<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Sierra Prime Income Fund
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:*
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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* Set forth the amount on which the filing fee is calculated and state how
it was determined.
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
IMPORTANT NEWS FOR
SIERRA PRIME INCOME FUND
SHAREHOLDERS
While we encourage you to read the full text of the enclosed proxy statement,
here is a brief overview of major matters to be voted upon.
Q & A
- --------------------------------------------------------------------------------
Q. WHY AM I RECEIVING THIS PROXY STATEMENT?
A. Great Western Financial Corporation, the parent company of the investment
adviser, has merged with Washington Mutual, Inc. ("Washington Mutual"), the
corporate parent of Composite Research & Management Co. ("Composite"), which
is also an investment adviser. Washington Mutual has decided to consolidate
its investment advisory businesses into a single entity and has recommended
the consolidation of the Sierra Family of Funds and the mutual funds managed
by Composite (the "Composite Funds") into a single family of funds with a
common board of Trustees and a common investment adviser. As a result, you
are being asked to (1) elect a Board of Trustees that includes the current
disinterested Trustees of Sierra Prime Income Fund (the "Fund") and the
current directors of the Composite Funds, (2) approve Composite as the Fund's
new investment adviser, and (3) reapprove the sub-advisory agreement, which
would otherwise terminate upon the proposed change of investment adviser.
Q. HOW WILL THIS AFFECT MY ACCOUNT?
A. Generally, none of the proposals will affect your account. You will continue
to be a shareholder of the Fund and will continue to receive the same
shareholder services. Further, the Fund will continue to seek its current
investment objective, following its current investment policies. The current
investment sub-adviser will continue to provide portfolio management services
for the Fund. The new investment advisory and sub-advisory arrangements will
not increase the overall fees paid by the Fund.
Q. WHY DO I NEED TO VOTE?
A. Your vote is needed to ensure that the proposals can be acted upon. Your
immediate response on the enclosed proxy card(s) or by telephone will help
prevent the need for any further solicitations for a shareholder vote. We
encourage all shareholders to participate in the governance of the Fund.
Q. HOW DOES THE BOARD OF TRUSTEES SUGGEST THAT I VOTE?
A. After careful consideration, the Board of Trustees unanimously recommends
that you vote "FOR" each item proposed on the enclosed proxy card.
Q. WHO IS PAYING FOR EXPENSES RELATED TO THE SHAREHOLDER MEETING?
A. Composite, the Fund's proposed new investment adviser, or its affiliates will
pay for expenses relating to the shareholder meeting. The Fund will not pay
any expenses relating to the shareholder meeting.
Q. HOW DO I VOTE MY SHARES?
A. You may vote by mail, phone, fax or in person at the Special Meeting. To vote
by mail, sign and send us the enclosed proxy card in the envelope provided.
You can fax your vote by signing the proxy card and faxing both sides of the
card to 1-212-269-2796. D.F. King & Co., the proxy solicitor, can accept your
vote over the phone anytime between 5:00 a.m. and 6:00 p.m. Pacific Time
(8:00 a.m. and 9:00 p.m. Eastern Time), Monday through Friday -- simply call
1-800-848-3374. Finally, you can vote in person at the Special Meeting on
December 23, 1997.
Q. WHOM DO I CALL IF I HAVE QUESTIONS?
A. Please call us at 1-800-848-3374 between 5:00 a.m. and 6:00 p.m. Pacific Time
(8:00 a.m. and 9:00 p.m. Eastern Time), Monday through Friday.
S I E R R A
PRIME
INCOME FUND
<PAGE> 3
------------------------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 23, 1997
-----------------------------------------
TO THE SHAREHOLDERS OF THE SIERRA PRIME INCOME FUND:
You are cordially invited to attend a special meeting of the Sierra Prime
Income Fund (the "Fund"), a Massachusetts business trust, on December 23, 1997
at 11:00 a.m. Pacific Time or at any adjournment thereof (the "Special
Meeting"), at the offices of Sierra Fund Administration Corporation, 9301 Corbin
Avenue, Suite 333, Northridge, California 91324. Shareholders of the Fund will
be asked to consider the proposals set forth below and to transact such other
business as may be properly brought before the Special Meeting:
PROPOSAL 1: To consider and act upon a proposal to elect a Board of
Trustees.
PROPOSAL 2: To approve a new Investment Management Agreement between the
Fund and Composite Research & Management Co. ("Composite").
PROPOSAL 3: To approve a new Investment Sub-Advisory Agreement for the
Fund between Composite and Van Kampen American Capital
Management Inc.
Only shareholders of the Fund at the close of business on October 29, 1997
are entitled to notice of, and to vote at, the Special Meeting.
Whether or not you expect to be present at the Special Meeting, please
either vote your proxy by calling 1-800-848-3374 or complete and promptly return
the enclosed proxy card. A postage paid envelope is enclosed for your
convenience so that you may return your proxy card as soon as possible. It is
most important and in your interest for you to sign and date your proxy card and
return it so that a quorum will be present and a maximum number of shares may be
voted. The proxy is revocable at any time prior to its use.
By Order of the Board of Trustees
Keith B. Pipes
President
Dated: November 20, 1997
-----------------
THANK YOU
FOR
MAILING
YOUR
PROXY CARD
PROMPTLY!
-----------------
We appreciate
your continued
support and
look forward
to serving
your future
investment needs.
S I E R R A
PRIME
INCOME FUND
<PAGE> 4
SIERRA PRIME INCOME FUND
9301 CORBIN AVENUE, SUITE 333
NORTHRIDGE, CALIFORNIA 91324
------------------------
PROXY STATEMENT
------------------------
This Proxy Statement is furnished by the Board of Trustees (the "Board") of
the Sierra Prime Income Fund (the "Fund"), in connection with the solicitation
of proxies for use at the special meeting of shareholders of the Fund to be held
on December 23, 1997 at 11:00 a.m. Pacific Time, or at any adjournment thereof
(the "Special Meeting"), at the offices of Sierra Fund Administration
Corporation ("Sierra Administration"), 9301 Corbin Avenue, Suite 333,
Northridge, California 91324. It is expected that the Notice of Special Meeting,
the Proxy Statement and proxy cards will be mailed to shareholders on or about
November 20, 1997.
The primary purpose of the Special Meeting is to (1) ask shareholders to
elect a Board of Trustees, (2) permit shareholders to consider a new Investment
Management Agreement (the "New Management Agreement") between the Fund and
Composite Research & Management Co. ("Composite"), and (3) permit shareholders
to consider a new Investment Sub-Advisory Agreement (the "New Sub-Advisory
Agreement") between Composite and Van Kampen American Capital Management Inc.
("Van Kampen" or "Sub-Advisor") to take effect at the time of the effectiveness
of the New Management Agreement. The Fund's New Management Agreement and New
Sub-Advisory Agreement are substantially similar to the Fund's current
investment advisory agreement (the "Current Advisory Agreement") and current
investment sub-advisory agreement (the "Current Sub-Advisory Agreement"), except
for the parties and dates of execution, effectiveness and initial term.
If you do not expect to be present at the Special Meeting and wish your
shares to be voted, please date and sign the enclosed Proxy Card ("Proxy") and
mail it in the enclosed reply envelope, allowing sufficient time for the Proxy
to be received on or before 11:00 a.m. Pacific Time on December 23, 1997. No
postage is required if the Proxy is mailed in the United States. You can also
vote your shares by signing the Proxy and faxing both sides of the Proxy to
1-212-269-2796 or by calling D.F. King & Co., the proxy solicitor, at
1-800-848-3374 anytime between 5:00 a.m. and 6:00 p.m. Pacific Time (8:00 a.m.
and 9:00 p.m. Eastern Time), Monday through Friday. If the accompanying Proxy is
executed properly and returned, shares represented by it will be voted at the
Special Meeting in accordance with the instructions on the Proxy. However, if no
instructions are specified, shares will be voted FOR each proposal described
above (each a "Proposal" and, together, the "Proposals"). Shareholders may
revoke their Proxies at any time prior to the time they are voted by giving
written notice to the Secretary of the Fund, by delivering a subsequently dated
Proxy or by attending and voting at the Special Meeting.
The close of business on October 29, 1997 has been fixed as the record date
(the "Record Date") for the determination of shareholders entitled to notice of,
and to vote at, the Special Meeting and at any adjournment thereof. As of the
Record Date, the Fund had 802,493 shares issued and outstanding. Each full share
will be entitled to one vote at the Special Meeting and each fraction of a share
will be entitled to the fraction of a vote equal to the proportion of a full
share represented by the fractional share.
The expenses of the Special Meeting will be borne by Composite and/or its
affiliates. The solicitation of Proxies will be largely by mail, but may include
telephonic, telegraphic or oral communication by employees and officers of
Composite and Sierra Administration, their affiliates, or D.F. King & Co., a
proxy solicitor retained for that purpose.
THE FUND WILL FURNISH TO SHAREHOLDERS UPON REQUEST, WITHOUT CHARGE, A COPY
OF THE ANNUAL REPORT FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1997, AND THE
SEMI-ANNUAL REPORT FOR THE PERIOD ENDED MARCH 31, 1997. THE ANNUAL AND
SEMI-ANNUAL REPORTS OF THE FUND MAY BE OBTAINED BY WRITTEN REQUEST TO THE FUND,
P.O. BOX 5118, WESTBORO, MA 01581-5118 OR BY CALLING 1-800-222-5852.
The Fund is registered as a closed-end, non-diversified, management
investment company under the Investment Company Act of 1940, (the "1940 Act")
and its shares are registered under the Securities Act of 1933.
<PAGE> 5
INTRODUCTION
On July 1, 1997, Great Western Financial Corporation ("GWFC"), the indirect
parent of Sierra Investment Advisors Corporation ("Sierra Advisors"), the Fund's
current investment adviser, and Washington Mutual, Inc. ("Washington Mutual"), a
publicly-held financial services company, consummated a previously announced
Agreement and Plan of Merger resulting in the merger of GWFC with and into a
wholly owned subsidiary of Washington Mutual (the "Merger"). As a result of the
Merger, Sierra Advisors and its affiliates are now indirect subsidiaries of
Washington Mutual.
The Special Meeting is being called in preparation for the planned
consolidation of the funds managed by Sierra Advisors and its affiliates and
those managed by Composite, which also is an indirect subsidiary of Washington
Mutual. The planned consolidation will result in a common Board of Trustees and
a single investment adviser. This Proxy Statement relates only to the Proposals
and the Fund and does not address any issues relating to other funds in the
Sierra/Composite family of funds.
PROPOSAL 1: TO CONSIDER AND ACT UPON A PROPOSAL TO ELECT A BOARD OF TRUSTEES OF
THE FUND.
At the Special Meeting, it is proposed that thirteen Trustees be elected to
hold office until their successors are duly elected and qualified. The persons
named in the accompanying Proxy intend, in the absence of contrary instructions,
to vote all Proxies on behalf of the shareholders for the election of David E.
Anderson, Wayne L. Attwood, M.D., Arthur H. Bernstein, Esq., Kristianne Blake,
Edmond R. Davis, Esq., John W. English, Anne V. Farrell, Michael K. Murphy,
Alfred E. Osborne, Jr., Ph.D., William G. Papesh, Daniel L. Pavelich, Jay Rockey
and Richard C. Yancey (each a "Nominee" and collectively, the "Nominees").
Messrs. Anderson, Bernstein, Davis, English and Osborne are currently members of
the Board of the Fund. Messrs. Attwood, Murphy, Papesh, Pavelich, Rockey and
Yancey and Mmes. Blake and Farrell currently serve on the boards of directors of
the mutual funds managed by Composite (the "Composite Funds"), but have not
previously served on the Board of Trustees of the Fund. It is also currently
anticipated that, subject to shareholder approval, the various Composite Funds
will be reorganized into a single trust (the "Composite Trust") with a number of
funds and that, at that time, each of the current disinterested Trustees will be
nominated to serve on the board of trustees of the Composite Trust.
Each of the Nominees has consented to being named in this Proxy Statement
and to serving as a Trustee if elected. The Fund knows of no reason why any
Nominee would be unable or unwilling to serve if elected. If any or all of the
Nominees should become unavailable for election due to events not now known or
anticipated, the persons named as proxies will vote for such other nominee or
nominees as the Board of Trustees may recommend.
The Fund is organized as a business trust under the laws of The
Commonwealth of Massachusetts. Under Massachusetts law, the Fund is not required
to hold annual meetings. The Fund has availed itself of this provision and
achieves cost savings by eliminating printing costs, mailing charges and other
expenses involved in routine annual meetings. Because the Fund does not hold
regular annual shareholder meetings, each Nominee, if elected, will hold office
until his or her successor is elected and qualified.
Even with the elimination of routine annual meetings, the Board may call
special meetings of shareholders for action by shareholder vote as may be
required by the 1940 Act, or as required or permitted by the Fund's Agreement
and Declaration of Trust. Shareholder meetings will be held, in compliance with
the 1940 Act, to elect Trustees under certain circumstances. Shareholder
meetings may also be held by the Fund for other purposes, including to approve
investment policy changes, a new investment advisory agreement or other matters
requiring shareholder action under the 1940 Act.
A meeting also may be called by shareholders holding at least 10% of the
shares entitled to vote at the meeting for the purpose of voting upon the
removal of Trustees, in which case shareholders may receive assistance in
communicating with other shareholders as if the provisions contained in Section
16(c) of the 1940 Act applied.
2
<PAGE> 6
INFORMATION REGARDING NOMINEES
The following information is provided for each Nominee. It includes his or
her name, position with the Fund, if any, tenure in office, age, principal
occupations or employment during the past five years, trusteeships/directorships
with other companies which file reports periodically with the Securities and
Exchange Commission ("SEC"), number of Trustee positions with the registered
investment companies which hold themselves out to investors as related companies
for purposes of investment and investor services or to which Sierra Advisors or
an affiliated person of Sierra Advisors provides investment advisory or
administration services (the "Sierra Fund Complex," consisting of the Fund,
Sierra Trust Funds, The Sierra Variable Trust and Sierra Asset Management
Portfolios, and the "Composite Funds," consisting of Composite Bond & Stock
Fund, Inc., Composite Growth & Income Fund, Inc., Composite Northwest Fund,
Inc., Composite U.S. Government Securities, Inc., Composite Income Fund, Inc.,
Composite Tax-Exempt Bond Fund, Inc. and Composite Cash Management Company) and
number of shares of the Fund beneficially owned. As of October 29, 1997, the
Nominees as a group beneficially owned an aggregate of less than 1% of the
shares of the Fund and the Trustees and officers of the Fund as a group
beneficially owned an aggregate of less than 1% of the shares of the Fund.
<TABLE>
<CAPTION>
SHARES
ADDRESS AND BUSINESS EXPERIENCE DURING BENEFICIALLY
NAME, AGE AND POSITION THE PAST FIVE YEARS OWNED AS OF
WITH THE FUND (INCLUDING DIRECTORSHIPS) OCTOBER 29, 1997**
- ----------------------------------- ---------------------------------------- ------------------
<S> <C> <C>
ARTHUR H. BERNSTEIN, ESQ. (72) 11661 San Vicente Blvd., Suite 701, None
Chairman of the Board of Trustees Los Angeles, CA 90049.
and Trustee since 1996. President, Bancorp Capital Group, Inc.,
1988 to present; President, Bancorp
Venture Capital, Inc., 1988 to present.
Trustee of 4 Trusts in the Sierra Fund
Complex.
DAVID E. ANDERSON (70) 17960 Seabreeze Drive, None
Trustee since 1996. Pacific Palisades, CA 90272.
Retired. Formerly, President and Chief
Executive Officer, GTE California, Inc.,
1979 to 1988. Trustee of 4 Trusts in the
Sierra Fund Complex.
EDMOND R. DAVIS, ESQ. (69) 550 South Hope Street, 21st Floor, None
Trustee since 1996. Los Angeles, CA 90071.
Partner, Brobeck, Phleger & Harrison
(law firm) 1987 to present. Trustee of 4
Trusts in the Sierra Fund Complex.
JOHN W. ENGLISH (64) 50-H New England Ave., P.O. Box 640, None
Trustee since 1996. Summit, NJ 07902-0640.
Retired. Formerly, Vice President and
Chief Investment Officer, Ford
Foundation, 1981 to 1993. Chairman of
the Board and Director, The China Fund,
Inc. (a closed-end mutual fund), 1993 to
present; Director, The Northern Fund
Company's Benchmark Funds (open-end
mutual funds), 1994 to present. Trustee
of 4 Trusts in the Sierra Fund Complex.
</TABLE>
3
<PAGE> 7
<TABLE>
<CAPTION>
SHARES
ADDRESS AND BUSINESS EXPERIENCE DURING BENEFICIALLY
NAME, AGE AND POSITION THE PAST FIVE YEARS OWNED AS OF
WITH THE FUND (INCLUDING DIRECTORSHIPS) OCTOBER 29, 1997**
- ----------------------------------- ---------------------------------------- ------------------
<S> <C> <C>
ALFRED E. OSBORNE, JR. PH.D.(52) 110 Westwood Plaza, Suite C305, None
Trustee since 1996. Los Angeles, CA 90095-1481.
Professor, The Anderson School and
Director, The Harold Price Center for
Entrepreneurial Studies at University of
California at Los Angeles, 1972 to
present; Independent general partner,
Technology Funding Venture Partners V,
1990 to present. Director, Times Mirror
Company, 1980 to present; Director,
United States Filter Corporation, 1991
to present; Director, Nordstrom, Inc.,
1987 to present; Director, Greyhound
Lines, Inc., 1994 to present. Trustee of
4 Trusts in the Sierra Fund Complex,
1989 to 1993 and 1996 to present.
WAYNE L. ATTWOOD, M.D. (68) 2931 S. Howard, Spokane, WA 99203. None
Nominee Retired. Formerly, Doctor of internal
medicine and gastroenterology. Director
of all of the Composite Funds.
KRISTIANNE BLAKE (43) 705 W. 7th, Suite D, Spokane, WA 99203. None
Nominee President, Kristianne Gates Blake, PS.
(accounting services). Director of all
of the Composite Funds.
ANNE V. FARRELL* (62) 425 Pike Street, Suite 510, None
Nominee Seattle, WA 98101.
President and Chief Executive Officer,
The Seattle Foundation. Director,
Washington Mutual, Inc. Director of all
of the Composite Funds.
MICHAEL K. MURPHY* (60) P.O. Box 3366, Spokane, WA 99220. None
Nominee Chairman and Chief Executive Officer,
CPM Development Corporation (holding
company). Director, Washington Mutual,
Inc. Director of all of the Composite
Funds.
WILLIAM G. PAPESH* (54) 601 W. Main Avenue, Suite 801, None
Nominee Spokane, WA 99201.
President and Director, Composite
Research & Management Co., 1995 to
present; President and Director,
Composite Funds Distributor, Inc., 1997
to present; President and Director,
Murphey Favre Securities Services Inc.,
1987 to present. Director of all of the
Composite Funds.
DANIEL L. PAVELICH (53) Two Prudential Plaza, 180 North Stetson None
Nominee Ave., Suite 4300, Chicago, Il 60601.
Chairman and Chief Executive Officer,
BDO Seidman (accounting and consulting).
Director of all of the Composite Funds.
</TABLE>
4
<PAGE> 8
<TABLE>
<CAPTION>
SHARES
ADDRESS AND BUSINESS EXPERIENCE DURING BENEFICIALLY
NAME, AGE AND POSITION THE PAST FIVE YEARS OWNED AS OF
WITH THE FUND (INCLUDING DIRECTORSHIPS) OCTOBER 29, 1997**
- ----------------------------------- ---------------------------------------- ------------------
<S> <C> <C>
JAY ROCKEY (69) Nominee 2121 Fifth Avenue, Seattle, WA 98121. None
Chairman and Chief Executive Officer,
The Rockey Company (public relations).
Director of all of the Composite Funds.
RICHARD C. YANCEY (71) Nominee 535 Madison Avenue, None
New York, NY 10022.
Senior Advisor, Dillon, Read & Co., Inc.
(broker/dealer and investment bank).
Director of all of the Composite Funds.
</TABLE>
- ---------------
* Denotes an individual who is an "interested person" of the Trust or Sierra
Advisors and its affiliates as defined in the 1940 Act.
** This information has been provided by each Nominee.
COMPENSATION OF TRUSTEES
Each Trustee who is not an "interested person" of the Trust or Sierra
Advisors and its affiliates within the meaning of the 1940 Act ("Disinterested
Trustee") receives an aggregate annual fee (plus reimbursement for reasonable
out-of-pocket expenses incurred in connection with his or her attendance at
Board and committee meetings) from the Fund and all of the trusts in the Sierra
Fund Complex for which he or she serves. The Fund pays each Trustee who is not a
director, officer or employee of Washington Mutual, Sierra Investment Services
Corporation ("Sierra Services"), Sierra Advisors, Van Kampen or First Data
Investor Services Group, Inc., or any of their affiliates, $5,000 per annum plus
$1,000 per board meeting attended, $750 per Audit and/or Nominating Committee
meeting attended, and reimbursement for travel and out-of-pocket expenses. Since
December 1996, the Chairman has received one and a half times the normal
Trustee's compensation. The Chairman of the Audit Committee receives $1,125 per
Audit Committee meeting attended. Officers of the Fund receive no direct
remuneration from the Fund for serving in such capacity. Officers of the Fund
who are employees of Sierra Advisors or its affiliates may be considered to have
received remuneration indirectly.
The aggregate compensation payable by the Fund to each of the Trustees
serving during the fiscal year ended September 30, 1997 is set forth in the
compensation table below. The aggregate compensation payable to such Trustees
during the period ended September 30, 1997, by the Sierra Fund Complex is also
set forth in the compensation table below. The Trustees do not receive any
pension or retirement benefits from the Fund or the Sierra Fund Complex.
COMPENSATION TABLE
<TABLE>
<CAPTION>
TOTAL COMPENSATION
FROM THE SIERRA
AGGREGATE COMPENSATION FUND COMPLEX PAYABLE TO
NAME AND POSITION PAYABLE FROM THE FUND TRUSTEES*
- ------------------------------------- ------------------------------ --------------------------------
<S> <C> <C>
Arthur H. Bernstein, Esq............. $14,875 $61,451 for service on 4 boards
Chairman of the Board and Trustee
David E. Anderson.................... $10,750 $43,950 for service on 4 boards
Trustee
Edmond R. Davis, Esq................. $10,750 $43,950 for service on 4 boards
Trustee
John W. English...................... $10,750 $43,950 for service on 4 boards
Trustee
Alfred E. Osborne, Jr., Ph.D......... $10,750 $43,950 for service on 4 boards
Trustee
</TABLE>
- ---------------
* Sierra Advisors reimbursed the Sierra Fund Complex for the cost, including
Trustees' fees, of all special meetings held with regard to contemplation of
the sale of Sierra Capital Management Corporation, as well as the Merger.
5
<PAGE> 9
MEETINGS AND COMMITTEES OF THE BOARD OF TRUSTEES
There were nineteen meetings of the Board of Trustees held during the
fiscal year ended September 30, 1997. During that fiscal year, all Trustees
attended at least 75% of the meetings of the Board.
The Board has an Audit Committee. The Audit Committee makes recommendations
to the full Board with respect to the engagement of independent accountants and
reviews the results of the audit engagement and matters having a material effect
on the Funds' financial operation with the independent accountants. The members
of the Audit Committee during the fiscal year ended September 30, 1997 were
Messrs. Bernstein (Chairman), Anderson, Davis, English and Osborne, each of whom
is a Disinterested Trustee. The Audit Committee met once during the fiscal year
ended September 30, 1997 and all members attended the meeting.
The Board has a Nominating Committee. The Nominating Committee makes
recommendations to the full Board with respect to candidates for the Board.
Recommendations by shareholders are not routinely considered by the Nominating
Committee. The members of the Nominating Committee are Messrs. Anderson,
Bernstein, Davis, Osborne and English, each of whom is a Disinterested Trustee.
The Nominating Committee did not meet during the fiscal year ended September 30,
1997.
BOARD APPROVAL OF THE ELECTION OF TRUSTEES
At a meeting of the Board held on October 27-28, 1997, the Board
recommended that shareholders vote FOR each of the Nominees for Trustee named
herein. In recommending that shareholders elect the Nominees as Trustees of the
Fund, the Board considered the Nominees' experience and qualifications. In
particular, the Board took into account the fact that each of the Nominees who
has not previously served on the Board has previous experience serving on the
Boards of Directors of the Composite Funds.
SHAREHOLDER APPROVAL OF THE ELECTION OF TRUSTEES
The Election of each Nominee requires the affirmative vote of a plurality
of all votes cast at the Special Meeting, provided that a majority of the shares
entitled to vote are present in person or by Proxy at the Special Meeting. If
your shares are represented at the meeting but you give no voting instructions,
your shares will be voted FOR all Nominees named herein. If the Nominees are not
approved by shareholders of the Fund, the Board will consider alternative
nominations.
THE BOARD OF TRUSTEES RECOMMENDS THAT THE SHAREHOLDERS OF THE FUND
VOTE FOR THE ELECTION OF THE NOMINEES.
PROPOSAL 2: TO APPROVE A NEW INVESTMENT MANAGEMENT AGREEMENT BETWEEN THE FUND
AND COMPOSITE RESEARCH & MANAGEMENT CO.
The Board has approved, subject to shareholder approval, the appointment of
Composite as the investment adviser for the Fund and recommends that
shareholders of the Fund approve the New Management Agreement between the Fund
and Composite, a form of which is attached hereto as Exhibit A. The Trustees of
the Fund, including all of the Disinterested Trustees, approved the New
Management Agreement at a meeting held on October 27-28, 1997. The Trustees do
not anticipate, as a result of the change in investment advisers, any reduction
in the quality of services now provided to the Fund.
The Trustees recommend that Composite replace the Fund's current investment
adviser, Sierra Advisors. Sierra Advisors, as the result of the Merger, is an
indirect subsidiary of Washington Mutual. Washington Mutual has indicated that
it intends to consolidate all of its investment advisory businesses within
Composite. As a result of such consolidation, which would likely occur in early
1998, Sierra Advisors would cease to exist as a separate entity.
6
<PAGE> 10
SIERRA ADVISORS
Sierra Advisors is registered under the Investment Advisers Act of 1940
(the "Advisers Act") and is currently the investment adviser to the Fund.
Although Sierra Advisors serves as investment adviser to the Fund, investment
discretion for the Fund has been delegated to Van Kampen, the Fund's investment
sub-adviser. Nonetheless, Sierra Advisors remains responsible for analyzing
economic and market trends; formulating and assessing investment policies and
recommending changes to the Board where appropriate; supervising compliance by
the sub-adviser with the Fund's investment objectives, policies and limits, as
well as with laws and regulations applicable to the Fund; evaluating the
performance of the sub-adviser in light of selected benchmarks and the needs of
the Fund; evaluating potential additional or replacement sub-advisers and
recommending changes to the Board where appropriate; and reporting to the Board
and shareholders on the foregoing. The sub-adviser, in turn, is responsible for
continuously reviewing, supervising and administering the Fund's investment
program.
COMPOSITE
Composite, a subsidiary of Washington Mutual, with principal offices
located at 1201 Third Avenue, Seattle, Washington 98101, is also registered
under the Advisers Act. Composite has been in the investment management business
since 1944 and currently manages more than $2.6 billion for mutual funds and
institutional accounts, including more than $1.7 billion within the Composite
Funds. Composite currently does not provide investment services to another
investment company having investment objectives similar to the Fund. It is
anticipated that Composite would continue, at least initially, to delegate
investment discretion for the Fund to Van Kampen. The names, addresses and
principal occupations of the directors and principal executive officer of
Composite are as follows:
<TABLE>
<CAPTION>
NAME AND POSITION
WITH THE COMPOSITE ADDRESS PRINCIPAL OCCUPATION
- ------------------------ -------------------- -----------------------------------------------
<S> <C> <C>
William G. Papesh 1201 Third Avenue Director and President, Composite Research &
Director and President Seattle, WA 98101 Management Co.; Director and President, Murphey
Favre Securities Services, Inc.; Director and
President, Composite Funds Distributor, Inc.
Kerry K. Killinger 1201 Third Avenue Chairman, President, Chief Executive Officer
Director Seattle, WA 98101 and Director, Washington Mutual, Inc.
Monte D. Calvin 1201 Third Avenue First Vice President and Director, Murphey
Director and Treasurer Seattle, WA 98101 Favre Securities Services, Inc.; Director and
Treasurer, Composite Research & Management Co.;
Director, Composite Funds Distributor, Inc.
Craig S. Davis 1201 Third Avenue Executive Vice President, Washington Mutual,
Director Seattle, WA 98101 Inc.; Director, Composite Research & Management
Co.; Director, Murphey Favre Securities
Services, Inc.; Director, Composite Funds
Distributor, Inc.; Director, WM Financial
Services, Inc.
J. Pamela Dawson 1201 Third Avenue Director and President, WM Financial Services,
Director Seattle, WA 98101 Inc.; Director, Composite Research & Management
Co.; Director, Murphey Favre Securities
Services, Inc.; Director, Composite Funds
Distributor, Inc.
</TABLE>
THE PROPOSED INVESTMENT MANAGEMENT AGREEMENT
In anticipation of the consolidation of Sierra Advisors with Composite as
described in the Introduction above, the Board of Trustees, including the
Disinterested Trustees, unanimously approved the New Management Agreement. The
New Management Agreement, unlike the Current Advisory Agreement, does not
attempt to restate the provisions of Section 36 of the 1940 Act that impose upon
Composite a fiduciary duty with respect to the receipt of compensation by
Composite and its affiliates for services. In addition, the New Management
Agreement differs from the Current Advisory Agreement as follows: (1) the
identity of the manager; (2) the dates of execution, effectiveness and initial
term; (3) the deletion of provisions relating to state expense limits that have
been preempted by federal law; (4) inclusion of a specific provision allowing
for
7
<PAGE> 11
amendment of the Agreement; (5) inclusion of a provision restricting the Fund's
use of the proprietary names "Sierra" and "Composite"; and (6) the provision for
termination of the New Management Agreement by the Adviser upon 60 days notice,
rather than the 90 days notice required under the Current Advisory Agreement.
See "The New Management Agreement" below.
THE CURRENT ADVISORY AGREEMENT
The Current Advisory Agreement, dated February 14, 1996, was last approved
by the initial shareholder of the Fund on the same date.
The Current Advisory Agreement provides that Sierra Advisors, in return for
its fee, will (1) participate in the formulation of the Fund's investment
policies; (2) analyze economic trends affecting the Fund; (3) monitor the
expenses incurred by the Fund; (4) monitor the brokerage and research services
(as those terms are defined in Section 28(e) of the Securities Exchange Act of
1934) that are provided to the Fund and that may be considered by the Fund's
investment sub-adviser in selecting brokers or dealers to execute particular
transactions; and (5) monitor and evaluate the services provided by the Fund's
investment sub-adviser under its investment sub-advisory agreement, including,
without limitation, the sub-advisor's adherence to the Fund's investment
objective(s) and policies and the Fund's investment performance. Subject to the
approval of the Board and the shareholders of the Fund, Sierra Advisors may
delegate certain of its duties enumerated above to one or more sub-advisers.
The Current Advisory Agreement provides for payment of compensation to
Sierra Advisors on the first business day of each month for the previous month
at an annual rate of .95% of the value of the Fund's average daily net assets.
The Current Advisory Agreement also provides that Sierra Advisors will bear all
expenses in connection with the performance of its services under the Current
Advisory Agreement, including, without limitation, payment of sub-advisory fees
to any sub-adviser. The Fund assumes and shall pay or cause to be paid all other
expenses of the Fund.
The Current Advisory Agreement has an initial term of two (2) years from
its effective date, and thereafter shall continue for successive annual periods,
provided the continuation is approved by the Board or by a vote of a majority of
the Fund's outstanding voting securities, as well as by a majority of the
Disinterested Trustees. The Current Advisory Agreement may be terminated without
payment of any penalty, on 60 days written notice. The Current Advisory
Agreement will also terminate automatically in the event of its assignment.
The Current Advisory Agreement obligates Sierra Advisors, in the
performance of its duties, to exercise its best judgment in rendering its
services, but provides that Sierra Advisors shall not be liable for any act or
omission which does not constitute willful misfeasance, bad faith or gross
negligence on the part of Sierra Advisors or its officers, directors or
employees, or reckless disregard by Sierra Advisors of its obligations and
duties under the agreement. The Current Advisory Agreement also provides that
any claims against the Fund may be satisfied only from the assets of the Fund,
and that no shareholder, Trustee or officer of the Fund may be held personally
liable or responsible for any obligations arising out of such agreement.
For the fiscal year ended September 30, 1997, the Fund paid no management
fee to Sierra Advisors after fee waivers.
THE NEW MANAGEMENT AGREEMENT
The Board approved the proposed New Management Agreement between the Fund
and Composite, a form of which is attached as Exhibit A hereto, at a meeting
held October 27-28, 1997. The New Management Agreement provides for compensation
to Composite at the same rate as the Current Advisory Agreement. The investment
advisory fee as a percentage of net assets payable by the Fund will be the same
under the New Management Agreement as under the Current Advisory Agreement. If
the investment advisory fee under the New Management Agreement had been in
effect for the Fund's most recently completed fiscal year, the advisory fee to
which Composite would have been entitled, would have been identical to that to
which Sierra
8
<PAGE> 12
Advisors was entitled under the Current Advisory Agreement. A portion of the fee
payable to Composite under the New Management Agreement will be allocated to the
Fund's sub-adviser.
The New Management Agreement would take effect upon the later to occur of
(1) the obtaining of shareholder approval or (2) January 1, 1998. The New
Management Agreement will continue in effect for an initial two-year term and
thereafter for successive annual periods as long as such continuance is approved
in accordance with the 1940 Act.
The Board accepted a recommendation by Composite to consolidate the Sierra
Funds and the Composite Funds into a single family of funds with a common board
of trustees and with Composite as each fund's investment adviser. In accepting
this recommendation, the Board considered that, based on Composite's projections
and commitments, each fund's overall level of expenses would generally be
reduced or remain unchanged and that Washington Mutual planned to consolidate
Sierra Advisors with Composite sometime in early 1998. Before reaching its
conclusions, the Board conducted an extensive "due diligence" review. Among
other things, the Board received reports from counsel and independent experts
specifically hired to evaluate Composite's ability to manage the Fund, reviewed
Composites overall business plan for the Fund, including the ability of its
affiliates to provide administration and distribution services, met with
portfolio managers at Composite, and met with the directors of the Composite
Funds. The Board also was informed of the resources of Washington Mutual and its
affiliates that could be made available to Composite and the Fund. The Trustees
also considered Composite's experience as adviser and service provider to the
Composite Funds.
Although the Merger did not result in "an assignment" of the Current
Advisory Agreement, in light of the upcoming consolidation of Sierra Advisors
with Composite, Sierra Advisors and Composite have indicated that they intend to
comply with the requirements of Section 15(f) of the 1940 Act. Section 15(f)
provides a non-exclusive safe harbor for an investment adviser to an investment
company or any of its affiliated persons to receive any amount or benefit in
connection with a change in control of the investment adviser that results in
the "assignment" of an advisory agreement, as that term is defined in the 1940
Act, so long as the following two conditions are met. First, for a period of
three years after the change of control, at least 75% of the board members of
the investment company must not be interested persons of the acquired adviser or
the acquiror (Sierra Advisors and Composite, respectively, in this case). If the
Nominees listed in Proposal 1 above are elected by shareholders, the Fund would
meet this condition of Section 15(f). Second, an "unfair burden" must not be
imposed upon the investment company as a result of such transaction or any
express or implied terms, conditions or understandings applicable thereto. The
term "unfair burden" is defined in Section 15(f) to include any arrangement
during the two-year period after the assignment whereby the investment adviser,
or any interested person of any such adviser, receives or is entitled to receive
any compensation, directly or indirectly, from the investment company or its
shareholders (other than fees for bona fide investment advisory or other
services) or from any person in connection with the purchase or sale of
securities or other property to, from or on behalf of the investment company
(other than bona fide ordinary compensation as principal underwriter for such
investment company). Sierra Advisors and Composite are not aware of any express
or implied term, condition, arrangement or understanding that would impose an
"unfair burden" on the Fund as a result of the recent Merger or the upcoming
consolidation of Sierra Advisors with Composite.
The Board also considered that the costs of the Special Meeting would be
borne by Composite and/or its affiliates.
After consideration of the above factors and such other factors and
information that the Board deemed relevant, the Board, including the
Disinterested Trustees, unanimously approved the New Management Agreement and
voted to recommend its approval to the shareholders of the Fund.
In the event that shareholders of the Fund do not approve the New
Management Agreement, the Current Advisory Agreement will remain in effect and
the Board will take such action as it deems in the best interest of the Fund and
its shareholders, which may include proposing that shareholders approve an
agreement in lieu of the New Management Agreement.
9
<PAGE> 13
SHAREHOLDER APPROVAL OF THE NEW MANAGEMENT AGREEMENT
Approval of the New Management Agreement requires the affirmative vote of a
majority of the outstanding shares of the Fund. For purposes of this proposal,
"majority of the outstanding shares" means the vote of (1) 67% or more of the
Fund's outstanding shares present at the Special Meeting, if the holders of more
than 50% of the outstanding shares of the Fund are present in person or
represented by Proxy; or (2) more than 50% of the Fund's outstanding shares,
whichever is less.
THE BOARD OF TRUSTEES RECOMMENDS THAT THE SHAREHOLDERS OF THE FUND VOTE FOR
APPROVAL OF THE NEW MANAGEMENT AGREEMENT.
PROPOSAL 3: TO APPROVE A NEW INVESTMENT SUB-ADVISORY AGREEMENT FOR THE FUND
BETWEEN COMPOSITE AND VAN KAMPEN AMERICAN CAPITAL MANAGEMENT INC.
As a result of the proposed termination of the Current Advisory Agreement,
the Board, including a majority of the Disinterested Trustees, at a meeting held
on October 27-28, 1997, concluded that entry into the New Sub-Advisory Agreement
for the Fund would be in the best interests of the Fund and its shareholders.
Therefore, the Board is recommending that shareholders of the Fund approve the
selection of Van Kampen to continue to serve as the investment sub-adviser to
the Fund and approve the New Sub-Advisory Agreement. Other than the change of
the investment adviser to the Fund from Sierra Advisors to Composite, and
provisions regarding the dates of effectiveness and termination, and deleting
the Fund as party to the Agreement, there are no material differences between
the Current Sub-Advisory Agreement and New Sub-Advisory Agreement.
THE CURRENT SUB-ADVISORY AGREEMENT
Van Kampen currently serves as the investment sub-adviser to the Fund
pursuant to an agreement by and among the Fund, Sierra Advisors and Van Kampen
dated October 31, 1996, and approved by the Fund's shareholders on October 29,
1996. Under the Current Sub-Advisory Agreement, Van Kampen makes the day-to-day
investment decisions for the assets of the Fund, subject to the supervision of,
and policies established by, Sierra Advisors and the Trustees.
The Current Sub-Advisory Agreement provides that Van Kampen, in return for
its fee, and subject to the supervision of the Board and Sierra Advisors, will
(1) act in conformity with the Fund's Agreement and Declaration of Trust, the
1940 Act, the Advisers Act and the Internal Revenue Code of 1986; (2) make
investment decisions in accordance with the Fund's investment objectives and
policies as stated in the Prospectus and Statement of Additional Information as
in effect and, after notice to Van Kampen, as they may be amended from time to
time; (3) place purchase and sale orders to effectuate the investment decisions
made; (4) maintain books and records with respect to the securities transactions
of the Fund and will furnish to the Fund's Board such periodic, regular and
special reports as may be requested; (5) treat confidentially and as proprietary
information of the Fund, all records and other information relative to the Fund
and past, present or potential shareholders; and (6) will not use such records
and information for any purpose other than performance of its responsibilities
and duties under the Current Sub-Advisory Agreement, except after prior
notification to and approval in writing by the Fund, which approval shall not be
unreasonably withheld and such records may not be withheld where Van Kampen may
be exposed to civil or criminal contempt proceedings for failure to comply when
requested to divulge such information by duly constituted authorities, or when
so requested by the Fund. In providing these services, Van Kampen will supervise
the Fund's investments and conduct a continual program of investment, evaluation
and, if appropriate, sale and reinvestment of the Fund's assets. In addition,
Van Kampen will furnish the Fund or Sierra Advisors with whatever statistical
information the Fund or Sierra Advisors may reasonably request with respect to
the instruments that the Fund may hold or contemplate purchasing.
The Current Sub-Advisory Agreement provides for compensation to Van Kampen
from Sierra Advisors calculated as a monthly fee, absent fee waivers, at the
annual rate of .475% of the Fund's average daily net assets.
10
<PAGE> 14
The Current Sub-Advisory Agreement provides that Van Kampen will bear all
expenses in connection with the performance of its services under the Agreement,
which expenses do not include brokerage fees or commissions in connection with
the effectuation of securities transactions. The Fund will bear certain other
expenses to be incurred in its operation, including but not limited to
organizational expenses, taxes, interest, brokerage fees and commissions, if
any; fees of Disinterested Trustees; SEC fees and state Blue Sky qualification
fees; out-of-pocket expenses of custodians, transfer and dividend disbursing
agents and the Fund's sub-administrator and transaction charges of custodians;
insurance premiums; outside auditing and legal expenses; costs of maintenance of
the Fund's existence; costs attributable to investor services, including without
limitation, telephone and personnel expenses; costs of preparing and printing
prospectuses and statements of additional information for regulatory purposes
and for distribution to existing shareholders; costs of shareholders' reports
and meetings of the shareholders of the Fund and of the officers or Board of the
Fund; and any extraordinary expenses.
The services of Van Kampen are not deemed to be exclusive, and Van Kampen
is free to render investment advisory and other services to others, including
fiduciary and other managed accounts as well as to other investment companies or
series of investment companies, so long as its services under the Current Sub-
Advisory Agreement are not impaired thereby. The Current Sub-Advisory Agreement
also provides that whenever the Fund and one or more other accounts or
investment companies advised by Van Kampen have available funds for investment,
investments suitable and appropriate for each will be allocated in accordance
with procedures believed to be equitable to each entity. Similarly,
opportunities to sell securities will be allocated in an equitable manner.
The Current Sub-Advisory Agreement has an initial term of two (2) years
from its effective date, and thereafter shall continue for successive annual
periods, provided the continuation is approved by the Board or by vote of a
majority of the Fund's outstanding voting securities, as well as by a majority
of the Disinterested Trustees. The Current Sub-Advisory Agreement may be
terminated, without the payment of any penalty, upon 30 days written notice by
Sierra Advisors, the Board or by the vote of a majority of the outstanding
voting securities of the Fund, or upon 90 days written notice by Van Kampen. In
addition, the Current Sub-Advisory Agreement will also terminate automatically
upon the termination of the investment advisory agreement between the Fund and
Sierra Advisors, as well as in the event of an assignment.
Under the Current Sub-Advisory Agreement, Van Kampen is not liable for any
error of judgment or for any loss suffered by the Fund or Sierra Advisors in
connection with performance of its obligations under the agreement, except for
any losses resulting from a breach of a fiduciary duty with respect to the
receipt of compensation for services, or resulting from willful misfeasance, bad
faith or gross negligence on Van Kampen's part in the performance of its duties
or from reckless disregard of its obligations and duties under the agreement. In
addition, the Current Sub-Advisory Agreement also provides that obligations
under the Agreement are binding upon the property and assets of the Fund, and
not the trustees, officers, or shareholders of the Fund individually.
THE NEW SUB-ADVISORY AGREEMENT
The Board approved the proposed New Sub-Advisory Agreement for the Fund
between Composite and Van Kampen at a meeting held on October 27-28, 1997, a
form of which is attached hereto as Exhibit B. The form of the proposed New
Sub-Advisory Agreement is identical to the Current Sub-Advisory Agreement,
except for the change of the investment adviser from Sierra Advisors to
Composite, the dates of execution, effectiveness and initial term, and the
deletion of the Fund as a party to the agreement.
The sub-advisory fees as a percentage of net assets now payable by
Composite will be the same under the New Sub-Advisory Agreement as under the
Current Sub-Advisory Agreement with Sierra Advisors. If the sub-advisory fee
under the New Sub-Advisory Agreement had been in effect for the Fund's most
recently completed fiscal year, the sub-advisory fee to which Van Kampen would
have been entitled would have been identical to that to which it was entitled
under the Current Sub-Advisory Agreement. Van Kampen may from time to time and
at its discretion voluntarily waive all or a portion of its fees in order to
assist the Fund in
11
<PAGE> 15
maintaining a competitive expense ratio. Van Kampen reserves the right to
terminate any voluntary fee waiver at any time.
At a meeting held on October 27-28, 1997, the Board, including the
Disinterested Trustees, unanimously approved the New Sub-Advisory Agreement for
the Fund, and recommended the New Sub-Advisory Agreement for approval by the
shareholders of the Fund. The New Sub-Advisory Agreement would take effect upon
shareholder approval. The New Sub-Advisory Agreement will continue in effect for
an initial term of two years and thereafter for successive annual periods as
long as such continuance is approved in accordance with the 1940 Act.
In evaluating the New Sub-Advisory Agreement, the Board considered the
continuity of services by Van Kampen. In this regard, the Board took into
account the Fund's Current Sub-Advisory Agreement and the New Sub-Advisory
Agreement, including their terms relating to the services to be provided
thereunder by Van Kampen, and the fact that the fees and expenses payable under
the New Sub-Advisory Agreement will be equal to those paid under the Current
Sub-Advisory Agreement. Although the Fund is not a party to the New Sub-Advisory
Agreement, it is not expected that this change will have a material effect on
the remedies available to the Fund or shareholders in the event of a breach of
the New Sub-Advisory Agreement.
Approval of the New Sub-Advisory Agreement is contingent on the approval by
shareholders of the New Management Agreement between the Fund and Composite.
However, if the New Management Agreement is approved and shareholders of the
Fund do not approve the New Sub-Advisory Agreement, then the Board will take
such action as it deems is in the best interest of the Fund and its
shareholders, which may include proposing that shareholders approve an agreement
in lieu of the New Sub-Advisory Agreement.
INFORMATION REGARDING VAN KAMPEN
Van Kampen acts as investment sub-advisor for the Fund and has acted as
investment sub-adviser for the Fund since the commencement of its investment
operations.
Van Kampen is located at One Parkview Plaza, Oakbrook Terrace, Illinois
60181. Van Kampen is an indirect wholly owned subsidiary of VK/AC Holding, Inc.
VK/AC Holding, Inc. is a wholly owned subsidiary of MSAM Holdings, Inc., which
in turn is a wholly owned subsidiary of Morgan Stanley, Dean Witter, Discover &
Co., a publicly held financial services company. Van Kampen provides investment
advice to a wide variety of individual, institutional and investment company
clients and, together with its affiliates, had aggregate assets under management
or supervision, as of September 30, 1997, of more than $67.0 billion.
The directors and principal executive officer of Van Kampen and their
principal occupations are listed below.
<TABLE>
<CAPTION>
NAME ADDRESS PRINCIPAL OCCUPATION
- ---------------------- ----------------------------- -------------------------------------------
<S> <C> <C>
Don G. Powell 2800 Post Oak Blvd. Chairman
Houston, TX 77056
Philip N. Duff One Parkview Plaza Chief Executive Officer
Oakbrook Terrace, IL 60181
Dennis J. McDonnell One Parkview Plaza President and Chief Operating Officer
Oakbrook Terrace, IL 60181
Ronald A. Nyberg One Parkview Plaza Executive Vice President, General Counsel
Oakbrook Terrace, IL 60181 and Assistant Secretary
William R. Rybak One Parkview Plaza Executive Vice President and Chief
Oakbrook Terrace, IL 60181 Financial Officer
</TABLE>
None of the officers or Trustees of the Fund is an officer, employee,
director, or shareholder of Van Kampen.
As compensation for investment sub-advisory services to the Fund for the
fiscal year ended September 30, 1997, Van Kampen received compensation in the
amount of $51,356.
12
<PAGE> 16
Van Kampen currently provides investment services to the following
investment company having an investment objective similar to the investment
objective of the Fund:
<TABLE>
<CAPTION>
AMOUNT OF ASSETS
UNDER MANAGEMENT
AS OF
NAME OF INVESTMENT COMPANY OCTOBER 31, 1997 RATE OF COMPENSATION*
- -------------------------------------------- ------------------- -----------------------------
<S> <C> <C>
Van Kampen Prime Rate Fund.................. $6,429,569,168 0.95% of first $4 billion
0.90% of next $3.5 billion
0.875% of next $2.5 billion
0.85% over $10 billion
</TABLE>
- ---------------
* For services in addition to those provided to the Fund.
SHAREHOLDER APPROVAL OF THE NEW SUB-ADVISORY AGREEMENT
Approval of the New Sub-Advisory Agreement for the Fund requires the
affirmative vote of a majority of the outstanding shares of the Fund. For
purposes of this proposal, "majority of the outstanding shares" means the vote
of (1) 67% or more of the Fund's outstanding shares present at the Special
Meeting, if the holders of more than 50% of the outstanding shares of the Fund
are present in person or represented by proxy; or (2) more than 50% of the
Fund's outstanding shares whichever is less.
THE BOARD OF TRUSTEES RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR
APPROVAL OF THE NEW SUB-ADVISORY AGREEMENT.
ADDITIONAL INFORMATION
TRUSTEES AND EXECUTIVE OFFICERS
Information about the Fund's current Trustees is set forth under Proposal 1
above. Presently, no officer of the Fund is an officer, employee, director or
shareholder of Composite. Nonetheless, each of the following officers of the
Fund, except Mr. Grant, are officers or employees of an entity that is under
common control with Composite:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
NAME, AGE AND POSITION ADDRESS AND BUSINESS EXPERIENCE DURING THE PAST OWNED AS OF
WITH THE FUND FIVE YEARS (INCLUDING DIRECTORSHIPS)* THE RECORD DATE
- ------------------------- ------------------------------------------------- -------------------
<S> <C> <C>
Keith B. Pipes (41) Senior Vice President, Chief Financial Officer **
Trustee, President and and Secretary, Sierra Capital Management
Chief Executive Officer Corporation, 1988 to 1997; Chief Financial
Officer, Secretary and Treasurer, Sierra Fund
Administration Corporation, 1988 to 1997;
Executive Vice President and Secretary, Sierra
Investment Advisors Corporation, 1988 to 1997;
Senior Vice President, Chief Financial Officer
and Secretary, Sierra Investment Services
Corporation, 1992 to 1997.
Michael D. Goth (52) Chief Operating Officer, Sierra Investment **
Senior Vice President Advisors Corporation, 1991 to present.
Stephen C. Scott (52) President and Chief Investment Officer, Sierra **
Senior Vice President Investment Advisors Corporation, 1988 to present;
Senior Vice President and Chief Investment
Officer, Sierra Investment Services Corporation,
1996 to present.
Craig M. Miller (38) Vice President and Controller, Sierra Capital **
Treasurer and Chief Management Corporation, Sierra Fund
Financial Officer Administration Corporation and Sierra Investment
Services Corporation, 1993 to present; Audit
Manager, Coopers & Lybrand, L.L.P., 1987 to 1993.
</TABLE>
13
<PAGE> 17
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
NAME, AGE AND POSITION ADDRESS AND BUSINESS EXPERIENCE DURING THE PAST OWNED AS OF
WITH THE FUND FIVE YEARS (INCLUDING DIRECTORSHIPS)* THE RECORD DATE
- ------------------------- ------------------------------------------------- -------------------
<S> <C> <C>
Richard W. Grant, Esq. 2000 One Logan Square, Philadelphia, PA 19103. **
(52) Partner, Morgan, Lewis & Bockius LLP, 1989 to
Secretary present.
Darren S. Kishimoto (31) Fund Administration Manager, Sierra Fund **
Assistant Secretary Administration Corporation, 1994 to present;
Senior Fund Administrator, 1992 to 1994.
Bradley F. Hersh (29) Finance Manager, Sierra Fund Administration **
Assistant Treasurer Corporation, 1996 to present; Senior Financial
Analyst, GW Securities, 1991 to 1995.
</TABLE>
- ---------------
* The address of each officer of the Fund, unless otherwise noted, is 9301
Corbin Avenue, Suite 333, Northridge, CA 91324.
** As of the Record Date, the Trustees and officers of the Fund as a group
beneficially owned an aggregate of less than 1% of the shares of the Fund.
Each officer of the Fund will hold such office until a successor has been
elected by the Board. It is the intention of the Nominees, if elected, to
replace certain of the Fund's officers with individuals familiar with
Composite's mutual fund organization.
PRINCIPAL UNDERWRITER
Sierra Investment Services Corporation ("Sierra Services"), located at 9301
Corbin Avenue, Northridge, California 91324, acts as the Fund's principal
underwriter or distributor. Sierra Services is a wholly owned subsidiary of
Sierra Capital Management Corporation, which is an indirect wholly owned
subsidiary of Washington Mutual. For the fiscal year ended September 30, 1997,
the Fund paid no distribution fee to Sierra Services. Effective January 1, 1998,
Composite Funds Distributor, Inc., located at 601 W. Main Avenue, Spokane, WA
99201, will become the Fund's distributor. Composite Funds Distributor, Inc. is
a wholly owned subsidiary of Washington Mutual.
ADMINISTRATOR
Sierra Fund Administration Corporation, located at 9301 Corbin Avenue,
Northridge, California 91324, acts as the Fund's administrator. Sierra
Administration is a wholly owned subsidiary of Sierra Capital Management
Corporation which is located at the same address. For the fiscal year ended
September 30, 1997, the Fund paid Sierra Administration an aggregate fee of
$27,029 for services rendered as its administrator. Effective January 1, 1998,
Murphey Favre Securities Services, Inc., located at 6501 W. Main Avenue,
Spokane, WA 99201, will become the Fund's administrator. Murphey Favre
Securities Services, Inc. is a wholly owned subsidiary of Washington Mutual.
PORTFOLIO TRANSACTIONS
In the fiscal year ended September 30, 1997 the Fund paid no brokerage
commissions to affiliated brokers.
BENEFICIAL OWNERS
To the Fund's knowledge, as of the Record Date, there were no beneficial
owners of 5% or more of the outstanding shares of the Fund.
SUBMISSION OF SHAREHOLDER PROPOSALS
As a Massachusetts business trust, the Fund is not required to hold annual
shareholders' meetings. Shareholders wishing to submit proposals for inclusion
in a proxy statement for a subsequent meeting should
14
<PAGE> 18
send their written proposals to Sierra Prime Income Fund, 9301 Corbin Avenue,
Northridge, California 91324, c/o Secretary, Sierra Prime Income Fund, a
reasonable period in advance of any such meeting.
REQUIRED VOTE
Approval of Proposal 1 requires the affirmative vote of a plurality of all
votes cast at the Special Meeting, provided that a majority of the outstanding
shares entitled to vote are present in person or in proxy. Approval of Proposals
2 and 3 requires the affirmative vote of a majority of the outstanding shares of
the Fund. As defined in the 1940 Act, the vote of a majority of the outstanding
shares means the vote of (1) 67% or more of the Fund's outstanding shares
present at a meeting, if the holders of more than 50% of the outstanding shares
of the Fund are present or represented by proxy; or (2) more than 50% of the
Fund's outstanding shares, whichever is less.
Abstentions and broker "non-votes" (that is, proxies from brokers or
nominees indicating that such persons have not received instructions from the
beneficial owner or other persons entitled to vote shares on a particular matter
for which the brokers or nominees do not have discretionary power) will not be
counted for or against the Proposals but will be counted for purposes of
determining whether a quorum is present. Abstentions and broker non-votes will
be counted as votes present for purposes of determining a "majority of the
outstanding voting securities" present at the Special Meeting and will therefore
have the effect of counting against Proposals 2 and 3. Brokers who hold shares
as record owners for beneficial owners may have the authority under the rules of
the various stock exchanges to vote those shares with respect to the Proposals
when they have not received instructions from beneficial owners.
OTHER MATTERS
No business other than the matters described above is expected to come
before the Special Meeting, but should any matter incident to the conduct of the
Special Meeting or any question as to an adjournment of the Special Meeting
arise, the persons named in the enclosed Proxy will vote thereon according to
their best judgment in the interest of the Fund.
SHAREHOLDERS ARE REQUESTED TO COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY
CARD PROMPTLY. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
By Order of the Trustees,
Keith B. Pipes
President
Dated: November 20, 1997
15
<PAGE> 19
EXHIBIT A
FORM OF
INVESTMENT MANAGEMENT AGREEMENT
INVESTMENT MANAGEMENT AGREEMENT (this "Agreement"), dated , 1997,
between the Sierra Prime Income Fund, a Massachusetts business trust, (the
"Fund"), and Composite Research & Management Co., a Washington corporation (the
"Manager").
WITNESSETH
WHEREAS, the Fund is a closed-end management investment company, registered
under the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Fund desires to retain the Manager to render investment
management services to the Fund, and the Manager is willing to render such
services;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein contained, the parties hereto agree as follows:
1. Appointment. The Fund hereby appoints the Manager to act as investment
manager to the Fund for the period and on the terms set forth in this Agreement.
The Manager accepts such appointment and agrees to render the services herein
described, for the compensation herein provided.
2. Management. Subject to the supervision of the Board of Trustees of the
Fund, the Manager shall manage the investment operations of the Fund and the
composition of the Fund's portfolio, including the purchase, retention and
disposition of securities therefor, in accordance with the Fund's investment
objectives, policies and restrictions as stated in the Prospectus and Statement
of Additional Information (as such terms are hereinafter defined) and
resolutions of the Fund's Board of Trustees and subject to the following
understandings:
(a) The Manager shall provide supervision of the Fund's investments,
furnish a continuous investment program for the Fund's portfolio and
determine from time to time what securities will be purchased, retained, or
sold by the Fund, and what portion of the assets will be invested or held
as cash.
(b) The Manager, in the performance of its duties and obligations
under this Agreement, shall act in conformity with the Agreement and
Declaration of Trust of the Fund and the investment policies of the Fund as
determined by the Board of Trustees of the Fund.
(c) The Manager shall determine the securities to be purchased or sold
by the Fund and shall place orders for the purchase and sale of portfolio
securities pursuant to its determinations with brokers or dealers selected
by the Manager. In executing portfolio transactions and selecting brokers
or dealers, the Manager shall use its best efforts to seek on behalf of the
Fund the best overall terms available. In assessing the best overall terms
available for any transaction, the Manager may consider all factors it
deems relevant, including the breadth of the market in the security, the
price of the security, the size of the transaction, the timing of the
transaction, the reputation, financial condition, experience, and execution
capability of a broker or dealer, the amount of commission, and the value
of any brokerage and research services (as those terms are defined in
Section 28(e) of the Securities Exchange Act of 1934, as amended) provided
by a broker or dealer. The Manager is authorized to pay to a broker or
dealer who provides such brokerage and research services a commission for
executing a portfolio transaction for the Fund which is in excess of the
amount of commission another broker or dealer would have charged for
effecting the transaction if the Manager determines in good faith that such
commission was reasonable in relation to the value of the brokerage and
research services provided by such broker or dealer, viewed in terms of
that particular transaction or in terms of the overall responsibilities of
the Manager to the Fund and/or other accounts over which the Manager
exercises investment discretion.
A-1
<PAGE> 20
(d) On occasions when the Manager deems the purchase or sale of a
security to be in the best interest of the Fund as well as other fiduciary
accounts for which it has investment responsibility, the Manager, to the
extent permitted by applicable laws and regulations, may aggregate the
securities to be so sold or purchased in order to obtain the best
execution, most favorable net price or lower brokerage commissions.
(e) Subject to the provisions of the Agreement and Declaration of
Trust of the Fund and the Investment Company Act of 1940, as amended (the
"1940 Act"), the Manager, at its expense, may select and contract with one
or more investment advisers (the "Sub-adviser") for the Fund to perform
some or all of the services for which it is responsible pursuant to this
Section 2. The Manager shall be solely responsible for the compensation of
any Sub-adviser of the Fund for its services to the Fund. The Manager may
terminate the services of any Sub-adviser at any time in its sole
discretion, and shall at such time assume the responsibilities of such
Sub-adviser unless and until a successor Sub-adviser is selected. To the
extent that more than one Sub-adviser is selected, the Manager shall, in
its sole discretion, determine the amount of the Fund's assets allocated to
each such Sub-adviser.
3. Services Not Exclusive. The investment management services rendered by
the Manager hereunder to the Fund are not to be deemed exclusive, and the
Manager shall have the right to render similar services to others, including,
without limitation, other investment companies.
4. Expenses. During the term of this Agreement, the Manager shall pay all
expenses incurred by it in connection with its activities under this Agreement
including the salaries and expenses of any of the officers or employees of the
Manager who act as officers, Trustees or employees of the Fund but excluding the
cost of securities purchased for the Fund and the amount of any brokerage fees
and commissions incurred in executing portfolio transactions for the Fund, and
shall provide the Fund with suitable office space. Other expenses to be incurred
in the operation of the Fund (other than those borne by any third party),
including without limitation, taxes, interest, brokerage fees and commissions,
fees of Trustees who are not officers, directors, or employees of the Manager,
federal registration fees and state Blue Sky qualification fees, administration
fees, bookkeeping, charges of custodians, transfer and dividend disbursing
agents' fees, certain insurance premiums, industry association fees, outside
auditing and legal expenses, costs of maintaining the Fund's existence, costs of
independent pricing services, costs attributable to investor services
(including, without limitation, telephone and personnel expenses), costs of
preparing, printing and distributing prospectuses to existing shareholders,
costs of stockholders' reports and meetings of shareholders and Trustees of the
Fund, as applicable, and any extraordinary expenses will be borne by the Fund.
5. Compensation. For the services provided pursuant to this Agreement,
the Fund shall pay to the Manager as full compensation therefor a monthly fee
computed on the average daily net assets at the annual rate for the Fund as
stated in Schedule A attached hereto. The Fund acknowledges that the Manager, as
agent for the Fund, will allocate a portion of the fee equal to the sub-advisory
fee payable to the sub-advisor, if any, under its sub-advisory agreement to the
sub-advisor for sub-advisory services. The Fund acknowledges that the Manager,
as agent for the Fund, may allocate a portion of the fee to Murphey Favre
Securities Services, Inc. for administrative services, portfolio accounting and
regulatory compliance systems. The Manager also from time to time and in such
amounts as it shall determine in its sole discretion may allocate a portion of
the fee to Composite Funds Distributor, Inc. for facilitating distribution of
the Fund. This payment would be made from revenue which otherwise would be
considered profit to the Manager for its services. This disclosure is being made
to the Fund solely for the purpose of conforming with requirements of the
Washington Department of Revenue for exclusion of revenue from the Washington
Business and Occupation Tax.
6. Limitation of Liability. The Manager shall not be liable for any error
of judgment or mistake of law or for any loss suffered by the Fund in connection
with the matters to which this Agreement relates, except a loss resulting from
willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard by it of its obligations
and duties under this Agreement.
A-2
<PAGE> 21
7. Delivery of Documents. The Fund has heretofore delivered to the
Manager true and complete copies of each of the following documents and shall
promptly deliver to it all future amendments and supplements thereto, if any:
(a) Agreement and Declaration of Trust (presently in effect and as
amended from time to time);
(b) Bylaws of the Fund;
(c) Registration Statement under the Securities Act of 1933 and under
the 1940 Act of the Fund on Form N-2, and all amendments thereto, as filed
with the Securities and Exchange Commission (the "Registration Statement")
relating to the Fund and the shares of the Fund;
(d) Notification of Registration of the Fund under the 1940 Act on
Form N-8A;
(e) Prospectuses of the Fund (such prospectuses as presently in effect
and/or as amended or supplemented from time to time, the "Prospectus"); and
(f) Statement of Additional Information of the Fund (such statement as
presently in effect and/or as amended or supplemented from time to time,
the "Statement of Additional Information").
8. Duration and Termination. This Agreement shall become effective as of
the date first above-written for an initial period of two years and shall
continue thereafter so long as such continuance is specifically approved at
least annually (a) by the vote of the Board of Trustees including a majority of
those members of the Fund's Board of Trustees who are not parties to this
Agreement or "interested persons" of any such party, cast in person at a meeting
called for that purpose, or by vote of a majority of the outstanding voting
securities of the Fund. Notwithstanding the foregoing, (a) this Agreement may be
terminated at any time, without the payment of any penalty, by either the Fund
(by vote of the Fund's Board of Trustees or by vote of a majority of the
outstanding voting securities of the Fund) or the Manager, on sixty (60) days
prior written notice to the other and (b) shall automatically terminate in the
event of its assignment. As used in this Agreement, the terms "majority of the
outstanding voting securities," "interested persons" and "assignment" shall have
the meanings assigned to such terms in the 1940 Act.
9. Amendments. No provision of this Agreement may be amended, modified,
waived or supplemented except by a written instrument signed by the party
against which enforcement is sought. No amendment of this Agreement shall be
effective until approved in accordance with any applicable provisions of the
1940 Act.
10. Use of Name and Logo. The Fund agrees that it shall furnish to the
Manager, prior to any use or distribution thereof, copies of all prospectuses,
statements of additional information, proxy statements, reports to stockholders,
sales literature, advertisements, and other material prepared for distribution
to stockholders of the Fund or to the public, which in any way refer to or
describe the Manager or which include any trade names, trademarks or logos of
the Manager or of any affiliate of the Manager. The Fund further agrees that it
shall not use or distribute any such material if the Manager reasonably objects
in writing to such use or distribution within five (5) business days after the
date such material is furnished to the Manager.
The Manager and/or its affiliates own the names "Sierra," "Composite" and
any other names which may be listed from time to time on a Schedule B to be
attached hereto that they may develop for use in connection with the Fund, which
names may be used by the Fund only with the consent of the Manager and/or its
affiliates. The Manager, on behalf of itself and/or its affiliates, consents to
the use by the Fund of such names or any other names embodying such names, but
only on condition and so long as (i) this Agreement shall remain in full force,
(ii) the Fund shall fully perform, fulfill and comply with all provisions of
this Agreement expressed herein to be performed, fulfilled or complied with by
it, and (iii) the Manager is the manager of the Fund. No such name shall be used
by the Fund at any time or in any place or for any purposes or under any
conditions except as provided in this section. The foregoing authorization by
the Manager, on behalf of itself and/or its affiliates, to the Fund to use such
names as part of a business or name is not exclusive of the right of the Manager
and/or its affiliates themselves to use, or to authorize others to use, the
same; the Fund acknowledges and agrees that as between the Manager and/or its
affiliates and the Fund, the Manager and/or its affiliates have the exclusive
right so to use, or authorize others to use, such names, and the Fund agrees to
take such action as may reasonably be requested by the Manager, on behalf of
itself and/or its affiliates, to
A-3
<PAGE> 22
give full effect to the provisions of this section (including, without
limitation, consenting to such use of such names). Without limiting the
generality of the foregoing, the Fund agrees that, upon (i) any violation of the
provisions of this Agreement by the Fund or (ii) any termination of this
Agreement, by either party or otherwise, the Fund will, at the request of the
Manager, on behalf of itself and/or its affiliates, made within six months after
such violation or termination, use its best efforts to change the name of the
Fund so as to eliminate all reference, if any, to such names and will not
thereafter transact any business in a name containing such names in any form or
combination whatsoever, or designate itself as the same entity as or successor
to an entity of such names, or otherwise use such names or any other reference
to the Manager and/or its affiliates, except as may be required by law. Such
covenants on the part of the Fund shall be binding upon it, its Trustees,
officers, shareholders, creditors and all other persons claiming under or
through it.
The provisions of this section shall survive termination of this Agreement.
11. Notices. Any notice or other communication required to be given
pursuant to this Agreement shall be deemed duly given if delivered or mailed by
registered mail, postage prepaid, if to the Fund: 601 W. Main Ave., Suite 300,
Spokane, Washington 99201; or if to the Manager: 1201 Third Avenue, Suite 1220,
Seattle, Washington 98101; or to either party at such other address as such
party shall designate to the other by a notice given in accordance with the
provisions of this section.
12. Miscellaneous.
(a) Except as otherwise expressly provided herein or authorized by the
Board of Trustees of the Fund from time to time, the Manager for all purposes
herein shall be deemed to be an independent contractor and shall have no
authority to act for or represent the Fund in any way or otherwise be deemed an
agent of the Fund.
(b) The Fund shall furnish or otherwise make available to the Manager such
information relating to the business affairs of the Fund as the Manager at any
time or from time to time reasonably requests in order to discharge its
obligations hereunder.
(c) This Agreement shall be governed by and construed in accordance with
the laws of The Commonwealth of Massachusetts and shall inure to the benefit of
the parties hereto and their respective successors.
(d) If any provision of this Agreement shall be held or made invalid or by
any court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby.
13. Declaration of Trust and Limitation of Liability. A copy of the
Agreement and Declaration of Trust of the Fund is on file with the Secretary of
State of The Commonwealth of Massachusetts, and notice is hereby given that this
Agreement is executed by an officer of the Fund on behalf of the Trustees of the
Fund, as trustees and not individually, on further behalf of the Fund, and that
the obligations of this Agreement shall be binding upon the assets and
properties of the Fund only and shall not be binding upon the assets and
properties of the Trustees, officers, employees, agents or shareholders of the
Fund individually.
A-4
<PAGE> 23
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the date first above-written.
SIERRA PRIME INCOME FUND
By:
------------------------------------
Name:
Title:
Attest:
By:
-----------------------------------
Name:
Title:
COMPOSITE RESEARCH &
MANAGEMENT CO.
By:
------------------------------------
William G. Papesh
President
Attest:
By:
-----------------------------------
Sharon L. Howells
Secretary
A-5
<PAGE> 24
SCHEDULE A
COMPOSITE RESEARCH & MANAGEMENT CO.
ADVISORY FEES
The fees to be charged to Sierra Prime Income Fund for advisory services
(including any sub-advisory fees) are as follows:
<TABLE>
<CAPTION>
ALL ASSETS
----------
<S> <C>
Sierra Prime Income Fund........................................................... 0.950%
</TABLE>
A-6
<PAGE> 25
EXHIBIT B
FORM OF
INVESTMENT SUB-ADVISORY AGREEMENT
EFFECTIVE AS OF , 1997
Van Kampen American Capital Management Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Dear Sirs:
Composite Research & Management Co. ("Composite"), a corporation organized
under the laws of the State of Washington, hereby agrees with Van Kampen
American Capital Management Inc. (the "Sub-Advisor"), a corporation organized
under the laws of the State of Delaware, as follows:
1. INVESTMENT DESCRIPTION; APPOINTMENT
Composite desires to employ the capital of the Sierra Prime Income Fund
(the "Trust") by investing and reinvesting in investments of the kind and in
accordance with the limitations specified in its Agreement and Declaration of
Trust, as amended ("Declaration of Trust"), and in its Prospectus and Statement
of Additional Information relating to the Trust as in effect and which may be
amended from time to time, and in such manner and to such extent as may from
time to time be approved by the Board of Trustees of the Trust. Copies of the
Trust's Prospectus and Statement of Additional Information and the Trust's
Declaration of Trust, as amended or restated, have been or will be submitted to
the Sub-Advisor. The Trust agrees to provide copies of all amendments to or
restatements of the Trust's Prospectus and Statement of Additional Information
and the Trust's Declaration of Trust to the Sub-Advisor on a timely and on-going
basis but in all events prior to such time as said amendments or restatements
become effective. The Sub-Advisor will be entitled to rely on all such documents
furnished to it by the Trust or Composite. The Trust desires to employ and
hereby appoints the Sub-Advisor to act as investment sub-advisor to the Trust.
The Sub-Advisor accepts the appointment and agrees to furnish the services
described herein for the compensation set forth below.
2. SERVICES AS INVESTMENT SUB-ADVISOR
Subject to the supervision of the Board of Trustees of the Trust and of
Composite, the Trust's investment advisor, the Sub-Advisor will (a) act in
conformity with the Trust's Declaration of Trust, the Investment Company Act of
1940 as amended (the "1940 Act"), the Investment Advisers Act of 1940 and the
Internal Revenue Code of 1986, as the same may from time to time be amended, (b)
make investment decisions for the Trust in accordance with the Trust's
investment objectives and policies as stated in the Trust's Prospectus(es) and
Statement of Additional Information as in effect and, after timely notice to the
Sub-Advisor, which may be amended from time to time, (c) place purchase and sale
orders on behalf of the Trust to effectuate the investment decisions made, (d)
maintain books and records with respect to the securities transactions of the
Trust and will furnish the Trust's Board of Trustees such periodic, regular and
special reports as the Board may reasonably request; and (e) treat
confidentially and as proprietary information of the Trust, all records and
other information specifically relative to the Trust and prior, present or
potential shareholders; and will not use such records and information for any
purpose other than performance of its responsibilities and duties hereunder,
except after prior notification to and approval in writing by the Trust, which
approval shall not be unreasonably withheld or delayed and such records may not
be withheld where the Sub-Advisor is subject to audit by the U.S. Securities and
Exchange Commission or other regulatory, administrative or judicial proceeding
or audit or where the Sub-Advisor may be exposed to civil or criminal contempt
proceedings for failure to comply, when requested to divulge such information by
duly constituted authorities, or when so requested by the Trust. In providing
those services, the Sub-Advisor will supervise the Trust's investments and
conduct a continual program of investment, evaluation and, if appropriate, sale
and
B-1
<PAGE> 26
reinvestment of the Trust's assets. In addition, the Sub-Advisor will furnish
the Trust or Composite with whatever statistical information the Trust or
Composite may reasonably request with respect to the instruments that the Trust
may hold or contemplate purchasing.
3. BROKERAGE
In executing transactions for the Trust and selecting banks, syndicated
loan agents, brokers or dealers (hereinafter referred to as "brokers or
dealers"), the Sub-Advisor will use its best efforts to seek the best overall
terms available and shall execute or direct the execution of all such
transactions in a manner permitted by law and in a manner that is in the best
interest of the Trust and its shareholders. In assessing the best overall terms
available for any Trust transaction, with respect to the lenders from whom the
Trust will purchase assignments and participations in Senior Loans the
Sub-Advisor will consider all factors it deems relevant including, but not
limited to their professional ability, level of service, relationship with the
borrower, financial condition, credit standards and quality of management. With
respect to investments other than Senior Loans, the Sub-Advisor will consider
all factors it deems relevant including, but not limited to, breadth of the
market in the security, the price of the security, the financial condition and
execution capability of the broker or dealer and the reasonableness of any
commission for the specific transaction and on a continuing basis. Pursuant to
its investment determinations for the Trust, in placing orders with brokers or
dealers, the Sub-Advisor will attempt to obtain the best net price and the most
favorable execution of its orders. Consistent with this obligation, when the
execution and price offered by two or more brokers or dealers are comparable,
the Sub-Advisor may, in its discretion, purchase and sell portfolio securities
to and from brokers or dealers who provide the Trust with research advice and
other services.
4. INFORMATION PROVIDED TO THE TRUST
The Sub-Advisor will keep the Trust and Composite informed of developments
materially affecting the Trust, and will on its own initiative, furnish the
Trust and Composite on at least a quarterly basis with whatever information the
Sub-Advisor reasonably believes is appropriate for this purpose.
5. STANDARD OF CARE
The Sub-Advisor shall exercise its reasonable best judgment in rendering
the services described in Paragraphs 2 and 3 above. The Sub-Advisor shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Trust or the Advisor in connection with the matters to which this Agreement
relates, except (a) a loss resulting from a breach of fiduciary duty with
respect to the receipt of compensation for services (in which case any award of
damages shall be limited to the period and the amount set forth in Section
36(b)(3) of the 1940 Act) or (b) a loss resulting from willful misfeasance, bad
faith or gross negligence on its part in the performance of its duties or from
reckless disregard by it of its obligations and duties under this Agreement
(each such breach, act or omission described in (a) or (b) shall be referred to
as "Disqualifying Conduct").
6. COMPENSATION
In consideration of the services rendered pursuant to this Agreement,
Composite will pay the Sub-Advisor on the first business day of each month a fee
for the previous month at an annual rate of .475% of the Trust's average daily
net assets. The Sub-Advisor shall have no right to obtain compensation directly
from the Trust for services provided hereunder and agrees to look solely to
Composite for payment of fees due. Upon any termination of this Agreement before
the end of a month, the fee for such part of that month shall be prorated
according to the proportion that such period bears to the full monthly period
and shall be payable upon the date of termination of this Agreement. For the
purpose of determining fees payable to the Sub-Advisor, the value of the Trust's
net assets shall be computed at the times and in the manner specified in the
Trust's Prospectus and/or Statement of Additional Information relating to the
Trust as from time to time in effect.
B-2
<PAGE> 27
7. EXPENSES
The Sub-Advisor will bear all expenses in connection with the performance
of its services under this Agreement, which expenses shall not include brokerage
fees or commissions in connection with the effectuation of securities
transactions. The Trust (or Composite) will bear certain other expenses to be
incurred in its operation, including but not limited to: organizational
expenses, taxes, interest, brokerage fees and commissions, if any; fees of
Trustees of the Trust who are not officers, directors or employees of the Sub-
Advisor, Composite, the Trust's sub-administrator or any of their affiliates;
Securities and Exchange Commission fees and state Blue Sky qualification fees;
out-of-pocket expenses of custodians, transfer and dividend disbursing agents
and the Trust's sub-administrator and transaction charges of custodians;
insurance premiums; outside auditing and legal expenses; costs of maintenance of
the Trust's existence; costs attributable to investor services, including
without limitation, telephone and personnel expenses; costs of preparing and
printing prospectuses and statements of additional information for regulatory
purposes and for distribution to existing shareholders; costs of shareholders'
reports and meetings of the shareholders of the Trust and of the officers or
Board of Trustees of the Trust; and any extraordinary expenses.
8. SERVICES TO OTHER COMPANIES OR ACCOUNTS
Composite understands that the Sub-Advisor now acts, will continue to act
and may act in the future as investment adviser to fiduciary and other managed
accounts and as investment advisor or investment Sub-Advisor to one or more
other investment companies or series of investment companies, and Composite has
no objection to the Sub-Advisor so acting, provided that whenever the Trust and
one or more other accounts or investment companies advised by the Sub-Advisor
have available funds for investment, investments suitable and appropriate for
each will be allocated in accordance with procedures believed to be equitable to
each entity. Similarly, opportunities to sell securities will be allocated in an
equitable manner. Composite recognizes that in some cases this procedure may
limit the size of the position that may be acquired or disposed of for the
Trust. In addition, Composite understands that the persons employed by the
Sub-Advisor to assist in the performance of the Sub-Advisor's duties hereunder
will not devote their full time to such service and nothing contained herein
shall be deemed to limit or restrict the right of the Sub-Advisor or any
affiliate of the Sub-Advisor to engage in and devote time and attention to other
business or to render services of whatever kind or nature.
9. TERM OF AGREEMENT
This Agreement shall become effective as of the date first written above,
shall continue in effect for a period of two years thereafter, and shall
continue in effect for a period of more than two years thereafter only so long
as such continuance is specifically approved at least annually by (i) the Board
of Trustees of the Trust or (ii) a vote of a "majority" (as defined in the 1940
Act) of the Trust's outstanding voting securities, provided that in either event
the continuance is also approved by a majority of the Board of Trustees who are
not "interested persons" (as defined in the 1940 Act) of any party to this
Agreement, by vote cast in person at a meeting called for the purpose of voting
on such approval. This Agreement is terminable, without penalty, on 30 days'
written notice, by Composite, the Board of Trustees of the Trust or by vote of
holders of a majority of the Trust's shares, or upon 90 days' written notice, by
the Sub-Advisor and, will terminate automatically upon any termination of the
advisory agreement between the Trust and Composite. In addition, this Agreement
will also terminate automatically in the event of its assignment (as defined in
said Act). The Sub-Advisor agrees to notify the Trust of any circumstances that
might result in this Agreement being deemed to be assigned.
10. REPRESENTATIONS OF COMPOSITE AND THE SUB-ADVISOR
Composite represents that (i) a copy of the Agreement and Declaration of
Trust, dated October 4, 1995, and Amended Agreement and Declaration of Trust
dated January 18, 1996, together with all amendments thereto, is on file in the
office of the Secretary of the Commonwealth of Massachusetts, (ii) the
appointment of Composite has been duly authorized, (iii) the appointment of the
Sub-Advisor has been duly authorized, and (iv) it has acted and will continue to
act in conformity with the 1940 Act, and other applicable laws.
B-3
<PAGE> 28
The Sub-Advisor represents that it is authorized to perform the services
described herein.
11. INDEMNIFICATION
Composite shall indemnify and hold harmless the Sub-Advisor, its officers,
directors, employee control persons and affiliated persons (as defined in the
Investment Company Act of 1940, as amended) from and against any and all claims,
losses, liabilities or damages (including reasonable attorneys' fees and other
related expenses), arising from or in connection with this Agreement or the
performance by the Sub-Advisor of its duties hereunder; provided, however, that
nothing contained herein shall require that the Sub-Advisor be indemnified for
Disqualifying Conduct.
12. AMENDMENT OF THIS AGREEMENT
No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought.
13. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the parties hereto.
14. GOVERNING LAW
This Agreement shall be governed in accordance with the laws of The
Commonwealth of Massachusetts.
15. COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original, but such counterparts shall together,
constitute only one instrument.
B-4
<PAGE> 29
If the foregoing accurately sets forth our agreement, kindly indicate your
acceptance hereof by signing and returning the enclosed copy hereof.
Very truly yours,
COMPOSITE RESEARCH & MANAGEMENT CO.
Dated:
- -------------------------------------
By
--------------------------------------
Name:
Title:
Accepted:
VAN KAMPEN AMERICAN CAPITAL
MANAGEMENT INC.
Dated:
By --------------------------------------
- -------------------------------------
Name:
Title:
B-5
<PAGE> 30
S I E R R A
PRIME
INCOME FUND
<PAGE> 31
<TABLE>
<S> <C>
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE
------------------------
SIERRA PRIME INCOME FUND
------------------------
1. Proposal to elect thirteen Trustees. The nominees for Trustees are:
Arthur H. Bernstein Anne V. Farrell FOR ALL FOR ALL
Wayne L. Attwood Jay Rockey NOMINEES WITHHOLD EXCEPT
William G. Papesh John W. English
David E. Anderson Michael K. Murphy [ ] [ ] [ ]
Kristianne Blake Richard C. Yancey
Daniel L. Pavelich Alfred E. Osborne, Jr.
Edmond R. Davis
NOTE: If you do not wish your shares voted "For" a particular nominee, mark
the "For All Except" box and strike a line through the name(s) of the
nominee(s). Your shares will be voted for the remaining nominee(s).
2. Proposal to approve a new Investment Management FOR AGAINST ABSTAIN
Agreement between the Fund and Composite
Research & Management Co. ("Composite"). [ ] [ ] [ ]
3. Proposal to approve a new Investment Sub-Advisory
Agreement for the Fund between Composite and
Van Kampen American Capital Management Inc. [ ] [ ] [ ]
(contingent upon approval of Proposal 2)
To transact such other business as may properly come before the Special
Meeting or any adjournment thereof.
Please be sure to sign and date this Proxy.
- ---------------------------------
Date
- ---------------------------------
Shareholder sign here
- ---------------------------------
Co-owner sign here
DETACH CARD SI3011 DETACH CARD
</TABLE>
<PAGE> 32
SIERRA PRIME INCOME FUND
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
DECEMBER 23, 1997
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF SIERRA PRIME INCOME FUND
The undersigned shareholder of the Sierra Prime Income Fund (the "Fund") hereby
appoints Keith B. Pipes and Michael D. Goth, and each of them separately,
proxies with power of substitution to each, and hereby authorizes them to
represent and to vote, as designated on the reverse side, at the Special Meeting
of Shareholders of the Fund on December 23, 1997 at the office of Sierra Fund
Administration Corporation at 9301 Corbin Avenue, Suite 333, Northridge,
California 91324, at 11:00 a.m. (Pacific Time), and at any adjournment thereof,
all of the shares of the Fund which the undersigned would be entitled to vote if
personally present.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR EACH PROPOSAL.
In their discretion, the proxies are authorized to vote upon such other business
as may properly come before the Meeting. The Trustees recommend a vote FOR the
Proposals.
TO VOTE BY TELEPHONE, PLEASE CALL TOLL FREE 1-800-848-3374 BETWEEN
8:00 A.M. AND 9:00 P.M. (EST).
TO VOTE BY MAIL, PLEASE DATE AND SIGN ON REVERSE AND RETURN PROMPTLY
IN THE ENCLOSED ENVELOPE.
NO POSTAGE IS NECESSARY IF MAILED IN THE UNITED STATES.
Please sign your name in the space provided to authorize the voting of your
shares as indicated and return promptly. When signing on behalf of a
corporation, partnership, estate, trust or in any other representative capacity
please sign your name and title. For joint accounts, each joint owner must sign.
Your signatures on this proxy should be exactly as your name or names appear on
this proxy.
SI3012
<PAGE> 33
[SIERRA PRIME INCOME FUND LETTERHEAD]
November 1997
Dear Sierra Prime Income Fund Shareholder:
As you know, Great Western Financial Corporation, Sierra's former parent
company, merged into Washington Mutual, Inc., parent of Composite Research &
Management Co. ("Composite"), on July 1, 1997. This marked the beginning of a
restructuring and integration process that offers the opportunity to
consolidate the Sierra Prime Income Fund with the mutual funds that are managed
by Composite. This letter describes some important changes proposed for the
Sierra Funds. Let me assure you, however, that our commitment to you remains
unchanged. Our dedication to assisting you achieve your financial goals is our
highest priority.
The Sierra Prime Income Fund is governed by a Board of Trustees that is
independent of Great Western and Washington Mutual. Members of the Board are
elected by the shareholders, and their charter is to protect your interests.
The changes discussed in this letter require approval of both the Board of
Trustees and shareholders.
On October 28, 1997, the Sierra Board of Trustees approved the terms of a
proposed consolidation of the Sierra Funds and the Composite Group of Funds
(the mutual funds managed by Composite). As a result, a special meeting for all
Sierra shareholders has been scheduled for December 23, 1997. This meeting
gives shareholders an opportunity to ask questions in person, further discuss
the proposed consolidation with the Composite Funds, and to vote on the
proposals discussed below. However, shareholders do not need to attend the
meeting to cast their vote.
YOUR VOTE IS IMPORTANT
THE BOARD OF TRUSTEES RECOMMENDS SHAREHOLDERS VOTE "FOR" ALL PROPOSALS. The
accompanying proxy materials outline in detail the various terms of the
consolidation so you may carefully consider how to vote. FOR YOUR CONVENIENCE,
WE HAVE INCLUDED A POSTAGE-PAID ENVELOPE THAT YOU MAY USE TO REGISTER YOUR
CHOICES BY MAIL. You may also register your choices by telephone, by calling
(800) 848-3374. Your vote is important, since a majority of shareholders must
respond in order for all the proposed changes to be approved. By simply
signing, dating, and returning your proxy card(s) or by calling (800) 848-3374,
you will help to ensure sufficient responses are received and allow the proxies
to vote favorably on your behalf.
The goals of consolidating the Sierra Funds and the Composite Funds into a
single Fund complex are to:
o Streamline the restructured/combined fund complex (representing $4.5
billion in assets)
o Maintain a well-diversified offering of funds
o Reduce operating costs and shareholder expenses
o Maintain a high level of service and operational efficiency
o Benefit from increased assets under management
<PAGE> 34
In summary, the result of the restructuring will be a single integrated mutual
fund complex. The consolidation includes the following proposals for the Sierra
Prime Income Fund:
o Electing a new Board of Trustees for the combined complex
o Approving new fund management arrangements with Composite, while retaining
the current fee level
o Retaining the current sub-advisor/portfolio manager for your Fund
The Composite Group has enjoyed a long history of investment management and
growth, having opened its first mutual fund in 1939. Composite benefits from
the many years of experience and expertise of its portfolio management team.
The Composite Funds have successfully weathered the many market downturns and
economic events while producing competitive returns for their shareholders. As
a result, assets under management have exhibited steady growth and reflect the
Funds' stable and loyal base of shareholders. With the addition of the Sierra
Funds and their shareholders,the total assets and customer base of the combined
mutual fund family will increase significantly.
Thank you for the trust and confidence you have placed in us. Our commitment to
excellence in investment performance and in shareholder service is unchanged. I
encourage you to return your card(s) or call (800) 848-3374 promptly, so you
and your fellow shareholders may enjoy the many benefits of a larger mutual
fund family as soon as possible.
Sincerely,
/s/ KEITH B. PIPES
- ----------------------------
Keith B. Pipes
President
