<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
SIERRA TRUST FUNDS
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:*
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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* Set forth the amount on which the filing fee is calculated and state how it
was determined.
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
INFORMATION ABOUT YOUR PROXY STATEMENT
Q. WHY AM I RECEIVING THIS PROXY STATEMENT?
A. The parent company of the investment adviser, Great Western Financial
Corporation, has merged with Washington Mutual, Inc. Washington Mutual is
the parent of Composite Research & Management Co., the adviser of the
Composite Funds. Washington Mutual has decided to consolidate the Sierra
Funds and the Composite Funds into a single family of funds. As a result of
this consolidation, it is being proposed that the Sierra Trust Funds (the
"Trust") (1) restructure its Board to include the current trustees and the
current directors of the Composite Funds, (2) approve Composite Research &
Management Co. as the Funds' new investment adviser, and (3) reapprove
certain sub-advisory agreements. Also at this time, shareholder approval is
being sought on a proposal to permit the Trust to appoint and replace
investment sub-advisers for each Fund without seeking or receiving
shareholder approval. It is believed that this proposal would allow for
greater flexibility in the selection and retention of investment
sub-advisers for the Trust, while reducing future expenses associated with
obtaining shareholder approval of investment sub-advisory agreements.
Q. HOW WILL THIS AFFECT MY ACCOUNT?
A. You can expect the same level of management expertise and shareholder
service that you currently receive. The nominees for the Board of Trustees
and the new investment adviser have extensive experience in the management
of mutual funds designed for the individual investor. With respect to the
new advisory agreement, the primary difference will be that the proposed new
investment adviser, Composite Research & Management Co., will directly
provide portfolio management services for the California Money Fund, Short
Term High Quality Bond Fund, Emerging Growth Fund and Target Maturity 2002
Fund. The current investment sub-adviser for each of the other Funds will
continue to provide portfolio management services for those Funds. The new
investment advisory and sub-advisory arrangements will not increase the
overall fees paid by the Funds, and in the case of the Growth Fund and
Emerging Growth Fund, are expected to decrease the fees paid by the Funds.
It is anticipated that permitting the Trust to appoint new investment
sub-advisers without seeking shareholder approval will enable the Trust to
achieve a higher degree of management efficiency and will reduce the need
for costly and perfunctory shareholder meetings in the future.
Q. WHY DO I NEED TO VOTE?
A. Your vote is needed to ensure that the proposals can be acted upon. Your
immediate response on the enclosed proxy card(s) will help prevent the need
for any further solicitations for a shareholder vote. We encourage all
shareholders to participate in the governance of the Trust.
Q. HOW DOES THE BOARD OF TRUSTEES SUGGEST THAT I VOTE?
A. After careful consideration, the Board of Trustees unanimously recommends
that you vote "FOR" each item proposed on the enclosed proxy card(s).
Q. WHO IS PAYING FOR EXPENSES RELATED TO THE SHAREHOLDER MEETING?
A. Composite Research & Management Co., the Trust's proposed new investment
adviser, or its affiliates will pay for expenses relating to the shareholder
meeting. The Trust will not pay any expenses relating to the shareholder
meeting.
Q. WHERE DO I MAIL MY PROXY CARD?
A. You may use the enclosed postage-paid envelope or mail your proxy card(s)
to:
[Address]
Q. WHOM DO I CALL IF I HAVE QUESTIONS?
A. We will be happy to answer your questions about the proxy solicitation.
Please call us at [number] between [times] Pacific Time, Monday through
Friday.
<PAGE> 3
PRELIMINARY COPY
SIERRA TRUST FUNDS
9301 CORBIN AVENUE, SUITE 333
NORTHRIDGE, CALIFORNIA 91324
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER , 1997
TO THE SHAREHOLDERS OF SIERRA TRUST FUNDS:
You are cordially invited to attend a special meeting of the shareholders
of the Sierra Trust Funds (the "Trust"), a Massachusetts business trust, on
December at p.m. Pacific Time or at any adjournment thereof (the
"Special Meeting"), at the offices of Sierra Fund Administration Corporation,
9301 Corbin Avenue, Suite 333, Northridge, California 91324. Shareholders of the
California Money Fund, Short Term High Quality Bond Fund, California Municipal
Fund, Florida Insured Municipal Fund, California Insured Intermediate Municipal
Fund, Growth Fund, Emerging Growth Fund, International Growth Fund and Target
Maturity 2002 Fund (each a "Fund," and collectively the "Funds"), will be asked
to consider the proposals set forth below and to transact such other business as
may be properly brought before the Special Meeting:
PROPOSAL 1: To consider and act upon a proposal to elect a Board of Trustees
(voted on by the shareholders of the Trust as a whole).
PROPOSAL 2: To approve or disapprove a new Investment Advisory Agreement
between the Trust, on behalf of each Fund, and Composite Research &
Management Co. ("Composite") (voted on separately by shareholders
of each Fund).
PROPOSAL 3: To approve or disapprove implementation of a structure for the
Trust which would permit the Board of Trustees to replace or
appoint investment sub-advisers for each Fund without the necessity
of seeking shareholder approval (voted on separately by
shareholders of each Fund).
PROPOSAL 4: To approve or disapprove a new Investment Sub-Advisory Agreement
for the Growth Fund between Composite and Janus Capital Corporation
("Janus") (voted on by shareholders of the Growth Fund only).
PROPOSAL X: [To approve or disapprove a new Investment Sub-Advisory Agreement
for the Emerging Growth Fund between Composite and Janus (voted on
by shareholders of the Emerging Growth Fund only).
PROPOSAL 5: To approve or disapprove a new Investment Sub-Advisory Agreement
for the International Growth Fund between Composite and Warburg
Pincus Asset Management, Inc. ("Warburg") (voted on by shareholders
of the International Growth Fund only).
PROPOSAL 6: To approve or disapprove a new Investment Sub-Advisory Agreement
for the California Municipal Fund between Composite and Van Kampen
American Capital Management, Inc. ("Van Kampen") (voted on by
shareholders of the California Municipal Fund only).
PROPOSAL 7: To approve or disapprove a new Investment Sub-Advisory Agreement
for the Florida Insured Municipal Fund between Composite and Van
Kampen (voted on by shareholders of the Florida Insured Municipal
Fund only).
PROPOSAL 8: To approve or disapprove a new Investment Sub-Advisory Agreement
for the California Insured Intermediate Municipal Fund between
Composite and Van Kampen (voted on by shareholders of the
California Insured Intermediate Municipal Fund only).
PROPOSAL 9: To transact such other business as may properly come before this
Special Meeting or any adjournments thereof.
<PAGE> 4
Only shareholders of the Trust at the close of business on
are entitled to notice of, and to vote at, the special meeting. Shareholders of
the Growth & Income Fund, U.S. Government Fund, Corporate Income Fund, National
Municipal Fund, Global Money Market Fund, U.S. Government Money Market Fund and
the Short Term Global Government Fund will receive a separate proxy statement
regarding the election of Trustees, as well as certain issues related solely to
those funds of the Trust.
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WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE SPECIAL MEETING, PLEASE
COMPLETE AND PROMPTLY RETURN THE ENCLOSED PROXY CARD. A POSTAGE PAID ENVELOPE IS
ENCLOSED FOR YOUR CONVENIENCE SO THAT YOU MAY RETURN YOUR PROXY CARD AS SOON AS
POSSIBLE. IT IS MOST IMPORTANT AND IN YOUR INTEREST FOR YOU TO SIGN AND DATE
YOUR PROXY CARD AND RETURN IT SO THAT A QUORUM WILL BE PRESENT AND A MAXIMUM
NUMBER OF SHARES MAY BE VOTED. THE PROXY IS REVOCABLE AT ANY TIME PRIOR TO ITS
USE.
- --------------------------------------------------------------------------------
By Order of the Board of Trustees
Keith B. Pipes
Secretary
Dated: October , 1997
<PAGE> 5
PRELIMINARY COPY
SIERRA TRUST FUNDS
9301 CORBIN AVENUE, SUITE 333
NORTHRIDGE, CALIFORNIA 91324
------------------------
PROXY STATEMENT
This Proxy Statement is furnished by the Board of Trustees (the "Board") of
the Sierra Trust Funds (the "Trust") on behalf of California Money Fund, Short
Term High Quality Bond Fund, California Municipal Fund, Florida Insured
Municipal Fund, California Insured Intermediate Municipal Fund, Growth Fund,
Emerging Growth Fund, International Growth Fund and Target Maturity 2002 Fund
(each a "Fund," and collectively the "Funds"), in connection with the
solicitation of proxies for use at the special meeting of shareholders of the
Funds to be held on December , at p.m. Pacific Time, or at any
adjournment thereof (the "Special Meeting"), at the offices of Sierra Fund
Administration Corporation, 9301 Corbin Avenue, Suite 333, Northridge,
California 91324. It is expected that the Notice of Special Meeting, the Proxy
Statement and Proxy Cards will be mailed to shareholders on or about October ,
1997.
The primary purpose of the Special Meeting is to (1) ask shareholders to
elect a board of Trustees, (2) permit shareholders of each Fund to consider a
new Investment Advisory Agreement (the "New Advisory Agreement") between the
Trust and Composite Research & Management Co. ("Composite"), (3) approve a
proposal which would authorize the Board to appoint investment sub-advisers for
each Fund without the necessity of seeking shareholder approval, and (4) permit
shareholders of each of the Growth, International Growth, California Municipal,
Florida Insured Municipal, [Emerging Growth], and California Insured
Intermediate Municipal Funds to consider new Investment Sub-Advisory Agreements
(each a "New Sub-Advisory Agreement") to take effect following the consummation
of a New Advisory Agreement. The Trust's New Advisory Agreement is similar in
substance to the Trust's current Investment Advisory Agreements (the "Current
Advisory Agreements"), except that Composite, rather than a sub-adviser, will
retain investment discretion for certain Funds and, rather than continue to have
a separate administration agreement, a portion of the advisory fee will be
allocated by Composite to pay for administrative services. In addition, the New
Sub-Advisory Agreements are identical to each applicable Fund's current
Investment Sub-Advisory Agreement (each a "Current Sub-Advisory Agreement"),
except for the parties and dates of execution, effectiveness and initial term.
If you do not expect to be present at the Special Meeting and wish your
shares to be voted, please date and sign the enclosed Proxy Card ("Proxy") and
mail it in the enclosed reply envelope, allowing sufficient time for the Proxy
to be received on or before p.m. Pacific Time on , 1997. No
postage is required if the Proxy is mailed in the United States. If the
accompanying Proxy is executed properly and returned, shares represented by it
will be voted at the Special Meeting in accordance with the instructions on the
Proxy. However, if no instructions are specified, shares will be voted FOR each
proposal described above (each a "Proposal" and, together, the "Proposals"). All
shareholders of the Funds are entitled to vote on Proposals 1, 2 and 3. With
respect to Proposals 4, 5, 6, 7 and 8, only those shareholders of the Growth,
International Growth, California Municipal, Florida Insured Municipal and
California Insured Intermediate Municipal Funds, respectively, may vote on the
applicable Proposal for approval of the New Sub-Advisory Agreements.
Shareholders may revoke their Proxies at any time prior to the time they are
voted by giving written notice to the Secretary of the Trust, by delivering a
subsequently dated Proxy or by attending and voting at the Special Meeting. This
Proxy Statement solicits votes on Proposals affecting more than one Fund
<PAGE> 6
as set forth below. Shareholders are requested to vote only on those Proposals
affecting the Fund or Funds of which they are shareholders.
<TABLE>
<CAPTION>
PROPOSAL SHAREHOLDERS ENTITLED TO VOTE
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<S> <C>
Proposal 1 -- (Election of Trustees) Shareholders of the Trust as a whole
Proposal 2 -- (Approval of New Advisory Agreement) Shareholders of each Fund of the Trust vote
separately
Proposal 3 -- (Permitting the Trust to Appoint Shareholder of each Fund of the Trust vote
Sub-Advisors Without Shareholder Approval) separately
Proposal 4 -- (Approval of New Sub-Advisory Shareholders of the Growth Fund only
Agreement)
Proposal X -- (Approval of New Sub-Advisory Shareholders of the Emerging Growth Fund only
Agreement)
Proposal 5 -- (Approval of New Sub-Advisory Shareholders of the International Growth Fund
Agreement) only
Proposal 6 -- (Approval of New Sub-Advisory Shareholders of the California Municipal Fund
Agreement) only
Proposal 7 -- (Approval of New Sub-Advisory Shareholders of the Florida Insured Municipal
Agreement) Fund only
Proposal 8 -- (Approval of New Sub-Advisory Shareholders of the California Insured
Agreement) Intermediate Municipal Fund only
</TABLE>
The close of business on , 1997 has been fixed as the record
date (the "Record Date") for the determination of shareholders entitled to
notice of, and to vote at, the Special Meeting and at any adjournment thereof.
The table below sets forth the number of shares outstanding as of the Record
Date:
<TABLE>
<CAPTION>
SHARES
FUND OUTSTANDING
--------------------------------------------------------- -----------
<S> <C>
California Money Fund....................................
Short Term High Quality Bond Fund........................
California Municipal Fund................................
California Insured Intermediate Municipal Fund...........
Florida Insured Municipal Fund...........................
Emerging Growth Fund.....................................
International Growth Fund................................
Growth Fund..............................................
Target Maturity 2002 Fund................................
</TABLE>
Each full share will be entitled to one vote at the Special Meeting and each
fraction of a share will be entitled to the fraction of a vote equal to the
proportion of a full share represented by the fractional share.
[The expenses of the Special Meeting will be borne by Composite and its
affiliates.] The solicitation of Proxies will be largely by mail, but may
include telephonic, telegraphic or oral communication by employees and officers
of Composite and Sierra Fund Administration Corporation ("Sierra
Administration"), their affiliates, or third parties hired for the purpose.
THE TRUST WILL FURNISH TO SHAREHOLDERS, WITHOUT CHARGE, A COPY OF ITS
ANNUAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 1997, UPON REQUEST. THE ANNUAL
REPORT OF THE TRUST MAY BE OBTAINED BY WRITTEN REQUEST TO THE TRUST, 9301 CORBIN
AVENUE, SUITE 333, NORTHRIDGE, CALIFORNIA 91324 OR BY CALLING (800) 222-5852.
The Trust is registered as an open-end management investment company under
the Investment Company Act of 1940 (the "1940 Act") and its shares are
registered under the Securities Act of 1933.
2
<PAGE> 7
INTRODUCTION
On July 1, 1997, Great Western Financial Corporation ("GWFC"), the indirect
parent of Sierra Investment Advisors Corporation ("Sierra Advisors"), the
Trust's current investment adviser, and Washington Mutual, Inc. ("Washington
Mutual"), a publicly held financial services company, consummated a previously
announced Agreement and Plan of Merger resulting in the merger of GWFC with and
into a wholly owned subsidiary of Washington Mutual (the "Merger"). As a result
of the Merger, Sierra Advisors and its affiliates are now indirect subsidiaries
of Washington Mutual.
The Special Meeting is being called in preparation for the planned
consolidation of the funds managed by Sierra Advisors and its affiliates, and
those managed by Composite, which also is an indirect subsidiary of Washington
Mutual. The planned consolidation will result in a common Board and a single
investment adviser, as well as several reorganizations of funds managed by
Sierra Advisers with and into funds managed in accordance with similar or
compatible investment objectives and policies managed by Composite or Sierra
Advisors. This Proxy Statement relates only to the Proposals and the relevant
Funds listed above, none of which are being reorganized, and does not deal with
the proposed reorganizations of funds managed by Sierra Advisers or Composite.
PROPOSAL 1: TO CONSIDER AND ACT UPON A PROPOSAL TO ELECT A BOARD OF TRUSTEES OF
THE TRUST.
At the Special Meeting, it is proposed that thirteen Trustees be elected to
hold office until their successors are duly elected and qualified. The persons
named in the accompanying Proxy intend, in the absence of contrary instructions,
to vote all Proxies on behalf of the shareholders for the election of David E.
Anderson, Wayne L. Attwood, M.D., Arthur H. Bernstein, Esq., Kristianne Blake,
Edmond R. Davis, Esq., John W. English, Anne V. Farrell, Michael K. Murphy,
Alfred E. Osborne, Jr., Ph.D., William G. Papesh, Daniel L. Pavelich, Jay Rockey
and Richard C. Yancey (each a "Nominee" and collectively, the "Nominees").
Messrs. Anderson, Bernstein, Davis, English and Osborne are currently members of
the Board of Trustees of the Trust. Messrs. Attwood, Murphy, Papesh, Pavelich,
Rockey and Yancey and Mmes. Blake and Farrell currently serve on the Boards of
Directors of the mutual funds managed by Composite (the "Composite Funds"), but
have not previously served on the Board of Trustees of the Trust. Approval of
this Proposal will provide a single Board combining the current Trustees of the
Trust and the current Directors of the Composite Funds.
Each of the Nominees has consented to being named in this 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. If any or all of the
Nominees should become unavailable for election due to events not now known or
anticipated, the persons named as proxies will vote for such other nominee or
nominees as the trustees may recommend.
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 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 meetings may
also be held by the Trust for other purposes, including to approve investment
policy changes, a new investment advisory agreement or other matters requiring
shareholder action under the 1940 Act.
A meeting also may be called by shareholders holding at least 10% of the
shares entitled to vote at the meeting for the purpose of voting upon the
removal of Trustees, in which case shareholders may receive assistance in
communicating with other shareholders as if the provisions contained in Section
16(c) of the 1940 Act applied.
3
<PAGE> 8
INFORMATION REGARDING NOMINEES
The following information is provided for each Nominee. It includes his or
her name, position with the Trust, if any, tenure in office, age, principal
occupations or employment during the past five years, trusteeships/directorships
with other companies which file reports periodically with the Securities and
Exchange Commission ("SEC"), number of trustee positions with the registered
investment companies which hold themselves out to investors as related companies
for purposes of investment and investor services or to which Sierra Advisors or
an affiliated person of Sierra Advisors provides investment advisory or
administration services (the "Sierra Fund Complex," consisting of the Trust, The
Sierra Variable Trust, Sierra Prime Income Fund and Sierra Asset Management
Portfolios, and the "Composite Funds," consisting of Composite Bond & Stock
Fund, Inc., Composite Growth & Income Fund, Composite Northwest Fund, Inc.,
Composite U.S. Government Securities, Inc., Composite Income Fund, Inc.,
Composite Tax-Exempt Bond Fund, Inc. and Composite Cash Management Company),
number of shares of the funds of the Trust beneficially owned and percentage of
shares of the funds of the Trust beneficially 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.
<TABLE>
<CAPTION>
ADDRESS AND BUSINESS EXPERIENCE
DURING THE PAST
NAME, AGE AND POSITION FIVE YEARS (INCLUDING ALL SHARES BENEFICIALLY OWNED AS OF
WITH THE TRUST DIRECTORSHIPS) JULY 1, 1997**
- ------------------------------- ---------------------------------- ------------------------------------
<S> <C> <C>
ARTHUR H. BERNSTEIN, ESQ. (72) 11661 San Vicente Blvd., Suite Global Money Fund - 50.790
Chairman of the Board of 701, California Money Fund - 15,937.490
Trustees and Trustee since Los Angeles, CA 90049 Corporate Income Fund - 19.550
1989. President, Bancorp Capital Group, California Municipal Fund - 10.756
Inc., 1988 to present; President, Growth and Income Fund - 6,078.511
Bancorp Venture Capital, Inc., (U.S. Government Fund - 2,028.525/
1988 to present. Trustee of 4 Corporate Income Fund - 2,641.185/
trusts in the Sierra Fund Complex. Emerging Growth Fund - 855.527/
Growth Fund - 1,066.341)+
DAVID E. ANDERSON (70) 17960 Seabreeze Drive, California Municipal Fund - 1,236
Trustee since 1989. Pacific Palisades, CA 90272 California Insured Intermediate
Retired. Formerly, President and Municipal Fund - 492
Chief Executive Officer, GTE International Growth Fund - 1,261
California, Inc., 1979 to 1988. Short Term Global
Trustee of 4 trusts in the Sierra Government Fund - 3,942
Fund Complex. Growth Fund - 1,277
EDMOND R. DAVIS, ESQ. (69) 550 South Hope Street, 21st Floor, California Money Fund - 98,492.180
Trustee since 1989. Los Angeles, CA 90071
Partner, Brobeck, Phleger &
Harrison (law firm) 1987 to
present. Trustee of 4 trusts in
the Sierra Fund Complex.
JOHN W. ENGLISH (64) 50-H New England Ave., Growth and Income - 12,079.480
Trustee since 1994. PO Box 640, International Growth
Summit, NJ 07902-0640. Fund - 8,490.880
Retired. Formerly, Vice President
and Chief Investment Officer, Ford
Foundation, 1981 to 1993. Chairman
of the Board and Director, The
China Fund, Inc. (a closed-end
mutual fund), 1993 to present;
Director, The Northern Trust
Company's Benchmark Funds
(open-end mutual funds), 1994 to
present. Trustee of 4 trusts in
the Sierra Fund Complex.
</TABLE>
4
<PAGE> 9
<TABLE>
<CAPTION>
ADDRESS AND BUSINESS EXPERIENCE
DURING THE PAST
NAME, AGE AND POSITION FIVE YEARS (INCLUDING ALL SHARES BENEFICIALLY OWNED AS OF
WITH THE TRUST DIRECTORSHIPS) JULY 1, 1997**
- ------------------------------- ---------------------------------- ------------------------------------
<S> <C> <C>
ALFRED E. OSBORNE, JR. PH.D. 110 Westwood Plaza, Suite C305 Global Money Fund - 997.880
(52) Los Angeles, CA 90095-1481 Corporate Income Fund - 615.097
Trustee since 1996. Professor, The Anderson School and Growth and Income Fund - 286.178
Director, The Harold Price Center International Growth Fund - 668.656
for Entrepreneurial Studies at Short Term Global Government Fund -
University of California at Los 149.053
Angeles, 1972 to present;
Independent general partner,
Technology Funding Venture
Partners V, 1990 to present.
Director, Times Mirror Company,
1980 to present; Director, United
States Filter Corporation, 1991 to
present; Director, Nordstrom,
Inc., 1987 to present; Director,
Greyhound Lines, Inc., 1994 to
present. Trustee of 4 trusts in
the Sierra Fund Complex, 1989 to
1993 and 1996 to present.
WAYNE L. ATTWOOD, M.D. (68) 2931 S. Howard None
Nominee Spokane, WA 99203.
Retired. Formerly, Doctor of
internal medicine and
gastroenterology. Director of all
of the Composite Funds.
KRISTIANNE BLAKE (43) 705 W. 7th, Suite D None
Nominee Spokane, WA 99203
President, Kristianne Gates Blake,
PS. Director of all of the
Composite Funds.
ANNE V. FARRELL *(62) 425 Pike Street, Suite 510 None
Nominee Seattle, WA 98101
President and Chief Executive
Officer, The Seattle Foundation.
Director, Washington Mutual, Inc.
Director of all of the Composite
Funds.
MICHAEL K. MURPHY* (60) P.O. Box 3366 None
Nominee Spokane, WA 99220
Chairman and Chief Executive
Officer, CPM Development
Corporation. Director, Washington
Mutual, Inc. Director of all of
the Composite Funds.
WILLIAM G. PAPESH* (54) 601 W. Main Avenue, Suite 801 None
Nominee Spokane, WA 99201
President and Director, Composite,
1995 to present, President and
Director, Composite Funds
Distributor, Inc., 1997 to
present. President and Director,
Murphey Favre Securities Services
Inc., 1987 to present. President
and Director of all of the
Composite Funds, 1989 to present.
DANIEL L. PAVELICH (53) Two Prudential Plaza, None
Nominee 180 North Stetson Ave., Suite 4300
Chicago, Il 60601
Chairman and Chief Executive
Officer, BDO Seidman. Director of
all of the Composite Funds.
JAY ROCKEY (69) 2121 Fifth Avenue None
Nominee Seattle, WA 98121
Chairman and Chief Executive
Officer, The Rockey Company.
Director of all of the Composite
Funds.
</TABLE>
5
<PAGE> 10
<TABLE>
<CAPTION>
ADDRESS AND BUSINESS EXPERIENCE
DURING THE PAST
NAME, AGE AND POSITION FIVE YEARS (INCLUDING ALL SHARES BENEFICIALLY OWNED AS OF
WITH THE TRUST DIRECTORSHIPS) JULY 1, 1997**
- ------------------------------- ---------------------------------- ------------------------------------
<S> <C> <C>
RICHARD C. YANCEY (71) 535 Madison Avenue None
Nominee New York, NY 10022
Senior Advisor, Dillon, Read &
Co., Inc. Director of all of the
Composite Funds.
</TABLE>
- ---------------
* Denotes an individual who is an "interested person" as defined in the 1940
Act.
** This information has been provided by each Nominee for Trustee of the Fund.
+ Represents shares not beneficially owned, but held by funds in the Sierra
Fund Complex as of July 1, 1997, for purposes of funding obligations under
Sierra Fund Complex's Deferred Compensation Plan.
COMPENSATION OF TRUSTEES
Each Trustee who is not an "interested person" within the meaning of the
1940 Act ("Disinterested Trustee") receives an aggregate annual fee (plus
reimbursement for reasonable out-of-pocket expenses incurred in connection with
his or her attendance at Board and committee meetings) from the Trust and all of
the trusts in the Sierra Fund Complex for which he or she serves. The Trust pays
each Trustee who is not a director, officer or employee of Washington Mutual,
Sierra Services, Sierra Advisors, the Sub-Advisers 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 meeting
attended and reimbursement for travel and out-of-pocket expenses. Since December
1996, the Chairman has received one and a half times the normal Trustee's
compensation. The Chairman of the Audit Committee receives $1,500 per Audit
Committee meeting attended. Officers of the Trust receive no direct remuneration
from the Trust for serving in such capacity. Officers of the Trust who are
employees of Sierra Advisors 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 receipt
of all or a portion of their fees which, in accordance with the Plan, are
invested in mutual fund shares of the Sierra Fund Complex. 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 payments to Plan participants are paid solely out of the Trust's
assets.
The aggregate compensation payable by the Trust to each of the Trustees
serving during the fiscal year ended June 30, 1997 is set forth in the
compensation table below. The aggregate compensation payable to such Trustees
during the fiscal year ended June 30, 1997, by the Sierra Fund Complex is also
set forth in the compensation table below. The Trustees do not receive any
pension or retirement benefits from any Trust.
COMPENSATION TABLE
<TABLE>
<CAPTION>
TOTAL COMPENSATION
AGGREGATE COMPENSATION FROM THE SIERRA FUND COMPLEX
NAME AND POSITION PAYABLE FROM THE TRUST** PAYABLE TO TRUSTEES***
------------------------------- ------------------------ -------------------------------
<S> <C> <C>
Arthur H. Bernstein, Trustee... $ 22,938 $54,063 for service on 4
boards*
David E. Anderson, Trustee..... 18,000 42,000 for service on 4 boards
Edmond R. Davis, Trustee....... 18,000 42,000 for service on 4 boards
John W. English, Trustee....... 18,000 42,000 for service on 4 boards
Alfred E. Osborne, Jr., 18,000
Trustee...................... 42,000 for service on 4 boards
</TABLE>
- ---------------
* Includes $1,500 paid to Mr. Bernstein for serving as Chairman of the Audit
Committee Meeting held by the Sierra Fund Complex on September 10, 1996.
6
<PAGE> 11
** Includes compensation deferred pursuant to Deferred Compensation Plan.
*** Sierra Advisors reimbursed the Trust for the cost, including trustee fees,
of all special meetings held with regard to contemplation of the sale of
Sierra Capital Management Corporation, as well as the merger between GWFC
and Washington Mutual.
MEETINGS AND COMMITTEES OF THE BOARD OF TRUSTEES
There were fifteen meetings of the Board of Trustees, including six
telephonic meetings, held during the fiscal year ended June 30, 1997. During
that fiscal year, all Trustees attended at least 75% of the meetings of the
Board.
The Board has an Audit Committee. The Audit Committee makes recommendations
to the full Board with respect to the engagement of independent accountants and
reviews, with the independent accountants, the results of the audit engagement
and matters having a material effect on the Funds' 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 has a Nominating Committee. The Nominating Committee makes
recommendations to the full Board with respect to candidates for the Board. 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, Osborne and English, each of whom, with
the exception of Mr. Cerini, is not an "interested person" within the meaning of
the 1940 Act. The Nominating Committee did not meet during the fiscal year ended
June 30, 1997.
BOARD APPROVAL OF THE ELECTION OF TRUSTEES
At a meeting of the Board held on October 28, 1997, the Board recommended
that shareholders vote FOR each of the Nominees for Trustee named herein. In
recommending that shareholders elect the Nominees as Trustees of the Trust, the
Board considered the Nominees' experience and qualifications. In particular,
each of the Nominees who has not previously served on the Board has previous
experience serving on the Board of Directors of various funds in the Composite
Family of Funds.
SHAREHOLDER APPROVAL OF THE ELECTION OF TRUSTEES
The Election of each Nominee requires the affirmative vote of a plurality
of all votes cast at the Special Meeting, provided that a majority of the shares
entitled to vote are present in person or by Proxy at the Special Meeting. If
your shares are represented at the meeting but you give no voting instructions,
your shares will be voted FOR all Nominees named herein. If the Nominees are not
approved by shareholders of the Trust, the Board will consider alternative
nominations.
THE BOARD OF TRUSTEES RECOMMENDS THAT THE SHAREHOLDERS OF THE TRUST VOTE FOR THE
ELECTION OF THE NOMINEES.
PROPOSAL 2: TO APPROVE OR DISAPPROVE A NEW INVESTMENT MANAGEMENT AGREEMENT
BETWEEN THE TRUST, ON BEHALF OF EACH FUND, AND COMPOSITE RESEARCH &
MANAGEMENT CO.
The Board has determined that it would be in the best interest of each Fund
and their shareholders to retain Composite as the investment adviser for each
Fund and recommends that shareholders of each Fund approve Composite as its
adviser and approve the New Management Agreement between the Trust, on behalf
7
<PAGE> 12
of each Fund, and Composite, a form of which is attached hereto as Exhibit A.
The Trustees of the Trust, including all of the Disinterested Trustees, approved
the New Management Agreement with respect to each Fund at a meeting held on
October 28, 1997. The Trustees do not anticipate, as a result of the change in
investment advisers, any reduction in the quality of services now provided to
the Funds.
The Trustees are recommending that Composite replace the Funds' current
investment adviser, Sierra Advisors. Sierra Advisors, as the result of a recent
merger between Washington Mutual and Sierra Advisors' former indirect parent,
GWFC, is an indirect subsidiary of Washington Mutual. Washington Mutual has
indicated that it intends to consolidate all of its investment advisory
businesses within Composite. As a result of such consolidation, which would
likely occur in early 1998, Sierra Advisors would cease to exist as a separate
entity.
SIERRA ADVISORS
Sierra Advisors is registered under the Investment Advisers Act of 1940
(the "Advisers Act") and is currently the investment adviser to each Fund of the
Trust. Although Sierra Advisors serves as investment adviser to each Fund,
investment discretion for each Fund generally has been delegated to various sub-
advisers. Nonetheless, Sierra Advisors remains responsible for analyzing
economic and market trends; formulating and assessing investment policies and
recommending changes to the Board where appropriate; supervising compliance by
sub-advisers with each Fund's investment objectives, policies and limits, as
well as with laws and regulations applicable to each Fund; evaluating the
performance of the sub-advisers in light of selected benchmarks and the needs of
the Funds; evaluating potential additional or replacement sub-advisers and
recommending changes to the Board where appropriate; and reporting to the Board
and shareholders on the foregoing. The sub-advisers, in turn, are responsible
for continuously reviewing, supervising and administering the particular Fund's
investment program with respect to the Fund's assets.
COMPOSITE
Composite, a subsidiary of Washington Mutual, with principal offices
located at 1201 Third Avenue, Seattle, Washington 98101, is also registered
under the Advisers Act. Composite has been in the investment management business
since 1944 and currently manages more than $2.6 billion for mutual funds and
institutional accounts, including more than $1.7 billion within the Composite
Funds. It is anticipated that Composite would manage the day to day portfolio
operations of the California Money Fund, Short Term High Quality Bond Fund,
Emerging Growth Fund and Target Maturity 2002 Fund, but would, at least
initially, delegate investment discretion for the remaining Funds to the
sub-advisers listed in Proposals 4 through 8 of this Proxy Statement.
DIRECTORS AND PRINCIPAL EXECUTIVE OFFICERS OF COMPOSITE
<TABLE>
<CAPTION>
NAME AND POSITION
WITH THE ADVISER ADDRESS PRINCIPAL OCCUPATION
- ------------------------ ------------------ ------------------------------------------------
<S> <C> <C>
William G. Papesh 1201 Third Avenue Director and President, Composite; Director and
Director and President Seattle, WA 98101 President , Murphey Favre Securities Services
Inc.
Kerry K. Killinger 1201 Third Avenue Chairman, Chief Executive Officer and Director,
Director Seattle, WA 98101 Washington Mutual Bank.
Monte D. Calvin 1201 Third Avenue Executive Vice President, Murphey Favre
Director and Treasurer Seattle, WA 98101 Securities Services Inc.
Craig S. Davis 1201 Third Avenue Executive Vice President, Washington Mutual;
Director Seattle, WA 98101 Chairman, ASB Financial Services
J. Pamela Dawson 1201 Third Avenue President, WM Financial Services, Inc.;
Director Seattle, WA 98101 President, ASB Financial Services, Inc.
</TABLE>
THE INVESTMENT MANAGEMENT AGREEMENT
In anticipation of the consolidation of Sierra Advisors with Composite, the
Trustees of the Fund, including the Disinterested Trustees, unanimously approved
the New Management Agreement. Although the
8
<PAGE> 13
form of the New Management Agreement is different from the form of the Current
Advisory Agreements, the material provisions of the New Management Agreement,
but for the exceptions highlighted below, are substantially similar to the
material provisions of the Current Advisory Agreements between Sierra Advisors
and the Funds.
The principal difference is that the New Management Agreement contemplates
that Composite will retain investment discretion with respect to several of the
Funds, rather than continuing with the current sub-advisory arrangements. Also,
rather than continuing to have a separate administration agreement, a portion of
each Fund's management fee, which will be higher than the current advisory fee
for several funds, will be allocated to Murphey Favre Securities Services, Inc.,
an affiliate of Composite, for administrative services, portfolio accounting and
regulatory compliance systems, but not transfer agency services. Currently, the
Trust, on behalf of each Fund is a party to an administrative agreement with
Sierra Funds Administration Corporation (the "Current Administrative
Agreement"), which also covers fees paid to the Funds' transfer agent.
Nonetheless, in all cases, the aggregate fees payable under the New Management
Agreement and the proposed new transfer agency agreement will be equal to or
less than the aggregate fee currently payable under the Current Advisory
Agreement and Current Administration Agreement. In addition, the New Management
Agreement, unlike the Current Advisory Agreement, does not specifically hold
Composite liable for a loss resulting from a breach of fiduciary duty with
respect to the receipt of compensation for services. Finally, the New Management
Agreement differs from the Current Advisory Agreement as follows: (1) the new
Adviser; (2) the dates of execution, effectiveness and initial term; (3) the
deletion of provisions relating to state expense limits that have been preempted
by federal law; (4) a specific provision allowing for amendment of the
Agreement; (5) a provision restricting the Trust's use of the proprietary names
"Sierra" and "Composite"; and (6) the provision for termination of the New
Management Agreement by the Adviser upon 60 days' notice, rather than the 90
days' notice required under the Current Advisory Agreements. See "The New
Management Agreement" below.
THE CURRENT ADVISORY AGREEMENTS
The Current Advisory Agreements between Sierra Advisors and each Fund, were
most recently renewed by the Trustees at a meeting of the Board held on
September 9, 1997, is dated and was last approved by the shareholders of each
Fund on the following dates:
<TABLE>
<CAPTION>
DATE OF CURRENT
INVESTMENT ADVISORY DATE LAST APPROVED BY
FUND AGREEMENT SHAREHOLDERS
------------------------------------------ ------------------- ----------------------
<S> <C> <C>
California Money Fund..................... July 7, 1989 September 28, 1990**
Short Term High Quality Bond Fund......... September 6, 1993 *
California Municipal Fund................. July 7, 1989 October 25, 1991**
Florida Insured Municipal Fund............ June 2, 1993 *
California Insured Intermediate Municipal
Fund.................................... April 1, 1994 *
Growth Fund............................... April 1, 1993 *
Emerging Growth Fund...................... July 18, 1990 October 22, 1993+
International Growth Fund................. July 18, 1990 October 14, 1994++
Target Maturity 2002 Fund................. March 17, 1995 *
</TABLE>
- ---------------
* Approved by Sole Shareholder at commencement of operations.
** Agreement submitted for approval pursuant to undertaking, to the SEC, to
submit the Advisory Agreement relating to a new Fund to shareholders for
their approval at the first meeting of shareholders following the new Fund's
initial offering of shares.
+ New Agreement submitted for approval in order to adjust compensation paid to
the investment adviser.
++ New Agreement submitted for approval because of changes in the sub-advisory
fee structure.
The Current Advisory Agreements provide that Sierra Advisors, in return for
its fee, will (1) participate in the formulation of each Fund's investment
policies; (2) analyze economic trends affecting each Fund;
9
<PAGE> 14
(3) monitor the expenses incurred by each Fund; (4) monitor the brokerage and
research services (as those terms are defined in Section 28(e) of the Securities
Exchange Act of 1934) that are provided to each Fund and that may be considered
by each Fund's investment sub-adviser in selecting brokers or dealers to execute
particular transactions; and (5) monitor and evaluate the services provided by
each Fund's investment sub-adviser under its investment sub-advisory agreement,
including, without limitation, the sub-advisor's adherence to the Fund's
investment objective(s) and policies and the Fund's investment performance.
Subject to the approval of the Board and the shareholders of each Fund, Sierra
Advisors may delegate certain of its duties enumerated above to one or more
sub-advisers.
The Current Advisory Agreements provide for payment of compensation to
Sierra Advisors on the first business day of each month for the previous month
at the following annual rates:
<TABLE>
<CAPTION>
AMOUNT OF ASSETS AFTER 50; AFTER 100; AFTER 125; AFTER 200;
($ MIL.) FIRST 50 NEXT 50 NEXT 25 NEXT 75 NEXT 300 OVER 500
- ------------------------------- -------- --------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
California Money Fund*......... .50% .50% .50% .50% .50% .40%
Short Term High Quality Bond
Fund......................... .50% .50% .50% .50% .45% .40%
California Municipal Fund**.... .65% .65% .65% .65% .65% .50%
Florida Insured Municipal
Fund**....................... .60% .60% .60% .60% .60% .45%
California Insured Intermediate
Municipal Fund**............. .65% .65% .65% .65% .65% .50%
Growth Fund.................... .95% .95% .90% .90% .875% .875%
Emerging Growth Fund........... .90% .90% .85% .85% .85% .75%
International Growth Fund...... .95% .85% .85% .65% .65% .65%
Target Maturity 2002 Fund...... .25% .25% .25% .25% .25% .20%
</TABLE>
- ---------------
* Sierra Advisors has contractually agreed to limit the annual management fees
that are payable under the investment advisory agreements with the California
Money Fund to 0.40%.
** For these Funds, Sierra Advisors has contractually agreed to limit the annual
management fees that are payable under the investment advisory agreements
with the Funds to 0.55%.
The Current Advisory Agreements provide that Sierra Advisors will bear all
expenses in connection with the performance of its services under the Current
Advisory Agreements, including, without limitation, payment of sub-advisory fees
to any sub-adviser. Each Fund assumes and shall pay or cause to be paid all
other expenses of the Fund.
The Current Advisory Agreements are terminable, without penalty, on 60
days' written notice, by the Board or by vote of holders of a majority of a
Fund's shares, or upon 90 days' written notice, by Sierra Advisors. Each Current
Advisory Agreement will terminate automatically in the event of its assignment.
The Current Advisory Agreements obligate Sierra Advisors, in the
performance of its duties, to exercise its best judgment in rendering its
services, but provides that Sierra Advisors shall not be liable for any act or
omission which does not constitute willful misfeasance, bad faith or gross
negligence on the part of Sierra Advisors or its officers, Trustees or
employees, or reckless disregard by Sierra Advisors of its obligations and
duties under the agreement. The Current Advisory Agreements also provide that
any claims by Sierra Advisors against a Fund may be satisfied only from the
assets of that Fund, and that no shareholder, Trustee or officer of a Fund, or
any other Fund may be held personally liable or responsible for any obligations
arising out of such agreement.
10
<PAGE> 15
For the fiscal year ended June 30, 1997, each Fund paid management fees to
Sierra Advisors, administration fees to Sierra Fund Administration Corporation,
and distribution fees to Sierra Investment Services Corporation as follows:
<TABLE>
<CAPTION>
ADMINISTRATION
FUND MANAGEMENT FEES* FEES* DISTRIBUTION FEES*
------------------------------------- ---------------- -------------- ------------------
<S> <C> <C> <C>
California Money Fund................ $ 187,084 $ 140,313 $ 117,490
Short Term High Quality Bond Fund.... $ 0** $ 107,344 $ 105,759
California Municipal Fund............ $ 982,429 $1,312,972 $1,115,027
Florida Insured Municipal Fund....... $ 0*** $ 110,484 $ 117,846
California Insured Intermediate
Municipal Fund..................... $ 48,297 $ 253,706 $ 341,927
Growth Fund.......................... $2,418,645 $ 927,458 $ 915,910
Emerging Growth Fund................. $2,600,399 $1,050,165 $1,025,883
International Growth Fund............ $1,444,004 $ 616,002 $ 505,118
Target Maturity 2002 Fund............ $ 0# $ 10,859 $ 7,756
</TABLE>
* After fee waivers.
** After reimbursement of $40,836.
*** After reimbursement of $22,193.
# After reimbursement of $59,718.
THE NEW MANAGEMENT AGREEMENT
The Board of Trustees approved the proposed New Management Agreement
between the Fund and Composite on October 28, 1997, a form of which is attached
as Exhibit A hereto. The New Management Agreement provides that Composite, in
return for its fee, will (1) provide supervision of each Fund's investments,
furnish a continuous investment program for each Fund's portfolio and determine
from time to time what securities will be purchased, retained, or sold by each
Fund, and what portion of the assets will be invested or held as cash; (2)
determine the securities to be purchased or sold by each Fund and place orders
for the purchase and sale of portfolio securities pursuant to its determinations
with brokers or dealers it selects. Subject to the provisions of the Agreement
and Declaration of Trust of the Trust and the 1940 Act, Composite may delegate
certain of its duties enumerated above to one or more sub-advisers.
The New Management Agreement provides that Composite will bear all expenses
in connection with the performance of its services under the Agreement,
including payment of sub-advisory fees to any sub-adviser, administrative fees
to Murphey Favre Securities Services, Inc. for administrative services,
portfolio accounting and regulatory compliance systems, and the salaries and
expenses of any of the officers or employees of Composite who act as officers,
Trustees or employees of the Trust; but excluding the cost of securities
purchased for each Fund and the amount of any brokerage fees and commissions
incurred in executing portfolio transactions for the Fund. Each Fund assumes and
shall pay or cause to be paid all other expenses of the Fund.
The New Management Agreement is terminable, without penalty, on 60 days'
written notice, by the Board or by vote of holders of a majority of a Funds'
shares, or upon 60 days' written notice, by Composite. The New Management
Agreement will terminate automatically in the event of its assignment.
The New Management Agreement obligates Composite, in the performance of its
duties, to exercise its best judgment in rendering its services, but provides
that Composite shall not be liable for any act or omission which does not
constitute willful misfeasance, bad faith or gross negligence on the part of
Sierra Advisors or its officers, Trustees or employees, or reckless disregard by
Composite of its obligations and duties under the agreement. The New Management
Agreement also provides that any claims by Composite against a Fund may be
satisfied only from the assets of that Fund, and that no shareholder, Trustee,
officer, employee or agent of a Fund, or any other Fund may be held personally
liable or responsible for any obligations arising out of such agreement.
11
<PAGE> 16
The New Management Agreement provides for payment to Composite of a monthly
fee computed on the average daily net assets of each Fund at the following
annual rates:
<TABLE>
<CAPTION>
AMOUNT OF ASSETS AFTER 50; AFTER 100; AFTER 125; AFTER 200; OVER
($ MIL.) FIRST 50 NEXT 50 NEXT 25 NEXT 75 NEXT 300 500
- ----------------------------------------- -------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
California Money Fund*................... .50% .50% .50% .50% .50% .40%
Short Term High Quality Bond Fund........ .50% .50% .50% .50% .45% .40%
California Municipal Fund**.............. .70% .70% .70% .70% .70% .55%
Florida Insured Municipal Fund**#........ .70% .70% .70% .70% .70% .55%.
(1)
California Insured Intermediate Municipal .70% .70% .70% .70% .70% .55%
Fund**#................................
Growth Fund#............................. 1.10% 1.10% 1.05% 1.05% 1.025% 1.025%
Emerging Growth Fund#.................... 1.05% 1.05% 1.00% 1.00% 1.00% .90%
International Growth Fund#............... 1.10% 1.00% 1.00% .80% .80% .80%
Target Maturity 2002 Fund................ .25% .25% .25% .25% .25% .25%
</TABLE>
- ---------------
* Composite has agreed voluntarily to limit the annual management fees that are
payable under the New Management Agreement with the California Money Fund to
0.40% for an indefinite period of time.
** For these Funds, Composite has agreed voluntarily to limit the annual
management fees that are payable under the Management Agreement with the
Funds to 0.60% for an indefinite period of time.
# Shaded areas indicate asset levels at which management fees will differ from
the Current Advisory Agreements.
The fee as a percentage of net assets payable by the California Money and
Short Term High Quality Bond Funds will be the same under the New Management
Agreement as under the Current Advisory Agreements. The fee for Target Maturity
2002 Fund under the New Management Agreement would be the same as under the
Current Advisory Agreement until the Fund has assets of more than $500 million,
at which point the fee would be higher. Nonetheless, if the fee under the New
Management Agreement had been in effect for these Fund's most recently completed
fiscal year, the fee to which Composite would have been entitled, would have
been identical to that to which it was entitled under the Current Advisory
Agreements. Further, because a portion of the services provided under the
Current Administration Agreement would be paid out of Composite's fee, each of
these Fund's total expenses would decrease.
With respect to Class A Shares of each of the other Funds, the following
table shows current expenses, labeled as "Old Fees," and expenses under the New
Management Agreement, labeled as "New Fees." Class B, I and S Shares have
different "Shareholder Transaction Expenses" and "12b-1 Fees," but have similar
"Management" and "Other" expenses.
12
<PAGE> 17
SUMMARY OF SIERRA TRUST FUNDS EXPENSES
<TABLE>
<CAPTION>
EMERGING INTERNATIONAL
GROWTH FUND GROWTH FUND GROWTH FUND
------------------- ------------------- -------------------
OLD FEES NEW FEES OLD FEES NEW FEES OLD FEES NEW FEES
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
MAXIMUM SALES CHARGE IMPOSED ON PURCHASES
(AS A PERCENTAGE OF OFFERING PRICE)
Class A................................. 5.75% 5.75% 5.75% 5.75% 5.75% 5.75%
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE
OF AVERAGE NET ASSETS)
MANAGEMENT FEES (AFTER VOLUNTARY WAIVERS
OR REIMBURSEMENT)(6)
Class A................................. 0.92% 1.07% 0.87% 1.02% 0.82% 0.97%
12B-1 FEES(7)
Class A................................. 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
OTHER EXPENSES(8)
Class A................................. 0.53% 0.34% 0.52% 0.34% 0.56% 0.37%
TOTAL FUND OPERATING EXPENSES(9)
Class A................................. 1.70% 1.66% 1.64% 1.61% 1.63% 1.59%
</TABLE>
<TABLE>
<CAPTION>
CALIFORNIA INSURED
CALIFORNIA INTERMEDIATE FLORIDA INSURED
MUNICIPAL FUND MUNICIPAL FUND MUNICIPAL FUND
------------------- ------------------- -------------------
OLD FEES NEW FEES OLD FEES NEW FEES OLD FEES NEW FEES
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDERS TRANSACTION EXPENSES
MAXIMUM SALES CHARGE IMPOSED ON PURCHASES
(AS A PERCENTAGE OF OFFERING PRICE)
Class A................................. 4.50% 4.50% 4.50% 4.50% 4.50% 4.50%
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE
OF AVERAGE NET ASSETS)
MANAGEMENT FEES (AFTER VOLUNTARY WAIVERS
OR REIMBURSEMENT)(1)
Class A................................. 0.26% 0.60% 0.03% 0.34% 0.05% 0.21%
12B-1 FEES
Class A................................. 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
OTHER EXPENSES(2)
Class A................................. 0.46% 0.12% 0.54% 0.23% 0.52% 0.36%
TOTAL FUND OPERATING EXPENSES(3)
Class A................................. 0.97% 0.97% 0.82% 0.82% 0.82% 0.82%
</TABLE>
- ---------------
(1) Reflects voluntary waivers of management fees by the Advisor. In the absence
of such voluntary waivers, new management fees would have been for each of
the following Funds: California Municipal Fund -- 0.70%; Florida Insured
Municipal Fund -- 0.70%; California Insured Intermediate Municipal Fund --
0.70%. In the absence of such voluntary waivers, current (old) management
fees would have been for each of the following Funds: California Municipal
Fund -- 0.55%; Florida Insured Municipal Fund -- 0.55%; California Insured
Intermediate Municipal Fund -- 0.55%.
(2) After voluntary waivers or reimbursement. Reflects the voluntary agreement
of the Advisor to bear certain expenses and Administrator to waive fees to
limit total fund expenses for the Class A Shares.
(3) The total fund operating expenses set forth in the foregoing table are
restated to reflect anticipated management fees and other expenses (after
voluntary waivers or reimbursements). Set forth below are total fund
operating expenses, based on the fees under the New Management Agreement,
absent such fee waivers and expense reimbursements: California Municipal
Fund, 1.10%; Florida Insured Municipal
13
<PAGE> 18
Fund, 1.31%; California Insured Intermediate Municipal Fund, 1.18%. Set
forth below are total fund operating expenses, based on the fees under the
Current Advisory Agreement and Current Administration Agreement, absent such
fee waivers and expense reimbursements: California Municipal Fund, Class
A -- 1.26%; Florida Insured Municipal Fund, Class A -- 1.46%; California
Insured Intermediate Municipal Fund, Class A -- 1.34%.
Example:
You would pay the following expenses on a $1,000 investment, assuming (1)
5% annual return and (2) redemption at the end of time period.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Growth Fund (Old Fees)................................
Growth Fund (New Fees)................................
Emerging Growth Fund (Old Fees).......................
Emerging Growth Fund (New Fees).......................
International Growth Fund (Old Fees)..................
International Growth Fund (New Fees)..................
California Municipal Fund (Old Fees)..................
California Municipal Fund (New Fees)..................
California Insured Intermediate.......................
Municipal Fund (Old Fees).............................
California Insured Intermediate.......................
Municipal Fund (New Fees).............................
Florida Insured Municipal Fund (Old Fees).............
Florida Insured Municipal Fund (New Fees).............
</TABLE>
Although the fees payable under the Current Advisory Agreement and the
Current Administration Agreement for each Fund is generally the same or more
than the fee payable under the New Management Agreement and the new transfer
agency agreement, the fee as a percentage of net assets payable by the following
Funds under the New Management Agreement alone would generally be more than
under the Current Advisory Agreements alone. Shown below is the fee actually
received by Sierra Advisers from the Current Advisory Agreement (the "Old Fee"),
the fee that would have been paid to Composite under the New Management
Agreement had it been in effect for these Funds' most recently completed fiscal
year (the "New Fee"), and the New Fee expressed as a percentage of the Old Fee:
<TABLE>
<CAPTION>
NEW FEE AS
A PERCENTAGE
FUND OLD FEES NEW FEE OF OLD FEE
----------------------------------------------- ---------- ---------- ------------
<S> <C> <C> <C>
California Money Fund.......................... $ 187,084
Short Term High Quality Bond Fund.............. $ 0
California Municipal Fund...................... $ 982,429
California Insured Intermediate Municipal
Fund......................................... $ 0
Florida Insured Municipal Fund................. $ 48,297
Emerging Growth Fund........................... $2,418,645
International Growth Fund...................... $2,600,399
Growth Fund.................................... $1,444,004
Target Maturity 2002 Fund...................... $ 0
</TABLE>
14
<PAGE> 19
The New Management Agreement would take effect upon the later to occur of
(1) the obtaining of shareholder approval or (2) January 1, 1998. The New
Management Agreement will continue in effect for an initial two-year term and
thereafter for successive annual periods as long as such continuance is approved
in accordance with the 1940 Act.
In evaluating the New Management Agreement, the Board based its
determination primarily on its conclusion that Composite could provide a level
of service to the Funds that meets or exceeds the current level of service
provided to the Funds, and took into account that the fees and expenses payable
by the Funds under the New Management Agreement, combined with the new transfer
agency agreement, are substantially identical or less than those payable under
the Current Advisory Agreements, combined with the Current Administration
Agreement. Before reaching its conclusions, the Board conducted an extensive
"due diligence" review. Among other things, the Board received reports from
counsel and independent experts specifically hired to evaluate Composite's
ability to manage the Funds. The Board also was informed of the resources of
Washington Mutual and its affiliates that could be made available to Composite
and the Funds. The Trustees also considered Composite's experience as adviser
and service provider to the Composite Funds.
Although the Merger did not result in "a change of control" of Sierra
Advisors, in light of the upcoming consolidation of Sierra Advisors with
Composite, the Board was assured on behalf of Sierra Advisors and Composite that
they intend to comply with the requirements of Section 15(f) of the 1940 Act.
Section 15(f) provides a non-exclusive safe harbor for an investment adviser to
an investment company or any of its affiliated persons to receive any amount or
benefit in connection with a change in control of the investment adviser that
results in the "assignment" of an advisory agreement, as that term is defined in
the 1940 Act, so long as the following two conditions are met. First, for a
period of three years after the change of control, at least 75% of the board
members of the investment company must not be interested persons of the acquired
adviser or the acquiror (Sierra Advisors and Composite, respectively, in this
case). If the nominees listed in Proposal 1 above are elected by shareholders,
the Trust would be in compliance with this provision of Section 15(f) . Second,
an "unfair burden" must not be imposed upon the investment company as a result
of such transaction or any express or implied terms, conditions or
understandings applicable thereto. The term "unfair burden" is defined in
Section 15(f) to include any arrangement during the two-year period after the
assignment whereby the investment adviser, or any interested person of any such
adviser, receives or is entitled to receive any compensation, directly or
indirectly, from the investment company or its shareholders (other than fees for
bona fide investment advisory or other services) or from any person in
connection with the purchase or sale of securities or other property to, from or
on behalf of the investment company (other than bona fide ordinary compensation
as principal underwriter for such investment company). Sierra Advisors and
Composite are not aware of any express or implied term, condition, arrangement
or understanding that would impose an "unfair burden" on the Trust as a result
of the recent Merger or the upcoming consolidation of Sierra Advisors with
Composite.
[The Board also considered that the costs of the Special Meeting would be
borne by Composite.]
After consideration of the above factors and such other factors and
information that the Board deemed relevant, the Board, including the
Disinterested Trustees, unanimously approved the New Management Agreement with
respect to each Fund and voted to recommend its approval to the shareholders of
each Fund.
In the event that shareholders of a Fund do not approve the New Management
Agreement for such Fund, the Current Advisory Agreement for such Fund will
remain in effect and the Board will take such action as it deems in the best
interest of the Fund and its shareholders, which may include proposing that
shareholders approve an agreement in lieu of the New Management Agreement.
SHAREHOLDER APPROVAL OF THE NEW MANAGEMENT AGREEMENT
Approval of the New Management Agreement requires the affirmative vote of a
majority of the outstanding shares of each Fund. For purposes of this proposal,
"majority of the outstanding shares" means the vote of (1) 67% or more of a
Fund's outstanding shares present at the Special Meeting, if the holders of
15
<PAGE> 20
more than 50% of the outstanding shares of the Fund are present in person or
represented by Proxy, or (2) more than 50% of a Fund's outstanding shares,
whichever is less.
THE BOARD OF TRUSTEES RECOMMENDS THAT THE SHAREHOLDERS OF EACH FUND VOTE FOR
APPROVAL OF THE NEW MANAGEMENT AGREEMENT.
PROPOSAL 3: TO APPROVE OR DISAPPROVE A PROPOSAL WHICH WOULD AUTHORIZE THE BOARD
OF TRUSTEES TO REPLACE OR APPOINT INVESTMENT SUB-ADVISERS FOR EACH
FUND WITHOUT THE NECESSITY OF SEEKING SHAREHOLDER APPROVAL.
This Proposal would permit the Board to replace or appoint investment
sub-advisers for each Fund without obtaining shareholder approval of the
relevant Fund's shareholders. This proposal is being submitted to the
shareholders of each Fund for approval as required by the terms of an exemptive
application filed with the SEC and will not become effective with respect to any
particular Fund unless and until (1) the SEC has granted the relief requested in
the exemptive application, and (2) this proposal has been approved by a majority
vote of such Fund's shareholders.
It is anticipated that implementation of this Proposal will enable the
Trust to achieve a higher degree of management efficiency and will reduce the
need for costly and perfunctory shareholder meetings in the future. If
shareholders approve this Proposal, and an SEC order is obtained, the Board
would be able, upon the recommendation of a Fund's investment adviser (currently
Sierra Advisors, but if Proposal 2, above, is approved, Composite) and without
shareholder approval, to replace an investment sub-adviser and/or appoint
additional sub-advisers to the Funds, and to utilize investment sub-advisory
agreements for the Funds whose terms are different from those currently used by
the Trust. For example, if this Proposal was currently in place, shareholders
would not be asked to consider and approve Proposals 4 through 8 herein.
THE MANAGER OF MANAGERS STRUCTURE
Currently, the Trust operates within a "Manager of Managers" structure
whereby Sierra Advisors is responsible for analyzing economic and market trends;
formulating and assessing investment policies and recommending changes to the
Board where appropriate; supervising compliance by sub-advisers with each Fund's
investment objectives, policies and limits, as well as with laws and regulations
applicable to the Fund; evaluating the performance of the sub-advisers in light
of selected benchmarks and the needs of the Funds; evaluating potential
additional or replacement sub-advisers and recommending changes to the Board
where appropriate; and reporting to the Board and shareholders on the foregoing.
Each Fund's sub-adviser, in turn, is responsible for continuously reviewing,
supervising and administering the particular Fund's investment program with
respect to the Fund's assets. Should Proposal 2, above, be approved by a
majority of shareholders of each Fund, Composite will replace Sierra Advisors as
the investment adviser for each Fund. Although Composite currently intends to
retain investment discretion for several of the Funds, it also intends to
continue the "Manager of Managers" structure with respect to several Funds.
SEC EXEMPTIVE RELIEF
Section 15(a) of the 1940 Act requires that all contracts pursuant to which
persons serve as investment advisers to investment companies be approved by
shareholders. As interpreted, this requirement applies to the appointment of
investment sub-advisers to any Fund of the Trust for which Sierra Advisors or
Composite acts or in the future acts as an investment adviser. The SEC has
previously granted exemptions from the shareholder approval requirements for
funds that operate within a Manager of Managers structure, and therefore, the
Trust has applied for such an exemption. If the SEC approves the Trust's
application and shareholders approve this Proposal, the Board would, without
shareholder approval, be able to appoint additional or replacement sub-advisers
without having to unnecessarily seek shareholder acquiescence. The Board would
not, however, be able to replace the investment adviser to each Fund of the
Trust without receiving shareholder approval, as required by the 1940 Act and
applicable regulations governing mutual fund advisory contracts. There can be no
assurance that the exemptive order will be granted.
16
<PAGE> 21
TRUSTEE CONSIDERATIONS
This Proposal is intended to facilitate the efficient operation of the
"Manager of Managers" structure, afford the Trust increased management
flexibility and allow the investment adviser to perform to the fullest extent
the principal functions the Trust is paying it to perform with respect to
investment sub-advisers -- that is continuously monitoring the performance of
the sub-advisers and, from time to time, recommending that the Board replace
sub-advisers or appoint additional sub-advisers, depending on the investment
adviser's assessment of a sub-adviser's performance and the probability of such
investment sub-adviser achieving a Fund's investment objective. In addition, the
Proposal, if approved, would avoid the need to seek shareholder approval of new
investment sub-advisory agreements when an agreement has been terminated as a
result of a change in control of the sub-adviser. While there is no way of
knowing exactly how often the investment adviser may recommend, and the Board
approve, the termination and replacement of a particular sub-adviser, or the
selection of an additional sub-adviser, each of which would typically require a
shareholder meeting, experience has shown that the use of sub-advisers results
in more frequent shareholder meetings than would otherwise be the case. Because
shareholder meetings result in substantial costs which could reduce the desired
benefits of the "Manager of Managers" structure, the Board believes that
approval of this Proposal would benefit shareholders.
In reaching this conclusion the Trustees weighed the costs of shareholder
meetings against the benefits of shareholder scrutiny of proposed contracts with
additional or replacement sub-advisers. To this end, the Trustees considered
that, even in the absence of shareholder approval, any proposal to add or
replace an investment sub-adviser would receive careful review. First, the
investment adviser would assess the Fund's needs and, if it believed additional
or replacement sub-advisers could benefit the Fund, would systematically search
the relevant universe of available investment managers. Second, any
recommendations made by the investment adviser would have to be approved by a
majority of the Board, including a majority of the Disinterested Trustees.
Finally, any selections of additional or replacement investment sub-advisers
would have to comply with conditions contained in the SEC exemptive order, if it
is granted.
SHAREHOLDER APPROVAL OF THE PROPOSAL
Approval of the Proposal for the Trust requires the affirmative vote of a
majority of the outstanding shares of each Fund of the Trust. For purposes of
this proposal, "majority of the outstanding shares" means the vote of (1) 67% or
more of a Fund's outstanding shares present at the Special Meeting, if the
holders of more than 50% of the outstanding shares of a Fund are present in
person or represented by proxy, or (2) more than 50% of a Fund's outstanding
shares whichever is less.
THE TRUSTEES RECOMMEND THAT THE SHAREHOLDERS OF EACH FUND
OF THE TRUST VOTE FOR THIS PROPOSAL.
PROPOSAL 4: TO APPROVE OR DISAPPROVE A NEW INVESTMENT SUB-ADVISORY AGREEMENT
FOR THE GROWTH FUND BETWEEN COMPOSITE AND JANUS CAPITAL
CORPORATION.
The Current Sub-Advisory Agreements provide that they will terminate upon
the termination of the Current Advisory Agreements. As a result of the proposed
approval of a New Management Agreement (in Proposal 2 above) which will cause
the termination of the Current Advisory Agreements, the Board, including a
majority of the Disinterested Trustees, at a meeting held on October 28, 1997,
concluded that entry into a New Sub-Advisory Agreement for the Fund would be in
the best interests of the Fund and its shareholders. Therefore, the Board is
recommending that shareholders of the Fund approve the selection of Janus
Capital Corporation ("Janus") to continue to serve as the investment sub-adviser
to the Growth Fund following Composite's becoming the adviser to the Fund, and
approve a New Sub-Advisory Agreement. Other than the change of the investment
adviser to the Fund from Sierra Advisors to Composite, provisions regarding the
dates of effectiveness and termination, a reduction in the sub-advisory fee and
deleting the Trust as a party to the Agreement, there are no material
differences between the Current and New Sub-Advisory Agreements.
17
<PAGE> 22
THE CURRENT SUB-ADVISORY AGREEMENT
Janus currently serves as the investment Sub-Advisor to the Growth Fund
pursuant to an agreement by and among the Trust, Sierra Advisors and Janus dated
November 22, 1993, and approved by the sole shareholder of the Fund, at
commencement of operations, on November 22, 1993. Under the Current Sub-Advisory
Agreement, Janus makes the day-to-day investment decisions for the assets of the
Fund, subject to the supervision of, and policies established by, Sierra
Advisors and the Trustees.
The Current Sub-Advisory Agreement provides that Janus, in return for its
fee, and subject to the supervision of the Board and Sierra Advisors, will (1)
maintain compliance procedures for the Fund that the Janus believes are adequate
to ensure its compliance with the applicable provisions of the 1940 Act and the
Advisers Act; (2) make investment decisions for the Fund in accordance with the
Fund's investment objective(s) and policies as stated in the Fund's Prospectus
and Statement of Additional Information as in effect and, after notice to Janus,
as which may be amended from time to time; (3) place purchase and sale orders on
behalf of the Fund to effectuate the investment decisions made; (4) maintain
books and records with respect to the securities transactions of the Fund in
accordance with the 1940 Act and the Advisers Act and the rules adopted
thereunder and will furnish The Adviser quarterly, annual and special reports as
The Adviser may reasonably request; (5) treat confidentially and as proprietary
information of the Trust, all records and other information relative to the
Trust and past, present or potential shareholders (other than information
publicly available, otherwise legally in the hands of Janus or pertaining to
mutual clients); and (6) not knowingly use such records and information for any
purpose other than performance of its responsibilities and duties under the
Current Sub-Advisory Agreement, except after prior notification to and approval
in writing by the Trust, which approval shall not be unreasonably withheld and,
notwithstanding the foregoing, such records may not be withheld where Janus may
be exposed to civil or criminal contempt proceedings for failure to comply when
requested to divulge such information by duly constituted authorities, or when
so requested by the Trust. In providing these services, Janus will supervise the
Fund's investments and conduct a continual program of investment, evaluation
and, if appropriate, sale and reinvestment of the Fund's assets.
Subject to the supervision of Sierra Advisors and in accordance with the
investment objective and policies as stated in the Fund's Prospectus and
Statement of Additional Information, Janus is authorized, in its discretion and
without prior consultation with Sierra Advisors to buy, sell, lend, and
otherwise trade in any stocks, bonds, and other securities and investment
instruments on behalf of the Fund, without regard to the length of time the
securities have been held and the resulting rate of portfolio turnover or any
tax considerations, and so long as consistent with the foregoing, the majority
or the whole of the Fund may be invested in such proportions of stocks, bonds,
other securities or investment instruments, or cash as Janus shall determine. In
addition, Janus will furnish the Fund or Sierra Advisors with whatever
statistical information the Fund or Sierra Advisors may reasonably request with
respect to the instruments that the Fund may hold or contemplate purchasing.
The Current Sub-Advisory Agreement provides for the payment of a fee to
Janus from Sierra Advisors on the first business day of each month for services
provided in the previous month at the annual rate of 0.55% of the Fund's average
daily net assets including cash and cash equivalents up to $100 million and
0.50% of the Fund's average daily net assets in excess of $100 million.
The Current Sub-Advisory Agreement provides that Janus will bear all
expenses in connection with the performance of its services under the Agreement,
which expenses shall not include brokerage fees or commissions in connection
with the effectuation of securities transactions. Janus shall bear no expenses
of the Trust, the Fund or Sierra Advisors. The Trust will bear certain other
expenses to be incurred in its operation, including but not limited to
organizational expenses, taxes, interest, brokerage fees and commissions, if
any; fees of the Disinterested Trustees; SEC fees and state Blue Sky
qualification fees; out-of-pocket expenses of custodians, transfer and dividend
disbursing agents and the Trust's sub-administrator and transaction charges of
custodians; insurance premiums; outside auditing and legal expenses; costs of
maintenance of the Trust's existence; costs attributable to investor services,
including without limitation, telephone and personnel expenses; costs of
preparing and printing prospectuses and statements of additional information for
regulatory
18
<PAGE> 23
purposes and for distribution to existing shareholders; costs of shareholders'
reports and meetings of the shareholders of the Fund and of the officers or
Board; and any extraordinary expenses. In addition, the Fund pays a distribution
fee pursuant to the terms of a Distribution Plan adopted under Rule 12b-1 under
the 1940 Act.
The services of Janus are not deemed to be exclusive, and Janus is free to
render investment advisory and other services to others, including fiduciary and
other managed accounts as well as to other investment companies or series of
investment companies, so long as its services under the Current Sub-Advisory
Agreement are not impaired thereby. The Current Sub-Advisory Agreement also
provides that purchase or sell orders for the Fund may be aggregated with
contemporaneous purchase or sell orders of other clients of Janus; provided that
(i) no advisory account will be favored by Janus over any other account; (ii)
each client of Janus who participates in such an aggregated order will
participate at the average share price, with all transaction costs shared on a
pro rata basis; (iii) only advisory clients' transactions will be aggregated for
such an aggregated order; and (iv) the accounts of clients whose orders are
aggregated will be segregated on Janus's books and records so as to identify the
particular client who has the beneficial interest therein. Janus shall use its
best efforts to obtain execution of Fund transactions at prices which are
advantageous to the Fund and at commission rates that are reasonable in relation
to the benefits received.
The Current Sub-Advisory Agreement has an initial term of one year from the
effective date, and thereafter shall continue for successive annual periods,
provided the continuation is approved by the Board or by vote of a majority of
the Fund's outstanding voting securities, as well as by a majority of the
Disinterested Trustees. The Current Sub-Advisory Agreement may be terminated,
without the payment of any penalty on 30 days' written notice by Sierra
Advisors, the Board or by the vote of a majority of the outstanding voting
securities of the Fund, or upon 60 days' written notice by Janus. In addition,
the Current Sub-Advisory Agreement will also terminate automatically upon its
assignment. The New Sub-Advisory Agreement's approval and termination provisions
are in substance identical to those of the Current Sub-Advisory Agreement so
that the New Sub-Advisory Agreement will have an initial term of one year from
the date of execution.
Under the Current Sub-Advisory Agreement, except as may otherwise be
provided by federal securities laws, Janus is not liable for any error of
judgment or for any loss suffered by the Fund or Sierra Advisors in connection
with performance of its obligations under the agreement, except for any losses
resulting from willful misfeasance, bad faith or gross negligence on Janus' part
in the performance of its duties or from reckless disregard of its obligations
and duties under the agreement.
THE NEW SUB-ADVISORY AGREEMENT
The Board approved the proposed New Sub-Advisory Agreement for the Fund
between Composite and Janus, a form of which is attached hereto as Exhibit B, at
a meeting held on October 28, 1997. The proposed New Sub-Advisory Agreement is
substantially identical to the Current Sub-Advisory Agreement, except for the
change of the investment adviser from Sierra Advisors to Composite, the dates of
execution, effectiveness and initial term, the level of fees and the deletion of
the Trust as a party to the Agreement.
The sub-advisory fees as a percentage of net assets now payable by
Composite will be lower under the New Sub-Advisory Agreement than under the
Current Sub-Advisory Agreement formerly with Sierra Advisors and the Trust. The
New Sub-Advisory Agreement provides for the payment of a fee to Janus from
Composite on the first business day of each month for services provided in the
previous month at the annual rate of % of the Fund's average daily net
assets including cash and cash equivalents up to $100 million and % of the
Fund's average daily net assets in excess of $100 million. If the sub-advisory
fee under the New Sub-Advisory Agreement had been in effect for the Fund's most
recently completed fiscal year, the sub-advisory fee to which Janus would have
been entitled would have been $ compared to $1,374,940 which it
actually received under the Current Sub-Advisory Agreement.
At a meeting held on October 28, 1997, the Board including the
Disinterested Trustees, unanimously approved the New Sub-Advisory Agreement for
the Trust on behalf of the Fund, and recommended the New
19
<PAGE> 24
Sub-Advisory Agreement for approval by the shareholders of the Fund. The New
Sub-Advisory Agreement would take effect upon the obtaining of shareholder
approval. The New Sub-Advisory Agreement will continue in effect for an initial
term of one year and thereafter for successive annual periods as long as such
continuance is approved in accordance with the 1940 Act.
In evaluating the New Sub-Advisory Agreement, the Board considered the
continuity of services by Janus. In this regard, the Board took account of the
Fund's Current Sub-Advisory Agreement and the New Sub-Advisory Agreement,
including their terms relating to the services to be provided thereunder by
Janus, and that the fees and expenses will be lower. Although the Trust is not a
party to the New Sub-Advisory Agreement, it is not expected that this change
will have a material effect on the legal remedies available to the Trust or
shareholders in the event of a breach of the New Sub-Advisory Agreement.
Approval of the New Sub-Advisory Agreement is contingent on the approval by
shareholders of the New Advisory Agreement between the Trust and Composite.
However, if the New Advisory Agreement is approved and shareholders of the Fund
do not approve the New Sub-Advisory Agreement, then the Board will take such
action as it deems is in the best interest of the Fund and its shareholders,
which may include proposing that shareholders approve an agreement in lieu of
the New Sub-Advisory Agreement.
INFORMATION REGARDING JANUS
Janus is located at 100 Fillmore Street, Denver, Colorado 80206. Janus is
an indirect, majority owned subsidiary of Kansas City Southern Industries, Inc.
("KCSI"). KCSI is a publicly traded holding company whose primary subsidiaries
are engaged in transportation, information processing and financial services.
Janus has provided investment advice to mutual funds and other large financial
clients since 1970. As of June 30, 1997, Janus had approximately $60 billion in
assets under management.
Each director and the principal executive officer of Janus and their
principal occupations are listed below.
<TABLE>
<CAPTION>
NAME AND POSITION WITH THE SUB-ADVISER ADDRESS PRINCIPAL OCCUPATION
- --------------------------------------- -------------------------- --------------------------
<S> <C> <C>
Thomas H. Bailey Chairman of Trustees and
President, Director and Chairman, President of Janus
Chief Executive Officer Investment Fund and Janus
Aspen Series; Chairman and
Director of Idex
Management, Inc.
James P. Craig III Trustee and Executive Vice
Vice President, Director and Chief President of Janus
Investment Officer Investment Fund and Janus
Aspen Series
Michael E. Herman President of Kansas City
Director Royals Baseball Team;
Chairman of Finance
Committee, Ewing Marion
Kauffman Foundation
Thomas A. McDonnell President and Director of
Director DST Systems, Inc.;
Director of Euronet
Services, Inc.
Landon H. Rowland President and Chief
Director Executive Officer of
Kansas City Southern
Industries, Inc.
Michael Stopler President of Stopler &
Director Company
</TABLE>
None of the Officers or Trustees of the Trust is an officer, employee,
director, or shareholder of Janus.
As compensation for investment sub-advisory services to the Fund for the
fiscal year ended June 30, 1997, Janus received compensation with respect to the
Growth Fund in the amount of $1,374,940.
20
<PAGE> 25
Janus currently provides investment services to the following investment
companies having an investment objective similar to the investment objective of
the Growth Fund:
<TABLE>
<CAPTION>
AMOUNT OF ASSETS
UNDER MANAGEMENT
AS OF JUNE 30,
NAME OF INVESTMENT COMPANY 1997 RATE OF COMPENSATION
------------------------------------- ---------------- ---------------------------------
<S> <C> <C>
JANUS INVESTMENT FUND
Janus Mercury Fund................. $2,087,700,000 .75% of first $300 million
.70% of next $200 million
.65% on assets over $500 million
JNL SERIES TRUST JNL
Aggressive Growth Series........... $ 75,483,488 .55% on first $100 million
.50% on $100-500 million
.45% over $500 million
New England Funds Trust I
New England Star Advisers Fund..... $ 237,395,661 .55% on first $50 million
.50% over $50 million
The Sierra Variable Trust
Growth Fund........................ $ 125,341,307 .55% on first $25 million
.50% over $25 million
Seasons Series Trust
(Growth segments of four multi-
managed portfolios)................ $ 13,429,742 .60% on first $200 million
.55% over $200 million
(on combined assets)
</TABLE>
SHAREHOLDER APPROVAL OF THE NEW SUB-ADVISORY AGREEMENT
Approval of the New Sub-Advisory Agreement for the Fund requires the
affirmative vote of a majority of the outstanding shares of the Fund. For
purposes of this proposal, "majority of the outstanding shares" means the vote
of (1) 67% or more of the Fund's outstanding shares present at the Special
Meeting, if the holders of more than 50% of the outstanding shares of the Fund
are present in person or represented by proxy, or (2) more than 50% of the
Fund's outstanding shares whichever is less.
THE BOARD OF TRUSTEES RECOMMENDS THAT THE SHAREHOLDERS OF THE GROWTH FUND VOTE
FOR APPROVAL OF THE NEW SUB-ADVISORY AGREEMENT.
PROPOSAL 5: TO APPROVE OR DISAPPROVE A NEW INVESTMENT SUB-ADVISORY AGREEMENT
FOR THE INTERNATIONAL GROWTH FUND BETWEEN COMPOSITE AND WARBURG
PINCUS ASSET MANAGEMENT, INC.
As a result of the proposed termination of the Current Advisory Agreements,
the Board, including a majority of the Disinterested Trustees, at a meeting held
on October 28, 1997, concluded that entry into a New Sub-Advisory Agreement for
the Fund would be in the best interests of the Fund and its shareholders.
Therefore, the Board is recommending that shareholders of the Fund approve the
selection of Warburg Pincus Asset Management, Inc. ("Warburg") to continue to
serve as the investment sub-adviser to the International Growth Fund and approve
a New Sub-Advisory Agreement. Other than the change of the investment adviser to
the Fund from Sierra Advisors to Composite, provisions regarding the dates of
effectiveness and termination, and deletion of the Trust as a party to the
Agreement, there are no material differences between the Current and New
Sub-Advisory Agreements.
THE CURRENT SUB-ADVISORY AGREEMENT
Warburg currently serves as the investment Sub-Advisor to the International
Growth Fund pursuant to an agreement by and among the Trust, Sierra Advisors and
Warburg dated April 8, 1996. The Current Sub-Advisory Agreement was approved by
shareholders on June 21, 1996 for the purpose of decreasing sub-advisory fees
and adding reciprocal and expanded indemnification provisions. Under the Current
Sub-Advisory Agreement, Warburg makes the day-to-day investment decisions for
the assets of the Fund, subject to the supervision of, and policies established
by, Sierra Advisors and the Trustees.
21
<PAGE> 26
The Current Sub-Advisory Agreement provides that Warburg, in return for its
fee, and subject to the supervision of the Board and Sierra Advisors will (1)
act in conformity with the Trust's Master Trust Agreement, the 1940 Act, the
Advisers Act and the Internal Revenue Code of 1986; (2) make investment
decisions for the Fund in accordance with the Fund's investment objective(s) and
policies as stated in the Fund's Prospectus and Statement of Additional
Information as in effect and, after notice to Warburg, as which may be amended
from time to time; (3) place purchase and sale orders on behalf of the Fund to
effectuate the investment decisions made; (4) maintain books and records with
respect to the securities transactions of the Fund and will furnish to the Board
such periodic, regular and special reports as the Board may request; (5) treat
confidentially and as proprietary information of the Trust, all records and
other information relative to the Trust and past, present or potential
shareholders (other than information publicly available, otherwise legally in
the hands of Warburg or pertaining to mutual clients); and (6) will not use such
records and information for any purpose other than performance of its
responsibilities and duties under the Current Sub-Advisory Agreement, except
after prior notification to and approval in writing by the Trust, which approval
shall not be unreasonably withheld and, notwithstanding the foregoing, such
records may not be withheld where Warburg may be exposed to civil or criminal
contempt proceedings for failure to comply when requested to divulge such
information by duly constituted authorities, or when so requested by the Trust.
In providing these services, Warburg will supervise the Fund's investments and
conduct a continual program of investment, evaluation and, if appropriate, sale
and reinvestment of the Fund's assets. In addition, Warburg will furnish the
Fund or Sierra Advisors with whatever statistical information the Fund or Sierra
Advisors may reasonably request with respect to the instruments that the Fund
may hold or contemplate purchasing.
In fulfilling its obligations under the Current Sub-Advisory Agreement,
Warburg is entitled to rely on and act in accordance with, and Sierra Advisors
has agreed to hold Warburg harmless for any act or omission taken in good faith
in reliance on, information and instructions, which may be standing
instructions, provided to Warburg by Sierra Advisors, the Trust's administrator,
or other agent of Sierra Advisors designated by Sierra Advisors. Such
information and instructions shall be conveyed to Warburg in a timely manner so
as to permit Warburg to take such action as may be required in an orderly
fashion.
The Current Sub-Advisory Agreement provides for the payment of a fee to
Warburg from Sierra Advisors on the first business day of each month for
services provided in the previous month at the annual rate of 0.50% of the
Fund's average daily net assets. In the event that any reduction in the fees
paid to Sierra Advisors under the Advisory Agreement is required as a result of
any statutory or regulatory limitation on investment company expenses, there
shall be a proportionate reduction in the fee payable to Warburg; provided that
Warburg will never be required to pay more than the amount of fees it receives.
The Current Sub-Advisory Agreement provides that Warburg will bear all
expenses in connection with the performance of its services under the Agreement,
which expenses shall not include brokerage fees or commissions in connection
with the effectuation of securities transactions. The Trust will bear certain
other expenses to be incurred in its operation, including but not limited to
organizational expenses, taxes, interest, brokerage fees and commissions, if
any; fees of Disinterested Trustees; SEC fees and state Blue Sky qualification
fees; out-of-pocket expenses of custodians, transfer and dividend disbursing
agents and the Trust's sub-administrator and transaction charges of custodians;
insurance premiums; outside auditing and legal expenses; costs of maintenance of
the Trust's existence; costs attributable to investor services, including
without limitation, telephone and personnel expenses; costs of preparing and
printing prospectuses and statements of additional information for regulatory
purposes and for distribution to existing shareholders; costs of shareholders'
reports and meetings of the shareholders of the Fund and of the officers or
Board; and any extraordinary expenses. In addition, the Fund pays a distribution
fee pursuant to the terms of a Distribution Plan adopted under Rule 12b-1 of the
1940 Act.
The services of Warburg are not deemed to be exclusive, and Warburg is free
to render investment advisory and other services to others, including fiduciary
and other managed accounts as well as to other investment companies or series of
investment companies, so long as its services under the Current Sub-Advisory
Agreement are not impaired thereby. The Current Sub-Advisory Agreement also
provides that whenever the Funds and one or more other accounts or investment
companies advised by Warburg have available funds for investment, investments
suitable and appropriate for each will be allocated in accordance
22
<PAGE> 27
with procedures believed to be equitable to each entity. Similarly,
opportunities to sell securities will be allocated in an equitable manner.
The Current Sub-Advisory Agreement has an initial term of one year from the
effective date, and thereafter shall continue for successive annual periods,
provided the continuation is approved by the Board or by vote of a majority of
the Fund's outstanding voting securities, as well as by a majority of the
Disinterested Trustees. The Current Sub-Advisory Agreement may be terminated,
without the payment of any penalty on 60 days' written notice by Sierra
Advisors, the Board or by the vote of a majority of the outstanding voting
securities of the Fund, or upon 90 days' written notice by Warburg. In addition,
the Current Sub-Advisory Agreement will also terminate automatically upon its
assignment. The New Sub-Advisory Agreement's approval and termination provisions
are in substance identical to those of the Current Sub-Advisory Agreement so
that the New Sub-Advisory Agreement will have an initial term of one year from
the date of execution.
Under the Current Sub-Advisory Agreement, Warburg is not liable for any
error of judgment or for any loss suffered by the Fund or Sierra Advisors in
connection with performance of its obligations under the agreement, except for
any losses resulting from a breach of a fiduciary duty with respect to the
receipt of compensation for services, or resulting from willful misfeasance, bad
faith or gross negligence on Warburg's part in the performance of its duties or
from reckless disregard of its obligations and duties under the agreement. In
addition, the Current Sub-Advisory Agreement also provides that obligations
under the Agreement are binding upon the property and assets of the Fund and not
the trustees, officers or shareholders of the Fund individually.
THE NEW SUB-ADVISORY AGREEMENT
The Board approved the proposed New Sub-Advisory Agreement for the Fund
between Composite and Warburg at a meeting held on October 28, 1997, a form of
which is attached hereto as Exhibit C. The proposed New Sub-Advisory Agreement
is substantially identical to the Current Sub-Advisory Agreement, except for the
change of the investment adviser from Sierra Advisors to Composite, the dates of
execution, effectiveness and initial term, and the deletion of the Trust as a
party to the Agreement.
The sub-advisory fees as a percentage of net assets now payable by
Composite will be the same under the New Sub-Advisory Agreement as under the
Current Sub-Advisory Agreement with Sierra Advisors. If the sub-advisory fee
under the New Sub-Advisory Agreement had been in effect for the Fund's most
recently completed fiscal year, the sub-advisory fee to which Warburg would have
been entitled would have been identical to that to which it was entitled under
the Current Sub-Advisory Agreement.
At a meeting held on October 28, 1997, the Board including the
Disinterested Trustees, unanimously approved the New Sub-Advisory Agreement for
the Trust on behalf of the Fund, and recommended the New Sub-Advisory Agreement
for approval by the shareholders of the Fund. The New Sub-Advisory Agreement
would take effect upon the obtaining of shareholder approval. The New
Sub-Advisory Agreement will continue in effect for an initial term of one year
and thereafter for successive annual periods as long as such continuance is
approved in accordance with the 1940 Act.
In evaluating the New Sub-Advisory Agreement, the Board considered the
continuity of services by Warburg. In this regard, the Board took account of the
Fund's Current Sub-Advisory Agreement and the New Sub-Advisory Agreement,
including their terms relating to the services to be provided thereunder by
Warburg and the fees and expenses are substantially identical. Although the
Trust is not a party to the New Sub-Advisory Agreement, it is not expected that
this change will have a material effect on the remedies available to the Trust
or shareholders in the event of a breach of the New Sub-Advisory Agreement.
Approval of the New Sub-Advisory Agreement is contingent on the approval by
shareholders of the New Advisory Agreement between the Trust and Composite.
However, if the New Advisory Agreement is approved and shareholders of the Fund
do not approve the New Sub-Advisory Agreement, then the Board will take such
action as it deems is in the best interest of the Fund and its shareholders,
which may include proposing that shareholders approve an agreement in lieu of
the New Sub-Advisory Agreement.
23
<PAGE> 28
INFORMATION REGARDING WARBURG
Warburg is located at 466 Lexington Avenue, New York, New York 10017-3147.
Warburg is a professional investment counseling firm that provides investment
services to investment companies, employee benefit plans, endowment funds,
foundations and other institutions and individuals. As of September 30, 1997,
Warburg managed approximately $21.1 billion of assets, including approximately
$12.5 billion of investment company assets. Incorporated in 1970, Warburg is
indirectly controlled by Warburg, Pincus & Co. ("WP&Co."), which has no other
business other than being a holding company of Warburg and its affiliates.
Lionel I. Pincus, the managing partner of WP&Co., may be deemed to control both
WP&Co. and Warburg.
Each Director and the principal executive officer of Warburg and their
principal occupations are listed below.
<TABLE>
<CAPTION>
NAME AND ADDRESS PRINCIPAL OCCUPATION
----------------------------------- -----------------------------------
<S> <C>
Lionel I. Pincus Chief Executive Officer
466 Lexington Avenue
New York, NY 10017
John L. Furth Chairman of the Board of Directors
466 Lexington Avenue
NEW York, NY 10017
John L. Vogelstein Managing Director
466 Lexington Avenue
New York, NY 10017
</TABLE>
None of the Officers or Trustees of the Trust is an officer, employee,
director, or shareholder of the Warburg.
As compensation for investment sub-advisory services to the Fund for the
fiscal year ended June 30, 1997, Warburg received compensation with respect to
the Fund in the amount of $880,003.
Warburg currently provides investment services to the following investment
companies having an investment objective similar to the investment objective of
the International Growth Fund:
<TABLE>
<CAPTION>
AMOUNT OF ASSETS
NAME OF INVESTMENT COMPANY UNDER MANAGEMENT RATE OF COMPENSATION
----------------------------------------- ---------------- --------------------
<S> <C> <C>
Warburg Pincus International Equity Fund $3,183,668,000.00 1.00%
Warburg Pincus Institutional Fund, Inc. $1,262,021,000.00 0.80%
International Equity Portfolio
Evergreen Investment Trust $ 288,360,155.00 0.55%
Evergreen International Equity Fund
Sierra Trust Funds $ 0.50%
International Growth Fund
Style Select Series, Inc. $ 26,418,580 0.70% (on first $100 million)
International Equity Portfolio
</TABLE>
SHAREHOLDER APPROVAL OF THE NEW SUB-ADVISORY AGREEMENT
Approval of the New Sub-Advisory Agreement for the International Growth
Fund requires the affirmative vote of a majority of the outstanding shares of
the Fund. For purposes of this proposal, "majority of the outstanding shares"
means the vote of (1) 67% or more of the Fund's outstanding shares present at
the Special Meeting, if the holders of more than 50% of the outstanding shares
of the Fund are present in person or represented by proxy, or (2) more than 50%
of the Fund's outstanding shares whichever is less.
THE BOARD OF TRUSTEES RECOMMENDS THAT THE SHAREHOLDERS OF THE INTERNATIONAL
GROWTH FUND VOTE FOR APPROVAL OF A NEW SUB-ADVISORY AGREEMENT.
PROPOSAL 6: TO APPROVE OR DISAPPROVE A NEW INVESTMENT SUB-ADVISORY AGREEMENT
FOR THE CALIFORNIA MUNICIPAL FUND BETWEEN COMPOSITE AND VAN KAMPEN
AMERICAN CAPITAL MANAGEMENT, INC.
24
<PAGE> 29
PROPOSAL 7: TO APPROVE OR DISAPPROVE A NEW INVESTMENT SUB-ADVISORY AGREEMENT
FOR THE FLORIDA INSURED MUNICIPAL FUND BETWEEN COMPOSITE AND VAN
KAMPEN AMERICAN CAPITAL MANAGEMENT, INC.
PROPOSAL 8: TO APPROVE OR DISAPPROVE A NEW INVESTMENT SUB-ADVISORY AGREEMENT
FOR THE CALIFORNIA INSURED INTERMEDIATE MUNICIPAL FUND BETWEEN
COMPOSITE AND VAN KAMPEN AMERICAN CAPITAL MANAGEMENT, INC.
As a result of the proposed termination of the Current Advisory Agreements,
the Board, including a majority of the Disinterested Trustees, at a meeting held
on October 28, 1997, concluded that entry into a New Sub-Advisory Agreement for
the California Municipal Fund, Florida Insured Municipal Fund and California
Insured Intermediate Municipal Fund (the "Van Kampen-Advised Funds") would be in
the best interests of such Funds and their shareholders. Therefore, the Board is
recommending that shareholders of the Funds approve the selection of Van Kampen
American Capital Management, Inc. ("Van Kampen") to continue to serve as the
investment sub-adviser to the Van Kampen-Advised Funds and approve a New Sub-
Advisory Agreement. Other than the change of the investment adviser to the Funds
from Sierra Advisors to Composite, provisions regarding the dates of
effectiveness and termination, and deleting the Trust as a party to the
Agreement, there are no material differences between the Current and New
Sub-Advisory Agreements.
THE CURRENT SUB-ADVISORY AGREEMENT
Van Kampen currently serves as the investment Sub-Advisor to the California
Municipal Fund, Florida Insured Municipal Fund and California Insured
Intermediate Municipal Fund pursuant to an agreement by and among the Trust,
Sierra Advisors and Van Kampen dated October 31, 1996, and approved by
shareholders of the Funds, at commencement of operations, on October 29, 1996.
Under the Current Sub-Advisory Agreement, Van Kampen makes the day-to-day
investment decisions for the assets of the Funds, subject to the supervision of,
and policies established by, Sierra Advisors and the Trustees.
The Current Sub-Advisory Agreement provides that Van Kampen, in return for
its fee, and subject to the supervision of the Board and Sierra Advisors, will
(1) act in conformity with the Trust's Master Trust Agreement, the 1940 Act, the
Advisers Act of 1940 and the Internal Revenue Code of 1986; (2) make investment
decisions for the Funds in accordance with the Funds' investment objectives and
policies as stated in the Funds' Prospectus and Statement of Additional
Information as in effect and, after notice to Van Kampen, as which may be
amended from time to time; (3) place purchase and sale orders on behalf of the
Funds to effectuate the investment decisions made; (4) maintain books and
records with respect to the securities transactions of the Funds and will
furnish to the Trust's Board such periodic, regular and special reports as the
Board may request; and (5) treat confidentially and as proprietary information
of the Trust, all records and other information relative to the Trust and past,
present or potential shareholders; and (6) will not use such records and
information for any purpose other than performance of its responsibilities and
duties under the Current Sub-Advisory Agreement, except after prior notification
to and approval in writing by the Trust, which approval shall not be
unreasonably withheld and such records may not be withheld where Van Kampen may
be exposed to civil or criminal contempt proceedings for failure to comply when
requested to divulge such information by duly constituted authorities, or when
so requested by the Trust. In providing these services, Van Kampen will
supervise the Funds' investments and conduct a continual program of investment,
evaluation and, if appropriate, sale and reinvestment of the Funds' assets. In
addition, Van Kampen will furnish the Funds or Sierra Advisors with whatever
statistical information the Funds or Sierra Advisors may reasonably request with
respect to the instruments that the Funds may hold or contemplate purchasing.
The Current Sub-Advisory Agreement provides for compensation to Van Kampen
from Sierra Advisors calculated as a monthly fee, absent fee waivers, at the
following annual rates:
<TABLE>
<CAPTION>
AMOUNT OF ASSETS IN AFTER 50; AFTER 75; AFTER 100; AFTER 125; OVER
MILLIONS OF DOLLARS ($MIL.) FIRST 50 NEXT 25 NEXT 25 NEXT 25 NEXT 25 150
- ------------------------------------------ -------- --------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
California Municipal Fund(1).............. .20% .20% .20% .20% .20% .15%
Florida Insured Municipal Fund............ .20% .20% .125% .125% .125% .125%
California Insured Intermediate Municipal
Fund.................................... .20% .20% .125% .125% .125% .125%
</TABLE>
25
<PAGE> 30
- ---------------
(1) With respect to the California Municipal Fund, when the combined average
daily net assets of the California Municipal Fund and National Municipal
Fund (the "Combined Assets") exceeds $750 million, the Sub-Advisor will be
paid a fee with respect to the California Municipal Fund in proportion to
the Fund's average net assets at the following annual rate: .15% of the
Combined Assets up to $1 billion; plus .125% of the Combined Assets over $1
billion.
The Current Sub-Advisory Agreement provides that Van Kampen will bear all
expenses in connection with the performance of its services under the Agreement,
which expenses do not include brokerage fees or commissions in connection with
the effectuation of securities transactions. The Trust will bear certain other
expenses to be incurred in its operation, including but not limited to
organizational expenses, taxes, interest, brokerage fees and commissions, if
any; fees of Disinterested Trustees; SEC fees and state Blue Sky qualification
fees; out-of-pocket expenses of custodians, transfer and dividend disbursing
agents and the Trust's sub-administrator and transaction charges of custodians;
insurance premiums; outside auditing and legal expenses; costs of maintenance of
the Trust's existence; costs attributable to investor services, including
without limitation, telephone and personnel expenses; costs of preparing and
printing prospectuses and statements of additional information for regulatory
purposes and for distribution to existing shareholders; costs of shareholders'
reports and meetings of the shareholders of the Funds and of the officers or
Board of the Trust; and any extraordinary expenses. In addition, the Funds pay a
distribution fee pursuant to the terms of a Distribution Plan adopted under Rule
12b-1 of the 1940 Act.
The services of Van Kampen are not deemed to be exclusive, and Van Kampen
is free to render investment advisory and other services to others, including
fiduciary and other managed accounts as well as to other investment companies or
series of investment companies, so long as its services under the Current Sub-
Advisory Agreement are not impaired thereby. The Current Sub-Advisory Agreement
also provides that whenever the Funds and one or more other accounts or
investment companies advised by Van Kampen have available funds for investment,
investments suitable and appropriate for each will be allocated in accordance
with procedures believed to be equitable to each entity. Similarly,
opportunities to sell securities will be allocated in an equitable manner.
The Current Sub-Advisory Agreement has an initial term of two years from
its effective date, and thereafter shall continue for successive annual periods,
provided the continuation is approved by the Board or by vote of a majority of
the Funds' outstanding voting securities, as well as by a majority of the
Disinterested Trustees. The Current Sub-Advisory Agreement may be terminated,
without the payment of any penalty on 30 days' written notice by Sierra
Advisors, the Board or by the vote of a majority of the outstanding voting
securities of the Funds, or upon 90 days' written notice by Van Kampen. In
addition, the Current Sub-Advisory Agreement will also terminate automatically
upon the termination of the investment advisory agreement between the Funds and
Sierra Advisors, as well as in the event of an assignment. The New Sub-Advisory
Agreement's approval and termination provisions are in substance identical to
those of the Current Sub-Advisory Agreement so that the New Sub-Advisory
Agreement will have an initial term of two years from the date of execution.
Under the Current Sub-Advisory Agreement, Van Kampen is not liable for any
error of judgment or for any loss suffered by the Funds or Sierra Advisors in
connection with performance of its obligations under the agreement, except for
any losses resulting from a breach of a fiduciary duty with respect to the
receipt of compensation for services, or resulting from willful misfeasance, bad
faith or gross negligence on Van Kampen's part in the performance of its duties
or from reckless disregard of its obligations and duties under the agreement.
THE NEW SUB-ADVISORY AGREEMENT
The Board approved the proposed New Sub-Advisory Agreement between the
Funds, Composite and Van Kampen, a form of which is attached hereto as Exhibit
D, at a meeting held on October 28, 1997. The form of the proposed New
Sub-Advisory Agreement is identical to the Current Sub-Advisory Agreement,
except for the change of the investment adviser from Sierra Advisors to
Composite, the dates of execution, effectiveness and initial term, and the
deletion of the Trust as a party to the Agreement.
26
<PAGE> 31
The sub-advisory fees as a percentage of net assets now payable by
Composite will be the same under the New Sub-Advisory Agreement as under the
Current Sub-Advisory Agreement with Sierra Advisors. If the sub-advisory fee
under the New Sub-Advisory Agreement had been in effect for each of the Fund's
most recently completed fiscal year, the sub-advisory fee to which Van Kampen
would have been entitled would have been identical to that to which it was
entitled under the Current Sub-Advisory Agreement. Van Kampen may from time to
time and at its discretion voluntarily waive all or a portion of its fees in
order to assist the Funds in maintaining competitive expense ratios. Van Kampen
reserves the right to terminate any voluntary fee waiver and reimbursement at
any time.
At a meeting held on October 28, 1997, the Board including the
Disinterested Trustees, unanimously approved the New Sub-Advisory Agreement for
the Trust on behalf of each of the Funds, and recommended the New Sub-Advisory
Agreement for approval by the shareholders of each of the Funds. The New Sub-
Advisory Agreement would take effect upon the obtaining of shareholder approval.
The New Sub-Advisory Agreement will continue in effect for an initial term of
two years and thereafter for successive annual periods as long as such
continuance is approved in accordance with the 1940 Act.
In evaluating the New Sub-Advisory Agreement, the Board considered the
continuity of services by Van Kampen. In this regard, the Board took into
account the Fund's Current Sub-Advisory Agreement and the New Sub-Advisory
Agreement, including their terms relating to the services to be provided
thereunder by Van Kampen, and the fact that the fees and expenses are
substantially identical. Although the Trust is not a party to the New
Sub-Advisory Agreement, it is not expected that this change will have a material
effect on the remedies available to the Trust or shareholders in the event of a
breach of the New Sub-Advisory Agreement.
Approval of the New Sub-Advisory Agreement is contingent on the approval by
shareholders of the New Advisory Agreement between the Trust and Composite.
However, if the New Advisory Agreement is approved and shareholders of the Fund
do not approve the New Sub-Advisory Agreement, then the Board will take such
action as it deems is in the best interest of the Fund and its shareholders,
which may include proposing that shareholders approve an agreement in lieu of
the New Sub-Advisory Agreement.
INFORMATION REGARDING VAN KAMPEN
Van Kampen acts as investment Sub-Advisor for each of the Van
Kampen-Advised Funds and has acted as investment sub-adviser for the Funds since
each commenced its investment operations.
Van Kampen is located at One Parkview Plaza, Oakbrook, Illinois 60181. Van
Kampen is an indirect wholly owned subsidiary of VK/AC Holding, Inc. VK/AC
Holding, Inc. is a wholly owned subsidiary of MSAM Holding, Inc., which in turn
is a wholly owned subsidiary of Morgan Stanley, Dean Witter, Discover & Co., a
publicly held company. Van Kampen provides investment advice to a wide variety
of individual, institutional and investment company clients and, together with
its affiliates, had aggregate assets under management or supervision, as of June
30, 1997, of more than $64.3 billion.
The Directors and principal executive officers of Van Kampen and their
principal occupations are listed below.
<TABLE>
<CAPTION>
NAME AND ADDRESS PRINCIPAL OCCUPATION
- -------------------- ----------------------------------------------
<S> <C>
Don G. Powell Chairman and Chief Executive Officer
Dennis J. McDonnell President and Chief Operating Officer
Ronald A. Nyberg Executive Vice President, General Counsel and
Assistant Secretary
William R. Ryback Executive Vice President and Chief Financial
Officer
</TABLE>
None of the Officers or Trustees of the Funds is an officer, employee,
director, or shareholder of Van Kampen.
As compensation for investment sub-advisory services to the Funds for the
fiscal year ended June 30, 1997, Van Kampen received compensation with respect
to each Fund as follows: for the California Municipal
27
<PAGE> 32
Fund $637,702; for the Florida Insured Municipal Fund $63,134; and for the
California Insured Intermediate Municipal Fund $144,771.
Van Kampen currently provides investment services to the following
investment companies having an investment objective similar to the investment
objective of the Van Kampen-Advised Funds:
<TABLE>
<CAPTION>
AMOUNT OF ASSETS
NAME OF OTHER INVESTMENT UNDER MANAGEMENT
COMPANY AS OF RATE OF COMPENSATION
- ----------------------------------------------------------- ---------------- --------------------
<S> <C> <C>
$
$
$
$
$
</TABLE>
SHAREHOLDER APPROVAL OF THE NEW SUB-ADVISORY AGREEMENT
Approval of the New Sub-Advisory Agreement for each of the Van
Kampen-Advised Funds requires the affirmative vote of a majority of the
outstanding shares of each Fund separately. For purposes of this proposal,
"majority of the outstanding shares" means the vote of (1) 67% or more of a
Fund's outstanding shares present at the Special Meeting, if the holders of more
than 50% of the outstanding shares of a Fund are present in person or
represented by proxy, or (2) more than 50% of a Fund's outstanding shares
whichever is less.
THE BOARD OF TRUSTEES RECOMMENDS THAT THE SHAREHOLDERS OF EACH OF THE VAN
KAMPEN-ADVISED FUNDS VOTE FOR APPROVAL OF THE NEW SUB-ADVISORY AGREEMENT.
ADDITIONAL INFORMATION
TRUSTEES AND EXECUTIVE OFFICERS
Information about the Trust's current Trustees is set forth under Proposal
1 above. Presently, no officer of the Trust is an officer, employee, director or
shareholder of Composite. Nonetheless, each of the following officers of the
Trust are officers or employees of an entity that is under common control with
Composite:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
NAME, AGE AND POSITION ADDRESS AND BUSINESS EXPERIENCE DURING THE PAST OWNED AS OF
WITH THE TRUST FIVE YEARS (INCLUDING ALL DIRECTORSHIPS)** JULY 1, 1997
- --------------------------- ----------------------------------------------- -------------------
<S> <C> <C>
James H. Overholt (50) President and Chief Executive Officer, Sierra ***
President and Chief Capital Management Corporation ("SCMC"), 1997
Executive Officer to present; President and Director, Sierra
Administration, 1997 to present; Chairman,
Sierra Advisors, 1997 to present; President and
Chief Executive Officer, Sierra Services, 1997
to present; President and Chief Executive
Officer, Great Western Financial Securities
Corporation, 1996 to present; President and
Chief Executive Officer, Bank South Investment
Services, 1994 to 1996; President and Chief
Executive Officer, Wachovia Brokerage Services,
1990 to 1993;
Keith B. Pipes (41) Senior Vice President, Chief Financial Officer ***
Executive Vice President, and Secretary, SCMC, 1988 to present; Chief
Treasurer and Secretary Financial Officer, Secretary and Treasurer,
Sierra Administration, 1988 to present;
Executive Vice President and Secretary, Sierra
Advisors, 1988 to present; Senior Vice
President, Chief Financial Officer and
Secretary, Sierra Investment Services, 1992 to
present;
</TABLE>
28
<PAGE> 33
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
NAME, AGE AND POSITION ADDRESS AND BUSINESS EXPERIENCE DURING THE PAST OWNED AS OF
WITH THE TRUST FIVE YEARS (INCLUDING ALL DIRECTORSHIPS)** JULY 1, 1997
- --------------------------- ----------------------------------------------- -------------------
<S> <C> <C>
Michael D. Goth (52) Chief Operating Officer, Sierra Advisers, 1991 ***
Senior Vice President to present.
Stephen C. Scott (52) President and Chief Investment Officer, Sierra ***
Senior Vice President Advisers, 1988 to present; Senior Vice
President and Chief Investment Officer, Sierra
Services, 1996 to present.
Craig M. Miller (38) ice President and Controller, SCMC, Sierra ***
Assistant Treasurer Administration and Sierra Services, 1993 to
present; Audit Manager, Coopers & Lybrand,
L.L.P., 1987 to 1993
</TABLE>
- ---------------
** The address of each officer of the Trust affiliated with Sierra Advisors or
Sierra Services is 9301 Corbin Avenue, Suite 333, Northridge, CA 91324.
*** As of July 1, 1997, the officers of the Trust as a group beneficially owned
an aggregate of less than 1% of the shares of each Fund of the Trust.
Each officer of the Trust will hold such office until a successor has been
elected by the Board. It is the intention of the Nominees, if elected, to
replace certain of the Trust's officers with individuals familiar with
Composite's mutual fund organization.
INVESTMENT ADVISER AND SUB-ADVISERS
See "Sierra Advisors" on page , "Information Regarding Janus" on page ,
"Information Regarding Warburg" on page and "Information Regarding Van Kampen"
on page for additional information concerning the current Adviser and
Sub-Advisers.
PRINCIPAL UNDERWRITER
Sierra Investment Services Corporation ("Sierra Services"), located at 9301
Corbin Avenue, Northridge, California 91324, acts as the Trust's principal
underwriter or distributor. Sierra Services is a wholly owned subsidiary of
SCMC, which is an indirect wholly owned subsidiary of Washington Mutual. For the
fiscal year ended June 30, 1997, the Trust paid Sierra Services an aggregate fee
of $8,691,786 for services rendered as the distributor. Effective January 1,
1998, Composite Funds Distributor, Inc., located at will become the
Trust's distributor. Composite Funds Distributor, Inc. is a wholly owned
subsidiary of Washington Mutual.
ADMINISTRATOR
Sierra Administration, located at 9301 Corbin Avenue, Northridge,
California 91324, acts as the Trust's administrator. Sierra Administrator is a
wholly owned subsidiary of Sierra Capital Management Corporation which is
located at the same address. For the fiscal year ended June 30, 1997, the Trust
paid Sierra Administration an aggregate fee of $9,662,421 for services rendered
as the administrator. Effective January 1, 1998, Murphey Favre Securities
Services, Inc., located at 601 W. Main Avenue, Spokane, WA 99201 will become the
Trust's administrator. Murphey Favre Securities Services, Inc. is a wholly owned
subsidiary of Washington Mutual.
PORTFOLIO TRANSACTIONS
In the fiscal year ended June 30, 1997 the Trust paid no brokerage
commissions to affiliated brokers.
29
<PAGE> 34
BENEFICIAL OWNERS
To the Trust's knowledge, as of the Record Date, the following were
beneficial owners of 5% or more of the outstanding shares of each Fund.
<TABLE>
<CAPTION>
AMOUNT OF BENEFICIAL PERCENT OF TOTAL SHARES
NAME AND ADDRESS OWNERSHIP OUTSTANDING
--------------------------------------- -------------------- -----------------------
<S> <C> <C>
</TABLE>
SUBMISSION OF SHAREHOLDER PROPOSALS
As a Massachusetts business trust, the Trust and Funds are not required to
hold annual shareholders' meetings. Shareholders wishing to submit proposals for
inclusion in a proxy statement for a subsequent meeting should send their
written proposals to Sierra Trust Funds, 9301 Corbin Avenue, Northridge,
California 91324, c/o secretary, Sierra Trust Funds, a reasonable period in
advance of any such meeting.
REQUIRED VOTE
Approval of Proposal 1 requires the affirmative vote of a plurality of all
votes cast at the Special Meeting (with shareholders of the Funds voting
together with shareholders of seven other funds of the Trust who have received a
separate proxy solicitation), provided that a majority of the outstanding shares
entitled to vote are present in person or in proxy. Approval of Proposals 2, 3,
4, 5, 6, 7 and 8 requires the affirmative vote of a majority of the outstanding
shares of each affected Fund. As defined in the 1940 Act, the vote of a majority
of the outstanding shares means the vote of (1) 67% or more of a Fund's
outstanding shares present at a meeting, if the holders of more than 50% of the
outstanding shares of a Fund are present or represented by proxy, or (2) more
than 50% of a Fund's outstanding shares, whichever is less.
Abstentions and broker "non-votes" (that is, proxies from brokers or
nominees indicating that such persons have not received instructions from the
beneficial owner or other persons entitled to vote shares on a particular matter
for which the brokers or nominees do not have discretionary power) will not be
counted for or against the Proposals but will be counted for purposes of
determining whether a quorum is present. Abstentions and broker non-votes will
be counted as votes present for purposes of determining a "majority of the
outstanding voting securities" present at the Special Meeting and will therefore
have the effect of counting against Proposals 2, 3, 4, 5, 6, 7 and 8. The Trust
believes that brokers who hold shares as record owners for beneficial owners
have the authority under the rules of the various stock exchanges to vote those
shares with respect to the Proposals when they have not received instructions
from beneficial owners.
OTHER MATTERS
No business other than the matters described above is expected to come
before the Special Meeting, but should any matter incident to the conduct of the
Special Meeting or any question as to an adjournment of the Special Meeting
arise, the persons named in the enclosed Proxy will vote thereon according to
their best judgment in the interest of the Trust.
30
<PAGE> 35
SHAREHOLDERS ARE REQUESTED TO COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY
CARD PROMPTLY. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
By Order of the Trustees,
Keith B. Pipes
Secretary
Dated: October , 1997
31
<PAGE> 36
EXHIBIT A
SIERRA TRUST FUNDS
INVESTMENT MANAGEMENT AGREEMENT
INVESTMENT MANAGEMENT AGREEMENT (this "Agreement"), dated ,
1997, between the Sierra Trust Funds, a Massachusetts business trust, (the
"Trust"), on behalf of each of its series which are listed on the signature page
of this Agreement (each referred to herein as a "Fund") and Composite Research &
Management Co., a Washington corporation (the "Manager").
WITNESSETH
WHEREAS, the Trust is an open-end series management investment company,
registered under the Investment Company Act of 1940, as amended (the "1940
Act"); and
WHEREAS, each Fund, as 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:
1. Appointment. The Fund hereby appoints the Manager to act as
investment manager to the Fund for the period and on the terms set forth in
this Agreement. The Manager accepts such appointment and agrees to render
the services herein described, for the compensation herein provided.
2. Management. Subject to the supervision of the Board of Trustees of
the 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:
(a) The Manager shall provide supervision of the Fund's
investments, furnish a continuous investment program for the Fund's
portfolio and determine from time to time what securities will be
purchased, retained, or sold by the Fund, and what portion of the assets
will be invested or held as cash.
(b) The Manager, in the performance of its duties and obligations
under this Agreement, shall act in conformity with the 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.
(c) The Manager shall determine the securities to be purchased or
sold by the Fund and shall place orders for the purchase and sale of
portfolio securities pursuant to its determinations with brokers or
dealers selected by the Manager. In executing portfolio transactions and
selecting brokers or dealers, the Manager shall use its best efforts to
seek on behalf of the Fund the best overall terms available. In
assessing the best overall terms available for any transaction, the
Manager may consider all factors it deems relevant, including the
breadth of the market in the security, the price of the security, the
size of the transaction, the timing of the transaction, the reputation,
financial condition, experience, and execution capability of a broker or
dealer, the amount of commission, and the value of any brokerage and
research services (as those terms are defined in Section 28(e) of the
Securities Exchange Act of 1934, as amended) provided by a broker or
dealer. The Manager is authorized to pay to a broker or dealer who
provides such brokerage and research services a commission for executing
a portfolio transaction for the Fund which is in excess of the amount of
commission another broker or dealer would have charged for effecting the
transaction if the Manager determines in good faith that such commission
was reasonable in relation to the value of the brokerage and
-1-
<PAGE> 37
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.
(d) On occasions when the Manager deems the purchase or sale of a
security to be in the best interest of the Fund as well as other
fiduciary accounts for which it has investment responsibility, the
Manager, to the extent permitted by applicable laws and regulations, may
aggregate the securities to be so sold or purchased in order to obtain
the best execution, most favorable net price or lower brokerage
commissions.
(e) Subject to the provisions of the Agreement and Declaration of
Trust of the Trust and the Investment Company Act of 1940, as amended
(the "1940 Act"), the Manager, at its expense, may select and contract
with one or more investment advisers (the "Sub-adviser") for the Fund to
perform some or all of the services for which it is responsible pursuant
to this Section 2. The Manager shall be solely responsible for the
compensation of any Sub-adviser of the Fund for its services to the
Fund. The Manager may terminate the services of any Sub-adviser at any
time in its sole discretion, and shall at such time assume the
responsibilities of such Sub-adviser unless and until a successor
Sub-adviser is selected. To the extent that more than one Sub-adviser is
selected, the Manager shall, in its sole discretion, determine the
amount of the Fund's assets allocated to each such Sub-adviser.
3. Services Not Exclusive. The investment management services rendered
by the Manager hereunder to the Fund are not to be deemed exclusive, and
the Manager shall have the right to render similar services to others,
including, without limitation, other investment companies.
4. Expenses. During the term of this Agreement, the Manager shall pay
all expenses incurred by it in connection with its activities under this
Agreement including the salaries and expenses of any of the officers or
employees of the Manager who act as officers, Trustees or employees of the
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 shall provide the Fund with
suitable office space. Other expenses to be incurred in the operation of
the Fund (other than those borne by any third party), including without
limitation, taxes, interest, brokerage fees and commissions, fees of
Trustees who are not officers, directors, or employees of the Manager,
federal registration fees and state Blue Sky qualification fees,
administration fees, bookkeeping, charges of custodians, transfer and
dividend disbursing agents' fees, certain insurance premiums, industry
association fees, outside auditing and legal expenses, costs of maintaining
the Fund's 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 to existing shareholders, costs of stockholders'
reports and meetings of shareholders and Trustees of the Fund or the Trust,
as applicable, and any extraordinary expenses will be borne by the Fund.
5. Compensation. For the services provided pursuant to this Agreement,
each Fund shall pay to the Manager as full compensation therefor a monthly
fee computed on the average daily net assets of the Fund as stated in
Schedule A attached hereto. The Fund acknowledges that the Manager, as
agent for the Fund, will allocate a portion of the fee equal to the
sub-advisory fee payable to the sub-advisor, if any, under its sub-advisory
agreement to the sub-advisor for sub-advisory services. The Fund
acknowledges that the Manager, as agent for the Fund, will allocate a
portion of the fee to Murphey Favre Securities Services, Inc. for
administrative services, portfolio accounting and regulatory compliance
systems. The Manager also from time to time and in such amounts as it shall
determine in its sole discretion may allocate a portion of the fee to
Composite Funds Distributor, Inc. for facilitating distribution of the
Fund. This payment would be made from revenue which otherwise would be
considered profit to the Manager for its services. This disclosure is being
made to the Fund solely for the purpose of conforming with requirements of
the Washington Department of Revenue for exclusion of revenue from the
Washington Business and Occupation Tax.
-2-
<PAGE> 38
6. Limitation of Liability. The Manager shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund in
connection with the matters to which this Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on its
part in the performance of its duties or from reckless disregard by it of
its obligations and duties under this Agreement.
7. Delivery of Documents. The Trust has heretofore delivered to the
Manager true and complete copies of each of the following documents and
shall promptly deliver to it all future amendments and supplements thereto,
if any:
(a) Agreement and Declaration of Trust (such Agreement and
Declaration as presently in effect and as amended from time to time, the
"Declaration of Trust");
(b) Bylaws of the Trust;
(c) 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;
(d) Notification of Registration of the Trust under the 1940 Act on
Form N-8A;
(e) Prospectuses of the Fund (such prospectuses as presently in
effect and/or as amended or supplemented from time to time, the
"Prospectus"); and
(f) Statement of Additional Information of the Fund (such statement
as presently in effect and/or as amended or supplemented from time to
time, the "Statement of Additional Information").
8. Duration and Termination. This Agreement shall become effective as
of the date first above-written for an initial period of two years and
shall continue thereafter so long as such continuance is specifically
approved at least annually (a) by the vote of the Board of Trustees
including a majority of those members of the 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.
9. Amendments. No provision of this Agreement may be amended,
modified, waived or supplemented except by a written instrument signed by
the party against which enforcement is sought. No amendment of this
Agreement shall be effective until approved in accordance with any
applicable provisions of the 1940 Act.
10. Use of Name and Logo. The Fund agrees that it shall furnish to the
Manager, prior to any use or distribution thereof, copies of all
prospectuses, statements of additional information, proxy statements,
reports to stockholders, sales literature, advertisements, and other
material prepared for distribution to stockholders of the Fund or to the
public, which in any way refer to or describe the Manager or which include
any trade names, trademarks or logos of the Manager or of any affiliate of
the Manager. The Fund further agrees that it shall not use or distribute
any such material if the Manager reasonably objects in writing to such use
or distribution within five (5) business days after the date such material
is furnished to the Manager.
The Manager and/or its affiliates own the names "Sierra", "Composite"
and any other names which may be listed from time to time on a Schedule B
to be attached hereto that they may develop for use in connection with the
Fund, which names may be used by the Fund or the Trust only with the
consent of
-3-
<PAGE> 39
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 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, except as may be required by law. Such covenants on the part of
the Fund and the Trust shall be binding upon it, its Trustees, officers,
shareholders, creditors and all other persons claiming under or through it.
The provisions of this section shall survive termination of this
Agreement.
11. Notices. Any notice or other communication required to be given
pursuant to this Agreement shall be deemed duly given if delivered or
mailed by registered mail, postage prepaid, if to the Fund: 601 W. Main
Ave., Suite 300, Spokane, Washington 99201; or if to the Manager: 1201
Third Avenue, Suite 1220, Seattle, Washington 98101; or to either party at
such other address as such party shall designate to the other by a notice
given in accordance with the provisions of this section.
12. Miscellaneous.
(a) Except as otherwise expressly provided herein or authorized by
the Board of Trustees of the 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.
(b) The Trust shall furnish or otherwise make available to the
Manager such information relating to the business affairs of the Fund as
the Manager at any time or from time to time reasonably requests in
order to discharge its obligations hereunder.
(c) This Agreement shall be governed by and construed in accordance
with the laws of The Commonwealth of Massachusetts and shall inure to
the benefit of the parties hereto and their respective successors.
(d) If any provision of this Agreement shall be held or made
invalid or by any court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby.
13. Declaration of Trust and Limitation of Liability. A copy of the
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
-4-
<PAGE> 40
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,
GROWTH FUND,
EMERGING GROWTH FUND,
INTERNATIONAL GROWTH FUND,
CALIFORNIA MUNICIPAL FUND,
CALIFORNIA INSURED INTERMEDIATE
MUNICIPAL FUND,
FLORIDA INSURED MUNICIPAL FUND,
CALIFORNIA MONEY FUND, and
TARGET MATURITY 2002 FUND
By:
------------------------------------
Name:
Title:
Attest:
By:
-----------------------------------------------------
Name:
Title:
COMPOSITE RESEARCH &
MANAGEMENT CO.
By:
------------------------------------
William G. Papesh
President
Attest:
By:
-----------------------------------------------------
Sharon L. Howells
Secretary
-5-
<PAGE> 41
SCHEDULE A -- COMPOSITE RESEARCH & MANAGEMENT CO.
ADVISORY FEES
The fees to be charged to Sierra Trust Funds for advisory services
(including any sub-advisory fees) are as follows:
<TABLE>
<CAPTION>
ALL
ASSETS
------
<S> <C> <C> <C>
Target Maturity 2002................................................................. 0.250%
</TABLE>
<TABLE>
<CAPTION>
UP TO AFTER $200M OVER
$200M NEXT $300M $500M
------ ----------- ------
<S> <C> <C> <C>
California Municipal Fund.................................... 0.700%(1) 0.700%(1) 0.500%
California Insured Intermediate Municipal fund............... 0.700%(1) 0.700%(1) 0.550%
Florida Insured Municipal Fund............................... 0.700%(1) 0.700%(1) 0.550%
California Money Fund........................................ 0.500%(2) 0.500%(2) 0.400%
Short Term High Quality Bond Fund............................ 0.500% 0.450% 0.400%
</TABLE>
<TABLE>
<CAPTION>
FIRST AFTER $100M AFTER $200M OVER
$100M NEXT $100M NEXT $300M $500M
----- ----------- ----------- ------
<S> <C> <C> <C> <C> <C>
Growth Fund........................... 1.10% 1.05% 1.025% 1.025%
</TABLE>
<TABLE>
<CAPTION>
FIRST AFTER $100M OVER
$100M NEXT $400M $500M
----- ----------- ------
<S> <C> <C> <C> <C> <C>
Emerging Growth....................... 1.05% 1.00% 0.900%
</TABLE>
<TABLE>
<CAPTION>
UP TO AFTER $50M OVER
$50M NEXT $75M $125M
----- ----------- ------
<S> <C> <C> <C> <C> <C>
International Growth Fund.................................... 1.10% 1.00% 0.80%
</TABLE>
- ---------------
(1) Fee will be reduced voluntarily by the Manager to 60 basis points for an
indefinite period of time
(2) Fee will be reduced voluntarily by the Manager to 40 basis points for an
indefinite period of time
S-1
<PAGE> 42
EXHIBIT B
INVESTMENT SUB-ADVISORY AGREEMENT
This Agreement is made and entered into as of this nd day of
1997, by and between Composite Research & Management Co. ("Composite"), a
corporation organized under the laws of the state of Washington and Janus
Capital Corporation (the "Sub-Advisor"), a corporation organized under the laws
of the state of Colorado.
WITNESSETH:
Whereas, Sierra Trust Funds (the "Company"), an unincorporated business
trust organized under the laws of the Commonwealth of Massachusetts, is engaged
in business as an open-end, management investment company and is so registered
under the Investment Company Act of 1940, as amended (the "Investment Company
Act");
Whereas, the Company offers a number of investment portfolios, each with
its own investment objective and strategies, and of which one investment
portfolio is the Growth Fund (the "Fund");
Whereas, Composite is engaged in the business of rendering investment
advisory and management services, is registered as an investment adviser under
the Investment Advisers Act of 1940, as amended (the "Advisers Act"), and is the
investment advisor of the Fund;
Whereas, the Sub-Advisor is engaged in the business of rendering investment
advisory and management services and is registered as an investment adviser
under the Advisers Act; and
Whereas, Composite desires to retain the Sub-Advisor to furnish investment
advisory and management services to the Fund and the Sub-Advisor is willing to
furnish such services;
NOW, THEREFORE, in consideration of the mutual agreements herein contained,
it is hereby agreed by and between the parties hereto as follows:
1. Investment Description; Appointment
The Company desires to employ the capital of the Fund by investing and
reinvesting in investments of the kind and in accordance with the limitations
specified in its Master Trust Agreement, as amended, and in its Prospectus and
Statement of Additional Information relating to the Fund as in effect and which
may be amended from time to time, and in such manner and to such extent as may
from time to time be approved by the Board of Trustees of the Company. Copies of
the Fund's Prospectus and Statement of Additional Information, as amended, have
been or will be submitted to the Sub-Advisor. Composite agrees to provide copies
of all amendments or supplements to the Fund's Prospectus and Statement of
Additional Information and the Company's Master Trust Agreement to the
Sub-Advisor during the continuance of this Agreement before or at the time such
amendments or supplements become effective.
Composite agrees to furnish the Sub-Advisor with minutes of meetings of the
Board of Trustees of the Company to the extent they may affect the duties of the
Sub-Advisor, a certified copy of any financial statements or reports prepared
for the Fund by certified or independent public accountants, and with copies of
any financial statements or reports made by the Fund to its shareholders or to
any governmental body or securities exchange, and any further materials or
information which the Sub-Advisor may reasonably request to enable it to perform
its functions under this Agreement. Composite desires to employ and hereby
appoints the Sub-Advisor to act as investment sub-adviser to the Fund. The
Sub-Advisor accepts the appointment and agrees to furnish the services described
herein for the compensation set forth below.
2. Services as Investment Sub-Advisor
Subject to the supervision of the Board of Trustees of the Company and of
Composite, the Fund's investment adviser, the Sub-Advisor will (a) maintain
compliance procedures for the Fund that the Sub-Advisor believes are adequate to
ensure its compliance with the applicable provisions of the Investment
B-1
<PAGE> 43
Company Act and the Advisers Act as the same may from time to time be amended;
(b) make investment decisions for the Fund in accordance with the Fund's
investment objective(s) and policies as stated in the Fund's Prospectus and
Statement of Additional Information as in effect and, after notice to the
Sub-Advisor, and which may be amended from time to time; (c) place purchase and
sale orders on behalf of the Fund to effectuate the investment decisions made;
(d) maintain books and records with respect to the securities transactions of
the Fund in accordance with the Investment Company Act and the Advisers Act and
the rules adopted thereunder and will furnish Composite quarterly, annual and
special reports as Composite may reasonably request; and (e) treat
confidentially and as proprietary information of the Company, all records and
other information relative to the Company and prior, present or potential
shareholders; and will not knowingly use such records and information for any
purpose other than performance of its responsibilities and duties hereunder,
except after prior notification to and approval in writing by the Company, which
approval shall not be unreasonably withheld and such records may not be withheld
where the Sub-Advisor may be exposed to civil or criminal contempt proceedings
for failure to comply, when requested to divulge such information by duly
constituted authorities, or when so requested by the Company. In providing those
services, the Sub-Advisor will supervise the Fund's investments and conduct a
continual program of investment, evaluation and, if appropriate, sale and
reinvestment of the Fund's assets.
Subject to the supervision of Composite and in accordance with the
investment objective and policies as stated in the Fund's Prospectus and
Statement of Additional Information, the Sub-Advisor is authorized, in its
discretion and without prior consultation with Composite, to buy, sell, lend and
otherwise trade in any stocks, bonds, and other securities and investment
instruments on behalf of the Fund, without regard to the length of time the
securities have been held and the resulting rate of portfolio turnover or any
tax considerations, and so long as consistent with the foregoing, the majority
or the whole of the Fund may be invested in such proportions of stocks, bonds,
other securities or investment instruments, or cash as the Sub-Advisor shall
determine. In addition, the Sub-Advisor will furnish the Fund or Composite with
whatever statistical information the Fund or Composite may reasonably request
with respect to the instruments that the Fund may hold or contemplate
purchasing.
3. Brokerage
Subject to (i) the over-riding objective of obtaining the best possible
execution of orders; and (ii) review and approval of the Board of Trustees of
the Company, which may be conducted as often as quarterly, the Sub-Advisor shall
place all orders for the purchase and sale of securities for the Fund with
brokers or dealers selected by the Sub-Advisor, which may include brokers or
dealers affiliated with the Sub-Advisor. All transactions with any affiliated
person of the Company, or where any such affiliated person acts as broker or
agent in connection with any such transaction, shall be accomplished in
compliance with the Investment Company Act, the Advisers Act, the Securities
Exchange Act of 1934, as amended, the rules adopted thereunder and the
procedures adopted thereunder by the Company. Purchase or sell orders for the
Fund may be aggregated with contemporaneous purchase or sell orders of other
clients of the Sub-Advisor; provided that (i) no advisory account will be
favored by the Sub-Advisor over any other account; (ii) each client of the
Sub-Advisor who participates in such an aggregated order will participate at the
average share price, with all transaction costs shared on a pro rata basis;
(iii) only advisory clients' transactions will be aggregated for such an
aggregated order; and (iv) the accounts of clients whose orders are aggregated
will be segregated on the Sub-Advisor's books and records so as to identify the
particular client who has the beneficial interest therein. The Sub-Advisor shall
use its best efforts to obtain execution of Fund transactions at prices which
are advantageous to the Fund and at commission rates that are reasonable in
relation to the benefits received. However, the Sub-Advisor may select brokers
or dealers on the basis that they provide brokerage, research, or other services
or products to the Fund and/or other accounts serviced by the Sub-Advisor. The
Sub-Advisor may pay a broker or dealer an amount of commission for effecting a
securities transaction in excess of the amount of commission or dealer spread
another broker or dealer would have charged for effecting that transaction if
the Sub-Advisor determines in good faith that such amount of commission was
reasonable in relation to the value of the brokerage and research products
and/or services provided by such broker or dealer. This determination, with
respect to brokerage and research services or products, may be viewed in terms
of either that particular transaction or the overall responsibilities which the
Sub-Advisor and its affiliates have
B-2
<PAGE> 44
with respect to the Fund and to accounts over which they exercise investment
discretion, and not all such services or products may be used by the Sub-Advisor
in managing the Fund; provided that with respect to such transaction and such
determination the affiliates of the Sub-Advisor shall have the same
responsibilities to the Fund as the Sub-Advisor has under this Agreement.
4. Information Provided to the Company
The Sub-Advisor will keep the Company and Composite informed of
developments materially affecting the Fund of which the Sub-Advisor becomes
aware and will, on its own initiative, furnish the Company and Composite on at
least a quarterly basis with whatever information the Sub-Advisor believes is
appropriate for this purpose.
5. Standard of Care
The Sub-Advisor shall exercise its best judgment in rendering the services
described in paragraphs 2 and 3 above. Except as may otherwise be provided by
federal securities laws, the Sub-Advisor shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Fund in connection
with the matters to which this Agreement relates, except a loss resulting from
willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard by it of its obligations
and duties under this Agreement (the conduct excepted in this sentence shall be
referred to as "Disqualifying Conduct").
6. Compensation
In consideration of the services rendered pursuant to this Agreement,
Composite will pay the Sub-Advisor on the first business day of each month a fee
for the previous month at the annual rate of .55% of the Fund's average daily
net assets including cash and cash equivalents up to $100 million and .50% of
the Fund's average daily net assets in excess of $100 million. The fee for the
first month shall be prorated based upon the number of days the account was open
in that month. Upon any termination of this Agreement before the end of a month,
the fee for such part of that month shall be prorated according to the
proportion that such period bears to the full monthly period and shall be
payable upon the date of termination of this Agreement. For the purpose of
determining fees payable to the Sub-Advisor, the value of the Fund's net assets
shall be computed at the times and in the manner specified in the Fund's
Prospectus or Statement of Additional Information relating to the Fund as from
time to time in effect.
7. Expenses
The Sub-Advisor will bear all of its expenses in performing its services
under this Agreement, which expenses shall not include brokerage fees or
commissions in connection with the effectuation of securities transactions. The
Sub-Advisor shall bear no expenses of the Company, the Fund or Composite. The
Company will bear certain other expenses to be incurred in its operation,
including but not limited to: organizational expenses, taxes, interest,
brokerage fees and commissions, if any; fees of trustees of the Company who are
not officers, directors or employees of the Sub-Advisor, Composite, the Fund's
sub-administrator or any of their affiliates; Securities and Exchange Commission
fees and state Blue Sky qualification fees; all fees, including out-of-pocket
expenses of custodians, transfer and dividend disbursing agents and the
Company's sub-administrator and transaction charges of custodians; insurance
premiums; outside auditing and legal expenses; costs of maintenance of the
Company's existence; costs attributable to investor services, including without
limitation, telephone and personnel expenses; costs of preparing and printing
prospectuses and statements of additional information for regulatory purposes
and for distribution to existing shareholders; costs of shareholders' reports
and meetings of the shareholders of the Fund and of the officers or Board of
Trustees of the Company; and any extraordinary expenses. In addition, the Fund
pays a distribution fee pursuant to the terms of a Distribution Plan adopted
under Rule 12b-1 of the Investment Company Act. Any reimbursement of advisory
fees required by any expense limitation provision shall be the sole
responsibility of Composite.
8. Services to Other Companies or Accounts
Composite understands that the Sub-Advisor now acts, will continue to act
and may act in the future as investment adviser to fiduciary and other managed
accounts and as investment adviser to one or more other investment companies or
series of investment companies, and Composite has no objection to the
Sub-Advisor
B-3
<PAGE> 45
so acting, provided that whenever the Fund and one or more other accounts or
investment companies advised by the Sub-Advisor have available funds for
investment, investments suitable and appropriate for each will be allocated in a
manner reasonably equitable to each entity. Similarly, opportunities to sell
securities will be allocated in such an equitable manner. Composite recognizes
that in some cases this procedure may limit the size of the position that may be
acquired or disposed of for the Fund. In addition, Composite understands that
the persons employed by the Sub-Advisor to assist in the performance of the
Sub-Advisor's duties hereunder will not devote their full time to such service
and nothing contained herein shall be deemed to limit or restrict the right of
the Sub-Advisor or any affiliate of the Sub-Advisor to engage in and devote time
and attention to other business or to render services of whatever kind or
nature. Composite recognizes and agrees that the Sub-Advisor may provide advice
to other clients which may differ from or be identical to advice given with
respect to the Fund.
9. Term of Agreement
This Agreement shall become effective as of the date first written above,
shall continue for a one-year term and shall continue thereafter so long as such
continuance is specifically approved at least annually by (i) the Board of
Trustees of the Company or (ii) a vote of a "majority" (as defined in the
Investment Company Act) of the Fund's outstanding voting securities, provided
that in either event the continuance is also approved by a majority of the Board
of Trustees who are not "interested persons" (as defined in the Investment
Company Act) of any party to this Agreement, by vote cast in person at a meeting
called for the purpose of voting on such approval. This Agreement is terminable,
without penalty, on 30 days' written notice by Composite, the Board of Trustees
of the Company or by vote of holders of a majority of the Fund's shares or, upon
60 days' written notice, by the Sub-Advisor and will terminate automatically
upon any termination of the advisory agreement between the Company and
Composite. In addition, this Agreement will also terminate automatically in the
event of its assignment (as defined in the Investment Company Act). The
Sub-Advisor agrees to notify Composite and the Company of any circumstances that
to its best knowledge and belief might result in this Agreement being deemed to
be assigned.
10. Representations of the Company and the Sub-Advisor
Composite represents that (i) a copy of the Company's Master Trust
Agreement, dated February 22, 1989, together with all amendments thereto, is on
file in the office of the Secretary of The Commonwealth of Massachusetts, (ii)
the appointment of the Sub-Advisor has been duly authorized, (iii) it has acted
and will continue to act in conformity with the Investment Company Act and other
applicable laws, and (iv) it is authorized to perform the services herein.
The Sub-Advisor represents that it is authorized to perform the services
described herein.
11. Indemnification
Composite shall indemnify and hold harmless the Sub-Advisor from and
against any and all claims, losses, liabilities or damages (including reasonable
attorneys' fees and other related expenses), howsoever arising from or in
connection with this Agreement or the performance by the Sub-Advisor of its
duties hereunder; provided, however, that nothing contained herein shall require
that the Sub-Advisor be indemnified for Disqualifying Conduct.
12. Amendment of this Agreement
No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought.
13. Entire Agreement
This Agreement constitutes the entire agreement between the parties hereto.
B-4
<PAGE> 46
14. Governing Law
This Agreement shall be governed in accordance with the laws of the
Commonwealth of Massachusetts.
16. Miscellaneous
(a) Unless Composite or the Company gives the Sub-Advisor written
instructions to the contrary, the Sub-Advisor shall vote all proxies solicited
by or with respect to the issuers of securities in which assets of the Fund may
be invested. The Sub-Advisor shall use its best good faith judgment to vote such
proxies in a manner which best serves the interests of the Fund's shareholders.
(b) Composite shall provide the Sub-Advisor with a copy of the Fund's
agreement (the "Custody Agreement") with the Custodian (the "Custodian")
designated to hold the assets of the Fund and any modification thereto in
advance. The Fund's assets shall be maintained in the custody of the Custodian
identified in, and in accordance with the terms and conditions of, the Custody
Agreement. The Sub-Advisor shall have no liability for the acts or omissions of
the Custodian. Any assets added to the Fund shall be delivered directly to the
Custodian.
(c) Composite agrees and acknowledges that the Sub-Advisor is the sole
owner of the name and mark "Janus" and that all use of any designation comprised
in whole or part of Janus (a "Janus Mark") under this Agreement shall inure to
the benefit of the Sub-Advisor. The use by the Company on its own behalf or on
behalf of the Fund of any Janus Mark in any advertisement or sales literature or
other materials promoting the Fund shall be with the consent of the Sub-Advisor.
The Company and Composite shall not, without the consent of the Sub-Advisor,
make representations regarding the Sub-Advisor intended to be disseminated to
the investing public in any disclosure document, advertisement or sales
literature or other materials promoting the Fund. Such consent shall not be
required for any documents or other materials intended for broker-dealer use
only, for use by the Company's trustees and for internal use by the Company and
Composite. Consent by the Sub-Advisor to such use of any Janus Mark and any such
representation shall not be unreasonably withheld and shall be deemed to be
given if no written objection is received by the Company, the Fund or Composite
within 3 business days after the request is made by the Company, the Fund or
Composite for such use of any Janus Mark or any such representation. Upon
termination of this Agreement for any reason, the Company and Composite shall
cease all use of any Janus Mark(s) as soon as reasonably practicable.
(d) The Sub-Advisor agrees and acknowledges that the Company is the sole
owner of the name and mark "Sierra Trust Funds" and Composite is the sole owner
of the name and mark "Composite Research and Management Co." and that any and
all use of any designation comprised in whole or in part of "Sierra Trust Funds"
(a "Sierra Mark") or "Composite Research and Management Co." (a "Composite
Mark") under this Agreement shall inure to the benefit of the Company or
Composite, respectively. The use by the Sub-Advisor on its own behalf of any
Sierra Mark or Composite Mark in any advertisement or sales literature or other
materials promoting the Sub-Advisor shall be with the consent of the Company or
Composite, respectively. The Sub-Advisor shall not, without the consent of the
Company or Composite, as applicable, make representations regarding the Company,
the Fund or Composite in any disclosure document, advertisement or sales
literature or other materials promoting the Sub-Advisor. Consent by the Company
and Composite to such use of any Sierra Mark or Composite Mark and any such
representations shall not be unreasonably withheld and shall be deemed to be
given if no written objection is received by the Sub-Advisor within 5 business
days after the request by the Sub-Advisor is made for such use of any Sierra
Mark or Composite Mark or any such representations. Upon termination of this
Agreement for any reason, the Sub-Advisor shall cease any and all use of any
Sierra Mark or Composite Mark as soon as reasonably practicable.
(e) The Sub-Advisor may perform its services through any employee, officer
or agent of the Sub-Advisor, and the Company and the Fund shall not be entitled
to the advice, recommendation, or judgment of any specific person.
B-5
<PAGE> 47
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be duly
executed as of the date first written above.
<TABLE>
<S> <C>
ATTEST: COMPOSITE RESEARCH & MANAGEMENT CO.
By:
- ---------------------------------------- -------------------------------------------------
Name: Name:
Title: Title:
ATTEST: JANUS CAPITAL CORPORATION
By:
- ---------------------------------------- -------------------------------------------------
Name: Name:
Title: Title:
</TABLE>
B-6
<PAGE> 48
EXHIBIT C
INVESTMENT SUB-ADVISORY AGREEMENT
, 1997
Warburg Pincus Asset Management, Inc.
466 Lexington Avenue
New York, New York 10017
Dear Sirs:
Composite Research & Management Co. ("Composite"), a corporation organized
under the laws of the state of California, hereby agrees with Warburg Pincus
Asset Management, Inc. (the "Sub-Advisor"), a corporation organized under the
laws of the State of Delaware as follows:
1. Investment Description; Appointment
Sierra Trust Funds (the "Company"), an unincorporated business trust
organized under the laws of The Commonwealth of Massachusetts desires to employ
the capital of the Company's International Growth Fund (the "Fund") by investing
and reinvesting in investments of the kind and in accordance with the
limitations specified in its Master Trust Agreement, as amended, and in its
Prospectus and Statement of Additional Information relating to the Fund as in
effect and which may be amended from time to time, and in such manner and to
such extent as may from time to time be approved by the Board of Trustees of the
Company. Copies of the Fund's Prospectus and Statement of Additional Information
and the Company's Master Trust Agreement, as amended, have been or will be
submitted to the Sub-Advisor. Composite agrees to provide copies of all
amendments to the Fund's Prospectus and Statement of Additional Information and
the Company's Master Trust Agreement to the Sub-Advisor on an on-going basis.
Composite desires to employ and hereby appoints the Sub-Advisor to act as
investment sub-adviser to the Fund. The Sub-Advisor accepts the appointment and
agrees to furnish the services described herein for the compensation set forth
below.
2. Services as Investment Sub-Advisor
(a) Subject to the supervision of the Board of Trustees of the Company and
of Composite, the Fund's investment adviser, the Sub-Advisor will (a) act in
conformity with the Company's Master Trust Agreement, the Investment Company Act
of 1940, as amended (the "1940 Act"), the Investment Advisers Act of 1940 and
the Internal Revenue Code of 1986, as the same may from time to time be amended
(b) make investment decisions for the Fund in accordance with the Fund's
investment objective(s) and policies as stated in the Fund's Prospectus and
Statement of Additional Information as in effect and, after notice to the
Sub-Advisor, and which may be amended from time to time; (c) place purchase and
sale orders on behalf of the Fund to effectuate the investment decisions made;
(d) maintain books and records with respect to the securities transactions of
the Fund and will furnish to the Company's Board of Trustees such periodic,
regular and special reports as the Board may request; (e) treat confidentially
and as proprietary information of the Company, all records and other information
relative to the Company and prior, present or potential shareholders (other than
information publicly available, otherwise legally in the hands of the
Sub-Advisor or pertaining to mutual clients); and (f) will not use such records
and information for any purpose other than performance of its responsibilities
and duties hereunder, except after prior notification to and approval in writing
by the Company, which approval shall not be unreasonably withheld and,
notwithstanding the foregoing, such records may not be withheld where the
Sub-Advisor may be exposed to civil or criminal contempt proceedings for failure
to comply, when requested to divulge such information by duly constituted
authorities, or when so requested by the Company. In providing those services,
the Sub-Advisor will supervise the Fund's investments and conduct a continual
program of investment, evaluation and, if appropriate, sale and reinvestment of
the Fund's assets. In addition, the Sub-Advisor will furnish the Fund or
Composite with whatever statistical information the Fund or Composite may
reasonably request with respect to the instruments that the Fund may hold or
contemplate purchasing.
C-1
<PAGE> 49
(b) Composite agrees, on an ongoing basis, to notify the Sub-Advisor
expressly in writing of each change in the fundamental and nonfundamental
investment policies of the Fund.
(c) Composite agrees to provide the Sub-Advisor with such assistance as may
be reasonably requested by the Sub-Advisor in connection with its activities
pertaining to the Fund under this Agreement, including, without limitation,
information concerning the Fund, its funds available, or to become available,
for investment and generally as to the conditions of the Fund's affairs.
(d) In fulfilling its obligations hereunder, the Sub-Advisor shall be
entitled to rely on and act in accordance with, and Composite agrees to hold the
Sub-Advisor harmless for any act or omission taken in good faith in reliance on,
information and instructions, which may be standing instructions, provided to
the Sub-Advisor by Composite, the Company's administrator, or other agent of
Composite designated by Composite. Such information and instructions shall be
conveyed to the Sub-Advisor in a timely manner so as to permit the Sub-Advisor
to take such action as may be required in an orderly fashion. Composite agrees
to provide or cause to be provided to the Sub-Advisor on an ongoing basis, such
information as is reasonably requested by the Sub-Advisor for performance by the
Sub-Advisor of its obligations under this Agreement, and the Sub-Advisor shall
not be in breach of any term of this Agreement or be deemed to have acted
negligently if Composite fails to provide or cause to be provided such
information and the Sub-Advisor relies on the information most recently
furnished to the Sub-Advisor. Composite will promptly provide the Sub-Advisor
with any procedures applicable to the Sub-Advisor adopted from time to time by
the Board of Trustees of the Company and agrees to promptly provide the
Sub-Advisor copies of all amendments thereto.
3. Brokerage
(a) In executing transactions for the Fund and selecting brokers or
dealers, the Sub-Advisor will use its best efforts to seek the best overall
terms available and shall execute or direct the execution of all such
transactions in a manner permitted by law and in a manner that is in the best
interest of the Fund and its shareholders. In assessing the best overall terms
available for any Fund transaction, the Sub-Advisor will consider all factors it
deems relevant including, but not limited to, breadth of the market in the
security, the price of the security, the financial condition and execution
capability of the broker or dealer and the reasonableness of any commission for
the specific transaction and on a continuing basis. Pursuant to its investment
determinations for the Fund, in placing orders with brokers and dealers, the
Sub-Advisor will attempt to obtain the best net price and the most favorable
execution of its orders. Consistent with this obligation, when the execution and
price offered by two or more brokers or dealers are comparable, the Sub-Advisor
may, in its discretion, purchase and sell portfolio securities to and from
brokers and dealers who provide the Company with research advice and other
services.
(b) In selecting brokers or dealers to execute a particular transaction,
and in evaluating the best price and execution available, the Sub-Advisor is
authorized to consider the brokerage and research services (within the meaning
of Section 28(e) of the 1934 Act) provided to the Sub-Advisor or any affiliated
person of the Sub-Advisor. Subject to the requirements of Section 17(e) of the
1940 Act, the Sub-Advisor is specifically authorized to select an affiliated
person of the Sub-Advisor to execute brokerage, but in no event principal,
transactions for the Fund. On occasions when the Sub-Advisor deems the purchase
or sale of a security to be in the best interest of the Fund as well as other
clients, the Sub-Advisor, to the extent permitted by applicable laws and
regulations, may, but shall be under no obligation to, aggregate the securities
to be purchased or sold in order to obtain the most favorable execution and/or
lower brokerage commissions, if any, and efficient execution. In such event,
allocation of securities so sold or purchased, as well as the expenses incurred
in the transaction, will be made by the Sub-Advisor in the manner the
Sub-Advisor considers to be the most equitable and consistent with its fiduciary
obligation over time to the Fund and to such other clients. Furthermore,
Composite recognizes that the Sub-Advisor may give advice, and take action, with
respect to its other clients that may differ from the advice given, or the time
or nature of action taken, with respect to the Fund.
C-2
<PAGE> 50
4. Information Provided to the Company
The Sub-Advisor will keep the Company and Composite informed of
developments materially affecting the Fund, and will on its own initiative,
furnish the Company and Composite on at least a quarterly basis with whatever
information the Sub-Advisor believes is appropriate for this purpose.
5. Standard of Care
The Sub-Advisor shall exercise its best judgment in rendering its services
under this agreement. Except as may otherwise be provided by federal or state
securities laws and in Section 11 hereof, the Sub-Advisor shall not be liable
for any error of judgment or mistake of law or for any loss suffered by the Fund
in connection with the matters to which this Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on its part in
the performance of its duties or from reckless disregard by it of its
obligations and duties under this Agreement.
6. Compensation
In consideration of the services rendered pursuant to this Agreement,
Composite will pay the Sub-Advisor on the first business day of each month a fee
for the previous month at the annual rate of 0.50% of the Fund's average daily
net assets. The Sub-Advisor shall have no right to obtain compensation directly
from the Fund or the Company for services provided hereunder and agrees to look
solely to Composite for payment of fees due. Upon any termination of this
Agreement before the end of a month, the fee for such month shall be prorated
according to the proportion that the period prior to such termination bears to
the full monthly period and shall be payable upon the date of termination of
this Agreement. For the purposes of determining fees payable to the Sub-Advisor,
the value of the net assets of the Fund shall be computed at the times and in
the manner specified in the Prospectus or Statement of Additional Information
relating to the Fund as from time to time in effect.
Notwithstanding the foregoing, in the event that any reduction in the fees
paid to Composite under the Advisory Agreement shall be required as a result of
any statutory or regulatory limitation on investment company expenses, there
shall be a proportionate reduction in the fee payable to the Sub-Advisor
hereunder; provided that the Sub-Advisor will never be required to pay more than
the amount of fees it receives.
7. Expenses
The Sub-Advisor will bear all expenses in connection with the performance
of its services under this Agreement, which expenses shall not include brokerage
fees or commissions in connection with the effectuation of securities
transactions. The Company will bear certain other expenses to be incurred in its
operation, including but not limited to: organizational expenses, taxes,
interest, brokerage fees and commissions, if any; fees of trustees of the
Company who are not officers, directors or employees of the Sub-Advisor,
Composite, the Fund's sub-administrator or any of their affiliates; Securities
and Exchange Commission fees and state Blue Sky qualification fees;
out-of-pocket expenses of custodians, transfer and dividend disbursing agents
and the Company's sub-administrator and transaction charges of custodians;
insurance premiums; outside auditing and legal expenses; costs of maintenance of
the Company's existence; costs attributable to investor services, including
without limitation, telephone and personnel expenses; costs of preparing and
printing prospectuses and statements of additional information for regulatory
purposes and for distribution to existing shareholders; costs of shareholders'
reports and meetings of the shareholders of the Fund and of the officers or
Board of Trustees of the Company; and any extraordinary expenses. In addition,
the Fund pays a distribution fee pursuant to the terms of a Distribution Plan
adopted under Rule 12b-1 of the 1940 Act.
8. Services to Other Companies or Accounts
Composite understands that the Sub-Advisor now acts, will continue to act
and may act in the future as investment adviser to fiduciary and other managed
accounts and as investment adviser to one or more other investment companies or
series of investment companies, and Composite one has no objection to
Sub-Advisor so acting, providing that companies whenever the Fund and one or
more other accounts or investment
C-3
<PAGE> 51
companies advised by the Sub-Advisor have available funds for investment,
investments suitable and appropriate for each will be allocated in accordance
with procedures believed to be equitable over time to each entity. Similarly,
opportunities to sell securities will be allocated in an equitable manner over
time. Composite recognizes that in some cases this procedure may limit the size
of the position that may be acquired or disposed of for the Fund. In addition,
Composite understands that the persons employed by the Sub-Advisor to assist in
the performance of the Sub-Advisor's duties hereunder will not devote their full
time to such service and nothing contained herein shall be deemed to limit or
restrict the right of the Sub-Advisor or any affiliate of the Sub-Advisor to
engage in and devote time and attention to other business or to render services
of whatever kind or nature.
9. Term of Agreement
This Agreement shall become effective as of the date first written above
and shall continue for a one-year term and shall continue thereafter so long as
such continuance is specifically approved at least annually by (i) the Board of
Trustees of the Company or (ii) a vote of a "majority" (as defined in the 1940
Act) of the Fund's outstanding voting securities, provided that in either event
the continuance is also approved by a majority of the Board of Trustees who are
not "interested persons" (as defined in the 1940 Act) of any party to this
Agreement, by vote cast in person at a meeting called for the purpose of voting
on such approval. This Agreement is terminable, without penalty, on 60 days'
written notice, by Composite, the Board of Trustees of the Company or by vote of
holders of a majority of the Fund's shares, or upon 90 days' written notice, by
the Sub-Advisor and, will terminate automatically upon any termination of the
advisory agreement between the Company and Composite. In addition, this
Agreement will also terminate automatically in the event of its assignment (as
defined in the 1940 Act). The Sub-Advisor agrees to notify Composite of any
circumstances that might result in this Agreement being deemed to be assigned.
10. Representations of the Company and the Sub-Advisor
Composite represents that (i) a copy of the Company's Master Trust
Agreement, dated February 22, 1989, together with all amendments thereto, is on
file in the office of the Secretary of the Commonwealth of Massachusetts, (ii)
the appointment of the Sub-Advisor has been duly authorized, (iii) it has acted
and will continue to act in conformity with the 1940 Act and other applicable
laws, and (iv) it is authorized to perform the services herein.
The Sub-Advisor represents that it is authorized to perform the services
described herein.
11. Indemnifications
(a) Composite shall indemnify the Sub-Advisor and its controlling persons,
officers, directors, employees, agents, legal representatives and persons
controlled by it (collectively, "Sub-Advisor Related Persons") to the fullest
extent permitted by law against any and all loss, damage, judgements, fines,
amounts paid in settlement and reasonable expenses, including attorneys' fees
(collectively "Losses"), incurred by the Sub-Advisor or Sub-Advisor Related
Persons arising from or in connection with this Agreement or the performance by
the Sub-Advisor or Sub-Advisor Related Persons of its or their duties hereunder,
including, without limitation, such Losses arising under any applicable law or
that may be based upon any untrue statement of a material fact contained in the
Company's registration statement, or any amendment thereof or any supplement
thereto, or the omission to state therein a material fact known or which should
have been known and was required to be stated therein or necessary to make the
statements therein not misleading, unless such statement or omission was made in
reliance upon written information furnished to Composite by the Sub-Advisor or a
Sub-Advisor Related Person; except to the extent any such Losses result from
willful misfeasance, bad faith, gross negligence or reckless disregard on the
part of the Sub-Advisor or a Sub-Advisor Related Person in the performance of
any of its duties under, or in connection with, this Agreement.
(b) The Sub-Advisor shall indemnify Composite and its controlling persons,
officers, directors, employees, agents, legal representatives and persons
controlled by it (collectively, "Composite Related Persons") to the fullest
extent permitted by law against any and all Losses incurred by Composite or
Composite Related
C-4
<PAGE> 52
Persons arising from or in connection with this Agreement or the performance by
Composite or Composite Related Persons of its or their duties hereunder so long
as such Losses arise out of the Sub-Advisor's failure to perform its
responsibilities to Composite, the Fund or the Company hereunder, including,
without limitation, such Losses arising under any applicable law or that may be
based upon any untrue statement of a material fact contained in the Company's
registration statement, or any amendment thereof or any supplement thereto, or
the omission to state therein a material fact known or which should have been
known and was required to be stated therein or necessary to make the statements
therein not misleading, to the extent that such statement or omission was based
on information provided by the Sub-Advisor or a Sub-Advisor Related Person
unless such statement or omission was made in reliance upon written information
furnished to the Sub-Advisor or Sub-Advisor Related Person by Composite or a
Composite Related Person; and except to the extent any such Losses result from
willful misfeasance, bad faith, gross negligence or reckless disregard on the
part of Composite or a Composite Related Person in the performance of any of its
duties under, or in connection with, this Agreement.
(c) The indemnifications provided in this Section 11 shall survive the
termination of this Agreement.
12. Amendment of this Agreement
No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought.
13. Use Of Names
(a) It is understood that the name "Warburg Pincus Asset Management, Inc."
or any derivative thereof or logo associated with that name is the valuable
property of the Sub-Advisor and its affiliates and that the Company and/or the
Fund have the right to use such name (or derivative or logo) in offering
materials of the Company and/or Fund only with the prior written approval of the
Sub-Advisor and for so long as the Sub-Advisor is an investment sub-adviser to
the Company and/or the Fund; provided that the Company and the Fund may use such
name (or derivative or logo) without such prior written approval in offering
materials of the Company to the extent that (i) such materials simply list the
Sub-Advisor as the Sub-Advisor to the Fund as part of a listing of the
investment sub-advisers to the series or portfolios of the Company with a brief
description of the Sub-Advisor's experience and duties hereunder; (ii) such
materials include such name (or derivative or logo) and any related information
that has been previously approved by the Sub-Advisor or that is required to be
disclosed by applicable law or regulation, such as information disclosed in the
Company's registration statement; or (iii) such materials are intended for
broker-dealer use only, for use by the Company's Trustees, or for internal use
by the Company and Composite. Such prior written approval of the Sub-Advisor
shall not be unreasonably withheld and shall be deemed to be given if no written
objection is received by the Company, the Fund or Composite within three
business days after the request is made by the Company, the Fund or Composite
for such use. Upon termination of this Agreement, the Company and the Fund shall
forthwith cease to use such name (or derivative or logo) as soon as reasonably
practicable.
(b) It is understood that the names "Sierra Trust Funds," and "Composite
Research and Management Co." or any derivatives thereof or logos associated with
such names is the valuable property of the Company and/or Composite and their
affiliates and that the Sub-Advisor or its affiliates have the right to use such
names (or derivatives or logos) in marketing materials of the Sub-Advisor or its
affiliates only with the prior written approval of Composite or the Company, as
applicable, and for so long as the Sub-Advisor is an investment sub-adviser to
the Company and/or the Fund; provided that the Sub-Advisor or its affiliates may
use such names (or derivatives or logos) without such prior written approval in
marketing materials of the Sub-Advisor or its affiliates to the extent that (i)
such materials simply list the Company or the Fund as part of a listing of the
investment companies advised by the Sub-Advisor or its affiliates with a brief
description of the Company or the Fund; (ii) such materials include such names
(or derivatives or logos) and any related information that has been previously
approved by the Company or Composite, as applicable, or that is required to be
disclosed by applicable law or regulation, such as information disclosed in the
Form ADV or Form BD of the Sub-Advisor or its affiliates; or (iii) such
materials are intended for broker-dealer use only or for internal
C-5
<PAGE> 53
use by the Sub-Advisor. Such prior written approval of Composite or the Company,
as applicable, shall not be unreasonably withheld and shall be deemed to be
given if no written objection is received by the Sub-Advisor within three
business days after the request is made by the Sub-Advisor for such use. Upon
termination of this Agreement, the Sub-Advisor and its affiliates shall
forthwith cease to use such names (or derivatives or logos) as soon as
reasonably practicable.
14. Entire Agreement
This Agreement constitutes the entire agreement between the parties hereto.
15. Governing Law
This Agreement shall be governed in accordance with the laws of the
Commonwealth of Massachusetts.
If the foregoing accurately sets forth our agreement, kindly indicate your
acceptance hereof by signing and returning the enclosed copy hereof.
Very truly yours,
COMPOSITE RESEARCH AND
MANAGEMENT CO.
By
--------------------------------------
Name:
Title:
Accepted as of the date
first written above:
WARBURG PINCUS ASSET MANAGEMENT, INC.
By
- ----------------------------------------------------
Name:
Title:
C-6
<PAGE> 54
EXHIBIT D
FORM OF INVESTMENT SUB-ADVISORY AGREEMENT
Effective as of
Van Kampen American Capital Management Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Ladies and Gentlemen:
Composite Research and Management Co. ("Composite"), a corporation
organized under the laws of the state of Washington, hereby agrees with Van
Kampen American Capital Management Inc. (the "Sub-Advisor"), a corporation
organized under the laws of the state of Delaware, as follows:
1. Investment Description; Appointment
Composite desires to employ the capital of the investment funds of Sierra
Trust Funds (the "Company") listed on Annex A hereto (individually, a "Fund" and
collectively, the "Funds") by investing and reinvesting in investments of the
kind and in accordance with the limitations specified in the Company's Master
Trust Agreement, as amended, and in the Prospectus and Statement of Additional
Information relating to the Funds as in effect and which may be amended from
time to time, and in such manner and to such extent as may from time to time be
approved by the Board of Trustees of the Company. Copies of the Funds'
Prospectus and Statement of Additional Information and the Company's Master
Trust Agreement, as amended, have been or will be submitted to the Sub-Advisor.
Composite agrees to provide copies of all amendments to the Funds' Prospectus
and Statement of Additional Information and the Company's Master Trust Agreement
to the Sub-Advisor on an on-going basis. Composite desires to employ and hereby
appoints the Sub-Advisor to act as investment sub-advisor to the Funds. The
Sub-Advisor accepts the appointment and agrees to furnish the services described
herein for the compensation set forth below.
2. Services as Investment Sub-Advisor
Subject to the supervision of the Board of Trustees of the Company and of
Composite, the Funds' investment adviser, the Sub-Advisor will (a) act in
conformity with the Company's Master Trust Agreement, the Investment Company Act
of 1940, as amended (the "1940 Act"), the Investment Advisers Act of 1940 and
the Internal Revenue Code of 1986, as the same may from time to time be amended;
(b) make investment decisions for the Funds in accordance with the Funds'
investment objectives and policies as stated in the Funds' Prospectus and
Statement of Additional Information as in effect and, after notice to the Sub-
Advisor, and which may be amended from time to time; (c) place purchase and sale
orders on behalf of the Funds to effectuate the investment decisions made; (d)
maintain books and records with respect to the securities transactions of the
Funds and will furnish to the Company's Board of Trustees such periodic, regular
and special reports as the Board may request; and (e) treat confidentially and
as proprietary information of the Company, all records and other information
relative to the Company and prior, present or potential shareholders; and will
not use such records and information for any purpose other than performance of
its responsibilities and duties hereunder, except after prior notification to
and approval in writing by the Company, which approval shall not be unreasonably
withheld and such records may not be withheld where the Sub-Advisor may be
exposed to civil or criminal contempt proceedings for failure to comply, when
requested to divulge such information by duly constituted authorities, or when
so requested by the Company. In providing those services, the Sub-Advisor will
supervise the Funds' investments and conduct a continual program of investment,
evaluation and, if appropriate, sale and reinvestment of the Funds' assets. In
addition, the Sub-Advisor will furnish the Funds or Composite with whatever
statistical information the Funds or Composite may reasonably request with
respect to the instruments that the Funds may hold or contemplate purchasing.
D-1
<PAGE> 55
3. Brokerage
In executing transactions for the Funds and selecting brokers or dealers,
the Sub-Advisor will use its best efforts to seek the best overall terms
available and shall execute or direct the execution of all such transactions in
a manner permitted by law and in a manner that is in the best interest of the
Funds and their shareholders. In assessing the best overall terms available for
any Funds transactions, the Sub-Advisor will consider all factors it deems
relevant including, but not limited to, breadth of the market in the security,
the price of the security, the financial condition and execution capability of
the broker or dealer and the reasonableness of any commission for the specific
transaction and on a continuing basis. Pursuant to its investment determinations
for the Funds, in placing orders with brokers and dealers, the Sub-Advisor will
attempt to obtain the best net price and the most favorable execution of its
orders. Consistent with this obligation, when the execution and price offered by
two or more brokers or dealers are comparable, the Sub-Advisor may, in its
discretion, purchase and sell portfolio securities to and from brokers and
dealers who provide the Company with research advice and other services.
4. Information Provided to the Company
The Sub-Advisor will keep the Company and Composite informed of
developments materially affecting the Funds, and will on its own initiative,
furnish the Company and Composite on at least a quarterly basis with whatever
information the Sub-Advisor believes is appropriate for this purpose.
5. Standard of Care
The Sub-Advisor shall exercise its best judgment in rendering the services
described in paragraphs 2 and 3 above. The Sub-Advisor shall not be liable for
any error of judgment or mistake of law or for any loss suffered by the Funds in
connection with the matters to which this Agreement relates, except (a) a loss
resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services (in which case any award of damages shall be limited
to the period and the amount set forth in Section 36(b)(3) of the 1940 Act, or
(b) a loss resulting from willful misfeasance, bad faith or gross negligence on
its part in the performance of its duties or from reckless disregard by it of
its obligations and duties under this Agreement (each such breach, act or
omission described in (a) or (b) shall be referred to as "Disqualifying
Conduct").
6. Compensation
In consideration of the services rendered pursuant to this Agreement,
Composite will pay the Sub-Advisor on the first business day of each month a fee
for the previous month the fees detailed in Annex A attached to this Agreement.
The Sub-Advisor shall have no right to obtain compensation directly from the
Funds or the Company for services provided hereunder and agrees to look solely
to Composite for payment of fees due. Upon any termination of this Agreement
before the end of a month, the fee for such part of that month shall be prorated
according to the proportion that such period bears to the full monthly period
and shall be payable upon the date of termination of this Agreement. For the
purpose of determining fees payable to the Sub-Advisor, the value of the Funds'
net assets shall be computed at the times and in the manner specified in the
Funds' Prospectus or Statement of Additional Information relating to the Funds
as from time to time in effect.
7. Expenses
The Sub-Advisor will bear all expenses in connection with the performance
of its services under this Agreement, which expenses shall not include brokerage
fees or commissions in connection with the effectuation of securities
transactions. The Company will bear certain other expenses to be incurred in its
operation, including but not limited to: organizational expenses, taxes,
interest, brokerage fees and commissions, if any; fees of trustees of the
Company who are not officers, directors or employees of the Sub-Advisor,
Composite, the Funds' sub-administrator or any of their affiliates; Securities
and Exchange Commission fees and state Blue Sky qualification fees;
out-of-pocket expenses of custodians, transfer and dividend disbursing agents
and the Company's sub-administrator and transaction charges of custodians;
insurance premiums;
D-2
<PAGE> 56
outside auditing and legal expenses; costs of maintenance of the Company's
existence; costs attributable to investor services, including without
limitation, telephone and personnel expenses; costs of preparing and printing
prospectuses and statements of additional information for regulatory purposes
and for distribution to existing shareholders; costs of shareholders' reports
and meetings of the shareholders of the Funds and of the officers or Board of
Trustees of the Company; and any extraordinary expenses. In addition, the Funds
pay a distribution fee pursuant to the terms of a Distribution Plan adopted
under Rule 12b-1 of the 1940 Act.
8. Services to Other Companies or Accounts
Composite understands that the Sub-Advisor now acts, will continue to act
and may act in the future as investment adviser to fiduciary and other managed
accounts and as investment adviser to one or more other investment companies or
series of investment companies, and Composite has no objection to the
Sub-Advisor so acting, provided that whenever the Funds and one or more other
accounts or investment companies advised by the Sub-Advisor have available funds
for investment, investments suitable and appropriate for each will be allocated
in accordance with procedures believed to be equitable to each entity.
Similarly, opportunities to sell securities will be allocated in an equitable
manner. Composite recognizes that in some cases this procedure may limit the
size of the position that may be acquired or disposed of for the Funds. In
addition, Composite understands that the persons employed by the Sub-Advisor to
assist in the performance of the Sub-Advisor's duties hereunder will not devote
their full time to such service and nothing contained herein shall be deemed to
limit or restrict the right of the Sub-Advisor or any affiliate of the
Sub-Advisor to engage in and devote time and attention to other business or to
render services of whatever kind or nature.
9. Term of Agreement
This Agreement shall become effective as of the date first written above,
shall continue for a period of two years thereafter, and shall continue in
effect for a period of more than two years thereafter only so long as such
continuance is specifically approved at least annually by (i) the Board of
Trustees of the Company or (ii) a vote of a "majority" (as defined in the 1940
Act) of the Funds' outstanding voting securities, provided that in either event
the continuance is also approved by a majority of the Board of Trustees who are
not "interested persons" (as defined in the 1940 Act) of any party to this
Agreement, by vote cast in person at a meeting called for the purpose of voting
on such approval. This Agreement is terminable, without penalty, on 30 days'
written notice, by Composite, the Board of Trustees of the Company or by vote of
holders of a majority of the Funds' shares, or upon 90 days' written notice, by
the Sub-Advisor and, will terminate automatically upon any termination of the
advisory agreement between the Company and Composite. In addition, this
Agreement will also terminate automatically in the event of its assignment (as
defined in said Act). The Sub-Advisor agrees to notify the Company of any
circumstances that might result in this Agreement being deemed to be assigned.
10. Representations of Composite and the Sub-Advisor
Composite represents that (i) a copy of the Company's Master Trust
Agreement, dated February 22, 1989, together with all amendments thereto, is on
file in the office of the Secretary of the Commonwealth of Massachusetts, (ii)
the appointment of the Sub-Advisor has been duly authorized, (iii) it has acted
and will continue to act in conformity with the 1940 Act and other applicable
laws, and (iv) it is authorized to perform the services herein.
The Sub-Advisor represents that it is authorized to perform the services
described herein.
11. Indemnification
Composite shall indemnify and hold harmless the Sub-Advisor from and
against any and all claims, losses, liabilities or damages (including reasonable
attorneys' fees and other related expenses), howsoever arising from or in
connection with this Agreement or the performance by the Sub-Advisor of its
duties hereunder; provided, however, that nothing contained herein shall require
that the Sub-Advisor be indemnified for Disqualifying Conduct.
D-3
<PAGE> 57
12. Amendment of this Agreement
No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought.
13. Entire Agreement
This Agreement constitutes the entire agreement between the parties hereto.
14. Governing Law
This Agreement shall be governed in accordance with the laws of the
Commonwealth of Massachusetts.
If the foregoing accurately sets forth our agreement, kindly indicate your
acceptance hereof by signing and returning the enclosed copy hereof.
<TABLE>
<S> <C>
Very truly yours,
COMPOSITE RESEARCH AND
MANAGEMENT CO.
Dated: By
--------------------------------------------
Name:
Title:
Accepted:
VAN KAMPEN AMERICAN CAPITAL
MANAGEMENT INC.
By Dated:
- --------------------------------------------- --------------------------------------------
Name:
Title:
</TABLE>
D-4
<PAGE> 58
ANNEX A
For the services provided and expenses assumed pursuant to the Agreement,
the Sub-Advisor will be paid a monthly fee, absent fee waivers, based upon each
Fund's average daily net assets as follows:
<TABLE>
<CAPTION>
AFTER 50; AFTER 75; AFTER 100; AFTER 125;
FUND FIRST 50* NEXT 25 NEXT 25 NEXT 25 NEXT 25 OVER 150
- ------------------------------------- --------- -------------- -------------- --------------- --------------- --------
<S> <C> <C> <C> <C> <C> <C>
California Municipal Fund(1)......... % .20 .20% .20% .20% .20% .15%
National Municipal Fund(1)........... % .20 .20% .20% .20% .20% .15%
Florida Insured Municipal Fund....... % .20 .20% .125% .125% .125% .125%
California Insured Intermediate
Municipal Fund..................... % .20 .20% .125% .125% .125% .125%
</TABLE>
- ---------------
* Amount of assets in millions of dollars ($Mil.)
(1) With respect to each of the California Municipal and National Municipal
Funds, when the combined average daily net assets of the California
Municipal and National Municipal Funds (the "Combined Assets") exceed $750
million, the Sub-Advisor will be paid a fee with respect to each Fund in
proportion to each Fund's average net assets at the following annual rate:
.15% of the Combined Assets up to $1 billion; plus .125% of the Combined
Assets over $1 billion.
D-5
<PAGE> 59
SIERRA TRUST FUNDS
PROXY FOR THE SPECIAL MEETING OF SHAREHOLDERS
NOVEMBER , 1997
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF SIERRA TRUST FUNDS
This proxy is for your use in voting on various matters relating to the
Sierra Trust Funds (the "Trust"). The undersigned shareholder(s) of the
California Money, Short Term High Quality Bond, California Municipal, Florida
Insured Municipal, California Insured Intermediate Municipal, Growth, Emerging
Growth, International Growth and Target Maturity 2002 Funds of the Trust (each a
"Fund," and collectively the "Funds"), revoking previous proxies, hereby
appoint(s) and and each of them (with full power of
substitution) the proxies of the undersigned to attend the Special Meeting of
Shareholders of the Funds to be held on November , 1997 and any adjournments
thereof (the "Special Meeting"), to vote all of the shares of the Funds that the
signer would be entitled to vote if personally present at the Special Meeting
and on any matter incident to the conduct of the Special Meeting, all as set
forth in the Notice of Special Meeting of Shareholders and Proxy Statement of
the Board of Trustees. Said proxies are directed to vote or refrain from voting
pursuant to the Proxy Statement as indicated upon the matters set forth below.
This proxy will be voted as indicated below. If no indication is made, this
proxy will be voted FOR the proposals set forth below. The undersigned
acknowledges receipt with this proxy of a copy of the Notice of Special Meeting
of Shareholders and the Proxy Statement of the Board of Trustees.
<TABLE>
<S> <C> <C> <C>
(1) To consider and act upon [ ] FOR all of the [ ] WITHHOLD AUTHORITY [ ] FOR all of the nominees
a proposal to elect a nominees listed below. to vote for all of the listed below except for
Board of Trustees. nominees listed below. those whose names have
been stricken.
</TABLE>
(Instructions: To withhold authority to vote for any or all of the nominees,
strike a line through the name(s) of such nominee(s) below).
<TABLE>
<CAPTION>
<S> <C> <C>
Arthur H. Bernstein Wayne L. Attwood William G. Papesh
David E. Anderson Kristianne Blake Daniel L. Pavelich
Edmond R. Davis Anne V. Farrell Jay Rockey
John W. English Michael K. Murphy Richard C. Yancey
Alfred E. Osborne, Jr.
</TABLE>
(2) To approve a new Investment Advisory Agreement between the Trust, on behalf
of each Fund, and Composite Research & Management Co. ("Composite").
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(3) To approve implementation of a structure for the Trust which would permit
the Board of Trustees to replace or appoint investment sub-advisers of each
Fund without the necessity of seeking shareholder approval.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(4) To approve a new Investment Sub-Advisory Agreement for the Growth Fund
between Composite and Janus Capital Corporation. (contingent upon approval
of Proposal 2)
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(5) To approve a new Investment Sub-Advisory Agreement for the International
Growth Fund between Composite and Warburg Pincus Asset Management, Inc.
(contingent upon approval of Proposal 2)
[ ] FOR [ ] AGAINST [ ] ABSTAIN
<PAGE> 60
(6) To approve a new Investment Sub-Advisory Agreement for the California
Municipal Fund between Composite and Van Kampen American Capital Management,
Inc. (contingent upon approval of Proposal 2)
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(7) To approve a new Investment Sub-Advisory Agreement for the Florida Insured
Municipal Fund between Composite and Van Kampen American Capital Management,
Inc. (contingent upon approval of Proposal 2)
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(8) To approve a new Investment Sub-Advisory Agreement for the California
Insured Intermediate Municipal Fund between Composite and Van Kampen
American Capital Management, Inc. (contingent upon approval of Proposal 2)
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(9) To transact such other business as may properly come before the Special
Meeting or an adjournment thereof.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Please Date:
Date: ________________________,
1997
Please print and sign your name in
the space provided to authorize
the voting of your shares as
indicated and return promptly.
When signing on behalf of a
corporation, partnership, estate,
trustor in any other
representative capacity please
sign your name and title. For
joint accounts, each joint owner
must sign.
----------------------------------
(Signature of shareholder)
----------------------------------
(Co-owner signature, if any)
----------------------------------
(Printed name of shareholder)
----------------------------------
(Printed name of Co-owner, if any)
PLEASE COMPLETE, SIGN, DATE, AND RETURN THIS PROXY PROMPTLY
USING THE ENCLOSED ENVELOPE.
NO POSTAGE IS NECESSARY IF MAILED IN THE UNITED STATES.
