OPINION
BURKE, Justice.
On July 16, 1976, Wayne F. Putnam was indicted on charges of arson, burning with intent to defraud an insurer and obtaining money by false pretenses.1 Following a trial by jury he was convicted on all three charges. The court suspended the imposition of sentence for five years and placed Putnam on probation, on the special conditions that he serve 90 days in jail and pay $170,801.00 in restitution. He now appeals contending that the trial court erred in failing to dismiss his allegedly invalid indictment and in refusing to strike the testimony at trial of one of the state’s witnesses or grant other relief as a sanction for the state’s failure to produce or explain the loss or destruction of two taped interviews with this witness. The state cross-appeals maintaining that the sentence imposed was too lenient. We conclude that the case must be remanded for a further evidentiary hearing concerning the circumstances surrounding the loss or destruction of the tapes. In the event that it is unnecessary to reverse the conviction as a result of the further hearings, we have decided to pass on the sentence appeal so that an additional appeal on that point will be unnecessary. We expressly disapprove of the sentence imposed as being too lenient.
At approximately 6:00 p. m. on December 6, 1974, a fire broke out in the carpet division of Putnam Services, Inc., in Fairbanks, Alaska. This fire resulted in extensive damage to the business. The circumstances surrounding the fire appear to be as follows.
Wayne Putnam, President of Putnam Services, Inc., was in serious financial difficulty prior to the fire. He was behind in his payments in a creditor payback plan and was consistently writing checks which were returned for insufficient funds. In addition, on the day of the fire he had been served with a notice to vacate the premises because of his failure to pay rent. Despite his poor financial condition, Putnam had doubled the fire insurance on his inventory, obtaining the maximum coverage available, on November 1, 1974.
Putnam claimed that on the day of the fire he had left the building with his wife and two children between 5:30 and 6:00 p. m. to catch a plane to Anchorage. He was in fact on this plane, which was due to depart at 7:30 p. m., when he was notified of the fire. However, paperboy William Dennis, as he made his collection rounds, saw Putnam apparently checking the doors of the building between 6:00 and 6:10 p. m. When he left the area approximately three minutes later, Dennis did not see Putnam, but as he walked away from the building, he saw bright flames at the northeast corner of the building. Dennis, however, did not report the fire because he believed it [39]*39was only someone burning trash. Michael Rice, an employee of Putnam’s, stated that at approximately 5:30, when Rice and Bruce Putnam left the building to deliver carpet, Wayne Putnam was left alone at the business.
After the fire, Putnam submitted proof of loss statements to his insurance company totalling $78,994.99. This amount was subsequently paid to Putnam by the insurance company. In support of his proof of loss statements, Putnam admittedly submitted invoices signed by himself and Toby Chas-tine indicating that Putnam had paid $34,-417.75 to Chastine for a shipment of carpets which had purportedly been delivered on November 26, 1974. Chastine originally maintained that he had shipped and been paid for this carpet. However, in a second interview with Investigator Hildreth, Chas-tine admitted that the shipment had never been made and that at Putnam’s request he had drawn up false invoices which Putnam had subsequently submitted to the insurance company.
On July 16, 1976, the grand jury indicted Putnam on charges of first degree arson, burning with intent to defraud an insurer and obtaining money by false pretenses. Putnam was tried and convicted on all three charges. This appeal and cross-appeal followed.
We turn first to Putnam’s challenge of the validity of the grand jury indictment.2 Putnam’s first argument goes to the presentation of hearsay evidence. In Alaska, hearsay testimony which is not subject to a recognized exception to the hearsay rule may be presented to a grand jury only upon a showing of “compelling justification.” Adams v. State, 598 P.2d 503, 508 (Alaska 1979); Alaska Criminal Rule 6(r).3 Putnam specifies three instances where no justification was given for the use of hearsay and a number of other instances where the purported justification was that the hearsay declarant was out of state but would be available for trial.4 We note, [40]*40however, that in his arguments before the trial court Putnam conceded that the witnesses’ absence from the state was a sufficiently compelling justification to allow the use of hearsay. Having conceded this point below, Putnam cannot now reverse his position on appeal. Alaska Crim.R. 12(b) and 12(e).5 We thus need only examine the three specific instances where Putnam contends that hearsay evidence was presented without any justification at all.
The first instance where hearsay evidence was presented without justification is Assistant Fire Chief Schechter’s testimony that William Dennis told him that he saw Putnam at the scene just before the fire broke out. We do not feel the lack of justification requires dismissal of the indictment in this instance. Hearsay testimony relating Dennis’ statement was subsequently presented to the grand jury by two more witnesses. On each of these occasions the state justified its use of hearsay by explaining that Dennis was currently out of the state but would be available for trial. As noted above, Putnam conceded that this was a valid justification for the use of hearsay. Thus, although Criminal Rule 6(r) was violated by the presentation of this unjustified hearsay testimony, we are convinced that the defendant was in no way prejudiced. See State v. Taylor, 566 P.2d 1016, 1019 (Alaska 1977).
The second instance of allegedly unjustified hearsay evidence was Marion Bennett’s testimony that while employed by Putnam after the fire he received a number of calls at work from creditors of the business seeking to collect on their debts. The state responds that under the verbal act doctrine Bennett’s testimony was not within the purview of Criminal Rule 6(r). We find the state’s argument persuasive. Testimony regarding an out of court statement is only hearsay when it is offered to prove the truth of the matter stated. Watson v. State, 387 P.2d 289, 293 (Alaska 1963). Where such testimony is offered merely to establish the fact that the statement was made, and not to prove the truth of the matter stated, the hearsay rule does not apply. Id.; Frink v. State, 597 P.2d 154, 162 (Alaska 1979). For example, testimony that telephone calls from gamblers were received at a defendant’s residence has been held admissible to prove the nature of the defendant’s enterprise.6 Similarly, testimony that telephone calls were received from a business’ creditors is admissible as circumstantial evidence of the financial condition of the business.
Putnam’s final claim of unjustified hearsay evidence was Investigator Hil-dreth’s testimony to the effect that carpet mill owners and truck rental agencies in Georgia denied that a shipment of carpet was sent to Putnam’s business in late No[41]*41vember, 1976.
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OPINION
BURKE, Justice.
On July 16, 1976, Wayne F. Putnam was indicted on charges of arson, burning with intent to defraud an insurer and obtaining money by false pretenses.1 Following a trial by jury he was convicted on all three charges. The court suspended the imposition of sentence for five years and placed Putnam on probation, on the special conditions that he serve 90 days in jail and pay $170,801.00 in restitution. He now appeals contending that the trial court erred in failing to dismiss his allegedly invalid indictment and in refusing to strike the testimony at trial of one of the state’s witnesses or grant other relief as a sanction for the state’s failure to produce or explain the loss or destruction of two taped interviews with this witness. The state cross-appeals maintaining that the sentence imposed was too lenient. We conclude that the case must be remanded for a further evidentiary hearing concerning the circumstances surrounding the loss or destruction of the tapes. In the event that it is unnecessary to reverse the conviction as a result of the further hearings, we have decided to pass on the sentence appeal so that an additional appeal on that point will be unnecessary. We expressly disapprove of the sentence imposed as being too lenient.
At approximately 6:00 p. m. on December 6, 1974, a fire broke out in the carpet division of Putnam Services, Inc., in Fairbanks, Alaska. This fire resulted in extensive damage to the business. The circumstances surrounding the fire appear to be as follows.
Wayne Putnam, President of Putnam Services, Inc., was in serious financial difficulty prior to the fire. He was behind in his payments in a creditor payback plan and was consistently writing checks which were returned for insufficient funds. In addition, on the day of the fire he had been served with a notice to vacate the premises because of his failure to pay rent. Despite his poor financial condition, Putnam had doubled the fire insurance on his inventory, obtaining the maximum coverage available, on November 1, 1974.
Putnam claimed that on the day of the fire he had left the building with his wife and two children between 5:30 and 6:00 p. m. to catch a plane to Anchorage. He was in fact on this plane, which was due to depart at 7:30 p. m., when he was notified of the fire. However, paperboy William Dennis, as he made his collection rounds, saw Putnam apparently checking the doors of the building between 6:00 and 6:10 p. m. When he left the area approximately three minutes later, Dennis did not see Putnam, but as he walked away from the building, he saw bright flames at the northeast corner of the building. Dennis, however, did not report the fire because he believed it [39]*39was only someone burning trash. Michael Rice, an employee of Putnam’s, stated that at approximately 5:30, when Rice and Bruce Putnam left the building to deliver carpet, Wayne Putnam was left alone at the business.
After the fire, Putnam submitted proof of loss statements to his insurance company totalling $78,994.99. This amount was subsequently paid to Putnam by the insurance company. In support of his proof of loss statements, Putnam admittedly submitted invoices signed by himself and Toby Chas-tine indicating that Putnam had paid $34,-417.75 to Chastine for a shipment of carpets which had purportedly been delivered on November 26, 1974. Chastine originally maintained that he had shipped and been paid for this carpet. However, in a second interview with Investigator Hildreth, Chas-tine admitted that the shipment had never been made and that at Putnam’s request he had drawn up false invoices which Putnam had subsequently submitted to the insurance company.
On July 16, 1976, the grand jury indicted Putnam on charges of first degree arson, burning with intent to defraud an insurer and obtaining money by false pretenses. Putnam was tried and convicted on all three charges. This appeal and cross-appeal followed.
We turn first to Putnam’s challenge of the validity of the grand jury indictment.2 Putnam’s first argument goes to the presentation of hearsay evidence. In Alaska, hearsay testimony which is not subject to a recognized exception to the hearsay rule may be presented to a grand jury only upon a showing of “compelling justification.” Adams v. State, 598 P.2d 503, 508 (Alaska 1979); Alaska Criminal Rule 6(r).3 Putnam specifies three instances where no justification was given for the use of hearsay and a number of other instances where the purported justification was that the hearsay declarant was out of state but would be available for trial.4 We note, [40]*40however, that in his arguments before the trial court Putnam conceded that the witnesses’ absence from the state was a sufficiently compelling justification to allow the use of hearsay. Having conceded this point below, Putnam cannot now reverse his position on appeal. Alaska Crim.R. 12(b) and 12(e).5 We thus need only examine the three specific instances where Putnam contends that hearsay evidence was presented without any justification at all.
The first instance where hearsay evidence was presented without justification is Assistant Fire Chief Schechter’s testimony that William Dennis told him that he saw Putnam at the scene just before the fire broke out. We do not feel the lack of justification requires dismissal of the indictment in this instance. Hearsay testimony relating Dennis’ statement was subsequently presented to the grand jury by two more witnesses. On each of these occasions the state justified its use of hearsay by explaining that Dennis was currently out of the state but would be available for trial. As noted above, Putnam conceded that this was a valid justification for the use of hearsay. Thus, although Criminal Rule 6(r) was violated by the presentation of this unjustified hearsay testimony, we are convinced that the defendant was in no way prejudiced. See State v. Taylor, 566 P.2d 1016, 1019 (Alaska 1977).
The second instance of allegedly unjustified hearsay evidence was Marion Bennett’s testimony that while employed by Putnam after the fire he received a number of calls at work from creditors of the business seeking to collect on their debts. The state responds that under the verbal act doctrine Bennett’s testimony was not within the purview of Criminal Rule 6(r). We find the state’s argument persuasive. Testimony regarding an out of court statement is only hearsay when it is offered to prove the truth of the matter stated. Watson v. State, 387 P.2d 289, 293 (Alaska 1963). Where such testimony is offered merely to establish the fact that the statement was made, and not to prove the truth of the matter stated, the hearsay rule does not apply. Id.; Frink v. State, 597 P.2d 154, 162 (Alaska 1979). For example, testimony that telephone calls from gamblers were received at a defendant’s residence has been held admissible to prove the nature of the defendant’s enterprise.6 Similarly, testimony that telephone calls were received from a business’ creditors is admissible as circumstantial evidence of the financial condition of the business.
Putnam’s final claim of unjustified hearsay evidence was Investigator Hil-dreth’s testimony to the effect that carpet mill owners and truck rental agencies in Georgia denied that a shipment of carpet was sent to Putnam’s business in late No[41]*41vember, 1976. We decline to consider this question since this statement was not objected to before the trial court- in Putnam’s motion to dismiss the indictment. See Anthony v. State, 521 P.2d 486, 496 (Alaska 1974); Taggard v. State, 500 P.2d 238, 243 (Alaska 1972).
Putnam next maintains that even if the hearsay testimony presented to the grand jury can survive scrutiny under Criminal Rule 6(r), it cannot satisfy the additional requirements of detail and reliability imposed by decisions of this court.7 Once again, however, this argument was not raised before the trial court. We therefore decline to consider the question. Id.
We next turn to Putnam’s contention that the prosecutor improperly influenced the grand jury. In essence, Putnam argues that through Investigator Hildreth’s testimony the prosecutor influenced the grand jury in ways impermissible at trial. Putnam’s primary objection goes to Investigator Hildreth’s testimony concerning the character of hearsay declarants Chastine and Dennis. It is Putnam’s position that by eliciting character evidence concerning the credibility of these hearsay declarants from Investigator Hildreth, the main investigator in the case, the state overstepped the proper bounds of prosecutorial conduct. We disagree.
We have often stated that when presenting a case to a grand jury the prosecutor should not make statements or arguments which would influence the grand jury in a manner which would be impermissible at trial. Coleman v. State, 553 P.2d 40, 48 (Alaska 1976); Anthony v. State, 521 P.2d 486, 496 n.37 (Alaska 1974) quoting American Bar Association Standards Relating to the Prosecution Function § 3.5(b) (approved draft 1971). Putnam would have us extend this rule to statements volunteered by law enforcement witnesses. We decline to take this step. Absent some evidence that the prosecutor knew or should have known that the response to his question would contain improper evidence, we refuse to hold him answerable for the utterances of the witness. By this we do not mean to imply that a prosecutor need not be concerned with the answers which his questions might elicit. He remains under a duty to present to the grand jury only that evidence which he believes would be admissible at trial. ABA Standards Relating to the Prosecutorial Function § 3.6(a) (approved draft 1971). This duty includes an obligation to phrase questions in such a way as to minimize the possibility that the response will contain improper evidence. In the ease at bar there is no evidence that the prosecution intended to elicit improper testimony from Hildreth. We therefore conclude that no violation of the ABA Standard occurred.
Moreover, even if Investigator Hildreth’s testimony was reviewable under this standard, we do not believe that dismissal of the indictment would be required since, in our opinion, the testimony would have been admissible at trial. As a general rule, the introduction of evidence regarding a witness’ character for truth and veracity is admissible only after the witness’ character has been challenged. Alaska Rules of Evidence 607(b), 608(a);8 C. McCormick, Law of Evidence § 49, at 102-3 (2d ed. 1972); J. Wigmore, Evidence § 1104 (Chadbourn rev. ed. 1972). We note, however, that this rule directly conflicts with the general rule in Alaska that requires proof of a hearsay declarant’s credibility when hearsay evidence has been presented to a grand jury.9 This conflict places the [42]*42state in an untenable position. The state is required to prove the credibility of hearsay declarants while at the same time it is precluded from presenting the only reasonably available evidence tending to establish this point. We therefore hold that when hearsay evidence has been presented to a grand jury, character evidence concerning the hearsay declarant’s credibility is permissible to the same extent to which it would be permissible at trial had the declarant’s character been challenged. See Freeman v. State, 486 P.2d 967 (Alaska 1971); Alaska Rules of Evidence § 405(a). Applying this rule to the case at bar, we conclude that Investigator Hildreth’s testimony concerning the character of these hearsay declar-ants was within the bounds of permissible evidence.10
Putnam also maintains that the grand jury was improperly influenced by Investigator Hildreth’s unjustified hearsay testimony relating an unnamed Fire Marshall’s comment that the building “didn’t look right” and the fact that Putnam took his business records with him when he left for Anchorage the night of the fire. While there is no doubt that this testimony violated Criminal Rule 6(r), our review of the record has convinced us that no substantial prejudice resulted. Dismissal of the indictment is therefore not required on this ground.11 See Webb v. State, 527 P.2d 35 (Alaska 1974).
Putnam’s final challenge to the validity of the indictment is that the grand jury proceedings when viewed as a whole violated his constitutional right to due process of the law. See Coleman v. State, 553 P.2d 40, 47 (Alaska 1976). After carefully examining the transcript of the grand jury proceedings, we are unable to agree with Putnam’s contention. Although the prosecutor could, perhaps, have acted with more restraint, we are unable to find any instance of prejudicial evidence or conduct which would rise to the level of a violation of due process.
We turn now to Putnam’s contention that the trial court erred in refusing to strike the testimony at trial of state witness Toby Chastine as a sanction for the state’s failure to produce two taped interviews with Chas-tine. The tapes in question were made on two separate occasions when Chastine was interviewed by Investigator Hildreth. The first interview took place at Fire Marshall Sullivan’s office in Fairbanks. The interview was conducted in the presence of Fire Marshall Sullivan and Robert Timlin, a private fire investigator. The tapé of this interview was apparently retained by Fire Marshall Sullivan. Investigator Hildreth received a rough draft transcript which was prepared by the fire marshall’s secretary. Upon his return to Anchorage, Investigator Hildreth used this rough draft to prepare his report. At the trial, however, the state was unable to produce either the tape or the rough draft transcript. The second interview took place in Dalton, Georgia. Investigator Hildreth returned to Anchorage with the tape, had a transcript prepared, and placed the tape in his desk drawer. That tape was later erased and reused. Consequently, neither of the two recordings could be produced at trial.12
[43]*43In a criminal case, the state is under an obligation to make available to the defense evidentiary material which must be disclosed under the due process safeguards of Brady v. Maryland,13 373 U.S. 83, 83 S.Ct. 1194, 10 L.Ed.2d 215 (1963), the requirements of Alaska Criminal Rule 1614 or Alaska’s so-called Little Jencks Act, AS 12-45.060.15 Where the state is unable to meet this obligation, serious questions arise concerning what, if any, sanctions are appropriate.
The state’s failure to comply with these disclosure requirements, due to its loss or destruction of the evidence in question, does not automatically trigger the imposition of sanctions. Rather, the trial court must carefully examine the circumstances surrounding the state’s violation of its duty of preservation.16 What, if any, sanctions are appropriate is to be determined by weighing the degree of culpability involved on the part of the state, the importance of the evidence which has been lost, and the evidence of guilt which is adduced at trial. See United States v. Rippy, 606 F.2d 1150, 1154 (D.C.1979); United States v. Peters, 587 F.2d 1267, 1275-76 (D.C.1978); United States v. Bryant, 439 F.2d 642, 653 (D.C.1971). Where the evidence in question was destroyed in bad faith or as part of a deliberate attempt to avoid production, sanctions will normally follow. United States v. Hilton, 521 F.2d 164, 166 (2nd Cir. 1975), cert. denied, 425 U.S. 939, 96 S.Ct. 1674, 48 L.Ed.2d 181 (1976); United States v. Bryant, 439 F.2d at 651. On the other hand, where it appears that the evidence was lost or destroyed in good faith, the imposition of sanctions will depend upon the degree to which the defendant has been prejudiced.17 In cases where the defendant cannot reasonably be said to have been prejudiced by the state’s good faith failure to preserve the evidence, sanctions will generally not be appropriate. See Wright v. State, 501 P.2d 1360, 1371 (Alaska 1972). Where, however, the defendant has suffered prejudice, sanctions will generally be [44]*44warranted.18 Just what sanction is appropriate in a given case is best left to the sound discretion of the trial court. United States v. Peters, 587 F.2d at 1275.
In the case at bar, the state’s failure to produce the tapes clearly violated both Criminal Rule 16 and AS 12.45.060.19 The question thus becomes what, if any, sanctions are appropriate. Our first point of inquiry is the state’s culpability in the loss or destruction of the tapes. A review of the record, however, discloses that the circumstances surrounding the handling of the tapes was covered only superficially before the trial court. Investigator Hildreth was the only witness questioned on this point. He testified that he had no idea of the whereabouts of the first tape other than a general belief that it was in the possession of the state. As to the tape of the second interview, his testimony was merely that after he had placed the tape in his desk drawer it had been erased and used again. No other information was elicited. Investigator Hildreth’s vague testimony does not provide an adequate foundation for any decision concerning the culpability of the state. The case must therefore be remanded. Further testimony from Investigator Hildreth and the other individuals who han-died the tapes should clarify the degree of culpability involved. After hearing this additional testimony and reviewing the record as a whole, the superior court should weigh the culpability of the state against any prejudice suffered by Putnam and come to a determination as to what, if any, sanctions should be imposed.
We turn next to the state’s cross-appeal. Following Putnam’s conviction by a jury on all three of the offenses charges in the indictment, the trial court suspended the imposition of sentence for five years and placed Putnam on probation, on the special conditions that he serve 90 days in the Fairbanks Correctional Center and pay $170,801.00 in restitution.20 The state contends that this sentence was too lenient. Our decision to remand the case on other grounds has made it technically unnecessary for us to reach this point. However, we recognize that if the case is not reversed on remand it will be necessary to reach this issue. Therefore, in order to avoid the necessity of a second appeal, we have decided to address this issue.
The state’s appeal of a sentence which it feels is too lenient is authorized by statute. AS 12.55.120(b).21 Our authority [45]*45in such instances, however, is limited to expressing our approval or disapproval; we are not authorized to increase the sentence. Id.; State v. Lancaster, 550 P.2d 1257, 1258 (Alaska 1976). In sentence appeals, whether brought by the state or the defendant, we will disapprove of a particular sentence only when we are convinced that the trial judge was clearly mistaken in imposing it. McClain v. State, 519 P.2d 811, 813-14 (Alaska 1974); State v. Chaney, 477 P.2d 441, 443-44 (Alaska 1970).
In the case at bar, the trial judge’s primary motivation appears to have been his desire to compensate those who had suffered a loss due to Putnam’s crimes. Although we share this concern for the victims of Putnam’s criminal acts, we believe the trial judge was clearly mistaken in imposing a sentence that did not include a more substantial term of imprisonment.
The type of arson presented in this case is perhaps the most serious crime against property. It shows a gross indifference towards the lives of both the other occupants of the building and the firefighters called to battle the blaze. Fortunately, this fire did not result in any injuries and the remaining occupants were able to escape from the building unscathed. It must be recognized, however, that the lack of injury was merely good fortune and not due to any precaution taken by the perpetrator of the crime. Moreover, unlike many serious crimes which occur on the spur of the moment, as a result of uncontrolled emotions, arson, committed with the intent to defraud, is a calculated act. When sentencing an individual for such a crime the objectives of deterring others and reaffirming community condemnation deserve special consideration. We believe that for these objectives to be adequately served a more substantial period of incarceration should have been imposed.
The sentence imposed is expressly disapproved of as being too lenient.22
REMANDED.