<PAGE> 1
As filed with the Securities and Exchange Commission on August 29, 1997
Securities Act File No. 333-01999
Investment Company Act File No. 811-07577
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 2 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 4 [X]
Sierra Asset Management Portfolios
(Exact Name of Registrant as Specified in Charter)
9301 Corbin Avenue
Northridge, California 91324
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (818) 725-0200
James H. Overholt
9301 Corbin Avenue
Northridge, California 91324
(Name and Address of Agent for Service)
Copies to:
Richard W. Grant, Esq. W. John McGuire, Esq.
Morgan, Lewis & Bockius LLP Morgan, Lewis & Bockius LLP
2000 One Logan Square 1800 M Street, N.W.
Philadelphia, Pennsylvania 19103 Washington, D.C. 20036
It is proposed that this filing will become effective (check
appropriate box):
[ ] immediately upon filing pursuant to paragraph (b), or
[ ] on [date] pursuant to paragraph (b),
[ ] 60 days after filing pursuant to paragraph (a), or
[ ] 75 days after filing pursuant to paragraph (a), or
[X] on October 31, 1997 pursuant to paragraph (a) of Rule 485
DECLARATION PURSUANT TO RULE 24f-2
Pursuant to Rule 24f-2 under the Investment Company Act of 1940,
the Registrant has previously registered an indefinite number or amount of its
shares of beneficial interest, no par value, under the Securities Act of 1933.
Registrant's Rule 24f-2 Notice with respect to the Capital Growth
Portfolio, Growth Portfolio, Balanced Portfolio, Value Portfolio, and Income
Portfolio for the fiscal year ended June 30, 1997 was filed with the Securities
and Exchange Commission on August 28, 1997.
<PAGE> 2
Part A - Information Required in a Prospectus
<TABLE>
<CAPTION>
Form N-1A
Item No. Location in Prospectus
- -------- ----------------------
<S> <C> <C>
1. Cover Page . . . . . . . . . Cover Page
2. Synopsis . . . . . . . . . . Portfolio Expenses (Class A Shares); Portfolio Expenses
(Class B Shares); Expense Ratios of the Underlying Funds
3. Condensed Financial
Information . . . . . . . . Financial Highlights
4. General Description of
Registrant . . . . . . . . Investments and Risk Considerations of the Portfolios;
Investment and Risk Considerations of the Underlying
Funds; Securities and Investment Practices of the
Portfolios and the Underlying Funds
5. Management of the Fund . . . The Portfolios in Detail -- Organization; Sierra Services,
Sierra Advisors, Their Affiliates and the Portfolios'
Service Providers; Breakdown of their Portfolio Expenses
5A. Management's Discussion of
Fund Performance . . . . . Not Applicable
6. Capital Stock and Other
Securities . . . . . . . . Dividends, Capital Gains and Taxes
7. Purchase of Securities
Being Offered . . . . . . . Your Sierra Asset Management ("SAM") Portfolio Account;
Ways to Set Up Your Account; Exchange Privileges and
Restrictions
8. Redemption or Repurchase . . How to Sell Shares; Transaction Details; Exchange
Privileges and Restrictions
9. Pending Legal Proceedings. . None
</TABLE>
<PAGE> 3
Part B - Information Required in a Statement of Additional Information
<TABLE>
<CAPTION>
Form N-1A
Item No. Location in Statement of Additional Information
- -------- -----------------------------------------------
<S> <C> <C>
10. Cover Page . . . . . . . . . Cover Page
11. Table of Contents . . . . . Table of Contents
12. General Information and
History . . . . . . . . . . General Information and History
13. Investment Objectives and
Policies . . . . . . . . . Investment Objectives and Policies of the Portfolios and
Underlying Funds
14. Management of the Fund . . . Management of the Trust
15. Control Persons and Principal
Holders of Securities . . . Not Applicable
16. Investment Advisory and
Other Services . . . . . . How to Buy and Redeem Shares; Management of the Trust
17. Brokerage Allocation and
Other Practices . . . . . . Portfolio Turnover; Portfolio Transactions
18. Capital Stock and Other
Securities . . . . . . . . Management of the Trust; see Prospectus -- "The Portfolios
in Detail -- Organization" and "Dividends, Capital Gain
Distributions and Taxes"
19. Purchase, Redemption and
Pricing of Securities
Being Offered . . . . . . . How to Buy and Redeem Shares; Net Asset Value; How to
Exchange Shares
20. Tax Status . . . . . . . . . Taxes; see Prospectus -- "Dividends, Capital Gains and
Taxes"
21. Underwriters . . . . . . . . How to Buy and Redeem Shares; Distributor
22. Calculation of Performance
Data . . . . . . . . . . . Determination of Performance; See Prospectus --
"Performance Information"
23. Financial Statements . . . . Financial Statements
</TABLE>
Part C
Information required to be included in Part C is set forth under
the appropriate item, so numbered, in Part C to this Registration Statement.
<PAGE> 4
<TABLE>
<C> <S>
PROSPECTUS SIERRA ASSET MANAGEMENT PORTFOLIOS
OCTOBER 31, 1997 P.O. BOX 5118
WESTBORO, MASSACHUSETTS 01581-5118
(800) 222-5852
</TABLE>
CAPITAL GROWTH PORTFOLIO
GROWTH PORTFOLIO
BALANCED PORTFOLIO
VALUE PORTFOLIO
INCOME PORTFOLIO
The Sierra Asset Management Portfolios (the "Trust") is an open-end management
investment company or mutual fund, and is managed by Sierra Investment Services
Corporation ("Sierra Services"). The Trust consists of five separate diversified
investment funds (each, a "Portfolio," and together, the "Portfolios") named
above. The Portfolios offer a range of asset allocation strategies designed to
accommodate different investors' philosophies and goals. Each Portfolio seeks to
achieve its goal primarily by investing, within certain predetermined percentage
ranges, in shares of various investment funds of the Sierra Trust Funds, an
open-end management investment company, and in the Sierra Prime Income Fund
("SPIF"), a closed-end management investment company (together, the "Underlying
Funds"), each of which is managed by Sierra Investment Advisors Corporation
("Sierra Advisors"). This Prospectus describes the Class A Shares and Class B
Shares of the Trust. The Class A and Class B Shares offer investors alternative
ways of paying sales charges and distribution costs. Please read this Prospectus
before investing, and keep it for future reference. It contains useful
information that can help you decide whether the investment goals of one or more
of the Portfolios are right for you.
A Statement of Additional Information ("SAI") about the Trust, dated October 31,
1997, has been filed with the Securities and Exchange Commission (the "SEC"),
and is incorporated herein by reference (and is considered legally a part of
this Prospectus). The SAI is available free upon request by calling the Trust at
800-222-5852.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
THE TRUST'S SHARES ARE NOT OBLIGATIONS, DEPOSITS OR ACCOUNTS (TRUST OR
OTHERWISE) OF, OR ENDORSED OR GUARANTEED BY, ANY BANK, OR ANY OF ITS AFFILIATES
OR CORRESPONDENTS. THE TRUST'S SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT
AGENCY. INVESTMENT IN THE PORTFOLIOS INVOLVES RISK, INCLUDING POSSIBLE LOSS OF
THE PRINCIPAL AMOUNT INVESTED.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Portfolio Expenses....................................................................... 2
Investments and Risk Considerations of the Portfolios.................................... 11
Investments and Risk Considerations of the Underlying Funds.............................. 17
Performance Information.................................................................. 35
Your Sierra Asset Management ("SAM") Portfolio Account................................... 36
How to Invest in a SAM Portfolio......................................................... 38
How to Sell Shares....................................................................... 44
Exchange Privileges and Restrictions..................................................... 47
Dividends, Capital Gains and Taxes....................................................... 48
Shareholder and Account Policies......................................................... 50
The Portfolios in Detail................................................................. 50
Sierra Services, Sierra Advisors, Their Affiliates and the Portfolios' Service
Providers.............................................................................. 50
Breakdown of Portfolio Expenses.......................................................... 54
</TABLE>
PORTFOLIO EXPENSES
(CLASS A SHARES)
The purpose of the following table is to help you understand the various costs
and expenses that you, as a shareholder, will bear directly in connection with
an investment in each Portfolio's Class A Shares. In addition to these direct
expenses, Class A Shares of the Portfolios will indirectly bear their pro rata
share of the expenses of the Underlying Funds. See "Expense Ratios of the
Underlying Funds."
- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
CAPITAL GROWTH BALANCED INCOME
PORTFOLIO GROWTH PORTFOLIO PORTFOLIO VALUE PORTFOLIO PORTFOLIO
-------------- ---------------- -------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Maximum Sales Charge Imposed on
Purchase (as a percentage of
offering price) 5.75% 5.50% 5.25% 4.50% 4.50%
Maximum Sales Charge Imposed on
Reinvested Dividends (as a
percentage of offering price) None None None None None
Maximum Contingent Deferred Sales
Charge(1) None None None None None
Redemption Fees(2) None None None None None
Exchange Fees(3) None None None None None
ANNUAL PORTFOLIO OPERATING EXPENSES
(DIRECT EXPENSES) (as a percentage
of average net assets)
Management/Advisory Fees 0.15% 0.15% 0.15% 0.15% 0.15%
Rule 12b-1 Fees 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses (after voluntary
waivers)(4) 0.55% 0.55% 0.55% 0.55% 0.55%
------- ------- -------- ------- -----------
Total Portfolio Operating Expenses
(after voluntary waivers)(5) 0.95% 0.95% 0.95% 0.95% 0.95%
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) Certain investors who purchase Class A Shares at net asset value based on a
purchase amount of $1 million or more may be subject to a 1.0% CDSC on
redemptions within one year of purchase or a 0.5% CDSC on redemptions after
1 year but within 2 years of purchase.
(2) A $5.00 fee may be charged for each wire transfer if shares are redeemed by
wire transfer to a shareholder's pre-authorized designated bank account.
-2-
<PAGE> 6
(3) Upon 60 days' prior written notice to shareholders, the exchange privilege
may be modified or terminated and/or the Trust may begin imposing a charge
of up to $5.00 for each exchange. See "Exchange Privileges and
Restrictions."
(4) Reflects the voluntary agreement of Sierra Fund Administration Corporation
("Sierra Administration") to waive certain fees to limit the total operating
expenses for each Portfolio. In the absence of such voluntary waivers the
Other Expenses are estimated to be 0.70% for the Capital Growth and Balanced
Portfolios, 0.80% for the Value and Income Portfolios, and 0.65% for the
Growth Portfolio.
(5) Reflects the voluntary waiver of fees. In the absence of such voluntary
waivers the total operating expenses are estimated to be 1.10% for the
Capital Growth and Balanced Portfolios, 1.20% for the Value and Income
Portfolios, and 1.05% for the Growth Portfolio.
EXAMPLE
An investor in a Portfolio would pay the following expenses, including indirect
expenses, on a $1,000 investment assuming: (1) a 5% annual return; and (2)
redemption at the end of each time period.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Capital Growth Portfolio Class A.............................
Growth Portfolio Class A.....................................
Balanced Portfolio Class A...................................
Value Portfolio Class A......................................
Income Portfolio Class A.....................................
</TABLE>
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The purpose
of the expense table and example is to assist the investor in understanding the
various costs and expenses that may be directly or indirectly borne by investors
in Class A Shares of each Portfolio. In addition to the Direct Expenses set
forth in the expense table above, each Portfolio will bear the indirect expenses
of its investments in the Underlying Funds. The expense examples are based on
the Direct Expenses of each Portfolio plus a weighted average of the expense
ratios of the Underlying Funds based on current allocations. A person who
purchases shares through an account with a financial institution may be charged
separate fees by that institution in addition to those set forth above. The
information set forth in the foregoing table and example relates to the Class A
Shares. Class A Shares are subject to the same management and advisory expenses
as Class B Shares, but are subject to different distribution and shareholder
servicing expenses. Additional information may be found under "THE PORTFOLIOS IN
DETAIL - SIERRA SERVICES, SIERRA ADVISORS, THEIR AFFILIATES AND THE PORTFOLIOS'
SERVICE PROVIDERS" and "THE PORTFOLIOS IN DETAIL - BREAKDOWN OF PORTFOLIO
EXPENSES."
Long-term Class A shareholders may pay more than the economic equivalent of the
maximum front-end sales charges otherwise permitted by the Rules of Fair
Practice of the National Association of Securities Dealers, Inc. (the "NASD").
-3-
<PAGE> 7
PORTFOLIO EXPENSES
(CLASS B SHARES)
The purpose of the following table is to help you understand the various costs
and expenses that you, as a shareholder, will bear directly in connection with
an investment in each Portfolio's Class B Shares. In addition to these direct
expenses, Class B Shares of the Portfolios will indirectly bear their pro rata
share of the expenses of the Underlying Funds. See "Expense Ratios of the
Underlying Funds."
- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
CAPITAL
GROWTH BALANCED
PORTFOLIO GROWTH PORTFOLIO PORTFOLIO VALUE PORTFOLIO INCOME PORTFOLIO
--------- ---------------- --------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Maximum Sales Charge Imposed on Purchase
(as a percentage of offering price) None None None None None
Maximum Sales Charge Imposed on
Reinvested Dividends (as a percentage
of offering price) None None None None None
Maximum Contingent Deferred Sales Charge 5.00% 5.00% 5.00% 5.00% 5.00%
Redemption Fees(1) None None None None None
Exchange Fees(2) None None None None None
ANNUAL PORTFOLIO OPERATING EXPENSES
(DIRECT EXPENSES) (as a percentage of
average net assets)
Management/Advisory Fees 0.15% 0.15% 0.15% 0.15% 0.15%
Rule 12b-1 & Shareholder Servicing Fees 1.00% 1.00% 1.00% 1.00% 1.00%
Other Expenses (after voluntary
waivers)(3) 0.55% 0.55% 0.55% 0.55% 0.55%
--------- ------- --------- ------- -------
Total Portfolio Operating Expenses
(after voluntary waivers)(4) 1.70% 1.70% 1.70% 1.70% 1.70%
- ----------------------------------------------------------------------------------------------------
</TABLE>
(1) A $5.00 fee may be charged for each wire transfer if shares are redeemed by
wire transfer to a shareholder's pre-authorized designated bank account.
(2) Upon 60 days' prior written notice to shareholders, the exchange privilege
may be modified or terminated and/or the Trust may begin imposing a charge
of up to $5.00 for each exchange. See "Exchange Privileges and
Restrictions."
(3) Reflects the voluntary agreement of Sierra Administration to waive certain
fees to limit the total operating expenses for each Portfolio. In the
absence of such voluntary waivers the Other Expenses are estimated to be
.70% for the Capital Growth and Balanced Portfolios, .80% for the Value and
Income Portfolios, and .65% for the Growth Portfolio.
(4) Reflects the voluntary waiver of fees. In the absence of such voluntary
waivers the total operating expenses are estimated to be 1.85% for the
Capital Growth and Balanced Portfolios, 1.95% for the Value and Income
Portfolios, and 1.80% for the Growth Portfolio.
-4-
<PAGE> 8
EXAMPLE
An investor in a Portfolio would pay the following expenses, including indirect
expenses, on a $1,000 investment assuming: (1) a 5% annual return; and
(2) Redemption at the end of each time period
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Capital Growth Portfolio Class B.............................
Growth Portfolio Class B.....................................
Balanced Portfolio Class B...................................
Value Portfolio Class B......................................
Income Portfolio Class B.....................................
</TABLE>
(2) No redemptions
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Capital Growth Portfolio Class B.............................
Growth Portfolio Class B.....................................
Balanced Portfolio Class B...................................
Value Portfolio Class B......................................
Income Portfolio Class B.....................................
</TABLE>
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The purpose
of the expense table and example is to assist the investor in understanding the
various costs and expenses that may be directly or indirectly borne by investors
in Class B Shares of each Portfolio. In addition to the Direct Expenses set
forth in the expense table above, each Portfolio will bear the indirect expenses
of its investments in the Underlying Funds. The expense examples are based on
the Direct Expenses of each Portfolio plus a weighted average of the expense
ratios of the Underlying Funds based on current allocations. A person who
purchases shares through an account with a financial institution may be charged
separate fees by that institution in addition to those set forth above. The
information set forth in the foregoing table and example relates to the Class B
Shares. Class B Shares are subject to the same management and advisory expenses
as Class A Shares, but are subject to different distribution and shareholder
servicing expenses. Additional information may be found under "The Portfolios in
Detail - Sierra Services, Sierra Advisors, Their Affiliates and the Portfolios'
Service Providers" and "The Portfolios in Detail - Breakdown of Portfolio
Expenses."
Long-term Class B shareholders may pay more than the economic equivalent of the
maximum front-end sales charges otherwise permitted by the Rules of Fair
Practice of the NASD.
-5-
<PAGE> 9
EXPENSE RATIOS OF
THE UNDERLYING FUNDS
As previously stated, Class A and Class B Shares of the Portfolios will
indirectly bear their pro rata share of fees and expenses incurred by the
Underlying Funds, which are investment funds of the Sierra Trust Funds ("STF")
and, Sierra Prime Income Fund ("SPIF") and the investment returns of each class
of shares of the Portfolios will be net of the expenses of the Underlying Funds.
The chart set forth below provides the expense ratios for each of the Underlying
Funds in which the Portfolios will invest based on information as of June 30,
1997.
<TABLE>
<CAPTION>
UNDERLYING FUNDS'
UNDERLYING FUNDS EXPENSE RATIOS*
- -----------------------------------------------------------------------------------------------------
<S> <C>
STF U.S. Government Money Fund %
STF Global Money Fund %
STF Short Term High Quality Bond Fund %
STF Short Term Global Government Fund %
STF U.S. Government Fund %
STF Corporate Income Fund %
STF Growth and Income Fund %
STF Growth Fund %
STF Emerging Growth Fund %
STF International Growth Fund %
Sierra Prime Income Fund %
</TABLE>
* The Portfolios will purchase only Class I Shares of the Underlying Funds
other than SPIF, and Class A Shares of SPIF. The expense ratio is the ratio
of the annual operating expenses of the Underlying Funds applicable to Class
I Shares (and Class A Shares of SPIF) to the average net assets of the
Underlying Fund. The expense ratios shown above reflect existing fee waivers
or expense reimbursements arrangements that may be discontinued at any time
and/or credits allowed by the custodian. Set forth below are the estimated
total fund operating expenses of each Underlying Fund absent such fee waivers
and expense reimbursements. STF U.S. Government Money Fund (1.09%); STF
Global Money Fund (.96%); STF Short Term High Quality Bond Fund (1.15%); STF
Short Term Global Government Fund (1.19%); STF U.S. Government Fund (1.05%);
STF Corporate Income Fund (1.12%); STF Growth and Income Fund (1.33%); STF
Growth Fund (1.46%); STF Emerging Growth Fund (1.45%); STF International
Growth Fund (1.58%); Sierra Prime Income Fund (1.35%).
Investors in the Portfolios should recognize that they may invest directly in
the Underlying Funds if they do not wish to participate in the Portfolios' asset
allocation strategies investing in Underlying Funds. Through the Portfolios,
investors will bear not only their proportionate share of the expenses of the
Portfolios (including operating costs and investment advisory and administrative
fees to the extent Sierra Administration has not elected to waive such fees),
but will also indirectly bear similar expenses of the Underlying Funds. Class I
Shares of the Underlying Funds are not subject to any sales load or distribution
or shareholder service fees. For any Portfolio investing in the Class A Common
Shares of SPIF, the sales load is waived, and neither a distribution fee nor a
shareholder service fee will be charged. Consequently, a shareholder of a
Portfolio's shares will not indirectly bear expenses paid by an Underlying Fund
for the sale or distribution of its shares. See "How to Invest in a SAM
Portfolio Account."
-6-
<PAGE> 10
FINANCIAL HIGHLIGHTS
The following information, insofar as it relates to the period from July 25,
1996 (commencement of operations) through June 30, 1997 has been audited by
Price Waterhouse LLP, independent accountants. Their unqualified report is
included in the Trust's Annual Report to Shareholders (the "Annual Report"). The
Financial Statements, Notes to Financial Statements and Report of Independent
Accountants sections of the Annual Report are included in the SAI. Further
information about the performance of the Portfolios is contained in the Annual
Report. The SAI and Annual Report can be obtained at no charge by calling
Shareholder Services at 800-222-5852.
CAPITAL GROWTH PORTFOLIO
FOR A PORTFOLIO SHARE OUTSTANDING THROUGHOUT THE PERIOD.
<TABLE>
<CAPTION>
CLASS A CLASS B
SHARES SHARES
-------- --------
PERIOD PERIOD
ENDED ENDED
6/30/97* 6/30/97*
-------- --------
<S> <C> <C>
Net asset value, beginning of period....................................... $ 10.00 $ 10.00
-------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment loss........................................................ (0.02)+++ (0.10)+++
Net realized and unrealized gain on investments............................ 1.90 1.90
-------- --------
Total from investment operations........................................... 1.88 1.80
-------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income....................................... -- --
Distributions in excess of net investment income........................... (0.62) (0.61)
Distributions from net realized capital gains.............................. (0.00)*** (0.00)***
-------- --------
Total distributions........................................................ (0.62) (0.61)
-------- --------
Net asset value, end of period............................................. $ 11.26 $ 11.19
======== ========
TOTAL RETURN+.............................................................. 19.33% 18.48%
======== ========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)....................................... $ 14,253 $ 35,802
Ratio of operating expenses to average net assets++........................ 0.90%** 1.65%**
Ratio of net investment loss to average net assets......................... (0.19)%** (0.94)%**
Portfolio turnover rate.................................................... 33% 33%
Ratio of operating expenses to average net assets without credits allowed
by the custodian++....................................................... 0.91%** 1.66%**
Ratio of operating expenses to average net assets without fee waivers,
expenses absorbed and/or credits allowed by the custodian++.............. 1.45%** 2.20%**
Net investment loss per share without fee waivers, expenses absorbed and/or
credits allowed by the custodian......................................... $ (0.07)+++ $ (0.15)+++
</TABLE>
- ---------------
* The Portfolio's Class A Shares and Class B Shares commenced operations on
July 25, 1996.
** Annualized.
+ Total return represents aggregate total return for the period indicated
and does not reflect any applicable sales charges. The total return would
have been lower if certain fees had not been waived and/or expenses
absorbed by the investment advisor and/or administrator or without
credits allowed by the custodian.
++ The Portfolio will indirectly bear its prorated share of expenses of the
Underlying Funds.
+++ Per share numbers have been calculated using the average shares method.
-7-
<PAGE> 11
GROWTH PORTFOLIO
FOR A PORTFOLIO SHARE OUTSTANDING THROUGHOUT THE PERIOD.
<TABLE>
<CAPTION>
CLASS A CLASS B
SHARES SHARES
---------- ----------
PERIOD PERIOD
ENDED ENDED
6/30/97* 6/30/97*
---------- ----------
<S> <C> <C>
Net asset value, beginning of period............................ $ 10.00 $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income........................................... 0.08+++ 0.01+++
Net realized and unrealized gain on investments................. 1.32 1.31
---------- ----------
Total from investment operations................................ 1.40 1.32
LESS DISTRIBUTIONS:
Dividends from net investment income............................ (0.08) (0.01)
Distributions in excess of net investment income................ (0.46) (0.51)
---------- ----------
Total distributions............................................. (0.54) (0.52)
---------- ----------
Net asset value, end of period.................................. $ 10.86 $ 10.80
---------- ----------
TOTAL RETURN+................................................... 14.39% 13.59%
========== ==========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)............................ $136,141 $158.697
Ratio of operating expenses to average net assets++............. 0.92%>** 1.67%>**
Ratio of net investment income to average net assets............ 0.81%>** 0.06%>**
Portfolio turnover rate......................................... 20% 20%
Ratio of operating expenses to average net assets without
credits allowed by the custodian++............................ 0.93%>** 1.68%>**
Ratio of operating expenses to average net assets without fee
waivers, expenses absorbed and/or credits allowed by the
custodian++................................................... 1.17%>** 1.92%>**
Net investment income per share without fee waivers, expenses
absorbed and/or credits allowed by the custodian.............. $ 0.06+++ $ (0.01)+++
</TABLE>
- ---------------
* The Portfolio's Class A Shares and Class B Shares commenced operations on
July 25, 1996.
** Annualized.
+ Total return represents aggregate total return for the period indicated
and does not reflect any applicable sales charges. The total returns would
have been lower if certain fees had not been waived and/or expenses
absorbed by the investment advisor and/or administrator or if fees had not
been reduced by credits allowed by the custodian.
++ The Portfolio will indirectly bear its prorated share of expenses of the
Underlying Funds.
+++ Per share numbers have been calculated using the average shares method.
-8-
<PAGE> 12
BALANCED PORTFOLIO
FOR A PORTFOLIO SHARE OUTSTANDING THROUGHOUT THE PERIOD.
<TABLE>
<CAPTION>
CLASS A CLASS B
SHARES SHARES
-------- -------
PERIOD PERIOD
ENDED ENDED
6/30/97* 6/30/97*
-------- -------
<S> <C> <C>
Net asset value, beginning of period...................................... $ 10.00 $ 10.00
------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income..................................................... 0.20+++ 0.14+++
Net realized and unrealized gain on investments........................... 1.27 1.25
------- -------
Total from investment operations.......................................... 1.47 1.39
LESS DISTRIBUTIONS:
Dividends from net investment income...................................... (0.20) (0.14)
Distributions in excess of net investment income.......................... (0.32) (0.30)
Distributions from net realized capital gains............................. (0.00)*** (0.00)***
------- -------
Total distributions....................................................... (0.52) (0.44)
------- -------
Net asset value, end of period............................................ $ 10.95 $ 10.95
======= =======
TOTAL RETURN+............................................................. 15.02% 14.23%
======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)...................................... $109,421 $99,821
Ratio of operating expenses to average net assets++....................... 0.92%** 1.67%**
Ratio of net investment income to average net assets...................... 2.48%** 1.73%**
Portfolio turnover rate................................................... 46% 46%
Ratio of operating expenses to average net assets without credits allowed
by the custodian++...................................................... 0.93%** 1.68%*
Ratio of operating expenses to average net assets without fee waivers,
expenses absorbed and/or credits allowed by the custodian++............. 1.17%** 1.92%**
Net investment income per share without fee waivers, expenses absorbed
and/or credits allowed by the custodian................................. $ 0.18+++ $ 0.12+++
</TABLE>
- ---------------
* The Portfolio's Class A Shares and Class B Shares commenced operations on
July 25, 1996.
** Annualized.
*** Amount represents less than $0.01.
+ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges. The total returns would have
been lower if certain fees had not been waived and/or expenses absorbed by
the investment advisor and/or administrator or without credits allowed by
the custodian.
++ The Portfolio will indirectly bear its prorated share of expenses of the
Underlying Funds.
+++ Per share numbers have been calculated using the average shares method.
-9-
<PAGE> 13
VALUE PORTFOLIO
FOR A PORTFOLIO SHARE OUTSTANDING THROUGHOUT THE PERIOD.
<TABLE>
<CAPTION>
CLASS A CLASS B
SHARES SHARES
-------- --------
PERIOD PERIOD
ENDED ENDED
6/30/97* 6/30/97*
-------- --------
<S> <C> <C>
Net asset value, beginning of period $ 10.00 $10.00
--- ---
INCOME FROM INVESTMENT OPERATIONS:
Net investment income....................................................... 0.43+++ 0.38+++
Net realized and unrealized gain on investments............................. 0.70 0.68
--- ---
Total from investment operations............................................ 1.13 1.06
LESS DISTRIBUTIONS:
Dividends from net investment income........................................ (0.43) (0.38)
Distributions in excess of net investment income............................ (0.13) (0.11)
Distributions from net realized capital gains............................... (0.00)*** (0.00)***
--- ---
Total distributions......................................................... (0.56) (0.49)
--- ---
Net asset value, end of period.............................................. $ 10.57 $10.57
=== ===
TOTAL RETURN+............................................................... 11.58% 10.80%
=== ===
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)........................................ $ 12,613 $7,385
Ratio of operating expenses to average net assets++......................... 0.92%** 1.67%**
Ratio of net investment income to average net assets........................ 4.95%** 4.20%**
Portfolio turnover rate..................................................... 54% 54%
Ratio of operating expenses to average net assets without credits allowed by
the custodian++........................................................... 0.93%** 1.68%**
Ratio of operating expenses to average net assets without fee waivers,
expenses absorbed and/or credits allowed by the custodian++............... 1.67%** 2.42%**
Net investment income per share without fee waivers, expenses absorbed
and/or credits allowed by the custodian................................... $ 0.37 $ 0.32
</TABLE>
- ---------------
* The Portfolio's Class A Shares and Class B Shares commenced operations on
July 25, 1996.
** Annualized.
*** Amount represents less than $0.01.
+ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges. The total returns would have
been lower if certain fees had not been waived and/or expenses absorbed by
the investment advisor and/or administrator or if fees had not been reduced
by credits allowed by the custodian.
++ The Portfolio will indirectly bear its prorated share of expenses of the
Underlying Funds.
+++ Per share numbers have been calculated using the average shares method.
-10-
<PAGE> 14
INCOME PORTFOLIO
FOR A PORTFOLIO SHARE OUTSTANDING THROUGHOUT THE PERIOD.
<TABLE>
<CAPTION>
CLASS A CLASS B
SHARES SHARES
-------- --------
PERIOD PERIOD
ENDED ENDED
6/30/97* 6/30/97*
-------- --------
<S> <C> <C>
Net asset value, beginning of period................................... $ 10.00 $10.00
------- ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................................................. 0.58+++ 0.51+++
Net realized and unrealized gain on investments........................ 0.14# 0.14#
------- ------
Total from investment operations....................................... 0.72 0.65
LESS DISTRIBUTIONS:
Dividends from net investment income................................... (0.58) (0.51)
Distributions in excess of net investment income....................... (0.01) (0.01)
Distributions from net realized capital gains.......................... (0.00)*** (0.00)***
------- ------
Total distributions.................................................... (0.59) (0.52)
------- ------
Net asset value, end of period......................................... $ 10.13 $10.13
======= ======
TOTAL RETURN+.......................................................... 7.38% 6.63%
======= ======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)................................... $ 13,410 $4,537
Ratio of operating expenses to average net assets++.................... 0.93%** 1.68%**
Ratio of net investment income to average net assets................... 6.09%** 5.34%**
Portfolio turnover rate................................................ 56% 56%
Ratio of operating expenses to average net assets without credits
allowed by the custodian++........................................... 0.93%** 1.68%**
Ratio of operating expenses to average net assets without fee waivers,
expenses absorbed and/or credits allowed by the custodian++.......... 1.65%** 2.40%**
Net investment income per share without fee waivers, expenses absorbed
and/or credits allowed by the custodian.............................. $ 0.51+++ $ 0.44+++
</TABLE>
- ---------------
* The Portfolio's Class A Shares and Class B Shares commenced operations on
July 25, 1996.
** Annualized.
*** Amount represents less than $0.01.
+ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges. The total returns would have
been lower if certain fees had not been waived and/or expenses absorbed by
the investment advisor and/or administrator or if fees had not been reduced
by credits allowed by the custodian.
++ The Portfolio will indirectly bear its prorated share of expenses of the
Underlying Funds.
+++ Per share numbers have been calculated using the average shares method.
# The amount shown may not accord with the change in the aggregate gains and
losses of portfolio securities due to timing of sales and redemptions of
portfolio shares.
INVESTMENTS AND RISK CONSIDERATIONS OF THE PORTFOLIOS
The Portfolios offer investors the opportunity to pursue a selected asset
allocation strategy that is implemented through the Portfolios' investing in
certain of the Underlying Funds. The Portfolios are designed for long-term
investors seeking total return for tax-advantaged retirement and other long-term
investment or savings accounts, including: Individual Retirement Accounts
("IRAs"), Simplified Employee Plans ("SEPs"), 403(b)(7) tax-sheltered retirement
plans for employees of non-profit organizations, 401(k) savings plans,
profit-sharing and money-purchase pension plans, and other corporate pension and
savings plans.
-11-
<PAGE> 15
In order to achieve its investment objective, each Portfolio typically allocates
its assets, within predetermined percentage ranges, among certain of the
Underlying Funds. The percentages reflect the extent to which each Portfolio
will invest in the particular market segment represented by each Underlying
Fund, and the varying degrees of potential investment risk and reward
represented by each Portfolio's investments in those market segments and their
corresponding Underlying Funds. Sierra Services may alter these percentage
ranges when it deems appropriate. The assets of each Portfolio will be allocated
among each of the Underlying Funds in accordance with its investment objective,
Sierra Services' outlook for the economy and the financial markets and the
relative market valuations of the Underlying Funds. In addition, in order to
meet liquidity needs or for temporary defensive purposes, each Portfolio may
invest without limit its assets directly in cash, stock or bond index futures
and options thereon and the following short-term instruments: (i) short-term
obligations of the U.S. government, its agencies, instrumentalities, authorities
or political subdivisions; (ii) other short-term debt securities rated A or
higher by Moody's or S&P, or if unrated, of comparable quality in the opinion of
the Portfolio's investment advisor; (iii) commercial paper, including master
notes; (iv) bank obligations, including negotiable certificates of deposit, time
deposits and bankers' acceptances; and (v) repurchase agreements. At the time
the Portfolio invests in any commercial paper, bank obligations or repurchase
agreements, the issuer must have outstanding debt rated A or higher by Moody's
or S&P; the issuer's parent corporation, if any, must have outstanding
commercial paper rated Prime-1 by Moody's or A-1 by S&P; or, if no such ratings
are available, the investment must be of comparable quality in the opinion of
the Portfolio's investment advisor. The investment objective of each Portfolio
is set forth below. Each Portfolio's investment objective is a fundamental
policy, and may not be changed without shareholder approval. There can be no
assurance that a Portfolio will achieve its stated objective. For purposes of
discussing Portfolio objectives, the "STF Fixed Income Funds" include the STF
U.S. Government Money Fund, STF Global Money Fund, STF Short Term High Quality
Bond Fund, STF Short Term Global Government Fund, STF U.S. Government Fund and
STF Corporate Income Fund and the "STF Equity Funds" include the STF Growth and
Income Fund, STF Growth Fund, STF Emerging Growth Fund and STF International
Growth Fund.
CAPITAL GROWTH PORTFOLIO
The CAPITAL GROWTH PORTFOLIO seeks to provide long-term capital appreciation. In
general, relative to the other Portfolios, the Capital Growth Portfolio should
offer investors the potential for a higher level of capital growth while
subjecting investors to corresponding levels of principal risk. The Portfolio
will invest in the following Underlying Funds up to the percentage limits set
forth below:
PORTFOLIO INVESTMENT LIMIT (PERCENT OF THE
UNDERLYING FUNDS CAPITAL GROWTH PORTFOLIO'S TOTAL ASSETS)
<TABLE>
<S> <C>
STF Global Money Fund...................................................................... 25%
STF Short Term High Quality Bond Fund...................................................... 25%
STF Short Term Global Government Fund...................................................... 25%
STF Growth and Income Fund................................................................. 50%
STF Growth Fund............................................................................ 50%
STF Emerging Growth Fund................................................................... 50%
STF International Growth Fund.............................................................. 50%
</TABLE>
Except for defensive periods or liquidity needs, the Capital Growth Portfolio
must invest at least 75% of its net assets available for investment in STF
Equity Funds.
-12-
<PAGE> 16
GROWTH PORTFOLIO
The GROWTH PORTFOLIO seeks to provide long-term capital appreciation. In
general, relative to the other Portfolios, the Growth Portfolio should offer
investors the potential for a low level of income and the potential for a medium
to high level of capital growth while subjecting investors to a medium level of
principal risk. The Portfolio will invest in the following Underlying Funds up
to the percentage limits set forth below:
PORTFOLIO INVESTMENT LIMIT (PERCENT OF THE
UNDERLYING FUNDS GROWTH PORTFOLIO'S TOTAL ASSETS)
<TABLE>
<S> <C>
STF U.S. Government Money Fund............................................................. 30%
STF Global Money Fund...................................................................... 30%
STF Short Term High Quality Bond Fund...................................................... 30%
STF Short Term Global Government Fund...................................................... 30%
STF U.S. Government Fund................................................................... 30%
STF Corporate Income Fund.................................................................. 30%
STF Growth and Income Fund................................................................. 40%
STF Growth Fund............................................................................ 40%
STF Emerging Growth Fund................................................................... 40%
STF International Growth Fund.............................................................. 40%
Sierra Prime Income Fund................................................................... 15%
</TABLE>
Except for defensive periods or liquidity needs, the Growth Portfolio must
invest at least 60% of its net assets available for investment in STF Equity
Funds.
BALANCED PORTFOLIO
The BALANCED PORTFOLIO seeks total return consisting of a combination of
reinvestment income and capital appreciation, consistent with reasonable risk
through limited participation in domestic and international fixed income and
equity markets. In general, relative to other Portfolios, the Balanced Portfolio
should offer investors the potential for a medium level of income and the
potential for a medium level of capital growth while subjecting investors to a
medium level of principal risk. The Portfolio will invest in the following
Underlying Funds up to the percentage limits set forth below:
PORTFOLIO INVESTMENT LIMIT (PERCENT OF THE
UNDERLYING FUNDS BALANCED PORTFOLIO'S TOTAL ASSETS)
<TABLE>
<S> <C>
STF U.S. Government Money Fund............................................................. 40%
STF Global Money Fund...................................................................... 40%
STF Short Term High Quality Bond Fund...................................................... 40%
STF Short Term Global Government Fund...................................................... 40%
STF U.S. Government Fund................................................................... 40%
STF Corporate Income Fund.................................................................. 40%
STF Growth and Income Fund................................................................. 30%
STF Growth Fund............................................................................ 30%
STF Emerging Growth Fund................................................................... 30%
STF International Growth Fund.............................................................. 30%
Sierra Prime Income Fund................................................................... 15%
</TABLE>
Except for defensive periods or liquidity needs, the Balanced Portfolio must
invest no less than 30% and no more than 70% of its net assets available for
investment in STF Fixed Income Funds and SPIF and no less than 30% and no more
than 70% of its net assets available for investment in STF Equity Funds.
-13-
<PAGE> 17
VALUE PORTFOLIO
The VALUE PORTFOLIO seeks total return consisting of reinvestment of income with
some capital appreciation, primarily through investments in domestic and
international fixed income markets with limited participation in domestic and
international equity markets. In general, relative to the other Portfolios, the
Value Portfolio should offer investors the potential for a medium to high level
of reinvestment income and the potential for a low to medium level of capital
growth, while subjecting investors to a low to medium level of principal risk.
The Portfolio will invest in the following Underlying Funds up to the percentage
limits set forth below:
PORTFOLIO INVESTMENT LIMIT (PERCENT OF THE
UNDERLYING FUNDS VALUE PORTFOLIO'S TOTAL ASSETS)
<TABLE>
<S> <C>
STF U.S. Government Money Fund............................................................. 40%
STF Global Money Fund...................................................................... 40%
STF Short Term High Quality Bond Fund...................................................... 40%
STF Short Term Global Government Fund...................................................... 40%
STF U.S. Government Fund................................................................... 40%
STF Corporate Income Fund.................................................................. 40%
STF Growth and Income Fund................................................................. 30%
STF Growth Fund............................................................................ 30%
STF Emerging Growth Fund................................................................... 30%
Sierra Prime Income Fund................................................................... 15%
</TABLE>
Except for defensive periods or liquidity needs, the Value Portfolio must invest
no more than 30% of its net assets available for investment in the STF Equity
Funds.
INCOME PORTFOLIO
The INCOME PORTFOLIO seeks long term total return through reinvestment of
current income consistent with preservation of capital primarily through
participation in the domestic fixed income markets with limited participation in
international fixed income markets. In general, relative to the other
Portfolios, the Income Portfolio should offer investors the potential for a high
level of income while maintaining principal and subjecting investors to a low
level of principal risk. The Portfolio will invest in the following Underlying
Funds up to the percentage limits set forth below:
PORTFOLIO INVESTMENT LIMIT (PERCENT OF
UNDERLYING FUNDS THE INCOME PORTFOLIO'S TOTAL ASSETS)
<TABLE>
<S> <C>
STF U.S. Government Money Fund.............................................................. 50%
STF Global Money Fund....................................................................... 50%
STF Short Term High Quality Bond Fund....................................................... 50%
STF Short Term Global Government Fund....................................................... 50%
STF U.S. Government Fund.................................................................... 50%
STF Corporate Income Fund................................................................... 50%
Sierra Prime Income Fund.................................................................... 15%
</TABLE>
Except for defensive periods or liquidity needs, the Income Portfolio must
invest 100% of its net assets available for investment in STF Fixed Income Funds
and SPIF.
GENERAL INVESTMENT POLICIES OF THE PORTFOLIOS
Each of the Portfolios will attempt to achieve its investment objective by
purchasing shares of the Underlying Funds within the percentage ranges for such
Portfolio set forth above.
In addition to purchasing shares of the Underlying Funds, a Portfolio may use
futures contracts and options in order to remain effectively fully invested in
proportions consistent with Sierra Services' current asset allocation strategy
for the Fund in an efficient and cost effective manner. Specifically, each
Portfolio may enter into futures contracts and options thereon provided that the
aggregate deposits required on these contracts do not exceed 5% of the
-14-
<PAGE> 18
Portfolio's total assets. A Portfolio may also use futures contracts and options
for bona fide hedging transactions. Futures contracts and options may also be
used to reallocate the Portfolio's assets among asset categories while
minimizing transaction costs, to maintain cash reserves while simulating full
investment, to facilitate trading, to seek higher investment returns, or to
simulate full investment when a futures contract is priced attractively or is
otherwise considered more advantageous than the underlying security or index.
While futures contracts and options can be used as leveraged instruments, the
Portfolios will not use futures contracts or options to leverage their
portfolios, except as indicated above. In order to meet liquidity needs, or for
temporary defensive purposes, the Portfolios may purchase money market
securities or other short-term debt instruments rated in one of the top two
categories by a nationally recognized statistical rating organization ("NRSRO")
at the time of purchase or, if not rated, determined to be of comparable quality
by Sierra Services. See "INVESTMENTS AND RISK CONSIDERATIONS OF THE PORTFOLIOS."
PORTFOLIO TURNOVER OF THE PORTFOLIOS
Each Portfolio's portfolio turnover rate (i.e., the rate at which the Portfolio
buys and sells shares of the Underlying Funds) for the Growth, Balanced, Value
and Income Portfolios is not expected to exceed 125% of the Portfolio's total
assets. The annual turnover rate for the Capital Growth Portfolio is not
expected to exceed 150%. Asset reallocation decisions typically will occur only
once every quarter. However, if market conditions warrant, Sierra Services may
make more frequent reallocation decisions, which will result in a higher
portfolio turnover rate. The Portfolios will purchase or sell shares of the
Underlying Funds: (a) to accommodate purchases and redemptions of each
Portfolio's shares; (b) in response to market or other economic conditions; and
(c) to maintain or modify the allocation of each Portfolio's assets among the
Underlying Funds within the percentage limits described above or as altered by
Sierra Services from time to time. It is important to note, however, that the
portfolio turnover rate of certain of the Underlying Funds (i.e., the rate at
which the Underlying Funds buy and sell securities) may exceed 100%. Such a
turnover rate may result in higher transaction costs and may result in
additional tax consequences for shareholders (including the Portfolios).
RISK FACTORS OF THE PORTFOLIOS
Like any investment in an investment company, an investment in the Portfolios
involves risk. Prospective investors in the Portfolios should consider the
following factors:
- Investing in the Underlying Funds through the Portfolios involves
certain additional expenses and tax results that would not be present in
a direct investment in the Underlying Funds. See "Dividends, Capital
Gains and Taxes -- Taxes" for additional information about tax
implications of investing in the Portfolios.
- Under certain circumstances, an Underlying Fund may determine to make
payment of a redemption request by a Portfolio wholly or partly by a
distribution in kind of securities from its portfolio, instead of cash,
in accordance with the rules of the SEC. In such cases, the Portfolios
may hold securities distributed by an Underlying Fund until Sierra
Services determines that it is appropriate to dispose of such
securities.
- Certain Underlying Funds may: invest a portion of their assets in
foreign securities; enter into forward currency transactions; lend their
portfolio securities; enter into stock index, interest rate and currency
futures contracts, and options on such contracts; enter into interest
rate swaps or purchase or sell interest rate caps or floors; engage in
other types of options transactions; make short sales; purchase zero
coupon and payment-in-kind bonds; engage in repurchase or reverse
repurchase agreements; purchase and sell "when-issued" securities and
engage in "delayed-delivery" transactions; and engage in various other
investment practices, some of which may be considered speculative.
Further information about these investment policies and practices can be
found under "INVESTMENTS AND RISK CONSIDERATIONS OF THE UNDERLYING
FUNDS" and "SECURITIES AND INVESTMENT PRACTICES OF THE PORTFOLIOS AND
THE UNDERLYING FUNDS" in this Prospectus and in the Trust's Statement of
Additional Information, and in the prospectuses of each of the
Underlying Funds.
- The Capital Growth Portfolio can invest as much as 50% of its total
assets in the STF Growth Fund and as much as 50% of its total assets in
the STF Emerging Growth Fund, each of which Underlying Funds may invest
as much as 35% of its total assets in lower-rated bonds, commonly
referred to as "junk bonds." As a result, this Portfolio will be subject
to the risks associated with investing in such lower-rated bonds. See
-15-
<PAGE> 19
"Securities and Investment Practices of the Portfolios and Underlying
Funds -- Lower-Rated Securities" for additional information about such
risks.
- If a Portfolio were to invest in SPIF, such an investment would be
considered illiquid. No Portfolio is permitted to invest more than 15%
of its net assets in the aggregate in SPIF and other illiquid
securities. SPIF is a closed-end investment company designed primarily
for long-term investors and not as a trading vehicle and shares of SPIF
are not redeemable. SPIF does not intend to list its shares for trading
on any national securities exchange and there is not expected to be any
secondary trading market in such shares. In order to provide liquidity
to SPIF shares, the Board of Trustees of SPIF intends, each quarter, to
authorize tender offers for a portion of the then outstanding shares at
the current net asset value. In the event that SPIF's Board of Trustees
does not authorize SPIF to engage in tender offers for its shares, it is
unlikely that a holder of its shares will be able to otherwise sell
their shares to the Fund or in any secondary trading market. To the
extent redemptions are made from a Portfolio invested in SPIF, such
redemptions would be made from STF Funds thereby increasing the
remaining shareholders' allocation to SPIF.
- Certain Portfolios invest as much as 50% of their total assets in the
STF Growth Fund or STF Emerging Growth Fund, each of which may invest up
to 25% of its total assets in foreign equity securities and as much as
5% of its total assets in securities in developing or emerging markets
countries. Certain Portfolios invest as much as 50% of their total
assets in the STF International Growth Fund, which invests primarily in
foreign equity securities, and may invest as much as 30% of its total
assets in securities in developing or emerging markets countries (a
country in the initial stages of its industrialization cycle). These
investments will subject such Portfolios to risks associated with
investing in foreign securities. See "Securities and Investment
Practices of the Portfolios and Underlying Funds -- Foreign Investments"
for additional information about such risks.
- The officers and trustees of the Trust also serve as officers and
trustees of the Underlying Funds. In addition, Sierra Services, the
investment advisor and distributor of each Portfolio, and Sierra
Advisors, the investment advisor of the Underlying Funds, are both
wholly owned subsidiaries of Sierra Capital Management Corporation
("SCMC"). Also, Sierra Services is the distributor of the shares of the
Underlying Funds. Conflicts may arise as these companies seek to fulfill
their fiduciary responsibilities to both the Portfolios and the
Underlying Funds.
- From time to time, one or more of the Underlying Funds used for
investment by a Portfolio may experience relatively large investments or
redemptions due to reallocations or rebalancings by the Portfolios as
recommended by Sierra Services. These transactions will affect the
Underlying Funds, since the Underlying Funds that experience redemptions
as a result of reallocations or rebalancings may have to sell portfolio
securities and Underlying Funds that receive additional cash will have
to invest such cash. While it is impossible to predict the overall
impact of these transactions over time, there could be adverse effects
on portfolio management to the extent that the Underlying Funds may be
required to sell securities or invest cash at times when they would not
otherwise do so. These transactions could also have tax consequences if
sales of securities resulted in gains and could also increase
transaction costs. Sierra Advisors, representing the interests of the
Underlying Funds, is committed to minimizing the impact of Portfolio
transactions on the Underlying Funds; Sierra Services, representing the
interest of the shareholders of the Portfolios, is also committed to
minimizing such impact on the Underlying Funds to the extent it is
consistent with pursuing the investment objectives of the Portfolios.
Sierra Advisors and Sierra Services will nevertheless face conflicts in
fulfilling their respective responsibilities because they are affiliates
and employ some of the same investment professionals. See "Initial Sales
Charge Alternative: Class A Shares," and "Exchange Privileges and
Restrictions." Sierra Services and Sierra Advisors will monitor the
impact of Portfolio transactions on the Underlying Funds.
-16-
<PAGE> 20
INVESTMENT LIMITATIONS OF THE PORTFOLIOS
The following investment limitations are fundamental for the Portfolios, and may
not be changed without shareholder approval.
1. Each Portfolio will concentrate its investments in shares of management
investment companies.
2. Each Portfolio may borrow money from banks solely for temporary
emergency purposes, but not in an amount exceeding 30% of its total
assets. Whenever borrowings by a Portfolio, including reverse repurchase
agreements, exceed 5% of the value of a Portfolio's total assets, the
Portfolio will not purchase any securities.
Each Portfolio is subject to further fundamental and non-fundamental
restrictions which are described in the Trust's Statement of Additional
Information.
INVESTMENT GOALS OF THE UNDERLYING FUNDS
The following table lists the sub-advisor and describes the investment goals of
each Underlying Fund:
<TABLE>
<CAPTION>
UNDERLYING FUNDS INVESTMENT GOAL SUB-ADVISOR
- --------------------------------- --------------------------------- ---------------------------------
<S> <C> <C>
Alliance Capital Management L.P.
STF U.S. Government Money Fund... Income and Capital Preservation ("Alliance")
J.P. Morgan Investment Management
STF Global Money Fund............ Income and Capital Preservation Inc. ("J.P. Morgan")
STF Short Term High Quality Bond Scudder, Stevens & Clark, Inc.
Fund........................... Income ("Scudder")
STF Short Term Global Government
Fund........................... Income Scudder
BlackRock Financial Management,
STF U.S. Government Fund......... Income Inc. ("BlackRock")
TCW Funds Management, Inc. ("TCW
STF Corporate Income Fund........ Aggressive Income Management")
STF Growth and Income Fund....... Growth of Capital and Income J.P. Morgan
Janus Capital Corporation
STF Growth Fund.................. Growth of Capital ("Janus")
STF Emerging Growth Fund......... Growth of Capital Janus
Warburg Pincus Counsellors, Inc.
STF International Growth Fund.... Growth of Capital ("Warburg")
Van Kampen American Capital
Sierra Prime Income Fund......... Income and Principal Stability Management Inc. ("Van Kampen")
</TABLE>
INVESTMENTS AND RISK CONSIDERATIONS OF THE UNDERLYING FUNDS
The following section describes the investment objective and policies of each
Underlying Fund and some of the risk considerations of investing in the
Underlying Funds. The "Securities and Investment Practices of the Portfolios and
Underlying Funds" section that follows provides more information about the types
of securities and investment practices that the Underlying Funds may use, and
the risk considerations related to such securities and investment practices.
There can be no assurance that the Underlying Funds will achieve their
respective investment objectives.
INVESTMENT PRINCIPLES AND RISK CONSIDERATIONS
THE MONEY FUNDS
STF GLOBAL MONEY FUND. The Fund's investment objective is to maximize current
income consistent with safety of principal and maintenance of liquidity. The
Fund pursues its objective by investing in a portfolio of short-term, money
market instruments, including obligations issued or guaranteed by the U.S.
Government, its agencies or
-17-
<PAGE> 21
instrumentalities ("U.S. Government Securities"); repurchase agreements with
respect to U.S. Government Securities; instruments issued by U.S. and foreign
banks and savings and loan institutions, such as time deposits, certificates of
deposit and bankers' acceptances; and commercial paper and corporate obligations
of U.S. and foreign issuers that meet the Fund's quality and maturity criteria.
Although the Fund is authorized to invest up to 50% of its assets in any one
country (other than the United States), the Fund normally will include in its
portfolio securities of issuers collectively having their principal business
activities in at least three countries, including the United States. The Fund
may not invest more than 5% of its assets in securities of any one issuer,
except that the Fund may invest in U.S. Government Securities without limit and
may have one holding that exceeds the 5% limit for up to three days after the
acquisition of such holding. At least 25% of the Fund's total assets will be
invested in bank obligations, except during temporary defensive periods.
STF U.S. GOVERNMENT MONEY FUND. The Fund's investment objective is to maximize
current income consistent with safety of principal and maintenance of liquidity.
The Fund pursues its objective by maintaining a portfolio of U.S. Government
Securities and entering into repurchase agreements with respect to U.S.
Government Securities.
THE BOND FUNDS
STF SHORT TERM HIGH QUALITY BOND FUND. The Fund's investment objective is to
provide as high a level of current income as is consistent with prudent
investment management and stability of principal. To accomplish its objective,
the Fund will invest primarily in short-term bonds and other fixed-income
securities. Under normal market conditions the Fund will maintain a
dollar-weighted average portfolio maturity of three years or less. The Fund may
hold individual securities with remaining maturities of more than three years as
long as the dollar-weighted average portfolio maturity is three years or less.
For purposes of the weighted average maturity calculation, a mortgage
instrument's average life will be considered to be its maturity.
The Fund will invest substantially all of its assets in investment-grade debt
securities, which are securities that are rated in the top four rating
categories by one or more NRSROs or, if unrated, are judged to be of comparable
quality by the Fund's Sub-Advisor. All debt securities purchased by the Fund
will be investment-grade at the time of purchase. The Fund will invest at least
65% of its total assets in United States Government obligations, corporate debt
obligations or mortgage-related securities rated in one of the two highest
categories by an NRSRO. Securities are rated in the two highest rating
categories by an NRSRO if they are rated at least Aa by Moody's or at least AA
by S&P, Duff or Fitch or, if unrated, are judged to be of comparable quality by
the Fund's Sub-Advisor. Investment-grade bonds are generally of medium to high
quality. A bond rated in the lower end of the investment-grade category
(Baa/BBB), however, may have speculative characteristics and may be more
sensitive to economic changes and changes in the financial condition of the
issuer.
STF SHORT TERM GLOBAL GOVERNMENT FUND. The Fund's investment objective is to
provide high current income consistent with protection of principal. Under
normal conditions, the Fund invests primarily in at least three different
countries, one of which may be the United States. The Fund maintains a
dollar-weighted average portfolio maturity not exceeding three years but may
hold individual securities with longer maturities. This policy helps minimize
the effect of interest rate changes on the Fund's share price. The Sub-Advisor's
calculation of the expected average life of a portfolio mortgage security is
used as that security's maturity with regard to determining the above average
dollar-weighted portfolio maturity calculation. The Fund's share price and yield
will fluctuate primarily due to the movement of foreign currencies against the
U.S. Dollar and changes in worldwide interest rates.
The Fund seeks to maintain greater price stability than longer-term bond funds.
Under normal market conditions, the Fund will invest at least 65% of its assets
in: (i) obligations issued or guaranteed by foreign national governments, their
agencies, instrumentalities, or political subdivisions (including any security
which is majority owned by such government, agency, instrumentality, or
political subdivision); and (ii) U.S. Government Securities.
STF U.S. GOVERNMENT FUND. The Fund's investment objective is to maximize total
rate of return while providing a high level of current income, consistent with
reasonable safety of principal. The Fund pursues its objective by investing at
least 65% and up to 100% of its assets in intermediate- and long-term U.S.
Government Securities. The
-18-
<PAGE> 22
Fund may invest in U.S. Government Securities of varying maturities. Securities
in the Fund's portfolio are high quality securities that will generally yield
less income than lower quality securities; higher quality securities, however,
generally have less credit risk and are more readily marketable than lower
quality securities. Depending on market conditions, the Fund's portfolio will
consist of various types of U.S. Government Securities in varying proportions;
it may invest up to 35% of its total assets in (i) the types of securities in
which the STF Corporate Income Fund may invest except as otherwise prohibited in
the Prospectus or SAI of the Underlying Funds, including corporate bonds,
preferred stock, convertible corporate bonds, convertible preferred stock,
government stripped mortgage-backed securities, asset-backed securities, and
interests in lease obligations; and (ii) commercial mortgage-backed securities,
which are mortgage-backed securities that are issued by a nongovernmental
entity, such as a trust, and include collateralized mortgage obligations and
real estate mortgage investment conduits that are rated in one of the two rating
categories. A substantial portion of the Fund's assets at any time may consist
of mortgage-backed securities. For more detailed information regarding the types
of securities in which the STF Corporate Income Fund may invest, see "STF
Corporate Income Fund."
STF CORPORATE INCOME FUND. The Fund's investment objective is to provide a high
level of current income, consistent with the preservation of capital. The Fund
pursues its investment objective by investing primarily in investment-grade
corporate bonds of United States issuers, which are bonds that are rated in the
top four rating categories by Moody's, S&P, Duff, or Fitch, or, if not rated,
that the Fund's Sub-Advisor believes to have credit characteristics equivalent
to such investment-grade rated corporate bonds. Generally, at least 65% of the
corporate bonds held by the Fund will have had remaining maturities of 10 years
or more at the date of purchase, unless the Fund's Sub-Advisor believes that
investing in corporate bonds with shorter maturities would be appropriate in
light of prevailing market conditions. Corporate bonds with longer maturities
generally tend to produce higher yields and are subject to greater market risk
than debt securities with shorter maturities. The value of the Fund's portfolio
securities can be expected to vary inversely with changes in the prevailing
interest rates.
SIERRA PRIME INCOME FUND ("SPIF"). The Fund's investment objective is to provide
a high level of current income, consistent with preservation of capital. The
Fund will seek to achieve its objective by investing in a professionally managed
portfolio of interests in floating or variable rate senior loans ("Senior
Loans") made primarily to United States corporations, partnerships and other
entities ("Borrowers"). Senior Loans may take the form of syndicated loans
("Syndicated Loans") or of debt obligations of Borrowers issued directly to
investors in the form of debt securities ("Senior Notes"). Senior Loans in which
the Fund will invest generally pay interest at rates which are periodically
redetermined by reference to a base lending rate plus a premium. These base
lending rates are generally the prime rate offered by one or more major United
States banks ("Prime Rate"), the London Inter-Bank Offered Rate ("LIBOR"), the
Certificate of Deposit ("CD") rate or other base lending rates used by
commercial lenders.
The Fund will seek to achieve over time a high effective yield. Although the
Fund's net asset value will vary, the Fund's policy of acquiring interests in
floating or variable rate Senior Loans is expected to minimize fluctuations in
the Fund's net asset value as a result of changes in interest rates. While the
Fund seeks relative share price (NAV) stability, its net asset value may be
affected by changes in the credit quality of Borrowers with respect to Senior
Loan interests in which the Fund invests.
Under normal market conditions, at least 80% of the Fund's total assets will be
invested in interests, participations and assignments of Senior Loans. The
remainder of the Fund's assets may be invested in high quality, short-term debt,
money market instruments, warrants, equity securities and junior debt securities
acquired in connection with the Fund's investment in Senior Loans. There is no
restriction or percentage limitation with respect to the Fund's investment in
illiquid securities. The Fund is not subject to any restrictions with respect to
the maturity of Senior Loans held in its portfolio. It is currently anticipated
that the Fund's assets invested in Senior Loans will consist of Senior Loans
with stated maturities of between three and seven years, inclusive, and with
rates of interest which are periodically reset with reset periods typically
ranging from 30 days to one year. Investment in Senior Loans with longer
interest rate redetermination periods may increase fluctuations in the Fund's
net asset value as a result of changes in interest rates. For further discussion
of the Fund's investment objective and policies and its investment practices and
associated considerations, see "Securities and Investment Practices of the
Portfolios and Underlying Funds" in this Prospectus.
-19-
<PAGE> 23
THE EQUITY FUNDS
STF GROWTH AND INCOME FUND. The investment objective of the Fund is long-term
capital growth and current income consistent with reasonable investment risk.
The Fund pursues its investment objective by investing primarily in
dividend-paying common stock. The Fund will also invest in other equity
securities, consisting of non-dividend-paying common stock, preferred stock and
securities convertible into common stock, such as convertible preferred stock,
convertible bonds rated in the highest three rating categories by Moody's or
S&P, or, if unrated, judged to be of comparable quality by the Fund's
Sub-Advisor, and warrants. The Fund is not subject to any limit on the size of
companies in which it may invest, but intends to be primarily invested, under
normal circumstances, in the large-and medium-sized companies included in the
S&P 500 Index. The Fund may also invest up to 10% of its total assets in
American Depositary Receipts.
The Fund is designed for investors who want an actively managed diversified
portfolio of selected equity securities that seeks to outperform the total
return of the S&P 500 Index. The Fund attempts to reduce risk by investing in
many different economic sectors, industries and companies. The Fund's
Sub-Advisor may under- or over-weight selected economic sectors against the S&P
500 Index's sector weightings to seek to enhance the Fund's total return or
reduce fluctuations in market value relative to the S&P 500 Index.
STF GROWTH FUND. The Fund's primary investment objective is long-term capital
appreciation. The generation of income is not an objective of the Fund, and any
income received on the Fund's assets will be incidental to its primary
investment objective, which is a fundamental policy of the Fund. The Fund
intends to invest primarily in common stock believed by the Sub-Advisor to have
significant appreciation potential. However, no class of security offers at all
times the greatest promise for capital appreciation. Therefore, the Fund may
invest in debt securities, bonds, convertible bonds, preferred stock and
convertible preferred stock, including non-investment grade debt securities if,
in the opinion of the Sub-Advisor, doing so would further the long-term capital
appreciation objective of the Fund.
STF EMERGING GROWTH FUND. The Fund's investment objective is long-term capital
appreciation, while income is only an incidental consideration of the Fund. The
Fund normally invests at least 50% of its equity assets in securities of
companies with market capitalization at less than $1.4 billion at the time of
purchase. A company's market capitalization is calculated by multiplying the
total number of shares of its common stock outstanding by the market price per
share of its stock. The Fund may invest up to 25% of its assets in similar
securities of foreign issuers and up to 5% of its assets in securities in
developing or emerging countries.
Small capitalization companies typically are subject to a greater degree of
change in earnings and business prospects than larger, more established
companies. In addition, securities of small capitalization companies are traded
in lower volume than those issued by larger companies and may be more volatile
and less liquid than those of larger companies. In light of these
characteristics of small capitalization companies and their securities, the Fund
may be subject to greater investment risk than that assumed when investing in
the equity securities of larger capitalization companies. The Fund has been
designed to provide investors with potentially greater long-term rewards than
those provided by an investment in a fund that seeks capital appreciation from
equity securities of larger, more established companies. Small capitalization
companies generally are not as well known to the investing public and have less
of an investor following than larger companies. In selecting investments for the
Fund, the Fund's Sub-Advisor seeks small capitalization companies that it
believes are undervalued in the marketplace, or that the Fund's Sub-Advisor
believes have earnings that may be expected to grow faster than the United
States economy in general.
STF INTERNATIONAL GROWTH FUND. The Fund's investment objective is long-term
capital appreciation. The Fund invests primarily in equity securities of issuers
located in a variety of different foreign regions and countries that the Fund's
Sub-Advisor deems to have attractive investment opportunities. Income is only an
incidental consideration of the Fund. The Fund will emphasize established
companies, although it may invest in companies of varying sizes as measured by
assets, sales and capitalization.
More than 25% of the Fund's total assets may be invested in the securities of
issuers located in the same country. The relative strength or weakness of a
particular country's currency or economy may dictate whether securities of
issuers located in such country will be purchased or sold. Criteria for
determining the appropriate distribution of
-20-
<PAGE> 24
investments among various countries and regions include prospects for relative
economic growth among foreign countries, expected levels of inflation,
government policies influencing business conditions, the outlook for currency
relationships, and the range of investment opportunities available to
international investors.
The Fund invests in common stock and may invest in other securities with equity
characteristics, consisting of trust or limited partnership interests, preferred
stock, rights and warrants. The Fund may also invest in convertible securities,
consisting of debt securities or preferred stock that may be converted into
common stock or that carry the right to purchase common stock. The Fund invests
in securities listed on foreign or domestic securities exchanges and securities
traded in foreign or domestic over-the-counter markets, and may invest in
restricted or unlisted securities.
SECURITIES AND INVESTMENT PRACTICES OF THE PORTFOLIOS AND THE UNDERLYING FUNDS
The following sections contain more detailed information about types of
securities in which the Portfolios and the Underlying Funds may invest, and
strategies a Portfolio or an Underlying Fund may employ in pursuit of that
Portfolio's or Underlying Fund's investment objective. A summary of risks and
restrictions associated with these security types and investment practices is
included as well. All policies and limitations are considered at the time of
purchase; the sale of securities is not required in the event of a subsequent
change in circumstances.
An Underlying Fund might not buy these securities or use these techniques to the
full extent permitted unless its Sub-Advisor, subject to oversight by Sierra
Advisors, believes that doing so will help the Underlying Fund achieve its goal.
Sierra Advisors may, from time to time, direct a Sub-Advisor with respect to
investment policies and strategies. As a shareholder, you will receive fund
reports every six months detailing your Underlying Fund's holdings and
describing recent investment practices.
Except for the limitations on borrowing, the investment guidelines set forth
below to the extent they apply to a Portfolio or an Underlying Fund may be
changed at any time by vote of the Board of Trustees of the Trust, Sierra Trust
Funds or SPIF, as applicable, without shareholder consent of such Portfolio or
Underlying Fund. A complete list of investment restrictions that identifies
additional restrictions that cannot be changed without the approval of a
majority of an affected Portfolio's or Underlying Fund's outstanding shares is
contained in the SAI of the Trust.
AMERICAN DEPOSITARY RECEIPTS AND EUROPEAN DEPOSITARY RECEIPTS. All Underlying
Funds (except the STF U.S. Government Fund, the STF Money Funds and SPIF) may
invest in securities of foreign issuers directly or in the form of American
Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"), Global
Depositary Receipts ("GDRs") or other similar securities representing securities
of foreign issuers. These securities may not necessarily be denominated in the
same currency as the securities they represent. ADRs are receipts typically
issued by a United States bank or trust company evidencing ownership of the
underlying foreign securities. EDRs, which are sometimes referred to as
Continental Depositary Receipts ("CDRs"), are receipts issued by a European
financial institution evidencing a similar arrangement. Generally, ADRs, in
registered form, are designed for use in the United States securities markets,
and EDRs, in bearer form, are designed for use in European securities markets.
ASSET-BACKED SECURITIES. The STF Growth and Income, STF Emerging Growth, STF
Corporate Income, STF Short Term High Quality Bond and STF U.S. Government Funds
may purchase asset-backed securities, which represent a participation in, or are
secured by and payable from, a stream of payments generated by particular
assets, most often a pool of assets similar to one another. Assets generating
such payments will consist of motor vehicle installment purchase obligations,
credit card receivables and home equity loans. These Underlying Funds will not
invest more than 10% of their total assets in asset-backed securities, except
the STF Short Term High Quality Bond Fund, which may invest up to 25% of its
total assets in such securities.
BANK OBLIGATIONS. All of the Underlying Funds may invest in bank obligations,
which include certificates of deposit, time deposits and bankers' acceptances of
U.S. commercial banks or savings and loan institutions with assets of at least
$500 million as of the end of their most recent fiscal year.
BORROWING. All Underlying Funds may borrow money for temporary or emergency
purposes. However, if an Underlying Fund borrows money, its share price may be
subject to greater fluctuation until the borrowing is paid off.
-21-
<PAGE> 25
If the Underlying Fund makes additional investments while borrowings are
outstanding, this may be construed as a form of leverage.
An Underlying Fund may borrow money from banks solely for temporary or emergency
purposes, but not in an amount exceeding 30% of its total assets. For each of
the Underlying Funds except the STF U.S. Government, STF Short Term High Quality
Bond and STF Corporate Income Funds, whenever borrowings by an Underlying Fund,
including reverse repurchase agreements, exceed 5% of the value of an Underlying
Fund's total assets, the Underlying Fund will not purchase any securities. The
STF U.S. Government, STF Short Term High Quality Bond and STF Corporate Income
Funds are prohibited from borrowing money or entering reverse repurchase
agreements or dollar roll transactions, and the SPIF is prohibited from
borrowing money, in the aggregate in excess of 33 1/3% of the Underlying Fund's
total assets (after giving effect to such borrowings). This investment guideline
may be changed only with shareholder consent and by vote of the Board of
Trustees of the STF or SPIF. However, the STF Short Term High Quality Bond Fund
currently intends to borrow money or enter into reverse repurchase agreements or
dollar roll transactions in the aggregate up to 10% of its total assets (after
giving effect to such borrowings); provided, however, that it may be able to
raise this limitation up to 33 1/3% of its total assets with approval of the
Board of Trustees of the Underlying Fund.
The SPIF currently expects, however, to limit its borrowing to an amount
sufficient to meet its tender offer purchases or 10% of its assets, whichever is
greater. Under the requirements of the 1940 Act, each of the Underlying Funds,
immediately after any such borrowings, is required to have asset coverage of at
least 300%. Asset coverage is the ratio which the value of the total assets of
the Underlying Fund, less all liabilities and indebtedness not represented by
senior securities (as that term is defined in the 1940 Act), bears to the
aggregate amount of any such borrowings by the Underlying Fund.
COMMON STOCK, CONVERTIBLE SECURITIES AND OTHER EQUITY SECURITIES. The STF
Corporate Income Fund, STF U.S. Government Fund and the Equity Funds may invest
in common stocks, which represent an equity (ownership) interest in a
corporation. This ownership interest generally gives an Underlying Fund the
right to vote on measures affecting the company's organization and operations.
The Underlying Funds (including SPIF) may also buy securities such as
convertible debt, preferred stock, warrants or other securities exchangeable for
shares of common stock. In selecting equity investments for an Underlying Fund,
each Underlying Fund's Sub-Advisor will invest the Underlying Fund's assets in
industries and companies that it believes are experiencing favorable demand for
their products and services and which operate in a favorable competitive and
regulatory climate.
An Underlying Fund may not own more than 10% of the outstanding voting
securities of a single issuer up to 15% of each underlying Bond Fund (other than
SPIF for which there is no limit) and Equity Fund, and 10% of each Underlying
Money Fund, may be invested in securities that are not readily marketable.
A convertible security is a security that may be converted either at a stated
price or rate within a specified period of time into a specified number of
shares of common stock. By investing in convertible securities, an Underlying
Fund seeks the opportunity, through the conversion feature, to participate in
the capital appreciation of the common stock into which the securities are
convertible, while obtaining a higher fixed rate of return than is available in
common stocks.
CURRENCY MANAGEMENT. An Underlying Fund's flexibility to participate in higher
yielding debt markets outside of the United States may allow the Underlying Fund
to achieve higher yields than those generally obtained by domestic money market
funds and short-term bond investments. If an Underlying Fund invests
significantly in securities denominated in foreign currencies, however,
movements in foreign currency exchange rates versus the U.S. Dollar are likely
to impact the Underlying Fund's share price stability relative to domestic
short-term income funds. Fluctuations in foreign currencies can have a positive
or negative impact on returns. Normally, to the extent that the Underlying Fund
is invested in foreign securities, a weakening in the U.S. Dollar relative to
the foreign currencies underlying an Underlying Fund's investments should help
increase the NAV of the Underlying Fund. Conversely, a strengthening in the U.S.
Dollar versus the foreign currencies in which an Underlying Fund's securities
are denominated will generally lower the NAV of the Underlying Fund. An
Underlying Fund's Sub-Advisor may attempt to minimize exchange rate risk through
active portfolio management, including altering
-22-
<PAGE> 26
currency exposure through the use of futures, options and forward currency
transactions and attempting to identify bond markets with strong or stable
currencies. Underlying Funds authorized to invest in securities of foreign
issuers may engage in currency management strategies.
DEBT SECURITIES ISSUED OR GUARANTEED BY SUPRANATIONAL ORGANIZATIONS. Underlying
Funds authorized to invest in securities of foreign issuers may invest assets in
debt securities issued or guaranteed by supranational organizations, such as
obligations issued or guaranteed by the Asian Development Bank, Inter-American
Development Bank, International Bank for Reconstruction and Development (World
Bank), African Development Bank, European Coal and Steel Community, European
Economic Community, European Investment Bank and the Nordic Investment Bank.
DERIVATIVES. Each of the Portfolios and the Underlying Funds may invest in
derivatives. Derivatives are securities that derive their value from other
securities. The following are considered derivative securities: options on
futures, options, swap agreements, mortgage-backed securities, when-issued
securities, delayed delivery transactions, forward commitments, floating and
variable rate securities, convertible securities, "stripped" U.S. Treasury
securities and dollar roll transactions. See elsewhere in this Prospectus for
descriptions of various instruments, the risks associated with these
instruments, and information about any investment policies or limitations
applicable to their use. See "Strategic Transactions" for additional
information.
DOLLAR ROLL TRANSACTIONS. In order to seek a high level of current income, the
STF U.S. Government, STF Short Term High Quality Bond and STF Corporate Income
Funds may enter into dollar rolls in which the Underlying Fund sells securities
for delivery in the current month and simultaneously contracts to repurchase,
typically in 30 or 60 days, substantially similar (same type, coupon and
maturity) securities on a specified future date. The proceeds of the initial
sale of securities in the dollar roll transactions may be used to purchase
long-term securities which will be held during the roll period. During the roll
period, the Underlying Fund forgoes principal and interest paid on the
securities sold at the beginning of the roll period. The Underlying Fund is
compensated by the difference between the current sales price and the forward
price for the future purchase (often referred to as the "drop") as well as by
the interest earned on the cash proceeds of the initial sale. A "covered roll"
is a specific type of dollar roll for which there is an offsetting cash position
or cash equivalent securities position that matures on or before the forward
settlement date of the dollar roll transaction. As used herein the term "dollar
roll" refers to dollar rolls that are not "covered rolls." At the end of the
roll commitment period, the Underlying Fund may or may not take delivery of the
securities the Underlying Fund has contracted to purchase. To the extent that
the proceeds of the initial sale of securities are invested in long-term bonds,
the proceeds are subject to the higher volatility in price of such long-term
bonds in comparison to short-term bonds. See the section "Fixed Income
Obligations and Securities."
The Underlying Fund will establish a segregated account with its custodian in
which it will maintain cash, or other liquid assets equal in value at all times
to its obligations in respect of dollar rolls, and, accordingly, the Underlying
Fund will not treat such obligations as senior securities for purposes of the
1940 Act. "Covered rolls" are not subject to these segregation requirements.
Each of the Underlying Funds is prohibited from borrowing money or entering into
reverse repurchase agreements or dollar roll transactions in the aggregate in
excess of 33 1/3% of the Underlying Fund's total assets (after giving effect to
any such borrowings). The STF Short Term High Quality Bond Fund intends to
invest up to 10% of its total assets in dollar roll transactions, but may invest
up to 33 1/3% of its total assets in such transactions.
EXCHANGE RATE-RELATED SECURITIES. Each of the Underlying Funds, except for the
Money Funds and SPIF, may invest in securities which are indexed to certain
specific foreign currency exchange rates. The terms of such security provide
that the principal amount or interest payments are adjusted upwards or downwards
(but not below zero) at payment to reflect fluctuations in the exchange rate
between two currencies while the obligation is outstanding, depending on the
terms of the specific security. The Underlying Fund will purchase such security
with the currency in which it is denominated and will receive interest and
principal payments thereon in the currency, but the amount of principal or
interest payable by the issuer will vary in proportion to the change (if any) in
the exchange rate between the two specified currencies between the date the
instrument is issued and the date the principal or interest payment is due. The
staff of the SEC is currently considering whether a mutual fund's purchase of
this type of security would result in the issuance of a "senior security" within
the meaning of the 1940 Act. The
-23-
<PAGE> 27
Underlying Funds believe that such investments do not involve the creation of
such a senior security, but nevertheless undertakes, pending the resolution of
this issue by the staff, to establish a segregated account with respect to such
investments and to maintain in such account cash or other liquid assets having a
value equal to the aggregate principal amount of outstanding securities of this
type.
Investments in exchange rate-related securities entail certain risks. There is
the possibility of significant changes in rates of exchange between the U.S.
Dollar and any foreign currency to which an exchange rate-related security is
linked. In addition, there is no assurance that sufficient trading interest to
create a liquid secondary market will exist for a particular exchange
rate-related security due to conditions in the debt and foreign currency
markets. Illiquidity in the forward foreign exchange market and the high
volatility of the foreign exchange market may from time to time combine to make
it difficult to sell an exchange rate-related security prior to maturity without
incurring a significant price loss.
FIXED-INCOME OBLIGATIONS AND SECURITIES. The market value of fixed-income
obligations and securities held by an Underlying Fund and, consequently, the NAV
per share of the Underlying Fund can be expected to vary inversely to changes in
prevailing interest rates. Investors should also recognize that, in periods of
declining interest rates, the yield of the Underlying Fund will tend to be
somewhat higher than prevailing market rates and, in periods of rising interest
rates, the Underlying Fund's yield will tend to be somewhat lower. Also, when
interest rates are falling, the inflow of net new money to the Underlying Fund
from the continuous sale of its shares will likely be invested in instruments
producing lower yields than the balance of its assets, thereby reducing current
yield. In periods of rising interest rates, the opposite can be expected to
occur. While securities with longer maturities tend to produce higher yields,
the prices of longer maturity securities are also subject to greater market
fluctuations as a result of changes in interest rates. In addition, obligations
purchased by an Underlying Fund that are rated in the lowest of the top four
ratings (Baa by Moody's or BBB by S&P) are considered to have speculative
characteristics, and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade securities.
FLOATING RATE, INVERSE FLOATING RATE AND VARIABLE RATE OBLIGATIONS. The STF
Corporate Income Fund may purchase floating rate, inverse floating rate and
variable rate obligations, including participation interests therein. Floating
rate obligations have an interest rate that changes whenever there is a change
in the external interest rate, while variable rate obligations provide for a
specified periodic adjustment in the interest rate. The interest rate on an
inverse floating rate obligation (an "inverse floater") can be expected to move
in the opposite direction from the market rate of interest to which the inverse
floater is indexed. The Underlying Funds may purchase floating rate, inverse
floating rate and variable rate obligations that carry a demand feature which
would permit the Underlying Funds to tender them back to the issuer or
remarketing agent at par value prior to maturity. Frequently, floating rate,
inverse floating rate and variable rate obligations are secured by letters of
credit or other credit support arrangements provided by banks.
The STF Corporate Income Fund may purchase mortgage-backed securities that are
floating rate, inverse floating rate and variable rate obligations. Municipal
Securities purchased by the STF Global Money Fund may include variable rate
demand notes issued by industrial development authorities and other governmental
entities, as well as participation interests therein. Although variable rate
demand notes are frequently not rated by credit rating agencies, an Underlying
Fund may purchase unrated notes that are determined by the Underlying Fund's
Sub-Advisor to be of comparable quality at the time of purchase to rated
instruments that may be purchased by the Underlying Fund. Moreover, while there
may be no active secondary market with respect to a particular variable rate
demand note purchased by an Underlying Fund, the Underlying Fund may, upon the
notice specified in the note, demand payment of the principal of and accrued
interest on the note at any time and may resell the note at any time to a third
party. The absence of such an active secondary market, however, could make it
difficult for an Underlying Fund to dispose of a particular variable rate demand
note in the event the issuer of the note defaulted on its payment obligations,
and the Underlying Fund could, for this or other reasons, suffer a loss to the
extent of the default.
An inverse floater may be considered to be leveraged to the extent that its
interest rate varies by a magnitude that exceeds the magnitude of the change in
the index rate of interest. The higher degree of leverage inherent in inverse
-24-
<PAGE> 28
floaters is associated with greater volatility in their market values.
Accordingly, the duration of an inverse floater may exceed its stated final
maturity.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. All of the Underlying Funds (except the
STF U.S. Government Fund, the Money Funds and SPIF) may engage in foreign
currency exchange transactions. Underlying Funds that buy and sell securities
denominated in currencies other than the U.S. Dollar, and receive interest,
dividends and sale proceeds in currencies other than the U.S. Dollar, may enter
into foreign currency exchange transactions to convert to and from different
foreign currencies and to convert foreign currencies to and from the U.S.
Dollar. The Underlying Fund either enters into these transactions on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or uses forward contracts to purchase or sell foreign currencies.
A forward foreign currency exchange contract is an obligation by the Underlying
Fund to purchase or sell a specific currency at a future date, which may be any
fixed number of days from the date of the contract. Forward foreign currency
exchange contracts establish an exchange rate at a future date. These contracts
are transferable in the interbank market conducted directly between currency
traders (usually large commercial banks) and their customers. A forward foreign
currency exchange contract generally has no deposit requirement, and is traded
at a net price without commission. Neither spot transactions nor forward foreign
currency exchange contracts eliminate fluctuations in the prices of the
Underlying Fund's portfolio securities or in foreign exchange rates, or prevent
loss if the prices of these securities should decline.
An Underlying Fund may enter into foreign currency hedging transactions in an
attempt to protect against changes in foreign currency exchange rates between
the trade and settlement dates of specific securities transactions or changes in
foreign currency exchange rates that would adversely affect a portfolio position
or an anticipated portfolio position. Although these transactions tend to
minimize the risk of loss due to a decline in the value of the hedged currency,
at the same time they tend to limit any potential gain that might be realized
should the value of the hedged currency increase. The precise matching of the
forward contract amounts and the value of the securities involved will not
generally be possible because the future value of these securities in foreign
currencies will change as a consequence of market movements in the value of
those securities between the date the forward contract is entered into and the
date it matures. The projection of currency market movements is extremely
difficult, and the successful execution of a hedging strategy is highly
uncertain. In addition, when the Sub-Advisor believes that the currency of a
specific country may deteriorate against another currency, it may enter into a
forward contract to sell the less attractive currency and buy the more
attractive one. The amount in question could be less than or equal to the value
of the Underlying Fund's securities denominated in the less attractive currency.
The Underlying Fund may also enter into a forward contract to sell a currency
which is linked to a currency or currencies in which some or all of the
Underlying Fund's portfolio securities are or could be denominated, and to buy
U.S. Dollars. These practices are referred to as "cross hedging" and "proxy
hedging."
Forward currency exchange contracts are agreements to exchange one currency for
another -- for example, to exchange a certain amount of U.S. Dollars for a
certain amount of Japanese Yen -- at a future date and specified price.
Typically, the other party to a currency exchange contract will be a commercial
bank or other financial institution. Because there is a risk of loss to the
Underlying Fund if the other party does not complete the transaction, the
Underlying Fund's Sub-Advisor will enter into foreign currency exchange
contracts only with parties approved by the Underlying Fund's Board of Trustees.
An Underlying Fund may maintain "short" positions in forward currency exchange
transactions, which would involve the Underlying Fund's agreeing to exchange
currency that it currently does not own for another currency -- for example, to
exchange an amount of Japanese Yen that it does not own for a certain amount of
U.S. Dollars -- at a future date and specified price in anticipation of a
decline in the value of the currency sold short relative to the currency that
the Underlying Fund has contracted to receive in the exchange.
While such actions are intended to protect the Underlying Fund from adverse
currency movements, there is a risk that currency movements involved will not be
properly anticipated. Use of this currency hedging technique may also be limited
by management's need to protect the status of the Underlying Fund as a regulated
investment company under the Internal Revenue Code of 1986, as amended (the
"Code"). The projection of currency market movements is extremely difficult, and
the successful execution of a hedging strategy is highly uncertain.
-25-
<PAGE> 29
FOREIGN INVESTMENTS. All of the Underlying Funds (except the STF U.S. Government
Fund, STF U.S. Government Money Fund and SPIF) may invest in securities of
foreign issuers. There are certain risks involved in investing in foreign
securities, including those resulting from (i) fluctuations in currency exchange
rates, (ii) devaluation of currencies, (iii) future political or economic
developments and the possible imposition of currency exchange blockages or other
foreign governmental laws or restrictions, (iv) reduced availability of public
information concerning issuers, and (v) the fact that foreign companies are not
generally subject to uniform accounting, auditing and financial reporting
standards or to other regulatory practices and requirements comparable to those
applicable to domestic companies. Moreover, securities of many foreign companies
may be less liquid and the prices more volatile than those of securities of
comparable domestic companies. Although the Underlying Funds' Sub-Advisors do
not intend to expose the Underlying Funds to such risks, with respect to certain
foreign countries, there is the possibility of expropriation, nationalization,
confiscatory taxation and limitations on the use or removal of funds or other
assets of the Underlying Funds, including the withholding of dividends. When an
Underlying Fund's Sub-Advisor believes that currency in which a portfolio
security or securities is denominated may suffer a decline against the U.S.
Dollar, it may hedge such risk by entering into a forward contract to sell an
amount of foreign currency approximating the value of some or all of the
Underlying Fund's portfolio securities denominated in such foreign currency.
Because foreign securities generally are denominated and pay dividends or
interest in foreign currencies, and the Underlying Funds hold various foreign
currencies from time to time, the value of the net assets of the Underlying
Funds as measured in U.S. Dollars will be affected favorably or unfavorably by
changes in exchange rates. Generally, the Underlying Funds' currency exchange
transactions will be conducted on a spot (i.e., cash) basis at the spot rate
prevailing in the currency exchange market. The cost of the Underlying Funds'
currency exchange transactions will generally be the difference between the bid
and offer spot rate of the currency being purchased or sold. In order to protect
against uncertainty in the level of future foreign currency exchange rates, the
Underlying Funds are authorized to enter into certain foreign currency exchange
transactions. Investors should be aware that exchange rate movements can be
significant and can endure for long periods of time. The Sub-Advisor of the STF
International Growth Fund attempts to manage exchange rate risk through active
currency management. Extensive research of the economic, political and social
factors that influence global markets is conducted by the Sub-Advisors.
Particular attention is given to country-specific analysis, reviewing the
strength or weakness of a country's overall economy, the government policies
influencing business conditions and the outlook for the country's currency.
In addition, while the volume of transactions effected on foreign stock
exchanges has increased in recent years, in most cases it remains appreciably
below that of the New York Stock Exchange ("NYSE"). Accordingly, the Underlying
Funds' foreign investments may be less liquid and their prices may be more
volatile than comparable investments in securities of United States companies.
Moreover, the settlement periods for foreign securities, which are often longer
than those for securities of United States issuers, may affect portfolio
liquidity. In buying and selling securities on foreign exchanges, the Underlying
Fund normally pays fixed commissions that are generally higher than the
negotiated commissions charged in the United States. In addition, there is
generally less governmental supervision and regulation of securities exchanges,
brokers and issuers in foreign countries than in the United States.
FUTURES AND OPTIONS ON FUTURES. When deemed advisable by its Advisor or
Sub-Advisor, certain Portfolios or Underlying Funds may enter into financial
futures and related options that are traded on a U.S. exchange or board of
trade. If entered into, these transactions will be made for the purpose of
hedging against the effects of changes in the value of portfolio securities due
to anticipated changes in interest rates and market conditions, when the
transactions are economically appropriate to the reduction of risks inherent in
the management of the Portfolios or Underlying Funds, and for the other purposes
described in the section "Strategic Transactions." A Portfolio or Underlying
Fund may not enter into futures and options contracts for which aggregate
initial margin deposits and premiums paid for unexpired options entered into for
purposes other than "bona fide hedging" (as defined in regulations adopted by
the Commodity Futures Trading Commission) exceed 5% of the fair market value of
the Portfolio's or Underlying Fund's assets, such market value to be determined
after taking into account unrealized profits and unrealized losses on futures
contracts into which it has entered. With respect to each long position in a
-26-
<PAGE> 30
futures contract or option thereon, the underlying commodity value of such
contract will always be covered by cash and cash equivalents set aside plus
accrued profits held at the futures commission merchant.
A financial futures contract provides for the future sale by one party and the
purchase by the other party of a specified amount of a particular financial
instrument (debt security) at a specified price, date, time and place. An index
futures contract is an agreement pursuant to which two parties agree to take or
make delivery of an amount of cash equal to the difference between the value of
the index at the close of the last trading day of the contract and the price at
which the index contract was originally written. An option on a financial or
index futures contract generally gives the purchaser the right, in return for
the premium paid, to assume a position in a futures contract at a specified
exercise price at any time prior to the expiration date of the option.
The purpose of entering into a futures contract by a Portfolio or Underlying
Fund is to protect the Portfolio or Underlying Fund from fluctuations in the
value of its securities caused by anticipated changes in interest rate or market
conditions without necessarily buying or selling the securities. The use of
futures contracts and options on futures contracts as hedging devices involves
several risks. There can be no assurance that there will be a correlation
between price movements in the underlying securities, currencies or index, on
the one hand, and price movements in the securities which are the subject of the
hedge, on the other hand. Positions in futures contracts and options on futures
contracts may be closed out only on the exchange or board of trade on which they
were entered into, and there can be no assurance that an active market will
exist for a particular contract or option at any particular time. If a Portfolio
or Underlying Fund has hedged against the possibility of an increase in interest
rates or bond prices adversely affecting the value of securities held in its
portfolio and rates or prices decreased instead, the Portfolio or Underlying
Fund will lose part or all of the benefit of the increased value of securities
that it has hedged because it will have offsetting losses in its futures
positions. In addition, in such situations, if a Portfolio or Underlying Fund
has insufficient cash, it may have to sell securities to meet daily variation
margin requirements at a time when it may be disadvantageous to do so. These
sales of securities may, but will not necessarily, be at increased prices that
reflect the decline in interest rates or bond prices, as the case may be. In
addition, the Portfolio or Underlying Fund would pay commissions and other costs
in connection with such investments, which may increase the Portfolio or
Underlying Fund's expenses and reduce its return. While utilization of options,
futures contracts and similar instruments may be advantageous to the Portfolio
or Underlying Fund, if the Portfolio or Underlying Fund's Advisor or Sub-Advisor
is not successful in employing such instruments in managing the Portfolio's or
Underlying Fund's investments, the Portfolio's or Underlying Fund's performance
will be worse than if the Portfolio or Underlying Fund did not make such
investments. Losses incurred in hedging transactions and the costs of these
transactions will adversely affect a Portfolio or Underlying Fund's performance.
The Money Funds and SPIF will not invest in futures and options on futures.
GEOGRAPHICAL AND INDUSTRY CONCENTRATION. The STF Global Money Fund will invest
at least 25% of its assets in bank obligations unless the Underlying Fund is in
a temporary defensive position. As a result of this concentration policy, which
is a fundamental policy of the Underlying Fund, the Underlying Fund's
investments may be subject to greater risk than a fund that does not concentrate
in the banking industry. In particular, bank obligations may be subject to the
risks associated with interest rate volatility, changes in federal and state
laws and regulations governing banking and the inability of borrowers to pay
principal and interest when due. In addition, foreign banks present the risks of
investing in foreign securities generally and are not subject to reserve
requirements and other regulations comparable to those of U.S. banks.
GOVERNMENT STRIPPED MORTGAGE-BACKED SECURITIES. The STF Short Term High Quality
Bond, STF U.S. Government, STF Corporate Income Funds and SPIF may invest in
government stripped mortgage-backed securities issued or guaranteed by the
Government National Mortgage Association ("GNMA"), Federal National Mortgage
Association ("FNMA") and Federal Home Loan Mortgage Corporation ("FHLMC"). These
securities represent beneficial ownership interests in either periodic principal
distributions ("principal-only") or interest distributions ("interest-only") on
mortgage-backed certificates issued by GNMA, FNMA or FHLMC, as the case may be.
The certificates underlying the government stripped mortgage-backed securities
represent all or part of the beneficial interest in pools of mortgage loans. The
Underlying Funds will invest in interest-only government stripped
mortgage-backed securities in order to enhance yield or to benefit from
anticipated appreciation in value of the securities at times when the
appropriate Sub-Advisor believes that interest rates will remain stable or
increase.
-27-
<PAGE> 31
In periods of rising interest rates, the value of interest-only government
stripped mortgage-backed securities may be expected to increase because of the
diminished expectation that the underlying mortgages will be prepaid. In this
situation the expected increase in the value of interest-only government
stripped mortgage-backed securities may offset all or a portion of any decline
in value of the portfolio securities of the Underlying Funds. Investing in
government stripped mortgage-backed securities involves the risks normally
associated with investing in mortgage-backed securities issued by government or
government-related entities. See the "Mortgage-Backed Securities" section. In
addition, the yields on interest-only and principal-only government stripped
mortgage-backed securities are extremely sensitive to the prepayment experience
on the mortgage loans underlying the certificates collateralizing the
securities. If a decline in the level of prevailing interest rates results in a
rate of principal prepayments higher than anticipated, distributions of
principal will be accelerated, thereby reducing the yield to maturity on
interest-only government stripped mortgage-backed securities and increasing the
yield to maturity on principal-only government stripped mortgage-backed
securities. Conversely, if an increase in the level of prevailing interest rates
results in a rate of principal prepayments lower than anticipated, distributions
of principal will be deferred, thereby increasing the yield to maturity on
interest-only government stripped mortgage-backed securities and decreasing the
yield to maturity on principal-only government stripped mortgage-backed
securities. Sufficiently high prepayment rates could result in the Underlying
Fund's not fully recovering its initial investment in an interest-only
government stripped mortgage-backed security. Government stripped
mortgage-backed securities are currently traded in an over-the-counter market
maintained by several large investment banking firms. There can be no assurance
that the Underlying Fund will be able to effect a trade of a government stripped
mortgage-backed security at a time when it wishes to do so. The Underlying Funds
will acquire government stripped mortgage-backed securities only if a liquid
secondary market for the securities exists at the time of acquisition.
HOLDINGS IN OTHER INVESTMENT COMPANIES. When the Sub-Advisor of each Underlying
Fund believes that it would be beneficial to the Underlying Fund and appropriate
under the circumstances, the Sub-Advisor may invest up to 10% of the Underlying
Fund's assets in securities of mutual funds that are not affiliated with Sierra
Advisors or any Sub-Advisor. As a shareholder in any such mutual fund, the
Underlying Fund will bear its ratable share of the mutual fund's expenses,
including management fees, and will remain subject to the Underlying Fund's
advisory and administration fees with respect to the assets so invested.
ILLIQUID SECURITIES. With the exception of SPIF, up to 15% of the net assets of
each of the Underlying Funds other than the Money Funds (the "Non-Money Funds"),
and up to 10% of the net assets of each Money Fund, may be invested in
securities that are not readily marketable, including: (1) repurchase agreements
with maturities greater than seven calendar days; (2) time deposits maturing in
more than seven calendar days; (3) to the extent a liquid secondary market does
not exist for the instruments, futures contracts and options thereon; (4)
certain over-the-counter options, as described in the Trust's SAI; (5) certain
variable rate demand notes having a demand period of more than seven days; and
(6) certain Rule 144A restricted securities. SPIF is not limited regarding the
percentage of its assets invested in illiquid securities.
LEASE OBLIGATION BONDS. Lease obligation bonds are mortgages on a facility that
is secured by the facility and are paid by a lessee over a long term. The rental
stream to service the debt as well as the mortgage are held by a collateral
trustee on behalf of the public bondholders. The primary risk of such instrument
is the risk of default. Under the lease indenture, the failure to pay rent is an
event of default. The remedy to cure default is to rescind the lease and sell
the asset. If the lease obligation is not readily marketable or market
quotations are not readily available, such lease obligations will be subject to
an Underlying Fund's 15% limit on illiquid securities. The Money Funds will not
invest in Lease Obligation Bonds.
LENDING OF SECURITIES. All of the Underlying Funds except the STF U.S.
Government Fund have the ability to lend portfolio securities to brokers and
other financial organizations. By lending its securities, an Underlying Fund can
increase its income by continuing to receive interest on the loaned securities
as well as by either investing the cash collateral in short-term instruments or
obtaining yield in the form of interest paid by the borrower when U.S.
Government Securities are used as collateral. These loans, if and when made, may
not exceed 20% of an Underlying Fund's total assets. Loans of portfolio
securities by an Underlying Fund will be collateralized by cash, letters of
credit or U.S. Government Securities that are maintained at all times in an
amount at least equal to the current market value of the loaned securities. Any
gain or loss in the market price of the securities loaned that might occur
during the term of the loan would be for the account of the Underlying Fund
involved. Each Underlying
-28-
<PAGE> 32
Fund's Sub-Advisor will monitor on an ongoing basis the creditworthiness of the
institutions to which the Underlying Fund lends securities.
LOAN PARTICIPATIONS. The SPIF will purchase Participations in Senior Loans. With
respect to any given Senior Loan, the terms of Participations are arrived at
through private negotiations between the SPIF and the seller of such an interest
in a Senior Loan, and may result in the SPIF having rights which differ from,
and are more limited than, the rights of Lenders or of persons who acquire such
interests by Assignment. Participations typically result in the SPIF having a
contractual relationship with the Lender selling the Participation, but not with
the Borrower. In the event of the insolvency of the Lender selling the
Participation, the SPIF may be treated as a general creditor of such Lender, and
may not have any exclusive or senior claim with respect to such Lender's
interest in, or the collateral with respect to, the Senior Loan. As such, the
SPIF may incur the credit risk of the Lender selling the Participation in
addition to the credit risk of the Borrower with respect to the Senior Loan when
purchasing Participations and may not benefit directly from the security
provided by the collateral supporting the Senior Loan with respect to which such
Participation was sold. The SPIF may pay a fee or forego a portion of interest
payments when acquiring Participations or Assignments. See "Strategies Available
to SPIF -- Certain Characteristics of Senior Loan Interests" in the Trust's SAI.
LOWER-RATED SECURITIES. The STF Growth and STF Emerging Growth Funds may each
invest up to 35%, and the STF Short Term Global Government Fund may invest up to
10%, of the total assets of such Underlying Funds, respectively, in debt
securities rated lower than BBB by S&P or Baa by Moody's, or of equivalent
quality as determined by that Underlying Fund's Sub-Advisor.
Non-investment-grade debt securities are securities rated BB or lower and are
commonly referred to as "junk bonds."
Securities rated below investment-grade, as well as unrated securities, usually
entail greater risk (including the possibility of default or bankruptcy of the
issuers), and generally involve greater price volatility and risk of principal
and income, and may be less liquid, than securities in higher-rated categories.
Both price volatility and illiquidity may make it difficult for the Underlying
Fund to value certain of these securities at certain times and these securities
may be difficult to sell under certain market conditions. Prices for
non-investment-grade debt securities may be affected by legislative and
regulatory developments. For further information, see "Investment Objectives and
Policies of the Underlying Funds - Special Considerations Relating to STF
Emerging Growth Fund and STF Growth Fund" in the SAI.
Non-investment-grade debt securities are often considered to be speculative and
involve greater risk of default or price changes due to changes in the issuer's
creditworthiness. The market prices of these securities may fluctuate more than
higher-rated securities and may decline significantly in periods of general
economic difficulty, which may follow periods of rising interest rates.
The STF Growth Fund has no pre-established minimum quality standards and may
invest in debt securities of any quality, including non-investment-grade debt
securities that may offer higher yields because of the greater risks involved in
such investments.
MORTGAGE-BACKED SECURITIES. All of the Underlying Funds may invest in
mortgage-backed U.S. Government Securities which represent an interest in a pool
of mortgage loans. Each of the Money Funds may invest in such securities
pursuant to its authority to make money market investments. The primary
government issuers or guarantors of mortgage-backed securities are GNMA, FNMA
and FHLMC. Mortgage-backed securities provide a monthly payment consisting of
interest and principal payments. Additional payments may be made out of
unscheduled repayments of principal resulting from the sale of the underlying
residential property, refinancing or foreclosure, net of fees or costs that may
be incurred. Prepayments of principal on mortgage-related securities may tend to
increase due to refinancing of mortgages as interest rates decline. Prompt
payment of principal and interest on GNMA mortgage pass-through certificates is
backed by the full faith and credit of the United States. FNMA guaranteed
mortgage pass-through certificates and FHLMC participation certificates are
solely the obligations of those entities but are supported by the discretionary
authority of the U.S. Government to purchase the agencies' obligations.
Collateralized Mortgage Obligations are a type of bond secured by an underlying
pool of mortgages or mortgages pass-through certificates that are structured to
direct payments on underlying collateral to different series or classes of the
obligations.
-29-
<PAGE> 33
To the extent that an Underlying Fund purchases mortgage-related or
mortgage-backed securities at a premium, mortgage foreclosures and prepayments
of principal (which may be made at any time without penalty) may result in some
loss of the Underlying Fund's principal investment to the extent of the premium
paid. The yield of the Underlying Fund may be affected by reinvestment of
prepayments at higher or lower rates than the original investment. In addition,
like other debt securities, the value of mortgage-related securities, including
government and government-related mortgage pools, will generally fluctuate in
response to market interest rates.
MUNICIPAL SECURITIES AND AMT-SUBJECT BONDS. "Municipal Securities" are debt
obligations issued by states, territories and possessions of the United States,
the District of Columbia and their respective authorities, agencies,
instrumentalities and political subdivisions.
"AMT-Subject Bonds" are Municipal Securities issued to finance certain "private
activities," such as bonds used to finance airports, housing projects, student
loan programs and water and sewer projects. Interest on AMT-Subject Bonds is a
specific tax preference item for purposes of the federal individual and
corporate alternative minimum taxes. In the past, AMT-Subject Bonds have
provided, and may continue to provide, somewhat higher yields than comparable
Municipal Securities, the interest on which is not a specific tax preference
item for purposes of the federal individual and corporate alternative minimum
taxes. See "Dividends, Capital Gains and Taxes" for a discussion of the tax
consequences of investing in AMT-Subject Bonds.
OPTIONS ON SECURITIES.
Option Purchase. All of the Underlying Funds (except the Money Funds and SPIF)
may purchase put and call options on portfolio securities in which it may invest
that are traded on a U.S. or foreign securities exchange or in the
over-the-counter market. An Underlying Fund may utilize up to 10% of its assets
to purchase put options on portfolio securities and may do so at or about the
same time that it purchases the underlying security or at a later time. By
buying a put, an Underlying Fund limits its risk of loss from a decline in the
market value of the security until the put expires. Any appreciation in the
value of the underlying security, however, will be partially offset by the
amount of the premium paid for the put option and any related transaction costs.
An Underlying Fund may also utilize up to 10% of its assets to purchase call
options on securities in which it is authorized to invest. Call options may be
purchased by an Underlying Fund in order to acquire the underlying securities
for the Underlying Fund at a price that avoids any additional cost that would
result from a substantial increase in the market value of a security. An
Underlying Fund may also purchase call options to increase its return to
investors at a time when the call is expected to increase in value due to
anticipated appreciation of the underlying security. Prior to their expirations,
put and call options may be sold in closing sale transactions (sales by the
Underlying Fund, prior to the exercise of options that it has purchased, of
options of the same series), and profit or loss from the sale will depend on
whether the amount received is more or less than the premium paid for the option
plus the related transaction costs.
Covered Option Writing. Certain Underlying Funds may write put and call options
on securities for hedging purposes and the other purposes described in the
section "Strategic Transactions." An Underlying Fund realizes fees (referred to
as "premiums") for granting the rights evidenced by the options. A put option
embodies the right of its purchaser to compel the writer of the option to
purchase from the option holder an underlying security at a specified price at
any time during the option period. In contrast, a call option embodies the right
of its purchaser to compel the writer of the option to sell to the option holder
an underlying security at a specified price at any time during the option
period.
Upon the exercise of a put option written by an Underlying Fund, the Underlying
Fund may suffer a loss equal to the difference between the price at which the
Underlying Fund is required to purchase the underlying security and its market
value at the time of the option exercise, less the premium received for writing
the option. Upon the exercise of a call option written by the Underlying Fund,
the Underlying Fund may suffer a loss equal to the excess of the security's
market value at the time of the option exercise over the Underlying Fund's
acquisition cost of the security, less the premium received for writing the
option.
Certain Underlying Funds may write covered options on portfolio securities to
enhance current return. Accordingly, whenever an Underlying Fund writes a call
option, it will continue to own or have the present right to acquire the
underlying security without the payment of additional consideration for as long
as it remains obligated as the writer of the option. To support its obligation
to purchase the underlying security if a put option is exercised, an Underlying
-30-
<PAGE> 34
Fund will either (1) deposit with its custodian in a segregated account cash or
other liquid assets having a value at least equal to the exercise price of the
underlying securities or (2) continue to own an equivalent number of puts on the
same "series" (that is, puts on the same underlying security having the same
exercise prices and expiration dates as those written by the Underlying Fund),
or an equivalent number of puts on the same "class" (that is, puts on the same
underlying security) with exercise prices greater than those that it has written
(or, if the exercise prices of the puts it holds are less than the exercise
prices of those it has written, it will deposit the difference with the
custodian in a segregated account).
The principal reason for writing covered call and put options on a securities
portfolio is to attempt to realize, through the receipt of premiums, a greater
return than would be realized on the securities alone. In return for a premium,
the writer of a covered call option forfeits the right to any appreciation in
the value of the underlying security above the strike price for the life of the
option (or until a closing purchase transaction can be effected). Nevertheless,
the call writer retains the risk of a decline in the price of the underlying
security. Similarly, the principal reason for writing covered put options is to
realize income in the form of premiums. The writer of the covered put option
accepts the risk of a decline in the price of the underlying security. The size
of the premiums that the Underlying Funds may receive may be adversely affected
as new or existing institutions, including other investment companies, engage in
or increase their option-writing activities.
An Underlying Fund may engage in closing purchase transactions to realize a
profit, to prevent an underlying security from being called or put or, in the
case of a call option, to unfreeze an underlying security (thereby permitting
its sale or the writing of a new option on the security prior to the outstanding
option's expiration). To effect a closing purchase transaction, an Underlying
Fund would purchase, prior to the holder's exercise of an option that the
Underlying Fund has written, an option of the same series as that on which the
Underlying Fund desires to terminate its obligation. The obligation of the
Underlying Fund under an option that it has written would be terminated by a
closing purchase transaction, but the Underlying Fund would not be deemed to own
an option as the result of the transaction. There can be no assurance that the
Underlying Fund will be able to effect closing purchase transactions at a time
when it wishes to do so. The ability of the Underlying Fund to engage in closing
transactions with respect to options depends on the existence of a liquid
secondary market. While the Underlying Fund will generally purchase or write
options only if there appears to be a liquid secondary market for the options
purchased or sold, for some options no such secondary market may exist or the
market may cease to exist. To facilitate closing purchase transactions, however,
the Underlying Fund will ordinarily write options only if a secondary market for
the options exists on a U.S. securities exchange or in the over-the-counter
market.
Option writing for the Underlying Funds may be limited by position and exercise
limits established by U.S. securities exchanges and the NASD and by requirements
of the Code for qualification as a regulated investment company. In addition to
writing covered put and call options to generate current income, the Underlying
Funds may enter into options transactions as hedges to reduce investment risk,
generally by making an investment expected to move in the opposite direction of
a portfolio position. A hedge is designed to offset a loss on a portfolio
position with a gain on the hedge position; at the same time, however, a
properly correlated hedge will result in a gain on the portfolio position's
being offset by a loss on the hedge position. The Underlying Funds bear the risk
that the prices of the securities being hedged will not move in the same amount
as the hedge. An Underlying Fund will engage in hedging transactions only when
deemed advisable by its Sub-Advisor. Successful use by the Underlying Fund of
options will depend on its Sub-Advisor's ability to correctly predict movements
in the direction of the stock underlying the option used as a hedge. Losses
incurred in hedging transactions and the costs of these transactions will
adversely affect the Underlying Fund's performance.
OPTIONS ON FOREIGN CURRENCIES. All of the Underlying Funds (except the STF U.S.
Government Fund, the Money Funds and SPIF) may purchase and write put and call
options on foreign currencies for the purpose of hedging against declines in the
U.S. Dollar value of foreign currency-denominated portfolio securities and
against increases in the U.S. Dollar cost of such securities to be acquired. As
in the case of other kinds of options, however, the writing of an option on a
foreign currency constitutes only a partial hedge, up to the amount of the
premium received, and the Underlying Fund could be required to purchase or sell
foreign currencies at disadvantageous exchange rates, thereby incurring losses.
The purchase of an option on a foreign currency may constitute an effective
hedge against fluctuations in exchange rates, although, in the event of rate
movements adverse to the Underlying Fund's position, it may forfeit the entire
amount of the premium plus related transaction costs. There is no specific
-31-
<PAGE> 35
percentage limitation on the Underlying Fund's investments in options on foreign
currencies. See the SAI of the Underlying Funds for further discussion of the
use, risks and costs of options on foreign currencies.
OPTIONS ON FOREIGN STOCK INDEXES. The STF International Growth, STF Growth, STF
Growth and Income, STF Emerging Growth and STF Short Term High Quality Bond
Funds may, subject to applicable securities regulations, purchase and write put
and call options on foreign stock indexes listed on foreign and domestic stock
exchanges for the purposes of hedging its portfolio. A stock index fluctuates
with changes in the market values of the stocks included in the index. Examples
of foreign stock indexes are the Canadian Market Portfolio Index (Montreal Stock
Exchange), The Financial Times -- Stock Exchange 100 (London Stock Exchange) and
the Toronto Stock Exchange Composite 300 (Toronto Stock Exchange).
Options on stock indexes are generally similar to options on stock except for
different delivery requirements. Instead of giving the right to take or make
delivery of stock at a specified price, an option on a stock index gives the
holder the right to receive a cash "exercise settlement amount" equal to (a) the
amount, if any, by which the fixed exercise price of the option exceeds (in the
case of a put) or is less than (in the case of a call) the closing value of the
underlying index on the date of exercise, multiplied by (b) a fixed "index
multiplier." Receipt of this cash amount will depend upon the closing level of
the stock index upon which the option is based being greater than, in the case
of a call, or less than, in the case of a put, the exercise price of the option.
The amount of cash received will be equal to such difference between the closing
price of the index and the exercise price of the option expressed in U.S.
Dollars or a foreign currency, as the case may be, times a specified multiple.
The writer of the option is obligated, in return for the premium received, to
make delivery of this amount. The writer may offset its position in stock index
options prior to expiration by entering into a closing transaction on an
exchange or the option may expire unexercised.
The effectiveness of purchasing or writing stock index options as a hedging
technique will depend upon the extent to which price movements in the portion of
the securities portfolio of the Underlying Fund correlate with price movements
of the stock index selected. Because the value of an index option depends upon
movements in the level of the index rather than the price of a particular stock,
whether the Underlying Fund will realize a gain or loss from the purchase or
writing of options on an index depends upon movements in the level of stock
prices in the stock market generally or, in the case of certain indexes, in an
industry or market segment, rather than movements in the price of a particular
stock. Accordingly, successful use of options on stock indexes by the Underlying
Fund will be subject to its Sub-Advisor's ability to predict correctly movements
in the direction of the stock market generally or of a particular industry. This
requires different skills and techniques than predicting changes in the price of
individual stocks.
Options on securities indexes entail risks in addition to the risks of options
on securities. Because exchange trading of options on securities indexes is
relatively new, the absence of a liquid secondary market to close out an option
position is more likely to occur, although the Underlying Fund generally will
only purchase or write such an option if the Sub-Advisor believes the option can
be closed out. Because options on securities indexes require settlement in cash,
the Underlying Fund may be forced to liquidate portfolio securities to meet
settlement obligations. The Underlying Fund will engage in stock index options
transactions only when determined by its Sub-Advisor to be consistent with its
efforts to control risk. There can be no assurance that such judgment will be
accurate or that the use of these portfolio strategies will be successful.
When the Underlying Fund writes an option on a stock index, it will establish a
segregated account with its custodian or with a foreign sub-custodian in which
the Underlying Fund will deposit cash or other liquid assets in an amount equal
to the market value of the option, and will maintain the account while the
option is open.
OVER THE COUNTER OPTIONS. Each of the Underlying Funds (except the STF U.S.
Government, STF U.S. Government Money Fund and SPIF) may write or purchase
options in privately negotiated domestic or foreign transactions ("OTC
Options"), as well as exchange-traded or "listed" options on foreign currencies.
Each of the Underlying Funds except the Money Funds may write or purchase OTC
Options on securities. OTC Options can be closed out only by agreement with the
other party to the transaction, and thus any OTC Options purchased by an
Underlying Fund will be considered an illiquid security. In addition, certain
OTC Options on foreign currencies are traded through financial institutions
acting as market-makers in such options and the underlying currencies.
-32-
<PAGE> 36
OTC Options entail risks in addition to the risks of exchange-traded options.
Exchange-traded options are in effect guaranteed by the Options Clearing
Corporation while an Underlying Fund relies on the party from whom it purchases
an OTC Option to perform if the Underlying Fund exercises the option. With OTC
Options, if the transacting dealer fails to make or take delivery of the
securities or amount of foreign currency underlying an option it has written, in
accordance with the terms of that option, the Underlying Fund will lose the
premium paid for the option as well as any anticipated benefit of the
transaction. Furthermore, OTC Options are less liquid than exchange-traded
options.
REPURCHASE AGREEMENTS. All of the Underlying Funds and the Portfolios may enter
into repurchase agreements, which are agreements to purchase underlying debt
obligations from financial institutions, such as banks and broker-dealers,
subject to the seller's agreement to repurchase the obligations at an
established time and price. The collateral for such repurchase agreements will
be held by the Underlying Fund's custodian or a duly appointed sub-custodian. An
Underlying Fund will enter into repurchase agreements only with banks and
broker-dealers that have been determined to be creditworthy by the Underlying
Fund's Board of Trustees under criteria established with the assistance of the
Advisor. The seller under a repurchase agreement would be required to maintain
the value of the obligations subject to the repurchase agreement at not less
than the repurchase price. Default by the seller would, however, expose the
Underlying Fund to possible loss because of adverse market action or delay in
connection with the disposition of the underlying obligations. In addition, if
bankruptcy proceedings are commenced with respect to the seller of the
obligations, the Underlying Fund may be delayed or limited in its ability to
sell the collateral.
REVERSE REPURCHASE AGREEMENTS. Each of the Underlying Funds except the Money
Funds may engage in reverse repurchase agreements. Reverse repurchase agreements
are the same as repurchase agreements except that, in this instance, the
Underlying Funds would assume the role of seller/borrower in the transaction.
The Underlying Funds will maintain segregated accounts with the Trust's
custodian consisting of cash or other liquid assets that at all times are in an
amount equal to their obligations under reverse repurchase agreements. Reverse
repurchase agreements involve the risk that the market value of the securities
sold by an Underlying Fund may decline below the repurchase price of the
securities and, if the proceeds from the reverse purchase agreement are invested
in securities, that the market value of the securities bought may decline below
the repurchase price of the securities sold. Each Underlying Fund's Sub-Advisor,
acting under the supervision of the Board of Trustees of the applicable
Underlying Fund, reviews, on an ongoing basis the creditworthiness of the
partners with which it enters into reverse repurchase agreements. Under the
Investment Company Act, reverse repurchase agreements may be considered
borrowings by the seller. For each of the Underlying Funds except the STF U.S.
Government, STF Short Term High Quality Bond and STF Corporate Income Funds,
whenever borrowings by an Underlying Fund, including reverse repurchase
agreements, exceed 5% of the value of an Underlying Fund's total assets, the
Underlying Fund will not purchase any securities. The STF U.S. Government, STF
Short Term High Quality Bond and STF Corporate Income Funds are prohibited from
borrowing money or entering reverse repurchase agreements or dollar roll
transactions in the aggregate in excess of 33 1/3 percent of the Underlying
Fund's total assets (after giving effect to such borrowings).
SENIOR LOANS. Senior Loans consist of interests in floating or variable rate
senior loans made primarily to United States corporations, partnerships and
other entities. Senior Loans may take the form of syndicated loans ("Syndicated
Loans") or of debt obligations of Borrowers issued directly to investors in the
form of debt securities ("Senior Notes"). Senior Loans in which the underlying
Fund will invest generally pay interest at rates which are periodically
redetermined by reference to a base lending rate plus a premium. These base
lending rates are generally the prime rate offered by one or more major United
States banks ("Prime Rate"), the London Inter-Bank Offered Rate ("LIBOR"), the
Certificate of Deposit ("CD") rate or other base lending rates used by
commercial lenders.
Senior Loans invested by SPIF will consist of Senior Loans with stated
maturities of between three and seven years and with rates of interest which are
periodically reset with reset periods typically ranging from 30 days to one
year.
STRATEGIC TRANSACTIONS. Subject to the investment limitations and restrictions
for each of the Underlying Funds as stated elsewhere in the prospectuses and SAI
of the Underlying Funds, each of the Underlying Funds, except the Money Funds
may, but is not required to, utilize various other investment strategies as
described below to hedge various market risks, to manage the effective maturity
or duration of fixed-income securities, or to seek potentially
-33-
<PAGE> 37
higher returns. Utilizing these investment strategies, the Underlying Fund may
purchase and sell, to the extent not otherwise limited or restricted for such
Underlying Fund, exchange-listed and over-the-counter put and call options on
securities, equity and fixed-income indices and other financial instruments,
purchase and sell financial futures contracts and options thereon, enter into
various interest rate transactions such as swaps, caps, floors or collars, and
enter into various currency transactions such as currency forward contracts,
currency futures contracts, currency swaps or options on currencies or currency
futures (collectively, all the above are called "Strategic Transactions").
Strategic Transactions may be used to attempt to protect against possible
changes in the market value of securities held in or to be purchased for the
Underlying Fund's portfolio resulting from securities markets or currency
exchange rate fluctuations, to protect the Underlying Fund's unrealized gains in
the value of its portfolio securities, to facilitate the sale of such securities
for investment purposes, to manage the effective maturity or duration of the
Underlying Fund's portfolio, or to establish a position in the derivatives
markets as a temporary substitute for purchasing or selling particular
securities. Some Strategic Transactions may also be used to seek potentially
higher returns, although no more than 5% of the Underlying Fund's assets will be
used as the initial margin or purchase price of options for Strategic
Transactions entered into for purposes other than "bona fide hedging" positions
as defined in the regulations adopted by the Commodity Futures Trading
Commission. Any or all of these investment techniques may be used at any time,
as use of any Strategic Transaction is a function of numerous variables
including market conditions. The use of Strategic Transactions involves special
considerations and risks, for example (1) the ability of the Underlying Fund to
utilize these Strategic Transactions successfully will depend on the
Sub-Advisor's ability to predict, which cannot be assured, pertinent market
movements; and (2) there might be imperfect correlation, or even no correlation,
between price movements of Strategic Transactions and price movements of the
related portfolio positions. Strategic Transactions can reduce risk of loss by
wholly or partially offsetting the negative effect of unfavorable price
movements or of unfavorable currency fluctuations in the related portfolio or
currency positions, but can also reduce opportunity for gain by offsetting the
positive effect of favorable price movements in positions. The Underlying Fund
will comply with applicable regulatory requirements when utilizing Strategic
Transactions. Strategic Transactions involving financial futures and options
thereon will be purchased, sold or entered into only for bona fide hedging, risk
management or portfolio management purposes. For more information see discussion
in other sections of "Securities and Investment Practices of the Portfolios and
Underlying Funds" and the SAI of the Underlying Funds.
U.S. GOVERNMENT SECURITIES. All of the Underlying Funds may invest in U.S.
Government Securities, which include direct obligations of the U.S. Treasury
(such as U.S. Treasury bills, notes and bonds) and obligations directly issued
or guaranteed by U.S. Government agencies or instrumentalities. Some obligations
issued or guaranteed by agencies or instrumentalities of the U.S. Government are
backed by the full faith and credit of the U.S. Government (such as GNMA Bonds),
others are backed only by the right of the issuer to borrow from the U.S.
Treasury (such as securities of Federal Home Loan Banks) and still others are
backed only by the credit of the instrumentality (such as FNMA and FHLMC Bonds).
WHEN-ISSUED SECURITIES AND DELAYED-DELIVERY TRANSACTIONS. In order to secure
yields or prices deemed advantageous at the time, all of the Underlying Funds
except the Money Funds may purchase or sell securities on a when-issued or a
delayed-delivery basis. The Underlying Funds will enter into a when-issued
transaction for the purpose of acquiring portfolio securities and not for the
purpose of leverage. In such transactions delivery of the securities occurs
beyond the normal settlement periods, but no payment or delivery is made by, and
no interest accrues to, the Underlying Funds prior to the actual delivery or
payment by the other party to the transaction. Due to fluctuations in the value
of securities purchased on a when-issued or a delayed-delivery basis, the yields
obtained on such securities may be higher or lower than the yields available in
the market on the dates when the investments are actually delivered to the
buyers. Similarly, the sale of securities for delayed-delivery can involve the
risk that the prices available in the market when delivery is made may actually
be higher than those obtained in the transaction itself. The Underlying Funds
will establish a segregated account with the Underlying Fund's custodian
consisting of cash or other liquid assets in an amount equal to the amount of
its when-issued and delayed-delivery commitments.
-34-
<PAGE> 38
PERFORMANCE INFORMATION
YIELD
From time to time, advertisements or shareholder reports concerning the
Portfolios may describe the 30-day yield. The 30-day yield of the Income
Portfolio, Value Portfolio and the Balanced Portfolio refers to the income
generated by an investment in such Portfolio over the 30-day period identified
in the advertisement, and is computed by dividing the net investment income per
share earned by the Fund during the period by the maximum Public Offering Price
per share on the last day of the 30-day period. This income is "annualized" by
assuming that the amount of income is generated each month over a one-year
period and is compounded semiannually. The annualized income is then shown as a
percentage of the maximum Public Offering Price. In addition, the Income
Portfolio, Value Portfolio and the Balanced Portfolio may advertise a similar
30-day yield computed in the same manner except that the NAV per share is used
in place of the Public Offering Price per share.
TOTAL RETURN
From time to time, a Portfolio may advertise its average annual total return
over various periods of time. Such total return figures show the average
percentage change in value of an investment in the Portfolio from the beginning
date of the measuring period. These figures reflect changes in the price of the
Portfolio's shares and assume that any income dividends and/or capital gains
distributions made by the Portfolio during the period were reinvested in shares
of the Portfolio. Figures will be given for recent one-, five- and ten-year
periods (if applicable), and may be given for other periods as well (such as
from commencement of the Portfolio's operations, or on a year-by-year basis). A
Portfolio may also advertise the average annual total return of the Sierra Asset
Management program, an investment management service offered by Sierra Services
that allocates investments across a combination of the Underlying Funds. See
"Determination of Performance" in the SAI.
ADDITIONAL PERFORMANCE QUOTATIONS. Advertisements of total return will always
show a calculation that includes the effect of the maximum sales charge but may
also show total return without giving effect to that charge. Similarly, a
Portfolio may provide yield quotations in investor communications based on the
Portfolio's NAV (rather than its Public Offering Price) per share on the last
day of the period covered by the yield computation. Because these additional
quotations will not reflect the maximum sales charge payable, such performance
quotations will be higher than the performance quotations that include the
maximum sales charge.
TOTAL RETURNS AND YIELDS ARE BASED ON PAST RESULTS AND ARE NOT A PREDICTION OF
FUTURE PERFORMANCE.
Performance information is computed separately for each Portfolio's Class A and
Class B Shares. Because Class B Shares bear the expense of the higher
distribution and service fees, it is expected that performance for a Portfolio's
Class B Shares will be lower than that for a Portfolio's Class A Shares. The SAI
describes the methods used to determine a Portfolio's performance.
PERFORMANCE COMPARISONS
In reports or other communications to shareholders or in advertising material, a
Portfolio may compare the performance of its Class A and Class B Shares with
that of other mutual funds as listed in the rankings prepared by Lipper
Analytical Services, Inc., CDA Technologies, Inc. or similar independent
services that monitor the performance of mutual funds or with other appropriate
indexes of investment securities. In addition, certain indexes may be used to
illustrate historic performance of select asset classes. These may include,
among others, the Lehman Brothers Mortgage Index, the Lehman Brothers Index of
Baa-rated Corporate Bonds, the T-Bill Index, Donoghue's Money Fund Averages,
Russell 2000 Index, Russell 2500 Index, Lehman Brothers Government/Corporate
Index, Lehman Brothers Aggregate Bond Index, Merrill Lynch 1 to 3 Year Corporate
Index, Merrill Lynch 5 to 7 Year Treasury Index, the IFC Index and the "Stocks,
Bonds and Inflation Index" published annually by Ibbotson Associates. The
performance information may also include evaluations of the Portfolios published
by nationally recognized ranking services and by financial publications that are
nationally recognized, such as Business Week, Forbes, Fortune, Institutional
Investor, Money and The Wall Street Journal. A Portfolio may also compare its
performance to other investments or relevant indexes consisting of Morgan
Stanley Capital International EAFE Index, the Standard & Poor's 500 Index, the
Lipper Government Index, the Lipper International Fund Index, the Lipper Growth
and Income Fund Index, the Lipper Growth Fund Index, the Lipper
-35-
<PAGE> 39
Emerging Growth Fund Index, the Lipper BBB Corporate Index, the Lipper Mortgage
Fund Index and the Lipper Short Term Bond Fund Index. If a Portfolio compares
its performance to other funds or to relevant indexes, the performance will be
stated in the same terms in which such comparative data and indexes are stated,
which is normally total return rather than yield. For these purposes the
performance of the Portfolio, as well as the performance of such investment
companies or indexes, may not reflect sales charges, which, if reflected, would
reduce performance results.
OBTAINING PERFORMANCE INFORMATION
Each Portfolio's strategies, performance, and holdings are detailed twice a year
in Trust reports, which are sent to all shareholders of the Trust. Shareholders
may call 800-222-5852 for performance information. Shareholders may make
inquiries regarding a Portfolio, including current total return figures, to any
broker-dealer or institution that has entered into an distribution agreement or
arrangement with Sierra Services (each, an "Authorized Dealer"), or by calling
Sierra Shareholder Services at 800-222-5852.
YOUR SIERRA ASSET MANAGEMENT ("SAM") PORTFOLIO ACCOUNT
SETTING UP YOUR SAM PORTFOLIO ACCOUNT
The Portfolios have been designed for long-term investors and tax-advantaged
retirement and other long-term investment and savings accounts. Shares of the
Portfolios are sold on a continuous basis and may be purchased directly from the
Trust, through the Trust's distributor, Sierra Services, or through Authorized
Dealers. This section describes the purchase, exchange and redemption services
available to investors. Please note that the services available will vary
depending upon the class of shares in which you are investing and the Authorized
Dealer, if any, through which you are purchasing shares of the Trust.
Financial institutions may acquire shares of the Portfolios for their own
account or as record owner on behalf of fiduciary agency or custody accounts by
placing orders with the Trust's Transfer Agent. Shares of the Portfolios may be
purchased through Authorized Dealers that provide various levels of shareholder
services to their customers. Contact your Authorized Dealer for information
about the services available to you and for specific instructions on how to buy,
sell and exchange shares.
Both Class A Shares and Class B Shares are offered to tax-advantaged retirement
accounts. If you are investing in a Portfolio through an IRA, 401(k) or other
retirement plan, you should contract your plan sponsor for the services and
procedures which pertain to your account.
State securities laws may require financial institutions and other Authorized
Dealers purchasing shares for their customers to register as dealers pursuant to
state laws. To allow for processing and transmittal of orders to the Trust's
Transfer Agent on the same day, financial institutions and other Authorized
Dealers may impose earlier cut-off times for receipt of purchase orders directed
through them. Certain financial institutions and other Authorized Dealers may
charge separate customer account fees. Information concerning shareholder
services and any charges will be provided to the customer by the Authorized
Dealer.
The shares of the Portfolios you purchase through an Authorized Dealer may be
held of record by that Authorized Dealer. If you want to transfer the
registration of shares beneficially owned by you, but held of record by an
Authorized Dealer, you should call the Authorized Dealer to request this change.
-36-
<PAGE> 40
YOUR ACCOUNT
- --------------------------------------------------------------------------------
WAYS TO SET UP YOUR ACCOUNT
INDIVIDUAL OR JOINT ACCOUNT
Individual accounts are owned by one person. Two types of joint accounts (having
two or more owners) can be opened:
(1) in a "joint tenancy" account, the surviving owner(s) automatically
receive(s) the shares of any owner(s) who die(s); and
(2) in a "tenants in common" account, the heir(s) of any deceased owner
receive(s) such owner's shares, rather than the surviving owners of the joint
account.
- --------------------------------------------------------------------------------
RETIREMENT
Retirement plans protect investment income and capital gains from current taxes.
Contributions to these accounts may be tax deductible. Retirement accounts
require special applications and typically have lower minimums.
- - INDIVIDUAL RETIREMENT ACCOUNTS ("IRAS") allow persons of legal age and under
70 1/2 years old with earned income to protect up to $2,000 per tax year from
certain tax effects. If your spouse has earned income of less than $250 per
year, you can protect an additional $250 per year in your spouse's name.
- - ROLLOVER IRAS permit persons to retain special tax advantages for certain
transfers from employer-sponsored retirement plans (often occurring when a
person changes employers).
- - SIMPLIFIED EMPLOYEE PENSION PLANS ("SEP-IRAS") provide small business owners
or those with self-employed income (and their eligible employees) with many of
the same advantages as a Keogh, but with fewer administrative requirements.
- --------------------------------------------------------------------------------
GIFTS OR TRANSFERS TO A MINOR CHILD ("UGMA," "UTMA")
These gifts or transfers provide a way to give money to a child and obtain tax
benefits. A parent or grandparent can give up to $10,000 a year to each child
without paying federal gift tax. Depending on state laws, you can set up a
custodial account under the Uniform Gifts to Minors Act (UGMA) or the Uniform
Transfers to Minors Act (UTMA).
- --------------------------------------------------------------------------------
TRUST
Trusts can be used for many purposes, including charitable contributions and
providing a regular income for a child until a certain age. The trust must be
established before an account can be opened.
- --------------------------------------------------------------------------------
CORPORATION OR OTHER ORGANIZATION
Corporations, associations, partnerships, institutions, or other groups may
invest for many purposes.
- --------------------------------------------------------------------------------
-37-
<PAGE> 41
HOW TO INVEST IN A SAM PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
NEW ADDITIONAL
METHOD INVESTMENTS INVESTMENTS
--------------------------------------------------------------------------------
MINIMUM $10,000 MINIMUM $100
($2,000 IRA/401(K)/KEOGH) ($100 IRA/401(K)/KEOGH)
- ------------------------------------------------------------------------------------------------------------------------
IN PERSON: Visit a Representative Visit a Representative
To Open a SAM Portfolio Account of an Authorized Dealer of an Authorized Dealer
Through an Authorized Dealer
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
BY TELEPHONE: Call Sierra Shareholder Services Call Sierra Shareholder Services
at 800-222-5852, at 800-222-5852.
Monday through Friday,
6:00 a.m. to 6:00 p.m.,
Pacific Time/
9:00 a.m. to 9:00 p.m.,
Eastern Time.
Saturday from
6:00 a.m. to 3:00 p.m.,
Pacific Time/
9:00 a.m. to 6:00 p.m.,
Eastern Time
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
BY MAIL: Complete and sign the application. Make your check payable to
Make your check or negotiable "Sierra Asset Management Portfolios."
bank draft payable to "Sierra Asset Indicate your Portfolio account number
Management Portfolios." Third-party and class of shares on your check.
checks are not accepted. Mail the If possible, include the "next
completed application form and check investment" slip from your previous
to: account statement. Mail the check
and slip to the address printed
Sierra Asset Management on your account statements.
c/o First Data Investor Services Group
P.O. Box 5118 Exchange by mail:
Westboro, MA 01581-5118 Call 800-222-5852 for instructions.
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
BY WIRE: 1. Telephone Shareholder Services and Instruct your bank/financial institution
give the (a) name of the account to wire Federal Funds exactly as
as you wish it to be registered; described at left under paragraph 2.
(b) address of the account;
(c) taxpayer ID number (social
security number for an individual);
and (d) Portfolio name and class of
shares.
2. Instruct your bank to wire Federal
Funds
exactly as follows:
Boston Safe Deposit Trust
Boston, MA
ABA #011-001234
For credit to Sierra
Asset Management Portfolios
Account #132012
(Portfolio Name and class of shares)
(Customer's Name)
(Customer's Social Security Number)
3. Mail the completed application form
to:
Sierra Asset Management
c/o First Data Investor Services Group
P.O. Box 5118
Westboro, MA 01581-5118
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
AUTOMATICALLY: 1. Obtain and complete an application Pre-authorized monthly investments are
form. now processed automatically. (Minimum
Amount $100).
(Minimum New Account 2. Attach a voided check or deposit slip
amount $1,000). from the bank account you would like
the investments transferred from on
the 15th of each month.
3. Mail the application to the address
listed above.
</TABLE>
- --------------------------------------------------------------------------------
-38-
<PAGE> 42
TO PURCHASE SHARES. Purchase, sale and exchange orders received by Sierra
Shareholder Services prior to the close of trading on any day that the NYSE is
open (a "Business Day") are effected at that day's NAV for the applicable class
of the Portfolio, plus any applicable sales charge (the "Public Offering
Price"). Purchase, sale and exchange orders received after the close of the NYSE
are priced as of the time the NAV is next determined on the next Business Day.
Authorized Dealers are responsible for forwarding orders received on a Business
Day to Sierra Shareholder Services by the close of trading on the NYSE the same
day and failure to do so will result in an investor being unable to obtain that
day's NAV. The NYSE is open Monday through Friday, although it is currently
scheduled to be closed on New Year's Day, Martin Luther King, Jr. Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day, and on the preceding Friday or subsequent
Monday when any of these holidays falls on a Saturday or Sunday, respectively.
Purchases of each class of shares are effected at the Portfolio's Public
Offering Price next determined after a purchase order has been received in
proper form. A purchase order will be deemed to be in proper form when all of
the steps required, including submission of an application form, have been
completed. In the case of an investment by wire, however, the order will be
deemed to be in proper form after the telephone order and the federal funds wire
have been received. The failure of a shareholder who purchases by wire to submit
an application form in a timely fashion may cause delays in processing
subsequent redemption requests. If a telephone order is received or if payment
by wire is received after the close of the NYSE, 1:00 p.m., Pacific Time/4:00
p.m. Eastern Time, the shares will not be credited until the next Business Day.
However, Sierra Shareholder Services will be open from 6:00 a.m. to 6:00 p.m.,
Pacific Time/9:00 a.m. to 9:00 p.m., Eastern Time, Monday through Friday, except
on NYSE holidays and 6:00 a.m. to 3:00 p.m., Pacific Time/9:00 a.m. to 6:00
p.m., Eastern Time on Saturday.
TIMING OF DIVIDENDS. Shares of certain Portfolios are entitled to dividends and
distributions declared beginning the day after a purchase has been credited to
an investor's account and ending on the day a redemption order is effected.
CLASS A AND B SHARES: ALTERNATIVE PURCHASE ARRANGEMENTS. The alternative
purchase arrangements offered by the Trust enable you to choose the method of
purchasing Portfolio shares that is most beneficial given the amount of your
purchase, the length of time you expect to hold the shares and other
circumstances. You should consider whether, during the anticipated life of your
investment in the Trust, the accumulated continuing distribution and service
fees and CDSCs on Class B Shares would be less than the initial sales charge and
accumulated distribution fee on Class A Shares purchased at the same time, and
to what extent such differential would be offset by the anticipated higher
return of Class A Shares.
As an illustration, if you qualify for significantly reduced initial sales
charges, you might elect to purchase Class A Shares, which carry an initial
sales load, because no similar reductions in CDSC are available for the Class B
Shares. Also, Class A Shares are subject to a lower distribution fee and,
accordingly, such shares are expected to pay correspondingly higher dividends on
a per share basis. However, because initial sales charges are deducted at the
time of purchase of Class A Shares, the amount of your portfolios actually
invested would be reduced by the amount of the sales charge and you would
initially own fewer shares. For this reason, you might determine that it would
be more advantageous to purchase Class B Shares, so that all of your funds will
be invested initially, although you would be subject to a CDSC for a six-year
period and higher ongoing distribution and service fees. In addition, if you
expect to maintain your investment for an extended period of time (and even if
you do not qualify for reduced initial sales charges), you might consider
purchasing Class A Shares because the accumulated continuing distribution
charges on Class B Shares may still exceed the initial sales charge and
distribution charges applicable to Class A Shares during the same period.
LARGE PURCHASES OF CLASS B SHARES. When choosing between classes, investors
should carefully consider the ongoing annual expenses along with the initial or
contingent deferred sales charges. The relative impact of the initial sales
charges, CDSCs and ongoing annual expenses will depend on the length of time a
share is held. In almost all cases, investors planning to purchase $250,000 or
more of Portfolio shares will pay lower aggregate charges and expenses by
purchasing Class A Shares.
INITIAL SALES CHARGE ALTERNATIVE: CLASS A SHARES. Class A Shares of the
Portfolios are sold at the Public Offering Price and are subject to a sales
charge at purchase as described in the following tables. Purchases of $1 million
or more and certain other purchases are not subject to the sales charge at the
time of purchase, but may
-39-
<PAGE> 43
be subject to a 1.00% CDSC on redemptions within one year of purchase or a 0.50%
CDSC on redemptions during the second year after purchase (the "Class A CDSC").
No sales charge at time of purchase and no CDSC will be assessed on the
reinvestment of dividends or distributions on Class A Shares or on purchases of
Class A Shares under the 180-day reinvestment privilege described in a following
section. Class A Shares purchased through a qualified 401(k) or 403(b) plan may,
in certain circumstances, be subject to a CDSC of 1.00% if the shares are
redeemed within two years of their initial purchase. See "Application of Class A
Shares CDSCs" subsection in this section. For other waivers of Class A Shares
sales charges, see the section "Waivers of Class A Initial Sales Charges." The
following tables illustrate the sales charges applicable at purchase to Class A
Shares at various investment levels.
FOR CLASS A SHARES OF THE CAPITAL GROWTH PORTFOLIO
<TABLE>
<CAPTION>
Dealers'
As a % of As a % of Reallowance
Offering Price Net Asset as a % of
Amount of Transaction Per Share Value Offering Price
- ------------------------------------------------------ --------------- ---------- ---------------
<S> <C> <C> <C>
Less than $50,000..................................... 5.75% 6.10% 5.00%
$50,000 but less than $100,000........................ 4.75% 4.99% 4.00%
$100,000 but less than $250,000....................... 3.75% 3.90% 3.00%
$250,000 but less than $500,000....................... 3.00% 3.09% 2.50%
$500,000 but less than $1,000,000..................... 2.00% 2.04% 1.75%
$1,000,000 and over................................... 0% 0% 0%+
</TABLE>
FOR CLASS A SHARES OF THE GROWTH PORTFOLIO
<TABLE>
<CAPTION>
Dealers'
As a % of As a % of Reallowance
Offering Price Net Asset as a % of
Amount of Transaction Per Share Value Offering Price
- ------------------------------------------------------ --------------- ---------- ---------------
<S> <C> <C> <C>
Less than $50,000..................................... 5.50% 5.82% 4.75%
$50,000 but less than $100,000........................ 4.75% 4.99% 4.00%
$100,000 but less than $250,000....................... 3.75% 3.90% 3.00%
$250,000 but less than $500,000....................... 3.00% 3.09% 2.50%
$500,000 but less than $1,000,000..................... 2.00% 2.04% 1.75%
$1,000,000 and over................................... 0% 0% 0%+
</TABLE>
FOR CLASS A SHARES OF THE BALANCED PORTFOLIO
<TABLE>
<CAPTION>
Dealers'
As a % of As a % of Reallowance
Offering Price Net Asset as a % of
Amount of Transaction Per Share Value Offering Price
- ------------------------------------------------------ --------------- ---------- ---------------
<S> <C> <C> <C>
Less than $50,000..................................... 5.25% 5.54% 4.50%
$50,000 but less than $100,000........................ 4.50% 4.71% 4.00%
$100,000 but less than $250,000....................... 3.50% 3.63% 3.00%
$250,000 but less than $500,000....................... 3.00% 3.09% 2.50%
$500,000 but less than $1,000,000..................... 2.00% 2.04% 1.75%
$1,000,000 and over................................... 0% 0% 0%+
</TABLE>
-40-
<PAGE> 44
FOR CLASS A SHARES OF THE INCOME PORTFOLIO AND VALUE PORTFOLIO
<TABLE>
<CAPTION>
Dealers'
As a % of As a % of Reallowance
Offering Price Net Asset as a % of
Amount of Transaction Per Share Value Offering Price
- ------------------------------------------------------ --------------- ---------- ---------------
<S> <C> <C> <C>
Less than $50,000..................................... 4.50% 4.71% 4.00%
$50,000 but less than $100,000........................ 4.00% 4.17% 3.50%
$100,000 but less than $250,000....................... 3.50% 3.63% 3.00%
$250,000 but less than $500,000....................... 3.00% 3.09% 2.50%
$500,000 but less than $1,000,000..................... 2.00% 2.04% 1.75%
$1,000,000 and over................................... 0% 0% 0%+
</TABLE>
+ Investors do not pay a sales charge at time of purchase on purchases of $1
million or more; however, Sierra Services may pay the investment dealers of
record on purchases of Class A Shares of $1 million or more a fee of up to 1.00%
of the net asset value of such purchase.
Sierra Services, the distributor of the shares of the Portfolios, will pay the
appropriate dealers' reallowance to Authorized Dealers. The dealers' reallowance
may be changed from time to time. Upon notice, Sierra Services may reallow up to
the full applicable sales charge to certain Authorized Dealers. Authorized
Dealers may receive different compensation for selling one class of a Portfolio
rather than another class of the Portfolio.
REDUCED SALES CHARGES AT PURCHASE.
As described below, the sales charge on purchases of a Portfolio's Class A
Shares may be reduced through: (1) a Right of Accumulation; (2) Quantity
Discounts; (3) a Letter of Intent; and (4) Reinvestment Privileges. Reduced
sales charges may be modified or terminated at any time as to new purchases
and/or letters of intent and are subject to confirmation of an investor's
holdings. For more information about reduced sales charges, contact your
representative or call 800-222-5852.
RIGHT OF ACCUMULATION. Under the Right of Accumulation, the current value of an
investor's existing Class A Shares in a Non-Money Market Fund of Sierra Trust
Funds, Class B and Class S Shares in all the Funds of the Sierra Trust Funds and
Class A Common Shares of SPIF may be combined with the amount of the investor's
current purchase of Class A Shares of a Portfolio or Portfolios in determining
the sales charge applicable to such Class A Shares. In order to receive the
cumulative quantity reduction, the investor or the securities dealer must call
previous purchases of such Class A, Class B and Class S Shares to the attention
of Sierra Shareholder Services at the time of the current purchase.
QUANTITY DISCOUNTS. As shown in the tables previously and under the Right of
Accumulation section, larger purchases of the Class A Shares of the Portfolios
combined with Non-Money Fund Class A Shares, Class B and Class S Shares of all
the Sierra Trust Funds and Class A Common Shares of SPIF reduce the sales charge
paid on the Class A Shares of the Portfolios. The Portfolios will combine
purchases of the Class A Shares of the Portfolios with the Non-Money Fund Class
A Shares, Class B and Class S Shares of all the Sierra Trust Funds and Class A
Common Shares of SPIF made on the same day by the investor, spouse, and any
minor children when calculating the Portfolios' Class A Shares sales charge. In
order to receive the cumulative quantity reduction, the investor or the
securities dealer must call related purchases of such Class A Common Shares of
SPIF, Class A, Class B and Class S Shares to the attention of Sierra Shareholder
Services at the time of the current purchase.
LETTER OF INTENT. An investor may qualify for a reduced sales charge on Class A
Shares of the Portfolios immediately by signing a non-binding "Letter of Intent"
stating the investor's intention to invest during the following 13 months a
specified amount in the Class A Shares of the Portfolios, Non-Money Fund Class A
Shares and/or Class A Common Shares of SPIF which, if made at one time, would
qualify for a reduced sales charge. Any redemptions of Class A Shares made
during the 13-month period will be subtracted from the amount of purchases of
Class A Shares in determining whether the terms of the Letter of Intent have
been met. During the term of a Letter of Intent, Sierra Shareholder Services
will hold Class A Shares representing 5.00% of the amount purchased in escrow
for payment of a higher sales load if the full amount specified in the Letter of
Intent is not purchased
-41-
<PAGE> 45
within the 13-month period. The escrowed shares will be released when the full
amount specified has been purchased. If the full amount specified is not
purchased within the 13-month period, the investor will be required to pay an
amount equal to the difference in the dollar amount of sales charge actually
paid and the amount of sales charge the investor would have had to pay on the
investor's aggregate purchases of Class A Shares if the total of such purchases
had been made at a single time.
REINVESTMENT PRIVILEGE. Upon redemption of Class A Shares from a Portfolio, a
shareholder may reinvest any or all of the redemption proceeds in Class A Shares
of a Portfolio without any sales charge provided the reinvestment is within 180
days of the redemption from the Portfolio. To receive the privilege, the
shareholder must notify the Authorized Dealer or Sierra Shareholder Services
concerning the reinvestment.
WAIVERS OF CLASS A INITIAL SALES CHARGES. No initial sales charge will be
assessed with respect to Class A Shares of a Portfolio on: (1) purchases by (a)
employees or retired employees of Great Western Financial Corporation ("GWFC")
or any of its affiliates and members of their immediate families (spouses and
minor children) and IRAs, Keogh Plans or employee benefit plans for those
employees and retired employees; (b) directors, trustees, officers or advisory
board members, or persons retired from such positions, of any investment company
for which GWFC or an affiliate serves as investment advisor; (c) registered
representatives or full-time employees of Authorized Dealers or full-time
employees of banks affiliated with such dealers; (2) purchases by retirement
plans created pursuant to Section 457 of the Code; (3) purchases that are paid
for with the proceeds from the redemption of shares of a non-money market mutual
fund not affiliated with the Trust or Sierra Services, where the purchase occurs
within 15 Business Days of the prior redemption and is evidenced by a
confirmation of the redemption transaction or a broker-to-broker transfer
request (Sierra Shareholder Services must be notified at the time of purchase
that the purchase being made qualifies for a purchase at NAV); (4) purchases by
employees of any of the Portfolios' Sub-Advisors; and (5) purchases by accounts
as to which an Authorized Dealer or a bank affiliated with an Authorized Dealer
charges an account management fee, provided that the Authorized Dealer or bank
has an agreement with Sierra Services, as the distributor of shares of the Trust
(investors may be charged an additional service or transaction fee by the
Authorized Dealer or bank).
Additional groups of investors that are not subject to an initial sales charge
on purchases of Class A Shares through an Authorized Dealer include either (a)
investors purchasing Class A Shares of a Portfolio through an employee benefit
trust created pursuant to a plan qualified under Section 401(k) of the Code
("401(k) Plan") that has invested, in the aggregate, more than $1 million in the
Portfolios, or (b) investors purchasing Class A Shares of a Portfolio through a
plan qualified under Section 403(b) of the Code ("403(b) Plan") that has
invested, in the aggregate, more than $1 million in the Portfolios. Investors
through 401(k) and 403(b) Plans may be subject to various account fees and
purchase and redemption procedures designated by the employer who has
established the 401(k) Plan or 403(b) Plan. Such investors should consult their
employer and/or account agreements for information relating to their accounts.
The foregoing waivers may be changed at any time.
APPLICATION OF CLASS A SHARES CDSCS. The Class A CDSC of 1.00% or 0.50% may be
imposed on certain redemptions within one or two years of purchase,
respectively, with respect to Class A Shares (i) purchased at NAV without a
sales charge at time of purchase due to purchases of $1 million or more, or (ii)
acquired through an exchange for Class A Shares of a Portfolio, a Sierra Trust
Fund or SPIF purchased at NAV without a sales charge at time of purchase due to
purchases of $1 million or more. The CDSCs for Class A Shares are calculated on
the lower of the shares' cost or current net asset value, and in determining
whether the CDSC is payable, the Trust will first redeem shares not subject to
any CDSC.
With respect to certain investors who purchase Class A Shares through an
Authorized Dealer and who receive a waiver of the entire initial sales charge on
Class A Shares because the Class A Shares were purchased through a 401(k) Plan
or through a 403(b) Plan meeting certain criteria, as described in "Your Account
- -Waivers of Class A Initial Sales Charges," or who hold Class A Shares of a
Portfolio that were acquired through an exchange for Class A Shares of a
Portfolio that were purchased at NAV through one of such plans, a CDSC of 1% may
be imposed on the amount that was invested through the plan in such Class A
Shares and that is redeemed (i) if, within the first two years after the plan's
initial investment in the Portfolios, the named fiduciary of the plan withdraws
the plan from investing in the Portfolios in a manner that causes all shares
held by the plan's participants
-42-
<PAGE> 46
to be redeemed; or (ii) by a plan participant in a 403(b) Plan within two years
of the plan participant's purchase of such Class A Shares. This CDSC will be
waived on redemptions in connection with certain involuntary distributions,
including distributions arising out of the death or disability of a shareholder
(including one who owns the shares as joint tenant). See "HOW TO BUY AND REDEEM
SHARES" in the SAI.
WAIVERS OF THE CLASS A SHARES CDSCS. The Class A CDSC is waived for redemptions
of Class A Shares (i) that are part of exchanges for Class A Shares of other
Portfolios; (ii) for distributions to pay benefits to participants from a
retirement plan qualified under Section 401(a) or 401(k) of the Code, including
distributions due to the death or disability of the participant (including one
who owns the shares as a joint tenant); (iii) for distributions from a 403(b)
Plan or an IRA due to death, disability, or attainment of age 70 1/2, including
certain involuntary distributions; (iv) for tax-free returns of excess
contributions to an IRA; (v) for distributions by other employee benefit plans
to pay benefits; and (vi) in connection with certain automatic withdrawals. See
"HOW TO BUY AND REDEEM SHARES" in the SAI.
DEFERRED SALES CHARGE ALTERNATIVE: CLASS B SHARES. If you choose the deferred
sales charge alternative, you may purchase Class B Shares at their NAV per share
without the imposition of a sales charge at the time of purchase. Class B Shares
of the Funds that are redeemed within six years of purchase are subject to a
CDSC as described below. CDSC payments and distribution fees on Class B Shares
may be used to fund commissions payable to Authorized Dealers.
No charge will be imposed with respect to shares having a value equal to any net
increase in the value of shares purchased during the preceding six years and
shares acquired by reinvestment of net investment income and capital gain
distributions. The amount of the charge is determined as a percentage of the
lesser of (1) the NAV of the Class B Shares at the time of purchase or (2) the
NAV of the Class B Shares at the time of redemption. The percentage used to
calculate the CDSC will depend on the number of years since you invested the
dollar amount being redeemed, according to the following table:
<TABLE>
<CAPTION>
Contingent Deferred
Sales
Year of Redemption After Purchase Charge
---------------------------------------- -------------------
<S> <C>
First................................... 5%
Second.................................. 4%
Third................................... 3%
Fourth.................................. 3%
Fifth................................... 2%
Sixth................................... 1%
Seventh and following................... 0
</TABLE>
All purchases are considered made on the last day of the month of purchase. To
determine the CDSC payable on a redemption of Class B Shares, a Portfolio will
first redeem Class B Shares not subject to a CDSC. Thereafter, to determine the
applicability and rate of any CDSC, it will be assumed that shares representing
the reinvestment of dividends and capital gain distributions are redeemed first
and shares held for the longest period of time are redeemed next. Using this
method, your sales charge, if any, will be at the lowest possible CDSC rate.
The Trust will adopt procedures to convert Class B Shares, without payment of
any sales charges, into Class A Shares, which have lower distribution fees,
after the passage of a number of years after purchase. Such conversion may occur
in approximately eight years.
WAIVERS OF THE CLASS B CDSCS. No CDSC charges will be assessed on redemptions of
Class B Shares in the case of systematic withdrawals in amounts of 1% or less
per month; a redemption made within one year of the death of the shareholder
(including one who owns the shares as joint owner); and redemptions in
connection with certain involuntary distributions, including distributions
arising out of the death or disability of a shareholder, from IRAs. The
foregoing waivers may be changed at any time.
-43-
<PAGE> 47
HOW TO SELL SHARES
You can arrange to take money out of your Portfolio account on any Business Day
by selling some or all of your shares. Your shares will be sold at the NAV next
determined after your order is received and accepted. Certain Class A Shares may
be subject to a CDSC as described in the "APPLICATION OF CLASS A SHARES CDSCS"
section.
Redemption proceeds are normally wired or mailed on the next Business Day, but
in no event later than seven days after receipt of a redemption request by
Sierra Shareholder Services, until such time as regulations may require the
Portfolios to redeem proceeds within five days. However, if a shareholder is
redeeming shares recently purchased with a check, the redemption proceeds will
not be paid to the shareholder until the check has cleared. The check may take
up to 15 days to clear for deposit of the shareholder's funds into the
Portfolio's account, and the shareholder may not receive the redemption proceeds
until after such time period. The failure of a shareholder who purchased shares
by wire to submit an application form in a timely fashion may cause delays in
processing redemption requests.
If you wish to keep your Class A or Class B Shares SAM Portfolio Account open,
leave at least $10,000 worth of shares in your SAM Portfolio Account, unless you
are a participant in the SAM Portfolios Automatic Investment Plan.
If the value of your SAM Portfolio Account falls below $10,000 because of
shareholder redemption(s), the Portfolio may notify the shareholder, and if the
account value remains below $10,000 for a continuous 60-day period, the shares
in such account may be subject to redemption by the Portfolio and, if redeemed,
the net asset value of such shares will be promptly paid to the shareholder. The
Portfolio, however, will not redeem shares based solely upon changes in the
market that reduce the net asset value of shares. If the shares that are
redeemed in such a case are Class B Shares, the CDSC applicable to such shares
may be imposed.
- - The table on the following page highlights the ways in which you can redeem
shares in your SAM Portfolio Account.
-44-
<PAGE> 48
WAYS TO SELL SHARES OF YOUR SIERRA ASSET MANAGEMENT PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Account Type Special Requirements
BY PHONE All account types, except - You may exchange to the same class of
800-222-5852 retirement other Portfolios of the Trust if both
accounts are registered with the same
name(s), address, and taxpayer ID
number. You may also redeem amounts by
telephone. Checks will be mailed to the
address of record exactly as account is
registered.
- ---------------------------------------------------------------------------------------------------------
BY MAIL Individual, Joint Accounts, Sole - The letter of instruction must be signed
Proprietorships, UGMA, UTMA* by all persons required to sign for
transactions, exactly as their names
appear on the account.* Checks will be
mailed to the address of record.
- Signature guarantee is required on
amounts of more than $50,000.
- ---------------------------------------------------------------------------------------------------------
SYSTEMATIC WITHDRAWAL All Shareholder(s) - When shares are valued at NAV at $10,000
PLAN or more, shareholders may elect to
establish a Systematic Withdrawal Plan
and receive a monthly, quarterly,
semiannual or annual check. Privilege
may be terminated by the shareholder(s)
on thirty days written notice or by the
Trust at any time.
- ---------------------------------------------------------------------------------------------------------
BY WIRE All account types except - You must sign up for the wire feature
retirement before using it. To verify that it is in
place, call 800-222-5852.
- Your wire redemption request must be
received by the Trust before 8:00 a.m.,
Pacific Time/11:00 a.m., Eastern Time,
for money to be wired on the next
Business Day. A $5.00 fee may be charged
for each wire transfer. Minimum amount
is $1,000.
- ---------------------------------------------------------------------------------------------------------
</TABLE>
* Corporations, trusts, and retirement plans may require additional paperwork
before shares may be redeemed. Please call 800-222-5852 to verify you have the
correct paperwork and to avoid delays.
-45-
<PAGE> 49
- - BY TELEPHONE
A shareholder may withdraw any amount from the shareholder's account by
telephoning 800-222-5852. Redemption orders must include the shareholder's
Portfolio account name (as registered with the Portfolio) from which the
redemption is being made, the class of shares and the relevant Portfolio account
number. Otherwise, the proceeds will be sent to the shareholder by check at the
shareholder's address of record.
TO SET UP THE TELEPHONE WIRE REDEMPTION PROCEDURE, indicate your acceptance of
this procedure on the application form and designate a bank and bank account
number to receive the proceeds of withdrawals. To use this procedure after a SAM
Portfolio Account has been opened or to change instructions already given,
designate a bank and bank account number to receive redemption proceeds and send
a written notice to Sierra Shareholder Services with a signature guarantee (for
more information regarding signature guarantees, see the following). For joint
accounts, all owners must sign and have their signatures guaranteed.
KEY ASPECTS OF TELEPHONE TRANSACTIONS. The Trust and its Transfer Agent will
each employ procedures to confirm that telephone instructions are genuine,
including recording telephone calls and sending written confirmations of
telephone transactions. If the Transfer Agent does not follow such procedures it
may be liable for losses due to unauthorized or fraudulent telephone
instructions. You should verify the accuracy of telephone transactions
immediately upon receipt of your confirmation statement. Neither the Trust nor
its Transfer Agent will be responsible for any loss, liability, cost or expense
for acting upon wire instructions or upon telephone instructions that it
reasonably believes are genuine. During periods of significant economic or
market changes, telephone transactions may be difficult to implement. If an
investor is unable to contact Sierra Shareholder Services by telephone, an
investor may deliver the transaction request to Sierra Shareholder Services at
800-222-5852. Upon 30 days' prior written notice to shareholders, the telephone
transaction privileges may be modified or terminated.
- - SYSTEMATIC WITHDRAWAL PLAN
A Systematic Withdrawal Plan may be established by a new or existing shareholder
if the Class A Shares or Class B Shares in the shareholder's account, when
valued at the NAV at the time of the establishment of the Systematic Withdrawal
Plan, equals $10,000 or more. Shareholders who elect to establish a Systematic
Withdrawal Plan may receive a monthly, quarterly, semiannual or annual check in
a stated amount, not less than $100, on the 10th or 20th of the month. Portfolio
shares will be redeemed as necessary to meet withdrawal payments. Withdrawals
may result in a gain or loss for tax purposes, may involve the use of principal
and may eventually deplete all of the shares in the account. To protect
shareholders and the Portfolios, if the Systematic Withdrawal Plan is not
established when an account is opened, a signature guarantee (see following
page) is required to establish a Systematic Withdrawal Plan. Also, a signature
guarantee is required if withdrawal payments are directed to an address other
than the address of record, or if a change of address request has been submitted
in the last 30 days. A Systematic Withdrawal Plan may be terminated by a
shareholder on 30 days' written notice or by the Trust at any time.
The CDSC on Class B Shares is waived for withdrawals under the Systematic
Withdrawal Plan of a maximum of 1% per month, 3% per quarter, 6% semiannually or
12% annually, of a shareholder's investment in, and any dividends or
distributions on, Class B Shares of a Portfolio at the time the Systematic
Withdrawal Plan commences, provided that the shareholder elects to have all
dividends and distributions on the shareholder's Class B Shares automatically
reinvested in additional Class B Shares. Under this CDSC waiver policy, amounts
withdrawn each month will be paid by redeeming first Class B Shares not subject
to a CDSC because the shares were purchased by the reinvestment of dividends or
capital gains distributions, the CDSC period has elapsed or some other waiver of
the CDSC applies. If no Class B Shares not subject to the CDSC are available, or
not enough such shares are available, Class B Shares having a CDSC will be
redeemed next beginning with such shares held for the longest period of time
(having the lowest CDSC payable upon redemption) and continuing with shares held
the next longest period of time until shares held the shortest period of time
are redeemed. Under this policy, the least amount of CDSC will be waived by
withdrawals under the Systematic Withdrawal Plan. See "How to Invest in a SAM
Portfolio Account -- Deferred Sales Charge Alternative: Class B Shares,"
"Application of Class A Shares CDSCs," "Waivers of the Class A Shares CDSCs" and
"Waivers of the Class B CDSCs" sections for a description
-46-
<PAGE> 50
of the circumstances under which a CDSC on Class B Shares and on Class A Shares,
respectively, may be assessed on redemptions of such shares made through the
Systematic Withdrawal Plan as described above.
- - THROUGH SIERRA SHAREHOLDER SERVICES OR AUTHORIZED DEALERS
You may sell shares of the Portfolio through your Authorized Dealer and in that
way be certain, providing the order is timely, of receiving the NAV established
at the end of the day on which your Authorized Dealer is given the redemption
order. The Portfolio makes no charge for this transaction but the Authorized
Dealer may charge you a service fee.
CERTAIN WRITTEN REQUESTS MUST INCLUDE A SIGNATURE GUARANTEE. To protect you and
the Trust from fraud, a written request must include a signature guarantee if
any of the following situations apply:
- You wish to redeem more than $50,000 worth of shares,
- The redemption check is not being mailed to the address on your SAM
Portfolio Account (record address), or
- The check is not being made out to the SAM Portfolio Account owner.
You should be able to obtain a signature guarantee from a bank that is a member
of the Federal Deposit Insurance Corporation, a trust company, broker-dealer,
credit union (if authorized under state law), securities exchange or
association, clearing agency, or savings association. A notary public cannot
provide a signature guarantee. For joint accounts, all owners must sign and have
their signatures guaranteed.
EXCHANGE PRIVILEGES AND RESTRICTIONS
The exchange privilege is available only in those states where the offer and
sale of shares of a given Portfolio may legally be made. Upon 60 days' prior
written notice to shareholders, the Trust, in its sole discretion, may terminate
or modify the exchange privileges and restrictions and/or impose a charge of up
to $5.00 for each exchange.
CLASS A SHARES. Where applicable sales charges have been paid, you may exchange
at NAV Class A Shares of a Portfolio for Class A Shares of any other Portfolio,
a Sierra Trust Fund or SPIF. Shareholders exercising the exchange privilege with
any of the Portfolios or the Underlying Funds should review the prospectus of
each such Portfolio or Underlying Fund carefully prior to making an exchange.
Where applicable sales charges have been paid, shareholders of non-money market
Sierra Trust Funds or SPIF may exchange at NAV Class A Shares of that Sierra
Trust Fund or SPIF for Class A Shares of any Portfolio. Exchanges of shares are
sales and may result in a gain or loss for federal and state income tax
purposes.
Certain Class A Shares of the Portfolios may be subject to a CDSC for
redemptions within one or two years of purchase as described in the "APPLICATION
OF CLASS A SHARES CDSCS" section. The CDSCs applicable to Class A Shares will
not be assessed on a redemption that is part of an exchange for Class A Shares
of another Portfolio or Underlying Fund, except that if the shares acquired in
the exchange or a series of exchanges were then redeemed within the CDSC period
applicable to the shares redeemed initially for the exchange or series of
exchanges, the CDSC would be assessed.
CLASS B SHARES. Class B Shares of a Portfolio may be exchanged for Class B
Shares of any other Portfolio or Underlying Fund or Class S Shares of any
Underlying Fund without having to pay any CDSC at the time of the exchange.
Similarly, Class B or Class S Shares of a Sierra Trust Fund may be exchanged for
Class B Shares of any Portfolio without having to pay any CDSC at the time of
the exchange. If you exchange into Class B Shares of another Portfolio or
Underlying Fund or Class S Shares of any Underlying Fund and subsequently redeem
such shares, the period of time during which you held your investment in Class B
Shares of the previous Portfolio will be included in the period during which
that investment is deemed to be invested in the Portfolio or Underlying Fund for
purposes of calculating the CDSC. If the initial Class B Shares purchased by the
shareholder were not subject to the Class B CDSC, then no Class B CDSC will be
imposed on any subsequent exchanges or redemptions involving those shares. In
the event of redemptions of Class B Shares or Class S Shares after exchanges,
the amount you initially invested (the "Investment Amount") will be subject to
the CDSC schedule and rate of the Portfolio in
-47-
<PAGE> 51
which the Investment Amount was initially invested. Exchange of Class B Shares
for shares of SPIF is not currently available because SPIF is not currently
offering Class B Shares.
SALES LOAD DIFFERENTIALS. If the shares acquired in an exchange are subject to a
higher sales load, a sales load may be charged in an amount up to the difference
between the sales load previously paid and the initial sales load applicable to
the shares of the Portfolio or Underlying Fund being acquired.
DIVIDENDS, CAPITAL GAINS AND TAXES
As a Portfolio shareholder, you are entitled to your share of the Portfolio's
net income and gains on its investments. The Portfolio passes these earnings
along to its investors as DIVIDENDS AND DISTRIBUTIONS. Each Portfolio intends to
avoid liability for federal income tax and federal excise tax by making
sufficient dividends and distributions to investors.
The amount of dividends of net investment income (i.e., all income other than
long- and short-term capital gains) and distributions of net realized long- and
short-term capital gains payable to shareholders will be determined separately
for each Portfolio. Dividends from the net investment income of the Capital
Growth Portfolio will be declared and paid semi-annually and the Growth
Portfolio will be declared and paid quarterly. Dividends from the net investment
income of the Balanced Portfolio, Value Portfolio and Income Portfolio will be
declared daily and paid monthly. Distributions of any net long-term capital
gains earned by a Portfolio will be distributed no less frequently than annually
at the discretion of the Board of Trustees.
DISTRIBUTION OPTIONS. When you open a SAM Portfolio Account, specify on your
Application Form how you want to receive your distributions. The election may be
made or changed by writing to Sierra Shareholder Services or by calling
800-222-5852. Each Portfolio offers three options:
1. REINVESTMENT OPTION. Your dividend and capital gain distributions will be
automatically reinvested in additional shares of the same Portfolio, unless you
instruct the Portfolio on the Application Form or later in writing or by
telephone to pay all distributions in cash. Distributions from a class of one
Portfolio may be reinvested in the same class of the same Portfolio or a
different Portfolio. If the Fund in which the reinvestment is made has an
initial sales charge or CDSC, you will not pay the initial sales charge or CDSC
on the reinvested amount.
2. CASH OPTION. You will be sent a check for each dividend and capital gain
distribution.
3. SYSTEMATIC WITHDRAWAL PLAN. If you have more than $10,000 in any SAM
Portfolio Account, you can elect to receive a check on a regular monthly,
quarterly, semiannual or annual basis. Withdrawals may result in a gain or loss
for tax purposes, may involve the use of principal and may eventually deplete
all of the shares in the SAM Portfolio Account.
FOR RETIREMENT ACCOUNTS, all distributions are automatically reinvested. When
you are over 59 1/2 years old, you can receive distributions in cash.
EX-DIVIDEND. When a Portfolio goes ex-dividend (deducts a dividend or
distribution from the Portfolio's share price), the reinvestment price is the
Portfolio's NAV at the close of business that day. The mailing of distribution
checks will begin within seven days thereafter. If you buy shares shortly before
an ex-dividend date ("buying a dividend"), you will pay the full price for the
shares and then receive a portion of the price back as a taxable distribution.
TAXES
The following summary of certain federal income tax consequences is based on
current tax laws and regulations, which may be changed by legislative, judicial
or administrative action. No attempt has been made to present a detailed
explanation of the federal, state or local income tax treatment of a Portfolio
or its shareholders. Accordingly, shareholders are urged to consult their tax
advisors regarding specific questions as to federal, state and local income
taxes.
-48-
<PAGE> 52
Each Portfolio is treated as a separate entity for federal income tax purposes
and is not combined with the Trust's other Portfolios.
Each Portfolio intends to qualify each year as a "regulated investment company"
as defined under Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code") so as to be relieved of federal income tax on that part of its
investment income which is distributed to shareholders. The requirements for
qualification may cause a Portfolio to restrict the extent of its short-term
trading or its transactions in options or futures contracts.
As with any investment, you should consider how you will be taxed on your
investment in the Portfolio. If your account is not a tax-deferred retirement
account, you should be aware of the following tax implications:
TAXES ON DISTRIBUTIONS. Distributions generally are subject to federal income
tax, and may also be subject to state or local taxes. If you live outside the
United States, your distributions could also be taxed by the country in which
you reside. Generally, your distributions are taxable when they are paid.
However, dividends declared in October, November or December of any year and
payable to shareholders of record on a date in that month are deemed to have
been paid by the Portfolio and received by the shareholders on the last day of
December if paid by the Portfolio at any time during the following January.
For federal income tax purposes, distributions of investment company taxable
income (net investment income plus the excess of net short-term capital gain
over net long-term capital loss) are taxed to shareholders as ordinary income,
whether received in cash or in additional shares. No portion of the dividends of
the Income Portfolio is expected to qualify for the dividends received deduction
available to corporate taxpayers and only a portion of the dividends paid by the
Balanced Portfolio is expected to qualify for the corporate dividends received
deduction. Distributions of net capital gain (the excess of net long-term
capital gain over net short-term capital loss) are not eligible for the
corporate dividends received deduction and are taxed to shareholders as
long-term capital gain regardless of how long you have held your shares. Each
shareholder will receive after the close of the calendar year an annual
statement and such other written notices as are appropriate as to the federal
income tax status of the shareholder's distributions received from the Portfolio
for such calendar year.
Each Fund intends to make sufficient distributions prior to the end of each
calendar year to avoid liability for federal excise tax.
TAXES ON TRANSACTIONS. The sale, exchange, or redemption of Fund shares will be
a taxable event. Any gain or loss recognized on a redemption, transfer, or
exchange of shares of the Fund by a shareholder who is not a dealer in
securities generally will be treated as long-term capital gain or loss if the
shares have been held for more than twelve months, and otherwise generally will
be treated as a short-term capital gain or loss. Any loss recognized by a
shareholder upon the disposition of shares of the Portfolio held for six months
or less, however, will be disallowed to the extent of any "exempt-interest
dividends" received by the shareholder with respect to such shares. Furthermore,
if shares on which a net capital gains distribution has been received are
subsequently disposed of and such shares have been held for six months or less,
any loss recognized will be treated as a long-term capital loss to the extent of
the net capital gains distribution.
Statements as to the tax status of each shareholder's dividends and
distributions are mailed annually to shareholders within 60 days of the close of
the calendar year. These statements set forth the dollar amount of dividends and
NAV excluded or exempt from federal income taxes and the dollar amount, if any,
subject to such taxes. Whenever you sell shares of the Portfolio, the Trust will
send you a confirmation statement showing how many shares you sold and at what
price. You also will receive a consolidated transaction statement every January.
However, it is up to you or your tax preparer to determine whether this sale
resulted in a capital gain and, if so, the amount of tax to be paid. You should
retain your regular account statements; the information they contain will be
essential in calculating the amount of your capital gains.
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT A COMPLETE DESCRIPTION OF
THE FEDERAL, STATE OR LOCAL TAX CONSEQUENCES OF INVESTING IN THE PORTFOLIOS. YOU
SHOULD CONSULT YOUR TAX ADVISOR BEFORE INVESTING IN THE PORTFOLIOS.
-49-
<PAGE> 53
SHAREHOLDER AND ACCOUNT POLICIES
TRANSACTION DETAILS
The NAV of each class of the Portfolio is the value of a single share of the
respective class. The NAV is calculated separately for each class of the
Portfolios and is calculated by adding up the value of the Portfolio's
investments, cash and other assets, subtracting its liabilities (including the
liabilities attributable exclusively to that class), and then dividing the
result by the number of shares of that class outstanding.
Although the legal rights of Class A and Class B Shares will be identical, the
different expenses borne by each class will result in different NAVs and
dividends. The NAV of Class B Shares will generally be lower than the NAV of
Class A Shares as a result of the larger distribution fees charged to Class B
Shares. It is expected, however, that the NAV per share of these classes will
tend to converge immediately after the recording of dividends, which will differ
by approximately the amount of the distribution expense accrual differential
between the classes.
EACH PORTFOLIO RESERVES THE RIGHT TO SUSPEND THE OFFERING OF CLASS A OR CLASS B
SHARES for a period of time. Each Portfolio also reserves the right to reject
any specific purchase order, including certain purchases by exchange. Purchase
orders may be refused if, in the opinion of Sierra Services, they are of a size
that would disrupt management of a Portfolio.
SIERRA SHAREHOLDER SERVICES MAY CHARGE A FEE FOR SPECIAL SERVICES, such as
providing historical account documents, that are beyond the normal scope of its
services.
THE PORTFOLIOS IN DETAIL
ORGANIZATION
THE TRUST IS GOVERNED BY A BOARD OF TRUSTEES, which is responsible for
protecting the interests of shareholders. The trustees are experienced business
persons who meet throughout the year to oversee the Trust's activities, review
contractual arrangements with companies that provide services to the Portfolios,
and review performance. The majority of trustees are not affiliated with Sierra
Services, Sierra Advisors or Sierra Administration other than as trustees of the
Trust. The Trust was organized on March 26, 1996 under the laws of the
Commonwealth of Massachusetts as a "Massachusetts business trust."
THE PORTFOLIOS MAY HOLD SPECIAL MEETINGS AND MAIL PROXY MATERIALS. As a
Massachusetts business trust, the Portfolios are not required to hold annual
shareholder meetings. On occasion, however, special meetings may be called to
elect or remove trustees, change fundamental policies, approve a management
contract, or for other purposes. Trustees may be removed by shareholders at a
special meeting called upon the request of shareholders holding at least 10% of
the outstanding shares of the Trust. Shareholders not attending these meetings
are encouraged to vote by proxy. Sierra Administration will mail proxy materials
in advance, including a voting card and information about the proposals to be
voted on. When matters are submitted for shareholder vote, shareholders of each
Portfolio and class will have one vote for each full share owned and
proportionate, fractional votes for fractional shares held and will have
exclusive voting rights with respect to matters pertaining solely to such
Portfolio or class, respectively, such as the distribution plan for a class.
Matters may be submitted by the Underlying Funds for vote by the shareholders of
the Underlying Funds, in which case the Portfolios, as shareholders of the
Underlying Funds will be entitled to vote the shares they hold. Each Portfolio
will vote its Underlying Fund shares in proportion to the votes of all other
shareholders of each respective Underlying Fund.
SIERRA SERVICES, SIERRA ADVISORS, THEIR AFFILIATES AND THE PORTFOLIOS' SERVICE
PROVIDERS
INVESTMENT ADVISOR OF THE PORTFOLIOS
Under an Investment Advisory Agreement with the Trust, Sierra Services, located
at 9301 Corbin Avenue, Northridge, California 91324, is the investment advisor
of each of the Portfolios. Sierra Services provides its proprietary asset
allocation services to the Portfolios, formulates the Portfolios' investment
policies (subject to the terms of this Prospectus), analyzes economic and market
trends, exercises investment discretion over the assets of the Portfolios and
monitors the allocation of each Portfolio's assets and each Portfolio's
performance. Although it
-50-
<PAGE> 54
is expected that each Portfolio will typically be fully invested in the
Underlying Funds, Sierra Services may, from time to time, direct the investment
of each Portfolio's cash balances in money market securities or in other
instruments, including stock or bond index futures and options thereon. For its
investment advisory services to the Portfolios, Sierra Services is entitled to a
fee, which is calculated daily and paid monthly, at an annual rate of 0.15% of
each Portfolio's average daily net assets.
Sierra Services became a registered broker-dealer member of the NASD and became
a registered investment advisor in 1992. Sierra Services is a wholly-owned
subsidiary of SCMC, which is a wholly-owned subsidiary of Washington Mutual,
Inc. ("Washington Mutual"). Washington Mutual is a publicly owned financial
services company. Sierra Services has served as an investment advisor to
investment companies and has provided asset allocation services since 1992.
PORTFOLIO MANAGER
Stephen C. Scott, Senior Vice President of the Trust and of Sierra Services
since 1996, is the portfolio manager of each of the Portfolios. He joined Great
Western Financial Securities Corporation ("GW Securities") in August 1988 and
currently serves as the President and Chief Investment Officer of Sierra
Investment Advisors Corporation. Prior to joining GW Securities, he served as
President and Chairman of SDS Investment Advisors, a firm he founded in which he
developed asset allocation technology. Mr. Scott has had primary management
responsibility for the Portfolios since their inception.
THE INVESTMENT ADVISOR AND INVESTMENT SUB-ADVISORS OF THE UNDERLYING FUNDS
INVESTMENT ADVISOR OF THE UNDERLYING FUNDS
Sierra Advisors, located at 9301 Corbin Avenue, Northridge, California 91324, is
the investment advisor of the Underlying Funds. Responsibilities of Sierra
Advisors include formulating the Underlying Funds' investment policies (subject
to the terms of this Prospectus), analyzing economic trends and directing and
evaluating the investment services provided by the Sub-Advisors and monitoring
each Underlying Fund's investment performance. Each Underlying Fund has a
sub-advisor who selects the investments made by the Underlying Fund subject to
oversight and direction by Sierra Advisors. In connection with these activities,
Sierra Advisors may initiate action to change a Sub-Advisor if it deems such
action to be in the best interests of an Underlying Fund and its shareholders.
Sierra Advisors became a registered investment advisor in 1988. Sierra Advisors
is a wholly-owned subsidiary of SCMC, which is a wholly-owned subsidiary of
Washington Mutual. Washington Mutual is a publicly owned financial services
company.
INVESTMENT SUB-ADVISORS OF THE UNDERLYING FUNDS
ALLIANCE is the Investment Sub-Advisor of the STF U.S. Government Money Fund.
Alliance is located at 1345 Avenue of the Americas, New York, New York 10105.
Alliance is a Delaware limited partnership registered as an investment adviser
under the Investment Advisers Act of 1940, as amended. Alliance Capital
Management Corporation, an indirect wholly-owned subsidiary of The Equitable
Life Assurance Society of the United States, is the general partner of Alliance.
As of May 31, 1997, total assets under management were over $194 billion.
BLACKROCK is the Investment Sub-Advisor of the STF U.S. Government Fund.
BlackRock is located at 345 Park Avenue, 30th floor, New York, New York 10154.
BlackRock is a corporation organized under the laws of the State of Delaware in
February, 1995. BlackRock is a wholly-owned corporate subsidiary of PNC Asset
Management Group Inc., the holding company for the asset management businesses
of PNC Bank Corp. ("PNC"). PNC is a multibank holding company incorporated under
the laws of the Commonwealth of Pennsylvania in 1983 and registered under the
Bank Holding Company Act of 1956, as amended. BlackRock provides investment
advice to a wide variety of institutional and investment company-related
clients. As of June 30, 1997, BlackRock had aggregate assets under management or
supervision of more than $50 billion.
JANUS is the investment Sub-Advisor of the STF Growth Fund and STF Emerging
Growth Fund. Janus is located at 100 Fillmore Street, Suite 300, Denver,
Colorado 80206. Janus is an indirectly majority owned subsidiary of Kansas City
Southern Industries, Inc., ("KCSI"). KCSI is a publicly traded holding company
whose primary
-51-
<PAGE> 55
subsidiaries are engaged in transportation, information processing and financial
services. Janus has been providing investment advice to mutual funds or other
large institutional clients since 1970. As of June 30, 1997, Janus had
approximately $60 billion in assets under management.
J.P. MORGAN is the Investment Sub-Advisor of the STF Global Money Fund and STF
Growth and Income Fund. J.P. Morgan is located at 522 Fifth Avenue, New York,
New York 10036. J.P. Morgan is a wholly owned subsidiary of J.P. Morgan & Co.
Incorporated, a publicly traded company. J.P. Morgan provides investment
services to employee benefit plans of corporations, labor unions and state and
local governments and the accounts of other institutional investors. As of June
30, 1997, J.P. Morgan and its affiliates had investment management authority
with respect to approximately $234 billion of assets.
SCUDDER is the Investment Sub-Advisor of the STF Short Term High Quality Bond
and STF Short Term Global Government Funds. Scudder is located at Two
International Place, Boston, Massachusetts 02110. Scudder provides investment
management services for institutions, individuals and mutual funds. As of June
30, 1997, Scudder's assets under management were in excess of $125 billion.
TCW MANAGEMENT is the Investment Sub-Advisor of the STF Corporate Income Fund.
TCW Management is located at 865 South Figueroa, Suite 1800, Los Angeles,
California 90017. TCW Management is a wholly-owned subsidiary of The TCW Group,
Inc., a privately held company. TCW Management and its affiliates, including
Trust Company of the West, provide a variety of trust, investment management and
investment advisory services for institutional investors, including investment
companies, and other investment counsel clients. As of June 30, 1997, TCW
Management and its affiliated advisers had just over $50.1 billion under
management or committed to management.
VAN KAMPEN is the Investment Sub-Advisor of SPIF. Van Kampen is located at One
Parkview Plaza, Oakbrook, Illinois 60181. Van Kampen is a wholly owned
subsidiary of Van Kampen American Capital, Inc., which is a 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 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 June 30, 1997, of more than $64.3
billion.
WARBURG is the Investment Sub-Advisor of the STF International Growth Fund.
Warburg is located at 466 Lexington Avenue, New York, New York 10017. Warburg is
a professional investment counselling firm which provides investment services to
investment companies, employee benefit plans, endowment funds, foundations and
other institutions and individuals. As of June 30, 1997, Warburg managed
approximately $19.7 billion of assets, including approximately $11.5 billion of
investment company assets. Incorporated in 1970, Warburg is indirectly
controlled by Warburg Pincus & Co. ("WP&Co."), which has no business other than
being a holding company of Warburg and its affiliates. Lionel I. Pincus, the
managing partner of WP & Co., may be deemed to control both WP & Co. and
Warburg.
ADMINISTRATOR, TRANSFER AGENT AND CUSTODIAN
Sierra Administration provides administrative services to the Trust. Sierra
Administration is under common control with the Sierra Advisors and Sierra
Services. Sierra Administration is located at 9301 Corbin Avenue, Northridge,
California 91324. Pursuant to an Administration Agreement, Sierra Administration
is responsible for all administrative functions with respect to the Trust,
although it delegates certain of its responsibilities to sub-administrators,
including aggregating and processing purchase and redemption orders, forwarding
shareholder communications, and providing sub-accounting services. Sierra
Administration is entitled to a monthly fee at an annual rate of 0.50% of each
Portfolio's average daily net assets. First Data Investor Services Group, Inc.
("First Data"), a subsidiary of First Data Corp., serves as a sub-administrator
and Transfer Agent of the Trust. Sierra Administration pays First Data for its
services as a sub-administrator while the Trust pays First Data for its services
as transfer agent. Sierra Administration also pays Boston Safe Deposit and Trust
Co. ("Boston Safe"), One Boston Place, Boston, MA 02108, for its services as
custodian of the Trust. The Trust pays certain of the transfer agent's and
sub-administrator's out-of-pocket expenses and pays Boston Safe certain
custodial transaction charges.
-52-
<PAGE> 56
DISTRIBUTOR OF THE PORTFOLIOS
Sierra Services is the distributor of the Class A and Class B Shares of the
Portfolios and is also the distributor of the shares of the Underlying Funds.
Each of the Portfolios has two distribution plans, pursuant to Rule 12b-1 under
the 1940 Act, one for each of the two classes of shares of the Portfolio (each,
a "Rule 12b-1 Plan"). Each Portfolio intends to operate each of the Rule 12b-1
Plans in accordance with its terms and the NASD Rules of Fair Practice
concerning sales charges. Under the applicable Rule 12b-1 Plans, Sierra Services
is paid annual fees as compensation in connection with the offering and sale of
Class A and Class B Shares of the Portfolios. The annual fees to be paid to
Sierra Services under the Rule 12b-1 Plan for Class A Shares ("Class A Plan")
are calculated at an annual rate of as much as 0.25% of the average daily net
assets of the Class A Shares of the Portfolios and under the Rule 12b-1 Plan for
Class B Shares ("Class B Plan") are calculated at an annual rate of 1.00% of the
average daily net assets of the Class B Shares of the Portfolios. The fees under
the Class A Plan may be used to pay Sierra Services for expenses primarily
intended to result in the sale of Class A Shares of the Portfolios and as much
as 0.75% of the fees under the Class B Plan may be used to pay Sierra Services
for expenses primarily intended to result in the sale of Class B Shares of the
Portfolios. Sierra Services may retain any amount of its fees that is not so
expended. A portion of the fees under the Class B Plan, calculated at an annual
rate of 0.25% of the average daily net assets of the Class B Shares of the
Portfolios, is designated a Shareholder Service Fee.
The distribution-related payments under the Rule 12b-1 Plans may be used by
Sierra Services to provide initial and ongoing sales compensation to its
investment executives and representatives and to other broker-dealers and
financial intermediaries in respect of sales of Class A Shares or Class B
Shares, to compensate third parties for the provision of recordkeeping and other
distribution-related services relating to Class A Shares or Class B Shares, and
to pay for advertising and promotional expenses in connection with the
distribution of Class A Shares or Class B Shares. These advertising and
promotional expenses may include: costs of printing and mailing prospectuses,
statements of additional information and shareholder reports to prospective
investors; preparation and distribution of sales literature; advertising of any
type; an allocation of other expenses of Sierra Services related to the
distribution of Class A Shares or Class B Shares; and payments to, and expenses
of, officers, employees or representatives of Sierra Services, other
broker-dealers, banks or other financial institutions, and any other persons who
provide support services in connection with the distribution of the Class A
Shares or Class B Shares.
The service fees payable to Sierra Services may be used by Sierra Services to
provide compensation to financial intermediaries for ongoing service or
maintenance of shareholder accounts with respect to Class B Shares of the
applicable Portfolios. Such shareholder services may include: telephone service
to shareholders, including acceptance of telephone inquiries and transaction
requests; acceptance and processing of written correspondence, new account
applications and subsequent purchases by check; mailing of confirmations,
statements and tax forms directly to shareholders; maintenance of customer
accounts, and acceptance of payment for trades by check, Federal Reserve wire or
Automatic Clearing House payment. In addition, Sierra Services will perform or
supervise the performance by others of other shareholder services in connection
with the operations of the applicable Portfolios, as agreed from time to time.
In addition to providing for the expenses discussed above, each Rule 12b-1 Plan
also recognizes that Sierra Services, from time to time in its sole discretion,
may use its investment advisory fees or other resources to pay expenses
associated with activities primarily intended to result in the promotion and
distribution of the Portfolios' shares. Sierra Services may, from time to time,
pay to other dealers, in connection with retail sales or the distribution of
shares of a Portfolio, material compensation as promotional incentives, in the
form of cash or other compensation, including merchandise, airline vouchers,
trips and vacation packages, to all dealers selling shares of a class of the
Portfolios. Such promotional incentives will be offered uniformly for all shares
of a class of the Portfolios and also will be offered uniformly to all dealers
with respect to the class of shares, predicated upon the amount of shares of the
class of the Portfolios sold by such dealer. Salespersons and any other person
entitled to receive any compensation for selling or servicing Portfolio shares
may receive different compensation with respect to one particular class of
shares over another in the Portfolio.
-53-
<PAGE> 57
The Trust's Board of Trustees will evaluate the appropriateness of each of the
Rule 12b-1 Plans and its payment terms on a continuing basis and in doing so
will consider all relevant factors, including expenses borne by Sierra Services
and amounts it receives under the Rule 12b-1 Plan with respect to each class of
shares of the Portfolios.
It is possible that an institution may offer different categories of shares to
its customers and thus receive different compensation with respect to the
different categories. These financial institutions may also charge separate fees
to their customers.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP serves as the independent accountants of the Trust.
BREAKDOWN OF PORTFOLIO EXPENSES
Like any investment company, each Portfolio and each Underlying Fund pays
expenses related to its daily operations. Expenses paid out of an investment
company's assets are reflected in its share price or dividends; they are neither
billed directly to shareholders nor deducted from shareholder accounts. Each
Portfolio pays a management fee to Sierra Services for managing its investments
and business affairs and each Underlying Fund pays a management fee to Sierra
Advisors for managing its investments and business affairs. Sierra Advisors pays
fees to the Investment Sub-Advisors, who provide assistance with these services.
Each Portfolio and each Underlying Fund also pays other expenses, which are
explained on the following pages. Sierra Advisors and/or Sierra Administration
may, from time to time, agree to waive management fees or reimburse expenses
above a specified limit. In such a case, Sierra Advisors and Sierra
Administration may recover waived fees or reimbursed expenses prior to the end
of the fiscal year in which the fees were waived or expenses reimbursed, but may
not recover such waived fees or reimbursed expenses in later years.
-54-
<PAGE> 58
MANAGEMENT FEE FOR THE UNDERLYING FUNDS
The management fee for the Underlying Funds is calculated and paid to Sierra
Advisors every month. The management fee for each Underlying Fund is based upon
a percentage of the average net assets of such Underlying Fund. Absent fee
waivers, the total management fee for each Underlying Fund as provided in the
investment advisory agreement of the Underlying Fund is as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
Amount of
Assets After 50; After 75; After 100; After 125; After 150; After 200; After 300; After 400;
($ Mil.) First 50 next 25 next 25 next 25 next 25 next 50 next 100 next 100 next 100
-----------------------------------------------------------------------------------------------------------------------
Each Money
Fund* .50% .50% .50% .50% .50% .50% .50% .50% .50%
-----------------------------------------------------------------------------------------------------------------------
STF Short Term
High Quality
Bond
Fund .50% .50% .50% .50% .50% .50% .45% .45% .45%
-----------------------------------------------------------------------------------------------------------------------
STF Short Term
Global
Government
Fund .65% .65% .65% .65% .65% .65% .65% .65% .65%
-----------------------------------------------------------------------------------------------------------------------
STF U.S. Government
Fund* .60% .60% .60% .60% .60% .60% .60% .60% .60%
-----------------------------------------------------------------------------------------------------------------------
STF Corporate Income
Fund .65% .65% .65% .65% .65% .65% .65% .65% .65%
-----------------------------------------------------------------------------------------------------------------------
STF Growth and
Income Fund .80% .80% .80% .75% .75% .75% .70% .70% .65%
-----------------------------------------------------------------------------------------------------------------------
STF Growth Fund .95% .95% .95% .90% .90% .90% .875% .875% .875%
-----------------------------------------------------------------------------------------------------------------------
STF Emerging Growth
Fund .90% .90% .90% .85% .85% .85% .85% .85% .85%
-----------------------------------------------------------------------------------------------------------------------
STF International
Growth Fund .95% .85% .85% .85% .65% .65% .65% .65% .65%
-----------------------------------------------------------------------------------------------------------------------
Sierra Prime Income
Fund .95% .95% .95% .95% .95% .95% .95% .95% .95%
-----------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
<CAPTION>
=================
Amount of
Assets Over
($ Mil.) 500
-----------------
Each Money
Fund* .40%
-----------------
STF Short Term
High Quality
Bond
Fund .40%
-----------------
STF Short Term
Global
Government
Fund .55%
-----------------
STF U.S. Government
Fund* .50%
-----------------
STF Corporate Income
Fund .50%
-----------------
STF Growth and
Income Fund .575%
-----------------
STF Growth Fund .875%
-----------------
STF Emerging Growth
Fund .75%
-----------------
STF International
Growth Fund .65%
-----------------
Sierra Prime Income
Fund .95%
=================
</TABLE>
* For these Underlying Funds, the Advisor has contractually agreed to limit the
annual management fees that are payable under the investment advisory agreements
with the Underlying Funds to the percentages as follows: Global Money
Fund--0.40%; U.S. Government Money Fund--0.40%; and U.S. Government Fund--0.55%.
The Advisor of the Underlying Funds retains only the net amount of the foregoing
management fees after the advisory fees paid to the Investment Sub-Advisors of
the Underlying Funds are deducted. Each of the Investment Sub-Advisors of the
Underlying Funds is entitled to a fee from the Advisor of the Underlying Funds
based on a percentage of the average net assets of the Underlying Funds advised
by such Investment Sub-Advisor.
OTHER EXPENSES
While the management fee is a significant component of each Portfolio's and each
Underlying Fund's annual operating costs, each such fund has other expenses as
well. In addition to the management fee and other fees described previously,
each Portfolio and Underlying Fund pays other expenses, such as legal, audit,
transfer agency and custodian out-of-pocket fees; proxy solicitation costs; and
the compensation of trustees who are not affiliated with Sierra Advisors or
Sierra Services. Most fund expenses are allocated proportionately among all of
the outstanding shares of a fund. However, the Rule 12b-1 Plan's fees for the
Class A Shares are class expenses that are charged proportionately only to the
outstanding shares of that class and the Rule 12b-1 Plan's fees and service fees
for the Class B Shares are class expenses that are charged proportionately only
to the outstanding shares of that class. Class I Shares of the Underlying Funds
in which the Portfolios invest are not subject to Rule 12b-1 Plan fees.
-55-
<PAGE> 59
================================================================================
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and in the Trust's
official sales literature in connection with the offering of the Trust's shares,
and, if given or made, such other information or representations must not be
relied upon as having been authorized by the Trust. This Prospectus does not
constitute an offer in any state in which, or to any person to whom, such offer
may not lawfully be made.
================================================================================
-56-
<PAGE> 60
LOGO
(800) 222-5852
P.O. Box 5118
Westboro, Massachusetts 01581-5118
- --------------------------------------------------------------------------------
1. YOUR ACCOUNT REGISTRATION Check one box for the account you wish to open and
complete information.
<TABLE>
<S> <C>
[ ] Individual Name__________________________ SS#/Tax ID _______
[ ] Joint Tenant Name of Add'l Owner___________ SS#/Tax ID _______
[ ] Tenants in
Common
[ ] Transfer to
Minors __________________________As Custodian For___________________________
NAME OF CUSTODIAN NAME OF MINOR
Under the ____________ Uniform Transfers (Gifts) to Minors Act ______ Minor's SS#
(STATE) (AGE)
[ ] Other Indicate name of Corporation, other organization or fiduciary; if Trust, include date of instrument:
(Additional forms, such as a Corporate Resolution may be required. Call (800) 222-5852 for information)
Name___________________________ Tax ID __________________
[ ] I am a United States Citizen. If not, please specify Country
Street Address ___________________________________Home Phone ( ) _______________________
City __________________________ State _____ Zip ___________ Business Phone ( ) ________________________
</TABLE>
- --------------------------------------------------------------------------------
2. YOUR INVESTMENT SELECTION (Minimum initial $10,000 or $2,000 for IRAs;
Minimum subsequent $2,000 or $1,000 for IRAs)
Portfolio Investment Amount
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Capital Growth Portfolio
Class A Shares $ ----------------------------
Class B Shares $ ----------------------------
Growth Portfolio
Class A Shares $ ----------------------------
Class B Shares $ ----------------------------
Balanced Portfolio
Class A Shares $ ----------------------------
Class B Shares $ ----------------------------
Value Portfolio
Class A Shares $ ----------------------------
Class B Shares $ ----------------------------
Income Portfolio
Class A Shares $ ----------------------------
Class B Shares $ ----------------------------
Total Investment $ ----------------------------
</TABLE>
- --------------------------------------------------------------------------------
3. YOUR PAYMENT METHOD FOR INITIAL INVESTMENT
[ ] CHECK: $______________________ Make check payable to Sierra Asset
Management Portfolios.
[ ] WIRE: Call (800) 222-5852 for instructions.
- --------------------------------------------------------------------------------
4. YOUR BROKER/DEALER
Dealer Number ________ Branch Number __________ Representative's Number _______
Firm Name __________ Representative's Last Name ___________
Branch Address _______________ City __________ State ______ Zip ______________
- --------------------------------------------------------------------------------
5. SPECIAL FEATURES AND PRIVILEGES
A. TELEPHONE PRIVILEGES PERMITS TRANSFER OF MONEY BY WIRE ($1,000 MINIMUM)
BETWEEN YOUR SIERRA ASSET MANAGEMENT PORTFOLIOS AND YOUR DESIGNATED BANK
ACCOUNT.
[ ] YES [ ] NO If "Yes," Please wire monies to the following bank:
Name of your Bank ___________________________________________________________
Acct. Name _________________________________ Acct. No. ______________________
Bank Address ________________ City ____________ State ______ Zip __________
<PAGE> 61
B. DIVIDEND AND DISTRIBUTION PLANS Check one only; if none are checked, all
dividends/distributions will be reinvested.
[ ] FULL REINVESTMENT -- Reinvest all dividends and distributions at net
asset value.
[ ] CASH -- [ ] Pay all income dividends and distributions by check and
mail/deposit to my bank per instructions in Section "A" above.
[ ] Pay all income dividends and distributions by check and mail to the
address provided in Section 1.
[ ] SYSTEMATIC (AUTOMATIC) WITHDRAWAL PLAN -- If you have more than $10,000
in a Sierra Asset Management Portfolio account (per Portfolio), you can
elect to receive a regular check as follows:
Frequency: [ ] Monthly [ ] Quarterly [ ] Semi-Annually [ ] Annually Amount (not
less than $100): $
Check the date of payment you prefer: [ ] 10th day OR [ ] 20th day of month
C. SAM PORTFOLIOS AUTOMATIC INVESTMENT PLAN (optional)
----------------------------
ATTACH VOIDED CHECK HERE
----------------------------
I authorize the Portfolio's Agent to withdraw funds from the bank account
provided below in the amount of $________(minimum $100), on the [ ] 15th of
________________(month) and on the same day of each month thereafter. If the
date falls on a weekend or holiday, funds will be invested on the next Business
Day. The investment will be applied to this Portfolio account.
Name of Bank _______________ Bank Account No. ______________________________
(the account must have check or draft writing privileges)
Address_______________________________________________________________
City ______________________________ State _________ Zip_______________
D. LETTER OF INTENT (LOI):
[ ] I agree to the terms of the Letter of Intent and provisions for reservation
of shares as set forth in the Prospectus. Although I am not obligated to do so,
it is my intention to invest over a 13-month period in Class A Shares of one or
more Portfolios, the Sierra Trust Funds (excluding Money Funds) and SPIF an
aggregate amount at least equal to the amount indicated below:
[ ] $50,000 [ ] $100,000 [ ] $250,000 [ ] $500,000 [ ] $1,000,000
Effective Date ____________________ Note: The effective date can be no more
than 90 days prior to today's date.
________________________ ______________
Signature(s) Date
E. RIGHT OF ACCUMULATION (ROA):
In order for a cumulative quantity discount (as described in the Portfolios
prospectus) to be made available, the shareholder or his or her securities
dealer must notify Sierra Shareholder Services (800-222-5852) or the Portfolio's
transfer agent of the total holdings in our group (excluding all Sierra Trust
Funds Money Market Funds Class A Shares) each time an order is placed.
[ ] I own shares in other Portfolios, Sierra Trust Funds or Sierra Prime Income
Fund which may entitle this purchase to have a reduced sales charge under the
provisions in the Portfolios prospectus. My other account numbers are:
- ------------------------------------------- --------------------
- ------------------------------------------- --------------------
________________________ ____________
Signature(s) Date
- --------------------------------------------------------------------------------
6. CLIENT SIGNATURES AND TAXPAYER CERTIFICATION (Please read and sign below.)
I am of legal age, have received and read the Prospectus, agree to its terms and
understand that by signing below (a) neither the Portfolios nor Sierra
Investment Services Corporation is a bank; and Portfolio shares are not backed
or guaranteed by any bank nor insured by the FDIC; (b) my (our) account will
automatically have the Exchange Privilege capability and that all information
provided above (if applicable) will apply to any Portfolio into which my (our)
shares may be exchanged; (c) I hereby ratify any instructions given on this
account and any account into which I exchange relating to items on this
application and agree that the Portfolios, Sierra Investment Services
Corporation and Sierra Fund Administration Corporation will not be liable for
any loss, cost or expense for acting upon such instructions (by telephone or in
writing) believed by it to be genuine and in accordance with the procedures
described in the Prospectus; (d) it is my responsibility to read the Prospectus;
(e) I affirm that I/we have entered into a broker/dealer cash account
relationship with Sierra Investment Services Corporation; and (f) I represent
and warrant that I have full right, power and authority to give the foregoing
affirmations, certifications and authorizations, and to make the investments
applied for pursuant to this Application Form and, if signing on behalf of the
beneficial owner, represent and warrant that I am duly authorized to sign this
Application Form and to purchase and redeem shares (or to deposit and withdraw
funds) on behalf of the beneficial owner.
TAXPAYER IDENTIFICATION NUMBER CERTIFICATION: AS REQUIRED BY FEDERAL LAW, I (WE)
CERTIFY UNDER PENALTIES OF PERJURY (1) THAT THE SOCIAL SECURITY NUMBER ("SSN")
OR TAXPAYER IDENTIFICATION NUMBER ("TIN") PROVIDED ABOVE IS CORRECT AND (2) THAT
THE IRS HAS NEVER NOTIFIED ME (US) THAT I (WE) AM (ARE) SUBJECT TO 31% BACKUP
WITHHOLDING, OR HAS NOTIFIED ME (US) THAT I (WE) AM (ARE) NO LONGER SUBJECT TO
SUCH BACKUP WITHHOLDING. (NOTE: IF ANY OR ALL OF PART (2) OF THE PRECEDING
SENTENCE IS NOT TRUE IN YOUR CASE, PLEASE STRIKE OUT THAT PART BEFORE SIGNING.)
IF I (WE) FAIL TO FURNISH MY (OUR) CORRECT SSN OR TIN, I (WE) MAY BE SUBJECT TO
A PENALTY FOR EACH FAILURE AND MY (OUR) ACCOUNT MAY BE SUBJECT TO 31% BACKUP
WITHHOLDING ON DISTRIBUTION AND REDEMPTION PROCEEDS. THE INTERNAL REVENUE
SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF THIS DOCUMENT OTHER
THAN THE CERTIFICATIONS REQUIRED TO AVOID BACKUP WITHHOLDING.
<TABLE>
<S> <C>
X
- ------------------------------------------------------------ ------------------------------------------------------------------
Registered Representative's Name and Number SIGNATURE
Date X
------------------------------------------------------- ------------------------------------------------------------------
SIGNATURE
</TABLE>
<PAGE> 62
SIERRA ASSET MANAGEMENT PORTFOLIOS
P.O. Box 5118
Westboro, Massachusetts 01581-5118
STATEMENT OF ADDITIONAL INFORMATION
October 31, 1997
- Capital Growth Portfolio
- Growth Portfolio
- Balanced Portfolio
- Value Portfolio
- Income Portfolio
This Statement of Additional Information ("SAI") is not a prospectus
but supplements the information contained in the current Prospectus of Sierra
Asset Management Portfolios (the "Trust"), which is dated October 31, 1997, as
may be supplemented from time to time, and should be read in conjunction with
the current Prospectus.
The Trust's Prospectus may be obtained without charge by writing to the
Trust c/o First Data Investor Services Group, P.O. Box 5118, Westboro, MA
01581-5118 or by calling the Trust at 800-222-5852. This SAI provides
information applicable to the Class A shares and Class B shares of the Capital
Growth, Growth, Balanced, Value and Income Portfolios of the Trust, which are
five series of the Trust (each such series, a "Portfolio"). This SAI, although
not in itself a prospectus, is incorporated by reference into the Prospectus in
its entirety.
TABLE OF CONTENTS
GENERAL INFORMATION AND HISTORY................................................2
MANAGEMENT OF THE TRUST........................................................2
INVESTMENT OBJECTIVES AND POLICIES OF THE
PORTFOLIOS AND THE UNDERLYING FUNDS.........................................9
INVESTMENT RESTRICTIONS OF THE PORTFOLIOS.....................................37
INVESTMENT RESTRICTIONS OF THE SIERRA TRUST FUNDS.............................39
INVESTMENT RESTRICTIONS OF SPIF...............................................43
PORTFOLIO TURNOVER............................................................45
PORTFOLIO TRANSACTIONS........................................................46
NET ASSET VALUE...............................................................47
HOW TO BUY AND REDEEM SHARES..................................................48
HOW TO EXCHANGE SHARES........................................................50
DETERMINATION OF PERFORMANCE..................................................51
TAXES.........................................................................54
DISTRIBUTOR.................................................................. 57
APPENDIX.....................................................................A-1
FINANCIAL STATEMENTS........................................................FS-1
<PAGE> 63
GENERAL INFORMATION AND HISTORY
The Trust is an open-end management investment company that currently
consists of the five Portfolios: the Capital Growth Portfolio, Growth Portfolio,
Balanced Portfolio, Value Portfolio and Income Portfolio. The Portfolios invest
primarily in shares of certain investment funds of the Sierra Trust Funds, an
open-end management investment company, and the Sierra Prime Income Fund
("SPIF"), a closed-end management investment company, (each of such investment
funds and SPIF are referred to herein as the "Underlying Funds").
The Trust was established as a Massachusetts business trust pursuant to
an Agreement and Declaration of Trust dated March 26, 1996, as amended from time
to time (the "Trust Agreement"). The Agreement and Declaration of Trust permits
the Trust to offer separate series (each, a "Portfolio") of units of beneficial
interest ("shares") and separate classes of each Portfolio. The Trust has
established two classes of shares of each Portfolio, the Class A shares and
Class B shares. Except for differences between the Class A shares and Class B
shares pertaining to sales charges, distribution, voting rights, dividends and
transfer agent expenses, which are described in this SAI and in the prospectus,
each share of each Portfolio represents an equal proportionate interest in that
Portfolio with each other share of that Portfolio.
Sierra Investment Services Corporation ("Sierra Services") is the
investment advisor of the Trust and is the distributor, principal underwriter,
of the Trust, the Sierra Trust Funds and SPIF. Sierra Investment Advisors
Corporation ("Sierra Advisors") is the investment advisor of the Sierra Trust
Funds and SPIF and Sierra Fund Administration Corporation ("Sierra
Administration") is the administrator of the Trust, Sierra Trust Funds and SPIF.
MANAGEMENT OF THE TRUST
TRUSTEES AND OFFICERS OF THE TRUST
The names, addresses and ages of the Trustees and executive officers of
the Trust, together with information as to their principal business occupations
during the past five years, are set forth below. Unless other wise indicated the
address of all persons listed below is 9301 Corbin Avenue, Northridge,
California 91324. The executive officers of the Trust are employees of
organizations that provide services to the Trust and the Underlying Funds. James
H. Overholt is the only Trustee who is an "interested person" of the Trust, as
defined in the Investment Company Act of 1940 (the "1940 Act"), and is so
indicated by an asterisk.
-2-
<PAGE> 64
<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE POSITIONS WITH PRINCIPAL OCCUPATIONS
THE TRUST DURING THE LAST 5 YEARS
<S> <C> <C> <C>
JAMES H. OVERHOLT* (50) President, Chief President and Chief Executive Officer, Sierra Capital
Executive Officer Management Corporation ("SCMC"), 1997 to
and Trustee present; President and Director, Sierra
Administration, 1997 to present; Chairman, Sierra
Advisors, 1997 to present; President and Chief
Executive Officer, Sierra Services, 1997 to present;
President and Chief Executive Officer, Great Western
Financial Securities Corporation, 1996 to present;
President and Chief Executive Officer, Bank South
Investment Services, 1994 to 1996; President and
Chief Executive Officer, Wachovia Brokerage
Services, 1990 to 1993;
ARTHUR H. BERNSTEIN, ESQ. (72) Chairman of the President, Bancorp Capital Group, Inc., 1988 to
11661 San Vicente Blvd., Suite 701 Board and Trustee present; President, Bancorp Venture Capital, Inc.,
Los Angeles, CA 90049 1988 to present.
DAVID E. ANDERSON (70) Trustee Retired; President and Chief Executive Officer, GTE
17960 Seabreeze Drive California, Inc., 1979 to 1988.
Pacific Palisades, CA 90272
EDMOND R. DAVIS, ESQ. (69) Trustee Partner, Brobeck, Phleger & Harrison (law firm),
550 South Hope Street, 21st Floor 1987 to present.
Los Angeles, CA 90071-2604
JOHN W. ENGLISH (64) Trustee Retired; Vice President and Chief Investment Officer,
50 H New England Ave. Ford Foundation, 19__ to 19__; Chairman of the
P.O. Box 640 Board and Director, The China Fund, Inc. (a closed-
Summit, NJ 07902-0640 end mutual fund), 19__ to present; Trustee, Retail
Property Trust (a company providing management
services for shopping centers), 19__ to present;
Director, The Northern Trust Company's Benchmark
Funds (open-end mutual funds), 19__ to present.
</TABLE>
-3-
<PAGE> 65
<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE POSITIONS WITH PRINCIPAL OCCUPATIONS
THE TRUST DURING THE LAST 5 YEARS
<S> <C> <C>
ALFRED E. OSBORNE, JR. Ph.D. (52) Trustee Professor, Anderson School and Director, The
110 Westwood Plaza, Suite C305 Harold Price Center for Entrepreneurial Studies at
Los Angeles, CA 90095-1481 UCLA, 1972 to present; Director, Times Mirror
Company, 19__ to present; Director, United States
Filter Corporation, 19__ to present; Director,
Nordstrom, Inc., 19__ to present; Director, Seda
Specialty Packing Corporation, 19__ to present;
Director, Greyhound Lines, Inc., 19__ to present.
Independent general partner, Technology Funding
Venture Partners v, 19__ to present; former
Governor, National Association of Securities
Dealers, Inc., 19__ to 19__; former Director, NASD
Regulation, 19__ to 19__.
KEITH B. PIPES (41) Executive Vice Senior Vice President, Chief Financial Officer and
President, Secretary, SCMC, 1986 to present; Chief Financial
Treasurer and Officer, Secretary and Treasurer, Sierra
Secretary Administration, 199_ to present; Executive Vice
President and Secretary, Sierra Advisors, 199_ to
present; Senior Vice President, Chief Financial
Officer and Secretary, Sierra Services, 199_ to
present;
MICHAEL D. GOTH (52) Senior Vice Chief Operating Officer, Sierra Advisers, 1991 to
President present.
STEPHEN C. SCOTT (52) Senior Vice President and Chief Investment Officer, Sierra
President Advisers, 1988 to present; Senior Vice President and
Chief Investment Officer, Sierra Services, 1996 to
present.
CRAIG M. MILLER (38) Assistant Treasurer Vice President and Controller, SCMC, Sierra
Administration and Sierra Services, 1993 to present;
Audit Manager, Coopers & Lybrand, L.L.P., 1987 to
1993
RICHARD W. GRANT (52) Assistant Secretary Partner, Morgan, Lewis & Bockius LLP, 1989 to
present.
</TABLE>
Each of the Trustees and officers of the Trust is also a trustee or
officer of Sierra Trust Funds ("STF"), The Sierra Variable Trust ("SVT") or
SPIF. STF, SVT and SPIF is each an investment company advised by Sierra
Advisors.
REMUNERATION. No director, officer or employee of Sierra Services, the
investment sub-advisors of the Underlying Funds (the "Sub-Advisors") or First
Data, the Sub-Administrator and Transfer Agent of the Underlying Funds, or any
affiliate of Sierra Services, the Sub-Advisors
-4-
<PAGE> 66
or First Data will receive any compensation from the Trust for serving as an
officer or Trustee of the Trust. The Trust pays each Trustee, who is not a
director, officer or employee of Sierra Services, the Sub-Advisors, First Data
or any of their affiliates, a fee of $250 per Board meeting attended and $200
per Audit and Executive Committee meeting attended, and reimburses them for
travel and out-of-pocket expenses. The lead Trustee receives one and one half
times the normal Trustee compensation.
The following Compensation Table shows aggregate compensation paid to
each of the Trust's Trustees by the Trust and other related investment companies
(the "Fund Complex"), respectively in the year ended June 30, 1997.
COMPENSATION TABLE
<TABLE>
<CAPTION>
(1) (2) (3) (4)
NAME OF AGGREGATE COMPENSATION PENSION OR RETIREMENT ESTIMATED TOTAL
PERSON, FROM REGISTRANT FOR THE BENEFITS ACCRUED AS PART COMPENSATION FROM
POSITION FISCAL YEAR ENDED OF FUND EXPENSES REGISTRANT AND FUND
JUNE 30, 1997 COMPLEX PAID TO TRUSTEES
FOR THE FISCAL YEAR ENDED
JUNE 30, 1997
=========================================================================================================================
<S> <C> <C> <C>
*James H. Overholt + $0 0 $ 0 for service on 2
President and Trustee boards
David E. Anderson++ $1,000 0 $42,000 for service on 4
Trustee boards
Arthur H. Bernstein, Esq.+++ $1,500 0 $54,063 for service on 4
Chairman of the Board and Trustee boards
Edmond R. Davis, Esq. $1,000 0 $42,000 for service on 4
Trustee boards
John W. English $1,000 0 $42,000 for service on 4
Trustee boards
Alfred E. Osborne, Jr. $1,000 0 $42,000 for service on 4
Trustee boards
=========================================================================================================================
</TABLE>
* A Trustee who is an "interested person" as defined in the Investment
Company Act.
+ Mr. Overholt was appointed a trustee of the Trust, and SPIF on June 2,
1997. He replaced Mr. Brian Cerini, who resigned effective June 1,
1997. Neither Mr. Overholt nor Mr. Cerini received any compensation
from the Trust or the Fund Complex.
++ Mr. Anderson was paid $1,500 for the Audit Committee Meetings held by
SVT.
+++ Mr. Bernstein was paid $1,500 and $1,125 for Audit Committee Meetings
held by STF and SPIF, respectively. On June 2, 1997, he was appointed
Chairman of the Boards of each Fund in the Fund Complex and receives
$500 per week for serving in that position.
The aggregate remuneration paid to Trustees by the Trust for attendance at Board
and committee meetings for the period from July 25, 1996 to June 30, 1997 was
$9,719 (including reimbursement for travel and out-of-pocket expenses). As of
June 3, 1997, the Trustees and officers of the Trust owned, in
-5-
<PAGE> 67
the aggregate, less than 1% of the outstanding shares of any of the Underlying
Funds. In addition, as of October 1, 1997, to the knowledge of the Trust the
following shareholders owned 5% or more of the outstanding shares of any of the
Portfolios:
CAPITAL GROWTH PORTFOLIO - CLASS A:
CAPITAL GROWTH PORTFOLIO - CLASS B:
GROWTH PORTFOLIO - CLASS A:
GROWTH PORTFOLIO - CLASS B:
BALANCED PORTFOLIO - CLASS A:
BALANCED PORTFOLIO - CLASS B:
VALUE PORTFOLIO - CLASS A:
VALUE PORTFOLIO - CLASS B:
INCOME PORTFOLIO - CLASS A:
INCOME PORTFOLIO - CLASS B:
INVESTMENT ADVISOR, ADMINISTRATOR, SUB-ADMINISTRATOR AND TRANSFER AGENT OF THE
PORTFOLIOS
Sierra Services serves as investment advisor to each of the Portfolios
pursuant to an investment advisory agreement. Sierra Administration serves as
Administrator to each of the Portfolios and First Data serves as
Sub-Administrator and Transfer Agent to each of the Portfolios pursuant to
separate written agreements. Certain of the services provided by, and the fees
paid to, Sierra Services, Sierra Administration and First Data are described in
the Trust's Prospectus. Sierra Services, Sierra Administration and First Data
each compensates its respective Directors and pays the salaries of its
respective officers and employees employed by such companies respectively and by
the Trust and maintains office facilities for the Trust.
-6-
<PAGE> 68
INVESTMENT ADVISOR AND SUB-ADVISORS, ADMINISTRATOR, SUB-ADMINISTRATOR AND
TRANSFER AGENT OF THE UNDERLYING FUNDS
Sierra Advisors serves as Investment Advisor to each of the Underlying
Funds and each Sub-Advisor serves as Investment Sub-Advisor to one or more
Underlying Funds pursuant to separate written agreements. Sierra Administration
serves as Administrator to each of the Underlying Funds. First Data serves as
Sub-Administrator and First Data also serves as transfer agent for SPIF and the
Sierra Trust Funds to each of the Underlying Funds pursuant to separate written
agreements. Certain of the services provided by, and the fees paid to, Sierra
Advisors, the Sub-Advisors, Sierra Administration and First Data are described
in the Prospectuses of the Underlying Funds. Sierra Advisors, the Sub-Advisors,
Sierra Administration and First Data each compensates its respective Directors
and pays the salaries of its respective officers and employees employed by such
companies respectively and by the Underlying Funds and maintains office
facilities for the Sierra Trust Funds and SPIF.
For the period ended June 30, 1997 the Portfolios paid Sierra Services
the following advisory fees:
<TABLE>
<CAPTION>
EXPENSES
PORTFOLIO FEES PAID FEES WAIVED REIMBURSED
- ----------------------------------- --------- ----------- ----------
<S> <C> <C> <C>
Capital Growth Portfolio $36,642 $6,241 $41,371
Growth Portfolio $260,044 $54,435 $98,600
Balanced Portfolio $188,577 $40,744 $82,121
Value Portfolio $19,886 $4,470 $34,312
Income Portfolio $18,539 $4,476 $33,580
</TABLE>
CUSTODIAN OF THE PORTFOLIOS AND THE UNDERLYING FUNDS
The assets of the Trust, the Sierra Trust Funds and SPIF are held under
bank custodianship in accordance with the 1940 Act. Boston Safe Deposit and
Trust Company ("Boston Safe") serves as Custodian for the Trust and the Sierra
Trust Funds. Under its custodial agreements with the Trust and the Sierra Trust
Funds, Boston Safe is authorized to appoint one or more U.S. banking
institutions as sub-custodians of assets owned by the Portfolios or Underlying
Funds of the Sierra Trust Funds. In addition, the Trust and the Sierra Trust
Funds may employ foreign sub-custodians that are approved by the Board of
Trustees to hold foreign assets.
State Street Bank & Trust Company located at 225 Franklin Street,
Boston, MA 02110 is the custodian of SPIF and has custody of the securities and
cash of SPIF. The custodian, among other things, attends to the collection of
principal and income and payment for and collection of proceeds of securities
bought and sold by SPIF.
COUNSEL AND AUDITOR
-7-
<PAGE> 69
Morgan, Lewis & Bockius LLP serves as counsel to the Trust and provides
legal services to GW Securities, Sierra Advisors, Sierra Administration and
Sierra Services. Paul, Hastings, Janofsky & Walker serves as counsel to the
Trustees who are not "Interested Persons" of the Trust.
Price Waterhouse LLP, independent accountants, located at 160 Federal
Street, Boston, Massachusetts 02110, serves as auditor of the Trust, Sierra
Trust Funds and SPIF.
SHAREHOLDERS OF THE TRUST
In the interest of economy and convenience, certificates representing
shares in the Trust are not physically issued. Boston Safe, the Trust's
Custodian, and First Data, the Trust's Transfer Agent, maintain a record of each
shareholder's ownership of Trust shares. Shares do not have cumulative voting
rights, which means that holders of more than 50% of the shares voting for the
election of Trustees can elect all Trustees. Shares are transferable but have no
preemptive, conversion or subscription rights. Shareholders generally vote by
Portfolio or class, except with respect to the election of Trustees, the
selection of independent accountants and other matters affecting the entire
Trust.
Under normal circumstances, there will be no meetings of shareholders
for the purpose of electing Trustees unless and until such time as less than a
majority of the Trustees holding office have been elected by shareholders, at
which time the Trustees then in office promptly will call a shareholders'
meeting for the election of Trustees. Under the 1940 Act, shareholders of record
of no less than two-thirds of the outstanding shares of the Trust may remove a
Trustee through a declaration in writing or by vote cast in person or by proxy
at a meeting called for that purpose. Under the Trust Agreement, the Trustees
are required to call a meeting of shareholders for the purpose of voting upon
the question of removal of any such Trustee when requested in writing to do so
by the shareholders of record of not less than 10% of the Trust's outstanding
shares.
Massachusetts law provides that shareholders, under certain
circumstances, could be held personally liable for the obligations of the Trust.
However, the Trust Agreement disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of such disclaimer be given in
each agreement, obligation or instrument entered into or executed by the Trust
or a Trustee. The Trust Agreement provides for indemnification from the Trust's
property for all losses and expenses of any shareholder held personally liable
for the obligations of the Trust. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Trust would be unable to meet its obligations, a possibility that
the Trust's management believes is remote. Upon payment of any liability
incurred by the Trust, the shareholder paying the liability will be entitled to
reimbursement from the general assets of the Trust. The Trustees intend to
conduct the operations of the Trust in such a way so as to avoid, to the extent
possible, ultimate liability of the shareholders for liabilities of the Trust.
-8-
<PAGE> 70
INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS
AND THE UNDERLYING FUNDS
The Trust's Prospectus and the prospectuses of the Underlying Funds
discuss the investment objective or objectives of each of the Underlying Funds
and the policies to be employed to achieve such objectives. This section
contains supplemental information concerning the types of securities and other
instruments in which the Portfolios and the Underlying Funds may invest, the
investment policies and portfolio strategies that the Portfolios and the
Underlying Funds may utilize and certain risks attendant to such investments,
policies and strategies. The following are the Underlying Funds:
UNDERLYING FUNDS
Sierra Trust Funds
U.S. Government Money Fund ("STF U.S. Government Money Fund")
Global Money Fund ("STF Global Money Fund")
Short Term High Quality Bond Fund ("STF Short Term High Quality Bond Fund")
Short Term Global Government Fund ("STF Short Term Global Government Fund")
U.S. Government Fund ("STF U.S. Government Fund")
Corporate Income Fund ("STF Corporate Income Fund")
Growth and Income Fund ("STF Growth and Income Fund")
Growth Fund ("STF Growth Fund")
Emerging Growth Fund ("STF Emerging Growth Fund")
International Growth Fund ("STF International Growth Fund")
Sierra Prime Income Fund ("SPIF")
STRATEGIES AVAILABLE TO ALL UNDERLYING FUNDS
RATINGS AS INVESTMENT CRITERIA. In general, the ratings of Moody's
Investors Service, Inc. ("Moody's") and Standard & Poor's Corporation ("S&P")
represent the opinions of these agencies as to the quality of securities which
they rate. It should be emphasized, however, that such ratings are relative and
subjective and are not absolute standards of quality. These ratings will be used
by the Underlying Funds as initial criteria for the selection of portfolio
securities, but the Underlying Funds will also rely upon the independent advice
of their respective Sub-Advisors to evaluate potential investments. The Appendix
to this SAI contains further information concerning the ratings of Moody's and
S&P and their significance. See the Prospectuses with respect to the Global
Money and U.S. Government Money Funds (the "Money Funds") in the section
entitled "The Underlying Funds' Investments, Risk Considerations and Performance
- - Investment Principles - Quality Requirements," for additional information
concerning certain rating criteria.
To the extent that the rating given by Moody's or S&P for securities
may change as a result of changes in such organizations or their rating systems,
each Fund will attempt to use comparable
-9-
<PAGE> 71
ratings as standards for its investments in accordance with the investment
policies contained in the Prospectuses and in this SAI.
U.S. GOVERNMENT SECURITIES. U.S. Government securities include debt
obligations of varying maturities issued or guaranteed by the U.S. Government or
its agencies or instrumentalities. U.S. Government securities include direct
obligations of the U.S. Treasury, and securities issued or guaranteed by the
Federal Housing Administration, Farmers Home Administration, Export-Import Bank
of the United States, Small Business Administration, Government National
Mortgage Association ("GNMA"), General Services Administration, Central Bank for
Cooperatives, Federal Farm Credit Banks, Federal Home Loan Banks, Federal Home
Loan Mortgage Corporation ("FHLMC"), Federal Intermediate Credit Banks,
Resolution Trust Corporation, Federal Land Banks, Federal National Mortgage
Association ("FNMA"), Maritime Administration, Tennessee Valley Authority,
District of Columbia Armory Board and Student Loan Marketing Association. Direct
obligations of the U.S. Treasury include a variety of securities that differ in
their interest rates, maturities and dates of issuance. Because the U.S.
Government is not obligated by law to provide support to an instrumentality it
sponsors, a Fund will invest in obligations issued by such an instrumentality
only if the Fund's Sub-Advisor determines that the credit risk with respect to
the instrumentality does not make its securities unsuitable for investment by
the Fund.
ILLIQUID INVESTMENTS. Illiquid securities generally cannot be sold or
disposed of in the ordinary course of business within seven days at
approximately the value at which the Portfolio or the Underlying Fund has valued
the investments. These factors may have an adverse effect on the ability of the
Portfolio or the Underlying Fund to dispose of the particular securities at fair
market value and may limit such fund's ability to obtain accurate market
quotations for purposes of valuing the securities and calculating the net asset
value of shares of the Underlying Fund. The Underlying Funds may also purchase
securities that are not registered under the Securities Act of 1933, as amended
(the "Act"), but that can be sold to qualified institutional buyers in
accordance with Rule 144A under that Act ("Rule 144A securities"). Rule 144A
securities generally must be sold to other qualified institutional buyers. If a
particular investment in Rule 144A securities is not determined to be liquid,
that investment will be included within the 15% or 10% limitation, as
applicable, on investment in illiquid securities. Shares of SPIF held by a
Portfolio will be treated as illiquid securities.
COMBINED TRANSACTIONS. As permitted by each Underlying Fund's
investment polices and restrictions, the Underlying Funds may enter into
multiple transactions, including multiple options transactions, multiple futures
transactions, multiple foreign currency transactions (including forward foreign
currency exchange contracts) and any combination of futures, options and foreign
currency transactions (each separately, a "component" transaction), instead of a
single transaction, as part of a single hedging strategy when, in the opinion of
the Sub-Advisor, it is in the best interest of the Underlying Fund to do so. A
combined transaction, while part of a single hedging strategy, may contain
elements of risk that are present in each of its component transactions.
-10-
<PAGE> 72
BANK OBLIGATIONS. Domestic commercial banks organized under federal law
are supervised and examined by the Comptroller of the Currency and are required
to be members of the Federal Reserve System and to be insured by the Federal
Deposit Insurance Corporation (the "FDIC"). Domestic banks organized under state
law are supervised and examined by state banking authorities but are members of
the Federal Reserve System only if they elect to join. Most state banks are
insured by the FDIC (although such insurance may not be of material benefit to
an Underlying Fund, depending upon the principal amount of certificates of
deposit ("CDs") of each state bank held by an Underlying Fund) and are subject
to federal examination and to a substantial body of federal law and regulation.
As a result of federal and state laws and regulations, domestic branches of
domestic banks are, among other things, generally required to maintain specific
levels of reserves, and are subject to other supervision and regulation designed
to promote financial soundness.
Obligations of foreign branches of U.S. banks and of foreign branches
of foreign banks, such as CDs and time deposits ("TDs"), may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation and governmental regulation.
Obligations of foreign branches of U.S. banks and foreign banks are subject to
the risks associated with investing in foreign securities generally. Foreign
branches of U.S. banks and foreign branches of foreign banks are not necessarily
subject to the same or similar regulatory requirements that apply to U.S. banks,
such as mandatory reserve requirements, loan limitations, and accounting,
auditing and financial recordkeeping requirements. In addition, less information
may be publicly available about a foreign branch of a U.S. bank or about a
foreign bank than about a U.S. bank.
Obligations of U.S. branches of foreign banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation and by federal and state
regulation as well as governmental action in the country in which the foreign
bank has its head office. A U.S. branch of a foreign bank may or may not be
subject to reserve requirements imposed by the Federal Reserve System or by the
state in which the branch is located if the branch is licensed in that state. In
addition, branches licensed by the Comptroller of the Currency and branches
licensed by certain states ("State Branches") may or may not be required to (1)
pledge to the regulator by depositing assets with a designated bank within the
state an amount of its assets equal to 5% of its total liabilities, or (2)
maintain assets within the state in an amount equal to a specified percentage of
the aggregate amount of liabilities of the foreign bank payable at or through
all of its agencies or branches within the state. The deposits of State Branches
may not necessarily be insured by the FDIC. In addition, there may be less
publicly available information about a U.S. branch of a foreign bank than about
a U.S. bank.
In view of the foregoing factors associated with the purchase of CDS
and TDs issued by foreign banks and foreign branches of U.S. banks, the
Underlying Funds' respective Sub-Advisors will carefully evaluate such
investments on a case-by-case basis.
-11-
<PAGE> 73
An Underlying Fund may purchase a CD, TD or bankers' acceptances issued
by a bank, savings and loan association or other banking institution with less
than $1 billion in assets (a "Small Issuer Bank Obligation") only so long as the
issuer is a member of the FDIC or supervised by the Office of Thrift Supervision
(the "OTS") and so long as the principal amount of the Small Issuer Bank
Obligation is fully insured by the FDIC and is no more than $100,000. Each of
these Underlying Funds will at any one time hold only one Small Issuer Bank
Obligation from any one issuer.
Savings and loan associations whose CDs, TDs and bankers' acceptances
may be purchased by the Underlying Funds are supervised by the OTS and insured
by the Savings Association Insurance Fund, which is administered by the FDIC and
is backed by the full faith and credit of the United States Government. As a
result, such savings and loan associations are subject to regulation and
examination.
MORTGAGE-BACKED SECURITIES. The mortgage-backed securities in which the
Underlying Funds may invest may be classified as governmental or
government-related, depending on the issuer or guarantor. Governmental
mortgage-backed securities are backed by the full faith and credit of the United
States. GNMA, the principal U.S. guarantor of such securities, is a wholly-owned
U.S. Government corporation within the Department of Housing and Urban
Development. Government-related mortgage-backed securities which are not backed
by the full faith and credit of the United States include those issued by FNMA
and FHLMC. FNMA is a government-sponsored corporation owned entirely by private
stockholders, which is subject to general regulation by the Secretary of Housing
and Urban Development. Pass-through securities issued by FNMA are guaranteed as
to timely payment of principal and interest by FNMA. FHLMC is a corporate
instrumentality of the United States, the stock of which is owned by the Federal
Home Loan Banks. Participation certificates representing interests in mortgages
from FHLMC's national portfolio are guaranteed as to the timely payment of
interest and ultimate collection of principal by FHLMC. In addition, the U.S.
Government Fund may invest in commercial mortgage-backed securities. While these
securities generally are structured with one or more types of credit
enhancement, they are issued by non-governmental entities and are not guaranteed
by a governmental agency or instrumentality.
Governmental or government-related entities may create mortgage loan
pools offering pass-through investments in addition to those described above.
The mortgages underlying these securities may be alternative mortgage
instruments, that is, mortgage instruments in which principal or interest
payments may vary or terms to maturity may be shorter than previously customary.
As new types of mortgage-backed securities are developed and offered to
investors, the Underlying Funds will, consistent with their respective
investment objectives and policies, consider making investments in such new
types of securities.
The average maturity of pass-through pools of mortgage-backed
securities varies with the maturities of the underlying mortgage instruments. In
addition, a pool's stated maturity may be shortened by unscheduled payments on
the underlying mortgages. Factors affecting mortgage
-12-
<PAGE> 74
prepayments include the level of interest rates, general economic and social
conditions, the location of the mortgaged property and the age of the mortgage.
Because prepayment rates of individual mortgage pools vary widely, it is not
possible to accurately predict the average life of a particular pool. Common
industry practice, for example, is to assume that prepayments will result in a
7- to 9-year average life for pools of fixed-rate 30-year mortgages. Pools of
mortgages with other maturities of different characteristics will have varying
average life assumptions.
REPURCHASE AGREEMENTS. The Portfolios and the Underlying Funds may
invest in repurchase agreements without limitation.
STRATEGIES AVAILABLE TO ALL UNDERLYING FUNDS EXCEPT THE MONEY FUNDS
REVERSE REPURCHASE AGREEMENTS. Under the 1940 Act, reverse repurchase
agreements may be considered borrowings by the seller; accordingly each of the
Underlying Funds will limit its aggregate investments in reverse repurchase
agreements and other borrowings to no more than 30% of its total assets, except
that each of the STF U.S. Government, STF Corporate Income and STF Short Term
High Quality Bond Funds will limit its aggregate investments in reverse
repurchase agreements, dollar roll transactions and other borrowings to no more
than 33-1/3% of its total assets. An Underlying Fund will not engage in reverse
repurchase transactions for the purpose of leverage.
WHEN-ISSUED SECURITIES AND DELAYED DELIVERY TRANSACTIONS. A segregated
account in the name of the Underlying Fund consisting of cash or liquid debt
securities equal to the amount of when-issued or delayed-delivery commitments
will be established at Boston Safe, the Trust's custodian. For the purpose of
determining the adequacy of the securities in the accounts, the deposited
securities will be valued at market or fair value. If the market or fair value
of the securities declines, additional cash or securities will be placed in the
account daily so that the value of the account will equal the amount of such
commitments by the Underlying Fund. On the settlement date, the Underlying Fund
will meet its obligations from then-available cash flow, the sale of securities
held in the segregated account, the sale of other securities or, although it
would not normally expect to do so, from the sale of securities purchased on a
when-issued or delayed-delivery basis themselves (which may have a greater or
lesser value than the Underlying Fund's payment obligations).
STRATEGIC TRANSACTIONS. No Underlying Fund currently intends to enter
into Strategic Transactions, excluding Strategic Transactions that are "covered"
or entered into for bona fide hedging purposes, that are in the aggregate
principal amount in excess of 15% of the Underlying Fund's net assets.
Strategic Transactions have associated risks including possible default
by the other party to the transaction, illiquidity and, to the extent the
Sub-Adviser's view as to certain market movements is incorrect, losses greater
than if they had not been used. For more information about the Underlying Funds'
use of put and call options, currency transactions and options and
-13-
<PAGE> 75
futures transactions and the risks associated with such transactions, see the
sections relating to such strategies in this SAI and the Appendix to the
applicable Prospectus. Losses resulting from the use of Strategic Transactions
may reduce net asset value, and possibly income, and such losses can be greater
than if the Strategic Transactions had not been utilized.
Strategic Transactions expose an Underlying Fund to an obligation to
another party. No Underlying Fund will enter into any such transactions unless
it owns either (1) an offsetting ("covered") position in securities or other
options or futures contracts or (2) cash, receivables and U.S. government
securities and other liquid, high grade debt, with a value sufficient at all
times to cover its potential obligations to the extent not covered as provided
in (1) above. Each Underlying Fund will comply with SEC guidelines regarding
cover for hedging transactions and will, if the guidelines so require, set aside
cash, U.S. government securities or other liquid, high-grade debt securities in
a segregated account with its custodian or with a designated sub-custodian in
the prescribed amount.
The use of Strategic Transactions is subject to applicable regulations
of the SEC, the several options and futures exchanges upon which they are
traded, the CFTC and may become subject to regulation by various state
regulatory authorities. Each Underlying Fund will comply with the applicable
regulatory requirements when utilizing Strategic Transactions. In addition, an
Underlying Fund's ability to use Strategic Transactions may be limited by tax
considerations. See the section "Taxes."
SPECIAL RISKS OF STRATEGIC TRANSACTIONS. The use of Strategic
Transactions involves special considerations and risks, as described below.
Additional risks pertaining to particular Strategic Transactions are described
in other sections to this SAI. Successful use of most Strategic Transactions
depends upon the Sub-Advisor's ability to predict movements of the overall
securities and interest rate markets, which requires different skills than
predicting changes in the prices of individual securities. There can be no
assurance that any particular strategy adopted will succeed. There may be
imperfect correlation, or even no correlation, between price movements of
Strategic Transactions and price movements of the related portfolio or currency
positions. Such a lack of correlation might occur due to factors unrelated to
the value of the related portfolio or currency positions, such as speculative or
other pressures on the markets in which Strategic Transactions are traded.
Strategic Transactions, if successful, can reduce risk of loss or enhance
income, by wholly or partially offsetting the negative effect of, or accurately
predicting, unfavorable price movements or currency fluctuations in the related
portfolio or currency position. However, Strategic Transactions can also reduce
the opportunity for gain by offsetting the positive effect of favorable price
movements in the positions. In addition, an Underlying Fund might be required to
maintain assets as "cover," maintain segregated accounts or make margin payments
when it takes positions in Strategic Transactions involving obligations to third
parties (i.e., Strategic Transactions other than purchased options). These
requirements might impair the Underlying Fund's ability to sell a portfolio
security or currency position or make an investment at a time when it would
otherwise be favorable to do so, or require that the Underlying Fund sell a
portfolio security or currency position at a disadvantageous time.
-14-
<PAGE> 76
SWAPS, CAPS, FLOORS AND COLLARS. Among the Strategic Transactions into
which an Underlying Fund may enter, consistent with the Underlying Fund's
investment policies and restrictions, are interest rate, currency and index
swaps and the purchase or sale of related caps, floors and collars. An
Underlying Fund would enter into these transactions primarily to preserve a
return or spread on a particular investment or portion of its portfolio, to
protect against currency fluctuations, as a duration management technique or to
protect against any increase in the price of securities the Underlying Fund
anticipates purchasing at a later date. An Underlying Fund will use these
transactions as hedges and not speculative investments and will not sell
interest rate caps or floors where it does not own securities or other
instruments providing the income stream the Underlying Fund may be obligated to
pay. Interest rate swaps involve the exchange by an Underlying Fund with another
party of their respective commitments to pay or receive interest, e.g., an
exchange of floating rate payments for fixed rate payments with respect to a
notional amount of principal. A currency swap is an agreement to exchange cash
flows on a notional amount of two or more currencies based on the relative value
differential among them and an index swap is an agreement to swap cash flows on
a notional amount based on changes in the values of the reference indices. The
purchase of a cap entitles the purchaser to receive payments on a notional
principal amount from the party selling such cap to the extent that a specified
index exceeds a predetermined interest rate or amount. The purchase of a floor
entitles the purchaser to receive payments on a notional principal amount from
the party selling such floor to the extent that a specified index falls below a
predetermined interest rate or amount. A collar is a combination of a cap and a
floor that preserves a certain return within a predetermined range of interest
rates or value.
An Underlying Fund will usually enter into swaps on a net basis, i.e.,
the two payment streams are netted out in a cash settlement on the payment date
or dates specified in the instrument, with the Underlying Fund receiving or
paying, as the case may be, only the net amount of the two payments. Inasmuch as
these swaps, caps, floors and collars are entered into for good faith hedging
purposes, Sierra Advisors and the Trust believe such obligations do not
constitute senior securities under the 1940 Act and, accordingly, will not treat
them as being subject to the Underlying Fund's borrowing restrictions. If there
is a default by the counterpart, an Underlying Fund may have contractual
remedies pursuant to the agreements related to the transaction. The swap market
has grown substantially in recent years with a large number of banks and
investment banking firms acting both as principles and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Caps, floors and collars are more recent innovations for
which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.
-15-
<PAGE> 77
STRATEGIES AVAILABLE TO THE PORTFOLIOS, STF U.S. GOVERNMENT FUND, STF CORPORATE
INCOME FUND, STF SHORT TERM GLOBAL GOVERNMENT FUND, STF SHORT TERM HIGH QUALITY
BOND FUND, STF GROWTH FUND, STF EMERGING GROWTH FUND, STF GROWTH AND INCOME FUND
AND STF INTERNATIONAL GROWTH FUND
FUTURES ACTIVITIES. The Portfolios and the Underlying Funds listed
above may enter into futures contracts and options on futures contracts that are
traded on a U.S. exchange or board of trade. These investments may be made by
the Portfolio or the Underlying Fund involved for the purpose of hedging against
changes in the value of its portfolio securities due to anticipated changes in
interest rates and market conditions, and for otherwise permitted Strategic
Transactions. The ability of an Underlying Fund to trade in futures contracts
and options on futures contracts may be materially limited by the requirement of
the Internal Revenue Code of 1986, as amended, (the "Code"), applicable to a
regulated investment company. See the section "Taxes."
FUTURES CONTRACTS. An interest rate futures contract provides for the
future sale by one party and the purchase by the other party of a certain amount
of a specific financial instrument (debt security) at a specified price, date,
time and place. A bond index futures contract is an agreement pursuant to which
two parties agree to take or make delivery of an amount of cash equal to the
difference between the value of the index at the close of the last trading day
of the contract and the price at which the index contract was originally
written. No physical delivery of the underlying securities in the index is made.
The purpose of entering into a futures contract by a Portfolio or an
Underlying Fund is to protect the Portfolio or the Underlying Fund from
fluctuations in the value of its securities caused by anticipated changes in
interest rates or market conditions without necessarily buying or selling the
securities. For example, if the STF Corporate Income Fund owns long-term bonds
and interest rates are expected to increase, it might enter into futures
contracts to sell a Treasury bond. This transaction would have much the same
effect as its selling some of the long-term bonds in its portfolio. If interest
rates increase as anticipated, the value of certain long-term fixed income
securities in the portfolio would decline, but the value of its futures
contracts would increase at approximately the same rate, thereby keeping its net
asset value from declining as much as it otherwise would have. Of course, since
the value of portfolio securities will far exceed the value of the futures
contracts it entered into, an increase in the value of the futures contract
would only mitigate -- but not totally offset -- the decline in the value of the
portfolio.
No consideration is paid or received by a Portfolio or an Underlying
Fund upon entering into a futures contract. Initially, a Portfolio or an
Underlying Fund would be required to deposit with the broker an amount of cash
or cash equivalents equal to approximately 1% to 10% of the contract amount
(this amount is subject to change by the board of trade on which the contract is
traded and members of such board of trade may charge a higher amount). This
amount is known as "initial margin" and is in its nature the equivalent of a
performance bond or good faith deposit on the contract, which is returned to the
Portfolio or the Underlying Fund upon termination of the
-16-
<PAGE> 78
futures contract, assuming all contractual obligations have been satisfied.
Subsequent payments, known as "variation margin," to and from the broker, will
be made daily as the price of the index or securities underlying the futures
contract fluctuates, making the long and short positions in the futures contract
more or less valuable, a process known as "marking-to-market." At any time prior
to the expiration of a futures contract, a Portfolio or an Underlying Fund may
elect to close the position by taking an opposite position, which will operate
to terminate the Portfolio's or Underlying Fund's existing position in the
contract.
There are several risks in connection with the use of futures contracts
as a hedging device. Successful use of futures contracts by a Portfolio or an
Underlying Fund is subject to the ability of the Advisor or Sub-Advisor of the
Portfolio or Underlying Fund to correctly predict movements in the direction of
interest rates or changes in market conditions. These predictions involve skills
and techniques that may be different from those involved in the management of
the portfolio being hedged. In addition, there can be no assurance that there
will be a correlation between movements in the price of the underlying index or
securities and movements in the price of the securities which are the subject of
the hedge. A decision of whether, when and how to hedge involves the exercise of
skill and judgment, and even a well-conceived hedge may be unsuccessful to some
degree because of market behavior or unexpected trends in interest rates.
Although the Portfolios and Underlying Funds intend to enter into
futures contracts only if there is an active market for such contracts, there is
no assurance that an active market will exist for the contracts at any
particular time. Most U.S. futures exchanges and boards of trade limit the
amount of fluctuation permitted in futures contract prices during a single
trading day. Once the daily limit has been reached in a particular contract, no
trades may be made that day at a price beyond that limit. It is possible that
futures contract prices would move to the daily limit for several consecutive
trading days with little or no trading, thereby preventing prompt liquidation of
futures positions and subjecting some futures traders to substantial losses. In
such event, and in the event of adverse price movements, a Portfolio or an
Underlying Fund would be required to make daily cash payments of variation
margin. In such circumstances, an increase in the value of the portion of the
portfolio being hedged, if any, may partially or completely offset losses on the
futures contract. However, as described above, there is no guarantee that the
price of the securities being hedged will, in fact, correlate with the price
movements in a futures contract and thus provide an offset to losses on the
futures contract.
To ensure that transactions constitute bona fide hedges in instances
involving the purchase or sale of a futures contract, the Portfolios or
Underlying Funds will be required to either (i) segregate sufficient cash or
high-grade liquid assets to cover the outstanding position or (ii) cover the
futures contract by either owning the instruments underlying the futures
contract or by holding a portfolio of securities with characteristics
substantially similar to the underlying index or stock index comprising the
futures contract or by holding a separate option permitting it to purchase or
sell the same futures contract. Because of the imperfect correlation between the
movements in the price of underlying indexes or stock indexes of various futures
contracts and the movement of the price of securities in the Portfolios or
Underlying Funds' portfolios, the
-17-
<PAGE> 79
Portfolios or Underlying Funds will periodically make adjustments to its futures
contracts positions to appropriately reflect the relationship between the
underlying portfolio and the indexes. The Portfolio or Underlying Fund will not
maintain short positions in index or stock index futures contracts, options
written on index or stock index futures contracts and options written on indexes
or stock indexes, if in the aggregate, the value of these positions exceeds the
current market value of its securities portfolio plus or minus the unrealized
gain or loss on those positions, adjusted for the historical volatility
relationship between the portfolio and the index contracts.
OPTIONS ON FUTURES CONTRACTS. An option on a futures contract, as
contrasted with the direct investment in such a contract, gives the purchaser
the right, in return for the premium paid, to assume a position in the futures
contract at a specified exercise price at any time prior to the expiration date
of the option. Upon exercise of an option, the delivery of the futures position
by the writer of the option to the holder of the option will be accompanied by
delivery of the accumulated balance in the writer's futures margin account,
which represents the amount by which the market price of the futures contract
exceeds, in the case of a call, or is less than, in the case of a put, the
exercise price of the option on the futures contract. The potential loss related
to the purchase of an option on futures contracts is limited to the premium paid
for the option (plus transaction costs). Because the price of the option to the
purchaser is fixed at the point of sale, there are no daily cash payments to
reflect changes in the value of the underlying contract; however, the value of
the option does change daily and that change would be reflected in the net asset
value of the Portfolio or the Underlying Fund holding the options.
The Portfolios or Underlying Funds may purchase and write put and call
options on futures contracts that are traded on a U.S. exchange or board of
trade as a hedge against changes in the value of its portfolio securities, and
may enter into closing transactions with respect to such options to terminate
existing positions. There is no guarantee that such closing transactions can be
effected.
There are several risks relating to options on futures contracts. The
ability to establish and close out positions on such options will be subject to
the existence of a liquid market. In addition, the purchase of put or call
options will be based upon predictions as to anticipated interest rate and
market trends by the Advisor or Sub-Advisor of the Portfolios or Underlying
Funds, which could prove to be inaccurate. Even if the expectations of an
Advisor or Sub-Advisor are correct, there may be an imperfect correlation
between the change in the value of the options and the portfolio securities
hedged.
-18-
<PAGE> 80
STRATEGIES AVAILABLE TO STF U.S. GOVERNMENT FUND, STF CORPORATE INCOME FUND, STF
SHORT TERM HIGH QUALITY BOND FUND, STF GROWTH AND INCOME FUND, STF EMERGING
GROWTH FUND, STF SHORT TERM GLOBAL GOVERNMENT FUND, STF GROWTH FUND AND STF
INTERNATIONAL GROWTH FUND
OPTIONS ON SECURITIES. The Underlying Funds may write covered put
options and covered call options on securities, purchase put and call options on
securities and enter into closing transactions. The Underlying Funds may not
write put options with respect to more than 50% of their total assets.
Options written by an Underlying Fund will normally have expiration
dates between one and nine months from the date written. The exercise price of
the options may be below, equal to or above the market values of the underlying
securities at the times the options are written. In the case of call options,
these exercise prices are referred to as "in-the-money," "at-the-money" and
"out-of-the-money," respectively. Fund may write (1) in-the-money call options
when its Sub-Advisor expects that the price of the underlying security will
remain flat or decline moderately during the option period, (2) at-the-money
call options when its Sub-Advisor expects that the price of the underlying
security will remain flat or advance moderately during the option period and (3)
out-of-the-money call options when its Sub-Advisor expects that the premiums
received from writing the call option plus the appreciation in the market price
of the underlying security up to the exercise price will be greater than the
appreciation in the price of the underlying security alone. In any of the
preceding situations, if the market price of the underlying security declines
and the security is sold at this lower price, the amount of any realized loss
will be offset wholly or in part by the premium received. Out-of-the-money,
at-the-money and in-the-money put options (the reverse of call options as to the
relation of exercise price to market price) may be utilized in the same market
environments as such call options described above.
So long as the obligation of the Underlying Fund as the writer of an
option continues, the Underlying Fund may be assigned an exercise notice by the
broker-dealer through which the option was sold, requiring the Underlying Fund
to deliver, in the case of a call, or take delivery of, in the case of a put,
the underlying security against payment of the exercise price. This obligation
terminates when the option expires or the Underlying Fund effects a closing
purchase transaction. The Underlying Fund can no longer effect a closing
purchase transaction with respect to an option once it has been assigned an
exercise notice. To secure its obligation to deliver the underlying security
when it writes a call option, or to pay for the underlying security when it
writes a put option, the Underlying Fund will be required to deposit in escrow
the underlying security or other assets in accordance with the rules of the
Options Clearing Corporation (the "Clearing Corporation") and of the securities
exchange on which the option is written.
An option may be closed out only when there exists a secondary market
for an option of the same series on a recognized securities exchange or in the
over-the-counter market. In light of
-19-
<PAGE> 81
this fact and current trading conditions, the Underlying Fund expects to
purchase or write call or put options issued by the Clearing Corporation, except
that options on U.S. Government securities may be purchased or written in the
over-the-counter market. Over-the-counter options can be closed out only by
agreement with the primary dealer in the transaction. National securities
exchanges on which options are traded are: The Chicago Board Options Exchange
(CBOE), The Board of Trade of the City of Chicago (CBT), American Stock Exchange
(AMEX), Philadelphia Stock Exchange (PHLX), Pacific Stock Exchange (PSE) and the
New York Stock Exchange (NYSE). Any over-the-counter option written by an
Underlying Fund will be with a qualified dealer pursuant to an agreement under
which the Underlying Fund may repurchase the option at a formula price at which
the Underlying Fund would have the absolute right to repurchase an
over-the-counter option it has sold. Such options will be considered illiquid in
an amount equal to the formula price, less the amount by which the option is
"in-the-money." In the event of the insolvency of the primary dealer, the
Underlying Fund may not be able to liquidate its position in over-the-counter
options, and the ability of the Underlying Fund to enter into closing purchase
transactions on options written by the Underlying Fund may result in a material
loss to the Underlying Fund.
The Underlying Fund may realize a profit or loss upon entering into
closing transactions. In cases where the Underlying Fund has written an option,
it will realize a profit if the cost of the closing purchase transaction is less
than the premium received upon writing the original option, and will incur a
loss if the cost of the closing purchase transaction exceeds the premium
received upon writing the original option. Similarly, when the Underlying Fund
has purchased an option and engages in a closing sale transaction, the
Underlying Fund will realize a profit or loss to the extent that the amount
received in the closing sale transaction is more or less than the premium the
Underlying Fund initially paid for the original option plus the related
transaction costs.
To facilitate closing transactions, the Underlying Fund will generally
purchase or write only those options for which its Sub-Advisor believes there is
an active secondary market although there is no assurance that sufficient
trading interest to create a liquid secondary market on a securities exchange
will exist for any particular option or at any particular time, and for some
options no such secondary market may exist. A liquid secondary market in an
option may cease to exist for a variety of reasons. In the past, for example,
higher than anticipated trading activity or order flow, or other unforeseen
events, have at times rendered certain of the facilities of the Clearing
Corporation and the securities exchanges inadequate and resulted in the
institution of special procedures, such as trading rotations, restrictions on
certain types of orders or trading halts or suspensions in one or more options.
There can be no assurance that similar events, or events that may otherwise
interfere with the timely execution of customers' orders, will not recur. In
such events, it might not be possible to effect closing transactions in
particular options. If as a covered call option writer the Underlying Fund is
unable to effect a closing purchase transaction in a secondary market, it will
not be able to sell the underlying security until the option expires or it
delivers the underlying security upon exercise.
-20-
<PAGE> 82
Securities exchanges have established limitations governing the maximum
number of calls and puts of each class which may be held or written, or
exercised within certain time periods, by an investor or group of investors
acting in concert (regardless of whether the options are written on the same or
different securities exchanges or are held, written or exercised in one or more
accounts or through one or more brokers). It is possible that the particular
Underlying Fund and other clients of Sierra Advisors and its Sub-Advisors and
certain of their affiliates may be considered to be such a group. A securities
exchange may order the liquidation of positions found to be in violation of
these limits and it may impose certain other sanctions.
In the case of options written by an Underlying Fund that are deemed
covered by virtue of the Underlying Fund's holding convertible or exchangeable
preferred stock or debt securities, the time required to convert or exchange and
obtain physical delivery of the underlying security with respect to which the
Underlying Fund has written options may exceed the time within which the
Underlying Fund must make delivery in accordance with an exercise notice. In
these instances, the Underlying Fund may purchase or temporarily borrow the
underlying securities for purposes of physical delivery. By so doing, the
Underlying Fund will not bear any market risk, since the Underlying Fund will
have the absolute right to receive from the issuer of the underlying security an
equal number of shares to replace the borrowed stock. The Underlying Fund may,
however, incur additional transaction costs or interest expenses in connection
with any such purchase or borrowing.
Additional risks exist with respect to mortgage-backed U.S. Government
securities for which the Underlying Fund may write covered call options. If an
Underlying Fund writes covered call options on a mortgage-backed security, the
security that it holds as cover may, because of scheduled amortization of
unscheduled prepayments, cease to be sufficient cover. The Underlying Fund will
compensate by purchasing an appropriate additional amount of mortgage-backed
securities.
STRATEGIES AVAILABLE TO STF SHORT TERM GLOBAL GOVERNMENT FUND, STF GROWTH AND
INCOME FUND, STF EMERGING GROWTH FUND, STF INTERNATIONAL GROWTH FUND, STF SHORT
TERM HIGH QUALITY BOND FUND AND STF GROWTH FUND
OPTIONS ON SECURITIES INDEXES. In addition to options on securities,
the Underlying Funds may also purchase and sell call and put options on
securities indexes. Such options give the holder the right to receive a cash
settlement during the term of the option based upon the difference between the
exercise price and the value of the index.
Options on securities indexes entail risks in addition to the risks of
options on securities. Because exchange trading of options on securities indexes
is relatively new, the absence of a liquid secondary market to close out an
option position is more likely to occur, although the Underlying Fund generally
will purchase or write such an option only if its Sub-Advisor believes the
option can be closed out.
-21-
<PAGE> 83
Use of options on securities indexes also entails the risk that trading
in such options may be interrupted if trading in certain securities included in
the index is interrupted. The Underlying Fund will not purchase such options
unless its Sub-Advisor believes the market is sufficiently developed for the
risk of trading in such options to be no greater than the risk of trading in
options on securities.
Price movements in the Underlying Fund's portfolio may not correlate
precisely with movements in the level of an index and, therefore, the use of
options on securities indexes cannot serve as a complete hedge. Because options
on securities indexes require settlement in cash, the Underlying Fund may be
forced to liquidate portfolio securities to meet settlement obligations.
STRATEGIES AVAILABLE TO STF CORPORATE INCOME FUND, STF EMERGING GROWTH FUND, STF
SHORT TERM GLOBAL GOVERNMENT FUND, STF SHORT TERM HIGH QUALITY BOND FUND, STF
GROWTH AND INCOME FUND, STF GROWTH FUND AND STF INTERNATIONAL GROWTH FUND
AMERICAN, EUROPEAN AND CONTINENTAL DEPOSITARY RECEIPTS. The Underlying
Funds may invest in the securities of foreign and domestic issuers in the form
of American Depositary Receipts ("ADRs") and European Depositary Receipts
("EDRs"). These securities may not necessarily be denominated in the same
currency as the securities into which they may be converted. ADRs are
securities, typically issued by a U.S. financial institution (a depositary),
that evidence ownership interests in a security or a pool of securities issued
by a foreign issuer (the "underlying issuer") and deposited with the depositary.
ADRs include American Depositary Shares and New York Shares and may be
"sponsored" or "unsponsored." Sponsored ADRs are established jointly by a
depositary and the underlying issuer, whereas unsponsored ADRs may be
established by a depository without participation by the underlying issuer.
Holders of unsponsored Depositary Receipts generally bear all the costs
associated with establishing the unsponsored Depositary Receipt. The depositary
of an unsponsored Depositary Receipt is under no obligation to distribute
shareholder communications received from the underlying issuer or to pass
through to the holders of the unsponsored Depositary Receipt voting rights with
respect to the deposited securities or pool of securities. EDRs, which are
sometimes referred to as Continental Depositary Receipts ("CDRs"), and are
receipts issued in Europe typically be non- U.S. banking and trust companies
that evidence ownership of either foreign or U.S. securities. Generally, ADRs,
in registered form, are designed for use in U.S. securities markets and EDRs and
CDRs, in bearer form, are designed for use in European securities markets.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. The Underlying Funds may engage
in currency exchange transactions to protect against uncertainty in the level of
future exchange rates. The Underlying Funds' dealings in forward currency
exchange contracts will be limited to hedging involving either specific
transactions or portfolio positions. Transaction hedging is the purchase or sale
of forward foreign currency with respect to specific receivables or payables of
the Underlying Fund generally arising in connection with the purchase or sale of
its portfolio securities. Position hedging is the sale of forward foreign
currency with respect to portfolio security positions denominated or quoted in
such foreign currency. An Underlying Fund may
-22-
<PAGE> 84
not position hedge with respect to a particular currency to an extent greater
than the aggregate market value (at the time of making such sale) of the
securities held in its portfolio denominated or quoted in or currently
convertible into that particular currency.
If an Underlying Fund enters into a position hedging transaction, the
custodian or sub-custodian will, except in circumstances where segregated
accounts are not required by the 1940 Act and the rules adopted thereunder,
place cash, U.S. Government securities or high grade debt obligations in a
segregated account for the Underlying Fund in an amount at least equal to the
value of the Underlying Fund's total assets committed to the consummation of the
forward contract. For each forward foreign currency exchange contract that is
used to hedge a securities position denominated in a foreign currency, but for
which the hedging position no longer provides, in the opinion of the Sub-Advisor
or the Advisor, sufficient protection to consider the contract to be a hedge,
the Underlying Fund maintains with its custodian a segregated account of cash,
U.S. Government Securities or high grade debt obligations in an amount at least
equal to the portion of the contract that is no longer sufficiently covered by
such hedge. If the value of the securities placed in the segregated account
declines, additional cash or securities will be placed in the account so that
the value of the account will equal the amount of the Underlying Fund's unhedged
exposure (in the case of securities denominated in a foreign currency) or
commitment with respect to the contract. Hedging transactions may be made from
any foreign currency into U.S. dollars or into other appropriate currencies.
At or before the maturity of a forward contract, an Underlying Fund may
either sell a portfolio security and make delivery of the currency, or retain
the security and offset its contractual obligation to deliver the currency by
purchasing a second contract pursuant to which the Underlying Fund will obtain,
on the same maturity date, the amount of the currency that it is obligated to
deliver. If the Underlying Fund retains the portfolio security and engages in an
offsetting transaction, the Underlying Fund, at the time of execution of the
offsetting transaction, will incur a gain or a loss to the extent that movement
has occurred in forward contract prices. Should forward prices decline during
the period between the Underlying Fund's entering into a forward contract for
the sale of currency and the date it enters into an offsetting contract for the
purchase of the currency, the Underlying Fund will realize a gain to the extent
the price of the currency it has agreed to sell exceeds the price of the
currency it has agreed to purchase. Should forward prices increase, the
Underlying Fund will suffer a loss to the extent the price of the currency it
has agreed to purchase exceeds the price of the currency it has agreed to sell.
The cost to an Underlying Fund of engaging in currency transactions
with factors such as, the currency involved, the length of the contract period
and the prevailing market conditions. Because transactions in currency exchange
are usually conducted on a principal basis, no fees or commissions are involved.
The use of forward currency contracts does not eliminate fluctuations in the
underlying prices of the securities, but it does establish a rate of exchange
that can be achieved in the future. In addition, forward currency contracts may
limit the risk of loss due to a decline in the value of the hedged currency
increase.
-23-
<PAGE> 85
If a devaluation of a currency is generally anticipated, an Underlying
Fund may not be able to contract to sell the currency at a price above the
devaluation level it anticipates.
The Underlying Funds, in addition, may combine forward currency
exchange contracts with investments in securities denominated in other
currencies in an attempt to create a combined investment position, the overall
performance of which will be similar to that of a security denominated in an
Underlying Fund's underlying currency. For instance, an Underlying Fund could
purchase a U.S. dollar-denominated security and at the same time enter into a
forward currency exchange contract to exchange U.S. dollars for its underlying
currency at a future date. By matching the amount of U.S. dollars to be
exchanged with the anticipated value of the U.S. dollar-denominated security,
the Underlying Fund may be able to "lock in" the foreign currency value of the
security and adopt a synthetic investment position whereby the Underlying Fund's
overall investment return from the combined position is similar to the return
from purchasing a foreign currency-denominated instrument.
There is a risk in adopting a synthetic investment position. It is
impossible to forecast with absolute precision what the market value of a
particular security will be at any given time. If the value of a security
denominated in the U.S. dollar or other foreign currency is not exactly matched
with an Underlying Fund's obligation under a forward currency exchange contract
on the date of maturity, the Underlying Fund may be exposed to some risk of loss
from fluctuations in that currency. Although each Underlying Fund's Sub-Advisor
will attempt to hold such mismatching to a minimum, there can be no assurance
that the Underlying Fund's Sub-Advisor will be able to do so.
Although the foreign currency market is not believed to be necessarily
more volatile than the market in other commodities, there is less protection
against defaults in the forward trading to currencies than there is in trading
such currencies on an exchange because such forward contracts are not guaranteed
by an exchange or clearing house. The Commodity Futures Trading Commission has
indicated that it may assert jurisdiction over forward contracts in foreign
currencies and attempt to prohibit certain entities from engaging in such
transactions. In the event that such prohibition included the Underlying Fund,
it would cease trading such contracts. Cessation of trading might adversely
affect the performance of an Underlying Fund.
STRATEGIES AVAILABLE TO STF SHORT TERM GLOBAL GOVERNMENT FUND, STF GROWTH FUND,
STF INTERNATIONAL GROWTH FUND AND STF SHORT TERM HIGH QUALITY BOND FUND
OPTIONS ON FOREIGN CURRENCIES. The Underlying Funds may purchase and
write put and call options on foreign currencies for the purpose of hedging
against declines in the U.S. dollar value of foreign currency-denominated
portfolio securities and against increases in the U.S. dollar cost of such
securities to be acquired. Such hedging includes cross hedging and proxy hedging
where the options to buy or sell currencies involve other currencies besides the
U.S. dollar. As one example, a decline in the U.S. dollar value of a foreign
currency in which securities are denominated will reduce the U.S. dollar value
of the securities, even if their value
-24-
<PAGE> 86
in the foreign currency remains constant. To protect against diminutions in the
value of securities held by an Underlying Fund in a particular foreign currency,
the Underlying Fund may purchase put options on the foreign currency. If the
value of the currency does decline, the Underlying Fund will have the right to
sell the currency for a fixed amount in U.S. dollars and will thereby offset, in
whole or in part, the adverse effect on its portfolio that otherwise would have
resulted. When an increase in the U.S. dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of the securities, the Underlying Fund conversely may purchase call options
on the currency. The purchase of such options could offset, at least partially,
the effects of the adverse movements in exchange rates. As in the case of other
types of options, however, the benefit to the Underlying Fund deriving from
purchases of foreign currency options will be reduced by the amount of the
premium and related transaction costs. In addition, if currency exchange rates
do not move in the direction, or to the extent anticipated, the Underlying Fund
could sustain losses on transactions in foreign currency options that would
require it to forego a portion or all of the benefits of advantageous changes in
the rates.
The Underlying Funds may also write covered call options on foreign
currencies for the types of hedging purposes described above. As one example,
when an Underlying Fund anticipates a decline in the U.S. dollar value of
foreign currency-denominated securities due to adverse fluctuations in exchange
rates it could, instead of purchasing a put option, write a covered call option
on the relevant currency. If the expected decline occurs, the option will most
likely not be exercised, and the diminution in value of portfolio securities
will be offset by the amount of the premium received. As in the case of other
types of options, however, the writing of a foreign currency option will
constitute only a partial hedge up to the amount of the premium, and only if
rates move in the expected direction. If this does not occur, the option may be
exercised and the Underlying Fund would be required to purchase or sell the
underlying currency at a loss that may not be offset by the amount of the
premium. Through the writing of options on foreign currencies, the Underlying
Fund may also be required to forego all or a portion of the benefits that might
otherwise have been obtained from favorable movements in exchange rates.
A call option written on a foreign currency by an Underlying Fund is
"covered" if the Underlying Fund owns the underlying foreign currency covered by
the call or has an absolute and immediate right to acquire the foreign currency
without additional cash consideration (or for additional cash consideration held
in a segregated account by the Underlying Fund's custodian, or by a designated
sub-custodian) upon conversion or exchange of other foreign currency held by the
Underlying Fund. A call option also is covered if the Underlying Fund has a call
on the same foreign currency and in the same principal amount as the call
written when the exercise price of the call held (1) is equal to or less than
the exercise price of the call written or (2) is greater than the exercise price
of the call written if the difference is maintained by the Underlying Fund in
cash, U.S. Government Securities and other high-grade liquid debt securities in
a segregated account with the Underlying Fund's custodian or with a designated
sub-custodian.
-25-
<PAGE> 87
Options on foreign currencies traded on national securities exchanges
are within the jurisdiction of the SEC, as are other securities traded on those
exchanges. As a result, many of the projections provided to traders on organized
exchanges will be available with respect to those transactions. In particular,
all foreign currency option positions entered into on a national securities
exchange are cleared and guaranteed by the Options Clearing Corporation (the
"OCC"), thereby reducing the risk of counterpart default. Further, a liquid
secondary market in options traded on a national securities exchange may exist,
potentially permitting the Fund to liquidate open positions at a profit prior to
their exercise or expiration, or to limit losses in the event of adverse market
movements.
The purchase and sale of exchange-traded foreign currency options are
subject to the risks of the availability of a liquid secondary market described
above, as well as the risks regarding adverse market movements, margining of
options written, the nature of the foreign currency market, possible
intervention by governmental authorities and the effects of other political and
economic events. In addition, exercise and settlement of exchange-traded foreign
currency options must be made exclusively through the OCC, which has established
banking relationships in applicable foreign countries for this purpose. As a
result, the OCC may, if it determines that foreign governmental restrictions or
taxes would prevent the orderly settlement of foreign currency option exercises,
or would result in undue burdens on the OCC or its clearing member, impose
special procedures on exercise and settlement, such as technical changes in the
mechanics of delivery of currency, the fixing of dollar settlement prices or
prohibitions on exercise.
SPECIAL CONSIDERATIONS RELATING TO STF INTERNATIONAL GROWTH FUND, STF EMERGING
GROWTH FUND AND STF GROWTH FUND
SECURITIES IN DEVELOPING COUNTRIES. Although most of the investments of
the STF International Growth Fund, STF Emerging Growth Fund and STF Growth Fund
are made in securities of companies in (or governments of) developed countries,
up to 30% of the total assets of the STF International Growth Fund, up to 5% of
the total assets of the STF Emerging Growth Fund and up to 5% of the total
assets of the STF Growth Fund may be invested in securities of companies in (or
governments of) developing or emerging countries (sometimes referred to as
"emerging markets") as well. A developing or emerging country is generally
considered by the international financial community, in the opinion of Sierra
Advisors or the Sub-Advisor of the STF International Growth Fund, STF Emerging
Growth Fund or STF Growth Fund, to be a country that is in the initial stages of
its industrialization cycle. Investing in the equity and fixed-income markets of
developing or emerging countries involves exposure to economic structures that
are generally less diverse and mature, and to political systems that can be
expected to have less stability than those of developed countries. Historical
experience indicates that the markets of developing or emerging countries have
been more volatile than the markets of the more mature economies of developed
countries; however, such markets often have provided higher rates of return to
investors.
-26-
<PAGE> 88
STRATEGY AVAILABLE TO STF CORPORATE INCOME FUND, STF SHORT TERM GLOBAL
GOVERNMENT FUND, STF GROWTH FUND, STF GROWTH AND INCOME FUND, STF EMERGING
GROWTH FUND, STF INTERNATIONAL GROWTH FUND, STF GLOBAL MONEY FUND, STF U.S.
GOVERNMENT MONEY FUND, STF SHORT TERM HIGH QUALITY BOND FUND AND SPIF
LENDING OF PORTFOLIO SECURITIES. Each of the Underlying Funds will
adhere to the following conditions whenever its portfolio securities are loaned:
(1) the Underlying Fund must receive at least 100% cash collateral or equivalent
securities from the borrower; (2) the borrower must increase the collateral
whenever the market value of the securities rises above the level of the
collateral; (3) the Underlying Fund must be able to terminate the loan at any
time; (4) the Underlying Fund must receive reasonable interest on the loan, as
well as any dividends, interest or other distributions on the loaned securities
and any increase in market value; (5) the Underlying Fund may pay only
reasonable custodian fees in connection with the loan; and (6) voting rights on
the loaned securities may pass to the borrower, provided that if a material
event adversely affecting the investment occurs, the Underlying Fund's Board of
Trustees must terminate the loan and regain the right to vote the securities.
From time to time, the Underlying Funds may pay a part of the interest earned
from the investment of the collateral received for securities loaned to the
borrower and/or a third party that is unaffiliated with the Underlying Fund and
that is acting as a "finder." The Underlying Funds will not lend more than 20%
of their respective total assets.
SPECIAL CONSIDERATIONS RELATING TO STF EMERGING GROWTH FUND AND STF GROWTH FUND
LOWER-RATED SECURITIES. The STF Growth and STF Emerging Growth Funds
each may invest up to 35% of its assets of, respectively, in non-investment
grade securities (rated Ba and lower by Moody's and BB and lower by Standard &
Poor's) or unrated securities. Such securities carry a high degree or risk
(including the possibility of default or bankruptcy of the issuer of such
securities), generally involve greater volatility of price and risk of principal
and income, and may be less liquid, than securities in the higher rating
categories and are considered speculative. See the Appendix to this Statement of
Additional Information for a more complete description of the ratings assigned
by ratings organizations and their respective characteristics.
An economic downturn may disrupt the high yield market and impair the
ability of issuers to repay principal and interest. Also, an increase in
interest rates could further adversely affect the value of such obligations held
by the Underlying Fund. Prices and yields of high yield securities will
fluctuate over time and may affect the Underlying Fund's net asset value. In
addition, investments in high yield zero coupon or pay-in-kind bonds, rather
than income-bearing high yield securities, may be more speculative and may be
subject to greater fluctuations in value due to changes in interest rates.
The trading market for high yield securities may be thin to the extent
that there is no established retail secondary market or because of a decline in
the value of such securities. A thin
-27-
<PAGE> 89
trading market may limit the ability of the Trustees or Sierra Advisors or the
Underlying Fund's Sub-Advisor to accurately value high yield securities in the
Underlying Fund's portfolio and to dispose of those securities. Adverse
publicity and investor perceptions may decrease the value and liquidity of high
yield securities. These securities may also involve special registration
responsibilities, liabilities and costs.
Credit quality in the high yield securities market can change suddenly
and unexpectedly, and even recently-issued credit ratings may not fully reflect
the actual risks posed by a particular high yield security. For these reasons,
it is the policy of the Sub-Advisor of each of the Underlying Funds not to rely
exclusively on ratings issued by established credit rating agencies, but to
supplement such ratings with its own independent and ongoing review of credit
quality. The achievement of the Underlying Fund's investment objectives by
investment in such securities may be more dependent on its Sub-Advisor's credit
analysis than is the case for higher quality bonds. Should the rating of a
portfolio security be downgraded, the Underlying Fund's Sub- Advisor will
determine whether it is in the best interest of the Underlying Fund to retain or
dispose of the security.
Prices for below investment-grade securities may be affected by
legislative and regulatory developments. For example, new federal rules require
savings and loan institutions to gradually reduce their holdings of this type of
security. Also, Congress from time to time has considered legislation which
would restrict or eliminate the corporate tax deduction for interest payments on
these securities and would regulate corporate restructurings. Such legislation
may significantly depress the prices of outstanding securities of this type.
STRATEGIES AVAILABLE TO SPIF
CERTAIN CHARACTERISTICS OF SENIOR LOAN INTERESTS
Senior Loans generally are arranged through private negotiations
between a Borrower and several financial institutions ("Lenders") represented in
each case by one or more such Lenders acting as agent ("Agent") of the several
Lenders. On behalf of the several Lenders, the Agent, which is frequently the
commercial bank or other entity that originates the Senior Loan and the person
that invites other parties to join the lending syndicate, will be primarily
responsible for negotiating the loan agreement or agreements ("Loan Agreement")
that establish the relative terms, conditions and rights of the Borrower and the
several Lenders.
SPIF will invest in participations ("Participations") in Senior Loans,
will purchase assignments ("Assignments") of portions of Senior Loans from third
parties and may act as one of the group of Lenders originating a Senior Loan (an
"Original Lender").
It is anticipated that the proceeds of the Senior Loans in which SPIF
will acquire interests primarily will be used to finance leveraged buyouts,
recapitalizations, mergers, acquisitions, stock repurchases, and, to a lesser
extent, to finance internal growth and for other corporate
-28-
<PAGE> 90
purposes of Borrowers. SPIF currently does not intend to acquire interests in
Senior Loans the proceeds of which would be used primarily to finance
construction or real estate development projects. Senior Loans have the most
senior position in a Borrower's capital structure, although some Senior Loans
may hold an equal ranking with other senior securities of the Borrower. The
capital structure of Borrowers may include Senior Loans, senior and junior
subordinated debt (which may include "junk bonds"), preferred stock and common
stock issued by the Borrower, typically in descending order of seniority with
respect to claims on the Borrower's assets. Senior Loans generally are secured
by specific collateral, which may include guarantees. In connection with the
acquisition of collateralized Senior Loans, SPIF may invest up to 5% of its
total assets in Senior Loans which are not secured by any collateral. Such
unsecured Senior Loans would constitute an interim financing intended to be
refinanced through, in whole or in part, a collateralized Senior Loan. In the
event that SPIF invests a portion of its assets in Senior Loans that are not
secured by specific collateral, SPIF will not enjoy the benefits associated with
collateralization with respect to such Senior Loans and such Senior Loans may
pose a greater risk of nonpayment of interest or loss of principal than do
collateralized Senior Loans.
As discussed below, SPIF may also acquire warrants and equity
securities issued by the Borrower or its affiliates as part of a package of
investments in the Borrower or its affiliates. Warrants and equity securities
will not be treated as Senior Loans and thus assets invested in such securities
will not count toward the 80% of SPIF's total assets that normally will be
invested in Senior Loans. SPIF will acquire such interests in unsecured Senior
Loans, warrants and equity securities only as an incident to the intended
purchase of interests in collateralized Senior Loans. Loan Agreements may also
include various restrictive covenants designed to limit the activities of the
Borrower in an effort to protect the right of the Lenders to receive timely
payments of interest on and repayment of principal of the Senior Loans. In order
to borrow money pursuant to collateralized Senior Loans, a Borrower will
frequently, for the term of the Senior Loan, pledge as collateral assets,
including but not limited to, trademarks, accounts receivable, inventory,
buildings, real estate, franchises, and common and preferred stock in its
subsidiaries. In addition, in the case of some Senior Loans, there may be
additional collateral pledged in the form of guarantees by and/or securities of
affiliates of the Borrowers. In certain instances, a Senior Loan may be secured
only by stock in the Borrower or its subsidiaries. Such collateral may consist
of assets that may not be readily liquidated, and there is no assurance that the
liquidation of such assets would satisfy fully a Borrower's obligations under a
Senior Loan.
Restrictive covenants may include mandatory prepayment provisions
arising from excess cash flows and typically include restrictions on dividend
payments, specific mandatory minimum financial ratios, limits on total debt and
other financial tests. Breach of such covenants, if not waived by the Lenders,
is generally an event of default under the applicable Loan Agreement and may
give the Lenders the right to accelerate principal and interest payments. The
Advisor will consider the terms of such restrictive covenants in deciding
whether to invest in Senior Loans for SPIF's portfolio. When SPIF holds a
Participation in a Senior Loan it may not have the right to vote to waive
enforcement of any restrictive covenant breached by a Borrower. Lenders voting
in connection with a potential waiver of a restrictive covenant may have
interests different from
-29-
<PAGE> 91
those of SPIF and such Lenders may not consider the interests of SPIF in
connection with their votes.
Senior Loans in which SPIF will invest generally pay interest at rates
which are periodically redetermined by reference to a base lending rate plus a
premium. These base lending rates are generally the prime rate offered by a
Major United States Bank "Prime Rate", LIBOR, the CD rate or other base lending
rates used by commercial lenders. As a result Lenders will pay more than the
Prime Rate to SPIF on their Senior Loans. The Prime Rate quoted by a major U.S.
bank is the interest rate at which such bank is willing to lend U.S. dollars to
its most creditworthy borrowers. LIBOR, as provided for in Loan Agreements, is
an average of the interest rates quoted by several designated banks as the rates
at which such banks would offer to pay interest to major financial institutional
depositors in the London interbank market on U.S. dollar-denominated deposits
for a specified period of time. The CD rate, as generally provided for in Loan
Agreements, is the average rate paid on large certificates of deposit traded in
the secondary market.
At least 80% of SPIF's total assets normally will be invested in Senior
Loans. In normal market conditions, at least 65% of SPIF's assets will be
invested in Senior Loans which, at the time of SPIF's initial investment in such
Senior Loans, provide SPIF with a rate of return which was at least equal to the
Prime Rate existing on the date of such initial investment. SPIF is not subject
to any restrictions with respect to the maturity of Senior Loans held in its
portfolio. It is currently anticipated that SPIF's assets invested in Senior
Loans will consist of Senior Loans with stated maturities of between three and
seven years, inclusive, and with rates of interest which are periodically reset
with reset periods typically ranging from 30 days to one year. Investment in
Senior Loans with longer interest rate redetermination periods may increase
fluctuations in SPIF's net asset value as a result of changes in interest rates.
The Senior Loans in SPIF's portfolio will at all times have a dollar-weighted
average time until the next interest rate redetermination of 90 days or less. As
a result, as short-term interest rates increase, interest payable to SPIF from
its investments in Senior Loans should increase, and as short-term interest
rates decrease, interest payable to SPIF from its investments in Senior Loans
should decrease. The amount of time required to pass before SPIF will realize
the effects of changing short-term market interest rates on its portfolio will
vary with the dollar-weighted average time until the next interest rate
redetermination on the Senior Loans in SPIF's portfolio. SPIF may utilize
certain investment practices to, among other things, shorten the effective
interest rate redetermination period of Senior Loans in its portfolio. In such
event, SPIF will consider such shortened period to be the interest rate
redetermination period of the Senior Loan; provided, however, that SPIF will not
invest in Senior Loans which permit the Borrower to select an interest rate
redetermination period in excess of one year. Because most Senior Loans in
SPIF's portfolio will be subject to mandatory and/or optional prepayment and
there may be significant economic incentives for a Borrower to prepay its loans,
prepayments of Senior Loans in SPIF's portfolio may occur. Accordingly, the
actual remaining maturity of SPIF's portfolio invested in Senior Loans may vary
substantially from the average stated maturity of the Senior Loans held in
SPIF's portfolio. As a result of expected prepayments from time to time of
Senior Loans in
-30-
<PAGE> 92
SPIF's portfolio, SPIF estimates that the actual average maturity of the Senior
Loans held in its portfolio will be approximately 18-24 months.
When interest rates decline, the value of a portfolio invested in
fixed-rate obligations can be expected to rise. Conversely, when interest rates
rise, the value of a portfolio invested in fixed-rate obligations can be
expected to decline. Although SPIF's net asset value will vary, SPIF's
management expects SPIF's policy of acquiring interests in floating or variable
rate Senior Loans to minimize fluctuations in net asset value as a result of
changes in interest rates. Accordingly, SPIF's management expects the value of
SPIF's portfolio to fluctuate significantly less than a portfolio of fixed-rate,
longer term obligations as a result of interest rate changes. However, changes
in prevailing interest rates can be expected to cause some fluctuation in SPIF's
net asset value. In addition to changes in interest rates, changes in the credit
quality of Borrowers will also affect SPIF's net asset value. Further, a serious
deterioration in the credit quality of a Borrower could cause a prolonged or
permanent decrease in SPIF's net asset value.
Senior Loans generally are not rated by nationally recognized
statistical rating organizations. Because of the collateralized and/or
guaranteed nature of most Senior Loans, SPIF and the Advisor believe that
ratings of other securities issued by a Borrower do not necessarily reflect
adequately the relative quality of a Borrower's Senior Loans. Therefore,
although the Advisor may consider such ratings in determining whether to invest
in a particular Senior Loan, the Advisor is not required to consider such
ratings and such ratings will not be the determinative factor in the Advisor's
analysis. SPIF may invest in Senior Loans, the Borrowers with respect to which
have outstanding debt securities which are rated below investment grade by a
nationally recognized statistical rating organization or are unrated but of
comparable quality to such securities. Such Borrowers are more likely to
experience difficulty in meeting payment obligations under such debt and other
subordinated obligations. These difficulties could detract from the Borrower's
perceived creditworthiness or its ability to obtain financing to cover
short-term cash flow needs and may force the Borrower into bankruptcy or other
forms of credit restrictions. SPIF will invest only in those Senior Loans with
respect to which the Borrower, in the opinion of the Advisor, demonstrates
certain of the following characteristics: sufficient cash flow to service debt;
adequate liquidity, successful operating history; strong competitive position;
experienced management; and, with respect to collateralized Senior Loans,
collateral; coverage that equals or exceeds the outstanding principal amount of
the Senior Loan. In addition, the Advisor will consider, and may rely in part,
on the analyses performed by the Agent and other Lenders, including such
persons' determinations with respect to collateral securing a Senior Loan.
Participations by the Underlying Fund in a Lender's portion of a Senior
Loan typically result in the Underlying Fund having a contractual relationship
only with such Lender, not with the Borrower. The Underlying Fund has the right
to receive payments of principal, interest and any fees to which it is entitled
only from the Lender selling the Participation and only upon receipt by such
Lender of such payments from the Borrower. In connection with purchasing
Participations, the Underlying Fund generally will have no right to enforce
compliance by the
-31-
<PAGE> 93
Borrower with the terms of the Loan Agreement, nor any rights with respect to
any Underlying Funds acquired by other Lenders through set-off against the
Borrower and the Underlying Fund may not directly benefit from the collateral
supporting the Senior Loan in which it has purchased the Participation. As a
result, the Underlying Fund may assume the credit risk of both the Borrower and
the Lender selling the Participation. In the event of the insolvency of the
Lender selling a Participation, the Underlying Fund may be treated as a general
creditor of such Lender, and may not benefit from any set-off between such
Lender and the Borrower. The Underlying Fund has taken the following measures in
an effort to minimize such risks. The Underlying Fund will acquire
Participations only if the Lender selling the Participation, and any other
persons interpositioned between the Underlying Fund and the Lender, (i) at the
time of investment has outstanding debt or deposit obligations rated investment
grade BBB or A-3 or higher by Standard & Poor's Ratings Group ("S&P") or Baa or
P-3 or higher by Moody's Investors Service ("Moody's") or determined by the
Advisor to be of comparable quality and (ii) has entered into an agreement which
provides for the holding of assets in safekeeping for, or the prompt
disbursement of assets to, the Underlying Fund. Long-term debt rated BBB by S&P
is regarded by S&P as having adequate capacity to pay interest and repay
principal and debt rated Baa by Moody's is regarded by Moody's as a medium grade
obligation, i.e., it is neither highly protected nor poorly secured. Commercial
paper rated A-1 by S&P indicates that the degree of safety regarding timely
payment is considered by S&P to be either overwhelming or very strong and issues
of commercial paper rated Prime-I by Moody's are considered by Moody's to have a
superior ability for repayment of senior short-term debt obligations. The
Underlying Fund ordinarily will purchase a Participation only if, at the time of
such purchase, the Underlying Fund believes that the party from whom it is
purchasing such Participation is retaining an interest in the underlying Senior
Loan.
The Underlying Fund may also purchase Assignments from Lenders. The
purchaser of an Assignment typically succeeds to all the rights and obligations
under the Loan Agreement of the assigning Lender and becomes a Lender under the
Loan Agreement with the same rights and obligations as the assigning Lender.
Assignments are, however, arranged through private negotiations between
potential assignees and potential assignors, and the rights and obligations
acquired by the purchaser of an Assignment may differ from, and be more limited
than, those held by the assigning Lender.
When the Underlying Fund is an Original Lender originating a Senior
Loan it may share in a fee paid to the Original Lenders. The Underlying Fund
will never act as the Agent or principal negotiator or administrator of a Senior
Loan. When the Underlying Fund is a Lender, it will have a direct contractual
relationship with the Borrower, may enforce compliance by the Borrower with the
terms of the Loan Agreement and may have rights with respect to any Underlying
Funds acquired by other Lenders through set-off. Lenders also have full voting
and consent rights under the applicable Loan Agreement. Action subject to Lender
vote or consent generally requires the vote or consent of the holders of some
specified percentage of the outstanding principal amount of the Senior Loan.
Certain decisions, such as reducing the amount or increasing the time for
payment of interest on or repayment of principal of a Senior Loan, or
-32-
<PAGE> 94
releasing collateral therefor, frequently require the unanimous vote or consent
of all Lenders affected.
The Underlying Fund will purchase an Assignment or act as a Lender with
respect to a syndicated Senior Loan only where the Agent with respect to such
Senior Loan at the time of investment has outstanding debt or deposit
obligations rated investment grade (BBB or A-3 or higher by S&P or Baa or P-3 or
higher by Moody's) or determined by the Advisor to be of comparable quality. In
addition, the Underlying Fund will purchase a Participation only where the
Lender selling such Participation, and any other person interpositioned between
such Lender and the Underlying Fund at the time of investment, have outstanding
debt obligations rated investment grade or determined by the Advisor to be of
comparable quality. Further, the Underlying Fund will not purchase interests in
Senior Loans unless such Agent, Lender or interpositioned person has entered
into an agreement which provides for the holding of assets in safekeeping for,
or the prompt disbursement of assets to, the Underlying Fund.
SPIF may invest up to 100% of its assets in Participations. The selling
Lenders and other persons interpositioned between such Lenders and SPIF with
respect to such Participations will likely conduct their principal business
activities in the banking, finance and financial services industries. Although,
as discussed below, SPIF has taken measures which it believes significantly
reduce its exposure to any risks incident to such policy, SPIF may be more
susceptible than an investment company without such a policy to any single
economic, political or regulatory occurrence affecting such industries. Persons
engaged in such industries may be more susceptible than are persons engaged in
some other industry to, among other things, fluctuations in interest rates,
changes in the Federal Open Market Committee's monetary policy, governmental
regulations concerning such industries and concerning capital raising activities
generally and fluctuations in the financial markets generally.
Loan Agreements typically provide for the termination of the Agent's
agency status in the event that it fails to act as required under the relevant
Loan Agreement, becomes insolvent, enters FDIC receivership, or if not FDIC
insured, enters into bankruptcy. Should such an Agent, Lender or assignor with
respect to an Assignment interpositioned between SPIF and the Borrower become
insolvent or enter FDIC receivership or bankruptcy, any interest in the Senior
Loan of such person and any loan payment held by such person for the benefit of
SPIF should not be included in such person's estate. If, however, any such
amount were included in such person's estate, SPIF would incur certain costs and
delays in realizing payment or could suffer a loss of principal and/or interest.
In such event, SPIF could experience a decrease in net asset value.
SPIF may be required to pay and may receive various fees and
commissions in connection with purchasing, selling and holding interests in
Senior Loans. The fees normally paid by Borrowers may include three types:
facility fees, commitment fees and prepayment penalties. Facility fees are paid
to Lenders upon origination of a Senior Loan. Commitment fees are paid to
Lenders on an ongoing basis based upon the undrawn portion committed by the
-33-
<PAGE> 95
Lenders of the underlying Senior Loan. Lenders may receive prepayment penalties
when a Borrower prepays all or part of a Senior Loan. SPIF will receive these
fees directly from the Borrower if SPIF is an Original Lender, or, in the case
of commitment fees and prepayment penalties, if SPIF acquires an interest in a
Senior Loan by way of Assignment. Whether or not SPIF receives a facility fee
from the Lender in the case of an Assignment, or any fees in the case of a
Participation, depends upon negotiations between SPIF and the Lender selling
such interests. When SPIF is an assignee, it may be required to pay a fee, or
forgo a portion of interest and any fees payable to it, to the Lender selling
the Assignment. Occasionally, the assignor will pay a fee to the assignee based
on the portion of the principal amount of the Senior Loan which is being
assigned. A Lender selling a Participation to SPIF may deduct a portion of the
interest and any fees payable to SPIF as an administrative fee prior to payment
thereof to SPIF. SPIF may be required to pay over or pass along to a purchaser
of an interest in a Senior Loan from SPIF a portion of any fees that SPIF would
otherwise be entitled to.
Pursuant to the relevant Loan Agreement, a Borrower may be required in
certain circumstances, and may have the option at any time, to prepay the
principal amount of a Senior Loan, often without incurring a prepayment penalty.
Because the interest rates on Senior Loans are periodically redetermined at
relatively short intervals, SPIF and the Advisor believe that the prepayment of,
and subsequent reinvestment by SPIF in, Senior Loans will not have a materially
adverse impact on the yield on SPIF's portfolio and may have a beneficial impact
on income due to receipt of prepayment penalties, if any, and any facility fees
earned in connection with reinvestment.
A Lender may have certain obligations pursuant to a Loan Agreement,
which may include the obligation to make additional loans in certain
circumstances. SPIF currently intends to reserve against such contingent
obligations by segregating sufficient investments in high quality short-term,
liquid investments. SPIF will not purchase interests in Senior Loans that would
require SPIF to make any such additional loans if such additional loan
commitments would exceed 20% of SPIF's total assets or would cause SPIF to fail
to meet the diversification requirements set forth under the heading "Investment
Restrictions."
During normal market conditions, SPIF may invest up to 20% of its total
assets in (i) high quality, short-term debt securities with remaining maturities
of one year or less (including assets maintained by SPIF as a reserve against
any additional loan commitments) and (ii) warrants, equity securities and, in
certain limited circumstances discussed above, junior debt securities acquired
in connection with SPIF's investments in Senior Loans. If the Advisor determines
that market conditions temporarily warrant a defensive investment policy, SPIF
may invest, subject to its ability to liquidate its relatively illiquid
portfolio of Senior Loans, up to 100% of its assets in cash and such high
quality, short-term debt securities. SPIF will acquire such warrants and equity
securities only as an incident to the purchase or intended purchase of interests
in collateralized Senior Loans. Warrants and equity securities will not qualify
as assets required to be maintained as a reserve against additional loan
commitments. Although SPIF generally will acquire interests in warrants and
equity securities only when the Advisor believes that the
-34-
<PAGE> 96
relative value being given by SPIF in exchange for such interests is
substantially outweighed by the potential value of such instruments, investment
in warrants and equity securities entail certain risks in addition to those
associated with investments in Senior Loans. Warrants and equity securities have
a subordinate claim on a Borrower's assets as compared with debt securities, and
junior debt securities have a subordinate claim on such assets as compared with
Senior Loans. As such, the values of warrants and equity securities generally
are more dependent on the financial condition of the Borrower and less dependent
on fluctuations in interest rates than are the values of many debt securities.
The values of warrants, equity securities and junior debt securities may be more
volatile than those of Senior Loans and thus may have an adverse impact on the
ability of SPIF to minimize fluctuations in its net asset value.
SPECIAL RISK CONSIDERATIONS
On behalf of the several Lenders, the Agent generally will be required
to administer and manage the Senior Loan and, with respect to collateralized
Senior Loans, to service or monitor the collateral. In this connection, the
valuation of assets pledged as collateral will reflect market value and the
Agent may rely on independent appraisals as to the value of specific collateral.
The Agent, however, may not obtain an independent appraisal as to the value of
assets pledged as collateral in all cases. SPIF normally will rely primarily on
the Agent (where SPIF is an Original Lender or owns an Assignment) or the
selling Lender (where SPIF owns a Participation) to collect principal of and
interest on a Senior Loan. Furthermore, SPIF usually will rely on the Agent
(where SPIF is an Original Lender or owns an Assignment) or the selling Lender
(where SPIF owns a Participation) to monitor compliance by the Borrower with the
restrictive covenants in the Loan Agreement and notify SPIF of any adverse
change in the Borrower's financial condition or any declaration of insolvency.
Collateralized Senior Loans will frequently be secured by all assets of the
Borrower that qualify as collateral, which may include common stock of the
Borrower or its subsidiaries. Additionally, the terms of the Loan Agreement may
require the Borrower to pledge additional collateral to secure the Senior Loan,
and enable the Agent, upon proper authorization of the Lenders, to take
possession of and liquidate the collateral and to distribute the liquidation
proceeds pro rata among the Lenders. If the terms of a Senior Loan do not
require the Borrower to pledge additional collateral in the event of a decline
in the value of the original collateral, SPIF will be exposed to the risk that
the value of the collateral will not at all times equal or exceed the amount of
the Borrower's obligations under the Senior Loan. Lenders that have sold
Participation interests in such Senior Loan will distribute liquidation proceeds
received by the Lenders pro rata among the holders of such Participations. The
Advisor will also monitor these aspects of SPIF's investments and, where SPIF is
an Original Lender or owns an Assignment, will be directly involved with the
Agent and the other Lenders regarding the exercise of credit remedies. Senior
Loans, like other corporate debt obligations, are subject to the risk of
non-payment of scheduled interest or principal. Such non-payment would result in
a reduction of income to SPIF, a reduction in the value of the Senior Loan
experiencing non-payment and a potential decrease in the net asset value of
SPIF. Although, with respect to collateralized Senior Loans, SPIF generally will
invest only in Senior Loans that the Advisor believes are secured by specific
collateral which may include guarantees, the value of which
-35-
<PAGE> 97
exceeds the principal amount of the Senior Loan at the time of initial
investment, there can be no assurance that the liquidation of any such
collateral would satisfy the Borrower's obligation in the event of non-payment
of scheduled interest or principal payments, or that such collateral could be
readily liquidated. In the event of bankruptcy of a Borrower, SPIF could
experience delays or limitations with respect to its ability to realize the
benefits of the collateral securing a Senior Loan. To the extent that a Senior
Loan is collateralized by stock in the Borrower or its subsidiaries, such stock
may lose all or substantially all of its value in the event of bankruptcy of the
Borrower. The Agent generally is responsible for determining that the Lenders
have obtained a perfected security interest in the collateral securing the
Senior Loan. In the event that SPIF does not believe that a perfected security
interest has been obtained with respect to a collateralized Senior Loan, SPIF
will only obtain an interest in such Senior Loan if the Agent is a Designated
Custodian. Some Senior Loans in which SPIF may invest are subject to the risk
that a court, pursuant to fraudulent conveyance or other similar laws, could
subordinate such Senior Loans to presently existing or future indebtedness of
the Borrower or take other action detrimental to the holders of Senior Loans,
such as SPIF, including, under certain circumstances, invalidating such Senior
Loans. Lenders commonly have certain obligations pursuant to the Loan Agreement,
which may include the obligation to make additional loans or release collateral
in certain circumstances.
Senior Loans in which SPIF will invest generally will not be rated by a
nationally recognized statistical rating organization, will not be registered
with the SEC or any state securities commission and will not be listed on any
national securities exchange. Although SPIF will generally have access to
financial and other information made available to the Lenders in connection with
Senior Loans, the amount of public information available with respect to Senior
Loans will generally be less extensive than that available for rated, registered
and/or exchange listed securities. As a result, the performance of SPIF and its
ability to meet its investment objective is more dependent on the analytical
ability of the Advisor than would be the case for an investment company that
invests primarily in rated, registered and/or exchange listed securities.
Senior Loans are, at present, not readily marketable and may be subject
to restrictions on resale. Interests in Senior Loans generally are not listed on
any national securities exchange or automated quotation system and no regular
market has developed for such interests. Any secondary market purchases and
sales of Senior Loans generally are conducted in private transactions between
buyers and sellers. Senior Loans are thus relatively illiquid, which illiquidity
may impair SPIF's ability to realize the full value of its assets in the event
of a voluntary or involuntary liquidation of such assets. Liquidity relates to
the ability of SPIF to sell an investment in a timely manner. The market for
relatively illiquid securities tends to be more volatile than the market for
more liquid securities. SPIF has no limitation on the amount of its assets which
may be invested in securities which are not readily marketable or are subject to
restrictions on resale. The substantial portion of SPIF's assets invested in
relatively illiquid Senior Loan interests may restrict the ability of SPIF to
dispose of its investments in Senior Loans in a timely fashion and at a fair
price, and could result in capital losses to SPIF and holders of Common Shares.
However, many of the Senior Loans in which SPIF expects to
-36-
<PAGE> 98
purchase interests are of a relatively large principal amount and are held by a
relatively large number of owners which should, in the Advisor's opinion,
enhance the relative liquidity of such interests. The risks associated with
illiquidity are particularly acute in situations where SPIF's operations require
cash, such as when SPIF tenders for its Common Shares, and may result in SPIF
borrowing to meet short-term cash requirements.
To the extent that legislation or state or federal regulators that
regulate certain financial institutions impose additional requirements or
restrictions with respect to the ability of such institutions to make loans in
connection with highly leveraged transactions, the availability of Senior Loan
interests for investment by SPIF may be adversely affected. In addition, such
requirements or restrictions may reduce or eliminate sources of financing for
certain Borrowers. Further, to the extent that legislation or federal or state
regulators that regulate certain financial institutions require such
institutions to dispose of Senior Loan interests relating to highly leveraged
transactions or subject such Senior Loan interests to increased regulatory
scrutiny, such financial institutions may determine to sell such Senior Loan
interests in a manner that results in a price which, in the opinion of the
Advisor, is not indicative of fair value. Were SPIF to attempt to sell a Senior
Loan interest at a time when a financial institution was engaging in such a sale
with respect to such Senior Loan interest, the price at which SPIF could
consummate such a sale might be adversely affected.
SPIF may use various investment practices that involve special
considerations including engaging in interest rate and other hedging
transactions, lending its portfolio securities, entering into when-issued and
delayed delivery transactions and entering into repurchase and reverse
repurchase agreements. For further discussion of these practices and associated
special considerations, see "Investment Practices and Special Risks" in the
Prospectus.
INVESTMENT RESTRICTIONS OF THE PORTFOLIOS
The following investment restrictions have been adopted by the Trust
with respect to the Funds as fundamental policies. A fundamental policy may not
be changed without the vote of a majority of the outstanding voting securities
of the Trust, as defined in the 1940 Act. Majority is defined in the 1940 Act as
the lesser of (a) 67% or more of the shares present at a shareholder meeting, if
the holders of more than 50% of the outstanding shares of the Trust are present
or represented by proxy, or (b) more than 50% of the outstanding shares. A
fundamental policy affecting a particular Portfolio may not be changed without
the vote of a majority of the outstanding shares of the affected Portfolio. Each
Portfolio will not
1. purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (except this shall not
prevent the Fund from purchasing or selling options or futures
contracts or from investing in securities or other instruments backed
by physical commodities);
-37-
<PAGE> 99
2. purchase or sell real estate including limited partnership interests,
although it may purchase and sell securities of companies that deal in
real estate and may purchase and sell securities that are secured by
interests in real estate;
3. make loans to any person, except loans of portfolio securities to the
extent that no more than 33 1/3% of its total assets would be lent to
other parties, but this limitation does not apply to purchases of debt
securities or repurchase agreements;
4. (i) purchase more than 10% of any class of the outstanding voting
securities of any issuer (except other investment companies as defined
in the 1940 Act) and (ii) purchase securities of an issuer (except
obligations of the U.S. Government and its agencies and
instrumentalities and securities of other investment companies as
defined in the 1940 Act) if as a result, with respect to 75% of its
total assets, more than 5% of the Portfolio's total assets, at market
value, would be invested in the securities of such issuer;
5. issue senior securities (as defined in the 1940 Act) except as
permitted by rule, regulation or order of the Securities and Exchange
Commission ("SEC");
6. will not borrow, except from banks for temporary or emergency (not
leveraging) purposes including the meeting of redemption requests that
might otherwise require the untimely disposition of securities in an
aggregate amount not exceeding 30% of the value of the Portfolio's
total assets (including the amount borrowed) valued at market less
liabilities (not including the amount borrowed) at the time the
borrowing is made; and whenever borrowings by a Portfolio, including
reverse repurchase agreements, exceed 5% of the value of a Portfolio's
total assets, the Portfolio will not purchase any securities;
7. underwrite securities issued by others, except to the extent that the
Portfolio may be considered an underwriter within the meaning of the
1933 Act in the disposition of restricted securities; and
8. write or acquire options or interests in oil, gas or other mineral
exploration or development programs.
In addition, each Portfolio has adopted non-fundamental investment
limitations as stated below and in its prospectus. Such limitations may be
changed without shareholder approval.
Each Portfolio will not:
1. pledge, mortgage, or hypothecate any of its assets except to secure
borrowings permitted by the Portfolio's fundamental limitation on
borrowing;
2. invest for the purpose of exercising control over management of any
company;
-38-
<PAGE> 100
3. invest its assets in securities of any investment company, except (i)
by purchase in the open market involving only customary brokers'
commissions; (ii) in connection with mergers, acquisitions of assets or
consolidations; (iii) as permitted by SEC exemptive order; or (iv) as
otherwise permitted by the 1940 Act;
4. purchase or hold illiquid securities, which are securities that cannot
be disposed of for their approximate market value in seven days or less
(which terms include repurchase agreements and time deposits maturing
in more than seven days) if, in the aggregate, more than 15% of its net
assets would be invested in illiquid securities;
5. purchase securities on margin, except that the STF Fund may obtain any
short-term credits necessary for the clearance of purchases and sales
of securities. For purposes of this restriction, the deposit or payment
of initial or variation margin in connection with futures contracts or
related options will not be deemed to be a purchase of securities on
margin.
6. purchase or hold lower rated bonds ("junk bonds"), directly or
indirectly, if, in the aggregate, 35% or more of its net assets would
be invested, directly or indirectly, in junk bonds.
INVESTMENT RESTRICTIONS OF THE SIERRA TRUST FUNDS
The investment restrictions numbered 1 through 16 below have been
adopted by the Sierra Trust Funds with respect to the Underlying Funds that are
series of the Sierra Trust Funds (each, an "STF Fund") as fundamental policies.
Investment restrictions 17 through 22 may be changed by vote of a majority of
the Board of Trustees of the Sierra Trust Funds at any time.
The investment policies adopted by the Sierra Trust Funds prohibit an
STF Fund from:
1. Purchasing the securities of any issuer (other than U.S. Government
securities) if as a result more than 5% of the value of the STF Fund's
total assets would be invested in the securities of the issuer (the "5%
Limitation"), except that up to 25% of the value of the STF Fund's
total assets may be invested without regard to the 5% Limitation;
provided that this restriction shall not apply to the STF Short Term
Global Government Fund.
2. Purchasing more than 10% of the securities of any class of any one
issuer; provided that this limitation shall not apply to investments in
U.S. Government securities; provided further that this restriction
shall not apply to the STF Growth and STF Short Term Global Government
Funds; and provided further that the STF Growth Fund may not own more
than 10% of the outstanding voting securities of a single issuer.
3. Purchasing securities on margin, except that the STF Fund may obtain
any short-term credits necessary for the clearance of purchases and
sales of securities. For purposes of
-39-
<PAGE> 101
this restriction, the deposit or payment of initial or variation margin
in connection with futures contracts or related options will not be
deemed to be a purchase of securities on margin.
4. Making short sales of securities or maintaining a short position;
provided that this restriction shall not apply to the STF International
Growth, STF Growth and STF Short Term Global Government Funds.
5. Borrowing money, except that (a) the STF Funds may (i) enter into
reverse repurchase agreements or (ii) borrow from banks for temporary
or emergency (not leveraging) purposes including the meeting of
redemption requests that might otherwise require the untimely
disposition of securities in an aggregate amount not exceeding 30% of
the value of the STF Fund's total assets (including the amount
borrowed) valued at market less liabilities (not including the amount
borrowed) at the time the borrowing is made, (b) the STF U.S.
Government, STF International Growth, STF Corporate Income, STF Short
Term High Quality Bond, STF Growth, STF Emerging Growth, STF Growth and
Income and STF Short Term Global Government Funds may enter into
futures contracts, and (c) the STF U.S. Government, STF Corporate
Income and STF Short Term High Quality Bond Funds may engage in dollar
roll transactions; provided that whenever borrowings pursuant to (a)
above (except that with respect to the STF U.S. Government, STF
Corporate Income and STF Short Term High Quality Bond Funds, whenever
borrowings pursuant to (a)(ii) above) exceed 5% of the value of an STF
Fund's total assets, the STF Fund will not purchase any securities; and
provided further that each of the STF U.S. Government, STF Corporate
Income and STF Short Term High Quality Bond Funds is prohibited from
borrowing money or entering into reverse repurchase agreements or
dollar roll transactions in the aggregate in excess of 33-1/3% of the
STF Fund's total assets (after giving effect to any such borrowing).
6. Pledging, hypothecating, mortgaging or otherwise encumbering more than
30% of the value of the STF Fund's total assets. For purposes of this
restriction, (a) the deposit of assets in escrow in connection with the
writing of covered put or call options and the purchase of securities
on a when-issued or delayed-delivery basis and (b) collateral
arrangements with respect to (i) the purchase and sale of options on
securities, options on indexes and options on foreign currencies, and
(ii) initial or variation margin for futures contracts will not be
deemed to be pledges of an STF Fund's assets.
7. Underwriting the securities of other issuers, except insofar as the STF
Fund may be deemed an underwriter under the Securities Act of 1933, as
amended, by virtue of disposing of portfolio securities.
8. Purchasing or selling real estate or interests in real estate, except
that the STF Fund may purchase and sell securities that are secured,
directly or indirectly, by real estate and may purchase securities
issued by companies that invest or deal in real estate.
-40-
<PAGE> 102
9. Investing in commodities, except that the STF U.S. Government Fund, STF
International Growth Fund, STF Corporate Income Fund, STF Growth Fund,
STF Emerging Growth Fund, STF Growth and Income Fund, STF Short Term
High Quality Bond Fund and STF Short Term Global Government Fund may
invest in futures contracts and options on futures contracts. The entry
into forward foreign currency exchange contracts is not and shall not
be deemed to involve investing in commodities.
10. Investing in oil, gas or other mineral exploration or development
programs.
11. Making loans to others, except through the purchase of qualified debt
obligations, loans of portfolio securities (except in the case of the
STF U.S. Government Fund) and the entry into repurchase agreements.
12. Investing in securities of other investment companies registered or
required to be registered under the 1940 Act, except as they may be
acquired as part of a consolidation, reorganization, acquisition of
assets or an offer of exchange or as otherwise permitted by law,
including the 1940 Act.
13. Purchasing any securities that would cause more than 25% of the value
of the STF Fund's total assets at the time of purchase to be invested
in the securities of issuers conducting their principal business
activities in the same industry, except in the case of the STF Global
Money Fund, which under normal market conditions shall have at least
25% of its total assets invested in bank obligations; provided that
this limitation shall not apply to the purchase of (a) STF U.S.
Government securities, (b) municipal securities issued by governments
or political subdivisions of governments or (c) with respect to the STF
U.S. Government Money Fund and STF Short Term Global Government Fund,
U.S. dollar-denominated bank instruments such as certificates of
deposit, time deposits, bankers' acceptances and letters of credit that
have been issued by U.S. banks.
14. Purchasing, writing or selling puts, calls, straddles, spreads or
combinations thereof; provided that this restriction shall not apply to
the STF Growth Fund and STF Short Term High Quality Bond Fund and STF
Short Term Global Government Fund; and provided further that (a) the
STF U.S. Government Fund, STF Corporate Income Fund, STF Growth and
Income Fund, STF Emerging Growth Fund and STF International Growth Fund
may purchase, write and sell covered put and call options on
securities, (b) STF U.S. Government Fund, STF Corporate Income Fund,
STF Emerging Growth Fund, STF Growth and Income Fund and STF
International Growth Fund may purchase, write and sell futures
contracts and options on futures contracts, (c) the STF Growth and
Income Fund, STF Emerging Growth Fund and STF International Growth
Funds may purchase and write put and call options on stock indexes, and
(d) the STF International Growth Fund may purchase put and call options
and write covered call options on foreign currency contracts.
-41-
<PAGE> 103
15. With respect to the STF Growth Fund, investing more than 35% of the
fund's assets in non-investment grade debt securities.
16. With respect to the STF Short Term High Quality Bond Fund, having a
dollar-weighted average portfolio maturity in excess of five years.
17. With respect to the STF Growth Fund, investing more than 25% of the
fund's assets in foreign securities.
18. Purchasing securities that are not readily marketable if more than 10%
of the net assets of a Money Fund, or more than 15% of the net assets
of a Non-Money Fund, would be invested in such securities, including,
but not limited to: (1) repurchase agreements with maturities greater
than seven calendar days; (2) time deposits maturing in more than seven
calendar days; (3) to the extent a liquid secondary market does not
exist for the instruments, futures contracts and options thereon; (4)
certain over-the-counter options, as described in this SAI; (5) except
for the STF Short Term Global Government Fund, certain variable rate
demand notes having a demand period of more than seven days; and (6)
certain Rule 144A restricted securities that are deemed to be illiquid.
19. Investing more than 10% of its total assets in time deposits maturing
in more than seven calendar days; provided that this restriction shall
not apply to the STF Growth Fund, STF Short Term Global Government Fund
and STF Short Term High Quality Bond Fund.
20. Making investments for the purpose of exercising control or management.
21. Purchasing or selling interests in real estate limited partnerships.
22. Entering into Strategic Transactions otherwise prohibited by the STF
Fund's investment restrictions or in the aggregate in excess of 25% of
the STF Fund's net assets, for purposes other than bona fide hedging
positions or that are not "covered," subject to such greater percentage
limitations as may be imposed by Sierra Advisors from time to time.
With respect to the first investment limitation set forth above, as a
result of recent amendments to a rule promulgated under the 1940 Act, the entire
investment portfolio of the STF Global Money Fund is subject to the 5%
limitation. However, the STF Global Money Fund will be able to invest more than
5% of its total assets in the securities of a single issuer for a period of up
to three Business Days after the purchase thereof; provided that the STF Fund
may not hold more than one such investment at any time.
The dollar amount of short sales of securities by the STF Growth Fund
or STF International Growth Fund at any one time shall not exceed 25% of the net
assets of such STF Fund, respectively, and the value of securities of any one
issuer in which such STF Fund is short may not exceed the lesser of 2% of the
net assets of the STF Fund or 2% of the securities of any
-42-
<PAGE> 104
class of any issuer, and short sales of securities by each such STF Fund shall
be subject to the other conditions and exclusions of Rule 123.2(7) of the Texas
state securities regulations.
For purposes of the investment restrictions described above, the issuer
of a municipal security is deemed to be the entity (public or private)
ultimately responsible for the payment of the principal of and interest on the
security. For purposes of investment restriction Number 13 above, AMT-Subject
Bonds and Revenue Bonds, the payment of principal and interest on which is the
ultimate responsibility of companies within the same industry, are grouped
together as an "industry." The Sierra Trust Funds may make commitments more
restrictive than the restrictions listed above with respect to an STF Fund so as
to permit the sale of shares of the STF Fund in certain states. Should the
Sierra Trust Funds determine that any such commitment is no longer in the best
interests of the STF Fund and its shareholders, the Sierra Trust Funds will
revoke the commitment by terminating the sale of shares of the STF Fund in the
state involved. The percentage limitations contained in the restrictions listed
above apply at the time of purchase of securities.
INVESTMENT RESTRICTIONS OF SPIF
SPIF's investment objective and the following investment restrictions are
fundamental. All other investment policies or practices are considered by SPIF
not to be fundamental and accordingly may be changed without shareholder
approval. If a percentage restriction on investment or use of assets set forth
below is adhered to at the time a transaction is effected, later changes in
percentage resulting from changing market values will not be considered a
deviation from policy.
In accordance with the foregoing, SPIF may not:
1. Purchase any securities (other than obligations issued or guaranteed by
the United States Government or by its agencies or instrumentalities),
if as a result more than 5% of SPIF's total assets would then be
invested in securities of a single issuer or if as a result SPIF would
hold more than 10% of the outstanding voting securities of any single
issuer; provided that, with respect to 50% of SPIF's assets, SPIF may
invest up to 25% of its assets in the securities of any one issuer. For
purposes of this restriction, the term issuer includes both the
Borrower under a Loan Agreement and the Lender selling a Participation
to SPIF together with any other persons interpositioned between such
Lender and SPIF with respect to a Participation.
2. Purchase any security if, as a result of such purchase, more than 25%
of SPIF's total assets (taken at current value) would be invested in
the securities of Borrowers and other issuers having their principal
business activities in the same industry (the electric, gas, water and
telephone utility industries, commercial banks, thrift institutions and
finance companies being treated as separate industries for purposes of
this restriction); provided, that this limitation shall not apply with
respect to obligations issued or guaranteed by the U.S.
Government or by its agencies or instrumentalities.
-43-
<PAGE> 105
3. Issue senior securities (including borrowing money or entering into
reverse repurchase agreements) in excess of 33 1/3% of its total assets
(including the amount of senior securities issued but excluding any
liabilities and indebtedness not constituting senior securities) except
that SPIF may borrow up to an additional 5% of its total assets for
temporary purposes, or pledge its assets other than to secure such
issuance or in connection with hedging transactions, when-issued and
delayed delivery transactions and similar investment strategies.
4. Make loans of money or property to any person, except for obtaining
interests in Senior Loans in accordance with its investment objective,
through loans of portfolio securities or the acquisition of securities
subject to repurchase agreements.
5. Buy any security "on margin." Neither the deposit of initial or
variation margin in connection with hedging transactions nor short-term
credits as may be necessary for the clearance of such transactions is
considered the purchase of a security on margin.
6. Sell any security "short," write, purchase or sell puts, calls or
combinations thereof, or purchase or sell financial futures or options,
except to the extent that the hedging transactions in which SPIF may
engage would be deemed to be any of the foregoing transactions.
7. Act as an underwriter of securities, except to the extent SPIF may be
deemed to be an underwriter in connection with the sale of or granting
of interests in Senior Loans or other securities acquired by SPIF.
8. Make investments for the purpose of exercising control or participation
in management, except to the extent that exercise by SPIF of its rights
under Loan Agreements would be deemed to constitute such control or
participation.
9. Invest in securities of other investment companies, except as part of a
merger, consolidation or other acquisitions or pursuant to an order
granted by the Commission and in accordance with applicable law, to the
extent that deferred compensation of SPIF's trustees under SPIF's
deferred compensation plan for its trustees is valued in deferred fee
accounts by reference to a hypothetical investment in such other
investment companies. SPIF will rely on representations of Borrowers in
Loan Agreements in determining whether such Borrowers are investment
companies.
10. Buy or sell oil, gas or other mineral leases, rights or royalty
contracts except pursuant to the exercise by SPIF of its rights under
Loan Agreements. In addition, SPIF may purchase securities of issuers
which deal in, represent interests in or are secured by interests in
such leases, rights or contracts.
11. Purchase or sell real estate, commodities or commodities contracts
except pursuant to the exercise by SPIF of its rights under Loan
Agreements, except to the extent the interests in
-44-
<PAGE> 106
Senior Loans SPIF may invest in are considered to be interests in real
estate, commodities or commodities contracts and except to the extent
that hedging instruments SPIF may invest in are considered to be
commodities or commodities contracts.
For purposes of investment restriction Number 2 above, SPIF will
consider all relevant factors in determining whether to treat the Lender selling
a Participation and any persons interpositioned between such Lender and SPIF as
an issuer, including: the terms of the Loan Agreement and other relevant
agreements (including inter-creditor agreements and any agreements between such
person and SPIF's custodian); the credit quality of such Lender or
interpositioned person; general economic conditions applicable to such Lender or
interpositioned person; and other factors relating to the degree of credit risk,
if any, of such Lender or interpositioned person incurred by SPIF.
SPIF generally will not engage in the trading of securities for the
purpose of realizing short-term profits, but it will adjust its portfolio as it
deems advisable in view of prevailing or anticipated market conditions to
accomplish SPIF's investment objective. For example, SPIF may sell portfolio
securities in anticipation of a movement in interest rates. Frequency of
portfolio turnover will not be a limiting factor if SPIF considers it
advantageous to purchase or sell securities. SPIF anticipates that the annual
portfolio turnover rate of SPIF will not be in excess of 100%. A high rate of
portfolio turnover involves correspondingly greater expenses than a lower rate,
which expenses must be borne by SPIF and its shareholders. High portfolio
turnover also may result in the realization of substantial net short-term
capital gains. Due to the requirement for qualification as a regulated
investment company under the Code that less than 30% of SPIF's annual gross
income be derived from the disposition of securities held for less than three
months, SPIF may not be able to sell portfolio holdings held for less than three
months that SPIF may wish to sell in the ordinary course of management, which
may affect adversely SPIF's yield.
PORTFOLIO TURNOVER
Portfolio turnover considerations for the Portfolios are addressed in
the Trust's prospectus.
The Money Funds attempt to increase yields by trading to take advantage
of short-term market variations, which result in high portfolio turnover.
Because purchases and sales of money market instruments are usually effected as
principal transactions, this policy does not result in high brokerage
commissions to the Money Funds. The STF Growth and Income Fund, STF Emerging
Growth Fund, STF Growth Fund and STF International Growth Fund (together, the
"STF Equity Funds"), the STF U.S. Government, STF Corporate Income and STF Short
Term High Quality Bond Funds (the "STF Bond Funds") do not intend to seek
profits through short-term trading. Nevertheless, the STF Funds will not
consider portfolio turnover rate a limiting factor in making investment
decisions.
-45-
<PAGE> 107
PORTFOLIO TRANSACTIONS
Most of the purchases and sales of securities for a Portfolio or an
Underlying Fund, whether transacted on a securities exchange or
over-the-counter, will be effected in the primary trading market for the
securities. Decisions to buy and sell securities for a Portfolio are made by
Sierra Services and for an Underlying Fund are made by its Sub-Advisor, which
also is responsible for placing these transactions, subject to the overall
review of the Trustees of the Trust, Sierra Trust Funds or SPIF. Although
investment decisions for each Portfolio or Underlying Fund are made
independently from those of the other accounts managed by its investment adviser
or Sub-Advisor, investments of the type the Portfolio or Underlying Fund may
make may also be made by those other accounts. When a Portfolio or Underlying
Fund and one or more other accounts managed by its investment adviser or
Sub-Advisor are prepared to invest in, or desire to dispose of, the same
security, available investments or opportunities for sales will be allocated in
a manner believed by the investment adviser or Sub-Advisor to be equitable to
each. In some cases, this procedure may adversely affect the price paid or
received by a Portfolio or Underlying Fund or the size of the position obtained
or disposed of by the Portfolio or Underlying Fund. In other cases, however, it
is believed that coordination and the ability to participate in volume
transactions will be to the benefit of the Portfolio or Underlying Fund.
In selecting brokers or dealers to execute portfolio transactions on
behalf of a Portfolio or Underlying Fund, the Portfolio's or Underlying Fund's
Investment Advisor or Sub-Advisor seeks the best overall terms available. In
assessing the best overall terms available for any transaction, each investment
advisor or Sub-Advisor will consider the factors the investment advisor or
Sub-Advisor deems relevant, including the 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 the commission, if any, for the
specific transaction and on a continuing basis. In addition, each advisory
agreement of the Trust, the Sierra Trust Funds and SPIF authorizes the
investment advisor or Sub-Advisor, in selecting brokers or dealers to execute a
particular transaction and in evaluating the best overall terms available, to
consider the brokerage and research services (as those terms are defined in
Section 28(e) of the Securities Exchange Act of 1934, as amended) provided to
the applicable Portfolio or Underlying Fund, the other Portfolios or Underlying
Funds and/or other accounts over which the investment advisor or Sub-Advisor or
its affiliates exercise investment discretion. The fees under such advisory
agreements are not reduced by reason of their receiving such brokerage and
research services. The Trustees of the Trust, the Sierra Trust Funds and SPIF
will periodically review the commissions paid by the Portfolios or Underlying
Funds, respectively to determine if the commissions paid over representative
periods of time were reasonable in relation to the benefits received by the
Trust, Sierra Trust Funds or SPIF, respectively.
Consistent with applicable provisions of the 1940 Act, the rules and
exemptions adopted by the Commission thereunder, and relevant interpretive and
"no-action" positions taken by the Commission's staff the Board of Trustees of
the Trust, the Sierra Trust Funds and SPIF have
-46-
<PAGE> 108
adopted procedures pursuant to Rule 17e-1 under the 1940 Act to ensure that all
portfolio transactions with affiliates will be fair and reasonable. Under the
procedures adopted, portfolio transactions for a Portfolio or Underlying Fund
may be executed through GW Securities or any other affiliated broker, including
J.P. Morgan Securities, Inc. or J.P. Morgan Securities Limited (which are
affiliates of J.P. Morgan Investment Management, Inc., the Sub-Advisor of the
STF Global Money and STF Growth and Income Funds) and Donaldson, Lufkin Jenrette
Securities Corporation (which is an affiliate of Alliance Capital Management
L.P., the Sub-Advisor of the STF U.S. Government Money Fund) if, subject to
other conditions in the Rule 17e-1 procedures, in the judgment of the investment
advisor or Sub-Advisor of the Portfolio or Underlying Fund, the use of GW
Securities or an affiliated broker is likely to result in price and execution at
least as favorable as those of other qualified broker-dealers, and if, in the
transaction, GW Securities or such other affiliated broker charges the Fund or
Underlying Fund a rate consistent with those charged for comparable transactions
in comparable accounts of the broker's most favored unaffiliated clients.
Over-the-counter purchases and sales are transacted directly with principal
market makers except in those cases in which better prices and executions may be
obtained elsewhere. For the period ended June 30, 1997, no brokerage commissions
were paid by the Trust.
With respect to interests in Senior Loans, SPIF generally will engage
in privately negotiated transactions for purchase or sale in which the
Sub-Advisor will negotiate on behalf of SPIF. SPIF may be required to pay fees,
or forgo a portion of interest and any fees payable to SPIF, to the Lender
selling Participations or Assignments to SPIF. The Sub-Advisor will determine
the Lenders from whom SPIF will purchase Assignments and Participations by
considering their professional ability, level of service, relationship with the
Borrower, financial condition, credit standards and quality of management.
Although SPIF intends generally to hold interests in Senior Loans until maturity
or prepayment of the Senior Loan, the illiquidity of Senior Loans may restrict
the ability of the Sub-Advisor to locate in a timely manner persons willing to
purchase SPIF's interests in Senior Loans at a fair price should SPIF desire to
sell such interests. See "Strategies Available to SPIF." As of
_________________, 1997, none of the Portfolios held any securities of any
"regular broker or dealer" of the Trust.
NET ASSET VALUE
The Trust will not calculate the net asset value of the Portfolio's
Class A and Class B Shares on certain holidays. On those days, securities held
by an Underlying Fund may nevertheless be actively traded, and the value of the
Underlying Fund's shares and, as a result, a Portfolio's shares could be
significantly affected.
A security that is primarily traded on a U.S. exchange (including
securities traded through the NASDAQ National Market System) is valued at the
last sale price on that exchange or, if there were no sales during the day, at
the current quoted bid price. Over-the-counter securities that are not traded
through the NASDAQ National Market System are valued on the basis of the bid
price at the close of business on each day. An option is generally valued at the
last sale price
-47-
<PAGE> 109
or, in the absence of a last sale price, the last offer price. Investments in
U.S. Government securities (other than short-term securities) are valued at the
average of the quoted bid and asked prices in the over-the-counter market. Short
term investments that mature in 60 days or less are valued at amortized cost
when the Board of Trustees determines that this constitutes fair value. The
value of a futures contract equals the unrealized gain or loss on the contract,
which is determined by marking the contract to the current settlement price for
a like contract acquired on the day on which the futures contract is being
valued. A settlement price may not be used if the market makes a limited move
with respect to the security or index underlying the futures contract. In such
event, the futures contract will be valued at a fair market value to be
determined by or under the direction of the Board of Trustees of the Trust.
In carrying out the Board's valuation policies, First Data, as
Sub-Administrator, may consult with one or more independent pricing services
(each, a "Pricing Service") retained by the Trust. Debt securities of U.S.
issuers (other than U.S. Government securities and short-term investments),
including Municipal Securities, are valued by First Data, as Sub-Administrator,
after consultation with a Pricing Service. The procedures of the Pricing Service
are reviewed periodically by the officers of the Trust under the general
supervision and responsibility of the Board of Trustees of the Trust.
HOW TO BUY AND REDEEM SHARES
Class A and Class B Shares of the Portfolios may be purchased and
redeemed in the manner described in the Prospectus of the Trust and in this SAI.
COMPUTATION OF PUBLIC OFFERING PRICES
The Portfolios offer their shares to the public on a continuous basis.
The public offering price per Class A Share of the Portfolios is equal to the
respective net asset value per Class A Share next computed after receipt of a
purchase order, plus the applicable front-end sales charge, if any. The public
offering price per Class B Share of the Portfolios is equal to the net asset
value per such Class B Share next computed after receipt of a purchase order.
An illustration of the computation of the Public Offering Price per
Class A Shares of the Capital Growth, Growth, Balanced, Value and Income
Portfolios is provided in the table below. The computation is based on the value
of each Portfolio's net assets, the number of Class A Shares outstanding on June
30, 1997 and the application of the maximum sales charge for the Portfolios, as
set forth in the table below.
-48-
<PAGE> 110
<TABLE>
<CAPTION>
Capital Growth Growth Balanced Value Income
Class A Shares Portfolio Portfolio Portfolio Portfolio Portfolio
-------------- ----------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Net Assets................ $14,252,961 $136,141,181 $109,421,054 $12,613,056 $13,409,935
Outstanding
Shares.................... 1,266,018 12,539,328 9,993,652 1,193,528 1,323,410
Net Asset Value
Per Share................ $11.26 $10.86 $10.95 $10.57 $10.13
Sales Charge, as a
percentage of the
offering price............ 5.75% 5.50% 5.25% 4.50% 4.50%
Offering to Public........ $11.95 $11.49 $11.56 $11.07 $10.61
</TABLE>
In addition to the purchases on which the sales charge is waived as
listed in the prospectus, no sales charge will be assessed on a purchase by any
other investment company in connection with the combination of such company with
the Trust by merger, acquisition of assets or otherwise.
REDEMPTIONS
The procedures for redemption of Class A and Class B Shares of each
Portfolio are summarized in the Prospectus of the Trust under "How to Sell
Shares." The right of redemption of Class A and Class B Shares of a Portfolio
may be suspended or the date of payment postponed (1) for any periods during
which the New York Stock Exchange is closed (other than for customary weekend
and holiday closings), (2) when trading in the markets the Fund normally
utilizes is restricted, or an emergency, as defined by the rules and regulations
of the SEC, exists making disposal of the Portfolio's investments or
determination of its net assets value not reasonably practicable or (3) for such
other periods as the SEC by order may permit for protection of the Portfolio's
shareholders.
REDEMPTIONS IN KIND. If the Board of Trustees determines that it would
be detrimental to the best interests of the remaining shareholders of a
Portfolio to make a redemption payment wholly in cash, the Trust may pay, in
accordance with SEC rules, any portion of a redemption in excess of the lesser
of $250,000 or 1% of the Portfolio's net assets by distributions, in kind, of
portfolio securities in lieu of cash. Securities issued in a redemption in kind,
other than shares of SPIF, will be readily marketable. Shareholders receiving
shares of the Underlying Funds in a redemption in kind will continue to bear the
ongoing operating expenses and market risk of the Underlying Funds and may incur
brokerage commissions when subsequently redeeming shares of those securities.
-49-
<PAGE> 111
SYSTEMATIC WITHDRAWAL PLAN. As described in the Trust's Prospectus, a
Systematic Withdrawal Plan may be established by a shareholder who owns either
Class A or Class B Shares of a Portfolio with a value exceeding $10,000 and who
wishes to receive specific amounts of cash periodically. Monthly, quarterly,
semiannual or annual withdrawals in a minimum amount of $100 may be made under
the Systematic Withdrawal Plan by redeeming as many shares of the Portfolio as
may be necessary to cover the stipulated withdrawal payment. The CDSC on Class B
Shares is waived for withdrawals under a Systematic Withdrawal Plan that meets
certain conditions as described in "Systematic Withdrawal Plan" in the
Prospectus of the Trust. To the extent that withdrawals exceed dividends,
distributions and appreciation of a shareholder's investment in a Portfolio,
there will be a reduction in the value of the shareholder's investment in the
relevant class of the Portfolio and continued withdrawal payments may reduce the
shareholder's investment and ultimately exhaust it. Withdrawal payments should
not be considered as income from investment in a Portfolio. For additional
information regarding the Systematic Withdrawal Plan, write to the Trust at c/o
First Data Investor Services Group, P.O. Box 5118, Westboro, MA 01581-5118, or
call the Trust at 800-222-5852.
HOW TO EXCHANGE SHARES
Shareholders may exchange all or part of their shares of one Portfolio
for the same class of shares of another Portfolio or any of the Sierra Trust
Funds or SPIF. If the shares acquired in the exchange are subject to a higher
sales load, a sales load may be charged in an amount up to the difference
between the sales load previously paid and the initial sales load applicable to
the shares of the fund being acquired. Initially, Shareholders of Sierra Trust
Funds and/or SPIF are not permitted to exchange their shares for shares of the
Portfolios.
An exchange of shares is treated for federal income tax purposes as a
redemption (sale) of shares given in exchange by the shareholder, and an
exchanging shareholder may, therefore, realize a taxable gain or loss in
connection with the exchange. See the section "Taxes" below. Upon 60 days' prior
written notice to shareholders, the exchange privilege may be modified or
terminated and the Trust may impose a charge of up to $5 for exchanges.
The exchange privilege enables a shareholder to acquire the same class
of shares in a Portfolio, Sierra Trust Fund or SPIF with different investment
objectives or policies when the shareholder believes that a shift between
Portfolios, Sierra Trust Funds and/or SPIF is an appropriate investment
decision. This privilege is available to shareholders residing in any state in
which shares of the Portfolio or Underlying Fund being acquired may legally be
sold.
Upon receipt of proper instructions and all necessary supporting
documents, shares submitted for exchange are redeemed at the then-current net
asset value and the proceeds are immediately invested, at a price as described
above, in the same class of shares of the Portfolio or Underlying Fund being
acquired. The Trust reserves the right to reject any exchange request.
-50-
<PAGE> 112
DETERMINATION OF PERFORMANCE
The Income, Value and Balanced Portfolios (the "Fixed Income
Portfolios") may quote a 30-day yield figure (the "SEC Yield") which is
calculated according to a formula prescribed by the SEC. The formula can be
expressed as follows:
YIELD = 2[(a-b + 1)(6) - 1]
---
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursement).
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = the maximum offering price per share on the last
day of the period.
For the purpose of determining the interest earned (variable "a" in the
formula) on debt obligations that were purchased by one of the Fixed Income
Portfolios at a discount or premium, the formula generally calls for
amortization of the discount or premium; the amortization schedule will be
adjusted monthly to reflect changes in the market values of the debt
obligations.
In addition, the Portfolio may quote a 30-day yield based on actual
distributions during a 30-day period that is computed by dividing the net
investment income per share earned by the Portfolio during the period by the
maximum Public Offering Price per share on the last day of the 30-day period.
This income is "annualized" by assuming that the amount of income is generated
each month over a one-year period and is compounded semiannually. The annualized
income is then shown as a percentage of the maximum Public Offering Price. In
addition, the Fixed Income Portfolios may advertise a similar 30-day yield
computed in the same manner except that the NAV per share is used in place of
the Public Offering Price per share.
Capital appreciation for Class A and Class B Shares of the Fixed Income
Portfolios and the Growth and Capital Growth Portfolios (the "Equity
Portfolios") shows principal changes for the period shown, and total return
combines principal changes and dividend and interest income reinvested for the
periods shown. Principal changes are based on the difference between the
beginning and closing net asset values for the period. Actual distributions
include short-term capital gains derived from option writing or other sources.
The period selected for performance data will depend upon the purpose of
reporting the performance.
-51-
<PAGE> 113
The total return of the Portfolios' Class A and Class B Shares may be
calculated on an "average annual total return" basis, and may also be calculated
on an "aggregate total return" basis, for various periods. Average annual total
return reflects the average annual percentage change in the value of an
investment in a Portfolio over the particular measuring period. Aggregate total
return reflects the cumulative percentage change in value over the measuring
period. Average annual total return figures provided for Class A and Class B
Shares of the Fixed Income and Equity Portfolios will be computed according to a
formula prescribed by the SEC. The formula can be expressed as follows:
P(1+T)(n) = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return/aggregate total return
n = number of years
ERV = Ending Redeemable Value of a hypothetical $1,000
payment made at the beginning of the 1, 5 or 10
years (or other) periods or the life of the Fund
The formula for calculating aggregate total return can be expressed as
follows:
Aggregate Total Return = [ (ERV) - 1 ]
---
P
The calculation of average annual total return and aggregate total
return assumes reinvestment of all income dividends and capital gain
distributions on the reinvestment dates during the period and includes all
recurring fees charged to all shareholder accounts. In addition, with respect to
Class A Shares, the maximum 4.5%, 5.25%, 5.50% or 5.75% sales charge as
applicable to the class of the Portfolio is deducted from the initial $1,000
payment (variable "P" in the formula).
The ERV assumes complete redemption of the hypothetical investment at
the end of the measuring period and reflects deduction of all nonrecurring
charges at the end of the measuring period covered by the computation. A
Portfolio's net investment income changes in response to fluctuations in
interest rates and the expenses of the Portfolio.
The performance of a Portfolio's Class A and Class B Shares will vary
from time to time depending upon market conditions, the composition of the
Portfolio's portfolio securities and the Portfolio's operating expenses.
Consequently, any given securities performance quotation should not be
considered representative of the Portfolio's performance for any specified
period in the future. In addition, because performance will fluctuate, it may
not provide a basis for comparing an investment in a Portfolio with certain bank
deposits or other investments that pay a fixed yield or return for a stated
period of time.
Investors should recognize that, because the Fixed Income Portfolios
will have a high component of fixed-income securities, in periods of declining
interest rates the yields of the Fixed Income Portfolios will tend to be
somewhat higher than prevailing market rates, and in
-52-
<PAGE> 114
periods of rising interest rates yields will tend to be somewhat lower. In
addition, when interest rates are falling, the inflow of net new money to the
Fixed Income Portfolios from the continuous sale of shares will likely be
invested in portfolio instruments producing lower yields than the balance of the
Fixed Income Portfolio's securities, thereby reducing the current yields of the
Fixed Income Portfolios. In periods of rising interest rates, the opposite can
be expected to occur. Comparative performance information may be used from time
to time in advertising the Portfolios' Class A and Class B Shares, including
data from Lipper Analytical Services, Inc., the S&P 500 Composite Stock Price
Index, the Dow Jones Industrial Average and other industry publications.
Each Portfolio is modeled after an investment strategy used by the
Sierra Asset Management ("SAM") program, an investment management service
offered by Sierra Services that allocates investments across a combination of
the Underlying Funds. Set forth below is certain performance data for those
strategies, which is deemed relevant because each strategy was managed using
virtually the same investment objectives, policies and restrictions as those
used by the Portfolios. Nonetheless, the performance data is not necessarily
indicative of the future performance of the Portfolios.
Because of certain differences in the expenses applicable to the SAM
program and the Portfolios, the following performance information has been
adjusted by applying the current total expense ratios for the Class A Shares of
the Portfolios. The average annual total return of the following investment
strategies for the one-year period, the five-year period and the period from
inception of the strategy ended June 30, 1997, was as follows:
<TABLE>
<CAPTION>
STRATEGY/PORTFOLIO 1 YEAR 5 YEARS FROM INCEPTION*
- ------------------ ------ ------- ---------------
<S> <C> <C> <C>
The Fixed Strategy/Income
Portfolio 7.47% 5.36% 7.35%
The Balanced Strategy/ Balanced
Portfolio 11.91% 10.01% 10.58%
The Value Strategy/Value Portfolio 10.79% -- 7.18%
The Growth Strategy/Growth
Portfolio 8.84% 11.71% 12.83%
The Aggressive Growth Strategy/
Capital Growth Portfolio 13.22% -- 19.45%
</TABLE>
- ------------------------------------
*September 30, 1990 for the Fixed Strategy, the Balanced Strategy and the
Growth Strategy; March 31, 1993 for the Value Strategy; and May 31, 1995 for the
Aggressive Growth Strategy.
PERFORMANCE COMPARISONS
In reports or other communications to shareholders or in advertising
material, a Portfolio may make certain performance comparisons as described in
the Trust's prospectuses. Another performance comparison one or more of the
Portfolios may use is the following comparison of the return on IRA accounts to
the return on conventional savings plans:
-53-
<PAGE> 115
IRAs CAN HELP YOU EARN MORE
$100,000 COMPOUNDED ANNUALLY AT 8%
[COMPARISON CHART]
* When you make withdrawals from your IRA account, you must pay taxes
on the earnings as well as on any tax-deductible contributions. Earnings on
conventional savings plans invested in various asset mediums are taxed annually,
but you are not taxed on withdrawals from such savings plans. If any payment
from your IRA account is taken before age 59 1/2, a 10% tax penalty may be
imposed.
The sole purpose of this chart is to illustrate your tax-deferred
earnings from an IRA savings account in comparison to earnings from a taxable
conventional savings plan over a period of 20 years, and the chart translates
federal tax savings from a tax-free investment into an equivalent yield from a
taxable investment. The chart assumes a 36% tax rate for all periods (before the
deduction of any fees, charges or expenses) at a fixed rate of 8%. The chart
assumes no withdrawals from the savings plans and reinvestment of all dividends
and/or income during the 20-year period shown.
This chart is for illustrative purposes only and does not represent
past, current or future yields of any of the Portfolios of the Trust, nor does
it illustrate the effect of fluctuations in principal value.
TAXES
The following discussion of federal income tax consequences is based on
the Code and the regulations issued thereunder as in effect on the date of this
SAI. New legislation, as well as administrative changes or court decisions, may
significantly alter the conclusions expressed herein, and may have a retroactive
effect with respect to the transactions contemplated herein.
Each Portfolio is treated as a separate entity for federal income tax
purposes and is not combined with the Trust's other Portfolios. Each of the
Portfolios intends to continue qualifying
-54-
<PAGE> 116
as a "regulated investment company" ("RIC") as defined under Subchapter M of the
Code. A Portfolio that is a RIC and distributes to its shareholders at least 90%
of its taxable net investment income (including, for this purpose, its net
realized short-term capital gains) and 90% of its tax-exempt interest income
(reduced by certain expenses), will not be liable for federal income taxes to
the extent its taxable net investment income and its net realized long-term and
short-term capital gains, if any, are distributed to its shareholders.
In order to qualify as a RIC under the Code, in addition to satisfying
the distribution requirement described above, each Portfolio must (a) derive at
least 90% of its gross income each taxable year from dividends, interest,
payments with respect to securities loans, gains from the sale or other
disposition of stock, securities, or foreign currencies, and certain other
related income, including, generally, certain gains from options futures, and
forward contracts; (b) derive less than 30% of its gross income for each taxable
year from the sale or other disposition of any of the following investments if
such investments are held for less than three months: stock, securities,
options, futures or forward contracts (other than options futures, or forward
contracts on foreign currencies), or foreign currencies (or options, futures, or
forward contracts on foreign currencies) that are not directly related to the
Trust's business of investing in stock or securities; and (c) diversify its
holdings so that, at the end of each fiscal quarter of the Portfolio's taxable
year, (i) at least 50% of the market value of the Portfolio's assets is
represented by cash and cash items, U.S. government securities, securities of
other RICs, and other securities, with such other securities limited, in respect
to any one issuer, to an amount that does not represent more than 10% of the
outstanding voting securities of such issuer or exceed 5% of the value of the
Portfolio's total assets and (ii) not more than 25% of the value of its assets
is invested in the securities (other than U.S. government securities and
securities of other RICs) of any one issuer or of two or more issuers which the
Portfolio controls and which are engaged in the same, similar, or related trades
or businesses.
Notwithstanding the distribution requirement described above, which
only requires a Portfolio to distribute at least 90% of its annual investment
company taxable income and tax-exempt interest income and does not require any
minimum distribution of net capital gain (the excess of net long-term capital
gain over net short-term capital loss), a Portfolio will be subject to a
nondeductible 4% federal excise tax to the extent it fails to distribute by the
end of any calendar year at least 98% of its ordinary income for that year and
at least 98% of its capital gain net income (the excess of short- and long-term
capital gains over short- and long-term capital losses) for the one-year period
ending on October 31 of that year, plus certain other amounts.
If a Portfolio fails to qualify as a regulated investment company for
any year, all of its income will be subject to tax at corporate rates, and its
distributions (including capital gains distributions) will be taxable as
ordinary income dividends to its shareholders, subject to the dividends received
deduction for corporate shareholders.
As described above and in the Prospectus, the Portfolios may invest in
certain types of futures contracts and options. The Portfolios anticipate that
these investment activities will not
-55-
<PAGE> 117
prevent the Portfolios from qualifying as regulated investment companies. As a
general rule, these investment activities may increase or decrease the amount of
long-term and short-term capital gains or losses realized by a Portfolio and,
accordingly, will affect the amount of capital gains distributed to a
Portfolio's shareholders.
Many futures contracts entered into by a Portfolio, and all listed
nonequity options written or purchased by a Portfolio will be governed by
Section 1256 of the Code. On the last trading day of the Portfolio's fiscal
year, all such outstanding Section 1256 positions will be marked to market
(i.e., treated as if such positions were closed out at their closing price on
such day), with any resulting gain or loss recognized as 60% long-term and 40%
short-term capital gain or loss. Under certain circumstances, entry into a
futures contract to sell a security may constitute a short sale for federal
income tax purposes, causing an adjustment in the holding period of the
underlying security or a substantially identical security in the Portfolio's
portfolio of securities.
Positions of a Fund which consist of at least one position not governed
by Section 1256 and at least one position governed by Section 1256 which
substantially diminishes the Fund's risk of loss with respect to such other
position will be treated as a "mixed straddle." Generally, a "straddle" is
governed by Section 1092 of the Code, the operation of which may cause deferral
of losses, adjustments in holding periods of securities and conversion of
short-term capital losses into long-term capital losses. Although mixed
straddles are subject to the straddle rules of Section 1092 of the Code, certain
tax elections exist for them which may affect the operations of these rules.
Each of the Funds intends to monitor its transactions in options and futures and
may make certain tax elections in connection with those investments.
As a general rule, a Portfolio's gain or loss on a sale or exchange of
an investment will be a long-term capital gain or loss if the Portfolio has held
the investment for more than one year and will be a short-term capital gain or
loss if it has held the investment for one year or less. Furthermore, as a
general rule, a shareholder's gain or loss on a sale or redemption of Portfolio
shares will be a long-term capital gain or loss if the shareholder has held the
Portfolio shares for more than one year and will be a short-term capital gain or
loss if the shareholder has held the Portfolio shares for one year or less.
While only the Equity Portfolios expect to realize a significant amount
of net long-term capital gains, any such realized gains will be distributed as
described in the Trust's Prospectus. Such distributions ("capital gain
dividends"), if any, will be taxable to shareholders as long-term capital gains,
regardless of how long a shareholder has held Portfolio shares, and will be
designated as capital gain dividends in a written notice mailed to the
shareholder after the close of the Portfolio's taxable year. Any loss on the
sale or exchange of shares in a Portfolio that have been held for six months or
less will be treated as a long-term capital loss to the extent of any capital
gain dividend received by the shareholder with respect to such shares.
-56-
<PAGE> 118
SHAREHOLDER STATEMENTS
Each shareholder will receive after the close of the calendar year an
annual statement and such other written notices as are appropriate as to the
federal income and shareholder's dividends and distributions received from the
Portfolio for the prior calendar year. Shareholders should consult their tax
advisers as to any other state and local taxes that may apply to these dividends
and distributions.
If a shareholder fails to furnish a correct taxpayer identification
number, fails to report fully dividend or interest income, or fails to certify
that the taxpayer identification number is correct and that the shareholder is
not subject to "backup withholding," then the shareholder may be subject to a
31% "backup withholding" tax with respect to (1) taxable dividends and
distributions and (2) the proceeds of any redemptions of Portfolio shares. An
individual's taxpayer identification number is his or her social security
number. The 31% "backup withholding" tax is not an additional tax and may be
credited against a taxpayer's regular federal income tax liability.
THE FOREGOING IS ONLY A SUMMARY OF CERTAIN TAX CONSIDERATIONS GENERALLY
AFFECTING A PORTFOLIO AND ITS SHAREHOLDERS, AND IS NOT INTENDED AS A SUBSTITUTE
FOR CAREFUL TAX PLANNING. SHAREHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISERS
WITH SPECIFIC REFERENCE TO THEIR OWN TAX SITUATIONS, INCLUDING THEIR STATE AND
LOCAL TAX LIABILITIES.
DISTRIBUTOR
Sierra Services serves as the distributor for the Class A and Class B
Shares on a best efforts basis pursuant to a distribution agreement between the
Trust and Sierra Services. To compensate Sierra Services for the
distribution-related services it provides, and broker-dealers authorized by
Sierra Services, the Trust has adopted two plans of distribution (each, a
"Plan") pursuant to Rule 12b-1 under the 1940 Act, one with respect to each of
the classes of shares, the Class A and Class B Shares. Under the Plan for the
Class A Shares, Sierra Services will be entitled to receive a distribution fee,
accrued daily and paid monthly, calculated with respect to Class A Shares at the
annual rate of up to .25% of the average daily net assets of the Class A Shares
of each Portfolio. Under the Plan for the Class B Shares, the Class B Shares
will be charged, respectively, distribution fees at an annual rate of up to .75%
of the average daily net assets of such class of each Portfolio. Payments under
a Plan may be used to defray a portion of the costs incurred in rendering
distribution services to respective classes of the Portfolios, including costs
such as costs of advertising or sales literature or payment of commissions on
the sale of shares of the Portfolios. Under the Plan for the Class B Shares,
Class B Shares are also subject to a service fee at an annual rate of .25% of
the average daily net assets of the Portfolio. This service fee may be used for
personal service and maintenance of shareholder accounts.
Each Plan is designed to enable Sierra Services to compensate
broker-dealers that have entered into an agreement with Sierra Services for
distribution of the Portfolios' shares
-57-
<PAGE> 119
("Authorized Dealers"), including GW Securities and their representatives for
selling Portfolios' shares. Payments under the Plans are not tied exclusively to
the distribution expenses actually incurred by Sierra Services, and such
payments may exceed distribution expenses actually incurred by Sierra Services.
Sierra Services anticipates, however, that for the foreseeable future
distribution expenses incurred will greatly exceed amounts paid under each Plan.
The Board of Trustees of the Trust, including a majority of the Trustees who are
not interested persons of the Trust and who have no direct or indirect financial
interest in the operation of the Plans ("Independent Trustees"), will evaluate
the appropriateness of each Plan and its payment terms on a continuing basis and
in doing so will consider all relevant factors, including expenses borne by
Sierra Services in the current year and in prior years and amounts received
under the Plan.
Under its terms, each Plan remains in effect from year to year,
provided such continuance is approved annually by vote of the Board of Trustees
of the Trust, including a majority of the Independent Trustees. A Plan may not
be amended to increase materially the amount to be spent for the services
provided by Sierra Services without approval by the shareholders of the class of
shares of the Portfolio to which the Plan applies, and all material amendments
of the Plan also require Board approval. A Plan may be terminated at any time,
without penalty, by vote of a majority of the Independent Trustees, or, with
respect to a class of shares of the Portfolios, by a vote of a majority of the
outstanding voting securities of the class of shares of the Portfolio (as such
vote is defined in the 1940 Act) to which the Plan applies. If a Plan is
terminated (or not renewed) with respect to any class of any one or more
Portfolios, it may continue in effect with respect to the same class of any
Portfolio as to which it has not been terminated (or has been renewed). Pursuant
to the distribution agreements, Sierra Services will provide the Board of
Trustees periodic reports of any amounts expended under each Plan and the
purpose for which such expenditures were made.
-58-
<PAGE> 120
APPENDIX
DESCRIPTION OF BOND, NOTES AND COMMERCIAL PAPER RATINGS
DESCRIPTION OF S&P CORPORATE BOND RATINGS
AAA: Bonds rated AAA have the highest rating assigned by S&P to a
debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA: Bonds rated AA have a very strong capacity to pay interest and
repay principal and differ from the highest rated issues only in small degree.
A: Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS
Aaa: Bonds which are rated Aaa are judged to be the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt-edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as for Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A: Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium grade obligations. Factors
giving security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Moody's applies the numerical modifiers 1, 2 and 3 to each generic
rating classification from Aa through B. The modifier 1 indicates that the issue
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates that the issue ranks in the
lower end of its generic rating category.
A-1
<PAGE> 121
DESCRIPTION OF DUFF'S CORPORATE BOND RATINGS
Bonds rated AAA by Duff are judged by Duff to be of the highest
credit quality, with negligible risk factors being only slightly more than for
risk-free U.S. Treasury debt. Bonds rated AA by Duff are judged by Duff to be of
high credit quality with strong protection factors and risk that is modest but
that may vary slightly from time to time because of economic conditions. Bonds
rated A by Duff are judged by Duff to have average but adequate protection
factors. However, risk factors are more variable and greater in periods of
economic stress. Bonds rated BBB by Duff are judged by Duff as having below
average protection factors but still considered sufficient for prudent
investment, with considerable variability in risk during economic cycles.
DESCRIPTION OF FITCH'S CORPORATE BOND RATINGS
Bonds rated AAA by Fitch are considered to be investment grade and of
the highest credit quality. The obligor has an exceptionally strong ability to
pay interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events. Bonds rated AA by Fitch are considered to be investment
grade and of very high credit quality. The obligor's ability to pay interest and
repay principal is very strong, although not quite as strong as bonds rated AAA.
Bonds rated A by Fitch are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is considered
to be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings. Bonds rated BBB by
Fitch are considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
DESCRIPTION OF S&P MUNICIPAL BOND RATINGS
AAA - Prime - These bonds have the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely strong.
General Obligation Bonds - In a period of economic stress, the
issuers will suffer the smallest declines in income and will be least
susceptible to autonomous decline. Debt burden is moderate. A strong revenue
structure appears more than adequate to meet future expenditure requirements.
Quality of management appears superior.
Revenue Bonds - Debt service coverage has been, and is expected to
remain, substantial. Stability of the pledged revenues is also exceptionally
strong due to the competitive position of the municipal enterprise or to the
nature of the revenues. Basic security provisions
A-2
<PAGE> 122
(including rate covenant, earnings test for issuance of additional bonds, debt
service reserve requirements) are rigorous. There is evidence of superior
management.
AA - High Grade - Bonds in this group have a very strong capacity to
pay interest and repay principal and differ from the highest rated debt only in
small degree.
A - Good Grade - Bonds in this category have a strong capacity to pay
interest and repay principal, although they are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than bonds
in higher rated categories. Regarding municipal bonds, the rating differs from
the two higher ratings because:
General Obligation Bonds - There is some weakness, either in the
local economic base, in debt burden, in the balance between revenues and
expenditures or in quality of management. Under certain adverse circumstances,
any one such weakness might impair the ability of the issuer to meet debt
obligations at some future date.
Revenue Bonds - Debt service coverage is good, but not exceptional.
Stability of the pledged revenues could show some variations because of
increased competition or economic influences on revenues. Basic security
provisions, while satisfactory, are less stringent.
Management performance appears adequate.
BBB - Medium Grade - Bonds in this group are regarded as having an
adequate capacity to pay interest and repay principal. Whereas they normally
exhibit adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for bonds in this category than for bonds in higher rated
categories.
General Obligation Bonds - Under certain adverse conditions, several
of the above factors could contribute to a lesser capacity for payment of debt
service. The difference between A and BBB ratings is that the latter shows more
than one fundamental weakness, or one very substantial fundamental weakness,
whereas the former shows only one deficiency among the factors considered.
Revenue Bonds - Debt coverage is only fair. Stability of the pledged
revenues could show substantial variations, with the revenue flow possibly being
subject to erosion over time. Basic security provisions are no more than
adequate. Management performance could be stronger.
BB, B, CCC, CC and C - Bonds rated BB, B, CCC, CC and C are regarded,
on balance, as predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the obligation. BB
indicates the least degree of speculation and C the highest degree of
speculation. While such bonds will likely have some quality and protective
A-3
<PAGE> 123
characteristics, these are outweighed by large uncertainties or major risk
exposure to adverse conditions.
D - Bonds rated D are in default, or the obligor has filed for
bankruptcy. The D rating is issued when interest or principal payments are not
made on the date due, even if the applicable grace period has not expired,
unless S&P believes that such payments will be made during such grace period.
S&P's letter ratings may be modified by the addition of a plus or a
minus sign, which is used to show relative standing within the major rating
categories, except in the AAA-Prime Grade category.
DESCRIPTION OF S&P MUNICIPAL NOTE RATINGS
Municipal notes with maturities of three years or less are usually
given note ratings (designated SP-1, -2 or -3) to distinguish more clearly the
credit quality of notes as compared to bonds. Notes rated SP-1 have a strong
capacity to pay principal and interest. Those issues determined to possess a
very strong capacity to pay debt service are given the designation of SP-1+.
Notes rated SP-2 have a satisfactory capacity to pay principal and interest,
with some vulnerability to adverse financial and economic changes over the term
of the notes.
DESCRIPTION OF MOODY'S MUNICIPAL BOND RATINGS
Aaa: Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt-edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities, or fluctuation of
protective elements may be of greater amplitude, or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A: Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa: Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear
A-4
<PAGE> 124
adequate for the present but certain protective elements may be lacking or may
be characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Moody's applies the numerical modifiers 1, 2 and 3 in each generic
rating classification from Aa through B. The modifier 1 indicates that the
security ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the issuer
ranks in the lower end of its generic rating category.
DESCRIPTION OF MOODY'S MUNICIPAL NOTE RATINGS
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade (MIG) and for variable rate demand
obligations are designated Variable Moody's Investment Grade (VMIG). This
distinction recognizes the differences between short-term credit risk and
long-term risk. Loans bearing the designation MIG 1/VMIG 1 are of the best
quality, enjoying strong protection from established cash flows of funds for
their servicing, from superior liquidity support, or from established and
broad-based access to the market for refinancing, or both. Loans bearing the
designation of MIG 2/VMIG 2 are of high quality, with margins of protection
ample, although not as large as the preceding group. Loans bearing the
designation MIG 3/VMIG 3 are of favorable quality, with all security elements
accounted for but lacking the undeniable strength of the preceding grades.
Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established. Loans bearing the designation
MIG 4/VMIG 4 are of adequate quality. Protection commonly regarded as required
of an investment security is present and although not distinctly or
predominantly speculative, there is specific risk.
DESCRIPTION OF S&P COMMERCIAL PAPER RATINGS
Commercial paper rated A-1 by S&P indicates that the degree of safety
regarding timely payments is strong. Those issues determined to possess
extremely strong safety characteristics are denoted A-1+. Capacity for timely
payment on commercial paper rated A-2 is satisfactory, but the relative degree
of safety is not as high as for issues designated A-1. DESCRIPTION OF MOODY'S
COMMERCIAL PAPER RATINGS
A-5
<PAGE> 125
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated Prime-1 (or related supporting institutions) are
considered to have a superior capacity for repayment of short-term promissory
obligations. Issuers rated Prime-2 (or related supporting institutions) are
considered to have a strong capacity for repayment of short-term promissory
obligations. This will normally be evidenced by many of the characteristics of
issuers rated Prime-1 but to a lesser degree. Earnings trends and coverage
ratios, while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternative liquidity is maintained.
DESCRIPTION OF DUFF'S COMMERCIAL PAPER RATINGS
Paper rated Duff-1 is regarded as having very high certainty of
timely payment with excellent liquidity factors which are supported by good
fundamental protection factors. Risk factors are minor. Ratings of Duff-1 are
further refined by the gradations of "1+" and "1-". Issues rated Duff-1+ have
the highest certainty of timely payment, outstanding short term liquidity, and
safety just below risk-free U.S. Treasury short-term obligations. Issues rated
Duff- 1- have high certainty of timely payment, strong liquidity factors
supported by good fundamental protection factors, and small risk factors. Paper
rated Duff-2 is regarded as having good certainty of timely payment, good access
to capital markets and sound liquidity factors and company fundamentals. Risk
factors are small.
DESCRIPTION OF FITCH'S COMMERCIAL PAPER RATINGS
The rating F-1+ (Exceptionally Strong Credit Quality) is the highest
commercial rating assigned by Fitch and is assigned to issues regarded as having
the strongest degree of assurance for timely payment. Paper rated F-1 (Very
Strong Credit Quality) is regarded as having an assurance of timely payment only
slightly less in degree than issues rated F-1+. The rating F-2 (Good Credit
Quality) reflects an assurance of timely payment, but the margin of safety is
not as great as for issues assigned F-1+ or F-1 ratings.
A-6
<PAGE> 126
FINANCIAL STATEMENTS*
The following are the audited financial statements for the period from July 25,
1997 (commencement of operations) through June 30, 1997, and the Report of
Independent Accountants of Price Waterhouse LLP dated August ___, 1997 relating
to the financial statements and financial highlights of each of the Portfolios
constituting the Sierra Asset Management Portfolios.
* To be filed by amendment.
FS-1
<PAGE> 127
SIERRA ASSET MANAGEMENT PORTFOLIOS
PART C
Item 24. Financial Statements and Exhibits
(a) Financial Statements (included in Part A):
- Audited Financial Highlights for the fiscal year
ended June 30, 1997 *Financial Statements (included in Part
B):
The following audited financial statements as of
June 30, 1997 and the Report of Price Waterhouse,
LLP dated August _____, 1997 are hereby
incorporated by reference to the Statement of
Additional Information from Form N-30D, the Annual
Report to Shareholders, as filed with the
Securities and Exchange Commission on August ____,
1997 (Accession # ____________________).
- Portfolio of Investments
- Statement of Assets and Liabilities
- Statements of Operations
- Statements of Changes in Net Assets
- Notes to Financial Statements
* To be filed by amendment.
(b) Exhibits
<TABLE>
<S> <C>
1(a) Agreement and Declaration of Trust dated March 26, 1996 is
incorporated by reference to the Registration Statement filed
with the SEC on March 27, 1996.
1(b) Agreement and Declaration of Trust dated March 26, 1996 Amended
and Restated July 19, 1996 is incorporated by reference to
Pre-Effective Amendment No. 2 filed with the SEC on July 22,
1996.
2 By-laws of the Trust are incorporated by reference to the
Registration Statement as filed with the SEC on March 27, 1996.
3 Not applicable
4 Not applicable
5 Investment Advisory Agreement dated July 19, 1996, between the
Trust and Sierra Investment Services Corporation ("Sierra Services"),
is filed herewith.
6(a) Class A Distribution Agreement dated July 19, 1996, between the
Trust and Sierra Services, is filed herewith.
6(b) Class B Distribution Agreement dated July 19, 1996, between the
Trust and Sierra Services is filed herewith.
7 Not applicable
8 Custody Agreement dated July 19, 1996, between the Boston Safe
Deposit and Trust Company and Sierra Fund Administration, is
incorporated by reference to Post-Effective Amendment No. 1 filed
with the SEC on January 6, 1997.
9(a) Administration Agreement dated July 23, 1996 between the Trust
and Sierra Fund Administration, is incorporated by reference to
Post-Effective Amendment No. 1 filed with the SEC on January 6,
1997.
</TABLE>
C-1
<PAGE> 128
<TABLE>
<S> <C>
9(b) Sub-Administration Agreement (First Data Investor Services Group,
Inc.) is incorporated by reference to Pre-Effective Amendment No.
1 filed with the SEC on June 21, 1996.
9(c) Form of Sub-Administration Agreement (Dealers) is incorporated by
reference to Pre-Effective Amendment No. 2 filed with the SEC on
July 22, 1996.
9(d) Transfer Agency and Services Agreement dated May 1, 1996, between
the Trust and First Data Investor Services Group, Inc. is filed
herewith.
10 Opinion and consent of Morgan, Lewis & Bockius LLP is
incorporated by reference to Pre-Effective Amendment No. 2 filed
with the SEC on July 22, 1996.
11 Consent of Accountant is incorporated by reference to
Post-Effective Amendment No. 1 filed with the SEC on January 6,
1997.
12 Not applicable
13 Purchase Agreement relating to the Income, Value, Balanced,
Growth and Capital Growth Portfolios is incorporated by reference
to Post-Effective Amendment No. 1 filed with the SEC on January
6, 1997.
14 Not applicable
15(a) Class A Distribution Plan dated May 21, 1996 is filed herewith.
15(b) Class B Distribution Plan is incorporated by reference to
Pre-Effective Amendment No. 1 filed with the SEC on June 21,
1996.
16 Not applicable
17 Financial Data Schedules are filed herewith.
18 Rule 18f-3 Multiple Class Plan is incorporated by reference to
Pre-Effective Amendment No. 1 filed with the SEC on June 21,
1996.
19 Not applicable
20 Not applicable
21 Not applicable
22 Not applicable
23 Not applicable
24 Powers of Attorney with respect to Registration Statement and
Amendments thereto signed by the following persons in their
capacities as Trustees and, where applicable, Officers of the
Trust: Arthur H. Bernstein, David E. Anderson, Edmond R. Davis,
John W. English and Alfred E. Osborne, Jr. are incorporated by
reference to Post-Effective Amendment No. 1 filed with the SEC on
January 6, 1997.
</TABLE>
Item 25. Persons Controlled by or Under Common Control with Registrant
See the Prospectus and Statement of Additional Information
regarding the Registrant's Control relationships.
Item 26. Number of Holders of Securities
NUMBER OF RECORD HOLDERS AT
AUGUST 20, 1997
C-2
<PAGE> 129
<TABLE>
<CAPTION>
CLASS "A" CLASS "B"
--------- ---------
<S> <C> <C>
Shares of the Capital Growth Portfolio, without par value 634 1,452
Shares of the Growth Portfolio, without par value 3,992 4,652
Shares of the Balanced Portfolio, without par value 2,887 2,534
Shares of the Value Portfolio, without par value 342 195
Shares of the Income Portfolio, without par value 301 122
</TABLE>
Item 27. Indemnification
Under Section 8.1 of Registrant's Declaration of Trust
("Declaration of Trust"), any past or present Trustee or officer of Registrant
(including persons who serve at Registrant's request as directors, officers or
trustees of another organization in which Registrant has any interest as a
shareholder, creditor or otherwise (hereinafter referred to as a "Covered
Person"), is indemnified to the fullest extent permitted by law against
liability and all expenses reasonably incurred by him in connection with any
action, suit or proceeding to which he may be a party or otherwise involved by
reason of his being or having been a Covered Person. This provision does not
authorize indemnification when it is determined, in the manner specified in the
Declaration of Trust, that a Covered Person has not acted in good faith in the
reasonable belief that his actions were in or not opposed to the best interests
of Registrant. Moreover, this provision does not authorize indemnification when
it is determined, in the manner specified in the Declaration of Trust, that the
Covered Person would otherwise be liable to Registrant or its shareholders by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of his duties. Expenses may be paid by Registrant in advance of the final
disposition of any action, suit or proceeding upon receipt of an undertaking by
a Covered Person to repay those expenses to Registrant in the event that it is
ultimately determined that indemnification of the expenses is not authorized
under the Declaration of Trust and the Covered Person either provides security
for such undertaking or insures Registrant against losses from such advances or
either of the disinterested Trustees or independent legal counsel determines, in
the manner specified in the Declaration of Trust, that there is reason to
believe the Covered Person will be found to be entitled to indemnification.
Insofar as indemnification for liability arising under
the Securities Act of 1933, as amended (the "1933 Act"), may be permitted to
Trustees, officers and controlling persons of Registrant pursuant to the
foregoing provisions, or otherwise, Registrant has been advised that, in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the 1933 Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by Registrant of expenses incurred or paid
by a Trustee, officer or controlling person of Registrant in the successful
defense of any action, suit or proceeding) is asserted by such Trustee, officer
or controlling person in connection with the securities being registered,
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the 1933 Act and will by governed by the final adjudication of such
issue.
Item 28(a). Business and Other Connections of Investment Advisor
Sierra Investment Services Corporation ("Sierra
Services") is the investment advisor of the Funds.
Sierra Services does not currently act as depositor or
investment advisor for any other investment company.
The information required by this Item 28 with respect to
each director and officer of Sierra Services is incorporated by reference to
Schedule A of Form BD filed by Sierra Services pursuant to the Securities
Exchange Act of 1934 (SEC File No. 8-45144).
C-3
<PAGE> 130
Item 29. Principal Underwriter -- Sierra Investment Services Corporation
("Sierra Services") is the principal underwriter of the Class A and Class B
Shares of the Funds and serves as the principal underwriter of the Sierra Trust
Funds, The Sierra Variable Trust and the Sierra Prime Income Fund.
Sierra Services does not currently act as depositor or
investment advisor for any other investment company.
The information required by this Item 29 with respect to
each director and officer of Sierra Services is incorporated by reference to
Schedule A of Form BD filed by Sierra Services pursuant to the Securities
Exchange Act of 1934 (SEC File No. 8-45144).
Item 30. Location of Accounts and Records
(1) Sierra Asset Management Portfolios 9301 Corbin Avenue
Northridge, California 91324 (declaration of trust
and by-laws)
(2) Sierra Investment Services Corporation
9301 Corbin Avenue
Northridge, California 91324
(with respect to their services as the principal
underwriter)
(3) Great Western Financial Securities Corporation 9301
Corbin Avenue Northridge, California 91324 (with
respect to their services as a dealer)
(4) Sierra Fund Administration Corporation
9301 Corbin Avenue
Northridge, California 91324
(with respect to their services as administrator)
(5) Boston Safe Deposit and Trust Company One Boston
Place Boston, Massachusetts 02108 (with respect to
their services as custodian)
(6) First Data Investor Services Group, Inc.
One Exchange Place
53 State Street
Boston, Massachusetts 02109
(with respect to their services as a sub-administrator)
(7) First Data Investor Services Group, Inc.
4400 Computer Drive
Westboro, Massachusetts 01581
(with respect to their services as transfer agent).
(8) Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, Pennsylvania 19103
(with respect to their services as counsel to the Fund)
Item 31. Management Services
C-4
<PAGE> 131
Not applicable.
Item 32. Undertakings
(a) Registrant undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
(b) Registrant hereby undertakes to call a meeting of
shareholders for the purpose of voting upon the question of removal or a
Trustees when requested in writing to do so by the holders of at least 10% of
the Registrant's outstanding shares and in connection with such meetings to
comply with the provisions of Section 16(c) of the 1940 Act.
C-5
<PAGE> 132
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended (the
"1933 Act"), and the Investment Company Act of 1940, as amended, the Registrant
has duly caused this Post-Effective Amendment No. 2 to the Registrant's
Registration Statement File No. 333-01999 to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of Northridge and State of
California on the 28th day of August, 1997.
SIERRA ASSET MANAGEMENT PORTFOLIOS
By: /s/ James H. Overholt
-----------------------------
James H. Overholt
President
Pursuant to the requirements of the 1933 Act, as amended, this
Post-Effective Amendment No. 2 has been signed below by the following persons in
the capacities and on the date(s) indicated.
<TABLE>
<CAPTION>
Signature Title(s) Date
--------- -------- ----
<S> <C> <C>
/s/ James H. Overholt President and Trustee August 28,1997
-----------------------------------------
James H. Overholt
(Principal Executive Officer)
/s/ Keith B. Pipes Executive Vice President, August 28,1997
----------------------------------------- Treasurer and Secretary
Keith B. Pipes
(Principal Financial and Accounting Officer)
* Trustee August 28,1997
-----------------------------------------
David E. Anderson
* Chairman of the Board and August 28,1997
----------------------------------------- Trustee
Arthur H. Bernstein
* Trustee August 28,1997
-----------------------------------------
Edmond R. Davis
* Trustee August 28,1997
-----------------------------------------
John W. English
* Trustee August 28,1997
-----------------------------------------
Alfred E. Osborne, Jr., Ph.D.
</TABLE>
*By: /s/ Keith B. Pipes
-------------------------------------
Keith B. Pipes
Attorney-In-Fact
<PAGE> 133
EXHIBIT INDEX
<TABLE>
<CAPTION>
EDGAR
Exhibit Exhibit
No. No. Description
- ------- ------- -----------
<S> <C> <C>
1(a) Agreement and Declaration of Trust dated March 26, 1996 is incorporated by reference to the Registration
Statement filed with the SEC on March 27, 1996.
1(b) Agreement and Declaration of Trust dated March 26, 1996 Amended and Restated July 19, 1996 is
incorporated by reference to Pre-Effective Amendment No. 2 filed with the SEC on July 22, 1996.
2 By-laws of the Trust are incorporated by reference to the Registration Statement as filed with the SEC on
March 27, 1996.
3 Not applicable
4 Not applicable
Ex-99.B 5 Investment Advisory Agreement dated July 19, 1996, between the Trust and Sierra Investment Services
Corporation ("Sierra Services"), is filed herewith.
Ex-99.B 6(a) Class A Distribution Agreement dated July 19, 1996, between the Trust and Sierra Services, is filed herewith.
Ex-99.B 6(b) Class B Distribution Agreement dated July 19, 1996, between the Trust and Sierra Services is filed herewith.
7 Not applicable
8 Custody Agreement dated July 19, 1996, between the Boston Safe Deposit and Trust Company and Sierra
Fund Administration, is incorporated by reference to Post-Effective Amendment No. 1 filed with the SEC on
January 6, 1997.
9(a) Administration Agreement dated July 23, 1996 between the Trust and Sierra Fund Administration, is
incorporated by reference to Post-Effective Amendment No. 1 filed with the SEC on January 6, 1997.
9(b) Sub-Administration Agreement (First Data Investor Services Group, Inc.) is incorporated by reference to
Pre-Effective Amendment No. 1 filed with the SEC on June 21, 1996.
9(c) Form of Sub-Administration Agreement (Dealers) is incorporated by reference to Pre-Effective Amendment
No. 2 filed with the SEC on July 22, 1996.
Ex-99.B 9(d) Transfer Agency and Services Agreement dated May 1, 1996, between the Trust and First Data Investor
Services Group, Inc. is filed herewith.
10 Opinion and consent of Morgan, Lewis & Bockius LLP is incorporated by reference to Pre-Effective
Amendment No. 2 filed with the SEC on July 22, 1996.
11 Consent of Accountant is incorporated by reference to Post-Effective Amendment No. 1 filed with the SEC
on January 6, 1997.
12 Not applicable
13 Purchase Agreement relating to the Income, Value, Balanced, Growth and Capital Growth Portfolios is
incorporated by reference to Post-Effective Amendment No. 1 filed with the SEC on January 6, 1997.
14 Not applicable
Ex-99.B 15(a) Class A Distribution Plan dated May 21, 1996 is filed herewith.
</TABLE>
<PAGE> 134
<TABLE>
<S> <C> <C>
15(b) Class B Distribution Plan is incorporated by reference to Pre-Effective Amendment No. 1 filed with the SEC
on June 21, 1996.
16 Not applicable
Ex-99.B 17 Financial Data Schedules are filed herewith.
18 Rule 18f-3 Multiple Class Plan is incorporated by reference to Pre-Effective Amendment No. 1 filed with the
SEC on June 21, 1996.
19 Not applicable
20 Not applicable
21 Not applicable
22 Not applicable
23 Not applicable
24 Powers of Attorney with respect to Registration Statement and Amendments thereto signed by the following
persons in their capacities as Trustees and, where applicable, Officers of the Trust: Arthur H. Bernstein,
David E. Anderson, Edmond R. Davis, John W. English and Alfred E. Osborne, Jr. are incorporated by
reference to Post-Effective Amendment No. 1 filed with the SEC on January 6, 1997.
</TABLE>
<PAGE> 1
Exhibit 5
INVESTMENT ADVISORY AGREEMENT
July 19, 1996
Sierra Investment Services Corporation
9301 Corbin Avenue, Suite 333
Northridge, California 91324
Dear Sirs:
Sierra Asset Management Portfolios (the "Trust"), an unincorporated
business trust organized under the laws of the Commonwealth of Massachusetts,
hereby agrees with Sierra Investment Services Corporation ("Sierra Services"), a
corporation organized under the laws of the state of California, as follows:
1. Investment Description; Appointment
The Trust desires to employ the capital of the Trust's Income, Value,
Balanced, Growth and Capital Growth Portfolios (each, a "Portfolio," and
together, the "Portfolios") by investing and reinvesting in investments of the
kind and in accordance with the limitations specified in the Trust's Agreement
and Declaration of Trust, as amended (the "Trust Agreement"), and in its
prospectus(es) and statement(s) of additional information relating to the
Portfolios as from time to time in effect (the "Prospectus" and the "Statement
of Additional Information", respectively), 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 Prospectus, Statement of Additional Information and Trust
Agreement have been or will be submitted to Sierra Services. The Trust agrees to
provide copies of all amendments to the Prospectus, Statement of Additional
Information and Trust Agreement to Sierra Services on an on-going basis. The
Trust desires to employ and hereby appoints Sierra Services to act as investment
advisor to the Portfolios. Sierra Services accepts the appointment and agrees to
furnish the services described herein for the compensation set forth below.
2. Services as Investment Advisor
Subject to the supervision and direction of the Board of Trustees of
the Trust, Sierra Services has general oversight responsibility for the
investment advisory services provided to the
<PAGE> 2
Portfolios and will exercise this responsibility in accordance with the Trust
Agreement, the Investment Company Act of 1940, as amended (the "1940 Act"), and
the Investment Advisers Act of 1940, as amended, and with the Portfolios'
investment objectives and policies as stated in the Prospectus and Statement of
Additional Information relating to the Portfolios as from time to time in
effect. In connection therewith, Sierra Services will, among other things, (a)
participate in the formulation of the Portfolios' investment policies, (b)
analyze economic trends affecting the Portfolios, (c) monitor the expenses
incurred by the Portfolios, (d) monitor the brokerage and research services (as
those terms are defined in Section 28(e) of the Securities Exchange Act of 1934,
as amended) that are provided to each Portfolio and may be considered by the
Portfolio's investment advisor or sub-advisor, if any, in selecting brokers or
dealers to execute particular transactions and (e) monitor and evaluate the
services provided by each Portfolio's investment sub-advisor, if any, under its
investment sub-advisory agreement, including, without limitation, the
sub-advisor's adherence to the Portfolio's investment objective and policies and
the Portfolio's investment performance.
3. Information Provided to the Trust
Sierra Services will keep the Trust informed of developments materially
affecting the Portfolios, and will, on its own initiative, furnish the Trust
from time to time with whatever information Sierra Services believes is
appropriate for this purpose.
4. Standard of Care
Sierra Services shall exercise its best judgment in rendering the
services described in paragraph 2 above. Sierra Services shall not be liable for
any error of judgment or mistake of law or for any loss suffered by the
Portfolios 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").
5. Compensation
In consideration of the services rendered pursuant to this Agreement,
the Trust will pay Sierra Services on the first business day of each month a fee
for the previous month at the rate specified in the Schedule(s) which is
attached hereto and made part of this Agreement. The fee will be calculated
based on each Portfolio's average daily net assets. Upon any termination of this
Agreement before the end of a month, the fee for such part of that month shall
be prorated
<PAGE> 3
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 Sierra Services, the value of each
Portfolio's average daily net assets shall be computed at the times and in the
manner specified in the Prospectus or Statement of Additional Information
relating to the Portfolio as from time to time in effect.
6. Expenses
Sierra Services will bear all expenses in connection with the
performance of its services under this Agreement. The Trust 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 Sierra Services, the Portfolios' sub-administrator or any of their
affiliates; Securities and Exchange Commission fees and state Blue Sky
registration or qualification fees; transfer agent fees; out-of-pocket expenses
of custodians, transfer and dividend disbursing agents and the Portfolios'
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. In addition, each class
of shares of each Portfolio pays a distribution fee pursuant to the terms of a
distribution plan applicable to such class adopted under Rule 12b-1 of the 1940
Act.
7. Reimbursement to the Trust
If in any fiscal year of a Portfolio the aggregate expenses of the
Portfolio (including fees pursuant to this Agreement and the Portfolios'
transfer agency, administration and sub-administration agreements, but
excluding interest, taxes, brokerage, distribution fees relating to the
Portfolio paid pursuant to the Portfolio's Rule 12b-1 distribution plan(s) and,
if permitted by the relevant state securities commissions, extraordinary
expenses) exceed the expense limitations of any state having jurisdiction over
the Portfolio, Sierra Services will reimburse the Portfolio for the excess
expense to the extent required by state law. A fee reduction pursuant to this
paragraph 7, if any, will be estimated and reconciled monthly. Sierra Services
shall not be required to reimburse any amount in excess of the advisory fee paid
to it pursuant to this Agreement.
<PAGE> 4
8. Services to Other Companies or Accounts
The Trust understands that Sierra Services now acts as investment
advisor to each of the Portfolios, and may act now or in the future as
investment advisor to (i) other series of the Trust; (ii) fiduciary and other
managed accounts; and (iii) one or more other investment companies or series of
investment companies; and the Trust has no objection to Sierra Services so
acting. The Trust understands that the persons employed by Sierra Services to
assist in the performance of Sierra Services' 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 Sierra Services or any affiliate of Sierra
Services to engage in and devote time and attention to other businesses 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 and shall continue for an initial two-year term and shall continue
thereafter with respect to any of the Portfolios 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
outstanding voting securities of such Portfolio; 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 with respect to any of the
Portfolios, without penalty, on 60 days' written notice, by the Board of
Trustees of the Trust or by vote of holders of a majority of the outstanding
voting securities of such Portfolio, or upon 90 days' written notice, by Sierra
Services. This Agreement will also terminate automatically in the event of its
assignment (as defined in the 1940 Act). Sierra Services agrees to notify the
Trust of any circumstances that might result in this Agreement being deemed to
be assigned.
10. Representations of the Trust and Sierra Services
The Trust represents that (i) a copy of the Trust Agreement, dated
March 26, 1996, together with all amendments thereto, is on file in the office
of the Secretary of the Commonwealth of Massachusetts, (ii) the appointment of
Sierra Services has been duly authorized and (iii) it has acted and will
continue to act in conformity with the requirements of the 1940 Act and other
applicable laws.
Sierra Services represents that it is authorized to perform the
services described herein.
<PAGE> 5
11. Limitation of Liability
This Agreement has been executed on behalf of the Trust by the
undersigned officer of the Trust in his capacity as an officer of the Trust. The
obligations of this Agreement shall be binding upon the assets and property of
the Portfolios only and not upon the assets and property of any other investment
fund (i.e., series) of the Trust and shall not be binding upon any Trustee,
officer or shareholder of the Portfolios and/or the Trust individually.
12. Entire Agreement
This Agreement constitutes the entire agreement between the parties
hereto.
13. Governing Law
This Agreement shall be governed in accordance with laws of the
Commonwealth of Massachusetts.
If the foregoing accurately sets forth our agreement, kindly indicate
your acceptance hereof by signing and returning the enclosed copy hereof.
Very truly yours,
SIERRA ASSET MANAGEMENT PORTFOLIOS
By /s/ F. Brian Cerini
------------------------------
Name: F. Brian Cerini
Title: Chairman and President
Accepted:
SIERRA INVESTMENT SERVICES CORPORATION
By /s/ Keith B. Pipes
-----------------------------------
Name: Keith B. Pipes
Title: Senior Vice President and Secretary
<PAGE> 6
Schedule A to the Investment Advisory Agreement
Pursuant to paragraph 5, the Trust will pay the Advisor compensation at an
annual rate as follows:
<TABLE>
<CAPTION>
Portfolio Name Fee
- -------------- ----
<S> <C>
Income Portfolio 0.15%
Value Portfolio 0.15%
Balanced Portfolio 0.15%
Growth Portfolio 0.15%
Capital Growth Portfolio 0.15%
</TABLE>
<PAGE> 1
Exhibit 6(a)
SIERRA ASSET MANAGEMENT PORTFOLIOS
CLASS A DISTRIBUTION AGREEMENT
Entered into as of July 19, 1996
Sierra Investment Services Corporation
9301 Corbin Avenue, Suite 333
Northridge, CA 91324
Ladies and Gentlemen:
This is to confirm our agreement that, in consideration of the
agreements hereinafter contained, the undersigned, Sierra Asset Management
Portfolios (the "Trust"), organized as a business trust under the laws of the
Commonwealth of Massachusetts and registered as an open-end, management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"), agrees that Sierra Investment Services Corporation ("Sierra
Services"), a corporation organized under the laws of the state of California,
shall be, for the period of this Agreement, the distributor of the Class A
shares of beneficial interest issued by the Trust with respect to each of its
investment funds (the "Shares"), on the terms hereinafter set forth.
1. Services as Distributor
1.1 Sierra Services will act as agent for the distribution of
the Shares covered by the registration statement, prospectuses and statements of
additional information then in effect (the "Registration Statement") under the
Securities Act of 1933, as amended (the "1933 Act"), and the 1940 Act.
1.2 Sierra Services agrees to use its best efforts to solicit
orders for the sale of the Shares at the public offering price, as determined in
accordance with the Registration Statement, and will undertake such advertising
and promotion as it believes is reasonable in connection with such solicitation.
1.3 All activities by Sierra Services as distributor of the
Shares shall comply with all applicable laws, rules and regulations, including,
without limitation, all rules and regulations made or adopted by the Securities
and Exchange Commission (the "SEC") or by any securities association registered
under the Securities Exchange Act of 1934, as amended.
1.4 Sierra Services will provide one or more persons during
normal business hours to respond to telephone questions concerning the Trust.
<PAGE> 2
1.5 Sierra Services acknowledges that, whenever in the
judgment of the Trust's officers such action is warranted for any reason,
including, without limitation, market, economic or political conditions, those
officers may decline to accept any orders for, or make any sales of, any series
of the Shares until such time as those officers deem it advisable to accept such
orders and to make such sales.
1.6 Sierra Services will act only on its own behalf as
principal should it choose to enter into selling agreements with selected
dealers or others.
1.7 In consideration of the services rendered pursuant to this
Agreement, as promptly as is possible after the last day of each month this
Agreement is in effect, the Trust shall pay to or at the direction of Sierra
Services a fee or portions thereof, calculated daily and paid monthly, in the
aggregate at the annual rate of .25% of the average daily net assets for the
prior month of each series of the Shares. The payment by the Trust of fees under
this Agreement is authorized pursuant to the Trust's Distribution Plan, as
amended, adopted in accordance with Rule 12b-1 under the 1940 Act (the "Plan").
1.8 Sierra Services or any other person with which Sierra
Services has a written agreement to provide services as permitted by this
Agreement and the Plan (each, a "Designated Provider") will bear all expenses in
connection with the performance of services and the incurring of distribution
expenses under this Agreement. For purposes of this Agreement, "distribution
expenses" of Sierra Services shall mean all expenses borne by Sierra Services or
by any one or more Designated Providers, which expenses represent payment for
activities primarily intended to result in the sale of Shares, including, but
not limited to, the following:
(a) payments made to, and expenses of, Sierra Services,
registered representatives and other employees of Sierra Services, each
of the Designated Providers, or other broker-dealers that engage in the
distribution of Shares;
(b) payments made to, and expenses of, persons who provide
support services in connection with the distribution of Shares,
including, but not limited to, office space and equipment, telephone
facilities, answering routine inquiries regarding the Trust, processing
shareholder transactions and providing any other shareholder services
not otherwise provided by the Trust's transfer agent or any shareholder
servicing agent;
(c) costs relating to the formulation and implementation of
marketing and promotional activities,
2
<PAGE> 3
including, but not limited to, direct mail promotions and television,
radio, newspaper, magazine and other mass media advertising;
(d) costs of printing and distributing prospectuses
and reports of the Trust to prospective shareholders of the
Trust;
(e) costs involved in preparing, printing and
distributing advertising and sales literature pertaining to
the Trust; and
(f) costs involved in obtaining whatever information, analyses
and reports with respect to marketing and promotional activities that
the Trust may, from time to time, deem advisable;
except that distribution expenses shall not include any expenditures in
connection with services which Sierra Services, any of its affiliates, or any
other person have agreed to bear without reimbursement.
1.9 Sierra Services shall prepare and deliver reports to the
Treasurer of the Trust and to the advisor, administrator and/or
sub-administrator to each series of the Shares on a regular, at least quarterly,
basis, showing the distribution expenses incurred pursuant to this Agreement and
the Plan and the purposes therefor, as well as any supplemental reports as the
Trustees, from time to time, may reasonably request.
2. Duties of the Trust
2.1 The Trust agrees at its own expense to execute any and all
documents, to furnish any and all information and to take any other actions that
may be reasonably necessary in connection with the qualification of the Shares
for sale in those states that Sierra Services may designate.
2.2 The Trust shall furnish from time to time, for use in
connection with the sale of the Shares, such information reports with respect to
the Trust and the Shares as Sierra Services may reasonably request, all of which
shall be signed by one or more of the Trust's duly authorized officers; and the
Trust warrants that the statements contained in any such reports, when so signed
by one or more of the Trust's officers, shall be true and correct. The Trust
shall also furnish Sierra Services upon request with: (a) annual audits of the
Trust's books and accounts made by independent public accountants regularly
retained by the Trust, (b) semiannual unaudited financial statements pertaining
to the Trust, (c) quarterly earnings statements prepared by the Trust, (d) a
monthly itemized list of
3
<PAGE> 4
the securities in the portfolios of all series of the Shares, (e) monthly
balance sheets as soon as practicable after the end of each month and (f) from
time to time such additional information regarding the Trust's financial
condition as Sierra Services may reasonably request.
2.3 The Trust shall pay to Sierra Services the proceeds from
any front-end sales charge and any contingent deferred sales charge imposed on
the purchase and redemption, respectively, of the Shares as specified in the
Registration Statement.
3. Representations and Warranties
(a) The Trust represents to Sierra Services that all
registration statements, prospectuses and statements of additional information
filed by the Trust with the SEC under the 1933 Act and the 1940 Act with respect
to the Shares have been carefully prepared in conformity with the requirements
of the 1933 Act, the 1940 Act and the rules and regulations of the SEC
thereunder. As used in this Agreement the terms "registration statement",
"prospectus" and "statement of additional information" shall mean any
registration statement, prospectus and statement of additional information filed
by the Trust with the SEC and any amendments and supplements thereto which at
any time shall have been filed with the SEC. The Trust represents and warrants
to Sierra Services that any registration statement, prospectus and statement of
additional information, when such registration statement becomes effective,
will include all statements required to be contained therein in conformity with
the 1933 Act, the 1940 Act and the rules and regulations of the SEC; that all
statements of fact contained in any registration statement, prospectus or
statement of additional information will be true and correct when such
registration statement becomes effective; and that neither any registration
statement nor any prospectus or statement of additional information when such
registration statement becomes effective will include an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading to a purchaser of
Shares. Sierra Services may, but shall not be obligated to, propose from time to
time such amendment or amendments to any registration statement and such
supplement or supplements to any prospectus or statement of additional
information as, in the light of future developments, may, in the opinion of
Sierra Services' counsel, be necessary or advisable. If the Trust shall not
propose such amendment or amendments and/or supplement or supplements within
fifteen days after receipt by the Trust of a written request from Sierra
Services to do so, Sierra Services may, at its option, terminate this Agreement.
The Trust shall not file any amendment to any registration statement or
supplement to any prospectus or
4
<PAGE> 5
statement of additional information without giving Sierra Services reasonable
notice thereof in advance; provided, however, that nothing contained in this
Agreement shall in any way limit the Trust's right to file at any time such
amendments to any registration statement and/or supplements to any prospectus or
statement of additional information, of whatever character, as the Trust may
deem advisable, such right being in all respects absolute and unconditional.
(b) Sierra Services represents to the Trust that it is
authorized to perform the services described herein.
4. Indemnification
4.1 The Trust authorizes Sierra Services and any dealers with
whom Sierra Services has entered into dealer agreements to use any current
prospectus or statement of additional information furnished by the Trust from
time to time, in connection with the sale of Shares. The Trust agrees to
indemnify, defend and hold Sierra Services, its several officers and directors,
and any person who controls Sierra Services within the meaning of Section 15 of
the 1933 Act, free and harmless from and against any and all claims, demands,
liabilities and expenses (including the cost of investigating or defending such
claims, demands or liabilities and any counsel fees incurred in connection
therewith) which Sierra Services, its officers and directors, or any such
controlling person, may incur under the 1933 Act, the 1940 Act or common law or
otherwise, arising out of or based upon any untrue statement or alleged untrue
statement of a material fact contained in any registration statement, any
prospectus or any statement of additional information, or arising out of or
based upon any omission or alleged omission to state a material fact required to
be stated in any registration statement, any prospectus or any statement of
additional information, or necessary to make the statements in any of them not
misleading; provided, however, that the Trust's agreement to indemnify Sierra
Services, its officers or directors, and any such controlling person shall not
be deemed to cover any claims, demands, liabilities or expenses arising out of
or based upon any statements or representations made by Sierra Services or its
representatives or agents other than such statements and representations as are
contained in any registration statement, prospectus or statement of additional
information and in such financial and other statements as are furnished to
Sierra Services pursuant to paragraph 2.2 hereof; and further provided that the
Trust's agreement to indemnify Sierra Services and the Trust's representations
and warranties hereinbefore set forth in paragraph 3 shall not be deemed to
cover any liability to the Trust or its shareholders to which Sierra Services
would otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by
5
<PAGE> 6
reason of Sierra Services' reckless disregard of its obligations and duties
under this Agreement. The Trust's agreement to indemnify Sierra Services, its
officers and directors, and any such controlling person, as aforesaid, is
expressly conditioned upon the Trust's being notified of any action brought
against Sierra Services, its officers or directors, or any such controlling
person, such notification to be given by letter or by telegram addressed to the
Trust at its principal office in Northridge, California and sent to the Trust by
the person against whom such action is brought, within ten days after the
summons or other first legal process shall have been served. The failure so to
notify the Trust of any such action shall not relieve the Trust from any
liability that the Trust may have to the person against whom such action is
brought by reason of any such untrue or alleged untrue statement or omission or
alleged omission otherwise than on account of the Trust's indemnity agreement
contained in this paragraph 4.1. The Trust's indemnification agreement contained
in this paragraph 4.1 and the Trust's representations and warranties in this
Agreement shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of Sierra Services, its officers and
directors, or any controlling person, and shall survive the delivery of any
Shares. This agreement of indemnity will inure exclusively to Sierra Services'
benefit, to the benefit of its several officers and directors, and their
respective estates, and to the benefit of the controlling persons and their
successors. The Trust agrees to notify Sierra Services promptly of the
commencement of any litigation or proceedings against the Trust or any of its
officers or trustees in connection with the issuance and sale of any Shares.
4.2 Sierra Services agrees to indemnify, defend and hold the
Trust, its several officers and trustees, and any person who controls the Trust
within the meaning of Section 15 of the 1933 Act, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
costs of investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) that the Trust, its officers or
trustees or any such controlling person may incur under the 1933 Act, the 1940
Act or common law or otherwise, but only to the extent that such liability or
expense incurred by the Trust, its officers or trustees or such controlling
person resulting from such claims or demands shall arise out of or be based upon
(a) any unauthorized sales literature, advertisements, information, statements
or representations or (b) any untrue or alleged untrue statement of a material
fact contained in information furnished in writing by Sierra Services to the
Trust and used in the answers to any of the items of the registration statement
or in the corresponding statements made in the prospectus or statement of
additional information, or shall arise out of or be based upon any omission
6
<PAGE> 7
or alleged omission to state a material fact in connection with such information
furnished in writing by Sierra Services to the Trust and required to be stated
in such answers or necessary to make such information not misleading. Sierra
Services' agreement to indemnify the Trust, its officers and trustees, and any
such controlling person, as aforesaid, is expressly conditioned upon Sierra
Services' being notified of any action brought against the Trust, its officers
or trustees, or any such controlling person, such notification to be given by
letter or telegram addressed to Sierra Services at its principal office in
Northridge, California and sent to Sierra Services by the person against whom
such action is brought, within ten days after the summons or other first legal
process shall have been served. The failure so to notify Sierra Services of any
such action shall not relieve Sierra Services from any liability that Sierra
Services may have to the Trust, its officers or trustees, or to such controlling
person by reason of any such untrue or alleged untrue statement or omission or
alleged omission otherwise than on account of Sierra Services' indemnity
agreement contained in this paragraph 4.2. Sierra Services agrees to notify the
Trust promptly of the commencement of any litigation or proceedings against
Sierra Services or any of its officers or directors in connection with the
issuance and sale of any Shares.
4.3 In case any action shall be brought against any
indemnified party under paragraph 4.1 or 4.2, and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate in, and, to the extent that it shall wish to do so, to
assume the defense thereof with counsel satisfactory to such indemnified party.
If the indemnifying party opts to assume the defense of such action, the
indemnifying party will not be liable to the indemnified party for any legal or
other expenses subsequently incurred by the indemnified party in connection with
the defense thereof other than (a) reasonable costs of investigation or the
furnishing of documents or witnesses and (b) all reasonable fees and expenses of
separate counsel to such indemnified party if (i) the indemnifying party and the
indemnified party shall have agreed to the retention of such counsel or (ii) the
indemnified party shall have concluded reasonably that representation of the
indemnifying party and the indemnified party by the same counsel would be
inappropriate due to actual or potential differing interests between them in the
conduct of the defense of such action.
5. Effectiveness of Registration
None of the Shares shall be offered by either Sierra Services
or the Trust under any of the provisions of this Agreement and no orders for the
purchase or sale of the Shares hereunder shall be accepted by the Trust if and
so long as the
7
<PAGE> 8
effectiveness of the registration statement then in effect or any necessary
amendments thereto shall be suspended under any of the provisions of the 1933
Act or if and so long as a current prospectus as required by Section 5(b)(2) of
the 1933 Act is not on file with the SEC; provided, however, that nothing
contained in this paragraph 5 shall in any way restrict or have an application
to or bearing upon the Trust's obligation to repurchase Shares from any
shareholder in accordance with the provisions of the Trust's prospectus,
statement of additional information or articles of incorporation.
6. Notice to Sierra Services
The Trust agrees to advise Sierra Services immediately in
writing:
(a) of any request by the SEC for amendments to the
registration statement, prospectus or statement of
additional information then in effect or for additional
information;
(b) in the event of the issuance by the SEC of any stop order
suspending the effectiveness of the registration statement, prospectus
or statement of additional information then in effect or the initiation
of any proceeding for that purpose;
(c) of the happening of any event that makes untrue any
statement of a material fact made in the registration statement,
prospectus or statement of additional information then in effect or
that requires the making of a change in such registration statement,
prospectus or statement of additional information in order to make the
statements therein not misleading; and
(d) of all actions of the SEC with respect to any amendment to
any registration statement, prospectus or statement of additional
information which may from time to time be filed with the SEC.
7. Term of Agreement
This Agreement shall continue for an initial two-year period
and shall continue thereafter for so long as such continuance is specifically
approved at least annually by (a) the Trust's Board of Trustees and (b) a vote
of a majority (as defined in the 1940 Act) of the Trust's Trustees who are not
interested persons (as defined in the 1940 Act) of the Trust and who have no
direct or indirect financial interest in the operation of the Plan, in this
Agreement or any agreement related to the Plan (the "Qualified Trustees"), by
any vote cast in
8
<PAGE> 9
person at a meeting called for the purpose of the voting on such approval. This
Agreement is terminable with respect to the Trust or any series of the Shares,
as the case may be, without penalty, (a) on 60 days' written notice, by vote of
a majority of the Qualified Trustees or by vote of a majority (as defined in the
1940 Act) of the outstanding voting securities of the Trust or such series, as
the case may be, or (b) on 90 days' written notice by Sierra Services. This
Agreement may remain in effect with respect to a series of the Shares even if it
has been terminated in accordance with this paragraph with respect to one or
more other series of the Shares. This Agreement will also terminate
automatically in the event of its assignment (as defined in the 1940 Act).
Sierra Services agrees to notify the Trust of any circumstances that might
result in this Agreement being deemed to be assigned.
8. Miscellaneous
The Trust recognizes that directors, officers and employees of
Sierra Services may from time to time serve as directors, trustees, officers and
employees of corporations and business trusts (including other investment
companies) and that Sierra Services or its affiliates may enter into
distribution or other agreements with such other corporations and trusts.
The Trust represents that a copy of its Agreement and
Declaration of Trust, dated March 26, 1996, together with all amendments
thereto, is on file in the office of the Secretary of the Commonwealth of
Massachusetts and the City Clerk of Boston, Massachusetts.
This Agreement constitutes the entire agreement between the
parties hereto. This Agreement shall be governed in accordance with the laws of
the Commonwealth of Massachusetts.
It is expressly agreed that the obligations of the Trust
hereunder shall not be binding upon any of the Trustees, shareholders, nominees,
officers, agents or employees of the Trust, personally, but bind only the trust
property of the Trust, as provided in the Trust Agreement. The execution and
delivery of this Agreement have been authorized by the Trustees and the sole
shareholder of each series of the Shares and signed by an authorized officer of
the Trust, acting as such, and neither such authorization by such Trustees and
shareholder nor such execution and delivery by such officer shall be deemed to
have been made by any of them individually or to impose any liability on any of
them personally, but shall bind only the trust property of the Trust as provided
in the Trust Agreement.
9
<PAGE> 10
Please confirm that the foregoing accurately sets forth our
agreement by indicating your acceptance hereof at the place below indicated,
whereupon it shall become a binding agreement between us as of July 19, 1996.
Very truly yours,
SIERRA ASSET MANAGEMENT PORTFOLIOS
By: /s/ Keith B. Pipes
----------------------------------------
Name: Keith B. Pipes
Title: Executive Vice President
and Secretary
ACCEPTED:
SIERRA INVESTMENT SERVICES CORPORATION
By: /s/ Craig M. Miller
--------------------------------------
Name: Craig M. Miller
Title: Vice President and Controller
10
<PAGE> 1
Exhibit 6(b)
SIERRA ASSET MANAGEMENT PORTFOLIOS
CLASS B DISTRIBUTION AGREEMENT
Entered into as of July 19, 1996
Sierra Investment Services Corporation
9301 Corbin Avenue, Suite 333
Northridge, CA 91324
Ladies and Gentlemen:
This is to confirm that, in consideration of the mutual promises and
covenants hereinafter contained, the undersigned Sierra Asset Management
Portfolios (the "Trust"), a business trust organized under the laws of the
Commonwealth of Massachusetts and registered as an open-end, management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"), agrees that Sierra Investment Services Corporation ("Sierra
Services"), a corporation organized under the laws of the state of California,
shall be, for the period of this Agreement, a distributor of certain classes of
shares of beneficial interest that are identified on Schedule 1 to this
Agreement and that are issued by the Trust with respect to certain of its series
as identified on such Schedule 1 (shares of such identified classes of such
identified series, the "Shares"), each of which series is a separate investment
portfolio (a "Portfolio"), on the terms and conditions hereinafter set forth.
1. Appointment
The Trust hereby appoints Sierra Services as agent of the Trust to act,
for the period and on the terms set forth in this Agreement, as a distributor of
the Portfolios' Shares covered by the Trust's registration statement (the
"Registration Statement"), prospectuses and statements of additional information
as in effect from time to time under the Securities Act of 1933, as amended (the
"1933 Act"), and the 1940 Act, and
1
<PAGE> 2
Sierra Services accepts such appointment and agrees to render the services
herein described for the compensation herein provided.
As used in this Agreement, the terms "registration statement,"
"prospectus," and "statement of additional information" shall mean any
registration statement, prospectus and statement of additional information filed
by the Trust with the SEC and any amendments thereof and supplements thereto
which at any time shall have been filed with the SEC. "Prospectus" shall mean,
with respect to any Shares of any Portfolio at any time, the then-current
prospectus and statement of additional information relating to such Shares.
2. Sales of Shares
2.1 Authorization. The Trust hereby authorizes Sierra Services to sell
Shares of the Portfolios, and Sierra Services agrees to use its best efforts to
solicit orders for the sale of such Shares, at such Shares' public offering
price, as determined in accordance with the Registration Statement. Sierra
Services shall have the right to order from the Trust the Shares of the
Portfolios needed, but not more than needed (correcting for any clerical errors
or errors of transmission), to fill such orders as are unconditional.
2.2 Selling Broker-Dealers and Other Agents. Sierra Services may, as
principal and on its own behalf, enter into agreements ("Dealer Agreements"), on
such terms and conditions as Sierra Services determines are not inconsistent
with this Agreement, with (a) any broker-dealer who is (i) registered under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), (ii) registered as
required under applicable state securities or blue sky laws, and (iii) a member
in good standing of the National Association of Securities Dealers, Inc.
("NASD"); and (b) any other person (as such term is defined in the 1934 Act)
that is not required, for purposes of effecting transactions in securities, to
be registered under the 1934 Act, but is registered as required under applicable
state securities or blue sky laws, authorizing such broker-dealers and other
persons (collectively, "Brokers") to act as agents in connection with the sale
of the Shares of the Portfolios (which may include accepting
2
<PAGE> 3
orders for the purchase or redemption of Shares, responding to inquiries
regarding the Trust or the Portfolios, and performing other related functions).
Expulsion or suspension from the NASD of any Broker required to be registered
under the 1934 Act shall automatically terminate such Broker's Dealer Agreement
with Sierra Services for sales of Shares as of the effective date of such
expulsion or suspension.
2.3 Refusal and Suspension of Sales. Each of Sierra Services and the
Trust reserves the right to refuse at any time or times (a) to sell any Shares
for any reason, and (b) to accept an order for Shares for any reason. Sierra
Services acknowledges specifically that, whenever in the judgment of the Trust's
officers such action is warranted for any reason, including, without limitation,
market, economic or political conditions, The Trust may decline to accept any
orders for, or make any sales of, any Shares of any Portfolio until such time as
those officers deem it advisable to accept such orders and to make such sales.
No Shares shall be offered and no orders for the purchase or sale of
Shares under any provisions of this Agreement shall be accepted by the Trust (a)
if and so long as the effectiveness of the Registration Statement or any
necessary amendments thereto shall be suspended under any provisions of the 1933
Act, or (b) if and so long as a current prospectus as required by Section
5(b)(2) of the 1933 Act is not on file with the SEC; provided, however, that
nothing contained in this Section 2.3 shall in any way restrict or have an
application to or bearing upon the Trust's obligation to repurchase Shares from
any holder thereof in accordance with the provisions of the Prospectus or the
Trust's Agreement and Declaration of Trust dated March 26, 1996, together with
all amendments thereto (as so amended, the "Trust Agreement").
3. Distribution Services and Expenses
3.1 Distribution Expenses. Sierra Services will bear all expenses in
connection with the performance of its services and the incurring of
distribution expenses under this Agreement. For purposes of this Agreement,
"distribution expenses" of Sierra Services shall mean all expenses borne by
Sierra Services or by
3
<PAGE> 4
any other person with which Sierra Services has an agreement (including but not
limited to Dealer Agreements) approved by the Trust, which expenses represent
payment for activities primarily intended to result in the sale of Shares,
including, but not limited to, the following (provided, that "distribution
expenses" shall not include any expenditures in connection with services that
Sierra Services or any other person have agreed to bear or provide without
reimbursement or compensation):
(a) payments made to, and expenses of, registered
representatives and other employees of Sierra Services
or of Brokers;
(b) payments made to, and expenses of, persons providing support
services in connection with the distribution of Shares,
including but not limited to office space and equipment,
telephone facilities, answering routine inquiries regarding
the Trust, and processing transactions;
(c) costs relating to the formulation and implementation of
marketing and promotional activities, including but not
limited to direct mail promotions and television, radio,
newspaper, magazine and other mass media advertising, and
costs involved in preparing, printing and distributing
advertising and sales literature pertaining to the Trust or
the Portfolios;
(d) costs of printing and distributing Prospectuses and
reports of the Trust to prospective Shareholders of the
Portfolios;
(e) costs involved in obtaining whatever information, analyses and
reports with respect to marketing and promotional activities
that the Trust may, from time to time, deem advisable; and
(f) costs of financing any of the foregoing.
3.2 Quarterly Expense Reports. Sierra Services shall prepare and
deliver quarterly reports to the Treasurer of the Trust and to the advisor,
administrator and/or sub-administrator of each Portfolio, showing distribution
expenses incurred
4
<PAGE> 5
pursuant to this Agreement and the relevant Plan (as defined in Section 8.1 of
this Agreement) and the purposes therefor, as well as any supplemental reports
as the Trustees, from time to time, may reasonably request.
3.3 Scope of Distribution Services. Distribution services rendered
pursuant to this Agreement with respect to any Share of any Portfolio shall be
deemed to be complete upon the issuance and sale of such Share.
3.4 Trust Expenses. Sierra Services shall not be liable to assume any
other expenses of the Trust or any Portfolio, which other expenses may include
without limitation: investment advisory fees; charges and expenses of any
registrar, custodian or depositary appointed by the Trust for safekeeping of its
cash, portfolio securities, or other property, and any transfer, dividend or
accounting agent(s) appointed by the Trust; brokers' commissions chargeable to
the Trust in connection with its portfolio securities transactions; all taxes,
including securities issuance and transfer taxes; all costs and expenses in
connection with maintenance of registration of the Trust, any Portfolio and the
Shares with the SEC, various states, and other jurisdictions (including filing
and legal fees and disbursements of counsel); expenses of printing, including
typesetting, and distributing Prospectuses to the Portfolios' shareholders; all
expenses of shareholders' and Trustees' meetings and of preparing, printing and
mailing proxy statements and reports to shareholders; fees and expenses of
Trustees; all expenses incident to the payment of any dividend, distribution,
withdrawal or redemption, whether in Shares or in cash; charges and expenses
of any outside service used for pricing of Shares; charges and expenses of legal
counsel and independent accountants, in connection with any matter relating to
the Trust; membership dues of industry associations; interest payable on
borrowings; postage; insurance premiums on property or personnel (including
officers and Trustees) of the Trust that inure to its benefit; extraordinary
expenses (including but not limited to legal claims and liabilities and
litigation costs and any indemnification related thereto); and all other charges
and costs of operations unless otherwise explicitly provided herein.
5
<PAGE> 6
4. Compensation
4.1 Distribution Fee. The Trust will pay Distributor in consideration
of its services in connection with the distribution of Shares of each Portfolio
its "Allocable Portion", as defined in Schedule 2 to this Agreement, of the
distribution fee allowable under the rules of fair practice of the National
Association of Securities Dealers (the "Rules of Fair Practice") in respect of
such Shares of such Portfolio, which fee shall accrue daily and be paid monthly
as promptly as possible after the last day of each month but in any event prior
to the tenth day of the following calendar month, at an annual rate of 0.75% per
annum of the average daily net asset value of the such Shares of such Portfolio,
subject to the aggregate maximum limitation on the distribution fee allowable
under the Rules of Fair Practice and the Distribution Plan in respect of such
class of Shares ("Distribution Fee").
Distributor will be deemed to have fully earned its Allocable
Portion of the Distribution Fee payable in respect of Shares of each Portfolio
upon the sale of the "Commission Shares" (as defined in Schedule 2 to this
Agreement) of such Portfolio taken into account in determining such
Distributor's Allocable Portion of such Distribution Fee.
4.2 Contingent Deferred Sales Charges. The Trust shall cause its
transfer agent (the "Transfer Agent") to withhold, from redemption proceeds
payable to holders of Shares of the Portfolios, all contingent deferred sales
charges properly payable by such holders in accordance with the terms of the
Prospectuses relating to such Shares ("CDSCs") and shall cause the Transfer
Agent to pay such amounts over as promptly as possible after the settlement date
for each redemption of such Shares. Sierra Services' Allocable Portion (as
defined in Schedule 2 to this Agreement) of such CDSC amounts shall be payable
to Sierra Services (or to persons to whom Sierra Services directs the Trust to
make payments).
4.3 Other Services; Service Fee. Upon request of the Trust's Board of
Trustees, Sierra Services may, but shall be under no duty to, perform additional
services on behalf of the Trust or any Portfolio, which services are not
required by this
6
<PAGE> 7
Agreement but may be performed by Sierra Services in conformity with applicable
law. Any such services will be performed on behalf of the Trust, and Sierra
Services may impose additional charges for such services, which charges may be
billed to the Trust and subject to examination by the Trust's independent
accountants. Sierra Services' payment or assumption of any expense of the Trust
that Sierra Services is not required to pay or assume under this Agreement shall
not relieve Sierra Services of any of its obligations to the Trust or obligate
Sierra Services to pay or assume any similar expense on any subsequent occasion.
The Distribution Fee payable pursuant to this Agreement shall not be
deemed to compensate Sierra Services for any shareholder services it may provide
to the Trust or any Portfolio pursuant to the relevant Plan, which services may
include processing of shareholder transactions, responding to inquiries from
shareholders concerning the status of their accounts and the operations of the
Trust or any Portfolio, communicating with the Trust and its transfer agent on
behalf of such shareholders, or providing other shareholder services, nor for
any expenses associated with the provision of such shareholder services,
including office space and equipment, and telephone facilities. Any such
shareholder services shall be provided pursuant to a separate agreement.
4.4 Directed Payment; Allocable Portion Calculations. Sierra Services
may direct the Trust to pay any part or all of the Distribution Fee or CDSCs
payable to Sierra Services in respect of any Shares of any Portfolio directly to
persons providing funds to Sierra Services to cover or otherwise enable the
incurring of expenses associated with distribution services, and the Trust
agrees to accept and to comply with such direction. Sierra Services shall, at
its own expense and not the expense of the Trust or any Portfolio, provide the
Trust with any necessary calculations of Sierra Services' Allocable Portion of
any Distribution Fee or CDSCs, and the Trust shall be entitled to rely
conclusively on such calculations, without prejudice to any claim it may have
concerning the accuracy of such calculations.
4.5 Maximum Charges. Notwithstanding anything to the contrary contained
in this Agreement or in any relevant Plan, the amount of asset-based sales
charges and CDSCs paid to Sierra
7
<PAGE> 8
Services by any class of shares of any Portfolio shall not exceed the amount
permitted by the Conduct Rules of the NASD ("NASD Conduct Rules"), as in effect
from time to time.
5. Disclosure and Sales Materials
5.1 Portfolio Governing Documents. The Trust shall have furnished
Sierra Services with copies, properly certified or authenticated as Sierra
Services may reasonably request, of the following documents and of all
amendments or supplements thereto (such documents as so amended or supplemented,
with respect to any Portfolio, that Portfolio's "Governing Documents"):
(a) The Trust Agreement;
(b) The Trust's Bylaws, as amended and in effect as of the date of
this Agreement (such Bylaws, as they may be amended from time
to time hereafter, the "Bylaws");
(c) Resolutions of the Trust's Board of Trustees
authorizing the appointment of Sierra Services as a
Distributor of the Shares of the Portfolio and
authorizing this Agreement;
(d) The Trust's Notification of Registration filed pursuant to
Section 8(a) of the 1940 Act on Form N-8A under the 1940 Act,
as filed with the Securities and Exchange Commission (the
"SEC") on March 27, 1996;
(e) The Trust's registration statement on Form N-1A under the
Securities Act of 1933, as amended (the "1933 Act"), and under
the 1940 Act as filed with the SEC on March 27, 1996 (File
Nos. 333-01999 and 811-07577) relating to the Shares of the
Portfolio, and all amendments thereto;
(f) The most recent Prospectus relating to Shares of the
Portfolio; and
(g) All documents, notices and reports filed with the SEC.
8
<PAGE> 9
5.2 The Trust authorizes Sierra Services and any Broker with whom
Sierra Services has entered into Dealer Agreements to use, in connection with
the sale of Shares, any Prospectus furnished by the Trust from time to time.
Sierra Services shall not, and shall take reasonable steps to ensure that no
Broker will, give any information nor make any representations, concerning any
aspect of the Shares, the Portfolios or the Trust to any persons or entity
unless such information or representations are contained in the Registration
Statement and/or the pertinent Prospectus, or are contained in sales or
promotional literature approved by the Trust. Sierra Services shall not use, and
shall take reasonable steps to ensure that no Broker will, use any sales
promotion material or advertising that has not been previously approved by the
Trust.
6. Duties of the Trust
6.1 The Trust agrees at its own expense to execute any and all
documents, to furnish any and all information and to take any other actions that
may be reasonably necessary in connection with (a) the registration of Shares
under the 1933 Act and (b) the qualification, pursuant to state securities laws,
of the Shares for sale in those states that Sierra Services may designate.
6.2 Information Reports; Financial Data. The Trust shall furnish to
Sierra Services from time to time, for use in connection with the sale of the
Shares, such information reports with respect to the Trust and the Shares as
Sierra Services may reasonably request. Such reports shall be signed by officers
of the Trust duly authorized; the Trust warrants the statements contained in any
reports so signed to be true and correct. The Trust shall furnish to Sierra
Services, upon its request, (a) annual audits of the Trust's books and accounts
made by independent public accountants regularly retained by the Trust, (b)
semiannual unaudited financial statements pertaining to the Trust, (c) quarterly
earnings statements prepared by the Trust, (d) a monthly itemized list of the
securities in the portfolios of all Portfolios, (e) monthly balance sheets as
soon as practicable after the end of each month and (f) such additional
information regarding the Trust's financial condition as Sierra Services may
reasonably request from time to time.
9
<PAGE> 10
7. Compliance; Standard of Care
7.1 Compliance. In performing any activity as distributor
for Shares of any Portfolio pursuant to this Agreement, Sierra
Services shall comply with:
(a) all applicable provisions of the 1940 Act and any rules
and regulations thereunder;
(b) all provisions of the Registration Statement relating
to the Portfolio;
(c) all provisions of the Portfolio's Governing Documents;
(d) all rules and regulations of the NASD and all other
self-regulatory organizations applicable to the sale of
investment company shares; and
(e) any other applicable provisions of federal and state
law.
Sierra Services shall use its best efforts to maintain all required
licenses and registrations for itself as a broker or dealer, and for its
registered representatives or other associated persons, under the 1934 Act and
applicable state securities or blue sky laws. Sierra Services shall be
responsible for ensuring that each Broker and its representatives engaged in
selling Shares of the Portfolios shall be duly and appropriately licensed,
registered and otherwise qualified to do so under the 1934 Act and any
applicable blue sky laws of each state or other jurisdiction in which such
Shares may be sold. Sierra Services shall be responsible for ensuring that each
Broker supervises its representatives. Expulsion or suspension of Sierra
Services from the NASD shall automatically terminate this Agreement on the
effective date of such expulsion or suspension.
7.2 Direction of the Board. Any distribution activities undertaken by
Sierra Services pursuant to this Agreement or any other services undertaken by
Sierra Services on behalf of the
10
<PAGE> 11
Trust or any Portfolio, shall at all times be subject to any directives of the
Board of Trustees of the Trust.
7.3 Standard of Care. In performing its duties under this Agreement,
Sierra Services shall be obligated to exercise care and diligence and to act in
good faith and to use its best efforts within reasonable limits in performing
all services provided for under this Agreement, but shall not be liable for any
act or omission not constituting Sierra Services' willful misfeasance, bad faith
or gross negligence, or Sierra Services' reckless disregard of its duties under
this Agreement.
8. Representations and Warranties
8.1 Distribution Plan. The Trust represents and warrants to Sierra
Services that the payment by the Trust of fees under this Agreement for
distribution services rendered with respect to any Shares of any Portfolio is
authorized pursuant to the Trust's Class B Distribution Plan, as amended,
pertaining to such Shares of such Portfolio, adopted in accordance with Rule
12b-1 under the 1940 Act (a "Plan").
8.2 Registration Statements and Prospectuses. The Trust represents to
Sierra Services that all Registration Statements and Prospectuses filed by the
Trust with the SEC under the 1933 Act and the 1940 Act with respect to the
Shares are in conformity with the requirements of the 1933 Act, the 1940 Act and
the rules and regulations of the SEC thereunder. The Trust represents and
warrants to Sierra Services that any Registration Statement or Prospectus, when
it becomes effective, will include all statements required to be contained
therein in conformity with the 1933 Act, the 1940 Act and the rules and
regulations of the SEC; that all statements of fact contained in any
Registration Statement or Prospectus will be true and correct when such
Registration Statement or Prospectus becomes effective; and that no Registration
Statement nor any Prospectus, when the same shall become effective, will include
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading to a purchaser of Shares. Sierra Services may, but shall not be
obligated to, propose from time to time such
11
<PAGE> 12
amendment(s) to any Registration Statement and such supplement(s) to any
Prospectus as, in the light of future developments, may, in the opinion of
Sierra Services or its counsel, be necessary or advisable. The Trust shall not
file any amendment to any Registration Statement or supplement to any Prospectus
without giving Sierra Services reasonable notice thereof in advance; provided,
however, that nothing contained in this Agreement shall in any way limit the
Trust's right to file at any time such amendment(s) to any Registration
Statement and supplement(s) to any Prospectus, of whatever character, as the
Trust may deem advisable, such right being in all respects absolute and
unconditional.
8.3 Charter. The Trust represents that a copy of its Trust Agreement,
together with all amendments thereto, is on file in the office of the Secretary
of the Commonwealth of Massachusetts and the office of the City Clerk of Boston,
Massachusetts.
8.4 Authorization. Sierra Services represents to the Trust that it is
authorized to perform the services described herein.
8.5 NASD. Sierra Services represents to the Trust that it is a member
in good standing of the NASD.
9. Indemnification
9.1 Indemnification by the Trust. The Trust agrees to indemnify, defend
and hold Sierra Services, its officers, directors, agents, employees, and any
person who controls Sierra Services within the meaning of Section 15 of the 1933
Act (Sierra Services and such persons, collectively, "SISC Indemnified
Persons"), free and harmless from and against any and all claims, demands,
liabilities and expenses (including the cost of investigating or defending such
claims, demands or liabilities and any counsel fees incurred in connection
therewith) that any SISC Indemnified Person may incur under the 1933 Act, the
1940 Act or common law or otherwise, arising out of or based upon any untrue
statement (or alleged untrue statement) of a material fact contained in any
Registration Statement or Prospectus relating to Shares of the Trust, or arising
out of or based upon any omission (or alleged omission) to state a material fact
required to be
12
<PAGE> 13
stated in any Registration Statement or Prospectus relating to Shares of the
Trust, or necessary to make the statements in such Registration Statement or
Prospectus not misleading, or arising out of or based upon the Trust's material
breach of this Agreement; provided, however, that the Trust's agreement to
indemnify SISC Indemnified Persons shall not be deemed to cover any claims,
demands, liabilities or expenses arising out of or based upon any statements or
representations made by Sierra Services or its representatives or agents other
than such statements and representations as are contained in any Registration
Statement or Prospectus and in such financial and other statements regarding
Shares of the Portfolios as are furnished to Sierra Services pursuant to
Sections 5.1 and 6.2 of this Agreement; and provided further, that the Trust's
agreement to indemnify Sierra Services and the Trust's representations and
warranties hereinbefore set forth in Section 8 of this Agreement shall not be
deemed to cover any liability to the Trust or its shareholders to which Sierra
Services would otherwise be subject by reason of Sierra Services' willful
misfeasance, bad faith or gross negligence in the performance of its duties, or
by reason of Sierra Services' reckless disregard of its obligations and duties
under this Agreement.
The Trust's agreement to indemnify SISC Indemnified Persons is
expressly conditioned upon such SISC Indemnified Person's notifying the Trust,
or causing the Trust to be notified, of any action brought against such SISC
Indemnified Person, such notification to be given by letter, telegram, telecopy
or facsimile addressed to the Trust at its principal office, within ten (10)
days after the summons or other first legal process shall be served; provided
that the failure to provide such notification within such time limit shall limit
the Trust's obligation to indemnify such persons only to the extent such failure
causes prejudice to the interests of the Trust with respect to such action. The
failure so to notify the Trust of any such action shall not relieve the Trust
from any liability that the Trust may have to the person against whom such
action is brought by reason of any such untrue (or alleged untrue) statement or
omission (or alleged omission) otherwise than on account of the Trust's
indemnity agreement contained in this Section 9.1. The Trust's indemnification
agreement contained in this Section 9.1 and the Trust's representations and
warranties in this Agreement shall remain operative and in full force and
13
<PAGE> 14
effect regardless of any investigation made by or on behalf of any SISC
Indemnified Person, and shall survive the delivery of any Shares and, to the
extent permitted by law, the termination of this Agreement. This agreement of
indemnity will inure exclusively to the benefit of SISC Indemnified Persons and
their respective estates or successors, as applicable.
9.2 Indemnification by Sierra Services. Sierra Services agrees to
indemnify, defend and hold the Trust, its officers, directors, agents,
employees, and any person who controls the Trust within the meaning of Section
15 of the 1933 Act (the Trust and such persons, collectively, "Trust Indemnified
Persons"), free and harmless from and against any and all claims, demands,
liabilities and expenses (including the costs of investigating or defending such
claims, demands or liabilities and any counsel fees incurred in connection
therewith) that any Trust Indemnified Person may incur under the 1933 Act, the
1940 Act or common law or otherwise, but only to the extent that such liability
or expense incurred by such Trust Indemnified Person shall arise out of or be
based upon (a) any unauthorized sales literature, advertisements, information,
statements or representations or (b) any untrue statement (or alleged untrue
statement) of a material fact contained in information furnished in writing by
Sierra Services to the Trust and used in the answers to any of the items of the
Registration Statement or in the corresponding statements made in any
Prospectus, or shall arise out of or be based upon any omission (or alleged
omission) to state a material fact in connection with such information furnished
in writing by Sierra Services to the Trust and required to be stated in such
answers or necessary to make such information not misleading, or shall arise out
of or be based upon SISC's material breach of this Agreement.
Sierra Services' agreement to indemnify Trust Indemnified Persons is
expressly conditioned upon such Trust Indemnified Person's notifying Sierra
Services, or causing Sierra Services to be notified, of any action brought
against such Trust Indemnified Person, such notification to be given by letter,
telegram, telecopy or facsimile addressed to Sierra Services at its principal
office, within ten (10) days after the summons or other first legal process
shall be served; provided that the failure to provide such notification within
such time limit shall limit Sierra Services' obligation to indemnify such
persons only to the
14
<PAGE> 15
extent such failure causes prejudice to the interests of Sierra Services with
respect to such action. The failure so to notify Sierra Services of any such
action shall not relieve Sierra Services from any liability that Sierra Services
may have to the Trust Indemnified Person by reason of any such untrue (or
alleged untrue) statement or omission (or alleged omission) otherwise than on
account of Sierra Services' indemnity agreement contained in this Section 9.2.
Sierra Services' indemnification agreement contained in this Section 9.2 and its
representations and warranties in this Agreement shall remain operative and in
full force and effect regardless of any investigation made by or on behalf of
any Trust Indemnified Person, and shall survive the delivery of any Shares and,
to the extent permitted by law, the termination of this Agreement. This
agreement of indemnity will inure exclusively to the benefit of Trust
Indemnified Persons and their respective estates or successors, as applicable.
9.3 Assumption of Defense. An indemnifying party will be entitled to
assume the defense of any suit brought to enforce any such claim, demand or
liability, but, in such case, such defense shall be conducted by counsel of good
standing chosen by the indemnifying party and approved by the indemnified party
(provided that such counsel shall not, except with the consent of an indemnified
party that is a SISC Indemnified Person, be counsel to any investment portfolio
of the Trust); provided that the indemnified party shall be entitled to conduct
its own defense with counsel selected by it if such indemnified party is advised
by counsel that there may be a conflict of interest between the indemnified
party and the indemnifying party with respect to such defense. In the event the
indemnifying party elects to assume the defense of any such suit and retain
counsel of good standing approved by the indemnified party, the defendant or
defendants in such suit shall bear the fees and expenses of any additional
counsel retained by any of them; but in case the indemnifying party does not
elect or is not permitted to assume the defense of any such suit, or in case the
indemnified party does not approve of counsel chosen by the indemnifying party,
the indemnifying party will reimburse the indemnified party named as defendant
or defendants in such suit, for the fees and expenses of any counsel retained by
such indemnified party.
9.4 Notice. Each of Sierra Services and the Trust agrees to notify the
other promptly of the commencement of any
15
<PAGE> 16
litigation or proceedings against it or any of its officers or directors or
Trustees, as applicable, in connection with the issuance and sale of any Shares.
9.5 Contribution. If the indemnification provided for in this Section
shall for any reason be unavailable to or insufficient to hold harmless a party
indemnified hereunder in respect of any claim, demand, liability or expense, or
any action in respect thereof, referred to therein, then each indemnifying party
shall, in lieu of indemnifying such indemnified party, contribute to the amount
paid or payable by such indemnified party as a result of such claim, demand,
liability or expense, or action in respect thereof, (a) in such proportion as
shall be appropriate to reflect the relative benefits received by the Trust on
the one hand and Sierra Services on the other from the offering of the Shares or
(b) if the allocation provided by clause (a) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (a) above but also the relative fault of
the Trust (and its agents other than Sierra Services) on the one hand and Sierra
Services on the other with respect to the statements or omissions which resulted
in such claim, demand, liability or expense, or action in respect thereof, as
well as any other relevant equitable considerations. The relative benefits
received by the Trust on the one hand and Sierra Services on the other with
respect to the offering of the Shares shall be deemed to be in the same
proportion as the total net proceeds from the offering of the Shares purchased
under this agreement (before deducting expenses) received by the Trust bear to
the total net underwriting discounts and commissions received by Sierra Services
with respect to the Shares purchased under this Agreement and retained by Sierra
Services after payments to the selling agents retained by it. The relative fault
shall be determined by reference to whether the untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a material
fact relates to information supplied by the Trust (or any of its agents other
than Sierra Services) or by Sierra Services, the intent of the parties and their
relative knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Trust and Sierra Services agree that it would
not be just and equitable if contributions pursuant to this Section were to be
determined by pro rata allocation or by any other method of allocation which
16
<PAGE> 17
does not take into account the equitable considerations referred to herein. The
amount paid or payable by an indemnified party as a result of the claim, demand,
liability or expense, or action in respect thereof, referred to above in this
Section shall be deemed to include, for purposes of this Section, any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section, Sierra Services shall not be required to contribute
any amount in excess of the amount by which the total net underwriting discounts
and commissions received by Sierra Services with respect to the Shares purchased
under this Agreement and retained by Sierra Services after payments to the
selling agents retained by it exceed the amount of any damages which Sierra
Services has otherwise paid or become liable to pay by reason of any untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933
Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation.
10. Notice to Sierra Services.
The Trust agrees to advise Sierra Services immediately in writing:
(a) of any request by the SEC for amendments to the
Registration Statement or Prospectus then in effect or
for additional information;
(b) in the event of the issuance by the SEC of any stop
order suspending the effectiveness of the Registration
Statement or Prospectus then in effect or the
initiation of any proceeding for that purpose;
(c) of the happening of any event that makes untrue any statement
of a material fact made in the Registration Statement or
Prospectus then in effect or that requires the making of a
change in such Registration Statement or Prospectus in order
to make the statements therein not misleading; and
17
<PAGE> 18
(d) of all actions of the SEC with respect to any amendment to any
Registration Statement or Prospectus that may from time to
time be filed with the SEC.
11. Term of Agreement.
This Agreement shall become effective as of the date first set forth
above, shall remain in effect for an initial period of two years, and shall
continue thereafter from year to year for so long as such continuance is
specifically approved at least annually by
(a) the Trust's Board of Trustees or a vote of a "majority
of the outstanding voting securities" (as defined in
the 1940 Act) of the Trust; and
(b) a vote of a majority of the Trustees who are not
"interested persons" (as defined in the 1940 Act) of
the Trust and who have no direct or indirect financial
interest in the operation of the Plan, in this
Agreement or any other agreement related to the Plan
(the "Qualified Trustees"), such vote cast in person at
a meeting called for the purpose of the voting on such
approval.
12. Termination.
12.1 Termination on Assignment. This Agreement shall terminate
automatically in the event of its "assignment" (as defined in the 1940 Act), it
being understood that this Agreement has been approved by the Trustees,
including the Qualified Trustees in contemplation of a Purchase and Sale
Agreement to be entered into by Sierra Services, Corporate Asset Funding
Company, Inc. and Citicorp North America, Inc., which provides for a transfer of
receivables relating to the Distribution Fees and CDSCs payable to Sierra
Services under this Agreement. Sierra Services agrees to notify the Trust of any
circumstances that might result in this Agreement being deemed to be assigned.
18
<PAGE> 19
12.2 Voluntary Termination. The Trust may terminate this Agreement with
respect to any Portfolio, or in its entirety, without penalty, on 60 days'
written notice to Sierra Services, by vote of a majority of the Qualified
Trustees or by vote of a "majority of the outstanding voting securities" of such
Portfolio or the Trust, as the case may be. Sierra Services may terminate this
Agreement, with respect to any Portfolio, or in its entirety, on 90 days'
written notice to the Trust. Termination of this Agreement with respect to any
class of shares of any Portfolio shall not cause this Agreement to terminate
with respect to any other class of shares of such Portfolio or any Shares of any
other Portfolio. Notice of termination as provided for in this Section may be
waived by either party, such waiver to be in writing.
12.3 Continued Payment. With respect to Shares of any Portfolio sold
pursuant to this Agreement, the Trust shall continue payment to Sierra Services
of (a) Sierra Services' Allocable Portion, as defined in Schedule 2 to this
Agreement, of the Contingent Deferred Sales Charges attributable to such Shares
of such Portfolio, and (b) so long as there has been no Complete Termination (as
defined in the applicable Plan), Sierra Services' Allocable Portion of the
Distribution Fee attributable to such Shares of such Portfolio, in either case
notwithstanding termination of this Agreement according to its terms.
13. Miscellaneous.
13.1 Non-Exclusivity. The Trust recognizes that Sierra Services and its
affiliates shall be free to render distribution or other services to others
(including other investment companies) and to engage in other activities. The
Trust agrees that the directors, officers and employees of Sierra Services shall
not be prohibited by reason of this Agreement from engaging in any other
business activity or from rendering services to any other person, or from
serving as partners, directors, trustees or officers of any other firm or
corporation, including the Trust and other investment companies. Sierra Services
acknowledges that its appointment as distributor pursuant to this Agreement is
not exclusive, and that the Trust may appoint one or more other
19
<PAGE> 20
persons to act as distributor for the Shares of one or more Portfolios.
13.2 Independent Contractor. Sierra Services and any Broker shall be
independent contractors and none of them nor any of their directors, officers or
employees shall, as such, be deemed employees of the Trust.
13.3 Notices. Any notices under this Agreement shall be in writing,
mailed postage paid or sent by telegram, telecopy, or facsimile to the other
party at such address as such other party may designate from time to time for
the receipt of such notice.
13.4 Integration; Amendment; Counterparts; Governing Law.
This Agreement constitutes the entire agreement between the parties
hereto with respect to the subject matter hereof, and may not be modified,
amended, or waived except by a written instrument duly executed by the party
against whom such modification, amendment, or waiver is sought to be enforced.
If any provisions of this Agreement shall be held or made invalid by a court
decision, statute rule or otherwise, the remainder of this Agreement shall not
be affected thereby.
This Agreement shall be subject to the provisions of the 1940 Act and
the 1934 Act and the rules, regulations and rulings thereunder, and of the
applicable rules and regulations of the NASD, from time to time in effect, and
the terms hereof shall be interpreted and construed in accordance therewith.
This Agreement may be executed in any number of counterparts, each of
which will be deemed an original, but all of which together will constitute one
and the same instrument.
This Agreement shall be governed in accordance with the internal
substantive laws of the Commonwealth of Massachusetts.
It is expressly agreed that the obligations of the Trust hereunder
shall not be binding upon any of the Trustees, shareholders, nominees, officers,
agents or employees of the Trust personally, but bind only the trust property of
the Trust, as provided in the Trust Agreement. The execution and delivery of
this Agreement have been authorized by the Trustees and
20
<PAGE> 21
effected by an authorized officer of the Trust, acting as such, and neither such
authorization nor such execution and delivery shall be deemed to have been made
by any Trustee or officer individually or to impose any liability on any of them
personally, but shall bind only the trust property of the Trust as provided in
the Trust Agreement.
21
<PAGE> 22
Please confirm that the foregoing accurately sets forth our agreement
by indicating your acceptance hereof at the place below indicated, whereupon it
shall become a binding agreement between us as of the date first set forth
above.
Very truly yours,
SIERRA ASSET MANAGEMENT PORTFOLIOS
By /s/ F. Brian Cerini
-----------------------------------
Name: F. Brian Cerini
Title: President
ACCEPTED:
SIERRA INVESTMENT SERVICES CORPORATION
By /s/ Keith B. Pipes
-------------------------------------
Name: Keith B. Pipes
Title: Senior Vice President and Secretary
18
<PAGE> 23
SIERRA ASSET MANAGEMENT PORTFOLIOS
CLASS B DISTRIBUTION AGREEMENT
Schedule 1
Date of Agreement: July 19, 1996
Date of this Schedule: July 19, 1996
<TABLE>
<CAPTION>
NAME OF PORTFOLIO CLASS(ES) COVERED
----------------- -----------------
<S> <C> <C>
1. Income Portfolio Class B
2. Value Portfolio Class B
3. Balanced Portfolio Class B
4. Growth Portfolio Class B
5. Capital Growth Portfolio Class B
</TABLE>
<PAGE> 24
SIERRA ASSET MANAGEMENT PORTFOLIOS
CLASS B DISTRIBUTION AGREEMENT
Schedule 2
Date of Agreement: July 19, 1996
Date of this Schedule: July 19, 1996
ALLOCABLE PORTIONS
Sierra Services' "Allocable Portion" of the Distribution Fee payable on
any class of Shares of any Portfolio, or of the CDSC in respect of any Shares of
any Portfolio shall be that percentage allocated to Sierra Services in
accordance with the allocation formulas set forth in Parts C and D below, and
the rules of attribution set forth in Part B below.
Capitalized terms used in this Schedule without definition and defined
in the Agreement shall have the same meanings herein as therein.
PART A: DEFINITIONS
"Commencement Date" means, in respect of any class of Shares of any
Portfolio, the date of the first sale of a Commission Share of such class of
such Portfolio during the term of the Agreement.
"Commission Share" means, in respect of any Portfolio, each Share of
such Portfolio issued under circumstances that would normally give rise to an
obligation of the holder of such Share to pay a CDSC upon redemption of such
Share, including, without limitation, any Share of such Portfolio issued in
connection with a "Permitted Free Exchange" (as such term is defined in that
certain Purchase and Sale Agreement dated as of December 20, 1995 by and among
Sierra Services, Citicorp North America, Inc. and Corporate Asset Funding
Company, Inc. as the same shall be amended from time to time (the "Purchase
Agreement")), provided that no such Share shall cease to be a Commission Share
prior to its redemption (including a redemption in connection with a Permitted
Free Exchange) or conversion even though the obligation of such holder to pay a
CDSC shall have expired or the CDSC on such Share shall have been waived.
<PAGE> 25
"Cutoff Date" means, in respect of any class of Shares of any
Portfolio, the date of the last sale of a Commission Share of such class of such
Portfolio during the term of the Agreement.
"Distribution Fee" has the meaning given to the term "asset-based sales
charge" in Rule 2830(b)(8)(A) of the NASD Conduct Rules.
"Free Exchange Share" means, with respect to any Portfolio, any Free
Share of such Portfolio issued in connection with a Permitted Free Exchange.
"Free New Share" means, in respect of any Portfolio, any Free Share
that is not an Free Exchange Share.
"Free Share" means, in respect of any Portfolio, each Share of such
Portfolio other than a Commission Share, including, without limitation, any
Share issued in connection with the reinvestment of dividends.
"Non-Omnibus Shares" means, in respect of any Portfolio, all Shares of
such Portfolio other than Omnibus Shares.
"Omnibus Shares" means, in respect of any Portfolio, the Shares of such
Portfolio in any Omnibus Account on the records of a Portfolio maintained by the
Transfer Agent, for which account such broker-dealer provides subtransfer agency
services for that Portfolio.
"Sub-Transfer Agent" means, in respect of any Portfolio, the
record owner of any Omnibus Account.
PART B: ATTRIBUTION
Shares of each class of Shares of each Portfolio, which Shares are
outstanding from time to time, shall be attributed to either Sierra Services or
to any other person named as a distributor of Shares of such class of such
Portfolio (such person, an "Other Distributor") in accordance with the following
rules:
(1) Commission Shares: Each Commission Share of a Portfolio is
specifically tracked, on the records maintained by the Transfer Agent or
Sub-Transfer Agents for such Portfolio with
<PAGE> 26
reference to an "original issuance date" (a) of the Commission Share in question
or (b) of the Commission Share from which the Commission Share in question
derived through one or more Permitted Free Exchanges.
The Commission Shares of each class of Shares of each Portfolio
outstanding from time to time attributed to Sierra Services shall be: (a) those
Commission Shares of such class of such Portfolio issued, on or after the
Commencement Date and on or prior to the Cutoff Date for such class of such
Portfolio, other than in a Permitted Free Exchange, and (b) those Commission
Shares of such class of such Portfolio that are (i) issued in a Permitted Free
Exchange in exchange for (ii) Shares of another Portfolio that had been
attributed to Sierra Services in accordance with the preceding clause (a) of
this paragraph, in each case determined in accordance with the records
maintained by the Transfer Agent or Sub-Transfer Agents for such Portfolio.
The Commission Shares of each class of Shares of each Portfolio
outstanding from time to time attributed to Other Distributors shall be: (a)
those Commission Shares of such class of Shares of such Portfolio issued, prior
to the Commencement Date or after the Cutoff Date for such class of Shares of
such Portfolio, other than in a Permitted Free Exchange, and (b) those
Commission Shares of such class of such Portfolio that are (i) issued in a
Permitted Free Exchange in exchange for (ii) Shares of another Portfolio that
were attributed to an Other Distributor in accordance with the immediately
preceding clause (a) of this paragraph, in each case determined in accordance
with the records maintained by the Transfer Agent or Sub-Transfer Agents for
such Portfolio.
(2) Free Shares. Free Shares of each class of Shares of each Portfolio
are not specifically tracked by the Transfer Agent or Sub-Transfer Agents for
such Portfolio. The number of Free Shares of each class of Shares of each
Portfolio outstanding from time to time shall be attributed to either Sierra
Services or an Other Distributor in accordance with records maintained by Sierra
Services in accordance with this paragraph (2).
(a) The number of Non-Omnibus Free New Shares, of a class of any
Portfolio, that are issued on or after the Commencement Date
for such class of such Portfolio and that are attributed to
Sierra Services shall be determined pursuant to the following
formula.
<PAGE> 27
For such Shares issued during any calendar month:
FNS x [(PCS + PFS)/(TCS + TFS)]
where:
FNS = Non-Omnibus Free New Shares of such class
of such Portfolio that are issued during such
calendar month
PCS = Non-Omnibus Commission Shares of such class
of such Portfolio that have been attributed
to Sierra Services and that were outstanding
as of the close of business on the last
business day of the immediately preceding
calendar month
PFS = Non-Omnibus Free Shares of such class of
such Portfolio that have been attributed to
Sierra Services and that were outstanding as
of the close of business on the last business
day of the immediately preceding calendar
month
TCS = Non-Omnibus Commission Shares of such class
of such Portfolio that were outstanding as of
the close of business on the last business
day of the immediately preceding calendar
month
TFS = Non-Omnibus Free Shares of such class of
such Portfolio that were outstanding as of
the close of business on the last business
day of the immediately preceding calendar
month
The balance of such Non-Omnibus Free New Shares issued during
such calendar month shall be attributed to Other Distributors.
(b) The number of Omnibus Free New Shares, of a class of any
Portfolio, that are issued on or after the Commencement Date
for such class of such Portfolio and that are attributed to
Sierra Services shall be determined pursuant to the following
formula.
<PAGE> 28
For such Shares issued during any calendar month:
OFNS x [(POCS + POFS)/(TOCS + TOFS)]
where:
OFS = Omnibus Free New Shares of such class of
such Portfolio that are issued during such
calendar month
POCS = Omnibus Commission Shares of such class of
such Portfolio that have been attributed to
Sierra Services and that were outstanding as
of the close of business on the last business
day of the immediately preceding calendar
month.
POFS = Omnibus Free Shares of such class of such
Portfolio that have been attributed to Sierra
Services and that were outstanding as of the
close of business on the last business day of
the immediately preceding calendar month.
TOCS = Omnibus Commission Shares of such class of
such Portfolio that were outstanding as of
the close of business on the last business
day of the immediately preceding calendar
month.
TOFS = Omnibus Free Shares of such class of such
Portfolio that were outstanding as of the
close of business on the last business day of
the immediately preceding calendar month.
The balance of such Omnibus Free New Shares issued during such
calendar month shall be attributed to Other Distributors.
(c) The number of Non-Omnibus Free Exchange Shares, of a class of
any Portfolio (the "New Portfolio"), that are issued on or
after the Commencement Date for such class of such New
Portfolio and that are attributed to Sierra Services shall be
determined pursuant to the following formula.
<PAGE> 29
For such Shares issued during any calendar month in
exchange for Shares of any other Portfolio (each, an "Old
Portfolio"):
FES x (PFS(o)/TFS(o))
where:
FES = Non-Omnibus Free Exchange Shares of such
class of the New Portfolio that are issued
during such calendar month
PFS(o) = Non-Omnibus Free Shares of such class of
the Old Portfolio that had been attributed to
Sierra Services and that were outstanding as
of the close of business on the last business
day of the immediately preceding calendar
month
TFS(o) = Non-Omnibus Free Shares of such class of
the Old Portfolio that were outstanding as of
the close of business on the last business
day of the immediately preceding calendar
month
The balance of such Non-Omnibus Free Exchange Shares of the
New Portfolio issued during such calendar month shall be
attributed to Other Distributors.
(d) The number of Omnibus Free Exchange Shares, of a class of any
Portfolio (the "New Portfolio"), that are issued on or after
the Commencement Date for such class of such New Portfolio and
that are attributed to Sierra Services shall be determined
pursuant to the following formula.
For such Shares issued during any calendar month in
exchange for Shares of any other Portfolio (each, an "Old
Portfolio"):
OFES x (POFS(o)/TOFS(o))
where:
<PAGE> 30
OFES = Omnibus Free Exchange Shares of such class
of the New Portfolio that are issued during
such calendar month
POFS(o) = Omnibus Free Shares of such class of the
Old Portfolio that had been attributed
to Sierra Services and that were
outstanding as of the close of business
on the last business day of the
immediately preceding calendar month
TOFS(o) = Omnibus Free Shares of such class
of the Old Portfolio that were
outstanding as of the close of
business on the last business day of
the immediately preceding calendar
month
The balance of such Omnibus Free Exchange Shares of the New
Portfolio issued during such calendar month shall be
attributed to Other Distributors.
(e) The number of Non-Omnibus Free Shares, of a class of any
Portfolio, that are redeemed or converted and that are
attributed to Sierra Services shall be determined pursuant to
the following formula.
For such Shares redeemed or converted during any calendar
month:
FSR x (PFS/TFS)
where:
FSR = Non-Omnibus Free Shares of such class of
such Portfolio that are redeemed or converted
during such calendar month
PFS = Non-Omnibus Free Shares of such class of
such Portfolio that have been attributed to
Sierra Services and that were outstanding as
of the close of business on the last business
day of the immediately preceding calendar
month
<PAGE> 31
TFS = Non-Omnibus Free Shares of such class of
such Portfolio that were outstanding as of
the close of business on the last business
day of the immediately preceding calendar
month
The balance of such Non-Omnibus Free Shares redeemed or
converted during such calendar month shall be attributed to
Other Distributors.
(f) The number of Omnibus Free Shares, of a class of any
Portfolio, that are redeemed or converted and that are
attributed to Sierra Services shall be determined pursuant to
the following formula.
For such Shares redeemed or converted during any calendar
month:
OFSR x (POFS/TOFS)
where:
OFSR = Omnibus Free Shares of such class of such
Portfolio that are redeemed or converted
during such calendar month
POFS = Omnibus Free Shares of such class of such
Portfolio that have been attributed to Sierra
Services and that were outstanding as of the
close of business on the last business day of
the immediately preceding calendar month
TOFS = Omnibus Free Shares of such class of such
Portfolio that were outstanding as of the
close of business on the last business day of
the immediately preceding calendar month
The balance of such Omnibus Free Shares redeemed or converted
during such calendar month shall be attributed to Other
Distributors.
(3) Timing of Attributions and Distributions.
<PAGE> 32
(a) The attributions of all Non-Omnibus Shares of each class of
Shares of each Portfolio shall be made on a daily basis. The
attribution of all Omnibus Shares of each class of Shares of
each Portfolio shall be made monthly, for each calendar month
no later than five (5) days following the last day of such
month.
(b) The parties to the Agreement acknowledge, expressly,
that the procedures for determining Sierra Services'
Allocable Portion of Free Shares of any Portfolio
implicitly assume that Free Shares issued in respect of
dividends or other distributions made for any calendar
month will be issued not earlier than the first
business day of the following calendar month. Said
parties agree that such procedures shall be modified in
the event Free Shares attributable to reinvestment of
such dividends or distributions are issued in the same
calendar month for which such dividends are earned or
distributions made.
PART C: ALLOCATION OF CDSCs
CDSCs will be allocated to either Sierra Services or an Other
Distributor depending upon whether the related redeemed Shares were attributed
to, respectively, Sierra Services or such Other Distributor in accordance with
Part B, Paragraph (1) above. CDSCs relating to Non-Omnibus Shares shall be
allocated to either Sierra Services or an Other Distributor on or prior to the
third business day of the calendar week immediately succeeding the calendar week
during which the Transfer Agent has paid such CDSC amount. CDSCs relating to
Omnibus Shares shall be allocated to either Sierra Services or an Other
Distributor on or prior to the tenth (10th) day of the calendar month
immediately succeeding the calendar month in which they are remitted by the
Transfer Agent to the "Collection Account" as such term is defined in that
certain Amended and Restated Collection Agency Agreement dated as of December
20, 1995 among Corporate Asset Funding Company, Inc., Citicorp North America,
Inc., Sierra Services, and Bankers Trust Company as the same may be amended from
time to time (the "Collection Agency Agreement"), unless in accordance with the
Collection Agency Agreement more frequent allocations are required.
<PAGE> 33
PART D: ALLOCATION OF DISTRIBUTION FEE
The Distribution Fee accruing in respect of each class of Shares of
each Portfolio during any calendar month and that is allocated to Sierra
Services shall be determined pursuant to the following formula:
A x [(B + C)/(D + E)]
where:
A = Distribution Fee accrued in respect of such class
of Shares of such Portfolio during such calendar
month.
B = Shares of such class of such Portfolio attributed
to Sierra Services and outstanding as of the close
of business on the last business day of the
immediately preceding calendar month times the net
asset value per share of such Shares as of such
time.
C = Shares of such class of such Portfolio attributed
to Sierra Services and outstanding as of the close
of business on the last business day of such
calendar month times the net asset value per share
of such Shares as of such time.
D = Total Shares of such class of such Portfolio
outstanding as of the close of business on the last
business day of the immediately preceding calendar
month times the net asset value per share of such
Shares as of such time.
E = Total Shares of such class of such Portfolio
outstanding as of the close of business on the last
business day of such calendar month times the net
asset value per share of such Shares as of such
time.
The balance of the Distribution Fee in respect of such class of Shares
of such Portfolio accruing during such calendar month shall be allocated to
Other Distributors.
<PAGE> 34
The allocations contemplated by this Part D of Distribution Fees
accruing during any calendar month shall be made on or prior to the tenth (10th)
day of the immediately following calendar month and in all cases prior to the
payment of such Fees pursuant to the terms of the Agreement.
<PAGE> 1
Exhibit 9(d)
TRANSFER AGENCY AND SERVICES AGREEMENT
THIS AGREEMENT, dated as of this 1st day of May, 1996 between Sierra
Trust Funds, Sierra Prime Income Fund, Sierra Asset Management Portfolios, each
a Massachusetts business trust having its principal place of business at 9301
Corbin Avenue, Northridge, California 91324 and FIRST DATA INVESTOR SERVICES
GROUP, INC. ("FDISG"), a Massachusetts corporation with principal offices at
4400 Computer Drive, Westboro, Massachusetts 01581.
WITNESSETH
WHEREAS, Sierra Trust Funds and Sierra Asset Management Portfolios (the
"Series Funds") are authorized to issue Shares in separate series, with each
such series representing interests in a separate portfolio of securities and
other assets;
WHEREAS, the Series Funds initially intend to offer shares in those
Portfolios identified in the attached Exhibit 1, each such Portfolio, together
with all other Portfolios subsequently established by the Series Funds shall be
subject to this Agreement in accordance with Article 14;
WHEREAS, the Funds desire to appoint FDISG as its transfer agent,
dividend disbursing agent and agent in connection with certain other activities
and FDISG desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants and promises
hereinafter set forth, the Funds and FDISG agree as follows:
Article 1 Definitions.
1.1 Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
(a) "Articles of Incorporation" shall mean the Articles of
Incorporation, Declaration of Trust, or other similar organizational document as
the case may be, of the Fund as the same may be amended from time to time;
(b) "Authorized Person" shall be deemed to include (i) any
authorized officer of the applicable Fund; or (ii) any person, whether or not
such person is an officer or employee of such Fund, duly authorized to give Oral
Instructions or Written Instructions on behalf of such Fund as indicated in
writing to FDISG from time to time;
(c) "Board of Directors" shall mean the Board of Directors or
Board of Trustees of each Fund, as the case may be;
1
<PAGE> 2
(d) "Commission" shall mean the Securities and Exchange
Commission;
(e) "Custodian" refers to any custodian or subcustodian of
securities and other property which the Fund may from time to time deposit, or
cause to be deposited or held under the name or account of such a custodian
pursuant to a Custodian Agreement;
(f) "Funds" shall mean Sierra Trust Funds on behalf of its
Portfolios, Sierra Prime Income Fund and Sierra Asset Management Portfolios
on behalf of its Portfolios;
(g) "1934 Act" shall mean the Securities Exchange Act of 1934
and the rules and regulations promulgated thereunder, all as amended from time
to time;
(h) "1940 Act" shall mean the Investment Company Act of 1940
and the rules and regulations promulgated thereunder, all as amended from time
to time;
(i) "Oral Instructions" shall mean instructions, other than
Written Instructions, actually received by FDISG from a person reasonably
believed by FDISG to be an Authorized Person;
(j) "Portfolio" shall mean each separate series of shares
offered by the Series Funds representing interest in a separate portfolio of
securities and other assets;
(k) "Prospectus" shall mean the most recently dated Fund
Prospectus and Statement of Additional Information, including any supplements
thereto if any, which has become effective under the Securities Act of 1933 and
the 1940 Act;
(l) "Series Funds" refers collectively to Sierra Trust Funds
and Sierra Asset Management Portfolios;
(m) "Shares" refers collectively to such shares of capital
stock or beneficial interest, as the case may be, or class thereof, of the Funds
as may be issued from time to time;
(n) "Shareholder" shall mean a record owner of Shares;
(o) "Written Instructions" shall mean a written communication
signed by a person reasonably believed by FDISG to be an Authorized Person and
actually received by FDISG. Written Instructions shall include manually executed
originals and authorized electronic transmissions, including telefacsimile of a
manually executed original or other process.
Article 2 Appointment of FDISG.
2
<PAGE> 3
The Funds hereby appoint and constitute FDISG as transfer agent and
dividend disbursing agent for Shares and as shareholder servicing agent for the
Funds and FDISG hereby accepts such appointments and agrees to perform the
duties hereinafter set forth.
Article 3 Duties of FDISG.
3.1 FDISG shall be responsible for:
(a) Administering and/or performing the customary services of
a transfer agent; acting as service agent in connection with dividend and
distribution functions; and for performing shareholder account and
administrative agent functions in connection with the issuance, transfer and
redemption or repurchase (including coordination with the Custodian) of Shares,
as more fully described in the written schedule of Duties of FDISG annexed
hereto as Schedule A and incorporated herein, and in accordance with the terms
of the Prospectus' of the Funds, applicable law and the procedures established
from time to time between FDISG and the Funds.
(b) Recording the issuance of Shares and maintaining pursuant
to Rule 17Ad-10(e) of the 1934 Act a record of the total number of Shares which
are authorized, based upon data provided to it by the Funds, and issued and
outstanding. FDISG shall provide the Funds on a regular basis with the total
number of Shares which are authorized and issued and outstanding and shall have
no obligation, when recording the issuance of Shares, to monitor the issuance of
such Shares or to take cognizance of any laws relating to the issue or sale of
such Shares, which functions shall be the sole responsibility of the Fund.
(c) Notwithstanding any of the foregoing provisions of this
Agreement, FDISG shall be under no duty or obligation to inquire into, and shall
not be liable for: (i) the legality of the issuance or sale of any Shares or the
sufficiency of the amount to be received therefor; (ii) the legality of the
redemption of any Shares, or the propriety of the amount to be paid therefor;
(iii) the legality of the declaration of any dividend by the Board of Directors,
or the legality of the issuance of any Shares in payment of any dividend; or
(iv) the legality of any recapitalization or readjustment of the Shares.
3.2 In addition, the Funds shall (i) identify to FDISG in writing those
transactions and assets to be treated as exempt from blue sky reporting for each
State and (ii) verify the establishment of transactions for each State on the
system prior to activation and thereafter monitor the daily activity for each
State. The responsibility of FDISG for the Funds' blue sky State registration
status is solely limited to the initial establishment of transactions subject to
blue sky compliance by the Funds and the reporting of such transactions to the
Funds as provided above.
3
<PAGE> 4
3.3 In addition to the duties set forth herein, FDISG shall perform
such other duties and functions, and shall be paid such amounts therefor, as may
from time to time be agreed upon in writing between the Funds and FDISG.
3.4 FDISG agrees to provide the services described herein in accordance
with the Performance Standards annexed hereto as Exhibit 1 of Schedule A and
incorporated herein (the "Performance Standards"). Such Performance Standards
may be amended from time to time upon written agreement by the parties.
Article 4 Recordkeeping and Other Information.
4.1 FDISG shall create and maintain all records required of it pursuant
to its duties hereunder and as set forth in Schedule A in accordance with all
applicable laws, rules and regulations, including records required by Section
31(a) of the 1940 Act. Where applicable, such records shall be maintained by
FDISG for the periods and in the places required by Rule 31a-2 under the 1940
Act.
4.2 To the extent required by Section 31 of the 1940 Act, FDISG agrees
that all such records prepared or maintained by FDISG relating to the services
to be performed by FDISG hereunder are the property of each respective Fund and
will be preserved, maintained and made available in accordance with such
section, and will be surrendered promptly to such Fund on and in accordance with
such Funds' request.
4.3 In case of any requests or demands for the inspection of
Shareholder records of a Fund, FDISG will endeavor to notify the respective Fund
of such request and secure Written Instructions as to the handling of such
request. FDISG reserves the right, however, to exhibit the Shareholder records
to any person whenever it is advised by its counsel that it may be held liable
for the failure to comply with such request.
Article 5 Fund Instructions.
5.1 FDISG will have no liability when acting upon Written or Oral
Instructions believed to have been executed or orally communicated by an
Authorized Person and will not be held to have any notice of any change of
authority of any person until receipt of a Written Instruction thereof from the
Funds.
5.2 At any time, FDISG may request Written Instructions from the Funds
and may seek advice from legal counsel for the Funds, or its own legal counsel,
with respect to any matter arising in connection with this Agreement, and it
shall not be liable for any action taken or not taken or suffered by it in good
faith in accordance with such Written Instructions or in accordance with the
opinion of counsel for the Funds or for FDISG. Written Instructions requested by
FDISG will be provided by the Fund within a reasonable period of time.
4
<PAGE> 5
5.3 FDISG, its officers, agents or employees, shall accept Oral
Instructions or Written Instructions given to them by any person representing or
acting on behalf of the Funds only if said representative is an Authorized
Person. The Funds agree that all Oral Instructions shall be followed within one
business day by confirming Written Instructions, and that the Funds' failure to
so confirm shall not impair in any respect FDISG's right to rely on Oral
Instructions.
Article 6 Compensation.
6.1 (a) Sierra Trust Funds has arranged for its administrator, Sierra
Fund Administration to compensate FDISG for the performance of the services
provided to the Sierra Trust Funds portfolios hereunder in accordance with the
fees set forth in the written Fee Schedule annexed hereto as Schedule B and
incorporated herein. Nothwithstanding the foregoing the parties acknowledge that
the Sierra Trust Funds on behalf of each of its Portfolios will remain
responsible for the payment of such compensation in the event Sierra Fund
Administration fails to make such payments.
(b) The Sierra Prime Income Fund will compensate FDISG for the
performance of the services provided to the Sierra Prime Income Fund hereunder
in accordance with the fees set forth in Schedule B.
(c) The Sierra Asset Management Portfolios on behalf of its
Portfolios will compensate FDISG for the performance of the services provided to
such Portfolios hereunder in accordance with the fees set forth in Schedule B.
6.2 (a) In the event that FDISG has failed to meet a specific
Performance Standard category, as set forth on Exhibit 1 of Schedule A, in two
of any rolling three month periods, the Funds may reduce the total amount of
fees due to FDISG under this Agreement, excluding out-of-pocket expenses, by an
amount equal to five percent (5%) of the fees for the third month.
Notwithstanding the foregoing, the Fund's rights under this Section 6.2, shall
not become effective until August 1, 1996 with respect to the Print Mail and
Shareholder Services Performance Standards and October 1, 1996 with respect to
Transaction Processing (Financials and Non-Financials) Performance Standards.
(b) For purposes of the fee reduction set forth in Section
6.2(a) above, FDISG's obligation to meet the Performance Standards shall be
measured in the aggregate with respect to all of the Funds.
6.3 In addition to those fees set forth in Section 6.1 above, the Funds
agree to pay, and will be billed separately for, out-of-pocket expenses incurred
by FDISG in the performance of its duties hereunder. Out-of-pocket expenses
shall include, but shall not be limited to, the items specified in the written
schedule of out-of-pocket charges annexed hereto as Schedule C and incorporated
herein. Schedule C may be modified by written agreement between the parties.
5
<PAGE> 6
Unspecified out-of-pocket expenses shall be limited to those out-of-pocket
expenses reasonably incurred by FDISG in the performance of its obligations
hereunder.
6.4 The Funds agree that all fees and out-of-pocket expenses shall be
paid within fifteen (15) days following the receipt of the respective invoice.
6.5 Any compensation agreed to hereunder may be adjusted from time to
time by attaching to Schedule B, a revised Fee Schedule executed and dated by
the parties hereto.
6.6 The Funds acknowledge that the fees that FDISG charges the Funds
under this Agreement reflect the allocation of risk between the parties,
including the disclaimer of warranties in Section 9.3 and the limitations on
liability and exclusion of remedies in Section 11.2 and Article 12. Modifying
the allocation of risk from what is stated here would affect the fees that FDISG
charges, and in consideration of those fees, the Funds agree to the stated
allocation of risk.
Article 7 Documents.
In connection with the appointment of FDISG, the Funds shall, on or
before the date this Agreement goes into effect, but in any case within a
reasonable period of time for FDISG to prepare to perform its duties hereunder,
each deliver or caused to be delivered to FDISG the documents set forth in the
written schedule of Fund Documents annexed hereto as Schedule D.
Article 8 Transfer Agent System.
8.1 FDISG shall retain title to and ownership of any and all data
bases, computer programs, screen formats, report formats, interactive design
techniques, derivative works, inventions, discoveries, patentable or
copyrightable matters, concepts, expertise, patents, copyrights, trade secrets,
and other related legal rights utilized by FDISG in connection with the services
provided by FDISG to the Funds herein (the "FDISG System").
8.2 FDISG hereby grants to the Funds a limited license to the FDISG
System for the sole and limited purpose of having FDISG provide the services
contemplated hereunder and nothing contained in this Agreement shall be
construed or interpreted otherwise and such license shall immediately terminate
with the termination of this Agreement.
8.3 FDISG agrees to maintain a dedicated transmission link to the
Funds' broker-dealer system in order to allow for automated entry of
transactions and new accounts initiated by Great Western Financial Securities
into the Funds.
8.4 FDISG agrees to enhance its propriatary image system (IMPRESS) in
order to support financial transactions by December 31, 1996.
6
<PAGE> 7
Article 9 Representations and Warranties.
9.1 FDISG represents and warrants to the Funds that:
(a) it is a corporation duly organized, existing and in good
standing under the laws of the Commonwealth of Massachusetts;
(b) it is empowered under applicable laws and by its
Articles of Incorporation and By-Laws to enter into and perform this Agreement;
(c) all requisite corporate proceedings have been taken to
authorize it to enter into this Agreement;
(d) it is duly registered with its appropriate regulatory
agency as a transfer agent and such registration will remain in effect for the
duration of this Agreement; and
(e) it has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and obligations under
this Agreement.
9.2 Each Fund represents and warrants to FDISG that:
(a) it is duly organized, existing and in good standing
under the laws of the jurisdiction in which it is organized;
(b) it is empowered under applicable laws and by its Article
of Incorporation and By-Laws to enter into this Agreement;
(c) all corporate proceedings required by said Articles of
Incorporation, By-Laws and applicable laws have been taken to authorize it to
enter into this Agreement;
(d) a registration statement under the Securities Act of
1933, as amended, and the 1940 Act on behalf of each of the Portfolios, with
respect to the Series Funds, is currently effective and will remain effective,
and all appropriate state securities law filings have been made and will
continue to be made, with respect to all Shares of the Funds being offered for
sale; and
(e) all outstanding Shares are validly issued, fully paid and
non-assessable and when Shares are hereafter issued in accordance with the terms
of the Fund's Articles of Incorporation and its Prospectus with respect to each
Portfolio for the Series Funds, such Shares shall be validly issued, fully paid
and non-assessable.
9.3 THIS IS A SERVICE AGREEMENT. EXCEPT AS EXPRESSLY PROVIDED IN THIS
AGREEMENT, FDISG DISCLAIMS ALL OTHER REPRESENTATIONS OR
7
<PAGE> 8
WARRANTIES, EXPRESS OR IMPLIED, MADE TO THE FUNDS OR ANY OTHER PERSON,
INCLUDING, WITHOUT LIMITATION, ANY WARRANTIES REGARDING QUALITY, SUITABILITY,
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR OTHERWISE (IRRESPECTIVE OF
ANY COURSE OF DEALING, CUSTOM OR USAGE OF TRADE) OF ANY SERVICES OR ANY GOODS
PROVIDED INCIDENTAL TO SERVICES PROVIDED UNDER THIS AGREEMENT. FDISG DISCLAIMS
ANY WARRANTY OF TITLE OR NON-INFRINGEMENT EXCEPT AS OTHERWISE SET FORTH IN THIS
AGREEMENT.
Article 10 Indemnification.
10.1 FDISG shall not be responsible for and each Fund shall separately
indemnify and hold FDISG harmless from and against any and all claims, costs,
expenses (including reasonable attorneys' fees), losses, damages, charges,
payments and liabilities of any sort or kind which may be asserted against FDISG
or for which FDISG may be held to be liable (a "Claim") arising out of or
attributable to any of the following:
(a) any actions of FDISG required to be taken pursuant to
this Agreement unless such Claim resulted from a negligent act or omission to
act or bad faith by FDISG in the performance of its duties hereunder, with
respect to such Fund;
(b) FDISG's reasonable reliance on, or reasonable use of
information, data, records and documents (including but not limited to magnetic
tapes, computer printouts, hard copies and microfilm copies) received by FDISG
from such Fund, or any authorized third party acting on behalf of such Fund,
including but not limited the prior transfer agent for such Fund, in the
performance of FDISG's duties and obligations hereunder, with respect to such
Fund;
(c) the reliance on, or the implementation of, any Written or
Oral Instructions or any other instructions or requests of such Fund;
(d) the offer or sale of shares in violation of any
requirement under the securities laws or regulations of any state that such
shares be registered in such state or in violation of any stop order or other
determination or ruling by any state with respect to the offer or sale of such
shares in such state, with respect to such Fund; and
(e) such Fund's refusal or failure to comply with the terms of
this Agreement, or any Claim which arises out of such Fund's negligence or
misconduct or the breach of any representation or warranty of such Fund made
herein.
10.2 In any case in which a Fund may be asked to indemnify or hold
FDISG harmless, FDISG will notify such Fund promptly after identifying any
situation which it believes presents or appears likely to present a claim for
indemnification against such Fund although the failure to
8
<PAGE> 9
do so shall not prevent recovery by FDISG and shall keep such Fund advised with
respect to all developments concerning such situation. The applicable Fund shall
have the option to defend FDISG against any Claim which may be the subject of
this indemnification, and, in the event that such Fund so elect, such defense
shall be conducted by counsel chosen by such Fund and satisfactory to FDISG, and
thereupon such Fund shall take over complete defense of the Claim and FDISG
shall sustain no further legal or other expenses in respect of such Claim. FDISG
will not confess any Claim or make any compromise in any case in which such Fund
will be asked to provide indemnification, except with such Fund's prior written
consent. The obligations of the parties hereto under this Article 10 shall
survive the termination of this Agreement.
10.3 Any claim for indemnification under this Agreement must be made
prior to the earlier of:
(a) one year after the applicable Fund becomes aware of the
event for which indemnification is claimed; or
(b) one year after the earlier of the termination of this
Agreement or the expiration of the term of this Agreement.
10.4 Except for remedies that cannot be waived as a matter of law (and
injunctive or provisional relief), the provisions of this Article 10 shall be
FDISG's sole and exclusive remedy for claims or other actions or proceedings to
which the Funds' indemnification obligations pursuant to this Article 10 may
apply.
Article 11 Standard of Care.
11.1 FDISG shall at all times act in good faith and agrees to use its
best efforts within commercially reasonable limits to ensure the accuracy of all
services performed under this Agreement, but assumes no responsibility for loss
or damage to the Funds unless said errors are caused by FDISG's own negligence,
bad faith or willful misconduct or that of its employees.
11.2 Notwithstanding any provision in this Agreement to the contrary
and except for the gross negligence or willful misconduct of FDISG, FDISG's
cumulative liability (to the Funds) for all losses, claims, suits,
controversies, breaches, or damages for any cause whatsoever (including but not
limited to those arising out of or related to this Agreement) and regardless of
the form of action or legal theory shall not exceed (i) four million dollars
($4,000,000) or (ii) the fees received by FDISG for services provided under this
Agreement during the twelve months immediately prior to the date of such loss or
damage. The Funds understand the limitation on FDISG's damages to be a
reasonable allocation of risk and the Funds expressly consent with respect to
such allocation of risk. In allocating risk under the Agreement, the parties
agree that the damage limitation set forth above shall apply to any alternative
remedy ordered by a court in the event such court determines that sole and
exclusive remedy provided for in the Agreement fails of its essential purpose.
9
<PAGE> 10
11.3 Neither party may assert any cause of action against the other
party under this Agreement that accrued more than two (2) years prior to the
filing of the suit (or commencement of arbitration proceedings) alleging such
cause of action.
11.4 Each party shall have the duty to mitigate damages for which the
other party may become responsible.
Article 12 Consequential Damages.
NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, IN NO EVENT
SHALL FDISG, ITS AFFILIATES OR ANY OF ITS OR THEIR DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS OR SUBCONTRACTORS BE LIABLE UNDER ANY THEORY OF TORT,
CONTRACT, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY FOR LOST PROFITS,
EXEMPLARY, PUNITIVE, SPECIAL, INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES,
EACH OF WHICH IS HEREBY EXCLUDED BY AGREEMENT OF THE PARTIES REGARDLESS OF
WHETHER SUCH DAMAGES WERE FORESEEABLE OR WHETHER EITHER PARTY OR ANY ENTITY HAS
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
Article 13 Term and Termination.
13.1 This Agreement shall be effective on the date first written
above and shall continue for a period of five (5) years (the "Initial Term").
13.2 Upon the expiration of the Initial Term, this Agreement shall
automatically renew for successive terms of three (3) years ("Renewal Terms")
each, unless the Funds or FDISG provide written notice to the other of its
intent not to renew. Such notice must be received not less than ninety (90) days
and not more than one-hundred eighty (180) days prior to the expiration of the
Initial Term or the then current Renewal Term.
13.3 In the event a termination notice is given by the Funds, all
expenses associated with movement of records and materials and conversion
thereof to a successor transfer agent will be borne by the Funds, provided,
however, FDISG shall use its best efforts to mitigate the costs associated with
such conversion .
13.4 If a party hereto is guilty of a material failure to perform its
duties and obligations hereunder (a "Defaulting Party") the other party (the
"Non-Defaulting Party") may give written notice thereof to the Defaulting Party,
and if such material breach shall not have been remedied within thirty (30) days
after such written notice is given, then the Non-Defaulting Party may terminate
this Agreement by giving thirty (30) days written notice of such termination to
the Defaulting Party. If FDISG is the Non-Defaulting Party, its termination of
this Agreement shall not constitute a waiver of any other rights or remedies of
FDISG with respect to services
10
<PAGE> 11
performed prior to such termination or rights of FDISG to be reimbursed for
out-of-pocket expenses. In all cases, termination by the Non-Defaulting Party
shall not constitute a waiver by the Non-Defaulting Party of any other rights it
might have under this Agreement or otherwise against the Defaulting Party.
13.5 (a) In the event that FDISG has failed to meet a specific
performance standard category, as set forth in Exhibit 1 of Schedule A,
with respect to in four of any rolling six month periods, the Funds may
terminate this Agreement. The Funds will provide FDISG with sixty (60) days
notice in writing if the Funds intend to exercise its option under this
Section 13.5. Notwithstanding the foregoing, the Funds' rights under this
Section 13.2, shall not become effective until August 1, 1996 with respect
to the Print Mail and Shareholder Services Performance Standards and
October 1, 1996 with respect to Transaction Processing (Financials and
Non-Financials) Performance Standards.
(b) For purposes of the Funds' option to terminate this Agreement
under Section 13.5(a) above, FDISG's obligation to meet the Performance
Standards shall be measured in the aggregate with respect to all of the
Funds.
Article 14 Additional Portfolios.
In the event that either Series Fund establishes one or more Portfolios
in addition to those identified in Exhibit 1, with respect to which the Series
Fund desires to have FDISG render services as transfer agent under the terms
hereof, the Series Fund shall so notify FDISG in writing, and Exhibit 1 shall be
amended to include such additional Portfolios.
Article 15 Confidentiality.
15.1 The parties agree that the Proprietary Information (defined below)
and the contents of this Agreement (collectively "Confidential Information") are
confidential information of the parties and their respective licensors. The
Funds and FDISG shall exercise at least the same degree of care, but not less
than reasonable care, to safeguard the confidentiality of the Confidential
Information of the other as it would exercise to protect it's own confidential
information of a similar nature. The Funds and FDISG may use the Confidential
Information only to exercise its rights under this Agreement. The Funds and
FDISG shall not duplicate, sell or disclose to others the Confidential
Information of the other, in whole or in part, without the prior written
permission of the other party. The Funds and FDISG may, however, disclose
Confidential Information to its employees who have a need to know the
Confidential Information to perform work for the other, provided that each shall
use reasonable efforts to ensure that the Confidential Information is not
duplicated or disclosed by its employees in breach of this Agreement. The Funds
and FDISG may also disclose the Confidential Information to independent
contractors, auditors, and professional advisors, provided they first agree in
writing to be bound by the confidentiality obligations substantially similar to
this Section 15.1.
11
<PAGE> 12
Notwithstanding the previous sentence, in no event shall
either the Funds or FDISG disclose the Confidential Information to any
competitor of the other without specific, prior written consent.
15.2 Proprietary Information means:
(a) any data or information that is competitively sensitive
material, and not generally known to the public, including, but not
limited to, information about product plans, marketing strategies,
finance, operations, customer relationships, customer profiles, sales
estimates, business plans, and internal performance results relating
to the past, present or future business activities of the Funds or
FDISG, their respective subsidiaries and affiliated companies and the
customers, clients and suppliers of any of them; (b) any scientific or
technical information, design, process, procedure, formula, or
improvement that is commercially valuable and secret in the sense that
its confidentiality affords the Funds or FDISG a competitive advantage
over its competitors; and
(b) any scientific or technical information, design, process,
procedure, formula, or improvement that is commercially valuable and
secret in the sense that its confidentiality affords the Funds or
FDISG a competitive advantage over its competitors; and
(c) all confidential or proprietary concepts, documentation,
reports, data, specifications, computer software, source code, object
code, flow charts, databases, inventions, know-how, show-how and trade
secrets, whether or not patentable or copyrightable.
15.3 Confidential Information includes, without limitation, all
documents, inventions, substances, engineering and laboratory notebooks,
drawings, diagrams, specifications, bills of material, equipment, prototypes and
models, and any other tangible manifestation of the foregoing of either party
which now exist or come into the control or possession of the other.
Article 16 Force Majeure.
No party shall be liable for any default or delay in the performance of
its obligations under this Agreement if and to the extent such default or delay
is caused, directly or indirectly, by (i) fire, flood, elements of nature or
other acts of God; (ii) any outbreak or escalation of hostilities, war, riots or
civil disorders in any country, (iii) any act or omission of the other party or
any governmental authority; (iv) any labor disputes (whether or not the
employees' demands are reasonable or within the party's power to satisfy); or
(v) nonperformance by a third party or any similar cause beyond the reasonable
control of such party, including without limitation, failures or fluctuations in
telecommunications or other equipment. In any such event, the non-performing
party shall be excused from any further performance and observance of the
obligations so affected only for as long as such circumstances prevail and such
party continues to use commercially reasonable efforts to recommence performance
or observance as soon as practicable.
Article 17 Assignment and Subcontracting.
12
<PAGE> 13
This Agreement, its benefits and obligations shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns. This Agreement may not be assigned or otherwise transferred
by either party hereto, without the prior written consent of the other party,
which consent shall not be unreasonably withheld; provided, however, that FDISG
may, in its sole discretion, assign all its right, title and interest in this
Agreement to an affiliate, parent or subsidiary, or to the purchaser of
substantially all of its business. FDISG may, in its sole discretion, engage
subcontractors to perform any of the obligations contained in this Agreement to
be performed by FDISG.
Article 18 Arbitration.
18.1 Any claim or controversy arising out of or relating to this
Agreement, or breach hereof, shall be settled by arbitration administered by the
American Arbitration Association in Boston, Massachusetts in accordance with its
applicable rules, except that the Federal Rules of Evidence and the Federal
Rules of Civil Procedure with respect to the discovery process shall apply.
18.2 The parties hereby agree that judgment upon the award rendered by
the arbitrator may be entered in any court having jurisdiction.
18.3 The parties acknowledge and agree that the performance of the
obligations under this Agreement necessitates the use of instrumentalities of
interstate commerce and, notwithstanding other general choice of law provisions
in this Agreement, the parties agree that the Federal Arbitration Act shall
govern and control with respect to the provisions of this Article 18.
Article 19 Notice.
Any notice or other instrument authorized or required by this Agreement
to be given in writing to the Funds or FDISG, shall be sufficiently given if
addressed to that party and received by it at its office set forth below or at
such other place as it may from time to time designate in writing.
To the Funds:
Sierra Trust Funds,
Sierra Prime Income Fund, or
Sierra Asset Management Portfolios (as the case may be)
9301 Corbin Avenue
Northridge, California 91324
Attention: __________________
13
<PAGE> 14
To FDISG:
First Data Investor Services Group, Inc.
4400 Computer Drive
Westboro, Massachusetts 01581
Attention: President
with a copy to FDISG's General Counsel
Article 20 Governing Law/Venue.
The laws of the Commonwealth of Massachusetts, excluding the laws on
conflicts of laws, shall govern the interpretation, validity, and enforcement of
this agreement. All actions arising from or related to this Agreement shall be
brought in the state and federal courts sitting in the City of Boston, and FDISG
and Client hereby submit themselves to the exclusive jurisdiction of those
courts.
Article 21 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.
Article 22 Captions.
The captions of this Agreement are included for convenience of
reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect.
Article 23 Publicity.
Neither FDISG nor the Funds shall release or publish news releases,
public announcements, advertising or other publicity relating to this Agreement
or to the transactions contemplated by it without the prior review and written
approval of the other party; provided, however, that either party may make such
disclosures as are required by legal, accounting or regulatory requirements
after making reasonable efforts in the circumstances to consult in advance with
the other party.
Article 24 Relationship of Parties/Non-Solicitation.
24.1 The parties agree that they are independent contractors and not
partners or co-venturers and nothing contained herein shall be interpreted or
construed otherwise.
14
<PAGE> 15
24.2 During the term of this Agreement and for one (1) year afterward,
the Funds shall not recruit, solicit, employ or engage, for the Funds or others,
FDISG's employees.
Article 25 Entire Agreement; Severability.
25.1 This Agreement, including Schedules, Addenda, and Exhibits hereto,
constitutes the entire Agreement between the parties with respect to the subject
matter hereof and supersedes all prior and contemporaneous proposals,
agreements, contracts, representations, and understandings, whether written or
oral, between the parties with respect to the subject matter hereof. No change,
termination, modification, or waiver of any term or condition of the Agreement
shall be valid unless in writing signed by each party. No such writing shall be
effective as against FDISG unless said writing is executed by a Senior Vice
President, Executive Vice President, or President of FDISG. A party's waiver of
a breach of any term or condition in the Agreement shall not be deemed a waiver
of any subsequent breach of the same or another term or condition.
25.2 The parties intend every provision of this Agreement to be
severable. If a court of competent jurisdiction determines that any term or
provision is illegal or invalid for any reason, the illegality or invalidity
shall not affect the validity of the remainder of this Agreement. In such case,
the parties shall in good faith modify or substitute such provision consistent
with the original intent of the parties. Without limiting the generality of this
paragraph, if a court determines that any remedy stated in this Agreement has
failed of its essential purpose, then all other provisions of this Agreement,
including the limitations on liability and exclusion of damages, shall remain
fully effective.
15
<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers, as of the day and year first above
written.
SIERRA TRUST FUNDS
By: /s/ Keith B. Pipes
--------------------------------------
Keith B. Pipes
Title: Executive Vice President
-----------------------------------
SIERRA PRIME INCOME FUND
By: /s/ Keith B. Pipes
-------------------------------------
Keith B. Pipes
Title: Executive Vice President
-----------------------------------
SIERRA ASSET MANAGEMENT PORTFOLIOS
By: /s/ Keith B. Pipes
--------------------------------------
Keith B. Pipes
Title: Executive Vice President
-----------------------------------
FIRST DATA INVESTOR SERVICES GROUP, INC.
By: /s/ Jerry Kokos
--------------------------------------
Gerald G. Kokos
Title: Executive VP
-----------------------------------
16
<PAGE> 17
Exhibit 1
LIST OF PORTFOLIOS
Sierra Trust Funds
- ------------------
US Government Money Fund
California Money Fund
Global Money Fund
US Government Fund
California Municipal Fund
Growth and Income Fund
Corporate Income Fund
National Municipal Fund
Emerging Growth Fund
International Growth Fund
Short Term Global Government Fund
Growth Fund
Florida Insured Municipal Fund
Short Term High Quality Bond Fund
California Insured Intermediate Municipal Fund
Target Maturity 2000 Fund
Sierra Asset Management Portfolios
- ----------------------------------
Capital Growth Portfolio
Growth Portfolio
Balanced Portfolio
Value Portfolio
Income Portfolio
17
<PAGE> 18
Schedule A
DUTIES OF FDISG
1. Shareholder Information. FDISG shall maintain a record of the
number of Shares held by each Shareholder of record which shall include name,
address, taxpayer identification and which shall indicate whether such Shares
are held in certificates or uncertificated form.
2. Shareholder Services. FDISG shall respond as appropriate to all
inquiries and communications from Shareholders relating to Shareholder accounts
with respect to its duties hereunder and as may be from time to time mutually
agreed upon between FDISG and the Funds.
3. Mailing Communications to Shareholders; Proxy Materials. FDISG
will address and mail to Shareholders of the Funds, all reports to Shareholders,
dividend and distribution notices and proxy material for the Funds' meetings of
Shareholders. In connection with meetings of Shareholders, FDISG will prepare
Shareholder lists, mail and certify as to the mailing of proxy materials,
process and tabulate returned proxy cards, report on proxies voted prior to
meetings, act as inspector of election at meetings and certify Shares voted at
meetings.
4. Sales of Shares
(a) FDISG shall not be required to issue any Shares of the
Funds where it has received a Written Instruction from the Funds or official
notice from any appropriate authority that the sale of the Shares of the Funds
has been suspended or discontinued. The existence of such Written Instructions
or such official notice shall be conclusive evidence of the right of FDISG to
rely on such Written Instructions or official notice.
(b) In the event that any check or other order for the
payment of money is returned unpaid for any reason, FDISG will endeavor to: (i)
give prompt notice of such return to the Funds or its designee; (ii) place a
stop transfer order against all Shares issued as a result of such check or
order; and (iii) take such actions as FDISG may from time to time deem
appropriate.
5. Transfer and Repurchase
(a) FDISG shall process all requests to transfer or redeem
Shares in accordance with the transfer or repurchase procedures set forth in the
Fund's Prospectus.
(b) FDISG will transfer or repurchase Shares upon receipt of
Oral or Written Instructions or otherwise pursuant to the Prospectus and Share
certificates, if any, properly endorsed for transfer or redemption, accompanied
by such documents as FDISG reasonably may deem necessary.
18
<PAGE> 19
(c) FDISG reserves the right to refuse to transfer or
repurchase Shares until it is satisfied that the endorsement on the instructions
is valid and genuine. FDISG also reserves the right to refuse to transfer or
repurchase Shares until it is satisfied that the requested transfer or
repurchase is legally authorized, and it shall incur no liability for the
refusal, in good faith, to make transfers or repurchases which FDISG, in its
good judgement, deems improper or unauthorized, or until it is reasonably
satisfied that there is no basis to any claims adverse to such transfer or
repurchase.
(d) When Shares are redeemed, FDISG shall, upon receipt of the
instructions and documents in proper form, deliver to the Custodian and the Fund
or its designee a notification setting forth the number of Shares to be
repurchased. Such repurchased shares shall be reflected on appropriate accounts
maintained by FDISG reflecting outstanding Shares of the Funds and Shares
attributed to individual accounts.
(e) FDISG, upon receipt of the monies provided to it by the
Custodian for the repurchase of Shares, pay such monies as are received from the
Custodian, all in accordance with the procedures described in the written
instruction received by FDISG from the Funds.
(f) FDISG shall not process or effect any repurchase with
respect to Shares of the Funds after receipt by FDISG or its agent of
notification of the suspension of the determination of the net asset value of
the Funds.
6. Dividends
(a) Upon the declaration of each dividend and each capital
gains distribution by the Board of Directors of the Funds with respect to Shares
of the Funds, the Funds shall furnish or cause to be furnished to FDISG Written
Instructions setting forth the date of the declaration of such dividend or
distribution, the ex-dividend date, the date of payment thereof, the record date
as of which Shareholders entitled to payment shall be determined, the amount
payable per Share to the Shareholders of record as of that date, the total
amount payable on the payment date and whether such dividend or distribution is
to be paid in Shares at net asset value.
(b) On or before the payment date specified in such resolution
of the Board of Directors, the Funds will provide FDISG with sufficient cash to
make payment to the Shareholders of record as of such payment date.
(c) If FDISG does not receive sufficient cash from the Funds
to make total dividend and/or distribution payments to all Shareholders of the
Funds as of the record date, FDISG will, upon notifying the Funds, withhold
payment to all Shareholders of record as of the record date until sufficient
cash is provided to FDISG.
7. In addition to and neither in lieu nor in contravention of
the services set forth above, FDISG shall perform all the customary services of
a transfer agent, registrar, dividend
19
<PAGE> 20
disbursing agent and agent of the dividend reinvestment and cash purchase plan
as described herein consistent with those requirements in effect as at the date
of this Agreement. The detailed definition, frequency, limitations and
associated costs (if any) set out in the attached fee schedule, include but are
not limited to: maintaining all Shareholder accounts, preparing Shareholder
meeting lists, mailing proxies, tabulating proxies, mailing Shareholder reports
to current Shareholders, withholding taxes on U.S. resident and non-resident
alien accounts where applicable, preparing and filing U.S. Treasury Department
Forms 1099 and other appropriate forms required with respect to dividends and
distributions by federal authorities for all Shareholders.
20
<PAGE> 21
Exhibit 1 of Schedule A
Performance Standards
FDISG's obligation to meet the following Performance Standards shall be measured
in the aggregate with respect to all Funds.
First Data will report to Sierra on a monthly basis the percent of items
completed within standard as well as a quality rating. Reporting will be
detailed to the transaction type level. A pass/fail determination for
contractual penalties will however be based on the categories listed below. For
example, the accuracy of purchases, redemptions, exchanges and adjustments will
be reported to Sierra on an individual basis and as a collective group. First
Data will receive a "fail" for the month if the collective score for all
financials falls below the contractual level. Note that completion standards are
measured in business days.
CATEGORY COMPONENTS (TO BE REPORTED INDIVIDUALLY)
- -------- ----------------------------------------
Financials Purchases, Redemptions, Exchanges, Adjustments (both
financial and non-financial adjustments)
Minimum Acceptable Quality Score: 99%
Non-Financials Maintenance (including address changes, option changes,
ROA/LOI), Legal Transfers, New Accounts
Minimum Acceptable Quality Score: 98%
Print Mail Statements, Confirms, Checks
Minimum Acceptable Quality Score: 98%
Shareholder Service Telephones, Correspondence
Minimum Acceptable Quality Score: 98%
COMPLETION STANDARDS
TRANSACTION PROCESSING
A. Complete on day of receipt:
- Purchases, redemptions, exchanges, financial adjustments, new accounts
B. Complete within three days of receipt:
- Non-financial adjustments, legal transfers
C. Complete within 5 days of receipt
- Maintenance
21
<PAGE> 22
PRINT MAIL *
D. Mailed on day of receipt
- Shareholder Checks
E. Mailed within one day of receipt
- Confirms
F. Mailed within five business days following the end of the reporting period
- Statements, Commission Checks
* Note that Print Mail performance standards will be in effect only for
those mailings where services are provided by FDISG.
SHAREHOLDER SERVICES
A. Telephone calls abandoned no greater than 2% of calls received (excluding
calls that abandon in less than 20 seconds)
B. Financial Correspondence mailed within two days of receipt
C. Non-financial Correspondence mailed within four days of receipt
In addition to the foregoing, the Funds and FDISG will agree to an industry
quality service ranking, such as DALBAR. In connection therewith, the Funds and
FDISG shall review the criteria and ranking on an annual basis.
22
<PAGE> 23
Schedule B
FEE SCHEDULE
Sierra Trust Funds
Sierra Prime Income Fund
Sierra Asset Management Portfolios
1) Per Account Fee $16.00 per Shareholder account
Closed Account Fee $2.50
SAM Accounts and Profolio Accounts:
First Shareholder Account $16.00*
* The above referenced per account fee shall be subject to the
following "Subsequent Account" sliding scale. A "Subsequent Account" is defined
as any additional account under an asset allocation strategy, with like
registration and account number, maintained by a Shareholder in any other Sierra
Capital Management mutual fund that is serviced by FDISG as transfer agent.
Subsequent Account Sliding Scale:
First 100,000 Subsequent Accounts $5.50 per Subsequent Account
Next 50,000 Subsequent Accounts $5.00 per Subsequent Account
150,001+ Subsequent Accounts $4.50 per Subsequent Account
*Each year, effective on the anniversary date of the Agreement, the per account
fee will increase by a percentage equal to an amount one percent greater than
the Consumer Price Index as reported monthly by Bloomberg Financial Markets and
Comodity News in the month preceding the effective date of the increase. This
provides FDISG with an opportunity to manage uncontrollable expenses due to
inflationary increases.
2) Dedicated Systems Development Team:
The Funds shall jointly pay $275,000.00 annually for a dedicated
systems development team consisting of 1.5 programmers, .5 system
manager and .5 BSA. In the event that the Funds desire to
discontinue this service, the Funds shall provide FDISG 60 days
written notice. In the event of such termination, the Funds shall
be responsible for the pro rata share of the stated annual
dedicated System Development Team fee.
Incremental systems resources will be billed at a rate of $100.00
per hour
23
<PAGE> 24
The number of hours worked, projects and status will be reported
monthly
FEES INCLUDE:
* Shareholder and Broker Servicing
* Transaction Processing, Correspondence, and Research
* Settlement and Reconciliation
* Corporate Actions
* Tax Reporting and Compliance
* NSCC Support
* Management Company and Broker/Dealer Support
* Asset Allocation Processing for all distribution channels
* Cost Basis Accounting [For those Shareholder Accounts defined in
the attached Exhibit 1 to this Schedule B]
ADDITIONAL FEES:
* NSCC charges
* Banking fees
* Standard Out-of Pocket-expenses
VALUE ADDED SERVICES
1. DAZL Pricing:
Set Up Fee: $5,000.00
Monthly Usage Fee: $1,000.00
Transmission Charge:$.03 per record (Price record transmission cost is
$.015 per record.)
2. Voice Response Unit (VRU)
$25,000 set up fee
$.29 per minute maintenance charge
The Dedicated Systems Development Team and the Value Added Services Fees set
forth above represent the total fee to be paid jointly by the Sierra Capital
Management mutual funds which have entered into similar transfer agency and
services agreements with FDISG.
24
<PAGE> 25
Exhibit 1 of Schedule B
Cost Basis Accounting - Shareholder Accounts
Cost Basis tracking will be performed for Fund accounts that do not
meet the following conditions: retirement accounts, Networking Level III, and
money market accounts. In addition, certain transactions may disqualify accounts
from cost basis tracking. These transactions include, but are not limited to,
transfers from ineligible CBA accounts, share adjustments, and LOI default
adjustments.
25
<PAGE> 26
Schedule C
OUT-OF-POCKET EXPENSES
The Funds shall reimburse FDISG monthly for applicable out-of-pocket
expenses, including, but not limited to the following items:
o Microfiche/Microfilm/Image production
o Magnetic media tapes and freight
o Printing costs, including certificates, envelopes, checks and
stationery
o Postage (bulk, pre-sort, ZIP+4, barcoding, first class)
direct pass through to the Funds
o Due diligence mailings
o Telephone and telecommunication costs, including all lease,
maintenance and line costs
o Ad hoc reports
o Proxy solicitations, mailings and tabulations
o Daily & Distribution advice mailings
o Shipping, Certified and Overnight mail and insurance
o Year-end form production and mailings
o Terminals, communication lines, printers and other equipment
and any expenses incurred in connection with such terminals
and lines
o Duplicating services
o Courier services
o Incoming and outgoing wire charges
o Federal Reserve charges for check clearance
o Overtime, as approved by the Funds
o Temporary staff, as approved by the Funds
o Travel and entertainment, as approved by the Funds
o Record retention, retrieval and destruction costs, including,
but not limited to exit fees charged by third party record
keeping vendors
o Third party audit reviews
o Ad hoc SQL time
o All Systems enhancements after the conversion at the rate of
$100.00 per hour
o Insurance
o Such other miscellaneous expenses reasonably incurred by
FDISG in performing its duties and responsibilities under
this Agreement.
26
<PAGE> 27
The Funds agree that postage and mailing expenses will be paid on the
day of or prior to mailing as agreed with FDISG. In addition, the Funds will
promptly reimburse FDISG for any other unscheduled expenses incurred by FDISG
whenever the Funds and FDISG mutually agree that such expenses are not otherwise
properly borne by FDISG as part of its duties and obligations under the
Agreement.
27
<PAGE> 28
Schedule D
Fund Documents
o Certified copy of the Articles of Incorporation of the Fund, as amended
o Certified copy of the By-laws of the Fund, as amended,
o Copy of the resolution of the Board of Directors authorizing the execution
and delivery of this Agreement
o Specimens of the certificates for Shares of the Fund, if
applicable, in the form approved by the Board of Directors of the
Fund, with a certificate of the Secretary of the Fund as to such
approval
o All account application forms and other documents relating to Shareholder
accounts or to any plan, program or service offered by the Fund
o Certified list of Shareholders of the Fund with the name, address and
taxpayer identification number of each Shareholder, and the number of
Shares of the Fund held by each, certificate numbers and denominations
(if any certificates have been issued), lists of any accounts against
which stop transfer orders have been placed, together with the reasons
therefore, and the number of Shares redeemed by the Fund
o All notices issued by the Fund with respect to the Shares in accordance
with and pursuant to the Articles of Incorporation or By-laws of the Fund
or as required by law and shall perform such other specific duties as are
set forth in the Articles of Incorporation including the giving of notice
of any special or annual meetings of shareholders and any other notices
required thereby.
<PAGE> 1
Exhibit 15(a)
SIERRA ASSET MANAGEMENT PORTFOLIOS
CLASS A DISTRIBUTION PLAN
Dated May 21, 1996
This Class A Distribution Plan (the "Plan") is adopted in
accordance with Rule 12b-1 (the "Rule") under the Investment Company Act of
1940, as amended (the "Act"), by Sierra Asset Management Portfolios, a business
trust organized under the laws of the Commonwealth of Massachusetts and
registered with the Securities and Exchange Commission under the Act as an
open-end management investment company (the "Trust"), the Trustees of the Trust
having concluded that there is a reasonable likelihood that this Plan will
benefit the Trust and its shareholders.
Section 1. Distribution Fee.
The Trust will pay to or at the direction of the distributor
of its Class A shares (the "Distributor"), an annual fee or portions thereof for
services rendered or expenses incurred by the Distributor or any other person
with which the Distributor has a written agreement to provide services as
permitted by the Plan and the distribution agreement with the Distributor (each
a "Designated Provider") in connection with the offering and sale of each series
of the Trust's shares (each, a "Fund," and together, the "Funds"). The annual
fee or portions thereof paid to the Distributor or at the direction of the
Distributor to the Designated Providers under the Plan will be calculated daily
and paid monthly in arrears by the Trust in the aggregate at the annual rate of
.25% of the average daily net assets of each of the Funds.
Section 2. Expenses Covered by Plan.
(a) The annual fee paid to the Distributor or at the direction
of the Distributor to the Designated Providers under Section 1 of the Plan may
be used by the Distributor or Designated Providers to cover any expenses
primarily intended to result in the sale of the Trust's Class A shares,
including, but not limited to: (i) payments made to, and expenses of, the
registered representatives and other employees of the Distributor or Designated
Providers that are registered broker-dealers and engage in the distribution of
the Trust's shares; (ii) payments made to, and expenses of, persons who provide
support services in connection with the sale of the Trust's Class A shares,
including, but not limited to, office space and equipment, telephone facilities,
answering routine inquiries regarding the Trust, processing shareholder
transactions and providing any other shareholder services not otherwise provided
by the Trust's
2
<PAGE> 2
transfer agent or any shareholder servicing agent; (iii) costs relating to the
formulation and implementation of marketing and promotional activities regarding
the Trust's Class A shares, including, but not limited to, direct mail
promotions and television, radio, newspaper, magazine and other mass media
advertising; (iv) costs of printing and distributing prospectuses, statements of
additional information and reports of the Trust to prospective Class A
shareholders of the Trust; (v) costs involved in preparing, printing and
distributing advertising and sales literature pertaining to the Trust's Class A
shares; and (vi) costs involved in obtaining whatever information, analyses and
reports with respect to marketing and promotional activities that the Trust may,
from time to time, deem advisable regarding the Trust's Class A shares.
(b) Sierra Investment Services Corporation, as investment
advisor to each of the Funds, may use its investment advisory fee for purposes
that may be deemed to be directly or indirectly related to the distribution of
Company's Class A shares. To the extent that such uses might be considered to
constitute the direct or indirect financing of activities primarily intended to
result in the sale of the Trust's Class A shares, such uses are expressly
authorized under the Plan.
Section 3. Approval by Shareholders.
The Plan will not take effect, and no fee will be payable in
accordance with Section 1 of the Plan, with respect to the Class A shares of a
particular Fund until the Plan has been approved by a vote of at least a
majority of the outstanding voting securities of the Class A shares of the Fund.
The Plan will be deemed to have been approved with respect to the Class A shares
of a Fund so long as a majority of the outstanding Class A shares of the Fund
votes for the approval of the Plan, notwithstanding that: (a) the Plan has not
been approved by a majority of the outstanding voting securities of any other
class of such Fund or any other Fund or (b) the Plan has not been approved by a
majority of the outstanding voting securities of the Trust in the aggregate.
Section 4. Approval by Trustees.
Neither the Plan nor any related agreements will take effect
until approved by a majority vote of both (a) the full Board of Trustees of the
Trust and (b) those Trustees who are not interested persons of the Trust and who
have no direct or indirect financial interest in the operation of the Plan or in
any agreements related to it (the "Qualified Trustees"), cast in person at a
meeting called for the purposes of voting on the Plan or the related agreements.
3
<PAGE> 3
Section 5. Continuance of the Plan.
The Plan will continue in effect for so long as its
continuance is specifically approved at least annually by the Trust's Board of
Trustees in the manner described in Section 4 above.
Section 6. Termination.
The Plan may be terminated at any time with respect to any
Fund by a majority vote of the Qualified Trustees or by vote of a majority of
the outstanding Class A shares of the Fund. The Plan may remain in effect with
respect to the Class A shares of a particular Fund even if the Plan has been
terminated in accordance with this Section 6 with respect to the Class A shares
of one or more of the other Funds.
Section 7. Amendments.
The Plan may not be amended with respect to the Class A shares
of a Fund so as to increase materially the amount of the fee described in
Section 1 above with respect to the Class A shares of the Fund, unless the
amendment is approved by a vote of at least a majority of the outstanding Class
A shares of that Fund. No material amendment to the Plan may be made unless
approved by the Trust's Board of Trustees in the manner described in Section 4
above.
Section 8. Selection of Certain Trustees.
While the Plan is in effect, the selection and nomination of
the Trust's Trustees who are not interested persons of the Trust will be
committed to the discretion of the Trustees then in office who are not
interested persons of the Trust.
Section 9. Written Reports.
In each year during which the Plan remains in effect, any
person authorized to direct the disposition of monies paid or payable by the
Trust pursuant to the Plan or any related agreement will prepare and furnish to
the Trust's Board of Trustees, and the Board will review, at least quarterly,
written reports, complying with the requirements of the Rule, which set out the
amounts expended under the Plan and the purposes for which those expenditures
were made.
Section 10. Preservation of Materials.
The Trust will preserve copies of the Plan, any agreement
relating to the Plan and any report made pursuant to Section 9 above, for a
period of not less than six years (the
3
<PAGE> 4
first two years in an easily accessible place) from the date of the Plan,
agreement or report.
Section 11. Meanings of Certain Terms.
As used in the Plan, the terms "interested person" and
"majority of the outstanding voting securities" will be deemed to have the same
meaning that those terms have under the Act and the rules and regulations under
the Act, subject to any exemption that may be granted to the Trust under the Act
by the Securities and Exchange Commission.
Section 12. Limitation of Liability.
The execution of the Plan by an officer of the Trust has been
authorized by both the Trust's Board of Trustees and the sole shareholder of the
Class A shares of each Fund. As provided in the Trust's Agreement and
Declaration of Trust dated March 26, 1996, as amended from time to time (the
"Trust Agreement"), in undertaking those actions, the officer, the Board of
Trustees and the sole shareholder have each acted on behalf of the Trust. In
addition, as provided in the Trust Agreement, the obligations imposed under the
Plan are binding only upon the assets and property of the Trust and are not
binding upon the officer executing the Plan, the Trust's Board of Trustees or
the sole shareholder of the Class A shares of each of the Funds. The Trust
Agreement is on file with the Secretary of the Commonwealth of Massachusetts and
with the City Clerk of Boston, Massachusetts.
4
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 011
<NAME> SIERRA SAM INCOME PORTFOLIO CL-A
<S> <C>
<PERIOD-TYPE> 11-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 18,026,737
<INVESTMENTS-AT-VALUE> 17,976,263
<RECEIVABLES> 110,620
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 36,644
<TOTAL-ASSETS> 18,123,527
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 177,082
<TOTAL-LIABILITIES> 177,082
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 13,453,251
<SHARES-COMMON-STOCK> 1,323,410
<SHARES-COMMON-PRIOR> 1,000
<ACCUMULATED-NII-CURRENT> 18,156
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (25,034)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (50,474)
<NET-ASSETS> 13,409,935
<DIVIDEND-INCOME> 862,620
<INTEREST-INCOME> 6,073
<OTHER-INCOME> 0
<EXPENSES-NET> 137,897
<NET-INVESTMENT-INCOME> 730,796
<REALIZED-GAINS-CURRENT> (25,028)
<APPREC-INCREASE-CURRENT> (50,474)
<NET-CHANGE-FROM-OPS> 655,294
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (583,509)
<DISTRIBUTIONS-OF-GAINS> (5)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,849,003
<NUMBER-OF-SHARES-REDEEMED> (553,205)
<SHARES-REINVESTED> 26,612
<NET-CHANGE-IN-ASSETS> 17,926,445
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 18,539
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 222,301
<AVERAGE-NET-ASSETS> 10,029,434
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.58
<PER-SHARE-GAIN-APPREC> 0.14
<PER-SHARE-DIVIDEND> (0.59)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.13
<EXPENSE-RATIO> 0.93
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 012
<NAME> SIERRA SAM INCOME PORTFOLIO CL-B
<S> <C>
<PERIOD-TYPE> 11-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 18,026,737
<INVESTMENTS-AT-VALUE> 17,976,263
<RECEIVABLES> 110,620
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 36,644
<TOTAL-ASSETS> 18,123,527
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 177,082
<TOTAL-LIABILITIES> 177,082
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4,550,546
<SHARES-COMMON-STOCK> 447,709
<SHARES-COMMON-PRIOR> 1,000
<ACCUMULATED-NII-CURRENT> 18,156
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (25,034)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (50,474)
<NET-ASSETS> 4,536,510
<DIVIDEND-INCOME> 862,620
<INTEREST-INCOME> 6,073
<OTHER-INCOME> 0
<EXPENSES-NET> 137,897
<NET-INVESTMENT-INCOME> 730,796
<REALIZED-GAINS-CURRENT> (25,028)
<APPREC-INCREASE-CURRENT> (50,474)
<NET-CHANGE-FROM-OPS> 655,294
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (163,425)
<DISTRIBUTIONS-OF-GAINS> (1)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 562,467
<NUMBER-OF-SHARES-REDEEMED> (125,637)
<SHARES-REINVESTED> 9,879
<NET-CHANGE-IN-ASSETS> 17,926,445
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 18,539
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 226,301
<AVERAGE-NET-ASSETS> 3,199,452
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.51
<PER-SHARE-GAIN-APPREC> 0.14
<PER-SHARE-DIVIDEND> (0.52)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.13
<EXPENSE-RATIO> 1.68
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 021
<NAME> SIERRA SAM VALUE PORTFOLIO CL-A
<S> <C>
<PERIOD-TYPE> 11-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 19,718,110
<INVESTMENTS-AT-VALUE> 19,939,993
<RECEIVABLES> 102,449
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 36,624
<TOTAL-ASSETS> 20,079,066
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 80,817
<TOTAL-LIABILITIES> 80,817
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 12,300,972
<SHARES-COMMON-STOCK> 1,193,528
<SHARES-COMMON-PRIOR> 1,000
<ACCUMULATED-NII-CURRENT> 21,297
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 244,976
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 221,883
<NET-ASSETS> 12,613,056
<DIVIDEND-INCOME> 770,648
<INTEREST-INCOME> 7,706
<OTHER-INCOME> 0
<EXPENSES-NET> 156,570
<NET-INVESTMENT-INCOME> 621,784
<REALIZED-GAINS-CURRENT> 415,854
<APPREC-INCREASE-CURRENT> 221,883
<NET-CHANGE-FROM-OPS> 1,259,521
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (559,619)
<DISTRIBUTIONS-OF-GAINS> (256)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,564,273
<NUMBER-OF-SHARES-REDEEMED> (420,925)
<SHARES-REINVESTED> 49,180
<NET-CHANGE-IN-ASSETS> 19,978,249
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 19,886
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 254,839
<AVERAGE-NET-ASSETS> 9,337,583
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.43
<PER-SHARE-GAIN-APPREC> 0.70
<PER-SHARE-DIVIDEND> (0.56)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.57
<EXPENSE-RATIO> 0.93
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 022
<NAME> SIERRA SAM VALUE PORTFOLIO CL-B
<S> <C>
<PERIOD-TYPE> 11-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 19,718,110
<INVESTMENTS-AT-VALUE> 19,939,993
<RECEIVABLES> 102,449
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 36,624
<TOTAL-ASSETS> 20,079,066
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 80,817
<TOTAL-LIABILITIES> 80,817
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7,209,121
<SHARES-COMMON-STOCK> 698,837
<SHARES-COMMON-PRIOR> 1,000
<ACCUMULATED-NII-CURRENT> 21,297
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 244,976
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 221,883
<NET-ASSETS> 7,385,193
<DIVIDEND-INCOME> 770,648
<INTEREST-INCOME> 7,706
<OTHER-INCOME> 0
<EXPENSES-NET> 156,570
<NET-INVESTMENT-INCOME> 621,784
<REALIZED-GAINS-CURRENT> 415,854
<APPREC-INCREASE-CURRENT> 221,883
<NET-CHANGE-FROM-OPS> 1,259,521
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (246,113)
<DISTRIBUTIONS-OF-GAINS> (115)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 814,464
<NUMBER-OF-SHARES-REDEEMED> (138,840)
<SHARES-REINVESTED> 22,213
<NET-CHANGE-IN-ASSETS> 19,978,249
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 19,886
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 254,839
<AVERAGE-NET-ASSETS> 4,852,806
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.38
<PER-SHARE-GAIN-APPREC> 0.68
<PER-SHARE-DIVIDEND> (0.49)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.57
<EXPENSE-RATIO> 1.68
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 031
<NAME> SIERRA SAM BALANCED PORTFOLIO CL-A
<S> <C>
<PERIOD-TYPE> 11-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 200,037,386
<INVESTMENTS-AT-VALUE> 208,818,286
<RECEIVABLES> 1,071,353
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 36,695
<TOTAL-ASSETS> 209,926,334
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 684,087
<TOTAL-LIABILITIES> 684,087
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 104,158,714
<SHARES-COMMON-STOCK> 9,993,652
<SHARES-COMMON-PRIOR> 1,000
<ACCUMULATED-NII-CURRENT> 76,816
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,157,613
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8,780,900
<NET-ASSETS> 109,421,054
<DIVIDEND-INCOME> 4,220,523
<INTEREST-INCOME> 47,974
<OTHER-INCOME> 0
<EXPENSES-NET> 1,576,730
<NET-INVESTMENT-INCOME> 2,691,767
<REALIZED-GAINS-CURRENT> 6,067,784
<APPREC-INCREASE-CURRENT> 8,780,900
<NET-CHANGE-FROM-OPS> 17,540,451
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,570,341)
<DISTRIBUTIONS-OF-GAINS> (389)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 12,169,876
<NUMBER-OF-SHARES-REDEEMED> (2,606,054)
<SHARES-REINVESTED> 428,830
<NET-CHANGE-IN-ASSETS> 209,222,247
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 188,577
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,888,679
<AVERAGE-NET-ASSETS> 74,467,002
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.20
<PER-SHARE-GAIN-APPREC> 1.27
<PER-SHARE-DIVIDEND> (0.52)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.95
<EXPENSE-RATIO> 0.93
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 032
<NAME> SIERRA SAM BALANCED PORTFOLIO CL-B
<S> <C>
<PERIOD-TYPE> 11-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 200,037,386
<INVESTMENTS-AT-VALUE> 208,818,286
<RECEIVABLES> 1,071,353
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 36,695
<TOTAL-ASSETS> 209,926,334
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 684,087
<TOTAL-LIABILITIES> 684,087
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 95,068,204
<SHARES-COMMON-STOCK> 9,116,810
<SHARES-COMMON-PRIOR> 1,000
<ACCUMULATED-NII-CURRENT> 76,816
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,157,613
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8,780,900
<NET-ASSETS> 99,821,193
<DIVIDEND-INCOME> 4,220,523
<INTEREST-INCOME> 47,974
<OTHER-INCOME> 0
<EXPENSES-NET> 1,576,730
<NET-INVESTMENT-INCOME> 2,691,767
<REALIZED-GAINS-CURRENT> 6,067,784
<APPREC-INCREASE-CURRENT> 8,780,900
<NET-CHANGE-FROM-OPS> 17,540,451
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,996,455)
<DISTRIBUTIONS-OF-GAINS> (270)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9,967,493
<NUMBER-OF-SHARES-REDEEMED> (1,136,848)
<SHARES-REINVESTED> 285,165
<NET-CHANGE-IN-ASSETS> 209,222,247
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 188,577
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,888,679
<AVERAGE-NET-ASSETS> 60,098,829
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.14
<PER-SHARE-GAIN-APPREC> 1.25
<PER-SHARE-DIVIDEND> (0.44)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.95
<EXPENSE-RATIO> 1.68
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 041
<NAME> SIERRA SAM GROWTH PORTFOLIO CL-A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 285,454,304
<INVESTMENTS-AT-VALUE> 295,081,739
<RECEIVABLES> 472,996
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 36,421
<TOTAL-ASSETS> 295,591,156
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 753,418
<TOTAL-LIABILITIES> 753,418
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 131,421,449
<SHARES-COMMON-STOCK> 12,539,328
<SHARES-COMMON-PRIOR> 1,000
<ACCUMULATED-NII-CURRENT> 191
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 763,262
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 9,627,435
<NET-ASSETS> 136,141,181
<DIVIDEND-INCOME> 2,922,882
<INTEREST-INCOME> 80,681
<OTHER-INCOME> 0
<EXPENSES-NET> 2,260,646
<NET-INVESTMENT-INCOME> 742,917
<REALIZED-GAINS-CURRENT> 12,427,618
<APPREC-INCREASE-CURRENT> 9,627,435
<NET-CHANGE-FROM-OPS> 22,797,970
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (6,335,092)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 14,708,889
<NUMBER-OF-SHARES-REDEEMED> (2,792,970)
<SHARES-REINVESTED> 622,409
<NET-CHANGE-IN-ASSETS> 294,817,738
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 260,044
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,692,403
<AVERAGE-NET-ASSETS> 90,001,008
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.08
<PER-SHARE-GAIN-APPREC> 1.32
<PER-SHARE-DIVIDEND> (0.54)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.86
<EXPENSE-RATIO> 0.93
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 042
<NAME> SIERRA SAM GROWTH PORTFOLIO CL-B
<S> <C>
<PERIOD-TYPE> 11-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 285,454,304
<INVESTMENTS-AT-VALUE> 295,081,739
<RECEIVABLES> 472,996
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 36,421
<TOTAL-ASSETS> 295,591,156
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 753,418
<TOTAL-LIABILITIES> 753,418
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 153,025,401
<SHARES-COMMON-STOCK> 14,688,974
<SHARES-COMMON-PRIOR> 1,000
<ACCUMULATED-NII-CURRENT> 191
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 763,262
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 9,627,435
<NET-ASSETS> 158,696,557
<DIVIDEND-INCOME> 2,922,882
<INTEREST-INCOME> 80,681
<OTHER-INCOME> 0
<EXPENSES-NET> 2,260,646
<NET-INVESTMENT-INCOME> 742,917
<REALIZED-GAINS-CURRENT> 12,427,618
<APPREC-INCREASE-CURRENT> 9,627,435
<NET-CHANGE-FROM-OPS> 22,797,970
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (6,115,562)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 15,618,441
<NUMBER-OF-SHARES-REDEEMED> (1,529,154)
<SHARES-REINVESTED> 598,687
<NET-CHANGE-IN-ASSETS> 294,817,738
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 260,044
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,692,403
<AVERAGE-NET-ASSETS> 95,562,881
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.01
<PER-SHARE-GAIN-APPREC> 1.31
<PER-SHARE-DIVIDEND> (0.52)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.80
<EXPENSE-RATIO> 1.68
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 051
<NAME> SIERRA SAM CAPITAL GROWTH PORTFOLIO CL-A
<S> <C>
<PERIOD-TYPE> 11-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 47,529,173
<INVESTMENTS-AT-VALUE> 50,120,501
<RECEIVABLES> 149,136
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 37,103
<TOTAL-ASSETS> 50,306,740
<PAYABLE-FOR-SECURITIES> 163,981
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 87,968
<TOTAL-LIABILITIES> 251,949
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 13,405,508
<SHARES-COMMON-STOCK> 1,266,018
<SHARES-COMMON-PRIOR> 1,000
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (202,159)
<ACCUMULATED-NET-GAINS> 316,081
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,591,328
<NET-ASSETS> 14,252,961
<DIVIDEND-INCOME> 157,651
<INTEREST-INCOME> 17,548
<OTHER-INCOME> 0
<EXPENSES-NET> 353,296
<NET-INVESTMENT-INCOME> (178,097)
<REALIZED-GAINS-CURRENT> 1,830,662
<APPREC-INCREASE-CURRENT> 2,591,328
<NET-CHANGE-FROM-OPS> 4,243,893
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (432,599)
<DISTRIBUTIONS-OF-GAINS> (406)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,373,772
<NUMBER-OF-SHARES-REDEEMED> (148,037)
<SHARES-REINVESTED> 39,283
<NET-CHANGE-IN-ASSETS> 50,034,791
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 36,642
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 487,355
<AVERAGE-NET-ASSETS> 7,182,298
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (0.02)
<PER-SHARE-GAIN-APPREC> 1.90
<PER-SHARE-DIVIDEND> (0.62)
<PER-SHARE-DISTRIBUTIONS> (0.00)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.26
<EXPENSE-RATIO> 0.91
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 052
<NAME> SIERRA SAM CAPITAL GROWTH PORTFOLIO CL-B
<S> <C>
<PERIOD-TYPE> 11-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 47,529,173
<INVESTMENTS-AT-VALUE> 50,120,501
<RECEIVABLES> 149,136
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 37,103
<TOTAL-ASSETS> 50,306,740
<PAYABLE-FOR-SECURITIES> 163,981
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 87,968
<TOTAL-LIABILITIES> 251,949
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 33,944,033
<SHARES-COMMON-STOCK> 3,198,772
<SHARES-COMMON-PRIOR> 1,000
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (202,159)
<ACCUMULATED-NET-GAINS> 316,081
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,591,328
<NET-ASSETS> 35,801,830
<DIVIDEND-INCOME> 157,651
<INTEREST-INCOME> 17,548
<OTHER-INCOME> 0
<EXPENSES-NET> 353,296
<NET-INVESTMENT-INCOME> (178,097)
<REALIZED-GAINS-CURRENT> 1,830,662
<APPREC-INCREASE-CURRENT> 2,591,328
<NET-CHANGE-FROM-OPS> 4,243,893
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,142,282)
<DISTRIBUTIONS-OF-GAINS> (1,155)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,224,045
<NUMBER-OF-SHARES-REDEEMED> (135,633)
<SHARES-REINVESTED> 109,360
<NET-CHANGE-IN-ASSETS> 50,034,791
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 36,642
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 487,355
<AVERAGE-NET-ASSETS> 18,964,929
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (0.10)
<PER-SHARE-GAIN-APPREC> 1.90
<PER-SHARE-DIVIDEND> (0.61)
<PER-SHARE-DISTRIBUTIONS> (0.00)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.19
<EXPENSE-RATIO> 1.66
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
