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SIERRA TRUST FUNDS
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A Family of Mutual Funds November 1997
Dear Sierra Trust Funds Shareholder:
As you know, Great Western Financial Corporation, Sierra's former parent
company, merged into Washington Mutual, Inc., parent of the Composite Research &
Management Co. ("Composite"), on July 1, 1997. This marked the beginning stages
of a restructuring and integration process that offers the opportunity to
consolidate the Sierra Trust Funds with the mutual funds that are managed by
Washington Mutual. Let me assure you that our commitment to you remains
unchanged. Our dedication to assisting you achieve your financial goals is our
highest priority. This letter describes some important changes proposed for the
Sierra Funds.
The Sierra Funds are governed by a Board of Trustees that is independent of
Great Western and Washington Mutual. Members of the Board are elected by the
shareholders, and their charter is to protect your interests. The changes
discussed in this letter require approval of both the Board of Trustees and
shareholders.
On October 28, 1997, the Sierra Board of Trustees approved the terms of the
proposed consolidation of the Sierra Funds and the Composite Group of Funds (the
mutual funds managed by Composite). As a result, a special meeting for all
Sierra shareholders has been scheduled for December 23, 1997. This meeting gives
shareholders an opportunity to ask questions in person, further discuss the
proposed consolidation with Composite, and to vote on the proposals discussed
below. However, shareholders do not need to attend the meeting to cast their
vote.
YOUR VOTE IS IMPORTANT
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THE BOARD OF TRUSTEES RECOMMENDS SHAREHOLDERS VOTE "FOR" ALL PROPOSALS. The
accompanying proxy materials outline in detail the various terms of the
consolidation so you may carefully consider how to vote. FOR YOUR CONVENIENCE, A
POSTAGE-PAID ENVELOPE IS INCLUDED WHICH YOU MAY USE TO REGISTER YOUR CHOICES BY
MAIL. You may also register your choices by telephone, by calling (800) 848-
3374. Your votes are important, since a majority of shareholders must respond.
By simply signing, dating and returning you proxy card(s) or by calling (800)
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848-3374, you will help to ensure sufficient responses are received and allow
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the proxies to vote favorably on your behalf.
- --------------------------------------------
The goal of consolidating the Sierra Funds and the Composite Funds into a single
Fund complex is to:
. Streamline the restructured/combined fund complex (representing $4.5 billion
in assets)
. Maintain a well-diversified offering of funds
. Reduce operating cost and shareholder expenses
. Maintain a high level of service and operational efficiency
. Benefit from increased assets under management
Distributed by Sierra Investment Services Corporation
<PAGE>
In summary, the result of the restructuring will be a single, more integrated
mutual fund complex. The proposals include:
. Electing a new Board of Trustees for the combined fund complex
. Merging your fund into a Composite Fund with a substantially similar
investment objective and lower operating costs.
The Composite Group has enjoyed a long history of investment management and
growth, having opened its first mutual fund in 1939. Composite benefits from
many years of experience and expertise from its portfolio management team. The
Composite Funds have successfully weathered the many market downturns and
economic events while producing competitive returns for its shareholders. As a
result, assets under management have exhibited steady growth and reflect the
Funds' stable and loyal base of shareholders. With the addition of the Sierra
Funds and its shareholders, the total assets and customer base of the combined
mutual fund family will increase significantly.
Thank you for the trust and confidence you have placed in us. Our commitment to
excellence in investment performance and in shareholder service is unchanged. I
encourage you to return your card(s) or call (800) 848-3374 promptly, so you and
your fellow shareholders may enjoy the many benefits of a larger mutual fund
family as soon as possible.
Sincerely,
/s/ Keith B. Pipes
Keith B. Pipes
President
<PAGE>
SIERRA TRUST FUNDS
U.S. GOVERNMENT FUND
CORPORATE INCOME FUND
GROWTH AND INCOME FUND
GLOBAL MONEY FUND
U.S. GOVERNMENT MONEY FUND
NATIONAL MUNICIPAL FUND
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
DECEMBER 23, 1997
To the Shareholders:
Notice is hereby given that a Special Meeting of Shareholders of the U.S.
Government Fund, the Corporate Income Fund, the Growth and Income Fund, the
Global Money Fund, the U.S. Government Money Fund and the National Municipal
Fund (the "Funds"), each a series of the Sierra Trust Funds (the "Sierra
Trust"), will be held on Tuesday, December 23, 1997 at 11:00 a.m. Pacific
time, at the offices of Sierra Fund Administration Corporation, 9301 Corbin
Avenue, Suite 333, Northridge, California 91324, to consider the following:
1. To consider and act upon a proposal to elect the Board of Trustees. (TO BE
VOTED UPON BY THE SHAREHOLDERS OF ALL FUNDS.)
2. To approve or disapprove an Agreement and Plan of Reorganization providing
for the transfer of all of the assets of the Sierra Trust U.S. Government Fund
to the Composite U.S. Government Securities Fund, a series of The Composite
Funds (the "Composite Trust"), in exchange for shares of the Composite U.S.
Government Securities Fund and the assumption by the Composite U.S. Government
Securities Fund of all of the liabilities of the Sierra Trust U.S. Government
Fund, and the distribution of such shares to the shareholders of the Sierra
Trust U.S. Government Fund in complete liquidation of the Sierra Trust U.S.
Government Fund. (TO BE VOTED UPON BY THE SHAREHOLDERS OF THE SIERRA TRUST
U.S. GOVERNMENT FUND ONLY.)
3. To approve or disapprove an Agreement and Plan of Reorganization providing
for the transfer of all of the assets of the Sierra Trust Corporate Income
Fund to the Composite Income Fund, a series of the Composite Trust, in ex-
change for shares of the Composite Income Fund and the assumption by the Com-
posite Income Fund of all of the liabilities of the Sierra Trust Corporate In-
come Fund, and the distribution of such shares to the shareholders of the Si-
erra Trust Corporate Income Fund in complete liquidation of the Sierra Trust
Corporate Income Fund. (TO BE VOTED UPON BY THE SHAREHOLDERS OF THE SIERRA
TRUST CORPORATE INCOME FUND ONLY.)
4. To approve or disapprove an Agreement and Plan of Reorganization providing
for the transfer of all of the assets of the Sierra Trust Growth and Income
Fund to the Composite Growth & Income Fund, a series of the Composite Trust,
in exchange for shares of the Composite Growth & Income Fund and the assump-
tion by the Composite Growth & Income Fund of all of the liabilities of the
Sierra Trust Growth and Income Fund, and the distribution of such shares to
the shareholders of the Sierra Trust Growth and Income Fund in complete liqui-
dation of the Sierra Trust Growth and Income Fund. (TO BE VOTED UPON BY THE
SHAREHOLDERS OF THE SIERRA TRUST GROWTH AND INCOME FUND ONLY.)
5. To approve or disapprove an Agreement and Plan of Reorganization providing
for the transfer of all of the assets of the Sierra Trust Global Money Fund to
the Composite Money Market Fund, a series of the Composite Trust, in exchange
for shares of the Composite Money Market Fund and the assumption by the Com-
posite Money Market Fund of all of the liabilities of the Sierra Trust Global
Money Fund, and the distribution of such shares to the shareholders of the Si-
erra Trust Global Money Fund in complete liquidation of the Sierra Trust
Global Money Fund. (TO BE VOTED UPON BY THE SHAREHOLDERS OF THE SIERRA TRUST
GLOBAL MONEY FUND ONLY.)
6. To approve or disapprove an Agreement and Plan of Reorganization providing
for the transfer of all of the assets of the Sierra Trust U.S. Government
Money Fund to the Composite Money Market Fund, a series of the Composite
Trust, in exchange for shares of the Composite Money Market Fund and the as-
sumption by the
1
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Composite Money Market Fund of all of the liabilities of the Sierra Trust U.S.
Government Money Fund, and the distribution of such shares to the shareholders
of the Sierra Trust U.S. Government Money Fund in complete liquidation of the
Sierra Trust U.S. Government Money Fund. (TO BE VOTED UPON BY THE SHAREHOLDERS
OF THE SIERRA TRUST U.S. GOVERNMENT MONEY FUND ONLY.)
7. To approve or disapprove an Agreement and Plan of Reorganization providing
for the transfer of all of the assets of the Sierra Trust National Municipal
Fund to the Composite Tax-Exempt Bond Fund, a series of the Composite Trust,
in exchange for shares of the Composite Tax-Exempt Bond Fund and the assump-
tion by the Composite Tax-Exempt Bond Fund of all of the liabilities of the
Sierra Trust National Municipal Fund, and the distribution of such shares to
the shareholders of the Sierra Trust National Municipal Fund in complete liq-
uidation of the Sierra Trust National Municipal Fund. (TO BE VOTED UPON BY THE
SHAREHOLDERS OF THE SIERRA TRUST NATIONAL MUNICIPAL FUND ONLY.)
8. To transact such other business as may properly come before the meeting.
The Trustees have fixed the close of business on October 29, 1997 as the rec-
ord date for determination of shareholders entitled to notice of, and to vote
at, the Special Meeting.
By order of the Board of Trustees
Keith B. Pipes, President
November 7, 1997
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WE URGE YOU TO MARK, SIGN, DATE AND MAIL THE ENCLOSED PROXY IN THE
POSTAGE-PAID ENVELOPE PROVIDED SO THAT YOU WILL BE REPRESENTED AT THE
SPECIAL MEETING.
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2
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PROSPECTUS/PROXY STATEMENT
November 7, 1997
<TABLE>
<CAPTION>
ACQUISITION OF THE ASSETS OF: BY AND IN EXCHANGE FOR SHARES OF:
- ----------------------------- ---------------------------------
<S> <C>
U.S. Government Fund.................. Composite U.S. Government Securities Fund
Corporate Income Fund................. Composite Income Fund
Growth and Income Fund................ Composite Growth & Income Fund
Global Money Fund..................... Composite Money Market Fund
U.S. Government Money Fund............ Composite Money Market Fund
National Municipal Fund............... Composite Tax-Exempt Bond Fund
each a series of each a series of
Sierra Trust Funds The Composite Funds
P.O. Box 5118 601 West Main Avenue
Westboro, Massachusetts 01581 Spokane, Washington 99201
1-800-222-5852 1-800-543-8072
</TABLE>
This Prospectus/Proxy Statement relates to (i) the election of Trustees of
the Sierra Trust Funds (the "Sierra Trust") and (ii) the proposed mergers (the
"Mergers") of the Sierra Trust U.S. Government Fund (the "Sierra Government
Fund"), the Sierra Trust Corporate Income Fund (the "Sierra Income Fund"), the
Sierra Trust Growth and Income Fund (the "Sierra Growth & Income Fund"), the
Sierra Trust Global Money Fund (the "Sierra Global Money Fund"), the Sierra
Trust U.S. Government Money Fund (the "Sierra Government Money Fund") and the
Sierra Trust National Municipal Fund (the "Sierra Municipal Fund") (each an
"Acquired Fund"), each a series of the Sierra Trust, into, respectively, the
Composite U.S. Government Securities Fund, the Composite Income Fund, the Com-
posite Growth & Income Fund, the Composite Money Market Fund, the Composite
Money Market Fund and the Composite Tax-Exempt Bond Fund (each an "Acquiring
Fund"), each a series of The Composite Funds (the "Composite Trust"). The
Mergers are to be effected through the transfer of all of the assets of each
Acquired Fund to the corresponding Acquiring Fund in exchange for shares of
beneficial interest of the Acquiring Fund (the "Merger Shares") and the as-
sumption by the Acquiring Fund of all of the liabilities of the Acquired Fund,
followed by the distribution of the Merger Shares to the shareholders of the
Acquired Fund in liquidation of the Acquired Fund. As a result of each pro-
posed transaction, each shareholder of the Acquired Fund will receive in ex-
change for his or her Acquired Fund shares a number of Acquiring Fund shares
of the same class equal in value at the date of the exchange to the aggregate
value of the shareholder's Acquired Fund shares.
Because shareholders of the Acquired Funds are being asked to approve trans-
actions which will result in their receiving shares of the Acquiring Funds,
this Proxy Statement also serves as a Prospectus for the Merger Shares of each
Acquiring Fund. The investment objective of each Acquiring Fund is as follows:
(1) COMPOSITE U.S. GOVERNMENT SECURITIES FUND (the "Composite Government
Fund"), which has been in existence since 1982, seeks to provide a high level
of current income, consistent with safety and liquidity. It invests in obli-
gations issued or guaranteed by the U.S. Government, and in repurchase agree-
ments and collateralized mortgage obligations that are secured by those types
of obligations. In the future, this Fund may, pending shareholder approval,
be permitted to invest in all securities issued or guaranteed by agencies or
instrumentalities of the U.S. Government.
(2) COMPOSITE INCOME FUND (the "Composite Income Fund"), which has been in
existence since 1975, seeks to provide a high level of current income that is
consistent with protection of shareholders' capital. It pursues this objec-
tive through careful investment in a diversified pool of debt securities.
(3) COMPOSITE GROWTH & INCOME FUND (the "Composite Growth & Income Fund"),
which has been in existence since 1949, seeks to provide long-term capital
growth, with current income as a secondary consideration. It pursues this ob-
jective through investment in a diversified pool of common stocks and other
securities.
(4) COMPOSITE MONEY MARKET FUND (the "Composite Money Fund"), which has been
in
3
<PAGE>
existence since 1979, seeks to provide maximum current income, while preserv-
ing capital and maintaining liquidity. It pursues this objective through in-
vestment in high-quality money market instruments.
(5) COMPOSITE TAX-EXEMPT BOND FUND (the "Composite Tax-Exempt Fund"), which
has been in existence since 1976, seeks to provide a high level of income
that is exempt from federal taxes and to protect investors' capital. It in-
vests in bonds issued by states, counties, cities and other governmental bod-
ies whose bonds generate income exempt from federal tax.
THE COMPOSITE INCOME FUND AND THE COMPOSITE TAX-EXEMPT FUND MAY INVEST UP TO
35% OF THEIR ASSETS IN LOWER-RATED FIXED-INCOME SECURITIES COMMONLY KNOWN AS
"JUNK BONDS," WHICH ARE SUBJECT TO HIGH RISK AND WHICH ARE SPECULATIVE WITH
REGARD TO PAYMENT OF INTEREST AND RETURN OF PRINCIPAL. INVESTORS SHOULD CARE-
FULLY CONSIDER THESE RISKS BEFORE INVESTING IN THESE FUNDS. SEE "RISK FAC-
TORS."
AN INVESTMENT IN THE COMPOSITE MONEY FUND (OR IN ANY OTHER FUND) IS NEITHER
INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. THERE CAN BE NO ASSURANCE THAT
THE COMPOSITE MONEY FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF
$1.00 PER SHARE.
The Composite Trust is an open-end series management investment company, or-
ganized as a Massachusetts business trust, that has been formed as a successor
to the mutual funds managed by Composite Research & Management Co. ("CRM"),
which are currently organized as Washington corporations (or series thereof),
in order to streamline their operations. Immediately prior to and as a condi-
tion to the Merger (or Mergers) with the corresponding Acquired Fund (or
Funds), each Acquiring Fund identified in the numbered paragraphs above will
succeed to all of the assets and liabilities of, respectively, the following
Washington corporations (or series thereof) (the "Reorganizations"): (1) Com-
posite U.S. Government Securities, Inc., a Washington corporation; (2) Compos-
ite Income Fund, Inc., a Washington corporation; (3) Composite Growth & Income
Fund, the sole series of Composite Equity Series, Inc., a Washington corpora-
tion; (4) Composite Cash Management Company: Money Market Portfolio, a series
of Composite Cash Management Company, a Washington corporation; and (5) Com-
posite Tax Exempt Bond Fund, Inc., a Washington corporation.
The Acquired Funds and the Acquiring Funds are referred to in this
Prospectus/Proxy Statement as the "Funds," and the Sierra Trust and the Com-
posite Trust are referred to in this Prospectus/Proxy Statement as the
"Trusts." The term "Acquiring Funds" refers to such Funds and/or their prede-
cessors (i.e., both before and after the Reorganizations as series of the Com-
posite Trust), as the context requires.
This Prospectus/Proxy Statement explains concisely what you should know be-
fore investing in each Acquiring Fund. Please read it and keep it for future
reference.
The following documents have been filed with the Securities and Exchange Com-
mission (the "SEC") and are incorporated into this Prospectus/Proxy Statement
by reference: (i) the current Prospectus, dated April 30, 1997, of the Compos-
ite Bond Funds (including the Composite Government Fund, the Composite Income
Fund and the Composite Tax-Exempt Fund), the current Prospectus, dated Febru-
ary 28, 1997, of the Composite Equity Funds (including the Composite Growth &
Income Fund) and the current Prospectus, dated April 30, 1997, of Composite
Cash Management Company (including the Composite Money Fund), each as amended
or supplemented from time to time (the "Composite Prospectuses"); (ii) the
current Prospectuses of the Sierra Trust relating to the Acquired Funds, dated
October 31, 1997, as amended or supplemented from time to time, (the "Sierra
Prospectuses"); (iii) the current Statement of Additional Information of the
Sierra Trust, dated October 31, 1997, as amended or supplemented from time to
time (the "Sierra SAI"); (iv) the current Statements of Additional Information
of the Composite Bond Funds, dated April 30, 1997, the Composite Equity Funds,
dated February 28, 1997, and Composite Cash Management Company, dated April
30, 1997, each as amended or supplemented from time to time (the "Composite
SAIs"); (v) the Report of Independent Accountants and financial statements in
respect of each Acquired Fund included in the Sierra Trust's Annual Report to
Shareholders for the year ended June 30, 1997 (the "Sierra Annual Report");
(vi) the Report of Independent Accountants and financial statements (A) in re-
spect of each of the Composite Government Fund, the Composite Income Fund and
the Composite Tax-Exempt Fund included in the Composite Bond Funds Annual Re-
port to Shareholders for the year ended December 31, 1996, (B) in respect of
the Composite Growth & Income Fund contained in Composite Equity Funds Annual
4
<PAGE>
Report to Shareholders for the year ended October 31, 1996 and (C) in respect
of the Composite Money Fund contained in the Composite Cash Management Company
Annual Report to Shareholders for the year ended December 31, 1996 (all three
such Annual Reports collectively, the "Composite Annual Reports"); (vii) the
financial statements (A) in respect of each of the Composite Government Fund,
the Composite Income Fund and the Composite Tax-Exempt Fund contained in the
Composite Bond Funds Semi-Annual Report to Shareholders for the six months
ended June 30, 1997, (B) in respect of the Composite Growth & Income Fund con-
tained in the Composite Equity Funds Semi-Annual Report to Shareholders for
the six months ended April 30, 1997 and (C) in respect of the Composite Money
Fund contained in the Composite Cash Management Company Semi-Annual Report to
Shareholders for the six months ended June 30, 1997 (all three such Semi-An-
nual Reports collectively, the "Composite Semi-Annual Reports"); and (viii) a
Statement of Additional Information dated November 7, 1997 relating to the
transactions described in this Prospectus/Proxy Statement (the "Merger SAI").
For a free copy of any or all of the Prospectuses, Statements of Additional
Information, Annual Reports or Semi-Annual Reports referred to in the forego-
ing paragraph, please call 1-800-543-8072 or write to the Composite Trust at
the address appearing above.
THE SECURITIES OFFERED BY THIS PROSPECTUS/PROXY STATEMENT HAVE NOT BEEN AP-
PROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY
STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
SHARES OF THE ACQUIRING FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARAN-
TEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY,
AND INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
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5
<PAGE>
OVERVIEW OF MERGERS
PROPOSED TRANSACTIONS
The transactions described on the first page of this Prospectus/Proxy State-
ment are part of an overall restructuring of the registered investment compa-
nies (the "Composite/Sierra Mutual Funds") advised by CRM and Sierra Invest-
ment Advisors Corporation ("Sierra"). CRM, which has been in the business of
investment management since 1944, is a direct subsidiary of Washington Mutual,
Inc. ("Washington Mutual"), a financial services company, and Sierra is an in-
direct subsidiary of Washington Mutual as a result of the merger, which took
place on July 1, 1997, of Sierra's former indirect parent, Great Western Fi-
nancial Corporation, with and into a wholly-owned subsidiary of Washington Mu-
tual (the "Washington Mutual/Great Western Merger"). The restructuring in-
volves, among other components, several "mergers" between Funds in the
Composite/Sierra Mutual Funds family with similar investment objectives and
policies. The result of the restructuring will be a single, more integrated
mutual fund complex.
As part of the restructuring, the Directors of each Acquiring Fund and the
Trustees of each of the Composite Trust and the Sierra Trust, all of which are
open-end management investment companies, have approved transactions involv-
ing, for each Acquired Fund and the corresponding Acquiring Fund, (i) the Re-
organization of the Acquiring Fund from a stand-alone corporation (or series
thereof, in the case of the Composite Money Fund) to a series of the Composite
Trust, followed immediately by (ii) the Merger of the Acquired Fund into the
Acquiring Fund. Each Merger is proposed to be accomplished pursuant to an
Agreement and Plan of Reorganization providing for the transfer of all of the
assets of the Acquired Fund to the Acquiring Fund in exchange for the assump-
tion by the Acquiring Fund of all of the liabilities of the Acquired Fund and
for shares of the Acquiring Fund, followed by the liquidation of the Acquired
Fund.
Each Merger is conditioned on the Reorganization of the Acquiring Fund having
taken place, which is subject to approval of the Acquiring Fund's sharehold-
ers. A meeting of each Acquiring Fund's shareholders will be held on or about
December 23, 1997 to consider these and other matters. The Reorganizations
will not result in any changes in the investment objectives, policies and re-
strictions, assets and liabilities or management arrangements for the Acquir-
ing Funds. However, certain investment policies and restrictions of the Ac-
quiring Funds have been proposed to be changed, certain expense reimbursements
by CRM are proposed to be eliminated, and the distribution plan for the Class
A shares of the Acquiring Funds is proposed to be amended, in each case at or
about the time of the Reorganizations. The Reorganizations and the Mergers
would, if approved by shareholders, take place whether or not the proposed
changes in investment policies and restrictions, expense reimbursements and
distribution plans are approved. See Appendix C, "Proposed Changes to Invest-
ment Restrictions" and "Distribution Plans," and the Merger SAI for further
information.
CRM is the investment adviser to each Acquiring Fund, and Sierra is the in-
vestment adviser to each Acquired Fund. Sierra has delegated responsibility
for managing each Acquired Fund's portfolio to an investment subadviser unaf-
filiated with CRM or Sierra. These subadvisers are BlackRock Financial Manage-
ment, Inc. ("BlackRock") in the case of the Sierra Government Fund, TCW Funds
Management, Inc. ("TCW") in the case of the Sierra Income Fund, J.P. Morgan
Investment Management, Inc. ("J.P. Morgan") in the case of the Sierra Growth &
Income Fund and the Sierra Global Money Fund, Alliance Capital Management,
L.P. ("Alliance") in the case of the Sierra Government Money Fund and Van
Kampen American Capital Management Inc. ("Van Kampen") in the case of the Si-
erra Municipal Fund. The day-to-day management of each Acquiring Fund is han-
dled by portfolio management personnel at CRM and not by the current
subadvisers of the Acquired Funds. Consequently, if shareholders of an Ac-
quired Fund approve its Merger, that will effectively change the party respon-
sible for managing the assets of the Acquired Fund. However, each Acquiring
Fund has investment objectives substantially similar to the corresponding Ac-
quired Fund, which objectives and certain differences are explained further
below under "Comparison of Investment Objectives, Policies and Restrictions."
As a result of each proposed transaction, each Acquired Fund will receive a
number of Class A, Class B, Class I and Class S shares of the relevant Acquir-
ing Fund equal in value to the value of the net assets of the Acquired Fund
being transferred and attributable to the Class A, Class B, Class I and Class
S shares, respectively, of the Acquired Fund. Following the transfer, (i) the
Acquiring Fund will distribute to each of its Class A, Class B, Class I and
Class S shareholders a number of full and fractional Class A, Class B, Class I
and/or Class S Merger Shares of the relevant Acquiring
6
<PAGE>
Fund equal in value to the aggregate value of the shareholder's Class A, Class
B, Class I and/or Class S Acquired Fund shares, as the case may be, and (ii)
the Acquired Fund will be liquidated.
The Class A, Class B, Class I and Class S shares of each Acquiring Fund have
substantially similar characteristics to the corresponding classes of the re-
spective Acquired Fund. Class A shares are generally sold subject to a front-
end sales load and are subject to a servicing fee at an annual rate of 0.25%
of assets attributable to Class A shares. Class A shares are generally not
subject to a contingent deferred sales charge (a "CDSC"), except in the case
of certain purchases of Class A shares without a sales load which are redeemed
within two years after purchase. Class B and Class S shares are sold at net
asset value, without an initial sales charge but subject to a CDSC at declin-
ing rates if redeemed within six years of purchase. Class B and Class S shares
are subject to servicing and distribution fees at an aggregate annual rate of
1.00% of assets attributable to Class B or Class S shares and convert automat-
ically to Class A shares approximately eight years after purchase. Class I
shares are sold at net asset value, without an initial sales charge or CDSC,
are not subject to servicing or distribution fees and do not have a conversion
feature. The Acquiring Funds do not currently offer Class I or Class S shares,
but it is expected that they will begin offering such shares, in addition to
Class A and Class B shares, at or before the time that the Mergers are consum-
mated. No sales charge will be charged to Acquired Fund shareholders on the
issuance of the Merger Shares, and no CDSC will be charged to Acquired Fund
shareholders on the exchange of their Acquired Fund shares for the Merger
Shares. The Merger Shares will be subject to a CDSC on redemption to the same
extent that the Acquired Fund shares exchanged were so subject. For the pur-
poses of computing the CDSC, if any, payable on redemption of Class A, Class B
and Class S Merger Shares, and determining the conversion date of Class B and
Class S Merger Shares to Class A shares, the Merger Shares will be treated as
having been purchased as of the date that, and for the price (adjusted to re-
flect the Merger) at which, the Acquired Fund shares exchanged for such Merger
Shares were originally purchased.
As described more fully below, the Trustees of the Sierra Trust approved the
Mergers based on a thorough examination of CRM and among other things, a care-
ful review of CRM's investment capabilities, philosophy and performance. The
Trustees of the Sierra Trust unanimously recommend that shareholders of each
Acquired Fund approve the Merger for such Fund. In reaching that conclusion,
the Trustees considered that each Merger offers shareholders the opportunity
to pursue a substantially similar investment objective in a larger Fund, which
should offer economies of scale and opportunities for greater diversification
of risk; that the Mergers and the general restructuring of which they are a
part will offer broader exchange privileges as soon as a common servicing
agent can be introduced to all the Composite/Sierra Mutual Funds; that CRM has
estimated that the Mergers that should result in Fund operating expenses at
lower levels than have historically been experienced, except for the Sierra
Government Fund and the Sierra Global Money Fund, for which estimated operat-
ing expenses will not change significantly; and that CRM will be bearing the
expense of the Mergers and has voluntarily undertaken to waive, under certain
circumstances, a portion of its management fees for certain of the Acquiring
Funds for one year following the Merger. See "Operating Expenses" below and
"Background and Reasons for the Proposed Mergers."
OPERATING EXPENSES
As the following tables suggest, based on expense levels experienced by the
Funds in the past, the Mergers should result in shareholders receiving, in
some cases, significant reductions in the level of Fund expenses borne by such
shareholders compared to historical periods. Of course, there can be no assur-
ance that the Mergers will continue to result in expense savings for share-
holders. These tables summarize, for Class A, Class B, Class I and Class S
shares, expenses (i) that each Acquired Fund incurred in its fiscal year ended
June 30, 1997, (ii) that each Acquiring Fund incurred in its fiscal year ended
December 31 or October 31, 1996, as the case may be, restated to reflect fees
and expenses currently in effect (or to be put into effect, if approved by
shareholders, prior to the Mergers) for the Acquiring Funds, and (iii) that
each Acquiring Fund would have incurred in its most recent fiscal year after
giving effect on a pro forma combined basis to the proposed Merger, as if the
Merger had occurred as of the beginning of such fiscal year. Note that CRM has
voluntarily undertaken, following the Mergers, at least through December 31,
1998, to waive its management fee payable by each Acquiring Fund except the
Composite Money Fund to the extent necessary to prevent the overall expense
ratio
7
<PAGE>
of the Acquiring Fund from exceeding the corresponding Acquired Fund's expense
ratio for the year ended June 30, 1997 (after any voluntary waivers or reim-
bursements), and to waive its management fee payable by the Composite Money
Fund to the extent necessary to prevent the Class A expense ratio of such Fund
from exceeding 0.78% annually. The tables are provided to help you understand
an investor's share of the operating expenses which each fund incurs. The exam-
ples show the estimated cumulative expenses attributable to a hypothetical
$1,000 investment in each Acquired Fund, each Acquiring Fund on a pro forma ba-
sis, over specified periods.
8
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA EXPENSES
CURRENT EXPENSES CURRENT EXPENSES COMPOSITE GOVERNMENT
SIERRA GOVERNMENT FUND COMPOSITE GOVERNMENT FUND FUND
---------------------- ------------------------- --------------------
<S> <C> <C> <C>
SHAREHOLDER EXPENSES
- -----------------------------------------------------------------------------------------------
Maximum Sales Charge
Imposed on Purchase (as
a percentage of
offering price at the
time of purchase)
Class A................ 4.50% 4.50% 4.50%
Class B................ None None None
Class S................ None -- None
Class I................ None -- None
- -----------------------------------------------------------------------------------------------
Maximum Contingent
Deferred Sales Charge
Class A................ None(1) None(1) None(1)
Class B................ 5.00% 5.00% 5.00%
Class S................ 5.00% -- 5.00%
Class I................ None -- None
- -----------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of av-
erage net assets)
- -----------------------------------------------------------------------------------------------
Management Fees (after
voluntary waivers or
reimbursement)
Class A................ 0.22% 0.63% 0.50%
Class B................ 0.22% 0.63% 0.50%
Class S................ 0.22% -- 0.50%
Class I................ 0.22% -- 0.50%
- -----------------------------------------------------------------------------------------------
12b-1 Fees
Class A................ 0.25% 0.25%(4) 0.25%(4)
Class B(2)............. 1.00% 1.00% 1.00%
Class S(2)............. 1.00% -- 1.00%
Class I................ None -- None
- -----------------------------------------------------------------------------------------------
Other Expenses
Class A................ 0.53% 0.20% 0.22%
Class B................ 0.53% 0.22% 0.24%
Class S................ 0.53% -- 0.24%
Class I................ 0.53% -- 0.22%
- -----------------------------------------------------------------------------------------------
TOTAL FUND OPERATING EX-
PENSES
(after voluntary waiv-
ers or reimbursement)
Class A................ 1.00% 1.08% 0.97%
Class B................ 1.75% 1.85% 1.74%
Class S................ 1.75% -- 1.74%
Class I................ 0.75% -- 0.72%
- -----------------------------------------------------------------------------------------------
Management Fees without
voluntary waivers:
Class A................ 0.55%(3) 0.63% 0.50%
Class B................ 0.55%(3) 0.63% 0.50%
Class S................ 0.55%(3) -- 0.50%
Class I................ 0.55%(3) -- 0.50%
- -----------------------------------------------------------------------------------------------
TOTAL FUND OPERATING EX-
PENSES WITHOUT EXPENSE
WAIVERS AND REIMBURSE-
MENTS:
Class A................ 1.33% 1.08% 0.97%
Class B................ 2.08% 1.85% 1.74%
Class S................ 2.08% -- 1.74%
Class I................ 1.08% -- 0.72%
- -----------------------------------------------------------------------------------------------
</TABLE>
(1) Certain investors who purchase Class A shares at net asset value may be
subject to a contingent deferred sales charge of 1.00% or .50% on redemp-
tions of these shares during the first or second year after purchase, re-
spectively.
(2) Because of the ongoing nature of 12b-1 fees, long-term shareholders could
pay more than the economic equivalent of the maximum front-end sales
charge allowed by the National Association of Securities Dealers, Inc.
(3) Sierra has contractually agreed to limit its management fee to .55%.
(4) Restated to reflect the implementation of the proposed change of the Com-
posite Government Fund's Class A Rule 12b-1 plan from a "reimbursement
type" plan to a "compensation type" plan, which is proposed to take place,
assuming shareholder approval, at or about the time that the Merger is
consummated. If such change is not approved by the Composite Government
Fund's shareholders, 12b-1 fees for Class A shares may be lower.
9
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA EXPENSES
CURRENT EXPENSES CURRENT EXPENSES COMPOSITE INCOME
SIERRA INCOME FUND COMPOSITE INCOME FUND FUND
------------------ --------------------- ------------------
<S> <C> <C> <C>
SHAREHOLDER EXPENSES
- -------------------------------------------------------------------------------------
Maximum Sales Charge
Imposed on Purchase (as
a percentage of
offering price at the
time of purchase)
Class A................ 4.50% 4.50% 4.50%
Class B................ None None None
Class S................ None -- None
Class I................ None -- None
- -------------------------------------------------------------------------------------
Maximum Contingent
Deferred Sales Charge
Class A................ None(1) None(1) None(1)
Class B................ 5.00% 5.00% 5.00%
Class S................ 5.00% -- 5.00%
Class I................ None -- None
- -------------------------------------------------------------------------------------
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of
average net assets)
- -------------------------------------------------------------------------------------
Management Fees (after
voluntary waivers or
reimbursement)
Class A................ 0.45% 0.63% 0.60%
Class B................ 0.45% 0.63% 0.60%
Class S................ 0.45% -- 0.60%
Class I................ 0.45% -- 0.60%
- -------------------------------------------------------------------------------------
12b-1 Fees
Class A................ 0.25% 0.25%(3) 0.25%(3)
Class B(2)............. 1.00% 1.00% 1.00%
Class S(2)............. 1.00% -- 1.00%
Class I................ None -- None
- -------------------------------------------------------------------------------------
Other Expenses
Class A................ 0.50% 0.25% 0.25%
Class B................ 0.50% 0.26% 0.26%
Class S................ 0.50% -- 0.26%
Class I................ 0.50% -- 0.25%
- -------------------------------------------------------------------------------------
TOTAL FUND OPERATING
EXPENSES
(after voluntary
waivers or
reimbursement)
Class A................ 1.20% 1.13% 1.10%
Class B................ 1.95% 1.89% 1.86%
Class S................ 1.95% -- 1.86%
Class I................ 0.95% -- 0.85%
- -------------------------------------------------------------------------------------
Management Fees without
voluntary waivers:
Class A................ 0.65% 0.63% 0.60%
Class B................ 0.65% 0.63% 0.60%
Class S................ 0.65% -- 0.60%
Class I................ 0.65% -- 0.60%
- -------------------------------------------------------------------------------------
TOTAL FUND OPERATING
EXPENSES WITHOUT
EXPENSE WAIVERS AND
REIMBURSEMENTS:
Class A................ 1.40% 1.13% 1.10%
Class B................ 2.15% 1.89% 1.86%
Class S................ 2.15% -- 1.86%
Class I................ 1.15% -- 0.85%
- -------------------------------------------------------------------------------------
</TABLE>
(1) Certain investors who purchase Class A shares at net asset value may be
subject to a contingent deferred sales charge of 1.00% or .50% on redemp-
tions of these shares during the first or second year after purchase, re-
spectively.
(2) Because of the ongoing nature of 12b-1 fees, long-term shareholders could
pay more than the economic equivalent of the maximum front-end sales
charge allowed by the National Association of Securities Dealers, Inc.
(3) Restated to reflect the implementation of the proposed change of the Com-
posite Income Fund's Class A Rule 12b-1 plan from a "reimbursement type"
plan to a "compensation type" plan, which is proposed to take place, as-
suming shareholder approval, at or about the time that the Merger is con-
summated. If such change is not approved by the Composite Income Fund's
shareholders, 12b-1 fees for Class A shares may be lower.
10
<PAGE>
<TABLE>
<CAPTION>
CURRENT EXPENSES CURRENT EXPENSES PRO FORMA EXPENSES
SIERRA GROWTH & COMPOSITE GROWTH & COMPOSITE GROWTH &
INCOME FUND INCOME FUND INCOME FUND
---------------- ------------------ ------------------
<S> <C> <C> <C>
SHAREHOLDER EXPENSES
- --------------------------------------------------------------------------------
Maximum Sales Charge
Imposed on Purchase
(as a percentage of
offering price at the
time of purchase)
Class A................ 5.75% 5.75% 5.75%
Class B................ None None None
Class S................ None -- None
Class I................ None -- None
- --------------------------------------------------------------------------------
Maximum Contingent
Deferred Sales Charge
Class A................ None(1) None(1) None(1)
Class B................ 5.00% 5.00% 5.00%
Class S................ 5.00% -- 5.00%
Class I................ None -- None
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of
average net assets)
- --------------------------------------------------------------------------------
Management Fees
Class A................ 0.74% 0.63% 0.60%
Class B................ 0.74% 0.63% 0.60%
Class S................ 0.74% -- 0.60%
Class I................ 0.74% -- 0.60%
- --------------------------------------------------------------------------------
12b-1 Fees
Class A................ 0.25% 0.25%(3) 0.25%(3)
Class B(2)............. 1.00% 1.00% 1.00%
Class S(2)............. 1.00% -- 1.00%
Class I................ None -- None
- --------------------------------------------------------------------------------
Other Expenses
Class A................ 0.51% 0.23% 0.23%
Class B................ 0.51% 0.31% 0.31%
Class S................ 0.51% -- 0.31%
Class I................ 0.51% -- 0.23%
- --------------------------------------------------------------------------------
TOTAL FUND OPERATING
EXPENSES
Class A................ 1.50% 1.11% 1.08%
Class B................ 2.25% 1.94% 1.91%
Class S................ 2.25% -- 1.91%
Class I................ 1.25% -- 0.83%
- --------------------------------------------------------------------------------
</TABLE>
(1) Certain investors who purchase Class A shares at net asset value may be
subject to a contingent deferred sales charge of 1.00% or .50% on redemp-
tions of these shares during the first or second year after purchase, re-
spectively.
(2) Because of the ongoing nature of 12b-1 fees, long-term shareholders could
pay more than the economic equivalent of the maximum front-end sales
charge allowed by the National Association of Securities Dealers, Inc.
(3) Restated to reflect the implementation of the proposed change of the Com-
posite Growth & Income Fund's Class A Rule 12b-1 plan from a "reimburse-
ment type" plan to a "compensation type" plan, which is proposed to take
place, assuming shareholder approval, at or about the time that the Merger
is consummated. If such change is not approved by the Composite Growth &
Income Fund's shareholders, 12b-1 fees for Class A shares may be lower.
11
<PAGE>
<TABLE>
<CAPTION>
CURRENT EXPENSES PRO FORMA EXPENSES
CURRENT EXPENSES COMPOSITE MONEY COMPOSITE MONEY
SIERRA GLOBAL MONEY FUND FUND FUND(1)
------------------------ ---------------- ------------------
<S> <C> <C> <C>
SHAREHOLDER EXPENSES
- --------------------------------------------------------------------------------------
Maximum Sales Charge
Imposed on Purchase
(as a percentage of
offering price at the
time of purchase)
Class A................ None None None
Class B................ None None None
Class S................ None -- None
Class I................ None -- None
- --------------------------------------------------------------------------------------
Maximum Contingent
Deferred Sales Charge
Class A................ None(2) None None
Class B................ 5.00% 5.00% 5.00%
Class S................ 5.00% -- 5.00%
Class I................ None -- None
- --------------------------------------------------------------------------------------
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of
average net assets)
- --------------------------------------------------------------------------------------
Management Fees (after
voluntary waivers or
reimbursement)
Class A................ 0.08% 0.35% 0.35%(4)
Class B................ 0.08% 0.35% 0.35%(4)
Class S................ 0.08% -- 0.35%(4)
Class I................ 0.08% -- 0.35%(4)
- --------------------------------------------------------------------------------------
12b-1 Fees
Class A................ 0.25% None(5) None(5)
Class B(3)............. 1.00% 1.00% 1.00%
Class S(3)............. 1.00% -- 1.00%
Class I................ None -- None
- --------------------------------------------------------------------------------------
Other Expenses
Class A................ 0.52% 0.43% 0.43%
Class B................ 0.52% 0.43% 0.43%
Class S................ 0.52% -- 0.43%
Class I................ 0.52% -- 0.43%
- --------------------------------------------------------------------------------------
TOTAL FUND OPERATING
EXPENSES
(after voluntary
waivers or
reimbursement)
Class A................ 0.85% 0.78% 0.78%(4)
Class B................ 1.60% 1.78% 1.78%(4)
Class S................ 1.60% -- 1.78%(4)
Class I................ 0.60% -- 0.78%(4)
- --------------------------------------------------------------------------------------
Management fees without
voluntary waivers:
Class A................ 0.40%(6) 0.45% 0.45%
Class B................ 0.40%(6) 0.45% 0.45%
Class S................ 0.40%(6) -- 0.45%
Class I................ 0.40%(6) -- 0.45%
- --------------------------------------------------------------------------------------
TOTAL FUND OPERATING
EXPENSES WITHOUT
EXPENSE WAIVERS AND
REIMBURSEMENTS:
Class A................ 1.17% 0.88% 0.88%
Class B................ 1.92% 1.88% 1.88%
Class S................ 1.92% -- 1.88%
Class I................ 0.92% -- 0.88%
- --------------------------------------------------------------------------------------
</TABLE>
(1) For Merger with Sierra Global Money Fund only. Does not take into account
the possible Merger with the Sierra Government Money Fund, which would
tend to reduce fund operating expenses.
(2) Certain investors who purchase Class A shares at net asset value may be
subject to a contingent deferred sales charge of 1.00% or .50% on
redemptions of these shares during the first or second year after
purchase, respectively.
(3) Because of the ongoing nature of 12b-1 fees, long-term shareholders could
pay more than the economic equivalent of the maximum front-end sales
charge allowed by the National Association of Securities Dealers, Inc.
(4) CRM has voluntarily undertaken to waive its management fee to the extent
necessary to limit Class A total expenses of the merged Composite Money
Fund to .78% until December 31, 1998.
(5) The Fund currently pays no 12b-1 fees, but the Composite Trust's Trustees
have the authority, without shareholder approval, to authorize the payment
of up to 0.15% annually of average daily net assets.
(6) Sierra has contractually agreed to limit its management fee to .40%.
12
<PAGE>
<TABLE>
<CAPTION>
CURRENT EXPENSES CURRENT EXPENSES PRO FORMA EXPENSES
SIERRA GOVERNMENT COMPOSITE MONEY COMPOSITE MONEY
MONEY FUND FUND FUND (1)
------------------ ---------------- ------------------
<S> <C> <C> <C>
SHAREHOLDER EXPENSES
- --------------------------------------------------------------------------------
Maximum Sales Charge
Imposed on Purchase
(as a percentage of
offering price at the
time of purchase)
Class A................ None None None
Class B................ None None None
Class S................ None -- None
Class I................ None -- None
- --------------------------------------------------------------------------------
Maximum Contingent
Deferred Sales Charge
Class A................ None(2) None None
Class B................ 5.00% 5.00% 5.00%
Class S................ 5.00% -- 5.00%
Class I................ None -- None
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of
average net assets)
- --------------------------------------------------------------------------------
Management Fees (after
voluntary waivers or
reimbursement)
Class A................ 0.00% 0.35% 0.34%(4)
Class B................ 0.00% 0.35% 0.34%(4)
Class S................ 0.00% -- 0.34%(4)
Class I................ 0.00% -- 0.34%(4)
- --------------------------------------------------------------------------------
12b-1 Fees
Class A................ 0.25% None(5) None(5)
Class B(3)............. 1.00% 1.00% 1.00%
Class S(3)............. 1.00% -- 1.00%
Class I................ None -- None
- --------------------------------------------------------------------------------
Other Expenses
Class A................ 0.60% 0.43% 0.44%
Class B................ 0.60% 0.43% 0.44%
Class S................ 0.60% -- 0.44%
Class I................ 0.60% -- 0.44%
- --------------------------------------------------------------------------------
TOTAL FUND OPERATING
EXPENSES
(after voluntary
waivers or
reimbursement)
Class A................ 0.85% 0.78% 0.78%(4)
Class B................ 1.60% 1.78% 1.78%(4)
Class S................ 1.60% -- 1.78%(4)
Class I................ 0.60% -- 0.78%(4)
- --------------------------------------------------------------------------------
Management fees without
voluntary waivers:
Class A................ 0.40%(6) 0.45% 0.45%
Class B................ 0.40%(6) 0.45% 0.45%
Class S................ 0.40%(6) -- 0.45%
Class I................ 0.40%(6) -- 0.45%
- --------------------------------------------------------------------------------
TOTAL FUND OPERATING
EXPENSES WITHOUT
EXPENSE WAIVERS AND
REIMBURSEMENTS:
Class A................ 1.25% 0.88% 0.89%
Class B................ 2.00% 1.88% 1.89%
Class S................ 2.00% -- 1.89%
Class I................ 1.00% -- 0.89%
- --------------------------------------------------------------------------------
</TABLE>
(1) For Merger with Sierra Government Money Fund only. Does not take into ac-
count the possible Merger with the Sierra Global Money Fund, which would
tend to reduce Fund operating expenses.
(2) Certain investors who purchase Class A shares at net asset value may be
subject to a contingent deferred sales charge of 1.00% or .50% on redemp-
tions of these shares during the first or second year after purchase, re-
spectively.
(3) Because of the ongoing nature of 12b-1 fees, long-term shareholders could
pay more than the economic equivalent of the maximum front-end sales
charge allowed by the National Association of Securities Dealers, Inc.
(4) CRM has voluntarily undertaken to waive its management fee to the extent
necessary to limit Class A total expenses of the merged Composite Money
Fund to .78% until December 31, 1998.
(5) The Fund currently pays no 12b-1 fees, but the Composite Trust's Trustees
have the authority, without shareholder approval, to authorize the payment
of up to 0.15% annually of average daily net assets.
(6) Sierra has contractually agreed to limit its management fee to .40%.
13
<PAGE>
<TABLE>
<CAPTION>
CURRENT EXPENSES CURRENT EXPENSES PRO FORMA EXPENSES
SIERRA COMPOSITE COMPOSITE
MUNICIPAL FUND TAX-EXEMPT FUND TAX-EXEMPT FUND
---------------- ---------------- ------------------
<S> <C> <C> <C>
SHAREHOLDER EXPENSES
- --------------------------------------------------------------------------------
Maximum Sales Charge
Imposed on Purchase
(as a percentage of
offering price at the
time of purchase)
Class A.................. 4.50% 4.50% 4.50%
Class B.................. None None None
Class S.................. None -- None
Class I.................. None -- None
- --------------------------------------------------------------------------------
Maximum Contingent
Deferred Sales Charge
Class A.................. None(1) None(1) None(1)
Class B.................. 5.00% 5.00% 5.00%
Class S.................. 5.00% -- 5.00%
Class I.................. None -- None
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of
average net assets)
- --------------------------------------------------------------------------------
Management Fees (after
voluntary waivers or
reimbursement)
Class A.................. 0.41% 0.50% 0.50%
Class B.................. 0.41% 0.50% 0.50%
Class S.................. 0.41% -- 0.50%
Class I.................. 0.41% -- 0.50%
- --------------------------------------------------------------------------------
12b-1 Fees
Class A.................. 0.25% 0.25%(3) 0.25%(3)
Class B(2)............... 1.00% 1.00% 1.00%
Class S(2)............... 1.00% -- 1.00%
Class I.................. None -- None
- --------------------------------------------------------------------------------
Other Expenses
Class A.................. 0.44% 0.10% 0.10%
Class B.................. 0.44% 0.15% 0.15%
Class S.................. 0.44% -- 0.15%
Class I.................. 0.44% -- 0.10%
- --------------------------------------------------------------------------------
TOTAL FUND OPERATING
EXPENSES
(after voluntary waivers
or reimbursement)
Class A.................. 1.10% 0.85% 0.85%
Class B.................. 1.85% 1.65% 1.65%
Class S.................. 1.85% -- 1.65%
Class I.................. 0.85% -- 0.60%
- --------------------------------------------------------------------------------
Management Fees without
voluntary waivers:
Class A.................. 0.55%(4) 0.50% 0.50%
Class B.................. 0.55%(4) 0.50% 0.50%
Class S.................. 0.55%(4) -- 0.50%
Class I.................. 0.55%(4) -- 0.50%
- --------------------------------------------------------------------------------
TOTAL FUND OPERATING
EXPENSES WITHOUT EXPENSE
WAIVERS AND
REIMBURSEMENTS:
Class A.................. 1.24% 0.85% 0.85%
Class B.................. 1.99% 1.65% 1.65%
Class S.................. 1.99% -- 1.65%
Class I.................. 0.99% -- 0.60%
- --------------------------------------------------------------------------------
</TABLE>
(1) Certain investors who purchase Class A shares at net asset value may be
subject to a contingent deferred sales charge of 1.00% or .50% on redemp-
tions of these shares during the first or second year after purchase, re-
spectively.
(2) Because of the ongoing nature of 12b-1 fees, long-term shareholders could
pay more than the economic equivalent of the maximum front-end sales
charge allowed by the National Association of Securities Dealers Inc.
(3) Restated to reflect the implementation of the proposed change of the Com-
posite Tax-Exempt Fund's Class A Rule 12b-1 plan from a "reimbursement
type" plan to a "compensation type" plan, which is proposed to take place,
assuming shareholder approval, at or about the time that the Merger is
consummated. If such change is not approved by the Composite Tax-Exempt
Fund's shareholders, 12b-1 fees for Class A shares may be lower.
(4) Sierra has contractually agreed to limit its management fee to .55%.
14
<PAGE>
EXAMPLES OF FUND EXPENSES:
An investment of $1,000 would incur the following expenses, assuming (1) 5%
annual return and (2) unless otherwise indicated, redemption at the end of
each time period:
<TABLE>
<CAPTION>
CURRENT EXPENSES PRO FORMA EXPENSES
CURRENT EXPENSES COMPOSITE COMPOSITE
SIERRA GOVERNMENT FUND GOVERNMENT FUND GOVERNMENT FUND
---------------------- ---------------- ------------------
<S> <C> <C> <C>
Class A(1)
1 year................. $ 55 $ 56 $ 54
3 years................ $ 75 $ 78 $ 75
5 years................ $ 98 $102 $ 96
10 years............... $162 $171 $159
- ------------------------------------------------------------------------------------
Class B (assuming
redemption at end of
period)(2)
1 year................. $ 68 $ 60 $ 68
3 years................ $ 85 $ 91 $ 85
5 years................ $115 $112 $114
10 years............... $206(3) $197(4) $185(4)
- ------------------------------------------------------------------------------------
Class B (assuming no
redemption)(5)
1 year................. $ 18 $ 19 $ 18
3 years................ $ 55 $ 58 $ 55
5 years................ $ 95 $100 $ 94
10 years............... $206(3) $197(4) $185(4)
- ------------------------------------------------------------------------------------
Class S (assuming
redemption at end of
period)(2)
1 year................. $ 68 -- $ 68
3 years................ $ 85 -- $ 85
5 years................ $115 -- $114
10 years............... $206(3) -- $185(4)
- ------------------------------------------------------------------------------------
Class S (assuming no
redemption)(5)
1 year................. $ 18 -- $ 18
3 years................ $ 55 -- $ 55
5 years................ $ 95 -- $ 94
10 years............... $206(3) -- $185(4)
- ------------------------------------------------------------------------------------
Class I
1 year................. $ 8 -- $ 7
3 years................ $ 24 -- $ 23
5 years................ $ 42 -- $ 40
10 years............... $ 93 -- $ 89
- ------------------------------------------------------------------------------------
</TABLE>
See footnotes on page 20.
15
<PAGE>
<TABLE>
<CAPTION>
CURRENT EXPENSES PRO FORMA EXPENSES
CURRENT EXPENSES COMPOSITE COMPOSITE
SIERRA INCOME FUND INCOME FUND INCOME FUND
------------------ ---------------- ------------------
<S> <C> <C> <C>
Class A(1)
1 year................. $ 57 $ 56 $ 56
3 years................ $ 81 $ 79 $ 78
5 years................ $108 $104 $103
10 years............... $184 $176 $173
- --------------------------------------------------------------------------------
Class B (assuming
redemption at end of
period)(2)
1 year................. $ 70 $ 60 $ 69
3 years................ $ 91 $ 92 $ 88
5 years................ $125 $114 $121
10 years............... $227(3) $201(4) $198(4)
- --------------------------------------------------------------------------------
Class B (assuming no
redemption)(5)
1 year................. $ 20 $ 19 $ 19
3 years................ $ 61 $ 59 $ 58
5 years................ $105 $102 $101
10 years............... $227(3) $201(4) $198(4)
- --------------------------------------------------------------------------------
Class S (assuming
redemption at end of
period)(2)
1 year................. $ 70 -- $ 69
3 years................ $ 91 -- $ 88
5 years................ $125 -- $121
10 years............... $227(3) -- $198(4)
- --------------------------------------------------------------------------------
Class S (assuming no
redemption)(5)
1 year................. $ 20 -- $ 19
3 years................ $ 61 -- $ 58
5 years................ $105 -- $101
10 years............... $227(3) -- $198(4)
- --------------------------------------------------------------------------------
Class I
1 year................. $ 10 -- $ 9
3 years................ $ 30 -- $ 27
5 years................ $ 53 -- $ 47
10 years............... $117 -- $105
- --------------------------------------------------------------------------------
</TABLE>
See footnotes on page 20.
16
<PAGE>
<TABLE>
<CAPTION>
CURRENT EXPENSES CURRENT EXPENSES PRO FORMA EXPENSES
SIERRA COMPOSITE COMPOSITE
GROWTH & INCOME FUND GROWTH & INCOME FUND GROWTH & INCOME FUND
-------------------- -------------------- --------------------
<S> <C> <C> <C>
Class A(1)
1 year................. $ 72 $ 68 $ 68
3 years................ $102 $ 91 $ 90
5 years................ $135 $115 $114
10 years............... $226 $185 $182
- ----------------------------------------------------------------------------------------
Class B (assuming
redemption at end of
period)(2)
1 year................. $ 73 $ 61 $ 69
3 years................ $100 $ 94 $ 90
5 years................ $140 $116 $123
10 years............... $258(3) $205(4) $202(4)
- ----------------------------------------------------------------------------------------
Class B (assuming no
redemption)(5)
1 year................. $ 23 $ 20 $ 19
3 years................ $ 70 $ 61 $ 60
5 years................ $120 $105 $103
10 years............... $258(3) $205(4) $202(4)
- ----------------------------------------------------------------------------------------
Class S (assuming
redemption at end of
period)(2)
1 year................. $ 73 -- $ 69
3 years................ $100 -- $ 90
5 years................ $140 -- $123
10 years............... $258(3) -- $202(4)
- ----------------------------------------------------------------------------------------
Class S (assuming no
redemption)(5)
1 year................. $ 23 -- $ 19
3 years................ $ 70 -- $ 60
5 years................ $120 -- $103
10 years............... $258(3) -- $202(4)
- ----------------------------------------------------------------------------------------
Class I
1 year................. $ 13 -- $ 8
3 years................ $ 40 -- $ 26
5 years................ $ 69 -- $ 46
10 years............... $151 -- $103
- ----------------------------------------------------------------------------------------
</TABLE>
See footnotes on page 20.
17
<PAGE>
<TABLE>
<CAPTION>
CURRENT EXPENSES CURRENT EXPENSES PRO FORMA EXPENSES
SIERRA GLOBAL COMPOSITE COMPOSITE
MONEY FUND MONEY FUND MONEY FUND
---------------- ---------------- ------------------
<S> <C> <C> <C>
Class A
1 year................... $ 9 $ 8 $ 8
3 years.................. $ 27 $ 25 $ 25
5 years.................. $ 47 $ 43 $ 43
10 years................. $105 $ 97 $ 97
- --------------------------------------------------------------------------------
Class B (assuming
redemption at end of
period)(2)
1 year................... $ 66 $ 59 $ 68
3 years.................. $ 81 $ 89 $ 86
5 years.................. $107 $108 $116
10 years................. $190(3) $183(4) $183(4)
- --------------------------------------------------------------------------------
Class B (assuming no
redemption)(5)
1 year................... $ 16 $ 18 $ 18
3 years.................. $ 51 $ 56 $ 56
5 years.................. $ 87 $ 96 $ 96
10 years................. $190(3) $183(4) $183(4)
- --------------------------------------------------------------------------------
Class S (assuming
redemption at end of
period)(2)
1 year................... $ 66 -- $ 68
3 years.................. $ 81 -- $ 86
5 years.................. $107 -- $116
10 years................. $190(3) -- $183(4)
- --------------------------------------------------------------------------------
Class S (assuming no
redemption)(5)
1 year................... $ 16 -- $ 18
3 years.................. $ 51 -- $ 56
5 years.................. $ 87 -- $ 96
10 years................. $190(3) -- $183(4)
- --------------------------------------------------------------------------------
Class I
1 year................... $ 6 -- $ 8
3 years.................. $ 19 -- $ 25
5 years.................. $ 33 -- $ 43
10 years................. $ 75 -- $ 97
- --------------------------------------------------------------------------------
</TABLE>
See footnotes on page 20.
18
<PAGE>
<TABLE>
<CAPTION>
CURRENT EXPENSES CURRENT EXPENSES PRO FORMA EXPENSES
SIERRA GOVERNMENT COMPOSITE COMPOSITE
MONEY FUND MONEY FUND MONEY FUND
----------------- ---------------- ------------------
<S> <C> <C> <C>
Class A
1 year.................. $ 9 $ 8 $ 8
3 years................. $ 27 $ 25 $ 25
5 years................. $ 47 $ 43 $ 43
10 years................ $105 $ 97 $ 97
- --------------------------------------------------------------------------------
Class B (assuming
redemption at end of
period)(2)
1 year.................. $ 66 $ 59 $ 68
3 years................. $ 81 $ 89 $ 86
5 years................. $107 $108 $116
10 years................ $190(3) $183(4) $183(4)
- --------------------------------------------------------------------------------
Class B (assuming no
redemption)(5)
1 year.................. $ 16 $ 18 $ 18
3 years................. $ 51 $ 56 $ 56
5 years................. $ 87 $ 96 $ 96
10 years................ $190(3) $183(4) $183(4)
- --------------------------------------------------------------------------------
Class S (assuming
redemption at end of
period)(2)
1 year.................. $ 66 -- $ 68
3 years................. $ 81 -- $ 86
5 years................. $107 -- $116
10 years................ $190(3) -- $183(4)
- --------------------------------------------------------------------------------
Class S (assuming no
redemption)(5)
1 year.................. $ 16 -- $ 18
3 years................. $ 51 -- $ 56
5 years................. $ 87 -- $ 96
10 years................ $190(3) -- $183(4)
- --------------------------------------------------------------------------------
Class I
1 year.................. $ 6 -- $ 8
3 years................. $ 19 -- $ 25
5 years................. $ 33 -- $ 43
10 years................ $ 75 -- $ 97
- --------------------------------------------------------------------------------
</TABLE>
See footnotes on following page.
19
<PAGE>
<TABLE>
<CAPTION>
CURRENT EXPENSES PRO FORMA EXPENSES
CURRENT EXPENSES COMPOSITE COMPOSITE
SIERRA MUNICIPAL FUND TAX-EXEMPT FUND TAX-EXEMPT FUND
--------------------- ---------------- ------------------
<S> <C> <C> <C>
Class A(1)
1 year................. $ 56 $ 53 $ 53
3 years................ $ 78 $ 71 $ 71
5 years................ $103 $ 90 $ 90
10 years............... $173 $145 $145
- -----------------------------------------------------------------------------------
Class B (assuming
redemption at end of
period)(2)
1 year................. $ 69 $ 58 $ 67
3 years................ $ 88 $ 85 $ 82
5 years................ $120 $101 $110
10 years............... $217(3) $174(4) $174(4)
- -----------------------------------------------------------------------------------
Class B (assuming no
redemption)(5)
1 year................. $ 19 $ 17 $ 17
3 years................ $ 58 $ 52 $ 52
5 years................ $100 $ 90 $ 90
10 years............... $217(3) $174(4) $174(4)
- -----------------------------------------------------------------------------------
Class S (assuming
redemption at end of
period)(2)
1 year................. $ 69 -- $ 67
3 years................ $ 88 -- $ 82
5 years................ $120 -- $110
10 years............... $217(3) -- $174(4)
- -----------------------------------------------------------------------------------
Class S (assuming no
redemption)(5)
1 year................. $ 19 -- $ 17
3 years................ $ 58 -- $ 52
5 years................ $100 -- $ 90
10 years............... $217(3) -- $174(4)
- -----------------------------------------------------------------------------------
Class I
1 year................. $ 9 -- $ 6
3 years................ $ 27 -- $ 19
5 years................ $ 47 -- $ 33
10 years............... $105 -- $ 75
- -----------------------------------------------------------------------------------
</TABLE>
(1) Assumes deduction at time of purchase of the maximum initial sales charge.
(2) Assumes deduction of the maximum CDSC.
(3) Assumes that conversion to Class A shares does not occur.
(4) Assumes conversion to Class A shares after eight years; therefore, re-
flects Class A expenses in years nine and ten.
(5) Assumes no deduction of CDSC.
THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FU-
TURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN. FEDERAL REGULATIONS REQUIRE THE EXAMPLES TO ASSUME A 5% ANNUAL
RETURN, BUT ACTUAL ANNUAL RETURN WILL VARY.
20
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
Except in the case of the Mergers of the Sierra Global Money Fund and the Si-
erra Government Money Fund, for federal income tax purposes no gain or loss
will be recognized by an Acquired Fund or its shareholders as a result of the
Merger, and the tax basis of the Merger Shares received by each Acquired Fund
shareholder will be the same as the tax basis of the shareholder's Acquired
Fund shares. In the case of the Mergers of the Sierra Global Money Fund and
the Sierra Government Money Fund, shareholders may recognize gain or loss as a
result of the Merger; however, because these Funds attempt to maintain a sta-
ble net asset value of $1.00 per share, the amount of any such gain or loss is
expected to be negligible. See "Information about the Mergers--Federal Income
Tax Consequences."
- -------------------------------------------------------------------------------
COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
Each Acquiring Fund has investment objectives that are substantially similar
to those of the corresponding Acquired Fund. The investment objectives, poli-
cies and restrictions of the Acquired Funds and the Acquiring Funds, and cer-
tain differences between them, are summarized below. For a more detailed de-
scription of the investment techniques used by the Acquired Funds and the Ac-
quiring Funds, please see Appendix C to this Prospectus/Proxy Statement, the
Merger SAI, the Composite Prospectuses and the Composite SAIs (regarding the
Acquiring Funds) and the Sierra Prospectuses and the Sierra SAI (regarding the
Acquired Funds). Please refer to Appendix C for a detailed description of the
pending changes to the fundamental investment restrictions of the Acquiring
Funds and the risks involved in the investments contemplated thereby.
Sierra Government Fund vs. Composite Government Fund
The Composite Government Fund and the Sierra Government Fund have substan-
tially similar investment objectives. The Sierra Government Fund attempts to
maximize total rate of return while providing a high level of current income,
consistent with reasonable safety of principal. The Composite Government Fund
seeks to maintain a high level of current income, consistent with safety and
liquidity. However, unlike the Sierra Government Fund, the Composite Govern-
ment Fund does not attempt to provide a constant dividend level and, there-
fore, dividends may vary from month to month. The total return for the Compos-
ite Government Fund and the Sierra Government Fund is set forth in the chart
below. Because of the different management styles, however, the relative con-
tributions of the two components of total return (i.e., current income and
capital appreciation) varied between the Composite Government Fund and the Si-
erra Government Fund. The yield (calculated in accordance with SEC regula-
tions) of the Composite Government Fund was 5.61% versus 6.50% for the Sierra
Government Fund during the 30-day period ended September 30, 1997, and aver-
aged 5.77% and 6.35%, respectively, over the 12-month period ended September
30, 1997.
TOTAL RETURN COMPARISON
AS OF 9/30/97*
<TABLE>
<CAPTION>
SINCE
5 YEARS 7/25/89
1 YEAR ANNUALIZED ANNUALIZED
------ ---------- ----------
<S> <C> <C> <C>
Composite Government Fund.......................... 5.57% 5.23% 7.21%
Sierra Government Fund............................. 5.20% 4.39% 6.81%
</TABLE>
* Performance is for Class A Shares of both Funds. Fund performance data is
after all expenses and sales charges. During the periods noted, the advisor,
administrator and distributor of the Sierra Government Fund waived a portion
of their fees and the advisor and administrator absorbed certain other ex-
penses. In the absence of the waivers and expense absorption, yields and total
returns would have been lower. No such waivers or absorption of expenses ap-
plied to the Composite Government Fund. Performance information is shown since
July 25, 1989, when the Sierra Government Fund commenced operations. For fur-
ther information about the Composite Government Fund's performance, see Appen-
dix C.
The Composite Government Fund is required to invest at least 80% of its as-
sets in obligations issued or guaranteed by the U.S. Government, or in repur-
chase agreements or collateralized mortgage obligations ("CMOs") secured by
these obligations. It is a fundamental investment policy of the Composite Gov-
ernment Fund to invest, under normal market conditions, only in obligations
issued by, or guaranteed by the full faith and credit of, the U.S. Government,
including certificates of the Government National Mortgage Association
("GNMA") of the modified pass-through type, CMOs and real estate mortgage in-
vestment conduits which represent ownership in underlying GNMA certificates or
mortgages
21
<PAGE>
insured by GNMA, and repurchase agreements which are secured by the obliga-
tions identified above. See "Risk Factors--Interest Rate Risk."
The Sierra Government Fund must invest at least 65% of its assets in interme-
diate- and long-term securities of the U.S. Government, including its agen-
cies, instrumentalities and political subdivisions. In addition to obligations
issued or guaranteed by the U.S. Government, the Sierra Government Fund may
invest in securities issued or guaranteed by the Federal National Mortgage As-
sociation and the Federal Home Loan Mortgage Corporation, as well as other
U.S. Government agencies and instrumentalities. These obligations are not
backed by the full faith and credit of the United States, and are therefore
considered to be subject to some risk of default. See also "Risk Factors--In-
terest Rate Risk."
It is expected that, subject to the approval of shareholders of the Composite
Government Fund, certain of the fundamental investment restrictions currently
in effect for the Composite Government Fund will be modified or eliminated
prior to the Merger. See Appendix C, "Proposed Changes to Investment Restric-
tions." If these changes are approved, the Composite Government Fund will,
among other things, be permitted, like the Sierra Government Fund, to invest
in securities issued by agencies or instrumentalities of the U.S. Government,
whereas the Composite Government Fund is currently prohibited from doing so.
Such securities may not be supported by the full faith and credit of the U.S.
Government.
The Sierra Government Fund may also invest up to 35% of its total assets in
corporate bonds, preferred stock, convertible corporate bonds, convertible
preferred stock, government stripped mortgage-backed securities, asset-backed
securities, interests in lease obligations, floating rate, inverse floating
rate and variable rate obligations, and commercial mortgage-backed securities.
A substantial portion of the Sierra Government Fund's assets at any time may
consist of mortgage-backed securities. Under normal market conditions, the Si-
erra Government Fund will limit its investment in money market instruments
consisting of short-term U.S. Government securities and repurchase agreements
with respect to such U.S. Government securities to 20% of its net assets, al-
though for temporary defensive purposes, either Fund may invest in these in-
struments without limitation. The Sierra Government Fund may also pledge, hy-
pothecate or otherwise encumber up to 30% of its total assets. The Sierra Gov-
ernment Fund may invest up to 33 1/3% of its total assets in dollar rolls or
"covered rolls" but may not borrow money or enter into reverse repurchase
agreements or dollar roll transactions in the aggregate in excess of 33 1/3%
of the Fund's total assets (after giving effect to such borrowing). The Com-
posite Government Fund, if the changes to certain fundamental investment re-
strictions are approved, may, like the Sierra Government Fund, invest in dol-
lar rolls, and in securities that are eligible for resale only to "qualified
institutional buyers" pursuant to Rule 144A under the Securities Act of 1933
(the "Securities Act"). See "Risk Factors--Illiquid Securities" and "--Dollar
Rolls."
The Sierra Government Fund may utilize various other investment strategies
involving derivatives, including exchange-listed and over-the-counter put and
call options on securities, equity and fixed-income indices and other finan-
cial instruments, financial futures contracts and options thereon, and inter-
est rate transactions such as swaps, caps, floors and collars to hedge various
market risks, to manage the effective maturity or duration of fixed-income se-
curities, or to seek potentially higher returns. The Composite Government
Fund's policies do not permit these uses of derivatives. The Sierra Government
Fund does not currently contemplate entering into such transactions that are
in aggregate principal amount in excess of 15% of its net assets, excluding
for these purposes "covered" transactions and those entered into for "bona
fide hedging" purposes. See "Risk Factors--Derivative Instruments."
Both the Composite Government Fund and the Sierra Government Fund may pur-
chase securities on a "when-issued" or "delayed-delivery" basis. However, the
Composite Government Fund may only purchase such securities if the scheduled
delivery is no more than 120 days in the future and only to the extent of 20%
of the market value of its net assets.
Neither the Composite Government Fund nor the Sierra Government Fund may in-
vest in securities of foreign issuers, depository receipts, real estate in-
vestment trusts, securities of other investment companies or lower rated secu-
rities, or engage in foreign currency transactions.
Gary J. Pokrzywinski, CFA, Vice President and Senior Portfolio Manager of
CRM, is primarily responsible for the management of the Composite Government
Fund. The day-to-day management of the Sierra Government Fund's portfolio is
the responsibility of a committee composed of officers of BlackRock, super-
vised by Keith Anderson and Andrew J. Phillips, Managing Director and Vice
President, respectively, of BlackRock.
22
<PAGE>
Sierra Income Fund vs. Composite Income Fund
The Composite Income Fund and the Sierra Income Fund have substantially iden-
tical investment objectives. Both funds seek to provide a high level of cur-
rent income, consistent with preservation of capital. However, unlike the Si-
erra Income Fund, the Composite Income Fund does not attempt to provide a con-
stant dividend level and, therefore, dividends may vary from month to month.
The total return for the Composite Income Fund and the Sierra Income Fund is
set forth in the chart below. Because of the different management styles, how-
ever, the relative contributions of the two components of total return (i.e.,
current income and capital appreciation) varied between the Composite Income
Fund and the Sierra Income Fund. The yield (calculated in accordance with SEC
regulations) of the Composite Income Fund was 5.93% versus 6.31% for the Si-
erra Income Fund during the 30-day period ended September 30, 1997 and aver-
aged 6.09% and 6.45%, respectively, over the 12-month period ended September
30, 1997.
TOTAL RETURN COMPARISON
AS OF 9/30/97*
<TABLE>
<CAPTION>
SINCE
5 YEARS 7/18/90
1 YEAR ANNUALIZED ANNUALIZED
------ ---------- ----------
<S> <C> <C> <C>
Composite Income Fund.............................. 7.64% 6.53% 8.63%
Sierra Income Fund................................. 7.56% 6.68% 8.57%
</TABLE>
* Performance is for Class A Shares of both Funds. Fund performance data is
after all expenses and sales charges. During the periods noted, the advisor,
administrator and distributor of the Sierra Income Fund waived a portion of
their fees and the administrator absorbed certain other expenses. In the ab-
sence of the waivers and expense absorption, yields and total returns would
have been lower. No such waivers or absorption of expenses applied to the Com-
posite Income Fund. Performance information is shown since July 18, 1990, when
the Sierra Income Fund commenced operations. For further information about the
Composite Income Fund's performance, see Appendix C.
The Composite Income Fund may invest in U.S. dollar-denominated debt and con-
vertible debt securities rated within the four highest grades as determined by
Standard & Poor's Corporation ("S&P") or Moody's Investors Service, Inc.
("Moody's"). In addition, up to 20% of the Composite Income Fund's total as-
sets may be invested in debt securities, convertible debt securities, pre-
ferred stocks and convertible preferred stocks rated below the four highest
grades by S&P or Moody's and in unrated securities judged to be of comparable
quality. In addition, the Fund may hold up to 10% of its total assets in com-
mon stocks acquired either by conversion of fixed-income securities or by the
exercise of warrants or rights attached thereto. See "Risk Factors--Lower-
rated Securities."
Contemporaneously with the proposed Merger, the Composite Income Fund will
increase from 20% to 35% the portion of its assets permitted to be invested in
securities rated at the time of purchase below BBB by S&P or Baa by Moody's
and in unrated securities determined to be of comparable quality. See "Risk
Factors--Lower-rated Securities." It is also expected that, subject to the ap-
proval of shareholders of the Composite Income Fund, certain of the fundamen-
tal investment restrictions currently in effect for the Composite Income Fund
will be modified or eliminated prior to the Merger. The Composite Income Fund
would, if such changes are approved, be permitted to invest in securities de-
nominated in foreign currencies and engage in foreign currency exchange trans-
actions in connection therewith, and to purchase and sell interest rate
futures contracts. Such changes, if approved, would also permit the Composite
Income Fund to invest in: (i) securities issued by real estate investment
trusts; (ii) dollar rolls; and (iii) securities that are eligible for resale
to "qualified institutional buyers" pursuant to Rule 144A under the Securities
Act. See "Risk Factors--Illiquid Securities" and "--Dollar Rolls."
The Sierra Income Fund invests primarily in investment-grade corporate bonds
of U.S. issuers, with at least 65% of the corporate bonds having remaining ma-
turities of 10 years or more at the date of purchase. The Sierra Income Fund
may also invest in common stocks, preferred stocks and corporate bonds or pre-
ferred stocks that are convertible into or that carry the right to buy common
stock. See "Risk Factors--Market Risk."
Both the Composite Income Fund and the Sierra Income Fund may purchase secu-
rities on a "when-issued" or "delayed-delivery" basis. However, the Composite
Income Fund may only invest up to 20% of its net assets in such securities.
The Composite Income Fund may lend its portfolio securities to member firms of
the New York Stock Exchange. It is intended that the value of portfolio secu-
rities loaned will not exceed 50% of total assets and that payments received
on such loans, including amounts received during the existence of such a loan
on account of interest and dividends on the securities loaned, will not exceed
10% of the Fund's annual gross income. The Sierra Income Fund may lend up to
20% of its
23
<PAGE>
total assets to brokers and other financial institutions. See "Risk Factors--
Lending of Portfolio Securities."
The Composite Income Fund may also invest: (i) up to 25% of its assets in
U.S. dollar-denominated securities of foreign issuers; (ii) in U.S. Government
securities, including mortgage backed securities; (iii) up to 25% of total as-
sets in obligations of U.S. banks that are members of the Federal Reserve Sys-
tem; and (iv) in commercial paper rated the highest grade by S&P or Moody's.
See "Risk Factors--Investment in Foreign Securities" and "--Prepayment Risk."
The Sierra Income Fund may also invest: (i) in U.S. Government securities
(including government stripped mortgage-backed securities); (ii) in asset-
backed securities; (iii) up to 20% of its assets in interests in lease obliga-
tions for which payment of interest and principal is unconditionally guaran-
teed by companies with debt rated at least investment-grade; (iv) in floating
rate, inverse floating rate and variable rate obligations, including partici-
pation interests therein; (v) up to 20% of its assets in bonds issued by for-
eign governments or corporations, provided that no more than 5% of its assets
will be invested in such bonds denominated in any one currency; (vi) up to 33
1/3% of its total assets in dollar rolls, "covered rolls" or reverse repur-
chase agreements, provided that the Fund will not purchase any additional se-
curities whenever borrowing exceeds 5% of the value of total assets; (vii) in
American depository receipts; (viii) in bank obligations, provided that not
more than $100,000 is invested with banks having less than $1 billion in as-
sets; (ix) up to 5% of its assets in securities of issuers which have been in
continuous operation for less than three years; and (x) in repurchase agree-
ments. See "Risk Factors--Prepayment Risk," "--Investment in Foreign Securi-
ties," "--Dollar Rolls," "--Repurchase Agreements," and "--Reverse Repurchase
Agreements and Borrowings."
The Sierra Income Fund may utilize various other investment strategies in-
volving derivatives. Specifically, the Sierra Income Fund may purchase, write
and sell covered puts and call options on securities and invest in futures and
options on futures, forward foreign currency exchange contracts and securities
which are indexed to certain specific foreign currency exchange rates. The Si-
erra Income Fund may not write (sell) put options with respect to more than
50% of total assets and no more than 10% of the Fund's total assets may be
used to purchase put options and no more than 10% of the Fund's assets may be
used to purchase call options. The Sierra Income Fund may also invest in
futures and options contracts, provided that no more than 5% of the fair mar-
ket value of the Fund's assets may be used for initial margin deposits and
premiums paid for unexpired options entered into for purposes other than bona
fide hedging. See "Risk Factors--Derivative Instruments." The Composite Income
Fund's policies do not permit the uses of derivatives described above.
Gary J. Pokrzywinski, CFA, Vice President and Senior Portfolio Manager of
CRM, is primarily responsible for the management of the Composite Income Fund.
The day-to-day management of the Sierra Income Fund's portfolio is the respon-
sibility of James M. Goldberg, Managing Director of TCW.
Sierra Growth & Income Fund vs. Composite Growth & Income Fund
The Composite Growth & Income Fund and the Sierra Growth & Income Fund have
similar investment objectives. The Sierra Growth & Income Fund attempts to
provide long-term capital growth and current income consistent with reasonable
investment risk. The Composite Growth & Income Fund's primary objective is
long-term capital growth with current income being a secondary consideration.
Under normal market conditions, the Composite Growth & Income Fund intends to
invest in common stock, preferred stock, treasury bills, certificates of de-
posit, debt securities of any maturity, and mortgage-backed securities. The
Sierra Growth & Income Fund invests primarily in dividend-paying common stocks
of large and medium-sized companies included in the Standard & Poor's 500 Com-
posite Stock Price Index. The Fund may also invest up to 10% of its total as-
sets in asset-backed securities. See "Risk Factors--Market Risk."
Both the Composite Growth & Income Fund and the Sierra Growth & Income Fund
may: (i) invest in mortgage-backed securities; (ii) lend securities to bro-
kers, dealers or other financial institutions provided that the loans are se-
cured (the Composite Growth & Income Fund may not lend securities in excess of
33% of the market value of the Fund's total assets, whereas the Sierra Growth
& Income Fund is limited to 20% of total assets); (iii) invest in repurchase
agreements; (iv) write covered call options; and (v) purchase securities on
a "when-issued" or "de -
24
<PAGE>
layed-delivery" basis (the Composite Growth & Income Fund requires that no
more than 20% of its net assets be invested in such securities). See "Risk
Factors--Prepayment Risk," "--Lending of Portfolio Securities," and "--Repur-
chase Agreements."
It is expected that, subject to the approval of shareholders of the Composite
Growth & Income Fund, one of the fundamental investment restrictions currently
in effect for the Composite Growth & Income Fund will be removed prior to the
Merger. Currently, the Fund is prohibited from investing in securities that
are eligible for resale only to "qualified institutional buyers" pursuant to
Rule 144A under the Securities Act. Subject to shareholder approval, the Com-
posite Growth & Income Fund will be able to invest in such securities. See
"Risk Factors--Illiquid Securities."
The Sierra Growth & Income Fund may: (i) invest in securities of foreign is-
suers; (ii) invest up to 10% of its assets in American depository receipts;
(iii) invest in exchange rate related securities; (iv) invest in money market
instruments, including U.S. Government securities; (v) invest in short term
bank obligations rated in one of the two highest categories by S&P or Moody's,
provided that not more than $100,000 may be invested in banks with less than
$1 billion in assets; (vi) invest in commercial paper and corporate obliga-
tions rated in the highest two categories by S&P or Moody's; (vii) invest in
foreign currency exchange transactions; and (ix) borrow money solely for tem-
porary defensive purposes, but not in amounts exceeding 30% of total assets
(including reverse repurchase agreements). See "Risk Factors-- Investment in
Foreign Securities."
In addition to the investment restrictions described above, the Composite
Growth & Income Fund may not: (i) invest more than 20% of total assets in for-
ward commitments; (ii) buy or sell uncovered options; (iii) buy or sell
futures-related securities; (iv) invest more than 25% of total assets in for-
eign securities and then only in U.S. dollar-denominated foreign securities;
or (v) invest more than 35% of its assets in debt securities rated lower than
investment grade. See "Risk Factors--Investment in Foreign Securities."
The Sierra Growth & Income Fund, unlike the Composite Growth & Income Fund,
may utilize various other investment strategies involving derivatives. Specif-
ically, the Sierra Growth & Income Fund may for hedging purposes purchase and
sell put and call options on stock indexes and on foreign stock indexes listed
on foreign and domestic stock exchanges. Up to 10% of the Sierra Growth & In-
come Fund's assets may be used to purchase put options on securities and up to
10% of the Fund's assets may be used to purchase call options on securities.
The Sierra Growth & Income Fund may not sell put options with respect to more
than 50% of its total assets. The Sierra Growth & Income Fund may invest in
futures and options on futures and forward foreign currency exchange contracts
provided that the initial margin deposits and premiums paid on contracts en-
tered into for purposes other than bona fide hedging may not exceed 5% of the
fair market value of the Fund's assets. The Sierra Growth & Income Fund does
not currently intend to enter into these transactions, excluding transactions
that are covered or are for bona fide hedging purposes, in excess of 15% of
net assets. See "Risk Factors--Derivative Instruments." The Composite Growth &
Income Fund's policies do not generally permit the uses of derivatives de-
scribed above.
Philip M. Foreman, CFA, Vice President and Senior Portfolio Manager of CRM,
is primarily responsible for the management of the Composite Growth & Income
Fund. The day-to-day management of the Sierra Growth & Income Fund's portfolio
is the responsibility of Henry D. Cavanna, Managing Director of J.P. Morgan,
and William M. Riegel, Vice President of J.P. Morgan.
Sierra Global Money Fund vs. Composite Money Fund
The Sierra Global Money Fund and the Composite Money Fund have substantially
identical investment objectives. Both Funds attempt to provide maximum current
income while preserving capital and maintaining liquidity. As "money market
funds" both seek to maintain a constant per share net asset value of $1.00.
The Sierra Global Money Fund and the Composite Money Fund seek to achieve
their investment objectives by investing in U.S. dollar-denominated, high-
quality money market securities that present minimal credit risks and mature
within 397 days from the time of purchase. Both Funds may invest in the fol-
lowing: (i) obligations issued or guaranteed by the U.S. Government or any
agency or instrumentality thereof; (ii) repurchase agreements with respect to
U.S. Government securities; (iii) obligations of U.S. and foreign banks with
assets of more than $500 million;
25
<PAGE>
(iv) commercial paper consisting of direct obligations, and other short-term
corporate obligations, which, at the time of their purchase, are rated in the
two highest ratings categories by S&P or Moody's. See "Risk Factors--Repur-
chase Agreements." Although the Sierra Global Money Fund is authorized to in-
vest up to 50% of its assets in any one country (other than the United
States), the Sierra Global Money Fund normally will include in its portfolio
securities of issuers collectively having their principal place of business in
at least three countries, including the United States.
It is expected that, subject to the approval of the shareholders of the Com-
posite Money Fund, certain of the fundamental investment restrictions cur-
rently in effect for the Composite Money Fund will be modified or eliminated
prior to the Merger. If these changes are approved, the Composite Money Fund
will be permitted to invest in: (i) asset-backed securities that meet the
credit quality limitations on its investments in commercial paper; (ii) secu-
rities issued by foreign governments, their agencies and instrumentalities,
and supranational entities such as the World Bank, provided such securities
meet the credit requirements applicable to the Fund's investments in securi-
ties of U.S. corporate issuers; (iii) securities of U.S. and foreign financial
institutions, including brokerage, finance and insurance companies; (iv) secu-
rities issued by governmental entities such as state and local governments and
municipalities which issue taxable debt; and (v) securities that are eligible
for resale to "qualified institutional buyers" pursuant to Rule 144A under the
Securities Act.
Unlike the Composite Money Fund, the Sierra Global Money Fund may invest in
corporate obligations of U.S. and foreign issuers that are unrated but are de-
termined to be of comparable quality to securities rated in one of the two
highest categories for short-term debt by S&P or Moody's. The Sierra Global
Money Fund may invest no more than 5% of its total assets in securities rated
in the second highest rating category by S&P or Moody's. Unlike the Composite
Money Fund which limits investment in bank obligations to less than 25% of as-
sets, the Sierra Global Money Fund will invest at least 25% of total assets in
bank obligations, except during temporary defensive periods.
The value of the securities held in the portfolios of the Composite Money
Fund and the Sierra Global Money Fund will generally vary inversely with
changes in interest rates. Although each Fund's investment policies are de-
signed to minimize these changes and to maintain a net asset value of $1.00
per share, there is no assurance that these policies will be successful.
Sierra Government Money Fund vs. Composite Money Fund
The Sierra Government Money Fund and the Composite Money Fund have substan-
tially identical investment objectives. Both Funds attempt to provide maximum
current income while preserving capital and maintaining liquidity. As "money
funds" both seek to maintain a constant per share net asset value of $1.00.
The Sierra Government Money Fund and the Composite Money Fund seek to achieve
their investment objectives by investing in U.S. dollar-denominated, high-
quality money market securities that present minimal credit risks and mature
within 397 days from the time of purchase. Both funds may invest in obliga-
tions issued or guaranteed by the U.S. government or any agency or instrumen-
tality thereof and repurchase agreements with respect to U.S. government secu-
rities. See "Risk Factors--Repurchase Agreements."
The Composite Money Fund may also invest in (i) obligations of U.S. and for-
eign banks with assets of more than $500 million; (ii) commercial paper con-
sisting of direct obligations, and other short-term corporate obligations,
which, at the time of their purchase, are rated in the two highest ratings
categories by S&P or Moody's.
It is expected that, subject to the approval of the shareholders of the Com-
posite Money Fund, certain of the fundamental investment restrictions cur-
rently in effect for the Composite Money Fund will be modified or eliminated
prior to the Merger. If these changes are approved, the Composite Money Fund
will be permitted to invest in: (i) asset-backed securities that meet the
credit quality limitations on its investments in commercial paper; (ii) secu-
rities issued by foreign governments, their agencies and instrumentalities,
and supranational entities such as the World Bank, provided such securities
meet the credit requirements applicable to the Fund's investments in securi-
ties of U.S. corporate issuers; (iii) securities of U.S. and foreign financial
institutions, including brokerage, finance and insurance companies; (iv) secu-
rities issued by governmental entities such as state and local governments and
municipalities which issue taxable debt; and (v) securities that are eligible
for resale to "qualified institutional buyers" pursuant to Rule 144A under the
Securities Act.
26
<PAGE>
The value of the securities held in the portfolios of the Composite Money
Fund and the Sierra Government Money Fund will generally vary inversely with
changes in interest rates. Although each Fund's investment policies are de-
signed to minimize these changes and to maintain a net asset value of $1.00
per share, there is no assurance that these policies will be successful.
Sierra Municipal Fund vs. Composite Tax-Exempt Fund
The Composite Tax-Exempt Fund and the Sierra Municipal Fund have substan-
tially similar investment objectives. The Sierra Municipal Fund attempts to
provide a high level of current income which is exempt from federal tax, con-
sistent with preservation of capital. The Composite Tax-Exempt Fund is de-
signed to provide a high level of federal tax-exempt income while at the same
time protecting investors' capital. However, unlike the Sierra Municipal Fund,
the Composite Tax-Exempt Fund does not attempt to provide a constant dividend
level and, therefore, dividends may vary from month to month. The total return
for the Composite Tax-Exempt Fund and the Sierra Municipal Fund is set forth
in the chart below. Because of the different management styles, however, the
relative contributions of the two components of total return (i.e., current
income and capital appreciation) varied between the Composite Tax-Exempt Fund
and the Sierra Municipal Fund. The yield (calculated in accordance with SEC
regulations) of the Composite Tax-Exempt Fund was 4.01% versus 4.48% for the
Sierra Municipal Fund during the 30-day period ended September 30, 1997, and
averaged 4.25% and 4.61%, respectively, over the 12-month period ended Septem-
ber 30, 1997.
TOTAL RETURN COMPARISON
AS OF 9/30/97*
<TABLE>
<CAPTION>
SINCE
5 YEARS 7/18/90
1 YEAR ANNUALIZED ANNUALIZED
------ ---------- ----------
<S> <C> <C> <C>
Composite Tax-Exempt Fund.......................... 3.45% 5.76% 6.88%
Sierra Municipal Fund.............................. 4.20% 5.87% 7.63%
</TABLE>
* Performance is for Class A Shares of both Funds. Fund performance data is
after all expenses and sales charges. During the periods noted, the advisor,
administrator and distributor of the Sierra Municipal Fund waived a portion of
their fees and the administrator absorbed certain other expenses. In the ab-
sence of the waivers and expense absorption, yields and total returns would
have been lower. No such waivers or absorption of expenses applied to the Com-
posite Tax-Exempt Fund. Performance information is shown since July 18, 1990,
when the Sierra Municipal Fund commenced operations. For further information
about the Composite Tax-Exempt Fund's performance, see Appendix C.
Under normal market conditions, at least 80% of each Fund's assets will be
invested in debt securities issued by or on behalf of states, territories and
possessions of the United States and the District of Columbia and their polit-
ical subdivisions, the interest on which is tax-exempt. In the case of the Si-
erra Municipal Fund, such securities will be intermediate- and long-term obli-
gations, and will generally be limited to obligations that receive one of the
four highest ratings from S&P or Moody's. See "Risk Factors--Market Risk."
The Composite Tax-Exempt Fund may also invest: (i) up to 25% of its assets in
securities rated at the time of purchase below BBB by S&P or Baa by Moody's
and unrated securities of comparable quality (see "Risk Factors--Lower-rated
Securities"); (ii) up to 10% of total assets in other investment companies
which invest in tax-exempt securities; and (iii) in municipal notes backed by
the federal government. Both the Composite Tax-Exempt Fund and the Sierra Mu-
nicipal Fund may purchase securities on a "when-issued" or "delayed-delivery"
basis to the extent of 20% of the market value of each Fund's net assets.
Contemporaneously with the proposed Merger, the Composite Tax-Exempt Fund
will increase from 25% to 35% the portion of its assets permitted to be in-
vested in securities rated at the time of purchase below BBB by S&P or Baa by
Moody's and unrated securities determined to be of comparable quality. See
"Risk Factors--Lower-rated Securities." It is also expected that, subject to
the approval of shareholders of the Composite Tax-Exempt Fund, certain of the
fundamental investment restrictions currently in effect for the Composite Tax-
Exempt Fund will be modified or eliminated prior to the Merger. If such
changes are approved, the Composite Tax-Exempt Fund will be permitted to pur-
chase and sell interest rate futures contracts, and to invest in securities
that are eligible for resale only to "qualified institutional buyers" pursuant
to Rule 144A under the Securities Act. See "Risk Factors--Illiquid Securi-
ties."
The Sierra Municipal Fund may also invest in: (i) floating rate, inverse
floating rate and variable rate obligations, including participation interests
therein; (ii) participations in lease obligations or installment purchase con-
tract obligations of municipal authorities or entities, provided that no more
than 5% of total assets is invested in lease obligations containing non-appro-
priation clauses and no more than 25% of total assets is invested in municipal
securities the interest on which is paid from revenues from similar-
27
<PAGE>
type projects; (iii) alternative-minimum-tax-subject bonds issued to finance
certain private activities; (iv) repurchase agreements; (v) reverse repurchase
agreements; (vi) mortgage-backed securities; (vii) bond index futures and op-
tions thereon for bona fide hedging purposes; (viii) stand-by commitments with
respect to municipal securities held in the Sierra Municipal Fund's portfolio;
and (ix) bank obligations, provided that not more than $100,000 will be in-
vested with a bank that has less than $1 billion in assets. The Sierra Munici-
pal Fund may also lend up to 20% of its total assets to brokers and other fi-
nancial organizations. Additionally, the Sierra Municipal Fund may invest in
futures and options on futures and forward currency exchange contracts if the
aggregate initial margin deposits and premiums on contracts entered into other
than for bona fide hedging purposes does not exceed 5% of the fair market
value of the Sierra Municipal Fund's assets. See "Risk Factors--Prepayment
Risk," "--Repurchase Agreements," "--Derivative Instruments" and "--Reverse
Repurchase Agreements and Borrowings."
Brian L. Placzek, CFA, Vice President Senior Portfolio Manager of CRM, is
primarily responsible for the management of the Composite Tax-Exempt Fund. The
day-to-day management of the Sierra Municipal Fund's portfolio is the respon-
sibility of David C. Johnson, Senior Vice President of Van Kampen.
COMPARISON OF DISTRIBUTION POLICIES AND PURCHASE, EXCHANGE AND REDEMPTION
PROCEDURES
Each Acquired Fund and each Acquiring Fund declares dividends daily and pays
them monthly, except that the Sierra Growth & Income Fund and the Composite
Growth & Income Fund declare and pay dividends quarterly. Each Acquired Fund
and each Acquiring Fund distributes any net realized capital gains annually.
As indicated above, the Sierra Government Fund, the Sierra Income Fund and the
Sierra Municipal Fund have historically attempted to maintain relatively con-
stant dividends, whereas the corresponding Acquiring Funds have no such poli-
cy.
The Acquired Funds and the Acquiring Funds have substantially the same proce-
dures for purchasing shares. The Funds offer four classes of shares, Classes
A, B, I and S. Class I shares are sold exclusively to the various investment
portfolios of Sierra Asset Management Portfolios (the "SAM Portfolios"), a se-
ries investment company managed by Sierra Investment Services Corporation
("Sierra Services"), an affiliate of Sierra, and are not available for direct
purchase by investors. Class S shares are sold only to investors who select or
have previously selected the Sierra Asset Management service offered by Sierra
Services. Class A and Class B shares (and, for eligible investors, Class S
shares) of the Acquired Funds may be purchased at their net asset value next
determined, plus applicable sales charges in the case of Class A shares, from
Sierra Services, the principal underwriter of the Acquired Funds as well as
the other mutual funds in the Sierra Funds family. Class A and Class B shares
(and, for eligible investors, Class S shares) of the Acquiring Funds may be
purchased at their net asset value next determined, plus applicable sales
charges in the case of Class A shares, from Composite Funds Distributor, Inc.
("CFDI"), the principal underwriter of the Acquiring Funds. In addition,
shares of the Acquired Funds and the Acquiring Funds may be purchased through
other broker-dealers that have dealer agreements with Sierra Services or CFDI,
as the case may be.
Shares of each Acquired Fund can be exchanged for shares of the same class of
any other fund offered by the Sierra Trust, SAM Portfolios or Sierra Prime In-
come Fund ("SPIF"), a closed-end investment company advised by Sierra. Shares
of the Acquiring Funds can be exchanged for shares of the same class of any
fund advised by CRM, and are expected to become exchangeable for shares of the
same class of any fund offered by the Sierra Trust, SAM Portfolios or SPIF by
the second quarter of 1998. In addition, Class B shares of the Acquired Funds
and the Acquiring Funds can, under certain circumstances, be exchanged for
Class S shares of the same Fund or any other fund offered by the Sierra Trust,
SAM Portfolios or SPIF or (in the case of exchanges from the Acquiring Funds)
advised by CRM, and Class S shares of the Acquired Funds and the Acquiring
Funds can be exchanged, under certain circumstances, for Class B shares of the
SAM Portfolios.
The availability of the exchange privilege with respect to shares of SPIF is
subject to the availability of shares of SPIF for exchange purposes as stated
in the prospectus and statement of additional information ("SAI") of SPIF. Al-
so, although shares of SPIF may be exchanged for shares of the Funds, such ex-
changes of SPIF shares for shares of the Funds are only permitted approxi-
mately once every calendar quarter so long as SPIF makes a repurchase offer
for its shares in such quarter and so long as the SPIF repurchase
28
<PAGE>
offer is sufficiently large to include the SPIF shares tendered for exchange.
See the prospectus and SAI of SPIF for additional information regarding the
exchange privilege applicable to SPIF shares and the availability of such ex-
change privilege.
Redemption procedures for the Acquired Funds and the Acquiring Funds are sub-
stantially similar. Shares of a Fund may be redeemed at their net asset value
next determined after receipt of the redemption request, less any applicable
CDSC, on any day the New York Stock Exchange is open. Shares can be redeemed
from Sierra Services, in the case of the Acquired Funds, or CFDI or Murphey
Favre Securities Services, Inc., the Acquiring Funds' transfer agent, in the
case of the Acquiring Funds, or in either case, from the dealer through which
the shares were purchased, by mail, by telephone or by other means of wire
communication.
See Appendix C to this Prospectus/Proxy Statement for further information re-
garding the Acquiring Funds' distribution policies and purchase, exchange and
redemption procedures.
- -------------------------------------------------------------------------------
RISK FACTORS
Certain risks associated with an investment in the Acquiring Funds are summa-
rized below. Because each Acquiring Fund shares similar investment objectives
and policies with the corresponding Acquired Fund and because both the Acquir-
ing Fund and the corresponding Acquired Fund share certain policies described
more fully above under "Overview of Mergers--Comparison of Investment Objec-
tives, Policies and Restrictions," many of the risks of an investment in the
Acquiring Fund are substantially similar to the risks of an investment in the
corresponding Acquired Fund. A more detailed description of certain of the
risks associated with an investment in the Acquiring Funds may be found in the
Composite Prospectuses under the caption "Investment Practices and Risk Fac-
tors" and in the Composite SAIs under the caption "Investment Practices." See
also Appendix C to this Prospectus/Proxy Statement.
The values of all securities and other instruments held by the Acquiring
Funds vary from time to time in response to a wide variety of market factors.
Consequently, the net asset value per share of the Acquiring Funds will vary.
The net asset value per share of an Acquiring Fund may be less at the time of
redemption than it was at the time of investment.
INTEREST RATE RISK. Shareholders of both Acquired Funds and the Acquiring
Funds bear the interest rate risks of investment in fixed income securities,
including U.S. Government securities. U.S. Government securities are consid-
ered among the safest of fixed-income investments, but their values, like
those of other debt securities, will fluctuate with changes in interest rates.
Thus, a decrease in interest rates will generally result an increase in the
value of an Acquiring Fund's holdings of fixed income securities, including
U.S. Government securities. Conversely, during periods of rising interest
rates, the value of an Acquiring Fund's holdings of fixed income securities
will generally decline.
PREPAYMENT RISK. Certain of the Acquired Funds and certain of the Acquiring
Funds involve the risks of investment in mortgage-backed securities. Prepay-
ment on mortgage-backed or asset-backed securities may require reinvestment of
principal under less attractive terms. Prepayments may also significantly
shorten the effective maturities of these securities, especially during peri-
ods of declining interest rates. Conversely, during periods of rising interest
rates, a reduction in prepayments may increase the effective maturities of
these securities. Prepayments may cause losses in securities purchased at a
premium. Prepayments could result in losses on stripped mortgage-backed or as-
set-backed securities. The yield-to-maturity on an interest-only class of
stripped mortgage-backed or asset-backed securities is extremely sensitive not
only to changes in prevailing interest rates but also to the rate of principal
payments (including prepayments) on the underlying assets. Because of the
foregoing characteristics, mortgage-backed securities may be more volatile
than other fixed income securities.
REPURCHASE AGREEMENTS. Investing in repurchase agreements subjects the Ac-
quiring Funds, like the Acquired Funds, to the risk that the default or bank-
ruptcy of the other party to the repurchase agreement could subject the Fund
to expenses, delays and risk of loss on the securities subject thereto. The
Acquiring Funds currently limit their investments in repurchase agreements ma-
turing in more than seven days to no more than 10% of total assets.
REVERSE REPURCHASE AGREEMENTS AND BORROWINGS. Reverse repurchase agreements
and borrowings (such as dollar rolls, as described below) subject the Funds
29
<PAGE>
to the risk that changes in the value of a Fund's portfolio securities may am-
plify changes in the Fund's net asset value per share, and also may cause the
Fund to liquidate portfolio positions when it would not be advantageous to do
so. The Acquiring Funds, unlike the Acquired Funds, may not engage in reverse
repurchase agreements.
DOLLAR ROLLS. Certain of the Acquired Funds and, subject to shareholder ap-
proval, certain of the Acquiring Funds may incur risks from investing in dol-
lar rolls--specifically, increasing the market exposure and potential volatil-
ity of the Fund. The obligation to repurchase securities on a specified future
date involves the risk that the market value of the securities that the Fund
is obligated to repurchase may decline below the repurchase price. See "Re-
verse Repurchase Agreements and Borrowings" above.
ILLIQUID SECURITIES. The Acquired Funds and the Acquiring Funds share similar
risks of investment in illiquid securities, including higher transaction
costs, and the risk of not being able to close out a position when it would be
most advantageous to do so. Each Acquired Fund and each Acquiring Fund may in-
vest up to 15% of its net asset value in illiquid securities, except for the
Composite Money Fund, the Sierra Global Money Fund and the Sierra Government
Money Fund, which are limited to 10% of net assets. Rule 144A Securities could
be less liquid than other portfolio securities, if and to the extent that the
institutional markets become less active. When the institutional markets be-
come less active, it could be more difficult to value the shares of a Fund and
for the Fund to fulfill shareholder redemption orders on a timely basis.
LOWER-RATED SECURITIES. Certain of the Acquired Funds and certain of the Ac-
quiring Funds share similar risks of investment in lower-rated securities.
Risks of high-yield securities include: (i) limited liquidity and secondary
market support; (ii) substantial market price volatility resulting from
changes in prevailing interest rates; (iii) subordination to the prior claims
of banks and other senior lenders; (iv) the operation of mandatory sinking
fund or call/redemption provisions during periods of declining interest rates
whereby the Fund may reinvest premature redemption proceeds in lower yielding
portfolio securities; (v) the possibility that earnings of the issuer may be
insufficient to meet its debt service; and (vi) the issuer's low creditworthi-
ness and potential for insolvency during periods of rising interest rates and
economic downturn. See Appendix C.
INVESTMENT IN FOREIGN SECURITIES. Certain of the Acquired Funds and certain
of the Acquiring Funds share similar risks for investment in foreign securi-
ties. Investment in foreign securities involves the risk of potentially re-
duced domestic marketability of such securities, the lower reserve require-
ments generally mandated for overseas banking operations, the possible impact
of interruptions in the flow of international currency transactions, potential
political and social instability or expropriation, imposition of foreign tax-
es, less government supervision of issuers, difficulty in enforcing contrac-
tual obligations, and lack of uniform accounting standards.
LENDING OF PORTFOLIO SECURITIES. The Acquired Funds and the Acquiring Funds
may incur similar risks from lending their securities. As with other exten-
sions of credit, there are risks of delay in recovery or even loss of rights
in the collateral should the borrower of the securities fail financially.
DERIVATIVE INSTRUMENTS. As noted above, a number of the Acquired Funds may
enter into options and futures contracts for hedging purposes or as a part of
their investment strategies, and may engage in swap agreements. Use of deriva-
tive instruments may involve certain costs and risks, including the risk that
the Fund could not close out a position when it would be most advantageous to
do so due to an illiquid market, the risk of an imperfect correlation between
the value of the securities being hedged and the value of the particular de-
rivative instrument, the risk of bankruptcy or default of counterparties, and
the risk that unexpected changes in interest rates or other market movements
may adversely affect the value of the Fund's investments in particular deriva-
tive instruments. Except as described above, in general the Acquiring Funds'
policies do not currently permit the use of derivatives.
MARKET RISK. In the case of equity securities owned by an Acquiring Fund or
an Acquired Fund, there can be no assurance of capital appreciation, and there
is a risk of market decline.
- -------------------------------------------------------------------------------
SPECIAL MEETING OF SHAREHOLDERS
This Prospectus/Proxy Statement is being furnished in connection with a Spe-
cial Meeting of Shareholders of each Acquired Fund to be held on December 23,
1997 or at such later time made necessary by adjournment (the "Meeting") and
the solicitation of proxies by and on behalf of the Trustees of the Sierra
30
<PAGE>
Trust for use at the Meeting. The Meeting is being held to consider the elec-
tion of Trustees of the Sierra Trust (Proposal 1) and the proposed Mergers of
each Acquired Fund with the corresponding Acquiring Fund by the transfer of
all of the Acquired Fund's assets and liabilities to the Acquiring Fund (Pro-
posals 2 through 7). This Prospectus/Proxy Statement and the enclosed form of
proxy are being mailed to shareholders on or about November 10, 1997.
The Trustees of the Trust know of no matters other than those set forth
herein to be brought before the Meeting. If, however, any other matters prop-
erly come before the Meeting, it is the Trustees' intention that proxies will
be voted on such matters in accordance with the judgment of the persons named
in the enclosed form of proxy.
- -------------------------------------------------------------------------------
PROPOSAL 1:
ELECTION OF TRUSTEES
At the Meeting, it is proposed that thirteen Trustees of the Sierra Trust be
elected to hold office until their successors are duly elected and qualified.
The persons named in the accompanying proxy intend, in the absence of contrary
instructions, to vote all proxies on behalf of the shareholders for the elec-
tion of David E. Anderson, Wayne L. Attwood, M.D., Arthur H. Bernstein, Esq.,
Kristianne Blake, Edmond R. Davis, Esq., John W. English, Anne V. Farrell,
Michael K. Murphy, Alfred E. Osborne, Jr., Ph.D., William G. Papesh, Daniel L.
Pavelich, Jay Rockey and Richard C. Yancey (each a "Nominee" and collectively,
the "Nominees"). Messrs. Anderson, Bernstein, Davis, English and Osborne are
currently members of the Sierra Trust's Board of Trustees. Messrs. Attwood,
Murphy, Papesh, Pavelich, Rockey and Yancey and Mses. Blake and Farrell are
all Directors of the mutual funds advised by CRM (the "Composite Funds"), but
have not previously served on the Sierra Trust's Board of Trustees.
Shareholders of the Acquired Funds, along with the shareholders of each other
series of the Sierra Trust, are entitled to vote in the election of the Sierra
Trust's Trustees. However, if the proposed Merger for any Acquired Fund is
consummated, the Acquired Fund's separate existence would be terminated and
its shareholders would become shareholders of the corresponding Acquiring
Fund, which is not part of the Sierra Trust and would not be governed by the
Sierra Trust's Board of Trustees.
The proposal to elect the Board of Trustees is being presented for share-
holder approval pursuant to requirements of the Investment Company Act of 1940
(the "1940 Act"). Under the 1940 Act, Trustees may not fill vacancies unless
at least two-thirds of the Trustees holding office after such vacancies are
filled have been elected by the shareholders. Approval of this Proposal will
result in a combined Board of Trustees consisting of the current Sierra Trust
Trustees and the current Composite Funds Directors. Approval of this proposal
will provide a combined Board of Trustees consisting of the current Sierra
Trust Trustees and the Composite Directors.
Each of the Nominees has consented to being named in this Prospectus/Proxy
Statement and to serving as a Trustee if elected. The Sierra Trust knows of no
reason why any Nominee would be unable or unwilling to serve if elected.
The Sierra Trust is organized as a business trust under the laws of the Com-
monwealth of Massachusetts. Under Massachusetts law, the Trust is not required
to hold annual meetings. The Trust has availed itself of this provision and
achieves cost savings by eliminating printing costs, mailing charges and other
expenses involved in routine annual meetings. Because the Trust does not hold
regular annual shareholder meetings, each Nominee, if elected, will hold of-
fice until his or her successor is elected and qualified.
Even with the elimination of routine annual meetings, the Board of Trustees
may call special meetings of shareholders for action by shareholder vote as
may be required by the 1940 Act, or as required or permitted by the Sierra
Trust's Master Trust Agreement. Shareholder meetings will be held, in compli-
ance with the 1940 Act, to elect Trustees under certain circumstances. Share-
holder meetings may also be held by the Trust for other purposes, including to
approve investment policy changes, a new investment advisory agreement or
other matters requiring shareholder action under the 1940 Act.
A meeting may also be called by shareholders holding at least 10% of the
shares entitled to vote at the meeting for the purpose of voting upon the re-
moval of Trustees, in which case shareholders may receive assistance in commu-
nicating with other shareholders as if the provisions contained in Section
16(c) of the 1940 Act applied.
31
<PAGE>
INFORMATION REGARDING NOMINEES AND EXECUTIVE OFFICERS
The following information is provided for each Nominee and each executive of-
ficer of the Sierra Trust. It includes his or her name, position with the Si-
erra Trust, if any, tenure in office, length of directorship, age, principal
occupations or employment during the past five years, directorships with other
companies which file reports periodically with the SEC, number of
directorships/trusteeships with the registered investment companies which hold
themselves out to investors as related companies for purposes of investment
and investor services to which Sierra or an affiliated person of Sierra pro-
vides investment advisory or administration services, which include the Sierra
Trust, The Sierra Variable Trust, SAM Portfolios, SPIF and the Composite Funds
(collectively, the "Fund Complex"), number of shares of the funds of the Si-
erra Trust beneficially owned and percentage of shares of the funds of the Si-
erra Trust beneficially owned. As of October 29, 1997, the Nominees as a group
beneficially owned an aggregate of less than 1% of the shares of each fund of
the Sierra Trust and the Trustees and executive officers of the Sierra Trust
as a group beneficially owned an aggregate of less than 1% of the shares of
each fund of the Sierra Trust.
<TABLE>
<CAPTION>
ADDRESS AND BUSINESS EXPERIENCE
NAME, AGE AND POSITION DURING THE PAST FIVE YEARS SHARES BENEFICIALLY
WITH THE SIERRA TRUST (INCLUDING ALL DIRECTORSHIPS) OWNED**
---------------------- ------------------------------- ------------------------
<S> <C> <C>
Arthur H. Bernstein, Esq. (72) 11661 San Vicente Blvd. Suite 701, Global Money Fund 237
Chairman of the Board Los Angeles, CA 90049. California Money Fund 5,262
and Trustee since 1989. President, Bancorp Capital Corporate Income Fund 406
Group, Inc., 1988 to present; California Municipal Fund 11
President, Bancorp Venture
Capital, Inc., 1988 to present.
Trustee of 4 trusts in the Fund
Complex.
David E. Anderson (70) 17960 Seabreeze Drive California Municipal Fund 1,253
Trustee since 1989. Pacific Palisades, CA 90272. California Insured Intermediate
Retired. Formerly, President and Municipal Fund 498
Chief Executive Officer, GTE International Growth Fund 1,261
California, Inc., 1979 to 1988. Short-Term Global
Trustee of 4 trusts in the Fund Government Fund 4,008
Complex. Growth Fund 1,277
Edmond R. Davis, Esq. (69) 550 South Hope Street, California Money Fund 101,144
Trustee since 1989. 21st Floor, Global Money Fund 17,419
Los Angeles, CA 90071.
Partner, Brobeck, Phleger &
Harrison (law firm) 1987 to
present. Trustee of 4 trusts in
the Fund Complex.
John W. English (64) 50H New England Ave. Growth and Income Fund 758
Trustee since 1994. P.O. Box 640, International Growth Fund 717
Summit, NJ 07902-0640.
Retired. Formerly, Vice
President and Chief Investment
Officer, Ford Foundation, 1981
to 1993. Chairman of the Board
and Director, The China Fund,
Inc. (closed-end mutual fund),
1993 to present; Trustee, Retail
Property Trust (a company
providing management services
for shopping centers), 1994 to
1997; Director, The Northern
Trust Company's Benchmark Funds
(open-end mutual funds), 1994 to
present. Trustee of 4 trusts in
the Fund Complex.
Alfred E. Osborne, Jr., Ph.D. (52) 110 Westwood Plaza, Suite C305 Global Money Fund 1,024
Trustee since 1996. Los Angeles, CA 90095-1481. Corporate Income Fund 638
Professor, The Anderson School Growth and Income Fund 286
and Director, The Harold Price International Growth Fund 667
Center for Entrepreneurial Short Term Global
Studies at University of Government Fund 154
California at Los Angeles 1972
to present; Independent general
partner, Technology Funding
Venture Partners V, 1990 to
present. Formerly, Governor,
National Association of
Securities Dealers, Inc., 1994
to 1996; Director, NASD
Regulation, September 1996 to
December 1996; Director, Times
Mirror Company, 1980 to present;
Director, United States Filter
Corporation, 1991 to present;
Director, Nordstrom, Inc., 1987
to present; Director, Seda
Specialty Packing Corporation,
1993 to 1997; Director,
Greyhound Lines, Inc., 1994 to
present. Trustee of 4 trusts in
the Fund Complex.
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
ADDRESS AND BUSINESS EXPERIENCE
NAME, AGE AND POSITION DURING THE PAST FIVE YEARS SHARES BENEFICIALLY
WITH THE SIERRRA TRUST (INCLUDING ALL DIRECTORSHIPS) OWNED**
---------------------- ------------------------------- -------------------
<S> <C> <C>
Wayne L. Attwood, M.D. 2931 S. Howard None
(68) Spokane, WA 99203.
Nominee Retired. Formerly, Doctor of internal
medicine and gastroenterology. Director of
7 funds in the Fund Complex.
Kristianne Blake (43) 705 W. 7th, Suite D, None
Nominee Spokane, WA 99203.
President, Kristianne Gates Blake, PS
(accounting services). Director of 7 funds
in the Fund Complex.
*Anne V. Farrell (62) 425 Pike Street, Suite 510, None
Nominee Seattle, WA 98101.
President and Chief Executive Officer, The
Seattle Foundation. Director, Washington
Mutual, Inc. Director of 7 funds in the
Fund Complex.
*Michael K. Murphy (60) P.O. Box 3366 None
Nominee Spokane, WA 99220.
Chairman and Chief Executive Officer, CPM
Development Corporation (holding company).
Director, Washington Mutual, Inc. Director
of 7 funds in the Fund Complex.
*William G. Papesh (54) 601 W. Main Avenue None
Nominee Suite 300
Spokane, WA 99201.
President and Director, CRM and Murphey
Favre Securities Services, Inc. Executive
Vice President and Director, CFDI. Director
of 7 funds in the Fund Complex.
Daniel L. Pavelich (53) Two Prudential Plaza None
Nominee 180 North Stetson Avenue
Suite 4300
Chicago, IL 60601.
Chairman and Chief Executive Officer, BDO
Seidman (accounting and consulting).
Director of 7 funds in the Fund Complex.
Jay Rockey (69) 2121 Fifth Avenue None
Nominee Seattle, WA 98121.
Chairman and Chief Executive Officer, The
Rockey Company (public relations). Director
of 7 funds in the Fund Complex.
Richard C. Yancey (71) 535 Madison Avenue None
Nominee New York, NY 10022.
Senior Advisor, Dillon, Read & Co., Inc.
(broker/dealer and investment advisor).
Director of 7 funds in the Fund Complex.
Keith B. Pipes (41) 9301 Corbin Avenue
President and Chief Suite 333
Executive Officer Northridge, CA 91324
Senior Vice President, Chief Financial
Officer and Secretary, Sierra Capital
Management Corporation, 1988 to 1997; Chief
Financial Officer, Secretary and Treasurer,
Sierra Fund Administration Corporation,
1988 to 1997; Executive Vice President and
Secretary, Sierra, 1988 to 1997; Senior
Vice President, Chief Financial Officer and
Secretary, Sierra Services, 1992 to 1997.
Michael D. Goth (52) 9301 Corbin Avenue
Senior Vice President Suite 333
Northridge, CA 91324
Chief Operating Officer, Sierra, 1991 to
present.
Stephen C. Scott (52) 9301 Corbin Avenue
Senior Vice President Suite 333
Northridge, CA 91324
President and Chief Investment Officer,
Sierra, 1988 to present; Senior Vice
President and Chief Investment Officer,
Sierra Services, 1996 to present.
Craig M. Miller (38) 9301 Corbin Avenue
Treasurer and Chief Suite 333
Financial Officer Northridge, CA 91324
Vice President and Controller, Sierra
Capital Management Corporation, Sierra Fund
Administration Corporation and Sierra
Services, 1993 to present; Audit Manager,
Coopers & Lybrand L.L.P., 1987 to 1993.
Richard W. Grant (52) 2000 One Logan Square
Secretary Philadelphia, PA 19103
Partner, Morgan, Lewis & Bockius LLP (law
firm), 1989 to present.
</TABLE>
* Denotes a Trustee or a Nominee who is an "interested person" of the Sierra
Trust as defined in the 1940 Act.
** This information has been provided by each Nominee. Does not include shares
held indirectly through the SAM Portfolios.
33
<PAGE>
COMPENSATION OF TRUSTEES
Each Trustee who is not an "interested person" of the Sierra Trust receives
an aggregate annual fee (plus reimbursement for reasonable out-of-pocket ex-
penses incurred in connection with his or her attendance at Board and commit-
tee meetings) from the Sierra Trust and all of the trusts in the Fund Complex
for which he or she serves. The Sierra Trust pays each Trustee who is not a
director, officer or employee of Washington Mutual, Sierra Services, the sub-
advisors to the Sierra Trust or First Data Investor Services Group, Inc., or
any of their affiliates, $7,500 per annum plus $1,500 per board meeting at-
tended, $1,000 per Audit and/or Nominating Committee meeting attended and re-
imbursement for travel and out-of-pocket expenses. Since December 1996, the
Chairman has been receiving one and a half times the normal Trustee's compen-
sation. The Chairman of the Audit Committee receives $1,500 per Audit Commit-
tee meeting attended. Officers of the Sierra Trust receive no direct remunera-
tion in such capacity from the Trust. Officers of the Trust who are employees
of Sierra or its affiliates may be considered to have received remuneration
indirectly.
Pursuant to an exemptive order granted by the SEC, the Sierra Trust's eligi-
ble Trustees may participate in a deferred compensation plan (the "Plan"),
which may be terminated at any time. Under the Plan, Trustees may elect to de-
fer receipt of all or a portion of their fees which, in accordance with the
Plan, are invested in mutual fund shares. Upon termination of the Plan, Trust-
ees that have deferred accounts under the Plan will be paid benefits no later
than the time the payments would otherwise have been made without regard to
such termination. All benefits provided under the Plan are funded and any pay-
ments to Plan participants are paid solely out of the Trust's assets.
The aggregate compensation payable by the Sierra Trust to each of the Trust's
Trustees serving during the fiscal year ended June 30, 1997 is set forth in
the compensation table below. The aggregate compensation payable to such
Trustees during the fiscal year ended June 30, 1997, by the Fund Complex is
also set forth in the compensation table below.
COMPENSATION TABLE
<TABLE>
<CAPTION>
PENSION OR
AGGREGATE RETIREMENT TOTAL COMPENSATION
COMPENSATION BENEFITS ACCRUED AS FROM THE SIERRA TRUST
PAYABLE FROM PART OF FUND AND FUND COMPLEX
NAME AND POSITION THE SIERRA TRUST EXPENSES PAYABLE TO TRUSTEES*
----------------- ---------------- ------------------- -------------------------------
<S> <C> <C> <C>
Arthur H. Bernstein,
Chairman and Trustee... $22,938** $ 0 $54,063 for service on 4 boards***
David E. Anderson,
Trustee................ 18,000 0 42,000 for service on 4 boards
Edmond R. Davis,
Trustee................ 18,000 0 42,000 for service on 4 boards
John W. English,
Trustee................ 18,000 0 42,000 for service on 4 boards
Alfred E. Osborne, Jr.,
Ph.D., Trustee......... 18,000 0 42,000 for service on 4 boards
- ------------------------------------------------------------------------------------------------
</TABLE>
* Sierra reimbursed the Sierra Trust for the cost, including trustee fees,
of all special meetings held with regard to contemplation of the sale of Si-
erra Capital Management Corporation, as well as the Washington Mutual/Great
Western Merger.
** Mr. Bernstein defers all compensation received from the Trust pursuant to
the deferred compensation plan.
*** Includes $1,500 paid to Mr. Bernstein for serving as Chairman of the Audit
Committee Meeting held by the Fund Complex on September 10, 1996.
MEETINGS AND COMMITTEES OF THE BOARD OF TRUSTEES
There were fifteen meetings of the Board of Trustees held during the fiscal
year ended June 30, 1997. In such fiscal year, all Trustees attended at least
75% of the meetings of the Board of Trustees.
The Board of Trustees has an Audit Committee. The Audit Committee makes rec-
ommendations to the full Board of Trustees with respect to the engagement of
independent accountants and reviews the results of the audit engagement and
matters having a material effect on the Sierra Trust's financial operations
with the independent accountants. The members of the Audit Committee during
the fiscal year ended June 30, 1997 were Messrs. Anderson, Davis, Bernstein,
English and Osborne, each of whom is not an "interested person" within the
meaning of the 1940 Act. The Audit Committee met once during the fiscal year
ended June 30, 1997, and all members attended the meeting.
34
<PAGE>
The Board of Trustees has a Nominating Committee. The Nominating Committee
makes recommendations to the full Board of Trustees with respect to candidates
for the Board of Trustees. The members of the Nominating Committee during the
fiscal year ended June 30, 1997, were Messrs. Cerini (Mr. Cerini resigned as a
Trustee of the Trust May 29, 1997), Anderson, Bernstein, Davis and English,
each of whom, with the exception of Mr. Cerini, is not an "interested person"
within the meaning of the 1940 Act. The Nominating Committee did not meet dur-
ing the fiscal year ended June 30, 1997.
BOARD APPROVAL OF THE ELECTION OF TRUSTEES
At a meeting of the Board of Trustees held October 27-28, 1997, the Board of
Trustees unanimously recommended that shareholders vote FOR each of the Nomi-
nees for Trustee named herein. In recommending that shareholders elect the
Nominees as Trustees of the Sierra Trust, the Board considered the Nominees'
experience and qualifications. In particular, the Board took into account the
fact that each of the Nominees who has not previously served on the Board of
Trustees of the Sierra Trust has previous experience serving on the Board of
Directors of the various Composite Funds.
SHAREHOLDER APPROVAL OF THE ELECTION OF TRUSTEES
The election of the Trustees requires the affirmative vote of a plurality of
all votes cast at the Meeting, provided that a majority of the shares entitled
to vote are present in person or by proxy at the Meeting. If your shares are
represented at the meeting but you give no voting instructions, your shares
will be voted FOR all Nominees named herein. If the Nominees are not approved
by shareholders of the Sierra Trust, the Board of Trustees will consider al-
ternative nominations.
THE BOARD OF TRUSTEES OF THE SIERRA TRUST RECOMMENDS THAT THE SHAREHOLDERS OF
THE ACQUIRED FUNDS VOTE FOR THE ELECTION OF THE NOMINEES AS TRUSTEES OF THE
SIERRA TRUST.
- -------------------------------------------------------------------------------
PROPOSALS 2, 3, 4, 5, 6 AND 7:
APPROVAL OR DISAPPROVAL OF AGREEMENT AND PLAN OF REORGANIZATION
The shareholders of the Sierra Government Fund are being asked to approve or
disapprove a Merger between the Sierra Government Fund and the Composite Gov-
ernment Fund (Proposal 2); the shareholders of the Sierra Income Fund are be-
ing asked to approve or disapprove a Merger between the Sierra Income Fund and
the Composite Income Fund (Proposal 3); the shareholders of the Sierra Growth
& Income Fund are being asked to approve or disapprove a Merger between the
Sierra Growth & Income Fund and the Composite Growth & Income Fund (Proposal
4); the shareholders of the Sierra Global Money Fund are being asked to ap-
prove or disapprove a Merger between the Sierra Global Money Fund and the Com-
posite Money Fund (Proposal 5); the shareholders of the Sierra Government
Money Fund are being asked to approve or disapprove a Merger between the Si-
erra Government Money Fund and the Composite Money Fund (Proposal 6); and the
shareholders of the Sierra Municipal Fund are being asked to approve or disap-
prove a Merger between the Sierra Municipal Fund and the Composite Tax-Exempt
Fund (Proposal 7). Each Merger is proposed to take place pursuant to an Agree-
ment and Plan of Reorganization between the Acquired Fund and the Acquiring
Fund (the "Agreement"), each of which is in the form attached to this Prospec-
tus/ Proxy Statement as Appendix A.
Each Agreement provides, among other things, for the transfer of all of the
assets of the Acquired Fund to the Acquiring Fund in exchange for (i) the as-
sumption by the Acquiring Fund of all of the liabilities of the Acquired Fund
and (ii) the issuance to the Acquired Fund of the Class A, Class B, Class I
and Class S Merger Shares, the number of which will be calculated based on the
value of the net assets attributable to the Class A, Class B, Class I and
Class S shares, respectively, of the Acquired Fund acquired by the Acquiring
Fund and the net asset value per Class A, Class B, Class I and Class S share
of the Acquiring
35
<PAGE>
Fund, all as more fully described below under "Information About the Mergers."
After receipt of the Merger Shares, the Acquired Fund will cause the Class A
Merger Shares to be distributed to its Class A shareholders, the Class B
Merger Shares to be distributed to its Class B shareholders, the Class I
Merger Shares to be distributed to its Class I shareholders and the Class S
Merger Shares to be distributed to its Class S shareholders, in complete liq-
uidation of the Acquired Fund. Each shareholder of the Acquired Fund will re-
ceive a number of full and fractional Class A, Class B, Class I or Class S
Merger Shares equal in value at the date of the exchange to the aggregate
value of the shareholder's Class A, Class B, Class I or Class S Acquired Fund
shares, as the case may be.
TRUSTEES' RECOMMENDATIONS. THE TRUSTEES OF THE SIERRA TRUST HAVE VOTED UNANI-
MOUSLY TO APPROVE EACH PROPOSED MERGER AND TO RECOMMEND THAT SHAREHOLDERS OF
EACH ACQUIRED FUND ALSO APPROVE THE MERGER FOR SUCH FUND.
REQUIRED SHAREHOLDER VOTE. Approval of each proposed Merger for each Acquired
Fund will require the affirmative vote of the lesser of (A) 67% or more of the
Class A, Class B, Class I and Class S shares of the relevant Acquired Fund
present or represented at the Meeting, voting together as a single class, if
the holders of more than 50% of the outstanding Class A, Class B, Class I and
Class S shares are present or represented by proxy at the Meeting, or (B) more
than 50% of the outstanding Class A, Class B, Class I and Class S shares of
the relevant Acquired Fund, voting together as a single class.
A shareholder of an Acquired Fund objecting to the proposed Merger is not en-
titled under either Massachusetts law or the Sierra Trust's Master Trust
Agreement (the "Sierra Declaration of Trust") to demand payment for or an ap-
praisal of his or her Acquired Fund shares if the Merger is consummated over
his or her objection. Shareholders may, however, redeem their shares at any
time prior to the Merger, and if the Merger is consummated, shareholders will
still be free at any time to redeem their Merger Shares, in each case for cash
at net asset value at the time of such redemption, less any applicable CDSC,
or to exchange their Merger Shares for shares of the same class of certain
other funds advised by CRM and its affiliates, at net asset value at the time
of such exchange. See "Exchanges for other Composite Funds" in Appendix C.
Each proposed Merger is subject to both the approval of the shareholders of
the relevant Acquired Fund and the approval by the shareholders of the corre-
sponding Acquiring Fund of the Reorganization of the Acquiring Fund, which is
a condition to the consummation of each Merger. A meeting of shareholders of
the Acquiring Funds will be held on or about December 23, 1997 to vote on the
approval of the Reorganization of the Acquiring Funds and other matters. In
the event that such Reorganization is not approved by the shareholders of an
Acquiring Fund or a Merger is not approved by the shareholders of the Acquired
Fund, or a Merger is not completed for any other reason, the Acquired Fund
will continue to be managed as a separate series of the Sierra Trust in accor-
dance with its current investment objective and policies, and the Sierra
Trust's Trustees may consider such alternatives as may be in the best inter-
ests of shareholders.
BACKGROUND AND REASONS FOR THE PROPOSED MERGERS
The Trustees of the Sierra Trust, including the Trustees who are not "inter-
ested persons" of the Sierra Trust (the "Independent Trustees"), have deter-
mined that each Merger would be in the best interests of the relevant Acquired
Fund, and that the interests of the Acquired Fund's shareholders would not be
diluted as a result of effecting the Merger. At a meeting held on October 27-
28, 1997, the Trustees unanimously approved each proposed Merger and recom-
mended its approval by shareholders. Before reaching their conclusions, the
Trustees conducted an extensive "due diligence" review. Among other things,
the Trustees received reports from counsel and independent experts specifi-
cally hired to evaluate CRM's ability to manage the Acquiring Funds, reviewed
CRM's overall business plan for the Acquiring Funds and the other Compo-
site/Sierra Mutual Funds, including the ability of its affiliates to provide
administration and distribution services, met with portfolio managers at CRM
and met with the Directors of the Composite Funds. The Trustees took into ac-
count the fact that CRM will be bearing the expenses associated with the Merg-
ers, including those described under "Information about the Mergers." The
Trustees also took into account the depth and strength of staffing of invest-
ment professionals and administrative personnel at CRM, the portfolio managers
of the Acquiring Funds and the other service providers to the Acquiring Funds,
as well as Washington Mutual's and CRM's plans for distribution of the Acquir-
ing Funds and the
36
<PAGE>
other Composite/Sierra Mutual Funds following the Mergers. In addition, the
Trustees took into account the relative historical investment performance of
accounts managed by CRM, on the one hand, and Sierra and the Acquired Funds'
subadvisers, on the other hand. Furthermore, Trustees took into account the
capital loss carry-forwards for each Acquired Fund and each Acquiring Fund,
and the unrealized capital appreciation in each Acquired Fund and in the cor-
responding Acquiring Fund, in each case as a percentage of the Fund's total
net assets. Those percentages as of June 30, 1997 were as follows:
<TABLE>
<CAPTION>
CAPITAL LOSS UNREALIZED CAPITAL
CARRY-FORWARDS (AS A APPRECIATION (DEPRECIATION)
PERCENTAGE OF TOTAL NET ASSETS) (AS A PERCENTAGE OF TOTAL NET
FUND ON JUNE 30, 1997 ASSETS) ON JUNE 30, 1997
---- ------------------------------- -----------------------------
<S> <C> <C>
Sierra Government Fund.. 19.87% 0.78%
Composite Government
Fund................... 6.20% (0.49%)
Sierra Income Fund...... 14.74% 4.24%
Composite Income Fund... 15.91% 1.78%
Sierra Growth & Income
Fund................... * 8.57%
Composite Growth & In-
come Fund.............. * 23.02%
Sierra Global Money
Fund................... * *
Composite Money Fund.... * *
Sierra Government Money
Fund................... * *
Composite Money Fund.... * *
Sierra Municipal Fund... 4.18% 8.56%
Composite Tax-Exempt
Fund................... 0.78% 7.40%
</TABLE>
* Less than $50,000 or less than 0.01% of net assets.
The principal reasons why the Trustees are recommending the Mergers, and the
overall restructuring of the Composite/Sierra Mutual Funds of which the Merg-
ers are a part, are as follows:
(i) DECREASED OR UNCHANGED OVERALL EXPENSES. The Mergers are expected to re-
sult in aggregate operating expenses that, absent any waiver of management
fees or reimbursement of expenses, would be lower than those currently borne
by most of the Acquired Funds as described more fully in the Overview under
"Operating Expenses." Furthermore, CRM has voluntarily undertaken to waive a
portion of its management fee, if necessary, to limit the expenses of the Ac-
quiring Funds at least through the end of 1998, as described more fully in
the Overview under "Operating Expenses". Of course, there can be no assurance
that the Mergers will continue to result in savings in operating expenses to
shareholders.
(ii) CRM'S BUSINESS PLAN FOR THE COMPOSITE/SIERRA FUNDS. Washington Mutual
has decided to consolidate the investment advisory businesses of Sierra and
CRM and has recommended the consolidation of the Sierra Funds and the Compos-
ite Funds. In accepting this recommendation, the Trustees considered the re-
sources of Washington Mutual and its affiliates that would be made available
to CRM and the Acquiring Funds. The Trustees also considered CRM's experience
as adviser and service provider to the Composite Funds.
(iii) APPROPRIATE INVESTMENT OBJECTIVES, DIVERSIFICATION, ETC. The invest-
ment objective, policies, and restrictions of each Acquiring Fund are compat-
ible with those of the corresponding Acquired Fund, and the Trustees believe
that an investment in shares of the Acquiring Fund (whose portfolio will have
been combined with that of the Acquired Fund) will provide shareholders with
an investment opportunity comparable to that currently afforded by the Ac-
quired Fund, with the potential for reduced investment risk because of the
opportunities for additional diversification of portfolio investments through
increased Fund assets.
(iv) CONTINUED INVESTMENT IN A MUTUAL FUND WITHOUT RECOGNITION OF GAIN OR
LOSS FOR FEDERAL INCOME TAX PURPOSES. The proposed reorganization will permit
Acquired Fund shareholders to keep their investment in an open-end mutual
fund, without recognition of gain or loss for federal income tax purposes. If
the Acquired Funds were to liquidate
37
<PAGE>
and shareholders were to receive the net asset value of their shares in liq-
uidating distributions, gain or loss would be recognized for federal income
tax purposes. (The Mergers of the Sierra Global Money Fund and the Sierra
Government Money Fund could result in the recognition of a nominal capital
gain (or loss) by shareholders for federal income tax purposes. See "Informa-
tion About the Mergers--Federal Income Tax Consequences" below.)
(v) LARGER, MORE INTEGRATED FUND COMPLEX. The restructuring of the
Composite/Sierra Mutual Funds (which is subject to satisfaction of a number
of conditions, including shareholder approval of the Mergers) should reduce
confusion for shareholders between funds within the same family with similar
names and/or investment objectives. Commencing in the second quarter of 1998,
the restructuring of the Composite/Sierra Mutual Funds will give shareholders
broader exchange privileges among funds.
INFORMATION ABOUT THE MERGERS
AGREEMENT AND PLAN OF REORGANIZATION. Each proposed Agreement and Plan of Re-
organization provides that the relevant Acquiring Fund will acquire all of the
assets of the corresponding Acquired Fund in exchange for the assumption by the
Acquiring Fund of all of the liabilities of the Acquired Fund and for the issu-
ance of the Class A, Class B, Class I and Class S Merger Shares, all as of the
Exchange Date (defined in each Agreement to be December 26, 1997 or such other
date as may be agreed upon by the Acquiring Fund and the Acquired Fund). The
following discussion of the Agreements is qualified in its entirety by the full
text of each Agreement, the form of which is attached as Appendix A to this
Prospectus/Proxy Statement.
Each Acquired Fund will sell all of its assets to the corresponding Acquiring
Fund, and, in exchange, the Acquiring Fund will assume all of the liabilities
of the Acquired Fund and deliver to the Acquired Fund (i) a number of full and
fractional Class A Merger Shares having an aggregate net asset value equal to
the value of the assets of the Acquired Fund attributable to its Class A
shares, less the value of the liabilities of the Acquired Fund assumed by the
Acquiring Fund attributable to the Class A shares of the Acquired Fund, (ii) a
number of full and fractional Class B Merger Shares having an aggregate net as-
set value equal to the value of assets of the Acquired Fund attributable to its
Class B shares, less the value of the liabilities of the Acquired Fund assumed
by the Acquiring Fund attributable to the Class B shares of the Acquired Fund,
(iii) a number of full and factional Class I Merger Shares having an aggregate
net asset value equal to the value of the assets of the Acquired Fund attribut-
able to its Class I shares, less the value of the liabilities of the Acquired
Fund assumed by the Acquiring Fund attributable to the Class I shares of the
Acquired Fund and (iv) a number of full and fractional Class S Merger Shares
having an aggregate net asset value equal to the value of assets of the Ac-
quired Fund attributable to its Class S shares, less the value of the liabili-
ties of the Acquired Fund assumed by the Acquiring Fund attributable to the
Class S shares of the Acquired Fund.
Immediately following the Exchange Date, each Acquired Fund will distribute
pro rata to its shareholders of record as of the close of business on the Ex-
change Date the full and fractional Merger Shares received by the Acquired
Fund, with Class A Merger Shares being distributed to holders of Class A shares
of the Acquired Fund, Class B Merger Shares being distributed to holders of
Class B shares of the Acquired Fund, Class I Merger Shares being distributed to
holders of Class I shares of the Acquired Fund and Class S Merger Shares being
distributed to holders of Class S shares of the Acquired Fund. As a result of
the proposed transaction, each holder of Class A, Class B, Class I and Class S
shares of the Acquired Fund will receive a number of Class A, Class B, Class I
and Class S Merger Shares equal in aggregate value at the Exchange Date to the
value of the Class A, Class B, Class I and Class S shares, respectively, of the
Acquired Fund held by the shareholder. This distribution will be accomplished
by the establishment of accounts on the share records of the corresponding Ac-
quiring Fund in the names of the Acquired Fund shareholders, each account rep-
resenting the respective number of full and fractional Class A, Class B, Class
I and Class S Merger Shares due such shareholder. Because the shares of the Ac-
quiring Funds will not be represented by certificates, certificates for Merger
Shares will not be issued.
The consummation of each Merger is subject to the conditions set forth in the
Agreement, any of which may be waived. The Agreement may be terminated and the
Merger abandoned at any time, before or after approval by the shareholders of
each Acquired Fund, prior to the Exchange Date, by mutual consent of the rele-
vant Funds or, if any condition set forth in the Agreement has not been ful-
filled and has not been waived by the party entitled to its benefits, by such
party. The Agree -
38
<PAGE>
ment provides that each Merger need not be consummated if the Trustees of the
Sierra Trust shall have concluded in good faith, prior to the Exchange Date,
that the Merger would not be in the best interests of the Acquired Fund's
shareholders.
All legal and accounting fees and expenses, printing and other fees and ex-
penses (other than portfolio transfer taxes (if any), brokerage and other sim-
ilar expenses, all of which will be borne by the relevant Fund) incurred in
connection with the consummation of the transactions contemplated by the
Agreement will be borne by CRM. Notwithstanding the foregoing, expenses will
in any event be paid by the party directly incurring such expenses if and to
the extent that the payment by any other party of such expenses would result
in the disqualification of the first party as a "regulated investment company"
within the meaning of Section 851 of the Internal Revenue Code of 1986, as
amended (the "Code").
DESCRIPTION OF THE MERGER SHARES. Full and fractional Merger Shares will be
issued to each Acquired Fund's shareholders in accordance with the procedure
under the Agreement as described above. The Merger Shares are Class A, Class
B, Class I and Class S shares of the Acquiring Fund, which have characteris-
tics substantially similar to those of the corresponding class of Acquired
Fund shares with respect to sales charges, CDSCs, conversion and 12b-1 servic-
ing and distribution fees. Investors purchasing Class A shares of the Acquir-
ing Funds generally pay a sales charge of up to 5.75% at the time of purchase,
but Acquired Funds shareholders receiving Class A Merger Shares in the Merger
will not pay a sales charge on such shares. Class A shares of the Acquiring
Funds are generally not subject to redemption fees, except that certain pur-
chases of Class A shares of the Acquiring Funds which are not subject to a
front-end sales load are subject to a CDSC of up to 1% if redeemed within two
years after purchase. Class A shares of the Acquiring Funds (except for the
Composite Money Fund) are generally subject to a 12b-1 servicing fee at the
annual rate of 0.25% of the net assets attributable to the Fund's Class A
shares. Class B and Class S shares of the Acquiring Funds are sold without a
front end sales charge, but are subject to a CDSC of up to 5% if redeemed
within six years of original purchase. Class B and Class S shares of the Ac-
quiring Funds are also subject to 12b-1 distribution and servicing fees at the
annual rates of 0.75% and 0.25%, respectively, of the Fund's average daily net
assets attributable to Class B or Class S shares. Class B and Class S shares
of the Acquiring Funds will convert automatically into Class A shares after
they have been held for approximately eight years. Class I shares of the Ac-
quiring Funds (which are available for purchase only by the SAM Portfolios and
are not sold directly to investors) are sold without a front-end sales load or
CDSC, are not subject to 12b-1 fees and do not convert into any other class of
shares. For purposes of determining the CDSC payable on redemption of Class A,
Class B or Class S Merger Shares received by holders of Class A, Class B or
Class S shares of the Acquired Fund, as well as the conversion date of Class B
and Class S Merger Shares, such shares will be treated as having been pur-
chased as of the dates that, and for the price (adjusted to reflect the Merg-
er) at which, such shareholders originally purchased their Class A, Class B or
Class S shares, as the case may be, of the Acquired Fund, and the CDSC will be
applied at the same rate as was in effect for the Acquiring Fund at the time
the shares of the Acquired Fund were originally purchased. See "Distribution
Plans" and "Alternative Purchase Arrangements" in Appendix C for more informa-
tion about the characteristics of Class A, Class B, Class I and Class S shares
of the Acquiring Funds, including certain proposed changes to the Rule 12b-1
plans for the Acquiring Funds' Class A shares.
CERTAIN PAYMENTS BY THE DISTRIBUTOR. In connection with the sale of Class B
and Class S shares of the Acquired Funds, Sierra Services pays commissions to
broker-dealers from its own assets that it expects to recover over time
through the receipt of distribution fees in connection with the Acquired
Funds' Class B and Class S shares and the receipt of any CDSC on Class B and
Class S shares. The total amount of such commissions paid by Sierra Services
with respect to the Acquired Funds before the consummation of the proposed
Mergers will likely exceed the amounts recovered by Sierra Services by that
time. Such unrecovered amounts do not represent a liability of the Acquired
Funds and, consequently, the Acquiring Funds will not assume any such liabil-
ity in connection with the consummation of the Mergers. However, to the extent
Sierra Services has not fully recovered such commissions before the consumma-
tion of the proposed Mergers, it is anticipated that the Composite Trust's
Trustees will consider such unrecovered amounts, among other factors, in de-
termining whether to continue payments of distribution fees in the future with
respect to Class B and Class S shares of the Acquiring Funds.
39
<PAGE>
As of June 30, 1997, the expenses incurred by Sierra Services in distributing
shares of the Sierra Trust were approximately $881,247 in excess of payments
under the Sierra Trust's Distribution and Servicing Plan with respect to Class
B shares and $605,875 in excess of payments under the Sierra Trust's Distribu-
tion and Servicing Plan with respect to Class S shares.
DECLARATION OF TRUST. Each of the Merger Shares will be fully paid and nonas-
sessable by the Composite Trust when issued, will be transferable without re-
striction, and will have no preemptive or conversion rights, except that Class
B and Class S Merger Shares convert automatically into Class A shares as de-
scribed above. The Composite Trust's Agreement and Declaration of Trust (the
"Composite Declaration of Trust") permits the Composite Trust to divide its
shares, without shareholder approval, into two or more series of shares repre-
senting separate investment portfolios and to further divide any such series,
without shareholder approval, into two or more classes of shares having such
preferences and special or relative rights and privileges as the Trustees may
determine. Each Acquiring Fund's shares are currently divided into four clas-
ses: Class A, Class B, Class I and Class S.
Under Massachusetts law, shareholders of a Massachusetts business trust
could, under certain circumstances, be held personally liable for the obliga-
tions of the trust. However, the Composite Declaration of Trust disclaims
shareholder liability for acts or obligations of the Composite Trust and/or
the Acquiring Funds and requires that notice of such disclaimer be given in
each agreement, undertaking, or obligation entered into or executed by the
Composite Trust, the Acquiring Funds or the Composite Trust's Trustees. The
Composite Declaration of Trust provides for indemnification out of Acquiring
Fund property for all loss and expense of any shareholder held personally lia-
ble for the obligations of the Acquiring Fund. Thus, the risk of a sharehold-
er's incurring financial loss from shareholder liability is limited to circum-
stances in which the Acquiring Fund would be unable to meet its obligations.
The likelihood of such a circumstance is considered remote. The shareholders
of each Acquired Fund are currently subject to substantially the same risk of
shareholder liability, under Massachusetts law and the Sierra Declaration of
Trust.
Except as otherwise noted below, the provisions of the Composite Declaration
of Trust are substantially similar to those of the Sierra Declaration of
Trust. The Composite Declaration of Trust provides that Trustees may be re-
moved by a majority of the Trustees, whereas the Sierra Declaration of Trust
provides that Trustees may be removed by two-thirds vote of the Trustees or by
vote of shareholders holding at least two-thirds of the outstanding shares of
the Sierra Trust. In addition, the Sierra Declaration of Trust provides that
shareholders holding 10% or more of the outstanding shares of the Sierra Trust
may call a meeting of shareholders to consider the removal of any Trustee. The
Composite Declaration of Trust specifies no minimum number of Trustees, while
the Sierra Declaration of Trust specifies a minimum of two Trustees.
Unlike the Composite Declaration of Trust, the Sierra Declaration of Trust
provides that the liquidation of any fund requires the approval not only of a
majority of the Trustees, but also of a "majority of the outstanding voting
securities" of the fund, as defined in the 1940 Act, which means the lesser of
(A) 67% or more of the shares of the fund present at a meeting, if the holders
of more than 50% of the outstanding shares of the fund are present or repre-
sented by proxy, or (B) more than 50% of the outstanding shares of the fund.
The Composite Declaration of Trust requires only the vote of a majority of the
Trustees for the liquidation of any fund. The Composite Declaration of Trust
provides that the Composite Trust or any fund thereof may be terminated by
vote of at least 50% of the shares of each fund entitled to vote (voting sepa-
rately by fund) or by a majority of the Trustees by written notice to share-
holders, whereas the Sierra Declaration of Trust provides that the Sierra
Trust may be terminated only by both the vote of a majority of the outstanding
voting securities of each fund and the vote of a majority of the Trustees.
The Composite Declaration of Trust provides that a quorum for a meeting of
shareholders is 10% of the shares entitled to vote at the meeting, while the
Sierra Declaration of Trust provides that a quorum for a meeting of sharehold-
ers is a majority of the shares entitled to vote at the meeting.
BOARD OF TRUSTEES. The Composite Trust's Board of Trustees currently consists
of each Director of the Acquiring Funds. It is proposed that, prior to the
completion of the Mergers, each Trustee of the Sierra Trust will be added to
the Board of Trustees of the Composite Trust, subject to the approval of the
shareholders of the Acquiring Funds and the other mutual funds currently man-
aged by CRM. Pursuant to Proposal 1, each Director of the Acquiring Funds
40
<PAGE>
has been nominated to serve as a Trustee of the Sierra Trust, subject to the
approval of the Sierra Trust's shareholders. The members of the Composite
Trust's Board of Trustees, who are responsible for overseeing the affairs of
the Acquiring Funds, are currently Wayne L. Attwood, M.D., Kristianne Blake,
Anne V. Farrell, Michael K. Murphy, William G. Papesh, Daniel L. Pavelich, Jay
Rockey and Richard C. Yancey, and they have recommended that the shareholders
of the Acquiring Funds vote to elect the following Trustees of the Sierra
Trust to the Acquiring Funds' Boards of Directors and that such persons be
added to the Composite Trust's Board of Trustees immediately prior to the
Mergers: Arthur H. Bernstein, David E. Anderson, Edmond R. Davis, John W. En-
glish and Alfred E. Osborne, Jr. See Proposal 1 above for further information.
FEDERAL INCOME TAX CONSEQUENCES. Except in the case of the Mergers of the Si-
erra Global Money Fund and the Sierra Government Money Fund with the Composite
Money Fund, as a condition to each Acquired Fund's obligation to consummate
the Merger, the Acquired Fund will receive an opinion from Ropes & Gray, spe-
cial counsel to the Composite Trust, to the effect that, on the basis of the
existing provisions of the Code, current administrative rules and court deci-
sions, for federal income tax purposes: (i) under Section 361 of the Code, no
gain or loss will be recognized by the Acquired Fund as a result of the reor-
ganization; (ii) under Section 354 of the Code, no gain or loss will be recog-
nized by shareholders of the Acquired Fund on the distribution of Merger
Shares to them in exchange for their shares of the Acquired Fund; (iii) under
Section 358 of the Code, the tax basis of the Merger Shares that the Acquired
Fund's shareholders receive in place of their Acquired Fund shares will be the
same as the basis of the Acquired Fund shares; (iv) under Section 1223(1) of
the Code, a shareholder's holding period for the Merger Shares received pursu-
ant to the Agreement will be determined by including the holding period for
the Acquired Fund shares exchanged for the Merger Shares, provided that the
shareholder held the Acquired Fund shares as a capital asset; (v) under Sec-
tion 1032 of the Code, no gain or loss will be recognized by the Acquiring
Fund as a result of the reorganization; (vi) under Section 362(b) of the Code,
the Acquiring Fund's tax basis in the assets that the Acquiring Fund receives
from the Acquired Fund will be the same as the Acquired Fund's basis in such
assets; and (vii) under Section 1223(2) of the Code, the Acquiring Fund's
holding period in such assets will include the Acquired Fund's holding period
in such assets. The opinion will be based on certain factual certifications
made by officers of the Sierra Trust, the Composite Trust and the Acquiring
Funds, and will also be based on customary assumptions.
Prior to the Exchange Date, each Acquired Fund will declare a distribution to
shareholders which, together with all previous distributions, will have the
effect of distributing to shareholders all of its investment company taxable
income (computed without regard to the deduction for dividends paid) and net
realized capital gains, if any, through the Exchange Date.
In the case of the Mergers of the Sierra Global Money Fund and the Sierra
Government Money Fund with the Composite Money Fund, such Mergers may, depend-
ing on the level of redemptions experienced by these Acquired Funds prior to
their Mergers, result in shareholders of such Acquired Funds recognizing a
capital gain or loss for federal income tax purposes to the extent that the
fair market value of the Acquiring Fund shares received in the Merger is
greater or less than the adjusted basis of the Acquired Fund shares held by
such shareholder. Because these Funds attempt to maintain a stable net asset
value of $1.00 per share, however, the amount of any such capital gain or loss
is expected to be negligible.
CAPITALIZATION. The following tables show the capitalization of each Acquir-
ing Fund and each Acquired Fund as of June 30, 1997 and of each Acquiring Fund
on a pro forma basis as of that date, giving effect to the proposed acquisi-
tion by the Acquiring Fund of the assets and liabilities of the Acquired Fund
at net asset value:
41
<PAGE>
CAPITALIZATION TABLES
JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
SIERRA COMPOSITE PRO FORMA
GOVERNMENT FUND GOVERNMENT FUND COMBINED
--------------- --------------- ---------
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
Net assets (000's omitted)
Class A............................. $258,553 $119,431 $377,984
Class B............................. 20,370 2,898 23,268
Class S............................. 9,088 -- 9,088
Class I............................. 81,920 -- 81,920
- --------------------------------------------------------------------------------
Shares outstanding (000's omitted)
Class A............................. 27,040 11,437 36,205
Class B............................. 2,130 278 2,229
Class S............................. 951 -- 870
Class I............................. 8,567 -- 7,847
- --------------------------------------------------------------------------------
Net asset value per share
Class A*............................ $9.56 $10.44 $10.44
Class B*............................ 9.56 10.44 10.44
Class S*............................ 9.56 -- 10.44
Class I............................. 9.56 -- 10.44
- --------------------------------------------------------------------------------
<CAPTION>
SIERRA COMPOSITE PRO FORMA
INCOME FUND INCOME FUND COMBINED
--------------- --------------- ---------
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
Net assets (000's omitted)
Class A............................. $195,531 $80,302 $275,833
Class B............................. 20,982 7,303 28,285
Class S............................. 2,121 -- 2,121
Class I............................. 7,278 -- 7,278
- --------------------------------------------------------------------------------
Shares outstanding (000's omitted)
Class A............................. 18,967 8,734 30,015
Class B............................. 2,035 793 3,072
Class S............................. 206 -- 231
Class I............................. 706 -- 792
- --------------------------------------------------------------------------------
Net asset value per share
Class A*............................ $10.31 $9.19 $9.19
Class B*............................ 10.31 9.21 9.21
Class S*............................ 10.31 -- 9.19
Class I............................. 10.31 -- 9.19
- --------------------------------------------------------------------------------
</TABLE>
* Redemption price per share is equal to net asset value less any applicable
CDSC.
42
<PAGE>
<TABLE>
<CAPTION>
SIERRA GROWTH COMPOSITE GROWTH PRO FORMA
& INCOME FUND & INCOME FUND COMBINED
------------- ---------------- ----------------
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
Net assets (000's omitted)
Class A....................... $162,818 $215,534 $378,352
Class B....................... 35,454 34,362 69,816
Class S....................... 12,965 -- 12,965
Class I....................... 132,507 -- 132,507
- --------------------------------------------------------------------------------
Shares outstanding (000's omit-
ted)
Class A....................... 11,210 12,010 21,078
Class B....................... 2,465 1,926 3,913
Class S....................... 902 -- 722
Class I....................... 9,112 -- 7,382
- --------------------------------------------------------------------------------
Net asset value per share
Class A*...................... $14.52 $17.95 $17.95
Class B*...................... 14.38 17.84 17.84
Class S*...................... 14.38 -- 17.95
Class I....................... 14.54 -- 17.95
- --------------------------------------------------------------------------------
<CAPTION>
PRO FORMA
COMBINED
(FOR MERGER
WITH
SIERRA GLOBAL COMPOSITE SIERRA GLOBAL
MONEY FUND MONEY FUND MONEY FUND ONLY)
------------- ---------------- ----------------
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
Net assets (000's omitted)
Class A....................... $104,302 $256,222 $360,524
Class B....................... 1,314 217 1,531
Class S....................... 6,909 -- 6,909
Class I....................... 79,002 -- 79,002
- --------------------------------------------------------------------------------
Shares outstanding (000's omit-
ted)
Class A....................... 104,654 256,222 360,523
Class B....................... 1,309 217 1,531
Class S....................... 6,880 -- 6,908
Class I....................... 78,668 -- 79,002
- --------------------------------------------------------------------------------
Net asset value per share
Class A....................... $1.00 $1.00 $1.00
Class B....................... 1.00 1.00 1.00
Class S....................... 1.00 -- 1.00
Class I....................... 1.00 -- 1.00
- --------------------------------------------------------------------------------
</TABLE>
*Redemption price per share is equal to net asset value less any applicable
CDSC.
43
<PAGE>
<TABLE>
<CAPTION>
SIERRA PRO FORMA COMBINED
GOVERNMENT COMPOSITE (FOR MERGER WITH SIERRA
MONEY FUND MONEY FUND GOVERNMENT FUND ONLY)
---------- ---------- -----------------------
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net assets (000's omitted)
Class A......................... $30,518 $256,222 $286,740
Class B......................... 1,801 217 2,018
Class S......................... 346 -- 346
Class I......................... 1 -- 1
- --------------------------------------------------------------------------------
Shares outstanding (000's omit-
ted)
Class A......................... 30,529 256,222 286,740
Class B......................... 1,802 217 2,018
Class S......................... 346 -- 346
Class I......................... 1 -- 1
- --------------------------------------------------------------------------------
Net asset value per share
Class A......................... $1.00 $1.00 $1.00
Class B......................... 1.00 1.00 1.00
Class S......................... 1.00 -- 1.00
Class I......................... 1.00 -- 1.00
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SIERRA PRO FORMA COMBINED
SIERRA GLOBAL GOVERNMENT COMPOSITE (FOR MERGERS WITH SIERRA GLOBAL
MONEY FUND MONEY FUND MONEY FUND MONEY AND SIERRA GOVERNMENT MONEY FUNDS)
------------- ---------- ---------- ----------------------------------------
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net assets (000's omit-
ted)
Class A................ $104,302 $30,518 $256,222 $391,042
Class B................ 1,314 1,801 217 3,333
Class S................ 6,909 346 -- 7,255
Class I................ 79,002 1 -- 79,003
- ------------------------------------------------------------------------------------------------------
Shares outstanding
(000's omitted)
Class A................ 104,654 30,529 256,222 391,042
Class B................ 1,309 1,802 217 3,333
Class S................ 6,880 346 -- 7,255
Class I................ 78,668 1 -- 79,003
- ------------------------------------------------------------------------------------------------------
Net asset value per
share
Class A................ $1.00 $1.00 $1.00 $1.00
Class B................ 1.00 1.00 1.00 1.00
Class S................ 1.00 1.00 -- 1.00
Class I................ 1.00 1.00 -- 1.00
- ------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SIERRA COMPOSITE TAX- PRO FORMA
MUNICIPAL FUND EXEMPT FUND COMBINED
-------------- -------------- ---------
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net assets (000's omitted)
Class A............................... $182,262 $192,465 $374,727
Class B............................... 6,001 6,664 12,665
Class S............................... 1 -- 1
Class I............................... 1 -- 1
- --------------------------------------------------------------------------------
Shares outstanding (000's omitted)
Class A............................... 16,333 24,540 47,797
Class B............................... 538 850 1,615
Class S............................... 0.1 -- 0.2
Class I............................... 0.1 -- 0.1
- --------------------------------------------------------------------------------
Net asset value per share
Class A*.............................. $11.16 $7.84 $7.84
Class B*.............................. 11.16 7.84 7.84
Class S*.............................. 11.16 -- 7.84
Class I............................... 11.16 -- 7.84
- --------------------------------------------------------------------------------
</TABLE>
* Redemption price per share is equal to net asset value less any applicable
CDSC.
44
<PAGE>
Pro forma financial statements of the Acquiring Funds as of and for the fis-
cal year ended December 31, 1996 (October 31, 1996 in the case of the Compos-
ite Growth & Income Fund) and as of and for the six months ended June 30, 1997
(April 30, 1997 in the case of the Composite Growth & Income Fund) are in-
cluded in the Merger SAI. Because each Agreement provides that the Acquiring
Fund will be the surviving Fund following the Merger and because the Acquiring
Fund's investment objective and policies will, except as noted, remain un-
changed, the pro forma financial statements reflect the transfer of the assets
and liabilities of the Acquired Fund to the Acquiring Fund as contemplated by
the Agreement.
- --------------------------------------------------------------------------------
INFORMATION ABOUT THE ACQUIRED FUNDS
Other information regarding the Acquired Funds, including information with
respect to their investment objectives, policies and restrictions and finan-
cial history may be found in the Merger SAI, the Sierra Prospectuses, the Si-
erra SAI and the Sierra Annual Report, which are available upon request by
calling 1-800-222-5852.
Proxy reports, proxy materials, and information statements and other informa-
tion filed by the Sierra Trust with respect to the Acquired Funds can be in-
spected and copied at the Public Reference Facilities maintained by the Secu-
rities and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C.
20549; 7 World Trade Center, Suite 1300, New York, New York 10048; and 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such mate-
rial can also be obtained from the Public Reference Branch, Office of Consumer
Affairs and Information Services, Securities and Exchange Commission, Washing-
ton, D.C. 20549, at prescribed rates.
- --------------------------------------------------------------------------------
INFORMATION ABOUT THE ACQUIRING FUNDS
Other information relating to the Acquiring Funds, including information in
respect of their investment objectives, policies and restrictions and finan-
cial history may be found in Appendix C to this Prospectus/ Proxy Statement,
as well as in the Merger SAI, the Composite Prospectuses, the Composite SAIs,
the Composite Annual Reports and the Composite Semi-Annual Reports, which are
available upon request by calling 1-800-543-8072. To the extent that any in-
formation in respect of the Acquiring Funds found in any such document is in-
consistent with the information contained in this Prospectus/Proxy Statement,
this Prospectus/Proxy Statement should be deemed to supersede such other docu-
ment. Certain information and commentary from the Composite Annual Reports re-
lating to the Acquiring Funds' recent investment performance is set forth in
Appendix B to this Prospectus/Proxy Statement.
Proxy reports, proxy materials, and information statements and other informa-
tion filed by the Acquiring Funds can be inspected and copied at the Public
Reference Facilities maintained by the Securities and Exchange Commission at
450 Fifth Street, N.W., Washington, D.C. 20549; 7 World Trade Center, Suite
1300, New York, New York 10048; and 500 West Madison Street, Suite 1400, Chi-
cago, Illinois 60661. Copies of such material can also be obtained from the
Public Reference Branch, Office of Consumer Affairs and Information Services,
Securities and Exchange Commission, Washington, D.C. 20549, at prescribed
rates.
- --------------------------------------------------------------------------------
VOTING INFORMATION
RECORD DATE, QUORUM AND METHOD OF TABULATION. Shareholders of record of each
Acquired Fund at the close of business on October 29, 1997 (the "Record Date")
will be entitled to notice of and to vote at the Meeting or any adjournment
thereof. The holders of a majority of the Class A, Class B, Class I and Class
S shares of each Acquired Fund outstanding at the close of business on the
Record Date present in person or represented by proxy will constitute a quorum
for the Meeting with respect to that Fund. Shareholders are entitled to one
vote for each share held, with fractional shares voting proportionally. Class
A, Class B, Class I and Class S shareholders of each Acquired Fund vote to-
gether as a single class in connection with the approval or disapproval of the
Mergers. Shareholders of each Acquired Fund will vote only on the
45
<PAGE>
approval or disapproval of that Fund's Merger. Shareholders of all Acquired
Funds, along with the shareholders of the other funds in the Sierra Trust,
will vote together as a single class on the election of the Sierra Trust's
Board of Trustees. As noted above, if the nominees are elected and if the in-
dividuals already serving on the Sierra Trust's Board are elected Trustees of
the Composite Trust, the Sierra Trust and the Composite Trust will have iden-
tical Boards of Trustees.
Votes cast by proxy or in person at the Meeting will be counted by persons
appointed by the Sierra Trust as tellers for the Meeting. The tellers will
count the total number of votes cast "for" approval of the Proposal for pur-
poses of determining whether sufficient affirmative votes have been cast. The
tellers will count shares represented by proxies that reflect abstentions and
"broker non-votes" (i.e., shares held by brokers or nominees as to which (i)
instructions have not been received from the beneficial owners or the persons
entitled to vote and (ii) the broker or nominee does not have the discretion-
ary voting power on a particular matter) as shares that are present and enti-
tled to vote on the matter for purposes of determining the presence of a quo-
rum. So long as a quorum is present, abstentions and broker non-votes have the
effect of negative votes on the Proposals relating to the Mergers, and no ef-
fect on the election of Trustees. Class I shares of the Acquired Funds which
are held by the SAM Portfolios are required to be voted for, voted against or
withheld from voting on each Proposal in the same proportion as are the other
outstanding shares of the Acquired Funds.
The Acquiring Funds will use procedures similar to those described in the
foregoing paragraph at the meeting of shareholders of the Acquiring Funds to
be held on or about December 23, 1997 to vote on the approval of disapproval
of the Reorganizations of the Acquiring Funds (which is a condition to the
Mergers) and the election of the Sierra Trust's Trustees as Directors of the
Acquiring Funds (and, indirectly, as Trustees of the Composite Trust), as well
as other matters, including certain changes to fundamental investment restric-
tions. Shareholders of record of each Acquiring Fund as of October 27, 1997
will be entitled to notice of and to vote at such meeting. Approval of the Re-
organization of each Acquiring Fund will require the affirmative vote of two-
thirds of the outstanding shares of such Acquiring Fund, voting together as a
single class.
SHARES OUTSTANDING AND BENEFICIAL OWNERSHIP. As of the Record Date, as shown
on the books of the Sierra Trust, there were issued and outstanding the fol-
lowing number of shares of beneficial interest of each class of each Acquired
Fund:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS S CLASS I
-------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Sierra Government Fund.. 23,861,754.884 1,965,782.858 853,626.239 8,843,114.744
Sierra Income Fund...... 16,648,088.825 1,893,434.979 174,999.253 709,483.253
Sierra Growth & Income
Fund................... 10,179,333.219 2,466,661.861 782,343.245 8,666,387.498
Sierra Global Money
Fund................... 95,545,954.290 1,210,520.800 7,260,055.970 81,498,393.350
Sierra Government Money
Fund................... 29,847,709.930 1,772,016.320 386,719.740 11,041,058.780
Sierra Municipal Fund... 14,941,166.436 528,331.508 121.430 98.896
</TABLE>
46
<PAGE>
As of the Record Date, the officers and Trustees of the Sierra Trust and the
Composite Trust and the officers and Directors of the Acquiring Funds as a
group beneficially owned less than 1% of the outstanding shares of each class
of each Acquired Fund. As of October 1, 1997 in the case of the Acquired Funds
and October 27, 1997 in the case of the Acquiring Funds, to the best of the
knowledge of the Sierra Trust and the Composite Trust, the following persons
owned of record or beneficially 5% or more of the outstanding shares of the
Acquired Funds and the Acquiring Funds:
<TABLE>
<CAPTION>
PRO FORMA
PERCENTAGE
OWNERSHIP
NUMBER OF PERCENTAGE FOLLOWING
SHARES OWNED OWNERSHIP MERGERS
------------ ---------- ----------
<S> <C> <C> <C>
SIERRA GOVERNMENT FUND
SAM Balanced Portfolio....................... 4,410,921 12% 9%
c/o Sierra Advisors
9301 Corbin Avenue, Suite 333
Northridge, CA 91324
SIERRA GROWTH & INCOME FUND
SAM Balanced Portfolio....................... 3,637,675 16% 11%
c/o Sierra Advisors
9301 Corbin Avenue, Suite 333
Northridge, CA 91324
SAM Growth Portfolio......................... 3,631,457 16% 11%
c/o Sierra Advisors
9301 Corbin Avenue, Suite 333
Northridge, CA 91324
SAM Capital Growth Portfolio................. 1,133,456 5% 3%
c/o Sierra Advisors
9301 Corbin Avenue, Suite 333
Northridge, CA 91324
SIERRA GLOBAL MONEY FUND
SAM Balanced Portfolio....................... 42,616,156 23% 10%
c/o Sierra Advisors
9301 Corbin Avenue, Suite 333
Northridge, CA 91324
SAM Growth Portfolio......................... 28,433,764 15% 6%
c/o Sierra Advisors
9301 Corbin Avenue, Suite 333
Northridge, CA 91324
COMPOSITE INCOME FUND
BHC Securities............................... 667,508 7% 2%
2005 Market Street
Philadelphia, PA 19103
COMPOSITE GROWTH & INCOME FUND
BHC Securities............................... 3,525,462 21% 11%
2005 Market Street
Philadelphia, PA 19103
COMPOSITE MONEY FUND
Rainier Trust................................ 69,963,790 26% 16%
1201 3rd Ave.
Seattle, WA 98101
</TABLE>
SOLICITATION OF PROXIES. Solicitation of proxies by personal interview, mail,
and telephone, may be made by officers and Trustees of the Sierra Trust and
the Composite Trust, officers and Directors of the Acquiring Funds and employ-
ees of Sierra and CRM and their affiliates. In addition, the firm of D.F. King
& Co., Inc. ("D.F. King") has been retained to assist in the solicitation of
proxies. The costs for solicitation of proxies, like the other costs associ-
ated with the general restructuring of the Composite/Sierra Mutual Funds, will
be borne by CRM. See "Information About the Mergers."
D.F. King may call shareholders to ask if they would be willing to have their
votes recorded by telephone. The telephone voting procedure is designed to au-
thenticate shareholders' identities, to allow shareholders to authorize the
voting of their shares in accordance with their instructions and to confirm
that their instructions have been recorded properly.
47
<PAGE>
Shareholders voting by telephone would be asked for their social security num-
ber or other identifying information, and would be given an opportunity to au-
thorize proxies to vote their shares in accordance with their instructions. To
ensure that the shareholders' instructions have been recorded correctly, they
will receive a confirmation of their instructions in the mail. A special toll-
free number will be available in case the information contained in the confir-
mation is incorrect. Although a shareholder's vote may be taken by telephone,
each shareholder will receive a copy of this Prospectus/Proxy Statement, and
may vote by mail using the enclosed proxy card. Shareholders may contact D.F.
King at 1-800-848-3374.
REVOCATION OF PROXIES. Any shareholder giving a proxy has the power to revoke
it by mail (addressed to the Sierra Trust's Secretary at the principal office
of the Sierra Trust at P.O. Box 5118, Westboro, Massachusetts 01581) or in
person at the Meeting, by executing a superseding proxy, or by submitting a
notice of revocation to the Secretary of the Sierra Trust. All properly exe-
cuted proxies received in time for the Meeting will be voted as specified in
the proxy, or, if no specification is made, FOR the election of all of the
nominees to the Sierra Trust's Board of Trustees (set forth in Proposal 1 of
the Notice of Meeting) and FOR the proposal (set forth in Proposals 2, 3, 4,
5, 6 and 7 of the Notice of Meeting) to implement the Merger with respect to
the relevant Acquired Fund.
SHAREHOLDER PROPOSALS AT FUTURE MEETINGS OF SHAREHOLDERS. The Sierra Declara-
tion of Trust does not provide for annual meetings of shareholders, and the
Sierra Trust does not currently intend to hold such a meeting for shareholders
of the Acquired Funds in 1997 or 1998. Shareholder proposals for inclusion in
a proxy statement for any subsequent meeting of the Acquired Funds' sharehold-
ers must be received by the Sierra Trust a reasonable period of time prior to
any such meeting. If the Mergers are consummated, the Acquired Funds' exist-
ence will terminate in December 1997 or shortly thereafter, after which there
would be no meetings of the shareholders of the Acquired Funds.
ADJOURNMENT. If sufficient votes in favor of any proposal are not received by
the time scheduled for the Meeting, the persons named as proxies may propose
one or more adjournments of the Meeting to permit further solicitation of
proxies. Any adjournment will require the affirmative vote of a plurality of
the votes cast on the question in person or by proxy at the session of the
Meeting to be adjourned. If the Meeting is adjourned only with respect to one
Proposal, any other Proposal may still be acted upon by the shareholders. The
persons named as proxies will vote in favor of such adjournment those proxies
which they are entitled to vote in favor of the Proposal. They will vote
against any such adjournment those proxies required to be voted against the
Proposal.
November 7, 1997
48
<PAGE>
APPENDIX A
FORM OF AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement") is made as of
November , 1997 in , , by and between the Sierra Trust Funds, a Massa-
chusetts business trust (the "Sierra Trust"), on behalf of its Fund se-
ries (the "Acquired Fund") and The Composite Funds, a Massachusetts business
trust (the "Composite Trust"), on behalf of its Composite Fund series (the
"Acquiring Fund").
PLAN OF REORGANIZATION
(a) Pursuant to an Agreement and Plan of Reorganization dated as of November
, 1997 by and between the Composite Trust, on behalf of the Acquiring Fund,
and Composite Fund, Inc., an open-end, diversified management investment
company incorporated under the laws of the State of Washington, on behalf of
its series (such corporation or series, as the context requires, the "Ex-
isting Composite Fund"), the Acquiring Fund will, subject to the conditions
set forth in such Agreement and Plan of Reorganization, acquire substantially
all of the assets and properties of the Existing Composite Fund in exchange
for which the Acquiring Fund will assume all of the liabilities of the Exist-
ing Composite Fund and will deliver to the Existing Composite Fund Class A and
Class B shares of beneficial interest of the Acquiring Fund having the same
aggregate net asset value as the outstanding Class A and Class B shares of the
Existing Composite Fund. In connection with the foregoing, the Existing Com-
posite Fund will distribute its shares in complete liquidation of the Existing
Composite Fund. (The foregoing transaction is hereafter referred to herein as
the "Composite Reorganization.")
(b) Immediately following the Composite Reorganization, the Acquired Fund
will sell, assign, convey, transfer and deliver to the Acquiring Fund on the
Exchange Date (as defined in Section 6) all of its properties and assets. In
consideration therefor, the Acquiring Fund shall, on the Exchange Date, assume
all of the liabilities of the Acquired Fund existing at the Valuation Time (as
defined in Section 3(c)) and deliver to the Acquired Fund (i) a number of full
and fractional Class A shares of beneficial interest of the Acquiring Fund
(the "Class A Merger Shares") having an aggregate net asset value equal to the
value of the assets of the Acquired Fund attributable to Class A shares of the
Acquired Fund transferred to the Acquiring Fund on such date less the value of
the liabilities of the Acquired Fund attributable to Class A shares of the Ac-
quired Fund assumed by the Acquiring Fund on that date, (ii) a number of full
and fractional Class B shares of beneficial interest of the Acquiring Fund
(the "Class B Merger Shares") having an aggregate net asset value equal to the
value of the assets of the Acquired Fund attributable to Class B shares of the
Acquired Fund transferred to the Acquiring Fund on such date less the value of
the liabilities of the Acquired Fund attributable to Class B shares of the Ac-
quired Fund assumed by the Acquiring Fund on that date, (iii) a number of full
and fractional Class I shares of beneficial interest of the Acquiring Fund
(the "Class I Merger Shares") having an aggregate net asset value equal to the
value of the assets of the Acquired Fund attributable to Class I shares of the
Acquired Fund transferred to the Acquiring Fund on such date less the value of
the liabilities of the Acquired Fund attributable to Class I shares of the Ac-
quired Fund assumed by the Acquiring Fund on that date, and (iv) a number of
full and fractional Class S shares of beneficial interest of the Acquiring
Fund (the "Class S Merger Shares") having an aggregate net asset value equal
to the value of the assets of the Acquired Fund attributable to Class S shares
of the Acquired Fund transferred to the Acquiring Fund on such date less the
value of the liabilities of the Acquired Fund attributable to Class S shares
of the Acquired Fund assumed by the Acquiring Fund on that date. (The Class A
Merger Shares, the Class B Merger Shares, the Class I Merger Shares, and the
Class S Merger Shares shall be referred to collectively as the "Merger
Shares.") It is intended that the reorganization described in this Agreement
shall be a reorganization within the meaning of Section 368 of the Internal
Revenue Code of 1986, as amended (the "Code").
(c) Upon consummation of the transactions described in paragraph (b) of this
Agreement, the Acquired Fund shall distribute in complete liquidation to its
Class A, Class B, Class I and Class S shareholders of record as of the Ex-
change Date the Class A, Class B, Class I and Class S Merger Shares of the Ac-
quiring Fund, each such shareholder being entitled to receive that proportion
of such Class A, Class B, Class I and Class S Merger Shares which the number
of Class A, Class B, Class I and Class S shares of beneficial interest of the
Acquired Fund held by such shareholder bears to the number of Class A, Class
B, Class I and Class S shares of the Acquired Fund outstanding on such date.
Certificates representing the Merger Shares will not be issued. All issued and
out-
A-1
<PAGE>
standing shares of the Acquired Fund will simultaneously be canceled on the
books of the Acquired Fund.
(d) As promptly as practicable after the liquidation of the Acquired Fund as
aforesaid, the Acquired Fund shall be dissolved pursuant to the provisions of
the Declaration of Trust of the Sierra Trust, as amended, and applicable law,
and its legal existence terminated. Any reporting responsibility of the Ac-
quired Fund is and shall remain the responsibility of the Acquired Fund up to
and including the Exchange Date and, if applicable, such later date on which
the Acquired Fund is liquidated.
AGREEMENT
The Acquiring Fund and the Acquired Fund agree as follows:
1. Representations, Warranties and Agreements of the Acquiring Fund. The Ac-
quiring Fund represents and warrants to and agrees with the Acquired Fund
that:
a. The Acquiring Fund is a series of shares of the Composite Trust, a Massa-
chusetts business trust duly established and validly existing under the laws
of The Commonwealth of Massachusetts, and has power to own all of its proper-
ties and assets and to carry out its obligations under this Agreement. The
Composite Trust is qualified as a foreign association in every jurisdiction
where required, except to the extent that failure to so qualify would not
have a material adverse effect on the Composite Trust. Each of the Composite
Trust and the Acquiring Fund has all necessary federal, state and local au-
thorizations to carry on its business as now being conducted and to carry out
this Agreement.
b. Each of the Existing Composite Fund and the Composite Trust is registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), as an
open-end management investment company, and such registration has not been
revoked or rescinded and is in full force and effect.
c. A statement of assets and liabilities, statements of operations, state-
ments of changes in net assets and a schedule of investments (indicating
their market values) of the Existing Composite Fund as of and for the year
ended December [Growth & Income: October] 31, 1996 and as of and for the six
months ended June [April] 30, 1997 have been furnished to the Acquired Fund.
Such statements of assets and liabilities and schedules fairly present the
financial positions of the Existing Composite Fund as of the their dates and
said statements of operations and changes in net assets fairly reflect the
results of its operations and changes in net assets for the periods covered
thereby in conformity with generally accepted accounting principles.
d. The prospectus and statement of additional information of the Existing
Composite Fund, each dated April 30 [February 28], 1997 (collectively, the
"Composite Prospectus"), previously furnished to the Acquired Fund, did not
as of such date and does not contain as of the date hereof, with respect to
the Existing Composite Fund, any untrue statements 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.
e. There are no material legal, administrative or other proceedings pending
or, to the knowledge of the Composite Trust or the Acquiring Fund, threatened
against the Existing Composite Fund, the Composite Trust or the Acquiring
Fund, which assert liability on the part of the Existing Composite Fund, the
Composite Trust or the Acquiring Fund. The Acquiring Fund knows of no facts
which might form the basis for the institution of such proceedings and is not
a party to or subject to the provisions of any order, decree or judgment of
any court or governmental body which materially and adversely affects its
business or its ability to consummate the transactions herein contemplated.
f. The Acquiring Fund has no known liabilities of a material nature, contin-
gent or otherwise, other than liabilities to be assumed pursuant to the Com-
posite Reorganization. The Existing Composite Fund has no known liabilities
of a material nature, contingent or otherwise, other than those shown belong-
ing to it on its statement of assets and liabilities as of June [April] 30,
1997 and those incurred in the ordinary course of its business as an invest-
ment company since June [April] 30, 1997. Prior to the Exchange Date, the Ex-
isting Composite Fund will endeavor to quantify and to reflect on its balance
sheet all of its material known liabilities and will advise the Acquired Fund
of all material liabilities, contingent or otherwise, incurred by it subse-
quent to June [April] 30, 1997, whether or not incurred in the ordinary
course of business.
g. As of the Exchange Date, the Existing Composite Fund and the Acquiring
Fund will have filed
A-2
<PAGE>
all federal and other tax returns and reports which, to the knowledge of the
Composite Trust's officers, are required to be filed by the Existing Compos-
ite Fund or the Acquiring Fund and have paid or will pay all federal and
other taxes shown to be due on said returns or on any assessments received by
the Existing Composite Fund or the Acquiring Fund. All tax liabilities of the
Existing Composite Fund or the Acquiring Fund have been adequately provided
for on its books, and no tax deficiency or liability of the Existing Compos-
ite Fund or the Acquiring Fund has been asserted, and no question with re-
spect thereto has been raised or is under audit, by the Internal Revenue
Service or by any state or local tax authority for taxes in excess of those
already paid.
h. No consent, approval, authorization or order of any court or governmental
authority is required for the consummation by the Acquiring Fund of the
transactions contemplated by this Agreement, except such as may be required
under the Securities Act of 1933, as amended (the "1933 Act"), the Securities
Exchange Act of 1934, as amended (the "1934 Act"), the 1940 Act and state se-
curities or blue sky laws (which term as used herein shall include the laws
of the District of Columbia and of Puerto Rico).
i. The registration statement (the "Registration Statement") filed with the
Securities and Exchange Commission (the "Commission") by the Composite Trust
on Form N-14 on behalf of the Acquiring Fund and relating to the Merger
Shares issuable hereunder and the proxy statement of the Acquired Fund relat-
ing to the meeting of the Acquired Fund shareholders referred to in Section
7(a) herein (together with the documents incorporated therein by reference,
the "Acquired Fund Proxy Statement"), on the effective date of the Registra-
tion Statement, (i) will comply in all material respects with the provisions
of the 1933 Act, the 1934 Act and the 1940 Act and the rules and regulations
thereunder and (ii) will not contain 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; and at the time of the share-
holders meeting referred to in Section 7(a) and on the Exchange Date, the
prospectus which is contained in the Registration Statement, as amended or
supplemented by any amendments or supplements filed with the Commission by
the Composite Trust, and the Acquired Fund Proxy Statement will not contain
any untrue statement of a material fact or omit to state a material fact re-
quired to be stated therein or necessary to make the statements therein not
misleading; provided, however, that none of the representations and warran-
ties in this subsection shall apply to statements in or omissions from the
Registration Statement or the Acquired Fund Proxy Statement made in reliance
upon and in conformity with information furnished in writing by the Acquired
Fund to the Acquiring Fund or the Composite Trust specifically for use in the
Registration Statement or the Acquired Fund Proxy Statement.
j. There are no material contracts outstanding to which the Existing Compos-
ite Fund or the Acquiring Fund is a party, other than as are or will be dis-
closed in the Composite Prospectus, the Registration Statement or the Ac-
quired Fund Proxy Statement.
k. The Acquiring Fund has no shares of beneficial interest issued and out-
standing. All of the issued and outstanding shares of beneficial interest of
the Existing Composite Fund have been offered for sale and sold in conformity
with all applicable federal and state securities laws (including any applica-
ble exemptions therefrom), or the Existing Composite Fund has taken any ac-
tion necessary to remedy any prior failure to have offered for sale and sold
such shares in conformity with such laws.
l. The Acquiring Fund was established by the Trustees of the Composite Trust
in order to effect the transactions described in this Agreement. It has not
yet filed its first federal income tax return, and, thus, has not yet elected
to be treated as a "regulated investment company" for federal income tax pur-
poses. However, upon filing its first income tax return at the completion of
its first taxable year, the Acquiring Fund will elect to be a "regulated in-
vestment company" and until such time will take all steps necessary to ensure
that it qualifies for taxation as a "regulated investment company" under Sec-
tions 851 and 852 of the Code. The Existing Composite Fund qualifies and will
at all times through the Exchange Date qualify for taxation as a "regulated
investment company" under Sections 851 and 852 of the Code.
m. The issuance of the Merger Shares pursuant to this Agreement will be in
compliance with all applicable federal and state securities laws.
A-3
<PAGE>
n. The Merger Shares to be issued to the Acquired Fund have been duly autho-
rized and, when issued and delivered pursuant to this Agreement, will be le-
gally and validly issued and will be fully paid and non-assessable by the Ac-
quiring Fund, and no shareholder of the Acquiring Fund will have any preemp-
tive right of subscription or purchase in respect thereof.
o. All issued and outstanding shares of the Existing Composite Fund are, and
at the Exchange Date all issued and outstanding shares of the Existing Com-
posite Fund and the Acquiring Fund will be, will be duly authorized, validly
issued, fully paid and non-assessable by the Existing Composite Fund. Neither
the Existing Composite Fund nor the Acquiring Fund has outstanding any op-
tions, warrants or other rights to subscribe for or purchase any Existing
Composite Fund or Acquiring Fund shares, nor is there outstanding any secu-
rity convertible into any Existing Composite Fund or Acquiring Fund shares.
2. Representations, Warranties and Agreements of the Acquired Fund. The Ac-
quired Fund represents and warrants to and agrees with the Acquiring Fund
that:
a. The Acquired Fund is a series of shares of the Sierra Trust, a Massachu-
setts business trust duly established and validly existing under the laws of
The Commonwealth of Massachusetts, and has power to own all of its properties
and assets and to carry out this Agreement. The Sierra Trust is qualified as
a foreign association in every jurisdiction where required, except to the ex-
tent that failure to so qualify would not have a material adverse effect on
the Sierra Trust. Each of the Sierra Trust and the Acquired Fund has all nec-
essary federal, state and local authorizations to own all of its properties
and assets and to carry on its business as now being conducted and to carry
out this Agreement.
b. The Sierra Trust is registered under the 1940 Act as an open-end manage-
ment investment company, and such registration has not been revoked or re-
scinded and is in full force and effect.
c. A statement of assets and liabilities, statements of operations, state-
ments of changes in net assets and a schedule of investments (indicating
their market values) of the Acquired Fund as of and for the year ended June
30, 1997 have been furnished to the Acquiring Fund. Such statement of assets
and liabilities and schedule fairly present the financial position of the Ac-
quired Fund as of their date, and such statements of operations and changes
in net assets fairly reflect the results of its operations and changes in net
assets for the periods covered thereby, in conformity with generally accepted
accounting principles.
d. The current prospectus and statement of additional information of the Si-
erra Trust, each dated October 31, 1997 (collectively, the "Sierra Prospec-
tus"), which has been previously furnished to the Acquiring Fund, did not
contain as of such dates and does not contain, with respect to the Sierra
Trust and the Acquired Fund, 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.
e. There are no material legal, administrative or other proceedings pending
or, to the knowledge of the Sierra Trust or the Acquired Fund, threatened
against the Sierra Trust or the Acquired Fund, which assert liability on the
part of the Sierra Trust or the Acquired Fund. The Acquired Fund knows of no
facts which might form the basis for the institution of such proceedings and
is not a party to or subject to the provisions of any order, decree or judg-
ment of any court or governmental body which materially and adversely affects
its business or its ability to consummate the transactions herein contemplat-
ed.
f. There are no material contracts outstanding to which the Acquired Fund is
a party, other than as are disclosed in the Sierra Trust's registration
statement on Form N-1A or the Sierra Prospectus.
g. The Acquired Fund has no known liabilities of a material nature, contin-
gent or otherwise, other than those shown on the Acquired Fund's statement of
assets and liabilities as of June 30, 1997 referred to above and those in-
curred in the ordinary course of its business as an investment company since
such date. Prior to the Exchange Date, the Acquired Fund will endeavor to
quantify and to reflect on its balance sheet all of its material known lia-
bilities and will advise the Acquiring Fund of all material liabilities, con-
tingent or otherwise, incurred by it subsequent to June 30, 1997, whether or
not incurred in the ordinary course of business.
h. As of the Exchange Date, the Acquired Fund will have filed all federal
and other tax returns and reports which, to the knowledge of the Sierra
A-4
<PAGE>
Trust's officers, are required to be filed by the Acquired Fund and has paid
or will pay all federal and other taxes shown to be due on said returns or on
any assessments received by the Acquired Fund. All tax liabilities of the Ac-
quired Fund have been adequately provided for on its books, and no tax defi-
ciency or liability of the Acquired Fund has been asserted, and no question
with respect thereto has been raised or is under audit, by the Internal Reve-
nue Service or by any state or local tax authority for taxes in excess of
those already paid.
i. At the Exchange Date, the Sierra Trust, on behalf of the Acquired Fund,
will have full right, power and authority to sell, assign, transfer and de-
liver the Investments (as defined below) and any other assets and liabilities
of the Acquired Fund to be transferred to the Acquiring Fund pursuant to this
Agreement. At the Exchange Date, subject only to the delivery of the Invest-
ments and any such other assets and liabilities as contemplated by this
Agreement, the Acquiring Fund will acquire the Investments and any such other
assets and liabilities subject to no encumbrances, liens or security inter-
ests whatsoever and without any restrictions upon the transfer thereof. As
used in this Agreement, the term "Investments" shall mean the Acquired Fund's
investments shown on the schedule of its investments as of June 30, 1997 re-
ferred to in Section 2(c) hereof, as supplemented with such changes in the
portfolio as the Acquired Fund shall make, and changes resulting from stock
dividends, stock split-ups, mergers and similar corporate actions, through
the Exchange Date.
j. No registration under the 1933 Act of any of the Investments would be re-
quired if they were, as of the time of such transfer, the subject of a public
distribution by either of the Acquiring Fund or the Acquired Fund, except as
previously disclosed to the Acquiring Fund by the Acquired Fund.
k. No consent, approval, authorization or order of any court or governmental
authority is required for the consummation by the Acquired Fund of the trans-
actions contemplated by this Agreement, except such as may be required under
the 1933 Act, 1934 Act, the 1940 Act or state securities or blue sky laws.
l. The Registration Statement and the Acquired Fund Proxy Statement, on the
effective date of the Registration Statement, (i) will comply in all material
respects with the provisions of the 1933 Act, the 1934 Act and the 1940 Act
and the rules and regulations thereunder and (ii) will not contain 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;
and at the time of the shareholders meeting referred to in Section 7(a) and
on the Exchange Date, the Acquired Fund Proxy Statement and the Registration
Statement will not contain 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; provided, however, that none of the repre-
sentations and warranties in this subsection shall apply to statements in or
omissions from the Registration Statement or the Acquired Fund Proxy State-
ment made in reliance upon and in conformity with information furnished in
writing by the Acquiring Fund to the Acquired Fund or the Sierra Trust spe-
cifically for use in the Registration Statement or the Acquired Fund Proxy
Statement.
m. The Acquired Fund qualifies and will at all times through the Exchange
Date qualify for taxation as a "regulated investment company" under Section
851 and 852 of the Code.
n. At the Exchange Date, the Acquired Fund will have sold such of its as-
sets, if any, as are necessary to assure that, after giving effect to the ac-
quisition of the assets of the Acquired Fund pursuant to this Agreement, the
Acquiring Fund will remain a "diversified company" within the meaning of Sec-
tion 5(b)(1) of the 1940 Act and in compliance with such other mandatory in-
vestment restrictions as are set forth in the Composite Prospectus, as
amended through the Exchange Date.
o. All of the issued and outstanding shares of beneficial interest of the
Acquired Fund shall have been offered for sale and sold in conformity with
all applicable federal and state securities laws (including any applicable
exemptions therefrom), or the Acquired Fund has taken any action necessary to
remedy any prior failure to have offered for sale and sold such shares in
conformity with such laws.
p. All issued and outstanding shares of the Acquired Fund are, and at the
Exchange Date will be, duly authorized, validly issued, fully paid and non-
assessable by the Acquired Fund. The Acquired Fund does not have outstanding
any options, warrants or other rights to subscribe for or purchase any of the
Acquired Fund shares, nor is there outstanding any security convertible into
any of the Acquired Fund shares.
A-5
<PAGE>
3. Reorganization.
a. Subject to the requisite approval of the shareholders of the Acquired
Fund and the consummation of the Composite Reorganization and to the other
terms and conditions contained herein (including the Acquired Fund's obliga-
tion to distribute to its shareholders all of its investment company taxable
income and net capital gain as described in Section 8(m)), the Acquired Fund
agrees to sell, assign, convey, transfer and deliver to the Acquiring Fund,
and the Acquiring Fund agrees to acquire from the Acquired Fund, on the Ex-
change Date all of the Investments and all of the cash and other properties
and assets of the Acquired Fund, whether accrued or contingent (including
cash received by the Acquired Fund upon the liquidation by the Acquired Fund
of any investments), in exchange for that number of shares of beneficial in-
terest of the Acquiring Fund provided for in Section 4 and the assumption by
the Acquiring Fund of all of the liabilities of the Acquired Fund, whether
accrued or contingent, existing at the Valuation Time (as defined below) ex-
cept for the Acquired Fund's liabilities, if any, arising in connection with
this Agreement. Pursuant to this Agreement, the Acquired Fund will, as soon
as practicable after the Exchange Date, distribute all of the Merger Shares
received by it to the shareholders of the Acquired Fund in exchange for their
Class A, Class B, Class I, and Class S shares of the Acquired Fund.
b. The Acquired Fund will pay or cause to be paid to the Acquiring Fund any
interest, cash or such dividends, rights and other payments received by it on
or after the Exchange Date with respect to the Investments and other proper-
ties and assets of the Acquired Fund, whether accrued or contingent, received
by it on or after the Exchange Date. Any such distribution shall be deemed
included in the assets transferred to the Acquiring Fund at the Exchange Date
and shall not be separately valued unless the securities in respect of which
such distribution is made shall have gone "ex" such distribution prior to the
Valuation Time, in which case any such distribution which remains unpaid at
the Exchange Date shall be included in the determination of the value of the
assets of the Acquired Fund acquired by the Acquiring Fund.
c. The Valuation Time shall be 4:00 p.m. Eastern time on the Exchange Date
or such earlier or later day as may be mutually agreed upon in writing by the
parties hereto (the "Valuation Time").
4. Exchange Date: Valuation Time. On the Exchange Date, the Acquiring Fund
will deliver to the Acquired Fund (i) a number of full and fractional Class A
Merger Shares having an aggregate net asset value equal to the value of the
assets of the Acquired Fund attributable to Class A shares of the Acquired
Fund transferred to the Acquiring Fund on such date less the value of the lia-
bilities of the Acquired Fund attributable to Class A shares of the Acquired
Fund assumed by the Acquiring Fund on that date, (ii) a number of full and
fractional Class B Merger Shares having an aggregate net asset value equal to
the value of the assets of the Acquired Fund attributable to Class B shares of
the Acquired Fund transferred to the Acquiring Fund on such date less the
value of the liabilities of the Acquired Fund attributable to Class B shares
of the Acquired Fund assumed by the Acquiring Fund on that date, (iii) a num-
ber of full and fractional Class I Merger Shares having an aggregate net asset
value equal to the value of the assets of the Acquired Fund attributable to
Class I shares of the Acquired Fund transferred to the Acquiring Fund on such
date less the value of the liabilities of the Acquired Fund attributable to
Class I shares of the Acquired Fund assumed by the Acquiring Fund on that
date, and (iv) a number of full and fractional Class S Merger Shares having an
aggregate net asset value equal to the value of the assets of the Acquired
Fund attributable to Class S shares of the Acquired Fund transferred to the
Acquiring Fund on such date less the value of the liabilities of the Acquired
Fund attributable to Class S shares of the Acquired Fund assumed by the Ac-
quiring Fund on that date, determined as hereinafter provided in this Section
4.
a. The net asset value of the Merger Shares to be delivered to the Acquired
Fund, the value of the assets attributable to the shares of the Acquired
Fund, and the value of the liabilities attributable to the Class A, Class B,
Class I, and Class S shares of the Acquired Fund to be assumed by the Acquir-
ing Fund, shall in each case be determined as of the Valuation Time.
b. The net asset value of the Class A, Class B, Class I and Class S Merger
Shares shall be computed in the manner set forth in the Composite Prospectus.
The value of the assets and liabilities of the Class A, Class B, Class I and
Class S shares of the Acquired Fund shall be determined by the
A-6
<PAGE>
Acquiring Fund, in cooperation with the Acquired Fund, pursuant to procedures
which the Acquiring Fund would use in determining the fair market value of
the Acquiring Fund's assets and liabilities.
c. No adjustment shall be made in the net asset value of either the Acquired
Fund or the Acquiring Fund to take into account differences in realized and
unrealized gains and losses.
d. The Acquired Fund shall distribute the Class A Merger Shares to the Class
A shareholders of the Acquired Fund by furnishing written instructions to the
Acquiring Fund's transfer agent, which will as soon as practicable set up
open accounts for each Class A Acquired Fund shareholder in accordance with
such written instructions. The Acquired Fund shall distribute the Class B
Merger Shares to the Class B shareholders of the Acquired Fund by furnishing
written instructions to the Acquiring Fund's transfer agent, which will as
soon as practicable set up open accounts for each Class B Acquired Fund
shareholder in accordance with such written instructions. The Acquired Fund
shall distribute the Class I Merger Shares to the Class I shareholders of the
Acquired Fund by furnishing written instructions to the Acquiring Fund's
transfer agent, which will as soon as practicable set up open accounts for
each Class I Acquired Fund shareholder in accordance with such written in-
structions. The Acquired Fund shall distribute the Class S Merger Shares to
the Class S shareholders of the Acquired Fund by furnishing written instruc-
tions to the Acquiring Fund's transfer agent, which will as soon as practica-
ble set up open accounts for each Class S Acquired Fund shareholder in accor-
dance with such written instructions.
e. The Acquiring Fund shall assume all liabilities of the Acquired Fund,
whether accrued or contingent, in connection with the acquisition of assets
and subsequent dissolution of the Acquired Fund or otherwise, except for the
Acquired Fund's liabilities, if any, pursuant to this Agreement.
5. Expenses, Fees, etc.
a. The parties hereto understand and agree that the transactions contem-
plated by this Agreement are being undertaken contemporaneously with a gen-
eral restructuring and consolidation of certain of the registered investment
companies advised by Composite Research & Management Co. ("CRM") and Sierra
Investment Advisors Corporation and their affiliates; and that in connection
therewith the costs of all such transactions are being borne by CRM. Notwith-
standing any of the foregoing, expenses will in any event be paid by the
party directly incurring such expenses if and to the extent that the payment
by the other party of such expenses would result in the disqualification of
such party as a "regulated investment company" within the meaning of Section
851 of the Code.
b. In the event the transactions contemplated by this Agreement are not con-
summated by reason of the Acquiring Fund's being either unwilling or unable
to go forward other than by reason of the nonfulfillment or failure of any
condition to the Acquiring Fund's obligations referred to in Section 7(a) or
Section 8, the Acquiring Fund shall pay directly all reasonable fees and ex-
penses incurred by the Acquired Fund in connection with such transactions,
including, without limitation, legal, accounting and filing fees.
c. In the event the transactions contemplated by this Agreement are not con-
summated by reason of the Acquired Fund's being either unwilling or unable to
go forward other than by reason of the nonfulfillment or failure of any con-
dition to the Acquired Fund's obligations referred to in Section 7(a) or Sec-
tion 9, the Acquired Fund shall pay directly all reasonable fees and expenses
incurred by the Acquiring Fund in connection with such transactions, includ-
ing, without limitation, legal, accounting and filings fees.
d. In the event the transactions contemplated by this Agreement are not con-
summated for any reason other than (i) the Acquiring Fund's or the Acquired
Fund's being either unwilling or unable to go forward or (ii) the nonfulfill-
ment or failure of any condition to the Acquiring Fund's or the Acquired
Fund's obligations referred to in Section 7(a), Section 8 or Section 9 of
this Agreement, then each of the Acquiring Fund and the Acquired Fund shall
bear all of its own expenses incurred in connection with such transactions.
e. Notwithstanding any other provisions of this Agreement, if for any reason
the transactions contemplated by this Agreement are not consummated, no party
shall be liable to the other party for any damages resulting therefrom, in-
cluding, without limitation, consequential damages, except as specifically
set forth above.
A-7
<PAGE>
6. Exchange Date. Delivery of the assets of the Acquired Fund to be trans-
ferred, assumption of the liabilities of the Acquired Fund to be assumed, and
the delivery of the Merger Shares to be issued shall be made at Boston, Massa-
chusetts as of December 26, 1997, or at such other date agreed to by the Ac-
quiring Fund and the Acquired Fund, the date and time upon which such delivery
is to take place being referred to herein as the "Exchange Date."
7. Meetings of Shareholders; Dissolution.
a. The Sierra Trust, on behalf of the Acquired Fund, agrees to call a meet-
ing of the Acquired Fund's shareholders as soon as is practicable after the
effective date of the Registration Statement for the purpose of considering
the sale of all of its assets to and the assumption of all of its liabilities
by the Acquiring Fund as herein provided, adopting this Agreement, and autho-
rizing the liquidation and dissolution of the Acquired Fund.
b. The Acquired Fund agrees that the liquidation and dissolution of the Ac-
quired Fund will be effected in the manner provided in the Sierra Trust's
Declaration of Trust in accordance with applicable law and that on and after
the Exchange Date, the Acquired Fund shall not conduct any business except in
connection with its liquidation and dissolution.
c. The Acquiring Fund has, in consultation with the Acquired Fund and based
in part on information furnished by the Acquired Fund, filed the Registration
Statement with the Commission. Each of the Acquired Fund and the Acquiring
Fund will cooperate with the other, and each will furnish to the other the
information relating to itself required by the 1933 Act, the 1934 Act and the
1940 Act and the rules and regulations thereunder to be set forth in the Reg-
istration Statement.
8. Conditions to the Acquiring Fund's Obligations. The obligations of the Ac-
quiring Fund hereunder shall be subject to the following conditions:
a. That this Agreement shall have been adopted and the transactions contem-
plated hereby shall have been approved by the requisite votes of the holders
of the outstanding shares of beneficial interest of the Acquired Fund enti-
tled to vote.
b. That the Acquired Fund shall have furnished to the Acquiring Fund a
statement of the Acquired Fund's assets and liabilities, with values deter-
mined as provided in Section 4 of this Agreement, together with a list of In-
vestments with their respective tax costs, all as of the Valuation Time, cer-
tified on the Acquired Fund's behalf by the Sierra Trust's President (or any
Vice President) and Treasurer (or any Assistant Treasurer), and a certificate
of both such officers, dated the Exchange Date, that there has been no mate-
rial adverse change in the financial position of the Acquired Fund since June
30, 1997 other than changes in the Investments and other assets and proper-
ties since that date or changes in the market value of the Investments and
other assets of the Acquired Fund, or changes due to dividends paid or losses
from operations.
c. That the Acquired Fund shall have furnished to the Acquiring Fund a
statement, dated the Exchange Date, signed by the Sierra Trust's President
(or any Vice President) and Treasurer (or any Assistant Treasurer) certifying
that as of the Valuation Time and as of the Exchange Date all representations
and warranties of the Acquired Fund made in this Agreement are true and cor-
rect in all material respects as if made at and as of such dates and the Ac-
quired Fund has complied with all the agreements and satisfied all the condi-
tions on its part to be performed or satisfied at or prior to such dates.
d. That the Acquired Fund shall have delivered to the Acquiring Fund a let-
ter from Price Waterhouse LLP dated the Exchange Date reporting on the re-
sults of applying certain procedures agreed upon by the Acquiring Fund and
described in such letter, which limited procedures relate to schedules of the
tax provisions and qualifying tests for regulated investment companies as
prepared for the fiscal year ended June 30, 1997 and the period July 1, 1997
to the Exchange Date (the latter period being based on unaudited data).
e. That there shall not be any material litigation pending with respect to
the matters contemplated by this Agreement.
f. That the Acquiring Fund shall have received an opinion of Morgan, Lewis &
Bockius LLP, counsel to the Acquired Fund, in form satisfactory to counsel to
the Acquiring Fund, and dated the Exchange Date, to the effect that (i) the
Sierra Trust is a Massachusetts business trust duly formed and is validly ex-
isting under the laws of The Commonwealth of Massachusetts and has the power
to own all its properties and to carry on its business as presently conduct-
ed; (ii) this Agreement has been duly authorized, executed and delivered by
A-8
<PAGE>
the Sierra Trust on behalf of the Acquired Fund and, assuming that the Regis-
tration Statement, the Composite Prospectus and the Acquired Fund Proxy
Statement comply with the 1933 Act, the 1934 Act and the 1940 Act and assum-
ing due authorization, execution and delivery of this Agreement by the Com-
posite Trust on behalf of the Acquiring Fund, is a valid and binding obliga-
tion of the Sierra Trust and the Acquired Fund; (iii) the Sierra Trust, on
behalf of the Acquired Fund, has power to sell, assign, convey, transfer and
deliver the assets contemplated hereby and, upon consummation of the transac-
tions contemplated hereby in accordance with the terms of this Agreement, the
Acquired Fund will have duly sold, assigned, conveyed, transferred and deliv-
ered such assets to the Acquiring Fund; (iv) the execution and delivery of
this Agreement did not, and the consummation of the transactions contemplated
hereby will not, violate the Sierra Trust's Declaration of Trust or By-Laws
or any provision of any agreement known to such counsel to which the Sierra
Trust or the Acquired Fund is a party or by which it is bound; and (v) no
consent, approval, authorization or order of any court or governmental au-
thority is required for the consummation by the Sierra Trust on behalf of the
Acquired Fund of the transactions contemplated hereby, except such as have
been obtained under the 1933 Act, the 1934 Act and the 1940 Act and such as
may be required under state securities or blue sky laws.
g. [Non-money market Funds only:] That the Acquiring Fund shall have re-
ceived an opinion of Ropes & Gray (which opinion would be based upon certain
factual representations and subject to certain qualifications), dated the Ex-
change Date, in form satisfactory to the Acquiring Fund and its counsel, with
respect to the matters specified in Section 9(f) of this Agreement.
h. [Non-money market Funds only:] That the Acquiring Fund shall have re-
ceived an opinion of Ropes & Gray (which opinion would be based upon certain
factual representations and subject to certain qualifications), dated the Ex-
change Date, in form satisfactory to the Acquiring Fund and its counsel, to
the effect that, on the basis of the existing provisions of the Code, current
administrative rules, and court decisions, for federal income tax purposes
(i) no gain or loss will be recognized by the Acquiring Fund upon receipt of
the Investments transferred to the Acquiring Fund pursuant to this Agreement
in exchange for the Merger Shares; (ii) the basis to the Acquiring Fund of
the Investments will be the same as the basis of the Investments in the hands
of the Acquired Fund immediately prior to such exchange; and (iii) the Ac-
quiring Fund's holding periods with respect to the Investments will include
the respective periods for which the Investments were held by the Acquired
Fund.
i. That the assets of the Acquired Fund to be acquired by the Acquiring Fund
will include no assets which the Acquiring Fund, by reason of charter limita-
tions or of investment restrictions disclosed in the Registration Statement
in effect on the Exchange Date, may not properly acquire.
j. That the Registration Statement shall have become effective under the
1933 Act, and no stop order suspending such effectiveness shall have been in-
stituted or, to the knowledge of the Composite Trust or the Acquiring Fund,
threatened by the Commission.
k. That the Sierra Trust and the Composite Trust shall have received from
the Commission and any relevant state securities administrator such order or
orders as are reasonably necessary or desirable under the 1933 Act, the 1934
Act, the 1940 Act, and any applicable state securities or blue sky laws in
connection with the transactions contemplated hereby, and that all such or-
ders shall be in full force and effect.
l. That all actions taken by the Sierra Trust on behalf of the Acquired Fund
in connection with the transactions contemplated by this Agreement and all
documents incidental thereto shall be satisfactory in form and substance to
the Acquiring Fund and its counsel.
m. That, prior to the Exchange Date, the Acquired Fund shall have declared a
dividend or dividends which, together with all previous such dividends, shall
have the effect of distributing to the shareholders of the Acquired Fund (i)
all of the excess of (x) the Acquired Fund's investment income excludable
from gross income under Section 103(a) of the Code over (y) the Acquired
Fund's deductions disallowed under Sections 265 and 171(a)(2) of the Code,
(ii) all of the Acquired Fund's investment company taxable income (as defined
in Section 852 of the Code) (computed without regard to any deduction for
dividends paid), in each case for its taxable years ending on or after June
30, 1997 and on or prior to the Exchange Date,
A-9
<PAGE>
and (iii) all of the Acquired Fund's net capital gain realized (after reduc-
tion for any capital loss carryover), in each case for both the taxable year
ending on June 30, 1997 and the short taxable period beginning on July 1,
1997 and ending on the Exchange Date.
n. That the Acquired Fund shall have furnished to the Acquiring Fund a cer-
tificate, signed by the President (or any Vice President) and the Treasurer
(or any Assistant Treasurer) of the Sierra Trust, as to the tax cost to the
Acquired Fund of the securities delivered to the Acquiring Fund pursuant to
this Agreement, together with any such other evidence as to such tax cost as
the Acquiring Fund may reasonably request.
o. That the Acquired Fund's custodian shall have delivered to the Acquiring
Fund a certificate identifying all of the assets of the Acquired Fund held or
maintained by such custodian as of the Valuation Time.
p. That the Acquired Fund's transfer agent shall have provided to the Ac-
quiring Fund (i) the originals or true copies of all of the records of the
Acquired Fund in the possession of such transfer agent as of the Exchange
Date, (ii) a certificate setting forth the number of shares of the Acquired
Fund outstanding as of the Valuation Time, and (iii) the name and address of
each holder of record of any shares and the number of shares held of record
by each such shareholder.
q. That all of the issued and outstanding shares of beneficial interest of
the Acquired Fund shall have been offered for sale and sold in conformity
with all applicable state securities or blue sky laws (including any applica-
ble exemptions therefrom) and, to the extent that any audit of the records of
the Acquired Fund or its transfer agent by the Acquiring Fund or its agents
shall have revealed otherwise, either (i) the Acquired Fund shall have taken
all actions that in the opinion of the Acquiring Fund or its counsel are nec-
essary to remedy any prior failure on the part of the Acquired Fund to have
offered for sale and sold such shares in conformity with such laws or (ii)
the Acquired Fund shall have furnished (or caused to be furnished) surety, or
deposited (or caused to be deposited) assets in escrow, for the benefit of
the Acquiring Fund in amounts sufficient and upon terms satisfactory, in the
opinion of the Acquiring Fund or its counsel, to indemnify the Acquiring Fund
against any expense, loss, claim, damage or liability whatsoever that may be
asserted or threatened by reason of such failure on the part of the Acquired
Fund to have offered and sold such shares in conformity with such laws.
r. That the Acquiring Fund shall have received from Price Waterhouse LLP a
letter addressed to the Acquiring Fund dated as of the Exchange Date satis-
factory in form and substance to the Acquiring Fund reporting on the results
of applying limited procedures agreed upon by the Acquiring Fund and de-
scribed in such letter (but not an examination in accordance with generally
accepted auditing standards), which limited procedures relate as of the Valu-
ation Time to the procedures customarily utilized by the Acquired Fund in
valuing its assets and issuing its shares.
s. That the Composite Reorganization shall have been consummated.
9. Conditions to the Acquired Fund's Obligations. The obligations of the Ac-
quired Fund hereunder shall be subject to the following conditions:
a. That this Agreement shall have been adopted and the transactions contem-
plated hereby shall have been approved by the requisite votes of the holders
of the outstanding shares of beneficial interest of the Acquired Fund enti-
tled to vote.
b. That the Composite Trust, on behalf of the Acquiring Fund, shall have ex-
ecuted and delivered to the Acquired Fund an Assumption of Liabilities dated
as of the Exchange Date pursuant to which the Acquiring Fund will assume all
of the liabilities of the Acquired Fund existing at the Valuation Time in
connection with the transactions contemplated by this Agreement, other than
liabilities arising pursuant to this Agreement.
c. That the Acquiring Fund shall have furnished to the Acquired Fund a
statement, dated the Exchange Date, signed by the Composite Trust's President
(or any Vice President) and Treasurer (or any Assistant Treasurer) certifying
that as of the Valuation Time and as of the Exchange Date all representations
and warranties of the Acquiring Fund made in this Agreement are true and cor-
rect in all material respects as if made at and as of such dates, and that
the Acquiring Fund has complied with all of the agreements and satisfied all
of the conditions on its part to be performed or satisfied at or prior to
each of such dates; and that CRM shall have furnished to the Acquired Fund a
statement, dated
A-10
<PAGE>
the Exchange Date, signed by an officer of CRM, certifying that as of the
Valuation Time and as of the Exchange Date, to the best of CRM's knowledge,
after due inquiry, all representations and warranties of the Acquiring Fund
made in this Agreement are true and correct in all material respects as if
made at and as of such date.
d. That there shall not be any material litigation pending or threatened
with respect to the matters contemplated by this Agreement.
e. That the Acquired Fund shall have received an opinion of Paine, Hamblen,
Coffin, Brooke & Miller LLP, counsel to the Acquiring Fund, in form satisfac-
tory to counsel to the Acquired Fund, and dated the Exchange Date, to the ef-
fect that (i) the Composite Trust is a Massachusetts business trust duly
formed and is validly existing under the laws of The Commonwealth of Massa-
chusetts and has the power to own all its properties and to carry on its
business as presently conducted; (ii) the Merger Shares to be delivered to
the Acquired Fund as provided for by this Agreement are duly authorized and
upon such delivery will be validly issued and will be fully paid and non-as-
sessable by the Composite Trust and the Acquiring Fund and no shareholder of
the Acquiring Fund has any preemptive right to subscription or purchase in
respect thereof; (iii) this Agreement has been duly authorized, executed and
delivered by the Composite Trust on behalf of the Acquiring Fund and, assum-
ing that the Composite Prospectus, the Registration Statement and the Ac-
quired Fund Proxy Statement comply with the 1933 Act, the 1934 Act and the
1940 Act and assuming due authorization, execution and delivery of this
Agreement by the Sierra Trust on behalf of the Acquired Fund, is a valid and
binding obligation of the Composite Trust and the Acquiring Fund; (iv) the
execution and delivery of this Agreement did not, and the consummation of the
transactions contemplated hereby will not, violate the Composite Trust's Dec-
laration of Trust or By-Laws, or any provision of any agreement known to such
counsel to which the Composite Trust or the Acquiring Fund is a party or by
which it is bound; (v) no consent, approval, authorization or order of any
court or governmental authority is required for the consummation by the Com-
posite Trust on behalf of the Acquiring Fund of the transactions contemplated
herein, except such as have been obtained under the 1933 Act, the 1934 Act
and the 1940 Act and such as may be required under state securities or blue
sky laws; and (vi) the Registration Statement has become effective under the
1933 Act, and to best of the knowledge of such counsel, no stop order sus-
pending the effectiveness of the Registration Statement has been issued and
no proceedings for that purpose have been instituted or are pending or con-
templated under the 1933 Act. In rendering such opinion, such counsel may
rely on an opinion of Ropes & Gray, special counsel to the Acquiring Fund,
with respect to all such matters governed by the laws of The Commonwealth of
Massachusetts. In addition, such counsel shall also state that they have par-
ticipated in conferences with officers and other representatives of the Ac-
quiring Fund at which the contents of the Acquired Fund Proxy Statement and
related matters were discussed, and, although they are not passing upon and
do not assume any responsibility for the accuracy, completeness or fairness
of the statements contained in the Acquired Fund Proxy Statement, on the ba-
sis of the foregoing (relying as to materiality to a large extent upon the
opinions of officers and other representatives of the Acquiring Fund), no
facts have come to their attention that lead them to believe that the por-
tions of the Acquired Fund Proxy Statement relevant to the transfer of assets
contemplated by this Agreement as of its date, as of the date of the Acquired
Fund shareholders' meeting, or as of the Exchange Date, contained an untrue
statement of a material fact regarding the Acquiring Fund or omitted to state
a material fact required to be stated therein or necessary to make the state-
ments therein regarding the Acquiring Fund, in light of the circumstances un-
der which they were made, not misleading. Such opinion may state that such
counsel does not express any opinion or belief as to the financial statements
or other financial data, or as to the information relating to the Acquired
Fund, contained in the Acquired Fund Proxy Statement or the Registration
Statement, and may contain other customary or appropriate qualifications.
f. [Non-money market Funds only:] That the Acquired Fund shall have received
an opinion of Ropes & Gray, dated the Exchange Date (which opinion would be
based upon certain factual representations and subject to certain qualifica-
tions), in form satisfactory to the Acquired Fund and its counsel, to the ef-
fect that, on the basis of the existing provisions of the Code, current ad-
ministrative rules, and court decisions, for federal income tax purposes: (i)
no gain or loss will be recognized by the Acquired Fund as a result of the
reorganization;
A-11
<PAGE>
(ii) no gain or loss will be recognized by shareholders of the Acquired Fund
on the distribution of Merger Shares to them in exchange for their shares of
the Acquired Fund; (iii) the tax basis of the Merger Shares that the Acquired
Fund's shareholders receive in place of their Acquired Fund shares will be
the same as the basis of the Acquired Fund shares; and (iv) a shareholder's
holding period for the Merger Shares received pursuant to the Agreement will
be determined by including the holding period for the Acquired Fund shares
exchanged for the Merger Shares, provided that the shareholder held the Ac-
quired Fund shares as a capital asset.
g. That all actions taken by the Composite Trust on behalf of the Acquiring
Fund in connection with the transactions contemplated by this Agreement and
all documents incidental thereto shall be satisfactory in form and substance
to the Acquired Fund and its counsel.
h. That the Registration Statement shall have become effective under the
1933 Act, and no stop order suspending such effectiveness shall have been in-
stituted or, to the knowledge of the Composite Trust or the Acquiring Fund,
threatened by the Commission.
i. That the Composite Trust shall have received from the Commission and any
relevant state securities administrator such order or orders as are reasona-
bly necessary or desirable under the 1933 Act, the 1934 Act, the 1940 Act,
and any applicable state securities or blue sky laws in connection with the
transactions contemplated hereby, and that all such orders shall be in full
force and effect.
j. That the Composite Reorganization shall have been consummated.
k. The Board of Trustees of the Sierra Trust shall not have concluded in the
good faith exercise of its fiduciary duty that the transactions contemplated
hereby would not be in the best interests of the shareholders of the Acquired
Fund.
10. Indemnification.
a. The Acquired Fund will indemnify and hold harmless, out of the assets of
the Acquired Fund (which shall be deemed to include the assets of the Acquir-
ing Fund represented by the Merger Shares following the Exchange Date) but no
other assets, the trustees and officers of the Composite Trust (for purposes
of this subparagraph, the "Indemnified Parties") against any and all ex-
penses, losses, claims, damages and liabilities at any time imposed upon or
reasonably incurred by any one or more of the Indemnified Parties in connec-
tion with, arising out of, or resulting from any claim, action, suit or pro-
ceeding in which any one or more of the Indemnified Parties may be involved
or with which any one or more of the Indemnified Parties may be threatened by
reason of any untrue statement or alleged untrue statement of a material fact
relating to the Sierra Trust or the Acquired Fund contained in the Registra-
tion Statement or the Sierra Prospectus, the Acquired Fund Proxy Statement or
any amendment or supplement to any of the foregoing, or arising out of or
based upon the omission or alleged omission to state in any of the foregoing
a material fact relating to the Sierra Trust or the Acquired Fund required to
be stated therein or necessary to make the statements relating to the Sierra
Trust or the Acquired Fund therein not misleading, including, without limita-
tion, any amounts paid by any one or more of the Indemnified Parties in a
reasonable compromise or settlement of any such claim, action, suit or pro-
ceeding, or threatened claim, action, suit or proceeding made with the con-
sent of the Sierra Trust or the Acquired Fund. The Indemnified Parties will
notify the Sierra Trust and the Acquired Fund in writing within ten days af-
ter the receipt by any one or more of the Indemnified Parties of any notice
of legal process or any suit brought against or claim made against such In-
demnified Party as to any matters covered by this Section 10(a). The Acquired
Fund shall be entitled to participate at its own expense in the defense of
any claim, action, suit or proceeding covered by this Section 10(a), or, if
it so elects, to assume at its expense by counsel satisfactory to the Indem-
nified Parties the defense of any such claim, action, suit or proceeding, and
if the Acquired Fund elects to assume such defense, the Indemnified Parties
shall be entitled to participate in the defense of any such claim, action,
suit or proceeding at their expense. The Acquired Fund's obligation under
Section 10(a) to indemnify and hold harmless the Indemnified parties shall
constitute a guarantee of payment so that the Acquired Fund will pay in the
first instance any expenses, losses, claims, damages and liabilities required
to be paid by it under this Section 10(a) without the necessity of the Indem-
nified Parties' first paying the same.
b. The Acquiring Fund will indemnify and hold harmless, out of the assets of
the Acquiring Fund but no other assets, the trustees and officers of the
A-12
<PAGE>
Sierra Trust (for purposes of this subparagraph, the "Indemnified Parties")
against any and all expenses, losses, claims, damages and liabilities at any
time imposed upon or reasonably incurred by any one or more of the Indemni-
fied Parties in connection with, arising out of, or resulting from any claim,
action, suit or proceeding in which any one or more of the Indemnified Par-
ties may be involved or with which any one or more of the Indemnified Parties
may be threatened by reason of any untrue statement or alleged untrue state-
ment of a material fact relating to the Acquiring Fund contained in the Reg-
istration Statement, the Composite Prospectus, the Acquired Fund Proxy State-
ment or any amendment or supplement to any of the foregoing, or arising out
of or based upon, the omission or alleged omission to state in any of the
foregoing a material fact relating to the Existing Composite Fund, the Com-
posite Trust or the Acquiring Fund required to be stated therein or necessary
to make the statements relating to the Existing Composite Fund, the Composite
Trust or the Acquiring Fund therein not misleading, including, without limi-
tation, any amounts paid by any one or more of the Indemnified Parties in a
reasonable compromise or settlement of any such claim, action, suit or pro-
ceeding, or threatened claim, action, suit or proceeding made with the con-
sent of the Composite Trust or the Acquiring Fund. The Indemnified Parties
will notify the Composite Trust and the Acquiring Fund in writing within ten
days after the receipt by any one or more of the Indemnified parties of any
notice of legal process or any suit brought against or claim made against
such Indemnified Party as to any matters covered by this Section 10(b). The
Acquiring Fund shall be entitled to participate at its own expense in the de-
fense of any claim, action, suit or proceeding covered by this Section 10(b),
or, if it so elects, to assume at its expense by counsel satisfactory to the
Indemnified Parties the defense of any such claim, action, suit or proceed-
ing, and, if the Acquiring Fund elects to assume such defense, the Indemni-
fied Parties shall be entitled to participate in the defense of any such
claim, action, suit or proceeding at their own expense. The Acquiring Fund's
obligation under this Section 10(b) to indemnify and hold harmless the Indem-
nified Parties shall constitute a guarantee of payment so that the Acquiring
Fund will pay in the first instance any expenses, losses, claims, damages and
liabilities required to be paid by it under this Section 10(b) without the
necessity of the Indemnified Parties' first paying the same.
11. No Broker, etc. Each of the Acquired Fund and the Acquiring Fund repre-
sents that there is no person who has dealt with it, the Composite Trust or
the Sierra Trust who by reason of such dealings is entitled to any broker's or
finder's or other similar fee or commission arising out of the transactions
contemplated by this Agreement.
12. Termination. The Acquired Fund and the Acquiring Fund may, by mutual con-
sent of the trustees of the Sierra Trust and the Composite Trust on behalf of
each Fund, terminate this Agreement, and the Acquired Fund or the Acquiring
Fund, after consultation with counsel and by consent of their respective
trustees or an officer authorized by such trustees, may waive any condition to
their respective obligations hereunder. If the transactions contemplated by
this Agreement have not been substantially completed by February 28, 1998,
this Agreement shall automatically terminate on that date unless a later date
is agreed to by the Acquired Fund and the Acquiring Fund.
13. Rule 145. Pursuant to Rule 145 under the 1933 Act, the Acquiring Fund
will, in connection with the issuance of any Merger Shares to any person who
at the time of the transaction contemplated hereby is deemed to be an affili-
ate of a party to the transaction pursuant to Rule 145(c), cause to be affixed
upon the certificates issued to such person (if any) a legend as follows:
"THESE SHARES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT TO [ACQUIRING
FUND] OR ITS PRINCIPAL UNDERWRITER UNLESS (I) A REGISTRATION STATEMENT WITH
RESPECT THERETO IS EFFECTIVE UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
(II) IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE FUND SUCH REG-
ISTRATION IS NOT REQUIRED."
and, further, the Acquiring Fund will issue stop transfer instructions to the
Acquiring Fund's transfer agent with respect to such shares. The Acquired Fund
will provide the Acquiring Fund on the Exchange Date with the name of any Ac-
quired Fund shareholder who is to the knowledge of the Acquired Fund an affil-
iate of the Acquired Fund on such date.
14. Covenants, etc. Deemed Material. All covenants, agreements, representa-
tions and warranties made under this Agreement and any certificates delivered
pursuant to this Agreement shall be deemed to have been
A-13
<PAGE>
material and relied upon by each of the parties, notwithstanding an investiga-
tion made by them or on their behalf.
15. Sole Agreement; Amendments. This Agreement supersedes all previous corre-
spondence and oral communications between the parties regarding the subject
matter hereof, constitutes the only understanding with respect to such subject
matter, may not be changed except by a letter of agreement signed by each party
hereto, and shall be construed in accordance with and governed by the laws of
The Commonwealth of Massachusetts.
16. Declaration of Trust.
a. A copy of the Declaration of Trust of the Sierra Trust is on file with
the Secretary of State of The Commonwealth of Massachusetts, and notice is
hereby given that this instrument is executed on behalf of the trustees of
the Sierra Trust on behalf of the Acquired Fund, as trustees and not individ-
ually and that the obligations of this instrument are not binding upon any of
the trustees, officers or shareholders of the Sierra Trust individually but
are binding only upon the assets and property of the Acquired Fund.
b. A copy of the Declaration of Trust of the Composite Trust is on file with
the Secretary of State of The Commonwealth of Massachusetts, and notice is
hereby given that this instrument is executed on behalf of the trustees of
the Composite Trust on behalf of the Acquiring Fund, as trustees and not in-
dividually and that the obligations of this instrument are not binding upon
any of the trustees, officers or shareholders of the Composite Trust individ-
ually but are binding only upon the assets and property of the Acquiring
Fund.
SIERRA TRUST FUNDS,
on behalf of its
Fund series
By:
-------------------------------
Name:
Title:
THE COMPOSITE FUNDS,
on behalf of its
Fund series
By:
-------------------------------
Name:
Title:
A-14
<PAGE>
APPENDIX B
EXCERPTS FROM COMPOSITE FUNDS ANNUAL REPORTS
PORTFOLIO COMPOSITION
PERCENTAGE OF NET ASSETS AS OF DECEMBER 31, 1996
COMPOSITE U.S. GOVERNMENT SECURITIES, INC.
Sole Issuer
Invests exclusively in obligations issued or guaranteed by the U.S. government
and investments secured by such obligations.
Asset allocation
[PIE CHART APPEARS HERE]
<TABLE>
<S> <C>
Mortgage Pass Throughs 43%
Treasuries 25%
Collateralized Mortgage Obligations 21%
Mortgage, Adjustable Rate 9%
Cash and Other 2%
</TABLE>
COMPOSITE INCOME FUND
Top ten issuers
<TABLE>
<S> <C>
U.S. Treasury - 14%
Government National Mortgage Association - 13%
Weyerhaeuser 1982 - C FHA Putable - 3%
United Mexican States, Series A and B - 3%
Time Warner, Inc. - 2%
Loral Corporation - 2%
Dart & Kraft Finance - 2%
Franchise Financial Corporation - 2%
Continental Corporation - 2%
Niagara Mohawk Power - 2%
</TABLE>
Asset allocation
[PIE CHART APPEARS HERE]
<TABLE>
<S> <C>
Corporate 48%
Mortgages 24%
Treasuries 14%
Cash and Other 10%
Foreign Obligations 4%
</TABLE>
COMPOSITE TAX-EXEMPT BOND FUND
Top ten states
<TABLE>
<S> <C>
Washington - 21%
Illinois - 12%
California - 8%
Florida - 5%
Nebraska - 5%
New York - 4%
Arizona - 4%
Hawaii - 4%
Texas - 4%
Oregon - 4%
</TABLE>
Asset allocation
[PIE CHART APPEARS HERE]
<TABLE>
<S> <C>
Utility 24%
Industrial Development/Pollution Control 15%
Local General Obligation 15%
Prerefunded 15%
State General Obligation 11%
Other Revenue 11%
Cash and Other 6%
Education 3%
</TABLE>
B-1
<PAGE>
FUND HIGHLIGHTS
COMPOSITE U.S. GOVERNMENT SECURITIES, INC.
KEY IMPACTS ON 1996 PERFORMANCE
The economy grew at a faster pace than expected in 1996, which caused interest
rates to rise for most of the year and, therefore, limited returns to investors
in fixed-income securities. For the year, rates on intermediate-maturity secu-
rities rose 0.85%. Although these returns were relatively minor, it should be
remembered that inflation remained low and, because of that, the average fixed-
income investor generally kept pace with cost of living increases.
The Fund's portfolio consisted of a substantial amount of mortgage-backed se-
curities, which performed well in 1996. A favorable prepayment environment the
result of relatively subdued interest rate volatility--was the primary factor
supporting this sector's strong relative performance.
WHAT'S AHEAD
We look for mortgage-backed securities to perform well again in 1997. As a
general rule, the best environment for mortgages is when prepayment expecta-
tions are relatively stable. We believe this type of environment will exist be-
cause of our view that 1997 interest rates will not be significantly higher nor
lower than last year.
Although we do not expect major shifts in interest rates, we do believe that
rates at today's levels represent good value.
KEY INVESTMENT STRATEGIES
The Fund's objective is to provide a high level of current income that is con-
sistent with safety and liquidity. We accomplish this by selecting investments
with an intermediate-maturity profile, by investing in a combination of mort-
gage-backed and treasury securities which are obligations of, or have collat-
eral guaranteed by, the U.S. government. By taking advantage of changing funda-
mentals between different segments of the mortgage market and by anticipating
broad changes in interest rates, we feel we can add additional income to the
Fund while clearly meeting the safety and liquidity objective.
Investment Performance - Composite U.S. Government Securities
-----------------------------------------------------
Comparative Ending Values of $10,000 Invested on 12/31/86
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Fund Class LBG CPI
A Shares (Gov't. Bonds) (Inflation)
<S> <C> <C> <C>
12/31/86 9,600 10,000 10,000
12/31/87 9,867 10,220 10,443
12/31/88 10,589 10,938 10,905
12/31/89 11,997 12,494 11,412
12/31/90 13,132 13,583 12,109
12/31/91 15,065 15,664 12,480
12/31/92 15,987 16,796 12,842
12/31/93 17,285 18,586 13,195
12/31/94 16,435 17,958 13,548
12/31/95 19,632 21,252 13,891
12/31/96 20,119 21,841 14,353
</TABLE>
Past performance cannot predict future results.
- --------------------------------------------------------------------------------
Average Annual Total Returns
<TABLE>
<CAPTION>
Class A Shares With Sales Charge Without Sales Charge
- -------------- ----------------- --------------------
<S> <C> <C>
One Year -1.60% 2.48%
Five Years 5.09% 5.96%
Ten Years 7.24% 7.68%
Class B Shares
- --------------
One Year -2.28% 1.58%
Since 3/30/94 5.57% 6.22%
</TABLE>
--------------------------------------------
30-Day Current Yields
<TABLE>
<S> <C>
Class A Shares 5.71%
Class B Shares 5.08%
</TABLE>
--------------------------------------------
- --------------------------------------------------------------------------------
See notes to Investment Performance charts on page B-4
B-2
<PAGE>
COMPOSITE INCOME FUND
KEY IMPACTS ON 1996 PERFORMANCE
Fixed-income returns, although modest in 1996, still outpaced inflation. De-
spite interest rates generally being low by recent historical standards, infla-
tion remained even lower. This translated into positive returns for Fund share-
holders, over and above their cost of living.
As it became apparent that the economy was growing faster than expected, in-
terest rates rose for most of the year, limiting returns to investors in fixed-
income securities. For the year, rates on intermediate-maturity securities rose
0.85%.
Performance in 1996 was enhanced by the Fund's investments in corporate bonds,
which make up more than 50% of the portfolio. A slow, steadily growing economy
and subdued inflation produced very favorable conditions for corporate America.
In the long run, the Fund benefited from the extra yield associated with corpo-
rate securities AND from the companies' growing financial strength.
WHAT'S AHEAD
We feel that continued investments in corporate securities and mortgage-backed
securities should prove rewarding again in 1997.
As for corporate bonds, we believe investments should be concentrated in the
non-cyclical portions of the economy, such as defense, health care and media.
This is because those sectors produce stable credit measures, even if the econ-
omy begins to slow.
We are not looking for substantially higher or lower interest rates in 1997.
Because of that, mortgage-backed securities should not be burdened with a
changing prepayment pattern. Consequently, they should continue to provide in-
vestors with extra yield throughout the year.
Interest rates are likely to be centered around today's levels, with a ten-
dency to drift down during the next few years. A more detailed discussion about
this is included in this report's opening message.
KEY INVESTMENT STRATEGIES
The Fund's objective is to provide a high level of current income that is con-
sistent with the protection of capital. We accomplish this by selecting invest-
ments with an intermediate-maturity profile and by investing in a combination
of corporate, mortgage-backed and treasury securities.
Investment Performance - Composite Income Fund
-----------------------------------------------------
Comparative Ending Values of $10,000 Invested on 12/31/86
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Fund Class LBG CPI
A Shares (Gov't./Corp. Bonds) (Inflation)
<S> <C> <C> <C>
12/31/86 9,600 10,000 10,000
12/31/87 10,180 10,229 10,443
12/31/88 10,898 11,005 10,905
12/31/89 11,634 12,572 11,412
12/31/90 12,589 13,613 12,109
12/31/91 14,766 15,808 12,480
12/31/92 15,856 17,006 12,842
12/31/93 17,572 18,882 13,195
12/31/94 16,724 18,220 13,548
12/31/95 20,332 21,726 13,891
12/31/96 21,036 22,356 14,353
</TABLE>
Past performance cannot predict future results.
- --------------------------------------------------------------------------------
Average Annual Total Returns
<TABLE>
<CAPTION>
Class A Shares With Sales Charge Without Sales Charge
- -------------- ----------------- --------------------
<S> <C> <C>
One Year -0.64% 3.46%
Five Years 6.47% 7.34%
Ten Years 7.72% 8.16%
Class B Shares
- --------------
One Year -1.28% 2.59%
Since 3/30/94 6.76% 7.40%
</TABLE>
--------------------------------------------
30-Day Current Yields
<TABLE>
<S> <C>
Class A Shares 5.95%
Class B Shares 5.34%
</TABLE>
--------------------------------------------
- --------------------------------------------------------------------------------
See notes to Investment Performance charts on page B-4.
B-3
<PAGE>
COMPOSITE TAX-EXEMPT BOND FUND
KEY IMPACTS ON 1996 PERFORMANCE
The year of 1996 did not match 1995's unusually high double-digit total re-
turn but, after a roller coaster ride, municipal bond investors ended with a
positive return. Municipal bonds began the year weighted down by worries that
radical tax reform would eliminate some of the tax benefits enjoyed by munici-
pal bondholders. However, municipal yields dropped to a year's low of 5.34% in
February as fears of such far-reaching changes faded and as investors' demand
confronted a drop in the supply of municipal bonds. Then, yields took a hard
turn and rose to a high of 6.27% in June as it became evident that the economy
was growing faster than expected. Finally, municipal yields eased down and
ended the year at 5.64% as economic growth moderated and inflation appeared to
be under control.
WHAT'S AHEAD
In early 1997, there may be a seasonal contraction in the supply of municipal
bonds. This condition would result in better performance of municipal bonds
relative to treasuries. However, such a contraction is unlikely to be of the
magnitude experienced in early 1996.
KEY INVESTMENT STRATEGIES
The Fund's objectives are to provide a high level of current income exempt
from federal taxes and to protect investors' capital. In pursuing these objec-
tives, we target a longer maturity range and a high average quality currently
averaging 12.5 years in maturity and an Aa rating by Moody's.
With the economy currently operating at its upper range, interest rates have
the potential at some time to move lower. To protect against having to rein-
vest called bonds at lower interest rates, we currently have approximately 50%
of the portfolio in noncallable bonds. We seek to exploit opportunities in
different market sectors and individual issues while avoiding their pitfalls.
Investment Performance - Composite U.S. Government Securities
-----------------------------------------------------
Comparative Ending Values of $10,000 Invested on 12/31/86
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Fund Class LMB CPI
A Shares (Muni Bonds) (Inflation)
<S> <C> <C> <C>
12/31/86 9,600 10,000 10,000
12/31/87 9,714 10,316 10,443
12/31/88 10,750 11,120 10,905
12/31/89 11,619 12,307 11,412
12/31/90 12,400 13,210 12,109
12/31/91 13,812 14,809 12,480
12/31/92 15,054 16,131 12,842
12/31/93 16,949 18,190 13,195
12/31/94 15,842 17,322 13,548
12/31/95 18,732 20,296 13,891
12/31/96 19,205 21,218 14,353
</TABLE>
Past performance cannot predict future results.
- --------------------------------------------------------------------------------
Average Annual Total Returns
<TABLE>
<CAPTION>
Class A Shares With Sales Charge Without Sales Charge
- -------------- ----------------- --------------------
<S> <C> <C>
One Year -1.53% 2.52%
Five Years 5.94% 6.81%
Ten Years 6.74% 7.18%
Class B Shares
- --------------
One Year -2.29% 1.61%
Since 3/30/94 5.34% 6.00%
</TABLE>
--------------------------------------------
30-Day Current Yields
<TABLE>
<S> <C>
Class A Shares 4.28%
Class B Shares 3.56%
</TABLE>
--------------------------------------------
See footnotes for additional information.
- --------------------------------------------------------------------------------
Notes to Investment Performance Charts:
Investment returns and principal values of fund shares will fluctuate so that
investor's shares, when redeemed, may be worth more or less than their original
cost. Fund shares are not guaranteed by any agency of the U.S. Government.
Comparisons to fund performance on pages B-2 through B-4 include the
Consumer Price Index (CPI), as a measure of change in consumer prices, and the
Lehman Brothers Government (LBG), Government/Corporate (LGCB), and Municipal
Bond (LMB) Government and Corporate, and Municipal Bond Markets.
These indices are unmanaged and do not reflect actual investment-related
expenses incurred by the funds with which they are compared. Fund values
presented in the graphs are for Class A Shares. Class B performance would vary
due to Different expenses. Unless otherwise indicated, all fund performance is
calculated after deducting the maximum 4% sales charge for Class A Shares and
for Class B Shares a contingent deferred sales charge of 4% for one year or 2%
since 3/30/94. Class B yields do not reflect contingent deferred sales charges.
The yields would be lower if they were reflected. Class B information is
presented since 3/30/94, the commencement of their offering.
B-4
<PAGE>
COMPOSITE CASH MANAGEMENT COMPANY
In 1996, many investors found Composite Cash Management Co. to be an attrac-
tive option for keeping a portion of their net worth where they could earn a
solid return, avoid market uncertainties and maintain liquidity.
Total assets of the portfolios rose 29% during the past 12 months--an in-
crease of $59 million--and reached the highest level in several years.
WHAT WERE THE MAIN IMPACTS ON 1996 PERFORMANCE?
In January 1996, the Federal Reserve cut its target for short-term interest
rates from 5.50% to 5.25%. Shortly thereafter, the three-month treasury bill
traded at yields significantly below this.
The market--concerned about a possible recession--anticipated further cuts.
However, these concerns proved to be unfounded as strong unemployment numbers
led the three-month treasury bill to trade at yields above the targeted rate.
Then, rates eased as the economy slowed and inflation remained in check. All
through this, the Federal Reserve kept a steady hand on the tiller, holding
the target for the short-term interest rate at 5.25%.
As of December 31, 1996, the seven-day simple yield for Class A shares of the
Money Market Portfolio was 4.87%, or 4.99% on a compounded annual basis.* The
securities in this Portfolio had a weighted average maturity of 18 days.
The Tax-Exempt Portfolio Class A shares produced a seven-day simple yield of
3.42%, or 3.48% on a compounded annual basis.* The weighted average maturity
was 64 days.
A portion of both portfolios' expenses were waived or reimbursed by the
Fund's Adviser, Distributor, and Transfer Agent. Absent waivers and reimburse-
ments, the Class A share seven-day simple yield at year end would have been
4.79% for the Money Market Portfolio and 3.29% for the Tax-Exempt Portfolio.
WHAT'S AHEAD?
Looking ahead, we believe the current level of interest rates represents fair
value. We feel those rates will continue to be restrained by five forces we
expect are likely to limit growth and inflation. These include high levels of
consumer debt, worldwide fiscal austerity, increased global competition, U.S.
monetary policies targeting low inflation, and favorable demographic trends.
Additionally, in the global marketplace the United States is a major competi-
tor, thanks to intensive use of technologies, an efficient labor force, and
comparatively less intrusive federal government than in most other countries.
These factors have helped us achieve a stable economic environment, low unem-
ployment and low interest rates.
WHAT ARE COMPOSITE'S KEY INVESTMENT STRATEGIES?
Our primary objective for the portfolios is to preserve capital and maintain
liquidity. In pursuit of this, we invest only in securities that have a top-
tier ranking by a national rating agency.
More importantly, we evaluate the credit quality of each investment and as-
sign a more selective internal ranking that is intended to guard against
worst-case scenarios. Within this framework, we seek to enhance shareholder
returns by anticipating the general direction in interest rates and by using
our credit research to take advantage of neglected issues we feel are attrac-
tive for the portfolios.
- --------
* ALL YIELD INFORMATION REPRESENTS PAST PERFORMANCE, WHICH CANNOT GUARANTEE
FUTURE RESULTS. PRINCIPAL IS NOT INSURED OR GUARANTEED BY THE U.S. GOVERN-
MENT, AND YIELDS WILL FLUCTUATE DEPENDING ON MARKET CONDITIONS. THERE IS NO
ASSURANCE THAT THE $1.00 PER SHARE NET ASSET VALUE (NAV) WILL BE MAINTAINED.
CLASS B SHARES ARE AVAILABLE ONLY BY EXCHANGING B SHARES FROM OTHER COMPOS-
ITE GROUP FUNDS AND ARE INTENDED AS TEMPORARY INVESTMENTS. THE CLASS B
SHARES' SEVEN-DAY SIMPLE YIELD THROUGH DECEMBER 31, 1996, WAS 3.99% FOR THE
MONEY MARKET PORTFOLIO AND 2.48% FOR THE TAX-EXEMPT PORTFOLIO AFTER EXPENSE
REIMBURSEMENTS. THE ALTERNATIVE MINIMUM TAX, AS WELL AS STATE AND LOCAL TAX-
ES, MAY APPLY TO INCOME DISTRIBUTED BY THE TAX- EXEMPT PORTFOLIO.
B-5
<PAGE>
COMPOSITE GROWTH & INCOME FUND
Top ten holdings
<TABLE>
<S> <C>
Dun & Bradstreet Corporation - 2.88%
Lockheed Martin Corporation - 2.49%
Wells Fargo & Company - 2.46%
Intel Corporation - 2.24%
General Electric Company - 2.14%
Abbott Laboratories - 2.14%
Microsoft Corporation - 2.05%
Johnson & Johnson - 2.01%
Emerson Electric Company - 2.00%
Expeditor's International of Washington, Inc. - 1.97%
</TABLE>
Industry allocation
[PIE CHART APPEARS HERE]
<TABLE>
<S> <C>
Banking & Financial 15%
Capital Goods & Aerospace 13%
Technology & Electronics 13%
Consumer Staples 12%
Health Care 12%
Consumer Cyclicals 9%
Oil & Gas 7%
Utilities & Real Estate Investment Trusts 7%
Cash & Other 6%
Basic Industry & Resources 6%
</TABLE>
B-6
<PAGE>
FUND HIGHLIGHTS
COMPOSITE GROWTH & INCOME FUND
KEY IMPACTS ON 1996 PERFORMANCE
The stock market performed well in 1996. The market was driven higher by news
of mergers and acquisitions, low inflation, and solid corporate earnings. Com-
posite Growth & Income Fund benefited from this positive equity environment and
posted excellent returns. In particular, two of our holdings were taken over at
prices substantially higher than their trading prices (FHP Corporation and
Loral Corporation) which helped produce the positive 1996 performance.
WHAT'S AHEAD
We anticipate that mergers and acquisitions, along with the low inflation en-
vironment, are likely to continue. However, corporate earnings, especially in
the consumer sector, are unlikely to be as strong in 1997 as in 1996. There-
fore, we are cautious when investing in the consumer durable area.
We also believe that a narrow group of stocks has been the primary force driv-
ing the stock market. We intend to capitalize on this condition by purchasing
stocks of desirable companies that have not participated in the market rise.
KEY INVESTMENT STRATEGIES
Our basic strategy, as always, is to buy stocks of good businesses when they
are at "sale prices." Good businesses generate a high return on investment,
have a competitive advantage and have barriers to entry. We currently are find-
ing good equities in the movie and content area. Improved means of distributing
their products, which include direct television, Internet and cable modem
transmissions, should provide increased revenue opportunities for these
companies.
The semiconductor group also is providing bargains, as we see oversupply con-
cerns coming to an end. The demand for semiconductors continues to run strong,
assisted by Pentium Pro and Window N.T. product cycles and telecommunications
deregulation.
Finally, spinoff situations are offering excellent value in the marketplace.
Many of these former subsidiaries of larger companies are excellent businesses
where management owns considerable stock.
Investment Performance - Composite Growth & Income Fund
-----------------------------------------------------
Comparative Ending Values of $10,000 Invested on 10/31/86
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Fund Class CPI
A Shares S&P 500 (Inflation)
<S> <C> <C> <C>
10/31/86 9,550 10,000 10,000
10/31/88 11,226 12,227 10,898
10/31/90 10,623 14,301 12,103
10/31/92 15,498 20,962 12,856
10/31/94 18,686 25,027 13,554
10/31/96 27,920 39,268 14,353
</TABLE>
Past performance cannot predict future results.
- --------------------------------------------------------------------------------
Average Annual Total Returns
<TABLE>
<CAPTION>
Class A Shares With Sales Charge Without Sales Charge
- -------------- ----------------- --------------------
<S> <C> <C>
One Year 18.05% 23.61%
Five Years 13.59% 14.64%
Ten Years 10.82% 11.33%
Class B Shares
- --------------
One Year 18.55% 22.55%
Since 3/30/94 18.13% 18.72%
</TABLE>
--------------------------------------------
See footnotes for additional information.
- --------------------------------------------------------------------------------
Notes to Investment Performance Charts:
Investment returns and principal values of fund shares will fluctuate so that
investor's shares, when redeemed, may be worth more or less than their original
cost.
Comparisons to fund performance include the consumer price index (CPI), as a
measure of change in consumer prices as determined by the U.S. Bureau of Labor
Statistics; the S&P 500 Stock Index (S&P 500), which is considered generally
representative of the U.S. Stock Market; and the Lehman Government/Corporate
Bond Index (LGCB), which is considered representative of the U.S. Government
and Corporate Bond Markets.
These indices are unmanaged and do not reflect actual investment-related
expenses incurred by the funds with which they are compared. Fund values
presented in the graphs are for Class A Shares. Class B share performance would
vary due to different expenses. Except as noted, performance is calculated
after the 4.5% maximum sales charge for Class A Shares and for Class B Shares, a
contingent deferred sales charge of 4% for one year or 2% since 3/30/94. Class B
yields do not reflect contingent deferred sales charges. Composite Northwest
Class A information is presented since inception on 11/24/86 and all funds'
Class B information is presented since 3/30/94, the commencement of offering of
Class B shares.
B-7
<PAGE>
APPENDIX C
ADDITIONAL INFORMATION ABOUT THE ACQUIRING FUNDS
The Composite Trust is an open-end series management investment company, or-
ganized as a Massachusetts business trust, consisting of eight separate in-
vestment portfolios, among which are the Acquiring Funds. Each Acquiring Fund
has its own investment objectives and policies. The Composite Trust is de-
signed to provide access to the professional investment management services
offered by CRM, which serves as investment adviser (the "Adviser") to the Ac-
quiring Funds.
Each Acquiring Fund offers its shares in four classes: Class A, Class B,
Class I and Class S. This Prospectus/Proxy Statement describes these classes
of shares to be received by shareholders of the Acquired Funds in the Mergers.
The Acquiring Funds are sometimes referred to in this Appendix C as the
"Funds," and the Composite Trust is sometimes referred to in this Appendix C
as the "Trust."
FINANCIAL HIGHLIGHTS
The tables on the following pages present selected financial information
about the Acquiring Funds, including per share data, expense ratios and other
data based on average net assets. This information has been audited by
LeMaster & Daniels PLLC, the Funds' independent auditors, whose reports
thereon appear in the Composite Annual Reports and are incorporated by refer-
ence into this Prospectus/Proxy Statement.
C-1
<PAGE>
FINANCIAL HIGHLIGHTS____________________________________________________________
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
COMPOSITE GROWTH & INCOME FUND -- CLASS A SHARES
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED
APR. 30,
1997
--------
<S> <C>
Net Asset Value,
Beginning of Year...... $ 17.26
--------
Income From Investment
Operations
Net Investment
Income............... 0.07
Net Gains (Losses) on
Securities (both
realized and
unrealized)........... 1.92
--------
Total From Investment
Operations............ 1.99
--------
Less Distributions
Dividends (from net
investment income).... (0.09)
Distributions (from
capital gains)........ (1.21)
--------
Total Distributions... (1.30)
--------
Net Asset Value, End of
Period $ 17.95
========
Total Return/(1)/...... 5.45%
Ratios/Supplemental
Data
Net Assets, End of
Year ($1,000's)....... $215,534
Ratio of Expenses to
Average Net
Assets/(2)/........... 1.09%/(4)/
Ratio of Net Income to
Average Net Assets.... 0.82%/(4)/
Portfolio Turnover
Rate................. 59%/(4)/
Average Commission
Paid/(3)/............. $ 0.0600
<CAPTION>
YEARS ENDED OCTOBER 31,
--------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
--------- --------- --------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Year...... $ 14.65 $ 12.71 $ 12.81 $ 12.02 $ 11.86 $ 9.18 $ 12.17 $ 11.10 $ 9.77 $ 11.57
--------- --------- --------- -------- -------- -------- -------- -------- -------- --------
Income From Investment
Operations
Net Investment
Income............... 0.20 0.22 0.18 0.21 0.29 0.29 0.35 0.46 0.35 0.44
Net Gains (Losses) on
Securities (both
realized and
unrealized)........... 3.16 2.31 0.85 1.10 0.80 2.69 (2.19) 0.96 1.32 (0.45)
--------- --------- --------- -------- -------- -------- -------- -------- -------- --------
Total From Investment
Operations............ 3.36 2.53 1.03 1.31 1.09 2.98 (1.84) 1.42 1.67 (0.01)
--------- --------- --------- -------- -------- -------- -------- -------- -------- --------
Less Distributions
Dividends (from net
investment income).... (0.21) (0.19) (0.18) (0.21) (0.34) (0.30) (0.50) (0.35) (0.29) (0.55)
Distributions (from
capital gains)........ (0.54) (0.40) (0.95) (0.31) (0.59) 0.00 (0.65) 0.00 (0.05) (1.24)
--------- --------- --------- -------- -------- -------- -------- -------- -------- --------
Total Distributions... (0.75) (0.59) (1.13) (0.52) (0.93) (0.30) (1.15) (0.35) (0.34) (1.79)
--------- --------- --------- -------- -------- -------- -------- -------- -------- --------
Net Asset Value, End of
Period $ 17.26 $ 14.65 $ 12.71 $ 12.81 $ 12.02 $ 11.86 $ 9.18 $ 12.17 $ 11.10 $ 9.77
========= ========= ========= ======== ======== ======== ======== ======== ======== ========
Total Return/(1)/...... 23.61% 20.87% 8.55% 11.06% 9.94% 32.69% -16.25% 13.00% 17.36% 0.20%
Ratios/Supplemental
Data
Net Assets, End of
Year ($1,000's)....... $178,331 $130,630 $102,837 $95,229 $81,102 $69,365 $68,297 $72,642 $69,117 $67,933
Ratio of Expenses to
Average Net
Assets/(2)/........... 1.03% 1.07% 1.10% 1.17% 1.10% 1.12% 1.17% 1.06% 0.89% 0.90%
Ratio of Net Income to
Average Net Assets.... 1.26% 1.62% 1.45% 1.67% 2.37% 2.73% 3.33% 3.88% 3.33% 3.70%
Portfolio Turnover
Rate................. 52% 39% 34% 54% 18% 26% 37% 37% 45% 71%
Average Commission
Paid/(3)/............. $ 0.0654 -- -- -- -- -- -- -- -- --
</TABLE>
/(1)/Total returns do not reflect a sales charge.
/(2)/Ratio of expenses to average net assets include expenses paid indirectly
beginning in fiscal 1995.
/(3)/Average commission paid disclosure beginning in fiscal 1996.
/(4)/Annualized.
C-2
<PAGE>
FINANCIAL HIGHLIGHTS____________________________________________________________
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
COMPOSITE GROWTH & INCOME FUND -- CLASS B SHARES
<TABLE>
<CAPTION>
SIX MONTHS YEARS ENDED MARCH 30
ENDED APRIL 30, OCTOBER 31, TO
--------------- --------------- OCT. 31,
1997 1996 1995 1994/(4)/
--------------- ------- ------ ---------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period................ $ 17.17 $ 14.59 $12.68 $12.00
------- ------- ------ ------
Income From Investment
Operations
Net Investment Income.... 0.07 0.06 0.11 0.05
Net Gains on Securities
(both realized and
unrealized)............. 1.90 3.14 2.31 0.69
------- ------- ------ ------
Total From Investment
Operations.............. 1.90 3.20 2.42 0.74
------- ------- ------ ------
Less Distributions
Dividends (from net
investment income)...... (0.02) (0.08) (0.11) (0.06)
Distributions (from
capital gains).......... (1.21) (0.54) (0.40) 0.00
------- ------- ------ ------
Total Distributions...... (1.23) (0.62) (0.51) (0.06)
------- ------- ------ ------
Net Asset Value, End of
Period................... $ 17.84 $ 17.17 $14.59 $12.68
======= ======= ====== ======
Total Return/(1)/......... 5.11% 22.55% 19.95% 6.14%
Ratios/Supplemental Data
Net Assets, End of Period
($1,000's).............. $34,362 $22,851 $8,871 $2,082
Ratio of Expenses to
Average Net
Assets/(2)/............. 1.93%/(5)/ 1.94% 1.91% 1.85%/(5)/
Ratio of Net Income to
Average Net Assets...... -0.02%/(5)/ 0.34% 0.69% 0.65%/(5)/
Portfolio Turnover Rate.. 59%/(5)/ 52% 39% 34%
Average Commission
Paid/(3)/............... $0.0600 $0.0664 -- --
</TABLE>
/(1)/Total returns do not reflect a sales charge and are not annualized.
/(2)/Ratio of expenses to average net assets include expenses paid indirectly
beginning in fiscal 1995.
/(3)/Average commission paid disclosure beginning in fiscal 1996.
/(4)/From the commencement of offering of Class B shares.
/(5)/Annualized.
C-3
<PAGE>
FINANCIAL HIGHLIGHTS____________________________________________________________
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
COMPOSITE GOVERNMENT FUND -- CLASS A SHARES
<TABLE>
<CAPTION>
SIX TEN
MONTHS YEARS ENDED MONTHS
ENDED DECEMBER 31, ENDED
JUNE 30, -------------------------------------- DEC. 31,
1997 1996 1995 1994 1993 1992/(3)/
-------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period............ $ 10.46 $ 10.84 $ 9.64 $ 10.79 $ 10.63 $ 10.17
-------- -------- -------- -------- -------- --------
Income from
Investment
Operations
Net Investment
Income.......... 0.31 0.63 0.63 0.63 0.69 0.62
Net Gains
(Losses) on
Securities (both
realized and
unrealized)...... (0.02) (0.38) 1.20 (1.15) 0.16 0.10
-------- -------- -------- -------- -------- --------
Total From
Investment
Operations....... 0.29 0.25 1.83 (0.52) 0.85 0.72
-------- -------- -------- -------- -------- --------
Less
Distributions
Dividends (from
net investment
income).......... (0.31) (0.63) (0.63) (0.63) (0.69) (0.62)
-------- -------- -------- -------- -------- --------
Net Asset Value,
End of Period..... $ 10.44 $ 10.46 $ 10.84 $ 9.64 $ 10.79 $ 10.63
======== ======== ======== ======== ======== ========
Total
Return/(1)/...... 2.87% 2.48% 19.45% -4.91% 8.12% 7.03%
Ratios/
Supplemental Data
Net Assets, End
of Period (in
thousands)....... $119,431 $139,159 $177,310 $188,068 $268,112 $207,501
Ratio of Expenses
to Average Net
Assets/(2)/...... 1.02%/(4)/ .97% 1.01% 0.97% 0.99% 0.99%/(4)/
Ratio of Net
Income to Average
Net Assets....... 6.09%/(4)/ 6.01% 6.08% 6.19% 6.29% 6.98%/(4)/
Portfolio
Turnover Rate.... 10%/(4)/ 16% 8% 34% 51% 11%/(4)/
<CAPTION>
YEARS ENDED LAST DAY OF FEBRUARY,
---------------------------------------------
1992 1991 1990 1989 1988
--------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period............ $ 10.17 $ 9.90 $ 9.63 $ 10.25 $ 10.61
--------- -------- -------- -------- --------
Income from
Investment
Operations
Net Investment
Income.......... 0.79 0.82 0.88 0.91 0.91
Net Gains
(Losses) on
Securities (both
realized and
unrealized)...... 0.36 0.27 0.27 (0.62) (0.36)
--------- -------- -------- -------- --------
Total From
Investment
Operations....... 1.15 1.11 1.15 0.29 0.55
--------- -------- -------- -------- --------
Less
Distributions
Dividends (from
net investment
income).......... (0.79) (0.84) (0.88) (0.91) (0.91)
--------- -------- -------- -------- --------
Net Asset Value,
End of Period..... $ 10.53 $ 10.17 $ 9.90 $ 9.63 $ 10.25
========= ======== ======== ======== ========
Total
Return/(1)/...... 11.72% 11.72% 12.31% 2.94% 6.63%
Ratios/
Supplemental Data
Net Assets, End
of Period (in
thousands)....... $141,377 $92,293 $83,360 $79,920 $89,385
Ratio of Expenses
to Average Net
Assets/(2)/...... 1.01% 1.03% 0.99% 0.88% 0.88%
Ratio of Net
Income to Average
Net Assets....... 7.63% 8.43% 8.86% 9.14% 9.03%
Portfolio
Turnover Rate.... 17% 66% 19% 41% 43%
</TABLE>
/(1)/Total returns do not reflect a sales charge and are not annualized.
/(2)/Ratio of expenses to average net assets include expenses paid indirectly
beginning in fiscal 1995.
/(3)/Change in Fund's fiscal year end.
/(4)/Annualized.
C-4
<PAGE>
FINANCIAL HIGHLIGHTS____________________________________________________________
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
COMPOSITE INCOME FUND -- CLASS A SHARES
<TABLE>
<CAPTION>
SIX THREE
MONTHS MONTHS
ENDED YEARS ENDED OCTOBER 31, ENDED
APRIL 30, ----------------------------------- DECEMBER 31,
1997 1996 1995 1994 1993 1992/(3)/
--------- ------- ------- ------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period............ $ 9.15 $ 9.44 $ 8.29 $ 9.33 $ 8.99 $ 9.17
------- ------- ------- ------- -------- -------
Income From
Investment
Operations
Net Investment
Income.......... 0.30 0.59 0.59 0.60 0.61 0.16
Net Gains or
Losses on
Securities (both
realized and
unrealized)...... 0.04 (0.29) 1.15 (1.04) 0.34 (0.18)
------- ------- ------- ------- -------- -------
Total From
Investment
Operations....... 0.34 0.30 1.74 (0.44) 0.95 (0.02)
------- ------- ------- ------- -------- -------
Less
Distributions
Dividends (from
net investment
income).......... (0.30) (0.59) (0.59) (0.60) (0.61) (0.16)
Net Asset Value,
End of Period..... $ 9.19 $ 9.15 $ 9.44 $ 8.29 $ 9.33 $ 8.99
======= ======= ======= ======= ======== =======
Total
Return/(1)/...... 3.76% 3.46% 21.58% -4.82% 10.82% -0.23%
Ratios/
Supplemental Data
Net Assets, End
of Period (in
thousands)....... $80,302 $86,657 $97,534 $88,102 $104,876 $86,425
Ratio of Expenses
to Average Net
Assets/(2)/...... 1.06%/(4)/ 1.03% 1.08% 1.04% 1.08% 0.95%/(4)/
Ratio of Net
Income to Average
Net Assets....... 6.57%/(4)/ 6.52% 6.59% 6.83% 6.58% 6.94%/(4)/
Portfolio
Turnover Rate.... 19%/(4)/ 42% 43% 26% 51% 87%/(4)/
<CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------------------------
1992 1991 1990 1989 1988
-------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period............ $ 8.68 $ 8.12 $ 8.51 $ 8.87 $ 9.04
-------- -------- -------- --------- ---------
Income From
Investment
Operations
Net Investment
Income.......... 0.65 0.68 0.74 0.91 0.95
Net Gains or
Losses on
Securities (both
realized and
unrealized)...... 0.49 0.56 (0.39) (0.36) (0.17)
-------- -------- -------- --------- ---------
Total From
Investment
Operations....... 1.14 1.24 0.35 0.55 0.78
-------- -------- -------- --------- ---------
Less
Distributions
Dividends (from
net investment
income).......... (0.65) (0.68) (0.74) (0.91) (0.95)
Net Asset Value,
End of Period..... $ 9.17 $ 8.68 $ 8.12 $ 8.51 $ 8.87
======== ======== ======== ========= =========
Total
Return/(1)/...... 13.57% 15.93% 4.32% 6.58% 9.02%
Ratios/
Supplemental Data
Net Assets, End
of Period (in
thousands)....... $84,995 $73,342 $66,648 $126,088 $162,956
Ratio of Expenses
to Average Net
Assets/(2)/...... 1.05% 1.04% 1.04% 0.96% 1.01%
Ratio of Net
Income to Average
Net Assets....... 7.26% 8.16% 8.97% 10.53% 10.56%
Portfolio
Turnover Rate.... 47% 106% 64% 37% 47%
</TABLE>
/(1)/Total returns do not reflect a sales charge and are not annualized.
/(2)/Ratio of expenses to average net assets includes expenses paid indirectly
beginning in fiscal year 1995.
/(3)/Change in Fund's fiscal year end.
/(4)/Annualized.
C-5
<PAGE>
FINANCIAL HIGHLIGHTS____________________________________________________________
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
COMPOSITE TAX-EXEMPT FUND -- CLASS A SHARES
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED YEARS ENDED DECEMBER 31,
JUNE 30, ------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---------- -------- -------- -------- -------- -------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Assets Value,
Beginning of Year.. $ 7.83 $ 8.02 $ 7.13 $ 8.04 $ 7.58 $ 7.42 $ 7.16 $ 7.17 $ 7.20 $ 7.02 $ 7.56
---------- -------- -------- -------- -------- -------- -------- -------- -------- ------- -------
Income From
Investment
Operations
Net Investment
Income........... 0.19 0.38 0.38 0.39 0.40 0.42 0.45 0.47 0.50 0.52 0.54
Net Gains (Losses)
on Securities
(both realized and
unrealized)....... 0.01 (0.19) 0.89 (0.91) 0.54 0.23 0.34 (0.01) 0.07 0.20 (0.45)
---------- -------- -------- -------- -------- -------- -------- -------- -------- ------- -------
Total From
Investment
Operations........ 0.20 0.19 1.27 (0.52 0.94 0.65 0.79 0.46 0.57 0.72 0.09
---------- -------- -------- -------- -------- -------- -------- -------- -------- ------- -------
Less Distributions
Dividends
(from net
investment
income)........... (0.19) (0.38) (0.38) (0.39) (0.40) (0.42) (0.45) (0.47) (0.50) (0.52) (0.53)
---------- -------- -------- -------- -------- -------- -------- -------- -------- ------- -------
Distributions
(from capital
gains)............ -- -- -- -- (0.08) (0.07) (0.08) -- (0.10) (0.02) (0.10)
---------- -------- -------- -------- -------- -------- -------- -------- -------- ------- -------
Total
distributions.... (0.19) (0.38) (0.38) (0.39) (0.48) (0.49) (0.53) (0.47) (0.60) (0.63) (0.63)
---------- -------- -------- -------- -------- -------- -------- -------- -------- ------- -------
Net Assets Value,
End of Year........ $ 7.84 $ 7.83 $ 8.02 $ 7.13 $ 8.04 $ 7.58 $ 7.42 $ 7.16 $ 7.17 $ 7.20 $ 7.02
========== ======== ======== ======== ======== ======== ======== ======== ======== ======= =======
Total Return/(1)/.. 2.62% 2.52% 18.25% -6.53% 12.54% 9.00% 11.36% 6.71% 8.08% 10.66% 1.25%
Ratios/Supplemental
Data
Net Assets, End of
Year (in
thousands)........ $192,465 $203,606 $230,055 $215,438 $259,045 $186,861 $140,154 $111,462 $104,208 $94,156 $83,057
Ratio of Expenses
to Average Net
Assets/(2)/....... 0.79%/(3)/ 0.75% 0.81% 0.79% 0.81% 0.78% 0.77% 0.77% 0.80% 0.80% 0.85%
Ratio of Net
Income to Average
Net Assets........ 4.97%/(3)/ 4.90% 5.03% 5.23% 4.97% 5.56% 6.16% 6.65% 6.85% 7.34% 7.36%
Portfolio
Turnover Rate..... 17%/(3)/ 22% 8% 12% 19% 30% 83% 115% 104% 47% 49%
</TABLE>
/(1)/Total returns do not reflect a sales charge and are not annualized.
/(2)/Ratio of expenses to average net assets include expenses paid indirectly
beginning in fiscal 1995.
/(3)/Annualized.
C-6
<PAGE>
FINANCIAL HIGHLIGHTS____________________________________________________________
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
CLASS B SHARES
<TABLE>
<CAPTION>
COMPOSITE GOVERNMENT FUND COMPOSITE INCOME FUND
-------------------------------------- --------------------------------------
SIX SIX
MONTHS YEARS ENDED MARCH 30, MONTHS YEARS ENDED MARCH 30,
ENDED DECEMBER 31, 1994 TO ENDED DECEMBER 31, 1994 TO
APR. 30, -------------- DEC. 31, APR. 30, -------------- DEC. 31,
1997 1996 1995 1994/(2)/ 1997 1996 1995 1994/(2)/
-------- ------ ------ --------- -------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period........... $10.46 $10.84 $ 9.64 $10.24 $ 9.17 $ 9.46 $ 8.30 $ 8.85
------ ------ ------ ------ ------ ------ ------ ------
Income From
Investment
Operations
Net Investment
Income.......... 0.27 0.54 0.54 0.41 0.26 0.52 0.51 0.40
Net Gains or
Losses on
Securities (both
realized and
unrealized)..... (0.02) (0.38) 1.20 (0.60) 0.04 (0.29) 1.16 (0.55)
------ ------ ------ ------ ------ ------ ------ ------
Total From
Investment
Operations...... 0.25 0.16 1.74 (0.19) 0.30 0.23 1.67 (0.15)
------ ------ ------ ------ ------ ------ ------ ------
Less
Distributions
Dividends (from
net investment
income)......... (0.27) (0.54) (0.54) (0.41) (0.26) (0.52) (0.51) (0.40)
Net Asset Value,
End of Period.... $10.44 $10.46 $10.84 $ 9.64 $ 9.21 $ 9.17 $ 9.46 $ 8.30
====== ====== ====== ====== ====== ====== ====== ======
Total
Return/(1)/..... 2.43% 1.58% 18.48% -1.86% 3.34% 2.59% 20.70% -1.67%
Ratios/Supplemental
Data
Net Assets, End
of Period
($1,000's)...... $2,898 $2,963 $2,206 $1,063 $7,303 $7,122 $4,452 $2,299
Ratio of
Expenses to
Average Net
Assets/(3)/..... 1.85%/(4)/ 1.85% 1.84% 1.76%/(4)/ 1.88%/(4)/ 1.89% 1.91% 1.80%/(4)/
Ratio of Net
Income to
Average Net
Assets.......... 5.24%/(4)/ 5.14% 5.20% 5.43%/(4)/ 5.74%/(4)/ 5.69% 5.73% 6.25%/(4)/
Portfolio
Turnover Rate... 10%/(4)/ 16% 8% 34% 19%/(4)/ 42% 43% 26%
<CAPTION>
COMPOSITE TAX-EXEMPT FUND
------------------------------------------
SIX
MONTHS YEARS ENDED MARCH 30,
ENDED DECEMBER 31, 1994 TO
APR. 30, --------------- DEC. 31
1997 1996 1995 1994/(2)/
------------ ------- ------- -------------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period........... $ 7.83 $ 8.02 $ 7.13 $ 7.49
------------ ------- ------- -------------
Income From
Investment
Operations
Net Investment
Income.......... 0.16 0.31 0.32 0.25
Net Gains or
Losses on
Securities (both
realized and
unrealized)..... 0.01 (0.19) 0.89 (0.36)
------------ ------- ------- -------------
Total From
Investment
Operations...... 0.17 0.12 1.21 (0.11)
------------ ------- ------- -------------
Less
Distributions
Dividends (from
net investment
income)......... (0.16) (0.31) (0.32) (0.25)
Net Asset Value,
End of Period.... $ 7.84 $ 7.83 $ 8.02 $ 7.13
============ ======= ======= =============
Total
Return/(1)/..... 2.19% 1.61% 17.30% -1.46%
Ratios/Supplemental
Data
Net Assets, End
of Period
($1,000's)...... $6,664 $5,266 $2,682 $1,258
Ratio of
Expenses to
Average Net
Assets/(3)/..... 1.63%/(4)/ 1.65% 1.62% 1.58%/(4)/
Ratio of Net
Income to
Average Net
Assets.......... 4.11%/(4)/ 4.01% 4.18% 4.53%/(4)/
Portfolio
Turnover Rate... 17%/(4)/ 22% 8% 12%
</TABLE>
/(1)/Total returns do not reflect a sales charge and are not annualized.
/(2)/From the commencement of offering Class B shares.
/(3)/Ratio of expenses to average net assets include expenses paid indirectly
beginning in fiscal 1995.
/(4)/Annualized.
C-7
<PAGE>
FINANCIAL HIGHLIGHTS___________________________________________________________
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
COMPOSITE MONEY FUND -- CLASS A SHARES
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
APRIL 30,
1997
----------
<S> <C>
Net Asset Value,
Beginning of
Year............. $ 1.000
--------
Income From
Investment
Operations
Net Investment
Income.......... 0.239
Total From
Investment
Operations...... 0.239
--------
Less
Distributions
Dividends (from
net investment
income)......... (0.0239)
Total
Distributions... (0.0239)
--------
Net Asset Value,
End of Year...... $ 1.0000
========
Total Return..... 4.95%/(2)/
Ratios/
Supplemental Data
Net Assets, End
of Year (in
thousands)...... $256,222
Ratio of
Expenses to
Average Net
Assets/(1)/..... 0.78%/(2)/
Ratio of Net
Income to
Average Net
Assets.......... 4.83%/(2)/
<CAPTION>
YEARS ENDED OCTOBER 31,
---------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Year............. $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Income From
Investment
Operations
Net Investment
Income.......... 0.0476 0.0519 0.0341 0.0238 0.0302 0.0526 0.0733 0.0826 0.0668 0.0588
Total From
Investment
Operations...... 0.0476 0.0519 0.0341 0.0238 0.0302 0.0526 0.0733 0.0826 0.0668 0.0588
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Less
Distributions
Dividends (from
net investment
income)......... (0.0476) (0.0519) (0.0341) (0.0238) (0.0302) (0.0526) (0.0733) (0.0826) (0.0668) (0.0588)
Total
Distributions... (0.0476) (0.0159) (0.0341) (0.0238) (0.0302) (0.0526) (0.0733) (0.0826) (0.0688) (0.0588)
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Net Asset Value,
End of Year...... $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
========= ========= ========= ========= ========= ========= ========= ========= ========= =========
Total Return..... 4.88% 5.33% 3.47% 2.41% 3.07% 5.41% 7.61% 8.60% 6.85% 5.97%
Ratios/
Supplemental Data
Net Assets, End
of Year (in
thousands)...... $229,355 $171,225 $125,651 $135,187 $141,193 $178,741 $252,051 $256,017 $180,130 $137,737
Ratio of
Expenses to
Average Net
Assets/(1)/..... 0.79% 0.92% 0.95% 0.97% 0.88% 0.93% 0.97% 1.06% 1.01% 1.05%
Ratio of Net
Income to
Average Net
Assets.......... 4.77% 5.19% 3.39% 2.38% 3.04% 5.33% 7.33% 8.26% 6.68% 5.88%
</TABLE>
/(1)/Ratios of expenses to average net assets include expenses paid indirectly
beginning in fiscal year 1995. The ratios before voluntary waiver of cer-
tain fees incurred by the Portfolio and expense reimbursements were .89%
in 1996, 1.04% in 1995, and 1.04% in 1994, and 1.03% for 1993.
/(2)/Annualized.
C-8
<PAGE>
FINANCIAL HIGHLIGHTS___________________________________________________________
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
COMPOSITE MONEY FUND -- CLASS B SHARES
<TABLE>
<CAPTION>
SIX MONTHS YEARS ENDED
ENDED DECEMBER 31, MAY 2, TO
JUNE 30, ---------------- DEC. 31,
1997 1996 1995 1994
---------- ------- ------- ---------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period.......................... $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- -------
Income From Investment
Operations
Net Investment Income........... 0.0090 0.0199 0.0226 0.0097
Net Gains on Securities (both
realize and unrealized)........ -- -- 0.0054 --
------- ------- ------- -------
Total From Investment
Operations..................... 0.0090 0.0199 0.0280 0.0097
------- ------- ------- -------
Less Distributions
Dividends (from net investment
income)........................ (0.0090) (0.0199) (0.0226) (0.0097)
Distributions (from capital
gains)......................... -- -- (0.0054) --
------- ------- ------- -------
Total Distributions............. (0.0090) (0.0199) (0.0280) (0.0097)
------- ------- ------- -------
Net Asset Value, End of Period... $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= =======
Total Return..................... 2.24%/(3)/ 2.01% 2.83% 1.45%/(3)/
Ratios/Supplemental Data.........
Net Assets, End of Period (in
thousands)..................... $12 $2 $1 $1
Ratio of Expenses to Average Net
Assets/(1)/.................... 1.50%/(3)/ 1.53% 1.73% 1.66%/(3)/
Ratio of Net Income to Average
Net Assets..................... 2.47%/(3)/ 1.99% 2.12% 1.38%/(3)/
</TABLE>
/(1)/Ratio of expenses to average net assets includes expenses paid indirectly
beginning in fiscal 1995. The ratios before voluntary waiver of certain
fees incurred by the Portfolio and expense reimbursements were 1.90% in
1996, 2.10% in 1995 and 2.62% in 1994.
/(2)/From the commencement of offering of Class B shares.
/(3)/Annualized.
C-9
<PAGE>
THE ACQUIRING FUNDS' OBJECTIVES, PRACTICES AND RISK FACTORS
The investment objectives and general investment policies of each Acquiring
Fund are described below. The objectives are fundamental and, therefore, can-
not be changed without a majority vote of each Acquiring Fund's outstanding
shares. Because the market value of each Acquiring Fund's investments will
change, the net asset value per share of each Acquiring Fund (except the Com-
posite Money Fund) also will vary. Specific portfolio securities eligible for
purchase by the Acquiring Funds, investment techniques that may be used and
risks associated with these securities and techniques are described more fully
in the Composite SAIs (the "SAI").
Composite Government Fund
The primary objective of the Composite Government Fund is to maintain a high
level of current income, consistent with safety and liquidity. It invests in
obligations issued by, or guaranteed by the full faith and credit of, the U.S.
Government, and in repurchase agreements and collateralized mortgage obliga-
tions that are secured by these types of obligations. It is the fundamental
policy of the Fund to invest only in the following securities:
1) U.S. Government obligations issued by the Treasury, including bills, cer-
tificates of indebtedness, notes, and bonds.
2) Obligations secured by the full faith and credit of the U.S. Government or
its instrumentalities.
3) Certificates of the Government National Mortgage Association ("GNMA"),
which are debt securities representing an undivided ownership interest in
a pool of mortgages. The mortgages backing these securities include con-
ventional 30-year fixed-rate mortgages, 15-year fixed-rate mortgages,
graduated payment mortgages and adjustable-rate mortgages. The U.S. Gov-
ernment guarantees the timely payment of interest and principal for these
securities through the GNMA, which is a wholly owned U.S. Government cor-
poration within the Department of Housing and Urban Development. The GNMA
is authorized to make such a guarantee, with the full faith and credit of
the U.S. Government, on securities issued by institutions and backed by
pools of FHA-insured or VA-insured mortgages. However, the guarantees do
not extend to the securities' yield or value, which are likely to vary in-
versely with fluctuations in interest rates, nor do the guarantees extend
to the yield or value of the Fund's shares.
4) Collateralized mortgage obligations which are fully collateralized by GNMA
certificates or by mortgages insured by GNMA.
5) Repurchase agreements which are secured by obligations identified in para-
graphs 1, 2, and 3 above.
For proposed changes to the limitations on the instruments in which the Fund
may invest, see "Proposed Changes to Investment Restrictions."
Composite Income Fund
The Composite Income Fund seeks to provide a high level of current income
that is consistent with protection of shareholders' capital. It plans to
achieve its objective by investing in debt issues and obligations that offer
high current yields and are consistent with a low degree of risk. To meet
these objectives, the Composite Income Fund invests most of its assets in the
following:
1) Debt and convertible debt securities that enjoy the four highest ratings
of Standard & Poor's Corporation ("S&P") or Moody's Investors Service,
Inc. ("Moody's"). The Fund may invest up to 35% of its assets in lower-
rated securities (sometimes called "junk bonds"). (Such limit is currently
20%, but will be raised to 35% at or about the time of the Mergers). See
the SAI for a detailed description of ratings.
2) Debt obligations of the U.S. Government and its agencies, including mort-
gage-backed securities issued by the GNMA, Federal National Mortgage Asso-
ciation, and Federal Home Loan Mortgage Corporation or similar government
agencies.
3) Obligations of U.S. banks that belong to the Federal Reserve System. The
Fund may not invest more than 25% of its total assets in these issues.
4) Preferred stocks and convertible preferred stocks rated in one of the four
highest ratings categories by S&P or Moody's.
5) The highest grade commercial paper as rated by S&P or Moody's.
6) Deposits in U.S. banks. Unless these deposits are liquid, they may not ex-
ceed 10% of the Fund's total assets.
For proposed changes to the limitations on the instruments in which the Fund
may invest, see "Proposed Changes to Investment Restrictions."
C-10
<PAGE>
Composite Growth & Income Fund
The primary objective of the Composite Growth & Income Fund is to provide
long-term capital growth by investing in common stocks and other securities.
Current income is a secondary consideration. Equity investments are selected
from high-quality companies with solid business fundamentals that the Adviser
believes have a competitive advantage. Securities may be purchased on a recog-
nized exchange, over-the-counter, or through the NASDAQ system. In addition,
the Fund may invest in the following investment instruments:
1) Money market instruments. Investment in money market instruments may be for
temporary or defensive purposes. The money market investments permitted in-
clude obligations of the U.S. Government and its agencies and instrumental-
ities; short-term corporate-debt securities; commercial paper, including
bank obligations; and certificates of deposit.
2) Repurchase agreements. The Fund may temporarily invest cash reserves in re-
purchase agreements. In a repurchase agreement, a fund buys a security at
one price and agrees to sell it back at a higher price. If the seller de-
faults on its agreement to repurchase the security, the Fund may suffer a
loss because of a decline in the value of the underlying debt security.
Repurchase agreements will be entered into only with brokers, dealers or
banks that meet credit guidelines adopted by the Composite Trust's Board of
Trustees. To limit risk, repurchase agreements maturing in more than seven
days will not exceed 10% of the Fund's total assets.
3) Real estate investment trusts. The Fund may invest up to 25% of its assets
in real estate investment trusts ("REITs"). Factors influencing the invest-
ment performance of REITs include the profitable operation of properties
owned, financial condition of lessees and mortgagors, underlying value of
the real property and mortgages owned, amount of financial leverage, and
amount of cash flow generated and paid out.
4) Fixed-income securities. The Fund may invest in bonds of any maturity, in-
cluding mortgage-backed securities. All fixed-income securities are subject
to credit risk, which is dependent on the issuer's ability to maintain
timely interest and principal payments. During periods of low interest
rates, mortgage-backed securities may be subject to accelerated prepayment
and possible reinvestment in securities bearing lower rates of interest.
The Fund may also invest in below-investment-grade bonds (sometimes called
"junk bonds"). Any investment of this type may be considered speculative and
involve greater risk of default or price change because of changes in the is-
suer's creditworthiness. The market price of these securities may fluctuate
more than higher-rated securities. They also may decline significantly in pe-
riods of general economic difficulty, which may follow periods of rising in-
terest rates.
5) When-issued and delayed-delivery securities. The Fund may purchase or sell
U.S. government securities or collateralized mortgage obligations on what
is called a "when-issued" or "delayed-delivery" basis. This is done to ob-
tain what is considered to be an advantageous yield or price at the time of
the transaction. The Fund may purchase securities in these transactions if
payment and delivery are scheduled to take place no more than 120 days in
the future.
The payment obligation and interest rates to be received are fixed at the
time the Fund enters into the commitment. It is possible that the market
value at the time of settlement could be higher or lower than the purchase
price if the general level of interest rates has changed. No interest will
accrue to the Fund until settlement.
The Fund is prohibited from entering into when-issued or delayed-delivery
commitments that, in total, exceed 20% of the market value of its total as-
sets minus total liabilities (except for the obligations created by these
commitments).
6) Covered call options. The Fund may write (sell) covered call options. A
call option is "covered" if the Fund owns the security underlying the op-
tion it has written or it maintains enough cash, cash equivalents or liquid
securities to purchase the underlying security. If the Fund sells a covered
call option, it becomes obligated to deliver the securities underlying the
option if the purchaser chooses to exercise the option before its termina-
tion date. In return the Fund receives a premium from the purchaser which
it keeps, regardless of whether the option is exercised. During the option
period, the Fund gives up any possible capital appreciation above the
agreed-upon price if the market price of the underlying security rises.
7) Foreign Securities. The Fund may invest up to 25% of its assets in U.S.
dollar-denominated securities of foreign issuers.
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Investments in foreign securities may involve somewhat different risks, in-
cluding incomplete or inaccurate financial information, foreign taxes and re-
strictions, illiquidity, and fluctuations in currency values.
The Fund's net asset value per share will fluctuate as the values of the se-
curities it owns change. There are many factors that influence fluctuations in
the market value of securities owned by the Fund. These include economic
trends, government actions and regulations, and international monetary condi-
tions. An individual stock's price can be affected by such factors as poor
earnings reports by its issuer, litigation, loss of major customers, or
changes particular to its industry.
For proposed changes to the limitations on the instruments in which the Fund
may invest, see "Proposed Changes to Investment Restrictions."
Composite Money Fund
The Composite Money Fund seeks to provide maximum current income while pre-
serving capital and maintaining liquidity. It pursues this objective through
investment in high-quality money market instruments. The Adviser intends to
achieve this objective by purchasing high-quality investments which mature in
397 days or less with an average maturity of no more than 90 days. The Fund
invests solely in the money market instruments selected from the following
five general categories:
1) Obligations issued or guaranteed by the U.S. Government, its agencies, or
its instrumentalities.
2) Obligations of U.S. and foreign banks with assets of more than $500 mil-
lion.
3) Short-term commercial notes issued directly by businesses and banking in-
stitutions to finance short-term cash needs. The Fund may only purchase
notes which have received one of the two highest ratings from Moody's or
S&P; or those issued by companies whose unsecured debt is rated in one of
the two highest ratings categories by Moody's or S&P.
4) Short-term corporate obligations rated in one of the two highest ratings
categories by Moody's or S&P.
5) Short-term repurchase agreements.
The Fund invests in some relatively complex financial instruments. Because it
invests in securities backed by banks and other financial institutions,
changes in the credit quality of these institutions could cause losses to the
Fund and affect its share price.
For proposed changes to the limitations on the instruments in which the Fund
may invest, see "Proposed Changes to Investment Restrictions."
Composite Tax-Exempt Fund
The Composite Tax-Exempt Fund's primary objective is to maintain a high level
of federal tax-exempt income while protecting investors' capital. Investments
are made in a carefully selected portfolio of bonds issued by states, coun-
ties, cities and other governmental bodies whose bonds generate income that is
exempt from federal income tax. The two principal classifications of municipal
bonds are "general obligation" and "revenue" bonds.
General obligation bonds are secured by the issuer's pledge of its full faith
and credit, with either limited or unlimited taxing power for the payment of
principal and interest.
Revenue bonds are not supported by the issuer's full taxing authority. Gener-
ally, they are payable only from the revenues of a particular facility, a
class of facilities, or the proceeds of another specific revenue source.
In normal markets, the Fund will invest at least 80%, and possibly all, of
its portfolio in tax-exempt securities issued by or on behalf of the states,
territories and possessions of the United States and the District of Columbia
and their political subdivisions, agencies or instrumentalities. The Fund spe-
cifically limits these investments to:
1) Municipal bonds rated in one of the four highest ratings categories by S&P
or Moody's. The Fund may invest up to 35% of its assets in lower-rated se-
curities (sometimes called "junk bonds"). (Such limit is currently 25%,
but will be raised to 35% at or about the time of the Mergers). See the
SAI for a detailed description of ratings.
2) Municipal notes backed by the federal government.
3) Notes from issuers who already have issued outstanding municipal bonds en-
joying the four highest ratings of S&P or Moody's.
4) Securities of other tax-exempt mutual funds as temporary investments of
cash reserves.
In adverse markets, the Fund may seek to protect its investment position by
investing up to 50% of its portfolio in short-term taxable investments. Inter-
est income from these short-term investments, when it is distributed by the
Fund, may result in a tax liability to investors. These investments are
limited to:
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1) Obligations of the U.S. Government and its agencies and instrumentalities.
These investments, limited to short maturities as temporary investments,
would not be made routinely nor made to any significant extent.
2) Commercial paper rated in the highest grade by either S&P or Moody's.
3) Obligations of U.S. banks belonging to the Federal Reserve System.
4) Time or demand deposits in U.S. banks.
5) Municipal bonds or any of the previously mentioned investments subject to
short-term repurchase agreements.
For proposed changes to the limitations on the instruments in which the Fund
may invest, see "Proposed Changes to Investment Restrictions."
Fixed-Income Funds--General
The net asset values per share of Composite Government Fund, the Composite
Income Fund and the Composite Tax-Exempt Fund (the "Fixed-Income Funds") will
fluctuate as the value of securities they own change. As with all fixed-income
investments, the Fixed-Income Funds' securities are subject to market and
credit risks.
Market risk relates to several factors. Among these are the price fluctuation
of a fixed-income security, overall interest-rate conditions, the credit rat-
ing of the issuer, and the maturity length of the security. Generally, when
interest rates increase, the prices of outstanding fixed-income securities de-
crease.
Credit risk refers to the likelihood that a security's issuer can maintain
timely interest and principal payments. The Fixed-Income Funds each seek to
reduce the effect of credit risk by diversifying.
The Fixed-Income Funds do not have any restrictions on the maturities of se-
curities in which they may invest. They seek to invest in securities having
maturities that, in the Adviser's judgment, are consistent with that Funds'
investment objective.
As noted above, contemporaneously with the proposed Mergers, the Composite
Tax-Exempt Fund and the Composite Income Fund would each be permitted to in-
vest in up to 35% of its assets in below investment grade or nonrated securi-
ties. Securities rated below investment grade, as well as unrated securities,
usually entail greater risk (including the possibility of default or bank-
ruptcy 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 Funds 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.
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INVESTMENT RESTRICTIONS
Although many of the Adviser's decisions depend on flexibility, there are
certain principles so fundamental to the Acquiring Funds that they may not be
changed without a vote of a majority of the outstanding shares of that Fund.
In addition to other restrictions listed in the SAI and the Merger SAI, the
Composite Government Fund, the Composite Income Fund, the Composite Growth &
Income Fund and the Composite Tax-Exempt Fund may not:
1) Invest more than 5%* of its total assets in securities of any single issuer
other than U.S. government securities, except that up to 25% of a Fund's
assets may be invested without regard to this 5% limitation.
2) Acquire more than 10%* of the voting securities of any one company.
3) Borrow money for investment purposes, although it may borrow up to 5% of
its total net assets for emergency, non-investment purposes.
The Composite Money Fund may not:
1) Invest in common stocks or other equity securities.
2) Borrow money for investment purposes, except that it may borrow up to 5% of
its total assets in emergencies and that it may borrow up to 33 1/3% of
such assets to meet redemption requests that would otherwise result in the
untimely liquidation of vital parts of its portfolio.
3) Invest more than 5%* of its total assets in securities of any single issu-
er, except for the U.S. government, its agencies or its instrumentalities.
None of the Acquiring Funds may invest more than 25%* of their total assets
in securities of issuers in any single industry.
* Percent at time investment is made.
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PROPOSED CHANGES TO INVESTMENT RESTRICTIONS
It is expected that, subject to approval by shareholders, there will be cer-
tain changes in the fundamental investment restrictions of the Composite In-
come Fund, the Composite Government Fund, the Composite Tax-Exempt Fund and
the Composite Money Fund. Such changes, if approved, would take effect at or
shortly after the time of the Mergers, although the Composite Trust's Board of
Trustees may impose operating limits more restrictive than the new policies.
All Funds
Each Fund would be permitted to invest in securities that are eligible for
resale in accordance with the provisions of Rule 144A under the Securities
Act.
Composite Government Fund
The Composite Government Fund would be permitted to invest in debt securities
issued by U.S. Government agencies and instrumentalities, whether or not they
are supported by the full faith and credit of the U.S. Government. The Fund
would also be permitted to enter into transactions in which the Fund sells se-
curities for delivery in the current month and simultaneously contracts to re-
purchase substantially similar securities on a specified future date (a "dol-
lar roll transaction"). The obligation to repurchase the securities on a spec-
ified future date (which may include or be considered to be a forward commit-
ment) involves the risk that the market value of the securities that the Fund
is obligated to repurchase may decline below the repurchase price. In the
event the other party to a dollar roll transaction files for bankruptcy, be-
comes insolvent or defaults on its obligation, the Fund's use of the proceeds
of the transaction may be delayed, impaired or restricted pending a determina-
tion by the other party, its trustee or receiver, whether to enforce the
Fund's obligation to repurchase the securities. There also is the risk that
the return earned by the Fund with the proceeds of the dollar roll transaction
may not exceed its transaction costs.
Composite Income Fund
The Composite Income Fund would be able to invest in securities denominated
in foreign currencies and would also be permitted to engage in foreign cur-
rency exchange transactions for hedging purposes in connection with the pur-
chase and sale of foreign securities, or to protect against changes in the
value of specific securities held by the Fund. The Fund would also be permit-
ted to purchase and sell currencies on a spot (a cash) basis, to enter into
forward contracts to purchase or sell foreign currencies at a future date, and
to buy and sell foreign currency futures contracts and put and call options on
foreign currency futures contracts and foreign currencies.
The Fund would be permitted to invest up to 10% of its assets in securities
issued by REITs. Investing in REITs involves certain unique risks in addition
to those risks associated with investing in the real estate industry in gen-
eral (such as, for example, possible declines in the value of real estate,
lack of availability of mortgage funds or extended vacancies of property). Eq-
uity REITs may be affected by changes in the value of the underlying property
owned by the REITs, while mortgage REITs may be affected by the quality of any
credit extended. REITs are dependent upon management skills, are not diversi-
fied, and are subject to heavy cash flow dependency as well as the risks of
default by borrowers and self-liquidation. REITs are also subject to the pos-
sibilities of failing to qualify for tax free pass-through of income under the
Code and failing to maintain their exemptions from registration under the 1940
Act.
Investing in REITs involves risks similar to those associated with investing
in small capitalization companies. REITs may have limited financial resources,
may trade less frequently and in a limited volume and may be subject to more
abrupt or erratic price movements than larger company securities.
The Fund would also be permitted to enter into transactions in which the Fund
sells securities for delivery in the current month and simultaneously con-
tracts to repurchase substantially similar securities on a specified future
date (a "dollar roll transaction"). The obligation to repurchase the securi-
ties on a specified future date (which may include or be considered to be a
forward commitment) involves the risk that the market value of the securities
that the Fund is obligated to repurchase may decline below the repurchase
price. In the event the other party to a dollar roll transaction files for
bankruptcy, becomes insolvent or defaults on its obligation, the Fund's use of
the proceeds of the transaction may be delayed, impaired or restricted pending
a determination by the other party, its trustee or receiver, whether to en-
force the Fund's obligation to repurchase the securities. There also is the
risk that the return earned by the Fund with the proceeds of the dollar roll
transaction may not exceed its transaction costs.
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<PAGE>
Composite Tax-Exempt Fund
The Composite Tax-Exempt Fund would be allowed to invest in interest rate
futures. Interest rate futures would be entered into to hedge the Fund against
the effects of changes in the value of the portfolio securities due to changes
in interest rates and market conditions without necessarily buying or selling
the securities. A risk associated with investing in interest rate futures is
that there can be no assurance that there will be a correlation between price
movements in the underlying securities and price movements in the securities
which are the subject of the hedge.
Composite Money Fund
The Composite Money Fund would be permitted to invest in asset-backed
securities within the definition of commercial paper, subject to the same
credit quality information and rating levels set for commercial paper. Asset-
backed securities represent an interest in a pool of assets such as motor
vehicle installment purchase obligations, credit card receivables and home
equity loans. The Fund would be permitted to purchase asset-backed securities
only if the security or the issuer with respect to the comparable securities
is: (i) rated by at least two nationally recognized statistical rating
organizations ("NRSROs"), such as S&P or Moody's, in one of the two highest
rating categories for short-term securities, (ii) is rated in one of the two
highest categories for short-term debt by the only NRSRO that has issued a
rating, or (iii) if not so rated, the security is determined to be of
comparable quality. The Fund would also be permitted to invest in securities
issued by governmental entities such as state and local governments and
municipalities that issue taxable debt.
In addition, the Fund would be permitted to invest in securities offered by
foreign governments, their agencies and instrumentalities, and supranational
organizations like The World Bank, and in obligations of U.S. and foreign fi-
nancial institutions, including brokerage, finance and insurance companies.
These securities involve certain risks, 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 cur-
rency exchange blockages or other foreign governmental laws or restrictions,
and (iv) reduced availability of public information concerning issuers.
- -------------------------------------------------------------------------------
ADVISER
The Adviser has been in the business of investment management since 1944. It
currently manages more than $2.3 billion for mutual funds and institutional
advisory accounts, including more than $1.4 billion within the Composite Group
of Funds (the "Composite Funds"), which are all registered investment compa-
nies for which CRM serves as Adviser. The investment management agreements are
renewable each year, subject to the approval of the Composite Trust's Board of
Trustees or the shareholders themselves.
The Adviser advises the Acquiring Funds on investment policies and specific
investments. Subject to supervision by the Composite Trust's Board of Trust-
ees, the Adviser determines which securities are to be bought and sold. These
decisions are based on analyses of the economy, sectors of industry and spe-
cific institutions. They are compiled from extensive data provided by some of
the country's largest investment firms, in addition to the Adviser's own re-
search.
William G. Papesh is the President of the Composite Trust and the Adviser. A
team of the Adviser's investment professionals manages each Acquiring Fund,
under supervision of the Adviser's investment committee. Mr. Gary J.
Pokrzywinski, chartered financial analyst ("CFA"), is the primary manager for
the Composite Government Fund and the Composite Income Fund. Mr. Pokrzywinski
has been employed by the Adviser since July 1992, and has 12 years of continu-
ous experience in fixed-income and financial market analysis. The team respon-
sible for the Composite Growth & Income Fund consists of Philip M. Foreman,
CFA; Jeffrey D. Huffman, CFA; and David W. Simpson, CFA. Mr. Huffman has 12
years of continuous investment experience, and has been employed by the Ad-
viser since January 1995. Mr. Foreman has been employed by the Adviser since
November 1991, and also has 12 years of continuous investment experience. Mr.
Simpson has been employed by the Adviser since March 1993 and has 11 years of
continuous investment experience. Mr. Foreman is primarily responsible for the
Composite Growth & Income Fund. Audrey Quaye, CPA, Assistance Vice President
of CRM, is the primary manager of the
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<PAGE>
Money Fund. The primary manager for the Composite Tax-Exempt Fund is Brian L.
Placzek, CFA. Mr. Placzek has 12 years of continuous experience in investment
and financial analysis and has been employed by the Adviser since July 1990.
The Adviser's address is Composite Research & Management Co., 1201 Third Ave-
nue, Suite 1400, Seattle, WA 98101-3015.
ADVISORY FEES
A fee based on a percentage of average daily net assets is paid to the Ad-
viser for its services. This includes investment management and administrative
services and the Adviser's function as an agent for each Acquiring Fund when
paying a portion of the fee to the Distributor and Transfer Agent for their
services. Advisory fees are calculated daily and paid monthly.
The Composite Government Fund pays advisory fees at an annual rate of .50% of
the Fund's average daily net assets. The Composite Income Fund and the Compos-
ite Growth & Income Fund pay advisory fees at an annual rate of .625% of the
first $250 million of each Fund's respective average daily net assets plus
.50% of such assets in excess of $250 million. For the Composite Tax-Exempt
Fund, advisory fees are equal to an annual rate of .50% of the first $250 mil-
lion of the Fund's average daily net assets plus .40% of such assets in excess
of $250 million. The Composite Money Fund pays advisory fees at an annual rate
of .45% of the first $1 billion of the Fund's average daily net assets plus
.40% of such assets in excess of $1 billion.
DISTRIBUTOR
Composite Funds Distributor, Inc. is the "Distributor" for the Acquiring
Funds. The Distributor is not a bank. Securities and annuities offered by the
Distributor are not deposits nor bank obligations, and they are not guaranteed
by a bank nor insured by the FDIC. The value of investments may fluctuate, re-
turn on investments is not guaranteed, and loss of principal is possible. The
Distributor's address is Composite Funds Distributor, Inc., 601 W. Main Ave.,
Suite 300, Spokane, WA 99201.
TRANSFER AGENT
Murphey Favre Securities Services, Inc., which serves as the "Transfer
Agent," acts as the Funds' shareholder servicing and dividend disbursing
agent.
The Adviser, Distributor and the Transfer Agent are affiliates of WM Finan-
cial, Inc. Washington Mutual Bank and Washington Mutual Bank fsb. They are
also subsidiaries of Washington Mutual, Inc. The Transfer Agent's address is
601 W. Main Ave., Suite 300, Spokane, Washington 99201.
CLASSES OF SHARES
Each of the Acquiring Funds offers four classes of shares, as described below
in "Alternative Purchase Arrangements."
The shares do not have preemptive rights, and none has preference as to con-
version, exchange, dividends, retirement, liquidation, redemption, or any
other feature, except as described in "Alternative Purchase Arrangements." The
Funds do not normally hold annual shareholder meetings. They may hold share-
holder meetings from time to time on important matters. Shares have equal vot-
ing rights on corporate matters submitted for shareholder approval, except
that each class may vote separately on any matter that relates solely to that
class.
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DISTRIBUTION PLANS
The Board of Trustees of the Composite Trust has approved and monitors
distribution plans that meet the provisions of Rule 12b-1 under the Investment
Company Act of 1940. Each plan is intended to benefit shareholders by
stimulating interest in purchasing shares of the respective Acquiring Fund
and, thus, providing a consistent flow of investment capital. This allows
larger and more diversified holdings as well as economies of scale.
CLASS A SHARES. As currently in effect, the plans authorize each Acquiring
Fund to reimburse the Distributor for direct costs of marketing, selling and
distributing Class A shares of that Fund, subject to directors' approval.
These costs include service fees, sales literature and prospectuses (other
than those provided to current shareholders), and other costs of sales and
marketing, including state business and occupation tax assessed on the reim-
bursements.
For all the Acquiring Funds except the Composite Money Fund, costs also in-
clude compensation to sales people. In addition, the Distributor pays autho-
rized dealers service fees in consideration for account
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<PAGE>
maintenance and other shareholder services. The fees are equal to an annual
rate of .25% of the average daily value of shares in the accounts of the
dealer or its customers. Reimbursements are not to exceed annual limits of
.25% of the Fund's average daily net assets attributable to Class A shares.
Unreimbursed expenses which have not been accrued in the current fiscal year
may not be recovered in future periods.
It is expected that, at or about the time of the Mergers, subject to approval
by shareholders, the Trust will adopt a distribution plan that authorizes each
Fund to pay the Distributor a distribution fee at an annual rate of .25% (.15%
in the case of the Composite Money Fund) of the Fund's average net assets at-
tributable to Class A shares, regardless of the Distributor's expenses.
For the Composite Money Fund, there are no service fees paid to dealers for
Class A shares. The distribution plan for this Fund authorizes reimbursement
for actual Class A distribution costs, not to exceed annual limits of .15% of
the Fund's average daily net assets attributable to Class A shares. No pay-
ments are currently made by the Composite Money Fund under the plan.
CLASS B SHARES. Class B shares of the Composite Money Fund are available only
by exchange of Class B shares from other funds within the Composite/Sierra Mu-
tual Funds. The distribution plans authorize each Acquiring Fund to pay the
Distributor a distribution fee at an annual rate of .75% of each Fund's aver-
age daily net assets attributable to Class B shares and a service fee at an
annual rate of .25% of such assets. The distribution fee is designed to permit
investors to purchase Class B shares without a front-end sales charge. At the
same time, this allows compensation to the Distributor in connection with the
sale of Class B shares. The service fee covers account maintenance and other
shareholder services.
The Distributor pays authorized dealers service fees at an annual rate of
.25% of the average daily value of Class B shares in the accounts of the
dealer or its customers.
CLASS I SHARES. Class I shares do not pay any distribution fees.
CLASS S SHARES. The plans authorize each Fund to pay the Distributor a dis-
tribution fee at an annual rate of .75% of each Fund's average daily net as-
sets attributable to Class S shares and a service fee at the annual rate of
.25% of such assets. The distribution fee of .75% is designed to permit in-
vestors purchasing shares through a Sierra Asset Management ("SAM") account to
purchase Class S shares without a front-end sales charge, while compensating
the Distributor in connection with sales of Class S shares. The service fee is
.25% of each Funds' average daily net assets attributable to Class S shares.
GENERAL. Because the distribution fee for Class B shares, the distribution
fee for Class S shares and distribution fee under the proposed distribution
plan for Class A shares are not tied directly to the Distributor's expenses,
the amount of compensation may be more or less than its actual expenses. For
this reason, the Class B distribution plan is of the type characterized by the
staff of the SEC as being a "compensation" plan -- in contrast to the existing
Class A "reimbursement" plan (which is proposed to be changed to a "compensa-
tion" plan, as explained above). The Acquiring Funds are not liable for any
expenses incurred by the Distributor in excess of the amount of compensation
it receives.
TOTAL EXPENSES
Other operating expenses include fees of the Composite Trust's Trustees not
employed by the Adviser, transfer agent fees, custodial fees, auditing and le-
gal fees, taxes, costs of issuing and redeeming shares, publishing of reports
to shareholders, Board and shareholder meetings, and other normal costs of
running a business.
The transfer agent fees are for shareholder servicing and dividend disbursing
services. Shareholders may be required to pay a separate fee if they need spe-
cial services such as producing and mailing of historical account transcripts.
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THE VALUE OF A SINGLE SHARE
Each Acquiring Fund calculates the value of its shares at the end of each
business day of the New York Stock Exchange or at 1:00 p.m. Pacific time,
whichever is earlier. The value is determined separately for each class by
adding the value of its securities and other assets, subtracting its liabili-
ties, and dividing the resulting figure by the number of shares of the class
outstanding. This number is the net asset value ("NAV") per share.
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<PAGE>
For all the Acquiring Funds except the Composite Money Fund, security valua-
tions are provided by independent pricing sources approved by the Composite
Trust's Board of Trustees. When such valuations are not available, the Board
of Trustees will determine how they are to be priced at fair value.
For the Composite Money Fund, the securities are valued using the amortized
cost method by adjusting the cost of each security for amortization of dis-
count or premium and accrued interest (unless circumstances indicate another
method of determining fair value should be considered by the Trust's Board of
Trustees). The NAV per share of most mutual funds fluctuates with the value of
the portfolio. However, many money market funds, including the Composite Money
Fund, attempt to maintain the NAV at a constant $1.00 per share. Fund shares
are not guaranteed nor insured by the U.S. Government, and there is no assur-
ance that the $1.00 per share NAV will be maintained.
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HOW TO BUY SHARES
For all the Acquiring Funds except the Composite Money Fund, shares are of-
fered at the next NAV that is calculated, plus a sales charge for Class A
shares.
Class A shares of the Composite Money Fund are offered continuously at NAV on
any regular business day. There is no initial or deferred sales charge on
Class A share purchases for the Composite Money Fund.
Shares of the Acquiring Funds may be purchased through the Distributor, or
through selected securities dealers. The Acquiring Funds may not be available
in all states. With certain exceptions, the minimum initial purchase in a Fund
is $1,000. IRA accounts may make initial purchases of $500 in any of the Ac-
quiring Funds. Subsequent investments should be at least $50.
SYSTEMATIC INVESTMENT PROGRAM. For the convenience of investors, the Acquir-
ing Funds offer a systematic investment program where monthly purchases are
automatically deducted from an investor's checking account. The minimum ini-
tial and monthly investments in this program are $50. This program can be ar-
ranged at the time of application or any time later by contacting an invest-
ment representative or the Acquiring Funds.
EFFECTIVE DATE OF PURCHASE. An order to purchase shares will be entered on
the day it is received, if it is received prior to 1:00 p.m. Pacific time.
Otherwise it will be entered on the following business day. Purchase orders
are effective when payment is received in federal funds or converted to fed-
eral funds by the Transfer Agent. This generally occurs within one to two
business days; however, checks drawn on banks that are not members of the Fed-
eral Reserve System may take longer to convert into federal funds. The invest-
ment will earn income starting the day following its effective date.
OTHER INFORMATION
The Acquiring Funds and the Distributor reserve the right to refuse an order
to buy shares.
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ALTERNATIVE PURCHASE ARRANGEMENTS
Each of the Acquiring Funds offers four classes of shares which represent in-
terests in the same portfolio of investments:
1) Class A shares are sold to investors who pay a sales charge at the time of
purchase and who pay ongoing distribution expenses.
2) Class B shares are sold to investors who do not pay a sales charge at the
time of purchase. Instead, they pay higher ongoing distribution expenses
for eight years. They also may pay a "contingent deferred sales charge" if
they redeem their shares within six years of purchase. Class B shares con-
vert to Class A shares after eight years.
3) Class I shares are sold exclusively to the various investment portfolios
of the SAM Portfolios. Class I shares are sold without an initial or con-
tingent deferred sales charge, and pay no ongoing distribution expenses.
4) Class S shares are sold exclusively to investors who open or have opened
SAM accounts. Class S shares are sold without an initial sales charge, but
pay ongoing distribution and service fees that are
C-18
<PAGE>
higher than Class A shares for eight years and may be subject to a contingent
deferred sales charge if redeemed within six years of purchase. Class S
shares convert to Class A shares after eight years.
The net income attributable to, and the dividends payable to, shares that pay
ongoing distribution expenses will be lower because of the higher expenses.
Likewise, NAVs and performance of the four classes may vary.
Shares of the Funds may be exchanged for shares of the same class of other
Composite Funds. See "Exchanges for other Composite Funds."
Sales personnel of broker-dealers distributing the Funds' shares may receive
differing compensation for selling or servicing different classes of shares.
When purchasing shares, investors are encouraged to choose the class of
shares that will be best for them. Factors to consider include the scope of
investment advisory services sought, the purchase amount, the length of time
shares are expected to be held, and other individual circumstances.
INVESTMENT IN FUNDS THROUGH A SAM ACCOUNT. In addition to the diversification
among individual securities you receive by investing in a particular Fund, you
may be able to further reduce risk by spreading your assets among several dif-
ferent mutual funds that each have different risk and return characteristics.
SAM is an active investment management service offered by Sierra Investment
Services Corporation ("Sierra Services"), the SAM investment adviser, which
allocates your investments across a combination of mutual funds, including ei-
ther Class A or Class S shares of certain of the Composite Funds, selected to
meet long-term investment objectives as well as, in certain circumstances,
current income objectives.
Sierra Services has developed investment strategies for SAM accounts to meet
the diverse financial needs of different investors. You can open a SAM account
by meeting with one of the investment professionals of an authorized dealer,
who will review your situation and help you identify your long-term investment
objectives. After using SAM criteria to determine your long-term objectives,
you can choose one of several investment strategies. Based on your chosen
strategy, your initial investment will be allocated among the shares of a num-
ber of mutual funds, including Class A or Class S shares of the Composite
Funds. Depending on market conditions, Sierra Services from time to time (nor-
mally quarterly) reallocates the combination of Composite Funds or the amounts
invested in the respective Class A or Class S shares of each to implement your
SAM investment strategy. In addition, your SAM account will be periodically
rebalanced to maintain your SAM strategy's current asset allocation mix, if
and when the funds' performance unbalances the strategy's mix. You will pay
Sierra Services a fee for the SAM account service that is in addition to and
separate from the fees and expenses you will pay directly or indirectly as an
investor in the Composite Funds.
From time to time, one or more of the funds used for investment by the SAM
accounts may experience relatively large investments or redemptions due to SAM
account allocations or rebalancings recommended by Sierra Services. These
transactions will affect the Funds, since Funds that experience redemptions as
a result of reallocations or rebalancings may have to sell portfolio securi-
ties and Funds that receive additional cash will have to invest it. 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
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. The Adviser, representing the interests of the Funds, is committed to
minimizing the impact of SAM account transactions on the Funds; Sierra Servic-
es, representing the interest of the SAM accounts, is also committed to mini-
mizing such impact on the Funds to the extent it is consistent with pursuing
the investment objectives of the SAM accounts. The Adviser and Sierra Services
will nevertheless face conflicts in fulfilling their respective responsibili-
ties because they are affiliates and employ some of the same professionals.
The Adviser will monitor the impact of SAM account transactions on the Funds.
BUYING CLASS A SHARES
The offering price for Class A shares is the next calculated NAV, after re-
ceipt of a properly completed purchase order, plus, except in the case of the
Composite Money Fund, an initial sales charge as shown in the tables below.
There is no initial sales charge on purchases of Class A shares of the Compos-
ite Money Fund. Investors also may be entitled to reduced or waived sales
charges as discussed following the tables.
C-19
<PAGE>
The final column in the table indicates what dealers receive for selling Class
A shares.
COMPOSITE GROWTH & INCOME FUND
<TABLE>
<CAPTION>
REALLOWED
SALES CHARGE TO DEALERS
----------------- ----------
% OF % OF NET % OF
PURCHASE OF OFFERING AMOUNT OFFERING
CLASS A SHARES PRICE INVESTED PRICE
- -------------- -------- -------- ----------
<S> <C> <C> <C>
Less than $50,000 5.75% 6.10% 5.00%
$50,000 to $100,000 4.75 4.99 4.00
$100,000 to $250,000 3.75 3.90 3.00
$250,000 to $500,000 2.75 2.83 2.25
$500,000 to $1,000,000 2.00 2.04 1.75
$1,000,000 and above None None None*
</TABLE>
* See "Net asset value purchases" below.
Example: An investor considers putting $1,000 into a Fund's Class A shares.
Based on the first column in the above table, 5.75% of the $1,000 would pay
for a sales charge. The charge would be $57.50, which is 6.10% of the net in-
vestment of $942.50, as the next column shows. The dealer selling the shares
would be paid $50 of the $57.50, which is 5.00% of $1,000, as the last column
shows.
COMPOSITE GOVERNMENT FUND
COMPOSITE INCOME FUND
COMPOSITE TAX-EXEMPT FUND
<TABLE>
<CAPTION>
REALLOWED
SALES CHARGE TO DEALERS
----------------- ----------
% OF % OF NET % OF
PURCHASE OF OFFERING AMOUNT OFFERING
CLASS A SHARES PRICE INVESTED PRICE
- -------------- -------- -------- ----------
<S> <C> <C> <C>
Less than $50,000 4.50% 4.71% 4.00%
$50,000 to $100,000 4.00 4.17% 3.50%
$100,000 to $250,000 3.50 3.63% 3.00%
$250,000 to $500,000 3.00 3.09% 2.50%
$500,000 to $1,000,000 2.00 2.04% 1.75%
$1,000,000 and above None None None*
</TABLE>
*See "Net asset value purchases" below.
CUMULATIVE DISCOUNT. This allows current purchases to qualify for the forego-
ing discounts by including the value of existing Composite Fund investments
that were purchased subject to an initial or contingent deferred sales charge.
The discount will be based on the amount of the new purchase plus the current
offering price of shares owned at the time of the purchase. Those eligible for
a cumulative discount include individuals, immediate family members, or trust-
ees purchasing for single fiduciary accounts.
LETTER OF INTENT. This discount is for purchases made over an extended peri-
od. It provides for a cumulative discount on the same basis as explained in
the previous paragraph if the following conditions are met: Purchases of Class
A shares must be made within a 13-month period that begins no earlier than 90
days before the submission of a letter of intent from the investor to the Ac-
quiring Funds. For more information about this discount, please contact the
Acquiring Funds or an investment representative.
REINVESTMENT. Redemption proceeds of Class A shares that were subject to a
sales charge when first purchased may be reinvested in Class A shares within
120 days without incurring another initial sales charge.
NET ASSET VALUE PURCHASES. There is no initial sales charge on Class A pur-
chases of $1 million or more for the Composite Growth & Income Fund, the Com-
posite Government Fund, the Composite Income Fund and the Composite Tax-Exempt
Fund, but such shares may be subject to a contingent sales charge of 1.00% of
.50%, if redeemed during the first or second year after purchase, respective-
ly.
Qualified employee benefit plans (including SEPs and SIMPLEs) that have more
than 100 participants or that have more than $50,000 invested in these Funds
may purchase shares without an initial sales charge. However, a contingent de-
ferred sales charge of 1% may be imposed on the amount that was invested
through such a plan in Class A shares and that is redeemed (i) if, within the
first two years after the plan's initial investment in the Funds, the named
fiduciary of the plan withdraws the plan from investing in the Funds in a man-
ner that causes all shares held by the plan's participants to be redeemed; or
(ii) by a plan participant within two years of the plan participant's purchase
of such Class A shares. The contingent deferred sales charge will be waived on
redemptions in connection with certain involuntary distributions, including
distributions arising out of the death or disability of a shareholder (includ-
ing one who owns the shares as joint tenant).
Class A shares may be purchased at NAV, in any amount, by officers, directors
and employees of the Adviser or its affiliates, or companies which have en-
tered into selling agreements with the Distributor, and certain family members
of such individuals. The purchase must be for investment purposes only and may
not be resold other than through redemption by the Funds. The Funds may also
offer their shares at net asset value to certain retirement plans and to bro-
kers, dealers or registered investment advisers who have entered into arrange-
ments with the Distributor providing specifically for the shares to be used in
particular investment products made available to their clients for which they
may charge a separate fee. The
C-20
<PAGE>
Distributor will pay authorized dealers commissions on certain net asset value
purchases as described in the SAIs.
YOU MUST NOTIFY THE FUND WHENEVER A REDUCED SALES CHARGE OR NET ASSET VALUE
PURCHASE APPLIES TO ENSURE THAT YOU RECEIVE THE SALES CHARGE REDUCTION OR
WAIVER.
BUYING CLASS B SHARES
Class B shares are offered at the NAV next calculated after receipt of a
properly completed purchase order, without an initial sales charge. The entire
amount of the purchase is invested in the Fund selected. Class B shares have
higher distribution expenses than Class A shares for eight years. If Class B
shares are redeemed within six years of purchase, a contingent deferred sales
charge generally must be paid. These charges and fees help make it possible
for the Acquiring Funds to sell Class B shares without sales charges at the
time of purchase.
The proceeds from any contingent deferred sales charges are paid to the Dis-
tributor to defray expenses for providing distribution services for Class B
shares. Examples of such expenses include compensation to sales people and se-
lected dealers. The Distributor currently pays authorized dealers commissions
of up to 4.00% of the price of shares sold by them.
CONTINGENT DEFERRED SALES CHARGE. Class B shares redeemed within six years of
purchase are subject to a contingent deferred sales charge according to the
following schedule. Class B shares purchased by exchange will be subject to a
contingent deferred sales charge using the schedule of the Composite Fund into
or from which the shares were exchanged that would result in the highest con-
tingent deferred sales charge applicable to such shares. Shares purchased
through reinvestment of dividends or capital gain distributions are not sub-
ject to a contingent deferred sales charge.
<TABLE>
<CAPTION>
YEAR OF CONTINGENT
EDEMPTIONR DEFERRED
AFER PURCHASET SALES CHARGE
- -------------- ------------
<S> <C>
First............................................................. 5.00%
Second............................................................ 4.00%
Third............................................................. 3.00%
Fourth............................................................ 3.00%
Fifth............................................................. 2.00%
Sixth............................................................. 1.00%
Seventh........................................................... 0%
Eighth............................................................ 0%
</TABLE>
The contingent deferred sales charge is calculated by applying the above per-
centages to whichever of the following is less:
1) The NAV of the redeemed shares at the time they were purchased; or
2) The NAV of the redeemed shares at the time of redemption.
This means that no contingent deferred sales charge will be charged on any
NAV increases above the initial purchase price. Shares are redeemed in the or-
der that results in the lowest possible rate being charged. In view of that,
they will be redeemed in this order:
1) Shares from reinvested dividends or capital gain distributions.
2) Shares from the earliest purchase.
Here is an example:
An investor purchases 100 Class B shares at $10 per share -- for a total cost
of $1,000. In the second year after the purchase, the NAV has risen to $12 per
share, and the investor has acquired 10 more shares through dividend reinvest-
ment.
At that time, the investor decides to make the first redemption. The transac-
tion includes 50 shares at $12 per share -- for a total of $600.
The first 10 shares to be redeemed will not be subject to any charge because
of the 10 shares received from dividend reinvestment. See item 1) just above
this example.
As for the other 40 shares, the charge will be applied only to the original
cost of $10 per share. The NAV increase of $2 per share will not be consid-
ered. As a result, $400 of the redemption proceeds (40 x $10) will be charged
a rate of 4%, which is the second-year rate shown in the table above. The re-
sulting sales charge will be 4% x $400, which will be $16.
The contingent deferred sales charge may be waived for redemptions of Class B
shares under these circumstances:
1) Following the death or disability of a shareholder, as defined in Section
72(m)(7) of the Internal Revenue Code.
2) In connection with certain distributions from an IRA or other retirement
plan, as described in the SAI.
3) According to the Fund's systematic withdrawal plan -- but limited to 12%
annually of the value of the Fund account at the time the plan is
established.
C-21
<PAGE>
4) As a result of the right of the Fund to liquidate a shareholder's account
as described under "How to sell shares."
REINVESTMENT. Investors may reinvest in Class B shares within 120 days of re-
demption and receive reimbursement credited to their account for any contin-
gent deferred sales charge previously paid. The reinvested shares will be sub-
ject to the holding period of the shares which were originally purchased. This
holding period determines any contingent deferred sales charges on subsequent
redemptions of the reinvested shares or their conversion to Class A shares as
described in the following section. Shares purchased in accounts that have
systematic investment programs or systematic withdrawal plans are not eligible
for this privilege.
INVESTORS ARE RESPONSIBLE FOR NOTIFYING THE FUNDS WHENEVER THEY ARE ENTITLED
TO A CONTINGENT DEFERRED SALES CHARGE WAIVER OR REIMBURSEMENT.
CLASS B CONVERSION FEATURE. Class B shares that remain outstanding for eight
years will convert to Class A shares of the same Fund on the basis of the rel-
ative NAVs of the two classes at the time of conversion.
Some investors buy shares at several different times and reinvest dividends
and capital gains over an extended period. Each time a conversion takes place,
a pro-rata portion of Class B shares acquired through the reinvestment of div-
idends and capital gain distributions also will convert to Class A shares.
The conversion of Class B shares to Class A shares is subject to the continu-
ing availability of a favorable ruling from the Internal Revenue Service or
the continuing availability an opinion of legal counsel that such conversion
will not be subject to federal income taxes. There cannot be any assurance
that a ruling or opinion will be available. If they should not be available,
the conversion of Class B shares to Class A shares would not occur and those
shares would continue to be subject to higher expenses than Class A shares for
an indefinite period.
Class B shares of the Funds, other than Class B shares purchased by exchange
of Class B shares that, when originally purchased, were subject to a lower
contingent deferred sales charge than that applicable to Class B shares of the
Funds, may be exchanged for Class S shares of a Composite Fund if the investor
has an existing SAM account or opens a SAM account and meets the investment
minimum for such SAM account.
BUYING CLASS I SHARES
Class I shares are sold exclusively to the various investment portfolios of
the SAM Portfolios. Class I shares are sold at the net asset value next deter-
mined after receipt of a properly completed purchase order. For more informa-
tion about the SAM Portfolios, consult your investment representative or call
the Distributor.
BUYING CLASS S SHARES.
Class S shares are sold exclusively to an investor who at the time of pur-
chase, already maintains a Class S account, at the NAV next calculated after
receipt of a properly completed purchase order, without an initial sales
charge. The entire amount of the purchase is invested in the Fund selected.
However, Class S shares have higher distribution expenses than Class A shares
for eight years. Also, if Class S shares are redeemed within six years of pur-
chase, a contingent deferred sales charge generally must be paid. These
charges and fees help make it possible for the Funds to sell Class S shares
without sales charges at the time of purchase.
The proceeds from any contingent deferred sales charges are paid to the Dis-
tributor to defray expenses for providing distribution services for Class S
shares. Examples of such expenses include compensation to sales people and se-
lected dealers. The Distributor currently pays authorized dealers commissions
of 4.00% of the price of shares sold by them.
CONTINGENT DEFERRED SALES CHARGE. Class S shares redeemed within six years of
purchase are subject to a contingent deferred sales charge according to the
following schedule. Class S shares purchased by exchange will be subject to a
contingent deferred sales charge using the schedule of any Composite Fund into
or from which the shares were exchanged that would result in the highest con-
tingent deferred sales charge. Shares purchased through reinvestment of divi-
dends or capital gain distributions are not subject to a contingent deferred
sales charge.
<TABLE>
<CAPTION>
YEAR OF CONTINGENT
EDEMPTIONR DEFERRED
AFER PURCHASET SALES CHARGE
- -------------- ------------
<S> <C>
First............................................................. 5.00%
Second............................................................ 4.00%
Third............................................................. 3.00%
Fourth............................................................ 3.00%
Fifth............................................................. 2.00%
Sixth............................................................. 1.00%
Seventh........................................................... 0%
Eighth............................................................ 0%
</TABLE>
C-22
<PAGE>
The contingent deferred sales charge is calculated by applying the above per-
centages to whichever of the following is less:
1) The NAV of the redeemed shares at the time they were purchased; or
2) The NAV of the redeemed shares at the time of redemption.
This means that no contingent deferred sales charge will be charged on any
NAV increases above the initial purchase price. Shares are redeemed in the or-
der that results in the lowest possible rate being charged. Accordingly, they
will be redeemed in this order:
1) Shares from reinvested dividends or capital gain distributions.
2) Shares from the earliest purchase.
The contingent deferred sales charge may be waived for redemptions of Class S
shares under these circumstances:
1) Following the death or disability of a shareholder, as defined in Section
72(m)(7) of the Internal Revenue Code;
2) In connection with certain distributions from an IRA or other retirement
plan, as described in the SAI;
3) According to the Fund's systematic withdrawal plan--but limited to 12% an-
nually of the value of the Fund account at the time the plan is
established; and
4) As a result of the right of the Fund to liquidate a shareholder's account
as described under "How to sell shares."
REINVESTMENT. You may reinvest in Class S shares within 120 days of redemp-
tion and receive reimbursement credited to your account for any contingent de-
ferred sales charge you previously paid. The reinvested shares will be subject
to the holding period of the shares which were originally purchased. This
holding period determines any contingent deferred sales charges on subsequent
redemptions of the reinvested shares or their conversion to Class A shares as
described in the following section.
TO MAKE SURE YOU RECEIVE WAIVER OR REIMBURSEMENT OF CONTINGENT DEFERRED SALES
CHARGES, YOU MUST NOTIFY THE FUND WHENEVER YOU ARE SO ENTITLED.
CLASS S CONVERSION FEATURE. Class S shares that remain outstanding for eight
years will convert to Class A shares of the same Fund. The basis for this will
be the relative NAVs of the two classes at the time of conversion.
Some investors buy shares at several different times and reinvest dividends
and capital gains over an extended period. Each time a conversion takes place,
a pro-rata portion of Class S shares acquired through the reinvestment of div-
idends and capital gain distributions also will convert to Class A shares.
The conversion of Class S shares to Class A shares is subject to the continu-
ing availability of a favorable ruling from the Internal Revenue Service or an
opinion of legal counsel that such conversion will not be subject to federal
income taxes. There cannot be any assurance that a ruling or opinion will be
available. If they should not be available, the conversion of Class S shares
to Class A shares would not occur and those shares would continue to be sub-
ject to higher expenses than Class A shares for an indefinite period.
If the investor's SAM account is closed, the investor is not required to re-
deem his or her Class S shares, but may continue to hold Class S shares and
may exchange Class S shares of one Fund for Class S shares of any other Com-
posite Fund without paying a sales charge at the time of the exchange.
- -------------------------------------------------------------------------------
DISTRIBUTION OF INCOME AND CAPITAL GAINS
The Acquiring Funds (except for the Composite Money Fund) distribute divi-
dends from net investment income (which is essentially interest and dividends
from securities held), minus expenses. They also make capital gain distribu-
tions if realized gains from the sale of securities exceed realized losses.
The Composite Growth & Income Fund normally declares and pays dividends near
the end of each calendar quarter, when available. The Composite Government
Fund, the Composite Income Fund and the Composite Tax-Exempt Fund declare div-
idends daily and pay monthly, when available. The Composite Money Fund de-
clares and compounds dividends daily. Dividends, if declared, begin accruing
on the day following payment for purchase. Any capital gain distributions nor-
mally will be paid in December.
Investors have four choices regarding dividends and capital gain distribu-
tions. You can make your choice at the time of your initial purchase or by
contacting the Funds' offices or your investment representative. The options
include:
AUTOMATIC REINVESTMENT. Most shareholders elect this procedure. It is auto-
matically effective unless an-
C-23
<PAGE>
other option is chosen. All dividends and capital gain distributions are rein-
vested into additional shares of the respective Fund. Automatic reinvestments
generally provide the most capital growth.
REINVEST DIVIDENDS IN ANOTHER COMPOSITE FUND. Income dividends may be auto-
matically invested in the same class of shares of another Composite Fund pro-
vided that fund is available for sale in the investor's state of residence.
CASH PAYMENT OF INCOME AND REINVESTMENT OF ANY CAPITAL GAINS. With this op-
tion, dividends are deposited to the investor's pre-authorized bank account or
paid by check. Any capital gain distributions are reinvested in additional
shares of the Fund.
CASH PAYMENT OF ALL DISTRIBUTIONS. Dividends and capital gain distributions
are deposited into a pre-authorized bank account or paid by check.
OTHER INFORMATION. Reinvestments of income dividends and capital gain distri-
butions are made at the closing NAV on the day dividends or distributions are
deducted from the Fund's assets.
If the investor has chosen to receive dividends or capital gain distributions
in cash, and the U.S. Postal Service cannot deliver the check, the Funds re-
serve the right to reinvest the check at the then-current NAV and to automati-
cally reinvest subsequent dividends and capital gain distributions in the in-
vestor's account. The Funds may also automatically reinvest dividends or dis-
tributions of $10 or less.
- -------------------------------------------------------------------------------
INCOME TAXES ON DIVIDENDS AND CAPITAL GAINS
Investors are responsible for federal income tax (and state and local income
taxes, if applicable) on dividends and capital gain distributions. This is
true whether investors are paid in cash or reinvested in additional shares.
Investors will be advised annually as to the tax status of these dividends and
distributions.
Generally, dividends paid by the Acquiring Funds from interest, dividends, or
net short-term capital gains will be taxed as ordinary income. Distributions
of net long-term capital gains are taxable as long-term capital gains, regard-
less of how long the investor has held the shares. If the shares are in an IRA
or another qualified retirement plan, taxes are not paid on the reinvested
amount until funds are withdrawn.
Each of the Acquiring Funds complies with provisions of the Internal Revenue
Code applicable to regulated investment companies and distributes its taxable
income accordingly. Because of this, the Acquiring Funds do not anticipate be-
ing subject to federal income or excise taxes on earnings they distribute to
shareholders.
Tax-exempt interest earned by the Composite Tax-Exempt Fund retains its tax-
advantaged status when it is distributed to investors. However, a portion of
the interest may be subject to federal alternative minimum tax and/or state
and local taxes. Investors should consult a tax preparer who is familiar with
local law. Interest income earned by the Composite Tax-Exempt Fund from any
investments that are not tax-exempt will be taxable to shareholders, as will
income from short-term and long-term capital gains from those investments.
Because of tax law requirements, investors must provide the Funds an accurate
Social Security number or taxpayer identification number or make certain cer-
tifications to avoid the 31% "back-up" withholding tax.
- -------------------------------------------------------------------------------
EXCHANGES FOR OTHER COMPOSITE FUNDS
You may exchange shares of any of the Acquiring Funds for the same class of
shares of any of the other Composite Funds. Contact your investment represen-
tative or the Funds' offices to request a prospectus for the Composite Funds
that interest you.
Commencing in the second quarter of 1998, shares of the Funds will also be
exchangeable for shares of the same class of funds offered by the Sierra
Trust, SAM Portfolios and SPIF.
Exchanges are made at the prevailing NAV of the shares being exchanged. No
additional sales charge will be incurred when exchanging shares from a fund
which imposes an initial or contingent deferred sales charge. Any contingent
deferred sales charge on the subsequent sale of shares acquired by exchange
will be based on the contingent deferred sales charge schedule of the fund
into or from which the shares were exchanged that would result in the greatest
contingent deferred sales charge applicable to such
C-24
<PAGE>
shares. Shares exchanged from Composite Money Fund or the Composite Tax-Exempt
Fund will be subject to the acquired fund's sales charge unless the shares
given in exchange were previously exchanged from a Composite Fund that imposes
an initial or contingent deferred sales charge.
The availability (beginning in the second quarter of 1998) of the exchange
privilege with respect to shares of SPIF will be subject to the availability
of shares of SPIF for exchange purposes, as stated in the statement of addi-
tional information of SPIF. Also, although shares of SPIF may be exchanged for
shares of the Funds, such exchanges will be permitted approximately once each
calendar quarter so long as SPIF makes a repurchase offer for its shares in
such quarter and so long as the SPIF repurchase offer is sufficiently large to
include SPIF shares tendered for exchange. For more information about SPIF,
please consult your investment representative or call the Distributor.
All exchanges are subject to the minimum investment requirements of the fund
being acquired and to its availability for sale in your state of residence.
You may arrange for automatic monthly exchanges. The Funds reserve the right
to refuse any order for the purchase of shares, including those by exchange.
In particular, a pattern of exchanges that coincides with a "market timing"
strategy may be disruptive to a Fund and, consequently, may be disallowed. Ex-
changes of shares are sales and may result in a gain or loss for federal and
state income tax purposes.
- -------------------------------------------------------------------------------
HOW TO SELL SHARES
Shareholders may redeem shares at any time. The price paid per share will be
the next NAV that is calculated. For the Composite Growth & Income Fund, the
Composite Government Fund, the Composite Tax-Exempt Fund and the Composite In-
come Fund, the NAVs are determined at the end of each business day of the New
York Stock Exchange or at 1:00 p.m. Pacific time, whichever is earlier. Con-
tingent deferred sales charges, if applicable, will be deducted upon
redemption.
TELEPHONE. Investors may authorize telephone transactions when they sign the
Fund account application.
Provided the shareholder has pre-authorized these transactions, shares may be
redeemed or exchanged by telephoning 1-800-543-8072. Shareholders may also re-
quest these transactions through an investment representative. Proceeds may be
directed to a pre-authorized bank or broker account or to the address of rec-
ord for the account. Exchanges also may be made by telephone.
It may be difficult to reach the Funds' offices by telephone during periods
of unusual economic or market activity. The Transfer Agent is committed to ex-
tending its availability beyond regular 7 a.m. to 6 p.m. (Pacific time) cus-
tomer service hours during such periods. Calls requesting telephone redemption
or exchanges during periods of unusual market activity that are received after
business hours will be recorded and returned in the order they were received.
For shareholder protection, all telephone instructions are verified. This is
done by requesting personal shareholder information, providing written confir-
mations of each telephone transaction and recording telephone instructions.
The Transfer Agent may require a Letter of Authorization, other documents, or
authorization from the investor's broker to initiate telephone redemptions of
$25,000 or more that are not directed to a pre-authorized bank or broker ac-
count. If reasonable procedures are used, neither the Transfer Agent nor the
Funds will be liable for following telephone instructions which they reasona-
bly believe to be genuine. Shareholders assume the risk of any losses in such
cases. However, the Transfer Agent or the Funds may be liable for any losses
because of unauthorized or fraudulent telephone instructions if reasonable
procedures are not followed.
WRITTEN REQUEST. Redemptions also may be requested by writing to the Acquir-
ing Funds' offices. Written requests may require a signature guarantee, as
discussed below, and the return of any outstanding share certificates. Changes
in pre-authorized redemption instructions or shareholder account registration
also require signature guarantees. For shareholder protection, the signa-
ture(s) must be guaranteed by an entity acceptable to the Acquiring Funds.
PROMPT PAYMENT. Payment normally will be made on the next business day after
the transaction, but no later than seven days after the transaction unless the
investor recently purchased Fund shares by check. In that case, redemption
proceeds may be delayed until
C-25
<PAGE>
the Transfer Agent verifies collection of the check. Generally this occurs
within 14 days. Redemption proceeds will be sent by check or Automated Clear-
ing House transfer to the investor's bank account without charge. Wire redemp-
tion proceeds may be subject to a $10 fee. The receiving bank also may charge
a fee.
SYSTEMATIC WITHDRAWAL PLAN. Shareholders may choose to receive specific cash
withdrawals on a periodic basis. A $5,000 minimum balance is required to es-
tablish a systematic withdrawal plan in an Acquiring Fund account. Shares of
the Acquiring Fund will be redeemed to provide the requested payment. Class B
shareholders may use a systematic withdrawal plan to redeem up to 12% of the
beginning balance annually without incurring a contingent deferred sales
charge. The beginning balance is the Fund account balance at the time the plan
is established.
OTHER CONSIDERATIONS. It is costly to maintain small accounts. Accordingly,
an account may be closed after 90 days advance, written notice if the total
account value falls below a minimum (currently $700 or, in the case of an IRA
account, $500) when any transfer or redemption is made. Shares will be re-
deemed at the next calculated NAV on the day the account is closed. To prevent
an account closure, investors may purchase shares to bring their account bal-
ance above the minimum during the 90-day grace period.
- -------------------------------------------------------------------------------
IRAS AND OTHER TAX-SHELTERED RETIREMENT PLANS
Shares in the Composite Growth & Income Fund, the Composite Government Fund
and the Composite Income Fund are particularly appropriate for many retirement
plans, including IRAs, while shares in the Composite Money Fund may be appro-
priate for many retirement plans. Retirement plan contributions are tax de-
ductible in some cases, and earnings compound on a tax-deferred basis until
withdrawn.
From time to time, Composite Funds Distributor, Inc. or its affiliates may
offer IRA bonuses on IRA rollovers and transfers to IRA accounts maintained by
them. The Acquiring Funds do not pay any portion of these bonuses. The prod-
ucts purchased through these rollovers and transfers may include the Funds.
Such IRA bonuses may be considered a reduction in the Distributor's sales
charge.
Information about IRAs and other qualified retirement plans is available from
the Acquiring Fund offices or your investment representative.
- -------------------------------------------------------------------------------
PERFORMANCE INFORMATION
Past results are not necessarily indicative of future performance. Among the
factors that influence the Acquiring Funds' performance are the type and qual-
ity of investments, operating expenses, and the net amount of new money coming
into the Acquiring Funds.
Pertinent information follows:
AVERAGE ANNUAL TOTAL RETURN. "Average annual total return" shows the change
in value of an investment in a Fund over a stated period as a steady compound
rate of return. The calculation assumes reinvestment of dividends and capital
gain distributions and payment of the maximum initial sales charge for Class A
shares or the applicable contingent deferred sales charge for Class B or Class
S shares.
NON-STANDARDIZED TOTAL RETURNS. These "non-standardized total returns" differ
from average annual total returns for the following reasons: First, they may
relate to non-standard periods; second, they may represent cumulative (rather
than average) total return; and third, sales charges may not be deducted.
YIELD. The Composite Government Fund, the Composite Income Fund and the Com-
posite Tax-Exempt Fund calculate their current "yields" by dividing annualized
net investment income per share for a stated 30-day period by the maximum of-
fering price on the last day of the period. The result then is shown as a per-
centage of the total investment.
The Composite Money Fund defines yield as the income generated by the Fund
over a seven-day period that is identified in the advertisement. The income is
then annualized and shown as a percentage of the total investment.
Yields are calculated separately for each class of shares. Because yield ac-
counting methods differ from the methods used for other accounting purposes,
the Composite Government Fund, the Composite Income Fund and the Composite
Tax-Exempt Fund's
C-26
<PAGE>
yields may not equal the income paid to the shareholder's account or the in-
come reported in the Funds' financial statements.
EFFECTIVE YIELD. The Composite Money Fund calculates the effective yield by
assuming that the income is reinvested when annualizing the seven-day yield.
The effective yield will be higher than the yield because of the assumed com-
pounding.
DISTRIBUTION RATE. The Composite Government Fund, the Composite Income Fund
and the Composite Tax-Exempt Fund's distribution rates are calculated by di-
viding the actual ordinary income dividends per share (annualized) over a one-
month or 12-month period by the maximum offering price at the end of the peri-
od.
TAXABLE-EQUIVALENT YIELD. The taxable-equivalent yield is the yield that an
investor requires from a taxable investment to reach the same earnings level
as a tax-exempt fund. The taxable-equivalent yield is calculated by: 1) Sub-
tracting the investor's income tax rate from 1.0, and then 2) dividing the
Tax-Exempt Fund's stated yield by the answer to the first step.
For example: To calculate a taxable-equivalent yield at a 36% tax rate, sub-
tract .36 from 1.0, and divide the taxable fund's yield by the resulting .64.
OTHER INFORMATION. Management has included a discussion of the Acquiring
Funds' performance in their annual reports, which is available upon request
and without charge by calling the Funds' offices.
The Acquiring Funds may quote performance results from recognized services
and publications that monitor the performance of mutual funds. Included, too,
may be comparisons of their performance with various published, historical in-
dices.
THE FUNDS' PERFORMANCE IS NOT FIXED NOR IS THE PRINCIPAL GUARANTEED. ASSET
VALUES FLUCTUATE DAILY SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PAST PERFORMANCE SHOULD NOT BE
INTERPRETED AS AN INDICATION OF A FUND'S ACTUAL PERFORMANCE IN THE FUTURE.
- -------------------------------------------------------------------------------
REPORTS TO SHAREHOLDERS
Shareholders receive semiannual and annual reports. The financial statements
in the annual reports are audited by independent accountants.
Shareholders of record receive statements at least quarterly. These state-
ments show account transactions, the total number of shares owned, and any
dividends or distributions paid. Shareholders also receive written confirma-
tion soon after each transaction which is not a dividend reinvestment, system-
atic investment program purchase, or systematic withdrawal plan redemption.
C-27
<PAGE>
THE SIERRA VARIABLE TRUST
PROSPECTUS/PROXY STATEMENT
NOVEMBER 13, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
OVERVIEW OF MERGERS...................................................... 4
RISK FACTORS............................................................. 9
SPECIAL MEETING OF SHAREHOLDERS.......................................... 11
PROPOSAL 1: ELECTION OF TRUSTEES......................................... 11
PROPOSAL 2: APPROVAL OR DISAPPROVAL OF AGREEMENT AND PLAN OF
REORGANIZATION......................................................... 15
INFORMATION ABOUT THE FUNDS.............................................. 18
VOTING INFORMATION....................................................... 19
APPENDIX A: FORM OF AGREEMENT AND PLAN OF REORGANIZATION................. A-1
APPENDIX B: EXCERPTS FROM THE SIERRA VARIABLE TRUST SEMI-ANNUAL REPORT... B-1
</TABLE>
PR01
<PAGE>
[FRONT]
SIERRA U.S. GOVERNMENT FUND
A SERIES OF SIERRA TRUST FUNDS
PROXY SOLICITED BY THE BOARD OF TRUSTEES
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
DECEMBER 23, 1997
The undersigned hereby appoints Keith B. Pipes and Michael D. Goth, and each of
them separately, proxies with power of substitution to each, and hereby
authorizes them to represent and to vote, as designated on the reverse side, at
the Special Meeting of Shareholders of the Fund indicated above, a series of
Sierra Trust Funds, on December 23, 1997 at the office of Sierra Fund
Administration Corporation at 9301 Corbin Avenue, Suite 333, Northridge,
California 91324, at 11:00 a.m. (Pacific Time), and at any adjournment thereof,
all of the shares of the Fund which the undersigned would be entitled to vote if
personally present.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR EACH PROPOSAL.
- ---
In their discretion, the proxies are authorized to vote upon such other business
as may properly come before the Meeting. The Trustees recommended a vote FOR the
Proposals.
- --------------------------------------------------------------------------------
To vote by telephone, please call toll free 1-800-848-3374 between 8:00 a.m. and
9:00 p.m. (EST).
To vote by mail, please date and sign on reverse and return promptly in the
enclosed envelope.
No postage is necessary if mailed in the United States.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Please sign your name in the space provided to authorize the voting of your
shares as indicated and return promptly. When signing on behalf of a
corporation, partnership, estate, trust or in any other representative capacity
please sign your name and title. For joint accounts, each joint owner must sign.
Your signatures on this proxy should be exactly as your name or names appear on
this proxy.
- --------------------------------------------------------------------------------
<PAGE>
[BACK]
[x] PLEASE MARK VOTES
AS IN THIS EXAMPLE
- --------------------------------------------------------------------------------
SIERRA U.S. GOVERNMENT FUND
- --------------------------------------------------------------------------------
1. Proposal to elect thirteen Trustees. The nominees for Trustees are:
For All With- For All
Arthur H. Bernstein Anne V. Farrell Nominees hold Except
Wayne L. Attwood Jay Rockey [_] [_] [_]
William G. Papesh John W. English
David E. Anderson Michael K. Murphy
Kristianne Blake Richard C. Yancey
Daniel L. Pavelich Alfred E. Osborne, Jr.
Edmond R. Davis
NOTE: If you do not wish your shares voted "For" a particular nominee, mark
the "For All Except" box and strike a line through the name(s) of the
nominee(s). Your shares will be voted for the remaining nominees(s).
For Against Abstain
2. Proposal to approve the Merger of the [_] [_] [_]
Fund named on this card, pursuant to the
Agreement and Plan of Reorganization
described in the Prospectus/Proxy Statement.
8. To transact such other business as may properly come before the Special
Meeting or any adjournment thereof.
-----------------------------------
Please be sure to sign and date this Proxy. Date
- ------------------------------------------- -----------------------------------
- ------- Shareholder sign here ------------------- Co-owner sign here ----------
DETACH CARD DETACH CARD
[NOTE: Other proxy cards are identical except for name of Fund and number
of second proposal.]
<PAGE>
THE COMPOSITE FUNDS
FORM N-14
PART B
STATEMENT OF ADDITIONAL INFORMATION
November 7, 1997
This Statement of Additional Information (the "SAI") relates to the
proposed mergers (the "Mergers") of the U.S. Government Fund (the "Sierra
Government Fund"), the Corporate Income Fund (the "Sierra Income Fund"), the
Growth and Income Fund (the "Sierra Growth & Income Fund"), the Global Money
Fund (the "Sierra Global Money Fund"), the U.S. Government Money Fund (the
"Sierra Government Money Fund") and the National Municipal Fund (the "Sierra
Municipal Fund") (each an "Acquired Fund"), series of the Sierra Trust Funds
(the "Sierra Trust"), a Massachusetts business trust, into, respectively, the
Composite U.S. Government Securities Fund (the "Composite Government Fund"), the
Composite Income Fund (the "Composite Income Fund"), the Composite Growth &
Income Fund (the "Composite Growth & Income Fund"), the Composite Money Market
Fund (the "Composite Money Fund"), the Composite Money Fund and the Composite
Tax-Exempt Bond Fund (the "Composite Tax-Exempt Bond Fund") (each an "Acquiring
Fund"), series of The Composite Funds (the "Composite Trust"), a Massachusetts
business trust.
This Statement of Additional Information contains information which may be
of interest to shareholders but which is not included in the Prospectus/Proxy
Statement dated November 7, 1997 (the "Prospectus/Proxy Statement") of the
Composite Trust which relates to the Mergers. As described in the
Prospectus/Proxy Statement, the Mergers would involve the transfer of all the
assets of each Acquired Fund in exchange for shares of the corresponding
Acquiring Fund and the assumption of all the liabilities of the Acquired Fund.
Each Acquired Fund would distribute the Acquiring Fund shares it receives to its
shareholders in complete liquidation of the Acquired Fund.
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the Prospectus/Proxy Statement. The Prospectus/Proxy
Statement has been filed with the Securities and Exchange Commission and is
available upon request and without charge by writing The Composite Funds, 601
West Main Avenue, Spokane, Washington 99201 or by calling 1-800-543-8072.
1
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Item Page
- ---- ----
<S> <C>
I. Additional Information about Acquiring and Acquired Funds............. 3
II. Financial Statements.................................................. 4
Sierra U.S. Government Fund and Composite U.S. Government
Securities Fund................................................... 5
Sierra Corporate Income Fund and Composite Income Fund................ 12
Sierra Global Money Fund and Composite Money Market Fund.............. 20
Sierra U.S. Government Money Fund and Composite Money Market Fund.... 28
Sierra Global Money Fund, Sierra U.S. Government Money Fund
and Composite Money Market Fund................................... 36
Sierra National Municipal Fund and Composite Tax-Exempt Bond Fund..... 45
Sierra Growth and Income Fund and Composite Growth & Income Fund...... 55
</TABLE>
-2-
<PAGE>
I. Additional Information about Acquiring and Acquired Funds.
This SAI is accompanied by the Prospectuses of the Sierra Trust relating
to the Acquired Funds and the Statement of Additional Information of the Sierra
Trust, each dated October 31, 1997, which provide further information relating
to the Acquired Funds.
As described in the Prospectus/Proxy Statement, the Composite Government
Fund, Composite Income Fund, Composite Growth & Income Fund, Composite Money
Fund and Composite Tax-Exempt Bond Fund will, immediately prior to and as a
condition to the Mergers, acquire the assets and liabilities of and succeed to
the business of, respectively, Composite U.S. Government Securities, Inc.,
Composite Income Fund, Inc., Composite Growth & Income Fund (a portfolio of
Composite Equity Series, Inc.), Composite Cash Management Company: Money Market
Portfolio and Composite Tax-Exempt Bond Fund, Inc., each an investment company
(or a series of an investment company) incorporated under the laws of the State
of Washington. The term "Acquiring Funds" as used in this SAI refers both to
such Funds and to their predecessors (i.e., both before and after the
reorganization as series of the Composite Trust).
This SAI is accompanied by the Prospectus dated April 30, 1997 and the
Statement of Additional Information dated April 30, 1997, as revised June 18,
1997, of the Composite Government Fund, the Composite Income Fund and the
Composite Tax-Exempt Bond Fund, the Prospectus dated February 28, 1997 and the
Statement of Additional Information dated February 28, 1997, as revised March
24, 1997 and June 18, 1997, of the Composite Growth & Income Fund, and the
Prospectus dated February 28, 1997 and the Statement of Additional Information
dated April 30, 1997, as revised June 18, 1997, of the Composite Money Fund,
which provide further information about the Acquiring Funds, including
information in respect of their investment objectives, policies and financial
history.
-3-
<PAGE>
II. Financial Statements.
This SAI is accompanied by the Annual Report of the Sierra Government
Fund, Sierra Income Fund, Sierra Growth & Income Fund, Sierra Global Money Fund,
Sierra Government Money Fund and Sierra Municipal Fund for the year ended June
30, 1997, each of which contains historical financial information regarding such
funds; the Semi-Annual Reports for the six months ended June 30, 1997 and the
Annual Reports for the year ended December 31, 1996 of the Composite Government
Fund, Composite Income Fund, Composite Money Fund and Composite Tax-Exempt
Fund, which contain historical financial information regarding
such funds; and the Annual Report for the year ended October 31, 1996 and the
Semi-Annual Report for the six months ended April 30, 1997 of the
Composite Growth & Income Fund, which contain historical financial information
regarding such fund. Such reports have been filed with the Securities and
Exchange Commission and are incorporated herein by reference.
Pro forma financial statements are provided on the following pages for each
of the Acquiring Funds.
-4-
<PAGE>
PRO FORMA STATEMENT OF ASSETS AND LIABILITIES AT JUNE 30, 1997 (unaudited)
<TABLE>
<CAPTION>
Composite Pro Forma
Sierra U.S. U.S. Government Adjustments Pro Forma
Government Fund Securities Fund (Note 3) Combined
--------------- --------------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS:
Investments, at value, (cost $474,836,318, $ 478,326,512 $ 121,557,004 $599,883,516
$122,152,209, and $596,988,527
Cash, receivables, and other assets 34,093,977 1,123,832 35,217,809
--------------- --------------- ------------
Total Assets 512,420,489 122,680,836 635,101,325
--------------- --------------- ------------
LIABILITIES:
Reverse repurchase agreements * 91,789,563 91,789,563
Accrued expenses and other liabilities 2,037,204 352,583 2,389,787
Payable for investment securities purchased 48,661,707 48,661,707
--------------- --------------- ------------
Total Liabilities 142,488,474 352,583 142,841,057
--------------- --------------- ------------
Net Assets $ 369,932,015 $ 122,328,253 $492,260,268
--------------- --------------- ------------
Outstanding Shares
- ------------------
Class A 27,040,300 11,437,387 (2,272,281) 36,205,406
--------------- --------------- ------------
Class B 2,130,374 277,515 (179,222) 2,228,667
--------------- --------------- ------------
Class S 950,480 - (79,954) 870,526
--------------- --------------- ------------
Class I 8,567,415 - (720,648) 7,846,767
--------------- --------------- ------------
Net Asset Value
- ---------------
Class A $ 258,553,449 $ 119,430,672 $377,984,121
--------------- --------------- ------------
Class B $ 20,370,022 $ 2,897,581 $ 23,267,603
--------------- --------------- ------------
Class S $ 9,088,294 - $ 9,088,294
--------------- --------------- ------------
Class I $ 81,920,250 - $ 81,920,250
--------------- --------------- ------------
Net Asset Value
Per Share
- ---------------
Class A $ 9.56 $ 10.44 $ 10.44
--------------- --------------- ------------
Class B $ 9.56 $ 10.44 $ 10.44
--------------- --------------- ------------
Class S $ 9.56 - $ 10.44
--------------- --------------- ------------
Class I $ 9.56 - $ 10.44
--------------- --------------- ------------
* As reorganized, the Fund will not be allowed to engage in reverse repurchase agreements. Accordingly, this position
will have to be settled prior to consummation of the reorganization.
See accompanying notes to pro forma financial statements.
</TABLE>
-5-
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996 (Unaudited)
Composite Pro Forma
Sierra U.S. U.S. Government Adjustments Pro Forma
Government Fund Securities Fund (Note 4) Combined
--------------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest and Other $38,316,798 $10,992,841 $ 0 $49,309,639
----------- ----------- ----------- -----------
EXPENSES:
Management fees 2,587,377 984,485 (560,063) 3,011,799
Administration fees 1,646,513 0 (1,646,513) 0
Transfer agent fees 0 146,145 544,600 690,745
Distribution fees
Class A Shares 1,023,196 218,510 78,759 1,320,465
Class B Shares 225,764 26,484 0 252,248
Class S Shares 261,672 0 0 261,672
All other expenses 974,522 172,981 (331,168) 816,335
Expense reimbursement (1,931,111) 0 1,931,111 0
----------- ----------- ----------- -----------
Subtotal 4,787,933 1,548,605 16,726 6,353,264
----------- ----------- ----------- -----------
Fees paid indirectly (32,587) (3,182) 0 (35,769)
----------- ----------- ----------- -----------
Total Expenses 4,755,346 1,545,423 16,726 6,317,495
----------- ----------- ----------- -----------
NET INVESTMENT INCOME 33,561,452 9,447,418 (16,726) 42,922,144
----------- ----------- ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net Realized Gain (Loss) From:
Security Transactions (5,210,094) (386,962) 0 (5,597,056)
Future contracts (2,376,021) 0 0 (2,376,021)
Net Unrealized Appreciation (Depreciation) of:
Securities (9,099,308) 0 0 (9,099,308)
Foreign currency, written options, futures
contracts and other assets and liabilities 125,950 (6,198,006) 0 (6,072,056)
----------- ----------- ----------- -----------
Net Realized and Unrealized Gain (Loss) on Investments (16,559,473) (6,584,968) 0 (23,144,441)
----------- ----------- ----------- -----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $17,001,979 $ 2,862,450 $ (16,726) $19,847,703
=========== =========== =========== ===========
</TABLE>
See accompanying notes to pro forma financial statements.
-6-
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1997(Unaudited)
Composite Pro Forma
Sierra U.S. U.S. Government Adjustments Pro Forma
Government Fund Securities Fund (Note 4) Combined
------------------ ----------------- ------------- ---------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest and Other $16,846,906 $4,610,844 $0 $21,457,750
------------------ ----------------- ------------- ---------------
EXPENSES:
Management fees 1,107,156 405,280 (197,852) 1,314,584
Administration fees 704,553 (704,553) 0
Registration fees 10,480 10,714 0 21,194
Transfer agent fees 0 58,718 234,042 292,760
Postage, printing, and office expense 134,262 38,042 (85,660) 86,644
Audit and legal fees 23,513 6,241 0 29,754
Custodian fees 31,563 19,161 0 50,724
Director and trustee fees 1,650 5,057 0 6,707
Distribution fees
Class A Shares 356,411 115,176 893 472,480
Class B Shares 106,160 14,439 (108,965) 11,634
Class S Shares 50,257 0 (45,713) 4,544
Other 875,875* 2,278 0 878,153
Expense reimbursement (782,669) 782,669 0
Fees paid indirectly (5,613) (889) 0 (6,502)
------------------ ----------------- ------------- ---------------
Total Expenses 2,613,598 674,217 (125,139) 3,162,676
------------------ ----------------- ------------- ---------------
NET INVESTMENT INCOME 14,233,308 3,936,627 125,139 18,295,074
------------------ ----------------- ------------- ---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net Realized Gain (Loss) From Security Transactions 206,839 (747,914) 0 (541,075)
(excluding short term securities)
Net Unrealized Appreciation (Depreciation) of Investments (1,443,597) 326,683 0 (1,116,914)
------------------ ----------------- ------------- ---------------
Net Realized and Unrealized Gain (Loss) on Investments (1,236,758) (421,231) 0 (1,657,989)
------------------ ----------------- ------------- ---------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $12,996,550 $3,515,396 $125,139 $16,637,085
================== ================= ============= ===============
</TABLE>
* Include interest of $780,416.
See accompanying notes to pro forma financial statements.
-7-
<PAGE>
COMPOSITE U.S. GOVERNMENT SECURITIES FUND (1) and SIERRA U.S. GOVERNMENT FUND
Pro Forma Combined Portfolio of Investments
June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
COMPOSITE U.S. SIERRA U.S. PRO
GOVERNMENT GOVERNMENT FORMA
SECURITIES FUND FUND COMBINED
- ------------------------------------------------------------------
PRINCIPAL AMOUNT
- ------------------------------------------------------------------
<S> <C> <C> <C>
U.S. TREASURY OBLIGATIONS- 27.86%
$1,000,000 $1,000,000 U.S. Treasury Bond, 5.625% due 2/15/2006
18,250,000 18,250,000 U.S. Treasury Bond, 7.25% due 5/15/2016, 08/15/2022
6,500,000 6,500,000 U.S. Treasury Bond, 7.50% due 11/15/2016
5,000,000 5,000,000 U.S. Treasury Bond, 6.25% due 8/15/2024
500,000 500,000 U.S. Treasury Bond, 6.50% due 11/15/2026
25,570,000 25,570,000 U.S. Treasury Bond, 6.50% due 11/15/2026*
20,000,000 20,000,000 U.S. Treasury Bond, 6.625% due 02/15/2027*
5,500,000 5,500,000 U.S. Treasury Note, 6.25% due 03/31/1999*
3,700,000 3,700,000 U.S. Treasury Note, 6.375% due 05/15/2000
21,400,000 21,400,000 U.S. Treasury Note, 6.375% due 09/30/2001*
42,600,000 42,600,000 U.S. Treasury Note, 6.625% due 05/15/2007*
17,838,259 17,838,259 U.S. Treasury Inflation Index Bond, 3.375% due 01/15/2007
TOTAL U.S. TREASURY OBLIGATIONS (COST $167,254,413)
MORTGAGE BACKED SECURITIES - 71.85%
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) - 26.99%
4,907,768 4,907,768 6.00% due 04/20/2026
21,843,195 21,843,195 6.50% due 08/15/2023 to 04/15/2026
2,594,064 2,594,064 6.875% due 12/20/2022
19,204,665 19,204,665 7.00% due 07/15/2008 to 08/15/2023
7,495,594 7,495,594 7.125% due 05/20/2022 to 09/20/2022
1,577,897 1,577,897 8.00% due 04/15/2022
1,782,200 1,782,200 8.50% due 05/15/2022
3,038,238 3,038,238 9.50% due 07/15/2016 to 09/15/2020
16,100 16,100 11.50% due 07/15/2015
43,128 43,128 13.50% due 09/15/2014 to 12/15/2014
40,211 40,211 14.00% due 06/15/2011
7,804,082 7,804,082 7.00% due 01/15/2024 to 05/15/2026
77,568,492 77,568,492 7.50% due 12/15/2022 to 12/15/2023
8,476,674 8,476,674 9.00% due 10/15/2008 to 06/15/2022
4,894,157 4,894,157 9.50% due 04/15/2016 to 11/15/2017
1,249,343 1,249,343 9.50% due 02/20/2017 to 03/20/2021
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) - 3.75%
39,698 39,698 5.50 % due 02/01/2009
15,465,681 15,465,681 7.00% due 06/01/2010 to 06/01/2012
5,409,647 5,409,647 8.00% due 05/01/2022 to 01/01/2025
850,585 850,585 8.50% due 02/01/2023 to 09/01/2025
516,573 516,573 9.00% due 06/01/2016 to 06/01/2021
FEDERAL HOME LOAN MORTGAGE CORPORATION (FMLMC) - 32.19%
25,532,203 25,532,203 6.50% due 02/01/2011 to10/01/2025
2,214,362 2,214,362 7.00% due 07/01/2024 to 12/01/2026
134,064,871 134,064,871 7.50% due 05/01/2010 to 06/01/2027
3,856,148 3,856,148 8.50% due 04/01/2019
<CAPTION>
------------------------------------------------------------------
COMPOSITE U.S. SIERRA U.S. PRO
GOVERNMENT GOVERNMENT FORMA
SECURITIES FUND FUND COMBINED
------------------------------------------------------------------
MARKET VALUE
------------------------------------------------------------------
<S> <C> <C> <C>
U.S. TREASURY OBLIGATIONS- 27.86%
U.S. Treasury Bond, 5.625% due 2/15/2006 $939,376 $939,376
U.S. Treasury Bond, 7.25% due 5/15/2016, 08/15/2022 19,039,706 19,039,706
U.S. Treasury Bond, 7.50% due 11/15/2016 6,948,910 6,948,910
U.S. Treasury Bond, 6.25% due 8/15/2024 4,628,130 4,628,130
U.S. Treasury Bond, 6.50% due 11/15/2026 479,375 479,375
U.S. Treasury Bond, 6.50% due 11/15/2026* 24,523,165 24,523,165
U.S. Treasury Bond, 6.625% due 02/15/2027* 19,568,800 19,568,800
U.S. Treasury Note, 6.25% due 03/31/1999* 5,518,920 5,518,920
U.S. Treasury Note, 6.375% due 05/15/2000 3,713,283 3,713,283
U.S. Treasury Note, 6.375% due 09/30/2001* 21,403,424 21,403,424
U.S. Treasury Note, 6.625% due 05/15/2007* 42,952,728 42,952,728
U.S. Treasury Inflation Index Bond, 3.375% due 01/15/2007 17,409,070 17,409,070
------------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS (COST $167,254,413) 32,035,497 135,089,390 167,124,887
------------------------------------------------------------------
MORTGAGE BACKED SECURITIES - 71.85%
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) - 26.99%
6.00% due 04/20/2026 4,533,565 4,533,565
6.50% due 08/15/2023 to 04/15/2026 20,908,087 20,908,087
6.875% due 12/20/2022 2,663,219 2,663,219
7.00% due 07/15/2008 to 08/15/2023 19,010,415 19,010,415
7.125% due 05/20/2022 to 09/20/2022 7,720,648 7,720,648
8.00% due 04/15/2022 1,613,894 1,613,894
8.50% due 05/15/2022 1,852,932 1,852,932
9.50% due 07/15/2016 to 09/15/2020 3,278,451 3,278,451
11.50% due 07/15/2015 18,173 18,173
13.50% due 09/15/2014 to 12/15/2014 50,150 50,150
14.00% due 06/15/2011 46,859 46,859
7.00% due 01/15/2024 to 05/15/2026 7,662,836 7,662,836
7.50% due 12/15/2022 to 12/15/2023 78,144,230 78,144,230
9.00% due 10/15/2008 to 06/15/2022 9,060,610 9,060,610
9.50% due 04/15/2016 to 11/15/2017 5,308,363 5,308,363
9.50% due 02/20/2017 to 03/20/2021 1,342,549 1,342,549
------------------------------------------------------------------
61,696,393 101,518,588 163,214,981
------------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) - 3.75%
5.50 % due 02/01/2009 37,992 37,992
7.00% due 06/01/2010 to 06/01/2012 15,444,158 15,444,158
8.00% due 05/01/2022 to 01/01/2025 5,576,593 5,576,593
8.50% due 02/01/2023 to 09/01/2025 888,062 888,062
9.00% due 06/01/2016 to 06/01/2021 550,507 550,507
------------------------------------------------------------------
0 22,497,312 22,497,312
------------------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORPORATION (FMLMC) - 32.19%
6.50% due 02/01/2011 to10/01/2025 24,999,381 24,999,381
7.00% due 07/01/2024 to 12/01/2026 2,184,982 2,184,982
7.50% due 05/01/2010 to 06/01/2027 135,926,367 135,926,367
8.50% due 04/01/2019 4,046,526 4,046,526
</TABLE>
-8-
<PAGE>
COMPOSITE U.S. GOVERNMENT SECURITIES FUND (1) and SIERRA U.S. GOVERNMENT FUND
Pro Forma Combined Portfolio of Investments (continued)
June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------
COMPOSITE U.S. SIERRA U.S. PRO
GOVERNMENT GOVERNMENT FORMA
SECURITIES FUND FUND COMBINED
- -------------------------------------------------
PRINCIPAL AMOUNT
- -------------------------------------------------
<C> <C> <C> <S>
$1,161,849 $1,161,849 8.75% due 01/01/2013
1,978,160 1,978,160 9.00% due 12/01/2008 to 08/01/2022
741,900 741,900 9.50% due 06/01/2016 to 05/01/2017
21,500,000 21,500,000 TBA, GOLD, 7.50% due 04/01/2012#
COLLATERALIZED MORTGAGE OBLIGATIONS - GNMA BACKED - 8.70%
1,950,000 1,950,000 Federal National Mortgage Association, 7.50% due 8/25/2001
943,584 943,584 Federal National Mortgage Association - ACES, 6.783% due 1/17/2003
6,408,000 6,408,000 Federal National Mortgage Association, 8.00% due 6/25/2005
2,230,000 2,230,000 Federal National Mortgage Association, 6.00% due 8/25/2007
95,853 95,853 Federal National Mortgage Association, 8.50% due 2/25/2018
Federal National Mortgage Association, REMIC, Pass-through certificates:
4,000,000 4,000,000 Trust 89-18, Class C, 9.50% due 04/25/2004
27,420 27,420 Trust 90-133, Class K, (I/O), 1009.50% due 11/25/2020
1,417,625 1,417,625 Trust 92-83, Class X, 7.00% due 02/25/2022
5,690,515 5,690,515 Trust 93-162, Class E, 6.00% due 08/25/2023
Federal National Mortgage Association,Trust 96-274, Class 1, (P/O), Zero coupon
16,697,334 16,697,334 due 10/01/2025
8,500,000 8,500,000 Federal Home Loan Mortgage Corporation, 6.85% due 7/25/2018
Federal Home Loan Mortgage Corporation, REMIC, Pass-through certificates,
2,500,000 2,500,000 Series 1288, Class HA, 5.50% due 11/15/2020
4,900,000 4,900,000 Merrill Lynch, 6.50% due 8/27/2015
1,053,442 1,053,442 Mortgage Capital Trust, 9.25% due 6/01/2017
TOTAL MORTGAGE-BACKED SECURITIES (cost $427,995,114)
SHORT-TERM INVESTMENT - 0.29%
Repurchase agreement with Goldman Sachs, collateralized by a
U.S. Treasury Note, in a joint trading account at 5.75%
dated 06/30/97, due 07/01/97 with a maturity value of
1,739,000 1,739,000 $1,739,278 (cost $1,739,000)
TOTAL INVESTMENTS (cost $596,988,527)
<CAPTION>
------------------------------------------------
COMPOSITE U.S. SIERRA U.S. PRO
GOVERNMENT GOVERNMENT FORMA
SECURITIES FUND FUND COMBINED
------------------------------------------------
MARKET VALUE
------------------------------------------------
<S> <C> <C> <C>
8.75% due 01/01/2013 $1,215,096 $1,215,096
9.00% due 12/01/2008 to 08/01/2022 2,104,158 2,104,158
9.50% due 06/01/2016 to 05/01/2017 797,577 797,577
TBA, GOLD, 7.50% due 04/01/2012# 21,822,500 21,822,500
-------------------------------------------------
0 193,096,587 193,096,587
-------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS - GNMA BACKED - 8.70%
Federal National Mortgage Association, 7.50% due 8/25/2001 1,990,790 1,990,790
Federal National Mortgage Association - ACES, 6.783% due 1/17/2003 945,943 945,943
Federal National Mortgage Association, 8.00% due 6/25/2005 6,510,970 6,510,970
Federal National Mortgage Association, 6.00% due 8/25/2007 2,185,868 2,185,868
Federal National Mortgage Association, 8.50% due 2/25/2018 95,695 95,695
Federal National Mortgage Association, REMIC, Pass-through certificates:
Trust 89-18, Class C, 9.50% due 04/25/2004 4,300,000 4,300,000
Trust 90-133, Class K, (I/O), 1009.50% due 11/25/2020 835,635 835,635
Trust 92-83, Class X, 7.00% due 02/25/2022 1,284,269 1,284,269
Trust 93-162, Class E, 6.00% due 08/25/2023 5,165,906 5,165,906
Federal National Mortgage Association,Trust 96-274, Class 1, (P/O), Zero coupon
due 10/01/2025 12,209,925 12,209,925
Federal Home Loan Mortgage Corporation, 6.85% due 7/25/2018 8,485,380 8,485,380
Federal Home Loan Mortgage Corporation, REMIC, Pass-through certificates,
Series 1288, Class HA, 5.50% due 11/15/2020 2,328,900 2,328,900
Merrill Lynch, 6.50% due 8/27/2015 4,785,776 4,785,776
Mortgage Capital Trust, 9.25% due 6/01/2017 1,085,692 1,085,692
-------------------------------------------------
26,086,114 26,124,635 52,210,749
-------------------------------------------------
TOTAL MORTGAGE-BACKED SECURITIES (cost $427,995,114) 87,782,507 343,237,122 431,019,629
-------------------------------------------------
SHORT-TERM INVESTMENT - 0.29%
Repurchase agreement with Goldman Sachs, collateralized by a
U.S. Treasury Note, in a joint trading account at 5.75%
dated 06/30/97, due 07/01/97 with a maturity value of
$1,739,278 (cost $1,739,000) 1,739,000 0 1,739,000
-------------------------------------------------
TOTAL INVESTMENTS (cost $596,988,527) $121,557,004 $478,326,512 $599,883,516
=================================================
</TABLE>
GLOSSARY OF TERMS
GOLD = Payments are on an accelerated 45-day payment cycle instead of 75-day
cycle
I/O = Interest Only
P/O = Principal Only
REMIC = Real Estate Mortgage Investment Conduit
* A portion or all of these securities are pledged as collateral for reverse
repurchase agreements.
#Security purchased on a when-issued basis.
(1) Formerly Composite U.S. Government Securities, Inc.
-9-
<PAGE>
Composite U.S. Government Securities Fund and Sierra U.S. Government Fund
Notes to Pro Forma Financial Statements (unaudited)
1. Basis of Combination
The pro forma combined financial statements reflect the combined financial
position of Composite U.S. Government Securities Fund (formerly Composite
U.S. Government Securities, Inc.) and Sierra U.S. Government Fund at June
30, 1997, and the pro forma combined results of operations for the year
ended December 31, 1996 and the six month period ended June 30, 1997 as
though the reorganization had occurred on January 1, 1996.
The pro forma combined financial statements are presented for the
information of the reader and may not necessarily be representative of how
the pro forma combined financial statements would have appeared had the
reorganization actually occurred.
The Pro Forma Combined Portfolio of Investments, Statement of Assets and
Liabilities, and the Statement of Operations should be read in conjunction
with the historical financial statements of the funds incorporated by
reference in the Statement of Additional Information.
The pro forma statements give effect to the proposed transfer of the assets
and stated liabilities of the Sierra U.S. Government Fund in exchange for
shares of Composite U.S. Government Securities Fund. Under generally
accepted accounting principles, the historical cost of investment
securities will be carried forward to the surviving entity.
The pro forma statements do not reflect the expenses of either fund in
carrying out its obligations under the proposed Agreement and Plan of
Reorganization.
2. Pro Forma Combined Portfolio of Investments
Securities held by the two funds have been combined in the accompanying
Combined Portfolio of Investments. Securities are stated at market value as
determined by the Funds as of June 30, 1997. Historical cost amounts
represent the combined cost basis of the securities.
-10-
<PAGE>
Composite U.S. Government Securities Fund and Sierra U.S. Government Fund
Notes to Pro Forma Financial Statements (unaudited) (continued)
3. Pro Forma Statement of Assets and Liabilities
Shares outstanding have been adjusted to reflect the conversion of Sierra
shares into Composite shares based upon the net asset value of Composite
shares at June 30, 1997.
4. Pro Forma Statements of Operations
The pro forma statements of operations reflect the following adjustments:
A. A decrease in management fees to reflect the new fee structure. Fees
are based on .50% of average daily net assets up to $500,000,000 and
.40% of average daily net assets over that amount. In addition, the
previous management fee waiver for Sierra will no longer be in effect.
B. An elimination of the Sierra administration fees, now incorporated in
the management fee structure. Also, expenses of the Fund will no longer
be reimbursed. Shareholder servicing and distribution expenses have
been adjusted to reflect a rate of .25% (an increase of .05% for
Composite shareholders) of average daily net assets. Other expenses
have been adjusted based on an overall estimated expense ratio of .97%.
-11-
<PAGE>
PRO FORMA STATEMENT OF ASSETS AND LIABILITIES AT JUNE 30, 1997 (unaudited)
<TABLE>
<CAPTION>
Pro Forma
Sierra Corporate Composite Adjustments Pro Forma
Income Fund Income Fund (Note 3) Combined
---------------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS:
Investments, at value, (cost $240,671,845,
$84,833,119, and $325,504,964) $250,239,423 $86,394,037 $336,633,460
Cash, receivables, and other assets 5,684,055 1,551,864 7,235,919
------------ ----------- ------------
Total Assets 255,923,478 87,945,901 343,869,379
------------ ----------- ------------
LIABILITIES:
Accrued expenses and other liabilities 1,263,569 341,451 1,605,020
Payable for dollar roll transactions 28,747,979 28,747,979
------------ ----------- ------------
Total Liabilities 30,011,548 341,451 30,352,999
------------ ----------- ------------
Net Assets $225,911,930 $87,604,450 $313,516,380
============ =========== ============
Outstanding Shares
- ------------------
Class A 18,966,729 8,734,395 2,312,948 30,014,072
============ =========== ============
Class B 2,035,268 793,230 242,884 3,071,382
============ =========== ============
Class S 205,775 - 25,062 230,837
============ =========== ============
Class I 705,975 - 85,998 791,973
============ =========== ============
Net Asset Value
- ------------------
Class A $195,530,521 $80,301,577 $275,832,098
============ =========== ============
Class B $20,981,782 $7,302,873 $28,284,655
============ =========== ============
Class S $2,121,394 - $2,121,394
============ =========== ============
Class I $7,278,233 - $7,278,233
============ =========== ============
Net Asset Value
Per Share
- ------------------
Class A $10.31 $9.19 $9.19
============ =========== ============
Class B $10.31 $9.21 $9.21
============ =========== ============
Class S $10.31 - $9.19
============ =========== ============
Class I $10.31 - $9.19
============ =========== ============
</TABLE>
See accompanying notes to pro forma financial statements.
-12-
<PAGE>
PRO FORMA STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996 (Unaudited)
<TABLE>
<CAPTION>
Pro Forma
Sierra Corporate Composite Adjustments Pro Forma
Income Fund Income Fund (Note 4) Combined
---------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest and Other $28,440,951 $7,234,241 $ 0 $ 35,675,192
----------- ---------- ----------- ------------
EXPENSES:
Management fees 2,200,890 599,008 (315,199) 2,484,699
Administration fees 1,185,095 0 (1,185,095) 0
Transfer agent fees 0 114,258 407,070 521,328
Distribution fees
Class A Shares 751,597 133,640 47,921 933,158
Class B Shares 239,489 57,828 0 297,317
Class S Shares 99,931 0 0 99,931
All other expenses 469,819 131,792 50,049 651,660
Expense reimbursement (990,489) 0 990,489 0
----------- ---------- ----------- ------------
Subtotal 3,956,332 1,036,526 (4,765) 4,988,093
----------- ---------- ----------- ------------
Fees paid indirectly (1,455) (7,838) 0 (9,293)
----------- ---------- ----------- ------------
Total Expenses 3,954,877 1,028,688 (4,765) 4,978,800
----------- ---------- ----------- ------------
NET INVESTMENT INCOME 24,486,074 6,205,553 4,765 30,696,392
----------- ---------- ----------- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net Realized Gain (Loss) From Security Transactions (557,759) 1,098,430 0 540,671
(excluding short term securities)
Net Unrealized Appreciation (Depreciation) of Investments (24,938,702) (4,354,365) 0 (29,293,067)
----------- ---------- ----------- ------------
Net Realized and Unrealized Gain (Loss) on Investments (25,496,461) (3,255,935) 0 (28,752,396)
----------- ---------- ----------- ------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ($1,010,387) $2,949,618 $ 4,765 $ 1,943,996
=========== ========== =========== ============
</TABLE>
See accompanying notes to pro forma financial statements.
-13-
<PAGE>
PRO FORMA STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Pro Forma
Sierra Corporate Composite Adjustments Pro Forma
Income Fund Income Fund (Note 4) Combined
--------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest and Other $11,259,253 $3,382,296 $ 0 $14,641,549
----------- ---------- ----------- -----------
EXPENSES:
Management fees 852,050 277,115 (95,800) 1,033,365
Administration fees 458,796 0 (458,796) 0
Transfer agent fees 0 50,322 160,186 210,508
Distribution fees
Class A Shares 270,763 74,059 22,169 366,991
Class B Shares 109,794 35,477 0 145,271
Class S Shares 14,141 0 0 14,141
All other expenses 199,219 61,677 (32,846) 228,050
Expense reimbursement (358,866) 0 358,866 0
----------- ---------- ----------- -----------
Subtotal 1,545,897 498,650 (46,221) 1,998,326
----------- ---------- ----------- -----------
Fees paid indirectly 0 (807) 0 (807)
----------- ---------- ----------- -----------
Total Expenses 1,545,897 497,843 (46,221) 1,997,519
----------- ---------- ----------- -----------
NET INVESTMENT INCOME 9,713,356 2,884,453 46,221 12,644,030
----------- ---------- ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net Realized Gain (Loss) From Security Transactions (505,087) 639,526 0 134,439
(excluding short term securities)
Net Unrealized Appreciation (Depreciation) of Investments (3,391,336) (328,204) 0 (3,719,540)
----------- ---------- ----------- -----------
Net Realized and Unrealized Gain (Loss) on Investments (3,896,423) 311,322 0 (3,585,101)
----------- ---------- ----------- -----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $5,816,933 $3,195,775 $ 46,221 $ 9,058,929
=========== ========== =========== ===========
See accompanying notes to pro forma financial statements.
</TABLE>
-14-
<PAGE>
COMPOSITE INCOME FUND (1) and SIERRA CORPORATE INCOME FUND
Pro Forma Combined Portfolio of Investments
June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------
COMPOSITE SIERRA PRO
INCOME CORPORATE FORMA
FUND INCOME FUND COMBINED
- --------------------------------------------
PRINCIPAL AMOUNT U.S. TREASURY OBLIGATIONS - 7.07%
- --------------------------------------------
<S> <C> <C> <C>
$5,225,000 $5,225,000 U.S. Treasury Bond, 7.25% due 08/15/2022
6,325,000 6,325,000 U.S. Treasury Bond, 6.25% due 08/15/2023
1,250,000 1,250,000 U.S. Treasury Bond, 6.50% due 11/15/2026
5,000,000 5,000,000 U.S. Treasury Bond, 13.75% due 08/15/2004
1,000,000 1,000,000 U.S. Treasury Note, 9.00% due 05/15/1998
1,000,000 1,000,000 U.S. Treasury Note, 7.75% due 01/31/2000
1,000,000 1,000,000 U.S. Treasury Note, 6.25% due 10/31/2001
1,250,000 1,250,000 U.S. Treasury Note, 5.875% due 11/15/2005
TOTAL U.S. TREASURY OBLIGATIONS (cost $23,546,875)
MORTGAGE-BACKED SECURITIES - 16.01%
GOVERNMENT AGENCY - 13.66%
238,498 238,498 Federal Home Loan Mortgage Corporation, 9.00% due 12/01/2004
14,000,000 14,000,000 Federal Home Loan Mortgage Corporation, Commitment to Purchase, 8.00% due 01/01/2027
1,875,918 1,875,918 Federal Home Loan Mortgage Corporation, GOLD #C00362, 9.00% due 06/01/2024
988,121 988,121 Federal Home Loan Mortgage Corporation, GOLD #C80253, 9.00% due 01/01/2025
1,707,367 1,707,367 Federal National Mortgage Association, 8.00% due 12/01/2026
14,000,000 14,000,000 Government National Mortgage Association, Commitment to
Purchase, GOLD, 8.00% due 01/01/2027
2,528,679 2,528,679 Government National Mortgage Association, 6.00% due 02/15/2024
Government National Mortgage Association, 6.50% due 08/15/2023
8,908,907 8,908,907 to 04/15/2026
1,504,354 1,504,354 Government National Mortgage Association, 7.00% due 07/15/2023
COLLATERALIZED MORTGAGE OBLIGATIONS - GOVERNMENT AGENCY BACKED 1.4%
705,322 705,322 Federal Home Loan Mortgage Corporation, 8.75% due 06/15/2005
1,000,000 1,000,000 Federal Home Loan Mortgage Corporation, 7.50% due 07/15/2020
2,918,692 2,918,692 Weyerhaeuser 1982-C FHA Putable, 7.43% due 06/01/2022
COLLATERALIZED MORTGAGE OBLIGATIONS - 0.95%
1,750,000 1,750,000 Donaldson, Lufkin & Jenrette, 7.35% due 12/18/2003
862,557 862,557 Resolution Trust Corporation - 1991-M2 - A-2, 7.55% due 09/25/2020
Ryland Mortgage Securities Corporation - 1992-12A, 6.50%
850,000 850,000 due 09/25/2023
TOTAL MORTGAGE-BACKED SECURITIES (cost $53,357,461)
CORPORATE BONDS & NOTES - 72.20%
1,000,000 1,000,000 Aetna Services, Inc., 7.625% due 08/15/2026
2,000,000 2,000,000 American General Corporation, 9.625% due 02/01/2018
850,000 850,000 American Home Products Corporation, 7.25% due 03/01/2023
1,000,000 1,000,000 AMR Corporation, 9.75% due 03/15/2000
400,000 400,000 Banc One Corporation, Sub. Note, 10.00% due 08/15/2010
1,000,000 1,000,000 Bank of New York, 7.875% due 11/15/2002
1,000,000 1,000,000 Barclays North American Capital Corporation, Capital Note, 10.50% due 12/15/2017*
9,000,000 9,000,000 Barclays North American Capital Corporation, Capital Note, 9.75% due 05/15/2021*
1,000,000 1,000,000 Barnett Banks, Florida, Inc., Sub. Note, 10.875% due 03/15/2003
1,000,000 1,000,000 Boeing Company, 8.75% due 08/15/2021
4,000,000 4,000,000 Boeing Company, 8.75% due 08/15/2021*
2,850,000 2,850,000 BP America Inc., Guaranteed Deb., (British Petroleum Company), 10.00% due 07/01/2018
1,500,000 1,500,000 Burlington Northern, 8.75%, due 02/25/2022
1,600,000 1,600,000 Burlington Resources, 9.125% due 10/01/2021
5,000,000 5,000,000 Caterpillar Inc., Sinking fund Deb., 9.75% due 06/01/2019*
750,000 750,000 Conagra, Inc., 9.75% due 03/01/2021
6,030,000 6,030,000 Conrail Inc., Deb., 9.75% due 06/15/2020
2,000,000 2,000,000 Continental Corporation, 7.25% due 03/01/2003
500,000 500,000 Crane Company, 8.50% due 03/15/2004
<CAPTION>
----------------------------------------------
COMPOSITE SIERRA PRO
INCOME CORPORATE FORMA
FUND INCOME FUND COMBINED
----------------------------------------------
U.S. TREASURY OBLIGATIONS - 7.07% MARKET VALUE
----------------------------------------------
<S> <C> <C> <C>
U.S. Treasury Bond, 7.25% due 08/15/2022 $5,453,599 $5,453,599
U.S. Treasury Bond, 6.25% due 08/15/2023 5,854,584 5,854,584
U.S. Treasury Bond, 6.50% due 11/15/2026 1,198,439 1,198,439
U.S. Treasury Bond, 13.75% due 08/15/2004 7,038,450 7,038,450
U.S. Treasury Note, 9.00% due 05/15/1998 1,027,501 1,027,501
U.S. Treasury Note, 7.75% due 01/31/2000 1,036,563 1,036,563
U.S. Treasury Note, 6.25% due 10/31/2001 995,938 995,938
U.S. Treasury Note, 5.875% due 11/15/2005 1,196,485 1,196,485
----------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS (cost $23,546,875) 16,763,109 7,038,450 23,801,559
----------------------------------------------
MORTGAGE-BACKED SECURITIES - 16.01%
GOVERNMENT AGENCY - 13.66%
Federal Home Loan Mortgage Corporation, 9.00% due 12/01/2004 247,815 247,815
Federal Home Loan Mortgage Corporation, Commitment to Purchase, 8.00% due 01/01/2027 14,310,625 14,310,625
Federal Home Loan Mortgage Corporation, GOLD #C00362, 9.00% due 06/01/2024 1,983,784 1,983,784
Federal Home Loan Mortgage Corporation, GOLD #C80253, 9.00% due 01/01/2025 1,044,938 1,044,938
Federal National Mortgage Association, 8.00% due 12/01/2026 1,746,317 1,746,317
Government National Mortgage Association, Commitment to
Purchase, GOLD, 8.00% due 01/01/2027 14,306,250 14,306,250
Government National Mortgage Association, 6.00% due 02/15/2024 2,351,679 2,351,679
Government National Mortgage Association, 6.50% due 08/15/2023
to 04/15/2026 8,527,517 8,527,517
Government National Mortgage Association, 7.00% due 07/15/2023 1,478,502 1,478,502
----------------------------------------------
14,351,830 31,645,597 45,997,427
----------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS - GOVERNMENT AGENCY BACKED 1.4%
Federal Home Loan Mortgage Corporation, 8.75% due 06/15/2005 720,083 720,083
Federal Home Loan Mortgage Corporation, 7.50% due 07/15/2020 1,014,036 1,014,036
Weyerhaeuser 1982-C FHA Putable, 7.43% due 06/01/2022 2,967,747 2,967,747
----------------------------------------------
4,701,866 0 4,701,866
----------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS - 0.95%
Donaldson, Lufkin & Jenrette, 7.35% due 12/18/2003 1,743,865 1,743,865
Resolution Trust Corporation - 1991-M2 - A-2, 7.55% due 09/25/2020 654,924 654,924
Ryland Mortgage Securities Corporation - 1992-12A, 6.50%
due 09/25/2023 801,448 801,448
----------------------------------------------
3,200,237 0 3,200,237
----------------------------------------------
TOTAL MORTGAGE-BACKED SECURITIES (cost $53,357,461) 22,253,933 31,645,597 53,899,530
----------------------------------------------
CORPORATE BONDS & NOTES - 72.20%
Aetna Services, Inc., 7.625% due 08/15/2026 996,825 996,825
American General Corporation, 9.625% due 02/01/2018 2,120,000 2,120,000
American Home Products Corporation, 7.25% due 03/01/2023 831,880 831,880
AMR Corporation, 9.75% due 03/15/2000 1,076,115 1,076,115
Banc One Corporation, Sub. Note, 10.00% due 08/15/2010 490,500 490,500
Bank of New York, 7.875% due 11/15/2002 1,042,813 1,042,813
Barclays North American Capital Corporation, Capital Note, 10.50% due 12/15/2017* 1,066,250 1,066,250
Barclays North American Capital Corporation, Capital Note, 9.75% due 05/15/2021* 10,181,250 10,181,250
Barnett Banks, Florida, Inc., Sub. Note, 10.875% due 03/15/2003 1,181,250 1,181,250
Boeing Company, 8.75% due 08/15/2021 1,163,085 1,163,085
Boeing Company, 8.75% due 08/15/2021* 4,660,000 4,660,000
BP America Inc., Guaranteed Deb., (British Petroleum Company), 10.00% due 07/01/2018 3,049,500 3,049,500
Burlington Northern, 8.75%, due 02/25/2022 1,668,647 1,668,647
Burlington Resources, 9.125% due 10/01/2021 1,870,570 1,870,570
Caterpillar Inc., Sinking fund Deb., 9.75% due 06/01/2019* 5,468,750 5,468,750
Conagra, Inc., 9.75% due 03/01/2021 920,309 920,309
Conrail Inc., Deb., 9.75% due 06/15/2020 7,401,825 7,401,825
Continental Corporation, 7.25% due 03/01/2003 2,011,354 2,011,354
Crane Company, 8.50% due 03/15/2004 539,596 539,596
</TABLE>
-15-
<PAGE>
COMPOSITE INCOME FUND (1) and SIERRA CORPORATE INCOME FUND
Pro Forma Combined Portfolio of Investments (continued)
June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------
COMPOSITE SIERRA PRO
INCOME CORPORATE FORMA
FUND INCOME FUND COMBINED
- -------------------------------------------------
PRINCIPAL AMOUNT
- -------------------------------------------------
<S> <C> <C> <C>
$2,000,000 $2,000,000 Dart & Kraft Finance NV, 7.75% due 11/30/1998
500,000 500,000 Developers Diversified Realty, 6.58% due 02/06/2001
5,000,000 5,000,000 du Pont (E.I.) de Nemours & Company, Deb., 8.25% due 01/15/2022*
3,010,000 3,010,000 Federal Paper Board Company, Deb., 10.00% due 04/15/2011
1,250,000 1,250,000 FHP International, 7.00% due 09/15/2003
1,100,000 1,100,000 First Interstate Bancorp, Sub. Note, 9.125% due 02/01/2004
1,000,000 1,000,000 First Nationwide, 10.00% due 10/01/2006
1,000,000 1,000,000 Fleming Companies, Inc., 5.77% due 08/06/1998
2,000,000 2,000,000 Ford Holdings, Inc., Deb., 9.375% due 03/01/2020*
3,750,000 3,750,000 Ford Motor Company, Deb., 8.875% due 01/15/2022
900,000 900,000 Franchise Finance Corporation, 7.00% due 11/30/2000
1,100,000 1,100,000 Franchise Finance Corporation, 7.875% due 11/30/2005
1,000,000 1,000,000 GATX Leasing Corporation, MTN, 10.00% due 03/21/2001
8,000,000 8,000,000 General Motors Corporation, Deb., 9.40% due 07/15/2021
850,000 850,000 Golden Books Publishing, 7.65% due 09/15/2002
250,000 250,000 GTE Corporation, Deb., 10.30% due 11/15/2017
1,000,000 1,000,000 GTE Corporation, Sinking Fund Deb., 10.75% due 09/15/2017
1,300,000 1,300,000 Hartford Life Insurance Company, 7.65% due 06/15/2027
1,450,000 1,450,000 Integon Corporation, 8.00% due 08/15/1999
6,000,000 6,000,000 James River Corporation, Deb., 9.25% due 11/15/2021
1,250,000 1,250,000 Kemper Corporation, 6.875% due 09/15/2003
1,000,000 1,000,000 Loral Corporation, 8.375% due 6/15/2024
1,000,000 1,000,000 Loral Corporation, 7.625% due 6/15/2025
5,000,000 5,000,000 Louisiana Power & Light Company, First Mortgage, 8.50% due 07/01/2022
1,000,000 1,000,000 Manufacturers and Traders Trust Company, 8.125% due 12/01/2002
1,500,000 1,500,000 May Department Stores Company, Deb., 9.875% due 06/15/2021*
5,100,000 5,100,000 May Department Stores Company, Deb., 8.375% due 10/01/2022*
1,000,000 1,000,000 Mellon Financial Company, Sub. Deb., 9.75% due 06/15/2001
500,000 500,000 Mercantile Bank, 7.625% due 10/15/2002
5,000,000 5,000,000 Mississippi Power & Light Company, First and Refundable Mortgage, 8.65% due
01/15/2023
8,125,000 8,125,000 NCNB Corporation, Sub. Note, 10.20% due 07/15/2015*
1,000,000 1,000,000 Niagara Mohawk Power, 9.75% due 11/01/2005
1,445,000 1,445,000 Niagara Mohawk Power, 8.77% due 01/01/2018
3,800,000 3,800,000 Norfolk Southern Corporation, 7.80% due 05/15/2027
1,000,000 1,000,000 Norwest Corporation, 6.65% due 10/15/2023
8,700,000 8,700,000 Occidental Petroleum Corporation, Sr. Deb., 11.125% due 08/01/2010
6,500,000 6,500,000 Ogden Corporation, Deb., 9.25% due 03/01/2022
1,000,000 1,000,000 Pacific Gas and Electric, 9.08% due 12/15/1997
2,500,000 2,500,000 Panhandle Eastern Pipe Line Company, Deb., 8.625% due 04/15/2025
8,500,000 8,500,000 Petro-Canada, Deb., 9.25% due 10/15/2021
2,000,000 2,000,000 Philadelphia Electric Company, First and Refundable Mortgage, 8.25% due
09/01/2022
5,950,000 5,950,000 Phillips Petroleum Company, Deb., 9.180% due 09/15/2021*
6,860,000 6,860,000 Praxair, Inc., Deb., 8.70% due 07/15/2022
1,400,000 1,400,000 Riviera Holdings Corporation, 11.00% due 12/31/2002
500,000 500,000 Summit Bancorp, 8.625% due 12/10/2002
1,200,000 1,200,000 Texas Utilities Electric, 9.50% due 08/01/1999
1,200,000 1,200,000 Texas Utilities Electric Company, First Mortgage, 8.875% due 02/01/2022
3,000,000 3,000,000 Texas Utilities Electric Company, First Mortgage, 8.75% due 11/01/2023
7,800,000 7,800,000 Textron Inc., Deb., 8.75%, due 07/01/2022
5,750,000 5,750,000 Trans-Canada Pipeline Corporation, Deb., 8.50% due 03/20/2023
500,000 7,760,000 8,260,000 Time Warner, Inc., Deb., 9.15% due 02/01/2023
8,450,000 8,450,000 Tyco Laboratories, Inc., Deb., 9.50% due 05/01/2022
5,000,000 5,000,000 United Air Lines Inc., Equipment Trust certificates, 10.85% due 07/05/2014
3,000,000 3,000,000 United Air Lines Inc., Pass-through certificates, 9.080% due 10/26/2015
5,500,000 5,500,000 United Air Lines Inc., Pass-through certificates, 9.560% due 10/19/2018
300,000 300,000 U S West Capital Funding, Inc., 6.95% due 01/15/2037
1,000,000 1,000,000 V.F. Corporation, Note, 9.50% due 05/01/2001
1,000,000 1,000,000 Weyerhaeuser Corporation, 7.125% due 07/15/2023
TOTAL NON-CONVERTIBLE CORPORATE BONDS & NOTES (cost $233,636,353)
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------
COMPOSITE SIERRA PRO
INCOME CORPORATE FORMA
FUND INCOME FUND COMBINED
-----------------------------------------------
MARKET VALUE
-----------------------------------------------
<S> <C> <C> <C>
Dart & Kraft Finance NV, 7.75% due 11/30/1998 $2,033,882 $2,033,882
Developers Diversified Realty, 6.58% due 02/06/2001 490,174 490,174
du Pont (E.I.) de Nemours & Company, Deb., 8.25% due 01/15/2022* 5,162,500 5,162,500
Federal Paper Board Company, Deb., 10.00% due 04/15/2011 3,698,537 3,698,537
FHP International, 7.00% due 09/15/2003 1,238,041 1,238,041
First Interstate Bancorp, Sub. Note, 9.125% due 02/01/2004 1,222,375 1,222,375
First Nationwide, 10.00% due 10/01/2006 1,149,191 1,149,191
Fleming Companies, Inc., 5.77% due 08/06/1998 954,506 954,506
Ford Holdings, Inc., Deb., 9.375% due 03/01/2020* 2,367,500 2,367,500
Ford Motor Company, Deb., 8.875% due 01/15/2022 4,293,750 4,293,750
Franchise Finance Corporation, 7.00% due 11/30/2000 902,890 902,890
Franchise Finance Corporation, 7.875% due 11/30/2005 1,139,030 1,139,030
GATX Leasing Corporation, MTN, 10.00% due 03/21/2001 1,100,000 1,100,000
General Motors Corporation, Deb., 9.40% due 07/15/2021 9,480,000 9,480,000
Golden Books Publishing, 7.65% due 09/15/2002 805,375 805,375
GTE Corporation, Deb., 10.30% due 11/15/2017 265,625 265,625
GTE Corporation, Sinking Fund Deb., 10.75% due 09/15/2017 1,057,500 1,057,500
Hartford Life Insurance Company, 7.65% due 06/15/2027 1,295,125 1,295,125
Integon Corporation, 8.00% due 08/15/1999 1,463,713 1,463,713
James River Corporation, Deb., 9.25% due 11/15/2021 6,690,000 6,690,000
Kemper Corporation, 6.875% due 09/15/2003 1,243,249 1,243,249
Loral Corporation, 8.375% due 6/15/2024 1,094,546 1,094,546
Loral Corporation, 7.625% due 6/15/2025 1,012,056 1,012,056
Louisiana Power & Light Company, First Mortgage, 8.50% due 07/01/2022 5,025,000 5,025,000
Manufacturers and Traders Trust Company, 8.125% due 12/01/2002 1,050,083 1,050,083
May Department Stores Company, Deb., 9.875% due 06/15/2021* 1,704,375 1,704,375
May Department Stores Company, Deb., 8.375% due 10/01/2022* 5,240,250 5,240,250
Mellon Financial Company, Sub. Deb., 9.75% due 06/15/2001 1,101,250 1,101,250
Mercantile Bank, 7.625% due 10/15/2002 515,709 515,709
Mississippi Power & Light Company, First and Refundable Mortgage, 8.65% due
01/15/2023 5,325,000 5,325,000
NCNB Corporation, Sub. Note, 10.20% due 07/15/2015* 10,176,562 10,176,562
Niagara Mohawk Power, 9.75% due 11/01/2005 1,093,328 1,093,328
Niagara Mohawk Power, 8.77% due 01/01/2018 1,489,672 1,489,672
Norfolk Southern Corporation, 7.80% due 05/15/2027 3,895,000 3,895,000
Norwest Corporation, 6.65% due 10/15/2023 894,630 894,630
Occidental Petroleum Corporation, Sr. Deb., 11.125% due 08/01/2010 11,233,875 11,233,875
Ogden Corporation, Deb., 9.25% due 03/01/2022 7,304,375 7,304,375
Pacific Gas and Electric, 9.08% due 12/15/1997 1,014,265 1,014,265
Panhandle Eastern Pipe Line Company, Deb., 8.625% due 04/15/2025 2,662,500 2,662,500
Petro-Canada, Deb., 9.25% due 10/15/2021 10,136,250 10,136,250
Philadelphia Electric Company, First and Refundable Mortgage, 8.25% due
09/01/2022 2,100,000 2,100,000
Phillips Petroleum Company, Deb., 9.180% due 09/15/2021* 6,500,375 6,500,375
Praxair, Inc., Deb., 8.70% due 07/15/2022 7,400,225 7,400,225
Riviera Holdings Corporation, 11.00% due 12/31/2002 1,477,000 1,477,000
Summit Bancorp, 8.625% due 12/10/2002 535,380 535,380
Texas Utilities Electric, 9.50% due 08/01/1999 1,263,511 1,263,511
Texas Utilities Electric Company, First Mortgage, 8.875% due 02/01/2022 1,269,000 1,269,000
Texas Utilities Electric Company, First Mortgage, 8.75% due 11/01/2023 3,255,000 3,255,000
Textron Inc., Deb., 8.75%, due 07/01/2022 8,453,250 8,453,250
Trans-Canada Pipeline Corporation, Deb., 8.50% due 03/20/2023 6,073,438 6,073,438
Time Warner, Inc., Deb., 9.15% due 02/01/2023 553,280 8,545,700 9,098,980
Tyco Laboratories, Inc., Deb., 9.50% due 05/01/2022 9,717,500 9,717,500
United Air Lines Inc., Equipment Trust certificates, 10.85% due 07/05/2014 6,237,500 6,237,500
United Air Lines Inc., Pass-through certificates, 9.080% due 10/26/2015 3,266,250 3,266,250
United Air Lines Inc., Pass-through certificates, 9.560% due 10/19/2018 6,283,750 6,283,750
U S West Capital Funding, Inc., 6.95% due 01/15/2037 297,514 297,514
V.F. Corporation, Note, 9.50% due 05/01/2001 1,091,250 1,091,250
Weyerhaeuser Corporation, 7.125% due 07/15/2023 959,691 959,691
-------------------------------------------------
TOTAL NON-CONVERTIBLE CORPORATE BONDS & NOTES (cost $233,636,353) 36,791,910 206,249,912 243,041,822
-------------------------------------------------
</TABLE>
-16-
<PAGE>
COMPOSITE INCOME FUND (1) and SIERRA CORPORATE INCOME FUND
Pro Forma Combined Portfolio of Investments (continued)
June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
COMPOSITE SIERRA PRO
INCOME CORPORATE FORMA
FUND INCOME FUND COMBINED
- ---------------------------------------------------------------
PRINCIPAL AMOUNT
- ---------------------------------------------------------------
<C> <C> <C> <S>
CONVERTIBLE CORPORATE BONDS - 1.24%
$250,000 $250,000 Battle Mountain Gold Company, 6.00% due 01/04/2005
1,000,000 1,000,000 CII Financial, 7.50% due 09/15/2001
200,000 200,000 First State Bancorporation, 7.50% due 04/30/2017
1,400,000 1,400,000 Integrated Device Technology, Inc., 5.50% due 06/01/2002
350,000 350,000 Jumbosports, Inc., 4.25% due 11/01/2000
750,000 750,000 Spectrum Holobyte, Inc., 6.50% due 09/15/2002
1,200,000 1,200,000 Veterinary Centers of America, 5.25% due 05/01/2006
TOTAL CONVERTIBLE CORPORATE BONDS (cost $4,103,142)
U.S. DOLLAR FOREIGN OBLIGATIONS - 0.72%
1,000,000 1,000,000 Province of Alberta, 9.25% due 04/01/2000
1,750,000 1,750,000 United Mexican States, Series B, 6.25% due 12/31/2019
TOTAL FOREIGN OBLIGATIONS (cost $2,048,522)
PREFERRED STOCKS - 0.95%
SHARES
- ---------------------------------------------------------------
2,000 2,000 California Federal Bank, Series B
4,700 4,700 Equity Residential Properties Trust, Series E (Convertible)
15,100 15,100 First Industrial Realty Trust, Series A
17,500 17,500 Integon Corporation (Convertible)
13,000 13,000 Microsoft Corporation (Convertible)
5,500 5,500 Pacificare Health Systems, Inc., Series A (Convertible)
TOTAL PREFERRED STOCK (cost $2,718,147)
INVESTMENT COMPANY SECURITY - 1.58%
5,305,464 5,305,464 Lehman Provident Tempfund (cost $5,305,464)
PRINCIPAL
AMOUNT
REPURCHASE AGREEMENT - 0.23%
Repurchase agreement with Goldman Sachs, collateralized by a
U.S. Treasury Note, in a joint trading account at 5.75%,
dated 06/30/1997, due 07/01/1997, with a maturity value of
$789,000 789,000 $789,126 (cost $789,000)
TOTAL INVESTMENTS (cost $325,504,964)
<CAPTION>
-----------------------------------------------------------
COMPOSITE SIERRA PRO
INCOME CORPORATE FORMA
FUND INCOME FUND COMBINED
-----------------------------------------------------------
MARKET VALUE
-----------------------------------------------------------
<S> <C> <C> <C>
CONVERTIBLE CORPORATE BONDS - 1.24%
Battle Mountain Gold Company, 6.00% due 01/04/2005 $201,875 $201,875
CII Financial, 7.50% due 09/15/2001 945,000 945,000
First State Bancorporation, 7.50% due 04/30/2017 216,750 216,750
Integrated Device Technology, Inc., 5.50% due 06/01/2002 1,195,250 1,195,250
Jumbosports, Inc., 4.25% due 11/01/2000 242,375 242,375
Spectrum Holobyte, Inc., 6.50% due 09/15/2002 544,688 544,688
Veterinary Centers of America, 5.25% due 05/01/2006 838,500 838,500
-----------------------------------------------------------
TOTAL CONVERTIBLE CORPORATE BONDS (cost $4,103,142) 4,184,438 0 4,184,438
-----------------------------------------------------------
U.S. DOLLAR FOREIGN OBLIGATIONS - 0.72%
Province of Alberta, 9.25% due 04/01/2000 1,073,010 1,073,010
United Mexican States, Series B, 6.25% due 12/31/2019 1,356,250 1,356,250
-----------------------------------------------------------
TOTAL FOREIGN OBLIGATIONS (cost $2,048,522) 2,429,260 0 2,429,260
-----------------------------------------------------------
PREFERRED STOCKS - 0.95%
California Federal Bank, Series B 220,500 220,500
Equity Residential Properties Trust, Series E (Convertible) 125,138 125,138
First Industrial Realty Trust, Series A 396,375 396,375
Integon Corporation (Convertible) 1,161,562 1,161,562
Microsoft Corporation (Convertible) 1,131,000 1,131,000
Pacificare Health Systems, Inc., Series A (Convertible) 147,812 147,812
-----------------------------------------------------------
TOTAL PREFERRED STOCK (cost $2,718,147) 3,182,387 0 3,182,387
-----------------------------------------------------------
INVESTMENT COMPANY SECURITY - 1.58%
Lehman Provident Tempfund (cost $5,305,464) 0 5,305,464 5,305,464
-----------------------------------------------------------
REPURCHASE AGREEMENT - 0.23%
Repurchase agreement with Goldman Sachs, collateralized by a
U.S. Treasury Note, in a joint trading account at 5.75%,
dated 06/30/1997, due 07/01/1997, with a maturity value of
$789,126 (cost $789,000) 789,000 789,000
-----------------------------------------------------------
TOTAL INVESTMENTS (cost $325,504,964) $86,394,037 $250,239,423 $336,633,460
===========================================================
</TABLE>
* Security is pledged as collateral for dollar roll transactions.
GOLD = Payments are made on an accelerated 45-day payment cycle instead of
75-day cycle
MTN = Medium Term Note
(1) Formerly Composite Income Fund, Inc.
-17-
<PAGE>
Composite Income Fund and Sierra Corporate Income Fund
Notes to Pro Forma Financial Statements (unaudited)
1. Basis of Combination
The pro forma combined financial statements reflect the combined financial
position of Composite Income Fund (formerly Composite Income Fund, Inc.)
and Sierra Corporate Income Fund at June 30, 1997, and the pro forma
combined results of operations for the year ended December 31, 1996 and the
six month period ended June 30, 1997 as though the reorganization had
occurred on January 1, 1996.
The pro forma combined financial statements are presented for the
information of the reader and may not necessarily be representative of how
the pro forma combined financial statements would have appeared had the
reorganization actually occurred.
The Pro Forma Combined Portfolio of Investments, Statement of Assets and
Liabilities, and the Statement of Operations should be read in conjunction
with the historical financial statements of the funds incorporated by
reference in the Statement of Additional Information.
The pro forma statements give effect to the proposed transfer of the assets
and stated liabilities of the Sierra Corporate Income Fund in exchange for
shares of Composite Income Fund. Under generally accepted accounting
principles, the historical cost of investment securities will be carried
forward to the surviving entity.
The pro forma statements do not reflect the expenses of either fund in
carrying out its obligations under the proposed Agreement and Plan of
Reorganization.
2. Pro Forma Combined Portfolio of Investments
Securities held by the two funds have been combined in the accompanying
Combined Portfolio of Investments. Securities are stated at market value as
determined by the Funds as of June 30, 1997. Historical cost amounts
represent the combined cost basis of the securities.
-18-
<PAGE>
Composite Income Fund and Sierra Corporate Income Fund
Notes to Pro Forma Financial Statements (unaudited) (continued)
3. Pro Forma Statement of Assets and Liabilities
Shares outstanding have been adjusted to reflect the conversion of Sierra
shares into Composite shares based upon the net asset value of Composite
shares at June 30, 1997.
4. Pro Forma Statements of Operations
The pro forma statements of operations reflect the following adjustments:
A. A decrease in management fees to reflect the new fee structure. Fees
are based on .625% of average daily net assets up to $250,000,000 and
.50% of average daily net assets over that amount.
B. An elimination of the Sierra administration fees, now incorporated in
the management fee structure. Also, expenses of the Fund will no longer
be reimbursed. Shareholder servicing and distribution expenses have
been adjusted to reflect a rate of .25% of average daily net assets.
Other expenses have been adjusted based on an overall estimated expense
ratio of 1.09%.
-19-
<PAGE>
PRO FORMA STATEMENT OF ASSETS AND LIABILITIES AT JUNE 30, 1997 (unaudited)
<TABLE>
<CAPTION>
Pro Forma
Sierra Global Composite Money Adjustments Pro Forma
Money Fund Market Fund (Note 3) Combined
------------- --------------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS:
Investments, at value, (cost $190,219,001, $190,219,001 $280,610,394 $451,037,395
$260,818,394, and $451,037,395)
Cash, receivables, and other assets 2,809,686 3,787,156 6,596,842
------------- ------------ ------------
Total Assets 193,028,687 264,605,550 457,634,237
------------- ------------ ------------
LIABILITIES:
Accrued expenses and other liabilities 1,501,118 8,167,003 9,668,121
------------- ------------ ------------
Total Liabilities 1,501,118 8,167,003 9,668,121
------------- ------------ ------------
Net Assets $191,527,569 $256,438,547 $447,966,116
============ ============ ============
Outstanding Shares
- ------------------
Class A 104,654,469 256,221,535 (352,565) 360,523,439
============ ============ ============
Class B 1,308,787 217,012 5,562 1,531,361
============ ============ ============
Class S 6,879,685 - 29,236 6,908,921
============ ============ ============
Class I 78,668,083 - 334,312 79,002,395
============ ============ ============
Net Asset Value
- ---------------
Class A $104,301,904 $256,221,535 $360,523,439
============ ============ ============
Class B $1,314,349 $217,012 $1,531,361
============ ============ ============
Class S $6,908,921 - $6,908,921
============ ============ ============
Class I $79,002,395 - $79,002,395
============ ============ ============
Net Asset Value
Per Share
- ---------------
Class A $1.00 $1.00 $1.00
============ ============ ============
Class B $1.00 $1.00 $1.00
============ ============ ============
Class S $1.00 - $1.00
============ ============ ============
Class I $1.00 - $1.00
============ ============ ============
</TABLE>
See accompanying notes to pro forma financial statements.
-20-
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996 (Unaudited)
Pro Forma
Sierra Global Composite Money Adjustments Pro Forma
Money Fund Market Fund (Note 4) Combined
-------------- --------------- ----------- ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest and Other $ 9,296,450 $ 11,252,565 $ 0 $20,549,015
-------------- --------------- ----------- ------------
EXPENSES:
Management fees 681,261 916,867 (101,874) 1,496,254
Administration fees 510,947 0 (510,947) 0
Transfer agent fees 0 411,078 561,487 972,565
Distribution fees
Class A Shares 364,959 20,720 (385,679) 0
Class B Shares 5,001 1,270 0 6,271
Class S Shares 174,336 0 0 174,336
All other expenses 306,506 460,353 (93,545) 673,314
Expense reimbursement (809,156) (202,612) 824,736 (187,032)
-------------- --------------- ----------- --------------
Subtotal 1,233,854 1,607,676 294,178 3,135,708
-------------- --------------- ----------- --------------
Fees paid indirectly (6,667) (66,693) 0 (73,360)
-------------- --------------- ----------- --------------
Total Expenses 1,227,187 1,540,983 294,178 3,062,348
-------------- --------------- ----------- --------------
NET INVESTMENT INCOME 8,069,263 9,711,582 (294,178) 17,486,667
-------------- --------------- ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net Realized Gain (Loss) From Security Transactions 10,818 0 0 10,818
(excluding short term securities)
Net Unrealized Appreciation (Depreciation) of Investments 0 0 0 0
-------------- --------------- ----------- -----------
Net Realized and Unrealized Gain (Loss) on Investments 10,818 0 0 10,818
-------------- --------------- ----------- -----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 8,080,081 $ 9,711,582 ($294,178) $17,497,485
============== =============== =========== ===========
See accompanying notes to pro forma financial statements.
</TABLE>
-21-
<PAGE>
PRO FORMA STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Pro Forma
Sierra Global Composite Money Adjustments Pro Forma
Money Fund Market Fund (Note 4) Combined
------------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest and Other $4,909,540 $6,747,798 $ 0 $11,657,338
---------- ---------- --------- -----------
EXPENSES:
Management fees 351,058 543,906 (60,434) 834,530
Administration fees 263,293 0 (263,293) 0
Transfer agent fees 0 247,317 295,128 542,445
Distribution fees
Class A Shares 136,340 11,581 (147,921) 0
Class B Shares 5,220 614 0 5,834
Class S Shares 34,868 0 0 34,868
All Other Expenses 218,633 249,286 (92,380) (375,539)
Expense reimbursement (301,660) (113,150) 310,494 (104,316)
---------- ---------- --------- -----------
Subtotal 707,752 939,554 41,594 1,688,900
---------- ---------- --------- -----------
Fees paid indirectly (4,893) (29,327) 0 (34,220)
---------- ---------- --------- -----------
Total Expenses 702,859 910,227 41,594 1,654,680
---------- ---------- --------- -----------
NET INVESTMENT INCOME 4,206,681 5,837,571 (41,594) 10,002,658
---------- ---------- --------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net Realized Gain (Loss) From Security Transactions 8,702 0 0 8,702
(excluding short term securities)
Net Unrealized Appreciation (Depreciation) of Investments 0 0 0 0
---------- ---------- --------- -----------
Net Realized and Unrealized Gain (Loss) on Investments 8,702 0 0 8,702
---------- ---------- --------- -----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $4,215,383 $5,837,571 ($41,594) $10,011,360
========== ========== =========== ===========
</TABLE>
See accompanying notes to pro forma financial statements.
-22-
<PAGE>
COMPOSITE MONEY MARKET FUND (1) and SIERRA GLOBAL MONEY FUND
Pro Forma Combined Portfolio of Investments
June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------
COMPOSITE SIERRA PRO
MONEY GLOBAL FORMA
MARKET FUND MONEY FUND COMBINED
- ------------------------------------------------------
PRINCIPAL AMOUNT
- ------------------------------------------------------
<C> <C> <C> <S>
SHORT-TERM INVESTMENTS
BANKERS ACCEPTANCES - 1.32%
$3,000,000 $3,000,000 Chase Manhattan Bank NA New York, 5.56% due 07/14/1997
3,000,000 3,000,000 Chase Manhattan Bank NA New York, 5.60% due 08/19/1997
TOTAL BANKERS ACCEPTANCE (cost $5,971,110)
CERTIFICATES OF DEPOSIT - DOMESTIC - 5.77%
3,000,000 3,000,000 Bank of America, 5.57% due 11/07/1997
3,000,000 3,000,000 Bank of America, 5.85% due 11/03/1997
8,000,000 8,000,000 Bankers Trust Corporation, 5.70% due 07/10/1997
5,000,000 5,000,000 Bankers Trust New York Corporation, 5.70% due 07/10/1997
7,000,000 7,000,000 NationsBank Corporation, 5.54% due 07/15/1997
TOTAL CERTIFICATES OF DEPOSIT - DOMESTIC (cost $25,999,500)
CERTIFICATES OF DEPOSIT - FOREIGN - 18.33%
5,000,000 5,000,000 Australia & New Zealand Bank, 5.70% due 07/07/1997
5,000,000 5,000,000 Banque Nationale de Paris, 5.70% due 08/04/1997
3,000,000 3,000,000 Barclays Bank Plc, 5.94% due 06/19/1998
8,000,000 8,000,000 Dai-Ichi Kangyo Bank Ltd., 5.81% due 07/10/1997**
2,000,000 2,000,000 Deutsche Bank, 5.56% due 07/21/1997
2,000,000 2,000,000 Deutsche Bank, 5.69% due10/28/1997
5,000,000 5,000,000 Deutsche Bank, 5.70% due 02/06/1998
6,000,000 6,000,000 Industrial Bank of Japan, 5.67% due 07/11/1997
2,500,000 2,500,000 Industrial Bank of Japan, 5.84% due 08/18/1997
2,000,000 2,000,000 Rabobank Nederland, 5.99% due 03/24/1998
9,200,000 9,200,000 Sanwa Bank Ltd., 5.65% due 07/07/1997
7,000,000 7,000,000 Societe Generale, New York, 5.72% due 08/06/1997
2,000,000 2,000,000 Societe Generale, New York, 5.84% due 10/06/1997
5,000,000 5,000,000 Societe Generale New York Branch, 5.50% due 08/07/1997
5,000,000 5,000,000 Sumitomo Bank Ltd., 5.66% due 07/03/1997
2,000,000 2,000,000 Sumitomo Bank Ltd., 5.75% due 08/19/1997
5,000,000 5,000,000 Swiss Bank Corporation, 5.98% due 03/19/1998
7,000,000 7,000,000 Westdeutsche Landesbank Girozentrale, 5.52% due 07/07/1997
TOTAL CERTIFICATES OF DEPOSIT - FOREIGN (cost $82,696,028)
COMMERCIAL PAPER - DOMESTIC - 37.50%
5,000,000 5,000,000 American Express Credit Corporation, 5.54% due 08/04/1997
5,000,000 5,000,000 Associates Corporation of North America, 5.635% due 07/15/1997**
4,000,000 4,000,000 Associates Corporation of North America, 5.653% due 07/24/1997**
8,000,000 8,000,000 Banc One Corporation, 5.631% due 07/01/1997**
8,000,000 8,000,000 BBL-North America, Inc., 5.78% due 07/01/1997**
5,000,000 5,000,000 BT Securities Corporation, 5.65% due 07/11/1997
5,000,000 5,000,000 Bank of New York Company, Inc., 5.535% due 07/22/1997
5,000,000 5,000,000 Bear Stearns Company, Inc., 5.60% due 08/11/1997
5,000,000 5,000,000 Bear Stearns Company, Inc., 5.60% due 08/15/1997
5,000,000 5,000,000 Beneficial Corporation, 5.61% due 07/01/1997
2,500,000 2,500,000 Beneficial Corporation, 5.56% due 07/28/1997
5,000,000 5,000,000 Chrysler Financial Corporation, 5.58% due 08/12/1997
5,000,000 5,000,000 John Deere Capital Corporation, 5.61% due 07/07/1997
5,000,000 5,000,000 Ford Motor Credit Company, 5.60% due 07/08/1997
4,000,000 4,000,000 Ford Motor Credit Company, 5.55% due 08/25/1997
9,000,000 9,000,000 Ford Motor Credit Company, 5.884% due 12/02/1997**
5,000,000 5,000,000 General Electric Capital Corporation, 5.62% due 07/07/1997
5,000,000 5,000,000 General Electric Capital Corporation, 5.63% due 07/07/1997
3,000,000 3,000,000 General Electric Capital Corporation, 6.00% due 01/23/1998**
<CAPTION>
--------------------------------------------------
COMPOSITE SIERRA PRO
MONEY GLOBAL FORMA
MARKET FUND MONEY FUND COMBINED
--------------------------------------------------
MARKET VALUE
--------------------------------------------------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
BANKERS ACCEPTANCES - 1.32%
Chase Manhattan Bank NA New York, 5.56% due 07/14/1997 $2,993,977 $2,993,977
Chase Manhattan Bank NA New York, 5.60% due 08/19/1997 2,977,133 2,977,133
--------------------------------------------------
TOTAL BANKERS ACCEPTANCE (cost $5,971,110) 5,971,110 0 5,971,110
--------------------------------------------------
CERTIFICATES OF DEPOSIT - DOMESTIC - 5.77%
Bank of America, 5.57% due 11/07/1997 2,999,481 2,999,481
Bank of America, 5.85% due 11/03/1997 3,000,000 3,000,000
Bankers Trust Corporation, 5.70% due 07/10/1997 8,000,000 8,000,000
Bankers Trust New York Corporation, 5.70% due 07/10/1997 5,000,019 5,000,019
NationsBank Corporation, 5.54% due 07/15/1997 7,000,000 7,000,000
--------------------------------------------------
TOTAL CERTIFICATES OF DEPOSIT - DOMESTIC (cost $25,999,500) 5,000,019 20,999,481 25,999,500
--------------------------------------------------
CERTIFICATES OF DEPOSIT - FOREIGN - 18.33%
Australia & New Zealand Bank, 5.70% due 07/07/1997 5,000,005 5,000,005
Banque Nationale de Paris, 5.70% due 08/04/1997 5,000,000 5,000,000
Barclays Bank Plc, 5.94% due 06/19/1998 2,998,725 2,998,725
Dai-Ichi Kangyo Bank Ltd., 5.81% due 07/10/1997** 8,000,019 8,000,019
Deutsche Bank, 5.56% due 07/21/1997 2,000,011 2,000,011
Deutsche Bank, 5.69% due10/28/1997 1,999,688 1,999,688
Deutsche Bank, 5.70% due 02/06/1998 4,998,845 4,998,845
Industrial Bank of Japan, 5.67% due 07/11/1997 6,000,017 6,000,017
Industrial Bank of Japan, 5.84% due 08/18/1997 2,500,033 2,500,033
Rabobank Nederland, 5.99% due 03/24/1998 1,999,304 1,999,304
Sanwa Bank Ltd., 5.65% due 07/07/1997 9,199,969 9,199,969
Societe Generale, New York, 5.72% due 08/06/1997 7,000,069 7,000,069
Societe Generale, New York, 5.84% due 10/06/1997 1,999,847 1,999,847
Societe Generale New York Branch, 5.50% due 08/07/1997 5,000,050 5,000,050
Sumitomo Bank Ltd., 5.66% due 07/03/1997 5,000,011 5,000,011
Sumitomo Bank Ltd., 5.75% due 08/19/1997 2,000,000 2,000,000
Swiss Bank Corporation, 5.98% due 03/19/1998 4,999,317 4,999,317
Westdeutsche Landesbank Girozentrale, 5.52% due 07/07/1997 7,000,118 7,000,118
--------------------------------------------------
TOTAL CERTIFICATES OF DEPOSIT - FOREIGN (cost $82,696,028) 17,000,173 65,695,855 82,696,028
--------------------------------------------------
COMMERCIAL PAPER - DOMESTIC - 37.50%
American Express Credit Corporation, 5.54% due 08/04/1997 4,973,839 4,973,839
Associates Corporation of North America, 5.635% due 07/15/1997** 4,989,247 4,989,247
Associates Corporation of North America, 5.653% due 07/24/1997** 3,985,817 3,985,817
Banc One Corporation, 5.631% due 07/01/1997** 8,000,000 8,000,000
BBL-North America, Inc., 5.78% due 07/01/1997** 8,000,000 8,000,000
BT Securities Corporation, 5.65% due 07/11/1997 4,992,153 4,992,153
Bank of New York Company, Inc., 5.535% due 07/22/1997 4,983,856 4,983,856
Bear Stearns Company, Inc., 5.60% due 08/11/1997 4,968,111 4,968,111
Bear Stearns Company, Inc., 5.60% due 08/15/1997 4,965,000 4,965,000
Beneficial Corporation, 5.61% due 07/01/1997 5,000,000 5,000,000
Beneficial Corporation, 5.56% due 07/28/1997 2,489,575 2,489,575
Chrysler Financial Corporation, 5.58% due 08/12/1997 4,967,450 4,967,450
John Deere Capital Corporation, 5.61% due 07/07/1997 4,995,325 4,995,325
Ford Motor Credit Company, 5.60% due 07/08/1997 4,994,556 4,994,556
Ford Motor Credit Company, 5.55% due 08/25/1997 3,966,083 3,966,083
Ford Motor Credit Company, 5.884% due 12/02/1997** 8,782,860 8,782,860
General Electric Capital Corporation, 5.62% due 07/07/1997 4,995,317 4,995,317
General Electric Capital Corporation, 5.63% due 07/07/1997 4,995,308 4,995,308
General Electric Capital Corporation, 6.00% due 01/23/1998** 2,902,150 2,902,150
</TABLE>
-23-
<PAGE>
COMPOSITE MONEY MARKET FUND (1) and SIERRA GLOBAL MONEY FUND
Pro Forma Combined Portfolio of Investments (continued)
June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------
COMPOSITE SIERRA PRO
MONEY GLOBAL FORMA
MARKET FUND MONEY FUND COMBINED
- -------------------------------------------------------
PRINCIPAL AMOUNT
- -------------------------------------------------------
<C> <C> <C> <S>
$3,000,000 $3,000,000 General Motors Acceptance Corporation, 5.59% due 07/03/1997
4,500,000 4,500,000 General Motors Acceptance Corporation, 5.44% due 07/14/1997
4,000,000 4,000,000 Goldman Sachs Group L.P., 6.15% due 07/01/1997
5,000,000 5,000,000 Goldman Sachs Group L.P., 5.60% due 09/03/1997
3,000,000 3,000,000 IBM Corporation, 5.56% due 08/05/1997
5,000,000 5,000,000 IBM Corporation, 5.55% due 08/25/1997
4,300,000 4,300,000 International Lease Finance Corporation, 5.55% due 08/11/1997
2,600,000 2,600,000 International Lease Finance Corporation, 5.58% due 09/03/1997
1,979,000 1,979,000 Koch Industries, 6.165% due 07/01/1997 **
4,000,000 4,000,000 Merrill Lynch and Company, 5.58% due 07/16/1997
5,000,000 5,000,000 Merrill Lynch and Company, 5.58% due 08/08/1997
2,000,000 2,000,000 Merrill Lynch and Company, 5.62% due 08/08/1997
5,000,000 5,000,000 Morgan Stanley Group Inc., 5.57% due 07/21/1997
5,000,000 5,000,000 Morgan Stanley Group Inc., 5.61% due 08/25/1997
2,114,000 2,114,000 Nebraska Higher Education Loan Program, 5.55% due 07/24/1997
5,000,000 5,000,000 Oyster Creek Fuel Corporation, 5.55% due 07/09/1997
5,000,000 5,000,000 Sears Roebuck Acceptance Corporation, 5.63% due 07/07/1997
5,000,000 5,000,000 Sears Roebuck Acceptance Corporation, 5.58% due 07/23/1997
TOTAL COMMERCIAL PAPER - DOMESTIC (cost $169,124,167)
COMMERCIAL PAPER - FOREIGN - 21.58%
3,000,000 3,000,000 Abbey National North America Corporation, 5.771% due 08/01/1997 **
2,000,000 2,000,000 Abbey National North America Corporation, 5.522% due 08/11/1997 **
5,000,000 5,000,000 ABN Amro Bank, N.V., 5.776% due 08/19/1997 **
5,000,000 5,000,000 American Honda Finance Corporation, Inc., 5.57% due 7/21/1997
2,500,000 2,500,000 American Honda Finance Corporation, Inc., 5.57% due 7/25/1997
5,000,000 5,000,000 Barclays U.S. Funding Corporation, 5.825% due 08/22/1997 **
4,000,000 4,000,000 BHP Finance (USA) Inc., 5.55% due 07/08/1997
1,700,000 1,700,000 BHP Finance (USA) Inc., 5.55% due 07/09/1997
8,000,000 8,000,000 Den Danske Corporation, 5.789% due 07/02/1997 **
5,000,000 5,000,000 Eksportfinans A/S, 5.56% due 07/31/1997
2,500,000 2,500,000 Eksportfinans A/S, 5.60% due 08/21/1997
6,000,000 6,000,000 Hitachi America, Limited, 5.55% due 08/18/1997
5,000,000 5,000,000 Hitachi America, Limited, 5.57% due 10/16/1997
5,000,000 5,000,000 Pemex Capital, Inc. - Series B, 5.55% due 09/17/1997
5,000,000 5,000,000 Rank Xerox Capital (Europe) PLC, 5.55% due 07/17/1997
2,000,000 2,000,000 Sharp Electronics Corporation, 5.60% due 07/03/1997
5,000,000 5,000,000 Sharp Electronics Corporation, 5.55% due 08/15/1997
1,100,000 1,100,000 Toshiba Capital (Asia) Limited, 5.63% due 08/14/1997
4,625,000 4,625,000 Toshiba International Finance (UK) PLC, 5.72% due 08/04/1997
4,000,000 4,000,000 Toshiba International Finance (UK) PLC, 5.76% due 08/28/1997
2,500,000 2,500,000 Toshiba International Finance (UK) PLC, 5.60% due 10/07/1997
5,000,000 5,000,000 Toyota Motor Credit Corporation, 5.54% due 09/16/1997
9,000,000 9,000,000 UBS Finance, Inc., 6.135% due 07/01/1997 **
TOTAL COMMERCIAL PAPER - FOREIGN (cost $97,341,950)
CORPORATE NOTES AND BONDS - 5.24%
5,000,000 5,000,000 American Express Centurian Bank, 5.6575% due 07/03/1998*
3,500,000 3,500,000 Caterpillar Financial Services Corporation, 7.24% due 12/15/1997
2,000,000 2,000,000 Dean Witter Discover Company, 5.6375% due 07/16/1997*
2,000,000 2,000,000 General Motors Acceptance Corporation, 5.62% due 07/01/1997*
1,000,000 1,000,000 General Motors Acceptance Corporation, 6.75% due 07/10/1997
1,500,000 1,500,000 General Motors Acceptance Corporation, 5.75% due 10/08/1997
1,400,000 1,400,000 Household Finance Corporation, 6.70% due 08/08/1997
<CAPTION>
-------------------------------------------------------
COMPOSITE SIERRA PRO
MONEY GLOBAL FORMA
MARKET FUND MONEY FUND COMBINED
-------------------------------------------------------
MARKET VALUE
-------------------------------------------------------
<S> <C> <C> <C>
General Motors Acceptance Corporation, 5.59% due 07/03/1997 $2,999,068 $2,999,068
General Motors Acceptance Corporation, 5.44% due 07/14/1997 4,491,160 4,491,160
Goldman Sachs Group L.P., 6.15% due 07/01/1997 4,000,000 4,000,000
Goldman Sachs Group L.P., 5.60% due 09/03/1997 4,950,222 4,950,222
IBM Corporation, 5.56% due 08/05/1997 2,983,783 2,983,783
IBM Corporation, 5.55% due 08/25/1997 4,957,604 4,957,604
International Lease Finance Corporation, 5.55% due 08/11/1997 4,272,820 4,272,820
International Lease Finance Corporation, 5.58% due 09/03/1997 2,574,208 2,574,208
Koch Industries, 6.165% due 07/01/1997 ** 1,979,000 1,979,000
Merrill Lynch and Company, 5.58% due 07/16/1997 3,990,700 3,990,700
Merrill Lynch and Company, 5.58% due 08/08/1997 4,970,550 4,970,550
Merrill Lynch and Company, 5.62% due 08/08/1997 1,988,136 1,988,136
Morgan Stanley Group Inc., 5.57% due 07/21/1997 4,984,528 4,984,528
Morgan Stanley Group Inc., 5.61% due 08/25/1997 4,957,146 4,957,146
Nebraska Higher Education Loan Program, 5.55% due 07/24/1997 2,106,504 2,106,504
Oyster Creek Fuel Corporation, 5.55% due 07/09/1997 4,993,833 4,993,833
Sears Roebuck Acceptance Corporation, 5.63% due 07/07/1997 4,995,308 4,995,308
Sears Roebuck Acceptance Corporation, 5.58% due 07/23/1997 4,982,950 4,982,950
-------------------------------------------------------
TOTAL COMMERCIAL PAPER - DOMESTIC (cost $169,124,167) 130,485,093 38,639,074 169,124,167
-------------------------------------------------------
COMMERCIAL PAPER - FOREIGN - 21.58%
Abbey National North America Corporation, 5.771% due 08/01/1997 ** 2,985,508 2,985,508
Abbey National North America Corporation, 5.522% due 08/11/1997 ** 1,987,928 1,987,928
ABN Amro Bank, N.V., 5.776% due 08/19/1997 ** 4,961,787 4,961,787
American Honda Finance Corporation, Inc., 5.57% due 7/21/1997 4,984,528 4,984,528
American Honda Finance Corporation, Inc., 5.57% due 7/25/1997 2,490,717 2,490,717
Barclays U.S. Funding Corporation, 5.825% due 08/22/1997 ** 4,959,122 4,959,122
BHP Finance (USA) Inc., 5.55% due 07/08/1997 3,995,683 3,995,683
BHP Finance (USA) Inc., 5.55% due 07/09/1997 1,697,903 1,697,903
Den Danske Corporation, 5.789% due 07/02/1997 ** 7,998,749 7,998,749
Eksportfinans A/S, 5.56% due 07/31/1997 4,976,833 4,976,833
Eksportfinans A/S, 5.60% due 08/21/1997 2,480,167 2,480,167
Hitachi America, Limited, 5.55% due 08/18/1997 5,955,600 5,955,600
Hitachi America, Limited, 5.57% due 10/16/1997 4,917,224 4,917,224
Pemex Capital, Inc. - Series B, 5.55% due 09/17/1997 4,939,875 4,939,875
Rank Xerox Capital (Europe) PLC, 5.55% due 07/17/1997 4,987,667 4,987,667
Sharp Electronics Corporation, 5.60% due 07/03/1997 1,999,378 1,999,378
Sharp Electronics Corporation, 5.55% due 08/15/1997 4,965,313 4,965,313
Toshiba Capital (Asia) Limited, 5.63% due 08/14/1997 1,092,431 1,092,431
Toshiba International Finance (UK) PLC, 5.72% due 08/04/1997 4,600,015 4,600,015
Toshiba International Finance (UK) PLC, 5.76% due 08/28/1997 3,962,880 3,962,880
Toshiba International Finance (UK) PLC, 5.60% due 10/07/1997 2,461,889 2,461,889
Toyota Motor Credit Corporation, 5.54% due 09/16/1997 4,940,753 4,940,753
UBS Finance, Inc., 6.135% due 07/01/1997 ** 9,000,000 9,000,000
-------------------------------------------------------
TOTAL COMMERCIAL PAPER - FOREIGN (cost $97,341,950) 65,448,856 31,893,094 97,341,950
-------------------------------------------------------
CORPORATE NOTES AND BONDS - 5.24%
American Express Centurian Bank, 5.6575% due 07/03/1998* 5,000,000 5,000,000
Caterpillar Financial Services Corporation, 7.24% due 12/15/1997 3,520,155 3,520,155
Dean Witter Discover Company, 5.6375% due 07/16/1997* 2,000,000 2,000,000
General Motors Acceptance Corporation, 5.62% due 07/01/1997* 2,000,732 2,000,732
General Motors Acceptance Corporation, 6.75% due 07/10/1997 1,000,262 1,000,262
General Motors Acceptance Corporation, 5.75% due 10/08/1997 1,498,835 1,498,835
Household Finance Corporation, 6.70% due 08/08/1997 1,401,388 1,401,388
</TABLE>
-24-
<PAGE>
COMPOSITE MONEY MARKET FUND (1) and SIERRA GLOBAL MONEY FUND
Pro Forma Combined Portfolio of Investments (continued)
June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
- -----------------------------------------------
COMPOSITE SIERRA PRO
MONEY GLOBAL FORMA
MARKET FUND MONEY FUND COMBINED
- -----------------------------------------------
PRINCIPAL AMOUNT
- -----------------------------------------------
<C> <C> <C> <S>
$4,200,000 $4,200,000 IBM Corporation, 6.375% due 11/01/1997
1,000,000 1,000,000 Tonkin Building Associates LLC, 5.64% due 07/02/1997*
2,000,000 2,000,000 Watts Brothers Frozen Foods LLC, 5.64% due 07/02/1997*
TOTAL CORPORATE NOTES AND BONDS (cost $23,631,384)
FEDERAL AGENCY OBLIGATIONS - 2.55%
2,500,000 2,500,000 Federal Farm Credit Bank, 5.4975% due 7/17/1997*
1,000,000 1,000,000 Federal Home Loan Bank, 5.528% due 07/19/1997*
1,000,000 1,000,000 Federal Home Loan Bank, 5.528% due 07/28/1997*
4,000,000 4,000,000 Federal Home Loan Bank, 5.67% due 03/05/1998
3,000,000 3,000,000 Federal Home Loan Bank, 5.91% due 03/24/1998
TOTAL FEDERAL AGENCY OBLIGATIONS (cost $11,498,759)
MEDIUM-TERM NOTES- 7.31%
3,000,000 3,000,000 Abbey National Treasury Services, 5.64% due 11/03/1997
9,000,000 9,000,000 Bayerische Landesbank, 5.558% due 06/26/1998 #
5,000,000 5,000,000 CoreStates Bank, 5.648% due 03/16/1998 #
5,000,000 5,000,000 John Deere Capital, 5.85% due 07/03/1997
6,000,000 6,000,000 Korea Development Bank, 5.843% due 06/16/1998 #
5,000,000 5,000,000 Society National Bank, 5.58% due 07/08/1997 #
TOTAL MEDIUM-TERM NOTES (cost $32,991,497)
REPURCHASE AGREEMENT - .40%
Repurchase agreement with Goldman Sachs and Company, collateralized by a U.S.
Treasury Note, in a joint trading account at 5.75%, dated 06/30/1997, due
07/01/1997
1,783,000 1,783,000 with a maturity value of $1,783,285 (cost $1,783,000)
TOTAL INVESTMENTS (cost $451,037,395)
<CAPTION>
------------------------------------------------
COMPOSITE SIERRA PRO
MONEY GLOBAL FORMA
MARKET FUND MONEY FUND COMBINED
------------------------------------------------
MARKET VALUE
------------------------------------------------
<S> <C> <C> <C>
IBM Corporation, 6.375% due 11/01/1997 $4,210,012 $4,210,012
Tonkin Building Associates LLC, 5.64% due 07/02/1997* 1,000,000 1,000,000
Watts Brothers Frozen Foods LLC, 5.64% due 07/02/1997* 2,000,000 2,000,000
-----------------------------------------------
TOTAL CORPORATE NOTES AND BONDS (cost $23,631,384) 23,631,384 0 23,631,384
-----------------------------------------------
FEDERAL AGENCY OBLIGATIONS - 2.55%
Federal Farm Credit Bank, 5.4975% due 7/17/1997* 2,499,185 2,499,185
Federal Home Loan Bank, 5.528% due 07/19/1997* 999,674 999,674
Federal Home Loan Bank, 5.528% due 07/28/1997* 999,900 999,900
Federal Home Loan Bank, 5.67% due 03/05/1998 4,000,000 4,000,000
Federal Home Loan Bank, 5.91% due 03/24/1998 3,000,000 3,000,000
-----------------------------------------------
TOTAL FEDERAL AGENCY OBLIGATIONS (cost $11,498,759) 11,498,759 0 11,498,759
-----------------------------------------------
MEDIUM-TERM NOTES- 7.31%
Abbey National Treasury Services, 5.64% due 11/03/1997 2,999,602 2,999,602
Bayerische Landesbank, 5.558% due 06/26/1998 # 8,993,095 8,993,095
CoreStates Bank, 5.648% due 03/16/1998 # 5,000,000 5,000,000
John Deere Capital, 5.85% due 07/03/1997 4,999,981 4,999,981
Korea Development Bank, 5.843% due 06/16/1998 # 5,998,884 5,998,884
Society National Bank, 5.58% due 07/08/1997 # 4,999,935 4,999,935
-----------------------------------------------
TOTAL MEDIUM-TERM NOTES (cost $32,991,497) 0 32,991,497 32,991,497
-----------------------------------------------
REPURCHASE AGREEMENT - .40%
Repurchase agreement with Goldman Sachs and Company, collateralized by a U.S.
Treasury Note, in a joint trading account at 5.75%, dated 06/30/1997,
due 07/01/1997 with a maturity value of $1,783,285 (cost $1,783,000) 1,783,000 1,783,000
-----------------------------------------------
TOTAL INVESTMENTS (cost $451,037,395) $260,818,394 $190,219,001 $451,037,395
===============================================
</TABLE>
* Floating Rate Note. The interest rate, is subject to change
periodically, based on a market interest rate index.
# Variable rate security. The interest rate shown reflects the rate
currently in effect.
** Rate represents annualized yield at date of purchase (unaudited).
(1) Formerly Composite Cash Management Company Money Market Portfolio.
Note: The combined entity's investment in bank obligations will be less than
25%. Accordingly, certain unidentified bank obligations will be sold to
comply with the investment policy.
-25-
<PAGE>
Composite Money Market Fund and Sierra Global Money Fund
Notes to Pro Forma Financial Statements (unaudited)
1. Basis of Combination
The pro forma combined financial statements reflect the combined financial
position of Composite Money Market Fund (formerly Composite Cash Management
Company Money Market Portfolio) and Sierra Global Money Fund at June 30,
1997, and the pro forma combined results of operations for the year ended
December 31, 1996 and the six month period ended June 30, 1997 as though
the reorganization had occurred on January 1, 1996.
The pro forma combined financial statements are presented for the
information of the reader and may not necessarily be representative of how
the pro forma combined financial statements would have appeared had the
reorganization actually occurred.
The Pro Forma Combined Portfolio of Investments, Statement of Assets and
Liabilities, and the Statement of Operations should be read in conjunction
with the historical financial statements of the funds incorporated by
reference in the Statement of Additional Information.
The pro forma statements give effect to the proposed transfer of the assets
and stated liabilities of the Sierra Global Money Fund in exchange for
shares of Composite Money Market Fund. Under generally accepted accounting
principles, the historical cost of investment securities will be carried
forward to the surviving entity.
The pro forma statements do not reflect the expenses of either fund in
carrying out its obligations under the proposed Agreement and Plan of
Reorganization.
2. Pro Forma Combined Portfolio of Investments
Securities held by the two funds have been combined in the accompanying
Combined Portfolio of Investments. Securities are stated at amortized cost
which approximates fair value. Historical cost amounts represent the
combined cost basis of the securities.
-26-
<PAGE>
Composite Money Market Fund and Sierra Global Money Fund
Notes to Pro Forma Financial Statements (unaudited) (continued)
3. Pro Forma Statement of Assets and Liabilities
Shares outstanding have been adjusted to reflect the conversion of Sierra
shares into Composite shares based upon the net asset value of Composite
shares at June 30, 1997.
4. Pro Forma Statements of Operations
The pro forma statements of operations reflect the following adjustments:
A. A decrease in management fees to reflect the new fee structure. Fees
are based on .40% of average daily net assets.
B. An elimination of administration fees, now incorporated in the
management fee structure. Expenses of the Fund will be reimbursed at a
rate of .0005% of average daily net assets and have been adjusted
accordingly. Shareholder servicing and distribution expenses have been
adjusted to reflect the elimination of 12b-1 fees. Other expenses have
been adjusted based on an overall estimated expense ratio of .79%.
-27-
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA STATEMENT OF ASSETS AND LIABILITIES AT JUNE 30, 1997 (unaudited)
Sierra U.S. Pro Forma
Government Composite Money Adjustments Pro Forma
Money Fund Market Fund (Note 3) Combined
-------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
ASSETS:
Investments, at value, (cost $33,653,549,
$260,818,394, and $294,471,943) $33,653,549 $260,818,394 $294,471,943
Cash, receivables, and other assets 677,491 3,787,156 4,464,647
-------------- ---------------- ---------------
Total Assets 34,331,040 264,605,550 298,936,590
-------------- ---------------- ---------------
LIABILITIES:
Accrued expenses and other liabilities 1,664,297 8,167,003 7,029,379,500
-------------- ---------------- ---------------
Total Liabilities 1,664,297 8,167,003 9,831,300
-------------- ---------------- ---------------
Net Assets $32,666,743 $256,438,547 $289,105,290
============== ================ ===============
Outstanding Shares
- ------------------
Class A 30,529,135 256,221,535 (10,562) 286,740,108
============== ================ ===============
Class B 1,802,096 217,012 (624) 2,018,484
============== ================ ===============
Class S 345,772 - (120) 345,652
============== ================ ===============
Class I 1,045 - 1 1,046
============== ================ ===============
Net Asset Value
- ---------------
Class A $30,518,573 $256,221,535 $286,740,108
============== ================ ===============
Class B $1,801,472 $217,012 $2,018,484
============== ================ ===============
Class S $345,652 - $345,652
============== ================ ===============
Class I $1,046 - $1,046
============== ================ ===============
Net Asset Value
Per Share
- ---------------
Class A $1.00 $1.00 $1.00
============== ================ ===============
Class B $1.00 $1.00 $1.00
=============== ================ ===============
Class S $1.00 - $1.00
============== ================ ===============
Class I $1.00 - $1.00
============== ================ ===============
See accompanying notes to pro forma financial statements.
</TABLE>
-28-
<PAGE>
PRO FORMA STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996 (Unaudited)
<TABLE>
<CAPTION>
Sierra Pro Forma
U.S. Government Composite Money Adjustments Pro Forma
Money Fund Market Fund (Note 4) Combined
--------------- --------------- ----------- ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest and Other $ 2,228,818 $ 11,252,565 $ 0 $ 13,481,383
--------------- --------------- ----------- ------------
EXPENSES:
Management fees 166,799 916,867 (101,874) 981,792
Administration fees 125,100 0 (125,100) 0
Transfer agent fees 0 411,078 227,087 638,165
Distribution fees
Class A Shares 102,819 20,720 (123,539) 0
Class B Shares 2,317 1,270 0 3,587
Class S Shares 3,403 0 0 3,403
All other expenses 96,365 460,353 (237,636) 319,082
Expense reimbursement (138,032) (202,612) 217,920 (122,724)
--------------- --------------- ----------- ------------
Subtotal 358,771 1,607,676 (143,142) 1,823,305
Fees paid indirectly (600) (66,693) 0 (67,293)
--------------- --------------- ----------- ------------
Total Expenses 358,171 1,540,983 (143,142) 1,756,012
--------------- --------------- ----------- ------------
NET INVESTMENT INCOME 1,870,647 9,711,582 143,142 11,725,371
--------------- --------------- ----------- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net Realized Gain (Loss) From Security Transactions (2,881) 0 0 (2,881)
(excluding short term securities)
Net Unrealized Appreciation (Depreciation) of Investments 0 0 0 0
--------------- --------------- ----------- ------------
Net Realized and Unrealized Gain (Loss) on Investments (2,881) 0 0 (2,881)
--------------- --------------- ----------- ------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 1,867,766 $ 9,711,582 $ 143,142 $ 11,722,490
=============== =============== =========== ============
See accompanying notes to pro forma financial statements.
</TABLE>
-29-
<PAGE>
PRO FORMA STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1997(Unaudited)
<TABLE>
<CAPTION>
Sierra Pro Forma
U.S. Government Composite Money Adjustments Pro Forma
Money Fund Market Fund (Note 4) Combined
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest and Other $820,334 $6,747,798 $0 $7,568,132
--------------- --------------- --------------- ---------------
EXPENSES:
Management fees 60,058 543,906 (60,434) 543,530
Administration fees 45,043 (45,043) 0
Transfer Agent fees 0 247,317 105,978 353,295
Distribution fees 0
Class A Shares 35,364 11,581 (46,945) 0
Class B Shares 6,705 614 0 7,319
Class S Shares 1,976 0 0 1,976
All other expenses 44,543 249,286 (117,182) 176,647
Expense reimbursement (60,059) (113,150) 105,268 (67,941)
--------------- --------------- --------------- ---------------
Subtotal 113,630 939,554 (58,358) 1,014,826
--------------- --------------- --------------- ---------------
Fees paid indirectly (26) (29,327) 0 (29,353)
--------------- --------------- --------------- ---------------
Total Expenses 113,604 910,227 (58,358) 985,473
--------------- --------------- --------------- ---------------
NET INVESTMENT INCOME 686,730 5,837,571 58,358 6,582,659
--------------- --------------- --------------- ---------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net Realized Gain (Loss) From Security
Transactions (excluding short term 732 0 732
securities) 0
Net Unrealized Appreciation (Depreciation)
of Investments 0 0 0
--------------- --------------- --------------- ---------------
Net Realized and Unrealized Gain (Loss)
on Investments 732 0 0 732
--------------- --------------- --------------- ---------------
INCREASE IN NET ASSETS RESULTING FROM
OPERATION $687,462 $5,837,571 $58,358 $6,583,391
=============== =============== =============== ===============
</TABLE>
See accompanying notes to pro forma financial statements.
-30-
<PAGE>
COMPOSITE MONEY MARKET FUND (1) and SIERRA U.S. GOVERNMENT MONEY FUND
Pro Forma Combined Portfolio of Investments
June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
PRO FORMA COMBINED
- -----------------------------------------------
COMPOSITE SIERRA U.S.
MONEY GOVERNMENT PRO FORMA
MARKET FUND MONEY FUND COMBINED
- -----------------------------------------------
PRINCIPAL AMOUNT
- -----------------------------------------------
SHORT-TERM INVESTMENTS
BANKERS ACCEPTANCES - 2.03%
<S> <C> <C> <C>
$3,000,000 $3,000,000 Chase Manhattan Bank NA New York, 5.56% due 07/14/1997
3,000,000 3,000,000 Chase Manhattan Bank NA New York, 5.60% due 08/19/1997
TOTAL BANKERS ACCEPTANCE (cost $5,971,110)
CERTIFICATES OF DEPOSIT - DOMESTIC - 1.70%
5,000,000 5,000,000 Bankers Trust New York Corporation, 5.70% due 07/10/1997
TOTAL CERTIFICATES OF DEPOSIT - DOMESTIC (cost $5,000,019)
CERTIFICATES OF DEPOSIT - FOREIGN - 5.78%
5,000,000 5,000,000 Australia & New Zealand Bank, 5.70% due 07/07/1997
5,000,000 5,000,000 Societe Generale New York Branch, 5.50% due 08/07/1997
7,000,000 7,000,000 Westdeutsche Landesbank Girozentrale, 5.52% due 07/07/1997
TOTAL CERTIFICATES OF DEPOSIT - FOREIGN (cost $17,000,173)
COMMERCIAL PAPER - DOMESTIC - 44.31%
5,000,000 5,000,000 American Express Credit Corporation, 5.54% due 08/04/1997
5,000,000 5,000,000 BT Securities Corporation, 5.65% due 07/11/1997
5,000,000 5,000,000 Bank of New York Company, Inc., 5.535% due 07/22/1997
5,000,000 5,000,000 Bear Stearns Company, Inc., 5.60% due 08/11/1997
5,000,000 5,000,000 Bear Stearns Company, Inc., 5.60% due 08/15/1997
5,000,000 5,000,000 Beneficial Corporation, 5.61% due 07/01/1997
2,500,000 2,500,000 Beneficial Corporation, 5.56% due 07/28/1997
5,000,000 5,000,000 Chrysler Financial Corporation, 5.58% due 08/12/1997
5,000,000 5,000,000 John Deere Capital Corporation, 5.61% due 07/07/1997
5,000,000 5,000,000 Ford Motor Credit Company, 5.60% due 07/08/1997
4,000,000 4,000,000 Ford Motor Credit Company, 5.55% due 08/25/1997
5,000,000 5,000,000 General Electric Capital Corporation, 5.62% due 07/07/1997
5,000,000 5,000,000 General Electric Capital Corporation, 5.63% due 07/07/1997
3,000,000 3,000,000 General Motors Acceptance Corporation, 5.59% due 07/03/1997
4,500,000 4,500,000 General Motors Acceptance Corporation, 5.44% due 07/14/1997
4,000,000 4,000,000 Goldman Sachs Group L.P., 6.15% due 07/01/1997
5,000,000 5,000,000 Goldman Sachs Group L.P., 5.60% due 09/03/1997
3,000,000 3,000,000 IBM Corporation, 5.56% due 08/05/1997
5,000,000 5,000,000 IBM Corporation, 5.55% due 08/25/1997
4,300,000 4,300,000 International Lease Finance Corporation, 5.55% due 08/11/1997
2,600,000 2,600,000 International Lease Finance Corporation, 5.58% due 09/03/1997
4,000,000 4,000,000 Merrill Lynch and Company, 5.58% due 07/16/1997
5,000,000 5,000,000 Merrill Lynch and Company, 5.58% due 08/08/1997
2,000,000 2,000,000 Merrill Lynch and Company, 5.62% due 08/08/1997
5,000,000 5,000,000 Morgan Stanley Group Inc., 5.57% due 07/21/1997
5,000,000 5,000,000 Morgan Stanley Group Inc., 5.61% due 08/25/1997
2,114,000 2,114,000 Nebraska Higher Education Loan Program, 5.55% due 07/24/1997
5,000,000 5,000,000 Oyster Creek Fuel Corporation, 5.55% due 07/09/1997
5,000,000 5,000,000 Sears Roebuck Acceptance Corporation, 5.63% due 07/07/1997
5,000,000 5,000,000 Sears Roebuck Acceptance Corporation, 5.58% due 07/23/1997
TOTAL COMMERCIAL PAPER - DOMESTIC (cost $130,485,093)
COMMERCIAL PAPER - FOREIGN - 22.23%
5,000,000 5,000,000 American Honda Finance Corporation, Inc., 5.57% due 7/21/1997
2,500,000 2,500,000 American Honda Finance Corporation, Inc., 5.57% due 7/25/1997
4,000,000 4,000,000 BHP Finance (USA) Inc., 5.55% due 07/08/1997
1,700,000 1,700,000 BHP Finance (USA) Inc., 5.55% due 07/09/1997
5,000,000 5,000,000 Eksportfinans A/S, 5.56% due 07/31/1997
2,500,000 2,500,000 Eksportfinans A/S, 5.60% due 08/21/1997
<CAPTION>
--------------------------------------------------
COMPOSITE SIERRA U.S.
MONEY GOVERNMENT PRO FORMA
MARKET FUND MONEY FUND COMBINED
--------------------------------------------------
MARKET VALUE
--------------------------------------------------
SHORT-TERM INVESTMENTS
BANKERS ACCEPTANCES - 2.03%
<S> <C> <C> <C>
Chase Manhattan Bank NA New York, 5.56% due 07/14/1997 $2,993,977 $2,993,977
Chase Manhattan Bank NA New York, 5.60% due 08/19/1997 2,977,133 2,977,133
------------------------------------------------
TOTAL BANKERS ACCEPTANCE (cost $5,971,110) 5,971,110 0 5,971,110
------------------------------------------------
CERTIFICATES OF DEPOSIT - DOMESTIC - 1.70%
Bankers Trust New York Corporation, 5.70% due 07/10/1997 5,000,019 5,000,019
------------------------------------------------
TOTAL CERTIFICATES OF DEPOSIT - DOMESTIC (cost $5,000,019) 5,000,019 0 5,000,019
------------------------------------------------
CERTIFICATES OF DEPOSIT - FOREIGN - 5.78%
Australia & New Zealand Bank, 5.70% due 07/07/1997 5,000,005 5,000,005
Societe Generale New York Branch, 5.50% due 08/07/1997 5,000,050 5,000,050
Westdeutsche Landesbank Girozentrale, 5.52% due 07/07/1997 7,000,118 7,000,118
------------------------------------------------
TOTAL CERTIFICATES OF DEPOSIT - FOREIGN (cost $17,000,173) 17,000,173 0 17,000,173
------------------------------------------------
COMMERCIAL PAPER - DOMESTIC - 44.31%
American Express Credit Corporation, 5.54% due 08/04/1997 4,973,839 4,973,839
BT Securities Corporation, 5.65% due 07/11/1997 4,992,153 4,992,153
Bank of New York Company, Inc., 5.535% due 07/22/1997 4,983,856 4,983,856
Bear Stearns Company, Inc., 5.60% due 08/11/1997 4,968,111 4,968,111
Bear Stearns Company, Inc., 5.60% due 08/15/1997 4,965,000 4,965,000
Beneficial Corporation, 5.61% due 07/01/1997 5,000,000 5,000,000
Beneficial Corporation, 5.56% due 07/28/1997 2,489,575 2,489,575
Chrysler Financial Corporation, 5.58% due 08/12/1997 4,967,450 4,967,450
John Deere Capital Corporation, 5.61% due 07/07/1997 4,995,325 4,995,325
Ford Motor Credit Company, 5.60% due 07/08/1997 4,994,556 4,994,556
Ford Motor Credit Company, 5.55% due 08/25/1997 3,966,083 3,966,083
General Electric Capital Corporation, 5.62% due 07/07/1997 4,995,317 4,995,317
General Electric Capital Corporation, 5.63% due 07/07/1997 4,995,308 4,995,308
General Motors Acceptance Corporation, 5.59% due 07/03/1997 2,999,068 2,999,068
General Motors Acceptance Corporation, 5.44% due 07/14/1997 4,491,160 4,491,160
Goldman Sachs Group L.P., 6.15% due 07/01/1997 4,000,000 4,000,000
Goldman Sachs Group L.P., 5.60% due 09/03/1997 4,950,222 4,950,222
IBM Corporation, 5.56% due 08/05/1997 2,983,783 2,983,783
IBM Corporation, 5.55% due 08/25/1997 4,957,604 4,957,604
International Lease Finance Corporation, 5.55% due 08/11/1997 4,272,820 4,272,820
International Lease Finance Corporation, 5.58% due 09/03/1997 2,574,208 2,574,208
Merrill Lynch and Company, 5.58% due 07/16/1997 3,990,700 3,990,700
Merrill Lynch and Company, 5.58% due 08/08/1997 4,970,550 4,970,550
Merrill Lynch and Company, 5.62% due 08/08/1997 1,988,136 1,988,136
Morgan Stanley Group Inc., 5.57% due 07/21/1997 4,984,528 4,984,528
Morgan Stanley Group Inc., 5.61% due 08/25/1997 4,957,146 4,957,146
Nebraska Higher Education Loan Program, 5.55% due 07/24/1997 2,106,504 2,106,504
Oyster Creek Fuel Corporation, 5.55% due 07/09/1997 4,993,833 4,993,833
Sears Roebuck Acceptance Corporation, 5.63% due 07/07/1997 4,995,308 4,995,308
Sears Roebuck Acceptance Corporation, 5.58% due 07/23/1997 4,982,950 4,982,950
------------------------------------------------
TOTAL COMMERCIAL PAPER - DOMESTIC (cost $130,485,093) 130,485,093 0 130,485,093
------------------------------------------------
COMMERCIAL PAPER - FOREIGN - 22.23%
American Honda Finance Corporation, Inc., 5.57% due 7/21/1997 4,984,528 4,984,528
American Honda Finance Corporation, Inc., 5.57% due 7/25/1997 2,490,717 2,490,717
BHP Finance (USA) Inc., 5.55% due 07/08/1997 3,995,683 3,995,683
BHP Finance (USA) Inc., 5.55% due 07/09/1997 1,697,903 1,697,903
Eksportfinans A/S, 5.56% due 07/31/1997 4,976,833 4,976,833
Eksportfinans A/S, 5.60% due 08/21/1997 2,480,167 2,480,167
</TABLE>
-31-
<PAGE>
COMPOSITE MONEY MARKET FUND (1) and SIERRA U.S. GOVERNMENT MONEY FUND
Pro Forma Combined Portfolio of Investments (continued)
June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
- -----------------------------------------
COMPOSITE SIERRA U.S. PRO
MONEY GOVERNMENT FORMA
MARKET FUND MONEY FUND COMBINED
- -----------------------------------------
PRINCIPAL AMOUNT
- -----------------------------------------
<S> <C> <C> <C>
$6,000,000 $6,000,000 Hitachi America, Limited, 5.55% due 08/18/1997
5,000,000 5,000,000 Hitachi America, Limited, 5.57% due 10/16/1997
5,000,000 5,000,000 Pemex Capital, Inc. - Series B, 5.55% due 09/17/1997
5,000,000 5,000,000 Rank Xerox Capital (Europe) PLC, 5.55% due 07/17/1997
2,000,000 2,000,000 Sharp Electronics Corporation, 5.60% due 07/03/1997
5,000,000 5,000,000 Sharp Electronics Corporation, 5.55% due 08/15/1997
1,100,000 1,100,000 Toshiba Capital (Asia) Limited, 5.63% due 08/14/1997
4,625,000 4,625,000 Toshiba International Finance (UK) PLC, 5.72% due 08/04/1997
4,000,000 4,000,000 Toshiba International Finance (UK) PLC, 5.76% due 08/28/1997
2,500,000 2,500,000 Toshiba International Finance (UK) PLC, 5.60% due 10/07/1997
5,000,000 5,000,000 Toyota Motor Credit Corporation, 5.54% due 09/16/1997
TOTAL COMMERCIAL PAPER - FOREIGN (cost $65,448,856)
CORPORATE NOTES AND BONDS - 8.02%
5,000,000 5,000,000 American Express Centurian Bank, 5.6575% due 07/03/1998*
3,500,000 3,500,000 Caterpillar Financial Services Corporation, 7.24% due 12/15/1997
2,000,000 2,000,000 Dean Witter Discover Company, 5.6375% due 07/16/1997*
2,000,000 2,000,000 General Motors Acceptance Corporation, 5.62% due 07/01/1997*
1,000,000 1,000,000 General Motors Acceptance Corporation, 6.75% due 07/10/1997
1,500,000 1,500,000 General Motors Acceptance Corporation, 5.75% due 10/08/1997
1,400,000 1,400,000 Household Finance Corporation, 6.70% due 08/08/1997
4,200,000 4,200,000 IBM Corporation, 6.375% due 11/01/1997
1,000,000 1,000,000 Tonkin Building Associates LLC, 5.64% due 07/02/1997*
2,000,000 2,000,000 Watts Brothers Frozen Foods LLC, 5.64% due 07/02/1997*
TOTAL CORPORATE NOTES AND BONDS (cost $23,631,384)
FEDERAL AGENCY OBLIGATIONS - 3.90%
2,500,000 2,500,000 Federal Farm Credit Bank, 5.4975% due 7/17/1997*
1,000,000 1,000,000 Federal Home Loan Bank, 5.528% due 07/19/1997*
1,000,000 1,000,000 Federal Home Loan Bank, 5.528% due 07/28/1997*
4,000,000 4,000,000 Federal Home Loan Bank, 5.67% due 03/05/1998
3,000,000 3,000,000 Federal Home Loan Bank, 5.91% due 03/24/1998
TOTAL FEDERAL AGENCY OBLIGATIONS (cost $11,498,759)
U.S. GOVERNMENT AGENCY OBLIGATIONS - 11.43%
3,000,000 3,000,000 Federal National Mortgage Association (FNMA), Discount Note, 5.604% due 07/08/1997**
1,480,000 1,480,000 Federal National Mortgage Association (FNMA), Discount Note, 5.538% due 07/10/1997**
900,000 900,000 Federal National Mortgage Association (FNMA), Discount Note, 5.659% due 07/18/1997**
2,530,000 2,530,000 Federal National Mortgage Association (FNMA), Discount Note, 5.599% due 07/21/1997**
2,430,000 2,430,000 Federal National Mortgage Association (FNMA), Discount Note, 5.545% due 07/23/1997**
1,000,000 1,000,000 Federal National Mortgage Association (FNMA), Discount Note, 5.529% due 08/04/1997**
2,000,000 2,000,000 Federal National Mortgage Association (FNMA), Discount Note, 5.576% due 09/16/1997**
1,200,000 1,200,000 Federal Home Loan Mortgage Corporation (FHLMC), Discount Note, 5.527% due 07/07/1997**
3,000,000 3,000,000 Federal Home Loan Mortgage Corporation (FHLMC), Discount Note, 5.604% due 07/09/1997**
985,000 985,000 Federal Home Loan Mortgage Corporation (FHLMC), Discount Note, 5.649% due 07/15/1997**
325,000 325,000 Federal Home Loan Mortgage Corporation (FHLMC), Discount Note, 5.631% due 07/24/1997**
730,000 730,000 Federal Home Loan Mortgage Corporation (FHLMC), Discount Note, 5.558% due 07/25/1997**
300,000 300,000 Federal Home Loan Mortgage Corporation (FHLMC), Discount Note, 5.683% due 08/01/1997**
2,000,000 2,000,000 Federal Home Loan Mortgage Corporation (FHLMC), Discount Note, 5.683% due 08/07/1997**
445,000 445,000 Federal Home Loan Mortgage Corporation (FHLMC), Discount Note, 5.638% due 08/15/1997**
700,000 700,000 Federal Home Loan Mortgage Corporation (FHLMC), Discount Note, 5.582% due 09/18/1997**
1,645,000 1,645,000 Federal Farm Credit Bank (FFCB), Discount Note, 5.512% due 07/02/1997**
1,605,000 1,605,000 Federal Farm Credit Bank (FFCB), Discount Note, 5.538% due 07/02/1997**
2,000,000 2,000,000 Federal Farm Credit Bank (FFCB), Discount Note, 5.519% due 07/22/1997**
1,800,000 1,800,000 Federal Farm Credit Bank (FFCB), Discount Note, 5.526% due 07/31/1997**
710,000 710,000 Federal Home Loan Bank (FHLB), Discount Note, 5.675% due 07/08/1997**
<CAPTION>
-------------------------------------------
COMPOSITE SIERRA U.S. PRO
MONEY GOVERNMENT FORMA
MARKET FUND MONEY FUND COMBINED
-------------------------------------------
MARKET VALUE
-------------------------------------------
<S> <C> <C> <C>
Hitachi America, Limited, 5.55% due 08/18/1997 $5,955,600 $5,955,600
Hitachi America, Limited, 5.57% due 10/16/1997 4,917,224 4,917,224
Pemex Capital, Inc. - Series B, 5.55% due 09/17/1997 4,939,875 4,939,875
Rank Xerox Capital (Europe) PLC, 5.55% due 07/17/1997 4,987,667 4,987,667
Sharp Electronics Corporation, 5.60% due 07/03/1997 1,999,378 1,999,378
Sharp Electronics Corporation, 5.55% due 08/15/1997 4,965,313 4,965,313
Toshiba Capital (Asia) Limited, 5.63% due 08/14/1997 1,092,431 1,092,431
Toshiba International Finance (UK) PLC, 5.72% due 08/04/1997 4,600,015 4,600,015
Toshiba International Finance (UK) PLC, 5.76% due 08/28/1997 3,962,880 3,962,880
Toshiba International Finance (UK) PLC, 5.60% due 10/07/1997 2,461,889 2,461,889
Toyota Motor Credit Corporation, 5.54% due 09/16/1997 4,940,753 4,940,753
-------------------------------------------
TOTAL COMMERCIAL PAPER - FOREIGN (cost $65,448,856) 65,448,856 0 65,448,856
-------------------------------------------
CORPORATE NOTES AND BONDS - 8.02%
American Express Centurian Bank, 5.6575% due 07/03/1998* 5,000,000 5,000,000
Caterpillar Financial Services Corporation, 7.24% due 12/15/1997 3,520,155 3,520,155
Dean Witter Discover Company, 5.6375% due 07/16/1997* 2,000,000 2,000,000
General Motors Acceptance Corporation, 5.62% due 07/01/1997* 2,000,732 2,000,732
General Motors Acceptance Corporation, 6.75% due 07/10/1997 1,000,262 1,000,262
General Motors Acceptance Corporation, 5.75% due 10/08/1997 1,498,835 1,498,835
Household Finance Corporation, 6.70% due 08/08/1997 1,401,388 1,401,388
IBM Corporation, 6.375% due 11/01/1997 4,210,012 4,210,012
Tonkin Building Associates LLC, 5.64% due 07/02/1997* 1,000,000 1,000,000
Watts Brothers Frozen Foods LLC, 5.64% due 07/02/1997* 2,000,000 2,000,000
-------------------------------------------
TOTAL CORPORATE NOTES AND BONDS (cost $23,631,384) 23,631,384 0 23,631,384
-------------------------------------------
FEDERAL AGENCY OBLIGATIONS - 3.90%
Federal Farm Credit Bank, 5.4975% due 7/17/1997* 2,499,185 2,499,185
Federal Home Loan Bank, 5.528% due 07/19/1997* 999,674 999,674
Federal Home Loan Bank, 5.528% due 07/28/1997* 999,900 999,900
Federal Home Loan Bank, 5.67% due 03/05/1998 4,000,000 4,000,000
Federal Home Loan Bank, 5.91% due 03/24/1998 3,000,000 3,000,000
-------------------------------------------
TOTAL FEDERAL AGENCY OBLIGATIONS (cost $11,498,759) 11,498,759 0 11,498,759
-------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS - 11.43%
Federal National Mortgage Association (FNMA), Discount Note, 5.604% due 07/08/1997** 2,996,779 2,996,779
Federal National Mortgage Association (FNMA), Discount Note, 5.538% due 07/10/1997** 1,477,986 1,477,986
Federal National Mortgage Association (FNMA), Discount Note, 5.659% due 07/18/1997** 897,658 897,658
Federal National Mortgage Association (FNMA), Discount Note, 5.599% due 07/21/1997** 2,522,270 2,522,270
Federal National Mortgage Association (FNMA), Discount Note, 5.545% due 07/23/1997** 2,421,907 2,421,907
Federal National Mortgage Association (FNMA), Discount Note, 5.529% due 08/04/1997** 994,881 994,881
Federal National Mortgage Association (FNMA), Discount Note, 5.576% due 09/16/1997** 1,976,772 1,976,772
Federal Home Loan Mortgage Corporation (FHLMC), Discount Note, 5.527% due 07/07/1997** 1,198,914 1,198,914
Federal Home Loan Mortgage Corporation (FHLMC), Discount Note, 5.604% due 07/09/1997** 2,996,320 2,996,320
Federal Home Loan Mortgage Corporation (FHLMC), Discount Note, 5.649% due 07/15/1997** 982,893 982,893
Federal Home Loan Mortgage Corporation (FHLMC), Discount Note, 5.631% due 07/24/1997** 323,854 323,854
Federal Home Loan Mortgage Corporation (FHLMC), Discount Note, 5.558% due 07/25/1997** 727,348 727,348
Federal Home Loan Mortgage Corporation (FHLMC), Discount Note, 5.683% due 08/01/1997** 298,571 298,571
Federal Home Loan Mortgage Corporation (FHLMC), Discount Note, 5.683% due 08/07/1997** 1,988,633 1,988,633
Federal Home Loan Mortgage Corporation (FHLMC), Discount Note, 5.638% due 08/15/1997** 441,941 441,941
Federal Home Loan Mortgage Corporation (FHLMC), Discount Note, 5.582% due 09/18/1997** 691,659 691,659
Federal Farm Credit Bank (FFCB), Discount Note, 5.512% due 07/02/1997** 1,644,752 1,644,752
Federal Farm Credit Bank (FFCB), Discount Note, 5.538% due 07/02/1997** 1,604,758 1,604,758
Federal Farm Credit Bank (FFCB), Discount Note, 5.519% due 07/22/1997** 1,993,677 1,993,677
Federal Farm Credit Bank (FFCB), Discount Note, 5.526% due 07/31/1997** 1,791,870 1,791,870
Federal Home Loan Bank (FHLB), Discount Note, 5.675% due 07/08/1997** 709,238 709,238
</TABLE>
-32-
<PAGE>
COMPOSITE MONEY MARKET FUND (1) and SIERRA U.S. GOVERNMENT MONEY FUND
Pro Forma Combined Portfolio of Investments (continued)
June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------
COMPOSITE SIERRA U.S.
MONEY GOVERNMENT PRO FORMA
MARKET FUND MONEY FUND COMBINED
- -------------------------------------------
PRINCIPAL AMOUNT
- -------------------------------------------
<C> <C> <C> <S>
$305,000 $305,000 Federal Home Loan Bank (FHLB), Discount Note, 5.666% due 07/18/1997**
375,000 375,000 Federal Home Loan Bank (FHLB), Discount Note, 5.671% due 07/24/1997**
295,000 295,000 Federal Home Loan Bank (FHLB), Discount Note, 5.677% due 07/30/1997**
2,000,000 2,000,000 Federal Home Loan Bank (FHLB), Floating Rate Note, 5.623% due 12/04/1997#
TOTAL U.S. GOVERNMENT OBLIGATIONS (Cost $33,653,549)
REPURCHASE AGREEMENT - .60%
Repurchase agreement with Goldman Sachs and Company, collateralized by a U.S.
Treasury Note, in a joint trading account at 5.75%, dated 06/30/1997, due 07/01/1997
1,783,000 $1,783,000 with a maturity value of $1,783,285 (cost $1,783,000)
TOTAL INVESTMENTS (cost $294,471,943)
<CAPTION>
-----------------------------------------------
COMPOSITE SIERRA U.S.
MONEY GOVERNMENT PRO FORMA
MARKET FUND MONEY FUND COMBINED
-----------------------------------------------
MARKET VALUE
-----------------------------------------------
<S> <C> <C> <C>
Federal Home Loan Bank (FHLB), Discount Note, 5.666% due 07/18/1997** $304,205 $304,205
Federal Home Loan Bank (FHLB), Discount Note, 5.671% due 07/24/1997** 373,678 373,678
Federal Home Loan Bank (FHLB), Discount Note, 5.677% due 07/30/1997** 293,688 293,688
Federal Home Loan Bank (FHLB), Floating Rate Note, 5.623% due 12/04/1997# 1,999,297 1,999,297
-----------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS (Cost $33,653,549) 0 33,653,549 33,653,549
-----------------------------------------------
REPURCHASE AGREEMENT - .60%
Repurchase agreement with Goldman Sachs and Company, collateralized by a U.S.
Treasury Note, in a joint trading account at 5.75%, dated 06/30/1997,
due 07/01/1997 with a maturity value of $1,783,285 (cost $1,783,000) 1,783,000 1,783,000
-----------------------------------------------
TOTAL INVESTMENTS (cost $294,471,943) $260,818,394 $33,653,549 $294,471,943
===============================================
</TABLE>
* Floating Rate Note. The interest rate, is subject to change periodically,
based on a market interest rate index.
** Rate represents annualized yeild at date of purchase
# Variable rate securities payable upon not more than seven calendar days'
notice. The interest rate shown reflects the rate currently in effect.
(1) Formerly Composite Cash Management Company Money Market Portfolio.
-33-
<PAGE>
Composite Money Market Fund and Sierra U.S. Government Money Fund
Notes to Pro Forma Financial Statements (unaudited)
1. Basis of Combination
The pro forma combined financial statements reflect the combined financial
position of Composite Money Market Fund (formerly Composite Cash Management
Company Money Market Portfolio) and Sierra U.S. Government Money Fund at
June 30, 1997, and the pro forma combined results of operations for the
year ended December 31, 1996 and the six month period ended June 30, 1997
as though the reorganization had occurred on January 1, 1996.
The pro forma combined financial statements are presented for the
information of the reader and may not necessarily be representative of how
the pro forma combined financial statements would have appeared had the
reorganization actually occurred.
The Pro Forma Combined Portfolio of Investments, Statement of Assets and
Liabilities, and the Statement of Operations should be read in conjunction
with the historical financial statements of the funds incorporated by
reference in the Statement of Additional Information.
The pro forma statements give effect to the proposed transfer of the assets
and stated liabilities of the Sierra U.S. Government Money Fund in exchange
for shares of Composite Money Market Fund. Under generally accepted
accounting principles, the historical cost of investment securities will be
carried forward to the surviving entity.
The pro forma statements do not reflect the expenses of either fund in
carrying out its obligations under the proposed Agreement and Plan of
Reorganization.
2. Pro Forma Combined Portfolio of Investments
Securities held by the two funds have been combined in the accompanying
Combined Portfolio of Investments. Securities are stated at amortized cost
which approximates fair value. Historical cost amounts represent the
combined cost basis of the securities.
-34-
<PAGE>
Composite Money Market Fund and Sierra U.S. Government Money Fund
Notes to Pro Forma Financial Statements (unaudited) (continued)
3. Pro Forma Statement of Assets and Liabilities
Shares outstanding have been adjusted to reflect the conversion of Sierra
shares into Composite shares based upon the net asset value of Composite
shares at June 30, 1997.
4. Pro Forma Statements of Operations
The pro forma statements of operations reflect the following adjustments:
A. A decrease in management fees to reflect the new fee structure. Fees
are based on .40% of average daily net assets.
B. An elimination of the Sierra administration fees, now incorporated in
the management fee structure. Expenses of the Fund will be reimbursed
at a rate of .0005% of average daily net assets and have been adjusted
accordingly. Shareholder servicing and distribution expenses have been
adjusted to reflect the elimination of 12b-1 fees. Other expenses have
been adjusted based on an overall estimated expense ratio of .79%.
-35-
<PAGE>
PRO FORMA STATEMENT OF ASSETS AND LIABILITIES AT JUNE 30, 1997 (unaudited)
<TABLE>
<CAPTION>
Sierra U.S. Pro Forma
Sierra Global Government Composite Money Adjustments Pro Forma
Money Fund Money Fund Market Fund (Note 3) Combined
--------------- ------------ ----------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments, at value, (cost $190,219,001,
$33,653,549, $260,818,394, and $484,690,944) $190,219,001 $33,653,549 $260,818,394 $484,690,944
Cash, receivables, and other assets 2,809,686 677,491 3,787,156 7,274,333
-------------- ------------ ---------------- ------------
Total Assets 193,028,687 34,331,040 264,605,550 491,965,277
-------------- ------------ ---------------- ------------
LIABILITIES:
Accrued expenses and other liabilities 1,501,118 1,664,297 8,167,003 11,332,418
-------------- ------------ ---------------- ------------
Total Liabilities 1,501,118 1,664,297 8,167,003 11,332,418
-------------- ------------ ---------------- ------------
Net Assets $191,527,569 $32,666,743 $256,438,547 $480,632,859
============== ============ ================ ============
Outstanding Shares
- ------------------
Class A 104,654,469 30,529,135 256,221,535 (363,127) 391,042,012
============== ============ ================ ============
Class B 1,308,787 1,802,096 217,012 4,938 3,332,833
============== ============ ================ ============
Class S 6,879,685 345,772 -- 29,116 7,254,573
============== ============ ================ ============
Class I 78,668,083 1,045 -- 34,313 79,003,441
============== ============ ================ ============
Net Asset Value
- ---------------
Class A $104,301,904 $30,518,573 $256,221,535 $391,042,012
============== ============ ================ ============
Class B $1,314,349 $1,801,472 $217,012 $3,332,833
============== ============ ================ ============
Class S $6,908,921 $345,652 -- $7,254,573
============== ============ ================ ============
Class I $79,002,395 $1,046 -- $79,003,441
============== ============ ================ ============
Net Asset Value
Per Share
- ---------------
Class A $1.00 $1.00 $1.00 $1.00
============== ============ ================ ============
Class B $1.00 $1.00 $1.00 $1.00
============== ============ ================ ============
Class S $1.00 $1.00 -- $1.00
============== ============ ================ ============
Class I $1.00 $1.00 -- $1.00
============== ============ ================ ============
</TABLE>
-36-
<PAGE>
PRO FORMA STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996(Unaudited)
<TABLE>
<CAPTION>
Sierra Pro Forma
Sierra Global U.S. Government Composite Money Adjustments Pro Forma
Money Fund Money Fund Market Fund (Note 4) Combined
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest and Other $9,296,450 $2,228,818 $11,252,565 $0 $22,777,833
--------------- --------------- --------------- --------------- ---------------
EXPENSES:
Management fees 681,261 166,799 916,867 (101,874) 1,663,053
Administration fees 510,947 125,100 0 (636,047) 0
Transfer agent fees 0 0 411,078 669,906 1,080,984
Distribution fees
Class A Shares 364,959 102,819 20,720 (488,498) 0
Class B Shares 5,001 2,317 1,270 0 8,588
Class S Shares 174,336 3,403 0 177,739
All other expenses 306,506 96,365 460,353 (114,850) 748,374
Expense reimbursement (809,156) (138,032) (202,612) 941,918 (207,882)
--------------- --------------- --------------- --------------- ---------------
Subtotal 1,233,854 358,771 1,607,676 270,555 3,470,856
--------------- --------------- --------------- --------------- ---------------
Fees paid indirectly (6,667) (600) (66,693) 0 (73,960)
--------------- --------------- --------------- --------------- ---------------
Total Expenses 1,227,187 358,171 1,540,983 270,555 3,396,896
--------------- --------------- --------------- --------------- ---------------
NET INVESTMENT INCOME 8,069,263 1,870,647 9,711,582 (270,555) 19,380,937
--------------- --------------- --------------- --------------- ---------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net Realized Gain (Loss) From
Security Transactions 10,818 (2,881) 0 7,937
(excluding short term
securities)
Net Unrealized Appreciation
(Depreciation) of Investments 0 0 0 0
--------------- --------------- --------------- --------------- ---------------
Net Realized and Unrealized
Gain (Loss) on Investments 10,818 (2,881) 0 0 7,937
--------------- --------------- --------------- --------------- ---------------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $8,080,081 $1,867,766 $9,711,582 ($270,555) $19,388,874
=============== =============== =============== =============== ===============
</TABLE>
-37-
<PAGE>
PRO FORMA STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1997(Unaudited)
<TABLE>
<CAPTION>
Sierra Pro Forma
Sierra Global U.S. Government Composite Money Adjustments Pro Forma
Money Fund Money Fund Market Fund (Note 4) Combined
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest and Other $4,909,540 $820,334 $6,747,798 $0 $12,477,672
--------------- --------------- --------------- --------------- ---------------
EXPENSES:
Management fees 351,058 60,058 543,906 (60,434) 894,588
Administration fees 263,293 45,043 (308,336) 0
Transfer Agent fees 0 0 247,317 334,165 581,482
Distribution fees
Class A Shares 136,340 35,364 11,581 (183,285) 0
Class B Shares 5,220 6,705 614 0 12,539
Class S Shares 34,868 1,976 0 0 36,844
All other expenses 218,633 44,543 249,286 (109,897) 402,565
Expense reimbursement (301,660) (60,059) (113,150) 363,045 (111,824)
--------------- --------------- --------------- --------------- ---------------
subtotal 707,752 133,630 939,554 35,258 1,816,194
--------------- --------------- --------------- --------------- ---------------
Fees paid indirectly (4,893) (26) (29,327) 0 (34,246)
--------------- --------------- --------------- --------------- ---------------
Total Expenses 702,859 113,604 910,227 35,258 1,781,948
--------------- --------------- --------------- --------------- ---------------
NET INVESTMENT INCOME 4,206,681 686,730 5,837,571 (35,258) 10,695,724
--------------- --------------- --------------- --------------- ---------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net Realized Gain (Loss) From
Security Transactions 8,702 732 0 9,434
(excluding short term
securities)
Net Unrealized Appreciation
(Depreciation) of Investments 0 0 0 0
--------------- --------------- --------------- --------------- ---------------
Net Realized and Unrealized
Gain (Loss) on Investments 8,702 732 0 0 9,434
--------------- --------------- --------------- --------------- ---------------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $4,215,383 $687,462 $5,837,571 ($35,258) $10,705,158
=============== =============== =============== =============== ===============
</TABLE>
-38-
<PAGE>
COMPOSITE MONEY MARKET FUND (1), SIERRA GLOBAL MONEY FUND, and SIERRA U.S.
GOVERNMENT FUND
Pro Forma Combined Portfolio of Investments
June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
- ----------------------------------------------------
COMPOSITE SIERRA SIERRA U.S. PRO
MONEY GLOBAL GOVERNMENT FORMA
MARKET FUND MONEY FUND MONEY FUND COMBINED
- ----------------------------------------------------
PRINCIPAL AMOUNT
- ----------------------------------------------------
<C> <C> <C> <C> <S>
SHORT-TERM INVESTMENTS
BANKERS ACCEPTANCES - 1.23%
$3,000,000 3,000,000 Chase Manhattan Bank NA New York, 5.56% due 07/14/1997
3,000,000 3,000,000 Chase Manhattan Bank NA New York, 5.60% due 08/19/1997
TOTAL BANKERS ACCEPTANCE (cost $5,971,110)
CERTIFICATES OF DEPOSIT - DOMESTIC - 5.36%
3,000,000 3,000,000 Bank of America, 5.57% due 11/07/1997
3,000,000 3,000,000 Bank of America, 5.85% due 11/03/1997
8,000,000 8,000,000 Bankers Trust Corporation, 5.70% due 07/10/1997
5,000,000 5,000,000 Bankers Trust New York Corporation, 5.70% due 07/10/1997
7,000,000 7,000,000 NationsBank Corporation, 5.54% due 07/15/1997
TOTAL CERTIFICATES OF DEPOSIT - DOMESTIC (cost $25,999,500)
CERTIFICATES OF DEPOSIT - FOREIGN - 17.06%
5,000,000 5,000,000 Australia & New Zealand Bank, 5.70% due 07/07/1997
5,000,000 5,000,000 Banque Nationale de Paris, 5.70% due 08/04/1997
3,000,000 3,000,000 Barclays Bank Plc, 5.94% due 06/19/1998
8,000,000 8,000,000 Dai-Ichi Kangyo Bank Ltd., 5.81% due 07/10/1997**
2,000,000 2,000,000 Deutsche Bank, 5.56% due 07/21/1997
2,000,000 2,000,000 Deutsche Bank, 5.69% due10/28/1997
5,000,000 5,000,000 Deutsche Bank, 5.70% due 02/06/1998
6,000,000 6,000,000 Industrial Bank of Japan, 5.67% due 07/11/1997
2,500,000 2,500,000 Industrial Bank of Japan, 5.84% due 08/18/1997
2,000,000 2,000,000 Rabobank Nederland, 5.99% due 03/24/1998
9,200,000 9,200,000 Sanwa Bank Ltd., 5.65% due 07/07/1997
7,000,000 7,000,000 Societe Generale, New York, 5.72% due 08/06/1997
2,000,000 2,000,000 Societe Generale, New York, 5.84% due 10/06/1997
5,000,000 5,000,000 Societe Generale New York Branch, 5.50% due 08/07/1997
5,000,000 5,000,000 Sumitomo Bank Ltd., 5.66% due 07/03/1997
2,000,000 2,000,000 Sumitomo Bank Ltd., 5.75% due 08/19/1997
5,000,000 5,000,000 Swiss Bank Corporation, 5.98% due 03/19/1998
7,000,000 7,000,000 Westdeutsche Landesbank Girozentrale, 5.52% due 07/07/1997
TOTAL CERTIFICATES OF DEPOSIT - FOREIGN (cost $82,696,028)
COMMERCIAL PAPER - DOMESTIC - 34.89%
5,000,000 5,000,000 American Express Credit Corporation, 5.54% due 08/04/1997
5,000,000 5,000,000 Associates Corporation of North America, 5.635% due 07/15/1997 **
4,000,000 4,000,000 Associates Corporation of North America, 5.653% due 07/24/1997 **
8,000,000 8,000,000 Banc One Corporation, 5.631% due 07/01/1997 **
8,000,000 8,000,000 BBL-North America, Inc., 5.78% due 07/01/1997 **
5,000,000 5,000,000 BT Securities Corporation, 5.65% due 07/11/1997
5,000,000 5,000,000 Bank of New York Company, Inc., 5.535% due 07/22/1997
5,000,000 5,000,000 Bear Stearns Company, Inc., 5.60% due 08/11/1997
5,000,000 5,000,000 Bear Stearns Company, Inc., 5.60% due 08/15/1997
5,000,000 5,000,000 Beneficial Corporation, 5.61% due 07/01/1997
2,500,000 2,500,000 Beneficial Corporation, 5.56% due 07/28/1997
5,000,000 5,000,000 Chrysler Financial Corporation, 5.58% due 08/12/1997
5,000,000 5,000,000 John Deere Capital Corporation, 5.61% due 07/07/1997
5,000,000 5,000,000 Ford Motor Credit Company, 5.60% due 07/08/1997
4,000,000 4,000,000 Ford Motor Credit Company, 5.55% due 08/25/1997
9,000,000 9,000,000 Ford Motor Credit Company, 5.884% due 12/02/1997 **
5,000,000 5,000,000 General Electric Capital Corporation, 5.62% due 07/07/1997
5,000,000 5,000,000 General Electric Capital Corporation, 5.63% due 07/07/1997
3,000,000 3,000,000 General Electric Capital Corporation, 6.00% due 01/23/1998 **
<CAPTION>
------------------------------------------------------
COMPOSITE SIERRA SIERRA U.S. PRO
MONEY GLOBAL GOVERNMENT FORMA
MARKET FUND MONEY FUND MONEY FUND COMBINED
------------------------------------------------------
MARKET VALUE
------------------------------------------------------
<S> <C> <C> <C> <C>
SHORT-TERM INVESTMENTS
BANKERS ACCEPTANCES - 1.23%
Chase Manhattan Bank NA New York, 5.56% due 07/14/1997 $2,993,977 $2,993,977
Chase Manhattan Bank NA New York, 5.60% due 08/19/1997 2,977,133 2,977,133
------------------------------------------------------
TOTAL BANKERS ACCEPTANCE (cost $5,971,110) 5,971,110 0 0 5,971,110
------------------------------------------------------
CERTIFICATES OF DEPOSIT - DOMESTIC - 5.36%
Bank of America, 5.57% due 11/07/1997 2,999,481 2,999,481
Bank of America, 5.85% due 11/03/1997 3,000,000 3,000,000
Bankers Trust Corporation, 5.70% due 07/10/1997 8,000,000 8,000,000
Bankers Trust New York Corporation, 5.70% due 07/10/1997 5,000,019 5,000,019
NationsBank Corporation, 5.54% due 07/15/1997 7,000,000 7,000,000
------------------------------------------------------
TOTAL CERTIFICATES OF DEPOSIT - DOMESTIC (cost $25,999,500) 5,000,019 20,999,481 0 25,999,500
------------------------------------------------------
CERTIFICATES OF DEPOSIT - FOREIGN - 17.06%
Australia & New Zealand Bank, 5.70% due 07/07/1997 5,000,005 5,000,005
Banque Nationale de Paris, 5.70% due 08/04/1997 5,000,000 5,000,000
Barclays Bank Plc, 5.94% due 06/19/1998 2,998,725 2,998,725
Dai-Ichi Kangyo Bank Ltd., 5.81% due 07/10/1997** 8,000,019 8,000,019
Deutsche Bank, 5.56% due 07/21/1997 2,000,011 2,000,011
Deutsche Bank, 5.69% due10/28/1997 1,999,688 1,999,688
Deutsche Bank, 5.70% due 02/06/1998 4,998,845 4,998,845
Industrial Bank of Japan, 5.67% due 07/11/1997 6,000,017 6,000,017
Industrial Bank of Japan, 5.84% due 08/18/1997 2,500,033 2,500,033
Rabobank Nederland, 5.99% due 03/24/1998 1,999,304 1,999,304
Sanwa Bank Ltd., 5.65% due 07/07/1997 9,199,969 9,199,969
Societe Generale, New York, 5.72% due 08/06/1997 7,000,069 7,000,069
Societe Generale, New York, 5.84% due 10/06/1997 1,999,847 1,999,847
Societe Generale New York Branch, 5.50% due 08/07/1997 5,000,050 5,000,050
Sumitomo Bank Ltd., 5.66% due 07/03/1997 5,000,011 5,000,011
Sumitomo Bank Ltd., 5.75% due 08/19/1997 2,000,000 2,000,000
Swiss Bank Corporation, 5.98% due 03/19/1998 4,999,317 4,999,317
Westdeutsche Landesbank Girozentrale, 5.52% due 07/07/1997 7,000,118 7,000,118
------------------------------------------------------
TOTAL CERTIFICATES OF DEPOSIT - FOREIGN (cost $82,696,028) 17,000,173 65,695,855 0 82,696,028
------------------------------------------------------
COMMERCIAL PAPER - DOMESTIC - 34.89%
American Express Credit Corporation, 5.54% due 08/04/1997 4,973,839 4,973,839
Associates Corporation of North America, 5.635% due 07/15/1997 ** 4,989,247 4,989,247
Associates Corporation of North America, 5.653% due 07/24/1997 ** 3,985,817 3,985,817
Banc One Corporation, 5.631% due 07/01/1997 ** 8,000,000 8,000,000
BBL-North America, Inc., 5.78% due 07/01/1997 ** 8,000,000 8,000,000
BT Securities Corporation, 5.65% due 07/11/1997 4,992,153 4,992,153
Bank of New York Company, Inc., 5.535% due 07/22/1997 4,983,856 4,983,856
Bear Stearns Company, Inc., 5.60% due 08/11/1997 4,968,111 4,968,111
Bear Stearns Company, Inc., 5.60% due 08/15/1997 4,965,000 4,965,000
Beneficial Corporation, 5.61% due 07/01/1997 5,000,000 5,000,000
Beneficial Corporation, 5.56% due 07/28/1997 2,489,575 2,489,575
Chrysler Financial Corporation, 5.58% due 08/12/1997 4,967,450 4,967,450
John Deere Capital Corporation, 5.61% due 07/07/1997 4,995,325 4,995,325
Ford Motor Credit Company, 5.60% due 07/08/1997 4,994,556 4,994,556
Ford Motor Credit Company, 5.55% due 08/25/1997 3,966,083 3,966,083
Ford Motor Credit Company, 5.884% due 12/02/1997 ** 8,782,860 8,782,860
General Electric Capital Corporation, 5.62% due 07/07/1997 4,995,317 4,995,317
General Electric Capital Corporation, 5.63% due 07/07/1997 4,995,308 4,995,308
General Electric Capital Corporation, 6.00% due 01/23/1998 ** 2,902,150 2,902,150
</TABLE>
-39-
<PAGE>
COMPOSITE MONEY MARKET FUND (1), SIERRA GLOBAL MONEY FUND, and SIERRA U.S.
GOVERNMENT FUND
Pro Forma Combined Portfolio of Investments (continued)
June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
- -----------------------------------------------------------
COMPOSITE SIERRA SIERRA U.S. PRO
MONEY GLOBAL GOVERNMENT FORMA
MARKET FUND MONEY FUND MONEY FUND COMBINED
- -----------------------------------------------------------
PRINCIPAL AMOUNT
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
$3,000,000 $3,000,000 General Motors Acceptance Corporation, 5.59% due 07/03/1997
4,500,000 4,500,000 General Motors Acceptance Corporation, 5.44% due 07/14/1997
4,000,000 4,000,000 Goldman Sachs Group L.P., 6.15% due 07/01/1997
5,000,000 5,000,000 Goldman Sachs Group L.P., 5.60% due 09/03/1997
3,000,000 3,000,000 IBM Corporation, 5.56% due 08/05/1997
5,000,000 5,000,000 IBM Corporation, 5.55% due 08/25/1997
4,300,000 4,300,000 International Lease Finance Corporation, 5.55% due 08/11/1997
2,600,000 2,600,000 International Lease Finance Corporation, 5.58% due 09/03/1997
1,979,000 1,979,000 Koch Industries, 6.165% due 07/01/1997**
4,000,000 4,000,000 Merrill Lynch and Company, 5.58% due 07/16/1997
5,000,000 5,000,000 Merrill Lynch and Company, 5.58% due 08/08/1997
2,000,000 2,000,000 Merrill Lynch and Company, 5.62% due 08/08/1997
5,000,000 5,000,000 Morgan Stanley Group Inc., 5.57% due 07/21/1997
5,000,000 5,000,000 Morgan Stanley Group Inc., 5.61% due 08/25/1997
2,114,000 2,114,000 Nebraska Higher Education Loan Program, 5.55% due 07/24/1997
5,000,000 5,000,000 Oyster Creek Fuel Corporation, 5.55% due 07/09/1997
5,000,000 5,000,000 Sears Roebuck Acceptance Corporation, 5.63% due 07/07/1997
5,000,000 5,000,000 Sears Roebuck Acceptance Corporation, 5.58% due 07/23/1997
TOTAL COMMERCIAL PAPER - DOMESTIC (cost $169,124,167)
COMMERCIAL PAPER - FOREIGN - 20.08%
3,000,000 3,000,000 Abbey National North America Corporation, 5.771% due 08/01/1997**
2,000,000 2,000,000 Abbey National North America Corporation, 5.522% due 08/11/1997**
5,000,000 5,000,000 ABN Amro Bank, N.V., 5.776% due 08/19/1997**
5,000,000 5,000,000 American Honda Finance Corporation, Inc., 5.57% due 7/21/1997
2,500,000 2,500,000 American Honda Finance Corporation, Inc., 5.57% due 7/25/1997
5,000,000 5,000,000 Barclays U.S. Funding Corporation, 5.825% due 08/22/1997**
4,000,000 4,000,000 BHP Finance (USA) Inc., 5.55% due 07/08/1997
1,700,000 1,700,000 BHP Finance (USA) Inc., 5.55% due 07/09/1997
8,000,000 8,000,000 Den Danske Corporation, 5.789% due 07/02/1997**
5,000,000 5,000,000 Eksportfinans A/S, 5.56% due 07/31/1997
2,500,000 2,500,000 Eksportfinans A/S, 5.60% due 08/21/1997
6,000,000 6,000,000 Hitachi America, Limited, 5.55% due 08/18/1997
5,000,000 5,000,000 Hitachi America, Limited, 5.57% due 10/16/1997
5,000,000 5,000,000 Pemex Capital, Inc. - Series B, 5.55% due 09/17/1997
5,000,000 5,000,000 Rank Xerox Capital (Europe) PLC, 5.55% due 07/17/1997
2,000,000 2,000,000 Sharp Electronics Corporation, 5.60% due 07/03/1997
5,000,000 5,000,000 Sharp Electronics Corporation, 5.55% due 08/15/1997
1,100,000 1,100,000 Toshiba Capital (Asia) Limited, 5.63% due 08/14/1997
4,625,000 4,625,000 Toshiba International Finance (UK) PLC, 5.72% due 08/04/1997
4,000,000 4,000,000 Toshiba International Finance (UK) PLC, 5.76% due 08/28/1997
2,500,000 2,500,000 Toshiba International Finance (UK) PLC, 5.60% due 10/07/1997
5,000,000 5,000,000 Toyota Motor Credit Corporation, 5.54% due 09/16/1997
9,000,000 9,000,000 UBS Finance, Inc., 6.135% due 07/01/1997**
TOTAL COMMERCIAL PAPER - FOREIGN (cost $97,341,950)
CORPORATE NOTES AND BONDS - 4.87%
5,000,000 5,000,000 American Express Centurian Bank, 5.6575% due 07/03/1998*
3,500,000 3,500,000 Caterpillar Financial Services Corporation, 7.24% due 12/15/1997
2,000,000 2,000,000 Dean Witter Discover Company, 5.6375% due 07/16/1997*
2,000,000 2,000,000 General Motors Acceptance Corporation, 5.62% due 07/01/1997*
1,000,000 1,000,000 General Motors Acceptance Corporation, 6.75% due 07/10/1997
1,500,000 1,500,000 General Motors Acceptance Corporation, 5.75% due 10/08/1997
1,400,000 1,400,000 Household Finance Corporation, 6.70% due 08/08/1997
<CAPTION>
--------------------------------------------------------
COMPOSITE SIERRA SIERRA U.S. PRO
MONEY GLOBAL GOVERNMENT FORMA
MARKET FUND MONEY FUND MONEY FUND COMBINED
--------------------------------------------------------
MARKET VALUE
--------------------------------------------------------
<S> <C> <C> <C> <C>
General Motors Acceptance Corporation, 5.59% due 07/03/1997 $2,999,068 $2,999,068
General Motors Acceptance Corporation, 5.44% due 07/14/1997 4,491,160 4,491,160
Goldman Sachs Group L.P., 6.15% due 07/01/1997 4,000,000 4,000,000
Goldman Sachs Group L.P., 5.60% due 09/03/1997 4,950,222 4,950,222
IBM Corporation, 5.56% due 08/05/1997 2,983,783 2,983,783
IBM Corporation, 5.55% due 08/25/1997 4,957,604 4,957,604
International Lease Finance Corporation, 5.55% due 08/11/1997 4,272,820 4,272,820
International Lease Finance Corporation, 5.58% due 09/03/1997 2,574,208 2,574,208
Koch Industries, 6.165% due 07/01/1997** 1,979,000 1,979,000
Merrill Lynch and Company, 5.58% due 07/16/1997 3,990,700 3,990,700
Merrill Lynch and Company, 5.58% due 08/08/1997 4,970,550 4,970,550
Merrill Lynch and Company, 5.62% due 08/08/1997 1,988,136 1,988,136
Morgan Stanley Group Inc., 5.57% due 07/21/1997 4,984,528 4,984,528
Morgan Stanley Group Inc., 5.61% due 08/25/1997 4,957,146 4,957,146
Nebraska Higher Education Loan Program, 5.55% due 07/24/1997 2,106,504 2,106,504
Oyster Creek Fuel Corporation, 5.55% due 07/09/1997 4,993,833 4,993,833
Sears Roebuck Acceptance Corporation, 5.63% due 07/07/1997 4,995,308 4,995,308
Sears Roebuck Acceptance Corporation, 5.58% due 07/23/1997 4,982,950 4,982,950
--------------------------------------------------------
TOTAL COMMERCIAL PAPER - DOMESTIC (cost $169,124,167) 130,485,093 38,639,074 0 169,124,167
--------------------------------------------------------
COMMERCIAL PAPER - FOREIGN - 20.08%
Abbey National North America Corporation, 5.771% due 08/01/1997** 2,985,508 2,985,508
Abbey National North America Corporation, 5.522% due 08/11/1997** 1,987,928 1,987,928
ABN Amro Bank, N.V., 5.776% due 08/19/1997** 4,961,787 4,961,787
American Honda Finance Corporation, Inc., 5.57% due 7/21/1997 4,984,528 4,984,528
American Honda Finance Corporation, Inc., 5.57% due 7/25/1997 2,490,717 2,490,717
Barclays U.S. Funding Corporation, 5.825% due 08/22/1997** 4,959,122 4,959,122
BHP Finance (USA) Inc., 5.55% due 07/08/1997 3,995,683 3,995,683
BHP Finance (USA) Inc., 5.55% due 07/09/1997 1,697,903 1,697,903
Den Danske Corporation, 5.789% due 07/02/1997** 7,998,749 7,998,749
Eksportfinans A/S, 5.56% due 07/31/1997 4,976,833 4,976,833
Eksportfinans A/S, 5.60% due 08/21/1997 2,480,167 2,480,167
Hitachi America, Limited, 5.55% due 08/18/1997 5,955,600 5,955,600
Hitachi America, Limited, 5.57% due 10/16/1997 4,917,224 4,917,224
Pemex Capital, Inc. - Series B, 5.55% due 09/17/1997 4,939,875 4,939,875
Rank Xerox Capital (Europe) PLC, 5.55% due 07/17/1997 4,987,667 4,987,667
Sharp Electronics Corporation, 5.60% due 07/03/1997 1,999,378 1,999,378
Sharp Electronics Corporation, 5.55% due 08/15/1997 4,965,313 4,965,313
Toshiba Capital (Asia) Limited, 5.63% due 08/14/1997 1,092,431 1,092,431
Toshiba International Finance (UK) PLC, 5.72% due 08/04/1997 4,600,015 4,600,015
Toshiba International Finance (UK) PLC, 5.76% due 08/28/1997 3,962,880 3,962,880
Toshiba International Finance (UK) PLC, 5.60% due 10/07/1997 2,461,889 2,461,889
Toyota Motor Credit Corporation, 5.54% due 09/16/1997 4,940,753 4,940,753
UBS Finance, Inc., 6.135% due 07/01/1997** 9,000,000 9,000,000
--------------------------------------------------------
TOTAL COMMERCIAL PAPER - FOREIGN (cost $97,341,950) 65,448,856 31,893,094 0 97,341,950
--------------------------------------------------------
CORPORATE NOTES AND BONDS - 4.87%
American Express Centurian Bank, 5.6575% due 07/03/1998* 5,000,000 5,000,000
Caterpillar Financial Services Corporation, 7.24% due 12/15/1997 3,520,155 3,520,155
Dean Witter Discover Company, 5.6375% due 07/16/1997* 2,000,000 2,000,000
General Motors Acceptance Corporation, 5.62% due 07/01/1997* 2,000,732 2,000,732
General Motors Acceptance Corporation, 6.75% due 07/10/1997 1,000,262 1,000,262
General Motors Acceptance Corporation, 5.75% due 10/08/1997 1,498,835 1,498,835
Household Finance Corporation, 6.70% due 08/08/1997 1,401,388 1,401,388
</TABLE>
-40-
<PAGE>
COMPOSITE MONEY MARKET FUND (1), SIERRA GLOBAL MONEY FUND, and SIERRA U.S.
GOVERNMENT FUND
Pro Forma Combined Portfolio of Investments (continued)
June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
- ----------------------------------------------------
COMPOSITE SIERRA SIERRA U.S. PRO
MONEY GLOBAL GOVERNMENT FORMA
MARKET FUND MONEY FUND MONEY FUND COMBINED
- ----------------------------------------------------
PRINCIPAL AMOUNT
- ----------------------------------------------------
<S> <C> <C> <C>
$4,200,000 $4,200,000 IBM Corporation, 6.375% due 11/01/1997
1,000,000 1,000,000 Tonkin Building Associates LLC, 5.64% due 07/02/1997*
2,000,000 2,000,000 Watts Brothers Frozen Foods LLC, 5.64% due 07/02/1997*
TOTAL CORPORATE NOTES AND BONDS (cost $23,631,384)
FEDERAL AGENCY OBLIGATIONS - 2.37%
2,500,000 2,500,000 Federal Farm Credit Bank, 5.4975% due 7/17/1997*
1,000,000 1,000,000 Federal Home Loan Bank, 5.528% due 07/19/1997*
1,000,000 1,000,000 Federal Home Loan Bank, 5.528% due 07/28/1997*
4,000,000 4,000,000 Federal Home Loan Bank, 5.67% due 03/05/1998
3,000,000 3,000,000 Federal Home Loan Bank, 5.91% due 03/24/1998
TOTAL FEDERAL AGENCY OBLIGATIONS (cost $11,498,759)
MEDIUM-TERM NOTES- 6.80%
3,000,000 3,000,000 Abbey National Treasury Services, 5.64% due 11/03/1997
9,000,000 9,000,000 Bayerische Landesbank, 5.558% due 06/26/1998 #
5,000,000 5,000,000 CoreStates Bank, 5.648% due 03/16/1998 #
5,000,000 5,000,000 John Deere Capital, 5.85% due 07/03/1997
6,000,000 6,000,000 Korea Development Bank, 5.843% due 06/16/1998 #
5,000,000 5,000,000 Society National Bank, 5.58% due 07/08/1997 #
TOTAL MEDIUM-TERM NOTES (cost $32,991,497)
U.S. GOVERNMENT AGENCY OBLIGATIONS - 6.94%
3,000,000 3,000,000 Federal National Mortgage Association (FNMA), Discount Note, 5.604%
due 07/08/1997**
1,480,000 1,480,000 Federal National Mortgage Association (FNMA), Discount Note, 5.538%
due 07/10/1997**
900,000 900,000 Federal National Mortgage Association (FNMA), Discount Note, 5.659%
due 07/18/1997**
2,530,000 2,530,000 Federal National Mortgage Association (FNMA), Discount Note, 5.599%
due 07/21/1997**
2,430,000 2,430,000 Federal National Mortgage Association (FNMA), Discount Note, 5.545%
due 07/23/1997**
1,000,000 1,000,000 Federal National Mortgage Association (FNMA), Discount Note, 5.529%
due 08/04/1997**
2,000,000 2,000,000 Federal National Mortgage Association (FNMA), Discount Note, 5.576%
due 09/16/1997**
1,200,000 1,200,000 Federal Home Loan Mortgage Corporation (FHLMC), Discount Note, 5.527%
due 07/07/1997**
3,000,000 3,000,000 Federal Home Loan Mortgage Corporation (FHLMC), Discount Note, 5.604%
due 07/09/1997**
985,000 985,000 Federal Home Loan Mortgage Corporation (FHLMC), Discount Note, 5.649%
due 07/15/1997**
325,000 325,000 Federal Home Loan Mortgage Corporation (FHLMC), Discount Note, 5.631%
due 07/24/1997**
730,000 730,000 Federal Home Loan Mortgage Corporation (FHLMC), Discount Note, 5.558%
due 07/25/1997**
300,000 300,000 Federal Home Loan Mortgage Corporation (FHLMC), Discount Note, 5.683%
due 08/01/1997**
2,000,000 2,000,000 Federal Home Loan Mortgage Corporation (FHLMC), Discount Note, 5.683%
due 08/07/1997**
445,000 445,000 Federal Home Loan Mortgage Corporation (FHLMC), Discount Note, 5.638%
due 08/15/1997**
700,000 700,000 Federal Home Loan Mortgage Corporation (FHLMC), Discount Note, 5.582%
due 09/18/1997**
1,645,000 1,645,000 Federal Farm Credit Bank (FFCB), Discount Note, 5.512% due 07/02/1997**
1,605,000 1,605,000 Federal Farm Credit Bank (FFCB), Discount Note, 5.538% due 07/02/1997**
2,000,000 2,000,000 Federal Farm Credit Bank (FFCB), Discount Note, 5.519% due 07/22/1997**
1,800,000 1,800,000 Federal Farm Credit Bank (FFCB), Discount Note, 5.526% due 07/31/1997**
710,000 710,000 Federal Home Loan Bank (FHLB), Discount Note, 5.675% due 07/08/1997**
305,000 305,000 Federal Home Loan Bank (FHLB), Discount Note, 5.666% due 07/18/1997**
375,000 375,000 Federal Home Loan Bank (FHLB), Discount Note, 5.671% due 07/24/1997**
295,000 295,000 Federal Home Loan Bank (FHLB), Discount Note, 5.677% due 07/30/1997**
2,000,000 2,000,000 Federal Home Loan Bank (FHLB), Floating Rate Note, 5.623% due 12/04/1997#
TOTAL U.S. GOVERNMENT OBLIGATIONS (Cost $33,653,549)
<CAPTION>
-------------------------------------------
COMPOSITE SIERRA SIERRA U.S.
MONEY GLOBAL GOVERNMENT
MARKET FUND MONEY FUND MONEY FUND
-------------------------------------------
MARKET VALUE
------------------------------------------
<S> <C> <C> <C>
IBM Corporation, 6.375% due 11/01/1997 $4,210,012
Tonkin Building Associates LLC, 5.64% due 07/02/1997* 1,000,000
Watts Brothers Frozen Foods LLC, 5.64% due 07/02/1997* 2,000,000
------------------------------------------
TOTAL CORPORATE NOTES AND BONDS (cost $23,631,384) 23,631,384 0 0
------------------------------------------
FEDERAL AGENCY OBLIGATIONS - 2.37%
Federal Farm Credit Bank, 5.4975% due 7/17/1997* 2,499,185
Federal Home Loan Bank, 5.528% due 07/19/1997* 999,674
Federal Home Loan Bank, 5.528% due 07/28/1997* 999,900
Federal Home Loan Bank, 5.67% due 03/05/1998 4,000,000
Federal Home Loan Bank, 5.91% due 03/24/1998 3,000,000
------------------------------------------
TOTAL FEDERAL AGENCY OBLIGATIONS (cost $11,498,759) 11,498,759 0 0
------------------------------------------
MEDIUM-TERM NOTES- 6.80%
Abbey National Treasury Services, 5.64% due 11/03/1997 2,999,602
Bayerische Landesbank, 5.558% due 06/26/1998 # 8,993,095
CoreStates Bank, 5.648% due 03/16/1998 # 5,000,000
John Deere Capital, 5.85% due 07/03/1997 4,999,981
Korea Development Bank, 5.843% due 06/16/1998 # 5,998,884
Society National Bank, 5.58% due 07/08/1997 # 4,999,935
------------------------------------------
TOTAL MEDIUM-TERM NOTES (cost $32,991,497) 0 32,991,497 0
------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS - 6.94%
Federal National Mortgage Association (FNMA), Discount Note, 5.604% due 07/08/1997** 2,996,779
Federal National Mortgage Association (FNMA), Discount Note, 5.538% due 07/10/1997** 1,477,986
Federal National Mortgage Association (FNMA), Discount Note, 5.659% due 07/18/1997** 897,658
Federal National Mortgage Association (FNMA), Discount Note, 5.599% due 07/21/1997** 2,522,270
Federal National Mortgage Association (FNMA), Discount Note, 5.545% due 07/23/1997** 2,421,907
Federal National Mortgage Association (FNMA), Discount Note, 5.529% due 08/04/1997** 994,881
Federal National Mortgage Association (FNMA), Discount Note, 5.576% due 09/16/1997** 1,976,772
Federal Home Loan Mortgage Corporation (FHLMC), Discount Note, 5.527% due 07/07/1997** 1,198,914
Federal Home Loan Mortgage Corporation (FHLMC), Discount Note, 5.604% due 07/09/1997** 2,996,320
Federal Home Loan Mortgage Corporation (FHLMC), Discount Note, 5.649% due 07/15/1997** 982,893
Federal Home Loan Mortgage Corporation (FHLMC), Discount Note, 5.631% due 07/24/1997** 323,854
Federal Home Loan Mortgage Corporation (FHLMC), Discount Note, 5.558% due 07/25/1997** 727,348
Federal Home Loan Mortgage Corporation (FHLMC), Discount Note, 5.683% due 08/01/1997** 298,571
Federal Home Loan Mortgage Corporation (FHLMC), Discount Note, 5.683% due 08/07/1997** 1,988,633
Federal Home Loan Mortgage Corporation (FHLMC), Discount Note, 5.638% due 08/15/1997** 441,941
Federal Home Loan Mortgage Corporation (FHLMC), Discount Note, 5.582% due 09/18/1997** 691,659
Federal Farm Credit Bank (FFCB), Discount Note, 5.512% due 07/02/1997** 1,644,752
Federal Farm Credit Bank (FFCB), Discount Note, 5.538% due 07/02/1997** 1,604,758
Federal Farm Credit Bank (FFCB), Discount Note, 5.519% due 07/22/1997** 1,993,677
Federal Farm Credit Bank (FFCB), Discount Note, 5.526% due 07/31/1997** 1,791,870
Federal Home Loan Bank (FHLB), Discount Note, 5.675% due 07/08/1997** 709,238
Federal Home Loan Bank (FHLB), Discount Note, 5.666% due 07/18/1997** 304,205
Federal Home Loan Bank (FHLB), Discount Note, 5.671% due 07/24/1997** 373,678
Federal Home Loan Bank (FHLB), Discount Note, 5.677% due 07/30/1997** 293,688
Federal Home Loan Bank (FHLB), Floating Rate Note, 5.623% due 12/04/1997# 1,999,297
------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS (Cost $33,653,549) 0 0 33,653,549
------------------------------------------
<CAPTION>
----------------
PRO FORMA
COMBINED
----------------
MARKET VALUE
----------------
<S> <C>
IBM Corporation, 6.375% due 11/01/1997 $4,210,012
Tonkin Building Associates LLC, 5.64% due 07/02/1997* 1,000,000
Watts Brothers Frozen Foods LLC, 5.64% due 07/02/1997* 2,000,000
----------------
TOTAL CORPORATE NOTES AND BONDS (cost $23,631,384) 23,631,384
----------------
FEDERAL AGENCY OBLIGATIONS - 2.37%
Federal Farm Credit Bank, 5.4975% due 7/17/1997* 2,499,185
Federal Home Loan Bank, 5.528% due 07/19/1997* 999,674
Federal Home Loan Bank, 5.528% due 07/28/1997* 999,900
Federal Home Loan Bank, 5.67% due 03/05/1998 4,000,000
Federal Home Loan Bank, 5.91% due 03/24/1998 3,000,000
----------------
TOTAL FEDERAL AGENCY OBLIGATIONS (cost $11,498,759) 11,498,759
----------------
MEDIUM-TERM NOTES- 6.80%
Abbey National Treasury Services, 5.64% due 11/03/1997 2,999,602
Bayerische Landesbank, 5.558% due 06/26/1998 # 8,993,095
CoreStates Bank, 5.648% due 03/16/1998 # 5,000,000
John Deere Capital, 5.85% due 07/03/1997 4,999,981
Korea Development Bank, 5.843% due 06/16/1998 # 5,998,884
Society National Bank, 5.58% due 07/08/1997 # 4,999,935
----------------
TOTAL MEDIUM-TERM NOTES (cost $32,991,497) 32,991,497
----------------
U.S. GOVERNMENT AGENCY OBLIGATIONS - 6.94%
Federal National Mortgage Association (FNMA), Discount Note, 5.604% due 07/08/1997** 2,996,779
Federal National Mortgage Association (FNMA), Discount Note, 5.538% due 07/10/1997** 1,477,986
Federal National Mortgage Association (FNMA), Discount Note, 5.659% due 07/18/1997** 897,658
Federal National Mortgage Association (FNMA), Discount Note, 5.599% due 07/21/1997** 2,522,270
Federal National Mortgage Association (FNMA), Discount Note, 5.545% due 07/23/1997** 2,421,907
Federal National Mortgage Association (FNMA), Discount Note, 5.529% due 08/04/1997** 994,881
Federal National Mortgage Association (FNMA), Discount Note, 5.576% due 09/16/1997** 1,976,772
Federal Home Loan Mortgage Corporation (FHLMC), Discount Note, 5.527% due 07/07/1997** 1,198,914
Federal Home Loan Mortgage Corporation (FHLMC), Discount Note, 5.604% due 07/09/1997** 2,996,320
Federal Home Loan Mortgage Corporation (FHLMC), Discount Note, 5.649% due 07/15/1997** 982,893
Federal Home Loan Mortgage Corporation (FHLMC), Discount Note, 5.631% due 07/24/1997** 323,854
Federal Home Loan Mortgage Corporation (FHLMC), Discount Note, 5.558% due 07/25/1997** 727,348
Federal Home Loan Mortgage Corporation (FHLMC), Discount Note, 5.683% due 08/01/1997** 298,571
Federal Home Loan Mortgage Corporation (FHLMC), Discount Note, 5.683% due 08/07/1997** 1,988,633
Federal Home Loan Mortgage Corporation (FHLMC), Discount Note, 5.638% due 08/15/1997** 441,941
Federal Home Loan Mortgage Corporation (FHLMC), Discount Note, 5.582% due 09/18/1997** 691,659
Federal Farm Credit Bank (FFCB), Discount Note, 5.512% due 07/02/1997** 1,644,752
Federal Farm Credit Bank (FFCB), Discount Note, 5.538% due 07/02/1997** 1,604,758
Federal Farm Credit Bank (FFCB), Discount Note, 5.519% due 07/22/1997** 1,993,677
Federal Farm Credit Bank (FFCB), Discount Note, 5.526% due 07/31/1997** 1,791,870
Federal Home Loan Bank (FHLB), Discount Note, 5.675% due 07/08/1997** 709,238
Federal Home Loan Bank (FHLB), Discount Note, 5.666% due 07/18/1997** 304,205
Federal Home Loan Bank (FHLB), Discount Note, 5.671% due 07/24/1997** 373,678
Federal Home Loan Bank (FHLB), Discount Note, 5.677% due 07/30/1997** 293,688
Federal Home Loan Bank (FHLB), Floating Rate Note, 5.623% due 12/04/1997# 1,999,297
----------------
TOTAL U.S. GOVERNMENT OBLIGATIONS (Cost $33,653,549) 33,653,549
----------------
</TABLE>
-41-
<PAGE>
COMPOSITE MONEY MARKET FUND (1), SIERRA GLOBAL MONEY FUND, and SIERRA U.S.
GOVERNMENT FUND
Pro Forma Combined Portfolio of Investments (continued)
June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
- -----------------------------------------------------
COMPOSITE SIERRA SIERRA U.S. PRO
MONEY GLOBAL GOVERNMENT FORMA
MARKET FUND MONEY FUND MONEY FUND COMBINED
- -----------------------------------------------------
PRINCIPAL AMOUNT
- -----------------------------------------------------
<C> <C> <C> <C> <S>
REPURCHASE AGREEMENT - .40%
Repurchase agreement with Goldman Sachs and Company, collateralized by a U.S.
Treasury Note, in a joint trading account at 5.75%, dated 06/30/1997,
1,783,000 1,783,000 due 07/01/1997 with a maturity value of $1,783,285 (cost $1,783,000)
TOTAL INVESTMENTS (cost $484,690,944)
<CAPTION>
-------------------------------------------------------------
COMPOSITE SIERRA SIERRA U.S. PRO
MONEY GLOBAL GOVERNMENT FORMA
MARKET FUND MONEY FUND MONEY FUND COMBINED
-------------------------------------------------------------
MARKET VALUE
-------------------------------------------------------------
<S> <C> <C> <C> <C>
REPURCHASE AGREEMENT - .40%
Repurchase agreement with Goldman Sachs and Company,
collateralized by a U.S.Treasury Note, in a joint trading
account at 5.75%, dated 06/30/1997, due 07/01/1997
with a maturity value of $1,783,285 (cost $1,783,000) 1,783,000 1,783,000
-------------------------------------------------------------
TOTAL INVESTMENTS (cost $484,690,944) $260,818,394 $190,219,001 $33,653,549 $484,690,944
=============================================================
</TABLE>
* Floating Rate Note. The interest rate, is subject to change periodically,
based on a market interest rate index.
# Variable rate security. The interest rate shown reflects the rate currently in
effect.
** Rate represents annualized yield at date of purchase (unaudited).
(1) Formerly Composite Cash Management Company Money Market Portfolio.
-42-
<PAGE>
Composite Money Market Fund and Sierra Global Money Fund and Sierra U.S.
Government Money Fund
Notes to Pro Forma Financial Statement (unaudited)
1. Basis of Combination
The pro forma combined financial statements reflect the combined financial
position of Composite Money Market Fund (formerly Composite Cash Management
Company Money Market Portfolio), Sierra Global Money Fund, and Sierra U.S.
Government Money fund at June 30, 1997, and the pro forma combined results
of operations for the year ended December 31, 1996 and the six month period
ended June 30, 1997 as though the reorganization had occurred on January 1,
1996.
The pro forma combined financial statements are presented for the
information of the reader and may not necessarily be representative of how
the pro forma combined financial statements would have appeared had the
reorganization actually occurred.
The Pro Forma Combined Portfolio of Investments, Statement of Assets and
Liabilities, and the Statement of Operations should be read in conjunction
with the historical financial statements of the funds incorporated by
reference in the Statement of Additional Information.
The pro forma statements give effect to the proposed transfer of the assets
and stated liabilities of the Sierra Global Money Fund and the Sierra U.S.
Government Money Fund in exchange for shares of Composite Money Market
Fund. Under generally accepted accounting principles, the historical cost
of investment securities will be carried forward to the surviving entity.
The pro forma statements do not reflect the expenses of either fund in
carrying out its obligations under the proposed Agreement and Plan of
Reorganization.
2. Pro Forma Combined Portfolio of Investments
Securities held by the funds have been combined in the accompanying
Combined Portfolio of Investments. Securities are stated at amortized cost
which approximates fair value. Historical cost amounts represent the
combined cost basis of the securities.
-43-
<PAGE>
Composite Money Market Fund and Sierra Global Money Fund and Sierra U.S.
Government Money Fund
Notes to Pro Forma Financial Statements (unaudited) (continued)
3. Pro Forma Statement of Assets and Liabilities
Shares outstanding have been adjusted to reflect the conversion of Sierra
shares into Composite shares based upon the net asset value of Composite
shares at June 30, 1997.
4. Pro Forma Statements of Operations
The pro forma statements of operations reflect the following adjustments:
A. A decrease in management fees to reflect the new fee structure. Fees
are based on .40% of average daily net assets.
B. An elimination of administration fees, now incorporated in the
management fee structure. Expenses of the Fund will be reimbursed at
a rate of .0005% of average daily net assets and have been adjusted
accordingly. Shareholder servicing and distribution expenses have
been adjusted to reflect the elimination of 12b-1 fees. Other
expenses have been adjusted based on an overall estimated expense
ratio of .79%.
-44-
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA STATEMENT OF ASSETS AND LIABILITIES AT JUNE 30, 1997 (unaudited)
Pro Forma
Sierra National Composite Tax Adjustments Pro Forma
Municipal Fund Exempt Bond Fund (Note 3) Combined
--------------- ---------------- ----------- --------------
<S> <C> <C> <C> <C>
ASSETS:
Investments, at value, (cost $166,933,787,
$182,228,123, and $349,161,910) $ 183,056,048 $ 196,962,283 $ 380,018,331
Cash, receivables, and other assets 5,857,373 3,154,779 9,012,152
--------------- ---------------- --------------
Total Assets 188,913,421 200,117,062 389,030,483
--------------- ---------------- --------------
LIABILITIES:
Accrued expenses and other liabilities 647,675 987,691 1,635,366
--------------- ---------------- --------------
Total Liabilities 647,675 987,691 1,635,366
--------------- ---------------- --------------
Net Assets $ 188,265,746 $ 199,129,371 $ 387,395,117
=============== ================ ==============
Outstanding Shares
- ------------------
Class A 16,332,950 24,539,546 6,924,773 47,797,269
=============== ================ ==============
Class B 537,751 849,640 227,671 1,615,062
=============== ================ ==============
Class S 120 - 51 171
=============== ================ ==============
Class I 98 - 42 140
=============== ================ ==============
Net Asset Value
- ---------------
Class A $ 182,262,402 $ 192,464,935 $ 374,727,337
=============== ================ ==============
Class B $ 6,000,911 $ 6,664,436 $ 12,665,347
=============== ================ ==============
Class S $ 1,339 - $ 1,339
=============== ================ ==============
Class I $ 1,094 - $ 1,094
=============== ================ ==============
Net Asset Value
Per Share
- ---------------
Class A $ 11.16 $ 7.84 $ 7.84
=============== ================ ==============
Class B $ 11.16 $ 7.84 $ 7.84
=============== ================ ==============
Class S $ 11.16 - $ 7.84
=============== ================ ==============
Class I $ 11.16 - $ 7.84
=============== ================ ==============
See accompanying notes to pro forma financial statements.
</TABLE>
-45-
<PAGE>
PRO FORMA STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996 (Unaudited)
<TABLE>
<CAPTION>
Pro Forma
Sierra National Composite Tax Adjustments Pro Forma
Municipal Fund Exempt Bond Fund (Note 4) Combined
--------------- ---------------- ----------- ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest and Other $15,931,490 $12,265,409 $ 0 $28,196,899
----------- ----------- --------- -----------
EXPENSES:
Management fees 1,315,584 1,065,379 (321,871) 2,059,092
Administration fees 837,190 0 (837,190) 0
Transfer agent fees 0 102,716 78,193 180,909
Distribution fees
Class A Shares 581,129 315,034 106,538 1,002,701
Class B Shares 67,338 40,939 0 108,277
Class S Shares 113 0 0 113
All other expenses 353,838 136,126 (37,691) 452,273
Expense reimbursement (499,178) 0 499,178 0
----------- ----------- --------- -----------
Subtotal 2,656,014 1,660,194 (512,843) 3,803,365
----------- ----------- --------- -----------
Fees paid indirectly (3,651) (3,437) 0 (7,088)
----------- ----------- --------- -----------
Total Expenses 2,652,363 1,656,757 (512,843) 3,796,277
----------- ----------- --------- -----------
NET INVESTMENT INCOME 13,279,127 10,608,652 512,843 24,400,622
----------- ----------- --------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net Realized Gain (Loss) From:
Security Transactions 2,961,185 (1,336,656) 0 1,624,529
Future contracts (212,390) 0 0 (212,390)
Written options 51,255 0 0 51,255
Net Unrealized Appreciation (Depreciation) of
Securities (6,902,081) 0 0 (6,902,081)
Foreign currency, written options, futures
Contracts and other assets and liabilities 161,873 (4,335,561) 0 (4,173,688)
Net Realized and Unrealized Gain (Loss) on Investments (3,940,158) (5,672,217) 0 (9,612,375)
----------- ----------- --------- -----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 9,338,969 $ 4,936,435 $ 512,843 $14,788,247
=========== =========== ========= ===========
</TABLE>
See accompanying notes to pro forma financial statements.
-46-
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1997 (Unaudited)
Pro Forma
Sierra National Composite Tax Adjustments Pro Forma
Municipal Fund Exempt Bond Fund (Note 4) Combined
---------------- ---------------- ------------ ----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest and Other $6,524,830 $5,805,302 $0 $12,330,132
---------- ---------- -------- -----------
EXPENSES:
Management fees 549,352 496,566 (124,136) 921,782
Administration fees 349,587 0 (349,587) 0
Transfer agent fees 0 45,168 34,510 79,678
Distribution fees
Class A Shares 241,607 180,466 49,657 471,730
Class B Shares 32,372 29,073 0 61,445
Class S Shares 13 0 0 13
All other expenses 105,157 66,295 27,743 199,195
Expense reimbursement (291,786) 0 291,786 0
---------- ---------- -------- -----------
Subtotal 986,302 817,568 (70,027) 1,733,843
---------- ---------- -------- -----------
Fees paid indirectly (545) (1,179) 0 (1,724)
---------- ---------- -------- -----------
Total Expenses 985,757 816,389 (70,027) 1,732,119
---------- ---------- -------- ------------
NET INVESTMENT INCOME 5,539,073 4,988,913 70,027 10,598,013
---------- ---------- -------- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net Realized Gain (Loss) From:
Security Transactions 1,951,225 445,364 0 2,396,589
Futures Contracts 76,396 0 0 76,396
Net Unrealized Appreciation (Depreciation) of:
Securities (832,642) 0 0 (832,642)
Foreign currency, written options, futures contracts
and other assets and liabilities 13,304 (183,704) 0 (170,400)
---------- ---------- -------- -----------
Net Realized and Unrealized Gain (Loss) on Investments 1,208,283 261,660 0 1,469,943
---------- ---------- -------- -----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $6,747,356 $5,250,573 $ 70,027 $12,067,956
---------- ---------- -------- -----------
See accompanying notes to pro forma financial statements.
</TABLE>
-47-
<PAGE>
COMPOSITE TAX-EXEMPT BOND FUND (1) and SIERRA NATIONAL MUNICIPAL FUND
Pro Forma Combined Portfolio of Investments
June 30, 1997
(unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------
COMPOSITE SIERRA PRO
TAX-EXEMPT NATIONAL FORMA
BOND FUND MUNICIPAL FUND COMBINED
- --------------------------------------------------
PRINCIPAL AMOUNT
- --------------------------------------------------
<C> <C> <C> <S>
LONG - TERM MUNICIPAL OBLIGATIONS- 97.44%
EDUCATION FACILITIES REVENUE - 1.28%
$1,300,000 $1,300,000 Purdue University, Series E, 4.15% due 07/01/2011 **
$785,000 785,000 University of Washington University, MBIA, 7.00%, due 12/01/2021
Washington State Higher Education Facilities, Pacific Lutheran
2,750,000 2,750,000 University Project, (CONNIE LEE), 5.70% due 11/02/2026
GENERAL OBLIGATION - 19.78%
5,000,000 5,000,000 California State General Obligation, FGIC, 5.625%, due 10/01/2023
Cook County, Community High School, Number 217, (AMBAC Insured):
1,090,000 1,090,000 6.40% due 12/01/2003
1,130,000 1,130,000 6.50% due 12/01/2004
1,370,000 1,370,000 6.60% due 12/01/2005
Cook County, School District, Number 026, (MBIA Insured):
1,445,000 1,445,000 Zero coupon due 12/01/2003
1,020,000 1,020,000 Zero coupon due 12/01/2004
5,000,000 5,000,000 Cook County Illinois, (FGIC), 5.875%, due 11/15/2022
Commonwealth of Massachusetts, Consolidated Loan, Series A, GO,
750,000 750,000 7.625% due 06/01/2008
5,000,000 5,000,000 Georgia State, 6.30% due 03/01/2009
5,555,000 5,555,000 Hawaii State, 6.40% due 03/01/2009
2,000,000 2,000,000 Honolulu City & County, 6.00% due 01/01/2012
4,000,000 4,000,000 King County Washington Ref-Sewer Series C, 5.25% due 1/01/2021
King County Washington School District #415 Kent,
4,500,000 4,500,000 Series C, 6.30% due 12/01/2008
4,500,000 4,500,000 Meridian Metropolitan District, GO, 7.50% due 12/01/2011
New York, GO:
995,000 995,000 Series A, 8.00% due 08/15/2020
1,000,000 1,000,000 Series B, (FSA Insured), 7.00% due 06/01/2014
5,200,000 5,200,000 Series C, 6.50% due 08/01/2005
160,000 160,000 Series F, Unrefunded, 8.25% due 11/15/2018
Orleans Parish, Louisiana, School Board Revenue, (FGIC Insured),
10,000,000 10,000,000 Zero coupon due 02/01/2015
Washington County, Oregon (Criminal Justice Facilities)
6,230,000 6,230,000 6.00%, due 12/01/2012
7,570,000 7,570,000 Washington State, Series B, 5.00% due 5/01/2017
4,900,000 4,900,000 Washington State, Series B, 6.40% due 6/01/2017
HOSPITAL, HEALTH, & NURSING HOME REVENUE 15.31%
Allegheny County, Hospital Development Revenue, (OHIO Valley General Hospital):
700,000 700,000 5.10% due 04/01/2001
735,000 735,000 5.30% due 04/01/2002
625,000 625,000 5.40% due 04/01/2003
Commonwealth of Massachusetts, Health and Educational Facilities Authority:
500,000 500,000 Framingham Union Hospital, Series B, 8.50% due 07/01/2010
2,000,000 2,000,000 Saint Memorial Medical Center, Series A, 6.00%, due 10/01/2023
Decatur, Hospital Revenue, (Decatur Memorial Hospital), Series B,
1,000,000 1,000,000 (MBIA Insured), 6.85% due 10/01/2016
Idaho Health Facilities Authority Revenue, (Inverse Floater),
2,000,000 2,000,000 7.82% due 02/15/2021 **
<CAPTION>
-----------------------------------------------
COMPOSITE SIERRA PRO
TAX-EXEMPT NATIONAL FORMA
BOND FUND MUNICIPAL FUND COMBINED
-----------------------------------------------
MARKET VALUE
-----------------------------------------------
<S> <C> <C> <C>
LONG - TERM MUNICIPAL OBLIGATIONS- 97.44%
EDUCATION FACILITIES REVENUE - 1.28%
Purdue University, Series E, 4.15% due 07/01/2011 ** $1,300,000 $1,300,000
University of Washington University, MBIA, 7.00%, due 12/01/2021 $864,575 864,575
Washington State Higher Education Facilities, Pacific Lutheran
University Project, (CONNIE LEE), 5.70% due 11/02/2026 2,697,888 2,697,888
------------------------------------------------
3,562,463 1,300,000 4,862,463
------------------------------------------------
GENERAL OBLIGATION - 19.78%
California State General Obligation, FGIC, 5.625%, due 10/01/2023 4,999,500 4,999,500
Cook County, Community High School, Number 217, (AMBAC Insured):
6.40% due 12/01/2003 1,170,387 1,170,387
6.50% due 12/01/2004 1,213,337 1,213,337
6.60% due 12/01/2005 1,471,037 1,471,037
Cook County, School District, Number 026, (MBIA Insured):
Zero coupon due 12/01/2003 1,049,431 1,049,431
Zero coupon due 12/01/2004 701,250 701,250
Cook County Illinois, (FGIC), 5.875%, due 11/15/2022 5,065,850 5,065,850
Commonwealth of Massachusetts, Consolidated Loan, Series A, GO,
7.625% due 06/01/2008 848,438 848,438
Georgia State, 6.30% due 03/01/2009 5,604,300 5,604,300
Hawaii State, 6.40% due 03/01/2009 6,227,988 6,227,988
Honolulu City & County, 6.00% due 01/01/2012 2,133,120 2,133,120
King County Washington Ref-Sewer Series C, 5.25% due 1/01/2021 3,861,320 3,861,320
King County Washington School District #415 Kent,
Series C, 6.30% due 12/01/2008 4,993,740 4,993,740
Meridian Metropolitan District, GO, 7.50% due 12/01/2011 4,933,125 4,933,125
New York, GO:
Series A, 8.00% due 08/15/2020 1,140,519 1,140,519
Series B, (FSA Insured), 7.00% due 06/01/2014 1,098,750 1,098,750
Series C, 6.50% due 08/01/2005 5,570,500 5,570,500
Series F, Unrefunded, 8.25% due 11/15/2018 182,000 182,000
Orleans Parish, Louisiana, School Board Revenue, (FGIC Insured),
Zero coupon due 02/01/2015 3,712,500 3,712,500
Washington County, Oregon (Criminal Justice Facilities)
6.00%, due 12/01/2012 6,550,845 6,550,845
Washington State, Series B, 5.00% due 5/01/2017 7,146,383 7,146,383
Washington State, Series B, 6.40% due 6/01/2017 5,502,847 5,502,847
------------------------------------------------
52,085,893 23,091,274 75,177,167
------------------------------------------------
HOSPITAL, HEALTH, & NURSING HOME REVENUE 15.31%
Allegheny County, Hospital Development Revenue, (OHIO Valley General Hospital):
5.10% due 04/01/2001 700,000 700,000
5.30% due 04/01/2002 736,837 736,837
5.40% due 04/01/2003 625,781 625,781
Commonwealth of Massachusetts, Health and Educational Facilities Authority:
Framingham Union Hospital, Series B, 8.50% due 07/01/2010 565,625 565,625
Saint Memorial Medical Center, Series A, 6.00%, due 10/01/2023 1,795,000 1,795,000
Decatur, Hospital Revenue, (Decatur Memorial Hospital), Series B,
(MBIA Insured), 6.85% due 10/01/2016 1,107,500 1,107,500
Idaho Health Facilities Authority Revenue, (Inverse Floater),
7.82% due 02/15/2021 ** 2,217,500 2,217,500
</TABLE>
-48-
<PAGE>
COMPOSITE TAX-EXEMPT BOND FUND (1) and SIERRA NATIONAL MUNICIPAL FUND
Pro Forma Combined Portfolio of Investments (continued)
June 30, 1997
(unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------
COMPOSITE SIERRA PRO
TAX-EXEMPT NATIONAL FORMA
BOND FUND MUNICIPAL FUND COMBINED
- -------------------------------------------------
PRINCIPAL AMOUNT
- -------------------------------------------------
<C> <C> <C> <S>
Illinois Health Facilities Authority Revenue, Glenoak Medical Center, Series D:
$270,000 $270,000 Unrefunded, 9.50% due 11/15/2015
4,675,000 4,675,000 Hindsdale Hospital, Series B, 9.00% due 11/15/2015
Sister Services Hospital, Residual Interest Bond, (MBIA Insured), 9.207%
5,000,000 5,000,000 due 06/19/2015 **
300,000 300,000 Riverside Senior Living Center Project, 7.50% due 11/01/2020
1,230,000 1,230,000 Servantcor, Series A, 8.00% due 08/15/2021
Rush Presbyterian - St. Luke's Medical, Residual Interest Bond, (MBIA Insured)
3,000,000 3,000,000 9.615% due 10/01/2024 **
Jefferson County, Hospital Revenue, Residual Interest Bond, (MBIA Insured),
3,000,000 3,000,000 8.496% due 10/09/2008 **
Lehigh County, General Purpose Authority, Muhlenberg Hospital Center, Series A,
600,000 600,000 8.10% due 07/15/2010
Lorain County, Hospital Revenue, Series B, Humility of Mary Health Care,
1,240,000 1,240,000 7.20% due 12/15/2011
McKean County, Hospital Authority Revenue, Bradford Hospital, Pottstown Memorial
500,000 500,000 Medical Center, 8.875% due 10/01/2020
Michigan State Hospital Finance Authority Revenue, Detroit Medical, Series A,
1,500,000 1,500,000 7.50% due 08/15/2011
Minnesota Agriculture and Economic Development Board, Health Care Systems,
1,000,000 1,000,000 (Fairview Hospital Project), Series A, (MBIA Insured), 5.750% due 11/15/2026
Missouri State, Health and Educational Facilities Authority Revenue,
1,000,000 1,000,000 Bethesda Eye Institute, 6.80% due 11/01/2016
1,250,000 1,250,000 Montgomery County, Higher Education Revenue, 6.875% due 11/15/2020
Pennsylvania State Higher Education Revenue, Student Loan Revenue, Residual
Interest Bond, AMT:
Medical College of Pennsylvania:
3,000,000 3,000,000 (AMBAC Insured), 9.317% due 09/01/2026 **
3,000,000 3,000,000 Series A, 7.25%, due 03/01/2011
1,890,000 1,890,000 Series B, 7.25%, due 03/01/2005
1,000,000 1,000,000 Philadelphia, Water and Sewer Revenue, 7.50% due 08/01/2010
Rhode Island State Health and Education Revenue, Residual Interest Bond,
2,000,000 2,000,000 (FGIC Insured), 9.487% due 08/15/2021 **
University of Colorado, Hospital Authority Revenue, Series A,
5,000,000 5,000,000 (AMBAC Insured), 6.25% due 11/15/2012
Washington Health Care Facilities Authority,
1,750,000 1,750,000 Fred Hutchinson Cancer Center, LOC, 7.20% due 01/01/2007
Washington Health Care Facilities Authority,
1,750,000 1,750,000 Fred Hutchinson Cancer Center, LOC 7.375% due 01/01/2018
Wisconsin Health & Education Facility Authority,
1,000,000 1,000,000 Waukesha Memorial Hospital Series A, (AMBAC), 7.125% due 08/15/2007
HOUSING REVENUE- 2.48%
365,000 365,000 Illinois Housing Development Authority, Series A, AMT, 7.35% due 08/01/2010
State of Maryland, Community Development Administration, Department of Housing,
930,000 930,000 Single Family Project, AMT, 7.45% due 04/01/2032
Nebraska Investment Finance Authority, SFHR, Residual Interest Bond, AMT,
650,000 650,000 (GNMA Insured), 9.312% due 09/15/2024 **
New York State, Housing Finance Agency Revenue, Multi-family Housing Revenue,
2,000,000 2,000,000 Second Mortgage, Series F, AMT, 6.625% due 08/15/2012
3,000,000 3,000,000 Housing of New York Corporation Revenue, 5.00% due 11/01/2013
Vermont Housing Finance Agency, Single Family, Series 1, AMT:
140,000 140,000 6.80% due 05/01/2025
220,000 220,000 8.15% due 05/01/2025
Oklahoma Housing and Finance Authority, SFHR, Series B, AMT, (GNMA Insured),
1,855,000 1,855,000 7.997% due 08/01/2018
<CAPTION>
-------------------------------------------
COMPOSITE SIERRA PRO
TAX-EXEMPT NATIONAL FORMA
BOND FUND MUNICIPAL FUND COMBINED
-------------------------------------------
MARKET VALUE
-------------------------------------------
<S> <C> <C> <C>
Illinois Health Facilities Authority Revenue, Glenoak Medical Center, Series D:
Unrefunded, 9.50% due 11/15/2015 $315,225 $315,225
Hindsdale Hospital, Series B, 9.00% due 11/15/2015 5,387,937 5,387,937
Sister Services Hospital, Residual Interest Bond, (MBIA Insured), 9.207%
due 06/19/2015 ** 5,800,000 5,800,000
Riverside Senior Living Center Project, 7.50% due 11/01/2020 333,000 333,000
Servantcor, Series A, 8.00% due 08/15/2021 1,409,887 1,409,887
Rush Presbyterian - St. Luke's Medical, Residual Interest Bond, (MBIA Insured)
9.615% due 10/01/2024 ** 3,457,500 3,457,500
Jefferson County, Hospital Revenue, Residual Interest Bond, (MBIA Insured),
8.496% due 10/09/2008 ** 3,461,250 3,461,250
Lehigh County, General Purpose Authority, Muhlenberg Hospital Center, Series A,
8.10% due 07/15/2010 633,000 633,000
Lorain County, Hospital Revenue, Series B, Humility of Mary Health Care,
7.20% due 12/15/2011 1,446,150 1,446,150
McKean County, Hospital Authority Revenue, Bradford Hospital, Pottstown Memorial
Medical Center, 8.875% due 10/01/2020 574,375 574,375
Michigan State Hospital Finance Authority Revenue, Detroit Medical, Series A,
7.50% due 08/15/2011 1,625,625 1,625,625
Minnesota Agriculture and Economic Development Board, Health Care Systems,
(Fairview Hospital Project), Series A, (MBIA Insured), 5.750% due 11/15/2026 1,007,500 1,007,500
Missouri State, Health and Educational Facilities Authority Revenue,
Bethesda Eye Institute, 6.80% due 11/01/2016 1,111,250 1,111,250
Montgomery County, Higher Education Revenue, 6.875% due 11/15/2020 1,309,375 1,309,375
Pennsylvania State Higher Education Revenue, Student Loan Revenue, Residual
Interest Bond, AMT:
Medical College of Pennsylvania:
(AMBAC Insured), 9.317% due 09/01/2026 ** 3,378,750 3,378,750
Series A, 7.25%, due 03/01/2011 3,326,250 3,326,250
Series B, 7.25%, due 03/01/2005 2,095,538 2,095,538
Philadelphia, Water and Sewer Revenue, 7.50% due 08/01/2010 1,128,750 1,128,750
Rhode Island State Health and Education Revenue, Residual Interest Bond,
(FGIC Insured), 9.487% due 08/15/2021 ** 2,385,000 2,385,000
University of Colorado, Hospital Authority Revenue, Series A,
(AMBAC Insured), 6.25% due 11/15/2012 5,337,500 5,337,500
Washington Health Care Facilities Authority,
Fred Hutchinson Cancer Center, LOC, 7.20% due 01/01/2007 1,903,230 1,903,230
Washington Health Care Facilities Authority,
Fred Hutchinson Cancer Center, LOC 7.375% due 01/01/2018 1,910,598 1,910,598
Wisconsin Health & Education Facility Authority,
Waukesha Memorial Hospital Series A, (AMBAC), 7.125% due 08/15/2007 1,085,570 1,085,570
-------------------------------------------
4,899,398 53,272,105 58,171,503
-------------------------------------------
HOUSING REVENUE- 2.48%
Illinois Housing Development Authority, Series A, AMT, 7.35% due 08/01/2010 387,356 387,356
State of Maryland, Community Development Administration, Department of Housing,
Single Family Project, AMT, 7.45% due 04/01/2032 973,012 973,012
Nebraska Investment Finance Authority, SFHR, Residual Interest Bond, AMT,
(GNMA Insured), 9.312% due 09/15/2024 ** 727,188 727,188
New York State, Housing Finance Agency Revenue, Multi-family Housing Revenue,
Second Mortgage, Series F, AMT, 6.625% due 08/15/2012 2,107,500 2,107,500
Housing of New York Corporation Revenue, 5.00% due 11/01/2013 2,808,750 2,808,750
Vermont Housing Finance Agency, Single Family, Series 1, AMT:
6.80% due 05/01/2025 143,325 143,325
8.15% due 05/01/2025 227,425 227,425
Oklahoma Housing and Finance Authority, SFHR, Series B, AMT, (GNMA Insured),
7.997% due 08/01/2018 2,072,963 2,072,963
-------------------------------------------
0 9,447,519 9,447,519
-------------------------------------------
</TABLE>
-49-
<PAGE>
COMPOSITE TAX-EXEMPT BOND FUND (1) and SIERRA NATIONAL MUNICIPAL FUND
Pro Forma Combined Portfolio of Investments (continued)
June 30, 1997
(unaudited)
<TABLE>
<CAPTION>
- -----------------------------------------------------
COMPOSITE SIERRA PRO
TAX-EXEMPT NATIONAL FORMA
BOND FUND MUNICIPAL FUND COMBINED
- -----------------------------------------------------
PRINCIPAL AMOUNT
- -----------------------------------------------------
<C> <C> <C> <S>
INDUSTRY DEVELOPMENT/POLLUTION CONTROL REVENUE-17.70%
Mayor & City Council of Baltimore Port Facility (DuPont),
$5,000,000 $5,000,000 6.50% due 10/01/2011
Beaver County, IDR, PCR, (Edison Project), Series A:
300,000 300,000 7.75% due 09/01/2024
3,675,000 3,675,000 (FGIC Insured), 7.00% due 06/01/2021
3,665,000 3,665,000 Chicago Gas Supply (Peoples Gas), 6.875%, due 03/01/2015
Clark County, IDR, Series A, Nevada Power Company, AMT, (FGIC Insured),
4,000,000 4,000,000 6.70% due 06/01/2022
Courtland, Industrial Development Board of Solid Waste, (Champion International
4,000,000 4,000,000 Corporation Project), Disposal Revenue, AMT, 7.75% due 01/01/2020
Forsyth, PCR, Series B, AMT, Puget Sound Power & Light, (AMBAC Insured),
1,000,000 1,000,000 7.25% due 08/01/2021
Harrison County, Solid Waste Disposal, (Monongahelea Power), Series A, AMT,
2,500,000 2,500,000 6.875% due 04/15/2022
Kanawha County, IDR, (Union Carbide Project), Series A, AMT,
150,000 150,000 8.00% due 08/01/2020
300,000 300,000 Lancaster County, Solid Waste Authority, Series A, AMT, 8.375% due 12/15/2004
Lordsburg Pollution Control (Phelps Dodge), 6.50%,
1,500,000 1,500,000 due 04/01/2013
Lowndes County Solid Waste Disposal & Pollution Control
4,000,000 4,000,000 (Weyerhaeuser), 6.80% due 04/01/2022
Lowndes County, Solid Waste Disposal, PCR, Residual Interest Bond,
5,000,000 5,000,000 (Weyerhaeuser Company), Floating Rate Note, 7.82% due 04/01/2022*
Madison, IDR, (Madison Gas & Electric Company), (Project A), AMT,
1,000,000 1,000,000 6.75% due 04/01/2027
Mercer County Pollution Control (Otter Tail Power)
4,370,000 4,370,000 6.90% due 02/01/2019
Mobile, Industrial Development Board, Solid Waste Disposal Revenue,
1,000,000 1,000,000 6.95% due 01/01/2020
5,000,000 5,000,000 Monroe, PCR, (Oglethorpe Power Company) 6.70% due 01/01/2009
3,410,000 3,410,000 Monroe, PCR, (Oglethorpe Power Company) 6.75% due 01/01/2010
San Diego Industrial Development (San Diego Gas &
6,000,000 6,000,000 Electric), Series A, (AMBAC), 5.90% due 06/01/2018
South Charleston, IDR, (Union Carbide Project), Series A, AMT,
750,000 750,000 8.00% due 08/01/2020
5,000,000 5,000,000 Valdez Marine Term (Mobil Alaska Pipeline), 5.75%, due 11/01/2028
Warren County, Solid Waste Disposal Revenue, (International Paper Project),
200,000 200,000 Series A, AMT, 7.70% due 11/15/2009
West Side Calhoun County, Solid Waste Revenue Bond, (Union Carbide Project),
500,000 500,000 AMT, 8.20% due 03/15/2021
LEASE RENTAL/MUNICIPAL LEASE-2.51%
California State Public Works Board Lease, Department of Corrections,
1,250,000 1,250,000 State Prison, Series E, 5.50%, due 6/01/2015
1,150,000 1,150,000 District of Columbia, COP, 6.875% due 01/01/2003
Los Angeles, Regional Airport Improvement, Series A, AMT
550,000 550,000 6.70% due 01/01/2022
Orange County Recovery Certificate of Participation, Series A, (MBIA)
3,000,000 3,000,000 6.00% due 07/01/2026
Philadelphia, Municipal Authority Revenue, Series B, (FGIC Insured), 7.125%
1,000,000 1,000,000 due 11/15/2018
1,000,000 1,000,000 Plymouth County, COP, Series A, 7.00% due 04/01/2022
1,173,000 1,173,000 Sacramento California Certificate of Participation, 5.55%, due 9/15/2004
<CAPTION>
-------------------------------------------------
COMPOSITE SIERRA PRO
TAX-EXEMPT NATIONAL FORMA
BOND FUND MUNICIPAL FUND COMBINED
-------------------------------------------------
MARKET VALUE
-------------------------------------------------
<S> <C> <C> <C>
INDUSTRY DEVELOPMENT/POLLUTION CONTROL REVENUE-17.70%
Mayor & City Council of Baltimore Port Facility (DuPont),
6.50% due 10/01/2011 $5,403,100 $5,403,100
Beaver County, IDR, PCR, (Edison Project), Series A:
7.75% due 09/01/2024 317,250 317,250
(FGIC Insured), 7.00% due 06/01/2021 3,955,219 3,955,219
Chicago Gas Supply (Peoples Gas), 6.875%, due 03/01/2015 3,959,666 3,959,666
Clark County, IDR, Series A, Nevada Power Company, AMT, (FGIC Insured),
6.70% due 06/01/2022 4,275,000 4,275,000
Courtland, Industrial Development Board of Solid Waste, (Champion International
Corporation Project), Disposal Revenue, AMT, 7.75% due 01/01/2020 4,290,000 4,290,000
Forsyth, PCR, Series B, AMT, Puget Sound Power & Light, (AMBAC Insured),
7.25% due 08/01/2021 1,103,750 1,103,750
Harrison County, Solid Waste Disposal, (Monongahelea Power), Series A, AMT,
6.875% due 04/15/2022 2,671,875 2,671,875
Kanawha County, IDR, (Union Carbide Project), Series A, AMT,
8.00% due 08/01/2020 163,313 163,313
Lancaster County, Solid Waste Authority, Series A, AMT, 8.375% due 12/15/2004 314,418 314,418
Lordsburg Pollution Control (Phelps Dodge), 6.50%,
due 04/01/2013 1,596,690 1,596,690
Lowndes County Solid Waste Disposal & Pollution Control
(Weyerhaeuser), 6.80% due 04/01/2022 4,660,880 4,660,880
Lowndes County, Solid Waste Disposal, PCR, Residual Interest Bond,
(Weyerhaeuser Company), Floating Rate Note, 7.82% due 04/01/2022* 5,718,750 5,718,750
Madison, IDR, (Madison Gas & Electric Company), (Project A), AMT,
6.75% due 04/01/2027 1,055,000 1,055,000
Mercer County Pollution Control (Otter Tail Power)
6.90% due 02/01/2019 4,647,145 4,647,145
Mobile, Industrial Development Board, Solid Waste Disposal Revenue,
6.95% due 01/01/2020 1,067,500 1,067,500
Monroe, PCR, (Oglethorpe Power Company) 6.70% due 01/01/2009 5,612,500 5,612,500
Monroe, PCR, (Oglethorpe Power Company) 6.75% due 01/01/2010 3,849,038 3,849,038
San Diego Industrial Development (San Diego Gas &
Electric), Series A, (AMBAC), 5.90% due 06/01/2018 6,130,860 6,130,860
South Charleston, IDR, (Union Carbide Project), Series A, AMT,
8.00% due 08/01/2020 816,562 816,562
Valdez Marine Term (Mobil Alaska Pipeline), 5.75%, due 11/01/2028 4,910,500 4,910,500
Warren County, Solid Waste Disposal Revenue, (International Paper Project),
Series A, AMT, 7.70% due 11/15/2009 213,500 213,500
West Side Calhoun County, Solid Waste Revenue Bond, (Union Carbide Project),
AMT, 8.20% due 03/15/2021 553,750 553,750
-------------------------------------------------
31,308,841 35,977,425 67,286,266
-------------------------------------------------
LEASE RENTAL/MUNICIPAL LEASE-2.51%
California State Public Works Board Lease, Department of Corrections,
State Prison, Series E, 5.50%, due 6/01/2015 1,244,300 1,244,300
District of Columbia, COP, 6.875% due 01/01/2003 1,210,375 1,210,375
Los Angeles, Regional Airport Improvement, Series A, AMT
6.70% due 01/01/2022 570,625 570,625
Orange County Recovery Certificate of Participation, Series A, (MBIA)
6.00% due 07/01/2026 3,116,310 3,116,310
Philadelphia, Municipal Authority Revenue, Series B, (FGIC Insured), 7.125%
due 11/15/2018 1,121,250 1,121,250
Plymouth County, COP, Series A, 7.00% due 04/01/2022 1,096,250 1,096,250
Sacramento California Certificate of Participation, 5.55%, due 9/15/2004 1,172,132 1,172,132
-------------------------------------------------
4,360,610 5,170,632 9,531,242
-------------------------------------------------
</TABLE>
-50-
<PAGE>
COMPOSITE TAX-EXEMPT BOND FUND (1) and SIERRA NATIONAL MUNICIPAL FUND
Pro Forma Combined Portfolio of Investments (continued)
June 30, 1997
(unaudited)
<TABLE>
<CAPTION>
- ----------------------------------------------------
COMPOSITE SIERRA PRO
TAX-EXEMPT NATIONAL FORMA
BOND FUND MUNICIPAL FUND COMBINED
- ----------------------------------------------------
PRINCIPAL AMOUNT
- ----------------------------------------------------
<C> <C> <C> <S>
OTHER REVENUE - 4.45%
Brazos, Higher Educational Facilities Authority, Series C-2, AMT, 7.10%
$445,000 $445,000 due 11/01/2004
Texas State, Higher Education Coordinating Board, Student Loan, AMT,
669,000 669,000 7.70% due 10/01/2025
Dade County, Guaranteed Entitlement Revenue, Capital Appreciation, Series A,
22,520,000 22,520,000 (MBIA Insured), Zero coupon due 02/01/2018
District of Columbia, Land Redevelopment Agency, Washington D.C. Sports
1,420,000 1,420,000 Arena, Special Tax, 5.625% due 11/01/2010
Indianapolis, Public Improvement Board, Series D, (LOC INB National Bank),
2,000,000 2,000,000 6.50% due 02/01/2022
Mashantucket Western Pequot Tribe, Special Revenue, Series A,
2,000,000 2,000,000 6.50% due 09/01/2005##
3,000,000 3,000,000 St Louis, Parking Facilities Revenue, 6.625%, due 12/15/2021
PUBLIC FACILITIES REVENUE - 1.86%
Metropolitan Pier and Exposition Authority Dedicated
4,000,000 4,000,000 State Tax, (FGIC), Zero coupon, due 06/15/2008
Metropolitan Pier and Exposition Authority Dedicated
6,000,000 6,000,000 State Tax, (FGIC), Zero coupon, due 06/15/2009
Santa Fe County New Mexico Correctional System
1,500,000 1,500,000 (FSA), 6.00%, due 2/01/2027
PREREFUNDED - 9.56%
4,000,000 4,000,000 Chicago Wastewater Transmission Revenue, 6.75%, due 11/15/2020
2,225,000 2,225,000 Colorado Springs Utilities System Revenue, 6.75%, due 11/15/2021
250,000 250,000 Commonwealth of Massachusetts, GO, Pre-refunded, 7.50% due 12/01/2007
Illinois Health Facilities Authority Revenue, Glenoak Medical Center, Series D,
210,000 210,000 Pre-refunded, 9.50% due 11/15/2015
5,000,000 5,000,000 Illinois State Sales Tax Revenue Series N, 7.00%, due 06/15/2020
Louisiana Public Facility Authority Revenue, Series B, ETM
1,500,000 1,500,000 Zero coupon due 12/01/2019
1,845,000 1,845,000 New York, GO, Series F, Pre-refunded, 8.25% due 11/15/2018
New York State Medical Care Facilities, Finance Agency Revenue, Pre-refunded,
275,000 275,000 7.75% due 08/15/2011
7,000,000 7,000,000 Omaha Public Power District Electric, Series B, 6.15%, due 02/01/2012
Snohomish County School District #2-Everett General Obligation,
2,750,000 2,750,000 7.20% due 12/01/2020
2,000,000 2,000,000 Spokane County Water District #3 Revenue, 7.60%, due 01/01/2008
University of Washington University Revenue Bond,
3,500,000 3,500,000 MBIA, 7.00% due 12/01/2021
Washington Public Power Supply System Nuclear Project
3,500,000 3,500,000 Number 2 Revenue, Series C, 7.625% due 07/01/2010
TRANSPORTATION FACILITIES REVENUE - 10.56%
1,000,000 1,000,000 Atlanta, Airport Facilities Revenue, AMT, 7.25% due 01/01/2017
Chicago, O'Hare Airport Supplemental Facilities AMT:
6,000,000 6,000,000 International Term (MBIA Insured), 6.75% due 01/01/2012
700,000 700,000 American Airlines, Special Series A, 7.875% due 11/01/2025
615,000 615,000 United Airlines, 8.40% due 05/01/2004
775,000 775,000 United Airlines, 8.95% due 05/01/2018
City of New York, IDR, Industrial Development Agency, Supplemental Facilities,
400,000 400,000 American Airlines, AMT, 8.00% due 07/01/2020
<CAPTION>
--------------------------------------------------
COMPOSITE SIERRA PRO
TAX-EXEMPT NATIONAL FORMA
BOND FUND MUNICIPAL FUND COMBINED
--------------------------------------------------
MARKET VALUE
--------------------------------------------------
<S> <C> <C> <C>
OTHER REVENUE - 4.45%
Brazos, Higher Educational Facilities Authority, Series C-2, AMT, 7.10%
due 11/01/2004 $477,262 $477,262
Texas State, Higher Education Coordinating Board, Student Loan, AMT,
7.70% due 10/01/2025 704,959 704,959
Dade County, Guaranteed Entitlement Revenue, Capital Appreciation, Series A,
(MBIA Insured), Zero coupon due 02/01/2018 6,812,300 6,812,300
District of Columbia, Land Redevelopment Agency, Washington D.C. Sports
Arena, Special Tax, 5.625% due 11/01/2010 1,395,150 1,395,150
Indianapolis, Public Improvement Board, Series D, (LOC INB National Bank),
6.50% due 02/01/2022 2,018,920 2,018,920
Mashantucket Western Pequot Tribe, Special Revenue, Series A,
6.50% due 09/01/2005## 2,137,500 2,137,500
St Louis, Parking Facilities Revenue, 6.625%, due 12/15/2021 3,348,750 3,348,750
-------------------------------------------------
0 16,894,841 16,894,841
-------------------------------------------------
PUBLIC FACILITIES REVENUE - 1.86%
Metropolitan Pier and Exposition Authority Dedicated
State Tax, (FGIC), Zero coupon, due 06/15/2008 2,259,640 2,259,640
Metropolitan Pier and Exposition Authority Dedicated
State Tax, (FGIC), Zero coupon, due 06/15/2009 3,180,060 3,180,060
Santa Fe County New Mexico Correctional System
(FSA), 6.00%, due 2/01/2027 1,612,350 1,612,350
-------------------------------------------------
7,052,050 0 7,052,050
-------------------------------------------------
PREREFUNDED - 9.56%
Chicago Wastewater Transmission Revenue, 6.75%, due 11/15/2020 4,377,160 4,377,160
Colorado Springs Utilities System Revenue, 6.75%, due 11/15/2021 2,470,017 2,470,017
Commonwealth of Massachusetts, GO, Pre-refunded, 7.50% due 12/01/2007 279,063 279,063
Illinois Health Facilities Authority Revenue, Glenoak Medical Center, Series D,
Pre-refunded, 9.50% due 11/15/2015 246,750 246,750
Illinois State Sales Tax Revenue Series N, 7.00%, due 06/15/2020 5,558,350 5,558,350
Louisiana Public Facility Authority Revenue, Series B, ETM
Zero coupon due 12/01/2019 418,125 418,125
New York, GO, Series F, Pre-refunded, 8.25% due 11/15/2018 2,147,119 2,147,119
New York State Medical Care Facilities, Finance Agency Revenue, Pre-refunded,
7.75% due 08/15/2011 308,488 308,488
Omaha Public Power District Electric, Series B, 6.15%, due 02/01/2012 7,642,810 7,642,810
Snohomish County School District #2-Everett General Obligation,
7.20% due 12/01/2020 3,024,835 3,024,835
Spokane County Water District #3 Revenue, 7.60%, due 01/01/2008 2,101,460 2,101,460
University of Washington University Revenue Bond,
MBIA, 7.00% due 12/01/2021 3,812,590 3,812,590
Washington Public Power Supply System Nuclear Project
Number 2 Revenue, Series C, 7.625% due 07/01/2010 3,930,745 3,930,745
-------------------------------------------------
32,917,967 3,399,545 36,317,512
-------------------------------------------------
TRANSPORTATION FACILITIES REVENUE - 10.56%
Atlanta, Airport Facilities Revenue, AMT, 7.25% due 01/01/2017 1,078,750 1,078,750
Chicago, O'Hare Airport Supplemental Facilities AMT:
International Term (MBIA Insured), 6.75% due 01/01/2012 6,427,500 6,427,500
American Airlines, Special Series A, 7.875% due 11/01/2025 760,375 760,375
United Airlines, 8.40% due 05/01/2004 671,119 671,119
United Airlines, 8.95% due 05/01/2018 873,812 873,812
City of New York, IDR, Industrial Development Agency, Supplemental Facilities,
American Airlines, AMT, 8.00% due 07/01/2020 422,500 422,500
</TABLE>
-51-
<PAGE>
COMPOSITE TAX-EXEMPT BOND FUND (1) and SIERRA NATIONAL MUNICIPAL FUND
Pro Forma Combined Portfolio of Investments (continued)
June 30, 1997
(unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------
COMPOSITE SIERRA PRO
TAX-EXEMPT NATIONAL FORMA
BOND FUND MUNICIPAL FUND COMBINED
- ------------------------------------------------
PRINCIPAL AMOUNT
- ------------------------------------------------
<C> <C> <C> <S>
$425,000 $425,000 Dade County, Seaport Authority, Refunding, (MBIA Insured), 6.500% due 10/01/2008
Dallas-Fort Worth International Airport, (Facility Improvement Corporate Revenue),
5,000,000 5,000,000 (American Airlines), AMT, 7.50% due 11/01/2025
Denver City and County, Airport Revenue, AMT, Series A:
2,000,000 2,000,000 8.875% due 11/15/2012
1,140,000 1,140,000 8.50% due 11/15/2023
2,000,000 2,000,000 8.00% due 11/15/2025
Denver City and County, Airport Revenue, AMT, Series C,
1,920,000 1,920,000 6.60% due 11/15/2004
Massachusetts Bay Transportation Authority Revenue, FSA,
3,000,000 3,000,000 5.25%, due 3/01/2026
Metropolitan District, Washington D.C., Airport Authority, General
1,500,000 1,500,000 Airport Revenue, Series A, AMT, (MBIA Insured), 6.625% due 10/01/2019
Metropolitan Transportation Authority Revenue, Service Contract Transportation
1,265,000 1,265,000 Facilities, Series 7, 4.750% due 07/01/2019
San Francisco California City & County Airport Commission
5,000,000 5,000,000 International Airport, (FGIC), 5.625% due 5/01/2021
Texas State Turnpike Authority, Dallas Northway, President George Bush
4,500,000 4,500,000 Turnpike, FGIC, 5.25%, due 1/01/2023
Tucson, Airport Authority Inc., Supplemental Facilities Revenue, AMT
740,000 740,000 8.70% due 09/01/2019
Tulsa, Municipal Airport Revenue, American Airlines Project, AMT,
200,000 200,000 7.60% due 12/01/2030
150,000 150,000 United Airlines, Special Series B, 8.50% due 05/01/2018
UTILITY REVENUE - 11.87%
1,235,000 1,235,000 Anchorage Electric Utility, (MBIA), 6.50% due 12/01/2013
2,775,000 2,775,000 Colorado Springs Utilities System, 6.75% due 11/15/2021
Indiana Municipal Power Agency, Series A, (MBIA), 6.125%
6,000,000 6,000,000 due 01/01/2013
5,000,000 5,000,000 Memphis Electric System, 5.625% due 01/01/2002
2,285,000 2,285,000 Municipal Electric Authority, Sub Series A, (AMBAC Insured), 5.375% due 01/01/2013
5,000,000 5,000,000 North Carolina Eastern Municipal Power Agency, Series B, 7.00% due 01/01/2008
North Carolina Eastern Municipal Power Agency, Power Systems Revenue, Series A,
5,000,000 5,000,000 (MBIA Insured), 5.70% due 01/01/2013
2,000,000 2,000,000 Omaha Public Power District Electric, Series C, 5.50%. due 02/01/2014
5,000,000 5,000,000 Orlando Utilities Commission Water & Electric, 6.00% due 10/01/2010
Salt River Project Agricultural Improvement & Power District
5,000,000 5,000,000 Electrical System, Series C, 6.25% due 01/01/2019
3,000,000 3,000,000 Salt River Project Agriculture, Series A, 5.75% due 01/01/2009
WATER/SEWER REVENUE - .08%
300,000 300,000 East Baton Rouge, Sewer Commission Revenue, 9.125% due 09/01/2006
TOTAL LONG-TERM MUNICIPAL OBLIGATIONS
SHORT-TERM MUNICIPAL OBLIGATIONS - 1.90%
Ascension Parish LA Pollution Control Revenue, Variable Rate Demand
2,200,000 2,200,000 Obligation, 4.15%*, due 12/01/2009
Garfield County, Oklahoma Industrial Authority, Pollution Control Revenue,
500,000 500,000 Variable Rate Demand Obligation, 4.20%*, due 01/01/2025
Huntington Beach, California Multifamily Housing Revenue,
1,500,000 1,500,000 Variable Rate Demand Obligation, 4.00%*, due 07/01/2014
<CAPTION>
---------------------------------------------
COMPOSITE SIERRA PRO
TAX-EXEMPT NATIONAL FORMA
BOND FUND MUNICIPAL FUND COMBINED
---------------------------------------------
MARKET VALUE
---------------------------------------------
<S> <C> <C> <C>
Dade County, Seaport Authority, Refunding, (MBIA Insured), 6.500% due 10/01/2008 $481,844 $481,844
Dallas-Fort Worth International Airport, (Facility Improvement Corporate Revenue),
(American Airlines), AMT, 7.50% due 11/01/2025 5,393,750 5,393,750
Denver City and County, Airport Revenue, AMT, Series A:
8.875% due 11/15/2012 2,335,000 2,335,000
8.50% due 11/15/2023 1,285,350 1,285,350
8.00% due 11/15/2025 2,225,000 2,225,000
Denver City and County, Airport Revenue, AMT, Series C,
6.60% due 11/15/2004 2,071,200 2,071,200
Massachusetts Bay Transportation Authority Revenue, FSA,
5.25%, due 3/01/2026 2,861,010 2,861,010
Metropolitan District, Washington D.C., Airport Authority, General
Airport Revenue, Series A, AMT, (MBIA Insured), 6.625% due 10/01/2019 1,620,000 1,620,000
Metropolitan Transportation Authority Revenue, Service Contract Transportation
Facilities, Series 7, 4.750% due 07/01/2019 1,097,388 1,097,388
San Francisco California City & County Airport Commission
International Airport, (FGIC), 5.625% due 5/01/2021 4,999,550 4,999,550
Texas State Turnpike Authority, Dallas Northway, President George Bush
Turnpike, FGIC, 5.25%, due 1/01/2023 4,308,075 4,308,075
Tucson, Airport Authority Inc., Supplemental Facilities Revenue, AMT
8.70% due 09/01/2019 833,425 833,425
Tulsa, Municipal Airport Revenue, American Airlines Project, AMT,
7.60% due 12/01/2030 217,500 217,500
United Airlines, Special Series B, 8.50% due 05/01/2018 164,062 164,062
-------------------------------------------
12,168,635 27,958,575 40,127,210
-------------------------------------------
UTILITY REVENUE - 11.87%
Anchorage Electric Utility, (MBIA), 6.50% due 12/01/2013 1,396,822 1,396,822
Colorado Springs Utilities System, 6.75% due 11/15/2021 3,037,515 3,037,515
Indiana Municipal Power Agency, Series A, (MBIA), 6.125%
due 01/01/2013 6,522,180 6,522,180
Memphis Electric System, 5.625% due 01/01/2002 5,236,300 5,236,300
Municipal Electric Authority, Sub Series A, (AMBAC Insured), 5.375% due 01/01/2013 2,273,575 2,273,575
North Carolina Eastern Municipal Power Agency, Series B, 7.00% due 01/01/2008 5,575,400 5,575,400
North Carolina Eastern Municipal Power Agency, Power Systems Revenue, Series A,
(MBIA Insured), 5.70% due 01/01/2013 5,131,250 5,131,250
Omaha Public Power District Electric, Series C, 5.50%. due 02/01/2014 2,051,460 2,051,460
Orlando Utilities Commission Water & Electric, 6.00% due 10/01/2010 5,431,700 5,431,700
Salt River Project Agricultural Improvement & Power District
Electrical System, Series C, 6.25% due 01/01/2019 5,259,800 5,259,800
Salt River Project Agriculture, Series A, 5.75% due 01/01/2009 3,207,210 3,207,210
-------------------------------------------
37,718,387 7,404,825 45,123,212
-------------------------------------------
WATER/SEWER REVENUE - .08%
East Baton Rouge, Sewer Commission Revenue, 9.125% due 09/01/2006 311,439 311,439
-------------------------------------------
TOTAL LONG-TERM MUNICIPAL OBLIGATIONS 186,074,244 184,228,180 370,302,424
-------------------------------------------
SHORT-TERM MUNICIPAL OBLIGATIONS - 1.90%
Ascension Parish LA Pollution Control Revenue, Variable Rate Demand
Obligation, 4.15%*, due 12/01/2009 2,200,000 2,200,000
Garfield County, Oklahoma Industrial Authority, Pollution Control Revenue,
Variable Rate Demand Obligation, 4.20%*, due 01/01/2025 500,000 500,000
Huntington Beach, California Multifamily Housing Revenue,
Variable Rate Demand Obligation, 4.00%*, due 07/01/2014 1,500,000 1,500,000
</TABLE>
-52-
<PAGE>
COMPOSITE TAX-EXEMPT BOND FUND (1) and SIERRA NATIONAL MUNICIPAL FUND
Pro Forma Combined Portfolio of Investments (continued)
June 30, 1997
(unaudited)
<TABLE>
<CAPTION>
- ----------------------------------------------------
COMPOSITE SIERRA PRO
TAX-EXEMPT NATIONAL FORMA
BOND FUND MUNICIPAL FUND COMBINED
- ----------------------------------------------------
PRINCIPAL AMOUNT
- ----------------------------------------------------
<C> <C> <C> <S>
L.A. California Regional Airports, Improvement Corporate Lease Revenue,
$400,000 $400,000 Variable Rate Demand Obligation, 4.10%**, due 12/01/2024
Mansfield Texas Industrial Development,
1,100,000 1,100,000 Variable Rate Demand Obligation, 4.20%**, due 11/01/2026
Wilmington Hospital Revenue, Franciscan Health, Series A,
1,500,000 1,500,000 Variable Rate Demand Obligation, 4.10%**, due 07/01/2011
TOTAL SHORT-TERM MUNICIPAL OBLIGATIONS
OTHER INVESTMENT - 0.66%
2,515,907 2,515,907 Nuveen Tax Exempt Money Market Fund, 3.56%
TOTAL INVESTMENTS (Cost $349,161,910)
<CAPTION>
----------------------------------------------------
COMPOSITE SIERRA PRO
TAX-EXEMPT NATIONAL FORMA
BOND FUND MUNICIPAL FUND COMBINED
----------------------------------------------------
MARKET VALUE
----------------------------------------------------
<S> <C> <C> <C>
L.A. California Regional Airports, Improvement Corporate Lease Revenue,
Variable Rate Demand Obligation, 4.10%**, due 12/01/2024 $400,000 $400,000
Mansfield Texas Industrial Development,
Variable Rate Demand Obligation, 4.20%**, due 11/01/2026 1,100,000 1,100,000
Wilmington Hospital Revenue, Franciscan Health, Series A,
Variable Rate Demand Obligation, 4.10%**, due 07/01/2011 1,500,000 1,500,000
----------------------------------------------------
TOTAL SHORT-TERM MUNICIPAL OBLIGATIONS 7,200,000 0 7,200,000
----------------------------------------------------
OTHER INVESTMENT - 0.66%
Nuveen Tax Exempt Money Market Fund, 3.56% 2,515,907 2,515,907
----------------------------------------------------
TOTAL INVESTMENTS (Cost $349,161,910) $195,790,151 $184,228,180 $380,018,331
====================================================
</TABLE>
**Variable Rate Demand Obligations are payable on demand and are secured by
letters of credit or other credit support. The interest rate, which is subject
to change periodically, is based on an index of market interest rates.
* Floating rate security. The interest rate shown reflects the rate currently
in effect.
## Security exempt from registration under Rule 144A of the Securities Act of
1933. This security may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
AMBAC = AMBAC Indemnity Corporation; American Municipal Bond Assurance
AMT = Alternative Minimum Tax
COP = Certificates of Participation
CONNIE LEE = College Construction Loan Insurance Association
ETM = Escrowed to Maturity
FGIC = Financial Guaranty Insurance Company
FSA = Financial Security Assurance
GNMA = Government National Mortgage Association
GO = General Obligation Bonds
IDR = Industrial Development Revenue
LOC = Letter of Credit
MBIA = Municipal Bond Insurance Association
PCR = Pollution Control Revenue
SFHR = Single Family Housing Revenue
(1) Formerly Composite Tax-Exempt Bond Fund, Inc.
-53-
<PAGE>
Composite Tax-Exempt Bond Fund and Sierra National Municipal Fund
Notes to Pro Forma Financial Statements (unaudited)
1. Basis of Combination
The pro forma combined financial statements reflect the combined financial
position of Composite Tax-Exempt Bond Fund (formerly Composite Tax-Exempt
Bond Fund, Inc.) and Sierra National Municipal Fund at June 30, 1997, and
the pro forma combined results of operations for the year ended December
31, 1996 and the six month period ended June 30, 1997 as though the
reorganization had occurred on January 1, 1996.
The pro forma combined financial statements are presented for the
information of the reader and may not necessarily be representative of how
the pro forma combined financial statements would have appeared had the
reorganization actually occurred.
The Pro Forma Combined Portfolio of Investments, Statement of Assets and
Liabilities, and the Statement of Operations should be read in conjunction
with the historical financial statements of the funds incorporated by
reference in the Statement of Additional Information.
The pro forma statements give effect to the proposed transfer of the assets
and stated liabilities of the Sierra National Municipal Fund in exchange
for shares of Composite Tax-Exempt Bond Fund. Under generally accepted
accounting principles, the historical cost of investment securities will be
carried forward to the surviving entity.
The pro forma statements do not reflect the expenses of either fund in
carrying out its obligations under the proposed Agreement and Plan of
Reorganization.
2. Pro Forma Combined Portfolio of Investments
Securities held by the two funds have been combined in the accompanying
Combined Portfolio of Investments. Securities are stated at market value as
determined by the Funds as of June 30, 1997. Historical cost amounts
represent the combined cost basis of the securities.
3. Pro Forma Statement of Assets and Liabilities
Shares outstanding have been adjusted to reflect the conversion of Sierra
shares into Composite shares based upon the net asset value of Composite
shares at June 30, 1997.
4. Pro Forma Statement of Operations
The pro forma statements of operations reflect the following adjustments:
A. A decrease in management fees for Sierra shareholders to reflect the new
fee structure. Fees are based on .50% of average daily net assets up to
$250,000,000 and .40% of average daily net assets over that amount.
B. An elimination of the Sierra administration fees, now incorporated in
the management fee structure. Also, expenses of the Fund will no longer
be reimbursed. Shareholder servicing and distribution expense have been
adjusted to reflect a rate of .25% of average daily net assets. Other
expenses have been adjusted based on an overall estimated expense ratio
of .85%.
-54-
<PAGE>
PRO FORMA STATEMENT OF ASSETS AND LIABILITIES AT APRIL 30, 1997 (unaudited)
<TABLE>
<CAPTION>
Pro Forma
Sierra Growth Composite Growth Adjustments Pro Forma
and Income Fund & Income Fund (Note 3) Combined
--------------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS:
Investments, at value,
(cost $346,407,780,
$192,537,901, and
$53,894,568 $375,883,210 $250,067,148 $625,950,356
Cash, receivables, and
other assets 5,636,256 1,205,373 6,841,629
------------ ------------ ------------
381,519,466 251,272,519 632,791,985
------------ ------------ ------------
LIABILITIES:
Accrued expenses
and other liabilities 37,775,568 1,376,650 39,152,218
------------ ------------ ------------
Total Liabilities 37,775,568 1,376,650 39,152,218
------------ ------------ ------------
Net Assets $343,743,898 $249,895,869 $593,639,767
============ ============ ============
Outstanding Shares
- ------------------
Class A 11,210,122 12,009,817 (2,141,683) 21,078,256
============ ============ ============
Class B 2,465,101 1,925,896 (477,758) 3,913,239
============ ============ ============
Class S 901,377 - (179,060) 722,317
============ ============ ============
Class I 9,111,681 - (1,729,658) 7,382,023
============ ============ ============
Net Asset Value
- ---------------
Class A $162,817,801 $215,533,980 $378,351,781
============ ============ ============
Class B $35,454,192 $34,361,888 $69,816,080
============ ============ ============
Class S $12,964,595 - $12,964,595
============ ============ ============
Class I $132,507,310 - $132,507,310
============ ============ ============
Net Asset Value
Per Share
--------------
Class A $14.52 $17.95 $17.95
============ ============ ============
Class B $14.38 $17.84 $17.84
============ ============ ============
Class S $14.38 - $17.95
============ ============ ============
Class I $14.54 _ $17.95
============ ============ ============
</TABLE>
See accompanying notes to pro forma financial statements.
-55-
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA STATEMENT OF OPERATIONS
For the Year Ended October 31, 1996 (Unaudited)
Pro Forma
Sierra Growth and Composite Growth Adjustments Pro Forma
Income Fund & Income Fund (Note 4) Combined
----------------- ---------------- ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends and other $ 4,981,675 $ 3,911,498 $ 0 $ 8,893,173
----------- ----------- ---------- -----------
EXPENSES:
Management fees 1,905,672 1,065,507 (552,542) 2,418,637
Administration fees 800,136 0 (800,136) 0
Transfer agent fees 0 193,784 269,566 463,350
Distribution fees
Class A Shares 480,543 265,579 0 746,122
Class B Shares 200,416 151,222 0 351,638
Class S Shares 319,298 0 0 319,298
All Other Expenses 396,265 224,706 10,870 631,841
Expense reimbursement 0 0 0 0
----------- ----------- ----------- -----------
Subtotal 4,102,330 1,900,798 (1,072,242) 4,930,886
----------- ----------- ----------- -----------
Fees paid indirectly (3,272) (5,368) 0 (8,640)
----------- ----------- ----------- -----------
Total Expenses 4,099,058 1,895,430 (1,072,242) 4,922,246
----------- ----------- ----------- -----------
NET INVESTMENT INCOME 882,617 2,016,068 1,072,242 3,970,927
----------- ----------- ---------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net Realized Gain (Loss) From Security Transactions 36,418,818 14,044,609 0 50,463,427
(excluding short term securities)
Net Unrealized Appreciation (Depreciation) of Investments 9,169,501 18,741,419 0 27,910,920
----------- ----------- ---------- -----------
Net Realized and Unrealized Gain (Loss) on Investments 45,588,319 32,786,028 0 78,374,347
----------- ----------- ---------- -----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $46,470,936 $34,802,096 $1,072,242 $82,345,274
=========== =========== ========== ===========
See accompanying notes to pro forma financial statements.
</TABLE>
-56-
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA STATEMENT OF OPERATIONS
For the Six Months Ended April 30, 1997 (Unaudited)
Pro Forma
Sierra Growth and Composite Growth Adjustments Pro Forma
Income Fund & Income Fund (Note 4) Combined
----------------- ----------------- ----------- ---------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends and other $ 2,496,031 $ 2,178,401 $ 0 $4,674,432
----------- ----------- --------- ----------
EXPENSES:
Management fees 1,050,403 714,834 (346,065) 1,419,172
Administration fees 488,073 0 (488,073) 0
Transfer agent fees 0 119,805 158,038 277,843
Distribution fees
Class A Shares 201,894 240,047 0 441,941
Class B Shares 159,069 144,236 0 303,305
Class S Shares 67,868 0 0 67,868
All other expenses 246,652 145,380 12,103 404,135
Expense reimbursement 0 0 0 0
----------- ----------- --------- ----------
Subtotal 2,213,959 1,364,302 (663,997) 2,914,264
----------- ----------- --------- ----------
Fees paid indirectly (1,398) (4,155) 0 (5,553)
----------- ----------- --------- ----------
Total Expenses 2,212,561 1,360,147 (663,997) 2,908,711
----------- ----------- --------- ----------
NET INVESTMENT INCOME 283,470 818,254 663,997 1,765,721
----------- ----------- --------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net Realized Gain (Loss) From Security Transactions 30,211,418 15,241,364 0 45,452,782
(excluding short term securities)
Net Unrealized Appreciation (Depreciation) of Investments 7,604,505 8,457,148 0 16,061,653
----------- ----------- --------- ----------
Net Realized and Unrealized Gain (Loss) on Investments 37,815,923 23,698,512 0 61,514,435
----------- ----------- --------- ----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $38,099,393 $24,516,766 $ 663,997 $63,280,156
=========== =========== ========= ===========
</TABLE>
See accompanying notes to pro forma financial statements.
-57-
<PAGE>
COMPOSITE GROWTH & INCOME FUND and SIERRA GROWTH AND INCOME FUND
Pro Forma Combined Portfolio of Investments
April 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------
COMPOSITE SIERRA PRO
GROWTH & GROWTH AND FORMA
INCOME FUND INCOME FUND COMBINED
- ------------------------------------------------------
SHARES
- ------------------------------------------------------
<C> <C> <C> <S>
COMMON STOCKS
AEROSPACE/DEFENSE
82,700 82,700 Boeing Company
90,700 90,700 Coltec Industries
73,902 73,902 Lockheed Martin Corporation
40,000 40,000 Northrop Grumman Corporation
52,040 52,040 Raytheon Company
BANKS/SAVINGS & LOANS
68,000 68,000 Bank of New York Company, Inc.
119,700 119,700 Dime Bancorp Inc
58,200 58,200 Fleet Financial Group Inc
100,600 100,600 First Chicago NBD
103,400 103,400 First Hawaiian Inc
26,500 26,500 Mellon Bank Corporation
134,599 134,599 Nationsbank Corp
74,962 74,962 Norwest Corporation
56,300 56,300 Signet Banking Corporation
95,150 95,150 Washington Federal, Inc.
35,000 35,000 Washington Mutual Savings Bank
17,300 17,300 Wells Fargo & Company
BASIC INDUSTRY
3,900 3,900 Albemarle Corp
336,900 336,900 Alleghent Teledyne Inc
48,900 48,900 Aluminum Company of America
138,500 138,500 Cooper Inds Inc
10,600 10,600 USG Corp Com New
101,600 145,600 247,200 WMX Technologies, Inc.
BEVERAGES
104,900 104,900 PepsiCo, Inc.
65,000 65,000 Seagram Company, Ltd.
CAPITAL GOODS
94,624 94,624 Donaldson Company, Inc.
CHEMICALS
35,500 35,500 Du Pont E I De Nemours & Co
113,200 113,200 Millenium Chemicals, Inc.*
128,400 128,400 Union Carbide Corp
COMPUTER SOFTWARE
83,400 93,200 176,600 Autodesk, Inc.
100,100 100,100 Barra, Inc.*
62,300 62,300 Computer Associates International, Inc.
45,900 45,900 First Data Corp
216,200 216,200 Mentor Graphics
53,700 53,700 Microsoft Corporation*
COMPUTER SYSTEMS
207,300 207,300 Bay Networks Inc
39,600 39,600 Cabletron Systems*
26,500 34,700 61,200 Cisco Systems, Inc.
65,010 65,010 Electronic Data Systems Corporation
202,600 202,600 EMC Corp Nass
46,800 46,800 Hewlett-Packard Company
108,200 108,200 Input/Output Inc
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------
COMPOSITE SIERRA PRO
GROWTH & GROWTH AND FORMA
INCOME FUND INCOME FUND COMBINED
------------------------------------------------------
MARKET VALUE
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
COMMON STOCKS 91.12%
AEROSPACE/DEFENSE 3.55%
Boeing Company $8,156,287 $8,156,287
Coltec Industries 1,836,675 1,836,675
Lockheed Martin Corporation $6,614,229 6,614,229
Northrop Grumman Corporation 3,340,000 3,340,000
Raytheon Company 2,270,245 2,270,245
------------------------------------------------------
12,224,474 9,992,962 22,217,436
------------------------------------------------------
BANKS/SAVINGS & LOANS 6.62%
Bank of New York Company, Inc. 2,686,000 2,686,000
Dime Bancorp Inc 1,930,163 1,930,163
Fleet Financial Group Inc 3,550,200 3,550,200
First Chicago NBD 5,658,750 5,658,750
First Hawaiian Inc 3,179,550 3,179,550
Mellon Bank Corporation 2,202,812 2,202,812
Nationsbank Corp 8,126,430 8,126,430
Norwest Corporation 3,738,730 3,738,730
Signet Banking Corporation 1,738,262 1,738,262
Washington Federal, Inc. 2,283,600 2,283,600
Washington Mutual Savings Bank 1,728,125 1,728,125
Wells Fargo & Company 4,614,775 4,614,775
------------------------------------------------------
17,264,179 24,173,218 41,437,397
------------------------------------------------------
BASIC INDUSTRY 4.22%
Albemarle Corp 68,737 68,737
Alleghent Teledyne Inc 8,969,962 8,969,962
Aluminum Company of America 3,410,775 3,410,775
Cooper Inds Inc 6,371,000 6,371,000
USG Corp Com New 363,050 363,050
WMX Technologies, Inc. 2,984,500 4,277,000 7,261,500
------------------------------------------------------
2,984,500 23,460,524 26,445,024
------------------------------------------------------
BEVERAGES 0.98%
PepsiCo, Inc. 3,658,387 3,658,387
Seagram Company, Ltd. 2,486,250 2,486,250
------------------------------------------------------
6,144,637 0 6,144,637
------------------------------------------------------
CAPITAL GOODS 0.52%
Donaldson Company, Inc. 3,240,872 3,240,872
------------------------------------------------------
CHEMICALS 1.95%
Du Pont E I De Nemours & Co 3,767,437 3,767,437
Millenium Chemicals, Inc. * 2,009,300 2,009,300
Union Carbide Corp 6,403,950 6,403,950
------------------------------------------------------
2,009,300 10,171,387 12,180,687
------------------------------------------------------
COMPUTER SOFTWARE 3.47%
Autodesk, Inc. 2,960,700 3,308,600 6,269,300
Barra, Inc. * 2,602,600 2,602,600
Computer Associates International, Inc. 3,239,600 3,239,600
First Data Corp 1,583,550 1,583,550
Mentor Graphics 1,526,913 1,526,913
Microsoft Corporation* 6,524,550 6,524,550
------------------------------------------------------
16,854,363 4,892,150 21,746,513
------------------------------------------------------
COMPUTER SYSTEMS 6.10%
Bay Networks Inc 3,679,575 3,679,575
Cabletron Systems * 1,366,200 1,366,200
Cisco Systems, Inc. 1,371,375 1,795,725 3,167,100
Electronic Data Systems Corporation 2,169,709 2,169,709
EMC Corp Nass 7,369,575 7,369,575
Hewlett-Packard Company 2,457,000 2,457,000
Input/Output Inc 1,514,800 1,514,800
</TABLE>
-58-
<PAGE>
COMPOSITE GROWTH & INCOME FUND and SIERRA GROWTH AND INCOME FUND
Pro Forma Combined Portfolio of Investments (continued)
April 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
- ----------------------------------------------------
COMPOSITE SIERRA PRO
GROWTH & GROWTH AND FORMA
INCOME FUND INCOME FUND COMBINED
- ----------------------------------------------------
SHARES
- ----------------------------------------------------
<C> <C> <C> <S>
31,200 31,200 Intl Business Machines Corp
5,237 5,237 NCR Corporation
52,200 52,200 Perkin Elmer Corporation
35,500 35,500 Quantum Corp
237,800 237,800 Sensormatic Electronics Corp
85,600 85,600 Sun Microsystems Inc.
CONSUMER DURABLES
59,400 59,400 Black & Decker Corporation
141,083 141,083 Castle & Cooke, Inc.*
43,500 43,500 General Motors - Class H
58,900 58,900 General Motors Corp
85,800 85,800 Johnson Controls Inc
121,441 121,441 Mattel, Inc.
ELECTRICAL EQUIPMENT
99,500 99,500 Allied Signal Corporation
77,550 77,550 Emerson Electric Company
44,500 44,500 General Electric Company
33,900 33,900 Grainger NW Inc
ELECTRONICS/GENERAL
75,000 75,000 Anixter International Inc
138,000 138,000 DSC Communications Corporation*
239,100 239,100 General Inst Corp New
149,950 149,950 Loral Space & Communications*
ELECTRONICS-SEMICONDUCTORS/COMPONENTS
188,100 188,100 Cypress Semiconductor
29,500 29,500 Integrated Device Technology, Inc.
23,500 23,500 Intel Corporation
95,300 95,300 Motorola, Inc.
60,000 60,000 Texas Instruments, Inc
FINANCIAL SERVICES
73,300 73,300 Advanta Corp Class B
59,100 59,100 AMBAC Inc
3,700,000 3,700,000 Berkshire Hathaway Conv. 1.00% due 12/03/2001
185,500 185,500 Federal Home Loan Mortgage Corporation
4,100 4,100 First USA Paymentech
103,900 103,900 First USA Inc
48,052 48,052 Legg Mason, Inc.
FOODS & FOOD RETAILERS
46,000 46,000 Campbell Soup Company
39,400 39,400 Dole Food Company
111,000 111,000 General Mills Inc
58,400 58,400 Ralston Purina Co - Ralston Group
49,700 49,700 Supervalu, Inc.
21,700 21,700 Unilever NV ADR
HEALTHCARE PRODUCTS
75,100 75,100 Abbott Laboratories
126,100 126,100 Alza Corp Com
63,300 63,300 Bausch & Lomb Inc
65,700 86,200 151,900 Forest Laboratories*
43,791 43,791 Gensia Sicor Inc
103,550 103,550 Johnson & Johnson
38,925 38,925 Merck and Company, Inc.
48,500 48,500 Schering-Plough Corp
90,700 90,700 Warner Lambert Co
<CAPTION>
--------------------------------------------------------
COMPOSITE SIERRA PRO
GROWTH & GROWTH AND FORMA
INCOME FUND INCOME FUND COMBINED
--------------------------------------------------------
MARKET VALUE
--------------------------------------------------------
<S> <C> <C> <C> <C>
Intl Business Machines Corp $5,015,400 $5,015,400
NCR Corporation 151,873 151,873
Perkin Elmer Corporation 3,791,025 3,791,025
Quantum Corp 1,479,906 1,479,906
Sensormatic Electronics Corp 3,567,000 3,567,000
Sun Microsystems Inc. 2,466,350 2,466,350
--------------------------------------------------------
7,364,284 30,831,229 38,195,513
--------------------------------------------------------
CONSUMER DURABLES 2.61%
Black & Decker Corporation 1,989,900 1,989,900
Castle & Cooke, Inc.* 1,939,891 1,939,891
General Motors - Class H 2,338,125 2,338,125
General Motors Corp 3,408,837 3,408,837
Johnson Controls Inc 3,292,575 3,292,575
Mattel, Inc. 3,385,168 3,385,168
--------------------------------------------------------
7,314,959 9,039,537 16,354,496
--------------------------------------------------------
ELECTRICAL EQUIPMENT 2.97%
Allied Signal Corporation 7,188,875 7,188,875
Emerson Electric Company 3,935,662 3,935,662
General Electric Company 4,933,938 4,933,938
Grainger NW Inc 2,555,213 2,555,213
--------------------------------------------------------
8,869,600 9,744,088 18,613,688
--------------------------------------------------------
ELECTRONICS/GENERAL 1.86%
Anixter International Inc 1,068,750 1,068,750
DSC Communications Corporation* 2,811,750 2,811,750
General Inst Corp New 5,588,963 5,588,963
Loral Space & Communications* 2,193,019 2,193,019
--------------------------------------------------------
5,004,769 6,657,713 11,662,482
--------------------------------------------------------
ELECTRONICS-SEMICONDUCTORS/COMPONENTS 2.77%
Cypress Semiconductor 2,609,888 2,609,888
Integrated Device Technology, Inc. 346,625 346,625
Intel Corporation 3,598,438 3,598,438
Motorola, Inc. 5,455,925 5,455,925
Texas Instruments, Inc 5,355,000 5,355,000
--------------------------------------------------------
9,400,988 7,964,888 17,365,876
--------------------------------------------------------
FINANCIAL SERVICES 3.58%
Advanta Corp Class B 1,630,925 1,630,925
AMBAC Inc 3,826,725 3,826,725
Berkshire Hathaway Conv. 1.00% due 12/03/2001 3,635,250 3,635,250
Federal Home Loan Mortgage Corporation 5,912,812 5,912,812
First USA Paymentech 98,913 98,913
First USA Inc 5,000,187 5,000,187
Legg Mason, Inc. 2,282,470 2,282,470
--------------------------------------------------------
8,195,282 14,192,000 22,387,282
--------------------------------------------------------
FOODS & FOOD RETAILERS 3.42%
Campbell Soup Company 2,351,750 2,351,750
Dole Food Company 1,605,550 1,605,550
General Mills Inc 6,882,000 6,882,000
Ralston Purina Co - Ralston Group 4,810,700 4,810,700
Supervalu, Inc. 1,522,063 1,522,063
Unilever NV ADR 4,258,625 4,258,625
--------------------------------------------------------
5,479,363 15,951,325 21,430,688
--------------------------------------------------------
HEALTHCARE PRODUCTS 6.20%
Abbott Laboratories 4,581,100 4,581,100
Alza Corp Com 3,688,425 3,688,425
Bausch & Lomb Inc 2,555,738 2,555,738
Forest Laboratories* 2,242,012 2,941,575 5,183,587
Gensia Sicor Inc 153,269 153,269
Johnson & Johnson 6,342,438 6,342,438
Merck and Company, Inc. 3,522,712 3,522,712
Schering-Plough Corp 3,880,000 3,880,000
Warner Lambert Co 8,888,600 8,888,600
--------------------------------------------------------
16,688,262 22,107,607 38,795,869
--------------------------------------------------------
</TABLE>
-59-
<PAGE>
COMPOSITE GROWTH & INCOME FUND and SIERRA GROWTH AND INCOME FUND
Pro Forma Combined Portfolio of Investments (continued)
April 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------
COMPOSITE SIERRA PRO
GROWTH & GROWTH AND FORMA
INCOME FUND INCOME FUND COMBINED
- --------------------------------------------------
SHARES
- --------------------------------------------------
<C> <C> <C> <S>
HEALTHCARE SERVICES
86,000 86,000 Cognizant Corporation
266,100 266,100 Humana Inc
93,200 93,200 Manor Care, Inc.
169,301 169,301 Medpartners, Inc.*
31,233 31,233 Pacificare Health Systems - Class A*
6,024 6,024 Talbert Medical Management Corporation Stock Rights*
139,900 139,900 United Healthcare Corp
HOUSEHOLD PRODUCTS
42,100 42,100 Alberto Culver Company, Class A
160,000 160,000 Kimberly Clark De Mexico, American Depository Receipt
22,500 84,200 106,700 Proctor and Gamble Company
30,000 30,000 Unilever Group
INSURANCE
28,332 28,332 American International Group, Inc.
80,100 80,100 Integon Corporation
119,100 119,100 Providian LLC
79,100 79,100 TIG Holdings, Inc.
56,316 56,316 Travelers Group, Inc.
LODGING & RESTAURANTS
149,515 149,515 Choice Hotels Holdings, Inc.
165,800 165,800 Circus Circus Enterprises Inc
400 400 WHG Resorts and Casinos Inc
MACHINERY
100,050 100,050 Crane Company
59,000 59,000 Deere & Company
268,300 268,300 International Game Tech
MEDIA
151,133 151,133 ACNielson Corporation
100,000 100,000 Dun & Bradstreet Corporation
167,900 167,900 TCI Satellite Entertainment Inc, Class A
715,700 715,700 Tele Communication CL A New
90,600 195,400 286,000 Time Warner, Inc.
118,850 118,850 Viacom Incorporated, Class A*
OILS & GAS
50,800 50,800 Anadarko Pete Company
65,660 152,500 218,160 Exxon Corporation
24,500 24,500 Mobil Corporation
128,900 128,900 Occidental Petroleum Corporation
15,500 15,500 Royal Dutch Petroleum Company
28,100 28,100 Royal Dutch Petroleum Co ADR
24,000 24,000 Texaco, Inc.
156,700 156,700 Tosco Corporation
59,984 59,984 Ultra Diamond Shamrock
83,700 83,700 Union Pacific Resources Group
OIL SERVICES
1,200 1,200 Cooper Cameron Corp
PAPER AND FOREST PRODUCTS
124,000 124,000 Asia Pulp & Paper Company, Ltd.
29,000 29,000 Boise Cascade Corporation
59,800 59,800 Temple Inland Inc
45,500 45,500 Weyerhaeuser Company
<CAPTION>
-----------------------------------------------------
COMPOSITE SIERRA PRO
GROWTH & GROWTH AND FORMA
INCOME FUND INCOME FUND COMBINED
-----------------------------------------------------
MARKET VALUE
-----------------------------------------------------
<S> <C> <C> <C> <C>
HEALTHCARE SERVICES 3.70%
Cognizant Corporation $2,805,750 $2,805,750
Humana Inc 5,787,675 5,787,675
Manor Care, Inc. 2,178,550 2,178,550
Medpartners, Inc.* 3,089,743 3,089,743
Pacificare Health Systems - Class A* 2,397,133 2,397,133
Talbert Medical Management Corporation Stock Rights* 105,420 105,420
United Healthcare Corp 6,802,638 6,802,638
-----------------------------------------------------
10,576,596 12,590,313 23,166,909
-----------------------------------------------------
HOUSEHOLD PRODUCTS 3.73%
Alberto Culver Company, Class A 1,041,975 1,041,975
Kimberly Clark De Mexico, American Depository Receipt 2,980,000 2,980,000
Proctor and Gamble Company 2,829,375 10,588,150 13,417,525
Unilever Group 5,887,500 5,887,500
-----------------------------------------------------
12,738,850 10,588,150 23,327,000
-----------------------------------------------------
INSURANCE 2.66%
American International Group, Inc. 3,640,662 3,640,662
Integon Corporation 811,013 811,013
Providian LLC 6,878,025 6,878,025
TIG Holdings, Inc. 2,195,025 2,195,025
Travelers Group, Inc. 3,118,499 3,118,499
-----------------------------------------------------
9,765,199 6,878,025 16,643,224
-----------------------------------------------------
LODGING & RESTAURANTS 0.97%
Choice Hotels Holdings, Inc. 2,093,210 2,093,210
Circus Circus Enterprises Inc 3,999,925 3,999,925
WHG Resorts and Casinos Inc 3,750 3,750
-----------------------------------------------------
2,093,210 4,003,675 6,096,885
-----------------------------------------------------
MACHINERY 1.71%
Crane Company 3,739,369 3,739,369
Deere & Company 2,714,000 2,714,000
International Game Tech 4,259,263 4,259,263
-----------------------------------------------------
6,453,369 4,259,263 10,712,632
-----------------------------------------------------
MEDIA 5.10%
ACNielson Corporation 2,266,995 2,266,995
Dun & Bradstreet Corporation 2,462,500 2,462,500
TCI Satellite Entertainment Inc, Class A 1,259,250 1,259,250
Tele Communication CL A New 9,885,606 9,885,606
Time Warner, Inc. 4,077,000 8,793,000 12,870,000
Viacom Incorporated, Class A* 3,164,381 3,164,381
-----------------------------------------------------
11,970,876 19,937,856 31,908,732
-----------------------------------------------------
OILS & GAS 6.46%
Anadarko Pete Company 2,787,650 2,787,650
Exxon Corporation 3,717,996 8,635,313 12,353,309
Mobil Corporation 3,185,000 3,185,000
Occidental Petroleum Corporation 2,851,913 2,851,913
Royal Dutch Petroleum Company 2,793,875 2,793,875
Royal Dutch Petroleum Co ADR 5,065,025 5,065,025
Texaco, Inc. 2,532,000 2,532,000
Tosco Corporation 4,642,237 4,642,237
Ultra Diamond Shamrock 1,926,986 1,926,986
Union Pacific Resources Group 2,270,363 2,270,363
-----------------------------------------------------
17,351,147 23,057,211 40,408,358
-----------------------------------------------------
OIL SERVICES 0.01%
Cooper Cameron Corp 85,500 85,500
-----------------------------------------------------
PAPER AND FOREST PRODUCTS 1.28%
Asia Pulp & Paper Company, Ltd. 1,658,500 1,658,500
Boise Cascade Corporation 964,250 964,250
Temple Inland Inc 3,318,900 3,318,900
Weyerhaeuser Company 2,081,625 2,081,625
-----------------------------------------------------
4,704,375 3,318,900 8,023,275
-----------------------------------------------------
</TABLE>
-60-
<PAGE>
COMPOSITE GROWTH & INCOME FUND and SIERRA GROWTH AND INCOME FUND
Pro Forma Combined Portfolio of Investments (continued)
April 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------
COMPOSITE SIERRA PRO
GROWTH & GROWTH AND FORMA
INCOME FUND INCOME FUND COMBINED
- ------------------------------------------------------
SHARES
- ------------------------------------------------------
<C> <C> <C> <S>
REAL ESTATE INVESTMENT TRUSTS
62,826 62,826 Bank of America Realty
41,000 41,000 Health Care Property Investors, Inc.
35,600 35,600 Wellsford Residential Property Trust
RETAIL SALES
91,800 91,800 Circuit City Stores- Carmax
149,300 149,300 Circuit City Stores- Circuit City Group
76,000 76,000 Intimate Brands, Inc.
64,700 64,700 Fred Meyer, Inc., Class A *
226,900 226,900 Toys R Us Inc
191,300 191,300 Wal Mart Stores Inc
TOBACCO
49,500 176,100 225,600 Phillip Morris Companies, Inc.
TRANSPORTATION SERVICES & EQUIPMENT
56,150 56,150 Consolidated Freightways Corp
112,600 112,600 CSX Corp
14,500 14,500 CNF Transportation
159,500 159,500 Expeditors International of Washington, Inc.
62,050 62,050 Sabre Group Holdings, Inc.
50,300 50,300 Union Pacific Corporation
UTILITIES - GAS AND ELECTRIC
32,000 82,200 114,200 Enron Corporation
72,900 72,900 Duke Energy Corp
141,500 141,500 PG & E Corp
41,900 41,900 Pinnacle West Capital
31,900 31,900 Portland General Corporation
UTILITIES - TELECOMMUNICATIONS
90,850 90,850 AT&T Corporation
130,000 130,000 Aliant Communications, Inc.
48,500 48,500 Bell Atlantic Corp
10,400 10,400 Frontier Corporation
51,000 51,000 GTE Corporation
96,600 96,600 MCI Communications Corp
97,700 97,700 SBC Communications
111,000 111,000 US West Inc
148,400 148,400 Worldcom Inc
TOTAL COMMON STOCKS (cost $483,089,797)
CONVERTIBLE PREFERRED STOCKS
37,200 37,200 Integon Corporation
10,000 10,000 Microsoft Preferred
36,500 36,500 Owens-Corning Fiberglass CNV PFD
75,800 75,800 Pacificare Health Systems, Inc.
40,100 40,100 Penncorp Financial Group
268,400 268,400 RJR Nabisco Holding Company, Series C
TOTAL CONVERTIBLE PREFERRED STOCK(cost $11,800,239)
PRINCIPAL AMOUNT CONVERTIBLE BOND
$925,000 $925,000 Alberto Culver Corporation, 5.50%, 06/30/2005 (cost $1,419,468)
<CAPTION>
--------------------------------------------
COMPOSITE SIERRA PRO
GROWTH & GROWTH AND FORMA
INCOME FUND INCOME FUND COMBINED
--------------------------------------------
MARKET VALUE
--------------------------------------------
<S> <C> <C> <C> <C> <C>
REAL ESTATE INVESTMENT TRUSTS 0.62%
Bank of America Realty $1,476,411 $1,476,411
Health Care Property Investors, Inc. 1,358,125 1,358,125
Wellsford Residential Property Trust 1,054,650 1,054,650
--------------------------------------------
3,889,186 0 3,889,186
--------------------------------------------
RETAIL SALES 3.71%
Circuit City Stores- Carmax 1,377,000 1,377,000
Circuit City Stores- Circuit City Group 5,916,012 5,916,012
Intimate Brands, Inc. 1,415,500 1,415,500
Fred Meyer, Inc., Class A* 2,660,788 2,660,788
Toys R Us Inc 6,466,650 6,466,650
Wal Mart Stores Inc 5,404,225 5,404,225
--------------------------------------------
4,076,288 19,163,887 23,240,175
--------------------------------------------
TOBACCO 1.42%
Phillip Morris Companies, Inc. 1,949,062 6,933,937 8,882,999
--------------------------------------------
TRANSPORTATION SERVICES & EQUIPMENT 2.41%
Consolidated Freightways Corp 617,650 617,650
CSX Corp 5,249,975 5,249,975
CNF Transportation 431,375 431,375
Expeditors International of Washington, Inc. 3,987,500 3,987,500
Sabre Group Holdings, Inc. 1,590,031 1,590,031
Union Pacific Corporation 3,206,625 3,206,625
--------------------------------------------
8,784,156 6,299,000 15,083,156
--------------------------------------------
UTILITIES - GAS AND ELECTRIC 2.13%
Enron Corporation 1,204,000 3,092,775 4,296,775
Duke Energy Corp 3,198,487 3,198,487
PG & E Corp 3,396,000 3,396,000
Pinnacle West Capital 1,194,150 1,194,150
Portland General Corporation 1,164,350 1,164,350
--------------------------------------------
2,368,350 10,881,412 13,249,762
--------------------------------------------
UTILITIES - TELECOMMUNICATIONS 4.39%
AT&T Corporation 3,043,475 3,043,475
Aliant Communications, Inc. 2,031,250 2,031,250
Bell Atlantic Corp 3,285,875 3,285,875
Frontier Corporation 165,100 165,100
GTE Corporation 2,339,625 2,339,625
MCI Communications Corp 3,682,875 3,682,875
SBC Communications 5,422,350 5,422,350
US West Inc 3,898,875 3,898,875
Worldcom Inc 3,561,600 3,561,600
--------------------------------------------
7,579,450 19,851,575 27,431,025
--------------------------------------------
TOTAL COMMON STOCKS (cost $483,089,797) 233,339,946 337,027,332 570,367,278
--------------------------------------------
CONVERTIBLE PREFERRED STOCKS 1.83%
Integon Corporation 1,450,800 1,450,800
Microsoft Preferred 856,250 856,250
Owens-Corning Fiberglass CNV PFD 1,998,375 1,998,375
Pacificare Health Systems, Inc. 2,368,750 2,368,750
Penncorp Financial Group 3,208,000 3,208,000
RJR Nabisco Holding Company, Series C 1,576,850 1,576,850
--------------------------------------------
TOTAL CONVERTIBLE PREFERRED STOCK(cost $11,800,239) 9,460,650 1,998,375 11,459,025
--------------------------------------------
CONVERTIBLE BOND 0.23%
Alberto Culver Corporation, 5.50%, 06/30/2005 (cost $1,419,468) 1,437,219 1,437,219
--------------------------------------------
</TABLE>
-61-
<PAGE>
COMPOSITE GROWTH & INCOME FUND and SIERRA GROWTH AND INCOME FUND
Pro Forma Combined Portfolio of Investments (continued)
April 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------
COMPOSITE SIERRA PRO
GROWTH & GROWTH AND FORMA
INCOME FUND INCOME FUND COMBINED
- ------------------------------------------------
PRINCIPAL AMOUNT
- ------------------------------------------------
<C> <C> <C> <S>
U.S. GOVERNMENT SECURITIES
$5,550,000 $5,550,000 U.S. Treasury Bond, 6.50% due 11/15/2026
37,387,000 37,387,000 U.S. Treasury Bill, Zero Coupon due 08/07/1997
TOTAL U.S. GOVERNMENT SECURITIES (cost $42,015,177)
REPURCHASE AGREEMENT
Repurchase agreement with Goldman Sachs, collateralized
by a U.S. Treasury Note, in a joint trading account at 5.15%,
dated 04/30/97, due 05/01/97 with a maturity value of
621,000 621,000 $621,089 (cost $621,000)
TOTAL INVESTMENTS (cost $538,945,681)
* Non-income producing security
<CAPTION>
-------------------------------------------------
COMPOSITE SIERRA PRO
GROWTH & GROWTH AND FORMA
INCOME FUND INCOME FUND COMBINED
-------------------------------------------------
MARKET VALUE
-------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT SECURITIES 6.72%
U.S. Treasury Bond, 6.50% due 11/15/2026 $5,208,331 $5,208,331
U.S. Treasury Bill, Zero Coupon due 08/07/1997 36,857,503 36,857,503
-------------------------------------------------
TOTAL U.S. GOVERNMENT SECURITIES (cost $42,015,177) 5,208,331 36,857,503 42,065,834
-------------------------------------------------
REPURCHASE AGREEMENT 0.10%
Repurchase agreement with Goldman Sachs, collateralized
by a U.S. Treasury Note, in a joint trading account at 5.15%,
dated 04/30/97, due 05/01/97 with a maturity value of
$621,089 (cost $621,000) 621,000 621,000
-------------------------------------------------
TOTAL INVESTMENTS (cost $538,945,681) $250,067,146 $375,883,210 $625,950,356
=================================================
* Non-income producing security
</TABLE>
-62-
<PAGE>
Composite Growth & Income Fund and Sierra Growth and Income Fund
Notes to Pro Forma Financial Statements (unaudited)
1. Basis of Combination
The pro forma combined financial statements reflect the combined financial
position of Composite Growth & Income Fund and Sierra Growth and Income
Fund at April 30, 1997, and the pro forma combined results of operations
for the year ended October 31, 1996 and the six month period ended April
30, 1997 as though the reorganization had occurred on November 1, 1995.
The pro forma combined financial statements are presented for the
information of the reader and may not necessarily be representative of how
the pro forma combined financial statements would have appeared had the
reorganization actually occurred.
The Pro Forma Combined Portfolio of Investments, Statement of Assets and
Liabilities, and the Statement of Operations should be read in conjunction
with the historical financial statements of the funds incorporated by
reference in the Statement of Additional Information.
The pro forma statements give effect to the proposed transfer of the assets
and stated liabilities of the Sierra Growth and Income Fund in exchange for
shares of Composite Growth & Income Fund. Under generally accepted
accounting principles, the historical cost of investment securities will be
carried forward to the surviving entity.
The pro forma statements do not reflect the expenses of either fund in
carrying out its obligations under the proposed Agreement and Plan of
Reorganization.
2. Pro Forma Combined Portfolio of Investments
Securities held by the two funds have been combined in the accompanying
Combined Portfolio of Investments. Securities are stated at market value as
determined by the Funds as of April 30, 1997. Historical cost amounts
represent the combined cost basis of the securities.
-63-
<PAGE>
Composite Growth & Income Fund and Sierra Growth and Income Fund
Notes to Pro Forma Financial Statements (unaudited) (continued)
3. Pro Forma Statement of Assets and Liabilities
Shares outstanding have been adjusted to reflect the conversion of Sierra
shares into Composite shares based upon the net asset value of Composite
shares at April 30, 1997.
4. Pro Forma Statements of Operations
The pro forma statements of operations reflect the following adjustments:
A. A decrease in management fees for Sierra shareholders to reflect the new
fee structure. Fees are based on .625% of average daily net assets up
to $250,000,000 and .50% of average daily net assets over that amount.
B. An elimination of the Sierra administration fees, now incorporated in
the management fee structure. Shareholder servicing and distribution
expenses have been adjusted to reflect a rate of .25% of average daily
net assets. Other expenses have been adjusted based on an overall
estimated expense ratio of 1.08%.
-64-
