<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
The Sierra Variable Trust
- --------------------------------------------------------------------------------
(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
PRELIMINARY COPY
AMERICAN GENERAL LIFE INSURANCE COMPANY
HOUSTON, TEXAS 77251-1401
------------------------
NOTICE TO CONTRACTOWNERS OF SPECIAL MEETING
OF THE SHAREHOLDERS OF THE SIERRA VARIABLE TRUST
TO BE HELD ON DECEMBER 30, 1997
Dear Contractowner:
The Variable Account Value of your Sierra Advantage Variable Annuity has
been allocated at your discretion to investment divisions of Separate Account D
of American General Life Insurance Company ("American General Life"). These
divisions invest in corresponding funds or portfolios of The Sierra Variable
Trust, a mutual fund (the "Trust").
As a Contractowner of record at the close of business on , 1997
(the "Record Date"), you are hereby offered the opportunity to instruct American
General Life as to how it should vote on proposals to be considered at a Special
Meeting of the Shareholders of the Trust's Global Money Fund, Short Term High
Quality Bond Fund, U.S. Government Fund, Corporate Income Fund, Growth and
Income Fund, Growth Fund, Emerging Growth Fund and International Growth Fund
(the "Funds"); and the Capital Growth Portfolio, Growth Portfolio, Balanced
Portfolio, Value Portfolio and Income Portfolio (the "Portfolios"). American
General Life's Separate Account D, is, and was on the Record Date, the sole
shareholder of the Funds.
The Special Meeting will be held at 9301 Corbin Avenue, Suite 333,
Northridge, California 91324, on December 30 at p.m. Pacific Time, to
consider the approval of (1) a new Board of Trustees; (2) a new investment
advisory agreement between the Trust and Composite Research & Management Co.,
Inc. ("Composite") on behalf of each Fund and Portfolio; (3) 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
Contractowner approval; (4) a new investment sub-advisory agreement for the
Growth Fund between Composite and Janus Capital Corporation ("Janus"); and (5) a
new investment sub-advisory agreement for the International Growth Fund between
Composite and Warburg Pincus Asset Management, Inc. ("Warburg").
Attached to this Notice is the Information Statement of American General
Life and the Proxy Statement of the Trust. You are urged to read both of these
statements prior to completing your Voting Instruction Card(s).
American General Life with Sierra Investment Advisors Corporation, the
Fund's investment adviser, and Sierra Investment Services Corporation, the
Portfolio's investment adviser and the Trust's principal underwriter, are
committed to quality products and services and to earning your trust and
confidence. Please acknowledge this commitment by completing your voting
instructions and returning it to American General Life.
Timothy W. Still
Vice President
IMPORTANT
IT IS IMPORTANT THAT YOUR CONTRACT BE REPRESENTED. PLEASE MARK YOUR
PREFERENCE ON THE VOTING INSTRUCTIONS, SIGN AND DATE IT, AND MAIL IT PROMPTLY IN
THE ACCOMPANYING ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED
STATES. YOUR PROMPT RESPONSE WILL HELP AVOID THE UNNECESSARY EXPENSE OF A
FURTHER SOLICITATION OF BALLOTS.
<PAGE> 3
AMERICAN GENERAL LIFE INSURANCE COMPANY
HOUSTON, TEXAS 77251-1401
------------------------
INFORMATION STATEMENT ON THE SPECIAL MEETING
OF THE SHAREHOLDERS OF THE SIERRA VARIABLE TRUST
TO BE HELD ON DECEMBER 30, 1997
GENERAL
This information statement is being furnished by American General Life
Insurance Company ("American General Life"), a Texas stock life insurance
company, to owners of the Sierra Advantage variable annuity contract and the
Sierra Asset Manager variable annuity contract ("Contractowners") whose Variable
Account Values were allocated to American General Life's Separate Account D as
of , 1997 (the "Record Date"). American General Life is an indirect,
wholly owned subsidiary of American General Corporation.
American General Life is required to offer Contractowners the opportunity
to instruct American General Life as to how it should vote on the proposals to
be considered at a Special Meeting of the Shareholders of the Global Money Fund,
Short Term High Quality Bond Fund, U.S. Government Fund, Corporate Income Fund,
Growth and Income Fund, Growth Fund, Emerging Growth Fund and International
Growth Fund (the "Funds"); and the Capital Growth Portfolio, Growth Portfolio,
Balanced Portfolio, Value Portfolio and Income Portfolio (the "Portfolios") of
The Sierra Variable Trust (the "Trust"), referred to in the foregoing Notice and
any adjournments thereof (the "Special Meeting").
The proposals scheduled to be considered at the Special Meeting are the
approval of (1) a new Board of Trustees; (2) a new investment advisory agreement
between the Trust and Composite Research & Management Co., Inc. ("Composite") on
behalf of each Fund and Portfolio; (3) 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 Contractowner
approval; (4) a new investment sub-advisory agreement for the Growth Fund
between Composite and Janus Capital Corporation ("Janus"); and (5) a new
investment sub-advisory agreement for the International Growth Fund between
Composite and Warburg Pincus Asset Management, Inc. ("Warburg").
Separate Account D (the "Separate Account") is registered with the
Securities and Exchange Commission as an investment company in unit investment
trust form. A Contractowner's Variable Account Value can be, at the
Contractowner's direction, allocated to one or more of the investment divisions
of the Separate Account. The assets in each division are invested in shares of
beneficial interest in the corresponding Funds or Portfolios of the Trust, a
series-type mutual fund. The following Funds and Portfolios are available for
investment divisions of the Separate Account:
<TABLE>
<CAPTION>
FUNDS PORTFOLIOS
--------------------------------------------------- -------------------------
<S> <C>
Global Money Fund Capital Growth Portfolio
Short Term High Quality Bond Fund Growth Portfolio
U.S. Government Fund Balanced Portfolio
Corporate Income Fund Value Portfolio
Growth and Income Fund Income Portfolio
Growth Fund
Emerging Growth Fund
International Growth Fund
Short Term Global Government Fund*
</TABLE>
- ---------------
* Information regarding this fund will be included in a separate proxy statement
<PAGE> 4
The principal executive offices of American General Life are located at
2727-A Allen Parkway, Houston, Texas 77019-2191.
This Information Statement and the accompanying Proxy Statement and Voting
Instructions Card(s) are first being mailed to Contractowners on or about
, 1997.
HOW TO INSTRUCT AMERICAN GENERAL LIFE INSURANCE COMPANY
To instruct American General Life as to how to vote the shares of
beneficial interest of the Global Money Fund, Short Term High Quality Bond Fund,
U.S. Government Fund, Corporate Income Fund, Growth and Income Fund, Growth
Fund, Emerging Growth Fund, International Growth Fund, Capital Growth Portfolio,
Growth Portfolio, Balanced Portfolio, Value Portfolio, and Income Portfolio (the
"shares") held in the Separate Account division, Contractowners are asked
promptly to date, mark their preference on, sign and mail the enclosed Voting
Instruction Card(s) in the accompanying postage-paid envelope.
IF A PREFERENCE IS NOT MARKED ON A VOTING INSTRUCTION CARD, ITS RETURN WILL
BE TREATED AS AN INSTRUCTION TO VOTE THE SHARES IN FAVOR OF THE PROPOSALS.
The number of Shares of the Funds and Portfolios for which Contractowners
may provide voting instructions ( in aggregate "Shares Attributable to
Contractowners") was determined by dividing (i) the Contractowners Variable
Account Value attributable to each Fund and Portfolio by (ii) the net asset
value of one share of each Fund and Portfolio as of the Record Date.
At any time prior to American General Life's voting, at the Special Meeting
on , 1997 or any adjournment thereof, of the Shares held in each
Division of Separate Account D, a person executing a Voting Instruction Card
with respect to such Division may revoke it by written notice to Timothy W.
Still, Vice President of Annuity Administration, American General Life.
HOW AMERICAN GENERAL LIFE INSURANCE COMPANY WILL VOTE
Currently, American General Life's Separate Account D owns shares
of the Trust and may be deemed to control the Trust. Accordingly, only
Contractowners of American General Life will have the opportunity to provide
voting instructions with respect to the proposals to be considered at the
Special Meeting.
<TABLE>
<CAPTION>
DIVISION SHARES AS OF RECORD DATE
- ------------------------------------------------------------------------ ------------------------
<S> <C>
Global Money Fund.......................................................
Short Term High Quality Bond Fund.......................................
U.S. Government Fund....................................................
Corporate Income Fund...................................................
Growth and Income Fund..................................................
Growth Fund.............................................................
Emerging Growth Fund....................................................
International Growth Fund...............................................
Capital Growth Portfolio................................................
Growth Portfolio........................................................
Balanced Portfolio......................................................
Value Portfolio.........................................................
Income Portfolio........................................................
</TABLE>
American General Life will vote the Shares attributable to Contractowners
in each Division of Separate Account D, for or against approval of the
proposals, or withhold its vote, in the same proportion as the votes cast by
American General Life in accordance with voting instructions it has received.
Shares attributable to
<PAGE> 5
amounts retained by American General Life in each Division will be voted in the
same proportion as Shares held in the Division are voted pursuant to voting
instructions.
OTHER MATTERS
American General Life is not aware of any matters, other than the
aforementioned proposals, to be acted on at the Special Meeting. If any other
matters come before the Special Meeting, American General Life will vote the
Shares upon such matters in its discretion.
In addition to solicitation by mail, voting instructions may be solicited
in person or by telephone by employees or agents of Sierra Investment Advisors
Corporation, the Fund's investment adviser, or Sierra Investment Services
Corporation, the Portfolio's investment adviser and the Trust's principal
underwriter. Instructions may be recorded pursuant to telephonic or
electronically transmitted instructions obtained pursuant to procedures
reasonably designed to verify that such instructions have been authorized. All
expenses incurred in connection with the solicitation of voting instructions
will be borne by Composite Research & Management Co., Inc. The solicitation will
be by mail and may also be by telephone, telegram or personal interview.
PLEASE MARK YOUR PREFERENCE ON THE VOTING INSTRUCTION CARD(S), THEN SIGN,
DATE AND MAIL IT IN THE POSTAGE-PAID ENVELOPE PROVIDED. IT IS IMPORTANT THAT
YOUR CONTRACT BE REPRESENTED.
<PAGE> 6
PRELIMINARY COPY
THE SIERRA VARIABLE TRUST
9301 CORBIN AVENUE, SUITE 333
NORTHRIDGE, CALIFORNIA 91324
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON , 1997
TO THE SHAREHOLDERS OF THE SIERRA VARIABLE TRUST:
You are cordially invited to attend a special meeting of the shareholders
of The Sierra Variable Trust (the "Trust"), a Massachusetts business trust, on
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 Global
Money Fund, Short Term High Quality Bond Fund, U.S. Government Fund, Corporate
Income Fund, Growth and Income Fund, Growth Fund and International Growth Fund
(each a "Fund," and collectively the "Funds"); and the Capital Growth Portfolio,
Growth Portfolio, Balanced Portfolio, Value Portfolio and Income Portfolio (each
a "Portfolio," and collectively the "Portfolios"), 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 Management Agreement
between the Trust, on behalf of each Fund and Portfolio, and
Composite Research & Management Co. ("Composite") (voted on
separately by shareholders of each Fund and Portfolio).
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 of the Trust).
PROPOSAL 4: To approve or disapprove a new Investment Sub-Advisory
Agreement for the Growth Fund [and Emerging Growth Fund]
between Composite and Janus Capital Corporation ("Janus")
(voted on by shareholders of the Growth Fund [and 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 transact such other business as may properly come before
this Special Meeting or any adjournments thereof.
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
Short Term Global Government Fund will receive a separate proxy statement
regarding the election of Trustees, as well as certain issues related solely to
that fund of the Trust.
1
<PAGE> 7
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
2
<PAGE> 8
PRELIMINARY COPY
THE SIERRA VARIABLE TRUST
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 Variable Trust (the "Trust") on behalf of Global Money Fund, Short
Term High Quality Bond Fund, U.S. Government Fund, Corporate Income Fund, Growth
Fund, Emerging Growth Fund, Growth and Income Fund and International Growth Fund
(each a "Fund," and collectively the "Funds"); and the Capital Growth Portfolio,
Growth Portfolio, Balanced Portfolio, Value Portfolio and Income Portfolio (each
a "Portfolio," and collectively "Portfolios"), in connection with the
solicitation of proxies for use at the special meeting of shareholders of the
Funds and Portfolios to be held on , 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 and Portfolio to
consider a new Investment Management Agreement (the "New Management 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 and International
Growth Funds to consider new Investment Sub-Advisory Agreements (each a "New
Sub-Advisory Agreement") to take effect following the consummation of a New
Management Agreement. The Trust's New Management 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. 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 listed above (each a "Proposal" and, together, the "Proposals"). All
shareholders of the Trust are entitled to vote on Proposals 1 and 2. With
respect to Proposal 3 only those shareholders of the Trust's Funds may vote on
the Proposal for permitting the Trust to appoint sub-advisers without
shareholder approval. With respect to Proposals 4 and 5, Shareholders of Growth
Fund[, Emerging Growth Fund] and International Growth Fund may vote on the
applicable 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
<PAGE> 9
more than one Fund and Portfolio as set forth below. Shareholders are requested
to vote only on those Proposals affecting the Funds or Portfolio(s) of which
they are shareholders.
<TABLE>
<CAPTION>
PROPOSAL SHAREHOLDERS ENTITLED TO VOTE
- -------- -----------------------------
<S> <C>
Proposal 1 (Election of Trustees) Shareholders of the Trust as a whole
Proposal 2 (Approval of New Management Shareholders of each Fund and Portfolio of
Agreement) the Trust vote separately
Proposal 3 (Permitting the Trust to Appoint Shareholder of each Fund of the Trust vote
Sub-Advisers without Shareholder Approval) separately
Proposal 4 (Approval of New Sub-Advisory Shareholders of the Growth Fund only
Agreement)
Proposal 5 (Approval of New Sub-Advisory Shareholders of the International Growth Fund
Agreement) 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 for each of the
Funds and Portfolios being solicited by this Proxy Statement:
<TABLE>
<CAPTION>
SHARES
OUTSTANDING
-----------
<S> <C>
FUND
Global Money Fund..............................................
Short Term High Quality Bond Fund..............................
U.S. Government Fund...........................................
Corporate Income Fund..........................................
Growth and Income Fund.........................................
Growth Fund....................................................
Emerging Growth Fund...........................................
International Growth Fund......................................
PORTFOLIO
Capital Growth Portfolio.......................................
Growth Portfolio...............................................
Balanced Portfolio.............................................
Value Portfolio................................................
Income Portfolio...............................................
</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. It
is expected that the Notice of Special Meeting, the Proxy Statement and Proxy
Card will be mailed to shareholders on or about .
THE TRUST WILL FURNISH TO SHAREHOLDERS, WITHOUT CHARGE, A COPY OF THE
ANNUAL REPORT FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996, AND THE SEMI-ANNUAL
REPORT FOR THE PERIOD ENDED JUNE 30, 1997, UPON REQUEST. THE ANNUAL AND
SEMI-ANNUAL REPORTS 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> 10
INTRODUCTION
On July 1, 1997, Great Western Financial Corporation ("GWFC"), the indirect
parent of Sierra Investment Advisors Corporation ("Sierra Advisors") and Sierra
Services, the Funds' and Portfolios' current investment advisers, 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 Sierra Funds 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 Advisors 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 and Portfolios listed above none of which
are being reorganized, and does not address the proposed reorganizations of
Funds managed by Sierra Advisors 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. Messrs. Attwood, Murphy, Papesh, Pavelich, Rockey and Yancey and
Mmes. Blake and Farrell currently serve on the Board of Directors of the mutual
funds managed by Composite (the "Composite Funds"), but have not previously
served on the Board 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 Agreement and
Declaration of Trust. Shareholder meetings will be held, in compliance with the
1940 Act, to elect Trustees under certain circumstances. Shareholder meetings
may also be held by the 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> 11
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 and
Sierra Services or an affiliated person of Sierra Advisors and Sierra Services
provides investment advisory or administration services (the "Sierra Fund
Complex," consisting of the Trust, Sierra Trust Funds, Sierra Prime Income Fund
and Sierra Asset Management Portfolios and the "Composite Funds," consisting of
Composite Bond and Stock Fund, Inc. Composite Growth and 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 and Portfolios of the Trust
beneficially owned and percentage of shares of the Funds and Portfolios 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 and
Portfolio 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 and
Portfolio of the Trust.
<TABLE>
<CAPTION>
PERCENTAGE
ADDRESS AND BUSINESS EXPERIENCE DURING SHARES BENEFICIALLY OWNED AS OF
NAME, AGE AND POSITION WITH THE THE PAST FIVE YEARS (INCLUDING ALL OF OUTSTANDING
TRUST DIRECTORSHIPS) JULY 1, 1997** SHARES
- ---------------------------------- ---------------------------------------- ------------------------------ -----------
<S> <C> <C> <C>
Arthur H. Bernstein, Esq. (72) 11661 San Vicente Blvd., Suite 701, None ***
Chairman of the Board of Los Angeles, CA 90049. President,
Trustees and Trustee since 1989. Bancorp Capital Group, Inc., 1988 to
present; President, Bancorp Venture
Capital, Inc., 1988 to present. Trustee
of 4 trusts in the Sierra Fund Complex.
David E. Anderson (70) 17960 Seabreeze Drive, None ***
Trustee since 1989. Pacific Palisades, CA 90272. Retired.
Formerly, President and Chief Executive
Officer, GTE California, Inc., 1979 to
1988. Trustee of 4 trusts in the Sierra
Fund Complex.
Edmond R. Davis, Esq. (69) 550 South Hope Street, 21st Floor, Global Money -- 17,208.58 ***
Trustee since 1989. Los Angeles, CA 90071. Partner, Brobeck, Growth and Income -- 3,392,701
Phleger & Harrison (law firm) 1987 to Emerging Growth -- 129,964
present. Trustee of 4 trusts in the International Growth -- 150,522
Sierra Fund Complex. Growth -- 651,636
John W. English (64) 50-H New England Ave., PO Box 40, None ***
Trustee since 1994. Summit, NJ 07902-0640. Retired.
Formerly, Vice President and Chief
Investment Officer, Ford Foundation,
1981 to 1993. Chairman of 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> 12
<TABLE>
<CAPTION>
PERCENTAGE
ADDRESS AND BUSINESS EXPERIENCE DURING SHARES BENEFICIALLY OWNED AS OF
NAME, AGE AND POSITION WITH THE THE PAST FIVE YEARS (INCLUDING ALL OF OUTSTANDING
TRUST DIRECTORSHIPS) JULY 1, 1997** SHARES
- ---------------------------------- ---------------------------------------- ------------------------------ -----------
<S> <C> <C> <C>
Alfred E. Osborne, Jr. Ph.D. (52) 110 Westwood Plaza, Suite C305 None ***
Trustee since 1996. Los Angeles, CA 90095-1481. Professor,
The Anderson School and Director, The
Harold Price Center for Entrepreneurial
Studies at University of California at
Los Angeles, 1972 to present;
Independent general partner, Technology
Funding Venture Partners V, 1990 to
present. Director, Times Mirror Company,
1980 to present; Director, United States
Filter Corporation, 1991 to present;
Director, Nordstrom, Inc., 1987 to
present; Director, Greyhound Lines,
Inc., 1994 to present. Trustee of 4
trusts in the Sierra Fund Complex, 1989
to 1993 and 1996 to present.
Wayne L. Attwood, M.D. (68) 2931 S. Howard, 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, Spokane, WA 99220. None ***
Nominee 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, Spokane, None ***
Nominee 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, 180 North Stetson None ***
Nominee 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, Seattle, WA 98121. None ***
Nominee Chairman and Chief Executive Officer,
The Rockey Company. Director of all of
the Composite Funds.
Richard C. Yancey (71) 535 Madison Avenue, New York, NY 10022. None ***
Nominee Senior Advisor, Dillon, Read & Co., Inc.
Director of all of the Composite Funds.
</TABLE>
5
<PAGE> 13
- ---------------
* 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.
*** As of July 1, 1997, the Nominees of the Trust as a group beneficially owned
an aggregate of less than 1% of the shares of each Fund of the Trust.
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 Disinterested Trustee $5,000 per annum plus $1,250 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 for serving in
such capacity from the Trust. 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 December 31, 1996, is set forth in the
compensation table below. The aggregate compensation payable to such Trustees
during the fiscal year ended December 31, 1996, 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>
AGGREGATE
COMPENSATION PENSION OR RETIREMENT TOTAL COMPENSATION FROM THE
PAYABLE BENEFITS ACCRUED AS SIERRA FUND COMPLEX PAYABLE
NAME AND POSITION FROM THE TRUST** PART OF FUND EXPENSES TO TRUSTEES
- --------------------------------- ----------------- --------------------- ---------------------------
<S> <C> <C> <C>
Arthur H. Bernstein, Trustee+.... 14,814 $ 0 $53,625 for service on 4
boards
David E. Anderson, Trustee*...... 14,459 0 50,250 for service on 4
boards*
Edmond R. Davis, Trustee......... 13,959 0 50,250 for service on 4
boards
John W. English, Trustee......... 13,959 0 51,250 for service on 4
boards
Alfred E. Osborne, Jr., Trustee.. 6,709 0 28,750 for service on 4
boards
</TABLE>
- ---------------
* Mr. Anderson was paid $1,500 for Audit Committee Meeting held by the Trust.
** 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.
6
<PAGE> 14
+ Mr. Bernstein was paid $1,500 and $1,125 for Audit Committee Meetings held
by STF and SPIF, respectively.
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 December 31, 1996. 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 December 31, 1996,
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 December 31, 1996 and all
members attended the meeting.
The Board has a Nominating Committee. The Nominating Committee makes
recommendations to the full Board with respect to candidates for the Board. The
members of the Nominating Committee during the fiscal year ended December 31,
1996, were Messrs. Cerini (Mr. Cerini resigned as a Trustee of the Trust
effective May 29,1997), Anderson, Bernstein, Davis, and English, each of whom,
with the exception of Mr. Cerini, is not an "interested person" within the
meaning of the 1940 Act. The Nominating Committee did not meet during the fiscal
year ended December 31, 1996.
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 the various Composite Funds.
SHAREHOLDER APPROVAL OF THE ELECTION OF TRUSTEES
The Election of each Nominee requires the affirmative vote of a plurality
of all votes cast at the Special Meeting, provided that a majority of the shares
entitled to vote are present in person or by Proxy at the Special Meeting. If
your shares are represented at the meeting but you give no voting instructions,
your shares will be voted FOR all Nominees named herein. If the Nominees are not
approved by shareholders of the Trust, the Board will consider alternative
nominations.
THE BOARD OF TRUSTEES RECOMMENDS THAT THE SHAREHOLDERS OF THE TRUST VOTE FOR THE
ELECTION OF THE TRUSTEES.
PROPOSAL 2: TO APPROVE OR DISAPPROVE A NEW INVESTMENT MANAGEMENT AGREEMENT
BETWEEN THE TRUST, ON BEHALF OF EACH FUND AND PORTFOLIO, AND
COMPOSITE RESEARCH & MANAGEMENT CO.
The Board has determined that it would be in the best interest of each Fund
and Portfolio and their shareholders to retain Composite as the investment
adviser for each Fund and Portfolio and recommends that shareholders of each
Fund and Portfolio approve Composite as its investment adviser and approve the
New Management Agreement between the Trust, on behalf of each Fund and
Portfolio, 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 and Portfolio 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 and Portfolios.
The Trustees recommend that Composite replace the Funds' and Portfolios'
current investment advisers, Sierra Advisors and Sierra Services (the
"Advisers"), respectively. The Advisers, as the result of a recent
7
<PAGE> 15
merger between Washington Mutual and the Advisers' former indirect parent, GWFC,
are now indirect subsidiaries 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, the Advisers would cease to exist as separate
entities.
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.
SIERRA SERVICES
Sierra Services is registered under the Investment Advisers Act of 1940
(the "Advisers Act") and is currently the investment adviser to each Portfolio
of the Trust. Sierra Services provides its proprietary asset allocation services
to the Portfolios, formulates the Portfolios' investment policies, analyzes
economic and market trends, exercises investment discretion over the assets of
the Portfolios and monitors the allocation of each Portfolio's asset and each
Portfolio's performance. Although it is expected that each Portfolio will
typically be fully invested in underlying funds as a part of a "fund of funds"
arrangement, Sierra Services may, from time to time, direct the investment of
each Portfolio's cash balances in money market securities or in other
instruments, including stock or bond index futures and options thereon. Sierra
Services is a registered broker-dealer under the Securities Exchange Act of
1934, as amended, and a member of the National Association of Securities
Dealers, Inc. ("NASD"). Sierra Services is a wholly owned subsidiary of Sierra
Capital Management Corporation ("Sierra Capital") which is an indirect wholly
owned subsidiary of Washington Mutual.
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 retain investment discretion for
the Short Term High Quality Bond Fund, Emerging Growth Fund and all of the
Portfolios, and would, at least initially, delegate investment discretion for
the remaining Funds to the sub-advisers listed in Proposals 4 and 5 of this
Proxy Statement.
8
<PAGE> 16
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,
Director and President Seattle, WA 98101 Composite; Director and
President, Murphey Favre
Securities Services Inc.
Kerry K. Killinger 1201 Third Avenue Chairman, Chief Executive Officer
Director Seattle, WA 98101 and Director, Washington Mutual
Bank.
Monte D. Calvin 1201 Third Avenue Executive Vice President, Murphey
Director and Treasurer Seattle, WA 98101 Favre Securities Services Inc.
Craig S. Davis 1201 Third Avenue Executive Vice President,
Director Seattle, WA 98101 Washington Mutual; Chairman,
ASB Financial Services
J. Pamela Dawson 1201 Third Avenue President, WM Financial Services,
Director Seattle, WA 98101 Inc.; President, ASB Financial
Services, Inc.
</TABLE>
THE INVESTMENT MANAGEMENT AGREEMENT
In anticipation of the consolidation of the Advisers with Composite, the
Trustees of the Trust, including the Disinterested Trustees unanimously approved
the New Management Agreement. Although the 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, on behalf of the Funds and Portfolios, between the Advisers
and the Trust: (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 the Trust with
respect to the Funds and between Sierra Services and the Trust with respect to
the Portfolios were most recently renewed by the
9
<PAGE> 17
Trustees at a meeting of the Board held on September 9, 1997. The dates of the
Current Advisory Agreements and the dates on which they were last approved by
shareholders is illustrated in the table below:
<TABLE>
<CAPTION>
DATE OF INVESTMENT DATE LAST APPROVED BY
FUND ADVISORY AGREEMENT SHAREHOLDERS
------------------------------------- ------------------ ---------------------
<S> <C> <C>
Global Money Fund April 8, 1993 *
Short Term High Quality Bond Fund January 1, 1994 *
U.S. Government Fund April 8, 1993 *
Corporate Income Fund April 8, 1993 *
Growth and Income Fund April 8, 1993 *
Growth Fund April 8, 1993 *
Emerging Growth Fund January 1, 1994 *
International Growth Fund January 1, 1994 *
PORTFOLIO
Capital Growth Portfolio May 1, 1997 *
Growth Portfolio May 1, 1997 *
Balanced Portfolio May 1, 1997 *
Value Portfolio May 1, 1997 *
Income Portfolio May 1, 1997 *
</TABLE>
- ---------------
* Approved by Sole Shareholder at commencement of operations.
The Current Advisory Agreement between Sierra Advisors and the Trust with
respect to the Funds provides that the Adviser, in return for its fee, will (1)
participate in the formulation of each Fund's investment policies; (2) analyze
their economic trends affecting each Fund; (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, the Adviser may delegate certain of
its duties enumerated above to one or more sub-advisers.
The Current Advisory Agreement between Sierra Services and the Trust with
respect to the Portfolios provide that the Adviser, in return for its fee, will
provide its proprietary asset allocation services to each Portfolio, formulates
the Portfolio's investment policies (subject to the terms of this Prospectus),
analyzes economic and market trends, exercises investment discretion over the
assets of the Portfolios and monitors the allocation of each Portfolio's assets
and each Portfolio's performance.
10
<PAGE> 18
The Current Advisory Agreements, relating to the Funds, 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>
AFTER AFTER AFTER AFTER
AMOUNT OF ASSETS AFTER 50; 100; 125; 200; 400;
($ MIL.) FIRST 50 NEXT 50 NEXT 25 NEXT 75 NEXT 200 NEXT 100 OVER 500
- --------------------------------- -------- --------- --------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Global Money Fund................ .50% .50% .50% .50% .50% .50% .40%
Growth Fund...................... .875% .875% .875% .875% .875% .875% .875%
Short Term High Quality Bond .50% .50% .50% .50% .45% .45% .40%
Fund...........................
Emerging Growth Fund............. .90% .85% .85% .85% .85% .85% .75%
International Growth Fund........ .95% .85% .85% .75% .75% .75% .75%
U.S. Government Fund............. .60% .60% .60% .60% .60% .60% .65%
Corporate Income Fund............ .65% .65% .65% .65% .65% .65% .50%
Growth and Income Fund........... .80% .80% .75% .75% .70% .65% .575%
</TABLE>
- ---------------
* 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 Agreement, relating to the Portfolios, provides for
payment of compensation to Sierra Services on the first business day of each
month for the previous month for each Portfolio at the annual rate of .10% of
the Portfolio's average daily net assets.
The Current Advisory Agreements provide that the Advisers will bear all
expenses in connection with the performance of their services under the
Agreements, including, without limitation, payment of any sub-advisory fees to
any sub-adviser. Each Fund and Portfolio assumes and shall pay or cause to be
paid all other expenses of the Fund and Portfolio.
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
Funds' and Portfolios' shares, or upon 90 days' written notice, by the Advisers.
The Current Advisory Agreements will terminate automatically in the event of its
assignment.
The Current Advisory Agreements obligate the Advisers, in the performance
of their duties, to exercise their best judgment in rendering its services, but
provides that the Advisers shall not be liable for any act or omission which
does not constitute willful misfeasance, bad faith or gross negligence on the
part of the Advisers or their officers, Directors or employees, or reckless
disregard by the Advisers of their obligations and duties under the agreement.
The Current Advisory Agreements also provide that any claims by the Advisers
against a Fund or Portfolio may be satisfied only from the assets of that Fund
or Portfolio, and that no shareholder, Trustee or officer of the Trust may be
held personally liable or responsible for any obligations arising out of such
agreement.
11
<PAGE> 19
For the fiscal year ended December 31, 1996, the Trust paid management fees
to the Advisers, administration fees to Sierra Fund Administration Corporation,
and distribution fees to Sierra Services as follows:
<TABLE>
<CAPTION>
MANAGEMENT MANAGEMENT
FEES PAID FEES
TO PAID TO
SIERRA SIERRA ADMINISTRATION DISTRIBUTION
FUND ADVISORS* SERVICES* FEES FEES
-------------------------------- ---------- ---------- -------------- ---------
<S> <C> <C> <C> <C>
Global Money Fund............... $ 40,314 N/A $ 36,725 $0
Growth Fund..................... $961,131 N/A $193,861 $0
Short Term High Quality Bond $ 56,022 N/A $ 24,031 $0
Fund..........................
Emerging Growth Fund............ $461,791 N/A $ 95,144 $0
International Growth Fund....... $524,048 N/A $100,408 $0
U.S. Government Fund............ $363,268 N/A $108,980 $0
Corporate Income Fund........... $381,643 N/A $105,686 $0
Growth and Income Fund.......... $436,358 N/A $ 98,181 $0
Income Portfolio................ N/A (19,517) 11,762 53,316
Value Portfolio................. N/A (18,896) 7,547 67,146
Balanced Portfolio.............. N/A 65,712 449,218 735,397
Growth Portfolio................ N/A 107,009 607,123 1,103,001
Capital Growth Portfolio........ N/A (10,970) 38,905 1,193,545
</TABLE>
- ---------------
* After fee waivers.
THE NEW MANAGEMENT AGREEMENT
The Board approved the proposed New Management Agreement between the Trust
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, 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 or Portfolio
may be satisfied only from the assets of that Fund or Portfolio, and that no
shareholder, Trustee,
12
<PAGE> 20
officer, employee or agent of a Fund, Portfolio or any other Fund or Portfolio
may be held personally liable or responsible for any obligations arising out of
such agreement.
The New Management Agreement provides for payment to Composite of a monthly
management fee, computed on the average daily net assets, at the following
annual rates:
<TABLE>
<CAPTION>
AMOUNT OF ASSETS AFTER 50; AFTER 100; AFTER 125; AFTER 200; AFTER 400;
($ MIL.) FIRST 50 NEXT 50 NEXT 25 NEXT 75 NEXT 200 NEXT 100 OVER 500
- --------------------------------- -------- --------- ---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Global Money Fund................ .50% .50% .50% .50% .50% .50% .40%
Growth Fund...................... .95% .875% .875% .875% .875% .875% .875%
Short Term High Quality Bond
Fund........................... .50% .50% .50% .50% .45% .45% .40%
Emerging Growth Fund............. .90% .85% .85% .85% .85% .85% .75%
International Growth Fund........ .95% .85% .85% .75% .75% .75% .75%
U.S. Government Fund............. .60% .60% .60% .60% .60% .60% .50%
Corporate Income Fund............ .65% .65% .65% .65% .65% .65% .50%
Growth and Income Fund........... .80% .80% .75% .75% .70% .65% .575%
</TABLE>
- ---------------
# Shaded areas indicate asset levels at which advisory fees will differ from the
Current Advisory Agreements.
With respect to each Portfolio, the New Management Agreement provides for
payment to Composite of a monthly management fee, computed on the average daily
net assets, at the annual rate of .10%.
The management fee as a percentage of net assets payable by each Fund and
Portfolio, will be the same under the New Management Agreement as under the
Current Advisory Agreements. If the investment advisory fee under the New
Management Agreement had been in effect for the Trust's most recently completed
fiscal year, the advisory fee to which Composite would have been entitled, would
have been identical to that to which it was entitled under the Current Advisory
Agreements.
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 and Portfolios that meets or exceeds the current level
of service provided to the Funds and Portfolios, and took into account that the
fees and expenses payable by the Funds and Portfolios under the New Management
Agreement, combined with the new transfer agency agreement, are substantially
identical to those payable under the Current Advisory Agreements. 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 and Portfolios. The Board also was informed of the resources of
Washington Mutual and its affiliates that could be made available to Composite
and the Funds or Portfolios. 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 the
Advisers, in light of the upcoming consolidation of the Advisers with Composite,
the Board was assured on behalf of the Advisers 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 or Sierra Services 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
13
<PAGE> 21
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). The Advisers 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 the Advisers 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 Portfolio and voted to recommend its approval to the
shareholders of each Fund and Portfolio.
In the event that shareholders of a Fund or Portfolio do not approve the
New Management Agreement, the Current Advisory Agreements will remain in effect
and the Board will take such action as it deems in the best interest of the Fund
or Portfolio 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 or Portfolio. For purposes of
this proposal, "majority of the outstanding shares" means the vote of (1) 67% or
more of a Fund's or Portfolio's outstanding shares present at the Special
Meeting, if the holders of more than 50% of the outstanding shares of the Fund
or Portfolio are present in person or represented by Proxy, or (2) more than 50%
of a Fund's or Portfolio's outstanding shares, whichever is less.
THE BOARD OF TRUSTEES RECOMMENDS THAT THE SHAREHOLDERS OF EACH FUND AND
PORTFOLIO 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 and 5 herein.
14
<PAGE> 22
THE MANAGER OF MANAGERS STRUCTURE
Currently, the Funds of the Trust operate 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.
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
15
<PAGE> 23
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 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 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 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 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
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
September 17, 1993, and approved by the shareholders of the Fund, at
commencement of operations, on March 17, 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 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 Advisor 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) will 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
16
<PAGE> 24
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 $25 million and 0.50%
of the Fund's average daily net assets in excess of $25 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 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 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 90 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
17
<PAGE> 25
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. 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 Janus at a meeting held on October 28, 1997, a form of
which is attached hereto as Exhibit B. The form of 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 SubAdvisory 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 .90% of the Fund's average daily net assets
including cash and cash equivalents up to $200 million, .85% of the Fund's
average daily net assets in excess of $200 million up to $500 million, and .825%
of the Fund's average daily net assets in excess of $500 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 $ 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 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
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<PAGE> 26
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 President of Janus
Chairman, Chief Executive Investment Fund and Janus
Officer Aspen Series; Chairman and
Director of Idex
Management, Inc.
James P. Craig III Trustee and Executive Vice
Vice President, Director and President of Janus
Chief 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 December 31, 1996, Janus received compensation with respect to
the Growth Fund in the amount of $551,003.
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
NAME OF INVESTMENT COMPANY MANAGEMENT RATE OF COMPENSATION
-------------------------- ----------- --------------------
<S> <C> <C>
JANUS INVESTMENT FUND.................... $2,087,700,000 .75% of first $300 million
Janus Mercury Fund .70% of next $200 million
.65% on assets over $500 million
JNL SERIES TRUST......................... $ 75,483,488 .55% on first $100 million
JNL Aggressive Growth Series .50% on $100 - 500 million
.45% over $500 million
NEW ENGLAND FUNDS TRUST I-............... $ 237,395,661 .55% on first $50 million
New England Star Advisers Fund .50% over $50 million
SEASONS SERIES TRUST..................... $ 13,429,742 .60% on first $200 million
(Growth segments of four multi-managed .55% over $200 million
portfolios) (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
19
<PAGE> 27
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 A NEW SUB-ADVISORY AGREEMENT.
PROPOSAL 6: 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.
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.
20
<PAGE> 28
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 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,
21
<PAGE> 29
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.
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 Funds for the
fiscal year ended December 31, 1996, Warburg received compensation with respect
to the Fund in the amount of $211,192.
22
<PAGE> 30
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%
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.
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>
ADDRESS AND BUSINESS EXPERIENCE SHARES BENEFICIALLY
NAME, AGE AND POSITION DURING THE PAST FIVE YEARS OWNED AS OF JULY 1,
WITH THE TRUST (INCLUDING ALL DIRECTORSHIPS)** 1997
- ------------------------- --------------------------------------------------- -------------------
<S> <C> <C>
James H. Overholt (50) President and Chief Executive Officer, Sierra ***
President and Chief Capital Corporation ("SCMC"), 1997 to present;
Executive Officer 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 and ***
Executive Vice Secretary, SCMC, 1988 to present; Chief Financial
President, Treasurer Officer, Secretary and Treasurer, Sierra
and Secretary 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;
Michael D. Goth (52) Chief Operating Officer, Sierra Advisers, 1991 to ***
Senior Vice President present.
</TABLE>
23
<PAGE> 31
<TABLE>
<CAPTION>
ADDRESS AND BUSINESS EXPERIENCE SHARES BENEFICIALLY
NAME, AGE AND POSITION DURING THE PAST FIVE YEARS OWNED AS OF JULY 1,
WITH THE TRUST (INCLUDING ALL DIRECTORSHIPS)** 1997
- ------------------------- --------------------------------------------------- -------------------
<S> <C> <C>
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) Vice 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 8, "Sierra Services" on page 8, "Information
Regarding Janus" on page 18, "Information Regarding Warburg" on page 22 and on
page 23 for additional information concerning the current Adviser and
Sub-Advisers.
PRINCIPAL UNDERWRITER
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 Sierra Capital Management Corporation which is
an indirect wholly owned subsidiary of Washington Mutual. For the fiscal year
ended December 31, 1996, the Trust paid Sierra Services an aggregate fee of
$ 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 Administration is a
wholly owned subsidiary of Sierra Capital Management Corporation which is
located at the same address. For the fiscal year ended December 31, 1996, the
Trust paid Sierra Administration an aggregate fee of $802,963 for services
rendered as the administrator. Effective January 1, 1998, Murphey Favre
Securities Services, Inc., located at 601 W. Main Avenue, Spokane, Washington
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 December 31, 1996 the Trust paid $643,632 in
brokerage commissions to affiliated brokers, J.P. Securities and J.P. Limited
(which are affiliates of J.P. Management, the Sub-Advisor of the Global Money
and Growth and Income Funds). These commissions to affiliated brokers
constituted approximately 51% of the Trust's total brokerage commissions.
24
<PAGE> 32
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 and
Portfolio.
<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 is 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 The Sierra Variable Trust, 9301 Corbin Avenue, Northridge,
California 91324, c/o secretary, The Sierra Variable Trust.
REQUIRED VOTE
Approval of Proposal 1 requires the affirmative vote of a plurality of all
votes cast at the Special Meeting, provided that a majority of the outstanding
shares entitled to vote are present in person or in proxy. Approval of Proposals
2, 3, 4 and 5 requires the affirmative vote of a majority of the outstanding
shares of the applicable Fund or Portfolio. 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 or Portfolio's outstanding shares present at a meeting, if the holders of
more than 50% of the outstanding shares of a Fund or Portfolio are present or
represented by proxy, or (2) more than 50% of a Fund's or Portfolio'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 and 5. 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.
25
<PAGE> 33
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.
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: , 1997
26
<PAGE> 34
EXHIBIT A
THE SIERRA VARIABLE TRUST
INVESTMENT MANAGEMENT AGREEMENT
INVESTMENT MANAGEMENT AGREEMENT (this "Agreement"), dated ,
1997, between The Sierra Variable Trust, 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
research services provided by such broker or dealer, viewed in terms of
that particular transaction or in terms of the overall responsibilities of
the Manager to the Fund and/or other accounts over which the Manager
exercises investment discretion.
A-1
<PAGE> 35
(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, may allocate a portion of the fee to Murphey Favre Securities Services,
Inc. for administrative services, portfolio accounting and regulatory compliance
systems. The Manager also from time to time and in such amounts as it shall
determine in its sole discretion may allocate a portion of the fee to Composite
Funds Distributor, Inc. for facilitating distribution of the Fund. This payment
would be made from revenue which otherwise would be considered profit to the
Manager for its services. This disclosure is being made to the Fund solely for
the purpose of conforming with requirements of the Washington Department of
Revenue for exclusion of revenue from the Washington Business and Occupation
Tax.
6. Limitation of Liability. The Manager shall not be liable for any error
of judgment or mistake of law or for any loss suffered by the Fund in connection
with the matters to which this Agreement relates, except a loss resulting from
willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard by it of its obligations
and duties under this Agreement.
A-2
<PAGE> 36
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 N1A, 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 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
A-3
<PAGE> 37
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 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.
A-4
<PAGE> 38
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.
THE SIERRA VARIABLE TRUST, on behalf
of its series SHORT TERM HIGH QUALITY
BOND FUND,
GROWTH FUND,
EMERGING GROWTH FUND
INTERNATIONAL GROWTH FUND
GLOBAL MONEY FUND
U.S. GOVERNMENT FUND
CORPORATE INCOME FUND
GROWTH AND INCOME FUND
By:
------------------------------------
Name:
Title:
Attest:
By:
--------------------------------
Name:
Title:
COMPOSITE RESEARCH & MANAGEMENT CO.
By:
------------------------------------
William G. Papesh
President
Attest:
By:
--------------------------------
Sharon L. Howells
Secretary
A-5
<PAGE> 39
SCHEDULE A
COMPOSITE RESEARCH & MANAGEMENT CO.
ADVISORY FEES
The fees to be charged to Sierra Variable Trust Funds for advisory services
(including any sub-advisory fees) are as follows:
<TABLE>
<CAPTION>
UP TO OVER
$500M $500M
----- ------
<S> <C> <C>
Global Money Fund.............................. 0.500% 0.400%
U.S. Government Fund........................... 0.600% 0.500%
Corporate Income Fund.......................... 0.650% 0.500%
</TABLE>
<TABLE>
<CAPTION>
UP TO OVER
$25M $25M
----- ------
<S> <C> <C>
Growth Fund.................................... 0.950% 0.875%
</TABLE>
<TABLE>
<CAPTION>
UP TO $200M- OVER
$200M $500M $500M
----- ------ ------
<S> <C> <C> <C>
Short-Term High Quality Bond Fund.............. 0.500% 0.450% 0.400%
</TABLE>
<TABLE>
<CAPTION>
UP TO $25M- OVER
$25M $500M $500M
----- ------ ------
<S> <C> <C> <C>
Emerging Growth Fund........................... 0.900% 0.850% 0.750%
</TABLE>
<TABLE>
<CAPTION>
UP TO $50M- OVER
$50M $125M $125M
----- ------ ------
<S> <C> <C> <C>
International Growth Fund...................... 0.950% 0.850% 0.750%
</TABLE>
<TABLE>
<CAPTION>
UP TO $100M- $200M- $400M- OVER
$100M $200M $400M $500M $500M
----- ------ ------ ------ -----
<S> <C> <C> <C> <C> <C>
Growth & Income Fund........................... 0.800% 0.750% 0.700% 0.650% 0.575%
</TABLE>
<TABLE>
<CAPTION>
ALL ASSET LEVELS
----------------
<S> <C>
Capital Growth Portfolio..................................................... 0.10%
Growth Portfolio............................................................. 0.10%
Balanced Portfolio........................................................... 0.10%
Value Portfolio.............................................................. 0.10%
Income Portfolio............................................................. 0.10%
</TABLE>
A-6
<PAGE> 40
EXHIBIT B
SUB-ADVISER AGREEMENT
This Agreement is made and entered into this day of , 1997, by
and between Composite Research & Management Co. (the "Manager"), a corporation
organized under the laws of the State of Washington and Janus Capital
Corporation (the "Sub-Adviser"), a corporation organized under the laws of the
State of Colorado.
WITNESSETH:
WHEREAS, the Manager 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 adviser to the Growth Fund of The Sierra Variable Trust (the
"Trust"), an unincorporated business trust organized under the laws of the
Commonwealth of Massachusetts pursuant to a Management Contract, dated as of
, 1997, between the Manager and the Trust (the "Management
Contract");
WHEREAS, the Trust 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 "1940 Act");
WHEREAS, the Trust 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, the Sub-Adviser is engaged in the business of rendering investment
advisory and management services and is registered as an investment adviser
under the Advisers Act;
WHEREAS, the Manager is authorized to retain sub-advisers and desires to
retain the Sub-Adviser to furnish investment advisory and management services to
the Fund and the Sub-Adviser is willing to furnish such services;
NOW, THEREFORE, in consideration of the mutual agreements herein contained,
it is hereby agreed by and among the parties hereto as follows:
1. Investment Description; Appointment. The Manager, with the approval of
the Trust, desires to employ and hereby appoints the Sub-Adviser to act as
investment sub-adviser to the Fund. The Sub-Adviser accepts the appointment and
agrees to furnish the services described herein for the compensation set forth
below.
In performance of its duties, the Sub-Adviser will comply with the
limitations specified in the Trust's Agreement and Declaration of Trust, the
By-laws of the Trust and the stated investment objectives, policies and
restrictions of the Fund as set forth in the Trust's Registration Statement on
Form N-1A, File No. 33-57732, as in effect and which may be amended from time to
time (the "Registration Statement"), and in such manner and to such extent as
may from time to time be approved by the Board of Trustees of the Trust. Copies
of the Registration Statement, have been or will be submitted to the
Sub-Adviser. Copies of all amendments or supplements to the Registration
Statement and the Trust's Agreement and Declaration of Trust will be provided to
the Sub-Adviser during the continuance of this Agreement before or at the time
such amendments or supplements become effective.
The Manager agrees to furnish the Sub-Adviser with minutes of meetings of
the Board of Trustees of the Trust to the extent they may affect the duties of
the Sub-Adviser, a certified copy of any financial statements or reports
prepared by certified or independent public accountants for the Trust which
relate to the Fund, and with copies of any financial statements or reports made
by the Trust to its shareholders or to any governmental body or securities
exchange, and any further materials or information which the Sub-Adviser may
reasonably request to enable it to perform its functions under this Agreement.
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2. Services as Investment Sub-Adviser. Subject to the supervision of the
Board of Trustees of the Trust and of the Manager, the Sub-Adviser will (a)
maintain compliance procedures for the Fund that the Sub-Adviser believes are
adequate to ensure its compliance with the applicable provisions of the 1940 Act
and the Advisers Act, (b) make investment decisions for the Fund in accordance
with the Fund's investment objective(s) and policies as stated in the Fund's
Registration Statement and, after notice to the Sub-Adviser, 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
1940 Act and the Advisers Act and the rules adopted thereunder and will furnish
to the Manager quarterly, annual and special reports as the Manager may
reasonably request; and (e) treat confidentially and as proprietary information
of the Trust, all records and other information relative to the Trust 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 Trust, which approval shall not be unreasonably withheld and such records
may not be withheld where the Sub-Adviser may be exposed to civil or criminal
contempt proceedings for failure to comply, when requested to divulge such
information by duly constituted authorities, or when so requested by the Trust.
In providing those services, the Sub-Adviser 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 the Manager and in accordance with the
investment objective and policies as stated in the Trust's Registration
Statement, the Sub-Adviser is authorized, in its discretion and without prior
consultation with the Manager, 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-Adviser shall determine. In addition, the Sub-
Adviser will furnish the Fund or the Manager with whatever statistical
information the Fund or the Manager 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 Trust, which may be conducted as often as quarterly, the
Sub-Adviser shall place all orders for the purchase and sale of investments for
the Fund with brokers, dealers, futures commissions merchants, or other sources
(hereafter, "brokers or dealers") selected by the Sub-Adviser, which may include
brokers or dealers affiliated with the Sub-Adviser. All transactions with any
affiliated person of the Trust, or where any such affiliated person acts as
broker or agent in connection with any such transaction, shall be accomplished
in compliance with the 1940 Act, the Advisers Act, the Securities Exchange Act
of 1934, as amended, the rules adopted thereunder and the procedures adopted
thereunder by the Trust. As provided in the Management Contract, any entity or
person associated with the Manager or Sub-Adviser which is a member of a
national securities exchange is authorized to effect any transaction on such
exchange for the account of the Fund which is permitted by Section 11(a) of the
Securities Exchange Act of 1934 and Rule 11a2-2(T) thereunder, and the Trust has
consented to the retention of compensation for the transactions in accordance
with Rule 11a2-2(T)(2)(iv). Purchase or sell orders for the Fund may be
aggregated with contemporaneous purchase or sell orders of other clients of the
Sub-Adviser; provided that (i) no advisory account will be favored by the
Sub-Adviser 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-Adviser's books and records so as to identify the particular client
who has the beneficial interest therein. The Sub-Adviser 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-Adviser 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-Adviser. The
Sub-Adviser 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
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have charged for effecting that transaction if the Sub-Adviser 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-Adviser and its
affiliates have 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-Adviser in managing the Fund; provided that with respect to such
transaction and such determination the affiliates of the Sub-Adviser shall have
the same responsibilities to the Fund as the Sub-Adviser has under this
Agreement.
4. Information Provided to the Trust. The Sub-Adviser will keep the Trust
and the Manager informed of developments materially affecting the Fund of which
the Sub-Adviser becomes aware and will, on its own initiative, furnish the Trust
and the Manager on at least a quarterly basis with whatever information the Sub-
Adviser believes is appropriate for this purpose.
5. Standard of Care. The Sub-Adviser shall exercise its best judgment in
rendering the services described in paragraphs 2 and 3 above. Except as may
otherwise be provided by federal or state securities laws, the Sub-Adviser 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, the Manager will pay the SubAdviser 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 up to $25 million and .50% of the Fund's average daily
net assets in excess of $25 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-Adviser, the value of the Fund's net assets shall be computed at the
times and in the manner specified in the Registration Statement.
7. Expenses. The Sub-Adviser 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-Adviser shall bear no expenses of the Trust, the Fund or
the Manager. The Trust bears the expenses described in its Registration
Statement. Any reimbursement of advisory fees required by the Management
Contract between the Trust and the Manager or any voluntary or statutory expense
limitation provision shall be the sole responsibility of the Manager.
8. Services to Other Companies or Accounts. The Manager understands that
the Sub-Adviser 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 the Manager has no objection to the Sub-Adviser so acting,
provided that whenever the Fund and one or more other accounts or investment
companies advised by the Sub-Adviser 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. The Manager 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, the Manager understands that
the persons employed by the Sub-Adviser to assist in the performance of the
Sub-Adviser'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-Adviser or any affiliate of the Sub-Adviser to engage in and devote time
and attention to other business or to render services of whatever kind or
nature. The Manager recognizes and agrees that the Sub-Adviser 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 upon its
execution, shall continue for a one year term and shall continue thereafter so
long as such continuance is specifically approved at least
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<PAGE> 43
annually by (i) the Board of Trustees of the Trust or (ii) a vote of a
"majority" (as defined in the 1940 Act) of the 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 the Manager, the
Board of Trustees of the Trust or by vote of holders of a majority of the Fund's
shares, or upon 60 days' written notice, by the Sub-Adviser and will terminate
automatically upon any termination of the Management Contract. In addition, this
Agreement will also terminate automatically in the event of its assignment (as
defined in the 1940 Act). The Sub-Adviser agrees to notify the Manager of any
circumstances that to its best knowledge and belief might result in this
Agreement being deemed to be assigned.
10. Representations of the Manager and the Sub-Adviser. The Manager
represents that (i) a copy of the Trust's Agreement and Declaration of Trust,
dated January 27, 1993, 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-Adviser 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-Adviser represents that it is authorized to perform the services
described herein.
11. Indemnification. The Manager shall indemnify and hold harmless the
Sub-Adviser 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-
Adviser of its duties hereunder; provided, however, that nothing contained
herein shall require that the Sub-Adviser 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. No amendment of this Agreement shall be
effective with respect to the Fund until approved by vote of a majority of the
outstanding voting securities of the Fund, and by the vote, cast in person at a
meeting called for the purpose of voting on such approval, of a majority of the
Trustees of the Trust who are not interested persons of the Trust or of the
Manager or of the Sub-Adviser.
13. Limitation of Liability. This Agreement has been reviewed and approved
on behalf of the Trust by the Trustees of the Trust in their capacity as
Trustees of the Trust. The obligations of this Agreement shall be binding upon
the assets and property of the Fund only and not upon the assets and property of
any other investment fund of the Trust and shall not be binding upon any
Trustee, officer or shareholder of the Fund and/or the Trust individually.
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.
16. Miscellaneous. (a) Unless the Manager gives the Sub-Adviser written
instructions to the contrary, the Sub-Adviser 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-Adviser 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) The Manager shall provide the Sub-Adviser 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-Adviser 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) The Manager agrees and acknowledges that the Sub-Adviser 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
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<PAGE> 44
Agreement shall inure to the benefit of the Sub-Adviser. The use by the Trust 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-Adviser. The Trust and the Manager shall not, without the
consent of the Sub-Adviser, make representations regarding the Sub-Adviser
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 Trust's trustees and for internal use by
the Trust and the Manager. Consent by the Sub-Adviser 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 Trust, the Fund or
the Manager within 3 business days after the request is made by the Trust, the
Fund or the Manager for such use of any Janus Mark or any such representation.
Upon termination of this Agreement for any reason, the Trust and the Manager
shall cease all use of any Janus Mark(s) as soon as reasonably practicable.
(d) The Sub-Adviser agrees and acknowledges that the Trust is the sole
owner of the name and mark "The Sierra Variable Trust" and the Manager is the
sole owner of the name and mark "Composite Research & Management Co." and that
any and all use of any designation comprised in whole or in part of "The Sierra
Variable Trust" or "Composite Research & Management Co." (a "Composite Mark")
under this Agreement shall inure to the benefit of the Trust or the Manager,
respectively. The use by the Sub-Adviser on its own behalf of any Composite Mark
in any advertisement or sales literature or other materials promoting the Sub-
Adviser shall be with the consent of the Trust or the Manager, respectively. The
Sub-Adviser shall not, without the consent of the Trust or the Manager, as
applicable, make representations regarding the Trust, the Fund or the Manager in
any disclosure document, advertisement or sales literature or other materials
promoting the Sub-Adviser. Consent by the Trust and the Manager to such use of
any 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-Adviser within 5 business days after the request by the Sub-Adviser is
made for such use of any Composite Mark or any such representations. Upon
termination of this Agreement for any reason, the Sub-Adviser shall cease any
and all use of any Composite Mark as soon as reasonably practicable.
(e) The Sub-Adviser may perform its services through any employee, officer
or agent of the Sub-Adviser, and the Trust and the Fund shall not be entitled to
the advice, recommendation, or judgment of any specific person.
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<PAGE> 45
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be duly
executed as of the date first written above.
ATTEST: COMPOSITE RESEARCH &
MANAGEMENT CO.
By:
- -------------------------------- ----------------------------------
Name: Name:
Title: Title:
ATTEST: JANUS CAPITAL CORPORATION
By:
- -------------------------------- ----------------------------------
Name: Name:
Title: Title:
Accepted and agreed to
as of the day and year
first above written:
THE SIERRA VARIABLE TRUST
By:
----------------------------
Name:
Title:
ATTEST:
By:
----------------------------
Name:
Title:
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<PAGE> 46
EXHIBIT C
SUB-ADVISER AGREEMENT
Sub-Adviser Agreement executed as of , 1997 between Composite
Research & Management Co., a Washington corporation (the "Manager"), and WARBURG
PINCUS ASSET MANAGEMENT, INC., a Delaware corporation (the "Sub-Adviser").
WITNESSETH:
That in consideration of the mutual covenants herein contained, it is
agreed as follows:
1. SERVICES TO BE RENDERED BY SUB-ADVISER TO THE SIERRA VARIABLE TRUST.
(a) Subject always to the control of the Trustees of The Sierra Variable
Trust, a Massachusetts business trust (the "Trust") and to the overall
supervision of the Manager, the Sub-Adviser, at its expense as provided herein,
will render the following services to the International Growth Fund series (the
"Fund") of the Trust. The Sub-Adviser will furnish continuously an investment
program for the portfolio represented by shares of the Fund and will make
investment decisions on behalf of the Fund with respect to all of the assets of
the Fund, including cash and cash equivalents and will place all orders for the
purchase and sale of portfolio securities of the Fund and for the investment,
reinvestment and management of cash or cash equivalents of the Fund. The
Sub-Adviser is hereby appointed and shall serve as attorney-in-fact and agent of
the Fund for the limited purposes of executing account documentation,
agreements, contracts and other documents as the Sub-Adviser may be requested by
brokers, dealers, counterparties and other persons in connection with the Sub-
Adviser's management of the assets of the Fund.
(i) In the performance of its duties, the Sub-Adviser will comply with
the provisions of the Agreement and Declaration of Trust, the By-laws of
the Trust and the stated investment objectives, policies and restrictions
of the Fund as set forth in its registration statement on Form N-1A, File
No. 33-57732, and will use its best efforts to safeguard and promote the
welfare of the Fund, and to comply with other policies which the Trustees
or the Manager, as the case may be, may from time to time determine. Copies
of the Trust's Registration Statement, including exhibits, Agreement and
Declaration of Trust and By-laws, in each case as amended to date, have
been or will be provided to the Sub-Adviser, and the Manager agrees
promptly to provide the Sub-Adviser with all amendments or supplements to
the Registration Statement, Agreement and Declaration of Trust and By-laws.
(ii) The Sub-Adviser shall make its officers and employees available
to the Manager at reasonable times to review investment policies of the
Fund and to consult with the Manager regarding the investment affairs of
the Fund.
(iii) The Trust and the Manager each agrees, on an ongoing basis, to
notify the Sub-Adviser expressly in writing of each change in the
fundamental and nonfundamental investment policies of the Fund. The Manager
desires to engage and hereby appoints the Sub-Adviser to act as investment
sub-adviser to the Fund to which appointment the Trust agrees. The
Sub-Adviser accepts the appointment and agrees to furnish the services
described herein for the compensation set forth herein.
(b) The Sub-Adviser, at its expense, will furnish all necessary office
space and equipment, bookkeeping and clerical services (excluding shareholder
accounting and transfer agency services) required for it to perform its duties
hereunder and will pay all salaries, fees and expenses of any officer of the
Trust who is an employee of, or otherwise affiliated with, the Sub-Adviser and
is not an employee of, or otherwise affiliated with, the Manager; provided that
no person who is an employee of, or otherwise affiliated with, the Sub-Adviser
shall serve as a Trustee of the Trust.
(c) The Manager agrees to provide the Sub-Adviser with such assistance as
may be reasonably requested by the Sub-Adviser in connection with its activities
pertaining to the Fund under this Agreement,
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including, without limitation, information concerning the Fund, its funds
available, or to become available, for investment and generally as to the
condition of the Fund's affairs.
(d) In fulfilling its obligations hereunder, the Sub-Adviser shall be
entitled to rely on and act in accordance with, and the Manager agrees to hold
the Sub-Adviser 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-Adviser by the Manager, the Trust's administrator, or other agent of
the Manager designated by the Manager. Such information and instructions shall
be conveyed to the Sub-Adviser in a timely manner so as to permit the
Sub-Adviser to take such action as may be required in an orderly fashion. The
Manager agrees to provide or cause to be provided to the Sub-Adviser on an
ongoing basis, such information as is reasonably requested by the Sub-Adviser
for performance by the Sub-Adviser of its obligations under this Agreement, and
the Sub-Adviser shall not be in breach of any term of this Agreement or be
deemed to have acted negligently if the Manager fails to provide or cause to be
provided such information and the Sub-Adviser relies on the information most
recently furnished to the Sub-Adviser. The Manager will promptly provide the
Sub-Adviser with any procedures applicable to the Sub-Adviser adopted from time
to time by the Board of Trustees of the Trust and agrees to promptly provide the
Sub-Adviser copies of all amendments thereto.
(e) In the selection of brokers, dealers, futures commissions merchants or
any other sources of portfolio investments for the Fund (hereafter, "brokers or
dealers") and the placing of orders for the purchase and sale of portfolio
investments for the Fund, the Sub-Adviser shall use its best efforts to obtain
the most favorable price and execution available, except to the extent it may be
permitted to pay higher brokerage commissions for brokerage and research
services as described below. In using its best efforts to obtain the most
favorable price and execution available, the Sub-Adviser, bearing in mind the
Fund's best interests at all times, shall consider all factors it deems
relevant, including by way of illustration, price, the size of the transaction,
the nature of the market for the security, the amount of the commission, the
timing of the transaction taking into account market prices and trends, the
reputation, experience and financial stability of the broker or dealer involved
and the quality of service rendered by the broker or dealer in other
transactions. Subject to such policies as the Trustees of the Trust may
determine that are communicated in writing to the Sub-Adviser as provided in
Section 1(a)(iii) hereof, the Sub-Adviser shall not be deemed to have acted
unlawfully or to have breached any duty created by this Agreement or otherwise
solely by reason of its having caused the Trust to pay, on behalf of the Fund, a
broker or dealer that provides brokerage and research services to the Sub-
Adviser an amount of commission for effecting a portfolio investment transaction
in excess of the amount of commission another broker or dealer would have
charged for effecting that transaction, if the Sub-Adviser determines in good
faith that such amount of commission was reasonable in relation to the value of
the brokerage and research services provided by such broker or dealer, viewed in
terms of either that particular transaction or the Sub-Adviser's overall
responsibilities over time with respect to the Trust and to other clients of the
Sub-Adviser as to which the Sub-Adviser exercises investment discretion. As
provided in the Management Contract referred to in Section 3 below, the Trust
agrees that any entity or person associated with the Manager or Sub-Adviser that
is a member of a national securities exchange is authorized to effect any
transaction on such exchange for the account of the Fund that is permitted by
Section 11(a) of the Securities Exchange Act of 1934, as amended (the "1934
Act"), or Rule 11a2-2(T) thereunder, and the Trust has consented to the
retention of compensation for such transactions in accordance with Section 11(a)
or Rule 11a2-2(T)(2)(iv) under the 1934 Act.
(f) In selecting brokers or dealers to execute a particular transaction,
and in evaluating the best price and execution available, the Sub-Adviser is
authorized to consider the brokerage and research services (within the meaning
of Section 28(e) of the 1934 Act) provided to the Sub-Adviser or any affiliated
person of the Sub-Adviser. Subject to the requirements of Section 17(e) of the
Investment Company Act of 1940, as amended (the "1940 Act"), the Sub-Adviser is
specifically authorized to select an affiliated person of the Sub-Adviser to
execute brokerage, but in no event principal, transactions for the Fund. On
occasions when the Sub-Adviser deems the purchase or sale of a security to be in
the best interest of the Fund as well as other clients, the Sub-Adviser, 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
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<PAGE> 48
purchased, as well as the expenses incurred in the transaction, will be made by
the Sub-Adviser in the manner the Sub-Adviser considers to be the most equitable
and consistent with its fiduciary obligation over time to the Fund and to such
other clients. Furthermore, the Trust and the Manager recognize that the
Sub-Adviser 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.
(g) The Sub-Adviser shall not be obligated to pay any expenses of or for
the Fund not expressly assumed by the Sub-Adviser pursuant to this Section 1
other than as provided in Section 3.
(h) The Sub-Adviser shall maintain all books and records with respect to
the Fund's portfolio transactions required by subparagraphs (b)(5)-(b)(11) and
paragraph (f) of Rule 31a-1 under the 1940 Act, and shall render to the Board of
Trustees of the Trust such periodic and special reports as the Board may
reasonably request.
2. OTHER AGREEMENTS, ETC.
The Manager understands that the Sub-Adviser 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 the Manager has no objection to the Sub-
Adviser so acting, provided that whenever the Fund and one or more other
accounts or investment companies advised by the Sub-Adviser 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 over time.
Similarly, opportunities to sell securities will be allocated in an equitable
manner over time. The Manager recognizes that in some cases this procedure may
adversely affect the size of the position that may be acquired or disposed of
for the Fund. In addition, the Manager understands that the persons employed by
the Sub-Adviser to assist the performance of the Sub-Adviser'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-Adviser or any
affiliate of the Sub-Adviser to engage in and devote time and attention to other
businesses or to render services of whatever kind or nature.
3. COMPENSATION TO BE PAID BY THE MANAGER TO THE SUB-ADVISER.
The Manager will pay to the Sub-Adviser as compensation for the
Sub-Adviser's services rendered and for the expenses borne by the Sub-Adviser
pursuant to Section 1, a fee, computed and paid monthly at the annual rate of
0.50% of the Fund's average daily net assets. Such average daily net asset value
of the Fund shall be determined by taking an average of all of the
determinations of such net asset value during such month at the close of
business on each business day during such month while this contract is in
effect. For the purposes of determining fees payable to the Sub-Adviser, 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. Such fee shall be payable
for each month within 10 business days after the end of such month.
Notwithstanding the foregoing, in the event that any reduction in the fees
paid to the Manager under the investment advisory agreement between the Trust
and the Manager and relating to the Fund (the "Management Contract") 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-Adviser hereunder; provided that the Sub-Adviser will never be required
to pay more than the amount of fees it receives.
If the Sub-Adviser shall serve for less than the whole of a month, the
foregoing compensation shall be prorated.
4. ASSIGNMENT TERMINATES THIS AGREEMENT; AMENDMENTS OF THIS CONTRACT.
This Agreement shall automatically terminate, without the payment of any
penalty, in the event of its assignment or in the event that the Management
Contract shall have terminated for any reason; and this Agreement shall not be
amended unless such amendment be approved at a meeting by the affirmative vote
of a majority of the outstanding shares of the Fund, and by the vote, cast in
person at a meeting called for the
C-3
<PAGE> 49
purpose of voting on such approval, of a majority of the Trustees of the Trust
who are not interested persons of the Trust or of the Manager or of the
Sub-Adviser.
5. INDEMNIFICATIONS.
(a) The Manager shall indemnify the Sub-Adviser and its controlling
persons, officers, directors, employees, agents, legal representatives and
persons controlled by it (collectively, "Sub-Adviser 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-Adviser or Sub-Adviser Related
Persons arising from or in connection with this Agreement or the performance by
the Sub-Adviser or Sub-Adviser 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
Trust'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 the Manager by the Sub-Adviser or
a Sub-Adviser 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-Adviser or a Sub-Adviser Related Person in the performance of
any of its duties under, or in connection with, this Agreement.
(b) The Sub-Adviser shall indemnify the Manager and its controlling
persons, officers, directors, employees, agents, legal representatives and
persons controlled by it (collectively, "Manager Related Persons") to the
fullest extent permitted by law against any and all Losses incurred by the
Manager or Manager Related Persons arising from or in connection with this
Agreement or the performance by the Manager or Manager Related Persons of its or
their duties hereunder so long as such Losses arise out of the Sub-Adviser's
failure to perform its responsibilities to the Manager, the Fund or the Trust
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 Trust'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-Adviser or a Sub-
Adviser Related Person unless such statement or omission was made in reliance
upon written information furnished to the Sub-Adviser or Sub-Adviser Related
Person by the Manager or a Manager 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 the Manager or a Manager Related Person in the
performance of any of its duties under, or in connection with, this Agreement.
(c) The indemnifications provided in this Section 5 shall survive the
termination of this Agreement.
6. EFFECTIVE PERIOD AND TERMINATION OF THIS AGREEMENT.
This Agreement shall become effective upon its execution, and shall remain
in full force and effect continuously thereafter (unless terminated
automatically as set forth in Section 4) until terminated as follows:
(a) The Trust may at any time terminate this Agreement by not more
than sixty (60) days' written notice delivered or mailed by registered
mail, postage prepaid, to the Manager and the Sub-Adviser, or
(b) If (i) the Trustees of the Trust or the shareholders by the
affirmative vote of a majority of the outstanding shares of the Fund, and
(ii) a majority of the Trustees of the Trust who are not interested persons
of the Trust or of the Manager or of the Sub-Adviser, by vote cast in
person at a meeting called for the purpose of voting on such approval, do
not specifically approve at least annually the continuance of this
Agreement, then this Agreement shall automatically terminate as at the
close of business on the second anniversary of its execution, or upon the
expiration of one year from the effective date of the last such
continuance, whichever is later; provided, however, that if the continuance
of this Agreement is submitted to the shareholders of the Fund for their
approval and such shareholders fail to approve such continuance of this
Agreement as provided herein, the Sub-Adviser may continue to serve
hereunder in a manner consistent with the 1940 Act and the Rules and
Regulations thereunder, or
C-4
<PAGE> 50
(c) The Manager may at any time terminate this Agreement by not less
than sixty (60) days' written notice delivered or mailed by registered
mail, postage prepaid, to the Sub-Adviser, and the Sub-Adviser may at any
time terminate this Agreement by not less than ninety (90) days' written
notice delivered or mailed by registered mail, postage prepaid, to the
Manager.
Action by the Trust under (a) above may be taken either (i) by vote of a
majority of its Trustees, or (ii) by the affirmative vote of a majority of the
outstanding shares of the Fund.
Termination of this Agreement pursuant to this Section 6 shall be without
the payment of any penalty.
7. CERTAIN INFORMATION.
The Sub-Adviser shall promptly notify the Manager in writing of the
occurrence of any of the following events: (a) the Sub-Adviser shall fail to be
registered as an investment adviser under the Investment Advisers Act of 1940,
as amended from time to time, or under the laws of any jurisdiction in which the
Sub-Adviser is required to be registered as an investment adviser in order to
perform its obligations under this Agreement, (b) the Sub-Adviser shall have
been served or otherwise have notice of any action, suit, proceeding, inquiry or
investigation, at law or in equity, before or by any court, public board or
body, involving the affairs of the Trust and (c) there shall be any change in
the control of the Sub-Adviser.
8. CERTAIN DEFINITIONS.
(a) For the purposes of this Agreement, the "affirmative vote of a majority
of the outstanding shares" of the Fund means the affirmative vote, at a duly
called and held meeting of shareholders, (a) of the holders of 67% or more of
the shares of the Fund present (in person or by proxy) and entitled to vote at
such meeting, if the holders of more than 50% of the outstanding shares of or
the Fund entitled to vote at such meeting are present in person or by proxy, or
(b) of the holders of more than 50% of the outstanding shares of the Fund
entitled to vote at such meeting, whichever is less.
(b) For the purposes of this Agreement, the terms "affiliated person",
"control", "interested person" and "assignment" shall have their respective
meanings defined in the 1940 Act and the Rules and Regulations thereunder,
subject, however, to such exemptions as may be granted by the Securities and
Exchange Commission under the 1940 Act; the term "specifically approve at least
annually" shall be construed in a manner consistent with the 1940 Act and the
Rules and Regulations thereunder; and the term "brokerage and research services"
shall have the meaning given in the 1934 Act and the Rules and Regulations
thereunder.
9. NONLIABILITY OF SUB-ADVISER.
The Sub-Adviser 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 5 hereof, in the absence of willful misfeasance,
bad faith or gross negligence on the part of the Sub-Adviser, or reckless
disregard of its obligations and duties hereunder, the Sub-Adviser shall not be
subject to any liability to the Trust or the Fund, or to any shareholder of the
Fund, for any act or omission in the course of, or connected with, rendering
services hereunder.
10. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS.
A copy of the Agreement and Declaration of Trust of the Trust is on file
with the Secretary of the Commonwealth of Massachusetts, and notice is hereby
given that this instrument is reviewed and approved on behalf of the Trust by
the Trustees of the Trust as Trustees and not individually and that the
obligations of this instrument are not binding upon any of the Trustees or
shareholders individually but are binding only upon the assets and property of
the Fund.
11. 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-Adviser and its affiliates and that the Trust
C-5
<PAGE> 51
and/or the Fund have the right to use such name (or derivative or logo) in
offering materials of the Trust and/or Fund only with the prior written approval
of the Sub-Adviser and for so long as the Sub-Adviser is an investment
sub-adviser to the Trust and/or the Fund; provided that the Trust and the Fund
may use such name (or derivative or logo) without such prior written approval in
offering materials of the Trust to the extent that (i) such materials simply
list the Sub-Adviser as the Sub-Adviser to the Fund as part of a listing of the
investment sub-advisers to the series or portfolios of the Trust with a brief
description of the Sub-Adviser'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-Adviser or that is required to be
disclosed by applicable law or regulation, such as information disclosed in the
Trust's registration statement; or (iii) such materials are intended for
broker-dealer use only, for use by the Trust's Trustees, or for internal use by
the Trust and the Manager. Such prior written approval of the Sub-Adviser shall
not be unreasonably withheld and shall be deemed to be given if no written
objection is received by the Trust, the Fund or the Manager within three
business days after the request is made by the Trust, the Fund or the Manager
for such use. Upon termination of this Agreement, the Trust 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 "The Sierra Variable Trust," and
"Composite Research & Management Co." or any derivatives thereof or logos
associated with such names is the valuable property of the Trust and/or the
Manager and their affiliates and that the Sub-Adviser or its affiliates have the
right to use such names (or derivatives or logos) in marketing materials of the
Sub-Adviser or its affiliates only with the prior written approval of the
Manager or the Trust, as applicable, and for so long as the Sub-Adviser is an
investment sub-adviser to the Trust and/or the Fund; provided that the
Sub-Adviser or its affiliates may use such names (or derivatives or logos)
without such prior written approval in marketing materials of the Sub-Adviser or
its affiliates to the extent that (i) such materials simply list the Trust or
the Fund as part of a listing of the investment companies advised by the
Sub-Adviser or its affiliates with a brief description of the Trust or the Fund;
or (ii) such materials include such names (or derivatives or logos) and any
related information that has been previously approved by the Trust or the
Manager, 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-Adviser or its affiliates; or (iii) such materials are intended for
broker-dealer use only or for internal use by the Sub-Adviser. Such prior
written approval of the Manager or the Trust, as applicable, shall not be
unreasonably withheld and shall be deemed to be given if no written objection is
received by the Sub-Adviser within three business days after the request is made
by the Sub-Adviser for such use. Upon termination of this Agreement, the
Sub-Adviser and its affiliates shall forthwith cease to use such names (or
derivatives or logos) as soon as reasonably practicable.
C-6
<PAGE> 52
IN WITNESS WHEREOF, the Manager and the Sub-Adviser have each caused this
instrument to be signed below in duplicate on its behalf by its duly authorized
representative, all as of the day and year first above written.
COMPOSITE RESEARCH & MANAGEMENT CO.
By:
-----------------------------------
Name:
Title:
WARBURG PINCUS ASSET MANAGEMENT, INC.
By:
-----------------------------------
Name:
Title:
Accepted and agreed to as of the
day and year first above written:
THE SIERRA VARIABLE TRUST
By:
--------------------------------
Name:
Title:
C-7
<PAGE> 53
THE SIERRA VARIABLE TRUST
PROXY FOR THE SPECIAL MEETING OF SHAREHOLDERS -- NOVEMBER , 1997
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE SIERRA VARIABLE TRUST
This proxy is for your use in voting on various matters relating to The
Sierra Variable Trust (the "Trust"). The undersigned shareholder(s) hereby
instructs American General Life Insurance Company Separate Account D ("Separate
Account D") to vote shares of the Global Money Fund, Short Term High Quality
Bond Fund, U.S. Government Fund, Corporate Income Fund, Growth and Income Fund,
Growth Fund, Emerging Growth Fund and International Growth Fund (the "Funds");
and the Income Portfolio, Value Portfolio, Balanced Portfolio, Growth Portfolio
and Capital Growth Portfolio (the "Portfolios"), attributable to his/her
variable annuity contract for which the undersigned is entitled to give
instructions at the meeting of shareholders of the Funds to be held on November
, 1997, and at any adjournment thereof, upon the proposals below and as set
forth in the notice of meeting. The undersigned acknowledges receipt of the
Notice of Special Meeting of Shareholders, the American General Information
Statement and the Trust's Proxy Statement accompanying this Voting Instruction
Card and revokes any instructions previously given.
With respect to those shares for which instructions have not been received by
Separate Account D before the meeting. Separate Account D will vote those shares
in the affirmative, in the negative or in abstention, in the same proportion as
those shares for which instructions have been received.
(1) To consider and act upon a proposal to elect a Board of Trustees.
<TABLE>
<S> <C> <C>
[ ] FOR all of the nominees [ ] WITHHOLD AUTHORITY to vote for [ ] FOR all of the nominees listed below except
listed below. all of the nominees listed below. for 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>
<S> <C> <C> <C> <C>
Arthur H. Bernstein Wayne L. Attwood David E. Anderson Kristianne Blake Edmond R. Davis
Anne V. Farrell John W. English Michael K. Murphy Alfred E. Osborne, Jr. William G. Papesh
Daniel L. Pavelich Jay Rockey Richard C. Yancey
</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
<PAGE> 54
(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
(6) To transact such other business as may properly come before the Special
Meeting or an adjournment thereof.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Date: ____________, 1997
-------------------------
(Signature of
shareholder)
-------------------------
(Co-owner signature, if
any)
-------------------------
(Printed name of
shareholder)
-------------------------
(Printed name of
Co-owner, if any)
By signing and dating you
instruct Separate Account
D to vote Fund shares
attributable to your
contract at the meeting
of shareholders of the
Fund and at any
adjournment of the
meeting. It shall vote as
recommended by the
Trustees, unless
otherwise indicated
below, and in its
discretion upon such
other matters as may
properly come before the
meeting.
PLEASE COMPLETE, SIGN, DATE, AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE. NO POSTAGE IS NECESSARY IF MAILED IN THE UNITED STATES.
