<PAGE>
As filed with the Securities and Exchange Commission on October 7, 1997
Registration No. ____
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[ ] Pre-Effective Amendment No. __
[ ] Post-Effective Amendment No. __
SIERRA TRUST FUNDS
(Exact name of Registrant as Specified in Charter)
9301 Corbin Avenue
Northridge, California 91324
(Address of Principal Executive Offices)
(818) 725-0200
(Area Code and Telephone Number)
------------
Keith B. Pipes
9301 Corbin Avenue
Northridge, California 91324
(Name and Address of Agent for Service)
Copies to:
Richard W. Grant, Esq. Joseph B. Kittredge, Esq.
Morgan, Lewis & Bockius, LLP Ropes & Gray
2000 One Logan Square One International Place
Philadelphia, PA 19103 Boston, MA 02110
------------
Approximate Date of Proposed Public Offering:
As soon as practicable after this Registration Statement becomes effective.
------------
It is proposed that this filing will become effective on November 6, 1997
pursuant to Rule 488.
------------
The Registrant has registered an indefinite amount of its securities under
the Securities Act of 1933, pursuant to Rule 24f-2 under the Investment Company
Act of 1940. In reliance upon Rule 24f-2, no filing fee is being paid at this
time. A Rule 24f-2 Notice for the Registrant for the fiscal year ended June 30,
1997 was filed on August 27, 1997.
<PAGE>
Sierra Trust Funds
Cross-Reference Sheet
as required by Rule 481(a)
<TABLE>
<CAPTION>
Form N-14 Item Caption in Prospectus/Proxy Statement
<S> <C>
1 Cross-Reference Sheet; Outside Front Cover of Prospectus
2 Outside Back Cover Page of Prospectus; Table of Contents
3 Overview of Merger; Risk Factors
4 Approval or Disapproval of Agreement and Plan of Reorganization
5 Information about the Acquiring Fund
6 Information about the Acquired Fund
7 Voting Information
8,9 Not Applicable
Form N-14 Item Caption in Statement of Additional Information
10 Cover Page
11 Table of Contents
12, 13 Additional Information about the Acquiring and Acquired Funds
14 Financial Statements
Form N-14 Item Caption in Part C
15 Indemnification
16 Exhibits
17 Undertakings
</TABLE>
<PAGE>
SIERRA TRUST FUNDS
SHORT TERM GLOBAL GOVERNMENT FUND
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
DECEMBER , 1997
To the Shareholders:
Notice is hereby given that a Special Meeting of Shareholders of the Short
Term Global Government Fund (the "Fund"), a series of the Sierra Trust Funds
(the "Trust"), will be held on , December , 1997 at at the offices of
to consider the following:
1. To consider and act upon a proposal to elect the Board of Trustees.
2. To approve or disapprove an Agreement and Plan of Reorganization providing
for the transfer of all of the assets of the Fund to the Short Term High Qual-
ity Bond Fund (the "High Quality Bond Fund"), a series of the Trust, in ex-
change for shares of the High Quality Bond Fund and the assumption by the High
Quality Bond Fund of all of the liabilities of the Short Term Global Govern-
ment Fund, and the distribution of such shares to the shareholders of the
Short Term Global Government Fund in complete liquidation of the High Quality
Bond Fund.
3. To consider such other business as may properly come before the meeting.
The Trustees have fixed the close of business on October , 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, Secretary
November , 1997
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.
<PAGE>
PROSPECTUS/PROXY STATEMENT
November , 1997
This Prospectus/Proxy Statement relates to (i) the election of Trustees of the
Sierra Trust Funds (the "Trust"), P. O. Box 5118, Westboro, Massachusetts
01581, and (ii) the proposed merger (the "Merger") of the Short Term Global
Government Fund, a series of the Trust (the "Global Government Fund"), into the
Short Term High Quality Bond Fund, also a series of the Trust (the "High Qual-
ity Bond Fund" and, together with the Global Government Fund, the "Funds"). The
Merger is to be effected through the transfer of all of the assets of the
Global Government Fund to the High Quality Bond Fund in exchange for shares of
beneficial interest of the High Quality Bond Fund (the "Merger Shares") and the
assumption by the High Quality Bond Fund of all of the liabilities of the
Global Government Fund, followed by the distribution of the Merger Shares to
the shareholders of the Global Government Fund in liquidation of the Global
Government Fund. As a result of the proposed transaction, each shareholder of
the Global Government Fund will receive in exchange for his or her Global Gov-
ernment Fund shares a number of High Quality Bond Fund shares of the same class
equal in value at the date of the exchange to the aggregate value of the share-
holder's Global Government Fund shares.
Because shareholders of the Global Government Fund are being asked to approve
a transaction which will result in their receiving shares of the High Quality
Bond Fund, this Proxy Statement also serves as a Prospectus for the Merger
Shares of the High Quality Bond Fund. The High Quality Bond Fund seeks as high
a level of current income
as is consistent with prudent investment man- agement and stability of princi-
pal. It pursues this objective by investing primarily in high quality short-
term bonds and other debt instruments.
THIS PROSPECTUS/PROXY STATEMENT EXPLAINS CONCISELY WHAT YOU SHOULD KNOW BEFORE
INVESTING IN THE HIGH QUALITY BOND FUND. PLEASE READ IT AND KEEP IT FOR FUTURE
REFERENCE.
This Prospectus/Proxy Statement is accompanied by the current Prospectus of
the Trust dated October , 1997, as amended or supplemented from time to time
(the "Prospectus").
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 Report of Independent Accountants and financial state-
ments in respect of the High Quality Bond Fund included in the Trust's Annual
Report to Shareholders for the year ended June 30, 1997 (the "Annual Report");
(ii) the current Statement of Additional Information of the Trust, dated Octo-
ber , 1997, as amended or supplemented from time to time (the "SAI"); and
(iii) a Statement of Additional Information dated October , 1997 relating to
the transaction described in this Prospectus/Proxy Statement (the "Merger
SAI").
For a free copy of any or all of the Prospectus, Statement of Additional In-
formation, or Annual Report referred to in the foregoing paragraph, please call
1-800-222-5852 or write to the Trust at the address appearing above.
2
<PAGE>
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.
- -------------------------------------------------------------------------------
3
<PAGE>
OVERVIEW OF MERGER
PROPOSED TRANSACTION
The transaction described on the first page of this Prospectus/Proxy State-
ment is part of an overall restructuring of the registered investment compa-
nies (the "Composite/Sierra Mutual Funds") advised by Composite Research &
Management Co. ("CRM") and Sierra Investment 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 finan-
cial services company, and Sierra is an indirect subsidiary of Washington Mu-
tual as a result of the merger, which took place on July 1, 1997, of Sierra's
former indirect parent, Great Western Financial Corporation, with and into a
wholly-owned subsidiary of Washington Mutual (the "Washington Mutual/Great
Western Merger"). The restructuring involves, among other components, several
"mergers" of the Composite/Sierra Mutual Funds with similar investment objec-
tives and policies. The result of the restructuring will be a single, more in-
tegrated mutual fund complex, with broader exchange privileges for sharehold-
ers.
As a result of the proposed transaction, the Global Government Fund will re-
ceive a number of Class A, Class B, Class I and Class S shares of the High
Quality Bond Fund (the "Merger Shares") equal in value to the value of the net
assets of the Global Government Fund being transferred and attributable to the
Class A, Class B, Class I and Class S shares, respectively, of the Global Gov-
ernment Fund. Following the transfer, (i) the High Quality Bond Fund will dis-
tribute 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 High Quality Bond Fund equal in value to the aggregate value of
the shareholder's Class A, Class B, Class I and/or Class S Global Government
Fund shares, as the case may be, and (ii) the Global Government Fund will be
liquidated.
The Class A, Class B, Class I and Class S shares of the High Quality Bond
Fund have substantially identical characteristics to the corresponding classes
of the respective Global Government Fund. Class A shares are generally sold
subject to a front-end sales load and are subject to a distribution fee at an
annual rate of 0.25% of average daily net 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 pur-
chase. Class B shares are sold at net asset value, without an initial sales
charge but subject to a CDSC at declining rates if redeemed within four years
of purchase. Class S shares are sold at net asset value, without a sales
charge but subject to a CDSC at declining rates if redeemed within six years
of purchase. Class B and Class S shares are subject to servicing and distribu-
tion fees at an aggregate annual rate of 1.00% of assets attributable to Class
B or Class S shares and convert automatically to Class A shares approximately
eight years after purchase. Class I shares are sold at net asset value, with-
out an initial sales charge or CDSC, are not subject to servicing or distribu-
tion fees and do not have a conversion feature. No sales charge will be
charged to Global Government Fund shareholders on the issuance of the Merger
Shares, and no CDSC will be charged to Global Government Fund shareholders on
the exchange of their Global Government Fund shares for the Merger Shares. The
Merger Shares will be subject to a CDSC on redemption to the same extent that
the Global Government Fund shares exchanged were so subject. For the purposes
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 at which, the
Global Government Fund shares exchanged for such Merger Shares were originally
purchased.
4
<PAGE>
The Trustees unanimously recommend that shareholders of the Global Government
Fund approve the Merger because it offers shareholders the opportunity to pur-
sue a similar investment objectives in a larger fund, which should offer op-
portunities for greater diversification of risk and economies of scale. See
"Operating Expenses" below and "Background and Reasons for the Proposed Merg-
er."
OPERATING EXPENSES
The aggregate operating expenses borne by each of the Funds, which have been
reduced by Sierra's voluntary waiver of management fees and reimbursement of
expenses, are expected to be higher after January 1, 1998 because the volun-
tary waiver/reimbursement with respect to the Global Government Fund is ex-
pected to be terminated and the voluntary waiver/reimbursement with respect to
the High Quality Bond Fund is expected to be reduced. However, as the follow-
ing table shows, the currently approved contractual management fee rate for
the High Quality Bond Fund is lower than the currently approved contractual
management fee rate for the Global Government Fund. Accordingly, and as a re-
sult of expected eco-
nomies of scale, it is expected that aggregate operating expenses of the High
Quality Bond Fund will be lower than the aggregate operating expenses cur-
rently borne by the Global Government Fund. There can be no assurance that the
Merger will result in expense savings for shareholders. This table summarizes,
for Class A, Class B, Class I and Class S shares, expenses, in each case, ad-
justed to reflect the reduction or elimination of the voluntary
waiver/reimbursement (i) that the Global Government Fund incurred in its fis-
cal year ended June 30, 1997, (ii) that the High Quality Bond Fund incurred in
its fiscal year ended June 30, 1997, and (iii) that the High Quality Bond Fund
would have incurred in its most recent fiscal year ended June 30, 1997 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. The tables are
provided to help you understand an investor's share of the operating expenses
which each Fund incurs. The examples show the estimated cumulative expenses
attributable to a hypothetical $1,000 investment in the Global Government
Fund, the High Quality Bond Fund and the High Quality Bond Fund on a pro forma
basis, over the specified period.
[TABLES ON FOLLOWING PAGES TO BE REPLACED WITH DATA SUPPLIED BY SIERRA]
5
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA EXPENSES
CURRENT EXPENSES CURRENT EXPENSES HIGH QUALITY BOND
GLOBAL GOVERNMENT FUND HIGH QUALITY BOND FUND FUND
---------------------- ---------------------- ------------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES
- ------------------------------------------------------------------------------------------
Maximum Sales Charge
Imposed on Purchases
(as a percentage of
offering price)
Class A................ 3.50%(1) 3.50%(1) 3.50%(1)
Class B................ None None None
Class I................ None None None
Class S................ None None None
- ------------------------------------------------------------------------------------------
Maximum Contingent
Deferred Sales Charge
Class A................ None(2) None(2) None(2)
Class B................ 4.00% 4.00% 4.00%
Class I................ None None None
Class S................ 5.00% 5.00% 5.00%
- ------------------------------------------------------------------------------------------
Redemption Fees(3)
Class A................ None None None
Class B................ None None None
Class I................ None None None
Class S................ None None None
- ------------------------------------------------------------------------------------------
Exchange Fees(4)
Class A................ None None None
Class B................ None None None
Class I................ None None None
Class S................ None None None
- ------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of
average net assets)
- ------------------------------------------------------------------------------------------
Management Fees (after
voluntary waivers or
reimbursement)(5)
Class A................ 0.65% 0.05% 0.27%
Class B................ 0.65 0.05 0.27
Class I................ 0.65 0.05 0.27
Class S................ 0.65 0.05 0.27
- ------------------------------------------------------------------------------------------
12b-1 Fees(6)
Class A................ 0.25% 0.25% 0.25%
Class B................ 1.00 1.00 1.00
Class I................ 0.00 0.00 0.00
Class S................ 1.00 1.00 1.00
- ------------------------------------------------------------------------------------------
Other Expenses(7)
Class A................ 0.61% 0.70% 0.48%
Class B................ 0.61 0.70 0.48
Class I................ 0.61 0.70 0.48
Class S................ 0.61 0.70 0.48
- ------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA EXPENSES
CURRENT EXPENSES CURRENT EXPENSES HIGH QUALITY BOND
GLOBAL GOVERNMENT FUND HIGH QUALITY BOND FUND FUND
---------------------- ---------------------- ------------------
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TOTAL FUND OPERATING
EXPENSES
(after voluntary
waivers or
reimbursement)(8)
- ------------------------------------------------------------------------------------------
Class A................ 1.51% 1.00% 1.00%
Class B................ 2.26 1.75 1.75
Class I................ 1.26 .75 .75
Class S................ 2.26 1.75 1.75
- ------------------------------------------------------------------------------------------
</TABLE>
(1) The initial sales charge is reduced for purchases of $50,000 and over, de-
creasing to zero for purchases of $1,000,000 and over for each Fund.
(2) Certain investors who purchase Class A shares at net asset value based on
a purchase amount of $1 million or more may be subject to a 1.0% contin-
gent deferred sales charge ("CDSC") on redemptions within one year of pur-
chase or a 0.5% CDSC on redemptions after 1 year but within 2 years of
purchase. Class A shares purchased through a qualified retirement plan
may, in certain circumstances, be subject to a CDSC of 1.0% if the shares
are redeemed within two years of their initial purchase.
(3) A $5.00 fee may be charged for each wire transfer if shares are redeemed
by wire transfer to a shareholder's pre-authorized designated bank ac-
count.
(4) Upon written notice to shareholders, the exchange privilege may be modi-
fied to terminated and/or the Trust may begin imposing a charge of up to
$5.00 for each exchange.
(5) Reflects the expected termination of, and reduction in voluntary waivers
of management fees by the adviser for the Global Government and High Qual-
ity Bond Funds, respectively. Actual management fees for the Global Gov-
ernment and High Quality Bond Funds were, for the fiscal year ended June
30, 1997, 0.04% and 0.00%, respectively. In the absence of such voluntary
waiver, management fees would have been 0.50% for the High Quality Bond
Fund.
(6) Of the 12b-1 fees for the Class A, Class B and Class S shares, 0.75% rep-
resents an asset-based sales charge and 0.25% is a service charge. Due to
the continuous nature of the 12b-1 fee, long-term shareholders of a Fund
may pay more than the economic equivalent of the maximum front-end sales
charge otherwise permitted by the Conduct Rules of the National Associa-
tion of Securities Dealers, Inc. ("NASD").
(7) The "other expenses" set forth in the foregoing table have been restated
to reflect anticipated "other expenses" (after giving effect to the ex-
pected reduction in the voluntary waiver/reimbursement for the Global Gov-
ernment Fund). Actual "other expenses" for the High Quality Bond Fund for
the year ended June 30, 1996 were 0.57%. The adviser and/or the adminis-
trator anticipate voluntarily waiving fees and/or bearing expenses of the
High Quality Bond Fund during the current fiscal year that will result in
total fund operating expenses as set forth in the foregoing table; they
are under no obligation to continue to do so. "Other expenses" absent such
expense reimbursement would have been 0.70% for the High Quality Bond
Fund.
(8) The total fund operating expenses set forth in the foregoing table have
been restated to reflect anticipated management fees and other expenses
(after giving effect to the expected termination of and reduction in vol-
untary waivers/reimbursements for the Global Government and High Quality
Bond Funds, respectively). Actual total operating expenses were as fol-
lows: Global Government Fund, Class A - 0.90%, Class B - 1.65%, Class I -
0.65% and Class S - 1.65%; High Quality Bond Fund, Class A - 0.82%, Class
B - 1.57%, Class I - 0.57% and Class S - 1.57%. The adviser and/or the ad-
ministrator anticipate voluntarily waiving fees and/or bearing expenses
during the current fiscal year for the High Quality Bond Fund that will
result in total fund operating expenses as set forth in the foregoing ta-
ble; they are under no obligation to continue to do so. Total fund operat-
ing expenses for the High Quality Bond Fund absent such fee
waivers/expense reimbursements would have been as follows: Class A-1.45%,
Class B-2.20%, Class I-1.25% and Class S-2.20%.
Waivers of fees and reimbursement of expenses have the effect of increasing
yield or improving total return for the period when such waivers and reim-
bursements are in effect. These amounts are not recovered by Sierra or the
administrator in later years. These fee waivers and agreements to reimburse
expenses are voluntary and may be discontinued at any time.
7
<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>
PRO FORMA EXPENSES
CURRENT EXPENSES CURRENT EXPENSES HIGH QUALITY
GLOBAL GOVERNMENT FUND HIGH QUALITY BOND FUND BOND FUND
---------------------- ---------------------- ------------------
<S> <C> <C> <C>
CLASS A
1 year................. 45 45
3 years................ 66 66
5 years................ 88 88
10 years............... 153 153
- ------------------------------------------------------------------------------------------
CLASS B (assuming
redemption at end of
period)
1 year................. 58 58
3 years................ 75 75
5 years................ 95 95
10 years............... 186 186
- ------------------------------------------------------------------------------------------
CLASS B (assuming no
redemption)
1 year................. 18 18
3 years................ 55 55
5 years................ 95 95
10 years............... 186 186
- ------------------------------------------------------------------------------------------
CLASS I
1 year................. 8 8
3 years................ 24 24
5 years................ 42 42
10 years............... 93 93
- ------------------------------------------------------------------------------------------
CLASS S (assuming
redemption at end of
period)
1 year................. 68 68
3 years................ 85 85
5 years................ 115 115
10 years............... 186 186
- ------------------------------------------------------------------------------------------
CLASS S (assuming no
redemption)
1 year................. 18 18
3 years................ 55 55
5 years................ 95 95
10 years............... 186 186
</TABLE>
The above example should not be considered a representation of past or future
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.
8
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
Based largely on the significant realignment of the Global Government Fund's
portfolio that will occur in connection with the Merger, the Global Government
Fund is expected to recognize gain or loss on the sale of its assets to the
High Quality Bond Fund, and shareholders of the Global Government Fund are ex-
pected to recognize taxable gain or loss on receipt of shares in the High
Quality Bond Fund, equal to the difference between the net asset value of the
High Quality Bond Fund, shares received and the shareholder's tax basis in his
or her Global Government Fund shares. The Merger may therefore cause certain
shareholders to recognize taxable gains. If, as expected, the Merger is a tax-
able transaction, "individuals" (as defined by the Internal Revenue Code) may
use realized capital losses to offset other realized capital gains or to off-
set ordinary income in the current year up to $3,000 and may also carry for-
ward losses indefinitely to offset future realized capital gains, and share-
holders who are not "individuals" may use realized capital losses to offset
realized capital gains in the current year and may also carry forward or carry
back losses to offset future or past realized gains. You should consult your
tax adviser as to your precise tax consequences of the Merger. To receive a
written summary of your investment history call [Sierra Fund Administration
Corporation, 9301 Corbin Avenue, Mail Stop: N0321, Northridge, California
91324].
If, as expected, the Merger is a taxable transaction, the High Quality Bond
Fund's cost basis for each security will be the market value of such security
at the time of the Merger (rather the Global Government Fund's cost basis). As
a result of the Merger, the Global Government Fund's net unrealized losses and
capital loss carryforwards will not be available for use by either Fund. The
Global Government Fund will distribute at the time of the Merger all of the
Global Government Fund's net investment income, which will be taxable income
to shareholders of the Global Government Fund. The Federal income tax
treatment of the Merger is not clear, and the Internal Revenue Service may
take the position that it is a tax-free reorganization.
- -------------------------------------------------------------------------------
COMPARISON OF INVESTMENT OBJECTIVES,
POLICIES AND RESTRICTIONS
The High Quality Bond Fund has investment objectives that are substantially
similar to those of the Global Government Fund. The investment objectives,
policies and restrictions of the Funds, and certain differences between them,
are summarized below. For a more detailed description of the investment tech-
niques used by the Funds, please see the accompanying Prospectus, SAI and
Merger SAI.
The total return for the High Quality Bond Fund and the Global Government
Fund is set forth in the chart below. Because of the different management
styles, however, the relative contributions of the two components of total re-
turn (i.e., current income and capital appreciation) varied between the High
Quality Bond Fund and the Global Government Fund. The yield (calculated in ac-
cordance with SEC regulations) of the High Quality Bond Fund was versus
for the Global Government Fund during the 30-day period ended and av-
eraged and , respectively, over the 12-month period ended .
TOTAL RETURN COMPARISON
AS OF [6/30/97]*
<TABLE>
<CAPTION>
SINCE
3 YEARS 5 YEARS INCEPTION
1 YEAR ANNUALIZED ANNUALIZED ANNUALIZED
------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
High Quality Bond Fund................. 6.15% 5.20% -- 4.04%
Global Government Fund................. 8.86% 6.97% 5.58% 6.22%
</TABLE>
* Performance is for Class A shares of both Funds. Fund performance data is
after all expenses. No competitive performance information is shown for a 10
year period because the Global Government
9
<PAGE>
Fund did not commence operations until , 19 . For further information
about the High Yield Fund's performance, see Appendix B.
The Funds have substantially similar investment objectives. The High Quality
Bond Fund is a diversified fund and attempts to provide as high a level of
current income as is consistent with prudent investment management and stabil-
ity of principal whereas the Global Government Fund is a non-diversified fund
and is designed to provide high current income consistent with protection of
principal.
The Global Government Fund seeks to maintain greater price stability than
longer-term bond funds. The Funds seek to maintain a dollar-weighted average
portfolio maturity of three years or less but may hold individual securities
with remaining maturities of more than three years. However, under no circum-
stances will the High Quality Bond Fund have a dollar-weighted average portfo-
lio maturity in excess of five years.
Under normal market conditions, the Global Government Fund will invest at
least 65% of total assets in short-term bonds and money market instruments is-
sued or guaranteed by foreign governments or the U.S. Government or their
agencies, instrumentalities or political subdivisions (including securities
which are majority owned by such government, agency, instrumentality or polit-
ical subdivision) that are rated within the three highest rating categories by
Standard & Poor's ("S&P") or Moody's Investors Service, Inc. ("Moody's") or,
if unrated, are judged to be of comparable quality. These securities may be
denominated in foreign currencies, multinational currency units or the U.S.
dollar and under normal market conditions will be invested in government secu-
rities in at least three different countries, one of which may be the United
States. In the case of the High Quality Bond Fund, at least 65% of total as-
sets will be invested in short-term investment-grade bonds and other fixed-in-
come securities issued by the U.S. Government, corporations and other issuers,
or mortgage-related securities rated in one of the two highest categories by a
nationally recognized statistical rating organization ("NRSRO"). All debt se-
curities purchased by the High Quality Bond Fund will be investment-grade
(rated in one of the four highest categories by a NRSRO) at the time of pur-
chase. See "Risk Factors--Market Risk."
Both the Funds may also invest in: (i) American depository receipts; (ii) se-
curities indexed to foreign currency exchange rates; (iii) floating rate, in-
verse floating rate and variable rate obligations, including participation in-
terests therein; (iv) bank obligations, which include certificates of deposit,
time deposits and bankers' acceptances of U.S. commercial banks or savings and
loan institutions with assets of at least $500 million as of the end of the
most recent fiscal year; (v) mortgage-backed and government stripped mortgage-
backed securities; (vi) repurchase agreements; and (vii) lease obligation
bonds. Each Fund may also borrow up to 30% of total assets for temporary emer-
gency purposes, purchase securities on a "when-issued" or "delayed-delivery"
basis, invest up to 10% of assets in securities of unaffiliated mutual funds
and lend securities up to 20% of the Fund's total assets.
The Funds may utilize various other investment strategies involving deriva-
tives, including exchange-listed and over-the-counter put and call options on
securities, foreign currencies, equity and fixed-income indices and other fi-
nancial instruments, financial futures contracts and options thereon, currency
forward transactions, and interest rate transactions such as swaps, caps,
floors and collars to hedge various market risks, to manage the effective ma-
turity or duration of fixed-income securities, or to seek potentially higher
returns. The Funds may write covered put and call options on securities but
neither Fund will use more than 10% of assets to purchase put options or more
than 10% of assets to purchase call options, will not write put options with
respect to more than 50% of total assets, and will not enter into deriva-
10
<PAGE>
tive transactions that are not "covered" or entered into for "bona fide hedg-
ing" purposes that are in the aggregate principal amount in excess of 25% of
its net assets. In addition, neither Fund may enter into any futures or op-
tions contracts for which aggregate initial margin deposits and premiums paid
for unexpired options entered into for purposes other than bona fide hedging
exceed 5% of the fair market value of the Fund's assets.
The Global Government Fund may also invest: (i) up to 10% of its assets in
securities rated at the time of purchase below investment-grade (below BBB by
S&P's or Baa by Moody's) and unrated securities of comparable quality; (ii) in
non-government foreign and domestic securities, including debt securities is-
sued or guaranteed by supranational organizations, corporate debt securities,
and bank or bank holding company obligations such as certificates of deposit,
bankers' acceptances and time deposits; and (iv) up to 10% of total assets in
asset-backed securities. See Risk "Factors--Lower-rated Securities."
The High Quality Bond Fund may also invest: (i) up to 10% of assets in for-
eign fixed-income securities including non-U.S. dollar denominated debt; (ii)
in high-quality, short-term obligations with a maturity of 12 months or less,
such as commercial paper issued by domestic and foreign corporations, bankers'
acceptances issued by domestic and foreign banks, certificates of deposit and
demand and time deposits of domestic and foreign banks and savings and loan
associations; (iii) obligations issued or guaranteed by domestic or foreign
governments or their agencies or instrumentalities; (iv) high-grade corporate
debt obligations, such as bonds, debentures, notes, equipment lease and truck
certificates; (v) collateralized mortgage obligations; (vi) up to 25% of total
assets in asset-backed securities; and (vii) in certain illiquid investments
such as privately placed obligations including restricted securities and may
borrow money or enter into reverse repurchase agreements or dollar roll trans-
actions in the aggregate up to 33 1/3% of total assets (but currently intends
to limit such activity to 10% of total assets). See "Risk Factors--Prepayment
Risk," "--Repurchase Agreements," and "--Reverse Repurchase Agreements and
Borrowings."
In addition to the investment restrictions described above, the Global Gov-
ernment Fund may not invest in dollar rolls and will not purchase any addi-
tional securities whenever borrowings, including reverse repurchase agree-
ments, exceed 5% of total assets.
In addition to the investment restrictions described above, the High Quality
Bond Fund may not engage in short sales or maintain short positions or invest
in non-investment-grade securities (rated lower than BBB by S&P or Baa by
Moody's).
Adam M. Greshin, Product Leader for Scudder's global and international fixed-
income investing, is primarily responsible for the management of the Global
Government Fund. The day-to-day management of the High Quality Bond Fund's
portfolio has been the responsibility of Thomas M. Poor, Managing Director of
Scudder.
The Trustees of the Sierra Trust for the High Quality Bond Fund have approved
a new Advisory Agreement (the "CRM Advisory Agreement") with CRM whereby CRM
will replace Scudder, Stevens & Clark, Inc. ("Scudder") as the sub-advisor of
the High Quality Bond Fund as part of the overall restructuring explained
above. The CRM Advisory Agreement will be voted upon at the meeting of the
High Quality Bond Fund's shareholders to be held on December , 1997.
As discussed above, it is expected that, subject to the approval of share-
holders of the High Quality Bond Fund, CRM will, at or prior to the time of
the Merger, become the investment adviser to the High Quality Bond Fund, re-
placing Sierra Advisors, and will thereafter be responsible for management of
the Sierra High Quality Bond Fund. CRM would manage the Fund itself, without
the
11
<PAGE>
use of a subadviser. , of CRM, would be primarily responsible for the
management of the Fund. [CRM does not intend to effect any changes to the in-
vestment practices followed by Scudder with respect to this Fund, as outlined
above.] The approval of CRM as adviser to the High Quality Bond Fund is not a
condition to the Merger. Thus, depending on whether shareholders at the High
Quality Bond Fund approve the proposed advisory arrangement with CRM, the day
to day portfolio manager of the High Quality Bond Fund following the Merger
may be provided either by CRM or by Scudder.
COMPARISON OF DISTRIBUTION POLICIES AND PURCHASE, EXCHANGE AND REDEMPTION
PROCEDURES
Both Funds declare dividends daily and pay them monthly. Both the Funds dis-
tribute any net realized capital gains annually.
The Funds have the same procedures for purchasing shares. The Funds offer
four classes of shares, Classes A, B, I and S. Class I shares are sold exclu-
sively to the various investment portfolios of Sierra Asset Management Portfo-
lios (the "SAM Portfolios"), a series investment company managed by Sierra In-
vestment Services Corporation ("Sierra Services"), 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 both Funds may be purchased at their net asset value next
determined after receipt of a properly completed purchase order, plus applica-
ble sales charges in the case of Class A shares, from Sierra Services, the
Principal underwriter of the Funds as well as the other mutual funds in the
Sierra Funds family. In addition, shares of the Funds may be purchased through
other broker-dealers that have dealer agreements with Sierra Services.
Shares of the Funds can be exchanged for shares of the same class of any fund
advised by CRM (other than funds serving as underlying funding vehicles for
variable insurance contracts), or of any other fund offered by the Trust, SAM
Portfolios or Sierra Prime Income Fund ("SPIF"), a closed-end investment com-
pany advised by Sierra. In addition, Class B shares of the Funds can, under
certain circumstances, be exchanged for Class S shares of the same Fund or any
other Fund offered by the Trust or (in the case of exchanges from the High
Quality Bond Fund) advised by CRM, and Class S shares of the Funds can be ex-
changed, under certain circumstances, for Class B shares of the SAM Portfo-
lios.
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 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 exchange
privilege.
Shares of the Funds 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 through Sierra
Services, or, through the dealer through which the shares were purchased, by
mail, by telephone or by other means of wire communication.
See the accompanying Prospectus for further information.
12
<PAGE>
RISK FACTORS
Certain risks associated with an investment in the High Quality Bond Fund are
summarized below. Because the High Quality Bond Fund shares similar investment
objectives and policies with the Global Government Fund and because both Funds
share certain policies described more fully above under "Overview of Merger--
Comparison of Investment Objectives, Policies and Restrictions," many of the
risks of an investment in the High Quality Bond Fund are substantially similar
to the risks of an investment in the Global Government Fund. A more detailed
description of certain of the risks associated with an investment in the High
Quality Bond Fund may be found in the Prospectus under the caption "The Funds'
Investments and Risk Considerations" and in the SAI under the same caption.
The values of all securities and other instruments held by the High Quality
Bond Funds vary from time to time in response to a wide variety of market fac-
tors. Consequently, the net asset value per share of the High Quality Bond
Fund will vary so that an investor's shares, when redeemed, may be worth more
or less than the amount invested.
INTEREST RATE RISK. The Funds share similar risks for investment in fixed in-
come securities, including U.S. Government securities. U.S. Government securi-
ties are considered 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 the High Quality Bond Fund's holdings of U.S. Govern-
ment securities. Conversely, during periods of rising interest rates, the
value of the High Quality Bond Fund's holdings of fixed income securities will
generally decline.
PREPAYMENT RISK. The Funds share similar risks for investment in mortgage-
backed or asset-backed securities. The High Quality Bond Fund may invest in
mortgage-backed securities. Prepayment on mortgage-backed or asset-backed se-
curities may require reinvestment of principal under less attractive terms.
Prepayments may also significantly shorten the effective maturities of these
securities, especially during periods of declining interest rates. Conversely,
during periods of rising interest rates, a reduction in prepayments may in-
crease 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 asset-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 High
Quality Bond Fund, like the Global Government Fund, to the risk that the de-
fault or bankruptcy of the other party to the repurchase agreement could sub-
ject the fund to expenses, delays and risk of loss on the securities subject
thereto.
REVERSE REPURCHASE AGREEMENTS AND BORROWINGS. The High Quality Bond Fund may
invest in reverse repurchase agreements in the aggregate up to 33 1/3% of its
total assets but currently intends to limit such activity to 10% of total as-
sets. Reverse repurchase agreements and borrowings subject the High Quality
Bond Fund to the risk that changes in the value of a Fund's portfolio securi-
ties may amplify 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 advanta-
geous to do so.
ILLIQUID SECURITIES. The Funds share similar risks for investment in illiquid
securities--specifically, higher transaction costs.
INVESTMENT IN FOREIGN SECURITIES. Each of the Funds may invest in foreign se-
curities, including debt securities issued or guaranteed by supranational or-
ganizations. Investment in foreign securi-
13
<PAGE>
ties involves the risk of potentially reduced domestic marketability of such
securities, the lower reserve requirements generally mandated for overseas
banking operations, the possible impact of interruptions in the flow of inter-
national currency transactions, potential political and social instability or
expropriation, imposition of foreign taxes, less government supervision of is-
suers, difficulty in enforcing contractual obligations and lack of uniform ac-
counting standards.
LENDING OF PORTFOLIO SECURITIES. The Funds may incur similar risks from lend-
ing their securities. As with other extensions 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. The High Quality Bond Fund may enter into options and
futures contracts for hedging purposes or as a part of their investment strat-
egies and may engage in swap agreements. Use of derivative instruments may in-
volve 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 il-
liquid market, the risk of an imperfect correlation between the value of the
securities being hedged and the value of the particular derivative instrument,
the risk of bankruptcy or default of counterparties and the risk that unex-
pected changes in interest rates or other market movements may adversely af-
fect the value of the Fund's investments in particular derivative instruments.
- -------------------------------------------------------------------------------
SPECIAL MEETING OF SHAREHOLDERS
This Prospectus/Proxy Statement is furnished in connection with a Special
Meeting of Global Government Fund Shareholders to be held on December , 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 Trust for use
at the Meeting. The Meeting is being held to consider the election of Trustees
of the Trust and the proposed Merger of the Global Government Fund and the
High Quality Bond Fund by the transfer of all of the Global Government Fund's
assets and liabilities to the High Quality Bond Fund. This Prospectus/Proxy
Statement and the enclosed form of proxy are being mailed to shareholders on
or about November , 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 Trust be elected
to hold office until their successors are duly elected and qualified. The per-
sons named in the accompanying proxy intend, in the absence of contrary in-
structions, to vote all proxies on behalf of the shareholders for the election
of David E. Anderson, Wayne L. Attwood, M.D. Arthur H. Bernstein, Esq.
Kristianne Blake, Edmond R. Davis, Esq. John W. English, Anne V. Farrell,
Michael K. Murphy, Alfred E. Osborne, Jr. 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 Trust's Board of Trustees. Messrs. Atwood, Murphy,
Papesh, Pavelich, Rockey and Yancey and Mses. Blake and Farrell are all direc-
tors of the mutual funds advised by CRM (the "Composite Funds"), but have not
previously served on the Trust's Board of Trustees.
14
<PAGE>
Shareholders of the Global Government Fund, along with the shareholders of
each other series of the Trust, are entitled to vote in the election of the
Trust's Trustees. If the proposed Merger by and between Global Government Fund
and High Quality Bond Fund is consummated, the Global Government's separate
existence would be terminated and its shareholders would become shareholders
of the High Quality Bond Fund, which is also a series of the Trust, and would
be governed by the same 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 Trustees and
the trustees of the Composite Funds. The proposal, if approved will provide
the Board with operating flexibility by making it possible for the Board of
Trustees to fill vacancies that may occur in the future.
Each of the Nominees has consented to being named in this Prospectus/Proxy
Statement and to serving as a Trustee if elected. The Trust knows of no reason
why any Nominee would be unable or unwilling to serve if elected.
The Trust is organized as a business trust under the laws of the Commonwealth
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 office 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 Trust's
Master Trust Agreement. Shareholder meetings will be held, in compliance with
the 1940 Act, to elect Trustees under certain circumstances. Shareholder meet-
ings may also be held by the Trust for other purposes, including to approve
investment policy changes, a new investment advisory agreement or other mat-
ters 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.
INFORMATION REGARDING NOMINEES
The following information is provided for each Nominee. It includes his or
her name, position with the Trust, if so held, tenure in office, trustee posi-
tions principal occupations or employment during the past five years,
directorships/trusteeships with other companies which file reports periodi-
cally with the SEC, number of trustee positions with the registered investment
companies which hold themselves out to investors as related companies for pur-
poses of investment and investor services to which Sierra or an affiliated
person of Sierra provides investment advisory or administration services (col-
lectively, the "Fund Complex"), number of shares of the Funds of the Trust be
neficially owned and percentage of shares of the funds of the Trust benefi-
cially owned. As of July 1, 1997, the Nominees as a group beneficially owned
an aggregate of less than 1% of the shares of each fund of the Trust and the
Trustees and officers of the Trust as a group beneficially owned an aggregate
of less than 1% of the shares of each fund of the Trust.
15
<PAGE>
<TABLE>
<CAPTION>
ADDRESS AND BUSINESS EXPERIENCE SHARES BENEFICIALLY PERCENTAGE OF
NAME, AGE AND POSITION DURING THE PAST FIVE YEARS OWNED AS OF OUTSTANDING
WITH THE TRUST (INCLUDING ALL DIRECTORSHIPS) JULY 1, 1997*** SHARES
---------------------- ------------------------------- ------------------------ -------------
<C> <S> <C> <C>
Arthur H. Bernstein, Esq. (72) 11661 San Vicente Blvd. Global Money Fund 50.790 ****
Chairman of the Board Suite 701 Los Angeles, CA California Money Fund
and Trustee since 1989. 90049. 15,937.49
President, Bancorp Corporate Income Fund
Capital Group, Inc., 1988 19.500
to present; President, California Municipal
Bancorp Venture Capital, Fund 10.756
Inc., Growth and Income Fund
1988 to present. Trustee 6,078.511
of 4 trusts (U.S. Government Money
in the Fund Complex. Fund 2,028.525
Corporate Income Fund
2,641.185
Emerging Growth Fund
855.527
Growth Fund 1,066.341)+
David E. Anderson (70) 17960 Seabreeze Drive California Municipal ****
Trustee since 1989. Pacific Palisades, CA Fund 1,236 California
90272. Insured Intermediate
Retired. Formerly, Municipal Fund 492
President and Chief International Growth
Executive Officer, GTE Fund 1,261 Short Term
California, Inc., 1979 to Global
1988. Trustee of 4 trusts Government Fund 3,942
in the Fund Complex. Growth Fund 1,277
Edmond R. Davis, Esq. (69) 550 South Hope Street California Money Fund ****
Trustee since 1989. 21st Floor Los Angeles, 98,492.18
CA 90071. Partner,
Brobeck, Phleger &
Harrison (law firm) 1987
to present. Trustee of 4
trusts in the Fund
Complex.
John W. English (64) 50-H New England Ave. PO Growth and Income ****
Trustee since 1994. Box 640 Summit, NJ 07902- 12,079.48 International
0640. Retired. Formerly, Growth Fund 8,490.88
Vice President and Chief
Investment Officer, Ford
Foundation, 1981 to 1993.
Chairman of the Board and
Director, The China Fund,
Inc. (a closed-end mutual
fund), 1993 to present;
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 Global Money Fund 997.88 ****
Trustee since 1996. C305 Corporate Income Fund
Los Angeles, CA 90095- 615.097 Growth and
1481. Income Fund 286.178
Professor, The Anderson International Growth
School and Director, The Fund 668.656 Short Term
Harold Price Center for Global
Entrepreneurial Studies Government Fund
at University of 149.053
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>
16
<PAGE>
<TABLE>
<CAPTION>
ADDRESS AND BUSINESS EXPERIENCE SHARES BENEFICIALLY PERCENTAGE OF
NAME, AGE AND POSITION DURING THE PAST FIVE YEARS OWNED AS OF OUTSTANDING
WITH THE FUND (INCLUDING ALL DIRECTORSHIPS) , 1997*** SHARES
---------------------- ------------------------------- ------------------------ -------------
<C> <S> <C> <C>
Wayne L. Attwood, M.D. (68) 2931 S. Howard None ****
Nominee Spokane, WA 99203.
Retired. Formerly, Doctor
of internal medicine and
gastroenterology.
Kristianne Blake (43) 705 W. 7th, Suite D None ****
Nominee Spokane, Washington
99203.
President, Kristianne
Gates Blake, PS
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.
Michael K. Murphy (60) P.O. Box 3366 None ****
Nominee Spokane, WA 99220.
Chairman and Chief
Executive Officer, CPM
Development Corporation.
Director, Washington
Mutual, Inc.
**William G. Papesh (54) 601 W. Main Avenue Suite None ****
Nominee 801 Spokane, WA 99201.
President and Director,
Advisor and Transfer
Agent; an executive vice
president and Director,
Distributor.
Daniel L. Pavelich (53) Two Prudential Plaza None ****
Nominee 180 North Stetson Avenue
Suite 4300
Chicago, IL 60601.
Chairman and Chief
Executive Office, BDO
Seidman.
Jay Rockey (69) 2121 Fifth Avenue None ****
Nominee Seattle, WA 98121.
Chairman and Chief
Executive Officer, The
Rockey Company
Richard C. Yancey (71) 535 Madison Avenue None ****
Nominee New York, NY 10022.
Senior Advisor, Dillon,
Read & Co., Inc.
</TABLE>
* Dr. Osborne also served as Trustee of trust from to .
* Denotes an individual who is an "interested person" of the Funds as defined
in the 1940 Act.
** This information has been provided by each Nominee.
*** As of July 1, 1997, the Nominees as a group beneficially owned an aggre-
gate of less than 1% of the shares of each fund of the Trust.
+ [Represents shares not beneficially owned, but held by funds in the Fund
Complex as of July 1, 1997 pursuant to the Fund Complex's Deferred Compen-
sation Plan.]
17
<PAGE>
COMPENSATION OF TRUSTEES
Each Trustee who is not an "interested person" receives an aggregate annual
fee (plus reimbursement for reasonable out-of-pocket expenses incurred in con-
nection with his or her attendance at Board and committee meetings) from the
Funds and all of the funds in the Fund Complex for which he or she serves. The
Trust pays each Trustee who is not a director, officer or employee of Washing-
ton Mutual, Inc., Sierra Investment Services Corporation, Sierra Investment
Advisors Corporation, the sub-advisors to the Trust or First Data Investor
Services Group, Inc., or any of their affiliates, $7,500 per annum plus $1,500
per board meeting attended, $1,000 per Audit and/or Nominating Committee meet-
ing attended and reimbursement for travel and out-of-pocket expenses. Since
December 1996, Mr. Bernstein, Chairman of the Trust, has received one and a
half times the Trustee's compensation described above. The Chairman of the Au-
dit Committee receives $1,500 per Audit Committee meeting attended. Officers
of the Trust receive no direct remuneration 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 Trust's eligible
Trustees may participate in a deferred compensation plan (the "Plan") which
may be terminated at any time. Under the Plan, Trustees may elect to defer re-
ceipt 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, Trustees
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 these plans are funded and any pay-
ments to plan participants are paid solely out of the Trust's assets.
The aggregate compensation payable by the Trust to each of the Trust's Trust-
ees 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 TRUST
PAYABLE PART OF FUND AND FUND COMPLEX
NAME AND POSITION FROM THE TRUST* EXPENSES PAYABLE TO TRUSTEES
----------------- --------------- ------------------- -------------------------------
<S> <C> <C> <C>
Arthur H. Bernstein,
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.,
Trustee 18,000 0 42,000 for service on 4 boards
- ---------------------------------------------------------------------------------------------
</TABLE>
* Includes compensation deferred pursuant to the Plan. The total amount of
deferred compensation payable by the Trust to Messrs. Bernstein, Anderson,
Davis, English and Osborne as of June 30, 1997 were , , , and
, respectively, including income earned on such amounts.
18
<PAGE>
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, with the independent accountants, the re-
sults of the audit engagement and matters having a material effect on the
Fund's financial operations. The members of the Audit Committee during the
fiscal year ended June 30, 1997, were Messrs. Bernstein (Chairman), Anderson,
Davis, 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. The Chairman of
the Audit Committee receives $1,500 for each Audit Committee meeting attended.
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 effective May 29, 1997), Anderson, Bernstein, Davis, Os-
borne 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 Commit-
tee did not meet during the fiscal year ended June 30, 1997 and all members
attended the meeting held on October 27 and 28, 1997.
BOARD APPROVAL OF THE ELECTION OF TRUSTEES
At a meeting of the Board of Trustees held October 27 and 28, 1997, the Board
of Trustees unanimously recommended that shareholders vote FOR each of the
Nominees for Trustee named herein. In recommending that shareholders elect the
Nominees as Trustees of the Trust, the Board considered the Nominees' experi-
ence and qualifications. In particular, each of the Nominees who has not pre-
viously served on the Board of Trustees of the 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 Trust, the Board of Trustees will consider alternative
nominations.
THE BOARD OF TRUSTEES OF THE TRUST RECOMMENDS THAT THE SHAREHOLDERS OF THE
GLOBAL GOVERNMENT FUND VOTE FOR THE ELECTION OF THE NOMINEES AS TRUSTEES OF
THE TRUST.
- -------------------------------------------------------------------------------
PROPOSAL 2:
APPROVAL OR DISAPPROVAL OF AGREEMENT
AND PLAN OF REORGANIZATION
The shareholders of the Global Government Fund are being asked to approve or
disapprove a Merger between the Global Government Fund and the High Quality
Bond Fund. The Merger is proposed to take place pursuant to an Agreement and
Plan of Reorganization between the Global Government Fund and the High Quality
Bond Fund, [dated as of October , 1997] (the "Agree-
19
<PAGE>
ment"), the form of which is attached to this Prospectus/Proxy Statement as
Appendix A.
The Agreement provides, among other things, for the transfer of all of the
assets of the Global Government Fund to the High Quality Bond Fund in exchange
for (i) the assumption by the High Quality Bond Fund of all of the liabilities
of the Global Government Fund and (ii) the issuance to the Global Government
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 Global
Government Fund acquired by the High Quality Bond Fund and the net asset value
per Class A, Class B, Class I and Class S share of the High Quality Bond Fund,
all as more fully described below under "Information About the Merger."
After receipt of the Merger Shares, the Global Government 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 Global Government Fund. Each shareholder of the Global Govern-
ment Fund will receive 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
Global Government Fund shares, as the case may be.
TRUSTEES' RECOMMENDATIONS. THE TRUSTEES OF THE TRUST HAVE VOTED UNANIMOUSLY
TO APPROVE THE PROPOSED MERGER BY AND BETWEEN THE GLOBAL GOVERNMENT FUND AND
HIGH QUALITY BOND FUND AND TO RECOMMEND THAT SHAREHOLDERS OF THE GLOBAL GOV-
ERNMENT FUND ALSO APPROVE THE MERGER FOR SUCH FUND.
REQUIRED SHAREHOLDER VOTE. Approval of the proposed Merger 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 Global Government Fund present or repre-
sented 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 Global
Government Fund, voting together as a single class.
A shareholder of the Global Government Fund objecting to the proposed Merger
is not entitled under either Massachusetts law or the Trust's Master Trust
Agreement (the "Sierra Declaration of Trust") to demand payment for or an ap-
praisal of his or her Global Government Fund shares if the Merger is consum-
mated 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 any fund advised by CRM (other than funds serving as underlying fund-
ing vehicles for variable insurance contracts) certain other funds offered by
the Trust, SAM Portfolios or SPIF, at net asset value at the time of such ex-
change.
BACKGROUND AND REASONS FOR THE PROPOSED MERGERS
The Trustees of the Global Government Fund, including the Trustees who are
not "interested persons" of the Trust (the "Independent Trustees"), have de-
termined that the Merger would be in the best interests of the Global Govern-
ment Fund, and that the interests of the Global Government Fund's shareholders
would not be diluted as a result of effecting the Merger. At a meeting held on
October 27 and 28, 1997, the Trustees [unanimously] approved the proposed
Merger and recommended its approval by shareholders. Before reaching its con-
clusions, the Trust's Board of Trustees conducted an extensive "due diligence"
20
<PAGE>
review. Among other things, the Board received reports from counsel and ex-
perts hired to evaluate the Merger. Furthermore, the Trustees took into ac-
count the capital loss carry-forwards and the unrealized capital appreciation
in the Funds, 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>
Global Government Fund.. [4.05%] [(6.90)%]
High Quality Bond Fund.. [8.17%] [.20%]
</TABLE>
The principal reasons why the Trustees are recommending the Merger, and the
overall restructuring of the Composite/Sierra Mutual Funds as discussed on
page 4, are as follows:
(i) ECONOMIES OF SCALE AT FUND LEVEL. The Trustees have determined that it
is in the best interests of the Global Government Fund's shareholders to com-
bine the Global Government Fund with the High Quality Bond Fund in order to
increase the asset base over which the Global Government Fund's expenses will
be spread. The increased asset base is expected to result in aggregate oper-
ating expenses (exclusive of management fees) that, absent any waiver of man-
agement fees or reimbursement of expenses, would be lower than those cur-
rently borne by the Global Government Fund. In addition, as described more
fully in the overview under "Operating Expenses," the currently approved con-
tractual management fee rate for the High Quality Bond Fund is lower than the
currently approved contractual management fee rate for the Global Government
Fund, although the reduction of Sierra's voluntary waiver/ reimbursement will
result in aggregate operating expenses for the High Quality Bond Fund that
are higher than those currently borne by the Global Government Fund.
(ii) EXPERIENCED LEADERSHIP AND A HERITAGE SINCE 1939. CRM (the proposed new
investment adviser to the High Quality Bond Fund subsequent to the overall
restructuring) has extensive mutual fund experience, with the four senior ex-
ecutives having an average of over 23 years in the financial services indus-
try. Washington Mutual, Inc. was a pioneer in bank distribution of mutual
funds when it acquired Murphey Favre, Inc. (the predecessor to Washington Mu-
tual Financial Services, Inc.) in 1982. [CRM has served as investment adviser
to mutual funds since 1939.]
(iii) APPROPRIATE INVESTMENT OBJECTIVES, DIVERSIFICATION, ETC. The invest-
ment objectives, policies and restrictions of the High Quality Bond Fund are
substantially similar to those of the Global Government Fund, and the Trust-
ees believe that an investment in shares of the High Quality Bond Fund (whose
portfolio will have been combined with that of the Global Government Fund)
will provide shareholders with an investment opportunity comparable to that
currently afforded by the Global Government Fund, with the potential for re-
duced investment risk because of the opportunities for additional diversifi-
cation of portfolio investments through increased Fund assets.
(iv) LARGER, MORE INTEGRATED FUND COMPLEX. The Merger will allow the share-
holders of the Global Government Fund to enjoy the benefits of integration in
the same manner that the overall restructuring of the Composite/Sierra Mutual
Funds should reduce the possibility of confusion for shareholders between
funds within the same family with similar names and/or in-
21
<PAGE>
vestment objectives. It will also give shareholders broader exchange privi-
leges among funds subsequent to the overall restructuring.
INFORMATION ABOUT THE MERGER
AGREEMENT AND PLAN OF REORGANIZATION. The proposed Agreement and Plan of Re-
organization provides that the High Quality Bond Fund will acquire all of the
assets of the Global Government Fund in exchange for the assumption by the
High Quality Bond Fund of all of the liabilities of the Global Government Fund
and for the issuance 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
[31], 1997 or such other date as may be agreed upon by the Fund). The follow-
ing discussion of the Agreement is qualified in its entirety by the full text
of the Agreement, the form of which is attached as Appendix A to this
Prospectus/Proxy Statement.
The Global Government Fund will sell all of its assets to the High Quality
Bond Fund, and, in exchange, the High Quality Bond Fund will assume all of the
liabilities of the Global Government Fund and deliver to the Global Government
Fund (i) a number of full and fractional Class A Merger Shares having an ag-
gregate net asset value equal to the value of the assets of the Global Govern-
ment Fund attributable to its Class A shares, less the value of the liabili-
ties of the Global Government Fund assumed by the High Quality Bond Fund at-
tributable to the Class A shares of the Global Government Fund, (ii) a number
of full and fractional Class B Merger Shares having an aggregate net asset
value equal to the value of assets of the Global Government Fund attributable
to its Class B shares, less the value of the liabilities of the Global Govern-
ment Fund assumed by the High Quality Bond Fund attributable to the Class B
shares of the Global Government 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 Global Government Fund attributable to its Class I
shares, less the value of the liabilities of the Global Government Fund as-
sumed by the High Quality Bond Fund attributable to the Class I shares of the
Global Government 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
Global Government Fund attributable to its Class S shares, less the value of
the liabilities of the Global Government Fund assumed by the High Quality Bond
Fund attributable to the Class S shares of the Global Government Fund.
Immediately following the Exchange Date, the Global Government Fund will dis-
tribute pro rata to its shareholders of record as of the close of business on
the Exchange Date the full and fractional Merger Shares received by the Global
Government Fund, with Class A Merger Shares being distributed to holders of
Class A shares of the Global Government Fund, Class B Merger Shares being dis-
tributed to holders of Class B shares of the Global Government Fund, Class I
Merger Shares being distributed to holders of Class I shares of the Global
Government Fund and Class S Merger Shares being distributed to holders of
Class S shares of the Global Government Fund. As a result of the proposed
transaction, each holder of Class A, Class B, Class I and Class S shares of
the Global Government 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 Global Government Fund held by the shareholder. This distribution will be
accomplished by the establishment of accounts on the share records of the High
Quality Bond Fund in the names of the Global Government Fund shareholders,
each account representing the respective number of full and fractional Class
A, Class B, Class I and Class S Merger Shares
22
<PAGE>
due such shareholder. New certificates for Merger Shares will not be issued.
The consummation of the 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
the Global Government Fund, prior to the Exchange Date, by mutual consent of
the Global Government Fund and the High Quality Bond Fund or, if any condition
set forth in the Agreement has not been fulfilled and has not been waived by
the party entitled to its benefits, by such party.
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 and/or Washington Mutual] [allocated in accor-
dance with the following: First, the costs of the overall restructuring of the
Composite/Sierra Mutual Funds referred to in the Overview under "Proposed
Transactions," including the costs of the Mergers and this Prospectus/Proxy
Statement, are being preliminarily allocated on a basis approved by the Trust-
ees, including the Independent Trustees, of the Trust as well as by the Trust-
ees of the Composite Funds, including the Trustees who are not "interested
persons" thereof, and Directors of the Composite Funds, including the Direc-
tors who are not "interested persons" thereof. CRM and/or Sierra will bear any
and all expenses preliminarily allocated to any of the series of Composite
Funds involved in the overall restructuring and CRM and/or Sierra will also
bear any and all expenses allocated to Sierra Funds, including the Global Gov-
ernment Fund and the High Quality Bond Fund to the extent that they would oth-
erwise exceed the respective expense caps (the "Relevant Expense Caps") set
forth below. The Sierra Funds, including the Global Government Fund and the
High Quality Bond Fund have agreed to pay the expenses preliminarily allocated
to them but not, however, in an amount exceeding the Relevant Expense Caps.
The Relevant Expense Caps represent a percentage (approximately 50%) of the
projected aggregate savings for shareholders for the first year following the
Mergers. The currently estimated expenses to be borne by the Funds and the
Relevant Expense Caps are as follows:
<TABLE>
<CAPTION>
CURRENT EXPENSE
NAME OF FUND ESTIMATE EXPENSE CAP
------------ --------------- -----------
<S> <C> <C>
Global Government Fund.............................
High Quality Bond Fund.............................
</TABLE>
Notwithstanding 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 pay-
ment 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 the Global Government 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 High Quality Bond Fund, which
have characteristics identical to those of the corresponding class of the
Global Government Fund shares with respect to sales charges, CDSCs, conversion
and 12b-1 servicing and distribution fees. Investors purchasing Class A shares
of the High Quality Bond Fund generally pay a sales charge of up to 3.50% at
the time of purchase, but the Global Government Fund shareholders receiving
Class A Merger Shares in the Merger will not pay a sales charge on such
shares. Class A shares of the High Quality Bond Fund are generally not subject
to redemption fees, except that a $5.00 fee may be charged for each wire
transfer if shares are redeemed by wire transfer to a shareholder's pre-autho-
rized
23
<PAGE>
bank account. Certain investors who purchase Class A shares at net asset value
based on a purchase amount of $1 million or more after June 30, 1995 may be
subject to a 1.0% CDSC on redemptions within one year of purchase or a 0.5%
CDSC on redemptions after 1 year but within two years of purchase. Class A
shares purchased through a qualified 401(k) or 403(b) plan may, in certain
circumstances, be subject to a CDSC of 1.0% if the shares are redeemed within
two years of their initial purchase. Class A shares of the High Quality Bond
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
shares of the High Quality Bond Fund are sold without a front end sales
charge, but are subject to a CDSC of up to 4% if redeemed within four years of
original purchase. Class S shares of the High Quality Bond Fund are sold with-
out a front end sales charge, but are subject to a CDSC of up to 5% if re-
deemed within six years of original purchase. Both Class B and Class S shares
of the High Quality Bond Fund are also subject to 12b-1 distribution and ser-
vicing 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 High Quality Bond Fund will convert automat-
ically into Class A shares after they have been held for approximately eight
years. Class I shares of the High Quality Bond Fund (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 Global Gov-
ernment Fund, as well as the conversion date of Class B and Class S Merger
Shares, such shares will be treated as having been acquired as of the dates
that, and for the prices at which, such shareholders originally acquired their
Class A, Class B or Class S shares, as the case may be, of the Global Govern-
ment Fund, and the CDSC will be applied at the same rate as was in effect for
the High Quality Bond Fund at the time the shares of the Global Government
Fund were originally purchased.
CERTAIN PAYMENTS BY THE DISTRIBUTOR. In connection with the sale of Class B
and Class S shares of both the Global Government Fund and the High Quality
Bond Fund, Sierra Services pays commissions to broker-dealers from its own as-
sets that it expects to recover over time through the receipt of distribution
fees in connection with both the Global Government Fund's and the High Quality
Bond Fund's 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 Serv-
ices with respect to the Funds before the consummation of the proposed Merger
will likely exceed the amounts recovered by Sierra Services by that time. Such
unrecovered amounts do not represent a liability of the Global Government Fund
and, consequently, the High Quality Bond Fund will not assume any such liabil-
ity in connection with the consummation of the Merger. However, to the extent
Sierra Services has not fully recovered such commissions before the consumma-
tion of the proposed Merger, it is anticipated that the Sierra Trustees will
consider such unrecovered amounts, among other factors, in determining whether
to continue payments of distribution fees in the future with respect to Class
B and Class S shares of the High Quality Bond Fund.
As of June 30, 1997, the expenses incurred by Sierra Services in distributing
shares of the Trust were approximately $ in excess of payments under the
Trust's Distribution and Servicing Plan with respect to Class B shares and
$ in excess of payments under the Trust's Distribution 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 High Quality Bond Fund when issued, will be transferable with-
out restriction, and will have no preemptive or conversion rights, except that
Class B and Class S Merger Shares convert automatically
24
<PAGE>
into Class A shares as described above. The Sierra Declaration of Trust per-
mits the Trust to divide its shares, without shareholder approval, into two or
more series of shares representing separate investment portfolios and to fur-
ther 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. The High Quality Bond Fund's shares
are currently divided into four classes: 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 Sierra Declaration of Trust disclaims share-
holder liability for acts or obligations of the Trust and/or the High Quality
Bond Fund and requires that notice of such disclaimer be given in each agree-
ment, undertaking, or obligation entered into or executed by the Trust, the
High Quality Bond Fund or the Trust's Trustees. The Sierra Declaration of
Trust provides for indemnification out of the High Quality Bond Fund property
for all loss and expense of any shareholder held personally liable for the ob-
ligations of the High Quality Bond Fund. Thus, the risk of a shareholder's in-
curring financial loss from shareholder liability is limited to circumstances
in which the High Quality Bond Fund would be unable to meet its obligations.
The likelihood of such a circumstance is considered remote. The shareholders
of the Global Government Fund are currently subject to substantially the same
risk of shareholder liability, under Massachusetts law and the Sierra Declara-
tion of Trust.
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 Trust. In addition, the Sierra Decla-
ration of Trust provides that shareholders holding 10% or more of the out-
standing shares of the Trust may call a meeting of shareholders to consider
the removal of any Trustee.
The Sierra Declaration of Trust provides that the liquidation of any fund,
including the Global Government Fund, requires the approval not only of a ma-
jority of the Trustees, but also of a "majority of the outstanding voting se-
curities" 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 Sierra Declaration of Trust provides that the 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 Sierra Declaration of Trust provides that a quorum for a meeting of
shareholders is a majority of the shares entitled to vote at the meeting.
BOARD OF TRUSTEES. Pursuant to Proposal 1, each Trustee of The Composite
Funds has been nominated to serve as a Trustee of the Trust, subject to the
approval of the Trust's shareholders. The members of The Composite Funds'
Board of Trustees, who are responsible for overseeing the affairs of The Com-
posite 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. See Proposal 1 above for further information.
CAPITALIZATION. The following table shows the capitalization of the High
Quality Bond Fund and the Global Government Fund as of June 30, 1997 and of
the High Quality Bond Fund on a pro forma basis as of that date, giving effect
to the proposed acquisition by the High Quality Bond Fund of the assets and
liabilities of the Global Government Fund at net asset value:
25
<PAGE>
JUNE 30, 1997
<TABLE>
<CAPTION>
HIGH QUALITY
BOND FUND:
HIGH QUALITY GLOBAL GOVERNMENT PRO FORMA
BOND FUND FUND COMBINED
------------ ----------------- ------------
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Assets (000's omitted)
Class A........................... $13,685 $44,256 $57,941
Class B........................... $ 2,994 $ 2,331 $ 5,325
Class I........................... $ 2,752 $ 3,734 $ 6,485
Class S........................... $ 800 $ 474 $ 1,273
- --------------------------------------------------------------------------------
Shares outstanding (000's omitted)
Class A........................... $ 5,898 $19,253 $24,972
Class B........................... $ 1,290 $ 1,014 $ 2,295
Class I........................... $ 1,186 $ 1,624 $ 2,795
Class S........................... $ 345 $ 206 $ 549
- --------------------------------------------------------------------------------
Net asset value per share
Class A*.......................... $ 2.32 $ 2.30 $ 2.32
Class B*.......................... $ 2.32 $ 2.30 $ 2.32
Class I........................... $ 2.32 $ 2.30 $ 2.32
Class S*.......................... $ 2.32 $ 2.30 $ 2.32
- --------------------------------------------------------------------------------
</TABLE>
* Redemption price per share is equal to Net Asset Value less any applicable
contingent deferred sales charge.
26
<PAGE>
Because the Agreement provides that the High Quality Bond Fund will be the
surviving Fund following the reorganization and because the High Quality Bond
Fund's investment objective and policies will remain unchanged, the pro forma
financial statements reflect the transfer of the assets and liabilities of the
Global Government Fund to the High Quality Bond Fund as contemplated by the
Agreement.
- -------------------------------------------------------------------------------
INFORMATION ABOUT THE ACQUIRED AND ACQUIRING FUNDS
Other information regarding the Global Government Fund and the High Quality
Bond Fund, including information with respect to the investment objectives,
policies and restrictions and financial history may be found in the Merger
SAI, the accompanying Prospectus, the SAI and the Annual Report, which are
available upon request by calling 1-800-222-5852. To the extent that any in-
formation in respect of the Global Government Fund or the High Quality Bond
Fund found in any such document is inconsistent with the information contained
in this Prospectus/Proxy Statement, this Prospectus/Proxy Statement should be
deemed to supersede such other document. Certain information and commentary
from the Sierra Annual Report relating to the Funds' recent investment perfor-
mance is set forth in Appendix B to this Prospectus/Proxy Statement.
Proxy materials, reports, proxy and information statements and other informa-
tion filed by the Trust with respect to the 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, Chicago, Illinois 60661. Copies of such material can also be ob-
tained from the Public Reference Branch, Office of Consumer Affairs and Infor-
mation 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 the
Global Government Fund at the close of business on October , 1997 (the "Rec-
ord Date") will be entitled to notice of and to vote at the Meeting or any ad-
journment thereof. The holders of a majority of the Class A, Class B, Class I
and Class S shares of the Global Government 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 the
Global Government Fund vote together as a single class in connection with the
approval or disapproval of the Merger. Only shareholders of the Global Govern-
ment Fund will vote on the approval or disapproval of the Merger. Shareholders
of all of the Funds within the Trust will vote together as a single class on
the election of the Trust's Board of Trustees.
27
<PAGE>
Votes cast by proxy or in person at the Meeting will be counted by persons
appointed by the Trust as tellers for the Meeting. The tellers will count the
total number of votes cast "for" approval of the proposal for purposes of de-
termining 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) instruc-
tions have not been received from the beneficial owners or the persons enti-
tled to vote and (ii) the broker or nominee does not have the discretionary
voting power on a particular matter) as shares that are present and entitled
to vote on the matter for purposes of determining the presence of a quorum. 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 effect on
the election of Trustees. Class I shares of the Global Government Fund which
are held by 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 Global Government Fund.
SHARES OUTSTANDING AND BENEFICIAL OWNERSHIP. As of the Record Date, as shown
on the books of the Trust, there were issued and outstanding the following
number of shares of beneficial interest of each class of the Global Government
Fund:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS I CLASS S
------- ------- ------- -------
<S> <C> <C> <C> <C>
Global Government Fund.........................
</TABLE>
As of the Record Date, the officers and Trustees of the Trust as a group ben-
eficially owned [less than 1%] of the outstanding shares of each class of the
Global Government Fund. As of the Record Date, to the best of the knowledge of
the Trust, the following persons owned of record or beneficially 5% or more of
the outstanding shares of the indicated classes of the Global Government Fund
and the High Quality Bond Fund:
[insert list of 5% shareholders and pro forma ownership of the 5% sharehold-
ers following Merger]
SOLICITATION OF PROXIES. Solicitation of proxies by personal interview, mail,
and telephone, may be made by officers and Trustees of the Trust and employees
of Sierra and CRM and their affiliates. In addition, the firm of has been
retained to assist in the solicitation of proxies. The costs for solicitation
of proxies, like the other costs associated with the overall restructuring of
the Composite/Sierra Mutual Funds, will be [borne by CRM and/or Sierra] [only
partially borne by the Funds]. See "Information About the Merger."
REVOCATION OF PROXIES. Any shareholder giving a proxy has the power to revoke
it by mail (addressed to the Trust's Secretary at the principal office of the
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 revo-
cation to the Secretary of the Trust. All properly executed 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 Trust's
Board of Trustees (set forth in Proposal 1 of the Notice of Meeting) and FOR
the proposal (set forth in Proposals 2, of the Notice of Meeting) to implement
the Merger with respect to the Global Government Fund.
SHAREHOLDER PROPOSALS AT FUTURE MEETINGS OF SHAREHOLDERS. The Sierra Declara-
tion of Trust does not provide for annual meetings of shareholders and the
Trust does not currently intend to hold such a meeting for shareholders in
1997 or 1998. Shareholder proposals for inclusion in a proxy statement for any
subsequent meeting of the Global Government Fund's shareholders must be re-
ceived by the Trust a reasonable period of time prior to any such meeting. If
the Merger is consummated, the Global Government Fund's existence will termi-
nate in December 1997 or shortly thereafter, after which there would be no
meetings
28
<PAGE>
of the shareholders of the Global Government Fund.
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. [The Global Government Fund/CRM or its affiliates] will pay the
costs of any additional solicitation and of any adjourned session.
November 1997
29
<PAGE>
APPENDIX A
FORM OF AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement") is made as of Oc-
tober , 1997 in , , by and between the Sierra Trust Funds, a Massachu-
setts business trust (the "Sierra Trust") on behalf of its Short Term Global
Government Fund series (the "Acquired Fund"), and the Sierra Trust, on behalf
of its Short Term High Quality Bond Fund series (the "Acquiring Fund").
PLAN OF REORGANIZATION
(a) 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 prop-
erties 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 Acquired Fund assumed by the Acquiring Fund on that
date, (ii) a number of full and fractional Class B shares of beneficial inter-
est 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 attrib-
utable 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 at-
tributable to Class B shares of the Acquired 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 Acquired Fund assumed by the Ac-
quiring 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 liabili-
ties 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").
(b) Upon consummation of the transactions described in paragraph (a) 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
A-1
<PAGE>
not be issued. All issued and outstanding shares of the Acquired Fund will si-
multaneously be canceled on the books of the Acquired Fund.
(c) 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 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 its obligations under this Agreement. The Sierra
Trust is qualified as a foreign association in every jurisdiction where re-
quired, except to the extent that failure to so qualify would not have a ma-
terial adverse effect on the Sierra Trust. Each of the Sierra Trust and the
Acquiring Fund has all necessary federal, state and local authorizations to
carry on its business as now being conducted and to carry out this Agreement.
b. The Sierra 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 Acquiring Fund as of and for the year ended June
30, 1997 have been furnished to the Acquired Fund. Such statement of assets
and liabilities and schedule fairly present the financial position of the Ac-
quiring Fund as of the 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 period covered thereby in conformity with gen-
erally 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 previously been furnished to the Acquired Fund, did not as
of such date and does not contain as of the date hereof, with respect to the
Sierra Trust and the Acquiring 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 Sierra Trust or the Acquiring Fund, threatened
against the Sierra Trust or the Acquiring Fund, which assert liability on the
part of the Sierra 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 af-
fects its business or its ability to consummate the transactions herein con-
templated.
f. The Acquiring Fund has no known liabilities of a material nature, contin-
gent or otherwise, other than those shown belonging to it on its statement of
assets and liabilities as of
A-2
<PAGE>
June 30, 1997, those incurred in the ordinary course of its business as an
investment company since June 30, 1997 and those to be assumed pursuant to
this Agreement. Prior to the Exchange Date, the Acquiring Fund will endeavor
to quantify and to reflect on its balance sheet all of its material known li-
abilities and will advise the Acquired 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.
g. As of the Exchange Date, the Acquiring Fund will have filed all federal
and other tax returns and reports which, to the knowledge of the Sierra
Trust's officers, are required to be filed by 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 Acquiring Fund. All tax liabilities of
the Acquiring Fund have been adequately provided for on its books, and no tax
deficiency or liability of the Acquiring Fund has been asserted, and no ques-
tion with respect 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 Sierra 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 relating 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 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 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 Sierra Trust, and the Acquired Fund Proxy 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 mislead-
ing; provided, however, that none of the representations and warranties in
this subsection shall apply to statements in or omissions from the Registra-
tion 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 Sierra Trust specifically for use in the Registra-
tion Statement or the Acquired Fund Proxy Statement.
j. There are no material contracts outstanding to which the Acquiring Fund
is a party, other than as are or will be disclosed in the Sierra Prospectus,
the Registration Statement or the Acquired 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 Acquiring Fund have been offered
A-3
<PAGE>
for sale and sold in conformity with all applicable federal and state securi-
ties laws (including any applicable exemptions therefrom), or the Acquiring
Fund has taken any action necessary to remedy any prior failure to have of-
fered for sale and sold such shares in conformity with such laws.
l. The Acquiring 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.
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 Acquiring Fund are, and at the
Exchange Date all issued and outstanding shares of the Acquiring Fund will
be, duly authorized, validly issued, fully paid and non-assessable by the Ac-
quiring Fund. The Acquiring Fund does not have outstanding any options, war-
rants or other rights to subscribe for or purchase any Acquiring Fund shares,
nor is there outstanding any security convertible into any 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, statement of operations, statement
of changes in net assets and a schedule of investments (indicating their mar-
ket 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 lia-
bilities and schedule fairly present the financial position of the Acquired
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 period covered thereby, in conformity with generally accepted ac-
counting principles.
d. The Sierra Prospectus, which has been previously furnished to the Acquir-
ing 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 neces-
sary 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
A-4
<PAGE>
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 judgment of
any court or governmental body which materially and adversely affects its
business or its ability to consummate the transactions herein contemplated.
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
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
A-5
<PAGE>
(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 meet-
ing 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 representations and warranties 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 Acquiring Fund to the
Acquired Fund or the Sierra Trust specifically 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 Sierra 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.
3. Reorganization.
a. Subject to the requisite approval of the shareholders of the Acquired
Fund and to the other terms and conditions contained herein (including the
Acquired Fund's obligation to distribute to its shareholders all of its in-
vestment 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 Ac-
quired Fund, on the Exchange Date all of the Investments and all of the cash
and other properties and assets of the Acquired Fund, whether accrued or con-
tingent (including cash received by the Acquired Fund upon the liquidation by
the Acquired Fund of any investments purchased by the Acquired Fund after
June 30, 1997 and designated by the Acquiring Fund as being unsuitable for it
to acquire), in exchange for that number of shares of beneficial interest of
the Acquiring Fund provided for in Section 4 and the assumption by the Ac-
quiring Fund of all of the liabilities of the Acquired Fund, whether accrued
or contingent, existing at the Valuation Time except 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
A-6
<PAGE>
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 ag-
gregate 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 Acquir-
ing 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, 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 Sierra 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 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 Acquir-
ing 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.
A-7
<PAGE>
d. The Acquiring Fund shall issue the Merger Shares to the Acquired Fund in
four certificates registered in the name of the Acquired Fund, one represent-
ing Class A Merger Shares, one representing Class B Merger Shares, one repre-
senting Class I Merger Shares and one representing Class S Merger Shares. The
Acquired Fund shall distribute the Class A Merger Shares to the Class A
shareholders of the Acquired Fund by redelivering such certificate to the Ac-
quiring Fund's transfer agent, which will as soon as practicable set up open
accounts for each Class A Acquired Fund shareholder in accordance with writ-
ten instructions furnished by the Acquired Fund. The Acquired Fund shall dis-
tribute the Class B Merger Shares to the Class B shareholders of the Acquired
Fund by redelivering such certificate to the Acquiring Fund's transfer agent,
which will as soon as practicable set up open accounts for each Class B Ac-
quired Fund shareholder in accordance with written instructions furnished by
the Acquired Fund. The Acquired Fund shall distribute the Class I Merger
Shares to the Class I shareholders of the Acquired Fund by redelivering such
certificate 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 written instructions furnished by the Acquired Fund. The
Acquired Fund shall distribute the Class S Merger Shares to the Class S
shareholders of the Acquired Fund by redelivering such certificate to the Ac-
quiring Fund's transfer agent, which will as soon as practicable set up open
accounts for each Class S Acquired Fund shareholder in accordance with writ-
ten instructions furnished by the Acquired Fund. [With respect to any Ac-
quired Fund shareholder holding share certificates as of the Exchange Date,
such certificates will from and after the Exchange Date be deemed to be cer-
tificates for the Merger Shares issued to each shareholder in respect of the
Acquired Fund shares represented by such certificates; certificates repre-
senting the Merger Shares will not be issued to Acquired Fund shareholders.]
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 Company and Sierra In-
vestment Advisors Corporation and their affiliates; and that in connection
therewith the costs of all such transactions are being [borne by Sierra In-
vestment Advisors Corporation] [preliminarily allocated on a basis approved,
inter alia, by the Trustees of the Trust. Each of the Acquired Fund and the
Acquiring Fund agrees to pay the expenses preliminarily allocated to it but
not, however, in an amount exceeding $ and $ , respectively (the "Rele-
vant Expense Cap"). Sierra Investment Advisors Corporation will bear any and
all expenses (1) preliminarily allocated to Acquiring Fund and (2) prelimina-
rily allocated to the Acquired Fund, in each case to the extent that they
would otherwise exceed the Relevant Expense Cap.] Notwithstanding 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 "regu-
lated 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
A-8
<PAGE>
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 expenses 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.
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 [place] at
[time] as of December [31], 1997, or at such other time and date agreed to by
the Acquiring 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. The Acquired Fund and the Acquiring Fund will
cooperate with each other and will furnish to each other the information re-
lating 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 Registration
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-9
<PAGE>
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 stating that such
firm has employed certain procedures whereby it has obtained 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) and
that, in the course of such procedures, nothing came to their attention which
caused them to believe that the Acquired Fund (i) would not qualify as a reg-
ulated investment company for federal, state or local income tax purposes or
(ii) would owe any federal, state or local income tax or excise tax, for the
tax year ended June 30, 1997, and for the period from July 1, 1997 to the Ex-
change Date.]
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 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 Massa-
chusetts business trust duly formed and is validly existing 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 conducted; (ii) this Agreement has
been duly authorized, executed and delivered by the Sierra Trust on behalf of
the Acquired Fund and, assuming that the Registration Statement, the Sierra
Prospectus and the Acquired 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 Acquiring
Fund, is a valid and binding obligation 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 transactions contemplated hereby in accordance
with the terms of this Agreement, the Acquired Fund will have
A-10
<PAGE>
duly sold, assigned, conveyed, transferred and delivered 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, vio-
late 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, autho-
rization or order of any court or governmental authority is required for the
consummation by the Sierra Trust on behalf of the Acquired Fund of the trans-
actions 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. [Reserved]
h. [Reserved]
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 Sierra Trust or the Acquiring Fund,
threatened by the Commission.
k. That the Sierra 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.
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) for its taxable years ending on or after June 30,
1997 and on or prior to the Exchange Date (computed in each case without re-
gard to any deduction for dividends paid) and (iii) all of the Acquired
Fund's net capital gain realized (after reduction for any capital loss carry-
over), 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.
A-11
<PAGE>
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 to the effect that, on
the basis of 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), as of the Valuation Time the value of the as-
sets and liabilities of the Acquired Fund to be exchanged for the Merger
Shares has been determined in accordance with the provisions of the Sierra
Trust's Declaration of Trust, pursuant to the procedures customarily utilized
by the Acquiring Fund in valuing its assets and issuing its shares.]
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
A-12
<PAGE>
hereby shall have been approved by the requisite votes of the holders of the
outstanding shares of beneficial interest of the Acquired Fund entitled to
vote.
b. That the Sierra Trust, on behalf of the Acquiring Fund, shall have exe-
cuted 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 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 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.
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 counsel to the
Acquiring Fund, in form satisfactory to counsel to the Acquired Fund, and
dated the Exchange Date, to the effect that (i) the Sierra Trust is a Massa-
chusetts business trust duly formed and is validly existing 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 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-assessable by the Sierra 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 autho-
rized, executed and delivered by the Sierra Trust on behalf of the Acquiring
Fund and, assuming that the Sierra Prospectus, the Registration Statement and
the Acquired 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 Sierra Trust and the Acquiring Fund; (iv)the execu-
tion and delivery of this Agreement did not, and the consummation of the
transactions contemplated hereby will not, violate the Sierra Trust's Decla-
ration of Trust or By-Laws, or any provision of any agreement known to such
counsel to which the Sierra 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 Si-
erra 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.
f. [Reserved]
g. That all actions taken by the Sierra Trust on behalf of the Acquiring
Fund in connection with the transactions contemplated by this
A-13
<PAGE>
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 Sierra Trust or the Acquiring Fund,
threatened by the Commission.
i. That the Sierra 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.
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 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 reasona-
bly incurred by any one or more of the Indemnified 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 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 relat-
ing to the Sierra Trust or the Acquired Fund contained in the Registration
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 ma-
terial 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
A-14
<PAGE>
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 Indemnified 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 partici-
pate 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, loss-
es, claims, damages and liabilities required to be paid by it under this Sec-
tion 10(a) without the necessity of the Indemnified 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 Si-
erra 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 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 Acquiring Fund required
to be stated therein or necessary to make the statements relating to the Si-
erra Trust or the Acquiring Fund therein not misleading, including, without
limitation, 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 Acquiring Fund. The Indemnified Parties will
notify the Sierra Trust and the Acquiring 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(b). The Acquir-
ing 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(b), or,
if it so elects, to assume at its expense by counsel satisfactory to the In-
demnified Parties the defense of any such clam, action, suit or proceeding,
and, if the Acquiring 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 own expense. The Acquiring Fund's obliga-
tion under this Section 10(b) to indemnify and hold harmless the Indemnified
Parties shall constitute a guarantee of payment so that the Acquiring Fund
will pay in the first instance any expenses, losses, claims, damages and lia-
bilities required to be paid by it under this Section 10(b) without the ne-
cessity 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 or the Sierra Trust who by
reason of such dealings is entitled to any broker's or finder's or other simi-
lar 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 on behalf of each Fund, terminate
this Agreement, and the Acquired Fund
A-15
<PAGE>
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 con-
templated by this Agreement have not been substantially completed by [ ,
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 of any Merger Shares to any per-
son who at the time of the transaction contemplated hereby is deemed to be an
affiliate 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 fol-
lows:
"THESE SHARES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT TO THE SHORT
TERM HIGH QUALITY BOND FUND OR ITS PRINCIPAL UNDERWRITER UNLESS (I) A REGIS-
TRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR (II) IN THE OPINION OF COUNSEL REASONABLY SATISFAC-
TORY TO THE FUND SUCH REGISTRATION 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
Acquired Fund shareholder who is to the knowledge of the Acquired Fund an
affiliate 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 material and relied
upon by each of the parties, notwithstanding an investigation 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 copy of the Declaration of Trust of the Sierra
Trust is on file with the Secretary of State of The Commonwealth of Massachu-
setts, 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 and the on
behalf Acquiring Fund, as trustees and not individually and that the obliga-
tions 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 and the Acquiring Fund.
SIERRA TRUST FUNDS,
on behalf of its Short Term Global Government Fund series
By: ________________________________________________________________
Name:
Title:
SIERRA TRUST FUNDS,
on behalf of its Short Term High Quality Bond Fund series
By: ________________________________________________________________
Name:
Title:
A-16
<PAGE>
APPENDIX B
INFORMATION FROM SIERRA TRUST
FUNDS ANNUAL REPORTS
REGARDING SHORT-TERM HIGH QUALITY BOND FUND
<PAGE>
- --------------------------------------------------------------------------------
SHORT TERM HIGH QUALITY BOND FUND
- --------------------------------------------------------------------------------
PERFORMANCE REVIEW:
From the Fund's inception (November 1, 1993) through June 30, 1997, the Sierra
Short Term High Quality Bond Fund (Class A Shares) advanced 4.04% on an average
annual total return basis, or 3.03% adjusted for the maximum sales charge. For
the 12-month period ended June 30, 1997, the Fund's total return was 6.15%, or
2.44% adjusted for the maximum sales charge. The Fund's 30-day SEC yield as of
June 30, 1997, was 5.86%. For additional information, including Class B and
Class S Share performance, see the accompanying chart.
WHAT WERE THE MOST SIGNIFICANT FACTORS CONTRIBUTING TO THE FUND'S PERFORMANCE
OVER THE 12-MONTH PERIOD ENDED JUNE 30, 1997?
The most significant factors contributing to the Fund's performance over the
past 12 months were the generation of income combined with the strong
performance of the Fund's corporate and mortgage-backed holdings. Although rates
over the last six months rose slightly, interest rates over the entire 12-month
period fell. Our focus on producing consistent income for the Fund played an
important role in generating positive total returns over the 12-month period.
[LINE GRAPH]
GROWTH OF A $10,000 INVESTMENT (CLASS A SHARES)
Short Term High Quality Bond Fund
--------------------------------- Lehman Brothers Mutual
(adjusted Fund Short (1-5)
(not adjusted for the maximum Investment Grade
for sales charge) 3.5% sales charge) Debt Index*
------------------ ------------------ ------------------
Inception*
11/1/93 10005 9655 10000
10052 9700 9904
10098 9745 10046
10063 9711 9944
Mar 9946 9599 9831
9907 9561 9772
9915 9568 9788
Jun 9927 9580 9816
9981 9632 9944
9989 9539 9988
Sep 9993 9644 9933
9997 9647 9945
10002 9652 9888
Dec 94 9842 9497 9910
9851 9507 10074
9942 9594 10274
Mar 10036 9685 10339
10130 9776 10461
10357 9995 10730
Jun 10366 10003 10800
10375 10012 10828
10472 10105 10922
Sep 10524 10156 10993
10625 10253 11100
10726 10351 11233
Dec 95 10829 10450 11340
<PAGE>
10933 10550 11458
10852 10472 11378
Mar 10815 10437 11331
10776 10399 11321
10786 10408 11330
Jun 10891 10509 11437
10951 10587 11480
10963 10579 11504
Sep 11069 10682 11650
11171 10780 11831
11268 10874 11962
Dec 96 11274 10879 11920
11278 10884 11979
11337 10940 12010
Mar 11349 10952 11956
11404 11005 12080
11507 11104 12177
Jun 97 11561 11156 12284
THE PERFORMANCE OF THE CLASS B SHARES AND CLASS S SHARES WILL BE LESS THAN
INDICATED BY THE LINES SHOWN ABOVE FOR THE CLASS A SHARES, BASED ON THE
DIFFERENCES IN SALES LOADS AND FEES PAID BY CLASS B AND CLASS S SHAREHOLDERS.
* Index total returns were calculated from 10/31/93 to 6/30/97. The Lehman
Brothers Mutual Fund Short (1-5) Investment Grade Debt Index includes all
investment-grade, corporate debt securities with maturities of one to five
years, assumes reinvestment of all dividends/distributions, and does not reflect
any asset-based charges for investment management or other expenses. Past
performance does not guarantee future performance. The returns shown for the
Fund assume reinvestment of all dividends/distributions by the shareholder.
During the period noted, the Advisor (SIERRA Investment Advisors Corporation)
and Administrator (SIERRA Fund Administration Corporation) waived a portion of
their management fees, the Advisor absorbed other expenses, and credits were
allowed by the Custodian. In the absence of the waivers and absorption of other
expenses or Custodian credits, yield and total return would have been lower.
<TABLE>
<CAPTION>
Average Annual Total Returns as of 6/30/97 6 Month 1 Year Since Inception
-----------------------------------------------
(November 1, 1993)
<S> <C> <C> <C>
CLASS A SHARES
Fund (not adjusted for sales charge) 2.54% 6.15% 4.04%
Fund (adjusted for the maximum 3.5% sales charge) -1.05% 2.44% 3.03%
Lehman Brothers Mutual Fund Short (1-5) Investment Grade Debt Index* 3.07% 7.41% 5.77%
- -----------------------------------------------------------------------------------------------------------------------------------
Average Annual Total Returns as of 6/30/97 6 Month 1 Year Since Inception
-----------------------------------------------
(June 30, 1994)
CLASS B SHARES
Fund (not adjusted for contingent deferred sales charge) 2.16% 5.37% 4.42%
Fund (adjusted for the maximum 4% contingent deferred sales charge) -1.82% 1.37% 3.83%++
Lehman Brothers Mutual Fund Short (1-5) Investment Grade Debt Index* 3.07% 7.41% 7.76%
CLASS S SHARES
Fund (not adjusted for contingent deferred sales charge) 2.16% 5.37% 4.42%
Fund (adjusted for the maximum 5% contingent deferred sales charge) -2.81% 0.37% 3.52%++++
Lehman Brothers Mutual Fund Short (1-5) Investment Grade Debt Index* 3.07% 7.41% 7.76%
++ Adjusted for the maximum 2% CDSC for shares held since inception. ++++Adjusted for the maximum 3% CDSC for shares held
since inception.
</TABLE>
WHAT MARKET CONDITIONS AFFECTED THE FUND'S PERFORMANCE DURING THE PERIOD, AND
WHAT INVESTMENT TECHNIQUES WERE USED TO ADDRESS THOSE CONDITIONS?
Over the last 12 months, the U.S. bond market exhibited moderate volatility. On
June 30, 1997, the yield on the 30-year Treasury Bond was 6.78%, compared to a
yield of 6.89% for the previous year. The 0.11% decrease in rates masked the
price movement during the 12-month period, as rates actually experienced an
<PAGE>
increase in the first two quarters of 1997. With the uncertainty reflecting the
direction of interest rates, we held the duration of the Fund within a
relatively tight range. The Fund's focus on duration, along with its sizable
positions in high-income producing corporate bonds, asset-backed securities, and
mortgages, all had a positive impact on performance.
WERE THERE ANY SHIFTS IN THE FUND'S PORTFOLIO HOLDINGS/SECTORS THAT HAD A
SIGNIFICANT IMPACT ON FUND PERFORMANCE?
There were no major shifts in portfolio holdings that significantly impacted
performance. However, we should note the performance of various sectors.
Corporates, mortgages, and asset-backed securities were important components of
the Fund's portfolio construction. Over the past 12 months, these sectors
performed very well relative to Treasuries. The best performing sector was
mortgages, largely due to strong price performance and high yields. The Fund's
holdings in this sector increased in both value and overall portfolio weighting.
WHAT IS OUR INTERMEDIATE- AND LONG-TERM OUTLOOK FOR THE FUND?
With slow economic growth and low inflation, we expect strength in the
bond market to continue over the intermediate term. Should economic growth be
stronger than expected, inflation concerns may reappear, causing higher interest
rates and lower bond prices. To help protect the Fund against potential price
volatility, we expect to maintain the Fund's duration at slightly below two
years.
Over the longer term, we anticipate continued growth in the economy but have
concerns regarding how long this expansion can last, especially with little to
no inflation. Credit excesses, profit disappointments, and the unpredictability
of foreign capital flows may cause short-term volatility in the bond market, but
over the long run, we continue to believe that fixed income investors will be
rewarded in terms of both total returns and income.
- --------------------------------------------------------------------------------
HIGH-QUALITY PORTFOLIO FOR ADDED PRINCIPAL STABILITY [PIE CHART]
- --------------------------------------------------------------------------------
BBB 23.26%
AAA 69.00%
A 7.74%
Allocation percentages are based on total investment value of the portfolio as
of 6/30/97.
<PAGE>
[Draft of 10/01/97]
SIERRA TRUST FUNDS
FORM N-14
PART B
STATEMENT OF ADDITIONAL INFORMATION
November __, 1997
This Statement of Additional Information (the "SAI") relates to the
proposed merger (the "Merger") of the Short Term Global Government Fund (the
"Acquired Fund"), a series of the Sierra Trust Funds, a Massachusetts business
trust (the "Trust"), into the Short Term High Quality Bond Fund (the "Acquiring
Fund"), a series of The Trust.
This SAI contains information which may be of interest to shareholders but
which is not included in the Prospectus/Proxy Statement dated November __, 1997
(the "Prospectus/Proxy Statement") of the Trust which relates to the Merger. As
described in the Prospectus/Proxy Statement, the Merger would involve the
transfer of all the assets of the Acquired Fund in exchange for shares of the
Acquiring Fund and the assumption of all the liabilities of the Acquired Fund.
The Acquired Fund would distribute the Acquiring Fund shares it receives to its
shareholders in complete liquidation of the Acquired Fund.
This SAI 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 to the Trust at P.O. Box 5118, Westboro, Massachusetts 01581
or by calling 1-800-222-5852.
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Item Page
- ---- ----
<S> <C>
I. Additional Information about Acquiring and Acquired Funds.........
II. Financial Statements..............................................
</TABLE>
<PAGE>
I. Additional Information about Acquiring and Acquired Funds.
This SAI is accompanied by the current Statement of Additional Information
of the Trust, dated October 31, 1997, which provides further information
relating to the Acquired and Acquiring Funds, including information in respect
of their investment objectives, policies and financial history.
The following documents, which have previously been filed with the
Securities and Exchange Commission, have been incorporated by reference into
Part A of this Registration Statement:
(1) Prospectus of the Trust dated October 31, 1996 (filed on October 30, 1996
pursuant to Rule 497 under the Securities Act of 1933) (Registration Nos.
33-27489 and 811-5775)
(2) Supplement dated September 1, 1997 to Prospectus of the Trust (filed on
September 15, 1997 pursuant to Rule 497 under the Securities Act of 1933)
(Registration Nos. 33-27489 and 811-5775)
(3) Statement of Additional Information of the Trust dated October 31, 1996
(filed on October 30, 1996 pursuant to Rule 497 under the Securities Act of
1933) (Registration Nos. 33-27489 and 811-5775)
(4) Annual Report of the Trust dated June 30, 1997 (filed on September 5, 1997)
(Registration Nos. 33-27489 and 811-5775)
II. Financial Statements.
This SAI is accompanied by the Annual Report of the Trust for the year
ended June 30, 1997, which contains historical financial information regarding
such Funds. Such report has been filed with the Securities and Exchange
Commission and is incorporated herein by reference.
Pro forma financial statements for the Acquiring Fund are provided on the
following pages.
<PAGE>
SIERRA TRUST FUNDS
- ------------------
Short Term High Quality Bond Fund
Short Term Global Government Fund
Combined Portfolio of Investments
June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
Short Term Short Term SECURITY Short Term Short Term
High Quality Global DESCRIPTIONS High Quality Global
Bond Government Bond Government
Fund Fund Combined Fund Fund
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOREIGN BONDS AND NOTES - 49.1%#
Italian Lira Bonds - 9.3%
Italian Treasury Bonds:
ITL 0 4,680,000,000 4,680,000,000 8.500% due 08/01/1997 $0 $2,742,366
0 6,115,000,000 6,115,000,000 8.500% due 01/01/1999 0 3,709,865
------------------------------
Total Italian Lira Bonds 0 6,452,231
------------------------------
German Deutsche Mark Bonds - 8.6%
Federal Republic of Germany:
DEM 0 4,830,000 4,830,000 6.000% due 02/20/1998 0 2,818,042
0 5,380,000 5,380,000 5.250% due 10/20/1998 0 3,158,065
------------------------------
Total German Deutsche Mark Bonds 0 5,976,107
------------------------------
New Zealand Dollar Bonds - 6.8%
NZD 0 3,200,000 3,200,000 Government of New Zealand,
10.000% due 03/15/2002 0 2,448,547
0 3,310,000 3,310,000 Federal National Mortgage Association
(FNMA), Global Note,
7.250% due 06/20/2002 0 2,273,049
------------------------------
Total New Zealand Dollar Bonds 0 4,721,596
------------------------------
Danish Kroner Bond - 4.6%
DKK 0 20,000,000 20,000,000 Kingdom of Denmark,
9.000% due 11/15/1998 0 3,214,807
------------------------------
Great Britain Pound Sterling Note - 4.1%
GBP 0 1,710,000 1,710,000 United Kingdom Treasury Note,
7.000% due 06/07/2002 0 2,836,986
------------------------------
Canadian Dollar Bonds - 3.7%
Government of Canada:
CAD 0 1,170,000 1,170,000 6.500% due 09/01/1998 0 867,661
0 2,285,000 2,285,000 6.500% due 08/01/1999 0 1,706,118
------------------------------
Total Canadian Dollar Bonds 0 2,573,779
------------------------------
Australian Dollar Bond - 2.9%
AUD 0 2,560,000 2,560,000 International Finance Corporation,
7.750% due 06/24/1999 0 1,998,391
------------------------------
Irish Pound Bond - 2.9%
IEP 0 1,310,000 1,310,000 Republic of Ireland,
6.250% due 04/01/1999 0 1,991,868
------------------------------
Spanish Peseta Bond - 2.6%
ESP 0 255,000,000 255,000,000 Government of Spain,
11.450% due 08/30/1998 0 1,850,156
------------------------------
Swedish Krona Bond - 2.3%
SEK 0 11,600,000 11,600,000 Kingdom of Sweden,
11.000% due 01/21/1999 0 1,639,619
------------------------------
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------
Short Term Short Term SECURITY
High Quality Global DESCRIPTIONS
Bond Government
Fund Fund Combined Combined
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOREIGN BONDS AND NOTES - 49.1%#
Italian Lira Bonds - 9.3%
Italian Treasury Bonds:
ITL 0 4,680,000,000 4,680,000,000 8.500% due 08/01/1997 $2,742,366
0 6,115,000,000 6,115,000,000 8.500% due 01/01/1999 3,709,865
------------
Total Italian Lira Bonds 6,452,231
------------
German Deutsche Mark Bonds - 8.6%
Federal Republic of Germany:
DEM 0 4,830,000 4,830,000 6.000% due 02/20/1998 2,818,042
0 5,380,000 5,380,000 5.250% due 10/20/1998 3,158,065
------------
Total German Deutsche Mark Bonds 5,976,107
------------
New Zealand Dollar Bonds - 6.8%
NZD 0 3,200,000 3,200,000 Government of New Zealand,
10.000% due 03/15/2002 2,448,547
0 3,310,000 3,310,000 Federal National Mortgage Association
(FNMA), Global Note,
7.250% due 06/20/2002 2,273,049
------------
Total New Zealand Dollar Bonds 4,721,596
------------
Danish Kroner Bond - 4.6%
DKK 0 20,000,000 20,000,000 Kingdom of Denmark,
9.000% due 11/15/1998 3,214,807
------------
Great Britain Pound Sterling Note - 4.1%
GBP 0 1,710,000 1,710,000 United Kingdom Treasury Note,
7.000% due 06/07/2002 2,836,986
------------
Canadian Dollar Bonds - 3.7%
Government of Canada:
CAD 0 1,170,000 1,170,000 6.500% due 09/01/1998 867,661
0 2,285,000 2,285,000 6.500% due 08/01/1999 1,706,118
------------
Total Canadian Dollar Bonds 2,573,779
------------
Australian Dollar Bond - 2.9%
AUD 0 2,560,000 2,560,000 International Finance Corporation,
7.750% due 06/24/1999 1,998,391
------------
Irish Pound Bond - 2.9%
IEP 0 1,310,000 1,310,000 Republic of Ireland,
6.250% due 04/01/1999 1,991,868
------------
Spanish Peseta Bond - 2.6%
ESP 0 255,000,000 255,000,000 Government of Spain,
11.450% due 08/30/1998 1,850,156
------------
Swedish Krona Bond - 2.3%
SEK 0 11,600,000 11,600,000 Kingdom of Sweden,
11.000% due 01/21/1999 1,639,619
------------
</TABLE>
<PAGE>
SIERRA TRUST FUNDS
- ------------------
Short Term High Quality Bond Fund
Short Term Global Government Fund
Combined Portfolio of Investments (Continued)
June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
Short Term Short Term SECURITY Short Term Short Term
High Quality Global DESCRIPTIONS High Quality Global
Bond Government Bond Government
Fund Fund Combined Fund Fund Combined
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOREIGN BONDS AND NOTES # - (Continued)
Mexican Peso Bond - 1.0%
MXN 0 6,532,000 6,532,000 Mexican Cetes,
Zero coupon due 06/04/1998 $0 $682,976 $682,976
-------------------------------------------
Argentinian Peso Bond - 0.3%
ARP 0 238,159 238,159 Republic of Argentina,
5.625% due 04/01/2000 + 0 217,052 217,052
-------------------------------------------
------------------------------------------------------------------------------
Total Foreign Bonds and Notes 0 34,155,568 34,155,568
------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES - 11.9%
Government National Mortgage Association (GNMA) - 6.6%
$ 237,660 0 237,660 #038720, Seasoned,
11.000% due 02/15/2010** 266,110 0 266,110
129,168 0 129,168 #130183, Seasoned,
11.000% due 05/15/2015 145,184 0 145,184
190,267 0 190,267 #131917, Seasoned,
11.000% due 10/15/2015** 214,197 0 214,197
22,725 0 22,725 #132833, Seasoned,
11.000% due 12/15/2015 25,583 0 25,583
81,669 0 81,669 #139704, Seasoned,
11.000% due 11/15/2015 91,795 0 91,795
194,202 0 194,202 #140835, Seasoned,
11.000% due 11/15/2015 217,889 0 217,889
0 174,661 174,661 #153965, Seasoned,
10.000% due 02/15/2019 0 192,164 192,164
117,398 0 117,398 #189482, Seasoned,
11.000% due 04/15/2020 132,349 0 132,349
0 955,752 955,752 #262996, Seasoned,
10.000% due 01/15/2019 0 1,050,496 1,050,496
1,049,990 0 1,049,990 #267824, Seasoned,
10.000% due 04/15/2018** 1,156,102 0 1,156,102
312,427 0 312,427 #291375, Seasoned,
11.000% due 08/15/2020** 353,374 0 353,374
106,489 0 106,489 #377550, Seasoned,
8.000% due 03/15/2012 109,915 0 109,915
629,383 0 629,383 #400224, Seasoned,
8.000% due 06/15/2009 650,423 0 650,423
-------------------------------------------
Total GNMAs 3,362,921 1,242,660 4,605,581
-------------------------------------------
Adjustable Rate Mortgage-Backed Securities (ARM) - 3.3%
545,048 0 545,048 Federal Home Loan Mortgage
Corporation (FHLMC), #845988,
7.807% due 11/01/2021+ 571,194 0 571,194
Federal National Mortgage
Association (FNMA):
474,155 0 474,155 #82247,
6.125% due 04/01/2019+ 468,674 0 468,674
256,606 0 256,606 #124571,
7.847% due 11/01/2022+ 268,915 0 268,915
294,356 0 294,356 #152205,
7.498% due 01/01/2019+ 305,255 0 305,255
701,514 0 701,514 #313257,
6.056% due 11/01/2035 693,405 0 693,405
-------------------------------------------
Total ARMs 2,307,443 0 2,307,443
-------------------------------------------
Federal National Mortgage Association (FNMA) - 2.0%
0 506,596 506,596 #141461,
7.784% due 11/01/2021 + 0 530,422 530,422
425,175 0 425,175 #250235, 7 Year Balloon,
8.500% due 02/01/2002 436,498 0 436,498
408,149 0 408,149 #313030, Seasoned,
10.000% due 05/01/2022** 444,658 0 444,658
-------------------------------------------
Total FNMAs 881,156 530,422 1,411,578
-------------------------------------------
------------------------------------------------------------------------------
Total U.S. Government Agency
Mortgage-Backed Securities 6,551,520 1,773,082 8,324,602
------------------------------------------------------------------------------
</TABLE>
<PAGE>
SIERRA TRUST FUNDS
- ------------------
Short Term High Quality Bond Fund
Short Term Global Government Fund
Combined Portfolio of Investments (Continued)
June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
Short Term Short Term SECURITY Short Term Short Term
High Quality Global DESCRIPTIONS High Quality Global
Bond Government Bond Government
Fund Fund Combined Fund Fund
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <S> <C> <C>
ASSET-BACKED SECURITIES - 11.0%
$ 300,000 0 300,000 Conti-Mortgage Home Equity Loan Trust,
1996-4-A6,
6.710% due 06/15/2014 $296,154 $0
19,611 0 19,611 EquiCredit, 1993-4-B1,
5.650% due 12/15/2008 19,045 0
Green Tree Financial Corporation:
450,000 0 450,000 1993-2-B2,
8.000% due 07/15/2018 460,688 0
900,000 0 900,000 1995-1-B2,
9.200% due 06/15/2025 974,529 0
300,000 0 300,000 1995-6-B1,
7.700% due 09/15/2026 304,500 0
300,000 0 300,000 Green Tree Home Equity Loan Trust, 1997-B-A5,
7.150% due 05/15/2028 301,688 0
280,885 0 280,885 Green Tree NIM, 1994-B, Class A,
7.850% due 07/15/2004 282,374 0
257,915 2,456,338 2,714,253 Green Tree Security Mortgage Trust, 1994-A,
6.900% due 02/15/2004 257,432 2,451,732
0 83,629 83,629 Household Finance Corporation, 1992-2-A3,
5.250% due 10/20/2007 0 83,211
300,000 0 300,000 H & T Master Trust,
8.430% due 08/15/2002++ 300,420 0
Merrill Lynch Mortgage Investors, Inc.:
111,013 0 111,013 1991-B-A,
9.200% due 04/15/2011 112,469 0
200,037 0 200,037 1991-I-A,
7.650% due 01/15/2012 202,599 0
490,577 163,526 654,103 1992-B-A4,
7.850% due 04/15/2012 495,483 165,161
0 103,663 103,663 Old Stone Credit Corporation, 1992-A4,
6.550% due 11/25/2007 0 102,714
125,000 0 125,000 Standard Credit Card Trust, 90-3B,
9.850% due 07/10/1998 125,077 0
700,000 0 700,000 World Omni Automobile Lease Securitization, 1996-B,
6.850% due 11/15/2002++ 698,469 0
--------------------------------------------------------------------------------
Total Asset-Backed Securities 4,830,927 2,802,818
-----------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS -5.1%
75,000 0 75,000 Chemical Mortgage Securities Inc., 1993-1-A4,
7.450% due 02/25/2023 75,445 0
106,187 0 106,187 Countrywide Funding Corporation, 1994-1-A3,
6.250% due 03/25/2024 101,441 0
Countrywide Mortgage-Backed Securities, Inc.:
75,000 0 75,000 1994-A-A3,
6.750% due 03/25/2024 74,015 0
170,000 0 170,000 1994-C-A5,
6.375% due 03/25/2024 165,058 0
617,448 0 617,448 Federal Home Loan Mortgage Corporation (FHLMC), P/O,
REMIC, #1719-C,
Zero coupon due 04/15/1999 572,876 0
222,600 0 222,600 Fund America Investors Corporation, 1991-1-H,
7.950% due 02/20/2020 224,826 0
451,309 0 451,309 General Electric Capital Mortgage Association,
1994-27-A1, 6.500% due 07/25/2024 449,467 0
653,989 0 653,989 Norwest Asset Securities Corporation, 1996-5-A13,
7.500% due 11/25/2026 659,814 0
<CAPTION>
PRINCIPAL
AMOUNT
- -----------------------------------------------------------------------------------------------------------------------
Short Term Short Term SECURITY
High Quality Global DESCRIPTIONS
Bond Government
Fund Fund Combined Combined
- -----------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
ASSET-BACKED SECURITIES - 11.0%
$ 300,000 0 300,000 Conti-Mortgage Home Equity Loan Trust,
1996-4-A6,
6.710% due 06/15/2014 $296,154
19,611 0 19,611 EquiCredit, 1993-4-B1,
5.650% due 12/15/2008 19,045
Green Tree Financial Corporation:
450,000 0 450,000 1993-2-B2,
8.000% due 07/15/2018 460,688
900,000 0 900,000 1995-1-B2,
9.200% due 06/15/2025 974,529
300,000 0 300,000 1995-6-B1,
7.700% due 09/15/2026 304,500
300,000 0 300,000 Green Tree Home Equity Loan Trust, 1997-B-A5,
7.150% due 05/15/2028 301,688
280,885 0 280,885 Green Tree NIM, 1994-B, Class A,
7.850% due 07/15/2004 282,374
257,915 2,456,338 2,714,253 Green Tree Security Mortgage Trust, 1994-A,
6.900% due 02/15/2004 2,709,164
0 83,629 83,629 Household Finance Corporation, 1992-2-A3,
5.250% due 10/20/2007 83,211
300,000 0 300,000 H & T Master Trust,
8.430% due 08/15/2002++ 300,420
Merrill Lynch Mortgage Investors, Inc.:
111,013 0 111,013 1991-B-A,
9.200% due 04/15/2011 112,469
200,037 0 200,037 1991-I-A,
7.650% due 01/15/2012 202,599
490,577 163,526 654,103 1992-B-A4,
7.850% due 04/15/2012 660,644
0 103,663 103,663 Old Stone Credit Corporation, 1992-A4,
6.550% due 11/25/2007 102,714
125,000 0 125,000 Standard Credit Card Trust, 90-3B,
9.850% due 07/10/1998 125,077
700,000 0 700,000 World Omni Automobile Lease Securitization, 1996-B,
6.850% due 11/15/2002++ 698,469
----------------------------------------------------------------------
Total Asset-Backed Securities 7,633,745
----------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS -5.1%
75,000 0 75,000 Chemical Mortgage Securities Inc., 1993-1-A4,
7.450% due 02/25/2023 75,445
106,187 0 106,187 Countrywide Funding Corporation, 1994-1-A3,
6.250% due 03/25/2024 101,441
Countrywide Mortgage-Backed Securities, Inc.:
75,000 0 75,000 1994-A-A3,
6.750% due 03/25/2024 74,015
170,000 0 170,000 1994-C-A5,
6.375% due 03/25/2024 165,058
617,448 0 617,448 Federal Home Loan Mortgage Corporation (FHLMC), P/O,
REMIC, #1719-C,
Zero coupon due 04/15/1999 572,876
222,600 0 222,600 Fund America Investors Corporation, 1991-1-H,
7.950% due 02/20/2020 224,826
451,309 0 451,309 General Electric Capital Mortgage Association,
1994-27-A1, 6.500% due 07/25/2024 449,467
653,989 0 653,989 Norwest Asset Securities Corporation, 1996-5-A13,
7.500% due 11/25/2026 659,814
</TABLE>
<PAGE>
SIERRA TRUST FUNDS
- ------------------
Short Term High Quality Bond Fund
Short Term Global Government Fund
Combined Portfolio of Investments (Continued)
June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
Short Term Short Term SECURITY Short Term Short Term
High Quality Global DESCRIPTIONS High Quality Global
Bond Government Bond Government
Fund Fund Combined Fund Fund Combined
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS - (Continued)
Prudential Home Mortgage Securities:
$ 193,624 0 193,624 1992-47,
7.500% due 01/25/2023 $193,200 $0 $193,200
787,316 0 787,316 1993-43-A1,
5.400% due 10/25/2023 777,474 0 777,474
149,945 0 149,945 Ryland Acceptance Corporation,
8.950% due 08/20/2019 152,428 0 152,428
100,000 0 100,000 Sears Mortgage Securities Corporation,
1993-11-T4, 7.125% due 11/25/2020 99,437 0 99,437
---------------------------------------
------------------------------------------------------------------------------------
Total Collateralized Mortgage Obligations 3,545,481 0 3,545,481
------------------------------------------------------------------------------------
CORPORATE NOTES - 5.6%
400,000 0 400,000 Colonial Realty, Sr. Note,
7.500% due 07/15/2001 403,500 0 403,500
400,000 0 400,000 ERP Operating LP,
8.500% due 05/15/1999++ 412,640 0 412,640
500,000 1,000,000 1,500,000 Sun Communities Inc., Sr. Note,
7.625% due 05/01/2003 510,790 1,021,580 1,532,370
Taubman Realty Corporation, MTN:
300,000 0 300,000 7.400% due 06/10/2002 304,995 0 304,995
500,000 0 500,000 7.500% due 06/15/2002 508,315 0 508,315
600,000 0 600,000 The Money Store, Inc.,
9.160% due 09/09/1997++ 602,400 0 602,400
100,000 0 100,000 Time Warner Inc.,
7.950% due 02/01/2000 102,809 0 102,809
---------------------------------------
------------------------------------------------------------------------------------
Total Corporate Notes 2,845,449 1,021,580 3,867,029
------------------------------------------------------------------------------------
U.S. TREASURY NOTES - 4.8%
0 1,300,000 1,300,000 5.125% due 03/31/1998 0 1,295,346 1,295,346
1,250,000 0 1,250,000 6.750% due 04/30/2000 1,266,400 0 1,266,400
0 750,000 750,000 6.875% due 07/31/1999 0 760,980 760,980
---------------------------------------
------------------------------------------------------------------------------------
Total U.S. Treasury Notes 1,266,400 2,056,326 3,322,726
------------------------------------------------------------------------------------
TIME DEPOSITS - 3.8%
GRD 0 285,583,384 285,583,384 Bankers Trust Corporation,
9.020% due 08/14/1997 0 1,039,468 1,039,468
EGP 0 900,000 900,000 Citibank,
9.000% due 07/07/1997 0 900,000 900,000
ZAR 0 3,247,688 3,247,688 J.P. Morgan & Company,
15.750% due 09/11/1997 0 715,823 715,823
---------------------------------------
------------------------------------------------------------------------------------
Total Time Deposits 0 2,655,291 2,655,291
------------------------------------------------------------------------------------
INDEXED NOTES - 3.2%
$ 0 650,000 650,000 Citibank,
(Value is directly linked to the
Morrocan Dirham), 8.000% due 12/01/1997 0 641,225 641,225
J.P. Morgan & Company:
0 908,249 908,249 (Value is directly linked to the
Indonesia Rupiah), 11.200% due 08/11/1997 0 906,631 906,631
0 660,000 660,000 (Value is directly linked to the
Philippine Peso), 10.450% due 07/29/1997 0 659,165 659,165
---------------------------------------
------------------------------------------------------------------------------------
Total Indexed Notes 0 2,207,021 2,207,021
------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SIERRA TRUST FUNDS
- ------------------
Short Term High Quality Bond Fund
Short Term Global Government Fund
Combined Portfolio of Investments (Continued)
June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
Short Term Short Term SECURITY Short Term Short Term
High Quality Global DESCRIPTIONS High Quality Global
Bond Government Bond Government
Fund Fund Combined Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATION - 0.6%
$ 425,000 0 425,000 Federal National Mortgage Association (FNMA),
(Inverse Floater),
9.781% due 12/29/1997 + $432,438 $0
------------------------------
COMMERCIAL PAPER - 4.6%
0 1,270,000 1,270,000 Ford Motor Credit Company,
6.000% due 07/01/1997 0 1,270,000
684,000 1,269,000 1,953,000 General Electric Capital Corporation,
6.100% due 07/01/1997 684,000 1,269,000
------------------------------
-----------------------------------------------------------------------------------
Total Commercial Paper 684,000 2,539,000
-----------------------------------------------------------------------------------
<CAPTION>
Expiration Strike
Date Price
------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PUT OPTIONS PURCHASED ON FOREIGN CURRENCY - 0.3%
AUD 0 2,750,000 2,750,000 Australian Dollar Put 07/16/1997 0.762 0 27,010
CAD 0 3,920,000 3,920,000 Canadian Dollar Put 08/01/1997 1.396 0 3,773
NZD 0 7,000,000 7,000,000 New Zealand Dollar Put 09/15/1997 0.686 0 79,800
DEM 0 6,000,000 6,000,000 German Deutsche Mark Put 11/26/1997 1.700 0 103,282
------------------------------
-----------------------------------------------------------------------------------
Total Put Options Purchased on Foreign Currency 0 213,865
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
TOTAL INVESTMENTS $20,156,215 $49,424,551
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
TOTAL COST $20,055,099 $50,819,677
-----------------------------------------------------------------------------------
CALL OPTIONS WRITTEN ON FOREIGN CURRENCY - (0.0)%
AUD 0 2,750,000 2,750,000 Australian Dollar Call 07/16/1997 0.777 $0 ($1,056)
CAD 0 3,920,000 3,920,000 Canadian Dollar Call 08/01/1997 1.366 0 (6,864)
GBP 0 1,715,000 1,715,000 Great Britain Pound Sterling
Call 08/07/1997 1.637 0 (55,490)
NZD 0 7,000,000 7,000,000 New Zealand Dollar Call 09/15/1997 0.692 0 (23,100)
------------------------------
-----------------------------------------------------------------------------------
Total Value of Call Options Written on Foreign Currency 0 (86,510)
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
Premium received on Call Options Written on Foreign Currency 0 126,371
-----------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
Short Term Short Term SECURITY
High Quality Global DESCRIPTIONS
Bond Government
Fund Fund Combined Combined
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATION - 0.6%
$ 425,000 0 425,000 Federal National Mortgage Association (FNMA),
(Inverse Floater),
9.781% due 12/29/1997 + $432,438
-------------
COMMERCIAL PAPER - 4.6%
0 1,270,000 1,270,000 Ford Motor Credit Company,
6.000% due 07/01/1997 1,270,000
684,000 1,269,000 1,953,000 General Electric Capital Corporation,
6.100% due 07/01/1997 1,953,000
-------------
--------------------------------------------------------------------------
Total Commercial Paper 3,223,000
--------------------------------------------------------------------------
<CAPTION>
Expiration Strike
Date Price
------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PUT OPTIONS PURCHASED ON FOREIGN CURRENCY - 0.3%
AUD 0 2,750,000 2,750,000 Australian Dollar Put 07/16/1997 0.762 27,010
CAD 0 3,920,000 3,920,000 Canadian Dollar Put 08/01/1997 1.396 3,773
NZD 0 7,000,000 7,000,000 New Zealand Dollar Put 09/15/1997 0.686 79,800
DEM 0 6,000,000 6,000,000 German Deutsche Mark Put 11/26/1997 1.700 103,282
-------------
--------------------------------------------------------------------------
Total Put Options Purchased on Foreign Currency 213,865
--------------------------------------------------------------------------
--------------------------------------------------------------------------
TOTAL INVESTMENTS $69,580,766
--------------------------------------------------------------------------
--------------------------------------------------------------------------
TOTAL COST $69,479,650*
--------------------------------------------------------------------------
CALL OPTIONS WRITTEN ON FOREIGN CURRENCY - (0.0)%
AUD 0 2,750,000 2,750,000 Australian Dollar Call 07/16/1997 0.777 ($1,056)
CAD 0 3,920,000 3,920,000 Canadian Dollar Call 08/01/1997 1.366 (6,864)
GBP 0 1,715,000 1,715,000 Great Britain Pound Sterling
Call 08/07/1997 1.637 (55,490)
NZD 0 7,000,000 7,000,000 New Zealand Dollar Call 09/15/1997 0.692 (23,100)
-------------
--------------------------------------------------------------------------
Total Value of Call Options Written on Foreign Currency (86,510)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Premium received on Call Options Written on Foreign Currency 86,510*
--------------------------------------------------------------------------
</TABLE>
* Combined cost represents cost of Sierra Trust Short Term High Quality
Bond Fund and value of Sierra Trust Short Term Global Government Fund
as contemplated by the proposed Agreement and Plan of Reorganization.
See Note 1.
** A portion or all of this security is pledged as collateral for futures
contracts.
+ 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.
# As reorganized, the Sierra Trust Short Term High Quality Bond Fund will
be limited to their percentage of foreign holdings, accordingly certain
positions will need to be disposed of prior to consummation of the Plan
of Reorganization.
<TABLE>
<CAPTION>
NUMBER OF UNREALIZED
CONTRACTS DEPRECIATION
--------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
FUTURES CONTRACTS - SHORT POSITION
27 0 27 U.S. Treasury Note, Five Year, September 1997 ($14,992) $0 ($14,992)
--------------------------------------
</TABLE>
<PAGE>
SIERRA TRUST FUNDS
- ------------------
Short Term Global Government Fund
Schedule of Forward Foreign Currency Contracts #
June 30, 1997 (Unaudited)
U.S. Forward Foreign Currency Contracts to Buy
<TABLE>
<CAPTION>
Contracts to Receive
-----------------------------------------------------------------------------------------------------------------
Net Unrealized
Appreciation/
Expiration Local Value in In Exchange for (Depreciation)
Date Currency U.S. $ for U.S. $ of Contracts
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/07/1997 IEP 330,303 500,088 500,000 $88
08/12/1997 DKK 7,320,720 1,105,402 1,147,448 (42,046)
08/25/1997 SEK 3,845,400 498,238 500,000 (1,762)
09/15/1997 CHF 3,821,077 2,640,401 2,643,429 (3,028)
12/01/1997 DEM 229,852 133,324 134,517 (1,193)
12/01/1997 ESP 145,310,000 988,465 1,000,000 (11,535)
---------------------
($59,476)
---------------------
U.S. Forward Foreign Currency Contracts to Sell
<CAPTION>
Contracts to Deliver
-----------------------------------------------------------------------------------------------------------------
Net Unrealized
Appreciation/
Expiration Local Value in In Exchange for (Depreciation)
Date Currency U.S. $ for U.S. $ of Contracts
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
07/07/1997 IEP 1,314,552 1,990,268 1,979,979 ($10,289)
08/07/1997 FRF 6,972,931 1,189,709 1,268,036 78,327
08/12/1997 DKK 31,102,450 4,696,356 4,921,274 224,918
08/25/1997 BEF 41,306,140 1,152,162 1,199,017 46,855
08/25/1997 SEK 13,200,000 1,710,288 1,792,139 81,851
09/15/1997 CHF 3,821,077 2,640,401 2,621,306 (19,095)
09/18/1997 NLG 4,198,294 2,151,094 2,230,762 79,668
09/24/1997 CHF 2,849,200 1,970,910 2,000,000 29,090
11/06/1997 DEM 4,587,251 2,655,731 2,692,049 36,318
12/01/1997 DEM 229,852 133,325 136,500 3,175
12/01/1997 ESP 5,994,976 40,781 41,600 819
12/01/1997 FRF 1,406,043 241,772 246,350 4,578
12/01/1997 GBP 36,183 60,358 59,150 (1,208)
12/01/1997 ITL 64,069,265 37,548 37,700 152
12/01/1997 ITL 5,600,000,000 3,281,866 3,286,771 4,905
---------------------
$560,064
---------------------
Net Unrealized Appreciation of Forward Foreign Currency Contracts $500,588
---------------------
</TABLE>
# As reorganized, the Sierra Trust Short Term High Quality Bond Fund will be
limited to their percentage of foreign holdings, accordingly certain
positions will need to be disposed of prior to consummation of the Plan of
Reorganization.
<TABLE>
<CAPTION>
---------------------------------------------------------------------
GLOSSARY OF TERMS
<C> <C> <S>
ARP - Argentinian Peso
AUD - Australian Dollar
BALLOON - Five- and seven-year mortgages with larger dollar
amounts of payments falling due in the later years of
the obligation
BEF - Belgian Franc
CAD - Canadian Dollar
CHF - Swiss Franc
DEM - German Deutsche Mark
DKK - Danish Kroner
EGP - Egyptian Pound
ESP - Spanish Peseta
FRF - French Franc
GBP - Great Britain Pound Sterling
GRD - Greek Drakma
IEP - Irish Pound
ITL - Italian Lira
LP - Limited Partnership
MTN - Medium Term Note
MXN - Mexican Peso
NLG - Netherlands Guilder
NZD - New Zealand Dollar
P/O - Principal Only
REMIC - Real Estate Mortgage Investment Conduit
SEK - Swedish Krona
ZAR - South African Rand
---------------------------------------------------------------------
</TABLE>
<PAGE>
Sierra Trust Funds
Short Term High Quality Bond Fund
Short Term Global Government Fund
Pro Forma Combining Statement of Assets and Liabilities (Unaudited)
June 30, 1997
<TABLE>
<CAPTION>
Short Term Short Term
High Global
Quality Government Adjustments to Pro Forma
Bond Fund Fund Proforma Combined (Note 1)
---------------- ---------------- --------------- -----------------
<S> <C> <C> <C> <C>
ASSETS:
Investments\, at value (a)...........................$ 20,156,215 $ 49,424,551 $ - $ 69,580,766
Cash and/or foreign currency (b)..................... 21,550 165,642 - 187,192
Net unrealized appreciation of forward
foreign currency contracts...................... - 500,588 - 500,588
Dividends and/or interest receivable................. 149,480 1,048,920 - 1,198,400
Receivable for Fund shares sold...................... 13,624 33,739 - 47,363
Receivable for investment securities sold............ 12,772 - - 12,772
Variation margin..................................... 6,750 - - 6,750
Unamortized organization costs....................... 4,727 - - 4,727
Receivable from investment advisor................... 5,611 6,473 - 12,084
Prepaid expenses and other assets.................... 1,527 5,086 - 6,613
---------------- ---------------- --------------- -----------------
Total Assets.................................... 20,372,256 51,184,999 0 71,557,255
---------------- ---------------- --------------- -----------------
LIABILITIES:
Options written, at value (c)........................ - 86,510 - 86,510
Payable for Fund shares redeemed..................... 42,015 96,524 - 138,539
Administration fee payable........................... 5,953 14,830 - 20,783
Shareholder servicing and distribution............... -
fees payable.................................... 6,048 11,552 - 17,600
Dividends payable.................................... 37,812 109,897 - 147,709
Accrued legal and audit fees......................... 16,836 39,791 - 56,627
Accrued transfer agent fees.......................... 10,230 16,628 - 26,858
Accrued Trustees' fees and expenses.................. 175 431 - 606
Accrued registration and filing fees payable......... 3,630 2,926 - 6,556
Accrued expenses and other payables.................. 19,583 11,740 - 31,323
---------------- ---------------- --------------- -----------------
Total Liabilities............................... 142,282 390,829 0 533,111
---------------- ---------------- --------------- -----------------
Net Assets Applicable to Shares Outstanding..........$ 20,229,974 $ 50,794,170 0 71,024,144
================ ================ =============== =================
- --------------------------------------------------
(a) Investments, at cost.............................$ 20,055,099 $ 50,819,677 $ (1,395,126) $ 69,479,650*
(b) Cash and/or foreign currency, at cost............$ 21,550 $ 164,948 $ 694 $ 187,192*
(c) Premiums.........................................$ 0 $ 126,371 $ (39,861) $ 86,510*
</TABLE>
* Combined cost represents cost of Sierra Short Term High Quality Bond Fund and
value of Sierra Short Term Global Government Fund as contemplated by the
proposed Agreement and Plan of Reorganization, See Note 1.
See Notes to Proforma Financial Statements.
<PAGE>
Sierra Trust Funds
Short Term High Quality Bond Fund
Short Term Global Government Fund
Pro Forma Combining Statement of Assets and Liabilites (Unaudited) (Continued)
June 30, 1997
<TABLE>
<CAPTION>
Short Term Short Term
High Global
Quality Government Adjustments to Pro Forma
Bond Fund Fund Proforma Combined (Note 1)
----------------- ------------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Net Assets by Class:
Class A Shares...................................... $ 13,685,006 $ 44,255,652 - $ 57,940,658
================= =================== ===============
Class B Shares...................................... $ 2,993,682 $ 2,331,382 - $ 5,325,064
================= =================== ===============
Class S Shares...................................... $ 799,784 $ 473,579 - $ 1,273,363
================= =================== ===============
Class I Shares...................................... $ 2,751,502 $ 3,733,557 - $ 6,485,059
================= =================== ===============
Shares Outstanding by Class:
Class A Shares...................................... 5,898,076 19,252,637 (178,974) 24,971,739
================= =================== ===============
Class B Shares...................................... 1,290,338 1,014,294 (9,421) 2,295,211
================= =================== ===============
Class S Shares...................................... 344,729 206,038 (1,912) 548,855
================= =================== ===============
Class I Shares...................................... 1,185,878 1,624,325 (15,188) 2,795,015
================= =================== ===============
CLASS A SHARES:
Net asset value per share of beneficial
interest outstanding *........................... $2.32 $2.30 $2.32
================= =================== ===============
Maximum sales charge................................ 3.50% 3.50% 3.50%
Maximum offering price per share of beneficial
interest outstanding........................... $2.40 $2.38 $2.40
================= =================== ===============
CLASS B SHARES:
Net asset value and offering price per
share of beneficial interest outstanding *....... $2.32 $2.30 $2.32
================= =================== ===============
CLASS S SHARES:
Net asset value and offering price per
share of beneficial interest outstanding *....... $2.32 $2.30 $2.32
================= =================== ===============
CLASS I SHARES:
Net asset value, offering and redemption price per
share of beneficial interest outstanding......... $2.32 $2.30 $2.32
================= =================== ===============
</TABLE>
- --------------------------------------------------------------------
* Redemption price per share is equal to Net Asset Value less any applicable
contingent deferred sales charge.
See Notes to Proforma Financial Statements.
<PAGE>
Sierra Trust Funds
Short Term High Quality Bond Fund
Short Term Global Government Fund
Pro Forma Statement of Operations (Unaudited)
For the Year Ended June 30, 1997
<TABLE>
<CAPTION>
Short Term Short Term
High Global
Quality Government Adjustments to Pro Forma
Bond Fund Fund Proforma Combined (Note 1)
----------------- ----------------- ------------------ ----------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest........................................ $ 2,245,073 $ 4,545,622 $ - $ 6,790,695
Foreign withholding tax on interest income...... - (73,700) - (73,700)
----------------- ----------------- ------------------ ----------------
Total investment income................... 2,245,073 4,471,922 - 6,716,995
----------------- ----------------- ------------------ ----------------
EXPENSES:
Investment advisory fee......................... 153,348 394,684 (91,084)(a) 456,948
Administration fee.............................. 107,344 212,522 (319,866)(b) 0
Custodian fees.................................. 8,172 15,844 - 24,016
Legal and audit fees............................ 17,832 41,538 (36,047)(c) 23,323
Trustees' fees and expenses..................... 1,297 2,563 - 3,860
Amortization of organization costs.............. 3,546 1,295 (1,295)(d) 3,546
Registration and filing fees.................... 25,995 20,883 (15,000)(c) 31,878
Transfer agent fees............................. 26,123 57,268 90,249 (c) 173,640
Other........................................... 25,281 20,977 132,149 (c) 178,407
Shareholder servicing and distribution fees:
Class A Shares............................... 54,612 137,471 - 192,083
Class B Shares............................... 32,976 20,862 - 53,838
Class S Shares............................... 18,171 10,022 - 28,193
Fees waived and/or expenses absorbed by
investment advisor........................... (194,184) (369,426) 350,609 (e) (213,001)
----------------- ----------------- ------------------ ----------------
Subtotal.................................. 280,513 566,503 109,715 956,731
Credits allowed by the custodian................ (1,186) (2,250) - (3,436)
----------------- ----------------- ------------------ ----------------
Net expenses.............................. 279,327 564,253 109,715 953,295
----------------- ----------------- ------------------ ----------------
NET INVESTMENT INCOME........................... 1,965,746 3,907,669 (109,715) 5,763,700
----------------- ----------------- ------------------ ----------------
NET REALIZED AND UNREALIZED
GAIN/(LOSS) ON INVESTMENTS
Realized gain/(loss) from:
Security transactions........................ (86,136) (2,953) - (89,089)
Forward foreign currency contracts
and foreign currency transactions......... (92,271) 4,004,144 - 3,911,873
Futures contracts............................ (307,448) - - (307,448)
Written options.............................. 25,492 776,517 - 802,009
Net unrealized appreciation/(depreciation) of:
Securities................................... 194,806 (3,013,281) - (2,818,475)
Forward foreign currency contracts........... - (472,822) - (472,822)
Foreign currency, written options,
futures contracts and other assets
and liabilities........................... 113,589 111,225 - 224,814
----------------- ----------------- ------------------ ----------------
Net Realized and Unrealized Gain/(Loss) on
Investments.................................. (151,968) 1,402,830 - 1,250,862
----------------- ----------------- ------------------ ----------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS.................... $ 1,813,778 $ 5,310,499 $ (109,715) $ 7,014,562
================= ================= ================== ================
</TABLE>
(a) Adjustment reflects contractual fee of Sierra Short Term High Quality Bond
Fund.
(b) Adjustment reflects the effect of the expected transfer of administrative
functions to an affiliate of Composite Research & Management Co.
(c) Adjustment reflects expected (savings)/cost when the two funds become one.
(d) Organization expense of the acquired fund is not an expense of the combined
fund.
(e) Adjustment reflects the effect of an anticipated management fee
waiver/expense reimbursement for the Short Term High Quality Bond Fund
at June 30, 1997.
See Notes to Proforma Financial Statements.
<PAGE>
SIERRA TRUST FUNDS
Short Term High Quality Bond Fund
Short Term Global Government Fund
Notes to Pro Forma Financial Statements (Unaudited)
1. Basis of Combination
Sierra Trust Funds (the "Trust") is registered under the Investment Company Act
of 1940, as amended (the "1940 Act"), as an open-end management investment
company. As of June 30, 1997, the Trust offers sixteen managed investment funds.
The unaudited Pro Forma Combining Portfolio of Investments and Statement of
Assets and Liabilities and the Statement of Operations reflect the accounts of
the Sierra Short Term High Quality Bond Fund and the Sierra Short Term Global
Government Fund for the year ended June 30, 1997. These statements have been
derived from books and records utilized in calculating daily net asset value at
June 30, 1997.
The pro forma statements give effect to the proposed transfer of assets and
stated liabilities of the Sierra Short Term Global Government Fund in exchange
for shares of Sierra Short Term High Quality Bond Fund. 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.
(Taxable event language describing accounting treatment of transaction.)
The Pro Forma Combining Portfolio of Investments and 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.
For the year ended June 30, 1997, the Sierra Short Term High Quality Bond Fund's
investment advisory fee was computed based on the annual rates as follows:
<TABLE>
<CAPTION>
Fees on Assets
Exceeding
Fees on Assets $200 million Fees on
Equal To or and Equal To Assets
Less Than or Less Than Exceeding
Name of Fund $200 million $500 million $500 million
------------ --------------- -------------- --------------
<S> <C> <C> <C>
Short Term High Quality Bond Fund
Sierra Advisors............................... .35% .35% .30%
Sub-advisor................................... .15% .10% .10%
--- --- ---
Total fees paid to
Sierra Advisors*.......................... .50% .45% .40%
=== === ===
</TABLE>
* Sierra Advisors retains only the net amount of the fees after sub-advisory
fees have been paid.
<PAGE>
SIERRA TRUST FUNDS
Short Term High Quality Bond Fund
Short Term Global Government Fund
Notes to Pro Forma Financial Statements (Unaudited) (Continued)
2. Portfolio Valuation
The securities are valued at market, as determined by the fund, as of June 30,
1997.
3. Capital Shares
The pro forma net asset value per share assumes the issuance of additional
shares of Sierra Short Term High Quality Bond Fund which would have been issued
at June 30, 1997 in connection with the proposed reorganization. The pro forma
number of shares outstanding of 30,610,820 consists of 21,891,799 shares assumed
issued in the reorganization plus 8,719,021 shares of Sierra Short Term High
Quality Bond Fund at June 30, 1997.
<PAGE>
_________________ FUND
A SERIES OF SIERRA TRUST FUNDS
PROXY SOLICITED BY THE BOARD OF TRUSTEES
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS -- DECEMBER __, 1997
The undersigned hereby appoints _________________________________________
_______, and each of them separately, proxies with power of substitution to
each, and hereby authorizes them to represent and to vote, as designated below,
at the Special Meeting of Shareholders of the Fund indicated above, a series of
Sierra Trust Funds, on December __, 1997 at [ ], and at any
adjournment thereof, all of the shares of the Fund which the undersigned would
be entitled to vote if personally present.
NOTE: PLEASE SIGN EXACTLY AS YOUR NAME
APPEARS ON THIS PROXY CARD. All joint
owners should sign. When signing as
executor, administrator, attorney, trustee
or guardian or as custodian for a minor,
please give full title as such. If a
corporation, please sign in full corporate
name and indicate the signer's office. If a
partner, sign in the partnership name.
----------------------------
Signature
----------------------------
Signature (if held jointly)
----------------------------
Date
<PAGE>
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR EACH PROPOSAL.
In their discretion, the proxies are authorized to vote upon such other business
as may properly come before the Meeting. The Trustees recommend a vote FOR the
proposals.
<TABLE>
<S> <C> <C>
I. Proposal to elect thirteen Trustees. For electing all the Withhold authority to
The nominees for Trustees are: nominees (except as vote for all nominees
David E. Anderson, Wayne L. marked to the contrary
Attwood, M.D., Arthur H. Bernstein, below)
Kristianne Blake, Edmond R. Davis,
John W. English, Anne V. Farrell, [_] [_]
Michael K. Murphy, Alfred E.
Osborne, Jr., William G. Papesh,
Daniel L. Pavelich, Jay Rockey and
Richard C. Yancey.
</TABLE>
To withhold authority to vote for one or more of the nominees, write those
nominees' names below:
- -------------------------------------------
<TABLE>
<S> <C> <C> <C>
II. Proposal to approve the Merger For Against Abstain
of the Fund named on the reverse [_] [_] [_]
side of this card, as described in
the Prospectus/Proxy Statement and
the relevant Agreement and Plan of
Reorganization.
</TABLE>
PLEASE SIGN ON THE REVERSE SIDE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
-2-
<PAGE>
SIERRA TRUST FUNDS
FORM N-14
PART C. Other Information
-----------------
Item 15. Indemnification
---------------
Under Section 6.4 of Registrant's Master Trust Agreement, as amended, any
past or present Trustee or officer of Registrant (including persons who serve at
Registrant's request as directors, officers or trustees of another organization
in which Registrant has any interest as a shareholder, creditor or otherwise
(hereinafter referred to as a "Covered Person")), is indemnified to the fullest
extent permitted by law against liability and all expenses reasonably incurred
by him in connection with any action, suit or proceeding to which he may be a
party or otherwise involved by reason of his being or having been a Covered
Person. This provision does not authorize indemnification when it is
determined, in the manner specified in the Master Trust Agreement, that a
Covered Person has not acted in good faith in the reasonable belief that his
actions were in or not opposed to the best interests of Registrant. Moreover,
this provision does not authorize indemnification when it is determined, in the
manner specified in the Master Trust Agreement, that the Covered Person would
otherwise be liable to Registrant or its shareholders by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of his duties.
Expenses may be paid by Registrant in advance of the final disposition of any
action, suit or proceeding upon receipt of an undertaking by a Covered Person to
repay those expenses to Registrant in the event that it is ultimately determined
that indemnification of the expenses is not authorized under the Master Trust
Agreement and the Covered Person either provides security for such undertaking
or insures Registrant against losses from such advances or the disinterested
Trustees or independent legal counsel determines, in the manner specified in the
Master Trust Agreement, that there is reason to believe the Covered Person will
be found to be entitled to indemnification.
Insofar as indemnification for liability arising under the Securities Act
of 1933, as amended (the "1933 Act"), may be permitted to Trustees, officers and
controlling persons of Registrant pursuant to the foregoing provisions, or
otherwise, Registrant has been advised that, in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the 1933 Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
Registrant of expenses incurred or paid by a Trustee, officer or controlling
person of Registrant in the successful defense of any action, suit or
proceeding) is asserted by such Trustee, officer or controlling person in
connection with the securities being registered, Registrant will, unless in the
opinion of its counsel the
C-1
<PAGE>
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the 1933 Act and will by governed by the
final adjudication of such issue.
Item 16. Exhibits
--------
1(a) Master Trust Agreement of the Registrant dated February 22, 1989,
originally filed as an exhibit to Registration Statement on Form N-1A
March 10, 1989, is incorporated by reference to PEA No. 26 filed with
the SEC on August 28, 1997.
1(a)-1 Amendment No. 1, to Master Trust Agreement, dated May 10, 1989,
originally filed as an exhibit to Pre-Effective Amendment No. 1 on May
12, 1989, is incorporated by reference to PEA No. 26 filed with the
SEC on August 28, 1997.
1(a)-2 Amendment No. 2, to Master Trust Agreement, dated May 22, 1989,
originally filed as an exhibit to Pre-Effective Amendment No. 3 on
July 6, 1989, is incorporated by reference to PEA No. 26 filed with
the SEC on August 28, 1997.
1(a)-3 Amendment No. 3, to Master Trust Agreement, dated May 24, 1989,
originally filed as an exhibit to Pre-Effective Amendment No. 3 on
July 6, 1989, is incorporated by reference to PEA No. 26 filed with
the SEC on August 28, 1997.
1(a)-4 Amendment No. 4, to Master Trust Agreement, dated May 7, 1990,
originally filed as an exhibit to Post-Effective Amendment ("PEA") No.
2 on May 9, 1990, is incorporated by reference to PEA No. 26 filed
with the SEC on August 28, 1997.
1(a)-5 Amendment No. 5, to Master Trust Agreement, dated December 4, 1991,
originally filed as an exhibit to PEA No. 8 on December 5, 1991, is
incorporated by reference to PEA No. 26 filed with the SEC on August
28, 1997.
1(a)-6 Amendment No. 6, to Master Trust Agreement, dated January 30, 1992,
originally filed as an exhibit to PEA No. 10 on October 14, 1992, is
incorporated by reference to PEA No. 26 filed with the SEC on August
28, 1997.
1(a)-7 Amendment No. 7, to Master Trust Agreement, dated September 10, 1992,
originally filed as an exhibit to PEA No. 10 on October 14, 1992, is
incorporated by reference to PEA No. 26 filed with the SEC on August
28, 1997.
1(a)-8 Amendment No. 8, to Master Trust Agreement, dated September 22, 1993,
originally filed as an exhibit to PEA No. 16 on March 15, 1994, is
incorporated by reference to PEA No. 26 filed with the SEC on August
28, 1997.
1(a)-9 Amendment No. 9, to Master Trust Agreement, dated March 13, 1994,
originally filed as an exhibit to PEA No. 16 on March 15, 1994, is
incorporated by reference to PEA No. 26 filed with the SEC on August
28, 1997.
1(a)-10 Amendment No. 10, to Master Trust Agreement, dated January 20, 1995,
originally filed as an exhibit to PEA No. 21 on September 1, 1995, is
incorporated by reference to PEA No. 26 filed with the SEC on August
28, 1997.
C-2
<PAGE>
1(a)-11 Amendment No. 11, to Master Trust Agreement, dated July 19, 1996 is
incorporated by reference to Exhibit 1(l) of PEA No. 23 filed with the
SEC on August 30, 1996.
2(b) By-laws of the Registrant, as amended through November 18, 1992 are
incorporated by reference to PEA No. 26 filed with the SEC on August
28, 1997.
3 Not Applicable
4 Agreement and Plan of Reorganization and Liquidation filed herewith as
Exhibit A to the Combined Prospectus/Proxy Statement set forth as Part
A of the Registration Statement on Form N-14 is filed herewith.
5 Article V, Shareholders' Voting Powers and Meetings of the Master
Trust Agreement, as amended, is incorporated by reference to Exhibits
1(a) through 1(a)-11 above. Article 11, Shareholders, of the By-Laws
of the Registrant, as amended through November 18, 1992 is
incorporated by reference to Exhibit 2(b) above.
6(a)-1 Investment Advisory Agreement, dated July 7, 1989, with respect to the
Global Money Fund, originally filed as Exhibit 5(a) to PEA No. 1 on
January 30, 1990, is incorporated by reference to PEA No. 26 filed
with the SEC on August 28, 1997.
6(a)-1.1 Amendment, dated June 30, 1994, to the Investment Advisory Agreement
relating to the Global Money Fund, originally filed as Exhibit 5(r) to
PEA No. 17 on September 1, 1994, is incorporated by reference to PEA
No. 26 filed with the SEC on August 28, 1997.
6(a)-2 Investment Advisory Agreement, dated July 7, 1989, with respect to the
U.S. Government Money Fund, originally filed as Exhibit 5(a) to PEA
No. 1 on January 30, 1990, is incorporated by reference to PEA No. 26
filed with the SEC on August 28, 1997.
6(a)-2.1 Amendment, dated June 30, 1994, to the Investment Advisory Agreement
relating to the U.S. Government Money Fund, originally filed as
Exhibit 5(s) to PEA No. 17 on September 1, 1994, is incorporated by
reference to PEA No. 26 filed with the SEC on August 28, 1997.
6(a)-3 Investment Advisory Agreement, dated July 7, 1989, with respect to the
California Money Fund, originally filed as Exhibit 5(a) to PEA No. 1
on January 30, 1990, is incorporated by reference to PEA No. 26 filed
with the SEC on August 28, 1997.
6(a)-3.1 Amendment, dated June 30, 1994, to the Investment Advisory Agreement
relating to the California Money Fund, originally filed as Exhibit
5(x) to PEA No. 17 on September 1, 1994, is incorporated by reference
to PEA No. 26 filed with the SEC on August 28, 1997.
6(a)-4 Investment Advisory Agreement, dated July 7, 1989, with respect to the
U.S. Government Fund, originally filed as Exhibit 5(a) to PEA No. 1 on
January 30, 1990, is incorporated by reference to PEA No. 26 filed
with the SEC on August 28, 1997.
6(a)-4.1 Amendment, dated June 30, 1994, to the Investment Advisory Agreement
relating to the U.S. Government Fund, originally filed as Exhibit 5(t)
to PEA No. 17 on September 1, 1994, is incorporated by reference to
PEA No. 26 filed with the SEC on August 28, 1997.
6(a)-5 Investment Advisory Agreement, dated July 7, 1989, with respect to the
California Municipal Fund, originally filed as Exhibit 5(a) to PEA No.
1 on January 30, 1990, is incorporated by reference to PEA No. 26
filed with the SEC on August 28, 1997.
C-3
<PAGE>
6(a)-5.1 Amendment, dated June 30, 1994, to the Investment Advisory Agreement
relating to the California Municipal Fund, originally filed as Exhibit
5(q) to PEA No. 17 on September 1, 1994, is incorporated by reference
to PEA No. 26 filed with the SEC on August 28, 1997.
6(a)-6.1 Investment Advisory Agreement, dated October 22, 1993, with respect to
the Growth and Income Fund, originally filed as Exhibit 5(l) to PEA
No. 18 on October 28, 1994, replaces Exhibit 5(a)-6, is incorporated
by reference to PEA No. 26 filed with the SEC on August 28, 1997.
6(a)-7 Investment Advisory Agreement, dated July 18, 1990, with respect to
the Corporate Income Fund, originally filed as Exhibit 5(b) to PEA No.
4 on October 29, 1990, is incorporated by reference to PEA No. 26
filed with the SEC on August 28, 1997.
6(a)-8 Investment Advisory Agreement, dated July 18, 1990, with respect to
the National Municipal Fund, originally filed as Exhibit 5(b) to PEA
No. 4 on October 29, 1990, is incorporated by reference to PEA No. 26
filed with the SEC on August 28, 1997.
6(a)-8.1 Amendment, dated June 30, 1994, to the Investment Advisory Agreement
relating to the National Municipal Fund, originally filed as Exhibit
5(v) to PEA No. 17 on September 1, 1994, is incorporated by reference
to PEA No. 26 filed with the SEC on August 28, 1997.
6(a)-9.1 Investment Advisory Agreement, dated October 22, 1993, with respect to
the Emerging Growth Fund, originally filed as Exhibit 5(l) to PEA
No.18 on October 28, 1994, replaces Exhibit 6(a)-9, and is
incorporated by reference to PEA No. 26 filed with the SEC on August
28, 1997.
6(a)-10.1 Investment Advisory Agreement, dated November 1, 1994, with respect to
the International Growth Fund, originally filed as Exhibit 5(y) to PEA
No. 21 on September 1, 1995, is incorporated by reference to PEA No.
26 filed with the SEC on August 28, 1997.
6(a)-11 Investment Advisory Agreement, dated February 3, 1992, with respect to
the Short Term Global Government Fund, originally filed as Exhibit
5(c) to PEA No. 9 on August 31, 1992, is incorporated by reference to
PEA No. 26 filed with the SEC on August 28, 1997.
6(a)-11.1 Amendment, dated June 30, 1994, to the Investment Advisory Agreement
relating to the Short Term Global Government Fund, originally filed as
Exhibit 5(w) to PEA No. 17 on September 1, 1994, is incorporated by
reference to PEA No. 26 filed with the SEC on August 28, 1997.
6(a)-12 Investment Advisory Agreement, dated April 1, 1993, with respect to
the Growth Fund was originally filed as, and is incorporated by
reference to, Exhibit 5(i) to PEA No. 18 on October 28, 1994.
6(a)-13 Investment Advisory Agreement, dated June 2, 1993, with respect to the
Florida Insured Municipal Fund was originally filed as, and is
incorporated by reference to, Exhibit 5(j) to PEA No. 18 on October
28, 1994.
6(a)-13.1 Amendment, dated June 30, 1994, to the Investment Advisory Agreement
relating to the Florida Insured Municipal Fund, was originally filed
as, and is incorporated by reference to, Exhibit 5(u) to PEA No. 17 on
September 1, 1994.
C-4
<PAGE>
6(a)-14 Investment Advisory Agreement, dated September 6, 1993, with respect
to the Short Term High Quality Bond Fund was originally filed as, and
is incorporated by reference to, Exhibit 5(l) to PEA No. 18 on October
28, 1994.
6(a)-14.1 Form of Investment Management Agreement relating to the Short Term
High Quality Bond Fund is filed herewith.
6(a)-15 Investment Advisory Agreement, dated April 1, 1994, with respect to
the California Insured Intermediate Municipal Fund was originally
filed as, and is incorporated by reference to, Exhibit 5(n) to PEA No.
18 on October 28, 1994.
6(a)-15.1 Amendment, dated June 30, 1994, to the Investment Advisory Agreement
relating to the California Insured Intermediate Municipal Fund,
originally filed as Exhibit 5(p) to PEA No. 17 on September 1, 1994,
is incorporated by reference to PEA No. 26 filed with the SEC on
August 28, 1997.
6(a)-16 Investment Advisory Agreement, dated March 17, 1995, with respect to
the Target Maturity 2002 Fund was originally filed as, and is
incorporated by reference to, Exhibit 5(aa) to PEA No. 21 on September
1, 1995.
6(b)-1 Investment Sub-Advisory Agreement, dated July 7, 1989, with respect to
the Global Money Fund was originally filed as, and is incorporated by
reference to, Exhibit 5(b) to PEA No. 1 on January 30, 1990.
6(b)-2 Investment Sub-Advisory Agreement, dated July 7, 1989, with respect to
the U.S. Government Money Fund was originally filed as, and is
incorporated by reference to, Exhibit 5(b) to PEA No. 1 on January 30,
1990.
6(b)-3 Investment Sub-Advisory Agreement, dated July 7, 1989, with respect to
the California Money Fund was originally filed as, and is incorporated
by reference to, Exhibit 5(b) to PEA No. 1 on January 30, 1990.
6(b)-4.3 Investment Sub-Advisory Agreement, dated October 31, 1996, with
respect to the California Municipal Fund, National Municipal Fund,
Florida Insured Municipal Fund and California Insured Intermediate
Municipal Fund is incorporated by reference to PEA No. 26 filed with
the SEC on August 28, 1997.
6(b)-5.3 Investment Sub-Advisory Agreement, dated February 28, 1995, with
respect to the U.S. Government Fund was originally filed as, and is
incorporated by reference to, Exhibit 5(ee) to PEA No. 21 on September
1, 1995.
6(b)-6.1 Investment Sub-Advisory Agreement, dated September 20, 1993, with
respect to the Growth and Income Fund was originally filed as, and is
incorporated by reference to, Exhibit 5(m) to PEA No. 18 on October
28, 1994.
6(b)-7 Investment Sub-Advisory Agreement, dated July 18, 1990, with respect
to the Corporate Income Fund was originally filed as, and is
incorporated by reference to, Exhibit 5(d) to PEA No. 4 on October 29,
1990.
6(b)-9.1 Investment Sub-Advisory Agreement, dated September 20, 1993, with
respect to the Emerging Growth Fund was originally filed as, and is
incorporated by reference to, Exhibit 5(m) to PEA No. 18 on October
28, 1994.
C-5
<PAGE>
6(b)-10.2 Investment Sub-Advisory Agreement, dated April 8, 1996, with respect
to the International Growth Fund is incorporated by reference to
Exhibit 5(ii) of PEA No. 23 filed with the SEC on August 30, 1996.
6(b)-11 Investment Sub-Advisory Agreement, dated February 3, 1992, with
respect to the Short Term Global Government Fund was originally filed
as, and is incorporated by reference to, Exhibit 5(g) to PEA No. 9 on
August 31, 1992.
6(b)-12.1 Amended and Restated Investment Sub-Advisory Agreement, dated November
22, 1993, with respect to the Growth Fund was originally filed as, and
is incorporated by reference to, Exhibit 5(h) to PEA No. 21 on
September 1, 1995.
6(b)-14 Investment Sub-Advisory Agreement, dated September 6, 1993, with
respect to the ShortTerm High Quality Bond Fund was originally filed
as, and is incorporated by reference to, Exhibit 5(m) to PEA No. 18 on
October 28, 1994.
6(b)-16 Investment Sub-Advisory Agreement, dated March 17, 1995, with respect
to the Target Maturity 2002 Fund was originally filed as, and is
incorporated by reference to, Exhibit 5(bb) to PEA No. 21 on September
1, 1995.
7(a)-1.9 Class A Distribution Agreement, dated July 7, 1989, with Sierra
Investment Services Corporation, as amended and supplemented July 1,
1995 is incorporated by reference to Exhibit 6(m) of PEA No. 24 filed
with the SEC on October 30, 1996.
7(b)-2 Class B and Class S Distribution Agreement with Sierra Investment
Services Corporation, dated December 20, 1995, relating to all series
Funds of Registrant, is incorporated by reference to Exhibit 6(k) of
PEA No. 23 filed with the SEC on August 30, 1996.
8 Not Applicable
9(a)-1 Custody Agreement, dated July 7, 1989, relating to the Global Money
Fund, U.S. Government Money Fund, California Money Fund, U.S.
Government Fund, California Municipal Fund and Growth and Income Fund
was originally filed as, and is incorporated by reference to, Exhibit
8(a) to PEA No. 3 on July 9, 1990.
9(a)-1.1 Amendment No. 1 to Custody Agreement, dated February 5, 1991, was
originally filed as, and is incorporated by reference to, Exhibit 8(c)
to PEA No. 6 on August 29, 1991.
9(a)-1.2 Supplement to Custody, Transfer Agency and Registrar and Sub-
Administration Agreements, dated July 18, 1990, relating to the
Corporate Income Fund, National Municipal Fund, Emerging Growth Fund
and International Growth Fund was originally filed as, and is
incorporated by reference to, Exhibit 8(b) to PEA No. 6 on August 29,
1991.
9(a)-1.3 Supplement to Custody, Transfer Agency and Registrar and Sub-
Administration Agreements, dated February 3, 1992, relating to the
Short Term Global Government Fund was originally filed as, and is
incorporated by reference to, Exhibit 8(c) to PEA No. 9 on August 31,
1992.
9(a)-1.4 Form of Supplement to Custody, Transfer Agency and Registrar and Sub-
Administration Agreements, dated April 1, 1993, relating to the Growth
Fund was filed as, and is incorporated by reference to, Exhibit 8(f)
to PEA No. 12 on March 25, 1993.
C-6
<PAGE>
9(a)-1.5 Form of Supplement to Custody, Transfer Agency and Registrar, and Sub-
Administration Agreements, dated June 2, 1993, relating to the Florida
Insured Municipal Fund was filed as, and is incorporated by reference
to, Exhibit 8(g) to PEA No. 12 on March 25, 1993.
9(a)-1.6 Supplement to Custody, Transfer Agency and Registrar, and Sub-
Administration Agreements, dated October 29, 1993, relating to the
Short Term High Quality Bond Fund was filed as, and is incorporated by
reference to, Exhibit 8(h) to PEA No. 21 on September 1, 1995.
9(a)-1.7 Supplement to Custody, Transfer Agency and Registrar, and Sub-
Administration Agreements, dated April 1, 1994, relating to the
California Insured Intermediate Municipal Fund was filed as, and is
incorporated by reference to, Exhibit 8(i) to PEA No. 21 on September
1, 1995.
9(a)-1.8 Revised Custodian, Transfer Agency and Registrar and Sub-
Administration Fees, dated July 18, 1990, relating to each Fund of the
Registrant was originally filed as, and is incorporated by reference
to, Exhibit 8(k) to PEA 21 on September 1, 1995.
9(a)-1.9 Supplement to Custody, Transfer Agency and Registrar, and Sub-
Administration Agreements, dated March 17, 1995, relating to the
Target Maturity 2002 Fund was originally filed as, and is incorporated
by reference to, Exhibit 8(j) to PEA No. 22 on October 30, 1995.
9(a)-1.10 Supplement to Custody and Sub-Administration Agreement, dated February
3, 1992, relating to the Short Term Global Government Fund is
incorporated by reference to Exhibit 8(l) of PEA 24 filed with the SEC
on October 30, 1996.
9(a)-1.11 Form of Custody Agreement is filed herewith.
9(b) Sub-Custodian Agreement, dated March 11, 1994, was originally filed
as, and is incorporated by reference to, Exhibit 8(e) to PEA No. 21 on
September 1, 1995.
10(a)-1.3 Class A Distribution Plan, dated July 7, 1989 and amended July 1,
1995, is incorporated by reference to Exhibit 15(e) of PEA No. 24
filed with the SEC on October 30, 1996.
10(b)-1.1 Amended and Restated Class B Distribution Plan, dated December 20,
1995, is incorporated by reference to Exhibit 15(c) of PEA No. 23
filed with the SEC on August 30, 1996.
10(c)-1.1 Amended and Restated Class S Distribution Plan, dated December 20,
1995, is incorporated by reference to Exhibit 15(d) of PEA No. 23
filed with the SEC on August 30, 1996.
10(d)(1) Rule 18f-3 Multiple Class Plan, dated June 13, 1995 was originally
filed as, and is incorporated by reference to, Exhibit 17 to PEA
No. 21 on September 1, 1995.
10(d)(2) Form of Rule 18F-3 Multi-Class Plan is filed herewith.
11(e) Consent and Opinion of Counsel, dated June 20, 1997, relating to the
registration of shares pursuant to Rule 24e-2 is incorporated by
reference to PEA No. 26 filed with the SEC on August 28, 1997.
11(f) Opinion and Consent of Morgan, Lewis & Bockius LLP is filed herewith.
12 Not Applicable
C-7
<PAGE>
13 Not Applicable
14 Consent of Independent Accountants is filed herewith.
15 Not Applicable
16 Not Applicable
Item 17. Undertakings
------------
(1) The registrant agrees that prior to any public reoffering of the
securities registered through the use of a prospectus which is a part of
this registration statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) of the Securities Act of
1933, the reoffering prospectus will contain the information called for
by the applicable registration form for reofferings by persons who may be
deemed underwriters, in addition to the information called for by the
other items of the applicable form.
(2) The registrant agrees that every prospectus that is filed under
paragraph (1) above will be filed as a part of an amendment to the
registration statement and will not be used until the amendment is
effective, and that, in determining any liability under the Securities
Act of 1933, each post-effective amendment shall be deemed to be a new
registration statement for the securities offered therein, and the
offering of the securities at that time shall be deemed to be the initial
bona fide offering of them.
C-8
<PAGE>
SIGNATURES
----------
As required by the Securities Act of 1933, this Registration Statement has
been signed on behalf of the Registrant, in the City of Northridge and State of
California on the 30th day of September, 1997.
SIERRA TRUST FUNDS
By: /s/ James H. Overholt
----------------------------
James H. Overholt, President
As required by the Securities Act of 1933, this Registration Statement has
been signed by the following persons in the capacity on the dates indicated.
<TABLE>
<CAPTION>
Signature Title(s) Date
- --------- -------- ----
<S> <C> <C>
/s/ James H. Overholt President September 30, 1997
- ----------------------
James H. Overholt (Principal
Executive Officer)
/s/ Keith B. Pipes Executive Vice September 30, 1997
- ---------------------- President, Treasurer
Keith B. Pipes and Secretary
(Principal Financial and Accounting
Officer)
/s/ David E. Anderson Trustee September 30, 1997
- ----------------------
David E. Anderson
Chairman of the September 30, 1997
- ----------------------
Arthur H. Bernstein, Esq. Board and Trustee
/s/ Edmond R. Davis Trustee September 30, 1997
- ----------------------
Edmond R. Davis, Esq.
/s/ John W. English Trustee September 30, 1997
- ----------------------
John W. English
/s/ Alfred E. Osborne, Jr. Trustee September 30, 1997
- --------------------------
Alfred E. Osborne, Jr., Ph.D
</TABLE>
C-9
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EDGAR
Exhibit Exhibit
No. No. Description
- ------- ------- -------------------------
<C> <C> <S>
6(a)-14.1 Form of Investment Management Agreement relating to
the Short Term High Quality Bond Fund.
9(a)-1.11 Form of Custody Agreement.
10(d)(2) Form of Rule 18F-3 Multi-Class Plan.
11(f) Opinion and Consent of Morgan, Lewis & Bockius LLP.
14 Consent of Independent Accountants.
</TABLE>
-1-
<PAGE>
EXHIBIT 99.6(a)-14.1
(Sierra Trust Funds -
Short Term High
Quality Bond Fund)
INVESTMENT MANAGEMENT AGREEMENT
-------------------------------
INVESTMENT MANAGEMENT AGREEMENT (this "Agreement"), dated _______________,
1997, between Sierra Trust Funds, a Massachusetts business trust, (the "Trust"),
on behalf of its series Short Term High Quality Bond Fund (the "Fund") and
Composite Research & Management Co., a Washington corporation (the "Manager").
W I T N E S S E T H
-------------------
WHEREAS, the Trust is a diversified, open-end series management investment
company, registered under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Fund, a separate series of the Trust, desires to retain the
Manager to render investment management services to the Fund, and the Manager is
willing to render such services;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein contained, the parties hereto agree as follows:
Appointment. The Fund hereby appoints the Manager to act as investment
-----------
manager to the Fund for the period and on the terms set forth in this Agreement.
The Manager accepts such appointment and agrees to render the services herein
described, for the compensation herein provided.
Management. Subject to the supervision of the Board of Trustees of the
----------
Trust, the Manager shall manage the investment operations of the Fund and the
composition of the Fund's portfolio, including the purchase, retention and
disposition of securities therefor, in accordance with the Fund's investment
objectives, policies and restrictions as stated in the Prospectus and Statement
of Additional Information (as such terms are hereinafter defined) and
resolutions of the Trust's Board of Trustees and subject to the following
understandings:
The Manager shall provide supervision of the Fund's investments,
furnish a continuous investment program for the Fund's portfolio and
determine from time to time what securities will be purchased, retained, or
sold by the Fund, and what portion of the assets will be invested or held
as cash.
<PAGE>
The Manager shall use reasonable care and judgment in the management of the
Fund's portfolio.
The Manager, in the performance of its duties and obligations under this
Agreement, shall act in conformity with the Declaration of Trust (as hereinafter
defined) of the Trust and the investment policies of the Fund as determined by
the Board of Trustees of the Trust and set forth in the Prospectus and Statement
of Additional Information.
The Manager shall determine the securities to be purchased or sold by the
Fund and shall place orders for the purchase and sale of portfolio securities
pursuant to its determinations with brokers or dealers selected by the Manager.
In executing portfolio transactions and selecting brokers or dealers, the
Manager shall use its best efforts to seek on behalf of the Fund the best
overall terms available. In assessing the best overall terms available for any
transaction, the Manager may consider all factors it deems relevant, including
the breadth of the market in the security, the price of the security, the
financial condition and execution capability of the broker or dealer, and the
reasonableness of the commission, if any, both for the specific transaction and
on a continuing basis. In evaluating the best overall terms available, and in
selecting the broker or dealer to execute a particular transaction, the Manager
also may consider the brokerage and research services (as those terms are
defined in Section 28(e) of the Securities Exchange Act of 1934, as amended)
provided to the Fund and/or other accounts over which the Manager exercises
investment discretion. The Manager is authorized to pay to a broker or dealer
who provides such brokerage and research services a commission for executing a
portfolio transaction for the Fund which is in excess of the amount of
commission another broker or dealer would have charged for effecting the
transaction if the Manager determines in good faith that such commission was
reasonable in relation to the value of the brokerage and research services
provided by such broker or dealer, viewed in terms of that particular
transaction or in terms of the overall responsibilities of the Manager to the
Fund and/or other accounts over which the Manager exercises investment
discretion.
On occasions when the Manager deems the purchase or sale of a security to
be in the best interest of the Fund as well as other fiduciary accounts for
which it has investment responsibility, the Manager, to the extent permitted by
applicable laws and regulations, may aggregate the securities to be so sold or
purchased in
2
<PAGE>
order to obtain the best execution, most favorable net price or lower
brokerage commissions.
Monitor and evaluate the services provided by the Fund's investment
sub-advisor, if any, under its investment sub-advisory agreement,
including, without limitation, the sub-advisor's adherence to the Fund's
investment objective(s) and policies and the Fund's investment performance.
Services Not Exclusive. The investment management services rendered by the
----------------------
Manager hereunder to the Fund are not to be deemed exclusive, and the Manager
shall have the right to render similar services to others, including, without
limitation, other investment companies.
Expenses. During the term of this Agreement, the Manager shall pay all
--------
expenses incurred by it in connection with its activities under this Agreement
including the salaries and expenses of any of the officers or employees of the
Manager who act as officers, Trustees or employees of the Fund or the Trust but
excluding the cost of securities purchased for the Fund and the amount of any
brokerage fees and commissions incurred in executing portfolio transactions for
the Fund, and provide the Fund with suitable office space. Other expenses to be
incurred in the operation of the Fund (other than those borne by any third
party), including without limitation, taxes, interest, brokerage fees and
commissions, if any, fees of Trustees who are not officers, directors, employees
or holders of 5% or more of the outstanding voting securities of the Manager or
the Fund's administrator or any of their affiliates, Securities and Exchange
Commission fees and state Blue Sky qualification fees, administration fees,
bookkeeping, charges of custodians, transfer and dividend disbursing agents'
fees, certain insurance premiums, industry association fees, outside auditing
and legal expenses, costs of maintaining the Fund's or the Trust's existence,
costs of independent pricing services, costs attributable to investor services
(including, without limitation, telephone and personnel expenses), costs of
preparing, printing and distributing prospectuses, costs of stockholders'
reports and meetings of shareholders, officers and Trustees of the Fund or the
Trust, as applicable, costs of implementing and operating the Fund's service
plan, and any extraordinary expenses will be borne by the Fund.
Compensation. For the services provided pursuant to this Agreement, the
------------
Fund shall pay to the Manager as full compensation therefor a monthly fee
computed on the average daily net assets of the Fund equal to (i) .50% per annum
of such assets up to $500 million and (ii) .40% per annum of such assets in
excess of $500 million. The Fund acknowledges that the Manager, as agent for
the Fund, will allocate a portion of the fee equal to the sub-advisory fee
payable to the sub-advisor, if any, under its sub-advisory agreement to the sub-
advisor for sub-advisory services. The Fund acknowledges that the Manager, as
agent for the Fund, will allocate a portion of the fee equal to .15% of such
3
<PAGE>
assets to Murphey Favre Securities Services, Inc. for administrative services,
portfolio accounting and regulatory compliance systems and a portion of the fee
equal to .125% of such assets to Composite Funds Distributor, Inc. for
facilitating distribution of the Fund.
Limitation of Liability. The Manager shall not be liable for any error of
-----------------------
judgment or mistake of law or for any loss suffered by the Fund in connection
with the matters to which this Agreement relates, except a loss resulting from a
breach of fiduciary duty with respect to the receipt of compensation for
services (in which case any award of damages shall be limited to the period and
the amount set forth in Section 36(b) of the 1940 Act) or a loss resulting from
willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard by it of its obligations
and duties under this Agreement.
Delivery of Documents. The Fund has heretofore delivered to the Manager
---------------------
true and complete copies of each of the following documents and shall promptly
deliver to it all future amendments and supplements thereto, if any:
Agreement and Declaration of Trust of the Trust (such Agreement and
Declaration as presently in effect and as amended from time to time, the
"Declaration of Trust");
Bylaws of the Trust;
Resolutions of the Board of Trustees of the Trust authorizing the
appointment of the Manager and approving the form of this Agreement;
Registration Statement under the Securities Act of 1933 and under the
1940 Act of the Trust on Form N-1A, and all amendments thereto, as filed
with the Securities and Exchange Commission (the "Registration Statement")
relating to the Fund and the shares of the Fund;
Notification of Registration of the Trust under the 1940 Act on Form
N-8A;
Prospectus of the Fund (such prospectus as presently in effect and/or
as amended or supplemented from time to time, the "Prospectus"); and
4
<PAGE>
Statement of Additional Information of the Fund (such statement as
presently in effect and/or as amended or supplemented from time to time,
the "Statement of Additional Information").
Duration and Termination. This Agreement shall become effective as of the
------------------------
date first above-written for an initial period of two years and shall continue
thereafter so long as such continuance is specifically approved at least
annually (a) by the vote of the Board of Trustees including a majority of those
members of the Trust's Board of Trustees who are not parties to this Agreement
or "interested persons" of any such party, cast in person at a meeting called
for that purpose, or by vote of a majority of the outstanding voting securities
of the Fund. Notwithstanding the foregoing, (a) this Agreement may be
terminated at any time, without the payment of any penalty, by either the Fund
(by vote of the Trust's Board of Trustees or by vote of a majority of the
outstanding voting securities of the Fund) or the Manager, on sixty (60) days
prior written notice to the other and (b) shall automatically terminate in the
event of its assignment. As used in this Agreement, the terms "majority of the
outstanding voting securities, "interested persons" and "assignment" shall have
the meanings assigned to such terms in the 1940 Act.
Amendments. No provision of this Agreement may be amended, modified,
----------
waived or supplemented except by a written instrument signed by the party
against which enforcement is sought. No amendment of this Agreement shall be
effective until approved in accordance with the provisions of the 1940 Act.
Use of Name and Logo. The Fund agrees that it shall furnish to the
--------------------
Manager, prior to any use or distribution thereof, copies of all prospectuses,
statements of additional information, proxy statements, reports to stockholders,
sales literature, advertisements, and other material prepared for distribution
to stockholders of the Fund or to the public, which in any way refer to or
describe the Manager or which include any trade names, trademarks or logos of
the Manager or of any affiliate of the Manager. The Fund further agrees that it
shall not use or distribute any such material if the Manager reasonably objects
in writing to such use or distribution within five (5) business days after the
date such material is furnished to the Manager.
The Manager and/or its affiliates own the names "Sierra", "Composite" and
any other names that they may from time to time develop for use in connection
with the Fund, which names may be used by the Fund or the Trust only with the
consent of the Manager and/or its affiliates. The Manager, on behalf of itself
and/or its affiliates, consents to the use by the Trust and by the Fund of such
names or any other names embodying such names, but only on condition and so long
as (i) this Agreement shall remain in full force, (ii) the Fund and the Trust
shall fully perform, fulfill and comply with all provisions of this Agreement
expressed herein to be performed, fulfilled or complied with by it, and (iii)
the Manager is the manager of the Fund and the Trust. No such name shall be
used by the Fund or the Trust at any time or in any place or for any purposes or
under any
5
<PAGE>
conditions except as provided in this section. The foregoing authorization by
the Manager, on behalf of itself and/or its affiliates, to the Fund and the
Trust to use such names as part of a business or name is not exclusive of the
right of the Manager and/or its affiliates themselves to use, or to authorize
others to use, the same; the Fund and the Trust acknowledge and agree that as
between the Manager and/or its affiliates and the Fund or the Trust, the Manager
and/or its affiliates have the exclusive right so to use, or authorize others to
use, such names, and the Fund and the Trust agree to take such action as may
reasonably be requested by the Manager, on behalf of itself and/or its
affiliates, to give full effect to the provisions of this section (including,
without limitation, consenting to such use of such names). Without limiting the
generality of the foregoing, the Fund and the Trust agree that, upon (i) any
violation of the provisions of this Agreement by the Fund or the Trust or (ii)
any termination of this Agreement, by either party or otherwise, the Fund and
the Trust will, at the request of the Manager, on behalf of itself and/or its
affiliates, made within six months after such violation or termination, use its
best efforts to change the name of the Fund and the Trust so as to eliminate all
reference, if any, to such names and will not thereafter transact any business
in a name containing such names in any form or combination whatsoever, or
designate itself as the same entity as or successor to an entity of such names,
or otherwise use such names or any other reference to the Manager and/or its
affiliates. Such covenants on the part of the Fund and the Trust shall be
binding upon it, its Trustees, officers, stockholders, creditors and all other
persons claiming under or through it.
The provisions of this section shall survive termination of this Agreement.
Notices. Any notice or other communication required to be given pursuant
-------
to this Agreement shall be deemed duly given if delivered or mailed by
registered mail, postage prepaid, if to the Fund: 601 W. Main Ave., Suite 300,
Spokane, Washington 99201; or if to the Manager: 1201 Third Avenue, Suite
1220, Seattle, Washington 98101; or to either party at such other address as
such party shall designate to the other by a notice given in accordance with the
provisions of this section.
Miscellaneous.
-------------
Except as otherwise expressly provided herein or authorized by the
Board of Trustees of the Trust from time to time, the Manager for all
purposes herein shall be deemed to be an independent contractor and shall
have no authority to act for or represent the Fund in any way or otherwise
be deemed an agent of the Fund.
The Fund shall furnish or otherwise make available to the Manager
such information relating to the business affairs of the Fund as the
Manager at any time or from time to time reasonably requests in order to
discharge its obligations
6
<PAGE>
hereunder.
This Agreement shall be governed by and construed in accordance with
the laws of The Commonwealth of Massachusetts and shall inure to the
benefit of the parties hereto and their respective successors.
If any provision of this Agreement shall be held or made invalid or by
any court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby.
Declaration of Trust and Limitation of Liability. A copy of the
------------------------------------------------
Declaration of Trust of the Trust is on file with the Secretary of State of The
Commonwealth of Massachusetts, and notice is hereby given that this Agreement is
executed by an officer of the Trust on behalf of the Trustees of the Trust, as
trustees and not individually, on further behalf of the Fund, and that the
obligations of this Agreement shall be binding upon the assets and properties of
the Fund only and shall not be binding upon the assets and properties of any
other series of the Trust or upon any of the Trustees, officers, employees,
agents or shareholders of the Fund or the Trust individually.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the date first above-written.
SIERRA TRUST FUNDS, on behalf of its
series SHORT TERM HIGH QUALITY BOND FUND
By:
----------------------------------
Name:
Title:
Attest:
By:
-----------------------------------
Name:
Title:
COMPOSITE RESEARCH &
MANAGEMENT CO.
By:
-----------------------------------
7
<PAGE>
William G. Papesh
President
Attest:
By:
---------------------------------
Sharon L. Howells
Secretary
8
<PAGE>
EXHIBIT 99.9(a)-1
CUSTODY AGREEMENT
-----------------
THIS AGREEMENT made the ___ day of _________, 199_ by and between INVESTORS
FIDUCIARY TRUST COMPANY, a trust company chartered under the laws of the state
of Missouri, having its trust office located at 127 West 10th Street, Kansas
City, Missouri 64105 ("Custodian"), and The Sierra Trust Funds, a Massachusetts
business trust, having its principal office and place of business at 9301 Corbin
Avenue, Mail Stop: No. 321 Northridge, California, 91324 ("Fund").
WITNESSETH:
WHEREAS, Fund desires to appoint Investors Fiduciary Trust Company as
Custodian of the securities and monies of Fund's investment portfolio; and
WHEREAS, Investors Fiduciary Trust Company is willing to accept such
appointment;
NOW THEREFORE, for and in consideration of the mutual promises contained
herein, the parties hereto, intending to be legally bound, mutual covenant and
agree as follows:
1. APPOINTMENT OF CUSTODIAN. Fund hereby constitutes and appoints Custodian
-------------------------
as custodian of the securities and monies at any time owned by the Fund.
2. DELIVERY OF CORPORATE DOCUMENTS. Fund has delivered or will deliver to
--------------------------------
Custodian prior to the effective date of this Agreement, copies of the following
documents and all amendments or supplements thereto, properly certified or
authenticated:
A. Resolutions of the Board of Directors of the Fund appointing Custodian
as custodian hereunder and approving the form of this Agreement; and
B. Resolutions of the Board of Directors of the Fund designating certain
persons to give instructions on behalf of the Fund to Custodian and
authorizing Custodian to rely upon written instructions over their
signatures.
3. DUTIES AND RESPONSIBILITIES OF CUSTODIAN.
-----------------------------------------
A. Delivery of Assets. Fund will deliver or cause to be delivered to
------------------
Custodian on the effective date of this Agreement, or as soon
thereafter as practicable, and from time to time thereafter, all
portfolio securities acquired by it and monies then owned by it except
as permitted by the Investment Company Act of 1940 or from time to time
coming into its possession during the time this Agreement shall
continue in effect. Custodian shall have no responsibility or liability
whatsoever for or on account of securities or monies not so delivered.
All securities so delivered to Custodian (other than bearer securities)
shall be registered in the
-1-
<PAGE>
name of Fund or its nominee, or of a nominee of Custodian, or shall be
properly endorsed and in form for transfer satisfactory to Custodian.
B. Delivery of Accounts and Records. Fund shall turn over to Custodian
--------------------------------
all of the Fund's relevant custody accounts and records previously
maintained by it or a prior custodian in order to perform its duties
hereunder. Custodian shall be entitled to rely conclusively on the
completeness and correctness of the accounts and records turned over
to it by Fund, and Fund shall indemnify and hold Custodian harmless of
and from any and all expenses, damages and losses whatsoever arising
out of or in connection with any error, omission, inaccuracy or other
deficiency of such accounts and records or in the failure of Fund to
provide any portion of such or to provide any information needed by
the Custodian knowledgeably to perform its function hereunder.
C. Delivery of Assets to Third Parties. Custodian will receive delivery
-----------------------------------
of and keep safely the assets of Fund delivered to it from time to
time and the assets of each Portfolio segregated in a separate
account. Custodian will not deliver, assign, pledge or hypothecate any
such assets to any person except as permitted by the provisions of
this Agreement or any agreement executed by it according to the terms
of Section 3.S. of this Agreement. Upon delivery of any such assets to
a subcustodian pursuant to Section 3.S. of this Agreement, Custodian
will create and maintain records identifying those assets which have
been delivered to the subcustodian as belonging to the applicable
Portfolio of the Fund. The Custodian is responsible for the
safekeeping of the securities and monies of Fund only until they have
been transmitted to and received by other persons as permitted under
the terms of this Agreement, except for securities and monies
transmitted to United Missouri Bank of Kansas City, N.A. (UMBKC),
United Missouri Trust Company of New York (UMBTC), and First National
Bank of Chicago (FNBC) for which Custodian remains responsible.
Custodian shall be responsible for the monies and securities of
Fund(s) held by eligible foreign subcustodians to the extent the
domestic subcustodian with which the Custodian contracts is
responsible to Custodian. Custodian may participate directly or
indirectly through a subcustodian in the Depository Trust Company,
Treasury/Federal Reserve Book Entry System, Participant Trust Company,
Treasury/Federal Reserve Book Entry System, Participant Trust Company
or other depository approved by the Fund (as such entities are defined
at 17 CFR Section 270.17f(b)).
D. Registration of Securities. Custodian will hold stocks and other
--------------------------
registerable portfolio securities of Fund registered in the name of
the Fund or in the name of any nominee of Custodian for whose fidelity
and liability Custodian will be fully responsible, or in street
certificate form, so-called, with or without any indication of
fiduciary capacity. Unless otherwise instructed, Custodian will
register all such portfolio securities in the name of its authorized
nominee. All securities, and the
-2-
<PAGE>
ownership thereof by Fund, which are held by Custodian hereunder,
however, shall at all times be identifiable on the records of the
Custodian. The Fund agrees to hold Custodian and its nominee harmless
for any liability as a record holder of securities held in custody.
E. Exchange of Securities. Upon receipt of instructions as defined herein
----------------------
in Section 4.A, Custodian will exchange, or cause to be exchanged,
portfolio securities held by it for the account of Fund for other
securities or cash issued or paid in connection with any
reorganization, recapitalization, merger, consolidation, split-up of
shares, change of par value, conversion or otherwise, and will deposit
any such securities in accordance with the terms of any reorganization
orprotective plan. Without instructions, Custodian is authorized to
exchange securities held by it in temporary form for securities in
definitive form, to effect an exchange of shares when the par value of
the stock is changed, and upon receiving payment therefor, to
surrender bonds or other securities held by it at maturity or when
advised of earlier call for redemption, except that Custodian shall
receive instructions prior to surrendering any convertible security.
F. Purchases of Investments of the Fund. Fund will, on each business day
------------------------------------
on which a purchase of securities shall be made by it, deliver to
Custodian instructions which shall specify with respect to each such
purchase;
1. The name of the Portfolio making such purchase;
2. The name of the issuer and description of the security;
3. The number of shares or the principal amount purchased, and
accrued interest, if any;
4. The trade date;
5. The settlement date;
6. The purchase price per unit and the brokerage commission, taxes
and other expenses payable in connection with the purchase;
7. The total amount payable upon such purchase; and
8. The name of the person from whom or the broker or dealer through
whom the purchase was made.
In accordance with such instructions, Custodian will pay for out of
monies held for the account of Fund, but only insofar as monies are available
therein for such purpose, and receive the portfolio securities so purchased by
or for the account of Fund except that Custodian may in its sole discretion
advance funds to the Fund which may result in an overdraft because the monies
held by the Custodian on behalf of the Fund are insufficient to pay the total
amount payable upon such purchase. Such payment will be made only upon receipt
by Custodian of the securities so purchased in form for transfer satisfactory to
Custodian.
-3-
<PAGE>
G. Sales and Deliveries of Investments of the Fund - Other than Options
--------------------------------------------------------------------
and Futures. Fund will, on each business day on which a sale of
-----------
investment securities of Fund has been made,deliver to Custodian
instructions specifying with respect to each such sale:
1. The name of the Portfolio making such sale;
2. The name of the issuer and description of the securities;
3. The number of shares or principal amount sold, and accrued
interest, if any;
4. The date on which the securities sold were purchased or other
information identifying the securities sold and to be delivered;
5. The trade date;
6. The settlement date;
7. The sale price per unit and the brokerage commission, taxes or
other expenses payable in connection with such sale;
8. The total amount to be received by Fund upon such sale; and
9. The name and address of the broker or dealer through whom or
person to whom the sale was made.
In accordance with such instructions, Custodian will deliver or cause to be
delivered the securities thus designated as sold for the account of Fund to the
broker or other person specified in the instructions relating to such sale, such
delivery to be made only upon receipt of payment therefor in such form as is
satisfactory to Custodian, with the understanding that Custodian may deliver or
cause to be delivered securities for payment in accordance with the customs
prevailing among dealers in securities.
H. Purchases or Sales of Security Options, Options on Indices and
--------------------------------------------------------------
Security Index Futures Contracts. Fund will, on each business day on
--------------------------------
which a purchase or sale of the following options and/or futures shall
be made by it, deliver to Custodian instructions which shall specify
with respect to each such purchase or sale:
1. The name of the Portfolio making such purchase or sale;
2. Security Options
a. The underlying security;
b. The price at which purchased or sold;
c. The expiration date;
d. The number of contracts;
e. The exercise price;
f. Whether the transaction is an opening, exercising, expiring or
closing transaction;
g. Whether the transaction involves a put or call;
h. Whether the option is written or purchased;
i. Market on which option traded;
-4-
<PAGE>
j. Name and address of the broker or dealer through whom the sale or
purchase was made.
3. Options on Indices
a. The index;
b. The price at which purchased or sold;
c. The exercise price;
d. The premium;
e. The multiple;
f. The expiration date;
g. Whether the transaction is an opening, exercising, expiring or
closing transaction;
h. Whether the transaction involves a put or call;
i. Whether the option is written or purchased;
j. The name and address of the broker or dealer through whom the
sale or purchase was made, or other applicable settlement
instructions.
4. Security Index Futures Contracts
a. The last trading date specified in the contract and, when
available, the closing level, thereof;
b. The index level on the date the contract is entered into;
c. The multiple;
d. Any margin requirements;
e. The need for a segregated margin account (in addition to
instructions, and if not already in the possession of Custodian, Fund
shall deliver a substantially complete and executed custodial
safekeeping account and procedural agreement which shall be
incorporated by reference into this Custody Agreement); and
f. The name and address of the futures commission merchant through
whom the sale or purchase was made, or other applicable settlement
instructions.
5. Option on Index Future Contracts
a. The underlying index futures contract;
b. The premium;
c. The expiration date;
d. The number of options;
e. The exercise price;
f. Whether the transaction involves an opening, exercising, expiring
or closing transaction;
g. Whether the transaction involves a put or call;
h. Whether the option is written or purchased; and
I. The market on which the option is traded.
I. Securities Pledged or Loaned
----------------------------
If specifically allowed for in the prospectus of Fund:
-5-
<PAGE>
1. Upon receipt of instructions, Custodian will release or cause to be
released securities held in custody to the pledgee designated in such
instructions by way of pledge or hypothecation to secure any loan incurred by
Fund; provided, however, that the securities shall be released only upon payment
to Custodian of the monies borrowed, except that in cases where additional
collateral is required to secure a borrowing already made, further securities
may be released or caused to be released for that purpose upon receipt of
instructions. Upon receipt of instructions, Custodian will pay, but only from
funds available for such purpose, any such loan upon redelivery to it of the
securities pledged or hypothecated therefor and upon surrender of the note or
notes evidencing such loan.
2. Upon receipt of instructions, Custodian will release securities held in
custody to the borrower designated in such instructions; provided, however, that
the securities will be released only upon deposit with Custodian of full cash
collateral as specified in such instructions, and that Fund will retain the
right to any dividends, interest or distribution on such loaned securities. Upon
receipt of instructions and the loaned securities, Custodian will release the
cash collateral to the borrower.
J. Routine Matters. Custodian will, in general, attend to all routine and
---------------
mechanical matters in connection with the sale, exchange, substitution,
purchase, transfer, or other dealings with securities or other property of Fund
except as may be otherwise provided in this Agreement or directed from time to
time by the Board of Directors of Fund.
K. Deposit Account. Custodian will open and maintain a special purpose
---------------
deposit accounts in the name of Custodian ("Account"), subject only to draft or
order by Custodian upon receipt of instructions. All monies received by
Custodian from or for the account of a portfolio shall be deposited in said
Account, barring events not in the control of the Custodian such as strikes,
lockouts or labor disputes, riots, war or equipment or transmission failure or
damage, fire, flood, earthquake or other natural disaster, action or inaction of
governmental authority or other causes beyond its control, at 9:00 a.m., Kansas
City time, on the second business day after deposit of any check into Fund's
Account, Custodian agrees to make Fed Funds available to the Fund in the amount
of the check. Deposits made by Federal Reserve wire will be available to the
Fund immediately and ACH wires will be available to the Fund on the next
business day. Income earned on the portfolio securities will be credited to the
applicable portfolio of the Fund based on the schedule attached as Exhibit A.
The Custodian will be entitled to reverse any credited amounts where credits
have been made and monies are not finally collected. If monies are collected
after such reversal, the Custodian will credit the applicable portfolio in that
amount. Custodian may open and maintain an Account in such other banks or trust
companies as may be designated by it or by properly authorized resolution of the
Board of Directors of Fund, such Account, however, to be in the name of
custodian and subject only to its draft or order.
L. Income and other Payments to Fund
---------------------------------
Custodian will:
-6-
<PAGE>
1. Collect, claim and receive and deposit for the Account of Fund all
income and other payments which become due and payable on or after the
effective date of this Agreement with respect to the securities
deposited under this Agreement, and credit the account of Fund in
accordance with the schedule attached hereto as Exhibit A. If for any
reason, the Fund is credited with income that is not subsequently
collected, Custodian may reverse that credited amount;
2. Execute ownership and other certificates and affidavits for all federal,
state and local tax purposes in connection with the collection of bond
and note coupons; and
3. Take such other action as may be necessary or proper in connection with:
a. The collection, receipt and deposit of such income and other
payments, including but not limited to the presentation for payment
of:
1. all coupons and other income items requiring presentation; and
2. all other securities which may mature or be called, redeemed,
retired or otherwise become payable and regarding which the
Custodian has actual knowledge, or notice of which is contained in
publications of the type to which it normally subscribes for such
purpose; and
b. the endorsement for collection, in the name of the Fund, of all
checks, drafts or other negotiable instruments.
Custodian, however, will not be required to institute suit or take other
extraordinary action to enforce collection except upon receipt of instructions
and upon being indemnified to its satisfaction against the costs and expenses
of such suit or other actions. Custodian will receive, claim and collect all
stock dividends, rights or other similar items and will deal with the same
pursuant to instructions. Unless prior instructions have been received to the
contrary, Custodian will, without further instructions, sell any rights held
for the account of Fund on the last trade date prior to the date of expiration
of such rights.
M. Payment of Dividends and other Distributions
--------------------------------------------
On the declaration of any dividend or other distribution on the shares
of Capital Stock of Fund ("Fund Shares") by the Board of Directors of
Fund, Fund shall deliver to Custodian instructions with respect thereto,
including a copy of the Resolution of said Board of Directors certified
by the Secretary or Assistant Secretary of Fund wherein there shall be
set forth the record date as of which shareholders entitled to receive
such dividend or other distribution shall be determined, the date of
payment of such dividend or distribution, and the amount payable per
share on such dividend or distribution. Except if the ex-dividend date
and the reinvestment date of any dividend are the same, in which case
funds shall remain in the Custody Account, on the date specified in such
Resolution for the payment of such dividend or other distribution,
Custodian will pay out of the monies held for the account of Fund,
insofar as the same shall be available for such purposes, and credit to
the account of the Dividend Disbursing Agent for Fund, such amount as
may be necessary to pay the amount per share payable in cash on Fund
Shares issued and outstanding on the record date established by such
Resolution.
-7-
<PAGE>
N. Shares of Fund Purchased by Fund
--------------------------------
Whenever any Fund Shares are repurchased or redeemed by Fund, Fund or
its agent shall advise Custodian of the aggregate dollar amount to be
paid for such shares and shall confirm such advice in writing. Upon
receipt of such advice, Custodian shall charge such aggregate dollar
amount to the Account of Fund and either deposit the same in the
account maintained for the purpose of paying for the repurchase or
redemption of Fund Shares or deliver the same in accordance with such
advice. Custodian shall not have any duty or responsibility to
determine that Fund Shares have been removed from the proper
shareholder account or accounts or that the proper number of such
shares have been cancelled and removed from the shareholder records.
O. Shares of Fund Purchased from Fund
----------------------------------
Whenever Fund Shares are purchased from Fund, Fund will deposit or
cause to be deposited with Custodian the amount received for such
shares. Custodian shall not have any duty or responsibility to
determine that Fund Shares purchased from Fund have been added to the
proper shareholder account or accounts or that the proper number of
such shares have been added to the shareholder records.
P. Proxies and Notices
-------------------
Custodian will promptly deliver or mail or have delivered or mailed to
Fund all proxies properly signed, all notices of meetings, all proxy
statements and other notices, requests or announcements affecting or
relating to securities held by Custodian for Fund and will, upon
receipt of instructions, execute and deliver or cause its nominee to
execute and deliver or mail or have delivered or mailed such proxies
or other authorizations as may be required. Except as provided by this
Agreement or pursuant to instructions hereafter received by Custodian,
neither it nor its nominee will exercise any power inherent in any
such securities, including any power to vote the same, or execute any
proxy, power of attorney, or other similar instrument voting any of
such securities, or give any consent, approval or waiver with respect
thereto, or take any other similar action.
Q. Disbursements
-------------
Custodian will pay or cause to be paid insofar as funds are available
for the purpose, bills, statements and other obligations of Fund
(including but not limited to obligations in connection with the
conversion, exchange or surrender of securities owned by Fund,
interest charges, dividend disbursements, taxes, management fees,
custodian fees, legal fees, auditors' fees, transfer agents' fees,
brokerage commissions, compensation to personnel, and other operating
expenses of Fund) pursuant to instructions of Fund setting forth the
name of the person to whom payment is to be made, the amount of the
payment, and the purpose of the payment.
-8-
<PAGE>
R. Daily Statement of Accounts
---------------------------
Custodian will, within a reasonable time, render to Fund as of the
close of business on each day, a detailed statement of the amounts
received or paid and of securities received or delivered for the
account of Fund during said day. Custodian will, from time to time,
upon request by Fund, render a detailed statement of the securities
and monies held for Fund under this Agreement, and Custodian will
maintain such books and records as are necessary to enable it to do so
and will permit such persons as are authorized by Fund including
Fund's independent public accountants, access to such records or
confirmation of the contents of such records; and if demanded, will
permit federal or state regulatory agencies to examine the securities,
books and records. Upon the written instructions of Fund or as
demanded by federal or state regulatory agencies, Custodian will
instruct any subcustodian to give such persons as are authorized by
Fund including Fund's independent public accountants, access to such
records or confirmation of the contents of such records; and if
demanded, to permit federal and state regulatory agencies to examine
the books, records and securities held by subcustodian which relate to
Fund.
S.Appointment of Subcustodians
----------------------------
1. Notwithstanding any other provisions of this Agreement, all or any of
the monies or securities if Fund may be held in Custodian's own
custody or in the custody of one or more other banks or trust
companies selected by Custodian. Any such subcustodian selected by the
Custodian must have the qualifications required for custodian under
the Investment Company Act of 1940, as amended. The Custodian may
participate directly or indirectly in the Depository Trust Company,
Treasury/Federal Reserve Book Entry System, Participant Trust Company
(as such entities are defined at 17 CFR Sec. 270.17f-4(b)), or other
depository approved by the Fund and with which Custodian has a
satisfactory direct or indirect contractual relationship. Custodian
will appoint UMBKC and UMBNY as subcustodians and Custodian shall be
responsible for UMBKC and UMBNY to the same extent it is responsible
to the Fund under Section 5 of this Agreement. Custodian is not
responsible for DTC, the Treasury/Federal Reserve Book Entry System,
and PTC except to the extent such entities are responsible to
Custodian. Upon instruction of the Fund, Custodian shall be willing to
contract with such entities as Bank of New York (BONY), Morgan
Guaranty and Trust Company (MGTC), Chemical Bank (CB), and Bankers
Trust Company (BT) for variable rate securities and Custodian will be
responsible to the Fund to the same extent those entities are
responsible to Custodian. The Fund shall be entitled to review
Custodian's contracts with BONY, MGTC, CB, and BT.
T. Accounts and Records Property of Fund
-------------------------------------
Custodian acknowledges that all of the accounts and records maintained by
Custodian pursuant to this Agreement are the property of Fund, and will
be made available to
-9-
<PAGE>
Fund for inspection or reproduction within a reasonable period of time,
upon demand. Custodian will assist Fund's independent auditors, or upon
approval of Fund, or upon demand, any regulatory body having jurisdiction
over the Fund or Custodian, in any requested review of Fund's accounts
and records but shall be reimbursed for all expenses and employee time
invested in any such review outside of routine and normal periodic
reviews.
U. Adoption of Procedures
----------------------
Custodian and Fund may from time to time adopt procedures as they agree
upon, and Custodian may conclusively assume that no procedure approved by
Fund, or directed by Fund, conflicts with or violates any requirements of
its prospectus, "Articles of Incorporation," Bylaws, or any rule or
regulation of any regulatory body or governmental agency. Fund will be
responsible to notify Custodian of any changes in statutes, regulations,
rules or policies which might necessitate changes in Custodian's
responsibilities or procedures.
V. Overdrafts
----------
If Custodian shall in its sole discretion advance funds to the account of
the Fund which results in an overdraft because the monies held by
Custodian on behalf of the Fund are insufficient to pay the total amount
payable upon a purchase of securities as specified in a Fund's
instructions or for some other reason, the amount of the overdraft shall
be payable by the Fund to Custodian upon demand and shall bear an
interest rate determined by Custodian from the date advanced until the
date of payment. Custodian shall have a lien on the assets of Fund in the
amount of any outstanding overdraft.
4. INSTRUCTIONS.
-------------
A. The term "instructions," as used herein, means written or oral
instructions to Custodian from a designated representative of Fund.
Certified copies of resolutions of the Board of Directors of Fund naming
one or more designated representatives to give instructions in the name
and on behalf of Fund, may be received and accepted from time to time by
Custodian as conclusive evidence of the authority of any designated
representative to act for Fund and may be considered to be in full force
and effect (and Custodian will be fully protected in acting in reliance
thereon) until receipt by Custodian of notice to the contrary. Unless the
resolution delegating authority to any person to give instructions
specifically requires that the approval of anyone else will first have
been obtained, Custodian will be under no obligation to inquire into the
right of the person giving such instructions to do so. Notwithstanding
any of the foregoing provisions of this Section 4. no authorizations or
instructions received by Custodian from Fund, will be deemed to authorize
or permit any director, trustee, officer, employee, or agent of Fund to
withdraw any of the securities or
-10-
<PAGE>
similar investments of Fund upon the mere receipt of such authorization
or instructions from such director, trustee, officer, employee or agent.
B. No later than the next business day immediately following each oral
instruction, Fund will send Custodian written confirmation of such oral
instruction. At Custodian's sole discretion, Custodian may record on
tape, or otherwise, any oral instruction whether given in person or via
telephone, each such recording identifying the parties, the date and the
time of the beginning and ending of such oral instruction.
5. LIMITATION OF LIABILITY OF CUSTODIAN.
A. Custodian shall hold harmless and indemnify Fund from and against any
loss or liability arising out of Custodian's negligence or bad faith.
Custodian shall not be liable for consequential damages, special, or
punitive damages. Custodian may request and obtain the advice and opinion
of counsel for Fund, or of its own counsel with respect to questions or
matters of law, and it shall be without liability to Fund for any action
taken or omitted by it in good faith, in conformity with such advice or
opinion. If Custodian reasonably believes that it could not prudently act
according to the instructions of the Fund or the Fund's counsel, it may
in its discretion, with notice to the Fund, not act according to such
instructions.
B. Custodian may rely upon the advice of Fund and upon statements of Fund's
accountants and other persons believed by, it in good faith, to be expert
in matters upon which they are consulted, and Custodian shall not be
liable for any actions taken, in good faith, upon such statements.
C. If Fund requires Custodian in any capacity to take, with respect to any
securities, any action which involves the payment of money by it, or
which in Custodian's opinion might make it or its nominee liable for
payment of monies or in any other way, Custodian, upon notice to Fund
given prior to such actions, shall be and be kept indemnified by Fund in
an amount and form satisfactory to Custodian against any liability on
account of such action.
D. Custodian shall be entitled to receive, and Fund agrees to pay Custodian,
on demand, reimbursement for such cash disbursements, costs and expenses
as may be agreed upon from time to time by Custodian and Fund.
E. Custodian shall be protected in acting as custodian hereunder upon any
instructions, advice, notice, request, consent, certificate or other
instrument or paper reasonably appearing to it to be genuine and to have
been properly executed and shall, unless otherwise specifically provided
herein, be entitled to receive as conclusive proof of any fact or matter
required to be ascertained from Fund hereunder, a certificate signed by
the Fund's President, or other officer specifically authorized for such
purpose.
-11-
<PAGE>
F. Without limiting the generality of the foregoing, Custodian shall be
under no duty or obligation to inquire into, and shall not be liable for:
1. The validity of the issue of any securities purchased by or for Fund,
the legality of the purchase thereof or evidence of ownership required
by Fund to be received by Custodian, or the propriety of the decision
to purchase or amount paid therefor;
2. The legality of the sale of any securities by or for Fund, or the
propriety of the amount for which the same are sold;
3. The legality of the issue or sale of any shares of the Capital Stock
of Fund, or the sufficiency of the amount to be received therefor;
4. The legality of the repurchase or redemption of any Fund Shares, or
the propriety of the amount to be paid therefor; or
5. The legality of the declaration of any dividend by Fund, or the
legality of the issue of any Fund Shares in payment of any stock
dividend.
G. Custodian shall not be liable for, or considered to be Custodian of, any
money represented by any check, draft, wire transfer, clearing house
funds, uncollected funds, or instrument for the payment of money received
by it on behalf of the Fund, until Custodian actually receives such
money, provided only that it shall advise Fund promptly if it fails to
receive any such money in the ordinary course of business, and use its
best efforts and cooperate with Fund toward the end that such money shall
be received.
H. Custodian shall not be responsible for loss occasioned by the acts,
neglects, defaults or insolvency of any broker, bank, trust company, or
any other person with whom Custodian may deal in the absence of
negligence, or bad faith on the part of the Custodian.
I. Notwithstanding anything herein to the contrary, Custodian may, and with
respect to any foreign subcustodian appointed under Section 3.S.2. must,
provide the Fund for its approval, agreements with banks or trust
companies which will act as subcustodians for Fund pursuant to Section
3.S of this Agreement.
6. COMPENSATION. Fund will pay Custodian such compensation as is stated in the
-------------
Fee Schedule attached hereto as Exhibit B which may be changed from time to
time as agreed to in writing by Custodian and Fund. Custodian may charge
such compensation against monies held by it for the account of Fund.
Custodian will also be entitled, notwithstanding the provisions of Sections
5.C. or 5.D. hereof, to charge against any monies held by it for the account
of Fund the amount of any loss, damage, liability, advance, or expense for
which it shall be entitled to reimbursement under the provisions of this
Agreement including fees or expenses due to Custodian for other services
provided to the Fund by the Custodian.
-12-
<PAGE>
7. TERMINATION. Either party to this Agreement may terminate the same by notice
------------
in writing, delivered or mailed, postage prepaid, to the other party hereto
and received not less than ninety (90) days prior to the date upon which
such termination will take effect. Upon termination of this Agreement, Fund
will pay to Custodian such compensation for its reimbursable disbursements,
costs and expenses paid or incurred to such date and Fund will use its best
efforts to obtain a successor custodian. Unless the holders of a majority of
the outstanding shares of "Capital Stock" of Fund vote to have the
securities, funds and other properties held under this Agreement delivered
and paid over to some other person, firm or corporation specified in the
vote, having not less than Two Million Dollars ($2,000,000) aggregate
capital, surplus and undivided profits, as shown by its last published
report, and meeting such other qualifications for custodian as set forth in
the Bylaws of Fund, the Board of Directors of Fund will, forthwith upon
giving or receiving notice of termination of this Agreement, appoint as
successor custodian a bank or trust company having such qualifications.
Custodian will, upon termination of this Agreement, deliver to the successor
custodian so specified or appointed, at Custodian's office, all securities
then held by Custodian hereunder, duly endorsed and in form for transfer, all
funds and other properties of Fund deposited with or held by Custodian
hereunder, or will cooperate in effecting changes in book-entries at the
Depository Trust Company or in the Treasury/Federal Reserve Book-Entry System
pursuant to 31 CFR Sec. 306.118. In the event no such vote has been adopted
by the stockholders of Fund and no written order designating a successor
custodian has been delivered to Custodian on or before the date when such
termination becomes effective, then Custodian will deliver the securities,
funds and properties of Fund to a bank or trust company at the selection of
Custodian and meeting the qualifications for custodian, if any, set forth in
the Bylaws of Fund and having not less than Two Million Dollars ($2,000,000)
aggregate capital, surplus and undivided profits, as shown by its last
published report. Upon either such delivery to a successor custodian,
Custodian will have no further obligations or liabilities under this
Agreement. Thereafter such bank or trust company will be the successor
custodian under this Agreement and will be entitled to reasonable
compensation for its services. In the event that no such successor custodian
can be found, Fund will submit to its shareholders, before permitting
delivery of the cash and securities owned by Fund to anyone other than a
successor custodian, the question of whether Fund will be liquidated or
function without a custodian. Notwithstanding the foregoing requirement as
to delivery upon termination of this Agreement, Custodian may make any other
delivery of the securities, funds and property of Fund which is permitted by
the Investment Company Act of 1940, Fund's Certificate of Incorporation and
Bylaws then in effect or apply to a court of competent jurisdiction for the
appointment of a successor custodian.
8. NOTICES. Notices, requests, instructions and other writings received by Fund
--------
at 9301 Corbin Avenue, Mail Stop: No. 321 Northridge, California, 91324 or at
such other address as Fund may have designated to Custodian in writing, will
be deemed to have been properly given to Fund hereunder; and notices,
requests, instructions and other writings received by Custodian at its
offices at 127 West 10th Street, Kansas City, Missouri 64105, or to such
-13-
<PAGE>
other address as it may have designated to Fund in writing, will be deemed to
have been properly given to Custodian hereunder.
9. MISCELLANEOUS.
--------------
A. This Agreement is executed and delivered in the State of Missouri and
shall be governed by the laws of said state.
B. All the terms and provisions of this Agreement shall be binding upon,
inure to the benefit of, and be enforceable by the respective successor
and assigns of the parties hereto.
C. No provisions of the Agreement may be amended or modified, in any manner
except by a written agreement properly authorized and executed by both
parties hereto.
D. The captions in this Agreement are included for convenience of reference
only, and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.
E. This Agreement may be executed simultaneously in two or more
counterparts, each of which will be deemed an original but all of which
together will constitute one and the same instrument.
F. If any part, term or provision of this Agreement is by the courts held to
be illegal, in conflict with any law or otherwise invalid, the remaining
portion or portions shall be considered severable and not be affected,
and the rights and obligations of the parties shall be construed and
enforced as if the Agreement did not contain the particular part, term or
provision held to be illegal or invalid.
G. Custodian will not release the identity of Fund to an issuer which
requests such information pursuant to the Shareholder Communications Act
of 1985 for the specific purpose of direct communications between such
issuer and Fund unless the Fund directs the Custodian otherwise.
H. This Agreement may not be assigned by either party without prior written
consent of the other party.
I. If any provision of the Agreement, either in its present form or as
amended from time to time, limits, qualifies, or conflicts with the
Investment Company Act of 1940, as amended, and the rules and regulations
promulgated thereunder, such statutes, rules and regulations shall be
deemed to control and supercede such provision without nullifying or
terminating the remainder of the provisions of this Agreement.
-14-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly respective authorized officers.
INVESTORS FIDUCIARY TRUST
COMPANY
By:
---------------------
Title:
-----------
THE SIERRA TRUST FUNDS
By:
-----------------
Title:
---------
-15-
<PAGE>
<TABLE>
<CAPTION>
TRANSACTION DTC PHYSICAL FED
- ----------- --- -------- ---
<S> <C> <C> <C> <C> <C> <C>
TYPE CR DATE FDS TYPE CR DATE FDS TYPE CR DATE FDS TYPE
Calls Puts As Received C of F* As Received C or F*
Maturities As Received C or F* Mat. Date C or F* Mat. Date F
Tender As Received C or F* As Received C N/A
Reorgs.
Dividends Paydate C Paydate C N/A
Floating Rate Paydate C Paydate C N/A
Int.
Floating Rate N/A As Rate C N/A
Int. (No Received
Rate)
Mtg. Backed Paydate C Paydate + 1 C Paydate F
P&I Bus. Day
Fixed Rate Paydate C Paydate C Paydate F
Int.
Euroclear N/A C Paydate C
</TABLE>
Legend
- ------
C = Clearinghouse Funds
F = Fed Funds
N/A = Not Applicable
* Availability based on how received.
-16-
<PAGE>
INVESTORS FIDUCIARY TRUST COMPANY
THE SIERRA TRUST FUNDS
FEE SCHEDULE
I. SECURITY CUSTODY
A. Domestic Securities
-------------------
Asset-Based Fee on a total relationship basis:
1.0/100 of 1% (1 basis point) on the first $500 million in assets
.75/100 of 1% (.75 basis points) on the next $500 million in assets
.5/100 of 1% (.5 basis points) on all assets over $1 billion in assets
Transaction Fee, per transaction:
Physical Delivery - $20.00
Depository Eligible - $8.00
Participant Trust Company (PTC) Eligible - $12.00
PTC Asset-backed Security Paydown - $7.50
Other Asset-backed Security Paydown - $10.00
Overnight Sweeps - $5.00 (buy-side only)
Federal Funs Wire Received or Delivered - $6.00
B. Foreign Securities
------------------
See Appendix I for Global Fee Agreement.
C. Balance Credits
---------------
IFTC will offset fees with balance credits calculated at 75% of the
bank credit rate (see below) applied to average custody collected
cash balances for the month. Balance credits can be used to offset
fees. Any credits in excess of fees will be carried forward from
month to month through the end of the calendar year. For
calculation purposes, IFTC uses an actual/actual basis.
Note: The bank credit rate is the equivalent to the lesser of:
The average 91-day Treasury Bill discount rate for the month
or
The average Federal Funds rate for the month less 50 basis
points.
PAGE 1 OF 2
-17-
<PAGE>
THE SIERRA TRUST FUNDS
FEE SCHEDULE (CONT.)
II. NOTES TO THE ABOVE FEE SCHEDULE
A. Asset based fees will be billed monthly at 1/12th of the annual stated
rate based on monthly average net assets. Annual maintenance fees are
payable monthly at 1/12th of the annual stated rate.
B. The above schedule does not include out-of-pocket expenses that would
be incurred by IFTC on the client's behalf. Examples of out-of-pocket
expenses include but are not limited to microfiche, disaster recovery,
pricing services, overnight mailing services, FDIC insurance, foreign
registration and script fees, etc. IFTC bills out-of-pocket expenses
separately from service fees.
C. The fees stated above are exclusive of terminal equipment required in
the client's location(s) and communication line costs.
D. Any fees or out-of-pocket expenses not paid within 30 days of the date
of the original invoice will be charged a late payment fee of 1% per
month until payment of the fees are received by IFTC.
E. The above fee schedule is applicable for selections made and
communicated within 90 days of the date of this proposal. The fees are
guaranteed for a three year period commencing on the effective date of
the service agreement between IFTC and the client. All changes to the
fee schedule will be communicated in writing at least 60 days prior to
their effective date.
F. Overdrafts will be calculated at the Prime rate (as published in the
Wall Street Journal) and charged on a daily basis.
- ---------------------------------- -----------------------------
Investors Fiduciary Trust Company The Sierra Trust Funds
- ---------------------------------- -----------------------------
Date Date
2 OF 2
-18-
<PAGE>
APPENDIX I
GLOBAL CUSTODY FEES
I. Country Based Charges:
---------------------
<TABLE>
<CAPTION>
Market Asset Transaction Market Asset Transaction
Charge Charge Charge Charge
<S> <C> <C> <C> <C> <C>
Argentina 40 $120 Malaysia 15 $ 20
Australia 15 $ 20 Mauritius 40 $120
Austria 14 $ 20 Mexico 15 $ 20
Bangladesh 40 $120 Morocco 40 $120
Belgium 15 $ 20 Namibia 40 $ 20
Belize 40 $120 Netherlands 15 $ 20
Botswana 40 $120 New Zealand 15 $ 20
Brazil 40 $120 Norway 15 $ 20
Canada 15 $ 20 Pakistan 40 $120
Euroclear 5 $ 25 Peru 40 $120
Chile 40 $120 Philippines 15 $120
Colombia 40 $120 Poland 40 $120
Czech 40 $120 Portugal 15 $120
Republic
Denmark 15 $ 20 Shanghai 35 $120
(China)
Egypt 40 $120 Shenzhen 35 $120
(China)
ECU* 15 $ 20 Singapore 15 $ 20
Finland 15 $ 20 South Africa 15 $ 20
France 15 $ 20 South Korea 40 $120
Germany 15 $ 20 Spain 15 $ 20
Ghana 40 $120 Sri Lanka 35 $120
Greece 40 $120 Swaziland 40 $120
Hong Kong 15 $ 20 Sweden 15 $ 20
Hungary 40 $120 Switzerland 15 $ 20
India 40 $120 Taiwan 35 $120
Indonesia 15 $120 Thailand 15 $ 20
Ireland 15 $ 20 Turkey 40 $120
Israel 40 $120 United 15 $ 20
Kingdom
Italy 15 $ 20 Uruguay 40 $120
Japan 10 $ 20 Venezuela 40 $120
Jordan 45 $120 Zimbabwe 40 $120
Luxembourg 15 $ 20
</TABLE>
-19-
<PAGE>
NOTE: Any country not listed above will be negotiated at time of investment.
Out of Pocket Expenses: As incurred (e.g. stamp taxes, registration costs,
script fees, special transportation costs, etc.). *ECU = European Currency Unit
-20-
<PAGE>
EXHIBIT 99.10(d)(2)
(SIERRA TRUST FUNDS)
SIERRA TRUST FUNDS
MULTI-CLASS PLAN
Effective Date (_______________, 1997)
WHEREAS, the Board of Trustees of Sierra Trust Funds (the "Trust") have
considered the following Multi-Class Plan (the "Plan") under which the Trust may
offer multiple classes of shares of its now existing and hereafter created
series pursuant to Rule 18f-3 under the Investment Company Act of 1940, as
amended (the "1940 Act"); and
WHEREAS, a majority of the Trustees of the Trust and a majority of the
Trustees who are not interested persons of the Trust ("Independent Trustees")
have found the Plan, as proposed, including the expense allocations thereunder,
to be in the best interests of each class individually and of each Fund (as
defined below) and the Trust as a whole;
NOW, THEREFORE, the Trust hereby approves and adopts the following Plan
pursuant to Rule 18f-3(d) under the 1940 Act.
FEATURES OF THE CLASSES
Each now existing and hereafter created series (each a "Fund") of the Trust
is authorized to issue from time to time its shares of beneficial interest in
four classes: Class A shares, Class B shares, Class I shares, and Class S
shares. Each class is subject to such investment minimums and other conditions
of eligibility as are set forth in the Trust's prospectus or prospectuses as
from time to time in effect (together with all relevant Statements of Additional
Information, the "Prospectus"). Each Fund offers such classes of shares to such
classes of persons as are set forth in the Prospectus.
Shares of each class of a Fund shall represent an equal pro rata interest
in such Fund and, generally, shall have identical voting, dividend, liquidation,
and other rights, preferences, powers, restrictions, limitations, qualifications
and terms and conditions, except that: (a) each class shall have a different
designation; (b) each class of shares shall bear any Class Expenses, as defined
in Section 4 below; and (c) each class shall have separate voting rights on any
matter submitted to shareholders in which the interests of one class differ from
the interests of any other class and shall have exclusive voting rights on any
matter submitted to shareholders that relates solely to that class.
<PAGE>
In addition, Class A, Class B, Class I, and Class S shares shall have the
features described in Sections 2, 3, 4, 5, 6 and 7 below. These features are
subject to change, to the extent permitted by law and by the Declaration of
Trust and By-laws of the Trust, by action of the Board of Trustees of the Trust.
SALES CHARGE STRUCTURE
(a) Initial Sales Charge. Class A shares of the "Non-Money Funds", which
--------------------
are the Funds other than California Money Fund (the "Money Fund"), are offered
at a public offering price that is equal to their net asset value ("NAV") plus
an initial sales charge expressed as a percentage of the NAV per share, as
described in the Prospectus. Class A shares of the Money Fund are offered at
their NAV, without an initial sales charge.
The initial sales charge on Class A shares are subject to reduction or
waiver as permitted by Rule 22d-1 under the 1940 Act, as described in the
Prospectus.
The exact terms and conditions of any initial sales charge applicable to
Class A shares, which may vary among Funds, will be as described in the
Prospectus.
Class B, Class I and Class S shares of the Funds are offered at their NAV,
without an initial sales charge.
(b) Contingent Deferred Sales Charge. A contingent deferred sales charge
--------------------------------
(a "CDSC") may be imposed on Class A, Class B or Class S shares under certain
circumstances, as described in the Prospectus. However, no CDSC is imposed if
the shares redeemed have been acquired through the reinvestment of net
investment income or capital gains distributions or if the amount redeemed is
derived from increases in the value of the account above the amount of purchase
payments subject to a CDSC. In determining whether a CDSC is payable, a Fund
will first redeem shares not subject to a CDSC. Thereafter, to determine the
applicability and rate of any CDSC, it will be assumed that shares representing
the reinvestment of dividends and capital gain distributions are redeemed first
and shares held for the longest period of time are redeemed next.
Class A shares of Non-Money Funds that are purchased at no initial sales
charge or a reduced initial sales charge and that are redeemed within two years
of their purchase may, under certain circumstances, be subject to a CDSC of up
to 1% of the redemption amount to which the CDSC applies, with the percentage
declining eventually to zero the longer the shares are held, as described in the
Prospectus.
Class B shares that are redeemed within up to six years from purchase are
subject to a CDSC of up to 5% of the redemption amount to which the CDSC
applies, with the percentage declining eventually to zero the longer the shares
are held, as described in the Prospectus.
Class S shares that are redeemed within up to six years from purchase are
subject to a
2
<PAGE>
CDSC of up to 5% of the redemption amount to which the CDSC applies, with the
percentage declining eventually to zero the longer the shares are held, as
described in the Prospectus.
As permitted by Rule 6c-10 under the 1940 Act and as described in the
Prospectus, the CDSC otherwise applicable to Class A, Class B and Class S shares
is subject to reduction or waiver in connection with particular classes of
transactions provided the conditions in Rule 22d-1 under the 1940 Act are
satisfied.
The exact terms and conditions of any CDSC applicable to Class A, Class B
or Class S shares, which may vary among Funds, are as described in the
Prospectus.
Class I shares of each Fund are not subject to a CDSC.
SERVICE, DISTRIBUTION AND ADMINISTRATIVE FEES
(a) Service and Distribution Fees. Class A, Class B and Class S shares
-----------------------------
pay Composite Funds Distributor, Inc. (the "Distributor") fees for services
rendered and expenses borne in connection with personal services rendered to
shareholders of that class and the maintenance of shareholder accounts ("Service
Fees"). Class A, Class B and Class S shares of each Fund pay a Service Fee of up
to 0.25% per annum of the average daily net assets of such Fund attributable to
such class, as described in the Prospectus. In addition, Class B and Class S
shares pay the Distributor fees in connection with the distribution of shares of
such class ("Distribution Fees"). Class B and Class S shares of each Fund pay a
Distribution Fee of up to 0.75% per annum of the average daily net assets of
such Fund attributable to such class, as described in the Prospectus. Class A,
Class B and Class S Service Fees and Class B and Class S Distribution Fees
("12b-1 Fees") are paid pursuant to plans adopted for each class pursuant to
Rule 12b-1 under the 1940 Act.
(b) Administration Fees. Each Fund pays Composite Research & Management
-------------------
Co. fees pursuant to an investment management agreement, which may be amended or
replaced from time to time, for investment management services; a portion of the
fee is allocated to Murphey Favre Securities Services, Inc. for administrative
services to provide or procure such services as custody, accounting, legal and
printing services (the portion of the fee allocated to such administrative
services, the "Administration Fees"). Class A, Class B, Class I and Class S
shares of each Fund initially will pay their respective allocable share of
Administration Fees incurred by such Fund (currently at the rate of .15% per
annum of the average daily net assets of such Fund), based on the average daily
net asset value of such Fund attributable to such class.
(c) Transfer Agency Fees. Each class of shares of each Fund pays Murphey
--------------------
Favre Securities Services, Inc. fees pursuant to a Shareholder Services
Contract, which may be amended or replaced from time to time, for services to
provide or procure such services as transfer agency services (the "Transfer
Agent Fees"). Class A, Class B, Class I and Class S shares of each Fund
3
<PAGE>
initially will pay their respective Transfer Agent Fees (for most services,
currently on a per account basis at different rates for different classes of
different Funds), based on the incurrence of Transfer Agent Fees attributable in
the aggregate to each such class of such Fund.
ALLOCATION OF INCOME AND EXPENSES
(a) Class A, Class B, Class I and Class S shares pay the expenses
associated with their different distribution and shareholder servicing
arrangements. Each class pays their respective allocable share of Administration
Fees. Each class pays their respective Transfer Agent Fees. Each class may, at
the Trustees' discretion, also pay a different share of other expenses (together
with 12b-1 Fees, Administration Fees and Transfer Agent Fees, "Class Expenses"),
not including advisory fees or other expenses related to the management of the
Trust's assets, if these expenses are actually incurred in a different amount by
that class, or if the class receives services of a different kind or to a
different degree than other classes.
(b) The gross income of each Fund generally shall be allocated to each
class on the basis of net assets. To the extent practicable, certain expenses
(other than Class Expenses as defined above, which shall be allocated more
specifically) shall be subtracted from the gross income on the basis of the net
assets of each class of the Fund. These expenses include:
(1) Expenses incurred by the Trust (including, but not limited
to, fees of Trustees, insurance and legal counsel) not
attributable to a particular Fund or to a particular class
of shares of a Fund ("Trust Expenses"); and
(2) Expenses incurred by a Fund not attributable to any
particular class of the Fund's shares (for example,
advisory fees, custodial fees or other expenses relating
to the management of the Fund's assets) ("Fund Expenses").
Expenses of a Fund shall be apportioned to each class of shares
depending on the nature of the expense item. Trust Expenses and Fund Expenses
shall be allocated among the classes of shares based on their relative net asset
values in relation to the net asset value of the Trust or the Fund, as
appropriate. Class Expenses shall be allocated to the particular class to which
they are attributable. In addition, certain expenses may be allocated
differently if their method of imposition changes. Thus, if a Class Expense can
no longer be attributed to a class, it shall be charged to a Fund for allocation
among classes, as determined by the Board of Trustees. Any additional Class
Expenses not specifically identified above which are subsequently identified and
determined to be properly allocated to one class of shares shall not be so
allocated until approved by the Board of Trustees of the Trust in light of the
requirements of the 1940 Act and the Internal Revenue Code of 1986, as amended
(the "Code").
4
<PAGE>
EXCHANGE PRIVILEGES
Shareholders may exchange (i) shares of one class of a Fund for shares of
the same class offered by another Fund or by certain other mutual funds from
time to time advised by Composite Research & Management Co. and (ii) Class B
shares of a Fund for Class S shares, or Class S shares of a Fund for Class B
shares, offered by another Fund or by certain other mutual funds from time to
time advised by Composite Research & Management Co, as described in the
Prospectus and provided that the exchange is made in states where the shares
being acquired upon exchange are properly registered. An exchange shall be made
at net asset value without the imposition of any CDSC upon the exchange and,
except as otherwise described in the Prospectus, without the imposition of any
sales charge upon the exchange. The applicability and rate of any CDSC with
respect to a subsequent redemption of shares acquired upon an exchange will be
determined as described in the Prospectus. The exact terms and conditions of an
exchange, which may vary among the Funds, will be as described in the
Prospectus.
CONVERSION FEATURES
Class B and Class S shares of each Fund will convert, after they are held
for approximately eight years from purchase, at net asset value without the
imposition of any CDSC or sales charge upon the conversion, into Class A shares
of the same Fund, which thereafter will be subject to the lower fees charged to
Class A shares. The exact terms and conditions of a conversion will be as
described in the Prospectus. No other conversion features exist between classes
of shares of the Funds.
SPECIAL PROVISIONS FOR OUTSTANDING SHARES
In the case of Class A, Class B, Class I and Class S shares which are
outstanding on the effective date of the Plan, or issued upon any subsequent
exchange thereof, the terms and conditions of any CDSC, exchange or conversion
features applicable to such shares shall be no less favorable than the ones
applicable to the Class A, Class B, Class I and Class S shares of the respective
Fund, as described in the prospectus or prospectuses of the Funds as in effect
from time to time prior to the effective date of the Plan. In addition, for
purposes of calculating any CDSC or making any conversion, shares issued in
connection with the Agreement and Plan of Reorganization between the Short Term
Global Government Fund and the Short Term High Quality Bond Fund or any other
acquisition of the assets of a mutual fund shall be deemed to have been
purchased on the same dates as the corresponding shares of the acquired mutual
fund.
5
<PAGE>
EXHIBIT 99.11(f)
September 29, 1997
Sierra Trust Funds
9301 Corbin Avenue
Northridge, California 91324
Re: Shares of Beneficial Interest of the Sierra Trust Funds
-------------------------------------------------------
(File Nos. 33-27489 and 811-05775)
----------------------------------
Dear Ladies and Gentlemen:
Sierra Trust Funds (the "Trust") is a business trust organized under the laws of
the Commonwealth of Massachusetts with its principal executive offices in
Northridge, California. The Trust is an open-end management investment company
with diversified and nondiversified series registered with the Securities and
Exchange Commission (the "Commission") under the Investment Company Act of 1940,
as amended (the "1940 Act"). We refer to the Registration Statement on Form N-
14 (SEC File No. 33-27489) (the "Registration Statement") of the Trust relating
to the registration of an indefinite number of shares of beneficial interest of
the Trust (collectively, the "Shares").
We have been requested by the Trust to furnish this opinion as Exhibit 11 to the
Registration Statement.
We have examined such records, documents, instruments, certificates of public
officials and of the Trust, made such inquiries of the Trust, and examined such
questions of law as we have deemed necessary for the purpose of rendering the
opinion set forth herein. We have assumed the genuineness of all signatures and
the authenticity of all items submitted to us as originals and the conformity
with originals of all items submitted to us as copies.
Based upon and subject to the foregoing, we are of the opinion that:
The issuance and sale of the Shares by the Trust have been duly and validly
authorized by all appropriate action and, upon delivery thereof and payment
therefor in accordance with
<PAGE>
the Registration Statement, the Shares will be duly authorized, validly
issued, fully paid and nonassessable by the Trust.
This opinion is intended only for your use in connection with the offering of
Shares and may not be relied upon by any other person.
We hereby consent to the inclusion of this opinion as an exhibit to the Trust's
Registration Statement to be filed with the Securities and Exchange Commission.
Very truly yours,
/s/ Morgan, Lewis & Bockius LLP
jsi
<PAGE>
EXHIBIT 99.14
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus/Proxy
Statement and Statement of Additional Information constituting parts of this
registration statement on Form N-14 (the "Registration Statement") of our report
dated August 12, 1997, relating to financial statements and financial highlights
of Short Term Global Government Fund and Short Term High Quality Bond Fund, each
a portfolio constituting part of Sierra Trust Funds, which are also incorporated
by reference in the Registration Statement. We also consent to the reference to
us under the heading "Prospectus/Proxy Statement" in such Registration
Statement.
PRICE WATERHOUSE LLP
Boston, Massachusetts
October 3, 1997
