
periodically monitors the creditworthiness of the issuer of such securities and
the underlying institution.
During periods of high inflation and periods of economic slowdown, together with
the fiscal measures adopted by governmental authorities to attempt to deal with
them, interest rates have varied widely. While the value of the underlying VRDN
may change with changes in interest rates generally, the variable rate nature of
the underlying VRDN should minimize changes in the value of the instruments.
Accordingly, as interest rates decrease or increase, the potential for capital
appreciation and the risk of potential capital depreciation is less than would
be the case with a portfolio of fixed-income securities. Some VRDNs have minimum
or maximum rates, or maximum rates set by state law, which limit the degree to
which interest on such VRDNs may fluctuate; to the extent they do increases or
decreases in value may be somewhat lesser than would be the case without such
limits. Because the adjustment of interest rates on the VRDNs is made in
relation to movements of various interest rate adjustment indices, the VRDNs are
not comparable to long-term fixed-rate securities. Accordingly, interest rates
on the VRDNs may be higher or lower than current market rates for fixed-rate
obligations of comparable quality with similar maturities.
Foreign Securities. The Equity Funds and the Bond Funds may invest in securities
issued by companies and governments of foreign countries. The Small Cap Value
Fund may invest up to 20%
-15-
of its total assets in foreign securities. These investments may take the form
of American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"),
Global Depositary Receipts ("GDRs"), and other similar global instruments
available in emerging markets, or other securities convertible into securities
of eligible issuers. These securities may not necessarily be denominated in the
same currency as the securities for which they may be exchanged. Generally, ADRs
in registered form are designed for use in U.S. securities markets, and EDRs and
other similar global instruments in bearer form are designed for use in European
securities markets. ADRs may be sponsored by the foreign issuer or may be
unsponsored. Unsponsored ADRs are organized independently and without the
cooperation of the foreign issuer of the underlying securities. As a result,
available information regarding the issuer may not be as current as for
sponsored ADRs, and the prices of unsponsored ADRs may be more volatile than if
they were sponsored by the issuers of the underlying securities. For purposes of
a Fund's investment policies, a Fund's investments in ADRs, EDRs and similar
instruments will be deemed to be investments in the equity securities
representing the securities of foreign issuers into which they may be converted.
Shareholders should consider carefully the substantial additional risks involved
in investing in foreign securities. Foreign investments involve the possibility
of expropriation, nationalization or confiscatory taxation; taxation of income
earned in foreign nations (including, for example, withholding taxes on interest
and dividends) or other taxes imposed with respect to investments in foreign
nations; foreign exchange controls (which may include suspension of the ability
to transfer currency from a given country and repatriation of investments);
default in foreign government securities and political or social instability or
diplomatic developments that could adversely affect investments. In addition,
there is often less publicly available information about foreign issuers than
those in the United States. Foreign companies are often not subject to uniform
accounting, auditing and financial reporting standards. Further, the Equity
Funds and the Bond Funds may encounter difficulties in pursuing legal remedies
or in obtaining judgments in foreign courts.
Brokerage commissions, fees for custodial services and other costs relating to
investments by the Equity Funds and the Bond Funds in other countries are
generally greater than in the United States. Foreign markets have different
clearance and settlement procedures from those in the United States, and certain
markets have experienced times when settlements did not keep pace with the
volume of securities transactions, which resulted in settlement difficulty. The
inability of a Fund to make intended security purchases due to settlement
difficulties could cause it to miss attractive investment opportunities. Any
delay in selling a portfolio security due to settlement problems could result in
loss to a Fund if the value of the portfolio security declined, or result in
claims against a Fund if it had entered into a contract to sell the security. In
certain countries there is less government supervision and regulation of
business and industry practices, stock exchanges, brokers and listed companies
than in the United States. The securities markets of many of the countries in
which these Funds may invest may also be smaller, less liquid and subject to
greater price volatility than those in the United States.
Certain securities may be denominated in foreign currencies, the values of which
will be affected by changes in currency exchange rates and exchange control
regulations, and costs will be incurred in connection with conversions between
currencies. A change in the value of a foreign currency against the U.S. dollar
will result in a corresponding change in the U.S. dollar value of a Fund's
securities denominated in the currency. Such changes also affect a Fund's income
and distributions to shareholders. A Fund may be affected either favorably or
unfavorably by changes in the relative rates of exchange among the currencies of
different nations, and a Fund may therefore engage in foreign currency hedging
strategies. Such strategies, however, involve certain transaction costs and
investment risks, including dependence upon the Investment Manager's (or
Sub-Adviser's) ability to predict movements in exchange rates.
-16-
Some countries in which the Equity Funds and the Bond Funds may invest may also
have fixed or managed currencies that are not freely convertible at market rates
into the U.S. dollar. Certain currencies may not be internationally traded. A
number of these currencies have experienced steady devaluation relative to the
U.S. dollar, and such devaluations in the currencies may have a detrimental
impact on a Fund. Many countries in which a Fund may invest have experienced
substantial, and in some periods extremely high, rates of inflation for many
years. Inflation and rapid fluctuation in inflation rates may have negative
effects on certain economies and securities markets. Moreover, the economies of
some countries may differ favorably or unfavorably from the U.S. economy in such
respects as the rate of growth of gross domestic product, rate of inflation,
capital reinvestment, resource self-sufficiency and balance of payments. Certain
countries also limit the amount of foreign capital that can be invested in their
markets and local companies, creating a "foreign premium" on capital investments
available to foreign investors such as the Equity Funds and the Bond Funds. The
Equity Funds and the Bond Funds may pay a "foreign premium" to establish an
investment position which it cannot later recoup because of changes in that
country's foreign investment laws.
The Equity Funds and the Bond Funds may endeavor to buy and sell foreign
currencies on favorable terms. Some price spreads on currency exchange (to cover
service charges) may be incurred, particularly when these Funds change
investments from one country to another or when proceeds from the sale of shares
in U.S. dollars are used for the purchase of securities in foreign countries.
These Funds may be affected either favorably or unfavorably by fluctuations in
the relative rates of exchange between the currencies of different nations, and
by exchange control regulations, as well as indigenous economic and political
developments.
The Investment Manager (and each Sub-Adviser, as relevant) considers at least
annually the likelihood of the imposition by any foreign government of exchange
control restrictions that would affect the liquidity of these Funds' assets
maintained with custodians in foreign countries, as well as the degree of risk
from political acts of foreign governments to which such assets may be exposed.
The Investment Manager (and each Sub-Adviser, as relevant) also considers the
degree of risk attendant to holding portfolio securities in domestic and foreign
securities depositories.
Emerging Market Securities. The Equity Funds and the Bond Funds may invest in
securities of companies in emerging markets. Many of the risks with respect to
foreign investments are more pronounced for investments in developing or
emerging market countries, such as many of the countries of Asia, Latin America,
Eastern Europe, Russia, Africa, and the Middle East. Although there is no
universally accepted definition, a developing country is generally considered to
be a country which is in the initial stages of its industrialization cycle with
a per capita gross national product of less than $8,000.
The economies of many of these countries are heavily dependent upon
international trade and are accordingly affected by protective trade barriers
and economic conditions of their trading partners. The enactment by these
trading partners of protectionist trade legislation could have a significant
adverse effect upon the securities markets of such countries. Many of these
countries may also have government exchange controls, currencies with no
recognizable market value relative to the established currencies of western
market economies, little or no experience in trading in securities, no financial
reporting standards, a lack of a banking and securities infrastructure to handle
such trading, and a legal tradition which does not recognize rights in private
property.
In certain of these countries, severe and persistent levels of inflation,
including, in some cases, hyperinflation, has, in turn, led to high interest
rates, extreme measures by governments to keep inflation in check, and a
generally debilitating effect on economic growth. Although inflation in many
countries has lessened, there is no guarantee it will remain at lower levels.
The political history of
-17-
certain of these countries has also been characterized by political uncertainty,
intervention by the military in civilian and economic spheres, and political
corruption. Such developments, if they were to reoccur, could reverse favorable
trends toward market and economic reform, privatization, and removal of trade
barriers, and result in significant disruption in securities markets. A number
of these countries are highly dependent on foreign loans for their operation.
There have been moratoria on, and reschedulings of, repayment with respect to
many countries' debts. Such events can restrict the flexibility of these debtor
nations in the international markets and result in the imposition of onerous
conditions on their economies.
Futures and Options on Futures. The Equity Funds and the High Yield Bond Fund
may invest in futures contracts and options on futures contracts. Futures
contracts provide for the future sale by one party and purchase by another party
of a specified amount of a specific security or currency at a specified future
time at a specified price. An option on a futures contract gives the purchaser
the right, in exchange for a premium, to assume a position in a futures contract
at a specified exercise price during the term of the option. Although some
futures contracts call for making or taking delivery of the underlying
securities, generally these obligations are closed out prior to delivery by
offsetting purchases or sales of matching futures contracts (contracts traded on
the same exchange, on the same underlying security or index, and with the same
delivery month). If an offsetting purchase price is less than the original sale
price, the Fund realizes a capital gain; if it is more, the Fund realizes a
capital loss. Conversely, if an offsetting sale price is more than the original
purchase price, a Fund realizes a capital gain; if it is less, the Fund realizes
a capital loss. The transaction costs must also be included in these
calculations. These Funds may use futures contracts and related options for bona
fide hedging purposes, to offset changes in the value of securities held or
expected to be acquired or be disposed of, to minimize fluctuations in foreign
currencies, or to gain exposure to a particular market or instrument. These
Funds will minimize the risk that they will be unable to close out a futures
contract by only entering into futures contracts that are traded on national
futures exchanges.
An index futures contract is a bilateral agreement pursuant to which two parties
agree to take or make delivery of an amount of cash equal to a specified dollar
amount times the difference between the bond index value at the close of trading
of the contract and the price at which the futures contract is originally
struck. No physical delivery of the bonds comprising the index is made;
generally contracts are closed out prior to their expiration date.
In order to avoid leveraging and related risks, when one of these Funds invests
in futures contracts, the Fund will cover positions by depositing an amount of
cash or liquid securities equal to the market value of the futures positions
held, less margin deposits, in a segregated account and that amount will be
marked-to-market on a daily basis.
There are risks associated with these activities, including the following: (1)
the success of a hedging strategy may depend on an ability to predict movements
in the prices of individual securities, fluctuations in markets and movements in
interest rates, (2) there may be an imperfect or lack of correlation between the
changes in market value of the securities held and the prices of futures and
options on futures, (3) there may not be a liquid secondary market for a futures
contract or option, (4) trading restrictions or limitations may be imposed by an
exchange, and (5) government regulations may restrict trading in futures
contracts and options on futures.
These Funds may buy and sell futures contracts and related options to manage
exposure to changing interest rates and securities prices. Some strategies
reduce a Fund's exposure to price fluctuations, while others tend to increase
market exposure. Futures and options on futures can be volatile instruments and
involve certain risks that could negatively impact a Fund's return. No price is
paid upon entering into futures contracts. Instead, a Fund would be required to
deposit an amount of cash
-18-
or U.S. Treasury securities known as "initial margin." Subsequent payments,
called "variation margin," to and from the broker, would be made on a daily
basis as the value of the future position varies (a process known as "marked to
market"). The margin is in the nature of performance bond or good-faith deposit
on a futures contract. Futures and options on futures are taxable instruments.
Investment Company Shares. The Funds may invest in shares of other investment
companies, to the extent permitted by applicable law and subject to certain
restrictions set forth in this SAI. These investment companies typically incur
fees that are separate from those fees incurred directly by the Funds. The
Funds' purchase of such investment company securities results in the layering of
expenses, such that shareholders would indirectly bear a proportionate share of
the operating expenses of such investment companies, including advisory fees, in
addition to paying Fund expenses. The Fund limits its investments in securities
issued by other investment companies in accordance with the 1940 Act and SEC
rules. Under the 1940 Act, a Fund may invest its assets in any investment
company, as long as the Fund and its affiliated persons own no more than 3% of
the outstanding voting stock of the acquired investment company. This
restriction may not apply to the Fund's investments in money market mutual
funds, if the Fund's investments fall within the exceptions set forth under SEC
rules.
Zero Coupon Bonds. The Bond Funds and the Money Funds may invest in zero coupon
securities, which are debt securities issued or sold at a discount from their
face value and do not entitle the holder to any periodic payment of interest
prior to maturity, a specified redemption date or a cash payment date. The
amount of the discount varies depending on the time remaining until maturity or
cash payment date, prevailing interest rates, liquidity of the security and
perceived credit quality of the issuer. Zero coupon securities also may take the
form of debt securities that have been stripped of their unmatured interest
coupons, the coupons themselves and receipts or certificates representing
interests in such stripped debt obligations and coupons. The market prices of
zero coupon securities are generally more volatile than the market prices of
interest-bearing securities and respond more to changes in interest rates than
interest-bearing securities with similar maturities and credit qualities. The
"original issue discount" on the zero coupon bonds must be included ratably in
the income of the Fund as the income accrues even though payment has not been
received. The Bond Funds nevertheless intend to distribute amounts of cash equal
to the currently accrued original issue discount, and this may require
liquidating securities at times they might not otherwise do so and may result in
capital loss.
Pay-In-Kind Bonds. Investments of the High Yield Bond Fund in fixed-income
securities may include pay-in-kind bonds. These are securities which, at the
issuer's option, pay interest in either cash or additional securities for a
specified period. Pay-in-kind bonds, like zero coupon bonds, are designed to
give an issuer flexibility in managing cash flow. Pay-in-kind bonds are usually
less volatile than zero coupon bonds, but more volatile than cash pay
securities.
REITs. The High Yield Bond Fund and the Equity Funds may invest in real estate
investment trusts ("REITs"). REITs are trusts that invest primarily in
commercial real estate or real estate-related loans. A REIT is not taxed on
income distributed to its shareholders or unitholders if it complies with
regulatory requirements relating to its organization, ownership, assets and
income, and with a regulatory requirement that it distribute to its shareholders
or unitholders at least 95% of its taxable income for each taxable year.
Generally, REITs can be classified as Equity REITs, Mortgage REITs and Hybrid
REITs. Equity REITs invest the majority of their assets directly in real
property and derive their income primarily from rents and capital gains from
appreciation realized through property sales. Mortgage REITs invest the majority
of their assets in real estate mortgages and derive their income primarily from
interest payments. Hybrid REITs combine the characteristics of both Equity and
Mortgage REITs. By investing in REITs indirectly through a Fund, shareholders
will bear not
-19-
only the proportionate share of the expenses of the Fund, but also, indirectly,
similar expenses of underlying REITs.
A Fund may be subject to certain risks associated with the direct investments of
the REITs. REITs may be affected by changes in their underlying properties and
by defaults by borrowers or tenants. Mortgage REITs may be affected by the
quality of the credit extended. Furthermore, REITs are dependent on specialized
management skills. Some REITs may have limited diversification and may be
subject to risks inherent in financing a limited number of properties. REITs
depend generally on their ability to generate cash flow to make distributions to
shareholders or unitholders, and may be subject to defaults by borrowers and to
self-liquidations. In addition, a REIT may be affected by its failure to qualify
for tax-free pass-through of income under the Code or its failure to maintain
exemption from registration under the 1940 Act.
Privatizations. The High Yield Bond Fund and the Equity Funds may invest in
"privatizations" -foreign governmental programs of selling interests in
government-owned or -controlled enterprises - which may represent opportunities
for significant capital appreciation. The ability of U.S. entities, such as
these Funds, to participate in privatizations may be limited by local law, or
the terms for their participation may be less advantageous than for local
investors. There can be no assurance that privatization programs will be
successful.
Special Situations. The High Yield Bond Fund and the Equity Funds may invest in
"special situations" - joint ventures, cooperatives, partnerships, private
placements, unlisted securities and similar vehicles. Such Funds believe that
carefully selected special situations could enhance their capital appreciation
potential. The Funds also may invest in certain types of vehicles or derivative
securities that represent indirect investments in foreign markets or securities
in which it is impracticable for these Funds to invest directly. Investments in
special situations may be illiquid, as determined by the Investment Manager (or
Sub-Adviser) based on criteria reviewed by the Board.
Forward Foreign Currency Contracts. A forward contract involves an obligation to
purchase or sell a specific currency amount at a future date, agreed upon by the
parties, at a price set at the time of the contract. The Bond Funds and the
Equity Funds may enter into contracts to sell, for a fixed amount of U.S.
dollars or other appropriate currency, the amount of foreign currency
approximately equal to the value of some or all of the securities of these Funds
denominated in such foreign currency.
By entering into forward foreign currency contracts, these Funds will seek to
protect the value of their investment securities against a decline in the value
of a currency. However, these forward foreign currency contracts will not
eliminate fluctuations in the underlying prices of the securities. Rather, they
simply establish a rate of exchange which one can obtain at some future point in
time. Although such contracts tend to minimize the risk of loss due to a decline
in the value of the hedged currency, they also tend to limit any potential gain
which might result should the value of such currency increase. At the maturity
of a forward contract, a Fund may either sell a portfolio security and make
delivery of the foreign currency, or it may retain the security and terminate
its contractual obligation to deliver the foreign currency by purchasing an
"offsetting" contract with the same currency trader, obligating it to purchase,
on the same maturity date, the same amount of the foreign currency. These Funds
may realize gains or losses from currency transactions. Each of these Funds will
place assets in a segregated account to assure that its obligations under
forward foreign currency contracts are covered.
Municipal Securities. The California Money Fund, the California Bond Fund and
the High Yield Bond Fund may invest in municipal securities. Municipal
securities consist of (1) debt obligations issued by state and local governments
or by public authorities to obtain funds to be used for various
-20-
public facilities, for refunding outstanding obligations, for general operating
expenses and for lending such funds to other public institutions and facilities,
and (2) certain private activity and industrial development bonds issued by or
on behalf of public authorities to obtain funds to provide for the construction,
equipment, repair or improvement of privately operated facilities.
General debt obligation bonds are backed by the taxing power of the issuing
municipality. Revenue obligations are backed by the revenue of a project or
facility, for example, tolls from a toll bridge. Certificates of participation
represent an interest in an underlying obligation or commitment such as an
obligation issued in connection with a leasing arrangement. The payment of
principal and interest on private activity and industrial development
obligations generally depends solely on the ability of the revenues generated by
the use of the specified facilities.
Municipal Leases. The California Money Fund, the California Bond Fund
and the High Yield Bond Fund may invest in municipal lease obligations -
instruments, or participations in instruments, issued in connection with lease
obligations or installment purchase contract obligations of municipalities.
Although municipal lease obligations do not constitute general obligations of
the issuing municipality, a lease obligation is ordinarily backed by the
municipality's covenant to budget for, appropriate funds for, and make the
payments due under the lease obligation. Specifically, in the state of
California there are often legal covenants to budget for, appropriate funds for,
and make the payments due under the lease obligation. However, certain lease
obligations contain "non-appropriation" clauses, which provide that the
municipality has no obligation to make lease or installment purchase payments in
future years if the project is not available for use and occupancy. Municipal
leases will be treated as liquid only if they satisfy criteria set forth in
guidelines established by the Board, and there can be no assurance that a market
will exist or continue to exist for any municipal lease obligation.
Municipal Notes. Municipal notes consist of general obligation notes,
tax anticipation notes (notes sold to finance working capital needs of the
issuer in anticipation of receiving taxes on a future date), revenue
anticipation notes (notes sold to provide needed cash prior receipt of expected
non-tax revenues from a specific source), bond anticipation notes, tax and
revenue anticipation notes, certificates of indebtedness, demand notes, and
construction loan notes. The maturities of the instruments at the time of issue
will generally range from 90 days to 397 days.
Municipal Bonds. Municipal bonds are debt obligations issued to obtain
funds for various public purposes. The California Money Fund, the California
Bond Fund and the High Yield Bond Fund may purchase certain private activity or
industrial development bonds, the interest paid on which is exempt from federal
income tax. These bonds are issued by or on behalf of public authorities to
raise money to finance various privately-owned or -operated facilities for
business and manufacturing, housing and pollution control. These bonds are also
used to finance public facilities such as airports, mass transit systems, ports,
parking or sewage or solid waste disposal facilities, as well as certain other
categories. The payment of the principal and interest on such bonds is dependent
solely on the ability of the revenues generated by the use of the facility to
meet its financial obligations and the pledge.
Options on Securities, Securities Indices and Currencies. Each Equity Fund and
the High Yield Bond Fund may purchase put and call options on securities in
which it has invested, on foreign currencies represented in its portfolio and on
any securities index based in whole or in part on securities in which that Fund
may invest. These Funds also may enter into closing sales transactions in order
to realize gains or minimize losses on options they have purchased.
Each of these Funds normally will purchase call options in anticipation of an
increase in the market value of securities of the type in which it may invest or
a positive change in the currency in which such securities are denominated. The
purchase of a call option would entitle a Fund, in return for the
-21-
premium paid, to purchase specified securities or a specified amount of a
foreign currency at a specified price during the option period. Each of these
Funds normally will purchase put options in anticipation of an decrease in the
market value of securities of the type in which it may invest or a negative
change in the currency in which such securities are denominated. The purchase of
a put option would entitle a Fund, in return for the premium paid, to sell
specified securities or a specified amount of a foreign currency at a specified
price during the option period.
Each of these Funds may purchase and sell options traded on U.S. and foreign
exchanges. Although a Fund will generally purchase only those options for which
there appears to be an active secondary market, there can be no assurance that a
liquid secondary market on an exchange will exist for any particular option or
at any particular time. For some options, no secondary market on an exchange may
exist. In such event, it might not be possible to effect closing transactions in
particular options, with the result that a Fund would have to exercise its
options in order to realize any profit and would incur transaction costs upon
the purchase or sale of the underlying securities.
Secondary markets on an exchange may not exist or may not be liquid for a
variety of reasons including: (i) insufficient trading interest in certain
options; (ii) restrictions on opening transactions or closing transactions
imposed by an exchange; (iii) trading halts, suspensions or other restrictions
may be imposed with respect to particular classes or series of options; (iv)
unusual or unforeseen circumstances which interrupt normal operations on an
exchange; (v) inadequate facilities of an exchange or the Options Clearing
Corporation to handle current trading volume at all times; or (vi)
discontinuance in the future by one or more exchanges for economic or other
reasons, of trading of options (or of a particular class or series of options),
in which event the secondary market on that exchange (or in that class or series
of options) would cease to exist, although outstanding options on that exchange
that had been issued by the Options Clearing Corporation as a result of trades
on that exchange would continue to be exercisable in accordance with their
terms.
Although these Funds do not currently intend to do so, they may, in the future,
write (i.e., sell) covered put and call options on securities, securities
indices and currencies in which they may invest. A covered call option involves
a Fund's giving another party, in return for a premium, the right to buy
specified securities owned by that Fund at a specified future date and price set
at the time of the contract. A covered call option serves as a partial hedge
against a price decline of the underlying security. However, by writing a
covered call option, a Fund gives up the opportunity, while the option is in
effect, to realize gain from any price increase (above the option exercise
price) in the underlying security. In addition, a Fund's ability to sell the
underlying security is limited while the option is in effect unless that Fund
effects a closing purchase transaction.
Each of these Funds also may write covered put options that give the holder of
the option the right to sell the underlying security to the Fund at the stated
exercise price. A Fund will receive a premium for writing a put option but will
be obligated for as long as the option is outstanding to purchase the underlying
security at a price that may be higher than the market value of that security at
the time of exercise. In order to "cover" put options it has written, a Fund
will cause its custodian to segregate cash, cash equivalents, Government
Securities or other liquid equity or debt securities with at least the value of
the exercise price of the put options. A Fund will not write put options if the
aggregate value of the obligations underlying the put options exceeds 25% of
that Fund's total assets.
There is no assurance that higher than anticipated trading activity or other
unforeseen events might not, at times, render certain of the facilities of the
Options Clearing Corporation inadequate, and result in the institution by an
exchange of special procedures that may interfere with the timely execution of
the Funds' option orders.
-22-
Repurchase Agreements. The Funds may engage in repurchase agreements. Repurchase
agreements are agreements under which securities are acquired from a securities
dealer or bank subject to resale on an agreed upon date and at an agreed upon
price which includes principal and interest. The Investment Manager (or
Sub-Adviser, if applicable) will enter into repurchase agreements on behalf of a
Fund only with financial institutions deemed to present minimal risk of
bankruptcy during the term of the agreement based on guidelines established and
periodically reviewed by the Board. These guidelines currently permit the Funds
to enter into repurchase agreements with any bank the Investment Manager (or
Sub-Adviser) may recommend if it determines such bank to be creditworthy.
Repurchase agreements are considered to be loans collateralized by the
underlying security. Repurchase agreements entered into by the Funds will
provide that the underlying security at all times shall have a value at least
equal to 102% of the price stated in the agreement. This underlying security
will be marked to market daily. The Investment Manager (or Sub-Adviser) will
monitor compliance with this requirement.
Under all repurchase agreements entered into by the Funds, the Custodian or its
agent must take possession of the underlying collateral. However, if the seller
defaults, the Funds could realize a loss on the sale of the underlying security
to the extent the proceeds of the sale are less than the resale price. In
addition, even though the Bankruptcy Code provides protection for most
repurchase agreements, if the seller should be involved in bankruptcy or
insolvency proceedings, the Funds may incur delays and costs in selling the
security and may suffer a loss of principal and interest if the Funds are
treated as unsecured creditors. Repurchase agreements, in some circumstances,
may not be tax-exempt.
Lending of Portfolio Securities. The Equity Funds and the Bond Funds may lend
their portfolio securities in order to generate additional income. Such loans
may be made to broker-dealers or other financial institutions whose
creditworthiness is acceptable to the Investment Manager (or Sub-Adviser). These
loans would be required to be secured continuously by collateral, including
cash, cash equivalents, irrevocable letters of credit, Government Securities, or
other high-grade liquid debt securities, maintained on a current basis (i.e.,
marked to market daily) at an amount at least equal to 100% of the market value
of the securities loaned plus accrued interest. A Fund may pay reasonable
administrative and custodial fees in connection with a loan and may pay a
negotiated portion of the income earned on the cash to the borrower or placing
broker. Loans are subject to termination at the option of a Fund or the borrower
at any time. Upon such termination, that Fund is entitled to obtain the return
of the securities loaned within five business days.
For the duration of the loan, a Fund will continue to receive the equivalent of
the interest or dividends paid by the issuer on the securities loaned, will
receive proceeds from the investment of the collateral and will continue to
retain any voting rights with respect to those securities. As with other
extensions of credit, there are risks of delay in recovery or even losses of
rights in the securities loaned should the borrower of the securities fail
financially. However, the loans will be made only to borrowers deemed by the
Investment Manager (or Sub-Adviser) to be creditworthy, and when, in the
judgment of the Investment Manager (or Sub-Adviser), the income which can be
earned currently from such loans justifies the attendant risk.
Standby Commitments and Put Transactions. The Government Money Fund, the
California Money Fund and the Bond Funds reserve the right to engage in standby
commitments and put transactions. The Investment Manager and each Sub-Adviser
has the authority to purchase securities at a price which would result in a
yield to maturity lower than that generally offered by the seller at the time of
purchase when these Funds can simultaneously acquire the right to sell the
securities back to the seller, the issuer, or a third party (the "writer") at an
agreed-upon price at any time during a stated period or on a certain date. Such
a right is generally denoted as a "standby commitment" or a "put."
-23-
The purpose of engaging in transactions involving puts is to maintain
flexibility and liquidity to permit these Funds to meet redemptions and remain
as fully invested as possible in municipal securities.
The right to put the securities depends on the writer's ability to pay for the
securities at the time the put is exercised. These Funds would limit their put
transactions to institutions which the Investment Manager (or Sub-Adviser)
believes present minimum credit risks, and the Investment Manager (or
Sub-Adviser) would use its best efforts to initially determine and continue to
monitor the financial strength of the sellers of the puts by evaluating their
financial statements and such other information as is available in the
marketplace. It may, however, be difficult to monitor the financial strength of
the writers because adequate current financial information may not be available.
In the event that any writer is unable to honor a put for financial reasons,
these Funds would be a general creditor (i.e., on a parity with all other
unsecured creditors) of the writer. Furthermore, particular provisions of the
contract between one of these Funds and the writer may excuse the writer from
repurchasing the securities; for example, a change in the published rating of
the underlying securities or any similar event that has an adverse effect on the
issuer's credit or a provision in the contract that the put will not be
exercised except in certain special cases, for example, to maintain portfolio
liquidity. These Funds could, however, at any time sell the underlying portfolio
security in the open market or wait until the portfolio security matures, at
which time they should realize the full par value of the security.
The securities purchased subject to a put may be sold to third persons at any
time, even though the put is outstanding, but the put itself, unless it is an
integral part of the security as originally issued, may not be marketable or
otherwise assignable. Therefore, the put would have value only to these Funds.
Sale of the securities to third parties or lapse of time with the put
unexercised may terminate the right to put the securities. Prior to the
expiration of any put, these Funds could seek to negotiate terms for its
extension. If such a renewal cannot be negotiated on terms satisfactory to these
Funds, these Funds could, of course, sell the security. The maturity of the
underlying security will generally be different from that of the put.
Highly Liquid Investments. The Funds may invest in cash and cash equivalents.
The Funds may invest in bank notes. Bank notes are unsecured promissory notes
representing debt obligations that are issued by banks in large denominations.
The Funds may invest in bankers' acceptances. Bankers' acceptances are bills of
exchange or time drafts drawn on and accepted by a commercial bank. Bankers'
acceptances are issued by corporations to finance the shipment and storage of
goods. Maturities are generally six months or less. The Funds may invest in
certificates of deposit. A certificate of deposit is an interest-bearing
instrument with a specific maturity. They are issued by banks and savings and
loan institutions in exchange for the deposit of funds and normally can be
traded in the secondary market prior to maturity. The Funds also may make
interest-bearing time or other interest-bearing deposits in commercial or
savings banks. Time deposits are non-negotiable deposits maintained at a banking
institution for a specified period of time at a specified interest rate.
Certificates of deposit and time deposits with penalties for early withdrawal
will be considered illiquid.
Eurodollar Certificates of Deposit and Foreign Securities. The Prime Money Fund
may invest in Eurodollar certificates of deposit and foreign securities. Before
investing in Eurodollar certificates of deposit, the Prime Money Fund will
consider their marketability, possible restrictions on international currency
transactions, and any regulations imposed by the domicile country of the foreign
issuer. Eurodollar certificates of deposit may not be subject to the same
regulatory requirements as certificates of deposit issued by U.S. banks, and
associated income may be subject to the imposition of foreign taxes, including
withholding taxes.
-24-
Investments in securities of foreign issuers or securities principally traded
overseas may involve certain special risks due to foreign economic, political,
and legal developments, as described above. All such securities will be U.S.
dollar denominated.
Tax Exempt Commercial Paper. The California Bond Fund, the California Money Fund
and the Prime Money Fund may invest in tax-exempt commercial paper. Tax exempt
commercial paper is an unsecured short-term obligation issued by a government or
political sub-division.
U.S. Government Agency Obligations. Each Fund may invest in U.S. agency
obligations. Various agencies of the U.S. Government issue obligations,
including but not limited to the Federal Home Loan Bank ("FHLB"), the Student
Loan Marketing Association, the Export/Import Bank of the United States, Farmers
Home Administration, Federal Farm Credit Bank, Federal Housing Administration,
GNMA, Maritime Administration, Small Business Administration, and the Tennessee
Valley Authority. The Funds may purchase securities guaranteed by GNMA which
represent participation in Veterans Administration and Federal Housing
Administration backed mortgage pools. Obligations of instrumentalities of the
U.S. Government include securities issued by, among others, FHLB, FHLMC, Federal
Intermediate Credit Banks, Federal Land Banks, FNMA and the U.S. Postal Service.
Some of these securities are supported by the full faith and credit of the U.S.
Treasury (i.e., GNMA), others are supported by the right of the issuer to borrow
from the Treasury. Guarantees of principal by agencies or instrumentalities of
the U.S. Government may be a guarantee of payment at the maturity of the
obligation so that in the event of a default prior to maturity there might not
be a market and thus no means of realizing the value of the obligation prior to
maturity.
U.S. Treasury Obligations. Each Fund may invest in U.S. Treasury Obligations,
which consist of bills, notes and bonds issued by the U.S. Treasury as well as
separately traded interest and principal component parts of such obligations,
known as Separately Traded Registered Interest and Principal Securities
("STRIPS"), that are transferable through the federal book-entry system. STRIPS
are sold as zero coupon securities, which means that they are sold at a
substantial discount and redeemed at face value at their maturity date without
interim cash payments of interest or principal. This discount is accreted over
the life of the security, and such accretion will constitute the income earned
on the security for both accounting and tax purposes. Because of these features,
such securities may be subject to greater interest rate volatility than interest
paying investments.
When-Issued Securities. The Funds may invest in when-issued securities. These
securities involve the purchase of debt obligations on a when-issued basis, in
which case delivery and payment normally take place within 45 days after the
date of commitment to purchase. These securities are subject to market
fluctuation due to changes in market interest rates, and it is possible that the
market value at the time of settlement could be higher or lower than the
purchase price if the general level of interest rates has changed; in that case
there could be an unrealized loss at the time of delivery. Delivery of and
payment for these securities may occur a month or more after the date of the
purchase commitment. Each Fund will maintain with the custodian a separate
account with liquid securities or cash in an amount at least equal to these
commitments. The interest rate realized on these securities is fixed as of the
purchase date, and no interest accrues to these Funds before settlement.
Although the Funds generally purchase securities on a when-issued or forward
commitment basis with the intention of actually acquiring securities for their
portfolios, the Funds may dispose of a when-issued security or forward
commitment prior to settlement if the Investment Manager (or Sub-Adviser) deems
it appropriate to do so.
Index-based Investments. The Equity Funds (other than the Small Cap Value Fund)
may invest in index-based investments. Index-Based Investments, such as Standard
& Poor's Depository Receipts ("SPDRs"), NASDAQ-100 Index Tracking Stock ("NASDAQ
100s") and Dow Jones DIAMONDS
-25-
("Diamonds"), are interests in unit investment trusts ("UITs") that may be
obtained from the UITs or purchased in the secondary market. SPDRs, NASDAQ 100s
and DIAMONDS are listed on the American Stock Exchange.
A UIT will generally issue index-based investments in aggregations of 50,000
known as "Creation Units" in exchange for a "Portfolio Deposit" consisting of
(a) a portfolio of securities substantially similar to the component securities
("Index Securities") of the applicable index (the "Index"), (b) a cash payment
equal to a pro rata portion of the dividends accrued on the UIT's portfolio
securities since the last dividend payment by the UIT, net of expenses and
liabilities, and (c) a cash payment or credit ("Balancing Amount") designed to
equalize the net asset value of the Index and the net asset value of a Portfolio
Deposit.
Index-based investments are not individually redeemable, except upon termination
of the UIT. To redeem, the portfolio must accumulate enough index-based
investments to reconstitute a Creation Unit (large aggregations of a particular
index-based investment). The liquidity of small holdings of index-based
investments, therefore, will depend upon the existence of a secondary market.
Upon redemption of a Creation Unit, the portfolio will receive Index Securities
and cash identical to the Portfolio Deposit required of an investor wishing to
purchase a Creation Unit that day.
The price of index-based investments is derived and based upon the securities
held by the UIT. Accordingly, the level of risk involved in the purchase or sale
of index-based investments is similar to the risk involved in the purchase or
sale of traditional common stock, with the exception that the pricing mechanism
for index-based investments is based on a basket of stocks. Disruptions in the
markets for the securities underlying index-based investments purchased or sold
by the portfolio could result in losses on index-based investments. Trading in
index-based investments involves risks similar to those risks, described above
under "Options and Futures on Options" involved in the writing of options on
securities.
Borrowing Policy. The Funds may not borrow money except as a temporary measure
for extraordinary purposes or for ordinary needs for overdraft protection, and
then only in an amount up to one-third of the value of each Fund's total assets
in order to meet redemption requests without immediately selling any portfolio
securities. The Funds will not borrow for leverage purposes or purchase
securities or make investments while borrowings are outstanding. If for any
reason the current value of the total assets of a Fund falls below an amount
equal to three times the amount of indebtedness for money borrowed, the Fund
will, within three days (not including Sundays and holidays), reduce its
indebtedness to the extent necessary to meet that limitation. Any borrowings
under this provision will not be collateralized.
California Municipal Securities. Because the California Bond Fund and the
California Money Fund invest primarily in California Municipal Securities, the
value of their portfolio investments will be highly sensitive to events
affecting the fiscal stability of the State of California (sometimes referred to
in this section as the "State") and its municipalities, authorities and other
instrumentalities that issue such securities. The following information is based
on information available as of the date of this Statement of Additional
Information primarily from official statements and prospectuses relating to
securities offerings of the State, the latest of which is dated November 28,
2006.
General Economic Conditions
- ---------------------------
The economy of the State is the largest among the 50 states and one of the
largest in the world. The diversified economy of the State has major components
in high technology, trade, entertainment, agriculture, tourism, construction and
services. Certain of the State's significant industries, such as high
technology, are sensitive to economic disruptions in their export markets.
-26-
Since early 2001, the State has faced severe financial challenges, which may
continue for several years. The State experienced an economic recession in 2001
and a sluggish recovery in 2002 and 2003 (with greatest impacts in the high
technology, internet, and telecommunications sectors, especially in Northern
California); weakened exports; and most particularly, large stock market
declines (with attendant declines in stock option values and capital gains
realizations). These adverse fiscal and economic factors resulted in a serious
erosion of General Fund tax revenues. In recent years, the State has derived a
significant portion of its revenue from personal income and sales taxes. Because
the amount collected from these taxes is particularly sensitive to economic
conditions, the State's revenues have been volatile.
California's geographic location subjects it to earthquake risks. It is
impossible to predict the time, magnitude or location of a major earthquake or
its effect on the California economy. In January 1994, a major earthquake struck
the Los Angeles area, causing significant damage in a four county area. The
possibility exists that another such earthquake could create a major dislocation
of the California economy and significantly affect State and local governmental
budgets.
State Budgets
- -------------
2006 Budget Act. The Governor signed the 2006 Budget Act on June 30, 2006, for
the fiscal period July 1, 2006 through June 30, 2007. The 2006 Budget Act
forecasts $93.9 billion in General Fund revenues and transfers and $101.3
billion in expenditures. It projects that by utilizing the prior year's $9.5
billion General Fund balance, the General Fund will end the fiscal year with a
positive balance of approximately $2.1 billion. The 2006 Budget Act assumes that
the State will not issue Economic Recovery Bonds or raise taxes. The spending
plan includes $3.2 billion for the repayment or prepayment of prior obligations,
including $1.5 billion to prepay Economic Recovery Bonds, and other one-time
costs of $1.6 billion.
The State's Legislative Analyst's Office ("LAO"), in its "California Fiscal
Outlook" report released on November 15, 2006, projected that the 2006-07 fiscal
year will end with a reserve of about $3.1 billion, approximately $1 billion
more than the $2.1 billion estimate contained in the 2006 Budget Act. However,
the LAO estimated that the State would conclude fiscal year 2007-08 with a $5.5
billion operating shortfall and a $2.4 billion deficit. It reiterated its
earlier warnings about the State's structural deficit in outlying years.
Therefore, the LAO suggested, other actions will be needed to keep the budget in
balance.
The Governor's Budget for 2007-08, released in January 2007, projects General
Fund revenues and transfers of $94.5 billion, expenditures of $102.1 billion and
a General Reserve fund balance of $3.2 billion for fiscal year 2006-07.
2007-08 Governor's Budget. The Governor's Budget for the 2007-08 fiscal year
projects a $1.9 billion budget operating deficit, smaller than the LAO's
November 2006 estimate of $5.5 billion. This budget projects General Fund
revenues and transfers for the fiscal year ending June 30, 2008 of $101.3
billion, and expenditures of $103.1 billion, increases of $6.8 billion and $1
billion, respectively, compared with the latest estimates for fiscal year
2006-07. The Governor's Budget closes the operating deficit by applying a
portion of the estimated $3.2 billion fund balance from the 2006 Budget, leaving
fiscal year 2007-08 with a $2.1 billion reserve, significantly better than the
LAO's November 2006 estimate of a deficit of $2.4 billion.
In its January 12, 2007 Overview of the 2007-08 Governor's Budget, the LAO
concluded that the 2007-08 budget "contains a significant number of downside
risks and is based on a number of optimistic assumptions." Even if the budget
were adopted as proposed, the LAO believes that the budgeted savings and new
revenues will fall short of levels estimated by the Governor's budget. Further,
the LAO projects that State will continue to face structural deficits in
outlying years and recommended that the Legislature develop a more realistic
budget.
-27-
Constraints on the Budget Process. Proposition 58, approved in March 2004 with
the State's Economic Recovery Bonds, requires the State to enact a balanced
budget and establish a special reserve in the General Fund and restricts future
borrowing to cover budget deficits. As a result of the provisions requiring the
enactment of a balanced budget and restricting borrowing, the State would, in
some cases, have to take more immediate actions to correct budgetary shortfalls.
Beginning with the budget for fiscal year 2004-05, Proposition 58 requires the
Legislature to pass a balanced budget and provides for mid-year adjustments in
the event that the budget falls out of balance. The balanced budget
determination is made by subtracting expenditures from all available resources,
including prior-year balances.
If the Governor determines that the State is facing substantial revenue
shortfalls or spending deficiencies, the Governor is authorized to declare a
fiscal emergency. He or she would then be required to propose legislation to
address the emergency and call the Legislature into special session to consider
that legislation. If the Legislature fails to pass and send to the Governor
legislation to address the budget fiscal emergency within 45 days, the
Legislature would be prohibited from acting on any other bills or adjourning in
joint recess until such legislation is passed.
Proposition 58 also requires that a special reserve (the Budget Stabilization
Account) be established in the State's General Fund. Beginning with fiscal year
2006-07, a specified portion of estimated annual General Fund revenues would be
transferred by the Controller into the Budget Stabilization Account no later
than September 30 of each fiscal year. These transfers would continue until the
balance in the Budget Stabilization Account reaches $8 billion or 5 percent of
the estimated General Fund revenues for that fiscal year, whichever is greater.
The annual transfer requirement would be in effect whenever the balance falls
below the $8 billion or 5 percent target. The annual transfers could be
suspended or reduced for a fiscal year by an executive order issued by the
Governor no later than June 1 of the preceding fiscal year.
Proposition 58 also prohibits certain future borrowing to cover budget deficits.
This restriction applies to general obligation bonds, revenue bonds, and certain
other forms of long-term borrowing. The restriction does not apply to certain
other types of borrowing, such as short-term borrowing to cover cash shortfalls
in the General Fund (including revenue anticipation notes or revenue
anticipation warrants currently used by the State), or inter-fund borrowings.
Future Budgets. It cannot be predicted what actions will be taken in the future
by the Legislature and the Governor to deal with changing State revenues and
expenditures. The State budget will be affected by national and State economic
conditions and other factors.
State Indebtedness
- ------------------
General Obligation Bonds and Revenue Bonds. As of November 1, 2006, the State
had approximately $56.5 billion aggregate principal of outstanding long-term
general obligation bonds and revenue bonds. Including estimated interest of
approximately $33.7 billion, the State's debt service requirements for general
obligation bonds and revenue bonds totaled nearly $90.2 billion. General
obligation bond authorizations of approximately $30.2 billion remained unissued
as of that date, not including bonds approved by the voters on November 7, 2006
(see below).
Ratings. As of January 16, 2007, the State's general obligation bonds were rated
A1 by Moody's, A+ by Standard & Poor's, and A+ by Fitch Ratings. It is not
possible to determine whether, or the extent to which, Moody's, Standard &
Poor's or Fitch Ratings will change such ratings in the future.
Strategic Growth Plan. Coinciding with the release of the State's 2006-07
budget, the Governor announced a "Strategic Growth Plan" for the State in which
he proposed that the State spend nearly $223 billion over 10 years on State
infrastructure programs such as transportation, education, flood control, public
safety and courts. The Strategic Growth Plan would be financed in part through
the issuance of $68 billion in general obligation bonds. In response to the
Governor's proposal, the
-28-
Legislature in May 2006 approved a $116 million Strategic Growth Plan package,
which included $37.3 in new general obligation bonds (approved by the voters on
November 7, 2006), $50.1 billion in existing funding, and $28.4 billion in new
leveraged funding sources.
Local Government
- ----------------
The primary units of local government in California are the counties, ranging in
population from 1,200 (Alpine) to approximately 10 million (Los Angeles).
Counties are responsible for the provision of many basic services, including
indigent healthcare, welfare, courts, jails and public safety in unincorporated
areas. There are also 478 incorporated cities and thousands of other special
districts formed for education, utility and other services. The fiscal condition
of local governments has been constrained since the enactment of "Proposition
13" in 1978 and later constitutional amendments, which reduced and limited the
future growth of property taxes and limited the ability of local governments to
impose "special taxes" (those devoted to a specific purpose) without two-thirds
voter approval. Proposition 218, another initiative constitutional amendment
enacted in 1996, further limited the ability of local governments to impose or
raise various taxes, fees, charges and assessments without voter approval.
Counties, in particular, have had fewer options to raise revenues than many
other local government entities, and have been required to maintain many
services.
Some local governments in California have experienced notable financial
difficulties, including Los Angeles County, Orange County and San Diego County,
and there is no assurance that any California issuer will make full or timely
payments of principal or interest or remain solvent. It should be noted that the
creditworthiness of obligations issued by local California issuers may be
unrelated to the creditworthiness of obligations issued by the State, and there
is no obligation on the part of the State to make payment on such local
obligations in the event of default.
According to the State, the 2004 Budget Act, related legislation and the
enactment of Senate Constitutional Amendment No. 4 (described below) will
dramatically change the State-local fiscal relationship. These constitutional
and statutory changes implement an agreement negotiated between the Governor and
local government officials (the "State-local agreement") in connection with the
2004 Budget Act. One change relates to the reduction of the Vehicle License Fee
("VLF") rate from 2 percent to 0.65 percent of the market value of the vehicle.
In order to protect local governments, the reduction in VLF revenue to cities
and counties from this rate change will be replaced by an increase in the amount
of property tax they receive.
As part of the State-local agreement, Senate Constitutional Amendment No. 4 was
enacted by the Legislature and subsequently approved by the voters at the
November 2004 election. Senate Constitutional Amendment No. 4 amends the State
Constitution to, among other things, reduce the Legislature's authority over
local government revenue sources by placing restrictions on the State's access
to local governments' property, sales, and VLF revenues as of November 3, 2004.
Beginning with fiscal year 2008-09, the State will be able to borrow up to 8
percent of local property tax revenues, but only if the Governor proclaims such
action is necessary due to a severe State fiscal hardship, two-thirds of both
houses of the Legislature approves the borrowing and the amount borrowed is
required to be paid back within three years. The State also will not be able to
borrow from local property tax revenues for more than two fiscal years within a
period of 10 fiscal years. In addition, the State cannot reduce the local sales
tax rate or restrict the authority of the local governments to impose or change
the distribution of the statewide local sales tax.
Senate Constitutional Amendment No. 4 also prohibits the State from mandating
activities on cities, counties or special districts without providing for the
funding needed to comply with the mandates. If the State does not provide
funding for an activity that has been determined to be mandated, the requirement
on cities, counties or special districts to abide by the mandate will be
suspended. In addition, Senate Constitutional Amendment No. 4 expands the
definition of what constitutes a mandate to encompass State action that
transfers to cities, counties and special districts financial
-29-
responsibility for a required program for which the State previously had partial
or complete responsibility. The State mandate provisions of Senate
Constitutional Amendment No. 4 do not apply to schools or community colleges or
to mandates relating to employee rights.
Constitutional, Legislative and Other Factors
- ---------------------------------------------
The State is subject to an annual appropriations limit imposed by Article XIII B
of the State Constitution (the "Appropriations Limit"). The Appropriations Limit
does not restrict appropriations to pay debt service on voter-authorized bonds.
Article XIII B prohibits the State from spending "appropriations subject to
limitation" in excess of the Appropriations Limit. "Appropriations subject to
limitation" are authorizations to spend "proceeds of taxes," which consist of
tax revenues and certain other funds, including proceeds from regulatory
licenses, user charges or other fees to the extent that such proceeds exceed
"the cost reasonably borne by that entity in providing the regulation, product
or service," but "proceeds of taxes" exclude most State subventions to local
governments, tax refunds and some benefit payments such as unemployment
insurance. No limit is imposed on appropriations of funds which are not
"proceeds of taxes," such as reasonable user charges or fees and certain other
non-tax funds. Various types of appropriations are excluded from the
Appropriations Limit.
The State's Appropriations Limit in each year is based on the Limit for the
prior year, adjusted annually for changes in State per capita personal income
and changes in population, and adjusted, when applicable, for any transfer of
financial responsibility for providing services to or from another unit of
government or any transfer of the financial source for the provisions of
services from tax proceeds to non-tax proceeds.
The Legislature has enacted legislation to implement Article XIII B which
defines certain terms used in Article XIII B and sets forth the methods for
determining the Appropriations Limit. California Government code Section 7912
requires an estimate of the Appropriations Limit to be included in the
Governor's Budget, and thereafter to be subject to the budget process and
established in the Budget Act.
On November 8, 1988, voters of the State approved Proposition 98, a combined
initiative constitutional amendment and statute called the "Classroom
Instructional Improvement and Accountability Act." Proposition 98 changed State
funding of public education below the university level and the operation of the
State appropriations funding, primarily by guaranteeing K-14 schools a minimum
share of General Fund revenues. Proposition 98 permits the Legislature by
two-thirds vote of both houses, with the Governor's concurrence, to suspend the
K-14 schools' minimum funding formula for a one-year period. Proposition 98 also
contains provisions transferring certain State tax revenues in excess of the
Article XIII B limit to K-14 schools.
Because of the complexities of Article XIII B, the ambiguities and possible
inconsistencies in its terms, the applicability of its exceptions and exemptions
and the impossibility of predicting future appropriations, it is not possible to
predict the impact of this or related legislation on the bonds in the portfolios
of the California Bond Fund and the California Money Fund.
Article XIII B and other Articles of the State Constitution were adopted as
measures that qualified for the ballot pursuant to the State's initiative
process. Other Constitutional amendments affecting State and local taxes and
appropriations have been proposed from time to time. If any such initiatives
were adopted, the State could be pressured to provide additional financial
assistance to local Governments or appropriate revenues as mandated by such
initiatives. Propositions such as Proposition 98 and others that may be adopted
in the future may place increasing pressure on the State's budget over future
years, potentially reducing resources available for other State programs,
especially to the extent the Article XIII B spending limit would restrain the
State's ability to fund such other programs by raising taxes.
-30-
Effect of other State Laws on Bond Obligations. Some of the California Municipal
Securities that the California Bond Fund and the California Money Fund can
invest in may be obligations payable solely from the revenues of a specific
institution or secured by specific properties. These are subject to provisions
of California law that could adversely affect the holders of such obligations.
For example, the revenues of California health care institutions may be
adversely affected by State laws, and California law limits the remedies of a
creditor secured by a mortgage or deed of trust on real property. Debt
obligations payable solely from revenues of health care institutions may also be
insured by the State but no guarantee exists that adequate reserve funds will be
appropriated by the Legislature for such purpose.
Litigation
- ----------
The State is a party to numerous legal proceedings, many of which normally occur
in governmental operations. In addition, the State is involved in certain other
legal proceedings that, if decided against the State might require the State to
make significant future expenditures or impair future revenue sources. Because
of the prospective nature of these proceedings, it is not presently possible to
predict the outcome of such litigation or estimate the potential impact on the
ability of the State to pay debt service costs on its obligations.
On August 8, 2005, a lawsuit titled California Teachers Association et al. v.
Arnold Schwarzenegger et al. was filed. Plaintiffs - California Teachers
Association, California Superintendent of Public Instruction Jack O'Connell, and
various other individuals - allege that the California Constitution's minimum
school funding guarantee was not followed for the 2004-2005 fiscal year and the
2005-06 fiscal year in the aggregate amount of approximately $3.1 billion.
Plaintiffs seek a writ of mandate requiring the State to recalculate the
minimum-funding guarantee in compliance with the California Constitution. On May
10, 2006, counsel for all parties executed a settlement agreement, and the
action has been stayed pending implementation legislation. The settlement calls
for payment of the outstanding balance of the minimum funding obligation to
school districts and community college districts (approximately $3 billion in
the aggregate) through the 2013-14 fiscal year.
On November 15, 2005, a California Superior Court judge entered a decision in a
case which sought judicial validation for the issuance by the State of pension
obligation bonds. The judge ruled the bonds were not valid. The State appealed,
but it will not be able to issue pension obligation bonds until the matter is
finally resolved. For the 2005-2006 fiscal year, the State made payments of
about $525 million for a portion of the fiscal year contribution to the
California Public Employees' Retirement System which had been planned to be
funded from the bonds. The 2007 Governor's Budget does not call for the issuance
of any pension obligation bonds.
INVESTMENT RESTRICTIONS
FUNDAMENTAL POLICIES
No Equity Fund or Bond Fund may:
1. Other than the California Bond Fund, with respect to 75% of its total
assets, (i) purchase the securities of any issuer (except securities issued or
guaranteed by the United States Government, its agencies or instrumentalities)
if, as a result, more than 5% of its total assets would be invested in the
securities of such issuer; or (ii) acquire more than 10% of the outstanding
voting securities of any one issuer.
-31-
2. Purchase any securities which would cause 25% or more of the total assets
of the Fund to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry, provided that this
limitation does not apply to investments in obligations issued or guaranteed by
the United States Government, its agencies or instrumentalities.
3. Borrow money in an amount exceeding 33 1/3% of the value of its total
assets, provided that, for purposes of this limitation, investment strategies
which either obligate a Fund to purchase securities or require a Fund to
segregate assets are not considered to be borrowings. Other than with respect to
the Small Cap Value Fund, to the extent that its borrowings exceed 5% of its
total assets, (i) all borrowings will be repaid before making additional
investments and any interest paid on such borrowing will reduce income; and (ii)
asset coverage of at least 300% is required.
4. Other than the Small Cap Value Fund, make loans if, as a result, more
than 33 1/3% of its total assets would be loaned to other parties, except that
each Fund may (i) purchase or hold debt instruments in accordance with its
investment objective and policies; (ii) enter into repurchase agreements; and
(iii) lend its securities. The Small Cap Value Fund may not make loans, except
that the Fund may (i) purchase or hold debt instruments in accordance with its
investment objective and policies; (ii) enter into repurchase agreements; and
(iii) lend its securities.
5. Other than with respect to the Small Cap Value Fund, purchase or sell
real estate, physical commodities, or commodities contracts, except that each
Fund may purchase (i) marketable securities issued by companies which own or
invest in real estate (including real estate investment trusts), commodities, or
commodities contracts; and (ii) commodities contracts relating to financial
instruments, such as financial futures contracts and options on such contracts.
The Small Cap Value Fund may not purchase or sell real estate, physical
commodities, or commodities contracts. As a matter of operating policy, the
Board of Trustees may authorize the Small Cap Value Fund in the future to engage
in certain activities regarding futures contracts for bona fide hedging
purposes; any such authorization will be accompanied by appropriate notification
to shareholders.
6. Issue senior securities (as defined in the 1940 Act) except as permitted
by rule, regulation or order of the Securities and Exchange Commission (the
"SEC"), except that this restriction shall not be deemed to prohibit the Small
Cap Value Fund from (a) making any permitted borrowings, mortgages or pledges,
or (b) entering into options, futures or repurchase transactions.
7. Act as an underwriter of securities of other issuers except as it may be
deemed an underwriter in selling a portfolio security.
8. Other than with respect to the Small Cap Value Fund, invest in interests
in oil, gas, or other mineral exploration or development programs and oil, gas
or mineral leases.
9. The Small Cap Value Fund may not purchase securities on margin,
participate on a joint or joint and several basis in any securities trading
account, or underwrite securities. The foregoing shall not preclude the Small
Cap Value Fund from obtaining such short-term credit as may be necessary for
clearance of purchases and sales of its portfolio securities.
The foregoing percentages (other than the limitation on borrowing) will apply at
the time of the purchase of a security and shall not be considered violated
unless an excess or deficiency occurs immediately after or as a result of a
purchase of such security. Except as otherwise indicated, these investment
limitations and the investment limitations in each prospectus are fundamental
policies of the Trust and may not be changed without shareholder approval.
-32-
NON-FUNDAMENTAL POLICIES
No Equity Fund or Bond Fund may:
1. Other than with respect to the Small Cap Value Fund, pledge, mortgage or
hypothecate assets except to secure borrowings permitted by the Fund's
fundamental limitation on borrowing.
2. Invest in companies for the purpose of exercising control.
3. Other than with respect to the Small Cap Value Fund, purchase securities
on margin or effect short sales, except that each Fund may (i) obtain short-term
credits as necessary for the clearance of security transactions; (ii) provide
initial and variation margin payments in connection with transactions involving
futures contracts and options on such contracts; and (iii) make short sales
"against the box" or in compliance with the SEC's position regarding the asset
segregation requirements imposed by Section 18 of the 1940 Act.
4. Invest its assets in securities of any investment company, except as
permitted by the 1940 Act or an order of exemption therefrom.
5. Purchase or hold securities that are illiquid or are otherwise not
readily marketable (i.e., securities that cannot be disposed of for their
approximate carrying value in seven days or less, which term includes repurchase
agreements and time deposits maturing in more than seven days) if, in the
aggregate, more than 15% of its net assets would be invested in illiquid
securities.
6. The Small Cap Value Fund will not purchase portfolio securities while
outstanding borrowings exceed 5% of its assets.
Each of the foregoing percentage limitations (except with respect to the
limitation on investing in illiquid and not readily marketable securities) apply
at the time of purchase. If, subsequent to a Fund's purchase of an illiquid
security, more than 15% of the Fund's net assets are invested in illiquid
securities because of changes in valuations, the Fund will, within a reasonable
time, dispose of a portion of such holding so that the above set-forth limit
will not be exceeded. These limitations are non-fundamental and may be changed
by the Board without a vote of shareholders.
MONEY FUNDS
Except as otherwise noted with an (*), the restrictions below are nonfundamental
and can be changed as to a Money Fund without approval of the holders of a
majority of the outstanding voting securities (as defined in the 1940 Act) of
the Money Fund. The Money Funds may not:
1. (*)Subject to the provisions of Rule 2a-7 under the 1940 Act, purchase
securities of any issuer (other than obligations of, or guaranteed by, the U.S.
Government, its agencies or instrumentalities) if, as a result thereof, more
than 5% of the value of its total assets would be invested in the securities of
such issuer.
2. Purchase more than 10% of any class of securities of any issuer. All debt
securities and all preferred stocks are each considered as one class.
3. (*)Concentrate 25% or more of the value of its total assets in any one
industry; provided, however, that a Fund may invest up to 100% of its assets in
certificates of deposit or bankers' acceptances issued by domestic branches of
U.S. banks and U.S. branches of foreign banks
-33-
(which the Fund has determined to be subject to the same regulation as U.S.
banks), or obligations of, or guaranteed by, the U.S. Government, its agencies
or instrumentalities in accordance with its investment objective and policies.
As to the California Money Fund, this restriction does not apply to municipal
securities in any of the following categories: public housing; general
obligations of states and localities; state and local finance authorities or
municipal utilities systems.
4. Enter into repurchase agreements if, as a result thereof, more than 10%
of its net assets valued at the time of the transaction would be subject to
repurchase agreements maturing in more than seven days and invested in
securities restricted as to disposition under the federal securities laws
(except commercial paper issued under Section 4(2) of the 1933 Act). The Money
Funds will invest no more than 10% of their net assets in illiquid securities.
5. (*)Invest in commodities or commodity contracts, futures contracts, real
estate or real estate limited partnerships, although it may invest in securities
which are secured by real estate and securities of issuers which invest or deal
in real estate.
6. Invest for the purpose of exercising control or management of another
issuer.
7. Purchase securities of other investment companies, except in connection
with a merger, consolidation, reorganization, or acquisition of assets, or as
may otherwise be permitted by a Fund's prospectus and the 1940 Act.
8. (*)Make loans to others (except through the purchase of debt obligations
or repurchase agreements in accordance with its investment objectives and
policies).
9. (*)Borrow money, except as a temporary measure for extraordinary or
emergency purposes, and then only in an amount up to one-third of the value of
its total assets in order to meet redemption requests without immediately
selling any portfolio securities. A Fund will not borrow for leverage purposes
or purchase securities or make investments while borrowings are outstanding. Any
borrowings by a Fund will not be collateralized. If for any reason the current
value of the total assets of a Fund falls below an amount equal to three times
the amount of indebtedness for money borrowed, the Fund will, within three
business days, reduce its indebtedness to the extent necessary to meet that
limitation.
10. Write, purchase or sell puts, calls or combinations thereof except as
otherwise noted in this Statement of Additional Information.
11. Make short sales of securities or purchase any securities on margin,
except to obtain such short-term credits as may be necessary for the clearance
of transactions.
12. (*)Underwrite securities issued by others, except to the extent it may be
deemed to be an underwriter under the federal securities laws in connection with
the disposition of securities from its investment portfolio.
13. (*)Issue senior securities as defined in the 1940 Act.
14. Invest in interests or leases in oil, gas or other mineral exploration or
development programs.
-34-
Except for restrictions (3), (4) and (9), if a percentage restriction is adhered
to at the time of investment, a later increase in percentage resulting from a
change in values or net or total assets will not be considered a violation of
that restriction.
The Money Funds will only purchase securities that the Investment Manager has
determined, according to procedures approved by the Board and factors set forth
in Rule 2a-7 under the 1940 Act, present minimal credit risk and are First Tier
or Second Tier Securities (otherwise referred to as "Eligible Securities"). An
Eligible Security is:
(1) a security with a remaining maturity of 397 days or less: (a) that is
rated by an NRSRO (currently Moody's, S&P, Fitch or, with respect to debt issued
by banks, bank holding companies, United Kingdom building societies,
broker-dealers and broker-dealers' parent companies, and bank-supported debt) in
one of the two highest rating categories for short-term debt obligations (two
NRSROs are required but one rating suffices if only one NRSRO rates the
security), or (b) that itself was unrated by any NRSRO, but was issued by an
issuer that has outstanding a class of short-term debt obligations (or any
security within that class) meeting the requirements of subparagraph 1(a) above
that is of comparable priority and security;
(2) a security that at the time of issuance was a long-term security but has
a remaining maturity of 397 days or less, and whose issuer received a rating
within one of the two highest rating categories from the requisite NRSROs for
short-term debt obligations with respect to a class of short-term debt
obligations (or any security within that class) that is now comparable in
priority and security with the subject security;
(3) a security that at the time of issuance was a long-term security but has
a remaining maturity of 397 days or less, and whose issuer received a rating
within one of the three highest rating categories from the requisite NRSROs for
long-term debt obligations; or
(4) a security not rated by an NRSRO but deemed by the Investment Manager,
pursuant to guidelines adopted by the Board of Trustees, to be of comparable
quality to securities described in (1) and (2) above and to represent minimal
credit risk.
A First Tier Security is any Eligible Security, as defined above, that (1)
carries (or if other relevant securities issued by its issuer carry) top NRSRO
ratings from at least two NRSROs (a single top rating suffices if only one NRSRO
rates the security), (2) has been determined by the Investment Manager, pursuant
to guidelines adopted by the Board, to be of comparable quality to such a
security, (3) is a security issued by a registered investment company that is a
money market fund, or (4) is a U.S. Government security (a "Government
security"). A Second Tier Security is any other Eligible Security.
Each Fund will limit its investments in the First Tier Securities of any one
issuer to no more than 5% of its total assets (repurchase agreements
collateralized by non-Government Securities will be taken into account when
making this calculation); provided, however, that (1) the California Money Fund
may invest up to 25% of the value of its total assets without regard to this
restriction as permitted by Rule 2a-7 under the 1940 Act, and (2) each of the
Prime Money Fund and the Government Money Fund may invest up to 25% of the value
of its total assets without regard to this restriction for a period of up to
three business days as permitted by Rule 2a-7, provided that neither such Fund
may invest in the securities of more than one issuer in accordance with the
foregoing proviso at any time. Moreover, a Fund's total holdings of Second Tier
Securities will not exceed 5% of its total assets, with investment in the Second
Tier Securities of any one issuer being limited to the greater of 1% of a Fund's
total assets or $1 million. In addition, the underlying securities involved in
repurchase
-35-
agreements collateralized by non-Government Securities will be First Tier
Securities at the time the repurchase agreements are executed.
MANAGEMENT OF THE TRUST
The Trustees and officers of the Trust, their principal occupations during the
past five years, and their affiliations, if any, with CNAM, Inc., the investment
manager to the Funds or CCM Advisors, LLC ("CCM Advisors"), the investment
manager to the AHA Funds, are set forth below. The persons listed below may have
held other positions with their employers named below during the relevant
period. Certain officers of the Trust also serve as officers to one or more
other mutual funds for which SEI Investments or its affiliates act as investment
manager, administrator or distributor. Each Trustee is a "disinterested person"
of the Trust, as defined in the 1940 Act (each, an "Independent Trustee," and
collectively, the "Independent Trustees").
INDEPENDENT TRUSTEES
- -----------------------------------------------------------------------------------------------------------------------
Name Position Term of Principal Occupation Number of Other Directorships
Address with the Office(*) for the Portfolios in Held by Trustee
Age Trust and Length Past Five Years Fund Complex
of Time Overseen by
Served Trustee
- -----------------------------------------------------------------------------------------------------------------------
Irwin G. Barnet, Esq.(**) Trustee Since 1999 Attorney and partner, Reed 16 None
Reed Smith LLP Smith LLP, a law firm
1901 Avenue of the (2003-present). Attorney
Stars, #700 and principal, Crosby,
Los Angeles, Heafey, Roach & May P.C.,
California 90067 a law firm (2000-2002 ).
Age: 68 Attorney and principal,
Sanders, Barnet, Goldman,
Simons & Mosk, a law firm
(1980-2000).
- ---------------------------------------------------------------------------------------------------------------------
Victor Meschures Trustee Since 1999 Certified Public 16 None
Meschures, Campeas, Accountant, Meschures,
Thompson, Snyder and Campeas, Thompson,
Pariser, LLP Snyder and Pariser, LLP,
8383 Wilshire an accounting firm
Boulevard, Suite 500 (1964-present).
Beverly Hills, CA 90211
Age: 68
- ---------------------------------------------------------------------------------------------------------------------
William R. Sweet Trustee Since 1999 Retired. Executive Vice 16 None
81 Mt. Tiburon Road President, Union Bank of
Tiburon, California California (1985-1996).
94920
Age: 69
- ---------------------------------------------------------------------------------------------------------------------
-36-
- -----------------------------------------------------------------------------------------------------------------------
Name Position Term of Principal Occupation Number of Other Directorships
Address with the Office* for the Portfolios in Held by Trustee
Age Trust and Length Past Five Years Fund Complex
of Time Overseen by
Served Trustee
- -----------------------------------------------------------------------------------------------------------------------
James Wolford(***) Trustee Since 1999 Chief Financial Officer, 16 None
CNI Charter Funds Bixby Land Company, a
400 North Roxbury Drive real estate company
Beverly Hills, (2004-present). Regional
California 90210 Financial Officer,
Age: 51 AIMCO, a real estate
investment trust (2004).
Chief Financial Officer,
DBM Group, a direct mail
marketing company
(2001-2004). Senior Vice
President and Chief
Operating Officer,
Forecast Commercial Real
Estate Service, Inc.
(2000-2001). Senior Vice
President and Chief
Financial Officer, Bixby
Ranch Company
(1985-2000).
- -----------------------------------------------------------------------------------------------------------------------
(*) Each Trustee serves until the next meeting of shareholders, if any,
called for the purpose of electing trustees and until the election and
qualification of his or her successor or until death, resignation,
declaration of bankruptcy or incompetence by a court of competent
jurisdiction, or removal by a majority vote of the Trustees or the shares
entitled to vote.
(**) During 2004 and 2005, Mr. Barnet's law firm, Reed Smith LLP,
provided legal services to CNB and City National Corporation (CNB's
parent company). In 2004, the firm billed approximately $70,140 for these
services. In 2005, the firm billed approximately $24,823 for these
services. In 2006, no fees were billed to or collected from CNB or City
National Corporation by the firm. In February 2006, the other Independent
Trustees determined that Mr. Barnet should continue to be classified as a
"disinterested person" of the Trust, as defined in the 1940 Act, because
of his limited participation in such services, which do not involve the
Trust, and because of his minimal interest in such fees. Mr. Barnet's
interest in the fees collected each year was substantially less than
$60,000.
(***) Bixby Land Company, of which Mr. Wolford is the Chief Financial
Officer, currently has a $40 million revolving line of credit with CNB at
an interest rate of 0.75% less than the prime rate, which expires in June
2007. The Company's outstanding balance was $35.0 million as of December
31, 2006. In addition the Company has an $80 million unsecured and
one-time revolving acquisition facility priced at 0.75% less than the
prime rate, which has a maturity date of August 8, 2009. There was no
outstanding balance on this line as of December 31, 2006. The Company
also has a $10 million loan at an interest rate of 5.84% from CNB secured
by an office building located in San Diego, which expires in 2012, and a
$6.46 million construction loan at an interest rate of 0.50% less than
the prime rate, with an outstanding balance of $6.0 million as of
December 31, 2006. The loan is to finance the construction of an
industrial building in Redlands, California, and is due September 2007.
The Company also has a $17.3 million construction loan at an interest
rate of 0.50% less than the prime rate to finance construction of another
industrial building in Redlands, California. The loan matures in August
2009, and the balance on the loan at December 31, 2006 was $7.66 million.
In May 2006, the other Independent Trustees determined that Mr. Wolford
should continue to be classified as a "disinterested person" of the
Trust, as defined in the 1940 Act, because CNB's existing loans to the
Company had been made in the ordinary course of business and because of
the minimal benefits of the loans to Mr. Wolford.
-37-
OFFICERS
- -----------------------------------------------------------------------------------------------------------------------
Name Position with the Term of Principal Occupation for the
Address Trust Office(*) and Past Five Years
Age Length of
Time Served
- -----------------------------------------------------------------------------------------------------------------------
Timothy D. Barto Vice President Since 2000 Attorney, Vice President and Assistant Secretary
SEI Investments and Assistant of SEI Investments (1999- Present). Vice
One Freedom Valley Drive Secretary President and Assistant Secretary of
Oaks, Pennsylvania 19456 Administrator (1999-Present). Officer of various
Age: 38 investment companies administered by
Administrator (1999-2004). Assistant Secretary of
the Distributor (2003-2004). Vice President of
the Distributor (1999-2004).
- -----------------------------------------------------------------------------------------------------------------------
Eric Kleinschmidt Controller and Since 2005 Director of Funds Accounting, SEI Investments
SEI Investments Chief Operating (2004-Present). Manager of Funds Accounting, SEI
One Freedom Valley Drive Officer Investments (1999-2004).
Oaks, Pennsylvania 19456
Age: 38
- -----------------------------------------------------------------------------------------------------------------------
Vernon C. Kozlen President and Since 2000 Executive Vice President and Director of Asset
City National Bank Chief Executive Management Development, CNB (1996-present).
400 N. Roxbury Drive Officer Director, Reed, Conner & Birdwell LLC
Beverly Hills, CA 90210 (2000-present), and Convergent Capital
Age: 63 Management, LLC (2003-present). Chairman of the
Board, CNAM, Inc. (2001-2005). Chairman of the
Board, City National Securities, Inc.
(1999-2005). Director, CNAM, Inc. (2001-2006),
and City National Securities, Inc. (1999-2006).
- -----------------------------------------------------------------------------------------------------------------------
Valerie Y. Lewis Vice President and Since 2005 Chief Compliance Officer, CNAM, Inc. (August,
City National Bank Chief Compliance 2005- present). Fund Boards Specialist -
400 N. Roxbury Drive Officer Assistant Secretary, Capital Research and
Beverly Hills, CA 90210 Management Company and Capital International,
Age: 50 Inc. (1999-2005).
- -----------------------------------------------------------------------------------------------------------------------
James Ndiaye Vice President Since 2005 Attorney, SEI Investments Company (2004-present).
SEI Investments and Assistant Vice President, Deutsche Asset Management
One Freedom Valley Drive Secretary (2003-2004). Associate, Morgan Lewis & Bockius
Oaks, Pennsylvania 19456 LLP (2000-2003). Assistant Vice President, ING
Age: 38 Variable Annuities Group (1999-2000).
- -----------------------------------------------------------------------------------------------------------------------
Michael T. Pang Vice President & Since 2005 Attorney, SEI Investments Company (2005-present).
SEI Investments Assistant Counsel, Caledonian Bank & Trust's Mutual Funds
One Freedom Valley Drive Secretary Group (2004-2005). Counsel, Permal Asset
Oaks, Pennsylvania 19456 Management (2001-2004). Associate, Schulte, Roth
Age: 34 & Zabel's Investment Management Group
(2000-2001).
- -----------------------------------------------------------------------------------------------------------------------
Rodney J. Olea Vice President Since 2000 Senior Vice President, CNAM, Inc. (2001-present).
City National Bank Senior Vice President and Director of Fixed
400 N. Roxbury Drive Income, CNB (1994-present).
Beverly Hills, CA 90210
Age: 41
- -----------------------------------------------------------------------------------------------------------------------
Sofia A. Rosala Vice President Since 2004 Vice President and Assistant Secretary, SEI
SEI Investments and Assistant Investments Fund Management (2005-present).
One Freedom Valley Drive Secretary Compliance Officer of SEI Investments
Oaks, Pennsylvania 19456 (2001-2004). Account and Product Consultant, SEI
Age: 34 Private Trust Company (1998-2001).
- -----------------------------------------------------------------------------------------------------------------------
Timothy G. Solberg Vice President Since 2005 Managing Director and Chief Investment Officer,
CCM Advisors, LLC and Assistant CCM Advisors (2001-present); Director of
190 S. LaSalle Street Secretary Marketing and Client Services, Hewitt Investment
Suite 2800 Group, a Division of Hewitt Associates LLC
Chicago, IL 60603 (1989-2001).
Age: 53
- -----------------------------------------------------------------------------------------------------------------------
-38-
- -----------------------------------------------------------------------------------------------------------------------
Name Position with the Term of Principal Occupation for the
Address Trust Office(*) and Past Five Years
Age Length of
Time Served
- -----------------------------------------------------------------------------------------------------------------------
Richard A. Weiss Vice President Since 2000 President, CNAM, Inc. (2001-present). Executive
City National Bank and Assistant Vice President and Chief Investment Officer, CNB
400 N. Roxbury Drive Secretary (1999-present). Director, City National
Beverly Hills, CA 90210 Securities (April 2003-present). Executive Vice
Age: 46 President and Chief Investment Officer. Sanwa
Bank California (1994-1999).
- -----------------------------------------------------------------------------------------------------------------------
(*) Each officer serves at the pleasure of the Board of Trustees and until
removed by the Board or the principal executive officer of the Trust, or until
such officer resigns.
THE BOARD OF TRUSTEES
The Board of Trustees has responsibility for the overall management and
operations of the Trust. The Board establishes the Trust's policies and meets
regularly to review the activities of the officers, who are responsible for
day-to-day operations of the Trust.
COMMITTEES
The Board has an Audit Committee, comprised solely of the Independent Trustees.
Irwin G. Barnet, Victor Meschures, William R. Sweet and James Wolford are the
current members. The Committee makes recommendations to the Board of Trustees
with respect to the engagement of the Trust's independent registered public
accounting firm, approves all auditing and other services provided to the Trust
by its independent registered public accounting firm, and reviews with the
independent registered public accounting firm the plan and results of the audit
engagement and matters having a material effect on the Trust's financial
operations. During the fiscal year ended September 30, 2006, the Audit Committee
held two meetings. The Board has designated William R. Sweet and James Wolford
as the Trust's "audit committee financial experts," as defined in Form N-CSR
under the 1940 Act, based on the Board's review of their qualifications.
The Board has a Nominating Committee, comprised solely of the Independent
Trustees. Irwin G. Barnet, Victor Meschures, William R. Sweet and James Wolford
are the current members of the Committee. The Committee periodically reviews
such issues as the Board's composition, responsibilities, committees,
compensation and other relevant issues, and recommends any appropriate changes
to the Board of Trustees. The Committee did not meet during the fiscal year
ended September 30, 2006.
The Board has adopted the following procedures by which shareholders may
recommend nominees to the Board of Trustees. While the Nominating Committee
normally is able to identify from its own resources an ample number of qualified
candidates, it will consider shareholder suggestions of persons to be considered
as nominees to fill future vacancies on the Board, so long as the shareholder or
shareholder group submitting a proposed nominee: beneficially owns more than 5%
of the Trust's voting shares and has held such shares continuously for two
years, and is not an adverse holder (i.e., the shareholder or shareholder group
has acquired such shares in the ordinary course of business and not with the
purpose nor with the effect of changing or influencing the control of the
Trust). No eligible shareholder or shareholder group may submit more than one
independent Board member nominee each year. Such suggestions must be sent in
writing to the Trust's Secretary, and must be accompanied by the shareholder's
contact information, the nominee's contact information and number of Fund shares
owned by the nominee, all information regarding the nominee that would be
required to be disclosed in solicitations of proxies for elections of directors
required under the Securities Exchange Act of 1934, as amended, and a notarized
letter from the nominee stating his or her intention
-39-
to serve as a nominee and be named in the Trust's proxy statement, if so
designated by the Nominating Committee and the Board of Trustees.
EQUITY SECURITIES OWNED BY TRUSTEES
The following table sets forth the dollar range of equity securities
beneficially owned by each Trustee as of December 31, 2006.
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------
Aggregate Dollar Range of
Equity Securities in All
Registered Investment
Name of Trustee Dollar Range of Equity Companies Overseen by
Securities in each Fund Trustee in Family of
Investment Companies
- -------------------------------------------------------------------------------------------------------
Irwin G. Barnet Government Money Fund Over $100,000
Over $100,000
- -------------------------------------------------------------------------------------------------------
Victor Meschures None None
- -------------------------------------------------------------------------------------------------------
William R. Sweet Large Cap Growth Fund $10,001 - $50,000
$1 - $10,000
Large Cap Value Fund
$1 - $10,000
Small Cap Value Fund
$1 - $10,000
- -------------------------------------------------------------------------------------------------------
James Wolford None None
- ------------------------------------- -----------------------------------------------------------------
Trustees, officers, directors and full time employees of the Trust, CNAM, Inc.,
RCB, the Distributor and affiliates of such companies are not subject to the
front end sales charge for Class R shares of the Small Cap Value Fund, as sales
to such persons do not involve any sales expense to the Fund or the Distributor.
COMPENSATION
The following tables set forth Trustee compensation for the fiscal year ending
September 30, 2006.
-40-
INDEPENDENT TRUSTEES
- --------------------------------------------------------------------------------------------------------------
Name of Trustee Aggregate Pension or Retirement Estimated Annual Total Compensation From
Compensation from Benefits Accrued As Benefits Upon Registrant and Fund
Registrant Part of Funds' Retirement Complex Paid to Trustees
Expenses
- --------------------------------------------------------------------------------------------------------------
Irwin G. Barnet $41,500 N/A N/A $41,500
- --------------------------------------------------------------------------------------------------------------
Victor Meschures $38,500 N/A N/A $38,500
- --------------------------------------------------------------------------------------------------------------
William R. Sweet $39,750 N/A N/A $39,750
- --------------------------------------------------------------------------------------------------------------
James Wolford $38,500 N/A N/A $38,500
- --------------------------------------------------------------------------------------------------------------
INVESTMENT MANAGER
Prior to April 1, 1999, Berkeley Capital Management ("BCM") served as the
investment manager for the Prime Money Fund. The Trust and CNB entered into an
Investment Management Agreement (the "Management Agreement") dated as of April
1, 1999 regarding the Trust. The Management Agreement was effective as to
certain of the Funds subsequent to that date. On May 10, 2001, CNAM, Inc., a
wholly owned subsidiary of CNB, became the investment manager to the Trust, and
the Management Agreement between CNB and the CNI Charter Funds, and the
obligations of CNB contained in the Management Agreement, were assumed by CNAM,
Inc. CNAM, Inc. employs the same investment personnel that managed the Funds
under CNB.
The Investment Manager provides a continuous investment program of general
investment and economic advice regarding the Funds' investment strategies,
manages the Funds' investment portfolios and provides other services necessary
to the operation of the Funds and the Trust. As of December 31, 2006, the
Investment Manager had approximately $5.2 billion in assets under management.
CNB, founded in the early 1950s, is a federally chartered commercial bank with
approximately $48.6 billion in assets under administration as of December 31,
2006. CNB is a wholly-owned subsidiary of City National Corporation ("CNC"), a
New York Stock Exchange listed company.
The fees payable under the Management Agreement, and any fee waiver or expense
reimbursement arrangements, with respect to the Funds are described in the
Funds' prospectuses.
The Management Agreement provides that the Investment Manager shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Trust in connection with the matters to which the Management Agreement
relates, except a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Investment Manager in the performance of its
duties or from reckless disregard of its duties and obligations thereunder.
-41-
The Management Agreement with respect to each Fund is in effect for a two-year
term (the "Initial Term") from its effective date, and thereafter continues in
effect for one-year terms subject to annual approval (1) by the vote of a
majority of the Trustees or by the vote of a majority of the outstanding voting
securities of the Fund and (2) by the vote of a majority of the Trustees who are
not parties to the Management Agreement or "interested persons" (as that term is
defined in the 1940 Act) of any party thereto, cast in person at a meeting
called for the purpose of voting on such approval. The Management Agreement with
respect to each Fund may be terminated at any time upon 60 days' notice by
either party or by a vote of a majority of the outstanding shares of that Fund,
and will terminate automatically upon its "assignment" (as such term is defined
in the 1940 Act).
The Investment Manager provides the Funds with investment management services,
including the selection, appointment, and supervision of any sub-adviser to any
of the Funds. Other than with respect to the Small Cap Value Fund, in accordance
with an exemptive order from the SEC, the Investment Manager may from time to
time with the approval of the Board of Trustees change a sub-adviser according
to certain procedures without soliciting shareholders' approval. The Investment
Manager may also, with Board approval, manage the Funds which currently have a
sub-adviser directly without a sub-adviser without shareholder consent.
Any reductions made by the Investment Manager in its fees from a Fund are
subject to reimbursement by the Fund within the following three years provided
the Fund is able to effect such reimbursement and remain in compliance with the
foregoing expense limitations. The Investment Manager generally seeks
reimbursement for the oldest reductions and waivers before payment by the Fund
for fees and expenses for the current year. The Investment Manager's ability to
request reimbursement is subject to various conditions. First, any reimbursement
is subject to a Fund's ability to effect such reimbursement and remain in
compliance with applicable expense limitations in place at that time. Second,
the Investment Manager must specifically request the reimbursement from the
Board. Third, the Board must approve such reimbursement as appropriate and not
inconsistent with the best interests of the Fund and the shareholders at the
time such reimbursement is requested. Because of these substantial
contingencies, the potential reimbursements will be accounted for as contingent
liabilities that are not recordable on the balance sheet of a Fund until
collection is probable, but the full amount of the potential liability will
appear in a footnote to each Fund's financial statements. At such time as it
appears probable that a Fund is able to effect such reimbursement, that the
Investment Manager intends to seek such reimbursement and that the Board has or
is likely to approve the payment of such reimbursement, the amount of the
reimbursement will be accrued as an expense of that Fund for that current
period. Under a similar arrangement with the RCB Predecessor Fund, RCB has paid
certain excess operating expenses of the RCB Predecessor Fund. The right to seek
reimbursement of such excess operating expenses was carried over to the Class R
shares of the Small Cap Value Fund.
The Investment Manager also may act as an investment adviser or administrator to
other persons, entities, and corporations, including other investment companies.
The use of the name "CNI Charter" by the Trust and by the Funds is pursuant to
the consent of the Investment Manager, which may be withdrawn if the Investment
Manager ceases to be the Investment Manager of the Funds.
For the relevant fiscal periods ending September 30, 2006, September 30, 2005
and September 30, 2004, the Funds paid the Investment Manager the following
investment management fees and the Investment Manager waived the indicated
amounts. For each Fund, the Investment Manager's investment management fees are
allocated among the classes of the Fund according to the relative net asset
values of the classes.
-42-
- --------------------------------------------------------------------------------------------------------------------
Fund Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
9/30/06 9/30/05 9/30/04
- --------------------------------------------------------------------------------------------------------------------
Fees Fees Fees
Fees Paid Waived Fees Paid Waived Fees Paid Waived
- --------------------------------------------------------------------------------------------------------------------
Large Cap Growth Fund $292,709 N/A $240,683 N/A $195,140 N/A
- --------------------------------------------------------------------------------------------------------------------
Large Cap Value Fund $584,676 N/A $309,673 N/A $266,543 N/A
- --------------------------------------------------------------------------------------------------------------------
Technology Growth Fund $22,085 N/A $20,433 N/A $18,316 $1,149
- --------------------------------------------------------------------------------------------------------------------
Small Cap Value Fund $668,726 N/A $618,947 N/A $324,640 N/A
- --------------------------------------------------------------------------------------------------------------------
Corporate Bond Fund $215,503 N/A $205,192 N/A $174,933 $5,597
- --------------------------------------------------------------------------------------------------------------------
Government Bond Fund $118,244 $23,207 $88,941 $17,588 $65,670 $15,500
- --------------------------------------------------------------------------------------------------------------------
California Bond Fund $40,654 $28,120 $34,992 $24,819 $25,914 $23,121
- --------------------------------------------------------------------------------------------------------------------
High Yield Bond Fund $266,638 $38,055 $296,131 $42,299 $235,640 $42,321
- --------------------------------------------------------------------------------------------------------------------
Prime Money Fund $2,760,898 N/A $1,922,067 N/A $1,657,566 N/A
- --------------------------------------------------------------------------------------------------------------------
Government Money Fund $5,904,108 N/A $5,794,749 N/A $5,969,991 N/A
- --------------------------------------------------------------------------------------------------------------------
California Money Fund $1,688,038 $515,898 $1,495,183 $429,471 $1,397,210 $530,243
- --------------------------------------------------------------------------------------------------------------------
For the fiscal year ended September 30, 2006, the Investment Manager recaptured
fees it had previously waived in the following amounts: Technology Growth Fund:
$1,667; and Corporate Bond Fund: $4,821.
A summary of the Board's considerations associated with its approval of the
Management Agreement is included in the Trust's Semi-Annual Report for the
fiscal period ended March 31, 2006.
SUB-ADVISERS
The High Yield Bond Fund
Halbis has entered into a sub-advisory agreement effective August 31, 2005 (the
"Halbis Sub-Advisory Agreement") with the Investment Manager pursuant to which
Halbis serves as discretionary investment adviser to the High Yield Bond Fund.
The Halbis Sub-Advisory Agreement provides that Halbis shall not be protected
against any liability to the Trust or its shareholders by reason of willful
misfeasance, bad faith or negligence on its part in the performance of its
duties or from the reckless disregard of its obligations or duties thereunder.
After its initial two-year term, the continuance of the Halbis Sub-Advisory
Agreement with respect to the High Yield Bond Fund must be specifically approved
at least annually (1) by the vote of a majority of the outstanding shares of the
High Yield Bond Fund or by the Trustees, and (2) by the vote of a majority of
the Trustees who are not parties to the Halbis Sub-Advisory Agreement or
"interested persons" of any party thereto, cast in person at a meeting called
for the purpose of voting on such approval. The Halbis Sub-Advisory Agreement
will terminate automatically in the event of its assignment or in the event that
the Trust terminates, and is terminable at any time without penalty by the
Trustees of the Trust or, with respect to the High Yield Bond Fund, by a
majority of the outstanding shares of the High Yield Bond Fund, on not less than
60 days' written notice to Halbis, or by Halbis on not less than 60 days'
written notice to the Trust.
Halbis is entitled to a fee for its investment advisory services, which is
calculated at the following annual rates: 0.50% of the average daily net assets
of the Fund up to $35 million and 0.40% of such net assets over $35 million and
less than $70 million, and 0.35% of such net assets over $70 million.
For the year ended September 30, 2006 and the fiscal period ended September 30,
2005, the Investment Manager paid Halbis approximately $197,502 and $17,338 in
sub-advisory fees.
-43-
Until September 1, 2005, Credit Suisse Asset Management, LLC ("Credit Suisse")
served as investment sub-adviser to the High Yield Bond Fund pursuant to a
sub-advisory agreement between the Investment Manager and Credit Suisse (the
"Credit Suisse Sub-Advisory Agreement"). As of August 31, 2005, the Credit
Suisse Sub-Advisory Agreement was terminated.
For the period October 1, 2004 through September 1, 2005, the Investment Manager
paid Credit Suisse approximately $198,133 in sub-advisory fees. For the year
ended September 30, 2004, the Investment Manager paid Credit Suisse
approximately $182,619 in sub-advisory fees.
A summary of the Board's considerations associated with its approval of the
Halbis Sub-Advisory Agreement is included in the Trust's Semi-Annual Report for
the fiscal period ended March 31, 2005.
The Small Cap Value Fund
RCB has entered into a sub-advisory agreement (the "RCB Sub-Advisory Agreement"
and, together with the Halbis Sub-Advisory Agreement, the "Sub-Advisory
Agreements") with the Investment Manager. Pursuant to the RCB Sub-Advisory
Agreement, RCB serves as discretionary investment adviser to the Small Cap Value
Fund. The RCB Sub-Advisory Agreement provides that RCB shall not be protected
against any liability to the Trust or its shareholders by reason of willful
misfeasance, bad faith or negligence on its part in the performance of its
duties or from the reckless disregard of its obligations or duties thereunder.
The continuance of the RCB Sub-Advisory Agreement with respect to the Small Cap
Value Fund after its initial two year term must be specifically approved at
least annually (1) by the vote of a majority of the outstanding shares of the
Small Cap Value Fund or by the Trustees, and (2) by the vote of a majority of
the Trustees who are not parties to the RCB Sub-Advisory Agreement or
"interested persons" of any party thereto, cast in person at a meeting called
for the purpose of voting on such approval. The RCB Sub-Advisory Agreement will
terminate automatically in the event of its assignment or in the event that the
Trust or the Small Cap Value Fund terminates, and is terminable at any time
without penalty by the Trustees of the Trust or, with respect to the Small Cap
Value Fund, by a majority of the outstanding shares of the Small Cap Value Fund,
on not less than 60 days' written notice to RCB, or by RCB on not less than 60
days' written notice to the Trust.
RCB is entitled to a fee for its investment advisory services to be paid by
CNAM, Inc., which is accrued daily and paid monthly at the annual rate of 0.85%
of the average daily net assets of the Small Cap Value Fund. For the fiscal
years ended September 30, 2006, September 30, 2005 and September 30, 2004, the
Investment Manager paid RCB approximately $668,726, $618,947 and $311,386 in
sub-advisory fees, respectively.
The use of the name "RCB" by the Trust is pursuant to the consent of RCB, which
may be withdrawn if RCB ceases to be the investment adviser to the Small Cap
Value Fund.
A summary of the Board's considerations associated with its approval of the RCB
Sub-Advisory Agreement is included in the Trust's Semi-Annual Report for the
fiscal period ended March 31, 2006.
PORTFOLIO MANAGERS
Information regarding CNAM, Inc. and each of the Sub-Advisers is contained in
the Funds' Prospectuses under "Management of the Funds." Following is
information with respect to each person who is primarily responsible for the
day-to-day management of each Fund's portfolio (a "portfolio manager"), as
identified in the Funds' Prospectus: (i) other accounts managed by the portfolio
-44-
manager, (ii) a description of the portfolio manager's compensation structure
and (iii) the dollar range of the portfolio manager's investments in each Fund.
All information provided below is as of September 30, 2006.
CNAM, Inc.
CNAM, Inc. manages the investment portfolios of the Large Gap Growth Fund, Large
Cap Value Fund, Technology Growth Fund, Corporate Bond Fund, Government Bond
Fund and California Bond Fund.
The compensation received from CNB by all CNAM, Inc. employees, including each
of the portfolio managers listed below, consists of base cash salaries and
annual cash bonuses based on the investment professional's assigned portfolios'
investment performance, his/her contribution to investment strategy and
research, client retention, teamwork, and overall participation in CNB's
investment division's activities. Investment professionals are also eligible to
participate in CNC's stock option program, which provides for an annual stock
grant based on individual performance, and corporate profit sharing program,
which is a qualified defined contribution plan available to all CNB employees
who are entitled to receive paid vacation. An eligible employee may defer a
portion of his or her pay into the plan, a portion of which is matched by CNB.
In addition, CNB may make discretionary contributions ("employer contributions")
each year equal to a portion of its consolidated net profits, subject to an
overall maximum percentage of compensation. Employer contributions vest over a
period of five years of service with CNB.
Large Cap Growth Fund
The individuals with responsibility for managing the Large Gap Growth Fund are
Richard A. Weiss and Brian L. Garbe. Messrs. Weiss and Garbe managed the
following accounts (including the Large Gap Growth Fund):
Mr. Weiss:
- -----------------------------------------------------------------------------------------------------------------
Type of Accounts Total Total Assets # of Accounts Managed with Total Assets with
---------------- ----- ------------- --------------------------- ------------------
# of Accounts (millions) Performance-Based Advisory Performance-Based
-------------- ---------- --------------------------- -----------------
Managed Fee Advisory Fee (millions)
------- --- -----------------------
- -----------------------------------------------------------------------------------------------------------------
Registered Investment 2 $152.5 0 $0
Companies:
- -----------------------------------------------------------------------------------------------------------------
Other Pooled Investment 0 $0 0 $0
Vehicles:
- -----------------------------------------------------------------------------------------------------------------
Other Accounts: 14 $22.7 0 $0
- -----------------------------------------------------------------------------------------------------------------
-45-
Mr. Garbe:
- -----------------------------------------------------------------------------------------------------------------
Type of Accounts Total Total Assets # of Accounts Managed with Total Assets with
---------------- ----- ------------- --------------------------- ------------------
# of Accounts (millions) Performance-Based Advisory Performance-Based
-------------- ---------- --------------------------- -----------------
Managed Fee Advisory Fee (millions)
------- --- -----------------------
- -----------------------------------------------------------------------------------------------------------------
Registered Investment 3 $155.2 0 $0
Companies:
- -----------------------------------------------------------------------------------------------------------------
Other Pooled Investment
Vehicles: 0 $0 0 $0
- -----------------------------------------------------------------------------------------------------------------
Other Accounts: 8 $18.5 0 $0
- -----------------------------------------------------------------------------------------------------------------
Neither Mr. Weiss nor Mr. Garbe own any shares of the Large Cap Growth Fund.
Large Cap Value Fund
- --------------------
The individuals with primary responsibility for managing the Large Gap Value
Fund are Richard A. Weiss and Brian L. Garbe. Additional information about
Messrs. Weiss and Garbe is set forth above under "Large Cap Growth Fund".
Neither Mr. Weiss nor Mr. Garbe own any shares of the Large Cap Value Fund.
Technology Growth Fund
- ----------------------
The individuals with primary responsibility for managing the Technology Growth
Fund are Brian L. Garbe and Max Sasso. Additional information about Mr. Garbe is
set forth above under "Large Gap Growth Fund". Mr. Sasso managed the following
accounts (including the Technology Growth Fund):
- -----------------------------------------------------------------------------------------------------------------
Type of Accounts Total Total Assets # of Accounts Managed with Total Assets with
---------------- ----- ------------- --------------------------- ------------------
# of Accounts (millions) Performance-Based Advisory Performance-Based
-------------- ---------- --------------------------- -----------------
Managed Fee Advisory Fee (millions)
------- --- -----------------------
- -----------------------------------------------------------------------------------------------------------------
Registered Investment 1 $2.7 0 $0
Companies:
- -----------------------------------------------------------------------------------------------------------------
Other Pooled Investment 0 $0 0 $0
Vehicles:
- -----------------------------------------------------------------------------------------------------------------
Other Accounts: 94 $89.4 0 $0
- -----------------------------------------------------------------------------------------------------------------
Neither Mr. Garbe nor Mr. Sasso own any shares of the Technology Growth Fund.
Corporate Bond Fund
- -------------------
The individuals with primary responsibility for managing the Corporate Bond Fund
are Rodney J. Olea and William C. Miller. Messrs. Olea and Miller managed the
following accounts (including the Corporate Bond Fund):
-46-
Mr. Olea:
- -----------------------------------------------------------------------------------------------------------------
Type of Accounts Total Total Assets # of Accounts Managed with Total Assets with
---------------- ----- ------------- --------------------------- ------------------
# of Accounts (millions) Performance-Based Advisory Performance-Based
-------------- ---------- --------------------------- -----------------
Managed Fee Advisory Fee (millions)
------- --- -----------------------
- -----------------------------------------------------------------------------------------------------------------
Registered Investment 7 $4,539.7 0 $0
Companies:
- -----------------------------------------------------------------------------------------------------------------
Other Pooled Investment 0 $0 0 $0
Vehicles:
- -----------------------------------------------------------------------------------------------------------------
Other Accounts: 40 $425.2 0 $0
- -----------------------------------------------------------------------------------------------------------------
Mr. Miller:
- -----------------------------------------------------------------------------------------------------------------
Type of Accounts Total Total Assets # of Accounts Managed with Total Assets with
---------------- ----- ------------- --------------------------- ------------------
# of Accounts (millions) Performance-Based Advisory Performance-Based
-------------- ---------- --------------------------- -----------------
Managed Fee Advisory Fee (millions)
------- --- -----------------------
- -----------------------------------------------------------------------------------------------------------------
Registered Investment 5 $4,475.8 0 $0
Companies:
- -----------------------------------------------------------------------------------------------------------------
Other Pooled Investment 0 $0 0 $0
Vehicles:
- -----------------------------------------------------------------------------------------------------------------
Other Accounts: 68 $496.5 0 $0
- -----------------------------------------------------------------------------------------------------------------
Neither Mr. Olea nor Mr. Miller own any shares of the Corporate Bond Fund.
Government Bond Fund
- --------------------
The individuals with primary responsibility for managing the Government Bond
Fund are Rodney J. Olea and Paul C. Single. Additional information about Mr.
Olea is set forth above under "Corporate Bond Fund". Mr. Single managed the
following accounts (including the Government Bond Fund):
-47-
- -----------------------------------------------------------------------------------------------------------------
The individuals with
primary responsibility
for managing the
Government Bond Fund are
Rodney J. Olea and Paul
C. Single. Additional
information about Mr.
Olea is set forth above
under "Corporate Bond
Fund". Mr. Single
managed the following
accounts (including the
Government Bond Fund):
Type of Accounts Total Total Assets # of Accounts Managed with Total Assets with
---------------- ----- ------------- --------------------------- ------------------
# of Accounts (millions) Performance-Based Advisory Performance-Based
-------------- ---------- --------------------------- -----------------
Managed Fee Advisory Fee (millions)
------- --- -----------------------
- -----------------------------------------------------------------------------------------------------------------
Registered Investment 4 $4,451.0 0 $0
Companies:
- -----------------------------------------------------------------------------------------------------------------
Other Pooled Investment 0 $0 0 $0
Vehicles:
- -----------------------------------------------------------------------------------------------------------------
Other Accounts: 60 $275.5 0 $0
- -----------------------------------------------------------------------------------------------------------------
Neither Mr. Olea nor Mr. Single own any shares of the Government Bond Fund.
California Tax Exempt Bond Fund
- -------------------------------
The individuals with primary responsibility for managing the California Bond
Fund are Rodney J. Olea and Alan Remedios. Additional information about Mr. Olea
is set forth above under "Corporate Bond Fund". Mr. Remedios managed the
following accounts (including the California Bond Fund):
- -----------------------------------------------------------------------------------------------------------------
Type of Accounts Total Total Assets # of Accounts Managed with Total Assets with
---------------- ----- ------------- --------------------------- ------------------
# of Accounts (millions) Performance-Based Advisory Performance-Based
-------------- ---------- --------------------------- -----------------
Managed Fee Advisory Fee (millions)
------- --- -----------------------
- -----------------------------------------------------------------------------------------------------------------
Registered Investment 4 $4,421.6 0 $0
Companies:
- -----------------------------------------------------------------------------------------------------------------
Other Pooled Investment 0 $0 0 $0
Vehicles:
- -----------------------------------------------------------------------------------------------------------------
Other Accounts: 77 $307.6 0 $0
- -----------------------------------------------------------------------------------------------------------------
Neither Mr. Olea nor Mr. Remedios own any shares of the California Bond Fund.
RCB
RCB manages the investment portfolio of the Small Cap Value Fund. The
individuals with primary responsibility for managing the Fund are Jeffrey
Bronchick and Thomas D. Kerr. Messrs. Bronchick and Kerr managed the following
accounts (including the Small Cap Value Fund):
-48-
- -----------------------------------------------------------------------------------------------------------------
Type of Accounts Total Total Assets # of Accounts Managed with Total Assets with
---------------- ----- ------------- --------------------------- ------------------
# of Accounts (millions) Performance-Based Advisory Performance-Based
-------------- ---------- --------------------------- -----------------
Managed Fee Advisory Fee (millions)
------- --- -----------------------
- -----------------------------------------------------------------------------------------------------------------
Registered Investment 1 $ 69.9 0 $0
Companies
- -----------------------------------------------------------------------------------------------------------------
Other Pooled Investment 1 $6.1 1 $6.1
Vehicles
- -----------------------------------------------------------------------------------------------------------------
Other Accounts 1,243 $ 896.2 0 $0
- -----------------------------------------------------------------------------------------------------------------
Compensation for each of Messrs. Bronchick and Kerr is based on a combination of
a competitive salary; a share in a bonus pool based on the profitability of the
company and distributed according to a combination of contribution, peer review
and other factors; and a pro rata share of available corporate profits as each
is a principal of the firm. The bonus is paid annually at year-end.
Mr. Bronchick owns shares worth over $1,000,000 in value, and Mr. Kerr owns
shares worth $10,001-$50,000 in value, of the Small Cap Value Fund.
Halbis
Halbis manages the investment portfolio of the High Yield Bond Fund. The
individual with primary responsibility for managing the Fund is Richard A.
Lindquist. Mr. Lindquist managed the following accounts (including the High
Yield Bond Fund):
- -----------------------------------------------------------------------------------------------------------------
Type of Accounts Total Total Assets # of Accounts Managed with Total Assets with
---------------- ----- ------------- --------------------------- ------------------
# of Accounts (millions)(*)Performance-Based Advisory Performance-Based
-------------- ---------- --------------------------- -----------------
Managed(*) Fee Advisory Fee (millions)
------- --- -----------------------
- -----------------------------------------------------------------------------------------------------------------
Registered 2 $51.1 0 $0
Investment Companies
- -----------------------------------------------------------------------------------------------------------------
Other Pooled 1 $5.3 0 $0
Investment Vehicles
- -----------------------------------------------------------------------------------------------------------------
Other Accounts 5 $350.4 0 $0
- -----------------------------------------------------------------------------------------------------------------
(*) These figures represent accounts of both Halbis and HSBC Investments (USA)
Inc., as Halbis portfolio managers manage accounts on behalf of each of these
entities.
Mr. Lindquist's compensation consists of a base salary and an incentive bonus.
The total sum set aside for bonus payments each year is a function of HSBC
Investments (USA) Inc.'s profitability as a whole. In determining the amount to
allocate to each individual, three factors are assessed: (1) the performance of
the company; (2) the performance of the investment team; and (3) the performance
of the individual. During the annual appraisal process, each department manager
reviews the team's performance and contribution to the company for the past year
on an individual basis. Bonuses and salary increases are awarded based on the
individual's contribution to the team. Promotions are awarded to individuals who
have performed well beyond expectations for their respective levels.
-49-
Mr. Lindquist does not own any shares of the High Yield Bond Fund.
Potential Conflicts of Interest in Portfolio Management
Portfolio managers who have day-to-day management responsibilities with respect
to more than one Fund or other account may be presented with several potential
or actual conflicts of interest.
First, the management of multiple Funds and/or other accounts may result in a
portfolio manager devoting unequal time and attention to the management of each
Fund and/or other account. In approving the Management Agreement and each
Sub-Advisory Agreement, the Board of Trustees was satisfied that each portfolio
manager would be able to devote sufficient attention to the management of the
applicable Fund, and that the Investment Manager and each Sub-Adviser seeks to
manage such competing interests for the time and attention of portfolio
managers. In addition, most other accounts managed by each identified portfolio
manager are managed using the same investment models that are used in connection
with the management of the applicable Fund.
If a portfolio manager identifies a limited investment opportunity which may be
suitable for more than one Fund or other account, a Fund may not be able to take
full advantage of that opportunity due to an allocation of filled purchase or
sale orders across all eligible Funds and other accounts of the Investment
Manager or Sub-Adviser. To deal with these situations, the Investment Manager
and each Sub-Adviser have adopted procedures for allocating portfolio
transactions across multiple accounts, which generally provide for pro rata
allocation, except for RCB which generally provides for allocation in a random
manner.
With respect to securities transactions for the Funds, the Investment Manager
and each Sub-Adviser determines which broker to use to execute each order,
consistent with its duty to seek best execution of the transaction. However,
with respect to certain other accounts, the Investment Manager and Sub-Adviser
may be limited by the client with respect to the selection of brokers or may be
instructed to direct trades through a particular broker. In these cases, trades
for a Fund in a particular security may be placed separately from, rather than
aggregated with, such other accounts. Having separate transactions with respect
to a security may temporarily affect the market price of the security or the
execution of the transaction, or both, to the possible detriment of the Fund or
other account(s) involved.
The appearance of a conflict of interest may also arise where the Investment
Manager or Sub-Adviser has an incentive, such as a performance-based management
fee, which relates to the management of one or more, but not to all, accounts
with respect to which a portfolio manager has day-to-day management
responsibilities. For example, an investment professional may devote more time
to developing and analyzing investment strategies and opportunities or
allocating securities preferentially to the account for which the Investment
Manager or Sub-Adviser could share in investment gains.
The Trust, Investment Manager and Sub-Advisers have adopted certain compliance
policies and procedures designed to address the conflicts described above,
including policies and procedures designed to ensure that investment
opportunities are allocated equitably among different customer accounts and that
no one client is favored over another. In addition, management of the Investment
Manager and the Sub-Advisers meet periodically to identify and evaluate
potential conflicts of interest. However, there is no guarantee that such
policies and procedures will detect each and every situation in which a conflict
arises.
-50-
ADMINISTRATOR
The Trust and SEI Investments Global Funds Services (the "Administrator") have
entered into an administration agreement (the "Administration Agreement"). Under
the Administration Agreement, the Administrator provides the Trust with
administrative services, fund accounting, regulatory reporting, necessary office
space, equipment, personnel, compensation and facilities.
The Administration Agreement provides that the Administrator shall not be liable
for any error of judgment or mistake of law or for any loss suffered by the
Trust in connection with the matters to which the Administration Agreement
relates, except a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Administrator in the performance of its duties or
from reckless disregard by it of its duties and obligations thereunder. The
Administration Agreement shall remain in effect for a period of three years
after the effective date of the agreement and shall continue in effect for
successive renewal terms of two (2) years each, unless terminated by mutual
agreement, by either party on not less than 60 days' prior written notice to the
other party, upon the liquidation of a Fund with respect to that Fund, upon the
liquidation of the Administrator, or upon 45 days' written notice following an
uncured material breach.
From April 1, 2002 through December 31, 2004 the Administrator was entitled to
fees which were calculated based upon the aggregate average daily net assets
("Assets") of the Trust as follows: 0.10% of Assets not exceeding $2.5 billion;
0.08% of Assets exceeding $2.5 billion but not exceeding $5 billion; and 0.06%
of Assets exceeding $5 billion. As of January 1, 2005, the Administrator is
entitled to fees calculated based on the following schedule: .065% of Assets not
exceeding $2.5 billion; .045% of Assets exceeding $2.5 billion but not exceeding
$5 billion; and 0.025% of Assets exceeding $5 billion. Each Fund is subject to a
minimum fee of $90,000. The Administrator may waive its fee or reimburse various
expenses to the extent necessary to limit the total operating expenses of a
Fund's shares. Any such waiver is voluntary and may be terminated at any time in
the Administrator's sole discretion.
For the fiscal years ended September 30, 2006, September 30, 2005, and September
30, 2004, the Funds paid the following administrative fees:
- --------------------------------------------------------------------------------------------------------------------
Fund Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
9/30/06 9/30/05 9/30/04
- --------------------------------------------------------------------------------------------------------------------
Fees Paid Fees Fees Fees
Waived Fees Paid Waived Fees Paid Waived
- --------------------------------------------------------------------------------------------------------------------
Large Cap Growth Fund $24,981 N/A $22,535 $1,793 $24,298 $3,033
- --------------------------------------------------------------------------------------------------------------------
Large Cap Value Fund $52,286 N/A $30,302 $2,586 $33,721 $5,043
- --------------------------------------------------------------------------------------------------------------------
Technology Growth Fund $1,441 N/A $1,463 $130 $1,887 $272
- --------------------------------------------------------------------------------------------------------------------
Small Cap Value Fund $43,652 N/A $44,123 $3,331 $29,412 $5,187
- --------------------------------------------------------------------------------------------------------------------
Corporate Bond Fund $29,883 N/A $30,727 $2,680 $37,035 $5,524
- --------------------------------------------------------------------------------------------------------------------
Government Bond Fund $18,244 N/A $15,005 $1,203 $15,382 $2,427
- --------------------------------------------------------------------------------------------------------------------
California Bond Fund $14,128 N/A $13,450 $1,126 $14,840 $2,289
- --------------------------------------------------------------------------------------------------------------------
High Yield Bond Fund $22,538 N/A $27,523 $2,499 $30,290 $4,664
- --------------------------------------------------------------------------------------------------------------------
Prime Money Fund $612,100 N/A $457,411 $39,798 $491,131 $80,934(*)
- --------------------------------------------------------------------------------------------------------------------
Government Money Fund $1,259,467 N/A $1,330,954 $123,883 $1,799,024 $260,288(*)
- --------------------------------------------------------------------------------------------------------------------
California Money Fund $452,745 N/A $433,449 $37,636 $583,338 $92,467(*)
- --------------------------------------------------------------------------------------------------------------------
(*)The Administrator waived additional amounts in 2004 in order to maintain the
yields of the Money Funds.
-51-
The Administrator, a Delaware statutory trust, has its principal business
offices at One Freedom Valley Drive, Oaks, Pennsylvania 19456. SEI Investments
Management Corporation ("SIMC"), a wholly-owned subsidiary of SEI Investments
Company ("SEI Investments"), is the owner of all beneficial interest in the
Administrator. SEI Investments and its subsidiaries and affiliates, including
the Administrator, are leading providers of fund evaluation services, trust
accounting systems, and brokerage and information services to financial
institutions, institutional investors, and money managers.
PRINCIPAL DISTRIBUTOR
SEI Investments Distribution Co. (the "Distributor"), a wholly-owned subsidiary
of SEI Investments, and the Trust are parties to a distribution agreement (the
"Distribution Agreement") with respect to shares of the Funds. The Distribution
Agreement is renewable annually by approval of the Board of Trustees and of the
Independent Trustees. The Distribution Agreement may be terminated by the
Distributor, by a majority vote of the Independent Trustees have no financial
interest in the Distribution Agreement or by a majority vote of the outstanding
securities of the Trust upon not more than 60 days' written notice by either
party or upon assignment by the Distributor. The Distributor receives
distribution fees pursuant to the Distribution Plan on behalf of Class A shares
of each Fund, Class S shares of the Money Funds and Class R shares of the Small
Cap Value Fund, and expects to reallow substantially all of the fees to
broker-dealers and service providers, including affiliates of CNAM, Inc., that
provide distribution-related services. The Distributor is located at One Freedom
Valley Drive, Oaks, Pennsylvania 19456.
TRANSFER AGENT
Pursuant to a transfer agency agreement, SEI Investments Fund Management (the
"Transfer Agent"), a wholly owned subsidiary of SEI Investments located at One
Freedom Valley Drive, Oaks, Pennsylvania 19456, serves as transfer agent for the
Funds.
CUSTODIAN
Pursuant to a custodian agreement, U.S. Bank, N.A. located at 50 South 16th
Street, Philadelphia, Pennsylvania 19102, serves as the custodian (the
"Custodian") of the Funds' assets.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM AND REPORTS TO SHAREHOLDERS
The Trust's independent registered public accounting firm, KPMG LLP, audits and
reports on the annual financial statements of the Funds and reviews the Funds'
federal income tax returns. KPMG LLP may also perform other professional
accounting, auditing, tax, and advisory services when engaged to do so by the
Trust. Shareholders will be sent audited annual and unaudited semi-annual
financial statements. The address of KPMG LLP is 1601 Market Street,
Philadelphia, Pennsylvania 19103.
LEGAL COUNSEL
The validity of the shares of beneficial interest offered hereby has been passed
upon by Paul, Hastings, Janofsky & Walker LLP, 515 South Flower Street, Los
Angeles, California 90071.
-52-
PORTFOLIO TRANSACTIONS
Portfolio transactions are undertaken principally to: pursue the objective of
the Funds; invest money obtained from the sale of the Funds' shares; reinvest
proceeds from maturing, or the sale of, portfolio securities; and meet
redemptions of the Funds' shares. Portfolio transactions may increase or
decrease the returns of the Funds depending upon management's ability correctly
to time and execute them.
The Investment Manager and the Sub-Advisers, in effecting purchases and sales of
portfolio securities for the accounts of the Funds, seek to obtain best
execution under the circumstances then prevailing. Subject to the supervision of
the Board, the Investment Manager and the Sub-Advisers generally select
broker-dealers for the Funds primarily on the basis of the quality and
reliability of services provided, including but not limited to execution
capability and financial responsibility. Each of the Investment Manager and the
Sub-Advisers annually performs a formal review of the broker-dealers used by it
with respect to the Funds, and performs informal reviews of the broker-dealers
on an on-going basis.
While the Funds' general policy is to seek to obtain the most favorable
execution available, in selecting a broker-dealer to execute portfolio
transactions, weight may also be given to the ability of a broker-dealer to
furnish research, brokerage and statistical services to the Funds or to the
Investment Manager or Sub-Adviser(s), even if the specific services were not
provided just to the Funds and may be lawfully and appropriately used by the
Investment Manager or Sub-Adviser(s) in advising other clients. The Investment
Manager and Sub-Adviser(s) consider such information, which is in addition to,
and not in lieu of, the services required to be performed by them under the
Management Agreement or Sub-Advisory Agreement, as appropriate, to be useful in
varying degrees, but of indeterminable value. In negotiating any commissions
with a broker, a Fund may therefore pay a higher commission or spread than would
be the case if no weight were given to the furnishing of these supplemental
services, provided that the amount of such commission has been determined in
good faith by the Investment Manager or relevant Sub-Adviser to be reasonable in
relation to the value of the brokerage and/or research services provided by such
broker-dealer, which services either produce a direct benefit to that Fund or
assist the Investment Manager or Sub-Adviser in carrying out its
responsibilities to that Fund or to other discretionary advisory clients of the
Investment Manager or relevant Sub-Adviser.
Purchases from underwriters will include a commission or concession paid by the
issuer to the underwriter, and purchases from dealers serving as marketmakers
will include the spread between the bid and asked prices.
Investment decisions for the Funds are reached independently from those for
other accounts managed by the Investment Manager and the Sub-Advisers. Such
other accounts may also make investments in instruments or securities at the
same time as the Funds. On occasions when the Investment Manager or a
Sub-Adviser determines the purchase or sale of a security to be in the best
interest of a Fund as well as of other clients, the Investment Manager or the
Sub-Advisers, to the extent permitted by applicable laws and regulations, may
aggregate the securities to be so purchased or sold in an attempt to obtain the
most favorable price or lower brokerage commissions and the most efficient
execution. In such event, allocation of the securities so purchased or sold, as
well as the expenses incurred in the transaction, will be made by the Investment
Manager or a Sub-Adviser in the manner it considers to be the most equitable
under the circumstances and consistent with its fiduciary obligations to the
Funds and to its other participating clients. In some cases this procedure may
affect the size or price of the position obtainable for the Funds.
The Funds do not direct securities transactions to broker-dealers in recognition
of the sale of Fund shares. However, broker-dealers who execute brokerage
transactions for the Funds may effect
-53-
purchases of shares of the Funds for their customers. The Funds do not use the
Distributor to execute its portfolio transactions.
SMALL CAP VALUE FUND
Pursuant to the RCB Advisory Agreement, RCB determines which securities are to
be purchased and sold by the Small Cap Value Fund and selects the broker-dealers
to execute the Small Cap Value Fund's portfolio transactions.
Where possible, RCB effects purchase and sale transactions through dealers
(including banks) which specialize in the types of securities held by the Small
Cap Value Fund, unless better executions are available elsewhere. Purchases of
portfolio securities for the Small Cap Value Fund also may be made directly from
issuers or from underwriters. Dealers and underwriters usually act as principal
for their own accounts. Purchases from underwriters will include a concession
paid by the issuer to the underwriter and purchases from dealers will include
the spread between the bid and the asked price. If the execution and price
offered by more than one dealer or underwriter are comparable, the order may be
allocated to a dealer or underwriter that has provided research or other
services as discussed below.
In placing portfolio transactions, RCB uses reasonable efforts to choose
broker-dealers capable of providing the services necessary to obtain the most
favorable price and execution available. RCB considers the full range and
quality of services available in making these determinations, such as the size
of the order, the difficulty of execution, the operational facilities of the
firm involved, the firm's risk in positioning a block of securities, and other
factors. In those instances where it is reasonably determined that more than one
broker-dealer can offer the services needed to obtain the most favorable price
and execution available, consideration may be given to those broker-dealers that
furnish or supply research products, trading services and statistical
information to RCB that RCB may lawfully and appropriately use in its investment
advisory capacities, as well as provide other services in addition to execution
services.
RCB may select a broker-dealer that furnishes such services, products and
information even if the specific services are not directly useful to the Small
Cap Value Fund and may be useful to RCB in advising other clients. In
negotiating commissions with a broker or evaluating the spread to be paid to a
dealer, the Small Cap Value Fund may therefore pay a higher commission or spread
than would be the case if no weight were given to the furnishing of these
supplemental services, provided that the amount of such commission or spread has
been determined in good faith by RCB to be reasonable in relation to the value
of the brokerage and/or research services provided by such broker-dealer. The
standard of reasonableness is to be measured in light of RCB's overall
responsibilities to the Small Cap Value Fund. Products, services and
informational items may be provided directly to RCB by the broker or may be
provided by third parties but paid for directly or indirectly by the broker.
Where a particular service or product that a broker is willing to provide for
soft dollars has not only a "research" application, but is also useful to RCB
for non-"research" purposes, RCB will allocate the cost of the product or
service between its research and non-research uses and pay only the "research"
portion with soft dollars. Since this allocation of cost between research and
non-research functions is determined solely by RCB, a conflict of interest may
exist in its calculation.
Generally, RCB makes similar portfolio investment decisions for all of the
client accounts and mutual funds it advises, including the Small Cap Value Fund.
Therefore, it is possible that at times RCB will determine it is desirable to
acquire or sell identical securities on behalf of the Small Cap Value Fund and
such client accounts and other mutual funds. In those instances, trading
decisions will be made in accordance with RCB's allocation policy. In such
event, the position of the Small Cap Value Fund and
-54-
such client account(s) or mutual funds in the same issuer may vary and the
length of time that each may choose to hold its investment in the same issuer
may likewise vary. However, to the extent any of these client accounts or mutual
funds seeks to acquire the same security as the Small Cap Value Fund at the same
time, the Small Cap Value Fund may not be able to acquire as large a portion of
such security as it desires, or it may have to pay a higher price or obtain a
lower yield for such security. Similarly, the Small Cap Value Fund may not be
able to obtain as high a price for, or as large an execution of, an order to
sell any particular security at the same time. If one or more of such client
accounts or mutual funds simultaneously purchases or sells the same security
that the Small Cap Value Fund is purchasing or selling, each day's transactions
in such security will be allocated in between the Small Cap Value Fund and all
such client accounts or mutual funds in a random manner. It is recognized that
in some cases this system could have a detrimental effect on the price or value
of the security insofar as the Small Cap Value Fund is concerned. In other
cases, however, it is believed that the ability of the Small Cap Value Fund to
participate in volume transactions may produce better executions for the Small
Cap Value Fund.
REGULAR BROKERS OR DEALERS
"Regular brokers or dealers" of the Trust are the ten brokers or dealers that,
during the most recent fiscal year, (i) received the greatest dollar amounts of
brokerage commissions from the Trust's portfolio transactions, (ii) engaged as
principal in the largest dollar amounts of the portfolio transactions of the
Trust, or (iii) sold the largest dollar amounts of the Trust's shares. On
September 30, 2006, the Prime Money Market Fund, Government Money Market Fund,
Corporate Bond Fund, Large Cap Value Fund, Large Cap Growth Fund, Government
Bond Fund, High Yield Bond Fund, RCB Small Cap Fund and Technology Growth Fund
held securities of the Trust's "regular brokers or dealers" as follows:
- ---------------------------------------------------------------------------------------------------------------
Fund Name of Broker/Dealer Total $ Amount of Securities of Each
Regular Broker-Dealer Held (in 000s)
- ---------------------------------------------------------------------------------------------------------------
Prime Money Market Fund Barclays Capital, Inc. $160,000
Banc of America
Investment Services $150,000
Bear, Steans, & Co., Inc. $149,920
Nomura Securities I
International, Inc. $125,000
First Tennessee Bank $25,000
Deutsche Bank Securities $25,000
Limited
Lehman Brothers, Inc. $25,000
UBS Warburg
Painwebber, Inc. $24,960
Citigroup, Inc. $24,982
Merrill Lynch, Inc. $24,989
Societe Generale Cowen $24,989
Securities Corp.
Fidelity Capital Markets $203
- ---------------------------------------------------------------------------------------------------------------
Government Money Market Fund Barclays Capital, Inc. $193,000
Bear, Stearns, & Co., Inc. $175,000
Banc of America
Investment Services $150,000
- ---------------------------------------------------------------------------------------------------------------
-55-
- ---------------------------------------------------------------------------------------------------------------
Nomura Securities I
International, Inc. $150,000
Deutsche Bank
Securities Limited $100,000
UBS Warburg
Painwebber, Inc. $50,000
Lehman Brothers Inc. $25,000
- ---------------------------------------------------------------------------------------------------------------
Corporate Bond Fund Fidelity Capital Markets $1,838
J.P. Morgan Chase Bank $1,122
Lehman Brothers, Inc. $1,107
Citigroup Global Services $1,034
Credit Suisse Corp. $1,009
Merrill Lynch, Inc. $986
HSBC Securities, Inc. $985
Countrywide Securities $982
CIT Group $978
Goldman, Sachs & Co. $978
Morgan Stanley Dean
Witter, Inc. $973
Jefferies & Co., Inc. $665
Deutsche Bank
Securities Limited $526
US Bancorp Investments $354
Wachovia Securities, Inc. $100
- ---------------------------------------------------------------------------------------------------------------
Large Cap Value Fund Banc of America Corp. $3,771
Citigroup, Inc. $3,367
Wells Fargo $2,658
Wachovia Securities, Inc. $1,992
Morgan Stanley Dean
Witter, Inc. $1,968
Goldman, Sachs & Company
Fidelity Capital Markets $1,895
US Bancorp Investments $1,715
Merrill Lynch, Inc. $1,594
Lehman Brothers, Inc. $1,205
CIT Group $1,108
PNC Financial Services $705
Suntrust Capital Markets, Inc. $493
Bank of New York
SEI Investments Distribution $487
Company $409
$11
- ---------------------------------------------------------------------------------------------------------------
Large Cap Growth Fund Fidelity Capital Markets $657
Goldman, Sachs & Company
- ---------------------------------------------------------------------------------------------------------------
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- ---------------------------------------------------------------------------------------------------------------
Lehman Brothers Inc. $440
T. Rowe Price $355
Countrywide Securities $335
Merrill Lynch, Inc. $301
SEI Investments Distribution Company $203
$25
- ---------------------------------------------------------------------------------------------------------------
Government Bond Fund Fidelity Capital Markets $50
- ---------------------------------------------------------------------------------------------------------------
High Yield Bond Fidelity Capital Markets $373
- ---------------------------------------------------------------------------------------------------------------
RCB Small Cap Value Morgan Stanley Dean $3,053
Witter, Inc.
- ---------------------------------------------------------------------------------------------------------------
Technology Growth Fund Fidelity Capital Markets $51
SEI Investments
Distribution Company $8
- ---------------------------------------------------------------------------------------------------------------
BROKERAGE
For the indicated fiscal years, the indicated Funds paid the following brokerage
commissions:
- ----------------------------------------------------------------------------------------------------
Total $ Total $ Amount % of Total % of Total
Amount of of Brokerage Brokerage Brokerage
Year Ending Brokerage Commissions Commissions Paid Transactions
September 30, 2006 Commissions Paid to to Affiliated Effected Through
Paid Affiliated Brokers Brokers Affiliated Brokers
- ----------------------------------------------------------------------------------------------------
Large Cap Growth Fund $39,100 N/A N/A N/A
- ----------------------------------------------------------------------------------------------------
Large Cap Value Fund $128,051 N/A N/A N/A
- ----------------------------------------------------------------------------------------------------
Technology Growth Fund $2,373 N/A N/A N/A
- ----------------------------------------------------------------------------------------------------
Small Cap Value Fund $220,565 N/A N/A N/A
- ----------------------------------------------------------------------------------------------------
-57-
- ----------------------------------------------------------------------------------------------------
Total $ Total $ Amount % of Total % of Total
Amount of of Brokerage Brokerage Brokerage
Year Ending Brokerage Commissions Commissions Paid Transactions
September 30, 2005 Commissions Paid to to Affiliated Effected Through
Paid Affiliated Brokers Brokers Affiliated Brokers
- ----------------------------------------------------------------------------------------------------
Large Cap Growth Fund $36,906 N/A N/A N/A
- --------------------------------------------------------------------------------------------------
Large Cap Value Fund $56,402 N/A N/A N/A
- --------------------------------------------------------------------------------------------------
Technology Growth Fund $4,757 N/A N/A N/A
- --------------------------------------------------------------------------------------------------
Small Cap Value Fund $149,247 N/A N/A N/A
- --------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Total $ Total $ Amount % of Total % of Total
Amount of of Brokerage Brokerage Brokerage
Year Ending Brokerage Commissions Commissions Paid Transactions
September 30, 2004 Commissions Paid to to Affiliated Effected Through
Paid Affiliated Brokers Brokers Affiliated Brokers
- ----------------------------------------------------------------------------------------------------
Large Cap Growth Fund $53,783 N/A N/A N/A
- ----------------------------------------------------------------------------------------------------
Large Cap Value Fund $56,352 N/A N/A N/A
- ----------------------------------------------------------------------------------------------------
Technology Growth Fund $6,315 N/A N/A N/A
- ----------------------------------------------------------------------------------------------------
Small Cap Value Fund $88,340 N/A N/A N/A
- ----------------------------------------------------------------------------------------------------
Of the total brokerage commissions paid by the Large Cap Growth Fund, Large Cap
Value Fund, and Technology Growth Fund during the fiscal year ended September
30, 2006, a total of $169,029 (99.7%) was paid to firms which provided research
services to the Investment Manager as well as execution services.
DISTRIBUTIONS AND TAXES
DISTRIBUTIONS
The Funds receive income in the form of dividends and interest earned on their
investments in securities. This income, less the expenses incurred in their
operations, is the Funds' net investment income, substantially all of which will
be declared as dividends to the Funds' shareholders.
The Funds may also derive capital gains or losses in connection with sales or
other dispositions of their portfolio securities. Any net gain a Fund may
realize from transactions involving investments held less than the period
required for long-term capital gain or loss recognition or otherwise producing
short-term capital gains and losses (taking into account any carryover of
capital losses from the eight previous taxable years) will be distributed to
shareholders with and as a part of dividends giving rise to ordinary income. If
during any year a Fund realizes a net gain on transactions involving investments
held for the period required for long-term capital gain or loss recognition or
otherwise producing long-
-58-
term capital gains and losses, such Fund will have a net long-term capital gain.
After deduction of the amount of any net short-term capital loss, the balance
(to the extent not offset by any capital losses carried over from the eight
previous taxable years) will be distributed and treated as long-term capital
gains in the hands of the shareholders regardless of the length of time that
Fund's shares may have been held by the shareholders.
The amount of dividend payments by any Fund depends on the amount of net
investment income and net capital gains received by such Fund from its portfolio
holdings, is not guaranteed and is subject to the discretion of the Board. The
Funds do not pay "interest" or guarantee any fixed rate of return or minimum
rate of return on an investment in their shares.
For federal income tax purposes, distributions are taxable as to shareholders to
the extent of a Fund's earnings and profits. A distribution of an amount in
excess of a Fund's current and accumulated earnings and profits is treated as a
non-taxable return of capital that reduces a shareholder's tax basis in his or
her shares; any such distributions in excess of his or her basis are treated as
gain from the sale of such shares.
Taxes on distributions of capital gains are determined by how long a Fund owned
the investments that generated such capital gains, rather than how long a
shareholder has owned his or her shares. Distributions of gains from the sale of
investments that a Fund owned for more than one year and that are properly
designated by the Fund as capital gain distributions will be taxable as
long-term capital gains. Similarly, for calendar years 2003 through 2010,
distributions of investment income designated by a Fund as derived from
"qualified dividend income" will be taxed in the hands of individuals at the
rates applicable to long-term capital gain, provided holding period and other
requirements are met. Long-term capital gain rates for individuals have been
temporarily reduced to 15% (with lower rates for individuals in the 10% and 15%
rate brackets) for (i) "qualified dividend income" distributions, (ii) capital
gain distributions derived from sales of portfolio securities after May 5, 2003,
and on or before December 31, 2008, and (iii) for sales of Fund shares during
such period. Distributions of gains from the sale of investments that a Fund
owned for one year or less will be taxable as ordinary income; such
distributions will not qualify for any reduced tax rates otherwise available to
corporate dividends.
Distributions are taxable to shareholders even if they are paid from income or
gains earned by the Fund before a shareholder's investment. Any dividend or
distribution per share paid by a Fund reduces that Fund's net asset value per
share on the ex-dividend date by the amount of the dividend or distribution per
share. Accordingly, a dividend or distribution paid shortly after a purchase of
shares by a shareholder would represent, in substance, a partial return of
capital (to the extent it is paid on the shares so purchased), even though it
would be subject to income taxes (except for distributions from the Government
Bond Fund, the Government Money Fund, the California Bond Fund or the California
Money Fund to the extent they are not subject to state or federal income taxes).
Any gain resulting from the sale or exchange of Fund shares generally will be
taxable as a capital gain, either short-term or long-term, depending on the
length of time the shareholder has held the shares.
Dividends and other distributions will be reinvested in additional shares of the
applicable Fund unless the shareholder has otherwise indicated. If cash payment
is requested, checks will normally be mailed on the Business Day following the
dividend reinvestment date. Investors have the right to change their elections
with respect to the reinvestment of dividends and distributions by notifying the
Transfer Agent in writing, but any such change will be effective only as to
dividends and other distributions for which the record date is seven or more
business days after the Transfer Agent has received the written request.
-59-
Your dividends begin to accrue on the day of purchase for shares bought if
purchased before 4:00 P.M. (Eastern time). Your dividends begin to accrue on the
following day for shares purchased after this cut-off time. We will not credit
you with dividends for shares on the day you sell them.
On each day that the Money Funds' net asset values per share are determined
(each a "Business Day"), the Money Funds' net investment incomes are declared as
of the close of trading on the New York Stock Exchange (normally 4:00 p.m.
Eastern time) as a dividend to shareholders of record as of the last calculation
of net asset value prior to the declaration and to shareholders investing on
that day subject to the following conditions: (1) receipt of the purchase order
by the Transfer Agent before 4:30 p.m. Eastern time for the Prime Money Fund and
the Government Money Fund, and before 2:00 p.m. Eastern time for the California
Money Fund; and (2) payment in immediately available funds wired to the Transfer
Agent by the close of business the same day.
The Money Funds calculate dividends based on daily net investment income. For
this purpose, the net investment income of each Fund consists of: (1) accrued
interest income, plus or minus amortized discount or premium, less (2) accrued
expenses allocated to that Fund. If the Fund realizes any capital gains, they
will be distributed at least once during the year as determined by the Board of
Trustees.
Should the net asset values of a Money Fund deviate significantly from market
value, the Board of Trustees could decide to value the investments at market
value, and any unrealized gains and losses could affect the amount of the Fund's
distributions.
FEDERAL INCOME TAXES
It is the policy of each Fund to qualify for taxation, and to elect to be taxed,
as a "regulated investment company" by meeting the requirements of Subchapter M
of the Internal Revenue Code of 1986, as amended (the "Code"). In order to so
qualify, each Fund will distribute each year substantially all of its investment
company taxable income (if any) and its net exempt-interest income (if any), and
will seek to distribute each year substantially all of its net capital gains (if
any) and meet certain other requirements. Such qualification relieves the Funds
of liability for federal income taxes to the extent the Funds' earnings are
distributed. By following this policy, the Funds expect to eliminate or reduce
to a nominal amount the federal income tax to which they are subject.
In order to qualify as a regulated investment company, each Fund must, among
other things, annually (1) derive at least 90% of its gross income from
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of stocks, securities, foreign currencies or other
income (including gains from options, futures or forward contracts) derived with
respect to their business of investing in stocks, securities or currencies, and
(2) diversify holdings so that at the end of each quarter of its taxable years
(i) at least 50% of the market value of each Fund's total assets is represented
by cash or cash items (including receivables) Government Securities, securities
of other regulated investment companies and other securities limited, in respect
of any one issuer, to a value not greater than 5% of the value of such Fund's
total assets and 10% of the outstanding voting securities of such issuer, and
(ii) not more than 25% of the value of each Fund's total assets is invested in
the securities of any one issuer (other than Government Securities or securities
of other regulated investment companies) or of two or more issuers that such
Fund controls, within the meaning of the Code, and that are engaged in the same,
similar or related trades or businesses. If the Funds qualify as regulated
investment companies, they will not be subject to federal income tax on the part
of their net investment income and net realized capital gains, if any, that the
Funds distribute to shareholders, provided that the Funds meet certain minimum
distribution requirements. To comply with these requirements, each Fund must
distribute annually at least (1) 90% of its "investment company taxable income"
(as that term is defined in the Code), and (2) 90% of the excess of (i) its
tax-exempt interest
-60-
income over (ii) certain deductions attributable to that income (with certain
exceptions), for its taxable years. Each Fund intends to make sufficient
distributions to shareholders to meet these requirements.
If a Fund fails to distribute in a calendar year (regardless of whether it has a
non-calendar taxable year) at least 98% of its (1) ordinary income for such
year; and (2) capital gain net income for the one-year period ending on October
31 of that calendar year (or later if the Fund is permitted so to elect and so
elects), plus any undistributed ordinary income or capital gain from the prior
year, the Fund will be subject to a nondeductible 4% excise tax on the
undistributed amounts. The Funds intend generally to make distributions
sufficient to avoid imposition of this excise tax.
Any distributions declared by the Funds in October, November, or December to
shareholders of record during those months and paid during the following January
are treated, for tax purposes, as if they were received by each shareholder on
December 31 of the year declared. The Funds may adjust their schedules for the
reinvestment of distributions for the month of December to assist in complying
with the reporting and minimum distribution requirements of the Code.
Any distributions by the Funds of long-term capital gain and "qualified dividend
income," properly designated as such, will be taxable to the shareholders as
long-term capital gain, regardless of how long a shareholder has held Fund
shares.
The Funds may engage in investment techniques that may alter the timing and
character of the Funds' incomes. The Funds may be restricted in their use of
these techniques by rules relating to qualifying as regulated investment
companies.
The Funds may invest in some VRDNs that have a feature entitling the purchaser
to resell the securities at a specified amount (a "put option"). In 1982, the
Internal Revenue Service (the "IRS") issued a revenue ruling to the effect that,
under specified circumstances, a regulated investment company would be the owner
of tax-exempt municipal obligations acquired with a put option. The IRS also has
issued private letter rulings to certain taxpayers (which do not serve as
precedent for other taxpayers) to the effect that tax-exempt interest received
by a regulated investment company with respect to such obligations will be
tax-exempt in the hands of the company and may be distributed to its
shareholders as exempt-interest dividends. The last such ruling was issued in
1983. The IRS subsequently announced that it would not ordinarily issue advance
ruling letters as to the identity of the true owner of property in cases
involving the sale of securities or participation interests therein if the
purchaser has the right to cause the securities, or the participation interest
therein, to be purchased by either the seller or a third party. Each Fund
intends to take the position that it is the owner of any municipal obligations
acquired subject to a stand-by commitment or a similar put right and that
tax-exempt interest earned with respect to such municipal obligations will be
tax-exempt in its hands.
The Funds will be required in certain cases to withhold and remit to the U.S.
Treasury a percentage of taxable dividends (at the fourth lowest individual
income tax rate, currently 28% for amounts paid through 2010 and 31% for amounts
paid after December 31, 2010) paid to any shareholder (1) who fails to provide a
correct taxpayer identification number certified under penalty of perjury; (2)
who provides an incorrect taxpayer identification number; (3) who is subject to
withholding for failure to properly report to the IRS all payments of interest
or dividends; or (4) who fails to provide a certified statement that he or she
is not subject to "backup withholding." This "backup withholding" is not an
additional tax and any amounts withheld may be credited against the
shareholder's ultimate U.S. tax liability.
-61-
Regulations affect the application to non-U.S. investors of the back-up
withholding and withholding tax rules. In some circumstances, these rules
increase the certification and filing requirements imposed on non-U.S. investors
in order to qualify for exemption from the back-up withholding tax, and
exemption from, or a reduced rate of U.S. withholding tax under tax treaties.
Non-U.S. investors should consult their tax advisers with respect to the
potential application of these regulations.
Distributions of net investment income and net realized capital gains by a Fund
will be taxable to shareholders whether made in cash or reinvested in shares. In
determining amounts of net realized capital gains to be distributed, any capital
loss carryovers from the eight prior taxable years will be applied against
capital gains. Shareholders receiving distributions in the form of additional
shares will have a cost basis for federal income tax purposes in each share so
received equal to the net asset value of a share of a Fund on the reinvestment
date. Fund distributions also will be included in individual and corporate
shareholders' income on which the alternative minimum tax may be imposed.
A Fund may receive dividend distributions from U.S. corporations. To the extent
that a Fund receives such dividends and distributes them to its shareholders,
and meets certain other requirements of the Code, corporate shareholders of a
Fund may be entitled to the "dividends received" deduction. Availability of the
deduction is subject to certain holding period and debt-financing limitations.
As stated above, individual shareholders may be entitled to the use of maximum
long-term capital gains rates on distributions of "qualified dividend income."
Each Fund may from time to time use "equalization accounting" in determining the
portion of its net investment income and/or capital gains that has been
distributed. If a Fund elects to use equalization accounting, it will allocate a
portion of its net investment income and/or realized capital gains to
redemptions of Fund shares, which will reduce the amount of such income and
capital gains that the Fund is required to distribute under the distribution
requirements of the Code. The IRS has not published clear guidance concerning
the methods to be used in allocating investment income and capital gains to the
redemption of shares. If the IRS determines that a Fund is using an improper
method of allocation and that it has under-distributed its net investment income
and/or capital gains for any taxable year, such Fund may be liable for
additional federal income tax, interest and penalties. This additional tax,
interest and penalties could be substantial. In addition, shareholders of such
Fund at the time of such determination may receive an additional distribution of
net investment income and/or capital gains.
If a shareholder sells its shares of a Fund within 6 months after the shares
have been purchased by such shareholder, and to the extent the shareholder
realizes a loss on the sale of the shares, the shareholder will not be able to
recognize such a loss to the extent that tax-exempt interest dividends have been
paid with respect to their shares. If a shareholder sells shares of a Fund
within 6 months after the shares have been purchased by such shareholder, any
losses realized by the shareholder on such a sale will be treated as long-term
capital losses to the extent that the shareholder has received a long-term
capital gain dividend distribution with respect to its shares of a Fund.
Under Treasury regulations, if a shareholder realizes a loss on disposition of a
Fund's shares of $2 million or more for an individual shareholder or $10 million
or more for a corporate shareholder, the shareholder must file with the IRS a
disclosure statement on Form 8886. Direct shareholders of securities are in many
cases excepted from this reporting requirement, but under current guidance,
shareholders of a regulated investment company are not excepted. Future guidance
may extend the current exception from this reporting requirement to shareholders
of most or all regulated investment companies.
-62-
If more than 50% in value of the total assets of a Fund at the end of its fiscal
year is invested in stock or other securities of foreign corporations, such Fund
may elect to pass through to its shareholders the pro rata share of all foreign
income taxes paid by such Fund. If this election is made, shareholders will be
(i) required to include in their gross income their pro rata share of any
foreign income taxes paid by such Fund, and (ii) entitled either to deduct their
share of such foreign taxes in computing their taxable income or to claim a
credit for such taxes against their U.S. income tax, subject to certain
limitations under the Code, including certain holding period requirements. In
this case, shareholders will be informed in writing by such Fund at the end of
each calendar year regarding the availability of any credits on and the amount
of foreign source income (including or excluding foreign income taxes paid by
such Fund) to be included in their income tax returns. If 50% or less in value
of such Fund's total assets at the end of its fiscal year are invested in stock
or other securities of foreign corporations, such Fund will not be entitled
under the Code to pass through to its shareholders their pro rata share of the
foreign income taxes paid by such Fund. In this case, these taxes will be taken
as a deduction by such Fund.
A Fund may be subject to foreign withholding taxes on dividends and interest
earned with respect to securities of foreign corporations. A Fund may invest up
to 10% of its total assets in the stock of foreign investment companies. Such
companies are likely to be treated as "passive foreign investment companies"
("PFICs") under the Code. Certain other foreign corporations, not operated as
investment companies, may nevertheless satisfy the PFIC definition. A portion of
the income and gains that these Funds derive from PFIC stock may be subject to a
non-deductible federal income tax at the Fund level. In some cases, a Fund may
be able to avoid this tax by electing to be taxed currently on its share of the
PFIC's income, whether or not such income is actually distributed by the PFIC. A
Fund will endeavor to limit its exposure to the PFIC tax by investing in PFICs
only where such Fund will either (i) elect to treat the PFIC as a "Qualified
Electing Fund" under Code Section 1295 or (ii) elect to "mark-to-market" the
stock of such PFIC under Code Section 1296. Because it is not always possible to
identify a foreign issuer as a PFIC in advance of making the investment, a Fund
may incur the PFIC tax in some instances.
The foregoing discussion relates only to federal income tax law as applicable to
U.S. citizens or residents. Foreign shareholders (i.e., nonresident alien
individuals and foreign corporations, partnerships, trusts and estates)
generally are subject to U.S. withholding tax at the rate of 30% (or a lower tax
treaty rate) on distributions derived from net investment income and short-term
capital gains. Distributions to foreign shareholders of long-term capital gains
and any gains from the sale or disposition of shares of a Fund generally are not
subject to U.S. taxation, unless the recipient is an individual who meets the
Code's definition of "resident alien." Among the recent changes in U.S. federal
tax law is a new exemption under which U.S. source withholding taxes are no
longer imposed on dividends paid by regulated investment companies to the extent
the dividends are designated as "interest-related dividends" or "short-term
capital gain dividends." Under this exemption, interest-related dividends and
short-term capital gain dividends generally represent distributions of interest
or short-term capital gains that would not have been subject to U.S. withholding
tax at source if they had been received directly by a foreign person, and that
satisfy certain other requirements. The exemption applies to dividends with
respect to taxable years of regulated investment companies beginning after
December 31, 2004, and before January 1, 2008. Again, this applies unless the
recipient is a resident alien. Different tax consequences may result if the
foreign shareholder is engaged in a trade or business within the U.S. In
addition, the tax consequences to a foreign shareholder entitled to claim the
benefits of a tax treaty may be different than those described above.
Distributions by a Fund may also be subject to state, local and foreign taxes,
and their treatment under applicable tax laws may differ from the U.S. federal
income tax treatment.
-63-
The information above is only a summary of some of the tax considerations
generally affecting the Funds and their shareholders. No attempt has been made
to discuss individual tax consequences and this discussion should not be
construed as applicable to all shareholders' tax situations. Investors should
consult their own tax advisors to determine the suitability of the Funds and the
applicability of any state, local, or foreign taxation. Paul, Hastings, Janofsky
& Walker LLP has expressed no opinion in respect thereof.
CALIFORNIA INCOME TAX
The California Bond Fund and the California Money Fund intend to qualify to pay
dividends to shareholders that are exempt from California personal income tax
("California exempt-interest dividends"). Each of these two Funds will qualify
to pay California exempt-interest dividends if (1) at the close of each quarter
of the Fund's taxable year, at least 50 percent of the value of the Fund's total
assets consists of obligations the interest on which would be exempt from
California personal income tax if the obligations were held by an individual
("California Tax Exempt Obligations"), and (2) the Fund continues to qualify as
a regulated investment company.
If a Fund qualifies to pay California exempt-interest dividends, dividends
distributed to shareholders will be considered California exempt-interest
dividends if they meet certain requirements. The Fund will notify its
shareholders of the amount of exempt-interest dividends each year.
Corporations subject to California franchise tax that invest in a Fund may not
be entitled to exclude California exempt-interest dividends from income.
Dividend distributions that do not qualify for treatment as California
exempt-interest dividends (including those dividend distributions to
shareholders taxable as long-term capital gains for federal income tax purposes)
will be taxable to shareholders at ordinary income tax rates for California
personal income tax purposes to the extent of the Fund's earnings and profits.
Interest on indebtedness incurred or continued by a shareholder in connection
with the purchase of shares of the Fund and attributable to the production of
tax-exempt income will not be deductible for California personal income tax
purposes if the Fund distributes California exempt-interest dividends.
The foregoing is a general, abbreviated summary of certain of the provisions of
the California Revenue and Taxation Code presently in effect as they directly
govern the taxation of shareholders subject to California personal income tax.
These provisions are subject to change by legislative or administrative action,
and any such change may be retroactive with respect to Fund transactions.
Shareholders are advised to consult with their own tax advisers for more
detailed information concerning California tax matters. Paul, Hastings, Janofsky
& Walker LLP has expressed no opinion in respect thereof.
SHARE PRICE CALCULATION
THE EQUITY FUNDS AND THE BOND FUNDS
The net asset value per share of each of the Equity Funds and the Bond Funds is
calculated as follows: all Fund liabilities incurred or accrued are deducted
from the valuation of the Fund's total assets, which includes accrued but
undistributed income; the resulting net assets are divided by the number of
shares of that Fund outstanding at the time of the valuation and the result
(adjusted to the nearest cent) is the net asset value per share.
-64-
In general, securities for which market quotations are readily available are
valued at current market value, and all other securities are valued at fair
value as determined in good faith in accordance with procedures adopted by the
Board of Trustees.
Securities listed on a securities exchange or an automated quotation system for
which quotations are readily available, including securities traded over the
counter, are valued at the last quoted sale price on the principal exchange on
which they are traded on the valuation date. If there is no such reported sale
on the valuation date, securities are valued at the most recent quoted bid
price. For securities traded on NASDAQ, the NASDAQ Official Closing Price will
be used.
Prices for securities traded on a securities exchange are provided daily by
recognized independent pricing agents. The reliability of the valuations
provided by the independent, third-party pricing agents are reviewed daily by
the Administrator.
These third-party pricing agents may employ methodologies, primarily regarding
debt securities, that utilize actual market transactions, broker-dealer supplied
valuations or other electronic data processing techniques. These techniques
generally consider such factors as security prices, yields, maturities, call
features, ratings and developments relating to specific securities in arriving
at valuations. Debt obligations with remaining maturities of sixty days or less
may be valued at their amortized cost that approximates fair market value.
If a security price cannot be obtained from an independent, third-party pricing
agent, the Administrator obtains a bid price from an independent broker who
makes a market in the security. The Investment Manager (or Sub-Adviser, as
relevant) supplies the Administrator with the appropriate broker contact, and to
ensure independence the Administrator obtains the quote directly from the broker
each day.
Foreign securities owned in the Trust are valued at the closing prices (as
determined prior to the Equity Funds and the Bond Funds' determination of net
asset value) on the principal exchange on which they trade. The prices for
foreign securities are reported in local currency and converted to U.S. dollars
using currency exchange rates. Exchange rates are provided daily by recognized
independent pricing agents.
Financial futures are valued at the settlement price established each day by the
board of exchange on which they are traded. Foreign currency forward contracts
are valued at the current day's interpolated foreign exchange rate, as
calculated using the current day's exchange rate, and the thirty, sixty, ninety
and one-hundred eighty day forward rates.
Valuation corrections are required where variations in net asset value are the
result of mathematical mistakes, the misapplication of accounting principles,
misjudgments in the use of fact, and failure to reflect market information that
was known or should have been known. Valuation corrections require prospective
actions, and may require retroactive actions if the net asset value variation is
material. Valuation corrections that require retroactive action will be reported
to the Board of Trustees.
The Administrator has primary operational responsibility for the operation of
the valuation process. The Administrator uses several systems to monitor the
pricing data supplied by various sources. These reports are reviewed daily. Any
identified discrepancies are researched and resolved in accordance with these
procedures. All discrepancies identified by the price flagging systems, and the
resolution and verification steps taken by the Administrator, are documented and
retained as part of the Trust's daily records.
-65-
To ensure that the independent broker continues to supply a reliable valuation,
at least once per week the Administrator provides the broker supplied value to
the Investment Manager (or Sub-Adviser, as relevant) for review and approval. In
addition, the Investment Manager (or Sub-Adviser) will consult with the
Administrator in the event of a pricing problem, participate on the Fair Value
Committee, and shall notify the Administrator in the event it discovers a
pricing discrepancy. Under no circumstances may the Investment Manager or
Sub-Adviser determine the value of a portfolio security outside of the
established pricing framework.
If current market quotations are not readily available, the Trust's Fair Value
Committee will determine the security's value using Fair Value Procedures
established by the Board of Trustees. For instance, if trading in a security has
been halted or suspended or a security has been delisted from a national
exchange, a security has not been traded for an extended period of time, or a
significant event with respect to a security occurs after the close of the
market or exchange on which the security principally trades and before the time
the Trust calculates net asset value, the Fair Value Committee will determine
the security's fair value. In making a good faith determination of the value of
the security, the Committee will consider the Investment Manager's (or the
Sub-Adviser's) valuation recommendation and information supporting the
recommendation, including factors such as the type of security, last trade
price, fundamental analytical data relating to the security, forces affecting
the market in which the security is purchased and sold, the price and extent of
public trading in similar securities of the issuer or comparable companies, and
other relevant factors.
THE MONEY FUNDS
The Money Funds value their portfolio instruments at amortized cost, which means
they are valued at their acquisition cost, as adjusted for amortization of
premium or discount, rather than at current market value. Calculations are made
to compare the value of the Money Funds' investments at amortized cost with
market values. Market valuations are obtained by using actual quotations
provided by market makers, estimates of market value, or values obtained from
yield data relating to classes of money market instruments published by
reputable sources at the bid prices for the instruments. The amortized cost
method of valuation seeks to maintain a stable $1.00 per share net asset value
even where there are fluctuations in interest rates that affect the value of
portfolio instruments. Accordingly, this method of valuation can in certain
circumstances lead to a dilution of a shareholder's interest.
If a deviation of 1/2 of 1% or more were to occur between the net asset value
per share calculated by reference to market values and a Fund's $1.00 per share
net asset value, or if there were any other deviation that the Board of Trustees
believes may result in a material dilution or other unfair results to investors
or existing shareholders, the Board of Trustees is required to cause the Fund to
take such action as it deems appropriate to eliminate or reduce to the extent
reasonably practicable such dilution or unfair results. If a Money Fund's net
asset values per share (computed using market values) declined, or were expected
to decline, below $1.00 (computed using amortized cost), the Board of Trustees
might temporarily reduce or suspend dividend payments for the Fund in an effort
to maintain the net asset value at $1.00 per share. As a result of such
reduction or suspension of dividends or other action by the Board of Trustees,
an investor would receive less income during a given period than if such a
reduction or suspension had not taken place. Such action could result in
investors receiving no dividends for the period during which they hold their
shares and receiving, upon redemption, a price per share lower than that which
they paid. On the other hand, if a Fund's net asset value per share (computed
using market values) were to increase, or were anticipated to increase, above
$1.00 (computed using amortized cost), the Board of Trustees might supplement
dividends in an effort to maintain the net asset value at $1.00 per share.
-66-
DISTRIBUTION PLAN
The Trust has adopted a Distribution Plan (the "Plan") for the Class A shares of
the Funds, the Class S shares of the Money Funds and the Class R shares of the
Small Cap Value Fund, in accordance with Rule 12b-1 under the 1940 Act, which
regulates circumstances under which an investment company may directly or
indirectly bear expenses relating to the distribution of its shares. In this
regard, the Board has determined that the Plan is in the best interests of the
shareholders. Continuance of the Plan must be approved annually by a majority of
the Trustees and by a majority of the Independent Trustees who have no direct or
indirect financial interest in the operation of the Plan or in any agreements
related thereto ("Qualified Trustees"). The Plan may not be amended to increase
materially the amount that may be spent thereunder without approval by a
majority of the outstanding shares of a Fund or class affected. All material
amendments to the Plan will require approval by a majority of the Trustees and
of the Qualified Trustees.
The Plan adopted for the Class A, Class S and Class R shares provides that the
Trust will pay the Distributor a fee of up to 0.50% of the average daily net
assets of each Fund's Class A, Class S and Class R shares that the Distributor
can use to compensate broker-dealers and service providers, including the
Investment Manager and affiliates of the Distributor, that provide
distribution-related services to the Class A, Class S and Class R shareholders
or to their customers who beneficially own the Class A, Class S and Class R
shares. During the fiscal period ending September 30, 2004, the annual
distribution fee rate for the Equity Funds' and the Bond Funds' Class A shares
(other than the Technology Growth Fund and the High Yield Bond Fund) was 0.25%.
The annual distribution fee rate for the Class A shares of the Technology Growth
Fund and the High Yield Bond Fund was 0.30%. The annual distribution fee rate
for the Small Cap Value Fund's Class R shares was 0.25%. The annual distribution
fee rate for the Money Funds' Class A and Class S shares was 0.50%.
Payments may be made under the Plan for distribution services, including
reviewing of purchase and redemption orders, assisting in processing purchase,
exchange and redemption requests from customers, providing certain shareholder
communications requested by the Distributor, forwarding sales literature and
advertisements provided by the Distributor, and arranging for bank wires.
Except to the extent that affiliates of the Investment Manager have received or
receive distribution fees from the Distributor, or that the Investment Manager
has benefited or benefits through increased fees from an increase in the net
assets of the Trust which may have resulted or results in part from the
expenditures, no interested person of the Trust nor any Trustee who is not an
interested person of the Trust has or had a direct or indirect financial
interest in the operation of any of the distribution plan or related agreements.
Although banking laws and regulations prohibit banks from distributing shares of
open-end investment companies such as the Trust, according to an opinion issued
to the staff of the SEC by the Office of the Comptroller of the Currency,
financial institutions are not prohibited from acting in other capacities for
investment companies, such as providing shareholder services. Should future
legislative, judicial or administrative action prohibit or restrict the
activities of financial institutions in connection with providing shareholder
services, the Trust may be required to alter materially or discontinue its
arrangements with such financial institutions.
The Plan provides that the distribution fees paid by a particular class of a
Fund may only be used to pay for the distribution expenses of that class of the
Fund.
Distribution fees are accrued daily and paid monthly, and are charged as
expenses as accrued. Shares are not obligated under the Plan to pay any
distribution expense in excess of the distribution fee.
-67-
Thus, if the Plan is terminated or otherwise not continued, no amounts (other
than current amounts accrued but not yet paid) would be owed by the class of the
Fund to the Distributor.
The Board, when approving the establishment of the Plan, determined that there
are various anticipated benefits to the Funds from such establishment, including
the likelihood that the Plan will stimulate sales of shares of the Trust and
assist in increasing the asset base of the Trust in the face of competition from
a variety of financial products and the potential advantage to the shareholders
of the Trust of prompt and significant growth of the asset base of the Trust,
including greater liquidity, more investment flexibility and achievement of
greater economies of scale. The Board annually reviews the Plan and has
determined each year that there is a reasonable likelihood that the plan will
benefit the Trust and its shareholders. The Plan (and any distribution agreement
among the Funds, the Distributor or the Investment Manager and a selling agent
with respect to the shares) may be terminated without penalty upon at least 60
days' notice by the Distributor or the Investment Manager, or by the Trust by
vote of a majority of the Independent Trustees, or by vote of a majority of the
outstanding shares (as defined in the 1940 Act) of the class to which the Plan
applies.
All distribution fees paid by the Funds under the Plan will be paid in
accordance with Rule 2830 of the NASD Regulation, Inc. Rules of Conduct, as such
Rule may change from time to time. Pursuant to the Plan, the Trustees will
review at least quarterly a written report of the distribution expenses incurred
by the Investment Manager on behalf of the shares of the Fund. In addition, as
long as the Plan remains in effect, the selection and nomination of Trustees who
are not interested persons (as defined in the 1940 Act) of the Trust shall be
made by the Independent Trustees.
For the fiscal year ending September 30, 2006, the Funds paid the Distributor
the following distribution fees under the Plan.
- ------------------------------------------------------------------------------------------------------
Fiscal Year Ended September 30, 2006 Total Fees Paid Total Fees Paid Directly to Other
To the Distributor Broker-Dealers and Financial
Intermediaries
- ------------------------------------------------------------------------------------------------------
Class A Shares
- ------------------------------------------------------------------------------------------------------
Large Cap Growth Fund $24,363 -
- ------------------------------------------------------------------------------------------------------
Large Cap Value Fund $30,428 -
- ------------------------------------------------------------------------------------------------------
Technology Growth Fund $4,215 -
- ------------------------------------------------------------------------------------------------------
Small Cap Value Fund $29,995 -
- ------------------------------------------------------------------------------------------------------
Corporate Bond Fund $3,466 -
- ------------------------------------------------------------------------------------------------------
Government Bond Fund $2,093 -
- ------------------------------------------------------------------------------------------------------
California Bond Fund $3,048 -
- ------------------------------------------------------------------------------------------------------
High Yield Bond Fund $58,557 -
- ------------------------------------------------------------------------------------------------------
Prime Money Fund $1,020,783 $416,964
- ------------------------------------------------------------------------------------------------------
Government Money Fund $1,855,761 $4,093,414
- ------------------------------------------------------------------------------------------------------
California Money Fund $372,911 $1,550,435
- ------------------------------------------------------------------------------------------------------
Class S Shares
- ------------------------------------------------------------------------------------------------------
Prime Money Fund $1,339,192 -
- ------------------------------------------------------------------------------------------------------
Government Money Fund $1,239,707 -
- ------------------------------------------------------------------------------------------------------
California Money Fund $475,329 -
- ------------------------------------------------------------------------------------------------------
Class R Shares
- ------------------------------------------------------------------------------------------------------
Small Cap Value Fund - $131,889
- ------------------------------------------------------------------------------------------------------
Of these amounts, $12,039 in unreimbursed expenses with respect to Class R of
the RCB Fund, representing 0.02% of the Fund's assets as of September 30, 2006,
were incurred under the Plan and
-68-
carried over for future use by the Fund pursuant to the Plan. In addition,
$30,846 in distribution fees with respect to Class R of the RCB Fund,
representing 0.04% of the Fund's assets as of September 30, 2006, had been
refunded to the Distributor by a broker-dealer to correct an overpayment, and
have been carried over for future use by the Fund pursuant to the Plan.
SHAREHOLDER SERVICES AGREEMENT
CNB has entered into a Shareholder Services Agreement with the Trust. Pursuant
to the Shareholder Services Agreement, CNB will provide, or will arrange for
others to provide, certain specified shareholder services to shareholders of the
Funds. As compensation for the provision of such services, the Fund will pay CNB
a fee of 0.25% of the Funds' average daily net assets on an annual basis,
payable monthly. CNB may pay certain banks, trust companies, broker-dealers, and
other institutions (each a "Participating Organization") out of the fees CNB
receives from the Funds under the Shareholder Services Agreement to the extent
that the Participating Organization performs shareholder servicing functions for
the Funds with respect to shares of the Funds owned from time to time by
customers of the Participating Organization. In certain cases, CNB may also pay
a fee, out of its own resources and not out of the service fee payable under the
Shareholder Services Agreement, to a Participating Organization for providing
other administrative services to its customers who invest in the Funds.
Pursuant to the Shareholder Services Agreement, CNB will provide or arrange with
a Participating Organization for the provision of the following shareholder
services: responding to shareholder inquiries; processing purchases and
redemptions of the Funds' shares, including reinvestment of dividends; assisting
shareholders in changing dividend options, account designations, and addresses;
transmitting proxy statements, annual reports, prospectuses, and other
correspondence from the Funds to shareholders (including, upon request, copies,
but not originals, of regular correspondence, confirmations, or regular
statements of account) where such shareholders hold shares of the Funds
registered in the name of CNB, a Participating Organization, or their nominees;
and providing such other information and assistance to shareholders as may be
reasonably requested by such shareholders.
CNB may also enter into agreements with Participating Organizations that process
substantial volumes of purchases and redemptions of shares of the Funds for
their customers. Under these arrangements, the Transfer Agent will ordinarily
maintain an omnibus account for a Participating Organization and the
Participating Organization will maintain sub-accounts for its customers for whom
it processes purchases and redemptions of shares. A Participating Organization
may charge its customers a fee, as agreed upon by the Participating Organization
and the customer, for the services it provides. Customers of participating
Organizations should read the Funds' Prospectus in conjunction with the service
agreement and other literature describing the services and related fees provided
by the Participating Organization to its customers prior to any purchase of
shares.
For the fiscal years ending September 30, 2006, September 30, 2005, and
September 30, 2004 pursuant to the Shareholder Services Agreement, the Class A,
Class S, Class R and Institutional Class shares of the Funds paid CNB the
following fees:
- --------------------------------------------------------------------------------------------------------
Fees Paid, Fiscal Year Ended Class A Class S Class R Institutional
9/30/06 Class
- --------------------------------------------------------------------------------------------------------
Large Cap Growth Fund $48,725 N/A N/A $88,217
- --------------------------------------------------------------------------------------------------------
Large Cap Value Fund $60,856 N/A N/A $205,328
- --------------------------------------------------------------------------------------------------------
Technology Growth Fund $7,728 N/A N/A $2,983
- --------------------------------------------------------------------------------------------------------
Small Cap Value Fund $59,990 N/A $263,779 $34,799
- --------------------------------------------------------------------------------------------------------
-69-
- --------------------------------------------------------------------------------------------------------
Corporate Bond Fund $6,932 N/A N/A $131,223
- --------------------------------------------------------------------------------------------------------
Government Bond Fund $4,186 N/A N/A $80,146
- --------------------------------------------------------------------------------------------------------
California Bond Fund $6,096 N/A N/A $60,631
- --------------------------------------------------------------------------------------------------------
High Yield Bond Fund $107,355 N/A N/A $52,766
- --------------------------------------------------------------------------------------------------------
Prime Money Fund(*) $2,252,432 $1,794,511 N/A $893,203
- --------------------------------------------------------------------------------------------------------
Government Money Fund(*) $9,272,974 $1,658,574 N/A $125,709
- --------------------------------------------------------------------------------------------------------
California Money Fund(*) $3,077,261 $646,446 N/A $200,268
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
Fees Paid, Fiscal Year Ended Class A Class S Class R Institutional
9/30/05 Class
- --------------------------------------------------------------------------------------------------------
Large Cap Growth Fund $17,350 N/A N/A $75,203
- --------------------------------------------------------------------------------------------------------
Large Cap Value Fund $22,264 N/A N/A $101,968
- --------------------------------------------------------------------------------------------------------
Technology Growth Fund $3,373 N/A N/A $2,632
- --------------------------------------------------------------------------------------------------------
Small Cap Value Fund $28,023 N/A $124,007 $29,993
- --------------------------------------------------------------------------------------------------------
Corporate Bond Fund $3,833 N/A N/A $122,421
- --------------------------------------------------------------------------------------------------------
Government Bond Fund $1,064 N/A N/A $60,871
- --------------------------------------------------------------------------------------------------------
California Bond Fund $5,452 N/A N/A $49,928
- --------------------------------------------------------------------------------------------------------
High Yield Bond Fund $53,777 N/A N/A $59,033
- --------------------------------------------------------------------------------------------------------
Prime Money Fund $402,497 $270,729 N/A $890,508
- --------------------------------------------------------------------------------------------------------
Government Money Fund $3,205,052 $423,845 N/A $111,555
- --------------------------------------------------------------------------------------------------------
California Money Fund $1,043,837 $71,308 N/A $233,266
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
Fees Paid, Fiscal Year Ended Class A Class S Class R Institutional
9/30/04 Class
- --------------------------------------------------------------------------------------------------------
Large Cap Growth Fund $8,967 N/A N/A $63,487
- --------------------------------------------------------------------------------------------------------
Large Cap Value Fund $10,326 N/A N/A $92,460
- --------------------------------------------------------------------------------------------------------
Technology Growth Fund $3,093 N/A N/A $2,632
- --------------------------------------------------------------------------------------------------------
Small Cap Value Fund $13,719 N/A $59,352 $18,514
- --------------------------------------------------------------------------------------------------------
Corporate Bond Fund $2,765 N/A N/A $110,065
- --------------------------------------------------------------------------------------------------------
Government Bond Fund $490 N/A N/A $46,707
- --------------------------------------------------------------------------------------------------------
California Bond Fund $3,731 N/A N/A $41,672
- --------------------------------------------------------------------------------------------------------
High Yield Bond Fund $49,169 N/A N/A $43,484
- --------------------------------------------------------------------------------------------------------
Prime Money Fund(*) $307,314 $190,525 N/A $785,266
- --------------------------------------------------------------------------------------------------------
Government Money Fund(*) $3,285,172 $343,474 N/A $129,841
- --------------------------------------------------------------------------------------------------------
California Money Fund(*) $1,036,601 $61,946 N/A $266,529
- --------------------------------------------------------------------------------------------------------
(*) CNB waived additional fees for Class A and Class S in order to maintain the
Money Funds' yields.
DEALER COMMISSIONS
The Distributor receives a sales charge on purchases of Class R shares of the
Small Cap Value Fund, some or all of which is reallowed to retail dealers, as
follows:
-------------------------------------------------------------------
Your investment Dealer Commission as a %
of offering price
-------------------------------------------------------------------
Less than $50,000 3.50%
-------------------------------------------------------------------
$50,000 but less than $100,000 3.00%
-------------------------------------------------------------------
$100,000 but less than $200,000 2.50%
-------------------------------------------------------------------
$200,000 but less than $300,000 2.00%
-------------------------------------------------------------------
$300,000 but less than $500,000 1.00%
-------------------------------------------------------------------
$500,000 or more None
-------------------------------------------------------------------
-70-
EXPENSES
The Trust pays the expenses of its operations, including: the fees and expenses
of independent auditors, counsel and the custodian; the cost of reports and
notices to shareholders; the cost of calculating net asset value; registration
fees; the fees and expenses of qualifying the Trust and its shares for
distribution under federal and state securities laws; and membership dues in the
Investment Company Institute and, or other industry association membership dues.
In its role as Investment Manager, CNAM, Inc. has agreed to limit its investment
management fees or reimburse the expenses of the various classes of the Funds as
described in the Prospectuses.
CODE OF ETHICS
Each of the Trust, the Investment Manager, the Sub-Advisers and the Distributor
has adopted a code of ethics which contains policies on personal securities
transactions by "access persons." These policies comply in all material respects
with Rule 17j-1 under the 1940 Act. Each code of ethics, among other things,
permits access persons to invest in certain securities, subject to various
restrictions and requirements.
DISCLOSURE OF PORTFOLIO HOLDINGS
The Board of Trustees has adopted a Policy on Disclosure of Portfolio Holdings.
No later than 65 days after the end of each first and third fiscal quarter of
the Trust, lists of each Fund's complete portfolio holdings as of the end of
such quarter will be made available on the Funds' website. The Trust also files
the Funds' complete portfolio schedules as of the end of each first and third
fiscal quarter with the SEC on Form N-Q within 60 days of the end of the
quarter. With respect to the Trust's second and fourth fiscal quarters, lists of
each Fund's complete portfolio holdings will be made available in the Funds'
annual and semi-annual reports, which are mailed to shareholders within 60 days
of the end of the quarter and are filed with the SEC on Form N-CSR within ten
days of such mailing. The current shareholder reports are also available on the
Funds' website. Certain other general information regarding the portfolio
holdings of each Fund may also be made available to the general public, with the
prior approval of management of the Trust, by posting to the Funds' website(s)
ten calendar days after the end of each month, subject to a 31-day lag from the
date of the information.
Pursuant to the policies adopted by the Board of Trustees, other than the
foregoing disclosure, no information concerning the Trust's portfolio holdings
may be disclosed to any third party except for the following disclosures: (1) to
persons providing services to the Trust who have a need to know such information
in order to fulfill their obligations to the Trust, such as portfolio managers,
administrators, custodians, and the Board of Trustees; (2) in connection with
periodic reports that are available to shareholders and the public; (3) to
mutual fund rating or statistical agencies or persons performing similar
functions who have signed a confidentiality agreement with the Trust; (4)
pursuant to a regulatory request or as otherwise required by law; or (5) to
persons approved in writing by the Chief Compliance Officer (the "CCO") of the
Trust. Procedures to monitor the use of any non-public information by entities
under item (3) above will include (a) annual written certifications relating to
the confidentiality of such information or (b) conditioning the receipt of such
information upon the recipient's written agreement to maintain the
confidentiality of the information and not to trade based on the information.
Any disclosure made pursuant to item (5) above will be reported to the Board at
its next regular meeting.
-71-
As of January 22, 2007, the Trust has ongoing business arrangements with the
following entities which involve making portfolio holdings information available
to such entities as an incidental part of the services they provide to the
Trust: (i) the Administrator and the Custodian pursuant to fund accounting and
custody agreements, respectively, under which the Trust's portfolio holdings
information is provided daily on a real-time basis; (ii) Institutional
Shareholder Services pursuant to a proxy voting agreement under which the
Trust's portfolio holdings information is provided weekly, subject to a one-day
lag; (iii) accountants, attorneys and other professionals engaged by the Trust
to whom the Trust provides portfolio holdings information on a regular basis
with varying lag times after the date of the information, and (iv) Morningstar,
Inc., Lipper Inc., imoney.net, Thomson Financial, Standard and Poor's, and
Bloomberg L.P. pursuant to agreements under which each Fund's portfolio holdings
information is provided quarterly no later than 65 days after the end of the
previous quarter, and no earlier than the date such information is posted to the
Trust's website.
The release of all non-public information by the Trust is subject to
confidentiality requirements. With respect to persons providing services to the
Trust, information related to the Trust is required to be kept confidential
pursuant to the Trust's agreements with such service providers, including an
obligation not to trade on such information. The Trust's independent registered
public accounting firm and attorneys engaged by the Trust maintain the
confidentiality of such information pursuant to their respective professional
ethical obligations, which the Board of Trustees believes are sufficient to
preserve the confidentiality of such information. The Trust provides portfolio
holdings information to mutual fund rating agencies only after such information
is made public by posting on the Trust's website.
Neither the Trust nor any of its investment advisers, sub-advisers or any other
person may receive compensation in connection with the disclosure of information
about the Trust's portfolio securities. In the event of a conflict between the
interests of Fund shareholders and those of any of the Trust's investment
advisers, sub-advisers, distributor, or any affiliated person of the Trust or
any of its investment advisers, sub-advisers or distributor, the CCO will make a
determination in the best interests of the Funds' shareholders, and will report
such determination to the Board of Trustees at the next regular Board meeting.
The Board of Trustees oversees the disclosure of information about the Trust's
portfolio holdings principally by receiving oral and written reports from the
CCO and through interaction with the CCO at meetings of the Board of Trustees.
PROXY VOTING
The Board of Trustees has adopted policies and procedures with respect to voting
proxies relating to portfolio securities held by the Funds (the "Policy"),
pursuant to which the Board has delegated the responsibility for voting such
proxies to the Investment Manager as a part of the Investment Manager's general
management of the Funds, subject to the Board's continuing oversight. The
Investment Manager, in accordance with the Policy, has further delegated the
responsibility for voting proxies of the Small Cap Value Fund to RCB.
A conflict of interest may be deemed to occur when CNAM, Inc. or RCB or one of
their affiliated persons has a financial interest in a matter presented by a
proxy to be voted on behalf of a Fund, which may compromise CNAM, Inc.'s or
RCB's independence of judgment and action in judging the proxy. If such a
conflict occurs, CNAM, Inc. or RCB is required to submit a report to the Board
of Trustees indicating the nature of the conflict of interest and how it was
resolved.
Information on how the Funds voted proxies relating to portfolio securities
during the 12-month period ended June 30 is available (1) without charge, upon
request, by calling 1-888-889-0799, (2) on the
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Funds' website at www.cnicharterfunds.com, and (3) on the Securities and
Exchange Commission's website at http://www.sec.gov.
Certain information regarding the proxy voting policies of CNAM, Inc. and RCB is
summarized below.
CNAM, Inc.
CNAM, Inc. has hired Institutional Shareholder Services ("ISS"), a third-party
proxy voting service, to vote proxies on its behalf, and has adopted ISS' proxy
voting guidelines. CNAM, Inc. has instructed ISS to vote proxies on its behalf
in accordance with these guidelines and to vote (a) any issue or proposal
designated in the guidelines to be voted on a "case by case basis" and (b) any
issue or proposal not listed in the guidelines according to ISS' recommendation.
CNAM, Inc. reserves the right to withdraw any proxy item from ISS and to vote
the proxy item, if CNAM, Inc. determines that no material conflict of interest
exists. Such proxy item will be submitted to CNAM, Inc.'s Management Committee,
which will determine the vote for each of the proposals in a manner consistent
with the Funds' best interests. If CNAM, Inc. determines that a material
conflict of interest exists, the Management Committee will not vote and the
proxy item will be returned to ISS for voting in accordance with ISS'
guidelines.
ISS's general positions on various proposals are as follows:
1. ISS votes on director nominees on a case-by-case basis, examining factors
including independence of the board and its committees, attendance at board
meetings, corporate governance provisions and takeover activity, and long-term
company performance. ISS votes against proposals to classify the board, for
shareholder proposals that a majority or more of directors be independent unless
the board composition already meets ISS' threshold for independence, and for
shareholder proposals asking that audit, compensation and/or nominating
committees be composed exclusively of independent directors.
2. ISS votes against proposals to restrict or prohibit shareholder ability to
take action by written consent or to call special meetings, proposals to require
supermajority shareholder votes and proposals to eliminate cumulative voting.
ISS votes for shareholder proposals that ask a company to submit its poison pill
for shareholder ratification.
3. ISS votes with respect to compensation plans on a case-by-case basis, using
methodology based primarily on the transfer of shareholder wealth (the dollar
cost of pay plans to shareholders instead of simply focusing on voting power
dilution). ISS also votes with respect to the following issues on a case-by-case
basis: management proposals seeking approval to reprice options, votes on
employee stock purchase plans, and all other shareholder proposals regarding
executive and director pay.
4. ISS generally votes for proposals to ratify auditors, unless an auditor is
not independent, fees for non-audit services are excessive, or there is reason
to believe that the auditor has rendered an opinion which is neither accurate
nor indicative of the company's financial position.
RCB
RCB's Operations Department, in consultation with its Chief Investment Officer,
is ultimately responsible for ensuring that all proxies received by RCB are
voted in a timely manner. RCB considers each proxy issue individually and on a
case-by-case basis. It is RCB's policy to vote in
-73-
favor of those proposals which advance the sustainable economic value of the
companies, and thus of the shareholders whose securities it holds.
If a proxy proposal raises a material conflict of interest, RCB will disclose
the conflict to the Trust and obtain its consent to the proposed vote prior to
voting the securities.
RCB's general positions on various proposals are as follows:
1. RCB generally votes against issues that seek to entrench the board of
directors and management of a company through anti-takeover measures, staggered
board terms, super-majority requirements and poison pill provisions.
2. RCB is highly sensitive to any measures that potentially dilute shareholder
interests through new security issuance or excessive management compensation
through equity gifting.
3. RCB will not vote in favor of any "social" issues unless it deems that such
issues directly advance shareholder value.
4. RCB generally votes in favor of measures that provide shareholders with
greater abilities to nominate directors, hold directors and management
accountable for performance, and allow shareholders to directly vote on takeover
proposals by third parties.
GENERAL INFORMATION
The Trust was organized as a statutory trust under the laws of Delaware on
October 28, 1996 and may issue an unlimited number of shares of beneficial
interest or classes of shares in one or more separate series. The Trust is an
open-end management investment company registered under the 1940 Act. The Trust
currently offers shares of beneficial interest, $0.01 par value per share, in
various series. Each series offers two classes of shares (Class A and
Institutional Class), other than (a) the Money Funds, which also offer Class S
shares, and (b) the Small Cap Value Fund, which also offers Class R shares.
Currently, the Trust offers shares of sixteen series, including the eleven
series described in this SAI. Two additional series have been organized but have
not commenced operations. The Board may authorize the issuance of shares of
additional series or classes of shares of beneficial interest if it deems it
desirable.
The Trust is generally not required to hold shareholder meetings. However, as
provided in its Agreement and Declaration of Trust of the Trust (the
"Declaration") and the Bylaws of the Trust (the "Bylaws"), shareholder meetings
may be called by the Trustees for the purpose as may be prescribed by law, the
Declaration or the Bylaws, or for the purpose of taking action upon any other
matter deemed by the Trustees to be necessary or desirable including changing
fundamental policies, electing or removing Trustees, or approving or amending an
investment advisory agreement. In addition, a Trustee may be removed by
shareholders at a special meeting called upon written request of shareholders
owning in the aggregate at least 10% of the outstanding shares of the Trust.
Each Trustee serves until the next meeting of shareholders, if any, called for
the purpose of electing Trustees and until the election and qualification of his
or her successor or until death, resignation, declaration of bankruptcy or
incompetence by a court of competent jurisdiction, or removal by a majority vote
of the shares entitled to vote (as described below) or of a majority of the
Trustees. In accordance with the 1940 Act (1) the Trust will hold a shareholder
meeting for the election of Trustees when less than a majority of the Trustees
have been elected by shareholders, and (2) if, as a result of a
-74-
vacancy in the Board, less than two-thirds of the Trustees have been elected by
the shareholders, that vacancy will be filled by a vote of the shareholders.
The Declaration provides that one-third of the shares entitled to vote shall be
a quorum for the transaction of business at a shareholders' meeting, except when
a larger quorum is required by applicable law, by the Bylaws or by the
Declaration, and except that where any provision of law, of the Declaration, or
of the Bylaws permits or requires that (1) holders of any series shall vote as a
series, then a majority of the aggregate number of shares of that series
entitled to vote shall be necessary to constitute a quorum for the transaction
of business by that series; or (2) holders of any class shall vote as a class,
then a majority of the aggregate number of shares of that class entitled to vote
shall be necessary to constitute a quorum for the transaction of business by
that class. Any lesser number shall be sufficient for adjournments. Any
adjourned session or sessions may be held, within a reasonable time after the
date set for the original meeting, without the necessity of further notice. The
Agreement and Declaration of Trust specifically authorizes the Board to
terminate the Trust (or any of its investment portfolios) by notice to the
shareholders without shareholder approval.
For further information, please refer to the registration statement and exhibits
for the Trust on file with the SEC in Washington, D.C. and available upon
payment of a copying fee. The statements in the Prospectus and this Statement of
Additional Information concerning the contents of contracts or other documents,
copies of which are filed as exhibits to the registration statement, are
qualified by reference to such contracts or documents.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of January 5, 2007, the following shareholders are deemed to control the
indicated Funds by virtue of owning more than 25% of the outstanding shares of
such Funds. These control relationships will continue to exist until such time
as each of the above-described share ownership represents 25% or less of the
outstanding shares of the indicated Fund. Through the exercise of voting rights
with respect to shares of the Fund, the controlling persons set forth below may
be able to determine the outcome of shareholder voting on matters to which
approval of shareholders is required.
- -------------------------------------------------------------------------------------------------------
Fund Shareholder % of Fund
- -------------------------------------------------------------------------------------------------------
California Tax Exempt Money Market National Financial Services, LLC 64.50%
Fund Attn: Frank Bertola
200 Liberty Street, 5th Floor
New York, NY 10281-5500
- -------------------------------------------------------------------------------------------------------
Government Money Market Fund National Financial Services, LLC 58.00%
Attn: Frank Bertola
200 Liberty Street, 5th Floor
New York, NY 10281-5500
- -------------------------------------------------------------------------------------------------------
City National Bank 29.63%
Fiduciary for Various Accounts
Attn: Trust Ops/Mutual Funds
PO Box 60520
Los Angeles, CA 90060-0520
- -------------------------------------------------------------------------------------------------------
Government Bond Fund City National Bank 49.18%
Fiduciary for Various Accounts
Attn: Trust Ops/Mutual Funds
- -------------------------------------------------------------------------------------------------------
-75-
- -------------------------------------------------------------------------------------------------------
PO Box 60520
Los Angeles, CA 90060-0520
- -------------------------------------------------------------------------------------------------------
City National Bank 25.61%
Fiduciary for Various Accounts
Attn: Trust Ops/Mutual Funds
PO Box 60520
Los Angeles, CA 90060-0520
- -------------------------------------------------------------------------------------------------------
Corporate Bond Fund City National Bank 66.25%
Fiduciary for Various Accounts
Attn: Trust Ops/Mutual Funds
PO Box 60520
Los Angeles, CA 90060-0520
- -------------------------------------------------------------------------------------------------------
Large Cap Growth Equity Fund City National Bank 40.40%
Fiduciary for Various Accounts
Attn: Trust Ops/Mutual Funds
PO Box 60520
Los Angeles, CA 90060-0520
- -------------------------------------------------------------------------------------------------------
Large Cap Value Fund City National Bank 25.00%
Fiduciary for Various Accounts
Attn: Trust Ops/Mutual Funds
PO Box 60520
Los Angeles, CA 90060-0520
- -------------------------------------------------------------------------------------------------------
California Tax Exempt Bond Fund City National Bank 75.15%
Fiduciary for Various Accounts
Attn: Trust Ops/Mutual Funds
PO Box 60520
Los Angeles, CA 90060-0520
- -------------------------------------------------------------------------------------------------------
Prime Money Market Fund City National Bank 54.97%
Fiduciary for Various Accounts
Attn: Trust Ops/Mutual Funds
PO Box 60520
Los Angeles, CA 90060-0520
- -------------------------------------------------------------------------------------------------------
Technology Growth Fund City National Bank 31.41%
Fiduciary for Various Accounts
Attn: Trust Ops/Mutual Funds
PO Box 60520
Los Angeles, CA 90060-0520
- -------------------------------------------------------------------------------------------------------
NFS LLC FEBO 28.64%
Howard M. Brandes TTEE
Howard M Brandes Family Tr
U/A 6/26/84
10670 Wilkins Ave. #2
Los Angeles, CA 90024-5842
- -------------------------------------------------------------------------------------------------------
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As of January 5, 2007, the following shareholders held of record the following
numbers of shares of the following classes of each of the Funds.
- ------------------------------------------------------------------------------------------------------
Fund Shareholder % of Class
- ------------------------------------------------------------------------------------------------------
Prime Money Market Fund, National Financial Services, LLC 17.43%
Institutional Class Attn: Frank Bertola
200 Liberty Street, 5th Floor
New York, NY 10281-5500
- ------------------------------------------------------------------------------------------------------
Prime Money Market Fund, City National Bank 82.54%
Institutional Class Fiduciary for Various Accounts
Attn: Trust Ops/Mutual Funds
PO Box 60520
Los Angeles, CA 90060-0520
- ------------------------------------------------------------------------------------------------------
Government Money Market Fund, City National Bank 99.74%
Institutional Class Fiduciary for Various Accounts
Attn: Trust Ops/Mutual Funds
PO Box 60520
Los Angeles, CA 90060-0520
- ------------------------------------------------------------------------------------------------------
California Tax Exempt Money Market City National Bank 99.99%
Fund, Institutional Class Fiduciary for Various Accounts
Attn: Trust Ops/Mutual Funds
PO Box 60520
Los Angeles, CA 90060-0520
- ------------------------------------------------------------------------------------------------------
High Yield Bond Fund, Institutional City National Bank 14.03%
Class Fiduciary for Various Accounts
Attn: Trust Ops/Mutual Funds
PO Box 60520
Los Angeles, CA 90060-0520
- ------------------------------------------------------------------------------------------------------
High Yield Bond Fund, Institutional City National Bank 50.96%
Class Fiduciary for Various Accounts
Attn: Trust Ops/Mutual Funds
PO Box 60520
Los Angeles, CA 90060-0520
- ------------------------------------------------------------------------------------------------------
High Yield Bond Fund, Institutional City National Bank 23.14%
Class Fiduciary for Various Accounts
Attn: Trust Ops/Mutual Funds
PO Box 60520
Los Angeles, CA 90060-0520
- ------------------------------------------------------------------------------------------------------
High Yield Bond Fund, City National Bank 7.49%
Institutional Class PO Box 60520
Los Angeles, CA 90060-0520
- ------------------------------------------------------------------------------------------------------
California Tax Exempt Bond Fund, City National Bank 42.27%
Institutional Class Fiduciary for Various Accounts
Attn: Trust Ops/Mutual Funds
PO Box 60520
Los Angeles, CA 90060-0520
- ------------------------------------------------------------------------------------------------------
California Tax Exempt Bond Fund, City National Bank 21.86%
Institutional Class Fiduciary for Various Accounts
Attn: Trust Ops/Mutual Funds
-77-
- ------------------------------------------------------------------------------------------------------
PO Box 60520
Los Angeles, CA 90060-0520
- ------------------------------------------------------------------------------------------------------
California Tax Exempt Bond Fund, City National Bank 35.76%
Institutional Class Fiduciary for Various Accounts
Attn: Trust Ops/Mutual Funds
PO Box 60520
Los Angeles, CA 90060-0520
- ------------------------------------------------------------------------------------------------------
California Tax Exempt Bond Fund, City National Bank 21.86%
Institutional Class Fiduciary for Various Accounts
Attn: Trust Ops/Mutual Funds
P. O. Box 60520
Los Angeles, CA 90060-0520
- ------------------------------------------------------------------------------------------------------
Large Cap Value Equity Fund, City National Bank 28.58%
Institutional Class Fiduciary for Various Accounts
Attn: Trust Ops/Mutual Funds
PO Box 60520
Los Angeles, CA 90060-0520
- ------------------------------------------------------------------------------------------------------
Large Cap Value Equity Fund, City National Bank 11.09%
Institutional Class Fiduciary for Various Accounts
Attn: Trust Ops/Mutual Funds
PO Box 60520
Los Angeles, CA 90060-0520
- ------------------------------------------------------------------------------------------------------
Large Cap Value Equity Fund, City National Bank 6.06%
Institutional Class Fiduciary for Various Accounts
Attn: Trust Ops/Mutual Funds
PO Box 60520
Los Angeles, CA 90060-0520
- ------------------------------------------------------------------------------------------------------
Large Cap Value Equity City National Bank 18.55%
Fund, Institutional Class PO Box 60520
Los Angeles, CA 90060-0520
- ------------------------------------------------------------------------------------------------------
Large Cap Growth Equity Fund, City National Bank 52.17%
Institutional Class Fiduciary for Various Accounts
Attn: Trust Ops/Mutual Funds
PO Box 60520
Los Angeles, CA 90060-0520
- ------------------------------------------------------------------------------------------------------
Large Cap Growth Equity Fund, City National Bank 28.96%
Institutional Class Fiduciary for Various Accounts
Attn: Trust Ops/Mutual Funds
PO Box 60520
Los Angeles, CA 90060-0520
- ------------------------------------------------------------------------------------------------------
Large Cap Growth Equity Fund, City National Bank 14.15%
Institutional Class Fiduciary for Various Accounts
Attn: Trust Ops/Mutual Funds
PO Box 60520
Los Angeles, CA 90060-0520
- ------------------------------------------------------------------------------------------------------
Corporate Bond Fund, Institutional City National Bank 67.68%
Class Fiduciary for Various Accounts
Attn: Trust Ops/Mutual Funds
PO Box 60520
Los Angeles, CA 90060-0520
- ------------------------------------------------------------------------------------------------------
Corporate Bond Fund, Institutional City National Bank 17.46%
Class Fiduciary for Various Accounts
Attn: Trust Ops/Mutual Funds
PO Box 60520
Los Angeles, CA 90060-0520
- ------------------------------------------------------------------------------------------------------
-78-
- ------------------------------------------------------------------------------------------------------
Corporate Bond Fund, Institutional City National Bank 13.07%
Class Fiduciary for Various Accounts
Attn: Trust Ops/Mutual Funds
PO Box 60520
Los Angeles, CA 90060-0520
- ------------------------------------------------------------------------------------------------------
Government Bond Fund, Institutional City National Bank 51.37%
Class Fiduciary for Various Accounts
Attn: Trust Ops/Mutual Funds
PO Box 60520
Los Angeles, CA 90060-0520
- ------------------------------------------------------------------------------------------------------
Government Bond Fund, Institutional City National Bank 26.75%
Class Fiduciary for Various Accounts
Attn: Trust Ops/Mutual Funds
PO Box 60520
Los Angeles, CA 90060-0520
- ------------------------------------------------------------------------------------------------------
Government Bond Fund, Institutional City National Bank 18.61%
Class Fiduciary for Various Accounts
Attn: Trust Ops/Mutual Funds
PO Box 60520
Los Angeles, CA 90060-0520
- ------------------------------------------------------------------------------------------------------
Technology Growth Fund, City National Bank 65.90%
Institutional Class Fiduciary for Various Accounts
Attn: Trust Ops/Mutual Funds
PO Box 60520
Los Angeles, CA 90060-0520
- ------------------------------------------------------------------------------------------------------
Technology Growth Fund, City National Bank 32.10%
Institutional Class PO Box 60520
Los Angeles, CA 90060-0520
- ------------------------------------------------------------------------------------------------------
RCB Small Cap Value Fund, City National Bank 35.63%
Institutional Class Fiduciary for Various Accounts
Attn: Trust Ops/Mutual Funds
PO Box 60520
Los Angeles, CA 90060-0520
- ------------------------------------------------------------------------------------------------------
RCB Small Cap Value Fund, City National Bank 17.07%
Institutional Class Fiduciary for Various Accounts
Attn: Trust Ops/Mutual Funds
PO Box 60520
Los Angeles, CA 90060-0520
- ------------------------------------------------------------------------------------------------------
RCB Small Cap Value Fund, City National Bank 12.20%
Institutional Class Fiduciary for Various Accounts
Attn: Trust Ops/Mutual Funds
PO Box 60520
Los Angeles, CA 90060-0520
- ------------------------------------------------------------------------------------------------------
RCB Small Cap Value Fund, City National Bank 30.47%
Institutional Class PO Box 60520
Los Angeles, CA 90060-0520
- ------------------------------------------------------------------------------------------------------
High Yield Bond Fund, Class A NFS LLC FEBO 24.70%
The Angell Family Trust
Perry Oretzky TTEE
MM024
- ------------------------------------------------------------------------------------------------------
-79-
- ------------------------------------------------------------------------------------------------------
10880 W. Wilshire Blvd. #920
Los Angeles, CA 90024-4110
- ------------------------------------------------------------------------------------------------------
California Tax-Exempt Bond Fund, NFS LLC FEBO 8.35%
Class A Sarah Jane Anderson
18111 Von Karman Ave., Ste 1000
Irvine, CA 92612
- ------------------------------------------------------------------------------------------------------
California Tax-Exempt Bond Fund, NFS LLC FEBO 44.39%
Class A Sarah F. Manson
700 N Bonhill Rd
Los Angeles, CA 90049-2304
- ------------------------------------------------------------------------------------------------------
California Tax Exempt Bond Fund, NFS LLC FEBO 8.86%
Class A Markovic Tr
Nandor Markovic
U/A 01/01/89
336 S La Peer Dr
Beverly Hills, CA 90211-3502
- ------------------------------------------------------------------------------------------------------
California Tax Exempt NFS LLC FEBO 8.86%
Bond Fund, Class A Paul Mandel
Rhoda Mandel TTEE
Mandel Family Tr
620 N Palm Dr
Beverly Hills, CA 90210-3415
- ------------------------------------------------------------------------------------------------------
California Tax Exempt NFS LLC FEBO 12.69%
Bond Fund, Class A Toni Howard
MM012
8383 Wilshire Blvd. #500
Beverly Hills, CA 90211-2410
- ------------------------------------------------------------------------------------------------------
California Tax Exempt Bond Fund, NFS LLC FEBO 5.14%
Class A Debra L Barach
17726 Palora St
Encino, CA 91316-3710
- ------------------------------------------------------------------------------------------------------
Corporate Bond Fund, Class A NFS LLC FEBO 19.01%
Susan L Parker
27221 Westridge Ln
Laguna Hills, CA 92653-5889
- ------------------------------------------------------------------------------------------------------
Corporate Bond Fund, Class A NFS LLC FEBO 16.80%
Lucien J Meyers TTEE
Meyers Family Tr
U/A 3/24/93
524 Third St
Fillmore, CA 93015-1304
- ------------------------------------------------------------------------------------------------------
Corporate Bond Fund, Class A NFS LLC FEBO 9.21%
Ms Lisa Sandy Brown TTEE
Little Ziggy's Folly Inc.
c/o Barkin Perrin & Schwager
5855 Topanga Canyon Blvd. #410
Woodland Hills, CA 91367
- ------------------------------------------------------------------------------------------------------
Corporate Bond Fund, Class A NFS LLC FEBO 5.61%
Michael G Wood Revocable Trust
Michael G Wood
- ------------------------------------------------------------------------------------------------------
-80-
- ------------------------------------------------------------------------------------------------------
U/A 10/09/1998
2395 Peacock Valley Rd
Chula Vista, CA 91915-2183
- ------------------------------------------------------------------------------------------------------
Government Bond, NFS LLC FEBO 54.18%
Class A West Branch Regional Medical C
2463 SO M-30
West Branch, MI 48661
- ------------------------------------------------------------------------------------------------------
Government Bond, NFS LLC FEBO 5.90%
Class A Susan L. Parker
27221 Westridge Ln
Laguna Hills, CA 92653-5889
- ------------------------------------------------------------------------------------------------------
Government Bond, NFS LLC FEBO 5.52%
Class A NFS/FMTC SEP IRA
FBO Lynne S Hague
5009 Timberlake Terrace
Culver City, CA 90230-4333
- ------------------------------------------------------------------------------------------------------
Technology Growth Fund, Class A NFS LLC FEBO 54.00%
Howard M. Brandes TTEE
Howard M Brandes Family Tr
U/A 6/26/84
10670 Wilkins Ave. #2
Los Angeles, CA 90024-5842
- ------------------------------------------------------------------------------------------------------
Technology Growth Fund, Class A NFS LLC FEBO 5.22%
Art Linson TTEE
The Art Linson Production Inc
Ret Tr Psp
210 Palisades Ave
Santa Monica, CA 90402-2734
- ------------------------------------------------------------------------------------------------------
Prime Money Market Fund, Class A National Financial Services, LLC 35.24%
Attn: Frank Bertola
200 Liberty Street, 5th Floor
New York, NY 10281-5500
- ------------------------------------------------------------------------------------------------------
Prime Money Market Fund, Class A City National Bank 64.76%
Fiduciary for Various Accounts
Attn: Trust Ops/Mutual Funds
PO Box 60520
Los Angeles, CA 90060-0520
- ------------------------------------------------------------------------------------------------------
Government Money Market Fund, Class National Financial Services, LLC 66.19%
A Attn: Frank Bertola
200 Liberty Street, 5th Floor
New York, NY 10281-5500
- ------------------------------------------------------------------------------------------------------
Government Money Market Fund, Class City National Bank 35.24%
A Fiduciary for Various Accounts
Attn: Trust Ops/Mutual Funds
PO Box 60520
Los Angeles, CA 90060-0520
- ------------------------------------------------------------------------------------------------------
California Tax Exempt Money Market National Financial Services, LLC 81.46%
Fund, Class A Attn: Frank Bertola
200 Liberty Street, 5th Floor
New York, NY 10281-5500
- ------------------------------------------------------------------------------------------------------
-81-
- ------------------------------------------------------------------------------------------------------
California Tax Exempt Money Market City National Bank 18.54%
Fund, Class A Fiduciary for Various Accounts
Attn: Trust Ops/Mutual Funds
PO Box 60520
Los Angeles, CA 90060-0520
- ------------------------------------------------------------------------------------------------------
Small Cap Value Fund, Class A NFS LLC FEBO 6.90%
Robert D. Beyer TTEE
Beyer Chdrns TR Partshp
U/A 8/30/96
P.O. Box 49975
Los Angeles, CA 90049
- ------------------------------------------------------------------------------------------------------
Prime Money Market Fund, Class S City National Bank 100%
Fiduciary for Various Accounts
Attn: Trust Ops/Mutual Funds
PO Box 60520
Los Angeles, CA 90060-0520
- ------------------------------------------------------------------------------------------------------
Government Money Market Fund, Class City National Bank 100%
S Fiduciary for Various Accounts
Attn: Trust Ops/Mutual Funds
PO Box 60520
Los Angeles, CA 90060-0520
- ------------------------------------------------------------------------------------------------------
California Tax Exempt Money Market City National Bank 100%
Fund, Class S Fiduciary for Various Accounts
Attn: Trust Ops/Mutual Funds
PO Box 60520
Los Angeles, CA 90060-0520
- ------------------------------------------------------------------------------------------------------
As of January 23, 2007, the Trustees and officers of the Trust owned of record ,
in aggregate, less than 1% of the outstanding shares of each Fund.
PERFORMANCE INFORMATION
As noted in the Prospectuses, the Funds may, from time to time, quote various
performance figures in advertisements and other communications to illustrate
their past performance. Performance figures will be calculated separately for
different classes of shares.
YIELD
The Funds' 30-day yields are calculated according to a formula prescribed by the
SEC, expressed as follows:
YIELD = 2[(1+[a-b]/cd)(6) - 1]
Where: a = dividends and interest earned during
the period.
b = expenses accrued for the period (net
of reimbursement).
c = the average daily number of shares
outstanding during the period that
were entitled to receive dividends.
-82-
d = the maximum offering price per share
on the last day of the period.
For the purpose of determining the interest earned (variable "a" in the formula)
on debt obligations that were purchased by these Funds at a discount or premium,
the formula generally calls for amortization of the discount or premium; the
amortization schedule will be adjusted monthly to reflect changes in the market
values of the debt obligations.
Current yield reflects the interest income per share earned by the Money Funds'
investments. Current yield is computed by determining the net change, excluding
capital changes, in the value of a hypothetical pre-existing account having a
balance of one share at the beginning of a seven-day period, subtracting a
hypothetical charge reflecting deductions from shareholder accounts, and
dividing the difference by the value of the account at the beginning of the base
period to obtain the base period return, and then annualizing the result by
multiplying the base period return by (365/7).
Effective yield is computed in the same manner except that the annualization of
the return for the seven-day period reflects the results of compounding 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. This figure is obtained using
the Securities and Exchange Commission formula:
Effective Yield = [(Base Period Return + 1)(365/7)] - 1
Investors should recognize that, in periods of declining interest rates, the
Funds' yields will tend to be somewhat higher than prevailing market rates and,
in periods of rising interest rates, will tend to be somewhat lower. In
addition, when interest rates are falling, monies received by the Funds from the
continuous sale of their shares will likely be invested in instruments producing
lower yields than the balance of their portfolio of securities, thereby reducing
the current yield of the Funds. In periods of rising interest rates, the
opposite result can be expected to occur.
A tax equivalent yield demonstrates the taxable yield necessary to produce an
after-tax yield equivalent to that of a fund that invests in tax-exempt
obligations. The tax equivalent yield for the California Bond Fund and
California Money Fund is computed by dividing that portion of the current yield
(or effective yield) of the Fund (computed for the Funds as indicated above)
that is tax-exempt by one minus a stated income tax rate and adding the quotient
to that portion (if any) of the yield of the Fund that is not tax-exempt.
Assuming a California tax rate of 9.3% and a federal tax rate of 35% the
effective tax rate based on the combination of the state and federal rates is
41.05%. The effective rate used in determining such yield does not reflect the
tax costs resulting from the loss of the benefit of personal exemptions and
itemized deductions that may result from the receipt of additional taxable
income by taxpayers with adjusted gross incomes exceeding certain levels. The
tax equivalent yield may be higher than the rate stated for taxpayers subject to
the loss of these benefits.
Each Fund's performance will vary from time to time depending upon market
conditions, the composition of its portfolio and its operating expenses.
Consequently, any given performance quotation should not be considered
representative of that Fund's performance for any specified period in the
future. In addition, because performance will fluctuate, it may not provide a
basis for comparing an investment in that Fund with certain bank deposits or
other investments that pay a fixed yield for a stated period of time. Investors
comparing that Fund's performance with that of other investment companies should
give consideration to the quality and maturity of the respective investment
companies' portfolio securities.
-83-
AVERAGE ANNUAL TOTAL RETURN
Total return may be stated for any relevant period as specified in the
advertisement or communication. Any statements of total return for a Fund will
be accompanied by information on that Fund's average annual compounded rate of
return over the most recent four calendar quarters and the period from that
Fund's inception of operations. The Funds may also advertise aggregate and
average total return information over different periods of time. A Fund's
"average annual total return" figures are computed according to a formula
prescribed by the SEC expressed as follows:
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 of a
hypothetical $1,000 investment made
at the beginning of a l-, 5- or
10-year period at the end of a l-,
5- or 10-year period (or fractional
portion thereof), assuming
reinvestment of all dividends and
distributions and complete
redemption of the hypothetical
investment at the end of the
measuring period.
AVERAGE ANNUAL TOTAL RETURN AFTER TAXES ON DISTRIBUTIONS
Quotations of average annual total return after taxes on distributions will be
expressed in terms of the average annual total return (after taxes on
distributions) by finding the average annual compounded rates of return of a
hypothetical investment in a Fund over different periods of time and since that
Fund's inception of operations. A Fund's "average annual total return after
taxes on distributions" figures are computed according to a formula prescribed
by the SEC expressed as follows:
P(1 + T)(n) = ATV(D)
Where: P = a hypothetical initial payment of
$1,000.
T = average annual total return (after
taxes on distributions).
n = number of years.
ATV(D) = ending value of a hypothetical
$1,000 investment made at the
beginning of a l-, 5- or 10-year
period at the end of a l-, 5- or
10-year period (or fractional
portion thereof), after taxes on
Fund distributions but not after
taxes on redemption, assuming
reinvestment of all dividends and
distributions and complete
redemption of the hypothetical
investment at the end of the
measuring period.
-84-
AVERAGE ANNUAL TOTAL RETURN AFTER TAXES ON DISTRIBUTIONS AND REDEMPTION
Quotations of average annual total return after taxes on distributions and
redemption will be expressed in terms of the average annual total return (after
taxes on distributions and redemption) by finding the average annual compounded
rates of return of a hypothetical investment in a Fund over different periods of
time and since that Fund's inception of operations. A Fund's "average annual
total return after taxes on distributions and redemption" figures are computed
according to a formula prescribed by the SEC expressed as follows:
P(1 + T)(n) = ATV(DR)
Where: P = a hypothetical initial payment of
$1,000.
T = average annual total return (after
taxes on distributions and
redemption).
n = number of years.
ATVDR = ending value of a hypothetical
$1,000 investment made at the
beginning of a l-, 5- or 10-year
period at the end of a l-, 5- or
10-year period (or fractional
portion thereof), after taxes on
Fund distributions and redemption,
assuming reinvestment of all
dividends and distributions and
complete redemption of the
hypothetical investment at the end
of the measuring period.
PURCHASE AND REDEMPTION OF SHARES
Shares of the Equity and Bond Funds may be purchased and redeemed on days when
the New York Stock Exchange (the "NYSE") is open for business. Currently, the
weekdays that the NYSE recognizes as holidays and is closed are: New Year's Day,
Martin Luther King, Jr. Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Shares of the
Money Funds may be purchased and redeemed on days when the NYSE and the Federal
Reserve Bank of New York (the "Federal Reserve") are open for business. The
Funds reserve the right to open for business on days that the NYSE is closed but
the Federal Reserve is open. Purchases and redemptions will be made in full and
fractional shares.
The Funds do not generally accept investments by non-U.S. persons. Non-U.S.
persons may be permitted to invest in the Funds (other than the Small Cap Value
Fund) subject to the satisfaction of enhanced due diligence. The Small Cap Value
Fund does not accept investments by non-U.S. persons.
To help the government fight the funding of terrorism and money laundering
activities, Federal law requires all financial institutions to obtain, verify,
and record information that identifies each person who opens an account.
When you open an account, the broker-dealer or other financial institution
responsible for maintaining your account (your "Authorized Institution") will
ask you for certain information, which includes your name, address, date of
birth, and other information that will allow us to identify you. This
information
-85-
is subject to verification to ensure the identity of all persons opening a
mutual fund account. Please contact your Authorized Institution for more
information.
The Funds are required by law to reject your investment if the required
identifying information is not provided. In certain instances, the Authorized
Institution is required to collect documents on behalf of the Funds to fulfill
their legal obligation. Documents provided in connection with your application
will be used solely to establish and verify a customer's identity. Attempts to
collect missing information required on the application will be performed by
contacting you. If this information is unable to be obtained within a timeframe
established in the sole discretion of the Funds, your application will be
rejected.
Customer identification and verification is part of the Funds' overall
obligation to deter money laundering under Federal law. The Funds have adopted
an Anti-Money Laundering Compliance Program designed to prevent the Funds from
being used for money laundering or the financing of terrorist activities. In
this regard, the Funds reserve the right to (i) refuse, cancel or rescind any
purchase or exchange order, (ii) freeze any account and/or suspend account
services or (iii) involuntarily close your account in cases of threatening
conduct or suspected fraudulent or illegal activity. These actions will be taken
when, in the sole discretion of Fund management, they are deemed to be in the
best interest of the Funds or in cases when the Funds are requested or compelled
to do so by governmental or law enforcement authority. If your account is closed
at the request of governmental or law enforcement authority, you may not receive
proceeds of the redemption if the Funds are required to withhold such proceeds.
The Funds will accept investments in cash only in U.S. dollars. The Trust
reserves the right, if conditions exist which make cash payments undesirable, to
honor any request for redemption or repurchase order in-kind by making payment
in readily marketable securities chosen by the Funds and valued as they are for
purposes of computing the Funds' net asset values. However, the Trust has
elected to commit itself to pay in cash all requests for redemption by any
Shareholder of record, limited in amount with respect to each Shareholder during
any 90-day period to the lesser of: (1) $250,000, or (2) one percent of the net
asset value of the Funds at the beginning of such period. If payment is made in
securities, a shareholder may incur transaction expenses in converting these
securities into cash. To minimize administrative costs, share certificates will
not be issued. Records of share ownership are maintained by the Transfer Agent.
The Funds may be required to withhold federal income tax at a rate of 30%
(backup withholding) from dividend payments, distributions, and redemption
proceeds if a shareholder fails to furnish the Funds with his/her certified
social security or tax identification number. The shareholder also must certify
that the number is correct and that he/she is not subject to backup withholding.
The certification is included as part of the share purchase application form. If
the shareholder does not have a social security number, he/she should indicate
on the purchase form that an application to obtain the number is pending. The
Funds are required to withhold taxes if a number is not delivered within seven
days.
The Trust reserves the right in its sole discretion to (i) suspend the continued
offering of the Funds' shares, and (ii) reject purchase orders in whole or in
part when in the judgment of the Investment Manager or the Distributor such
suspension or rejection is in the best interest of a Fund.
Payments to shareholders for shares of a Fund redeemed directly from that Fund
will be made as promptly as possible but no later than three days after receipt
by the Transfer Agent of the written request in proper form, with the
appropriate documentation as stated in the Prospectus, except that a Fund may
suspend the right of redemption or postpone the date of payment during any
period when (i) trading on the NYSE is restricted as determined by the SEC or
the NYSE is closed for other than
-86-
weekends and holidays; (ii) an emergency exists as determined by the SEC (upon
application by a Fund pursuant to Section 22(e) of the 1940 Act) making disposal
of portfolio securities or valuation of net assets of a Fund not reasonably
practicable; or (iii) for such other period as the SEC may permit for the
protection of the Fund's shareholders.
OTHER INFORMATION
The Prospectuses of the Funds and this SAI do not contain all the information
included in the Trust's registration statement filed with the SEC under the 1933
Act with respect to the securities offered by the Prospectus. Certain portions
of the registration statement have been omitted from the Prospectuses and this
SAI pursuant to the rules and regulations of the SEC. The registration
statement, including the exhibits filed therewith, may be examined at the office
of the SEC in Washington, D.C. Copies of the registration statements may be
obtained from the SEC upon payment of the prescribed fee.
Statements contained in the Prospectuses or in this SAI as to the contents of
any contract or other document referred to are not necessarily complete, and, in
each instance, reference is made to the copy of such contract or other document
filed as an exhibit to the registration statement of which the Prospectuses and
this SAI form a part, each such statement being qualified in all respects by
such reference.
FINANCIAL STATEMENTS
In 2000, the Board of Trustees approved a change in the Trust's fiscal year-end
from October 31, to September 30. Audited financial statements for the Funds
contained in the Annual Reports to Shareholders of the Funds for the fiscal year
ending September 30, 2006, are available on request and are incorporated herein
by reference.
Audited financial statements for the RCB Predecessor Fund contained in the
Annual Report to Shareholders of the RCB Predecessor Fund for the fiscal periods
ending September 30, 2001 and June 30, 2001, are available on request and are
incorporated herein by reference.
-87-
APPENDIX A - RATINGS OF INVESTMENT SECURITIES
Description ratings for Standard & Poor's Ratings Group ("S&P"); Moody's
Investors Service, Inc., ("Moody's") and Fitch IBCA, Duff & Phelps Inc.
("Fitch").
Standard & Poor's Rating Group
- ------------------------------
Bond Ratings
AAA Bonds rated AAA have the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely
strong.
AA Bonds rated AA have a very strong capacity to pay interest and
repay principal and differ from the highest rated issues only
in small degree.
A Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than obligations in higher-rated categories.
BBB Bonds rated BBB are regarded as having an adequate capacity to
pay interest and repay principal. Whereas they normally
exhibit adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated
categories.
BB Bonds rated BB have less near-term vulnerability to default
than other speculative grade debt. However, they face major
ongoing uncertainties or exposure to adverse business,
financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal
payments.
B Bonds rated B have a greater vulnerability to default but
presently have the capacity to meet interest payments and
principal repayments. Adverse business, financial or economic
conditions would likely impair capacity or willingness to pay
interest and repay principal.
CCC Bonds rated CCC have a current identifiable vulnerability to
default and are dependent upon favorable business, financial
and economic conditions to meet timely payments of interest
and repayment of principal. In the event of adverse business,
financial or economic conditions, they are not likely to have
the capacity to pay interest and repay principal.
CC The rating CC is typically applied to debt subordinated to
senior debt which is assigned an actual or implied CCC rating.
C The rating C is typically applied to debt subordinated to
senior debt which is assigned an actual or implied CCC- debt
rating.
D Bonds rated D are in default, and payment of interest and/or
repayment of principal is in arrears.
A-1
S&P's letter ratings may be modified by the addition of a plus (+) or a
minus (-) sign designation, which is used to show relative standing
within the major rating categories, except in the AAA (Prime Grade)
category.
Commercial Paper Ratings
An S&P commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no
more than 367 days. Issues assigned an A rating are regarded as having
the greatest capacity for timely payment. Issues in this category are
delineated with the numbers 1, 2 and 3 to indicate the relative degree
of safety.
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 are denoted with a plus (+) 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.
A-3 Issues carrying this designation have a satisfactory capacity
for timely payment. They are, however, somewhat more
vulnerable to the adverse effects of changes in circumstances
than obligations carrying the higher designations.
B Issues carrying this designation are regarded as having only
speculative capacity for timely payment.
C This designation is assigned to short-term obligations with
doubtful capacity for payment.
D Issues carrying this designation are in default, and payment
of interest and/or repayment of principal is in arrears.
Moody's Investors Service, Inc.
- -------------------------------
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
generally are 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
generally are known as high-grade bonds. They are rated lower
than the best bonds because margins of protection may not be
as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear
somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal
A-2
and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime
in the future.
Baa Bonds which are rated Baa are considered as medium-grade
obligations, i.e., they are neither highly protected nor
poorly secured. Interest payments and principal security
appear adequate for the present but certain protective
elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and, in fact, have
speculative characteristics as well.
Ba Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured.
Often the protection of interest and principal payments may be
very moderate and, therefore, not well safeguarded during both
good and bad times in the future. Uncertainty of position
characterizes bonds in this class.
B Bonds which are rated B generally lack the characteristics of
a desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over
any long period of time may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues
may be in default or there may be present elements of danger
with respect to principal or interest.
Ca Bonds which are rated Ca present obligations which are
speculative in a high degree. Such issues are often in default
or have other marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds,
and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
Moody's applies the numerical modifiers 1, 2 and 3 to show relative
standing within the major rating categories, except in the Aaa category
and in the categories below B. The modifier 1 indicates a ranking for
the security in the higher end of a rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates a ranking
in the lower end of a rating category.
Commercial Paper Ratings
The rating Prime-1 (P-1) is the highest commercial paper rating
assigned by Moody's. Issuers of P-1 paper must have a superior capacity
for repayment of short-term promissory obligations, and ordinarily will
be evidenced by 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 and high internal cash generation, and well established access
to a range of financial markets and assured sources of alternate
liquidity.
Issuers (or related supporting institutions) rated Prime-2 (P-2) have a
strong capacity for repayment of short-term promissory obligations.
This ordinarily will 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.
A-3
Issuers (or related supporting institutions) rated Prime-3 (P-3) have
an acceptable capacity for repayment of short-term promissory
obligations. The effect of industry characteristics and market
composition may be more pronounced. Variability in earnings and
profitability may result in changes in the level of debt protection
measurements and the requirements for relatively high financial
leverage. Adequate alternate liquidity is maintained.
Issuers (or related supporting institutions) rated Not Prime do not
fall within any of the Prime rating categories.
Fitch IBCA, Duff and Phelps, Inc.
- ---------------------------------
Bond Ratings
The ratings represent Fitch's assessment of the issuer's ability to
meet the obligations of a specific debt issue or class of debt. The
ratings take into consideration special features of the issue, its
relationship to other obligations of the issuer, the current financial
condition and operative performance of the issuer and of any guarantor,
as well as the political and economic environment that might affect the
issuer's future financial strength and credit quality.
AAA Bonds rated AAA are considered to be investment grade and of
the highest credit quality. The obligor has an exceptionally
strong ability to pay interest and repay principal, which is
unlikely to be affected by reasonably foreseeable events.
AA Bonds rated AA are considered to be investment grade and of
very high credit quality. The obligor's ability to pay
interest and repay principal is very strong, although not
quite as strong as bonds rated AAA. Because bonds rated in the
AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these
issuers is generally rated F-1+.
A Bonds rated A are considered to be investment grade and of
high credit quality. The obligor's ability to pay interest and
repay principal is considered to be strong, but may be more
vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB Bonds rated BBB are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay
interest and repay principal is considered to be adequate.
Adverse changes in economic conditions and circumstances,
however, are more likely to have an adverse impact on these
bonds and, therefore, impair timely payment. The likelihood
that the ratings of these bonds will fall below investment
grade is higher than for bonds with higher ratings.
BB Bonds rated BB are considered speculative. The obligor's
ability to pay interest and repay principal may be affected
over time by adverse economic changes. However, business and
financial alternatives can be identified which could assist
the obligor in satisfying its debt service requirements.
B Bonds rated B are considered highly speculative. While bonds
in this class are currently meeting debt service requirements,
the probability of continued timely payment of principal and
interest reflects the obligor's limited margin of safety and
the need for reasonable business and economic activity
throughout the life of the issue.
A-4
CCC Bonds rated CCC have certain identifiable characteristics,
which, if not remedied, may lead to default. The ability to
meet obligations requires an advantageous business and
economic environment.
CC Bonds rated CC are minimally protected. Default in payment of
interest and/or principal seems probable over time.
C Bonds rated C are in imminent default in payment of interest
or principal.
DDD, DD and D Bonds rated DDD, DD and D are in actual default of
interest and/or principal payments. Such bonds are extremely
speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of
the obligor. DDD represents the highest potential for recovery
on these bonds and D represents the lowest potential for
recovery.
Plus (+) and minus (-) signs are used with a rating symbol to indicate
the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the AAA category covering 12-36
months.
Short-Term Ratings
Fitch's short-term ratings apply to debt obligations that are payable
on demand or have original maturities of up to three years, including
commercial paper, certificates of deposit, medium-term notes, and
municipal and investment notes.
Although the credit analysis is similar to Fitch's bond rating
analysis, the short-term rating places greater emphasis than bond
ratings on the existence of liquidity necessary to meet the issuer's
obligations in a timely manner.
F-1+ Exceptionally strong credit quality. Issues assigned this
rating are regarded as having the strongest degree of
assurance for timely payment.
F-1 Very strong credit quality. Issues assigned this rating
reflect an assurance of timely payment only slightly less in
degree than issues rated F-1+.
F-2 Good credit quality. Issues carrying this rating have a
satisfactory degree of assurance for timely payments, but the
margin of safety is not as great as the F-l+ and F-1
categories.
F-3 Fair credit quality. Issues assigned this rating have
characteristics suggesting that the degree of assurance for
timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment
grade.
F-S Weak credit quality. Issues assigned this rating have
characteristics suggesting a minimal degree of assurance for
timely payment and are vulnerable to near-term adverse changes
in financial and economic conditions.
D Default. Issues assigned this rating are in actual or imminent
payment default.
A-5
Exhibit M
CNI Charter Funds 2006 Annual Report
September 30, 2006
This report and the financial statements contained herein are provided for the
general information of the shareholders of the CNI Charter Funds. This report is
not authorized for distribution to prospective investors in the CNI Charter
Funds unless preceded or accompanied by an effective prospectus. Please remember
that past performance is no guarantee of future results.
Shares of CNI Charter Funds are not deposits or obligations of any bank, are not
guaranteed by any bank, are not insured by the FDIC or any other agency and
involve investment risks, including the possible loss of the principal amount
invested.
TABLE OF CONTENTS
CNI Charter Funds Annual Report
2 Letter to Our Shareholders
4 Equity Funds Investment Adviser's Report
6 Equity Funds Overview
10 Fixed Income Funds Investment Adviser's Report
12 Fixed Income Funds Overview
16 Money Market Funds Investment Adviser's Report
17 Schedules of Investments
58 Statements of Assets & Liabilities
61 Statements of Operations
64 Statements of Changes in Net Assets
68 Financial Highlights
71 Notes to Financial Statements
78 Report of Independent Registered Public Accounting Firm
79 Board Members and Officers
82 Notice to Shareholders
83 Disclosure of Fund Expenses
85 Approval of Investment Advisory Agreements
================================================================================
The Funds file their complete schedule of portfolio holdings with the Securities
and Exchange Commission for the first and third quarters of each fiscal year on
Form N-Q within sixty days after the end of the period. The Funds' Form N-Q is
available on the Commission's website at http://www.sec.gov, and may be reviewed
and copied at the Commission's Public Reference Room in Washington, DC.
Information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330. The most current Form N-Q is also available on the
Fund's website at www.cnicharterfunds.com and without charge, upon request, by
calling 1-888-889-0799.
A description of the policies and procedures that the Funds use to determine how
to vote proxies relating to the Funds' portfolio securities, and information on
how the Funds voted proxies relating to portfolio securities during the most
recent 12-month period ending June 30 is available (1) without charge, upon
request, by calling 1-888-889-0799, (2) on the Funds' website at
www.cnicharterfunds.com, and (3) on the Securities and Exchange Commission's
website at www.sec.gov.
CNI CHARTER FUNDS | PAGE 1
letter to our shareholders
SEPTEMBER 30, 2006
- --------------------------------------------------------------------------------
This annual report covers the CNI Charter Funds for the fiscal year ended
September 30, 2006. On the following pages, you will find the specific details
of each Fund's portfolio and investment performance.
Our unique philosophy and disciplined approach to capital market investment
continued to show well over the last twelve months. Relatively healthy economic
growth and strong corporate earnings, combined with steady and rising inflation
during most of this period produced strong returns to financial assets as well
as many alternative asset classes, including real estate, commodities, and other
real assets. Equity markets continued to surprise on the upside despite growing
evidence of a maturing economic recovery and, more recently, an imminent
slowdown in economic growth. Fixed income securities generally produced sub-par,
single-digit returns as the Federal Reserve ended its monetary tightening
program after 17 consecutive rate increases, leaving the Treasury yield curve
inverted. By adhering strictly to our fundamental investment strategies we were
able to produce highly competitive results in all asset categories within the
CNI Charter Funds family.
City National Asset Management, Inc.'s underlying investment philosophy is to
pursue the long-term goals and objectives specified for each of the Funds. With
an active yet disciplined style, all Funds are managed to achieve competitive
rates of return consistent with their respective, prescribed risk parameters.
CNI Charter Funds follow a disciplined investment process that begins with a
thorough assessment of the macroeconomic environment and the financial markets.
Our broad based research process takes advantage of the most advanced investment
technology, fundamental valuation, and quantitative tools to determine the most
attractive sectors and securities within each Fund's area of concentration. The
final step is to construct and continuously monitor precise portfolios that meet
the objectives of the specific Funds, without being swayed by short-term trends
and fads. This approach continued to serve shareholders well during the maturing
phase of this economic cycle encountered in the period ended September 30, 2006.
TWELVE-MONTH MARKET WATCH:
OCTOBER 2005 - SEPTEMBER 2006
Domestic economic growth remained above historical norms for the most part
during the past twelve months, although clear, market-related signs of an
imminent slowdown were beginning to emerge towards the end of this period.
Stronger than expected corporate earnings growth combined with rising short-term
interest rates were the primary factors driving the stock and bond markets over
the last twelve months. International equities, in particular, showed very
attractive returns in U.S. Dollar terms, given the relative weakness in the
Dollar during this time.
- --------------------------------------------------------------------------------
Twelve-Month October, 2005 -
Index Watch: September, 2006
EQUITIES
S&P 500 Stock Index: ............................................. +10.8%
Russell 2000 Value Index: ........................................ +14.0%
MSCI EAFE Index: ................................................. +19.2%
BONDS
Lehman Brothers Gov't/Credit
Bond Index: ................................................... + 3.3%
Lehman Brothers Aggregate
Bond Index: ................................................... + 3.7%
Lehman Brothers CA
Intermediate Muni Index: ...................................... + 3.7%
- --------------------------------------------------------------------------------
CNI CHARTER FUNDS | PAGE 2
- --------------------------------------------------------------------------------
CNI CHARTER FUND PERFORMANCE AND HIGHLIGHTS
(ALL RETURNS LISTED REFER TO INSTITUTIONAL CLASS SHARES)
By adhering to our basic investment discipline and maintaining the appropriate
amount of risk control in the various portfolios, the Funds continued to provide
returns that are competitive in their respective investment arenas.
All four of our equity-oriented funds produced gains over the past twelve
months, in keeping with the broader market trends. The LARGE CAP VALUE EQUITY
FUND led the pack with a 14.5% return. The TECHNOLOGY GROWTH FUND rose 6.8%,
followed closely by the LARGE CAP GROWTH EQUITY FUND, which gained 4.6%. The RCB
SMALL CAP VALUE EQUITY FUND eked out a 0.4% return for the same period.
All four CNI Charter Bond Funds also produced solid gains for the period. Once
again, the HIGH YIELD BOND FUND led the way with a 6.9% total return. The
CALIFORNIA TAX-EXEMPT BOND FUND rose 3.2%, while the CORPORATE BOND FUND
returned 3.2% and the GOVERNMENT BOND FUND gained 2.9%.
Lastly, all three of the CNI Charter Money Market Funds produced steady,
consistent, and competitive returns. These returns were in line with their
respective investment mandates.
Please read the following pages carefully as they contain important information
on the assets and financial condition of the Funds. If you have any questions
about this report or the CNI Charter Funds, please call your investment
professional or (888) 889-0799.
Thank you for choosing the CNI Charter Funds.
Sincerely,
/s/ Richard A. Weiss
Richard A. Weiss
PRESIDENT
CITY NATIONAL ASSET MANAGEMENT, INC.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. CERTAIN SHAREHOLDERS MAY BE
SUBJECT TO THE ALTERNATIVE MINIMUM TAX (AMT). FEDERAL INCOME TAX RULES APPLY TO
ANY CAPITAL GAIN DISTRIBUTIONS.
FUND EXPENSES HAVE BEEN WAIVED DURING THE PERIOD ON WHICH THE PERFORMANCE IS
BASED. WITHOUT WAIVERS, PERFORMANCE WOULD BE LOWER.
THIS INFORMATION MUST BE PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS. PLEASE
READ THE PROSPECTUS CAREFULLY BEFORE INVESTING.
INVESTING IN MUTUAL FUNDS INVOLVES RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
IN ADDITIONAL TO THE NORMAL RISKS ASSOCIATED WITH INVESTING, INVESTMENTS IN
SMALLER COMPANIES TYPICALLY EXHIBIT HIGHER VOLATILITY, AND PRODUCTS OF COMPANIES
IN WHICH TECHNOLOGY FUNDS INVEST MAY BE SUBJECT TO SEVERE COMPETITION AND RAPID
OBSOLESCENCE. AN INVESTMENT IN THE FUNDS IS NOT INSURED OR GUARANTEED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
- --------------------------------------------------------------------------------
*NOT FDIC INSURED *NO BANK GUARANTEE *MAY LOSE VALUE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AHA Investment Funds, a series of the CNI Charter Funds
- --------------------------------------------------------------------------------
Endorsed by the American Hospital Association, the five AHA Investment Funds
encourage healthy behavior by having guidelines that prohibit investment in any
tobacco-related securities.
The five AHA Funds in the CNI Charter Fund family are:
o AHA Limited Maturity Fixed Income Fund
o AHA Full Maturity Fixed Income Fund
o AHA Balanced Fund
o AHA Diversified Equity Fund
o AHA Socially Responsible Equity Fund
These Funds together with the other eleven CNI Charter Funds provide an
unwavering commitment to client satisfaction and quality investments that help
successful individuals, families and businesses achieve their financial goals.
For more information about the CNI Charter Funds (including the AHA Investment
Funds) visit www.cnicharterfunds.com.
CNI CHARTER FUNDS | PAGE 3
investment adviser's report
SEPTEMBER 30, 2006
- --------------------------------------------------------------------------------
EQUITY FUNDS
For the fiscal year ending September 30, 2006, the U.S. equity market, as
measured by the S&P 500, returned 10.8%. The majority of the asset appreciation
came in the first eight months of the fiscal year, as returns pushed higher into
early May 2006. Corporate earnings remained the catalyst as growth rates,
although lower than the previous year, continued to come in above expectations.
Inflation fears, though, took a toll on the market in the middle of May 2006, as
commodity prices continued to rise. The market sold off about 5% from its May
highs, reaching its lows in mid June. Federal Reserve Bank ("Fed") Chairman
Bernanke's talk in mid July started the recent market upturn on comments
regarding the possible end to rising short-term interest rates. After raising
the short-term rate to 5.25% in June, the Fed has kept rates stable in the two
most recent Fed meetings. In addition to the Fed possibly ending its tightening
policy, declines in commodity prices also provided a positive effect to stock
prices. By the end of September, stock prices had surpassed their 12 month
highs, with the Dow Jones Industrial Average surpassing its all time high.
EQUITY FUND PERFORMANCE
(ALL RETURNS LISTED FOR CNI CHARTER FUNDS REFER TO INSTITUTIONAL CLASS SHARES
o The LARGE CAP VALUE EQUITY FUND returned 14.5% during the twelve
months ending September 30, 2006. The S&P 500/Citigroup Value Index
returned 15.4% and the Lipper Large-Cap Value Funds Classification
returned 12.0% over the same time period. The telecommunications
sector produced the top returns with companies like BellSouth
producing a 69.0% return. The announced merger with AT&T (still
pending) is expected to bring about improved efficiencies, cost
reductions, and higher earnings. In the financial sector, Goldman
Sachs gained 40.3% as earnings beat analysts' expectations on higher
investment-banking fees. Ryder System, a leader in transportation and
supply chain management, returned a positive 53.3%, as growth in its
leasing unit continued to push earnings above expectations. Stocks
that hurt performance included Intel, down 29.3%, as semiconductor
prices declined and the company lost market share to rivals. Qualcomm
was also down 22.0% on fears that increased usage of a rival phone
technology will hurt their future earnings.
o The LARGE CAP GROWTH EQUITY FUND returned 4.6% during the twelve
months ending September 30, 2006. The S&P 500/Citigroup Growth Index
returned 6.4% and the Lipper Large-Cap Growth Funds Classification
returned 3.5%, over the same time period. Stocks that helped
performance included the T. Rowe Price Group, which was up 25.2%. The
asset management company benefit from strong asset flows into their
fund complex. Pepsi Bottling Group, the second largest soft-drink
distributor, gained 25.9% on increased sales of its "non-soda"
products. In the technology sector, Oracle was up 43.1% as software
license revenue surged due to recent acquisitions. Detractors from
fund performance included Dell, down 33.2%. Dell missed analysts'
earnings expectations due to competitive pricing and lost market share
within the personal-computer market. Boston Scientific, maker of
medical supplies, lost 36.7% due to the market's concern over a recent
acquisition and issues regarding product quality.
o The RCB SMALL CAP VALUE FUND returned 0.4% for the 12 months ending
September 30, 2006 as compared with the Russell 2000 Value Index at
14.0%, the Russell 2000 Index at 9.9%, the Russell 2500 Value Index at
11.1%, and the Lipper Small Cap Value Funds Classification at 8.1%.
The following text regarding performance has been provided by Reed,
Connor & Birdwell, LLC, sub-adviser to the Fund.
CNI CHARTER FUNDS | PAGE 4
investment adviser's report
SEPTEMBER 30, 2006
- --------------------------------------------------------------------------------
"Over the trailing 12-month period we have grossly erred on the
conservative side as far as asset allocation and stock selection while
the investing world continued to embrace "risky" assets in the face of
what we consider to be the uninspiring valuation of the overall market
and mounting external risks. We believe this set of circumstances
peaked in the first quarter of 2006 just in time to produce the
maximum amount of performance embarrassment. However during the most
recent quarter-end, we witnessed a nice rebound in year-to-date
performance on an absolute basis and some "modest" make-up in relative
performance. After a truly dismal four quarter run of relative
performance, we believe we are back on track. Part of it is us; the
mathematics of two takeovers of the largest positions in a
concentrated portfolio (Advo and Intrawest) combined with a
determination to stop making a few hellacious mistakes seemed to have
produced the desired results. The other part consists of the small cap
market forces which act as a headwind for the Fund. These would
include liquidity, the inflows and subsequent outflows generated by
exchange traded funds and the sector composition of the indexes. Our
30-odd stock portfolio has historically been able to side-step an
index based headwind and we look forward to clawing back performance
one stock at a time."
o The TECHNOLOGY GROWTH FUND returned 6.8% during the twelve months
ending September 30, 2006. The Russell 3000 Technology Index returned
6.1% and the Lipper Science & Technology Funds Objective returned
5.1%, over the same time period. Stocks that produced positive returns
included Akamai Technologies, up 156.6%. The company exhibited strong
earnings growth on increased demand for their software that
accelerates the delivery of internet content. Cognizant Technology
Solutions gained 58.9% on surging demand for computer consulting
services. Apple Computer was up 43.6% on improved sales of their
Macintosh personal computers and iPod music players. Stocks that lost
ground included Tekelec, down 51.7%. The developer of
telecommunication products and services had to restate earnings and
take a write-down on a previous acquisition. NAVTEQ, a leading
provider of navigation systems, lost 47.7% on declining sales in the
automotive industry and delays in new product launches.
STRATEGIC OUTLOOK FOR EQUITY FUNDS
As we look forward, the strength of the economy and its effect on inflation and
interest rates is the question of the day. Market strategists are divided. Some
see lower rates on slower economic growth. Others see higher rates based on
higher inflation and stronger than expected economic growth. At City National
Asset Management, Inc., we see growing evidence of a maturing economic recovery
and a slowdown in economic growth. Still, most economists are not calling for a
recession anytime in the near future. In this environment, as in all market
environments, we will continue to apply our disciplined investment approach with
the objective of providing superior investment results across the various
strategies we manage.
Sincerely,
/s/ Brian L. Garbe
Brian L. Garbe
DIRECTOR OF RESEARCH
CITY NATIONAL ASSET MANAGEMENT, INC.
CNI CHARTER FUNDS | PAGE 5
fund overview
SEPTEMBER 30, 2006
- --------------------------------------------------------------------------------
LARGE CAP VALUE EQUITY FUND
The Fund seeks to provide capital appreciation and moderate income consistent
with current returns available in the market place by investing in large U.S.
corporations and U.S. dollar denominated American Depository Receipts of large
foreign corporations which are undervalued and whose market valuations compare
favorably relative to similar companies.
- -------------------------------------------------------------------------------
Comparison of Change in the Value of a $10,000 Investment in the CNI Large Cap
Value Equity Fund, Institutional Class or Class A Shares, versus the S&P 500/
Citigroup Value Index, and the Lipper Large Cap Value Funds Classification(1)
[LINE GRAPHIC OMITTED]
PLOT POINTS ARE AS FOLLOWS:
LARGE CAP VALUE EQUITY FUND
CNI Large Cap Value Fund, CNI Large Cap Value Fund, S&P 500/Citigroup Lipper Large Cap
Institutional Class Shares Class A Shares Value Index Value Funds Index
1/14/00 10,000 10,000 10,000 10,000
9/30/00 10,099 10,093 9,871 10,449
9/30/01 8,446 8,410 8,508 9,641
9/30/02 6,852 6,814 6,989 7,783
9/30/03 8,498 8,433 8,579 9,544
9/30/04 10,147 10,036 10,271 11,137
9/30/05 11,607 11,455 11,950 12,644
9/30/06 13,290 13,086 13,796 14,160
(*) Standard and Poor's has changed the name and the construction methodology
of their style indices. The S&P 500/Barra Value Index became the S&P
500/Citigroup Value Index in mid-December 2005. The Large Cap Value Fund
will use the new index as a comparative investment benchmark going
forward.
(1) The performance in the above graph does not reflect the deduction of taxes
the shareholder will pay on Fund distributions or the redemptions of Fund
shares. Investment performance reflects fee waivers in effect. In the
absence of such waivers, total return would be reduced.
Past performance is no indication of future performance.
The Fund's comparative benchmarks do not include the annual operating expenses
incurred by the Fund. Please note that one cannot invest directly in an
unmanaged index.
AVERAGE ANNUAL TOTAL RETURNS
- -------------------------------------------------------------------------------
Ticker 1-Year 3-Year 5-Year Inception
Shares Symbol Return Return Return to Date
- -------------------------------------------------------------------------------
Institutional Class (1)^ CNLIX 14.50% 16.07% 9.49% 4.33%
- -------------------------------------------------------------------------------
Class A (2) CVEAX 14.24% 15.78% 9.25% 4.09%+
- -------------------------------------------------------------------------------
(1) Commenced operations on January 14, 2000.
(2) Commenced operations on April 13, 2000.
^ The Fund's Institutional Class Shares are currently offered only to
accounts where City National Bank serves as trustee or in a fiduciary
capacity.
+ Class A Shares performance for the period prior to April 13, 2000 reflects
the performance of the Fund's Institutional Shares. The performance of the
Institutional Shares has not been adjusted to reflect the higher Rule
12b-1 Fees and expenses applicable to Class A Shares. If it had,
performance would have been lower than that shown.
Top Ten Holdings
% OF PORTFOLIO
Bank of America 3.6
Citigroup 3.2
Exxon Mobil 2.7
Wells Fargo 2.5
Verizon Communications 2.4
Hewlett-Packard 2.4
Wachovia 1.9
Morgan Stanley 1.9
BellSouth 1.9
American International Group 1.8
CNI CHARTER FUNDS | PAGE 6
fund overview
SEPTEMBER 30, 2006
- --------------------------------------------------------------------------------
LARGE CAP GROWTH EQUITY FUND
The Fund seeks to provide capital appreciation by investing in large U.S.
corporations and U.S. dollar denominated American Depository Receipts of large
foreign corporations with the potential for growth and that possess superior
management, strong market position, consistent records of increased earnings and
a strong operating and financial position.
- -------------------------------------------------------------------------------
Comparison of Change in the Value of a $10,000 Investment in the CNI Large Cap
Growth Equity Fund, Institutional Class or Class A Shares, versus the S&P
500/Citigroup Growth Index, and the Lipper Large Cap Growth Funds
Classification(1)
[LINE GRAPHIC OMITTED]
PLOT POINTS ARE AS FOLLOWS:
LARGE CAP GROWTH EQUITY FUND
CNI Large Cap Growth Equity Fund, CNI Large Cap Growth Equity Fund, S&P 500/Citigroup Lipper Large Cap
Institutional Class Shares Class A Shares Growth Index* Growth Funds Classification
1/14/00 $10,000 $10,000 $10,000 $10,000
9/30/00 9,370 9,349 9,763 10,314
9/30/01 6,360 6,329 5,950 6,080
9/30/02 5,250 5,210 4,538 4,814
9/30/03 6,380 6,320 5,717 5,825
9/30/04 6,775 6,691 6,203 6,259
9/30/05 7,490 7,379 6,709 7,040
9/30/06 7,834 7,715 7,138 7,288
(*) Standard and Poor's has changed the name and the construction methodology
of their style indices. The S&P 500/Barra Growth Index became the S&P
500/Citigroup Growth Index in mid-December 2005. The Large Cap Growth Fund
will use the new index as a comparative investment benchmark going
forward.
(1) The performance in the above graph does not reflect the deduction of taxes
the shareholder will pay on Fund distributions or the redemptions of Fund
shares. Investment performance reflects fee waivers in effect. In the
absence of such waivers, total return would be reduced.
Past performance is no indication of future performance.
The Fund's comparative benchmarks do not include the annual operating expenses
incurred by the Fund. Please note that one cannot invest directly in an
unmanaged index.
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
Ticker 1-Year 3-Year 5-Year Inception
Shares Symbol Return Return Return to Date
- --------------------------------------------------------------------------------
Institutional Class (1)^ CNGIX 4.59% 7.08% 4.25% (3.57)%
- --------------------------------------------------------------------------------
Class A (2) CLEAX 4.55% 6.87% 4.03% (3.79)%+
- --------------------------------------------------------------------------------
(1) Commenced operations on January 14, 2000.
(2) Commenced operations on March 28, 2000.
^ The Fund's Institutional Class Shares are currently offered only to
accounts where City National Bank serves as trustee or in a fiduciary
capacity.
+ Class A Shares performance for the period prior to March 28, 2000 reflects
the performance of the Fund's Institutional Shares. The performance of the
Institutional Shares has not been adjusted to reflect the higher Rule
12b-1 Fees and expenses applicable to Class A Shares. If it had,
performance would have been lower than that shown.
Top Ten Holdings
% OF PORTFOLIO
Exxon Mobil 4.7
Procter & Gamble 3.5
Microsoft 3.0
General Electric 2.4
Wal-Mart Stores 2.4
Johnson & Johnson 2.4
Amgen 2.2
PepsiCo 2.1
Gilead Sciences 1.9
UnitedHealth Group 1.7
CNI CHARTER FUNDS | PAGE 7
fund overview
SEPTEMBER 30, 2006
- --------------------------------------------------------------------------------
RCB SMALL CAP VALUE FUND
The Fund seeks to provide capital appreciation by investing primarily in smaller
U.S. corporations which are considered undervalued.
- -------------------------------------------------------------------------------
Comparison of Change in the Value of a $10,000 Investment in the CNI RCB Small
Cap Value Fund, Institutional Class, Class A or Class R Shares, versus the
Russell 2500 Value Index, the Russell 2000 Index, the Russell 2000 Value Index,
the Lipper Small Cap Value Funds Classification(1), and the Lipper Small Cap
Core Funds Classification(1)
[LINE GRAPHIC OMITTED]
PLOT POINTS ARE AS FOLLOWS:
RCB SMALL CAP VALUE FUND
CNI RCB
Small Cap CNI RCB CNI RCB
Value Fund, Small Cap Small Cap Lipper Small Lipper Small
Institutional Value Fund, Value Fund, Russell 2000 Russell 2000 Russell 2500 Cap Value Funds Cap Core Funds
Class Shares Class A Shares Class R Shares Index Value Index Value Index Classification Classification
9/30/98 $10,000 $10,000 $ 9,650 $10,000 $10,000 $10,000 $10,000 $10,000
9/30/99 15,120 15,120 14,591 11,907 10,583 10,840 11,193 12,044
9/30/00 16,859 16,859 16,269 14,692 12,209 12,547 13,113 15,646
9/30/01 18,395 18,395 17,751 11,576 12,893 12,863 13,741 14,011
9/30/02 16,353 16,331 15,740 10,499 12,705 12,784 13,694 13,228
9/30/03 23,802 23,714 22,856 14,332 16,728 16,779 17,812 17,376
9/30/04 29,745 29,557 28,485 17,022 21,020 20,899 22,133 20,968
9/30/05 32,681 32,380 31,208 20,077 24,751 25,355 26,216 24,969
9/30/06 32,811 32,435 31,252 22,069 28,219 28,177 28,350 26,854
(1) The performance in the above graph does not reflect the deduction of taxes
the shareholder will pay on Fund distributions or the redemptions of Fund
shares. Investment performance reflects fee waivers in effect. In the
absence of such waivers, total return would be reduced.
Past performance is no indication of future performance.
The Fund's comparative benchmarks do not include the annual operating expenses
incurred by the Fund. Please note that one cannot invest directly in an
unmanaged index.
AVERAGE ANNUAL TOTAL RETURNS
- -------------------------------------------------------------------------------
Ticker 1-Year 3-Year 5-Year Inception
Shares Symbol Return Return Return to Date
- -------------------------------------------------------------------------------
Institutional Class (1)^ RCBIX 0.40% 11.29% 12.27%+ 16.01%+
- -------------------------------------------------------------------------------
Class A (1) RCBAX 0.17% 11.00% 12.01%+ 15.85%+
- -------------------------------------------------------------------------------
Class R (2) RCBSX 0.14% 11.00% 11.98% 15.82%
- -------------------------------------------------------------------------------
Class R with load RCBSX (3.38)% 9.69% 11.19% 15.31%
- -------------------------------------------------------------------------------
(1) Commenced operations on October 3, 2001.
(2) Commenced operations on September 30, 1998.
^ The Fund's Institutional Class Shares are currently offered only to
accounts where City National Bank serves as trustee or in a fiduciary
capacity.
+ The performance of the Institutional Class and Class A Shares for the
period prior to October 3, 2001 reflect the performance of the Class R
Shares of a predecessor mutual fund. The performance of the Class R Shares
has not been adjusted to reflect the Rule 12b-1 Fees and expenses
applicable to Institutional and Class A Shares. Fees for the Institutional
Class Shares are lower than the fees for the Class R Shares;
correspondingly, performance would have been higher than that shown.
Top Ten Holdings*
% OF PORTFOLIO
Lodgenet Entertainment 7.3
Alleghany 5.1
Smart & Final 4.8
White Mountains Insurance Group 4.4
USI Holdings 4.4
Ralcorp Holdings 4.3
Annaly Mortgage Management 4.3
Montpelier Re Holdings 4.3
Conseco 4.2
Jacuzzi Brands 4.1
*Excludes Repurchase Agreement
CNI CHARTER FUNDS | PAGE 8
fund overview
SEPTEMBER 30, 2006
- --------------------------------------------------------------------------------
TECHNOLOGY GROWTH FUND
The Fund seeks to provide long-term capital appreciation by investing in U.S.
corporations and U.S. dollar denominated American Depository Receipts of foreign
corporations with the potential for growth and that are engaged in the
production, distribution and development of products or services based on
technology and should benefit significantly from advances or improvements in
technology.
- --------------------------------------------------------------------------------
Comparison of Change in the Value of a $10,000 Investment in the CNI Technology
Growth Fund, Institutional Class or Class A Shares, versus the Russell 3000
Technology Index, and the Lipper Science & Technology Funds Objective(1)
[LINE GRAPHIC OMITTED]
PLOT POINTS ARE AS FOLLOWS:
TECHNOLOGY GROWTH FUND
CNI Technology CNI Technology Lipper Science
Growth Fund Growth Fund Russell 3000 & Technology
Institutional Class Shares Class A Shares Technology Index Funds Objective
10/03/00 $10,000 $10,000 $10,000 $10,000
9/30/01 3,544 3,463 3,608 3,494
9/30/02 2,262 2,201 2,449 2,308
9/30/03 3,504 3,405 3,953 3,819
9/30/04 3,464 3,346 3,951 3,871
9/30/05 4,044 3,894 4,560 4,565
9/30/06 4,318 4,139 4,839 4,796
(1) The performance in the above graph does not reflect the deduction of taxes
the shareholder will pay on Fund distributions or the redemptions of Fund
shares. Investment performance reflects fee waivers in effect. In the
absence of such waivers, total return would be reduced.
Past performance is no indication of future performance.
The Fund's comparative benchmarks do not include the annual operating expenses
incurred by the Fund. Please note that one cannot invest directly in an
unmanaged index.
AVERAGE ANNUAL TOTAL RETURNS
- -------------------------------------------------------------------------------
Ticker 1-Year 3-Year 5-Year Inception
Shares Symbol Return Return Return to Date
- -------------------------------------------------------------------------------
Institutional Class (1)^ CTEIX 6.77% 7.22% 4.03% (13.08)%
- -------------------------------------------------------------------------------
Class A (2) CTGAX 6.30% 6.73% 3.63% (13.80)%
- -------------------------------------------------------------------------------
(1) Commenced operations on October 3, 2000.
(2) Commenced operations on October 23, 2000.
^ The Fund's Institutional Class Shares are currently offered only to
accounts where City National Bank serves as trustee or in a fiduciary
capacity.
Top Ten Holdings
% OF PORTFOLIO
Microsoft 8.0
Hewlett-Packard 5.2
IBM 4.3
Cisco Systems 4.0
Intel 3.8
Texas Instruments 3.6
Qualcomm 3.5
Oracle 3.1
Apple Computer 2.9
Symantec 2.6
CNI CHARTER FUNDS | PAGE 9
investment adviser's report
SEPTEMBER 30, 2006
- --------------------------------------------------------------------------------
FIXED INCOME FUNDS
The bond market is more focused on an economic slowdown at the end of the fiscal
year ending September 30, 2006. The Federal Reserve Bank ("Fed") has been on
hold for the last three Federal Open Market Committee (FOMC) meetings due to the
weaker economic news and slightly tamer inflationary reports. During this fiscal
period, the Fed raised rates six times and is now on hold at a 5.25% Fed Funds
rate.
During the fiscal year, City National Asset Management, Inc. altered its
maturity posture to its investment grade bond funds from a slightly defensive
position to a neutral stance versus our comparative benchmarks. This strategy
shift comes after rates have been increasing for several quarters. The yield
curve remains quite flat or inverted as investors debate how long the Fed will
remain on hold. Looking ahead, we are focused more on "horizon return" than
yield to maturity. If the Fed reverses course and starts lowering interest rates
to counter a weak economy in the future, the biggest risk to the bond investors,
in our opinion, would be re-investment risk. So even if there is little yield to
be garnered by extending out maturities at this juncture, we are keeping an eye
on our maturity posture and might move it from a neutral maturity stance to an
aggressive maturity stance versus our comparative benchmarks in order to lock in
these higher rates for an extended period of time.
BOND FUND PERFORMANCE
(ALL RETURNS LISTED FOR CNI CHARTER FUNDS REFER TO INSTITUTIONAL CLASS SHARES)
o The CORPORATE BOND FUND produced a total return of 3.2% for the last
12 months. For the same period, the Lehman Intermediate U.S. Corporate
Index 3.6%. The corporate bond universe is heavily weighted in lower
quality (Baa) rated securities that did reasonably well during this
recent period and yield spreads for corporate bonds versus Treasuries
remained tight. This Fund continued to retain a higher quality profile
than the Index and thus did not capture all of the performance
garnered by the lower quality bonds. The Fund's performance compares
favorably with its peer group where the Lipper Short/Intermediate
Investment Grade Objective was up 3.1%.
o The GOVERNMENT BOND FUND produced a total return of 2.9% for the last
12 months. For the same period, the Lehman Intermediate U.S.
Government Bond Index returned 3.5%. Our defensive maturity posture
for the Fund worked for most of the period but underperformed after
rates peaked in June 2006. Since that time, we have extended our
average maturity in the Fund to capture the higher yields and position
the Fund for appreciation potential if rates decline. The Fund
performance relative to the peer group is tracking closely as measured
by the Lipper Short Intermediate U.S. Government Objective return of
3.0%.
o The CALIFORNIA TAX EXEMPT BOND FUND produced a total return of 3.2%
for the last 12 months. For the same period, the Lehman CA
Intermediate-Short Municipal Bond Index returned 3.2%. The Fund's
strategy tracked close to the benchmark but trailed slightly as we
extended our average maturity to lock in the higher yields during the
mid-summer. The Fund's performance compares favorably with its peer
group where the Lipper California Short/Intermediate Municipal Debt
Objective returned 3.0%.
o The HIGH YIELD BOND FUND produced a total return of 6.9% for the last
12 months. For the same period, the Citigroup High Yield Market Index
returned 7.4%. Absolute performance remained strong for this sector
even though the economy showed signs of a slowdown. The Fund trailed
the Index slightly due its underweight in the lowest quality of bonds
within the Index. The Fund's relative performance vis-a-vis its peer
group remained positively competitive where the Lipper High Current
Yield Bond Funds Objective returned 6.7%.
CNI CHARTER FUNDS | PAGE 10
investment adviser's report
SEPTEMBER 30, 2006
- --------------------------------------------------------------------------------
STRATEGIC OUTLOOK FOR BOND FUNDS
With economic news all focused on an economic slowdown, many observers expect
the Fed to pause indefinitely in its rate hike campaign or even reverse course
in the quarters leading into 2007 if a problem develops in the economy. If so,
the biggest risk for the typical bond investor or Fund in the coming quarters is
"reinvestment risk" -- the possibility that funds reinvested as bonds mature may
be at lower rates. With that said, we are positioned for stable rates in the
near-term as evidenced by our neutral maturity stance versus the benchmarks. We
are poised to extend maturities on major market sell-offs or if we see
significant economic weakness coupled with a decline in inflationary measures.
We continue to monitor these and other factors in order to add value to our
actively managed bond funds in all interest rate environments.
Sincerely,
/s/ Rodney J. Olea
Rodney J. Olea
DIRECTOR OF FIXED INCOME
CITY NATIONAL ASSET MANAGEMENT, INC.
CNI CHARTER FUNDS | PAGE 11
fund overview
SEPTEMBER 30, 2006
- --------------------------------------------------------------------------------
CORPORATE BOND FUND
The Fund seeks to provide current income (as the primary component of a total
return, intermediate duration strategy) by investing in a diversified portfolio
of investment grade fixed income securities, primarily corporate bonds issued by
domestic and international companies denominated in U.S. dollars.
- --------------------------------------------------------------------------------
Comparison of Change in the Value of a $10,000 Investment in the CNI Corporate
Bond Fund, Institutional Class or Class A Shares, versus the Lehman Intermediate
Corporate Index, and Lipper Short/Intermediate Investment Grade Debt
Objective(1)
[LINE GRAPHIC OMITTED]
PLOT POINTS ARE AS FOLLOWS:
CORPORATE BOND FUND
CNI Corporate CNI Corporate Lehman Lipper Short/
Bond Fund Bond Fund Intermediate Intermediate Investment
Institutional Class Shares Class A Shares Corporate Index Grade Debt Objective
1/14/00 $10,000 $10,000 $10,000 $10,000
9/30/00 10,577 10,592 10,644 10,569
9/30/01 11,861 11,871 11,992 11,750
9/30/02 12,580 12,547 12,852 12,392
9/30/03 13,428 13,359 14,129 12,997
9/30/04 13,717 13,624 14,686 13,266
9/30/05 13,890 13,748 14,946 13,427
9/30/06 14,333 14,151 15,479 13,838
(1) The performance in the above graph does not reflect the deduction of taxes
the shareholder will pay on Fund distributions or the redemptions of Fund
shares. Investment performance reflects fee waivers in effect. In the
absence of such waivers, total return would be reduced.
Past performance is no indication of future performance.
The Fund's comparative benchmarks do not include the annual operating expenses
incurred by the Fund. Please note that one cannot invest directly in an
unmanaged index.
AVERAGE ANNUAL TOTAL RETURNS
- -------------------------------------------------------------------------------
Ticker 1-Year 3-Year 5-Year Inception
Shares Symbol Return Return Return to Date
- -------------------------------------------------------------------------------
Institutional Class (1)^ CNCIX 3.19% 2.20% 3.86% 5.51%
- -------------------------------------------------------------------------------
Class A (2) CCBAX 2.93% 1.94% 3.58% 5.31%+
- -------------------------------------------------------------------------------
(1) Commenced operations on January 14, 2000.
(2) Commenced operations on April 13, 2000.
^ The Fund's Institutional Class Shares are currently offered only to
accounts where City National Bank serves as trustee or in a fiduciary
capacity.
+ Class A Shares performance for the period prior to April 13, 2000 reflects
the performance of the Fund's Institutional Shares. The performance of the
Institutional Shares has not been adjusted to reflect the higher Rule
12b-1 Fees and expenses applicable to Class A Shares. If it had,
performance would have been lower than that shown.
Top Ten Holdings*
% OF PORTFOLIO
General Electric Capital,
Ser A, MTN
6.000%, 6/15/12 2.7
Giro Balanced Funding
5.270%, 10/05/06 2.6
FNMA CMO,
Ser 2002-56, Cl MC
5.500%, 09/25/07 2.3
FHLMC, Ser R004, Cl Al
5.125%, 12/15/13 2.2
Union Planters Bank
5.125%, 06/15/07 2.1
Lehman Brothers Holdings
8.250%, 06/15/07 2.0
Walt Disney
5.700%, 07/15/11 2.0
National Rural Utilities,
Ser C, MTN
7.250%, 03/01/12 1.9
AXA Financial
7.750%, 08/01/10 1.9
U.S. Treasury Inflation Index Note
2.000%, 01/15/14 1.9
* Excludes Cash Equivalents
CNI CHARTER FUNDS | PAGE 12
fund overview
SEPTEMBER 30, 2006
- --------------------------------------------------------------------------------
GOVERNMENT BOND FUND
The Fund seeks to provide current income (as the primary component of a total
return, intermediate duration strategy) by investing primarily in U.S.
government securities either issued or guaranteed by the U.S. government or its
agencies or instrumentalities.
- --------------------------------------------------------------------------------
Comparison of Change in the Value of a $10,000 Investment in the CNI Government
Bond Fund, Institutional Class or Class A Shares, versus the Lehman Intermediate
U.S. Government Bond Index, and the Lipper Short/Intermediate U.S. Government
Objective(1)
[LINE GRAPHIC OMITTED]
PLOT POINTS ARE AS FOLLOWS:
GOVERNMENT BOND FUND
CNI Government CNI Government Lehman Intermediate Lipper Short/
Bond Fund Bond Fund U.S. Government Intermediate
Institutional Class Shares Class A Shares Bond Index U.S. Government Objective
1/14/00 $10,000 $10,000 $10,000 $10,000
9/30/00 10,564 10,535 10,659 10,539
9/30/01 11,796 11,720 12,031 11,721
9/30/02 12,685 12,596 13,045 12,506
9/30/03 13,024 12,937 13,502 12,828
9/30/04 13,130 13,009 13,760 12,994
9/30/05 13,316 13,159 13,940 13,114
9/30/06 13,701 13,505 14,432 13,501
(1) The performance in the above graph does not reflect the deduction of taxes
the shareholder will pay on Fund distributions or the redemptions of Fund
shares. Investment performance reflects fee waivers in effect. In the
absence of such waivers, total return would be reduced.
Past performance is no indication of future performance.
The Fund's comparative benchmarks do not include the annual operating expenses
incurred by the Fund. Please note that one cannot invest directly in an
unmanaged index.
AVERAGE ANNUAL TOTAL RETURNS
- -------------------------------------------------------------------------------
Ticker 1-Year 3-Year 5-Year Inception
Shares Symbol Return Return Return to Date
- -------------------------------------------------------------------------------
Institutional Class (1)^ CNBIX 2.89% 1.70% 3.04% 4.80%
- -------------------------------------------------------------------------------
Class A (2) CGBAX 2.63% 1.44% 2.88% 4.58%+
- -------------------------------------------------------------------------------
(1) Commenced operations on January 14, 2000.
(2) Commenced operations on April 13, 2000.
^ The Fund's Institutional Class Shares are currently offered only to
accounts where City National Bank serves as trustee or in a fiduciary
capacity.
+ Class A Shares performance for the period prior to April 13, 2000 reflects
the performance of the Fund's Institutional Shares. The performance of the
Institutional Shares has not been adjusted to reflect the higher Rule
12b-1 Fees and expenses applicable to Class A Shares. If it had,
performance would have been lower than that shown.
Top Ten Holdings
% OF PORTFOLIO
FNMA
7.125%, 06/15/10 11.6
FNMA
5.500%, 03/15/11 7.1
FNMA
5.000%, 01/23/09 6.7
FNMA
5.010%, 11/10/10 6.7
FHLB
6.200%, 03/22/21 5.4
FNMA
5.000%, 07/25/08 5.4
FHLMC REMIC,
Ser R009, Cl AK
5.750%, 12/15/18 5.3
FHLB
4.375%, 09/17/10 5.3
FHLMC, Ser R004, Cl Al
5.125%, 12/15/13 5.2
FHLMC, Ser R003, Cl AG
5.125%, 10/15/15 5.0
CNI CHARTER FUNDS | PAGE 13
fund overview
SEPTEMBER 30, 2006
- --------------------------------------------------------------------------------
CALIFORNIA TAX EXEMPT BOND FUND
The Fund seeks to provide current income exempt from Federal and California
state income tax (as the primary component of a total return strategy) by
investing primarily in investment grade California municipal bonds and notes.
- --------------------------------------------------------------------------------
Comparison of Change in the Value of a $10,000 Investment in the CNI California
Tax Exempt Bond Fund, Institutional Class or Class A Shares, versus the Lehman
CA Intermediate-Short Municipal Index, and the Lipper CA Short/Intermediate
Municipal Debt Objective(1)
[LINE GRAPHIC OMITTED]
PLOT POINTS ARE AS FOLLOWS:
CALIFORNIA TAX EXEMPT BOND FUND
CNI California CNI California Lehman CA Lipper CA Short/
Tax-Exempt Bond Fund, Tax-Exempt Bond Fund, Intermediate-Short Intermediate
Institutional Class Shares Class A Shares Municipal Index Municipal Debt Objective
1/14/00 $10,000 $10,000 $10,000 $10,000
9/30/00 10,545 10,532 10,545 10,460
9/30/01 11,305 11,278 11,403 11,165
9/30/02 12,162 12,112 12,272 11,850
9/30/03 12,482 12,399 12,633 12,104
9/30/04 12,731 12,627 12,999 12,287
9/30/05 12,941 12,803 13,250 12,632
9/30/06 13,353 13,163 13,677 13,011
(1) The performance in the above graph does not reflect the deduction of taxes
the shareholder will pay on Fund distributions or the redemptions of Fund
shares. Investment performance reflects fee waivers in effect. In the
absence of such waivers, total return would be reduced.
Past performance is no indication of future performance.
The Fund's comparative benchmarks do not include the annual operating expenses
incurred by the Fund. Please note that one cannot invest directly in an
unmanaged index.
AVERAGE ANNUAL TOTAL RETURNS
- -------------------------------------------------------------------------------
Ticker 1-Year 3-Year 5-Year Inception
Shares Symbol Return Return Return to Date
- -------------------------------------------------------------------------------
Institutional Class (1)^ CNTIX 3.18% 2.28% 3.39% 4.40%
- -------------------------------------------------------------------------------
Class A (2) CCTEX 2.81% 2.01% 3.14% 4.18%+
- -------------------------------------------------------------------------------
(1) Commenced operations on January 14, 2000.
(2) Commenced operations on April 13, 2000.
^ The Fund's Institutional Class Shares are currently offered only to
accounts where City National Bank serves as trustee or in a fiduciary
capacity.
+ Class A Shares performance for the period prior to April 13, 2000 reflects
the performance of the Fund's Institutional Shares. The performance of the
Institutional Shares has not been adjusted to reflect the higher Rule
12b-1 Fees and expenses applicable to Class A Shares. If it had,
performance would have been lower than that shown.
Top Ten Holdings
% OF PORTFOLIO
San Diego, Unified School District,
Election 1998 Project,
Ser B-1, GO, MBIA
5.000%, 07/01/17 4.1
Escondido, Union School District,
Refunding & Financing Project,
COP, MBIA
4.750%, 07/01/19 2.9
California State, Public Works
Board Lease, Department of
Corrections-State Prisons Project,
Ser A, RB, AMBAC
5.250%, 12/01/13 2.4
New York State, Ser E, RB
6.000%, 04/01/14 2.1
San Bernardino, Community
College District, Election 2002
Project, Ser B, GO, MBIA
5.250%, 08/01/14 2.1
Sanger, Unified School District,
Election 2006 Project,
Ser A, GO, FSA
5.000%, 08/01/18 2.1
Arizona State, Transportation
Board, GAN, Ser A, RB
5.000%, 07/01/13 2.0
San Diego County, Edgemoor &
Regional Systems Projects,
COP, AMBAC
5.000%, 02/01/18 2.0
Los Angeles, Water & Power
Authority, Power Systems Project,
Ser A, RB
5.000%, 07/01/08 1.9
Oakland, Redevelopment Agency,
Central District Redevelopment
Project, TA, AMBAC
5.500%, 02/01/14 1.9
CNI CHARTER FUNDS | PAGE 14
fund overview
SEPTEMBER 30, 2006
- --------------------------------------------------------------------------------
HIGH YIELD BOND FUND
The Fund seeks to maximize total return by investing primarily in fixed income
securities rated below investment grade including corporate bonds and
debentures, convertible and preferred securities, and zero coupon obligations.
The Fund may also invest in fixed income securities rated below investment grade
issued by governments and agencies, both U.S. and foreign, and in equity
securities. The Fund seeks to invest in securities that offer a high current
yield as well as total return potential and diversifies across issuers,
industries and sectors to control risks.
- -------------------------------------------------------------------------------
Comparison of Change in the Value of a $10,000 Investment in the CNI High Yield
Bond Fund, Institutional Class or Class A Shares, versus the Citigroup High
Yield Market Index and the Lipper High Current Yield Bond Funds Objective(1)
[LINE GRAPHIC OMITTED]
PLOT POINTS ARE AS FOLLOWS:
HIGH YIELD BOND FUND
CNI High Yield CNI High Yield Citigroup Lipper High Current
Bond Fund, Bond Fund, High Yield Yield Bond
Institutional Class Shares Class A Shares Market Index Funds Objective
1/14/00 $10,000 $10,000 $10,000 $10,000
9/30/00 10,420 10,394 9,974 9,882
9/30/01 10,165 10,109 9,373 9,058
9/30/02 10,653 10,563 9,059 8,900
9/30/03 12,757 12,611 12,073 11,142
9/30/04 14,348 14,142 13,586 12,401
9/30/05 15,044 14,784 14,468 13,155
9/30/06 16,082 15,757 15,536 14,035
(1) The performance in the above graph does not reflect the deduction of taxes
the shareholder will pay on Fund distributions or the redemptions of Fund
shares. Investment performance reflects fee waivers in effect. In the
absence of such waivers, total return would be reduced.
Past performance is no indication of future performance.
The Fund's comparative benchmarks do not include the annual operating expenses
incurred by the Fund. Please note that one cannot invest directly in an
unmanaged index.
AVERAGE ANNUAL TOTAL RETURNS
- ------------------------------------------------------------------------------
Ticker 1-Year 3-Year 5-Year Inception
Shares Symbol Return Return Return to Date
- ------------------------------------------------------------------------------
Institutional Class (1)^ CHYIX 6.90% 8.03% 9.61% 7.33%
- ------------------------------------------------------------------------------
Class A (1) CHBAX 6.58% 7.70% 9.28% 7.01%
- ------------------------------------------------------------------------------
(1) Commenced operations on January 14, 2000.
^ The Fund's Institutional Class Shares are currently offered only to
accounts where City National Bank serves as trustee or in a fiduciary
capacity.
Top Ten Holdings*
% OF PORTFOLIO
GMAC
6.750%, 12/01/14 1.6
General Motors
7.125%, 07/15/13 1.6
Qwest
7.625%, 06/15/15 1.4
Charter Communications Holdings
10.250%, 09/15/10 1.0
Smithfield Foods, Ser B
8.000%, 10/15/09 0.9
Ford Motor Credit
7.375%, 02/01/11 0.8
AES
9.000%, 05/15/15 0.8
Whiting Petroleum
7.000%, 02/01/14 0.7
Pogo Producing
6.875%, 10/01/17 0.7
El Paso
7.000%, 05/15/11 0.7
* Excludes cash equivalents
CNI CHARTER FUNDS | PAGE 15
investment adviser's report
SEPTEMBER 30, 2006
- --------------------------------------------------------------------------------
MONEY MARKET FUNDS
The money market environment continued to change for most of this fiscal year
ending September 30, 2006. The Federal Reserve Bank ("Fed") raised rates six
times this period and has since been in a holding pattern for three consecutive
meetings. Fed Funds target rate has been at 5.25% for over a quarter now and it
seems poised to stay there for the remainder of 2006. Fed policy makers have
been on a holding pattern as they weigh the mixed data on the economy. Inflation
or core inflation remains at high levels, but the Fed is counting on the drop in
oil prices and a slowdown in housing to help on this front. This of course
remains to be seen. Until then, market participants are "data dependent" as we
try to predict how long the Fed remains on hold and if the next move is up
(because of high inflation) or down (because of a dramatic slowdown in economic
growth coupled with declining inflation.) The CNI Charter Money Market Funds are
enjoying higher yields after the Fed has moved short-term rates upward 17 times
these past few years. We will maintain a conservative maturity posture until
such a time we fear the Fed will reverse course and start cutting rates.
The PRIME MONEY MARKET FUND continued to emphasize quality and liquidity in
these uncertain times. With interest rates peaking above the 5.25% level in
recent months -- higher than it's been in years, the average days to maturity
have remained relatively short. This maturity allocation positions the Fund to
perform competitively as 2007 approaches. The Fund has focused primarily on
high-grade short-term commercial paper and corporate securities as well as
government agency notes on the longer-end of the money market maturity spectrum.
The GOVERNMENT MONEY MARKET FUND continued to be well-positioned from both a
sector as well as maturity perspective. The maturity profile has incorporated a
modified barbell strategy for most of the past fiscal year. This strategy has
been beneficial over the past year as short rates have risen. This should also
position the Fund to add value as short maturities continue to rise in 2006. The
Fund's yield continued to be enhanced by the concentration of Government Agency
securities over Treasury instruments.
Our objective for the CALIFORNIA TAX EXEMPT MONEY MARKET FUND has always been
safety and liquidity. Over the past fiscal year, prior historic budgetary
challenges in California have given way to an improving credit profile for the
state. Our stringent credit research effort remains the cornerstone to managing
the Fund in the never-ending political/economic backdrop of Sacramento. The
average days to maturity remains relatively short and our credit quality profile
remains very high.
STRATEGIC OUTLOOK
Our outlook continues to be favorable for money market investments. Short-term
rates will likely peak around these levels and move lower as we enter 2007.
While a slowing economy is often synonymous with declining interest rates, many
are uncertain of the Fed's next move due to the current high level of core
inflation. Either way, we are near the peak of short-term rates and will extend
out if the Fed changes its posture to one of easing. With the inverted yield
curve in securities maturing under one year we maintain a shorter maturity
stance for the CNI Charter Money Market Funds until the Fed changes its monetary
policy. City National Asset Management, Inc. is monitoring the market very
closely and will be proactive so as to take advantage of market opportunities.
Sincerely,
/s/ Rodney J. Olea
Rodney J. Olea
DIRECTOR OF FIXED INCOME
CITY NATIONAL ASSET MANAGEMENT, INC.
CNI CHARTER FUNDS | PAGE 16
schedule of investments
SEPTEMBER 30, 2006
- --------------------------------------------------------------------------------
LARGE CAP VALUE EQUITY FUND
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
SECTOR WEIGHTINGS (UNAUDITED)*:
32.6% Financials
14.2% Industrials
8.9% Consumer Discretionary
8.7% Information Technology
7.9% Energy
6.6% Telecommunications
5.9% Utilities
4.8% Consumer Staples
4.6% Materials
4.2% Healthcare
1.6% Short-Term Investments
* Percentages based on total investments.
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCK [98.4%]
AEROSPACE & DEFENSE [5.1%]
Goodrich 16,400 $ 665
Honeywell International 21,200 867
Lockheed Martin 9,800 843
Northrop Grumman 17,000 1,157
Raytheon 15,200 730
United Technologies 17,500 1,109
-----------------------------------------------------------------------------
TOTAL AEROSPACE & DEFENSE 5,371
=============================================================================
AIR FREIGHT & LOGISTICS [0.7%]
FedEx 6,800 739
=============================================================================
AUTO COMPONENTS [0.5%]
Johnson Controls 6,800 488
=============================================================================
BEVERAGES [2.1%]
Coca-Cola 27,100 1,211
Coca-Cola Enterprises 32,100 669
Molson Coors Brewing, Cl B 4,500 310
-----------------------------------------------------------------------------
TOTAL BEVERAGES 2,190
=============================================================================
CAPITAL MARKETS [6.5%]
Bank of New York 11,600 409
Goldman Sachs Group 11,200 1,895
Lehman Brothers Holdings 15,000 1,108
Merrill Lynch 15,400 1,205
Morgan Stanley 27,000 1,968
State Street 5,200 324
-----------------------------------------------------------------------------
TOTAL CAPITAL MARKETS 6,909
=============================================================================
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
CHEMICAL [2.6%]
Dow Chemical 36,000 $ 1,404
PPG Industries 14,000 939
Rohm & Haas 8,600 407
-----------------------------------------------------------------------------
TOTAL CHEMICAL 2,750
=============================================================================
COMMERCIAL BANKS [7.7%]
Keycorp 10,400 389
National City 16,100 589
PNC Financial Services Group 6,800 493
SunTrust Banks 6,300 487
US Bancorp 48,000 1,594
Wachovia 35,700 1,992
Wells Fargo 73,460 2,658
-----------------------------------------------------------------------------
TOTAL COMMERCIAL BANKS 8,202
=============================================================================
COMMERCIAL SERVICES & SUPPLIES [0.4%]
Waste Management 11,600 425
=============================================================================
COMMUNICATIONS EQUIPMENT [2.6%]
Motorola 64,300 1,607
Nokia, ADR 27,000 532
Qualcomm 9,800 356
Tellabs* 23,800 261
-----------------------------------------------------------------------------
TOTAL COMMUNICATIONS EQUIPMENT 2,756
=============================================================================
COMPUTERS & PERIPHERALS [3.5%]
Apple Computer* 7,300 562
Hewlett-Packard 68,700 2,521
IBM 7,900 647
-----------------------------------------------------------------------------
TOTAL COMPUTERS & PERIPHERALS 3,730
=============================================================================
CONSUMER FINANCE [0.6%]
Capital One Financial 8,300 653
=============================================================================
DIVERSIFIED FINANCIAL SERVICES [7.4%]
Bank of America 70,396 3,771
CIT Group 14,500 705
Citigroup 67,786 3,367
-----------------------------------------------------------------------------
TOTAL DIVERSIFIED FINANCIAL SERVICES 7,843
=============================================================================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
CNI CHARTER FUNDS | PAGE 17
schedule of investments
SEPTEMBER 30, 2006
- --------------------------------------------------------------------------------
LARGE CAP VALUE EQUITY FUND (CONTINUED)
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES [5.7%]
AT&T 47,300 $ 1,540
BellSouth 45,900 1,962
Verizon Communications 68,009 2,525
-----------------------------------------------------------------------------
TOTAL DIVERSIFIED TELECOMMUNICATION
SERVICES 6,027
=============================================================================
ELECTRIC UTILITIES [3.1%]
Edison International 13,900 579
Entergy 3,500 274
FirstEnergy 15,700 877
FPL Group 17,300 778
PPL 22,700 747
-----------------------------------------------------------------------------
TOTAL ELECTRIC UTILITIES 3,255
=============================================================================
FOOD & STAPLES RETAILING [1.6%]
Costco Wholesale 16,200 805
Kroger 19,300 447
Safeway 16,000 485
-----------------------------------------------------------------------------
TOTAL FOOD & STAPLES RETAILING 1,737
=============================================================================
FOOD PRODUCTS [0.6%]
Archer-Daniels-Midland 8,400 318
Tyson Foods 22,000 350
-----------------------------------------------------------------------------
TOTAL FOOD PRODUCTS 668
=============================================================================
HEALTH CARE PROVIDERS & SERVICES [2.3%]
Aetna 22,100 874
Cigna 4,500 524
Health Management
Associates, Cl A 27,000 564
McKesson 9,200 485
-----------------------------------------------------------------------------
TOTAL HEALTH CARE PROVIDERS & SERVICES 2,447
=============================================================================
HOUSEHOLD DURABLES [0.7%]
Newell Rubbermaid 11,800 334
Whirlpool 5,200 438
-----------------------------------------------------------------------------
TOTAL HOUSEHOLD DURABLES 772
=============================================================================
INDEPEDENT POWER PRODUCER/
ENERGY TRADER [0.8%]
Constellation Energy Group 13,400 793
=============================================================================
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES [3.4%]
General Electric 52,500 $ 1,853
Tyco International 61,600 1,724
-----------------------------------------------------------------------------
TOTAL INDUSTRIAL CONGLOMERATES 3,577
=============================================================================
INSURANCE [8.2%]
ACE 17,800 974
Aflac 18,800 860
American International Group 29,100 1,928
Chubb 16,600 863
Hartford Financial Services
Group 12,300 1,067
Metlife 17,100 969
Prudential Financial 9,700 740
St Paul Travelers 27,000 1,266
-----------------------------------------------------------------------------
TOTAL INSURANCE 8,667
=============================================================================
IT SERVICES [1.1%]
Electronic Data Systems 39,900 978
First Data 5,500 231
-----------------------------------------------------------------------------
TOTAL IT SERVICES 1,209
=============================================================================
LEISURE EQUIPMENT & PRODUCTS [0.4%]
Mattel 18,500 364
=============================================================================
LIFE SCIENCES TOOLS & SERVICES [0.4%]
PerkinElmer 23,700 449
=============================================================================
MACHINERY [2.2%]
Caterpillar 14,300 941
Danaher 7,000 481
Deere 7,400 621
Illinois Tool Works 7,000 314
-----------------------------------------------------------------------------
TOTAL MACHINERY 2,357
=============================================================================
MEDIA [4.9%]
CBS, Cl B 25,750 725
Comcast, Cl A* 34,800 1,282
News Corp., Cl A 25,000 491
Time Warner 65,300 1,191
Walt Disney 47,900 1,481
-----------------------------------------------------------------------------
TOTAL MEDIA 5,170
=============================================================================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
CNI CHARTER FUNDS | PAGE 18
schedule of investments
SEPTEMBER 30, 2006
- --------------------------------------------------------------------------------
LARGE CAP VALUE EQUITY FUND (CONTINUED)
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
METALS & MINING [1.2%]
Alcoa 31,300 $ 878
Phelps Dodge 5,200 440
-----------------------------------------------------------------------------
TOTAL METALS & MINING 1,318
=============================================================================
MULTI-UTILITIES & UNREGULATED POWER [2.0%]
Dominion Resources 11,700 895
PG&E 19,600 816
Sempra Energy 8,600 432
-----------------------------------------------------------------------------
TOTAL MULTI-UTILITIES & UNREGULATED POWER 2,143
=============================================================================
MULTILINE RETAIL [1.5%]
Federated Department Stores 23,400 1,011
JC Penney 8,000 547
-----------------------------------------------------------------------------
TOTAL MULTILINE RETAIL 1,558
=============================================================================
OFFICE ELECTRONICS [0.6%]
Xerox* 43,500 677
=============================================================================
OIL & GAS [7.9%]
Chevron 23,040 1,494
ConocoPhillips 28,380 1,690
Exxon Mobil 42,100 2,825
Hess 7,800 323
Marathon Oil 14,800 1,138
Occidental Petroleum 18,400 885
-----------------------------------------------------------------------------
TOTAL OIL & GAS 8,355
=============================================================================
PAPER & FOREST PRODUCTS [0.8%]
International Paper 24,500 848
=============================================================================
PERSONAL PRODUCTS [0.5%]
Alberto-Culver 10,500 531
=============================================================================
PHARMACEUTICALS [1.4%]
Abbott Laboratories 16,000 777
Bristol-Myers Squibb 29,400 733
-----------------------------------------------------------------------------
TOTAL PHARMACEUTICALS 1,510
=============================================================================
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
ROAD & RAIL [2.4%]
Avis Budget Group* 2,330 $ 43
CSX 31,400 1,031
Norfolk Southern 17,800 784
Ryder System 9,300 481
Union Pacific 2,800 246
-----------------------------------------------------------------------------
TOTAL ROAD & RAIL 2,585
=============================================================================
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT [0.8%]
Freescale Semiconductor* 13,000 494
Texas Instruments 11,000 366
-----------------------------------------------------------------------------
TOTAL SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT 860
=============================================================================
SPECIALTY RETAIL [1.1%]
Gap 41,000 777
Officemax 8,500 346
-----------------------------------------------------------------------------
TOTAL SPECIALTY RETAIL 1,123
=============================================================================
THRIFTS & MORTGAGE FINANCE [2.1%]
Fannie Mae 19,900 1,113
Washington Mutual 26,200 1,139
-----------------------------------------------------------------------------
TOTAL THRIFTS & MORTGAGE FINANCE 2,252
=============================================================================
WIRELESS TELECOMMUNICATION SERVICES [1.0%]
Alltel 10,600 588
Sprint-Nextel 24,300 417
-----------------------------------------------------------------------------
TOTAL WIRELESS TELECOMMUNICATION SERVICES 1,005
=============================================================================
TOTAL COMMON STOCK
(Cost $87,095) 104,313
=========================================================================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
CNI CHARTER FUNDS | PAGE 19
schedule of investments
SEPTEMBER 30, 2006
- --------------------------------------------------------------------------------
LARGE CAP VALUE EQUITY FUND (CONCLUDED)
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
CASH EQUIVALENTS [1.6%]
Fidelity Institutional Domestic
Money Market Portfolio,
Cl I, 5.22%** 1,714,571 $ 1,715
SEI Daily Income Trust,
Prime Obligation Fund,
Cl A, 5.33%** 10,815 11
-----------------------------------------------------------------------------
TOTAL CASH EQUIVALENTS
(Cost $1,726) 1,726
=========================================================================
TOTAL INVESTMENTS [100.0%]
(Cost $88,821) 106,039
=========================================================================
OTHER ASSETS AND LIABILITIES [0.0%] 11
=========================================================================
NET ASSETS -- 100.0% $ 106,050
=============================================================================
* NON-INCOME PRODUCING SECURITY
** RATE SHOWN IS THE 7-DAY EFFECTIVE YIELD AS OF SEPTEMBER 30, 2006.
ADR -- AMERICAN DEPOSITARY RECEIPT
CL -- CLASS
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
CNI CHARTER FUNDS | PAGE 20
schedule of investments
SEPTEMBER 30, 2006
- --------------------------------------------------------------------------------
LARGE CAP GROWTH EQUITY FUND
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
SECTOR WEIGHTINGS (UNAUDITED)*:
21.6% Information Technology
21.2% Healthcare
14.3% Consumer Staples
11.1% Consumer Discretionary
10.9% Financials
10.4% Energy
7.2% Industrials
1.5% Short-Term Investments
0.9% Materials
0.7% Utilities
0.2% Telecommunications
* Percentages based on total investments.
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCK [98.1%]
AEROSPACE & DEFENSE [0.4%]
L-3 Communications Holdings 2,500 $ 196
=============================================================================
AIR FREIGHT & LOGISTICS [0.9%]
United Parcel Service, Cl B 5,700 410
=============================================================================
BEVERAGES [3.4%]
Coca-Cola 9,800 438
Pepsi Bottling Group 5,700 202
PepsiCo 14,500 946
-----------------------------------------------------------------------------
TOTAL BEVERAGES 1,586
=============================================================================
BIOTECHNOLOGY [5.1%]
Amgen* 14,300 1,023
Genzyme-General Division* 6,500 439
Gilead Sciences* 12,700 872
-----------------------------------------------------------------------------
TOTAL BIOTECHNOLOGY 2,334
=============================================================================
CAPITAL MARKETS [4.1%]
Franklin Resources 2,100 222
Goldman Sachs Group 2,600 440
Lehman Brothers Holdings 4,800 355
Merrill Lynch 2,600 203
State Street 5,400 337
T Rowe Price Group 7,000 335
-----------------------------------------------------------------------------
TOTAL CAPITAL MARKETS 1,892
=============================================================================
COMMERCIAL BANKS [0.5%]
Synovus Financial 8,300 244
=============================================================================
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES [1.4%]
Equifax 7,000 $ 257
Robert Half International 5,200 176
RR Donnelley & Sons 6,300 208
-----------------------------------------------------------------------------
TOTAL COMMERCIAL SERVICES & SUPPLIES 641
=============================================================================
COMMUNICATIONS EQUIPMENT [3.3%]
Cisco Systems* 29,250 673
Corning* 9,500 232
Qualcomm 17,000 618
-----------------------------------------------------------------------------
TOTAL COMMUNICATIONS EQUIPMENT 1,523
=============================================================================
COMPUTERS & PERIPHERALS [3.8%]
Apple Computer* 8,100 624
Dell* 17,165 392
IBM 9,000 737
-----------------------------------------------------------------------------
TOTAL COMPUTERS & PERIPHERALS 1,753
=============================================================================
CONSUMER FINANCE [1.6%]
Capital One Financial 5,200 409
SLM 6,400 333
-----------------------------------------------------------------------------
TOTAL CONSUMER FINANCE 742
=============================================================================
DIVERSIFIED FINANCIAL SERVICES [0.3%]
Chicago Mercantile Exchange
Holdings 250 120
=============================================================================
ENERGY EQUIPMENT & SERVICES [3.5%]
BJ Services 14,100 425
Nabors Industries* 12,200 363
Schlumberger 7,800 484
Transocean* 4,900 358
-----------------------------------------------------------------------------
TOTAL ENERGY EQUIPMENT & SERVICES 1,630
=============================================================================
FOOD & STAPLES RETAILING [3.5%]
Sysco 16,100 538
Wal-Mart Stores 21,975 1,084
-----------------------------------------------------------------------------
TOTAL FOOD & STAPLES RETAILING 1,622
=============================================================================
FOOD PRODUCTS [1.2%]
General Mills 4,300 243
Kellogg 6,200 307
-----------------------------------------------------------------------------
TOTAL FOOD PRODUCTS 550
=============================================================================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
CNI CHARTER FUNDS | PAGE 21
schedule of investments
SEPTEMBER 30, 2006
- --------------------------------------------------------------------------------
LARGE CAP GROWTH EQUITY FUND (CONTINUED)
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES [3.8%]
Bard (C.R.) 3,200 $ 240
Biomet 10,900 351
Boston Scientific* 8,400 124
Stryker 12,800 635
Zimmer Holdings* 6,200 419
-----------------------------------------------------------------------------
TOTAL HEALTH CARE EQUIPMENT & SUPPLIES 1,769
=============================================================================
HEALTH CARE PROVIDERS & SERVICES [4.5%]
Caremark Rx 12,900 731
Coventry Health Care* 4,200 217
Quest Diagnostics 5,400 330
UnitedHealth Group 15,800 777
-----------------------------------------------------------------------------
TOTAL HEALTH CARE PROVIDERS & SERVICES 2,055
=============================================================================
HEALTH CARE TECHNOLOGY [0.4%]
IMS Health 7,500 200
=============================================================================
HOTELS, RESTAURANTS & LEISURE [2.3%]
Carnival 6,600 310
Starbucks* 9,500 324
Wyndham Worldwide* 1,660 46
Yum! Brands 7,400 385
-----------------------------------------------------------------------------
TOTAL HOTELS, RESTAURANTS & LEISURE 1,065
=============================================================================
HOUSEHOLD DURABLES [0.4%]
Harman International Industries 2,200 184
=============================================================================
HOUSEHOLD PRODUCTS [5.5%]
Colgate-Palmolive 10,100 628
Procter & Gamble 26,302 1,630
Clorox 4,400 277
-----------------------------------------------------------------------------
TOTAL HOUSEHOLD PRODUCTS 2,535
=============================================================================
INDEPENDENT POWER PRODUCER/
ENERGY TRADER [0.7%]
TXU 5,200 325
=============================================================================
INDUSTRIAL CONGLOMERATES [3.3%]
3M 6,000 446
General Electric 31,075 1,097
-----------------------------------------------------------------------------
TOTAL INDUSTRIAL CONGLOMERATES 1,543
=============================================================================
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
INSURANCE [2.7%]
Aflac 6,600 $ 302
American International Group 11,500 762
Progressive 8,000 196
-----------------------------------------------------------------------------
TOTAL INSURANCE 1,260
=============================================================================
INTERNET SOFTWARE & SERVICES [2.9%]
eBay* 26,800 760
Yahoo!* 22,500 569
-----------------------------------------------------------------------------
TOTAL INTERNET SOFTWARE & SERVICES 1,329
=============================================================================
IT SERVICES [1.0%]
First Data 7,100 298
Paychex 4,800 177
-----------------------------------------------------------------------------
TOTAL IT SERVICES 475
=============================================================================
LIFE SCIENCES TOOLS & SERVICES [0.6%]
Thermo Electron* 7,100 279
=============================================================================
MACHINERY [1.1%]
Danaher 7,600 522
=============================================================================
MEDIA [1.9%]
Comcast* 8,100 299
McGraw-Hill 5,400 313
Time Warner 13,100 239
-----------------------------------------------------------------------------
TOTAL MEDIA 851
=============================================================================
METALS & MINING [0.9%]
Goldcorp 9,000 212
Nucor 4,200 208
-----------------------------------------------------------------------------
TOTAL METALS & MINING 420
=============================================================================
MULTILINE RETAIL [1.8%]
Sears Holdings* 2,700 427
Target 7,500 414
-----------------------------------------------------------------------------
TOTAL MULTILINE RETAIL 841
=============================================================================
OIL & GAS [6.8%]
Chevron 3,800 247
Exxon Mobil 32,000 2,147
Sunoco 4,200 261
XTO Energy 11,300 476
-----------------------------------------------------------------------------
TOTAL OIL & GAS 3,131
=============================================================================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
CNI CHARTER FUNDS | PAGE 22
schedule of investments
SEPTEMBER 30, 2006
- --------------------------------------------------------------------------------
LARGE CAP GROWTH EQUITY FUND (CONCLUDED)
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
PERSONAL PRODUCTS [0.6%]
Avon Products 8,600 $ 264
=============================================================================
PHARMACEUTICALS [6.8%]
Abbott Laboratories 4,795 233
Allergan 3,700 417
Forest Laboratories* 7,700 390
Johnson & Johnson 16,664 1,082
Schering-Plough 14,000 309
Wyeth 13,850 704
-----------------------------------------------------------------------------
TOTAL PHARMACEUTICALS 3,135
=============================================================================
REAL ESTATE INVESTMENT TRUST [0.9%]
Simon Property Group 4,700 426
=============================================================================
REAL ESTATE MANAGEMENT & DEVELOPMENT [0.1%]
Realogy* 2,075 47
=============================================================================
ROAD & RAIL [0.0%]
Avis Budget Group* 830 15
=============================================================================
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT [3.4%]
Broadcom, Cl A* 11,850 360
Intel 12,350 254
Linear Technology 11,700 364
Texas Instruments 17,800 592
-----------------------------------------------------------------------------
TOTAL SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT 1,570
=============================================================================
SOFTWARE [7.1%]
Autodesk* 9,800 341
Citrix Systems* 7,100 257
Electronic Arts* 3,600 200
Microsoft 49,830 1,362
Oracle* 22,500 399
Symantec* 34,400 732
-----------------------------------------------------------------------------
TOTAL SOFTWARE 3,291
=============================================================================
SPECIALTY RETAIL [3.4%]
Best Buy 3,500 187
Home Depot 18,300 664
Lowe's 17,600 494
TJX 8,600 241
-----------------------------------------------------------------------------
TOTAL SPECIALTY RETAIL 1,586
=============================================================================
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
TEXTILES, APPAREL & LUXURY GOODS [1.3%]
Coach* 17,300 $ 595
=============================================================================
THRIFTS & MORTGAGE FINANCE [0.7%]
Countrywide Financial 8,600 301
=============================================================================
WIRELESS TELECOMMUNICATION SERVICES [0.2%]
Sprint-Nextel 4,309 74
=============================================================================
TOTAL COMMON STOCK
(Cost $41,212) 45,331
=========================================================================
CASH EQUIVALENTS [1.5%]
Fidelity Institutional Domestic
Money Market Portfolio,
Cl I, 5.22%** 656,508 657
SEI Daily Income Trust,
Prime Obligation Fund,
Cl A, 5.33%** 25,272 25
-----------------------------------------------------------------------------
TOTAL CASH EQUIVALENTS
(Cost $682) 682
=========================================================================
TOTAL INVESTMENTS [99.6%]
(Cost $41,894) 46,013
=========================================================================
OTHER ASSETS AND LIABILITIES [ 0.4%] 192
=========================================================================
NET ASSETS -- 100.0% $ 46,205
=============================================================================
* NON-INCOME PRODUCING SECURITY
** RATE SHOWN IS THE 7-DAY EFFECTIVE YIELD AS OF SEPTEMBER 30, 2006.
CL -- CLASS
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
CNI CHARTER FUNDS | PAGE 23
schedule of investments
SEPTEMBER 30, 2006
- --------------------------------------------------------------------------------
RCB SMALL CAP VALUE FUND
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
SECTOR WEIGHTINGS (UNAUDITED)*:
34.2% Financials
23.3% Consumer Discretionary
13.4% Industrials
12.2% Consumer Staples
4.9% Energy
4.4% Short-Term Investment
3.6% Utilities
2.4% Materials
1.6% Information Technology
* Percentages based on total investments.
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCK+ [92.7%]
BROADCASTING & CABLE [6.5%]
Cox Radio* 161,250 $ 2,475
Cumulus Media* 218,600 2,090
-----------------------------------------------------------------------------
TOTAL BROADCASTING & CABLE 4,565
=============================================================================
COMMERCIAL SERVICES [7.1%]
Adesa 58,000 1,340
Coinstar* 65,600 1,888
Watson Wyatt 42,000 1,719
-----------------------------------------------------------------------------
TOTAL COMMERCIAL SERVICES 4,947
=============================================================================
DIVERSIFIED MANUFACTURING [4.1%]
Jacuzzi Brands* 283,300 2,830
=============================================================================
DIVERSIFIED METALS & MINING [2.4%]
Compass Minerals International 59,000 1,670
=============================================================================
UTILITIES [3.6%]
Sierra Pacific Resources* 174,000 2,495
=============================================================================
ENERGY EQUIPMENT & SERVICES [2.1%]
Hanover Compressor* 79,200 1,443
=============================================================================
ENTERTAINMENT [7.3%]
Lodgenet Entertainment* 270,000 5,098
=============================================================================
FOOD, BEVERAGE & TOBACCO [4.3%]
Ralcorp Holdings* 62,400 3,010
=============================================================================
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS [3.1%]
Central Garden & Pet* 45,100 $ 2,176
=============================================================================
INSURANCE [27.5%]
Alleghany* 12,218 3,531
Conseco* 140,000 2,939
Hilb Rogal & Hobbs 38,900 1,659
Montpelier Re Holdings 152,450 2,956
Odyssey Re Holdings 58,000 1,959
USI Holdings* 226,200 3,065
White Mountains Insurance
Group 6,200 3,081
-----------------------------------------------------------------------------
TOTAL INSURANCE 19,190
=============================================================================
MACHINERY [2.0%]
IDEX 31,800 1,369
=============================================================================
OIL & GAS [2.8%]
Rosetta Resources* 114,200 1,961
=============================================================================
PREPACKAGING SOFTWARE [1.6%]
PLATO Learning* 175,300 1,117
=============================================================================
REAL ESTATE INVESTMENT TRUST [4.2%]
Annaly Mortgage Management 225,100 2,958
=============================================================================
RETAIL [10.6%]
IHOP 33,170 1,538
Smart & Final* 194,600 3,322
Triarc, Cl B 169,800 2,567
-----------------------------------------------------------------------------
TOTAL RETAIL 7,427
=============================================================================
SPECIALTY RETAIL [3.5%]
Jo-Ann Stores* 144,100 2,409
=============================================================================
TOTAL COMMON STOCK
(Cost $51,933) 64,665
=========================================================================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
CNI CHARTER FUNDS | PAGE 24
schedule of investments
SEPTEMBER 30, 2006
- --------------------------------------------------------------------------------
RCB SMALL CAP VALUE FUND (CONCLUDED)
DESCRIPTION FACE AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
CORPORATE BONDS [2.6%]
FINANCIAL SERVICES [2.3%]
Fairfax Financial Holding
7.750%, 04/26/12 $ 600 $ 558
Labranche (A)
Callable 05/15/07 @ 104.75
9.500%, 05/15/09 1,000 1,043
-----------------------------------------------------------------------------
TOTAL FINANCIAL SERVICES 1,601
=============================================================================
LABORATORY EQUIPMENT [0.3%]
Sea Containers, Ser B
10.750%, 10/15/06 250 200
=============================================================================
TOTAL CORPORATE BONDS
(Cost $1,828) 1,801
=========================================================================
REPURCHASE AGREEMENT (B) [4.4%]
Morgan Stanley,
5.000%, dated 09/29/06,
repurchased on 10/02/06,
repurchase price $3,054,731
(collateralized by a U.S. Treasury
Note, par value $2,919,831,
6.500%, 2/15/10; with total
market value $3,114,578) 3,053 3,053
-----------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(Cost $3,053) 3,053
=========================================================================
TOTAL INVESTMENTS [99.7%]
(Cost $56,814) 69,519
=========================================================================
OTHER ASSETS AND LIABILITIES [0.3%] 222
=========================================================================
NET ASSETS -- 100.0% $ 69,741
=============================================================================
DESCRIPTION
* NON-INCOME PRODUCING SECURITY
+ MORE NARROW INDUSTRIES ARE UTILIZED FOR COMPLIANCE PURPOSES, WHEREAS BROAD
SECTORS ARE UTILIZED FOR REPORTING.
(A) SECURITY EXEMPT FROM REGISTRATION UNDER RULE 144A OF THE SECURITIES ACT OF
1933. THESE SECURITIES MAY BE RESOLD IN TRANSACTIONS EXEMPT FROM
REGISTRATION NORMALLY TO QUALIFIED INSTITUTIONS. ON SEPTEMBER 30, 2006,
THE VALUE OF THESE SECURITIES AMOUNTED TO $1,043 (000), REPRESENTING 1.5%
OF THE NET ASSETS OF THE FUND.
(B) TRI-PARTY REPURCHASE AGREEMENT
CL -- CLASS
SER -- SERIES
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
CNI CHARTER FUNDS | PAGE 25
schedule of investments
SEPTEMBER 30, 2006
- --------------------------------------------------------------------------------
TECHNOLOGY GROWTH FUND
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
SECTOR WEIGHTINGS (UNAUDITED)*:
94.6% Information Technology
2.2% Short-Term Investments
1.5% Industrials
1.3% Healthcare
0.4% Consumer Discretionary
* Percentages based on total investments.
- --------------------------------------------------------------------------------
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCK [97.8%]
AUDIO & VIDEO EQUIPMENT
MANUFACTURING [0.4%]
Sony, ADR 300 $ 12
=============================================================================
COMMUNICATIONS EQUIPMENT
MANUFACTURING [12.8%]
Cisco Systems* 4,705 108
Harris 700 31
Motorola 2,725 68
Nokia, ADR 2,150 42
Qualcomm 2,600 95
-----------------------------------------------------------------------------
TOTAL COMMUNICATIONS EQUIPMENT
MANUFACTURING 344
=============================================================================
COMPUTER & PERIPHERAL EQUIPMENT
MANUFACTURING [19.3%]
Apple Computer* 995 77
Dell* 1,525 35
EMC-Mass* 4,505 54
Hewlett-Packard 3,823 140
IBM 1,400 115
NAVTEQ* 400 10
Sandisk* 400 21
Symbol Technologies 2,250 33
Western Digital* 1,750 32
-----------------------------------------------------------------------------
TOTAL COMPUTER & PERIPHERAL EQUIPMENT MANUFACTURING 517
=============================================================================
COMPUTER SYSTEMS DESIGN &
RELATED SERVICES [8.6%]
Autodesk* 800 28
Cerner* 400 18
Cognizant Technology Solutions,
Cl A* 800 59
Electronic Data Systems 1,725 42
Intergraph* 275 12
Jack Henry & Associates 1,100 24
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
Micros Systems* 300 $ 15
Parametric Technology* 950 16
Quest Software* 1,100 16
-----------------------------------------------------------------------------
TOTAL COMPUTER SYSTEMS
DESIGN & RELATED SERVICES 230
=============================================================================
DATA PROCESSING SERVICES [2.2%]
Affiliated Computer Services,
Cl A* 425 22
First Data 850 36
-----------------------------------------------------------------------------
TOTAL DATA PROCESSING SERVICES 58
=============================================================================
ELECTRONIC SHOPPING & MAIL-ORDER HOUSES [0.8%]
eBay* 725 21
=============================================================================
FIBER OPTIC CABLE MANUFACTURING [1.8%]
Corning* 2,000 49
=============================================================================
NAVIGATIONAL/MEASURING/MEDICAL/CONTROL
INSTRUMENTS MANUFACTURING [2.5%]
Flir Systems* 400 11
L-3 Communications Holdings 500 39
PerkinElmer 875 17
-----------------------------------------------------------------------------
TOTAL NAVIGATIONAL/MEASURING/MEDICAL/
CONTROL INSTRUMENTS MANUFACTURING 67
=============================================================================
ON-LINE INFORMATION SERVICES [5.4%]
Google* 95 38
Juniper Networks* 1,092 19
WebEx Communications* 1,125 44
Websense* 700 15
Yahoo!* 1,200 30
-----------------------------------------------------------------------------
TOTAL ON-LINE INFORMATION SERVICES 146
=============================================================================
SEMICONDUCTOR & OTHER ELECTRONIC COMPONENT
MANUFACTURING [18.9%]
Amphenol, Cl A 500 31
Analog Devices 825 24
Applied Materials 800 14
Arrow Electronics* 500 14
Broadcom, Cl A* 1,200 37
Intel 4,950 102
Jabil Circuit 850 24
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
CNI CHARTER FUNDS | PAGE 26
schedule of investments
SEPTEMBER 30, 2006
- --------------------------------------------------------------------------------
TECHNOLOGY GROWTH FUND (CONCLUDED)
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
Linear Technology 775 $ 24
Marvel Tech Group* 1,200 23
Maxim Integrated Products 900 25
Micron Technology* 750 13
National Semiconductor 475 11
Taiwan Semiconductor
Manufacturing, ADR 3,394 33
Texas Instruments 2,900 97
TTM Technologies* 850 10
Xilinx 700 15
Zoran* 600 10
-----------------------------------------------------------------------------
TOTAL SEMICONDUCTOR & OTHER ELECTRONIC
COMPONENT MANUFACTURING 507
=============================================================================
SOFTWARE PUBLISHERS [23.6%]
Adobe Systems* 1,000 37
Akamai Technologies* 1,000 50
BEA Systems* 1,400 21
Citrix Systems* 1,175 43
Electronic Arts* 400 22
F5 Networks* 350 19
Intuit* 400 13
McAfee* 975 24
Microsoft 7,850 215
Oracle* 4,765 84
Red Hat* 500 11
SAP, ADR 250 12
Symantec* 3,300 70
VeriSign* 550 11
-----------------------------------------------------------------------------
TOTAL SOFTWARE PUBLISHERS 632
=============================================================================
TELECOMMUNICATIONS [1.5%]
Amdocs* 1,000 40
=============================================================================
TOTAL COMMON STOCK
(Cost $2,431) 2,623
=========================================================================
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
CASH EQUIVALENTS [2.2%]
Fidelity Institutional Domestic
Money Market Portfolio,
Cl I, 5.22%** 51,456 $ 51
SEI Daily Income Trust,
Prime Obligation Fund,
Cl A, 5.33%** 8,009 8
=============================================================================
TOTAL CASH EQUIVALENTS
(Cost $59) 59
=========================================================================
TOTAL INVESTMENTS [100.0%]
(Cost $2,490) 2,682
=========================================================================
OTHER ASSETS AND LIABILITIES [0.0%] --
=========================================================================
NET ASSETS -- 100.0% $ 2,682
=============================================================================
* NON-INCOME PRODUCING SECURITY
** RATE SHOWN IS THE 7-DAY EFFECTIVE YIELD AS OF SEPTEMBER 30, 2006.
ADR -- AMERICAN DEPOSITARY RECEIPT
CL -- CLASS
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
CNI CHARTER FUNDS | PAGE 27
schedule of investments
SEPTEMBER 30, 2006
- --------------------------------------------------------------------------------
CORPORATE BOND FUND
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
SECTOR WEIGHTINGS (UNAUDITED)*:
38.9% Financial
25.6% Industrial
7.4% Telephone
7.3% Bank
5.4% U.S. Government Mortgage-Backed Obligations
3.2% Short-Term Investments
3.0% Utilities
2.6% Commercial Paper
1.9% U.S. Treasury Obligations
1.8% Municipal Bonds
1.1% Gas Transmission
0.8% Foreign Governments
0.7% Mortgage-Backed
0.3% Transportation
* Percentages based on total investments.
- --------------------------------------------------------------------------------
DESCRIPTION FACE AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
CORPORATE BONDS [85.0%]
AIR TRANSPORTATION [0.3%]
Federal Express, Ser A2
7.890%, 09/23/08 $ 165 $ 168
=============================================================================
AUTOMOTIVE [2.7%]
DaimlerChrysler
5.875%, 03/15/11 570 571
Toyota Motor Credit
4.250%, 03/15/10 1,000 971
-----------------------------------------------------------------------------
TOTAL AUTOMOTIVE 1,542
=============================================================================
BANKS [8.4%]
Bankers Trust
7.250%, 10/15/11 500 546
Crestar Finance
6.500%, 01/15/08 1,035 1,054
Deutsche Bank
7.500%, 04/25/09 500 526
Union Planters Bank
5.125%, 06/15/07 1,215 1,214
US Bancorp
6.875%, 09/15/07 350 354
Wachovia
7.125%, 10/15/06 100 100
Wells Fargo
4.625%, 08/09/10 1,000 984
-----------------------------------------------------------------------------
TOTAL BANKS 4,778
=============================================================================
BEAUTY PRODUCTS [1.5%]
Avon Products
7.150%, 11/15/09 800 844
=============================================================================
DESCRIPTION FACE AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
CHEMICALS [0.4%]
Praxair
6.625%, 10/15/07 $ 200 $ 202
=============================================================================
COMMUNICATION & MEDIA [4.5%]
AOL Time Warner
6.750%, 04/15/11 395 413
Comcast Cable Communications
Holdings
8.375%, 03/15/13 440 502
News America Holdings
9.250%, 02/01/13 450 532
Walt Disney
5.700%, 07/15/11 1,100 1,121
-----------------------------------------------------------------------------
TOTAL COMMUNICATION & MEDIA 2,568
=============================================================================
COMPUTER SYSTEM DESIGN & SERVICES [3.3%]
Cisco Systems
5.500%, 02/22/16 1,000 1,008
IBM
4.375%, 06/01/09 900 885
-----------------------------------------------------------------------------
TOTAL COMPUTERS SYSTEM DESIGN
& SERVICES 1,893
=============================================================================
DRUGS [1.8%]
Abbott Laboratories
5.375%, 05/15/09 1,000 1,009
=============================================================================
ELECTRICAL SERVICES [3.1%]
American Electric Power
5.250%, 06/01/15 490 477
Iowa Electric Light & Power
6.000%, 10/01/08 200 202
WPS Resources
7.000%, 11/01/09 1,000 1,047
-----------------------------------------------------------------------------
TOTAL ELECTRICAL SERVICES 1,726
=============================================================================
FINANCIAL SERVICES [16.7%]
American General Finance,
Ser I, MTN
4.625%, 05/15/09 1,000 983
CIT Group, MTN
4.750%, 12/15/10 1,000 978
Citigroup
5.850%, 08/02/16 1,000 1,034
Countrywide Home Loans
5.625%, 07/15/09 155 156
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
CNI CHARTER FUNDS | PAGE 28
schedule of investments
SEPTEMBER 30, 2006
- --------------------------------------------------------------------------------
CORPORATE BOND FUND (CONTINUED)
DESCRIPTION FACE AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
Countrywide Home Loans,
Ser L, MTN
4.000%, 03/22/11 $ 875 $ 826
General Electric Capital,
Ser A, MTN
6.875%, 11/15/10 250 266
6.000%, 06/15/12 1,500 1,559
HSBC Finance
5.250%, 04/15/15 1,000 985
John Deere Capital
4.625%, 04/15/09 750 740
MBNA
4.625%, 09/15/08 410 405
National Rural Utilities,
Ser C, MTN
7.250%, 03/01/12 1,000 1,093
Washington Mutual
4.625%, 04/01/14 460 429
-----------------------------------------------------------------------------
TOTAL FINANCIAL SERVICES 9,454
=============================================================================
FOOD, BEVERAGE & TOBACCO [4.2%]
Bottling Group
5.500%, 04/01/16 1,000 1,007
Diageo Capital
3.375%, 03/20/08 1,000 974
General Mills
2.625%, 10/24/06 410 409
-----------------------------------------------------------------------------
TOTAL FOOD, BEVERAGE & TOBACCO 2,390
=============================================================================
FOREIGN GOVERNMENTS [0.8%]
United Mexican States
5.875%, 01/15/14 450 460
=============================================================================
INSURANCE [5.5%]
Aflac
6.500%, 04/15/09 1,000 1,031
AXA Financial
7.750%, 08/01/10 1,000 1,084
Berkshire Hathaway Finance
4.125%, 01/15/10 1,000 972
-----------------------------------------------------------------------------
TOTAL INSURANCE 3,087
=============================================================================
INVESTMENT BANKER/BROKER DEALER [12.3%]
Credit Suisse
5.500%, 08/15/13 1,000 1,009
Goldman Sachs Group
5.150%, 01/15/14 1,000 978
Jefferies Group
5.500%, 03/15/16 665 649
DESCRIPTION FACE AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
JPMorgan Chase
7.125%, 06/15/09 $ 675 $ 709
6.750%, 02/01/11 500 530
Lehman Brothers Holdings
8.250%, 06/15/07 1,100 1,122
Merrill Lynch
4.000%, 11/15/07 1,000 986
Morgan Stanley
3.875%, 01/15/09 1,000 973
-----------------------------------------------------------------------------
TOTAL INVESTMENT BANKER/BROKER DEALER 6,956
=============================================================================
PETROLEUM & FUEL PRODUCTS [2.0%]
Chevron
8.625%, 06/30/10 200 225
ConocoPhillips
6.375%, 03/30/09 305 314
Duke Capital
5.500%, 03/01/14 625 614
-----------------------------------------------------------------------------
TOTAL PETROLEUM & FUEL PRODUCTS 1,153
=============================================================================
REAL ESTATE INVESTMENT TRUSTS [1.9%]
Kimco Realty, MTN
6.960%, 07/16/07 1,000 1,011
Kimco Realty, Ser B, MTN
7.860%, 11/01/07 67 68
-----------------------------------------------------------------------------
TOTAL REAL ESTATE INVESTMENT TRUSTS 1,079
=============================================================================
RETAIL [7.0%]
Kohl's
6.300%, 03/01/11 1,000 1,037
Kroger
5.500%, 02/01/13 450 444
McDonald's, Ser E, MTN
4.240%, 12/13/06 995 992
Target
5.875%, 07/15/16 500 518
Wal-Mart Stores
4.375%, 07/12/07 1,000 994
-----------------------------------------------------------------------------
TOTAL RETAIL 3,985
=============================================================================
TELEPHONES & TELECOMMUNICATIONS [7.5%]
BellSouth
4.200%, 09/15/09 1,000 970
Deutsche Telekom International Finance
5.250%, 07/22/13 475 461
New Cingular Wireless Services
8.125%, 05/01/12 400 450
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
CNI CHARTER FUNDS | PAGE 29
schedule of investments
SEPTEMBER 30, 2006
- --------------------------------------------------------------------------------
CORPORATE BOND FUND (CONCLUDED)
DESCRIPTION FACE AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
Southwestern Bell
6.625%, 07/15/07 $ 750 $ 757
Sprint Capital
8.375%, 03/15/12 550 616
Verizon Communications
5.550%, 02/15/16 1,000 987
-----------------------------------------------------------------------------
TOTAL TELEPHONES & TELECOMMUNICATIONS 4,241
=============================================================================
WASTE DISPOSAL [1.1%]
Waste Management
6.875%, 05/15/09 575 597
=============================================================================
TOTAL CORPORATE BONDS
(Cost $48,413) 48,132
=============================================================================
U.S. TREASURY OBLIGATION [1.9%]
U.S. Treasury Inflation Index Note
2.000%, 01/15/14 1,101 1,080
-----------------------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATION
(Cost $1,141) 1,080
=============================================================================
MUNICIPAL BONDS [1.8%]
CALIFORNIA [1.8%]
California Statewide, Community
Development Authority,
Ser A-2, RB, XLCA
4.000%, 11/15/06 75 75
City of Industry, Sales Tax Project,
RB, MBIA
5.000%, 01/01/12 955 946
-----------------------------------------------------------------------------
TOTAL CALIFORNIA 1,021
=============================================================================
TOTAL MUNICIPAL BONDS
(Cost $1,057) 1,021
=============================================================================
MORTGAGE-BACKED SECURITY [0.7%]
Residential Asset Mortgage
Products, Ser 2003-RS5, Cl AI4
3.700%, 09/25/31 393 387
-----------------------------------------------------------------------------
TOTAL MORTGAGE-BACKED SECURITY
(Cost $388) 387
=========================================================================
DESCRIPTION FACE AMOUNT (000)/SHARES VALUE (000)
- --------------------------------------------------------------------------------
U.S. GOVERNMENT MORTGAGE-BACKED
OBLIGATIONS [5.5%]
FHLMC, Ser 2982, Cl NB
5.500%, 02/15/29 $ 340 $ 341
FHLMC, Ser R004, Cl Al
5.125%, 12/15/13 1,238 1,228
FNMA CMO, Ser 2002-56,
Cl MC
5.500%, 09/25/17 1,316 1,319
FNMA REMIC, Ser 2006,
Cl AB
6.000%, 06/25/16 217 218
-----------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT MORTGAGE-BACKED
OBLIGATIONS
(Cost $3,102) 3,106
=============================================================================
COMMERCIAL PAPER (A) [2.7%]
ASSET BACKED SECURITIES [2.7%]
Giro Balanced Funding
5.270%, 10/05/06 1,489 1,488
=============================================================================
TOTAL COMMERCIAL PAPER
(Cost $1,488) 1,488
=============================================================================
CASH EQUIVALENT [3.2%]
Fidelity Institutional Domestic
Money Market Portfolio,
Cl I, 5.22%* 1,838,200 1,838
-----------------------------------------------------------------------------
TOTAL CASH EQUIVALENT
(Cost $1,838) 1,838
=========================================================================
TOTAL INVESTMENTS [100.8%]
(Cost $57,427) 57,052
=========================================================================
OTHER ASSETS AND LIABILITIES [-0.8%] (430)
=========================================================================
NET ASSETS -- 100.0% $ 56,622
=============================================================================
* RATE SHOWN IS THE 7-DAY EFFECTIVE YIELD AS OF SEPTEMBER 30, 2006.
(A) THE RATE REPORTED IS THE EFFECTIVE YIELD AT TIME OF PURCHASE.
CL -- CLASS
CMO -- COLLATERALIZED MORTGAGE OBLIGATION
FHLMC -- FEDERAL HOME LOAN MORTGAGE CORPORATION
FNMA -- FEDERAL NATIONAL MORTGAGE ASSOCIATION
MBIA -- MUNICIPAL BOND INSURANCE ASSOCIATION
MTN -- MEDIUM TERM NOTE
REMIC -- REAL ESTATE MORTGAGE INVESTMENT CONDUIT
RB -- REVENUE BOND
SER -- SERIES
XLCA -- XL CAPITAL ASSURANCE
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
CNI CHARTER FUNDS | PAGE 30
schedule of investments
SEPTEMBER 30, 2006
- --------------------------------------------------------------------------------
GOVERNMENT BOND FUND
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
SECTOR WEIGHTINGS (UNAUDITED)*:
50.8% U.S. Government Agency Obligations
36.0% U.S. Government Mortgage-Backed Obligations
13.1% U.S. Treasury Obligations
0.1% Short-Term Investments
* Percentages based on total investments.
- --------------------------------------------------------------------------------
DESCRIPTION FACE AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS [50.4%]
FHLB
6.200%, 03/22/21 $ 2,000 $ 1,995
5.020%, 11/07/08 1,000 999
4.375%, 09/17/10 2,000 1,960
FHLMC
5.125%, 10/15/08 30 30
FNMA
7.125%, 06/15/10 4,000 4,298
5.500%, 03/15/11 2,570 2,630
5.010%, 11/10/10 2,500 2,476
5.000%, 07/25/08 2,000 1,995
5.000%, 01/23/09 2,500 2,493
-----------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(Cost $18,989) 18,876
=========================================================================
U.S. GOVERNMENT MORTGAGE-BACKED
OBLIGATIONS [35.7%]
FHLMC REMIC, Ser R005,
Cl AB
5.500%, 12/15/18 1,398 1,396
FHLMC REMIC, Ser R009,
Cl AK
5.750%, 12/15/18 1,966 1,972
FHLMC, Ser R003, Cl AG
5.125%, 10/15/15 1,888 1,872
FHLMC, Ser R004, Cl Al
5.125%, 12/15/13 1,944 1,928
FHLMC, Ser R007, Cl AC
5.875%, 05/15/16 1,853 1,859
FNMA, Pool 766620
4.574%, 03/01/34 1,110 1,088
GNMA, Pool 81318
4.500%, 04/20/35 1,170 1,155
GNMA, Pool 81447
5.000%, 08/20/35 131 129
GNMA, Pool 81510
4.250%, 10/20/35 1,415 1,378
GNMA, Pool 864622
4.500%, 06/20/35 600 592
-----------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT MORTGAGE-BACKED
OBLIGATIONS
(Cost $13,414) 13,369
=========================================================================
DESCRIPTION FACE AMOUNT (000)/SHARES VALUE (000)
- --------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS [13.0%]
U.S. Treasury Notes
5.500%, 02/15/08 $ 1,125 $ 1,135
4.250%, 11/15/13 1,050 1,027
4.250%, 08/15/15 1,150 1,119
3.875%, 01/15/09 1,445 1,487
3.750%, 05/15/08 75 74
-----------------------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $4,916) 4,842
=============================================================================
CASH EQUIVALENT [0.1%]
Fidelity Institutional Domestic
Money Market Portfolio,
Cl I, 5.22%* 49,932 50
-----------------------------------------------------------------------------
TOTAL CASH EQUIVALENT
(Cost $50) 50
=========================================================================
TOTAL INVESTMENTS [99.2%]
(Cost $37,369) 37,137
=========================================================================
OTHER ASSETS AND LIABILITIES [ 0.8%] 316
=========================================================================
NET ASSETS -- 100.0% $ 37,453
=============================================================================
* RATE SHOWN IS THE 7-DAY EFFECTIVE YIELD AS OF SEPTEMBER 30, 2006.
CL -- CLASS
FHLB -- FEDERAL HOME LOAN BANK
FHLMC -- FEDERAL HOME LOAN MORTGAGE CORPORATION
FNMA -- FEDERAL NATIONAL MORTGAGE ASSOCIATION
GNMA -- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
REMIC -- REAL ESTATE MORTGAGE INVESTMENT CONDUIT
SER -- SERIES
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
CNI CHARTER FUNDS | PAGE 31
schedule of investments
SEPTEMBER 30, 2006
- --------------------------------------------------------------------------------
CALIFORNIA TAX EXEMPT BOND FUND
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
SECTOR WEIGHTINGS (UNAUDITED)*:
26.6% Education
13.7% General Revenue
11.4% Public Facilities
10.5% General Obligation
9.2% Water
8.6% Industrial Development
6.8% Power
4.8% Transportation
4.6% Utilities
1.6% Healthcare
1.2% Short-Term Investments
1.0% Airport
* Percentages based on total investments.
- --------------------------------------------------------------------------------
DESCRIPTION FACE AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
MUNICIPAL BOND [97.9%]
ALABAMA [1.0%]
Jefferson County, Sewer Authority,
Ser B-8, RB, FSA
Callable 02/01/10 @ 100
5.250%, 02/01/14 $ 250 $ 262
=============================================================================
ARIZONA [2.0%]
Arizona State, Transportation Board,
GAN, Ser A, RB
5.000%, 07/01/13 500 540
=============================================================================
CALIFORNIA [78.9%]
Anaheim, Public Financing Authority,
Distribution System Project,
Second Lien, RB, MBIA
5.000%, 10/01/08 250 257
Berkeley, Ser C, GO, MBIA
Callable 11/10/06 @ 102
5.000%, 09/01/10 95 96
Beverly Hills, Unified School
District Authority, Ser B, GO
Pre-Refunded @ 101 (A)
4.700%, 06/01/08 50 51
Big Bear Lake, Water Authority,
RB, MBIA
6.000%, 04/01/11 200 216
Burbank, Public Financing Authority,
Golden State Redevelopment
Project, Ser A, RB, AMBAC
Callable 12/01/13 @ 100
5.250%, 12/01/18 175 190
DESCRIPTION FACE AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
California State, Department of
Water Resource & Power,
Ser B-5, RB
Callable 10/10/06 @ 100 (C)
3.650%, 05/01/22 $ 400 $ 400
California State, Department of Water
Resources, Ser A, RB, AMBAC
Callable 05/01/12 @ 101
5.500%, 05/01/14 300 331
California State, Department of
Water Resources, Ser W, RB, FSA
5.500%, 12/01/13 400 448
California State, Educational Facilities
Authority, Pooled College &
University Projects, Ser A, RB
4.300%, 04/01/09 100 101
California State, Educational Facilities
Authority, University of
San Francisco, RB, MBIA
6.000%, 10/01/08 300 315
California State, GO
4.750%, 06/01/07 100 101
California State, GO
Callable 02/01/12 @ 100
5.000%, 02/01/18 175 184
California State, GO
Callable 08/01/13 @ 100
5.250%, 02/01/21 250 269
California State, GO
Callable 10/01/10 @ 100
5.250%, 10/01/18 50 52
California State, GO
Pre-Refunded @ 100 (A)
5.250%, 09/01/10 200 213
California State, GO
Pre-Refunded @ 100 (A)
5.250%, 10/01/10 20 21
California State, Infrastructure &
Economic Authority, Bay Area
Toll Bridges Project,
Ser A, RB, FSA
Pre-Refunded @ 100 (A)
5.250%, 07/01/13 125 138
California State, Infrastructure &
Economic Authority, Energy
Efficiency Master Trust, Ser A, RB
5.000%, 03/01/11 315 334
California State, Infrastructure &
Economic Authority, RB, MBIA
Pre-Refunded @ 101 (A)
5.500%, 06/01/10 350 378
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
CNI CHARTER FUNDS | PAGE 32
schedule of investments
SEPTEMBER 30, 2006
- --------------------------------------------------------------------------------
CALIFORNIA TAX EXEMPT BOND FUND (CONTINUED)
DESCRIPTION FACE AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
California State, Public Works
Board Lease, California State
University, Ser C, RB
5.000%, 10/01/07 $ 100 $ 101
California State, Public Works
Board Lease, Department of
Corrections Project,
Ser B, RB, MBIA
Callable 09/01/08 @ 101
5.000%, 09/01/21 100 103
California State, Public Works
Board Lease, Department of
Corrections, Ser A, RB
Callable 09/01/08 @ 101
5.250%, 09/01/15 250 259
California State, Public Works
Board Lease, Department of
Corrections-State Prisons
Project, Ser A, RB, AMBAC
5.250%, 12/01/13 600 657
California State, Public Works
Board Lease, Department of
Corrections-Ten Administration,
Ser A, RB, AMBAC
Callable 03/01/12 @ 100
5.250%, 03/01/18 155 166
California State, Public Works
Board Lease, Trustees California
State University, Ser A, RB
Callable 10/01/08 @ 101
5.250%, 10/01/11 100 104
California State, Public Works
Board Lease, Various University
Projects, RB, MBIA
Callable 06/01/11 @ 100
5.500%, 06/01/14 250 277
California State, Ser A-3, GO (C)
3.650%, 05/01/33 200 200
California State, University of
California, Ser K, RB, MBIA
Callable 09/01/08 @ 101
5.000%, 09/01/17 150 155
California Statewide, Communities
Development Authority,
Ser B-2, RB, XLCA
4.000%, 11/15/06 400 400
Central, Unified School District
Authority, Ser A, GO, FGIC
5.500%, 07/01/22 400 444
DESCRIPTION FACE AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
Coachella Valley, Water District
Authority, Flood Control
Project, COP, AMBAC
Callable 10/01/07 @ 102
5.000%, 10/01/11 $ 250 $ 258
Corona, Public Financing Authority,
City Hall Project, Ser B, RB
Callable 09/01/12 @ 100
5.250%, 09/01/16 350 381
Culver City, Redevelopment Finance
Authority, TA, AMBAC
Sink Date 11/01/09 @ 100
5.500%, 11/01/14 75 82
Desert Sands, Unified School
District, COP, MBIA
Callable 03/01/13 @ 100
5.250%, 03/01/15 405 442
Escondido, Union School District,
Refunding & Financing Project,
COP, MBIA
4.750%, 07/01/19 735 792
Evergreen School District,
Ser C, GO, FGIC
Pre-Refunded @ 101 (A)
5.250%, 09/01/08 200 209
Fruitvale, School District, GO, FSA
Callable 08/01/09 @ 102
5.000%, 08/01/19 200 211
Golden State, Tobacco
Settlement, Ser A, RB
Callable 06/01/09 @ 100
5.000%, 06/01/19 250 256
Golden State, Tobacco
Settlement, Ser B, RB
Pre-Refunded @ 100 (A)
5.750%, 06/01/08 250 259
Irvine, Improvement Board,
Act 1915 Project,
District #93-14, SAB (B)
3.650%, 09/02/25 100 100
Los Angeles County, Public Works
Finance Authority, Master
Refunding Project,
Ser A, RB, MBIA
5.000%, 12/01/12 275 297
Los Angeles County, Public Works
Finance Authority, Regional Park
& Open Project, Ser A, RB
Pre-Refunded @ 101 (A)
5.500%, 10/01/07 325 335
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
CNI CHARTER FUNDS | PAGE 33
schedule of investments
SEPTEMBER 30, 2006
- --------------------------------------------------------------------------------
CALIFORNIA TAX EXEMPT BOND FUND (CONTINUED)
DESCRIPTION FACE AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
Los Angeles County, Public
Works Finance Authority,
Ser B, RB, MBIA
Callable 11/01/06 @ 102
5.250%, 09/01/14 $ 200 $ 204
Los Angeles, Harbor Development
Project, Ser C, RB
Callable 11/01/06 @ 101
5.125%, 11/01/11 180 182
Los Angeles, Municipal
Improvement Authority,
Central Library Project,
Ser A, RB, MBIA
5.250%, 06/01/13 230 253
Los Angeles, Property Tax
Project, Ser A, GO, MBIA
4.000%, 09/01/09 250 254
Los Angeles, Wastewater
Systems Authority, RB, FSA
4.500%, 06/01/09 250 257
Los Angeles, Water & Power
Authority, Power Systems
Project, Ser A, RB
5.000%, 07/01/08 500 513
Los Angeles, Water & Power
Authority, Power Systems
Project, Ser AA1, RB, MBIA
Callable 07/01/11 @ 100
5.250%, 07/01/13 200 215
M-S-R Public Power,
Ser G, RB, MBIA
Callable 07/01/07 @ 101
5.250%, 07/01/11 100 102
Modesto, Irrigation District,
Capital Improvements Project,
Ser A, COP, AMBAC
Callable 10/01/16 @ 100
5.000%, 10/01/19 330 359
Northern California, Transmission
Resource Authority, Ore
Transmission Project,
Ser A, RB, MBIA
7.000%, 05/01/13 250 292
Oakland, Joint Powers Financing
Authority, Oakland Convention
Center Project, RB, AMBAC
5.500%, 10/01/11 300 327
Oakland, Redevelopment Agency,
Central Distric Redevelopment
Project, TA, AMBAC
6.000%, 02/01/07 300 302
5.500%, 02/01/14 475 512
DESCRIPTION FACE AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
Oakland, State Building Authority,
Elihu M Harris Project,
Ser A, RB, AMBAC
Pre-Refunded @ 101 (A)
5.500%, 04/01/08 $ 100 $ 104
Pasadena, Electric Improvements
Authority, RB, FSA
4.500%, 06/01/07 160 161
Pinole, Redevelopment Agency
Project, TA, FSA
Callable 08/01/09 @ 101
5.250%, 08/01/14 100 105
Riverside, RB
Callable 10/01/08 @ 101
5.375%, 10/01/12 90 94
Riverside, RB
Pre-Refunded @ 101 (A)
5.375%, 10/01/08 10 10
Sacramento County, Sanitation
District Funding Authority,
RB, ETM
Callable 11/10/06 @ 102
5.000%, 12/01/07 100 102
Sacramento, City Unified School
District, Ser A, GO, FSA
4.250%, 07/01/09 75 77
San Bernardino, Community
College District, Election 2002
Project, Ser B, GO, MBIA
Pre-Refunded @ 100 (A)
5.250%, 08/01/14 750 834
San Diego County, Edgemoor &
Regional Systems Projects,
COP, AMBAC
Callable 02/01/15 @ 100
5.000%, 02/01/18 500 538
San Diego County, North County
Regional Center for Expansion,
COP, AMBAC
Pre-Refunded @ 102 (A)
5.250%, 11/15/06 100 102
San Diego, Unified School
District, Election 1998 Project,
Ser B-1, GO, MBIA
5.000%, 07/01/17 1,000 1,107
San Diego, Unified School
District, Election 1998 Project,
Ser E, GO, FSA
Callable 07/01/13 @ 100
5.000%, 07/01/28 400 431
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
CNI CHARTER FUNDS | PAGE 34
schedule of investments
SEPTEMBER 30, 2006
- --------------------------------------------------------------------------------
CALIFORNIA TAX EXEMPT BOND FUND (CONTINUED)
DESCRIPTION FACE AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
San Diego, University School
District, Capital Appreciation-
Election 1998 Project,
Ser D, GO, FGIC
Callable 07/01/12 @ 101
5.250%, 07/01/24 $ 135 $ 148
San Diego, University School
District, Election 1998
Project, Ser E, GO, FSA
Callable 07/01/13 @ 101
5.250%, 07/01/16 100 110
San Francisco (City & County),
Airports Commission Authority,
Second Ser-27B, RB, FGIC
5.250%, 05/01/12 250 268
San Francisco (City & County),
Public Utility Authority,
Ser A, RB, MBIA
Callable 11/01/06 @ 101.5
5.000%, 11/01/17 160 163
San Jose, University School
District, Ser A, GO, FSA
Callable 08/01/11 @ 101
5.375%, 08/01/19 150 162
San Ysidro, School District, Election
1997 Project, Ser C, GO, MBIA
6.000%, 08/01/11 205 228
Sanger, Unified School District,
Election 2006 Project,
Ser A, GO, FSA
Callable 08/01/16 @ 102
5.000%, 08/01/18 500 555
Sanger, Unified School District,
GO, MBIA
5.350%, 08/01/15 250 272
Santa Monica, Public Safety
Facilities Project, RB
Callable 07/01/09 @ 101
5.250%, 07/01/14 100 105
Semitropic, Improvement Water
Storage Authority, RB,
FSA, ACA Insured
Pre-Refunded @ 103 (A)
4.000%, 06/01/11 250 262
Solano County, COP, MBIA
Callable 11/01/12 @ 100
5.250%, 11/01/14 100 109
DESCRIPTION FACE AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
Southern California, Metropolitan
Water District Authority,
Ser A, RB
5.750%, 07/01/21 $ 280 $ 331
Southern California, Publiic
Power Authority, Southern
Transmission Project,
Sub-Ser A, RB, FSA
Callable 07/01/12 @ 100
5.250%, 07/01/16 200 217
Sweetwater, Union High School
District, Ser A, RB, FSA
5.000%, 09/01/13 355 385
Wiseburn, School District,
Ser A, GO, FGIC
4.200%, 08/01/07 125 126
-----------------------------------------------------------------------------
TOTAL CALIFORNIA 21,461
=============================================================================
FLORIDA [1.4%]
Florida State, Correctional
Private Commission
Authority, COP, MBIA
Callable 08/01/11 @ 101
5.375%, 08/01/14 350 379
=============================================================================
GEORGIA [0.8%]
Georgia State, Metropolitan
Atlanta Rapid Transportation
Authority, Second Indenture
Project, Ser A, RB, MBIA
6.250%, 07/01/07 200 204
=============================================================================
ILLINOIS [2.2%]
Illinois State, Civic Center
Authority, RB, FSA
Callable 12/15/10 @ 100
5.500%, 12/15/14 200 214
Illinois State, Development
Finance Authority, Revolving
Fund-Master Trust, RB
Callable 09/01/12 @ 100
5.500%, 09/01/13 250 274
Illinois State, Ser A, GO
Callable 10/01/13 @ 100
5.000%, 10/01/16 100 108
-----------------------------------------------------------------------------
TOTAL ILLINOIS 596
=============================================================================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
CNI CHARTER FUNDS | PAGE 35
schedule of investments
SEPTEMBER 30, 2006
- --------------------------------------------------------------------------------
CALIFORNIA TAX EXEMPT BOND FUND (CONTINUED)
DESCRIPTION FACE AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
MICHIGAN [0.9%]
Michigan State, Building
Authority, Facilities Project,
Ser II, RB
Pre-Refunded @ 101 (A)
5.000%, 10/15/07 $ 250 $ 256
=============================================================================
NEW JERSEY [1.4%]
New Jersey State, Turnpike
Authority, RB, MBIA, ETM
6.500%, 01/01/16 315 369
=============================================================================
NEW YORK [2.1%]
New York State, Ser E, RB
6.000%, 04/01/14 500 574
=============================================================================
OREGON [1.4%]
Lane County, School District, GO
Pre-Refunded @ 100 (A)
5.625%, 06/15/10 345 370
=============================================================================
TEXAS [2.0%]
San Angelo, Waterworks &
Sewer System Authority,
Refunding & Improvements
Projects, RB, FSA
Callable 04/01/11 @ 100
5.250%, 04/01/19 100 106
Travis County, Health Facilities
Development Authority,
Ascension Health Credit
Project, Ser A, RB, MBIA
Pre-Refunded @ 101 (A)
6.250%, 11/15/09 400 435
-----------------------------------------------------------------------------
TOTAL TEXAS 541
=============================================================================
UTAH [0.5%]
Central, Water Conservancy
District, Ser D, GO
Pre-Refunded @ 100 (A)
4.600%, 04/01/09 140 144
=============================================================================
WASHINGTON [1.3%]
Washington State,
Ser 02-A, GO, FSA
Callable 07/01/11 @ 100
5.000%, 07/01/19 345 362
=============================================================================
DESCRIPTION FACE AMOUNT (000)/SHARES VALUE (000)
- --------------------------------------------------------------------------------
PUERTO RICO [2.0%]
Puerto Rico, Electric Power
Authority, Power Project,
Ser CC, RB, MBIA
Callable 07/01/07 @ 101.5
5.250%, 07/01/09 $ 100 $ 103
Puerto Rico, Municipal Finance
Agency, Ser A, RB, FSA
Callable 07/01/07 @ 101.5
5.250%, 07/01/10 130 133
Puerto Rico, Public Buildings
Authority, Government
Facilities Project, Ser J,
RB, AMBAC
Callable 07/01/12 @ 100
5.000%, 07/01/36 300 320
-----------------------------------------------------------------------------
TOTAL PUERTO RICO 556
=============================================================================
TOTAL MUNICIPAL BOND
(Cost $26,537) 26,614
=======================================================================
CASH EQUIVALENT [1.1%]
Federated California Municipal
Money Market Fund,
Cl I, 3.42%* 309,680 310
-----------------------------------------------------------------------------
TOTAL CASH EQUIVALENT
(Cost $310) 310
=========================================================================
TOTAL INVESTMENTS [99.0%]
(Cost $26,847) 26,924
=========================================================================
OTHER ASSETS AND LIABILITIES [1.0%] 284
=========================================================================
NET ASSETS -- 100.0% $ 27,208
=============================================================================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
CNI CHARTER FUNDS | PAGE 36
schedule of investments
SEPTEMBER 30, 2006
- --------------------------------------------------------------------------------
CALIFORNIA TAX EXEMPT BOND FUND (CONCLUDED)
DESCRIPTION
- --------------------------------------------------------------------------------
(A) PRE-REFUNDED SECURITY - THE MATURITY DATE SHOWN IS THE PRE-REFUNDED DATE.
(B) SECURITIES ARE HELD IN CONJUNCTION WITH A LETTER OF CREDIT FROM A MAJOR
BANK OR FINANCIAL INSTITUTION.
(C) FLOATING RATE SECURITY - THE RATE REFLECTED ON THE SCHEDULE OF INVESTMENTS
IS THE RATE IN EFFECT ON SEPTEMBER 30, 2006.
* RATE SHOWN IS THE 7-DAY EFFECTIVE YIELD AS OF SEPTEMBER 30, 2006.
AMBAC -- AMERICAN MUNICIPAL BOND ASSURANCE COMPANY
COP -- CERTIFICATE OF PARTICIPATION
ETM -- ESCROWED TO MATURITY
FGIC -- FINANCIAL GUARANTY INSURANCE COMPANY
FSA -- FINANCIAL SECURITY ASSISTANCE
GAN -- GRANT ANTICIPATION NOTE
GO -- GENERAL OBLIGATION
MBIA -- MUNICIPAL BOND INSURANCE ASSOCIATION
RB -- REVENUE BOND
SAB -- SPECIAL ASSESSMENT BOND
SER -- SERIES
TA -- TAX ALLOCATION
XLCA -- XL CAPITAL ASSURANCE
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
CNI CHARTER FUNDS | PAGE 37
schedule of investments
SEPTEMBER 30, 2006
- --------------------------------------------------------------------------------
HIGH YIELD BOND FUND
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
SECTOR WEIGHTINGS (UNAUDITED)*:
72.2% Industrial
7.5% Financial
6.2% Telephone
5.8% Utilities
4.9% Gas Transmission
1.8% Short-Term Investments
1.5% Transportation
0.1% Common Stock
0.0% Healthcare
* Percentages based on total investments.
- --------------------------------------------------------------------------------
DESCRIPTION FACE AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
CORPORATE BONDS [97.0%]
ADVERTISING [0.3%]
Advanstar Communications
10.750%, 08/15/10 $ 100 $ 108
=============================================================================
AEROSPACE & DEFENSE [1.3%]
DRS Techologies
6.625%, 02/01/16 100 98
Esterline Technologies
7.750%, 06/15/13 100 101
L-3 Communications
5.875%, 01/15/15 200 190
Sequa, Ser B
8.875%, 04/01/08 150 156
-----------------------------------------------------------------------------
TOTAL AEROSPACE & DEFENSE 545
=============================================================================
AGRICULTURE [0.4%]
American Rock Salt
9.500%, 03/15/14 150 155
=============================================================================
AIRLINES [0.5%]
American Airlines, Ser 2001-2
7.800%, 04/01/08 200 200
=============================================================================
ALUMINUM [0.3%]
Novelis (A)
8.250%, 02/15/15 150 142
=============================================================================
APPAREL/TEXTILES [0.4%]
Levi Strauss
9.750%, 01/15/15 100 103
Phillips-Van Heusen
7.250%, 02/15/11 75 76
-----------------------------------------------------------------------------
TOTAL APPAREL/TEXTILES 179
=============================================================================
DESCRIPTION FACE AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
AUTO RENT & LEASE [1.4%]
Avis Budget Car Rental (A)
7.750%, 05/15/16 $ 100 $ 97
Hertz (A)
10.500%, 01/01/16 150 165
Rent-Way
11.875%, 06/15/10 100 116
United Rentals
6.500%, 02/15/12 90 87
Williams Scotsman
8.500%, 10/01/15 100 102
-----------------------------------------------------------------------------
TOTAL AUTO RENT & LEASE 567
=============================================================================
AUTOMOTIVE [1.6%]
General Motors
7.125%, 07/15/13 725 637
=============================================================================
AUTOPARTS [1.2%]
Accuride
8.500%, 02/01/15 150 140
Dura Operating, Ser D
9.000%, 05/01/09 75 3
Metaldyne
10.000%, 11/01/13 100 101
Tenneco Automotive
8.625%, 11/15/14 150 148
TRW Automotive
11.000%, 02/15/13 98 107
-----------------------------------------------------------------------------
TOTAL AUTOPARTS 499
=============================================================================
BROADCASTING & CABLE [6.8%]
Albritton Communications
7.750%, 12/15/12 150 151
Atlantic Broadband Finance (A)
9.375%, 01/15/14 100 98
Cablevision Systems, Ser B
8.000%, 04/15/12 225 228
CCO Holdings
8.750%, 11/15/13 250 252
Charter Communications Holdings
10.250%, 09/15/10 400 408
Coleman Cable
9.875%, 10/01/12 100 100
CSC Holdings
7.625%, 07/15/18 100 102
Echostar DBS
6.625%, 10/01/14 200 190
Fisher Communication
8.625%, 09/15/14 150 156
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
CNI CHARTER FUNDS | PAGE 38
schedule of investments
SEPTEMBER 30, 2006
- --------------------------------------------------------------------------------
HIGH YIELD BOND FUND (CONTINUED)
DESCRIPTION FACE AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
General Cable
9.500%, 11/15/10 $ 100 $ 107
Gray Television
9.250%, 12/15/11 100 104
Insight Commununications (B)
12.250%, 02/15/11 100 106
Kabel Deutschland (A)
10.625%, 07/01/14 200 214
Mediacom Capital
7.875%, 02/15/11 150 148
Nexstar Finance Holdings (B)
10.050%, 04/01/13 200 167
Olympus Communications, Ser B (D)
10.625%, 11/15/06 100 140
Videotron Ltee
6.875%, 01/15/14 100 99
-----------------------------------------------------------------------------
TOTAL BROADCASTING & CABLE 2,770
=============================================================================
BUILDING & CONSTRUCTION [4.1%]
Ainsworth Lumber
7.250%, 10/01/12 100 74
6.750%, 03/15/14 100 70
Beazer Homes USA
8.375%, 04/15/12 100 100
Brand Services
12.000%, 10/15/12 150 168
DR Horton
5.625%, 01/15/16 125 116
Goodman Global Holdings
7.875%, 12/15/12 75 71
Interline Brands
8.125%, 06/15/14 50 51
International Utility Structures (D)
10.750%, 02/01/08 100 1
KB Home
8.625%, 12/15/08 50 51
6.250%, 06/15/15 200 184
Nortek
8.500%, 09/01/14 200 189
Panolam Industries (A)
10.750%, 10/01/13 250 252
Ply Gem Industries
9.000%, 02/15/12 150 120
RMCC Acquisition (A)
9.500%, 11/01/12 150 155
Tech Olympic USA
7.500%, 01/15/15 100 77
-----------------------------------------------------------------------------
TOTAL BUILDING & CONSTRUCTION 1,679
=============================================================================
DESCRIPTION FACE AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
BUSINESS SERVICES [0.7%]
Corrections
7.500%, 05/01/11 $ 100 $ 102
FTI Consulting
7.625%, 06/15/13 50 51
Geo Group
8.250%, 07/15/13 150 150
-----------------------------------------------------------------------------
TOTAL BUSINESS SERVICES 303
=============================================================================
CHEMICALS [4.7%]
Basell Af SCA (A)
8.375%, 08/15/15 250 248
BCP Crystal US Holdings
9.625%, 06/15/14 45 49
Crystal Holdings, Ser B (B)
9.037%, 10/01/14 73 59
Equistar Chemicals
10.625%, 05/01/11 150 161
Georgia Gulf (A)
9.500%, 10/15/14 150 149
Lyondell Chemical
8.250%, 09/15/16 60 61
8.000%, 09/15/14 60 61
Mosaic Global Holdings
10.875%, 08/01/13 100 111
Mosaic Global Holdings, Ser B
11.250%, 06/01/11 100 106
Nalco
7.750%, 11/15/11 150 153
Nova Chemicals
6.500%, 01/15/12 250 235
Polymer Holdings (B)
11.043%, 07/15/14 250 203
PolyOne
10.625%, 05/15/10 100 107
Rhodia
10.250%, 06/01/10 65 73
Rockwood Specialties Group
10.625%, 05/15/11 73 78
Terra Capital
11.500%, 06/01/10 65 71
-----------------------------------------------------------------------------
TOTAL CHEMICALS 1,925
=============================================================================
CIRCUIT BOARDS [0.1%]
Viasystems
10.500%, 01/15/11 50 49
=============================================================================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
CNI CHARTER FUNDS | PAGE 39
schedule of investments
SEPTEMBER 30, 2006
- --------------------------------------------------------------------------------
HIGH YIELD BOND FUND (CONTINUED)
DESCRIPTION FACE AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
COAL MINING [0.4%]
Alpha Natural Resources
10.000%, 06/01/12 $ 150 $ 161
=============================================================================
COMMERCIAL SERVICES [0.9%]
Iron Mountain
8.750%, 07/15/18 150 156
8.625%, 04/01/13 100 102
The Brickman Group, Ser B
11.750%, 12/15/09 100 107
-----------------------------------------------------------------------------
TOTAL COMMERCIAL SERVICES 365
=============================================================================
COMPUTER SYSTEM DESIGN & SERVICES [0.9%]
Activant Solution (A)
9.500%, 05/01/16 100 93
Xerox
7.625%, 06/15/13 250 262
-----------------------------------------------------------------------------
TOTAL COMPUTERS SYSTEM DESIGN & SERVICES 355
=============================================================================
CONSUMER PRODUCTS & SERVICES [4.4%]
Ames True Temper (C)
9.507%, 01/15/12 100 101
Exopac Holding (A)
11.250%, 02/01/14 100 102
Gregg Appliances
9.000%, 02/01/13 150 137
Johnsondiversey Holdings (B)
12.305%, 05/15/13 200 173
Johnsondiversey, Ser B
9.625%, 05/15/12 150 151
Libbey Glass (A) (C)
12.436%, 06/01/11 100 104
Prestige Brands
9.250%, 04/15/12 90 90
Sealy Mattress
8.250%, 06/15/14 200 204
Southern States Cooperative (A)
10.500%, 11/01/10 200 209
Spectrum Brands
7.375%, 02/01/15 300 240
Steinway Musical (A)
7.000%, 03/01/14 100 98
Visant Holding (A)
8.750%, 12/01/13 100 101
WMG Holdings (B)
9.563%, 12/15/14 130 97
-----------------------------------------------------------------------------
TOTAL CONSUMER PRODUCTS & SERVICES 1,807
=============================================================================
DESCRIPTION FACE AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
CONTAINERS & PACKAGING [2.0%]
Crown Americas
7.750%, 11/15/15 $ 150 $ 152
Graham Packaging
9.875%, 10/15/14 100 98
Intertape Polymer US
8.500%, 08/01/14 50 47
Owens-Brockway Glass Container
6.750%, 12/01/14 100 95
Owens-Illinois
8.100%, 05/15/07 100 101
Plastipak Holdings (A)
8.500%, 12/15/15 100 101
Solo Cup
8.500%, 02/15/14 150 130
Stone Container
7.375%, 07/15/14 100 91
-----------------------------------------------------------------------------
TOTAL CONTAINERS & PACKAGING 815
=============================================================================
DIVERSIFIED OPERATIONS [0.9%]
Jacuzzi Brands
9.625%, 07/01/10 150 159
Trinity Industries
6.500%, 03/15/14 200 195
-----------------------------------------------------------------------------
TOTAL DIVERSIFIED OPERATIONS 354
=============================================================================
EDUCATIONAL SERVICES [0.3%]
Education Management (A)
10.250%, 06/01/16 60 61
8.750%, 06/01/14 60 61
-----------------------------------------------------------------------------
TOTAL EDUCATIONAL SERVICES 122
=============================================================================
ELECTRICAL PRODUCTS [0.5%]
ESI Tractebel Acquisitions, Ser B
7.990%, 12/30/11 60 62
Kinetek, Ser D
10.750%, 11/15/06 150 149
-----------------------------------------------------------------------------
TOTAL ELECTRICAL PRODUCTS 211
=============================================================================
ELECTRIC UTILITIES [5.1%]
AES (A)
9.000%, 05/15/15 300 323
7.750%, 03/01/14 100 104
Allegheny Energy Supply
7.800%, 03/15/11 200 213
Aquila
7.625%, 11/15/09 100 104
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
CNI CHARTER FUNDS | PAGE 40
schedule of investments
SEPTEMBER 30, 2006
- --------------------------------------------------------------------------------
HIGH YIELD BOND FUND (CONTINUED)
DESCRIPTION FACE AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
Calpine Generating (D)
11.080%, 04/01/10 $ 200 $ 210
CMS Energy
7.500%, 01/15/09 100 103
6.875%, 12/15/15 150 152
Edison Mission Energy
7.730%, 06/15/09 200 206
Mirant North America
7.375%, 12/31/13 150 150
Reliant Resources
9.500%, 07/15/13 200 208
Sierra Pacific Resources
8.625%, 03/15/14 200 216
TECO Energy
7.200%, 05/01/11 100 104
-----------------------------------------------------------------------------
TOTAL ELECTRIC UTILITIES 2,093
=============================================================================
ENTERTAINMENT & GAMING [7.8%]
AMC Entertainment
11.000%, 02/01/16 100 109
9.875%, 02/01/12 100 103
9.500%, 02/01/11 72 72
Aztar
9.000%, 08/15/11 100 104
Choctaw Resort Development
Entity (A)
7.250%, 11/15/19 200 199
Chukchansi Economic
Development Authority (A)
8.000%, 11/15/13 150 154
Cinemark USA
9.000%, 02/01/13 100 104
Circus & Eldorado Joint Venture/
Silver Legacy Capital
10.125%, 03/01/12 150 158
Herbst Gaming
8.125%, 06/01/12 150 153
Inn of the Mountain Gods
12.000%, 11/15/10 150 157
Isle of Capri Casinos
7.000%, 03/01/14 200 190
Jacobs Entertainment (A)
9.750%, 06/15/14 75 74
MGM Mirage
8.500%, 09/15/10 200 213
6.750%, 09/01/12 100 99
6.000%, 10/01/09 100 99
Mohegan Tribal Gaming Authority
7.125%, 08/15/14 150 149
DESCRIPTION FACE AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
MTR Gaming Group, Ser B
9.750%, 04/01/10 $ 200 $ 210
OED/Diamond Jo
8.750%, 04/15/12 100 100
Penn National Gaming
6.875%, 12/01/11 100 100
Speedway Motorsports
6.750%, 06/01/13 100 99
Station Casinos
6.875%, 03/01/16 100 94
Tunica-Biloxi Gaming Authority (A)
9.000%, 11/15/15 125 130
Waterford Gaming (A)
8.625%, 09/15/12 109 115
Wynn Las Vegas Capital
6.625%, 12/01/14 200 194
-----------------------------------------------------------------------------
TOTAL ENTERTAINMENT & GAMING 3,179
=============================================================================
FINANCIAL SERVICES [2.9%]
Ford Motor Credit
7.375%, 10/28/09 200 194
7.375%, 02/01/11 350 336
GMAC
6.750%, 12/01/14 675 659
-----------------------------------------------------------------------------
TOTAL FINANCIAL SERVICES 1,189
=============================================================================
FOOD, BEVERAGE & TOBACCO [4.2%]
Chiquita Brands International
7.500%, 11/01/14 100 87
Del Monte
8.625%, 12/15/12 50 52
Dominos
8.250%, 07/01/11 75 79
Friendly Ice Cream
8.375%, 06/15/12 200 181
General Nutrition Center
8.500%, 12/01/10 150 146
Land O' Lakes
8.750%, 11/15/11 6 6
Le-Natures (A)
10.000%, 06/15/13 150 155
Leiner Health Products
11.000%, 06/01/12 100 97
National Beef Packaging
10.500%, 08/01/11 100 104
National Wine & Spirits
10.125%, 01/15/09 100 101
Pinnacle Foods
8.250%, 12/01/13 150 150
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
CNI CHARTER FUNDS | PAGE 41
schedule of investments
SEPTEMBER 30, 2006
- --------------------------------------------------------------------------------
HIGH YIELD BOND FUND (CONTINUED)
DESCRIPTION FACE AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
Smithfield Foods, Ser B
8.000%, 10/15/09 $ 350 $ 366
Swift
12.500%, 01/01/10 200 203
-----------------------------------------------------------------------------
TOTAL FOOD, BEVERAGE & TOBACCO 1,727
=============================================================================
FORESTRY [0.1%]
Tembec Industries
7.750%, 03/15/12 100 51
=============================================================================
GAS/NATURAL GAS [3.9%]
Colorado Interstate Gas
6.800%, 11/15/15 150 151
El Paso
7.000%, 05/15/11 275 277
El Paso Natural Gas
7.625%, 08/01/10 150 155
MarkWest Energy Partners (A)
8.500%, 07/15/16 150 151
Semco Energy
7.125%, 05/15/08 250 249
Targa Resources (A)
8.500%, 11/01/13 200 200
Williams
8.125%, 03/15/12 200 213
7.625%, 07/15/19 50 52
6.375%, 10/01/10 (A) 150 149
-----------------------------------------------------------------------------
TOTAL GAS/NATURAL GAS 1,597
=============================================================================
MACHINERY [1.5%]
Case New Holland
9.250%, 08/01/11 100 106
7.125%, 03/01/14 100 100
Cummins
9.500%, 12/01/10 150 158
Terex
7.375%, 01/15/14 100 100
Trimas
9.875%, 06/15/12 150 139
-----------------------------------------------------------------------------
TOTAL MACHINERY 603
=============================================================================
MEDICAL [3.2%]
Angiotech Pharmaceuticals (A)
7.750%, 04/01/14 100 95
Bio-Rad Laboratories
7.500%, 08/15/13 100 102
Biovail
7.875%, 04/01/10 100 100
DESCRIPTION FACE AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
CDRV Investors (B)
9.558%, 01/01/15 $ 200 $ 148
Extendicare Health
6.875%, 05/01/14 100 107
Genesis HealthCare
8.000%, 10/15/13 100 104
MQ Associates (B)
13.869%, 08/15/12 150 53
Mylan Laboratories
5.750%, 08/15/10 150 148
Omnicare
6.750%, 12/15/13 250 243
Tenet Healthcare
9.250%, 02/01/15 200 193
-----------------------------------------------------------------------------
TOTAL MEDICAL 1,293
=============================================================================
MEDICAL PRODUCTS & SERVICES [0.2%]
Vanguard Health Holding
9.000%, 10/01/14 100 97
=============================================================================
MISCELLANEOUS BUSINESS SERVICES [2.5%]
Affinion Group
11.500%, 10/15/15 150 154
Allied Security Escrow
11.375%, 07/15/11 150 150
Carriage Services
7.875%, 01/15/15 200 194
CCM Merger (A)
8.000%, 08/01/13 225 216
Compagnie Generale de
Geophysique
7.500%, 05/15/15 50 50
Integrated Alarm Services
Group (A)
12.000%, 11/15/11 100 99
Mobile Services Group
9.750%, 08/01/14 150 154
-----------------------------------------------------------------------------
TOTAL MISCELLANEOUS BUSINESS SERVICES 1,017
=============================================================================
MISCELLANEOUS MANUFACTURING [0.9%]
Dresser-Rand Group
7.375%, 11/01/14 133 130
KI Holdings (B)
9.972%, 11/15/14 250 184
Maax Holdings (B)
26.373%, 12/15/12 200 74
-----------------------------------------------------------------------------
TOTAL MISCELLANEOUS MANUFACTURING 388
=============================================================================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
CNI CHARTER FUNDS | PAGE 42
schedule of investments
SEPTEMBER 30, 2006
- --------------------------------------------------------------------------------
HIGH YIELD BOND FUND (CONTINUED)
DESCRIPTION FACE AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
PAPER & RELATED PRODUCTS [3.4%]
Abitibi-Consolidated
7.750%, 06/15/11 $ 100 $ 92
Appleton Papers, Ser B
9.750%, 06/15/14 100 99
Domtar
7.125%, 08/15/15 150 139
Georgia-Pacific
7.700%, 06/15/15 100 100
JSG Funding
9.625%, 10/01/12 100 105
Neenah Paper
7.375%, 11/15/14 150 141
Newark Group
9.750%, 03/15/14 200 194
Norampac
6.750%, 06/01/13 100 95
Norske Skog Canada
7.375%, 03/01/14 250 230
Smurfit Kappa Funding
7.750%, 04/01/15 150 142
Verso Paper Holdings (A)
9.125%, 08/01/14 65 65
-----------------------------------------------------------------------------
TOTAL PAPER & RELATED PRODUCTS 1,402
=============================================================================
PETROLEUM & FUEL PRODUCTS [7.2%]
Atlas Pipeline Partners
8.125%, 12/15/15 200 204
Chesapeake Energy
6.250%, 01/15/18 100 93
Clayton William Energy
7.750%, 08/01/13 150 135
Comstock Resources
6.875%, 03/01/12 150 143
Dynegy Holdings
6.875%, 04/01/11 100 97
El Paso Production Holding
7.750%, 06/01/13 200 204
Forest Oil
8.000%, 06/15/08 150 154
8.000%, 12/15/11 100 104
Frontier Oil
6.625%, 10/01/11 150 150
Giant Industries
8.000%, 05/15/14 200 216
Pacific Energy
7.125%, 06/15/14 100 102
6.250%, 09/15/15 250 246
Parker Drilling
9.625%, 10/01/13 150 164
Plains Exploration & Production
8.750%, 07/01/12 150 159
DESCRIPTION FACE AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
Pogo Producing
6.875%, 10/01/17 $ 300 $ 286
Pride International
7.375%, 07/15/14 100 103
Swift Energy
7.625%, 07/15/11 100 100
Whiting Petroleum
7.000%, 02/01/14 300 292
-----------------------------------------------------------------------------
TOTAL PETROLEUM & FUEL PRODUCTS 2,952
=============================================================================
PRINTING & PUBLISHING [3.3%]
Dex Media (B)
8.738%, 11/15/13 200 168
Dex Media East
9.875%, 11/15/09 100 105
Dex Media West, Ser B
8.500%, 08/15/10 100 103
Emmis Operating
6.875%, 05/15/12 150 150
Haights Cross Operating
11.750%, 08/15/11 200 205
JII Holdings
13.000%, 04/01/07 70 60
Primedia
8.000%, 05/15/13 100 91
RH Donnelley
6.875%, 01/15/13 200 182
RH Donnelley, Ser A-2
6.875%, 01/15/13 50 46
Sheridan Group
10.250%, 08/15/11 150 152
Warner Music Group
7.375%, 04/15/14 100 98
-----------------------------------------------------------------------------
TOTAL PRINTING & PUBLISHING 1,360
=============================================================================
REAL ESTATE INVESTMENT TRUST [0.4%]
Host Marriott, Ser O
6.375%, 03/15/15 150 145
=============================================================================
RETAIL [2.7%]
Asbury Automotive Group
9.000%, 06/15/12 150 154
Denny's Holdings
10.000%, 10/01/12 150 155
Group 1 Automotive
8.250%, 08/15/13 100 102
Jean County Group
8.500%, 08/01/14 150 144
Landry's Restaurants, Ser B
7.500%, 12/15/14 100 96
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
CNI CHARTER FUNDS | PAGE 43
schedule of investments
SEPTEMBER 30, 2006
- --------------------------------------------------------------------------------
HIGH YIELD BOND FUND (CONTINUED)
DESCRIPTION FACE AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
Leslie's Poolmart
7.750%, 02/01/13 $ 100 $ 99
NPC International (A)
9.500%, 05/01/14 100 99
Rite Aid
8.125%, 05/01/10 100 100
True Temper Sports
8.375%, 09/15/11 150 134
-----------------------------------------------------------------------------
TOTAL RETAIL 1,083
=============================================================================
RUBBER & PLASTIC [0.4%]
Goodyear Tire & Rubber
9.000%, 07/01/15 150 152
=============================================================================
SEMI-CONDUCTORS [1.2%]
Amkor Technology
9.250%, 06/01/16 100 94
Flextronics International
6.250%, 11/15/14 100 97
Freescale Semiconductors
7.125%, 07/15/14 200 214
Sensata Technologies (A)
8.000%, 05/01/14 100 97
-----------------------------------------------------------------------------
TOTAL SEMI-CONDUCTORS 502
=============================================================================
STEEL & STEEL WORKS [1.4%]
AK Steel
7.875%, 02/15/09 115 114
7.750%, 06/15/12 200 195
Gerdau Ameristeel
10.375%, 07/15/11 100 108
International Steel Group
6.500%, 04/15/14 150 148
-----------------------------------------------------------------------------
TOTAL STEEL & STEEL WORKS 565
=============================================================================
TELEPHONES & TELECOMMUNICATIONS [8.5%]
American Cellular, Ser B
10.000%, 08/01/11 150 157
American Tower
7.125%, 10/15/12 150 154
Centennial Communications
10.125%, 06/15/13 100 106
8.125%, 02/01/14 50 49
Cincinnati Bell
8.375%, 01/15/14 185 187
Dobson Cellular Systems
9.875%, 11/01/12 230 247
DESCRIPTION FACE AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
Dobson Communications (C)
9.757%, 10/15/12 $ 250 $ 255
Insight Midwest
9.750%, 10/01/09 200 204
IPCS
11.500%, 05/01/12 150 168
Nextel Partners
8.125%, 07/01/11 150 158
Nordic Telephone (A)
8.875%, 05/01/16 50 53
NTL Cable
9.125%, 08/15/16 150 155
PanAmSat
9.000%, 08/15/14 96 99
Qwest
7.625%, 06/15/15 564 585
5.625%, 11/15/08 100 99
Rogers Wireless
9.625%, 05/01/11 100 113
7.250%, 12/15/12 50 52
Rural Cellular
9.750%, 01/15/10 200 201
Telenet Group Holding (A) (B)
9.651%, 06/15/14 22 19
Time Warner Telecom Holdings
9.250%, 02/15/14 100 105
Triton PCS
8.500%, 06/01/13 150 139
UbiquiTel Operating
9.875%, 03/01/11 150 163
-----------------------------------------------------------------------------
TOTAL TELEPHONES & TELECOMMUNICATIONS 3,468
=============================================================================
TRANSPORTATION SERVICES [1.7%]
American Commercial Lines
9.500%, 02/15/15 97 105
Kansas City Southern
9.500%, 10/01/08 100 104
NCL
10.625%, 07/15/14 100 97
Ship Finance
8.500%, 12/15/13 200 193
Stena
7.000%, 12/01/16 200 189
-----------------------------------------------------------------------------
TOTAL TRANSPORTATION SERVICES 688
=============================================================================
WASTE DISPOSAL [0.2%]
Allied Waste North America, Ser B
7.125%, 05/15/16 100 99
=============================================================================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
CNI CHARTER FUNDS | PAGE 44
schedule of investments
SEPTEMBER 30, 2006
- --------------------------------------------------------------------------------
HIGH YIELD BOND FUND (CONCLUDED)
DESCRIPTION FACE AMOUNT (000)/SHARES VALUE (000)
- --------------------------------------------------------------------------------
WHOLESALE [0.2%]
Collins & Aikman Floor Cover, Ser B
9.750%, 02/15/10 $ 100 $ 100
=============================================================================
TOTAL CORPORATE BONDS
(Cost $39,734) 39,698
=========================================================================
COMMON STOCK [0.2%]
COMMERCIAL SERVICES [0.0%]
Magellan Health Services* 69 3
=============================================================================
RETAIL [0.2%]
Crunch Equity Holding* 56 57
=============================================================================
TOTAL COMMON STOCK
(Cost $61) 60
=========================================================================
CASH EQUIVALENTS [1.8%]
Evergreen Select Money Market,
Institutional Class, 5.20%** 373,441 373
Fidelity Institutional Domestic
Money Market Portfolio,
Cl I, 5.22%** 373,441 373
-----------------------------------------------------------------------------
TOTAL CASH EQUIVALENTS
(Cost $746) 746
=========================================================================
WARRANTS [0.0%]
Dayton Superior,
Expires 06/15/09* (A) 100 --
Diva Systems,
Expires 03/01/08* (A) 600 --
Pliant, Expires 06/01/10* (A) 100 --
-----------------------------------------------------------------------------
TOTAL WARRANTS
(Cost $0) --
=========================================================================
TOTAL INVESTMENTS [99.0%]
(Cost $40,541) 40,504
=========================================================================
OTHER ASSETS AND LIABILITIES [1.0%] 428
=========================================================================
NET ASSETS -- 100.0% $ 40,932
=============================================================================
DESCRIPTION
- --------------------------------------------------------------------------------
* NON-INCOME PRODUCING SECURITY
** RATE SHOWN IS THE 7-DAY EFFECTIVE YIELD AS OF SEPTEMBER 30, 2006.
(A) SECURITY SOLD WITHIN THE TERMS OF A PRIVATE PLACEMENT MEMORANDUM, EXEMPT
FROM REGISTRATION UNDER SECTION 144A OF THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY BE SOLD ONLY TO DEALERS IN THAT PROGRAM OR OTHER
"ACCREDITED INVESTORS." THE TOTAL VALUE OF THESE SECURITIES AS OF
SEPTEMBER 30, 2006 WAS $4,568 (000) AND REPRESENTS 11.2% OF NET ASSETS.
(B) STEP BOND -- THE RATE REFLECTED ON THE SCHEDULE OF INVESTMENTS IS THE RATE
IN EFFECT ON SEPTEMBER 30, 2006. THE COUPON ON A STEP BOND CHANGES ON A
SPECIFIC DATE.
(C) FLOATING RATE SECURITY -- THE RATE REFLECTED ON THE SCHEDULE OF
INVESTMENTS IS THE RATE IN EFFECT ON SEPTEMBER 30, 2006.
(D) IN DEFAULT ON INTEREST PAYMENTS
CL -- CLASS
SER -- SERIES
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
CNI CHARTER FUNDS | PAGE 45
schedule of investments
SEPTEMBER 30, 2006
- --------------------------------------------------------------------------------
PRIME MONEY MARKET FUND
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
SECTOR WEIGHTINGS (UNAUDITED)*:
44.7% Commercial Paper
39.4% Repurchase Agreements
5.5% Certificate of Deposit
5.5% U.S. Government Agency Obligations
3.7% Corporate Bond
1.2% Mortgage-Backed
0.0% Cash Equivalent
* Percentages are based on total investments.
- --------------------------------------------------------------------------------
DESCRIPTION FACE AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
COMMERCIAL PAPER (A) [45.0%]
ASSET BACKED SECURITIES [15.5%]
Amsterdam Funding
5.260%, 10/05/06 $ 25,000 $ 24,986
Barton Capital
5.260%, 11/03/06 25,000 24,880
Duke Funding High Grade
5.285%, 10/23/06 25,000 24,919
Kitty Hawk Funding
5.255%, 10/20/06 25,000 24,931
Laguna (C)
5.300%, 12/18/06 25,000 24,713
Premier Asset
5.260%, 10/20/06 10,000 9,972
Ranger Funding
5.260%, 10/05/06 25,000 24,985
Windmill Funding
5.260%, 10/05/06 25,000 24,985
Yorktown Capital (C)
5.260%, 10/30/06 25,000 24,894
--------------------------------------------------------------------------
TOTAL ASSET BACKED SECURITIES 209,265
==========================================================================
BANKS [7.4%]
BNP Paribas Finance
5.245%, 10/11/06 25,000 24,964
Dexia Delaware
5.225%, 10/06/06 25,000 24,982
Lloyds TSB Bank
5.250%, 10/02/06 25,000 24,996
Societe Generale
5.250%, 10/04/06 25,000 24,989
--------------------------------------------------------------------------
TOTAL BANKS 99,931
==========================================================================
FINANCE AUTO LOANS [5.5%]
American Honda Finance
5.220%, 10/11/06 25,000 24,964
5.450%, 01/26/07 (C) 25,000 25,000
Toyota Motor Credit
5.240%, 10/31/06 25,000 24,891
--------------------------------------------------------------------------
TOTAL FINANCE AUTO LOANS 74,855
==========================================================================
DESCRIPTION FACE AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
FINANCIAL SERVICES [3.7%]
Citigroup Funding
5.240%, 10/06/06 $ 25,000 $ 24,982
General Electric Capital
5.240%, 10/17/06 25,000 24,942
--------------------------------------------------------------------------
TOTAL FINANCIAL SERVICES 49,924
==========================================================================
INSURANCE [3.7%]
Prudential Funding
5.230%, 10/02/06 25,000 24,996
5.220%, 10/12/06 25,000 24,960
--------------------------------------------------------------------------
TOTAL INSURANCE 49,956
==========================================================================
PERSONAL CREDIT INSTITUTIONS [1.8%]
ING Funding
5.230%, 10/26/06 25,000 24,909
==========================================================================
RETAIL [1.9%]
Wal-Mart Stores
5.200%, 10/04/06 25,000 24,989
==========================================================================
SECURITY BROKERS & DEALERS [5.5%]
Bearn Stearns
5.250%, 10/23/06 25,000 24,920
Merrill Lynch
5.230%, 10/04/06 25,000 24,989
Morgan Stanley
5.260%, 10/05/06 25,000 24,985
--------------------------------------------------------------------------
TOTAL SECURITY BROKERS & DEALERS 74,894
==========================================================================
TOTAL COMMERCIAL PAPER
(Cost $608,723) 608,723
=====================================================================
CERTIFICATES OF DEPOSIT [5.5%]
Barclays Bank
5.450%, 10/25/06 25,000 25,000
Deutsche Bank New York
5.310%, 12/07/06 25,000 25,000
First Tennessee Bank
5.440%, 10/23/06 25,000 25,000
--------------------------------------------------------------------------
TOTAL CERTIFICATES OF DEPOSIT
(Cost $75,000) 75,000
=====================================================================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
CNI CHARTER FUNDS | PAGE 46
schedule of investments
SEPTEMBER 30, 2006
- --------------------------------------------------------------------------------
PRIME MONEY MARKET FUND (CONTINUED)
DESCRIPTION FACE AMOUNT (000)/SHARES VALUE (000)
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS [5.5%]
FHLB
4.550%, 12/29/06 $ 5,000 $ 5,000
4.600%, 01/08/07 5,000 5,000
4.580%, 02/07/07 5,000 5,000
5.490%, 02/22/07 5,000 5,000
5.200%, 02/22/07 5,000 5,000
5.080%, 02/22/07 10,000 9,979
4.870%, 03/12/07 5,000 5,000
4.250%, 04/16/07 5,000 4,977
5.500%, 07/27/07 (B) 5,000 5,000
5.550%, 08/08/07 5,000 5,000
5.250%, 10/26/07 5,000 5,000
FNMA
4.750%, 01/02/07 5,000 4,991
4.000%, 02/28/07 10,000 9,947
--------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(Cost $74,894) 74,894
=====================================================================
CORPORATE BONDS [3.7%]
BANKS [1.8%]
Bank of America
5.310%, 11/07/06 25,000 25,000
==========================================================================
FINANCIAL SERVICES [1.9%]
SLM, Ser A, MTN
5.625%, 04/10/07 25,000 25,022
==========================================================================
TOTAL CORPORATE BONDS
(Cost $50,022) 50,022
=====================================================================
MORTGAGE-BACKED SECURITY [1.2%]
Capital Auto Receivable Asset
Trust, Ser 06, Cl SN-1,
5.440%, 09/20/07 16,194 16,194
--------------------------------------------------------------------------
TOTAL MORTGAGE-BACKED SECURITY
(Cost $16,194) 16,194
=====================================================================
CASH EQUIVALENT [0.0%]
Fidelity Institutional Domestic
Money Market Portfolio,
Cl I, 5.22%* 202,758 203
--------------------------------------------------------------------------
TOTAL CASH EQUIVALENT
(Cost $203) 203
=====================================================================
DESCRIPTION FACE AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS (D) [39.6%]
Banc of America
5.330%, dated 09/29/06,
repurchased on 10/02/06,
repurchase price $125,055,521
(collateralized by a U.S.
Goverment obligation;
par value $155,544,026,
5.000%, 03/01/35; with
total market value
$127,500,000) $ 125,000 $ 125,000
Barclay Bank
5.350%, dated 09/29/06,
repurchased on 10/02/06,
repurchase price, $135,260,277
(collateralized by U.S.
Government obligations,
ranging in par value
$3,026,075-$150,000,000,
4.929%-6.444%, 02/01/23-
09/01/36; with total market
value $137,904,001) 135,200 135,200
Bear Stearns
5.370%, dated 09/29/06,
repurchased on 10/02/06,
repurchase price $125,055,937
(collateralized by various U.S.
Government obligations,
ranging in par value
$4,825,844-$12,325,000,
5.000%-7.000%, 12/01/18-
10/01/36; with total market
value $127,502,530) 125,000 125,000
Lehman Brothers
5.380%, dated 09/29/06,
repurchased on 10/02/06,
repurchase price $25,011,208
(collateralized by a U.S.
Government obligation,
par value $25,235,000,
6.000%, 09/01/36;
with total market
value $25,502,325) 25,000 25,000
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
CNI CHARTER FUNDS | PAGE 47
schedule of investments
SEPTEMBER 30, 2006
- --------------------------------------------------------------------------------
PRIME MONEY MARKET FUND (CONCLUDED)
DESCRIPTION FACE AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
Nomura
5.400%, dated 09/29/06,
repurchased on 10/02/06,
repurchase price $125,056,250
(collateralized by various U.S.
Government obligations,
ranging in par value
$1,896,666-$150,000,000,
3.969%-6.971%, 03/01/18-
09/01/36; with total market
value $127,500,000) $ 125,000 $ 125,000
--------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS
(Cost $535,200) 535,200
=====================================================================
TOTAL INVESTMENTS [100.5%]
(Cost $1,360,236) 1,360,236
=====================================================================
OTHER ASSETS AND LIABILITIES [-0.5%] (7,346)
=====================================================================
NET ASSETS -- 100.0% $ 1,352,890
================================================================================
(A) THE RATE REPORTED IS THE EFFECTIVE YIELD AT TIME OF PURCHASE.
(B) STEP BOND -- THE RATE REFLECTED ON THE SCHEDULE OF INVESTMENTS IS THE RATE
IN EFFECT ON SEPTEMBER 30, 2006. THE COUPON ON A STEP BOND CHANGES ON A
SPECIFIC DATE.
(C) SECURITY EXEMPT FROM REGISTRATION UNDER RULE 144A OF THE SECURITIES ACT OF
1933. THESE SECURITIES MAY BE RESOLD IN TRANSACTIONS EXEMPT FROM
REGISTRATION NORMALLY TO QUALIFIED INSTITUTIONS. ON SEPTEMBER 30, 2006,
THE VALUE OF THESE SECURITIES AMOUNTED TO $74,607, REPRESENTING 5.5% OF
THE NET ASSETS OF THE FUND.
(D) TRI-PARTY REPURCHASE AGREEMENT
* RATE REPORTED IS THE 7-DAY EFFECTIVE YIELD AS OF SEPTEMBER 30, 2006.
CL -- CLASS
FHLB -- FEDERAL HOME LOAN BANK
FNMA -- FEDERAL NATIONAL MORTGAGE ASSOCIATION
MTN -- MEDIUM TERM NOTE
SER -- SERIES
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
CNI CHARTER FUNDS | PAGE 48
schedule of investments
SEPTEMBER 30, 2006
- --------------------------------------------------------------------------------
GOVERNMENT MONEY MARKET FUND
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
SECTOR WEIGHTING (UNAUDITED)*:
63.1% U.S. Government Agency Obligations
36.9% Repurchase Agreements
* Percentages are based on total investments.
- --------------------------------------------------------------------------------
DESCRIPTION FACE AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS [64.9%]
FFCB (A)
5.100%, 10/02/06 $ 50,000 $ 49,993
5.100%, 10/03/06 155,000 154,956
5.070%, 10/04/06 50,000 49,979
5.120%, 10/06/06 32,660 32,637
FHLB
5.130%, 10/02/06 (A) 81,250 81,238
5.090%, 10/03/06 (A) 300,000 299,915
5.080%, 10/04/06 (A) 100,000 99,958
5.000%, 10/13/06 25,000 25,000
5.170%, 10/18/06 (A) 100,000 99,757
5.130%, 10/20/06 (A) 50,000 49,865
4.550%, 12/29/06 25,000 25,000
4.600%, 01/08/07 25,000 25,000
5.250%, 01/16/07 25,000 25,000
4.580%, 02/07/07 25,000 25,000
5.490%, 02/22/07 25,000 25,000
5.200%, 02/22/07 25,000 25,000
5.080%, 02/22/07 25,000 24,947
4.870%, 03/12/07 25,000 25,000
4.250%, 04/16/07 20,000 19,909
4.625%, 05/18/07 36,010 35,883
5.500%, 07/27/07 (B) 25,000 25,000
5.550%, 08/08/07 25,000 25,000
5.375%, 08/28/07 10,000 10,000
5.320%, 09/14/07 25,000 25,000
5.500%, 10/02/07 25,000 25,000
5.260%, 10/23/07 25,000 25,000
5.250%, 10/26/07 37,060 37,060
FNMA
4.750%, 01/02/07 42,997 42,920
2.500%, 01/30/07 5,300 5,251
4.000%, 02/28/07 25,000 24,866
--------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(Cost $1,444,134) 1,444,134
=====================================================================
DESCRIPTION FACE AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS (C) [37.9%]
Bank of America
5.330%, dated 09/29/06,
repurchased on 10/02/06,
repurchase price $150,066,625
(collaterized by U.S.
Government obligations,
ranging in par value
$32,250,307-$153,855,805,
5.000%, 03/01/35-07/01/35;
with total market value
$153,000,000) $ 150,000 $ 150,000
Barclay Bank
5.350%, dated 09/29/06,
repurchased on 10/02/06,
repurchase price $193,286,135
(collateralized by U.S.
Government obligations,
ranging in par value
$40,826,933-$61,183, 315,
5.000%-6.592%, 07/01/20-
06/01/36; with total market
value $197,064,001) 193,200 193,200
Bear Stearns Inc. & Co.
5.370%, dated 09/29/06,
repurchased on 10/02/06,
repurchase price $175,078,312
(collateralized by U.S. Treasury
obligations, ranging in par value
$1,465,000-$11,897,393,
4.500%-7.500%, 04/01/13-
09/01/36, with total market
value $178,502,511) 175,000 175,000
Deutsche Bank
5.330%, dated 09/29/06,
repurchased on 10/02/06,
repurchase price $100,044,417
(collateralized by U.S.
Government obligations,
ranging in par value
$20,764,040-$43,000,000,
5.000%-6.500%, 08/25/15-
08/25/32; with total market
value $102,000,001) 100,000 100,000
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
CNI CHARTER FUNDS | PAGE 49
schedule of investments
SEPTEMBER 30, 2006
- --------------------------------------------------------------------------------
GOVERNMENT MONEY MARKET FUND (CONCLUDED)
DESCRIPTION FACE AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
Lehman Brothers
5.380%, dated 09/29/06,
repurchased on 10/02/06,
repurchase price $25,011,208
(collateralized by U.S.
Government obligation,
par value $25,235,000,
6.000%, 09/01/36; with
total market value
$25,502,325) $ 25,000 $ 25,000
Nomura
5.400%, dated 09/29/06,
repurchased on 10/02/06,
repurchase price $150,067,500
(collaterized by U.S.
Government obligations,
ranging in par value
$455,000-$100,000,000,
4.002%-7.661%, 06/01/16-
05/01/36; with total market
value $153,000,001) 150,000 150,000
UBS Warburg
5.300%, dated 09/29/06,
repurchased on 10/02/06,
repurchase price $50,022,083
(collateralized by U.S.
Government obligations,
ranging in par value
$7,490,000-$33,010,867,
5.500%-6.500%, 11/01/34-
08/01/36; with total market
value $51,002,935) 50,000 50,000
--------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS
(Cost $843,200) 843,200
=====================================================================
TOTAL INVESTMENTS [102.8%]
(Cost $2,287,334) 2,287,334
=====================================================================
OTHER ASSETS AND LIABILITIES [-2.8%] (61,867)
=====================================================================
NET ASSETS -- 100.0% $ 2,225,467
==========================================================================
DESCRIPTION
- --------------------------------------------------------------------------------
(A) THE RATE REPORTED IS THE EFFECTIVE YIELD AT TIME OF PURCHASE.
(B) STEP BOND -- THE RATE REFLECTED ON THE SCHEDULE OF INVESTMENTS IS THE RATE
IN EFFECT ON SEPTEMBER 30, 2006. THE COUPON ON A STEP BOND CHANGES ON A
SPECIFIC DATE.
(C) TRI-PARTY REPURCHASE AGREEMENT
FFCB -- FEDERAL FARM CREDIT BANK
FHLB -- FEDERAL HOME LOAN BANK
FNMA -- FEDERAL NATIONAL MORTGAGE ASSOCIATION
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
CNI CHARTER FUNDS | PAGE 50
schedule of investments
SEPTEMBER 30, 2006
- --------------------------------------------------------------------------------
CALIFORNIA TAX EXEMPT MONEY MARKET FUND
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
SECTOR WEIGHTINGS (UNAUDITED)*:
13.9% General Revenue
12.9% General Obligation
11.3% Water
10.6% Housing
10.2% Power
8.9% Industrial Development
7.4% Utilities
7.1% Education
7.0% Transportation
4.7% Public Facilities
4.4% Healthcare
1.1% Commercial Paper
0.5% Equipment
* Percentages based on total investments.
- --------------------------------------------------------------------------------
DESCRIPTION FACE AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
MUNICIPAL BOND [97.5%]
CALIFORNIA [96.4%]
ABAG, Finance Authority for
Non-Profit Corporations,
Hamlin School Project,
Ser A, GO (A) (B) (C)
3.610%, 08/01/32 $ 1,500 $ 1,500
ABAG, Finance Authority for
Non-Profit Corporations,
Public Policy Institute,
Ser A, RB (A) (B) (C)
3.610%, 11/01/31 2,955 2,955
ABAG, Finance Authority for
Non-Profit Corporations,
School of the Sacred Heart,
Ser B, RB (A) (B) (C)
3.750%, 06/01/30 8,100 8,100
ABAG, Finance Authority for
Non-Profit Corporations,
Ser C, COP (A) (B) (C)
3.700%, 10/01/27 9,710 9,710
ABAG, Finance Authority for
Non-Profit Corporations,
Ser D, COP (A) (B) (C)
3.700%, 10/01/27 2,500 2,500
ABAG, Financial Authority for
Non-Profit Corporations,
Jewish Community Center
Project, RB (A) (B) (C)
3.790%, 11/15/31 13,270 13,270
Anaheim, Multi-Family Housing
Authority, Heritage Village
Apartments Project, Ser A,
RB (A) (B) (D)
3.610%, 07/15/33 4,685 4,685
Berkeley, Unified School
District, TRAN
4.500%, 11/01/06 6,000 6,008
DESCRIPTION FACE AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
Berkeley, YMCA Project,
RB (A) (B) (C)
3.610%, 06/01/23 $ 1,850 $ 1,850
Califonia State, Community
College Financing Authority,
Ser A, TRAN, FSA
4.500%, 06/29/07 4,500 4,528
California State, Bay Area Toll
Authority, San Francisco
Bay Area Project, Ser A,
RB, AMBAC (A) (B)
3.580%, 04/01/39 12,800 12,800
California State, Daily
Kindergarten University,
Ser A-5, GO (A) (B) (C)
3.600%, 05/01/34 8,000 8,000
California State, Daily
Kindergarten University,
Ser B-1, GO (A) (B) (C)
3.650%, 05/01/34 3,400 3,400
California State, Department of
Water Resource & Power,
Ser A, RB, MBIA (A) (B)
5.250%, 05/01/07 2,590 2,614
California State, Department of
Water Resource & Power,
Ser B-1, RB (A) (B) (C)
3.800%, 05/01/22 6,000 6,000
California State, Department of
Water Resource & Power,
Ser B-2, RB (A) (B) (C)
3.660%, 05/01/22 5,870 5,870
California State, Department of
Water Resource & Power,
Ser C-15, RB (A) (B) (C)
3.650%, 05/01/22 5,000 5,000
California State, Department of
Water Resource & Power,
Sub-Ser F-2, RB (A) (B) (C)
3.700%, 05/01/20 2,000 2,000
California State, Department of
Water Resource & Power,
Sub-Ser G-3, RB, FSA (A) (B)
3.590%, 05/01/16 1,050 1,050
California State, Department of
Water Resource & Power,
Sub-Ser G-4, RB, FSA (A) (B)
3.600%, 05/01/16 10,000 10,000
California State, Department of
Water Resourse & Power,
Ser B-6, RB (A) (B) (C)
3.650%, 05/01/22 1,200 1,200
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
CNI CHARTER FUNDS | PAGE 51
schedule of investments
SEPTEMBER 30, 2006
- --------------------------------------------------------------------------------
CALIFORNIA TAX EXEMPT MONEY MARKET FUND (CONTINUED)
DESCRIPTION FACE AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
California State, Economic
Development Financing
Authority, KQED Project,
RB (A) (B) (C)
3.570%, 04/01/20 $ 1,300 $ 1,300
California State, Economic
Recovery Authority,
Ser C-1, RB (A) (B)
3.650%, 07/01/23 3,250 3,250
California State, Economic
Recovery Authority,
Ser C-10, RB (A) (B) (C)
3.600%, 07/01/23 7,810 7,810
California State, Economic
Recovery Authority,
Ser C-12, RB (A) (B)
3.580%, 07/01/23 1,100 1,100
California State, Economic
Recovery Authority,
Ser C-13, RB, XLCA (A) (B)
3.680%, 07/01/23 5,000 5,000
California State, Economic
Recovery Authority,
Ser C-3, RB (A) (B)
3.650%, 07/01/23 2,485 2,485
California State, Economic
Recovery Authority,
Ser C-7, RB (A) (B) (C)
3.600%, 07/01/23 5,350 5,350
California State, Economic
Recovery Authority,
Ser C-8, RB (A) (B) (C)
3.650%, 07/01/23 3,000 3,000
California State, Educational
Facilities Authority, Chapman
University Project,
RB (A) (B) (C)
3.570%, 12/01/30 1,000 1,000
California State, Educational
Facilities Authority, University
San Francisco, RB (A) (B) (C)
3.500%, 05/01/30 5,200 5,200
California State, Health Facilities
Finance Authority, Adventist
Health Systems Project,
Ser B, RB (A) (B) (C)
3.800%, 09/01/25 4,400 4,400
California State, Health Facilities
Finance Authority, Adventist
Hospital Project,
Ser B, RB, MBIA (A) (B)
3.790%, 09/01/28 1,200 1,200
DESCRIPTION FACE AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
California State, Infrastructure &
Economic Authority, Asian Art
Museum Foundation Project,
RB, MBIA (A) (B)
3.790%, 06/01/34 $ 14,000 $ 14,000
California State, Infrastructure &
Economic Authority, Colburn
School Project, Ser B,
RB (A) (B) (C)
3.600%, 08/01/37 3,655 3,655
California State, Infrastructure &
Economic Authority, J Paul
Getty Trust Project,
Ser D, RB (A)
3.250%, 04/01/33 10,000 10,000
California State, Ser A-3, GO
3.650%, 05/01/33 14,000 14,000
California State, Ser B,
Sub-Ser B-1, GO (A) (B) (C)
3.590%, 05/01/40 15,000 15,000
California State, Ser B,
Sub-Ser B-6, GO (A) (B) (C)
3.650%, 05/01/40 8,700 8,700
California State, Ser B-1,
GO (A) (B) (C)
3.580%, 05/01/33 7,000 7,000
California State, Weekly
Kindgarten University,
Ser B-5, GO (A) (B) (C)
3.590%, 05/01/34 11,525 11,525
California Statewide,
Communities Development
Authority, Childrens
Hospital Project, Ser A, RB,
AMBAC (A) (B)
3.580%, 08/15/32 1,300 1,300
California Statewide,
Communities Development
Authority, Childrens Hospital
Project, Ser B, RB,
AMBAC (A) (B)
3.580%, 08/15/32 1,800 1,800
California Statewide,
Communities Development
Authority, North Peninsula
Jewish Project, RB (A) (B) (C)
3.790%, 07/01/34 6,300 6,300
California Statewide,
Communities Development
Authority, Monterey County
Project, Ser A-3, TRAN
4.500%, 06/29/07 5,000 5,033
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
CNI CHARTER FUNDS | PAGE 52
schedule of investments
SEPTEMBER 30, 2006
- --------------------------------------------------------------------------------
CALIFORNIA TAX EXEMPT MONEY MARKET FUND (CONTINUED)
DESCRIPTION FACE AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
Corona, Multi-Family Housing
Authority, Country Hills
Project, Ser A, RB (A) (B) (D)
3.600%, 02/01/25 $ 6,475 $ 6,475
East Bay, Municipal Utilities
District Authority,
Ser A, RB, FSA (A) (B)
3.570%, 06/01/25 5,220 5,220
East Bay, Municipal Utilities
District Authority,
Sub-Ser 1, RB,
XLCA (A) (B)
3.580%, 06/01/38 6,700 6,700
East Bay, Municipal Utilities
District Authority,
Sub-Ser B-1, RB,
XLCA (A) (B)
3.580%, 06/01/38 14,965 14,965
East Bay, Municipal Utilities
District Authority,
Sub-Ser B-3, RB,
XLCA (A) (B)
3.600%, 06/01/38 4,985 4,985
Eastern California, Municipal
Water District, COP,
Ser B, TA, FGIC (A) (B)
3.600%, 07/01/20 5,000 5,000
Fremont, Family Center Finance
Project, COP (A) (B) (C)
3.600%, 08/01/28 4,300 4,300
Fremont, Office Building
Improvement & Fire
Equipment Project,
COP (A) (B) (C)
3.600%, 08/01/30 3,345 3,345
Fresno, Multi-Family Housing
Authority, Stonepine
Apartment Project,
Ser A, RB (A) (B) (D)
3.600%, 02/15/31 2,095 2,095
Fresno, Palm Lakes Apartment
Project, RB (A) (B) (C)
3.700%, 05/01/15 3,615 3,615
Glendale, Police Building
Project, COP (A) (B)
3.680%, 06/01/30 19,600 19,600
Grant, Joint Union High School
District, School Facility
Bridge Funding Project,
COP, FSA (A) (B)
3.600%, 09/01/34 1,000 1,000
DESCRIPTION FACE AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
Huntington Beach, Union High
School District, School
Facility Bridge Funding
Project, COP, FSA (A) (B)
3.600%, 09/01/28 $ 1,890 $ 1,890
Irvine Ranch, Water District
#140-240-105-250,
GO (A) (B) (C)
3.650%, 04/01/33 4,525 4,525
Irvine Ranch, Water District,
GO (A) (B) (C)
3.650%, 01/01/21 9,000 9,000
Irvine, Improvement Board, Act
1915 Project, District #03-19,
Ser B, SAB (A) (B)
3.650%, 09/02/29 2,000 2,000
Irvine, Improvement Board, Act
1915 Project, District #05-21,
Ser A, RB (A) (B) (C)
3.650%, 09/02/31 12,000 12,000
Irvine, Improvement Board, Act
1915 Project, District #87-8,
SAB (A) (B) (C)
3.650%, 09/02/24 1,100 1,100
Irvine, Improvement Board, Act
1915 Project, District #93-14,
SAB (A) (B) (C)
3.650%, 09/02/25 16,670 16,670
Kern County, TRAN
4.500%, 06/29/07 5,000 5,036
Kings County, Multi-Family
Housing Authority, Edgewater
Isle Apartments Project,
Ser A, RB (A) (B) (D)
3.600%, 02/15/31 13,410 13,410
Lemon Grove, Multifamily
Housing, Hillside Terrace
Project, RB (A) (B) (D)
3.600%, 02/15/31 4,955 4,955
Lodi, Electric System Authority,
Ser A, COP, MBIA (A) (B)
3.580%, 07/01/32 9,360 9,360
Los Angeles County, Multi-
Family Housing Authority,
Malibu Canyon Apartments
Project, Ser B, RB (A) (B) (C)
3.620%, 06/01/10 8,000 8,000
Los Angeles County, Sanitation
Districts Financing Authority,
Capital Project, Ser A, RB, FSA
5.000%, 10/01/06 1,210 1,210
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
CNI CHARTER FUNDS | PAGE 53
schedule of investments
SEPTEMBER 30, 2006
- --------------------------------------------------------------------------------
CALIFORNIA TAX EXEMPT MONEY MARKET FUND (CONTINUED)
DESCRIPTION FACE AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
Los Angeles County,
Ser A, TRAN
4.500%, 06/29/07 $ 13,000 $ 13,093
Los Angeles, Department of
Water & Power, Sub-Ser B-1,
RB (A) (B)
3.680%, 07/01/35 11,000 11,000
Los Angeles, Department of
Water & Power, Sub-Ser B-3,
RB (A) (B)
3.640%, 07/01/35 3,600 3,600
Los Angeles, Department of
Water, Sub-Ser -2, RB (A) (B)
3.650%, 07/01/35 2,000 2,000
Los Angeles, Metropolitan
Transit Commission, Ser A,
RB, FGIC (A) (B)
3.570%, 07/01/12 5,330 5,330
Los Angeles, Metropolitan
Transportation Authority,
Proposition C, Ser A, RB,
MBIA (A) (B)
3.600%, 07/01/20 11,015 11,015
Los Angeles, Samuel A Fryer
Vavney, Ser A, COP
(A) (B) (C)
3.570%, 08/01/21 7,000 7,000
Los Angeles, Unified School
District, Administration
Building Project, Ser A,
COP, AMBAC (A) (B)
3.600%, 10/01/24 8,365 8,365
Los Angeles, Wastewater
Systems, Sub-Ser B-1,
RB, XLCA (A) (B)
3.520%, 06/01/28 4,480 4,480
Los Angeles, Water & Power
Resource Authority,
Power System Project,
Sub-Ser A-7, RB (A) (B)
3.590%, 07/01/35 15,000 15,000
Los Angeles, Water & Power
Resource Authority,
Sub-Ser B-2, RB (A) (B)
3.650%, 07/01/34 2,000 2,000
Los Angeles, Water & Power
Resource Authority,
Sub-Ser B-6, RB (A) (B)
3.790%, 07/01/34 9,675 9,675
Los Angeles, Water & Power
Resource Authority,
Subser B-3, RB (A) (B)
3.700%, 07/01/34 10,700 10,700
DESCRIPTION FACE AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
Moorpark, Unified School
District, Ser A, COP,
FSA (A) (B)
3.600%, 11/01/28 $ 1,000 $ 1,000
Newport Beach, Hoag
Memorial Hospital,
Ser A, RB (A) (B)
3.670%, 10/01/26 5,700 5,700
Newport Beach, Hoag
Memorial Hospital,
Ser B, RB (A) (B)
3.670%, 10/01/26 1,045 1,045
Newport Beach, Hoag
Memorial Hospital,
Ser C, RB (A) (B)
3.670%, 10/01/26 7,870 7,870
Oakland, Capital Equipment
Project, COP (A) (B) (C)
3.680%, 12/01/15 3,890 3,890
Oakland-Alameda County,
Coliseum Project, Ser C-1,
RB (A) (B) (C)
3.630%, 02/01/25 15,000 15,000
Orange County, Apartment
Development Authority,
Bear Brand Apartments
Project, RB (A) (B) (D)
3.580%, 11/01/07 1,900 1,900
Orange County, Apartment
Development Authority,
Hidden Hills Project,
Ser C, RB (A) (B)
3.620%, 11/01/09 3,200 3,200
Orange County, Apartment
Development Authority,
Larkspur Canyon Apartments,
Ser A, RB (A) (B) (D)
3.590%, 06/15/37 1,200 1,200
Orange County, Apartment
Development Authority,
Riverbend Apartments
Project, Ser B, RB (A) (B) (D)
3.590%, 12/01/29 5,000 5,000
Orange County, Apartment
Development Authority,
Seaside Meadow Project,
Ser C, RB (A) (B) (D)
3.580%, 08/01/08 8,000 8,000
Orange County, Sanitation
District Authority,
Ser A, COP (A) (B)
3.650%, 08/01/29 11,755 11,755
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
CNI CHARTER FUNDS | PAGE 54
schedule of investments
SEPTEMBER 30, 2006
- --------------------------------------------------------------------------------
CALIFORNIA TAX EXEMPT MONEY MARKET FUND (CONTINUED)
DESCRIPTION FACE AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
Orange County, Sanitation
District Authority,
Ser B, COP (A) (B)
3.650%, 08/01/30 $ 1,300 $ 1,300
Orange County, Water
District Authority,
Ser A, COP (A) (B)
3.570%, 08/01/42 2,800 2,800
Pasadena, Public Financing
Authority, Rose Bowl
Refinancing & Improvement
Project, RB (A) (B) (C)
3.550%, 12/01/23 5,000 5,000
Riverside County, Ser C,
COP (A) (B) (C)
3.650%, 12/01/15 15,700 15,700
Riverside, Unified School
District, Ser C, School
Facility Bridge Funding
Project, COP, FSA (A) (B)
3.600%, 09/01/27 1,610 1,610
Sacramento County, Housing
Authority, Bent Tree
Apartments Project,
Ser A, RB (A) (B) (D)
3.600%, 02/15/31 2,500 2,500
Sacramento County, TRAN
4.500%, 07/17/07 7,000 7,048
San Bernardino County,
Housing Authority, Alta Loma
Heritage Project, Ser A,
RB (A) (B) (C)
3.620%, 02/01/23 1,354 1,354
San Diego County, School
District, Ser A, TRAN
4.500%, 07/27/07 6,000 6,038
San Diego, Museum of Art
Project, COP (A) (B) (C)
3.750%, 09/01/30 1,400 1,400
San Diego, Unified School
District, Ser A, TRAN
4.500%, 07/24/07 4,000 4,025
San Francisco (City & County),
Housing Authority, Bayside
Village Project D, Ser A,
RB (A) (B) (C)
3.620%, 12/01/16 6,000 6,000
San Francisco City & County,
Moscone Center Expansion
Project, Ser 2, RB,
AMBAC (A) (B)
3.580%, 04/01/30 1,150 1,150
DESCRIPTION FACE AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
San Francisco, Bay Area Toll
Authority, Ser A, RB,
AMBAC (A) (B)
3.580%, 04/01/36 $ 15,850 $ 15,850
San Francisco, Bay Area Toll
Authority, Ser C, RB,
AMBAC (A) (B)
3.570%, 04/01/25 5,650 5,650
San Francisco, Building Authority,
Civic Center Complex Project,
Ser A, RB, AMBAC
Pre-Refunded @ 102 (F)
5.250%, 12/01/16 1,000 1,023
San Jose, Redevelopment
Agency, Merged Area
Redevelopment Project,
Ser A, RB (A) (B) (C)
3.570%, 07/01/26 3,100 3,100
Santa Barbara County, Schools
Financing Authority, TRAN
4.500%, 06/29/07 2,000 2,012
Santa Clara County, Financing
Authority, VMC Facility
Replacement Project,
Ser B, RB (A) (B)
3.600%, 11/15/25 12,375 12,375
Santa Clara Valley,
Transportation Authority,
Ser A, RB, AMBAC (A) (B)
3.600%, 06/01/26 6,300 6,300
Santa Cruz County, TRAN
4.500%, 06/29/07 5,000 5,031
South Coast, Local Education
Agencies, Ser A, TRAN
4.500%, 06/29/07 2,000 2,015
Southern California,
Metro Water District
Authority, Waterworks
Authorization, Ser B-4 (A) (B)
3.570%, 07/01/35 5,000 5,000
Southern California,
Metropolitan Water District
Authority, Ser B, RB (A) (B)
3.580%, 07/01/27 2,100 2,100
Southern California,
Metropolitan Water District
Authority, Ser B-3, RB (A) (B)
3.650%, 07/01/35 8,600 8,600
Southern California,
Metropolitan Water District
Authority, Ser C-2, RB (A) (B)
3.600%, 07/01/36 4,650 4,650
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
CNI CHARTER FUNDS | PAGE 55
schedule of investments
SEPTEMBER 30, 2006
- --------------------------------------------------------------------------------
CALIFORNIA TAX EXEMPT MONEY MARKET FUND (CONTINUED)
DESCRIPTION FACE AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
Southern California,
Metropolitan Water District
Authority, Water Works
Authorization, Ser B,
RB (A) (B)
3.580%, 07/01/28 $ 4,000 $ 4,000
Southern California,
Metropolitan Water District,
Ser A, RB (A) (B)
3.640%, 07/01/25 3,800 3,800
Southern California,
Metropolitan Water District,
Ser C-1, RB (A) (B)
3.570%, 07/01/30 5,000 5,000
Southern California,
Metropolitan Water District,
Ser C-3, RB (A) (B)
3.570%, 07/01/30 6,200 6,200
Southern California,
Public Power Authority,
Southern Transmission Project,
RB, AMBAC (A) (B) (C)
3.580%, 07/01/19 8,000 8,000
State of California, Economic
Recovery Authority,
Ser C-2, RB (A) (B) (D)
3.650%, 07/01/23 2,250 2,250
State of California,
Ser B-3, GO (A) (B) (C)
3.600%, 05/01/33 6,100 6,100
Sunnyvale, Government Center
Site Acquisition Project,
Ser A, COP, AMBAC (A) (B)
3.610%, 04/01/31 4,300 4,300
Three Valleys, Municipal Water
District Authority, Miramar
Water Treatment Project,
COP (A) (B) (C)
3.710%, 11/01/14 4,700 4,700
Turlock, Irrigation District,
Capital Improvement &
Refunding Project,
COP (A) (B) (C)
3.790%, 01/01/31 9,350 9,350
Upland, Community
Redevelopment Authority,
Sunset Ridge & Village
Apartments Project,
RB (A) (B) (C)
3.590%, 12/01/29 6,700 6,700
Ventura County, TRAN
4.500%, 07/02/07 2,500 2,515
DESCRIPTION FACE AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
Westminster, Civic Center
Refinancing Program,
Ser A, COP, AMBAC (A) (B)
3.610%, 06/01/22 $ 2,900 $ 2,900
Yolo County, Multi-Family
Housing Authority, Primero
Grove Project, Ser A,
RB (A) (B) (C)
3.570%, 11/01/27 10,485 10,485
--------------------------------------------------------------------------
TOTAL CALIFORNIA 793,653
==========================================================================
MASSACHUSETTS [0.6%]
Massachusetts State, Development &
Finance Agency, Harvard
University Project,
Ser B-1, RB (A) (B)
3.750%, 07/15/36 5,000 5,000
==========================================================================
WASHINGTON [0.5%]
Seattle, Municipal Light &
Power Authority,
RB (A) (B) (C)
3.700%, 06/01/21 4,300 4,300
==========================================================================
TOTAL MUNICIPAL BOND
(Cost $802,953) 802,953
=====================================================================
COMMERCIAL PAPER (E) [1.1%]
California State
3.470%, 10/03/06 9,000 9,000
==========================================================================
TOTAL INVESTMENTS [98.6%]
(Cost $811,953) 811,953
=====================================================================
OTHER ASSETS AND LIABILITIES [1.4%] 11,670
=====================================================================
NET ASSETS -- 100.0% $ 823,623
==========================================================================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
CNI CHARTER FUNDS | PAGE 56
schedule of investments
SEPTEMBER 30, 2006
- --------------------------------------------------------------------------------
CALIFORNIA TAX EXEMPT MONEY MARKET FUND (CONCLUDED)
DESCRIPTION
- --------------------------------------------------------------------------------
(A) FLOATING RATE SECURITY -- THE RATE REFLECTED ON THE SCHEDULE OF
INVESTMENTS IS THE RATE IN EFFECT ON SEPTEMBER 30, 2006.
(B) PUT AND DEMAND FEATURE -- THE DATE REPORTED ON THE SCHEDULE OF INVESTMENTS
IS THE FINAL MATURITY, NOT THE NEXT RESET OR PUT DATE.
(C) SECURITIES ARE HELD IN CONJUNCTION WITH A LETTER OF CREDIT FROM A MAJOR
BANK OR FINANCIAL INSTITUTION.
(D) SECURITIES ARE COLLATERALIZED UNDER AN AGREEMENT FROM FHLMC/FNMA.
(E) THE RATE REPORTED IS THE EFFECTIVE YIELD AT TIME OF PURCHASE.
(F) PRE-REFUNDED SECURITY - THE MATURITY DATE SHOWN IS THE PRE-REFUNDED DATE.
ABAG -- ASSOCIATION OF BAY AREA GOVERNMENTS
AMBAC -- AMERICAN MUNICIPAL BOND ASSURANCE COMPANY
COP -- CERTIFICATE OF PARTICIPATION
FGIC -- FINANCIAL GUARANTY INSURANCE COMPANY
FHLMC -- FEDERAL HOME LOAN MORTGAGE CORPORATION
FNMA -- FEDERAL NATIONAL MORTGAGE ASSOCIATION
FSA -- FINANCIAL SECURITY ASSISTANCE
GO -- GENERAL OBLIGATION
MBIA -- MUNICIPAL BOND INSURANCE ASSOCIATION
RB -- REVENUE BOND
SAB -- SPECIAL ASSESSMENT BOND
SER -- SERIES
TA -- TAX ALLOCATION
TRAN -- TAX & REVENUE ANTICIPATION NOTE
XLCA -- XL CAPITAL ASSURANCE
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
CNI CHARTER FUNDS | PAGE 57
statements of assets and liabilities (000)
SEPTEMBER 30, 2006
- --------------------------------------------------------------------------------
Large Cap Value Large Cap Growth RCB Small Cap Technology
Equity Fund Equity Fund Value Fund Growth Fund
------------------------------------------------------------------
ASSETS:
Cost of securities (including repurchase agreements) $ 88,821 $ 41,894 $ 56,814 $ 2,490
- ---------------------------------------------------------------------------------------------------------------------------------
Investments in securities at value $ 106,039 $ 46,013 $ 66,466 $ 2,682
Repurchase agreements at value -- -- 3,053 --
Receivable for investment securities sold 2,830 1,330 274 --
Income receivable 136 28 114 1
Receivable for capital shares sold 102 31 1 2
Prepaid Expenses 1 1 1 --
- ---------------------------------------------------------------------------------------------------------------------------------
Total Assets 109,108 47,403 69,909 2,685
- ---------------------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for investment securities purchased 2,851 1,140 -- --
Payable for income distributions 110 16 -- --
Payable for capital shares redeemed 6 -- 55 --
Investment adviser fees payable 53 25 49 2
Shareholder servicing fees payable 24 12 56 1
Administrative fees payable 5 2 3 --
Accrued expenses 9 3 5 --
- ---------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 3,058 1,198 168 3
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $ 106,050 $ 46,205 $ 69,741 $ 2,682
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Paid-in-Capital
(unlimited authorization -- $0.01 par value) $ 83,636 $ 45,086 $ 55,935 $ 3,995
Undistributed (distributions in excess of)
net investment income (2) (1) 3 --
Accumulated net realized gain (loss) on investments 5,198 (2,999) 1,098 (1,505)
Net unrealized appreciation on investments 17,218 4,119 12,705 192
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $ 106,050 $ 46,205 $ 69,741 $ 2,682
- ---------------------------------------------------------------------------------------------------------------------------------
Institutional Shares ($Dollars):
Net Assets $92,945,293 $35,842,162 $13,435,095 $1,244,724
Total shares outstanding at end of year 8,971,363 4,622,315 475,646 289,773
Net asset value, offering and redemption price per share
(net assets / shares outstanding) $ 10.36 $ 7.75 $ 28.25 $ 4.30
Class A Shares ($Dollars):
Net Assets $13,104,250 $10,363,242 $10,470,133 $1,437,152
Total shares outstanding at end of year 1,266,627 1,350,243 374,234 339,378
Net asset value, offering and redemption price per share
(net assets / shares outstanding) $ 10.35 $ 7.68 $ 27.98 $ 4.23
Class R Shares ($Dollars):
Net Assets $ -- $ -- $45,835,513 $ --
Total shares outstanding at end of year -- -- 1,640,798 --
Net asset value and redemption price per share
(net assets / shares outstanding) $ -- $ -- $ 27.93 $ --
Maximum offering price per share
(net asset value / 96.50%) $ -- $ -- $ 28.94 $ --
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
CNI CHARTER FUNDS | PAGE 58
statements of assets and liabilities (000)
SEPTEMBER 30, 2006
- --------------------------------------------------------------------------------
California
Corporate Government Tax Exempt High Yield
Bond Fund Bond Fund Bond Fund Bond Fund
------------------------------------------------------------------
ASSETS:
Cost of securities $ 57,427 $ 37,369 $ 26,847 $ 40,541
- ----------------------------------------------------------------------------------------------------------------------------------
Investments in securities at value $ 57,052 $ 37,137 $ 26,924 $ 40,504
Cash 12 -- 1 --
Receivable for investment securities sold -- -- -- 152
Income receivable 704 313 349 903
Receivable for capital shares sold 17 121 -- 3
Prepaid Expenses 1 1 -- 1
- ----------------------------------------------------------------------------------------------------------------------------------
Total Assets 57,786 37,572 27,274 41,563
- ----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for investment securities purchased 962 -- -- 475
Payable for income distributions 159 96 43 101
Payable for capital shares redeemed 5 -- 11 5
Investment adviser fees payable 19 10 3 22
Shareholder servicing fees payable 12 8 6 13
Administrative fees payable 3 2 1 2
Accrued expenses 4 3 2 3
Payable to custodian -- -- -- 10
- ----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 1,164 119 66 631
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $ 56,622 $ 37,453 $ 27,208 $ 40,932
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Paid-in-Capital
(unlimited authorization -- $0.01 par value) $ 57,332 $ 38,099 $ 27,174 $ 42,224
Undistributed net investment income 1 1 -- --
Accumulated net realized loss on investments (336) (415) (43) (1,255)
Net unrealized appreciation (depreciation)
on investments (375) (232) 77 (37)
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $ 56,622 $ 37,453 $ 27,208 $ 40,932
- ----------------------------------------------------------------------------------------------------------------------------------
Institutional Shares ($Dollars):
Net Assets $55,290,256 $35,670,498 $26,073,962 $20,887,459
Total shares outstanding at end of year 5,438,882 3,470,224 2,544,904 2,332,240
Net asset value, offering and redemption price per share
(net assets / shares outstanding) $ 10.17 $ 10.28 $ 10.25 $ 8.96
Class A Shares ($Dollars):
Net Assets $ 1,332,049 $ 1,782,407 $ 1,134,367 $20,044,571
Total shares outstanding at end of year 130,949 173,035 110,426 2,238,216
Net asset value, offering and redemption price per share
(net assets / shares outstanding) $ 10.17 $ 10.30 $ 10.27 $ 8.96
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
CNI CHARTER FUNDS | PAGE 59
statements of assets and liabilities (000)
SEPTEMBER 30, 2006
- --------------------------------------------------------------------------------
California
Prime Government Tax Exempt
Money Money Money
Market Fund Market Fund Market Fund
-----------------------------------------------------
ASSETS:
Cost of securities (including repurchase agreements) $ 1,360,236 $ 2,287,334 $ 811,953
- ------------------------------------------------------------------------------------------------------------------
Investments in securities at value $ 825,036 $ 1,444,134 $ 811,953
Repurchase agreements at value 535,200 843,200 --
Cash 4 58 11,101
Income receivable 2,647 5,196 3,841
Prepaid Expenses 16 35 12
- ------------------------------------------------------------------------------------------------------------------
Total Assets 1,362,903 2,292,623 826,907
- ------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for investment securities purchased 5,000 62,060 2,016
Payable for income distributions 4,055 3,400 693
Investment adviser fees payable 280 493 131
Shareholder servicing fees payable 511 922 337
Administrative fees payable 62 105 39
Trustees' fees payable 1 2 1
Accrued expenses 104 174 67
- ------------------------------------------------------------------------------------------------------------------
Total Liabilities 10,013 67,156 3,284
- ------------------------------------------------------------------------------------------------------------------
NET ASSETS $ 1,352,890 $ 2,225,467 $ 823,623
- ------------------------------------------------------------------------------------------------------------------
NET ASSETS
Paid-in-Capital
(unlimited authorization -- $0.01 par value) $ 1,353,291 $ 2,225,465 $ 823,622
Undistributed net investment income 1 2 --
Accumulated net realized gain (loss) on investments (402) -- 1
- ------------------------------------------------------------------------------------------------------------------
NET ASSETS $ 1,352,890 $ 2,225,467 $ 823,623
- ------------------------------------------------------------------------------------------------------------------
Institutional Shares ($Dollars):
Net Assets $388,170,906 $ 52,781,932 $ 85,014,525
Total shares outstanding at end of year 388,306,196 52,783,258 85,015,819
Net asset value, offering and redemption price per share
(net assets / shares outstanding) $ 1.00 $ 1.00 $ 1.00
Class A Shares ($Dollars):
Net Assets $640,366,315 $1,940,602,170 $631,477,612
Total shares outstanding at end of year 640,635,133 1,940,597,943 631,479,986
Net asset value, offering and redemption price per share
(net assets / shares outstanding) $ 1.00 $ 1.00 $ 1.00
Class S Shares ($Dollars):
Net Assets $324,352,628 $ 232,082,832 $107,130,690
Total shares outstanding at end of year 324,442,719 232,083,278 107,127,093
Net asset value and redemption price per share
(net assets / shares outstanding) $ 1.00 $ 1.00 $ 1.00
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
CNI CHARTER FUNDS | PAGE 60
statements of operations
FOR THE YEAR ENDED SEPTEMBER 30, 2006
- --------------------------------------------------------------------------------
Large Cap Value Large Cap Growth RCB Small Cap Technology
Equity Fund Equity Fund Value Fund Growth Fund
(000) (000) (000) (000)
-------------------------------------------------------------------
INVESTMENT INCOME:
Dividend $ 2,173 $ 568 $ 572 $ 17
Interest 16 -- 541 --
Less: Foreign tax withheld (2) -- (6) --
- -------------------------------------------------------------------------------------------------------------------------------
Total Investment Income 2,187 568 1,107 17
- -------------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Investment Advisory Fees 585 293 669 22
Shareholder Servicing Fees--Institutional Class 205 88 35 3
Shareholder Servicing Fees--Class A(1) 61 49 60 8
Shareholder Servicing Fees--Class R(1) -- -- 264 --
Administrative Fees 52 25 43 1
Trustee Fees 3 2 3 --
Professional Fees 12 3 10 (2)
Transfer Agent Fees 10 5 9 --
Custodian Fees 5 2 9 --
Printing Fees 4 1 3 --
Registration Fees 3 1 1 --
Insurance and Other Fees 7 5 9 --
- -------------------------------------------------------------------------------------------------------------------------------
Total Expenses 947 474 1,115 32
- -------------------------------------------------------------------------------------------------------------------------------
Recovery of Investment Advisory Fees
Previously Waived(2) -- -- -- 2
Less Waiver of:
Transfer Agent Fees (10) (5) (9) --
- -------------------------------------------------------------------------------------------------------------------------------
Net Expenses 937 469 1,106 34
- -------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) 1,250 99 1 (17)
- -------------------------------------------------------------------------------------------------------------------------------
Net Realized Gain From Securities Transactions 5,205 1,412 1,110 103
Net Change in Unrealized Appreciation (Depreciation)
on Investments 6,087 547 (908) 81
- -------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $12,542 $2,058 $ 203 $167
===============================================================================================================================
(1) INCLUDES CLASS SPECIFIC DISTRIBUTION EXPENSES.
(2) SEE NOTE 4 FOR ADVISORY FEES RECOVERED.
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
CNI CHARTER FUNDS | PAGE 61
statements of operations
FOR THE YEAR ENDED SEPTEMBER 30, 2006
- --------------------------------------------------------------------------------
California
Corporate Government Tax Exempt High Yield
Bond Fund Bond Fund Bond Fund Bond Fund
(000) (000) (000) (000)
----------------------------------------------------------------
INVESTMENT INCOME:
Interest $2,584 $1,533 $841 $3,467
Dividend 50 26 13 18
- --------------------------------------------------------------------------------------------------------------------------------
Total Investment Income 2,634 1,559 854 3,485
- --------------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Investment Advisory Fees 216 141 69 305
Shareholder Servicing Fees--Institutional Class 131 80 61 53
Shareholder Servicing Fees--Class A(1) 7 4 6 107
Administrative Fees 30 18 14 23
Trustee Fees 2 1 1 2
Professional Fees 5 4 2 4
Transfer Agent Fees 6 4 3 4
Custodian Fees 3 2 1 2
Printing Fees 1 1 1 1
Registration Fees 1 1 1 1
Insurance and Other Fees 6 4 3 5
- --------------------------------------------------------------------------------------------------------------------------------
Total Expenses 408 260 162 507
- --------------------------------------------------------------------------------------------------------------------------------
Recovery of Investment Advisory Fees
Previously Waived(2) 5 -- -- --
Less Waiver of:
Investment Advisory Fees -- (23) (28) (38)
Transfer Agent Fees (6) (4) (3) (4)
- --------------------------------------------------------------------------------------------------------------------------------
Net Expenses 407 233 131 465
- --------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 2,227 1,326 723 3,020
- --------------------------------------------------------------------------------------------------------------------------------
Net Realized Loss From Securities Transactions (276) (360) (35) (18)
Net Change in Unrealized Appreciation (Depreciation)
on Investments (191) 48 122 (392)
- --------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $1,760 $1,014 $810 $2,610
==================================================================================================================================
(1) INCLUDES CLASS SPECIFIC DISTRIBUTION EXPENSES.
(2) SEE NOTE 4 FOR ADVISORY FEES RECOVERY.
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
CNI CHARTER FUNDS | PAGE 62
statements of operations
FOR THE YEAR ENDED SEPTEMBER 30, 2006
- --------------------------------------------------------------------------------
California
Prime Government Tax Exempt
Money Money Money
Market Fund Market Fund Market Fund
(000) (000) (000)
----------------------------------------------
INVESTMENT INCOME:
Interest $52,333 $104,689 $25,657
Dividend 24 -- --
- ---------------------------------------------------------------------------------------------------------------
Total Investment Income 52,357 104,689 25,657
- ---------------------------------------------------------------------------------------------------------------
EXPENSES:
Investment Advisory Fees 2,761 5,904 2,204
Shareholder Servicing Fees--Institutional Class 893 126 200
Shareholder Servicing Fees--Class A(1) 3,592 14,797 4,808
Shareholder Servicing Fees--Class S(1) 2,009 1,857 713
Administrative Fees 612 1,259 453
Trustee Fees 37 85 30
Professional Fees 127 242 95
Transfer Agent Fees 120 248 89
Custodian Fees 58 108 44
Printing Fees 43 68 30
Registration and Filing Fees 33 50 17
Insurance and Other Fees 102 269 91
- ---------------------------------------------------------------------------------------------------------------
Total Expenses 10,387 25,013 8,774
- ---------------------------------------------------------------------------------------------------------------
Less Waiver of:
Investment Advisory Fees -- -- (516)
Shareholder Servicing Fees -- Class A(1) (1,340) (5,524) (1,731)
Shareholder Servicing Fees -- Class S(1) (214) (198) (67)
Transfer Agent Fees (120) (248) (89)
- ---------------------------------------------------------------------------------------------------------------
Net Expenses 8,713 19,043 6,371
- ---------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 43,644 85,646 19,286
- ---------------------------------------------------------------------------------------------------------------
Net Realized Gain From Securities Transactions -- 1 --
- ---------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $43,644 $ 85,647 $19,286
===============================================================================================================
(1) INCLUDES CLASS SPECIFIC DISTRIBUTION EXPENSES.
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
CNI CHARTER FUNDS | PAGE 63
statements of changes in net assets
FOR THE YEAR ENDED SEPTEMBER 30,
- --------------------------------------------------------------------------------
Large Cap Value Large Cap Growth
Equity Fund (000) Equity Fund (000)
-------------------- ----------------------
2006 2005 2006 2005
- ----------------------------------------------------------------------------- ----------------------
OPERATIONS:
Net Investment Income (Loss) $ 1,250 $ 536 $ 99 $ 194
Net Realized Gain (Loss) from
Security Transactions 5,205 4,127 1,412 376
Net Change in Unrealized Appreciation
(Depreciation) on Investments 6,087 1,915 547 2,999
- ----------------------------------------------------------------------------- ----------------------
Net Increase in Net Assets
Resulting from Operations 12,542 6,578 2,058 3,569
- ----------------------------------------------------------------------------- ----------------------
DIVIDENDS AND DISTRIBUTIONS FROM:
Net Investment Income:
INSTITUTIONAL CLASS (1,124) (453) (96) (172)
CLASS A (128) (82) (5) (26)
CLASS R -- -- -- --
Realized Capital Gains:
INSTITUTIONAL CLASS (3,330) (1,585) -- --
CLASS A (459) (323) -- --
CLASS R -- -- -- --
- ----------------------------------------------------------------------------- ----------------------
Total Dividends and Distributions (5,041) (2,443) (101) (198)
- ----------------------------------------------------------------------------- ----------------------
CAPITAL SHARE TRANSACTIONS:(1)
INSTITUTIONAL CLASS:
Shares Issued 55,314 8,083 7,916 10,719
Shares Issued in Lieu of Dividends and Distributions 2,902 673 30 56
Shares Redeemed (14,689) (7,549) (7,829) (4,944)
- ----------------------------------------------------------------------------- ----------------------
Increase (Decrease) in Net Assets from
Institutional Class Share Transactions 43,527 1,207 117 5,831
- ----------------------------------------------------------------------------- ----------------------
CLASS A:
Shares Issued 2,656 4,714 3,182 3,209
Shares Issued in Lieu of Dividends and Distributions 471 323 4 18
Shares Redeemed (1,743) (1,366) (1,497) (785)
- ----------------------------------------------------------------------------- ----------------------
Increase (Decrease) in Net Assets from
Class A Share Transactions 1,384 3,671 1,689 2,442
- ----------------------------------------------------------------------------- ----------------------
CLASS R:
Shares Issued -- -- -- --
Shares Issued in Lieu of Dividends and Distributions -- -- -- --
Shares Redeemed -- -- -- --
- ----------------------------------------------------------------------------- ----------------------
Increase (Decrease) in Net Assets from
Class R Share Transactions -- -- -- --
- ----------------------------------------------------------------------------- ----------------------
Net Increase (Decrease) in Net Assets from
Share Transactions 44,911 4,878 1,806 8,273
- ----------------------------------------------------------------------------- ----------------------
Total Increase (Decrease) in Net Assets 52,412 9,013 3,763 11,644
- ----------------------------------------------------------------------------- ----------------------
NET ASSETS:
Beginning of year 53,638 44,625 42,442 30,798
- ----------------------------------------------------------------------------- ----------------------
End of year $106,050 $ 53,638 $ 46,205 $ 42,442
============================================================================= ======================
Undistributed (Distributions in Excess of)
Net Investment Income $ (2) $ -- $ (1) $ (1)
- ----------------------------------------------------------------------------- ----------------------
(1) SEE NOTE 8 FOR SHARES ISSUED AND REDEEMED.
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
CNI CHARTER FUNDS | PAGE 64
RCB Small Cap Technology Growth Corporate Bond
Value Fund (000) Fund (000) Fund (000)
-------------------- -------------------- --------------------
2006 2005 2006 2005 2006 2005
- ----------------------------------------------------------------------------- -------------------- --------------------
OPERATIONS:
Net Investment Income (Loss) $ 1 $ 44 $ (17) $ 4 $ 2,227 $ 1,920
Net Realized Gain (Loss) from
Security Transactions 1,110 2,115 103 40 (276) (65)
Net Change in Unrealized Appreciation
(Depreciation) on Investments (908) 3,809 81 320 (191) (1,281)
- ----------------------------------------------------------------------------- -------------------- --------------------
Net Increase in Net Assets
Resulting from Operations 203 5,968 167 364 1,760 574
- ----------------------------------------------------------------------------- -------------------- --------------------
DIVIDENDS AND DISTRIBUTIONS FROM:
Net Investment Income:
INSTITUTIONAL CLASS (35) -- (4) -- (2,167) (1,865)
CLASS A (1) -- -- -- (54) (54)
CLASS R (10) -- -- -- -- --
Realized Capital Gains:
INSTITUTIONAL CLASS (186) (462) -- -- -- (293)
CLASS A (170) (480) -- -- -- (10)
CLASS R (785) (2,072) -- -- -- --
- ----------------------------------------------------------------------------- -------------------- --------------------
Total Dividends and Distributions (1,187) (3,014) (4) -- (2,221) (2,222)
- ----------------------------------------------------------------------------- -------------------- --------------------
CAPITAL SHARE TRANSACTIONS:(1)
INSTITUTIONAL CLASS:
Shares Issued 5,422 7,853 333 428 15,662 15,341
Shares Issued in Lieu of Dividends and Distributions 159 325 4 -- 406 396
Shares Redeemed (5,973) (3,616) (357) (379) (11,526) (10,031)
- ----------------------------------------------------------------------------- -------------------- --------------------
Increase (Decrease) in Net Assets from
Institutional Class Share Transactions (392) 4,562 (20) 49 4,542 5,706
- ----------------------------------------------------------------------------- -------------------- --------------------
CLASS A:
Shares Issued 1,155 7,216 144 37 146 604
Shares Issued in Lieu of Dividends and Distributions 129 391 -- -- 25 30
Shares Redeemed (3,396) (2,825) (215) (56) (353) (571)
- ----------------------------------------------------------------------------- -------------------- --------------------
Increase (Decrease) in Net Assets from
Class A Share Transactions (2,112) 4,782 (71) (19) (182) 63
- ----------------------------------------------------------------------------- -------------------- --------------------
CLASS R:
Shares Issued 12,077 28,095 -- -- -- --
Shares Issued in Lieu of Dividends and Distributions 742 1,991 -- -- -- --
Shares Redeemed (24,106) (10,847) -- -- -- --
- ----------------------------------------------------------------------------- -------------------- --------------------
Increase (Decrease) in Net Assets from
Class R Share Transactions (11,287) 19,239 -- -- -- --
- ----------------------------------------------------------------------------- -------------------- --------------------
Net Increase (Decrease) in Net Assets from
Share Transactions (13,791) 28,583 (91) 30 4,360 5,769
- ----------------------------------------------------------------------------- -------------------- --------------------
Total Increase (Decrease) in Net Assets (14,775) 31,537 72 394 3,899 4,121
- ----------------------------------------------------------------------------- -------------------- --------------------
NET ASSETS:
Beginning of year 84,516 52,979 2,610 2,216 52,723 48,602
- ----------------------------------------------------------------------------- -------------------- --------------------
End of year $ 69,741 $ 84,516 $ 2,682 $ 2,610 $ 56,622 $ 52,723
============================================================================= ==================== ====================
Undistributed (Distributions in Excess of)
Net Investment Income $ 3 $ 43 $ -- $ 4 $ 1 $ --
- ----------------------------------------------------------------------------- -------------------- --------------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
CNI CHARTER FUNDS | PAGE 65
statements of changes in net assets
FOR THE YEAR ENDED SEPTEMBER 30,
- --------------------------------------------------------------------------------
Government California Tax Exempt
Bond Fund (000) Bond Fund (000)
------------------------ ------------------------
2006 2005 2006 2005
- --------------------------------------------------------------------------------- ------------------------
OPERATIONS:
Net Investment Income $ 1,326 $ 738 $ 723 $ 593
Net Realized Gain (Loss) from
Security Transactions (360) (55) (35) 135
Net Change in Unrealized Appreciation (Depreciation)
on Investments 48 (342) 122 (391)
- --------------------------------------------------------------------------------- ------------------------
Net Increase in Net Assets
Resulting from Operations 1,014 341 810 337
- --------------------------------------------------------------------------------- ------------------------
DIVIDENDS AND DISTRIBUTIONS FROM:
Net Investment Income:
INSTITUTIONAL CLASS (1,292) (728) (692) (540)
CLASS A (32) (11) (31) (53)
CLASS S -- -- -- --
Realized Capital Gains:
INSTITUTIONAL CLASS -- (118) (90) (71)
CLASS A -- (2) (5) (11)
CLASS S -- -- -- --
- --------------------------------------------------------------------------------- ------------------------
Total Dividends and Distributions (1,324) (859) (818) (675)
- --------------------------------------------------------------------------------- ------------------------
CAPITAL SHARE TRANSACTIONS:(1)
INSTITUTIONAL CLASS:
Shares Issued 13,593 12,985 8,793 8,952
Shares Issued in Lieu of Dividends and Distributions 338 209 255 139
Shares Redeemed (6,079) (5,454) (5,739) (3,813)
- --------------------------------------------------------------------------------- ------------------------
Increase (Decrease) in Net Assets from
Institutional Class Share Transactions 7,852 7,740 3,309 5,278
- --------------------------------------------------------------------------------- ------------------------
CLASS A:
Shares Issued 1,378 275 31 302
Shares Issued in Lieu of Dividends and Distributions 9 5 6 25
Shares Redeemed (162) (153) (385) (1,240)
- --------------------------------------------------------------------------------- ------------------------
Increase (Decrease) in Net Assets from
Class A Share Transactions 1,225 127 (348) (913)
- --------------------------------------------------------------------------------- ------------------------
CLASS S:
Shares Issued -- -- -- --
Shares Issued in Lieu of Dividends and Distributions -- -- -- --
Shares Redeemed -- -- -- --
- --------------------------------------------------------------------------------- ------------------------
Increase (Decrease) in Net Assets from
Class S Share Transactions -- -- -- --
- --------------------------------------------------------------------------------- ------------------------
Net Increase (Decrease) in Net Assets from
Share Transactions 9,077 7,867 2,961 4,365
- --------------------------------------------------------------------------------- ------------------------
Total Increase (Decrease) in Net Assets 8,767 7,349 2,953 4,027
- --------------------------------------------------------------------------------- ------------------------
NET ASSETS:
Beginning of year 28,686 21,337 24,255 20,228
- --------------------------------------------------------------------------------- ------------------------
End of year $ 37,453 $ 28,686 $ 27,208 $ 24,255
================================================================================= ========================
Undistributed (Distributions in excess of)
Net Investment Income $ 1 $ 3 $ -- $ --
- --------------------------------------------------------------------------------- ------------------------
(1) SEE NOTE 8 FOR SHARES ISSUED AND REDEEMED.
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
CNI CHARTER FUNDS | PAGE 66
High Yield Prime Money
Bond Fund (000) Market Fund (000)
------------------------ ------------------------
2006 2005 2006 2005
- --------------------------------------------------------------------------------- ------------------------
OPERATIONS:
Net Investment Income $ 3,020 $ 3,416 $ 43,644 $ 14,619
Net Realized Gain (Loss) from
Security Transactions (18) (157) -- 1
Net Change in Unrealized Appreciation (Depreciation)
on Investments (392) (1,200) -- --
- --------------------------------------------------------------------------------- ------------------------
Net Increase in Net Assets
Resulting from Operations 2,610 2,059 43,644 14,620
- --------------------------------------------------------------------------------- ------------------------
DIVIDENDS AND DISTRIBUTIONS FROM:
Net Investment Income:
INSTITUTIONAL CLASS (1,599) (1,815) (14,704) (7,317)
CLASS A (1,421) (1,589) (18,919) (4,601)
CLASS S -- -- (10,020) (2,701)
Realized Capital Gains:
INSTITUTIONAL CLASS -- -- -- --
CLASS A -- -- -- --
CLASS S -- -- -- --
- --------------------------------------------------------------------------------- ------------------------
Total Dividends and Distributions (3,020) (3,404) (43,643) (14,619)
- --------------------------------------------------------------------------------- ------------------------
CAPITAL SHARE TRANSACTIONS:(1)
INSTITUTIONAL CLASS:
Shares Issued 4,120 6,056 1,690,942 1,215,600
Shares Issued in Lieu of Dividends and Distributions 895 945 2,507 1,411
Shares Redeemed (6,503) (6,600) (1,637,671) (1,251,828)
- --------------------------------------------------------------------------------- ------------------------
Increase (Decrease) in Net Assets from
Institutional Class Share Transactions (1,488) 401 55,778 (34,817)
- --------------------------------------------------------------------------------- ------------------------
CLASS A:
Shares Issued 1,822 4,528 2,204,941 958,549
Shares Issued in Lieu of Dividends and Distributions 817 920 5,522 982
Shares Redeemed (3,425) (4,403) (1,882,549) (848,138)
- --------------------------------------------------------------------------------- ------------------------
Increase (Decrease) in Net Assets from
Class A Share Transactions (786) 1,045 327,914 111,393
- --------------------------------------------------------------------------------- ------------------------
CLASS S:
Shares Issued -- -- 1,261,525 499,380
Shares Issued in Lieu of Dividends and Distributions -- -- -- --
Shares Redeemed -- -- (1,140,675) (411,638)
- --------------------------------------------------------------------------------- ------------------------
Increase (Decrease) in Net Assets from
Class S Share Transactions -- -- 120,850 87,742
- --------------------------------------------------------------------------------- ------------------------
Net Increase (Decrease) in Net Assets from
Share Transactions (2,274) 1,446 504,542 164,318
- --------------------------------------------------------------------------------- ------------------------
Total Increase (Decrease) in Net Assets (2,684) 101 504,543 164,319
- --------------------------------------------------------------------------------- ------------------------
NET ASSETS:
Beginning of year 43,616 43,515 848,347 684,028
- --------------------------------------------------------------------------------- ------------------------
End of year $ 40,932 $ 43,616 $1,352,890 $ 848,347
================================================================================= ========================
Undistributed (Distributions in excess of)
Net Investment Income $ -- $ -- $ 1 $ --
- --------------------------------------------------------------------------------- ------------------------
Government Money California Tax Exempt
Market Fund (000) Money Market Fund (000)
------------------------ ------------------------
2006 2005 2006 2005
- --------------------------------------------------------------------------------- ------------------------
OPERATIONS:
Net Investment Income $ 85,646 $ 38,831 $ 19,286 $ 9,079
Net Realized Gain (Loss) from
Security Transactions 1 -- -- --
Net Change in Unrealized Appreciation (Depreciation)
on Investments -- -- -- --
- --------------------------------------------------------------------------------- ------------------------
Net Increase in Net Assets
Resulting from Operations 85,647 38,831 19,286 9,079
- --------------------------------------------------------------------------------- ------------------------
DIVIDENDS AND DISTRIBUTIONS FROM:
Net Investment Income:
INSTITUTIONAL CLASS (2,064) (880) (2,080) (1,365)
CLASS A (74,663) (33,943) (15,136) (7,285)
CLASS S (8,922) (4,006) (2,065) (433)
Realized Capital Gains:
INSTITUTIONAL CLASS -- -- -- (27)
CLASS A -- -- -- (144)
CLASS S -- -- -- (7)
- --------------------------------------------------------------------------------- ------------------------
Total Dividends and Distributions (85,649) (38,829) (19,281) (9,261)
- --------------------------------------------------------------------------------- ------------------------
CAPITAL SHARE TRANSACTIONS:(1)
INSTITUTIONAL CLASS:
Shares Issued 635,895 376,258 1,444,514 1,139,802
Shares Issued in Lieu of Dividends and Distributions 2 7 -- 8
Shares Redeemed (615,154) (387,834) (1,432,711) (1,145,985)
- --------------------------------------------------------------------------------- ------------------------
Increase (Decrease) in Net Assets from
Institutional Class Share Transactions 20,743 (11,569) 11,803 (6,175)
- --------------------------------------------------------------------------------- ------------------------
CLASS A:
Shares Issued 5,761,555 4,965,371 2,014,013 1,822,478
Shares Issued in Lieu of Dividends and Distributions 51,511 23,227 12,188 6,066
Shares Redeemed (5,767,874) (4,950,864) (1,964,398) (1,763,753)
- --------------------------------------------------------------------------------- ------------------------
Increase (Decrease) in Net Assets from
Class A Share Transactions 45,192 37,734 61,803 64,791
- --------------------------------------------------------------------------------- ------------------------
CLASS S:
Shares Issued 1,013,412 689,747 348,788 271,376
Shares Issued in Lieu of Dividends and Distributions -- -- -- --
Shares Redeemed (1,009,234) (724,928) (329,840) (216,708)
- --------------------------------------------------------------------------------- ------------------------
Increase (Decrease) in Net Assets from
Class S Share Transactions 4,178 (35,181) 18,948 54,668
- --------------------------------------------------------------------------------- ------------------------
Net Increase (Decrease) in Net Assets from
Share Transactions 70,113 (9,016) 92,554 113,284
- --------------------------------------------------------------------------------- ------------------------
Total Increase (Decrease) in Net Assets 70,111 (9,014) 92,559 113,102
- --------------------------------------------------------------------------------- ------------------------
NET ASSETS:
Beginning of year 2,155,356 2,164,370 731,064 617,962
- --------------------------------------------------------------------------------- ------------------------
End of year $2,225,467 $2,155,356 $ 823,623 $ 731,064
================================================================================= ========================
Undistributed (Distributions in excess of)
Net Investment Income $ 2 $ 5 $ -- $ (5)
- --------------------------------------------------------------------------------- ------------------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
CNI CHARTER FUNDS | PAGE 67
financial highlights
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FOR THE YEAR ENDED SEPTEMBER 30,
- --------------------------------------------------------------------------------
NET
NET REALIZED AND DISTRIBUTIONS NET NET
ASSET NET UNREALIZED DIVIDENDS FROM ASSET ASSETS
VALUE INVESTMENT GAINS (LOSSES) FROM NET REALIZED VALUE END
BEGINNING INCOME ON INVESTMENT CAPITAL END TOTAL OF PERIOD
OF PERIOD (LOSS) SECURITIES INCOME GAINS OF PERIOD RETURN++ (000)
- --------------------------------------------------------------------------------------------------------------------------
LARGE CAP VALUE EQUITY FUND
Institutional Class (commenced operations on January 14, 2000)
2006 $ 9.54 $ 0.13^ $ 1.21^ $ (0.13) $ (0.39) $ 10.36 14.50% $ 92,946
2005 8.77 0.10^ 1.13^ (0.10) (0.36) 9.54 14.39 42,974
2004 7.41 0.08^ 1.36^ (0.08) -- 8.77 19.40 38,344
2003 6.04 0.07 1.37 (0.07) -- 7.41 24.03 33,016
2002 7.63 0.07 (1.47) (0.07) (0.12) 6.04 (18.88) 23,325
Class A (commenced operations on April 13, 2000)
2006 $ 9.53 $ 0.11^ $ 1.20^ $ (0.10) $ (0.39) $ 10.35 14.24% $ 13,104
2005 8.76 0.09^ 1.12^ (0.08) (0.36) 9.53 14.14 10,664
2004 7.41 0.05^ 1.36^ (0.06) -- 8.76 19.01 6,281
2003 6.04 0.06 1.37 (0.06) -- 7.41 23.75 1,792
2002 7.62 0.05 (1.46) (0.05) (0.12) 6.04 (18.97) 769
- --------------------------------------------------------------------------------------------------------------------------
LARGE CAP GROWTH EQUITY FUND
Institutional Class (commenced operations on January 14, 2000)
2006 $ 7.43 $ 0.02^ $ 0.32^ $ (0.02) $ -- $ 7.75 4.59% $ 35,842
2005 6.76 0.04^ 0.67^ (0.04) -- 7.43 10.55 34,164
2004 6.37 0.01^ 0.38^ --^^ -- 6.76 6.20 25,575
2003 5.25 0.01^ 1.12^ (0.01) -- 6.37 21.51 22,249
2002 6.36 0.00 (1.11) -- -- 5.25 (17.45) 14,195
Class A (commenced operations on March 28, 2000)
2006 $ 7.35 $ --^ $ 0.33^ $ --^^ $ -- $ 7.68 4.55% $ 10,363
2005 6.69 0.02^ 0.67^ (0.03) -- 7.35 10.28 8,278
2004 6.32 (0.01)^ 0.38^ --^^ -- 6.69 5.87 5,223
2003 5.21 (0.01)^ 1.12^ -- -- 6.32 21.31 1,965
2002 6.33 (0.02) (1.10) -- -- 5.21 (17.69) 798
- --------------------------------------------------------------------------------------------------------------------------
RCB SMALL CAP VALUE FUND
Institutional Class (commenced operations on October 3, 2001)
2006 $28.58 $ 0.06^ $ 0.05^ $ (0.07) $ (0.37) $ 28.25 0.40% $ 13,435
2005 27.30 0.07^ 2.58^ -- (1.37) 28.58 9.87 13,975
2004 21.92 0.06^ 5.40^ -- (0.08) 27.30 24.97 8,955
2003 15.06 (0.04)^ 6.90^ -- -- 21.92 45.55 6,236
2002 17.11 (0.07) (1.98) -- -- 15.06 (11.98) 1,768
Class A (commenced operations on October 3, 2001)
2006 $28.31 $ (0.01)^ $ 0.05^ $ --^^ $ (0.37) $ 27.98 0.17% $ 10,470
2005 27.13 0.00^ 2.55^ -- (1.37) 28.31 9.55 12,754
2004 21.84 (0.02)^ 5.39^ -- (0.08) 27.13 24.64 7,551
2003 15.04 (0.08)^ 6.88^ -- -- 21.84 45.21 2,384
2002 17.11 (0.05) (2.02) -- -- 15.04 (12.10) 410
Class R (commenced operations on September 30, 1998) (2)
2006 $28.27 $ (0.01)^ $ 0.04^ $ --^^ $ (0.37) $ 27.93 0.14% $ 45,836
2005 27.09 0.01^ 2.54^ -- (1.37) 28.27 9.56 57,787
2004 21.81 (0.02)^ 5.38^ -- (0.08) 27.09 24.63 36,473
2003 15.02 (0.07)^ 6.86^ -- -- 21.81 45.21 14,267
2002 16.94 (0.12) (1.80) -- -- 15.02 (11.33) 10,174
- --------------------------------------------------------------------------------------------------------------------------
TECHNOLOGY GROWTH FUND
Institutional Class (commenced operations on October 3, 2000)
2006 $ 4.04 $ (0.02)^ $ 0.29^ $ (0.01) $ -- $ 4.30 6.77% $ 1,245
2005 3.46 0.01^ 0.57^ -- -- 4.04 16.76 1,187
2004 3.50 (0.03)^ (0.01)^ -- -- 3.46 (1.14) 976
2003 2.26 (0.02) 1.26 -- -- 3.50 54.87 913
2002 3.54 (0.03) (1.25) -- -- 2.26 (36.16) 565
Class A (commenced operations on October 23, 2000)
2006 $ 3.98 $ (0.03)^ $ 0.28^ $ --^^ $ -- $ 4.23 6.30% $ 1,437
2005 3.42 0.00^ 0.56^ -- -- 3.98 16.37 1,423
2004 3.48 (0.04)^ (0.02)^ -- -- 3.42 (1.72) 1,240
2003 2.25 (0.03) 1.26 -- -- 3.48 54.67 950
2002 3.54 (0.04) (1.25) -- -- 2.25 (36.44) 432
RATIO
OF EXPENSES
RATIO TO AVERAGE
OF NET NET ASSETS
RATIO INVESTMENT (EXCLUDING
OF EXPENSES INCOME (LOSS) WAIVERS & PORTFOLIO
TO AVERAGE TO AVERAGE RECOVERED TURNOVER
NET ASSETS(1)# NET ASSETS(1) FEES)(1) RATE
- ------------------------------------------------------------------------
LARGE CAP VALUE EQUITY FUND
Institutional Class (commenced operations on January 14, 2000)
2006 0.96% 1.36% 0.97% 31%
2005 0.96 1.12 0.97 34
2004 0.97 0.92 0.97 36
2003 1.00 1.12 1.00 39
2002 1.00 0.90 1.05 42
Class A (commenced operations on April 13, 2000)
2006 1.21% 1.13% 1.22% 31%
2005 1.21 0.87 1.22 34
2004 1.22 0.64 1.22 36
2003 1.25 0.84 1.25 39
2002 1.25 0.65 1.30 42
- ------------------------------------------------------------------------
LARGE CAP GROWTH EQUITY FUND
Institutional Class (commenced operations on January 14, 2000)
2006 0.99% 0.27% 1.00% 34%
2005 0.98 0.57 1.00 27
2004 1.01 0.10 1.01 50
2003 1.05 0.16 1.03 43
2002 1.05 (0.04) 1.09 31
Class A (commenced operations on March 28, 2000)
2006 1.24% 0.03% 1.25% 34%
2005 1.23 0.33 1.25 27
2004 1.26 (0.14) 1.26 50
2003 1.30 (0.09) 1.29 43
2002 1.30 (0.29) 1.34 31
- ------------------------------------------------------------------------
RCB SMALL CAP VALUE FUND
Institutional Class (commenced operations on October 3, 2001)
2006 1.20% 0.20% 1.21% 66%
2005 1.18 0.26 1.20 41
2004 1.21 0.23 1.20 40
2003 1.24 (0.20) 1.24 65
2002 1.24 (0.46) 1.28 39
Class A (commenced operations on October 3, 2001)
2006 1.45% (0.04)% 1.46% 66%
2005 1.43 0.01 1.45 41
2004 1.49 (0.07) 1.48 40
2003 1.49 (0.45) 1.49 65
2002 1.49 (0.74) 1.53 39
Class R (commenced operations on September 30, 1998) (2)
2006 1.45% (0.04)% 1.46% 66%
2005 1.43 0.02 1.45 41
2004 1.49 (0.07) 1.48 40
2003 1.49 (0.41) 1.49 65
2002 1.49 (0.70) 1.53 39
- ------------------------------------------------------------------------
TECHNOLOGY GROWTH FUND
Institutional Class (commenced operations on October 3, 2000)
2006 1.16% (0.52)% 1.10% 24%
2005 1.20 0.34 1.21 37
2004 1.20 (0.82) 1.28 33
2003 1.20 (0.78) 1.36 29
2002 1.20 (0.88) 1.37 24
Class A (commenced operations on October 23, 2000)
2006 1.46% (0.81)% 1.40% 24%
2005 1.50 0.06 1.51 37
2004 1.50 (1.12) 1.58 33
2003 1.50 (1.08) 1.66 29
2002 1.50 (1.18) 1.67 24
++ RETURNS ARE FOR THE PERIOD INDICATED AND HAVE NOT BEEN ANNUALIZED. FEE
WAIVERS ARE IN EFFECT; IF THEY HAD NOT BEEN IN EFFECT, PERFORMANCE WOULD
HAVE BEEN LOWER. TOTAL RETURN FIGURES DO NOT INCLUDE APPLICABLE SALES
LOADS. RETURNS SHOWN DO NOT REFLECT THE DEDUCTION OF TAXES THAT A
SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND
SHARES.
^ PER SHARE CALCULATIONS ARE BASED ON AVERAGE SHARES OUTSTANDING THROUGHOUT
THE PERIOD.
^^ AMOUNT REPRESENTS LESS THAN $0.01 PER SHARE.
# RATIO INCLUDES WAIVERS AND PREVIOUSLY WAIVED INVESTMENT ADVISORY FEES
RECOVERED. THE IMPACT OF THE RECOVERED FEES MAY CAUSE A HIGHER NET EXPENSE
RATIO.
(1) ANNUALIZED FOR PERIODS LESS THAN ONE YEAR.
(2) ON OCTOBER 3, 2001, THE RCB SMALL CAP FUND EXCHANGED ALL OF ITS ASSETS AND
LIABILITIES FOR SHARES OF THE CNI CHARTER RCB SMALL CAP VALUE FUND. THE
CNI CHARTER RCB SMALL CAP VALUE FUND IS THE ACCOUNTING SURVIVOR IN THIS
TRANSACTION, AND AS A RESULT, ITS BASIS OF ACCOUNTING FOR ASSETS AND
LIABILITIES AND ITS OPERATING RESULTS FOR THE PERIODS PRIOR TO OCTOBER 3,
2001 HAVE BEEN CARRIED FORWARD IN THESE FINANCIAL HIGHLIGHTS.
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
CNI CHARTER FUNDS | PAGE 68
- --------------------------------------------------------------------------------
NET
NET REALIZED AND DISTRIBUTIONS NET NET
ASSET UNREALIZED DIVIDENDS FROM ASSET ASSETS
VALUE NET GAINS (LOSSES) FROM NET REALIZED VALUE END
BEGINNING INVESTMENT ON INVESTMENT CAPITAL END TOTAL OF PERIOD
OF PERIOD INCOME SECURITIES INCOME GAINS OF PERIOD RETURN++ (000)
- --------------------------------------------------------------------------------------------------------------------------
CORPORATE BOND FUND
Institutional Class (commenced operations on January 14, 2000)
2006 $10.27 $ 0.42^ $ (0.10)^ $ (0.42) $ -- $ 10.17 3.19% $ 55,290
2005 10.60 0.40^ (0.27)^ (0.40) (0.06) 10.27 1.26 51,193
2004 10.89 0.41^ (0.18)^ (0.41) (0.11) 10.60 2.15 47,080
2003 10.65 0.46 0.24 (0.46) -- 10.89 6.74 42,256
2002 10.72 0.53 0.09 (0.53) (0.16) 10.65 6.06 40,807
Class A (commenced operations on April 13, 2000)
2006 $10.27 $ 0.39^ $ (0.10)^ $ (0.39) $ -- $ 10.17 2.93% $ 1,332
2005 10.61 0.37^ (0.28)^ (0.37) (0.06) 10.27 0.91 1,530
2004 10.89 0.37^ (0.16)^ (0.38) (0.11) 10.61 1.99 1,522
2003 10.65 0.44 0.23 (0.43) -- 10.89 6.47 830
2002 10.73 0.50 0.08 (0.50) (0.16) 10.65 5.69 544
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GOVERNMENT BOND FUND
Institutional Class (commenced operations on January 14, 2000)
2006 $10.40 $ 0.41^ $ (0.12)^ $ (0.41) $ -- $ 10.28 2.89% $ 35,671
2005 10.62 0.31^ (0.16)^ (0.31) (0.06) 10.40 1.42 28,132
2004 10.93 0.25^ (0.17)^ (0.25) (0.14) 10.62 0.81 20,901
2003 11.02 0.36^ (0.07)^ (0.37) (0.01) 10.93 2.68* 15,596
2002 10.80 0.44 0.34 (0.44) (0.12) 11.02 7.53 14,502
Class A (commenced operations on April 13, 2000)
2006 $10.42 $ 0.39^ $ (0.12)^ $ (0.39) $ -- $ 10.30 2.63% $ 1,782
2005 10.64 0.29^ (0.17)^ (0.28) (0.06) 10.42 1.16 554
2004 10.95 0.23^ (0.17)^ (0.23) (0.14) 10.64 0.55 436
2003 11.01 0.33^ (0.04)^ (0.34) (0.01) 10.95 2.71* 18
2002 10.77 0.43 0.34 (0.41) (0.12) 11.01 7.47 525
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CALIFORNIA TAX EXEMPT BOND FUND
Institutional Class (commenced operations on January 14, 2000)
2006 $10.26 $ 0.29^ $ 0.03^ $ (0.29) $ (0.04) $ 10.25 3.18% $ 26,074
2005 10.41 0.28^ (0.11)^ (0.28) (0.04) 10.26 1.65 22,768
2004 10.60 0.27^ (0.06)^ (0.27) (0.13) 10.41 2.00 17,789
2003 10.83 0.31 (0.04) (0.31) (0.19) 10.60 2.63 14,546
2002 10.50 0.36 0.41 (0.35) (0.09) 10.83 7.58 16,147
Class A (commenced operations on April 13, 2000)
2006 $10.29 $ 0.26^ $ 0.02^ $ (0.26) $ (0.04) $ 10.27 2.81% $ 1,134
2005 10.44 0.25^ (0.11)^ (0.25) (0.04) 10.29 1.39 1,487
2004 10.62 0.24^ (0.05)^ (0.24) (0.13) 10.44 1.84 2,439
2003 10.85 0.27 (0.02) (0.29) (0.19) 10.62 2.37 732
2002 10.51 0.33 0.43 (0.33) (0.09) 10.85 7.40 13
- --------------------------------------------------------------------------------------------------------------------------
HIGH YIELD BOND FUND
Institutional Class (commenced operations on January 14, 2000)
2006 $ 9.04 $ 0.68^ $ (0.08)^ $ (0.68) $ -- $ 8.96 6.90% $ 20,887
2005 9.31 0.71^ (0.27)^ (0.71) -- 9.04 4.85 22,588
2004 8.95 0.72^ 0.36^ (0.72) -- 9.31 12.47 22,860
2003 8.16 0.76 0.79 (0.76) -- 8.95 19.75 13,387
2002 8.57 0.83 (0.40) (0.84) -- 8.16 4.80 10,020
Class A (commenced operations on January 14, 2000)
2006 $ 9.04 $ 0.65^ $ (0.08)^ $ (0.65) $ -- $ 8.96 6.58% $ 20,045
2005 9.31 0.69^ (0.27)^ (0.69) -- 9.04 4.54 21,028
2004 8.95 0.70^ 0.35^ (0.69) -- 9.31 12.14 20,655
2003 8.16 0.74 0.78 (0.73) -- 8.95 19.39 16,878
2002 8.57 0.81 (0.40) (0.82) -- 8.16 4.49 9,397
RATIO
OF EXPENSES
RATIO TO AVERAGE
OF NET NET ASSETS
RATIO INVESTMENT (EXCLUDING
OF EXPENSES INCOME WAIVERS & PORTFOLIO
TO AVERAGE TO AVERAGE RECOVERED TURNOVER
NET ASSETS(1)# NET ASSETS(1) FEES)(1) RATE
- ---------------------------------------------------------------------
CORPORATE BOND FUND
Institutional Class (commenced operations on January 14, 2000)
2006 0.75% 4.14% 0.75% 25%
2005 0.75 3.80 0.76 25
2004 0.75 3.82 0.79 57
2003 0.75 4.30 0.78 66
2002 0.75 5.04 0.82 55
Class A (commenced operations on April 13, 2000)
2006 1.00% 3.88% 1.00% 25%
2005 1.00 3.55 1.01 25
2004 1.00 3.51 1.04 57
2003 1.00 4.00 1.03 66
2002 1.00 4.71 1.07 55
- ---------------------------------------------------------------------
GOVERNMENT BOND FUND
Institutional Class (commenced operations on January 14, 2000)
2006 0.70% 4.04% 0.78% 62%
2005 0.70 2.98 0.79 58
2004 0.70 2.39 0.81 169
2003 0.70 3.26 0.81 54
2002 0.70 4.11+ 0.86 70
Class A (commenced operations on April 13, 2000)
2006 0.95% 3.81% 1.03% 62%
2005 0.95 2.70 1.04 58
2004 0.95 2.14 1.06 169
2003 0.95 3.00 1.06 54
2002 0.95 3.70 1.11 70
- ---------------------------------------------------------------------
CALIFORNIA TAX EXEMPT BOND FUND
Institutional Class (commenced operations on January 14, 2000)
2006 0.50% 2.85% 0.62% 43%
2005 0.50 2.70 0.63 54
2004 0.50 2.55 0.65 51
2003 0.50 2.91 0.65 68
2002 0.50 3.33 0.70 90
Class A (commenced operations on April 13, 2000)
2006 0.75% 2.59% 0.87% 43%
2005 0.75 2.43 0.88 54
2004 0.75 2.29 0.90 51
2003 0.75 2.62 0.90 68
2002 0.75 3.05 0.95 90
- ---------------------------------------------------------------------
HIGH YIELD BOND FUND
Institutional Class (commenced operations on January 14, 2000)
2006 1.00% 7.58% 1.10% 23%
2005 1.00 7.71 1.11 46
2004 1.00 7.87 1.14 35
2003 1.00 8.84 1.13 36
2002 1.00 9.48 1.18 30
Class A (commenced operations on January 14, 2000)
2006 1.30% 7.28% 1.40% 23%
2005 1.30 7.41 1.41 46
2004 1.30 7.56 1.44 35
2003 1.30 8.44 1.43 36
2002 1.30 9.03 1.48 30
* TOTAL RETURN FOR CLASS A OF THE GOVERNMENT BOND FUND IS GREATER THAN THE
INSTITUTIONAL CLASS'S DUE TO A LARGE REDEMPTION DURING THE YEAR.
+ RATIOS REFLECT THE IMPACT OF SIGNIFICANT CHANGES IN AVERAGE NET ASSETS AND
THE EFFECTS OF ANNUALIZATION.
++ RETURNS ARE FOR THE PERIOD INDICATED AND HAVE NOT BEEN ANNUALIZED. FEE
WAIVERS ARE IN EFFECT; IF THEY HAD NOT BEEN IN EFFECT, PERFORMANCE WOULD
HAVE BEEN LOWER. RETURNS SHOWN DO NOT REFLECT THE DEDUCTION OF TAXES THAT
A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND
SHARES.
^ PER SHARE CALCULATIONS ARE BASED ON THE AVERAGE SHARES OUTSTANDING
THROUGHOUT THE PERIOD.
# RATIO INCLUDES WAIVERS AND PREVIOUSLY WAIVED INVESTMENT ADVISORY FEES
RECOVERED. THE IMPACT OF THE RECOVERED FEES MAY CAUSE A HIGHER NET EXPENSE
RATIO.
(1) ANNUALIZED FOR PERIODS LESS THAN ONE YEAR.
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
CNI CHARTER FUNDS | PAGE 69
financial highlights
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FOR THE YEAR ENDED SEPTEMBER 30,
- --------------------------------------------------------------------------------
RATIO
OF EXPENSES
RATIO TO AVERAGE
NET NET NET OF NET NET ASSETS
ASSET DIVIDENDS ASSET ASSETS RATIO INVESTMENT (EXCLUDING
VALUE NET FROM NET VALUE END OF EXPENSES INCOME WAIVERS &
BEGINNING INVESTMENT INVESTMENT END TOTAL OF PERIOD TO AVERAGE TO AVERAGE RECOVERED
OF PERIOD INCOME INCOME OF PERIOD RETURN++ (000) NET ASSETS(1)# NET ASSETS(1) FEES)(1)
- ------------------------------------------------------------------------------------------------------------------------------------
PRIME MONEY MARKET FUND
Institutional Class (commenced operations on March 23, 1998)
2006 $ 1.00 $ 0.041 $(0.041) $ 1.00 4.17% $ 388,171 0.59% 4.12% 0.60%
2005 1.00 0.021 (0.021) 1.00 2.10 332,393 0.60 2.05 0.61
2004 1.00 0.006 (0.006) 1.00 0.58 367,209 0.63 0.59 0.63
2003 1.00 0.007 (0.007) 1.00 0.68 287,087 0.63 0.68 0.64
2002 1.00 0.014 (0.014) 1.00 1.37 290,778 0.63 1.37 0.67
Class A (commenced operations on October 18, 1999)
2006 $ 1.00 $ 0.039 $(0.039) $ 1.00 3.94% $ 640,366 0.81% 3.95% 1.10%
2005 1.00 0.019 (0.019) 1.00 1.87 312,452 0.82 1.94 1.11
2004 1.00 0.004 (0.004) 1.00 0.36 201,058 0.85 0.35 1.13
2003 1.00 0.005 (0.005) 1.00 0.46 205,191 0.85 0.47 1.14
2002 1.00 0.011 (0.011) 1.00 1.15 228,807 0.85 1.15 1.17
Class S (commenced operations on October 26, 1999)
2006 $ 1.00 $ 0.037 $(0.037) $ 1.00 3.73% $ 324,353 1.01% 3.74% 1.10%
2005 1.00 0.017 (0.017) 1.00 1.67 203,502 1.02 1.70 1.11
2004 1.00 0.002 (0.002) 1.00 0.21 115,761 1.00 0.21 1.13
2003 1.00 0.003 (0.003) 1.00 0.29 118,624 1.03 0.29 1.14
2002 1.00 0.009 (0.009) 1.00 0.95 129,180 1.05 0.95 1.17
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GOVERNMENT MONEY MARKET FUND
Institutional Class (commenced operations on April 3, 2000)
2006 $ 1.00 $ 0.040 $(0.040) $ 1.00 4.08% $ 52,782 0.60% 4.11% 0.61%
2005 1.00 0.020 (0.020) 1.00 2.05 32,039 0.61 1.97 0.62
2004 1.00 0.006 (0.006) 1.00 0.57 43,608 0.63 0.56 0.64
2003 1.00 0.007 (0.007) 1.00 0.70 56,841 0.63 0.68 0.64
2002 1.00 0.014 (0.014) 1.00 1.38 51,985 0.63 1.43 0.66
Class A (commenced operations on June 21, 1999)
2006 $ 1.00 $ 0.038 $(0.038) $ 1.00 3.86% $1,940,602 0.82% 3.78% 1.11%
2005 1.00 0.018 (0.018) 1.00 1.82 1,895,412 0.83 1.80 1.12
2004 1.00 0.004 (0.004) 1.00 0.35 1,857,676 0.85 0.35 1.14
2003 1.00 0.005 (0.005) 1.00 0.48 2,060,860 0.85 0.48 1.14
2002 1.00 0.012 (0.012) 1.00 1.16 2,149,151 0.85 1.18 1.16
Class S (commenced operations on October 6, 1999)
2006 $ 1.00 $ 0.036 $(0.036) $ 1.00 3.65% $ 232,083 1.02% 3.60% 1.11%
2005 1.00 0.016 (0.016) 1.00 1.62 227,905 1.03 1.61 1.12
2004 1.00 0.002 (0.002) 1.00 0.20 263,086 1.00 0.21 1.14
2003 1.00 0.003 (0.003) 1.00 0.30 191,539 1.03 0.31 1.14
2002 1.00 0.010 (0.010) 1.00 0.96 219,387 1.05 0.93 1.16
- ------------------------------------------------------------------------------------------------------------------------------------
CALIFORNIA TAX EXEMPT MONEY MARKET FUND
Institutional Class (commenced operations on April 3, 2000)
2006 $ 1.00 $ 0.026 $(0.026) $ 1.00 2.62% $ 85,014 0.55% 2.60% 0.62%
2005 1.00 0.015 (0.015)* 1.00 1.51 73,211 0.55 1.46 0.63
2004 1.00 0.005 (0.005) 1.00 0.52 79,413 0.55 0.51 0.65
2003 1.00 0.006 (0.006) 1.00 0.62 87,820 0.55 0.59 0.65
2002 1.00 0.010 (0.010) 1.00 0.98 58,923 0.55 0.96 0.69
Class A (commenced operations on June 21, 1999)
2006 $ 1.00 $ 0.024 $(0.024) $ 1.00 2.39% $ 631,478 0.78% 2.36% 1.12%
2005 1.00 0.013 (0.013)* 1.00 1.28 569,671 0.78 1.25 1.13
2004 1.00 0.003 (0.003) 1.00 0.29 505,029 0.78 0.29 1.15
2003 1.00 0.004 (0.004) 1.00 0.41 539,182 0.76 0.41 1.15
2002 1.00 0.007 (0.007) 1.00 0.75 519,269 0.78 0.75 1.19
Class S (commenced operations on November 12, 1999)
2006 $ 1.00 $ 0.022 $(0.022) $ 1.00 2.18% $ 107,131 0.98% 2.17% 1.12%
2005 1.00 0.011 (0.011)* 1.00 1.08 88,182 0.98 1.09 1.13
2004 1.00 0.002 (0.002) 1.00 0.15 33,520 0.91 0.15 1.15
2003 1.00 0.003 (0.003) 1.00 0.27 24,002 0.89 0.27 1.15
2002 1.00 0.005 (0.005) 1.00 0.55 29,626 0.98 0.53 1.19
* INCLUDES A REALIZED CAPITAL GAIN DISTRIBUTION OF LESS THAN $0.001.
++ RETURNS ARE FOR THE PERIOD INDICATED AND HAVE NOT BEEN ANNUALIZED. FEE
WAIVERS ARE IN EFFECT; IF THEY HAD NOT BEEN IN EFFECT, PERFORMANCE WOULD
HAVE BEEN LOWER. RETURNS SHOWN DO NOT REFLECT THE DEDUCTION OF TAXES THAT
A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND
SHARES.
# RATIO INCLUDES WAIVERS AND PREVIOUSLY WAIVED INVESTMENT ADVISORY FEES
RECOVERED. THE IMPACT OF THE RECOVERED FEES MAY CAUSE A HIGHER NET EXPENSE
RATIO.
(1) ANNUALIZED FOR PERIODS LESS THAN ONE YEAR.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
CNI CHARTER FUNDS | PAGE 70
