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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/ / Preliminary Proxy Statement / / Confidential, for Use of the Commission
/X/ Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
SIERRA PRIME INCOME FUND
- --------------------------------------------------------------------------------
(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):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / 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 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/X/ 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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S I E R R A N 03 21
P R I M E 9301 Corbin Avenue, Suite 333
- ----------- Northridge, California 91324
INCOME FUND
Dear Shareholder:
The enclosed proxy statement solicits your vote as a Shareholder of the Sierra
Prime Income Fund (the "Fund") for the purpose of approving a new investment
sub-advisory agreement (the "Agreement") with the current sub-advisor, Van
Kampen American Capital Management Inc. ("Van Kampen"), as a result of the
merger transaction involving Van Kampen and its parent.
A Special Meeting of Shareholders of the Fund has been scheduled for October
29, 1996. While you are, of course, welcome to join us at the meeting, most
Shareholders cast their votes by filling out and signing the proxy card that
accompanies this proxy statement.
The enclosed proxy statement is designed to give you information relating to
the proposal on which you will be asked to vote. We encourage you to support
the Trustees' recommendation. The proposal described in the proxy statement
relates to the following matter:
Approval of the Agreement by and among the Fund, Sierra Investment
Advisors Corporation, and Van Kampen with respect to the Sierra
Prime Income Fund.
The purpose of the above recommendation is to permit the Fund to continue to
receive investment sub-advisory services from Van Kampen after the acquisition
of its parent by Morgan Stanley Group, Inc. As a result of the acquisition, a
change of control is deemed to have occurred which automatically terminates the
Fund's current sub-advisory agreement.
Your vote is important to us. Please mark, sign and date the enclosed proxy
card and return it as soon as possible. For your convenience, we have enclosed
a postage-paid envelope. If you have any questions about the proposal, please
do not hesitate to call us at 800-222-5852. Thank you for taking the time to
consider this important proposal and for your investment in the Sierra Prime
Income Fund.
Sincerely,
/s/ F. Brian Cerini
F. Brian Cerini
President
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Distributed By Sierra Investment Services Corporation
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SIERRA PRIME INCOME FUND
9301 CORBIN AVENUE, SUITE 333
NORTHRIDGE, CALIFORNIA 91324
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 29, 1996
To the Shareholders of
Sierra Prime Income Fund:
Notice is hereby given that a Special Meeting (the "Special Meeting") of
Shareholders of the Sierra Prime Income Fund (the "Fund"), a Massachusetts
business trust, will be held at the offices of Sierra Fund Administration
Corporation, 9301 Corbin Avenue, Suite 333, Northridge, California 91324, on
October 29, 1996 at 9:00 a.m. Pacific Standard Time, to consider and act on the
following matters:
1. Proposal to approve a new investment sub-advisory agreement (the
"New Sub-Advisory Agreement") by and among the Fund, Sierra Investment
Advisors Corporation (the "Advisor") and Van Kampen American Capital
Management, Inc. ("Capital Management" or the "Sub-Advisor").
2. To consider and act upon any other matters as may properly come
before the Special Meeting.
All shareholders of the Fund are cordially invited to attend the Special
Meeting. Regardless of whether you plan to attend the Special Meeting, please
complete, sign and date the enclosed proxy and return it promptly in the
enclosed envelope so that a quorum will be present and a maximum number of
shares may be voted. If you are present at the Special Meeting, you may change
your vote, if desired, at that time.
Shareholders of record at the close of business on September 10, 1996 are
entitled to notice of and to vote at the Special Meeting or any adjournment
thereof.
By Order of the Board of Trustees
Keith B. Pipes
Secretary
September 26, 1996
PROMPT EXECUTION AND RETURN OF THE ENCLOSED PROXY IS REQUESTED. A
SELF-ADDRESSED, POSTAGE-PAID ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE.
<PAGE> 4
SIERRA PRIME INCOME FUND
9301 CORBIN AVENUE, SUITE 333
NORTHRIDGE, CALIFORNIA 91324
------------------------
PROXY STATEMENT
------------------------
This Proxy Statement is furnished by the Board of Trustees of the Sierra
Prime Income Fund (the "Fund") in connection with the solicitation of proxies
for use at the Special Meeting of Shareholders to be held on October 29, 1996 at
9:00 a.m., Pacific Standard Time, at the offices of Sierra Fund Administration
Corporation, 9301 Corbin Avenue, Suite 333, Northridge, California 91324 (the
"Special Meeting" or "Meeting"). Shareholders of record of the Fund at the close
of business on September 10, 1996 (the "Record Date") are entitled to vote at
the Meeting.
As of September 10, 1996, the Fund had 1,244,065.549 shares issued and
outstanding. Each share is entitled to one vote and each fractional share is
entitled to a proportionate fractional vote on each matter as to which such
shares are to be voted at the Meeting.
In addition to the solicitation of proxies by mail, Trustees and officers of
the Fund and officers and employees of Sierra Fund Administration Corporation
("Sierra Administration") or third parties hired for the purpose, may solicit
proxies in person or by telephone. Persons holding shares as nominees will, upon
request, be reimbursed for their reasonable expenses incurred in sending
soliciting materials to their principals. The general cost of solicitation will
be borne by VK/AC Holding, Inc. ("VKAC Holding"). It is expected that the Notice
of Special Meeting, the Proxy Statement and Proxy Card will be mailed to
shareholders on or about September 26, 1996.
Shares represented by duly executed proxies will be voted in accordance with
the instructions given. Proxies may be revoked at any time before they are
exercised by a written revocation received by the President of the Fund at 9301
Corbin Avenue, Suite 333, Northridge, California 91324, by properly executing a
later-dated proxy, or by attending the Meeting and voting in person.
INTRODUCTION
The Fund is organized as a Massachusetts business trust and is not required
to hold annual meetings of Shareholders. The Meeting is being called in order to
permit the Shareholders of the Fund to vote on the approval of a new investment
sub-advisory agreement (the "New Sub-Advisory Agreement") with the current
sub-advisor, Van Kampen American Capital Management, Inc. ("Capital Management"
or the "Sub-Advisor"). This New Sub-Advisory Agreement is considered appropriate
because consummation of the merger transaction involving the Sub-Advisor and its
parent, described below, might be deemed under the Investment Company Act of
1940, as amended (the "1940 Act") to cause termination of the current investment
sub-advisory agreement by and among the Fund, Sierra Investment Advisors
Corporation ("Sierra Advisors" or the "Advisor") and Capital Management (the
"Current Sub-Advisory Agreement").
<PAGE> 5
THE PROPOSED TRANSACTION
The Fund's investment sub-advisor is Capital Management, which currently is
a wholly-owned subsidiary of Van Kampen American Capital, Inc. ("VKAC"), which
is a wholly-owned subsidiary of VKAC Holding, which in turn is controlled,
through the ownership of a substantial majority of its common stock, by The
Clayton & Dubilier Private Equity Fund IV Limited Partnership ("C&D L.P."), a
Connecticut limited partnership. C&D L.P. is managed by Clayton, Dubilier &
Rice, Inc., a New York based private investment firm. The General Partner of C&D
L.P. is Clayton & Dubilier Associates IV Limited Partnership ("C&D Associates
L.P."). The general partners of C&D Associates L.P. are Joseph L. Rice, III, B.
Charles Ames, William A. Barbe, Alberto Cribiore, Donald J. Gogel, Leon J.
Hendrix, Jr., Hubbard C. Howe and Andrall E. Pearson, each of whom is a
principal of Clayton, Dubilier & Rice, Inc. In addition, certain officers,
directors and employees of VKAC own, in the aggregate, approximately 6% of the
common stock of VKAC Holding and have the right to acquire, upon the exercise of
options (whether or not vested), approximately an additional 12% of the common
stock of VKAC Holding. Currently, and after giving effect to the exercise of
such options, no officer or trustee of the Funds owns or would own 5% or more of
the common stock of VKAC Holding. The addresses of VKAC Holding, VKAC and the
Sub-Advisor are One Parkview Plaza, Oakbrook Terrace, Illinois 60181 and 2800
Post Oak Boulevard, Houston, Texas 77056.
VKAC Holding has entered into an Agreement and Plan of Merger ("Merger
Agreement") dated as of June 21, 1996 by and among VKAC Holding, Morgan Stanley
Group Inc. ("Morgan Stanley"), MSAM Holdings II, Inc. ("MSAM Holdings"), and
MSAM Acquisition, Inc. ("MSAM Acquisition"), pursuant to which VKAC Holding and
Capital Management will become indirect subsidiaries of Morgan Stanley. The Sub-
Advisor expects that regulatory approvals will be received and that the merger
transaction will be consummated by the end of November 1996, provided that a
number of conditions set forth in the Merger Agreement have been met or waived.
Under the terms of the Current Sub-Advisory Agreement and as required by the
1940 Act, the Current Sub-Advisory Agreement automatically terminates upon its
assignment. As more fully discussed below, the consummation of the contemplated
acquisition of the Sub-Advisor by Morgan Stanley may constitute an assignment of
the Current Sub-Advisory Agreement. Therefore, in order for the Fund to continue
to receive investment sub-advisory services from the Sub-Advisor after such
assignment, it is necessary that the shareholders of the Fund approve the New
Sub-Advisory Agreement. The New Sub-Advisory Agreement would take effect upon
the later to occur of (i) the obtaining of shareholder approval or (ii) the
closing of the Acquisition.
THE PROPOSAL SET FORTH IN THIS PROXY STATEMENT RELATES TO THE NEW
SUB-ADVISORY AGREEMENT. THE TERMS OF THE NEW SUB-ADVISORY AGREEMENT ARE NOT
DIFFERENT IN ANY MATERIAL WAY FROM THOSE OF THE CURRENT SUB-ADVISORY AGREEMENT
WITH RESPECT TO DUTIES, FEES AND THE STANDARD OF CARE, EXCEPT THAT THE NEW
SUB-ADVISORY AGREEMENT WILL PROVIDE THAT THE CURRENT SUB-ADVISOR MAY, IF IT
CONTINUES TO SERVE IN THOSE CAPACITIES DURING ANY PERIOD BETWEEN THE CLOSING OF
THE MERGER TRANSACTION AND APPROVAL OF THE NEW SUB-ADVISORY AGREEMENT, RECEIVE
AS COMPENSATION UNDER THE NEW SUB-ADVISORY AGREEMENT AN AMOUNT EQUAL TO THE FEES
IT WOULD NORMALLY RECEIVE DURING SUCH PERIOD PURSUANT TO THE CURRENT
SUB-ADVISORY AGREEMENT. THIS PROVISION ENSURES THAT CAPITAL MANAGEMENT WILL
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BE COMPENSATED FOR THEIR SERVICES DURING SUCH PERIOD EVEN IF IT SHOULD BE
DETERMINED THAT AN ASSIGNMENT OF THE CURRENT SUB-ADVISORY AGREEMENT OCCURRED.
PROVIDING FOR SUCH COMPENSATION SHOULD NOT HAVE ANY MATERIAL IMPACT ON THE NET
ASSET VALUE PER SHARE OR EXPENSE RATIO OF THE FUND BECAUSE THE FUND WILL
CONTINUE TO ACCRUE ADVISORY FEES AT THE CURRENT RATE DURING ANY SUCH PERIOD.
THE ACQUISITION
Pursuant to the Merger Agreement, MSAM Acquisition will be merged with and
into VKAC Holding and VKAC Holding will be the surviving corporation (the
"Acquisition"). Following the Acquisition, VKAC Holding and the Sub-Advisor will
be indirect subsidiaries of Morgan Stanley.
The Sub-Advisor anticipates that the consummation of the Acquisition will
occur by the end of November 1996 provided that a number of conditions set forth
in the Merger Agreement are met or waived. The conditions require, among other
things, that as of the closing the shareholders of certain investment companies
(including the Fund) and investors in certain accounts advised by the
Sub-Advisor or its affiliates, which investment companies and accounts have
aggregate assets in excess of a specified minimum amount, have approved new
investment advisory agreements or consented to the assignment of existing
investment advisory agreements. At the closing, MSAM Acquisition will pay
approximately $740 million (based on VKAC's long-term debt outstanding as of
July 31, 1996) in cash to the stockholders of VKAC Holding (excluding certain
management stockholders), and to persons owning options to purchase stock of
VKAC Holding, subject to certain purchase price adjustments set forth in the
Merger Agreement. As of July 31, 1996, VKAC had long-term debt outstanding of
approximately $410 million. To the extent that pre-tax income of VKAC prior to
the closing of the Acquisition permits the repayment of its long-term debt, the
purchase price for the equity interests in VKAC Holding will be increased by the
amount of long-term debt repaid. The purchase price also is subject to certain
adjustments based, among other things, on assets under management of VKAC and
its subsidiaries at the time of closing. The Sub-Advisor also contemplates that,
as part of the Acquisition, certain officers and directors of VKAC Holding and
its affiliates will contribute to MSAM Holdings their existing shares of common
stock of VKAC Holding in exchange for approximately $25 million of shares of
preferred stock of MSAM Holdings which, in turn, will be exchangeable into
common stock, par value $1.00 per share, of Morgan Stanley at specified times
over a four-year period. Such shares of preferred stock will represent, in the
aggregate, 5% of the combined voting power in MSAM Holdings, the remainder of
which will be indirectly owned by Morgan Stanley.
VKAC Holding will engage in certain preparatory transactions prior to the
Acquisition, including the distribution to stockholders of VKAC Holding of (i)
all of VKAC Holding's investment in McCarthy, Crisanti & Maffei, Inc., a
wholly-owned subsidiary engaged in the business of distributing research and
financial information, (ii) all of VKAC Holding's investment in Hansberger
Global Investors, Inc. ("HGI"), a company in which VKAC Holding made a minority
investment in May 1996, and (iii) certain related cash amounts.
There is no financing condition to the closing of the Acquisition. VKAC has
been advised by Morgan Stanley that as of August 30, 1996, no determination has
been made
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whether any additional indebtedness will be incurred by Morgan Stanley and its
affiliates or VKAC and its affiliates in connection with the Acquisition. In
addition, the disposition of VKAC's outstanding long-term indebtedness
(including its bank loans and senior notes) in connection with the Acquisition
has not yet been determined.
The operating revenue of VKAC and its subsidiaries for the fiscal year ended
December 31, 1995, less expenses for the same period, was more than adequate to
service VKAC's outstanding debt. VKAC prepaid $80 million of its long-term debt
in 1995, and has continued to make debt prepayments during 1996. VKAC Holding
and VKAC believe, based on the earnings experience of VKAC and its subsidiaries,
that after the Acquisition the operating revenue of VKAC and its subsidiaries
should be more than sufficient to service their debt and that VKAC and its
subsidiaries should be able to conduct their respective operations as now
conducted and as proposed to be conducted.
The Merger Agreement does not contemplate any changes, other than changes in
the ordinary course of business, in the management or operation of the
Sub-Advisor relating to the Fund, the personnel managing the Fund or other
services or business activities of the Fund. The Acquisition is not expected to
result in material changes in the business, corporate structure or composition
of the senior management or personnel of the Sub-Advisor, or in the manner in
which the Sub-Advisor renders services to the Fund. Morgan Stanley has agreed in
the Merger Agreement that, for a period of two years from the date of the
Acquisition, it will cause the Sub-Advisor to provide compensation and employee
benefits which are substantially comparable in the aggregate to those presently
provided. The Sub-Advisor does not anticipate that the Acquisition or any
ancillary transactions will cause a reduction in the quality of services now
provided to the Fund, or have any adverse effect on the Sub-Advisor's ability to
fulfill its obligations under the New Sub-Advisory Agreement or to operate its
business in a manner consistent with past business practices.
Certain officers of the Sub-Advisor and its affiliates previously entered
into employment agreements with VKAC Holding which expire from between 1997 and
2000. Certain officers of the Sub-Advisor also previously entered into retention
agreements with VKAC Holding, which will remain in place for two years following
the consummation of the Acquisition. The Merger Agreement contemplates that
Morgan Stanley will, and will cause VKAC Holding to, honor such employment and
retention agreements. The employment agreements and retention agreements are
intended to assure that the services of the officers are available to the
Sub-Advisor for a remaining term of two to four years. As described above,
certain officers and employees of VKAC and the Sub-Advisor are expected to
contribute their existing shares of common stock of VKAC Holding to MSAM
Holdings in exchange for approximately $25 million of preferred stock in MSAM
Holdings which, in turn, will be exchangeable into common stock, par value $1.00
per share, of Morgan Stanley at specified times over a four year period. Such
shares of preferred stock will represent, in the aggregate, 5% of the combined
voting power in MSAM Holdings.
INFORMATION CONCERNING MORGAN STANLEY
Morgan Stanley and various of its directly or indirectly owned subsidiaries,
including Morgan Stanley & Co. Incorporated ("Morgan Stanley & Co."), a
registered broker-dealer and investment advisor, and Morgan Stanley
International, are engaged in a wide
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range of financial services. Their principal businesses include securities
underwriting, distribution and trading; merger, acquisition, restructuring and
other corporate finance advisory activities; merchant banking; stock brokerage
and research services; asset management; trading of futures, options, foreign
exchange, commodities and swaps (involving foreign exchange, commodities,
indices and interest rates); real estate advice, financing and investing; and
global custody, securities clearance services and securities lending. Morgan
Stanley Asset Management Inc. also is a wholly-owned subsidiary of Morgan
Stanley. As of June 30, 1996, Morgan Stanley Asset Management Inc., together
with its affiliated investment advisory companies, had approximately $103.5
billion of assets under management and fiduciary advice.
TRUSTEES' CONSIDERATIONS
The Board of Trustees believes that the terms of the New Sub-Advisory
Agreement are fair to and in the best interest of the Fund and its Shareholders.
The Board of Trustees, including all of the non-interested Trustees, recommends
approval by Shareholders of the New Sub-Advisory Agreement. In determining to
recommend that the shareholders approve the New Sub-Advisory Agreement, the
Board of Trustees took into account that, except for changes in the ownership of
the Sub-Advisor and the dates of execution, effectiveness and termination, there
are no differences between the terms and conditions of the Current Sub-Advisory
Agreement and the proposed New Sub-Advisory Agreement, including the terms
relating to the services to be provided thereunder by the Sub-Advisor and the
fees and expenses payable by the Fund. The Board of Trustees also considered
that the terms of the New Sub-Advisory Agreement do not contemplate change in
the investment objective or policies of the Fund, the management or operations
of the Sub-Advisor relating to the Fund, the personnel managing the Fund, or the
shareholder services or other business activities of the Fund. As the
Sub-Advisor has indicated to the Trustees, the Acquisition is not expected to
result in any such change. The Board also considered the skills and capabilities
of the Sub-Advisor and the representations of the Sub-Advisor and Morgan Stanley
that no material change was planned in the current management of the
Sub-Advisor. There can be no assurance that such changes may not occur. If,
after the Acquisition, changes in the Sub-Advisor are proposed that might affect
its services to the Fund, the Trustees will consider the effect of those changes
and take such action as they deem advisable under the circumstances.
The Board of Trustees also considered the terms of the Merger Agreement and
the possible effects of the Acquisition upon VKAC's and the Sub-Advisor's
organization and upon the ability of the Sub-Advisor to provide investment
sub-advisory services to the Fund. The Board of Trustees considered the skills
and capabilities of the Sub-Advisor and the representations of Morgan Stanley
that no material change was planned in the current management or facilities of
the Sub-Advisor. In this regard, representatives of Morgan Stanley met with the
Investment Policy Committee of the Advisor at which time such representatives
described the resources available to VKAC and the Sub-Advisor, after giving
effect to the Acquisition, to secure for the Fund quality investment research,
investment advice and other client services. The Board of Trustees considered
the financial resources of Morgan Stanley and Morgan Stanley's representation to
the Board of Trustees that it will provide sufficient capital to support the
operations of the Sub-Advisor. The Board of Trustees also considered the
reputation, expertise and resources of Morgan Stanley and its affiliates in
domestic and international financial markets. The
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Board of Trustees considered the continued employment of members of senior
management of the Sub-Advisor and VKAC pursuant to employment and retention
agreements and the incentives provided to such members and other key employees
of the Sub-Advisor and VKAC to be important to help to assure continuity of the
personnel primarily responsible for maintaining the quality of investment
advisory and other services for the Fund.
The Board of Trustees considered the effects on the Fund of the Sub-Advisor
becoming an affiliated person of Morgan Stanley. Following the Acquisition, the
1940 Act will prohibit or impose certain conditions on the ability of the Fund
to engage in certain transactions with Morgan Stanley and its affiliates. For
example, absent exemptive relief, the Fund will be prohibited from purchasing
securities from Morgan Stanley & Co., a wholly-owned broker-dealer subsidiary of
Morgan Stanley, in transactions in which Morgan Stanley & Co. acts as a
principal, and the Fund will have to satisfy certain conditions in order to
engage in securities transactions in which Morgan Stanley & Co. acts as a broker
or to purchase securities in an underwritten offering in which Morgan Stanley &
Co. is acting as an underwriter. In this connection, management of the Sub-
Advisor represented to the Board of Trustees that they do not believe these
prohibitions or conditions will have a material effect on the management or
performance of the Fund.
The Board of Trustees was advised that Section 15(f) of the 1940 Act is
applicable to the Acquisition. Section 15(f) of the 1940 Act permits, in the
context of a change in control of an investment adviser to a registered
investment company, the receipt by such investment adviser, or any of its
affiliated persons, of an amount of benefit in connection with such sale, as
long as two conditions are satisfied. First, an "unfair burden" must not be
imposed on the investment company for which the investment adviser acts in such
capacity as a result of the sale of such interest, or any express or implied
terms, conditions or understandings applicable thereto. The term "unfair
burden," as defined in the 1940 Act, includes any arrangement during the
two-year period after the transaction whereby the investment adviser (or
predecessor or successor 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 security holders (other than fees for bona
fide investment advisory and 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 ordinary fees for bona fide principal
underwriting services).
Management of the Fund is aware of no circumstances arising from the
Acquisition, preparatory transactions to the Acquisition or any potential
financing that might result in the imposition of an "unfair burden" on the Fund.
Moreover, Morgan Stanley has agreed in the Merger Agreement that, upon
consummation of the Acquisition, it will take no action which would have the
effect, directly or indirectly, of violating any of the provisions of Section
15(f) of the 1940 Act in respect of the Acquisition. In this regard, the Merger
Agreement provides that Morgan Stanley will use its reasonable best efforts to
assure that (i) no "unfair burden" will be imposed on the Fund as a result of
the transactions contemplated by the Merger Agreement and (ii) except as
provided in the Merger Agreement, the investment sub-advisory fees paid by the
Fund will not be increased for a period of two years from the closing of the
Acquisition and that, during each period, advisory fee waivers shall not be
permitted to expire except in accordance with their terms. The Sub-Adviser may
permit a voluntary fee waiver unilaterally adopted by it to expire at
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any time and no assurance can be given that voluntary waivers will not be
permitted to expire during the two year period. During the two year period
following the Acquisition, the Sub-Adviser does not intend to change its
policies with respect to the circumstances under which voluntary fee waivers may
be permitted to expire.
The second condition of Section 15(f) is that during the three-year period
immediately following a transaction to which Section 15(f) is applicable, at
least 75% of the subject investment company's board of directors must not be
"interested persons" (as defined in the 1940 Act) of the investment company's
investment adviser or predecessor adviser. The current composition of the Board
of Trustees of the Fund would be in compliance with such condition subsequent to
the Acquisition.
On the basis of their review of the information and factors discussed above,
the Trustees, including a majority of the Disinterested Trustees, have concluded
that it is in the best interests of the Fund and its shareholders to approve the
New Sub-Advisory Agreement, thereby enabling the Fund to receive investment
sub-advisory services from the Sub-Advisor.
PROPOSAL I: APPROVAL OF THE NEW INVESTMENT
SUB-ADVISORY AGREEMENT
In anticipation of the possibility of an assignment of the Current
Sub-Advisory Agreement of the Fund in connection with the Acquisition, at a
meeting held on September 9-10, 1996, the Board of Trustees, including a
majority of the Trustees who are not "interested persons" in such term as
defined in the 1940 Act, concluded that if the Acquisition takes place, entry
into the New Sub-Advisory Agreement by the Fund would be in the best interest of
the Fund and its shareholders. Therefore, the Board of Trustees is recommending
that Shareholders of the Fund approve the selection of Capital Management to
continue to serve as the investment sub-advisor to the Fund after the merger
transaction of its parent is completed, and approve the New Sub-Advisory
Agreement. Other than the provision assuring continuity of compensation and the
effective and termination dates, there are no material differences between the
Current and New Sub-Advisory Agreements.
DESCRIPTION OF THE CURRENT SUB-ADVISORY AGREEMENT
Capital Management has acted as investment Sub-Advisor for the Fund since it
commenced its investment operations and currently serves as the investment
Sub-Advisor to the Fund pursuant to an agreement by and among the Fund, Sierra
Advisors, and Capital Management dated February 14, 1996. Under the Current
Sub-Advisory Agreement, Capital Management 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 of the Fund. The
Current Sub-Advisory Agreement was approved by the Initial Shareholder of the
Fund on February 14, 1996. The form of the New Sub-Advisory Agreement is
attached to this Proxy Statement as Appendix A and the description of the New
Sub-Advisory Agreement set forth in this Proxy Statement is qualified in its
entirety by reference to Appendix A.
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Except for changes in the ownership of the Sub-Advisor, and the dates of
execution, effectiveness and termination, the terms of the New Sub-Advisory
Agreement are the same as the terms of the Current Sub-Advisory Agreement.
Capital Management will be paid the same fees under the proposed New
Sub-Advisory Agreement.
Under the Current Sub-Advisory Agreement, Capital Management shall not be
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 Capital Management's part in the
performance of its duties or from reckless disregard of its obligations and
duties under the Agreement.
The Current Sub-Advisory Agreement has an initial term of two years from its
effective date, and thereafter shall continue for successive annual periods,
provided the continuation is approved by the Fund's Board of Trustees or by vote
of a majority of its outstanding voting securities, as well as by a majority of
the Fund's Trustees who are not "interested persons" as defined in the 1940 Act.
The Current Sub-Advisory Agreement may be terminated, without the payment of any
penalty on 30 days' written notice by Sierra Advisors, the Board of Trustees or
by the vote of a majority of the outstanding voting securities of the Fund or
upon 90 days' written notice by Capital Management. In addition, the Current
Sub-Advisory Agreement will also terminate automatically upon the termination of
the investment advisory agreement between the Fund and Sierra Advisors, as well
as in the event of an assignment. The New Sub-Advisory Agreement's approval and
termination provisions are in substance identical to those of the Current
Sub-Advisory Agreement so that the New Sub-Advisory Agreement will have an
initial term of two years from the date of execution.
Under the Current Sub-Advisory Agreement, Capital Management is entitled to
a fee from Sierra Advisors which is calculated daily and paid monthly, at an
annual rate of .475% of the Fund's average daily net assets. Capital Management
may from time to time and at its discretion voluntarily waive all or a portion
of its fees in order to assist the Fund in maintaining a competitive expense
ratio. Capital Management will be entitled to receive the same fees under the
New Sub-Advisory Agreement, except that, if Capital Management continues to
provide investment advisory services during any period between the time of the
closing of the merger transaction and entry into the New Sub-Advisory Agreement,
Capital Management will be entitled to receive its normal fee, even if it is
determined that the merger resulted in termination of the Current Sub-Advisory
Agreement.
As compensation for investment sub-advisory services to the Fund for the
period February 14, 1996 (inception) to June 30, 1996, Capital Management
received compensation of $14,614.35.
REQUIRED VOTE
The affirmative vote of a majority of the outstanding shares of beneficial
interest of the Fund is required to approve the New Sub-Advisory Agreement. In
the event that shareholders of the Fund do not approve the New Sub-Advisory
Agreement with respect to the Fund and the Acquisition is consummated, the Board
of Trustees of the Fund would
8
<PAGE> 12
seek to obtain for the Fund interim investment sub-advisory services at the
lesser of cost or the current fee rate either from the Sub-Adviser or from
another advisory organization. Thereafter, the Board of Trustees of the Fund
would either negotiate a new investment sub-advisory agreement with an advisory
organization selected by the Board of Trustees or make appropriate arrangements,
in either event subject to approval of the shareholders of the Fund. In the
event the Acquisition is not consummated, the Sub-Adviser would continue to
serve as investment sub-adviser of the Fund pursuant to the terms of the Current
Sub-Advisory Agreement.
INFORMATION REGARDING CAPITAL MANAGEMENT
The Directors and principal executive officers of the Sub-Advisor and their
principal occupations are listed below.
<TABLE>
<CAPTION>
NAME AND ADDRESS PRINCIPAL OCCUPATION
- --------------------------- -----------------------------------------------
<S> <C>
Don G. Powell President, Chief Executive Officer and a
2800 Post Oak Blvd. Director of VKAC Holding and VKAC and Chairman,
Houston, TX 77056 Chief Executive Officer and a Director of Van
Kampen American Capital Distributors, Inc. (the
"Distributor"), Van Kampen American Capital
Asset Management, Inc., Van Kampen American
Capital Investment Advisory Corp., Van Kampen
American Capital Management, Inc. and Van
Kampen American Capital Advisors, Inc.
Chairman, President and a Director of Van
Kampen American Capital Exchange Corporation,
American Capital Commercial Services, Inc., Van
Kampen Merritt Equity Holdings Corp., and
American Capital Shareholders Corporation.
Chairman and a Director of ACCESS Investor
Services, Inc. ("ACCESS"), Van Kampen Merritt
Equity Advisors, Corp., McCarthy, Crisanti &
Maffei, Inc. and Van Kampen American Capital
Trust Company. Chairman, President and a
Director of Van Kampen American Capital
Services, Inc. Prior to July 1996, Chairman and
Director of VSM Inc. and VCI Inc. Prior to July
1996, President, Chief Executive Officer and a
Trustee/Director of certain open-end investment
companies and certain closed-end investment
companies advised by Van Kampen Capital Asset
Management, Inc.
</TABLE>
9
<PAGE> 13
<TABLE>
<CAPTION>
NAME AND ADDRESS PRINCIPAL OCCUPATION
- --------------------------- -----------------------------------------------
<S> <C>
Dennis J. McDonnell President, Chief Operating Officer and a
One Parkview Plaza Director of Van Kampen American Capital Asset
Oakbrook Terrace, IL 60181 Management, Inc., Van Kampen American Capital
Investment Advisory Corp., Van Kampen American
Capital Advisors, Inc. and Van Kampen American
Capital Management, Inc. Executive Vice
President and a Director of VKAC Holding and
VKAC. President and Director of Van Kampen
Merritt Equity Advisors Corp. Director of Van
Kampen Merritt Equity Holdings Corp., McCarthy,
Crisanti & Maffei, S.A. and McCarthy, Crisanti
& Maffei, Inc. Chairman and a Director of MCM
Asia Pacific Company, Limited. President and
Trustee/Director of open-end investment
companies and closed-end investment companies
advised by Van Kampen American Capital Asset
Management, Inc. and Van Kampen American
Capital Investment Advisory Corp. Prior to July
1996, President, Chief Operating Officer and
Director of VSM Inc. and VCI Inc. Prior to
December, 1991, Senior Vice President of Van
Kampen Merritt, Inc.
Ronald A. Nyberg Executive Vice President, General Counsel and
One Parkview Plaza Secretary of VKAC Holding and VKAC. Executive
Oakbrook Terrace, IL 60181 Vice President, General Counsel and a Director
of the Distributor, Van Kampen American Capital
Investment Advisory Corp., Van Kampen American
Capital Management, Inc., Van Kampen Merritt
Equity Advisors Corp. and Van Kampen Merritt
Equity Holdings Corp. Executive Vice President,
General Counsel and Assistant Secretary of Van
Kampen American Capital Advisors, Inc.,
American Capital Contractual Services, Inc.,
Van Kampen American Capital Exchange
Corporation, ACCESS, Van Kampen American
Capital Services, Inc. and American Capital
Shareholders Corporation. Executive Vice
President, General Counsel, Assistant Secretary
and Director of Van Kampen American Capital
Trust Company. General Counsel of McCarthy,
Crisanti & Maffei, Inc. Vice President and
Secretary of open-end investment companies and
closed-end investment companies advised by Van
Kampen American Capital Asset Management, Inc.
and Van Kampen American Capital Investment
Advisory Corp. Director of ICI Mutual Insurance
Co., a provider of insurance to members of the
Investment Company Institute. Prior to July
1996, Executive Vice President and General
Counsel of VSM Inc., and Executive Vice
President, General Counsel and Director of VCJ,
Inc.
</TABLE>
10
<PAGE> 14
<TABLE>
<CAPTION>
NAME AND ADDRESS PRINCIPAL OCCUPATION
- --------------------------- -----------------------------------------------
<S> <C>
William R. Rybak Executive Vice President and Chief Financial
One Parkview Plaza Officer of VKAC Holding and VKAC since February
Oakbrook Terrace, IL 60181 1993, and Treasurer of VKAC Holding through
December 1993. Executive Vice President, Chief
Financial Officer and a Director of the
Distributor, Van Kampen American Capital Asset
Management, Inc., Van Kampen American Capital
Investment Advisory Corp. and Van Kampen
American Capital Management, Inc. Executive
Vice President, Chief Financial Officer,
Treasurer and a Director of Van Kampen Merritt
Equity Advisors Corp. and Van Kampen Merritt
Equity Holdings Corp. Executive Vice President
and Chief Financial Officer of the Van Kampen
American Capital Advisors, Inc., Van Kampen
American Capital Exchange Corporation, Van
Kampen American Capital Trust Company, ACCESS,
and American Capital Contractual Services, Inc.
Executive Vice President, Chief Financial
Officer and Treasurer of American Capital
Shareholders Corporation and Van Kampen
American Capital Services, Inc. Assistant
Treasurer of McCarthy, Crisanti & Maffei, Inc.
and MCM Group, Inc. Chairman of the Board of
Hinsdale Financial Corp., a savings and loan
holding company. Prior to July 1996, Executive
Vice President, Chief Financial Officer and a
Director of VCJ, Inc., and Executive Vice
President and Chief Financial Officer of VSM
Inc.
Peter W. Hegel Executive Vice President of Van Kampen American
One Parkview Plaza Capital Investment Advisory Corp., Van Kampen
Oakbrook Terrace, IL 60181 American Capital Advisors, Inc. and Van Kampen
American Capital Management, Inc. Executive
Vice President and Director of Van Kampen
American Capital Asset Management, Inc.,
Director of McCarthy, Crisanti & Maffei, Inc.
Vice President of open-end investment companies
and closed-end investment companies advised by
Van Kampen American Capital Asset Management,
Inc. and Van Kampen American Capital Investment
Advisory Corp. Prior to July 1996, Director VSM
Inc.
</TABLE>
11
<PAGE> 15
<TABLE>
<CAPTION>
NAME AND ADDRESS PRINCIPAL OCCUPATION
- --------------------------- -----------------------------------------------
<S> <C>
Robert C. Peck, Jr. Executive Vice President of Van Kampen American
2800 Post Oak Blvd. Capital Investment Advisory Corp. and Van
Houston, TX 77056 Kampen American Capital Management, Inc.
Executive Vice President and Director of Van
Kampen American Capital Asset Management, Inc.
and Van Kampen American Capital Advisors, Inc.
Vice President of open-end investment companies
advised by Van Kampen American Capital Asset
Management, Inc. and Van Kampen American
Capital Investment Advisory Corp.
Alan T. Sachtleben Executive Vice President of Van Kampen American
2800 Post Oak Blvd. Capital Investment Advisory Corp. and Van
Houston, TX 77056 Kampen American Capital Management, Inc.
Executive Vice President and a Director of Van
Kampen American Capital Asset Management, Inc.
and Van Kampen American Capital Advisors, Inc.
Vice President of open-end investment companies
advised by Van Kampen American Capital Asset
Management, Inc. and Van Kampen American
Capital Investment Advisory Corp.
</TABLE>
None of the Officers or Trustees of the Fund is an officer, employee,
director, or shareholder of the Sub-Advisor.
The Sub-Advisor does not currently act as an investment adviser to any other
investment company with similar investment objectives.
GENERAL INFORMATION ABOUT THE FUND AND OTHER MATTERS
DISTRIBUTION
Sierra Investment Services Corporation ("Sierra Services"), located at 9301
Corbin Avenue, Northridge, California 91324, acts as the Fund's Distributor.
Sierra Services is a wholly-owned subsidiary of Sierra Capital Management
Corporation, which is located at the same address.
PORTFOLIO TRANSACTIONS
For the period ended June 30, 1996, the Fund paid no brokerage commissions
to affiliated brokers.
BENEFICIAL OWNERSHIP
As of September 10, 1996, to the Fund's knowledge, the following person held
beneficially 5% or more of the outstanding shares of the Fund.
12
<PAGE> 16
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
NAME AND ADDRESS SHARES THE FUND
---------------------------------- ------------ -------------
<S> <C> <C>
First German United Methodist 206,207.333 16.57%
Church of Los Angeles
c/o Martin E. Shack
1802 Los Encinos Ave., #A
Glendale, CA 91208
</TABLE>
ADJOURNMENT
In the event that sufficient votes in favor of the Proposal set forth in the
Notice of the Special Meeting are not received by the time scheduled for the
Special Meeting, the persons named as proxies may propose one or more
adjournments of the Special Meeting for a period or periods of not more than 60
days in the aggregate to permit further solicitation of proxies with respect to
such Proposal. Any such adjournment will require the affirmative vote of a
majority of the votes cast on the question in person or by proxy at the session
of the meeting to be adjourned. The persons named as proxies will vote in favor
of such adjournment those proxies which they are entitled to vote in favor of
the Proposal. They will vote against any such adjournment those proxies required
to be voted against the Proposal. The costs of any such additional solicitation
and of any adjourned session will be borne by Capital Management.
REQUIRED VOTE
Approval of the Proposal requires the affirmative vote of a majority of the
outstanding shares of the Fund. As defined in the 1940 Act, the "vote of a
majority of the outstanding shares" means the vote of (i) 67% or more of the
Fund's outstanding shares present at a Meeting, if the holders of more than 50%
of the outstanding shares of the Fund are present or represented by proxy, or
(ii) more than 50% of the Fund's outstanding shares, whichever is less.
Abstentions and "broker non-votes" will not be counted for or against the
Proposal, but will be counted for purposes of determining whether a quorum is
present. Abstentions 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 the
Proposal.
SHAREHOLDER PROPOSALS
As a Massachusetts business trust, the Fund 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 Sierra Prime Income Fund, 9301 Corbin Avenue, Northridge,
California 91324, c/o Secretary, Sierra Prime Income Fund.
REPORTS TO SHAREHOLDERS
THE FUND WILL FURNISH, WITHOUT CHARGE, A COPY OF THE MOST RECENT ANNUAL
REPORT TO SHAREHOLDERS OF THE FUND AND THE MOST RECENT SEMI-ANNUAL REPORT
SUCCEEDING SUCH ANNUAL
13
<PAGE> 17
REPORT, IF ANY, ON REQUEST. REQUESTS SHOULD BE DIRECTED TO SIERRA FUND
ADMINISTRATION CORPORATION AT 9301 CORBIN AVENUE, SUITE 333, NORTHRIDGE,
CALIFORNIA 91324 OR BY CALLING 800-222-5852.
OTHER MATTERS
The Trustees know of no other business to be brought before the Meeting.
However, if any other matters properly come before the meeting, it is the
intention that proxies which do not contain specific restrictions to the
contrary will be voted on such matters in accordance with the judgment of the
persons named in the enclosed form of proxy.
------------------------
SHAREHOLDERS ARE URGED TO COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AND RETURN
IT PROMPTLY.
14
<PAGE> 18
APPENDIX A
FORM OF
INVESTMENT SUB-ADVISORY AGREEMENT
, 1996
Van Kampen American Capital Management Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Dear Sirs:
Sierra Prime Income Fund (the "Trust"), an unincorporated business trust
organized under the laws of the Commonwealth of Massachusetts, and Sierra
Investment Advisors Corporation ("Sierra Advisors"), a corporation organized
under the laws of the State of California, hereby agree with Van Kampen American
Capital Management Inc. (the "Sub-Advisor"), a corporation organized under the
laws of the State of Delaware, as follows:
1. INVESTMENT DESCRIPTION; APPOINTMENT
The Trust desires to employ the capital of the Trust by investing and
reinvesting in investments of the kind and in accordance with the limitations
specified in its Agreement and Declaration of Trust, as amended ("Declaration of
Trust"), and in its Prospectus and Statement of Additional Information relating
to the Trust as in effect and which may be amended from time to time, and in
such manner and to such extent as may from time to time be approved by the Board
of Trustees of the Trust. Copies of the Trust's Prospectus and Statement of
Additional Information and the Trust's Declaration of Trust, as amended or
restated, have been or will be submitted to the Sub-Advisor. The Trust agrees to
provide copies of all amendments to or restatements of the Trust's Prospectus
and Statement of Additional Information and the Trust's Declaration of Trust to
the Sub-Advisor on a timely and on-going basis but in all events prior to such
time as said amendments or restatements become effective. The Sub-Advisor will
be entitled to rely on all such documents furnished to it by the Trust or Sierra
Advisors. The Trust desires to employ and hereby appoints the Sub-Advisor to act
as investment sub-advisor to the Trust. The Sub-Advisor accepts the appointment
and agrees to furnish the services described herein for the compensation set
forth below.
2. SERVICES AS INVESTMENT SUB-ADVISOR
Subject to the supervision of the Board of Trustees of the Trust and of
Sierra Advisors, the Trust's investment advisor, the Sub-Advisor will (a) act in
conformity with the Trust's Declaration of Trust, the Investment Company Act of
1940, the Investment Advisers Act of 1940 and the Internal Revenue Code of 1986,
as the same may from time to time be amended, (b) make investment decisions for
the Trust in accordance with the Trust's investment objectives and policies as
stated in the Trust's Prospectus(es) and Statement of Additional Information as
in effect and, after timely notice to the Sub-Advisor, which may be amended from
time to time, (c) place purchase and sale orders on behalf of the Trust to
effectuate the investment decisions made, (d) maintain books and records with
respect to the securities transactions of the Trust and will furnish the Trust's
A-1
<PAGE> 19
Board of Trustees such periodic, regular and special reports as the Board may
reasonably request; and (e) treat confidentially and as proprietary information
of the Trust, all records and other information specifically relative to the
Trust and prior, present or potential shareholders; and will not use such
records and information for any purpose other than performance of its
responsibilities and duties hereunder, except after prior notification to and
approval in writing by the Trust, which approval shall not be unreasonably
withheld or delayed and such records may not be withheld where the Sub-Advisor
is subject to audit by the U.S. Securities and Exchange Commission or other
regulatory, administrative or judicial proceeding or audit or where the
Sub-Advisor may be exposed to civil or criminal contempt proceedings for failure
to comply, when requested to divulge such information by duly constituted
authorities, or when so requested by the Trust. In providing those services, the
Sub-Advisor will supervise the Trust's investments and conduct a continual
program of investment, evaluation and, if appropriate, sale and reinvestment of
the Trust's assets. In addition, the Sub-Advisor will furnish the Trust or
Sierra Advisors with whatever statistical information the Trust or Sierra
Advisors may reasonably request with respect to the instruments that the Trust
may hold or contemplate purchasing.
3. BROKERAGE
In executing transactions for the Trust and selecting banks, syndicated loan
agents, brokers or dealers (hereinafter referred to as "brokers or dealers"),
the Sub-Advisor will use its best efforts to seek the best overall terms
available and shall execute or direct the execution of all such transactions in
a manner permitted by law and in a manner that is in the best interest of the
Trust and its shareholders. In assessing the best overall terms available for
any Trust transaction, with respect to the lenders from whom the Trust will
purchase assignments and participations in Senior Loans the Sub-Advisor will
consider all factors it deems relevant including, but not limited to their
professional ability, level of service, relationship with the borrower,
financial condition, credit standards and quality of management. With respect to
investments other than Senior Loans, the Sub-Advisor will consider all factors
it deems relevant including, but not limited to, breadth of the market in the
security, the price of the security, the financial condition and execution
capability of the broker or dealer and the reasonableness of any commission for
the specific transaction and on a continuing basis. Pursuant to its investment
determinations for the Trust, in placing orders with brokers or dealers, the
Sub-Advisor will attempt to obtain the best net price and the most favorable
execution of its orders. Consistent with this obligation, when the execution and
price offered by two or more brokers or dealers are comparable, the Sub-Advisor
may, in its discretion, purchase and sell portfolio securities to and from
brokers or dealers who provide the Trust with research advice and other
services.
4. INFORMATION PROVIDED TO THE TRUST
The Sub-Advisor will keep the Trust and Sierra Advisors informed of
developments materially affecting the Trust, and will on its own initiative,
furnish the Trust and Sierra Advisors on at least a quarterly basis with
whatever information the Sub-Advisor reasonably believes is appropriate for this
purpose.
A-2
<PAGE> 20
5. STANDARD OF CARE
The Sub-Advisor shall exercise its reasonable best judgment in rendering the
services described in Paragraphs 2 and 3 above. The Sub-Advisor shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Trust or the Advisor in connection with the matters to which this Agreement
relates, except (a) a loss resulting from a breach of fiduciary duty with
respect to the receipt of compensation for services (in which case any award of
damages shall be limited to the period and the amount set forth in Section
36(b)(3) of the Investment Company Act of 1940, as amended) or (b) a loss
resulting from willful misfeasance, bad faith or gross negligence on its part in
the performance of its duties or from reckless disregard by it of its
obligations and duties under this Agreement (each such breach, act or omission
described in (a) or (b) shall be referred to as "Disqualifying Conduct").
6. COMPENSATION
In consideration of the services rendered pursuant to this Agreement, Sierra
Advisors will pay the Sub-Advisor on the first business day of each month a fee
for the previous month at an annual rate of .475% of the Trust's average daily
net assets. The Sub-Advisor shall have no right to obtain compensation directly
from the Trust for services provided hereunder and agrees to look solely to
Sierra Advisors for payment of fees due. Upon any termination of this Agreement
before the end of a month, the fee for such part of that month shall be prorated
according to the proportion that such period bears to the full monthly period
and shall be payable upon the date of termination of this Agreement. For the
purpose of determining fees payable to the Sub-Advisor, the value of the Trust's
net assets shall be computed at the times and in the manner specified in the
Trust's Prospectus and/or Statement of Additional Information relating to the
Trust as from time to time in effect.
Should it be determined that the Investment Sub-Advisory Agreement between
the Trust, Sierra Advisors and the Sub-Advisor dated February 14, 1996, is
terminated as a result of the assignment thereof prior to the effective date of
this Agreement, compensation thereunder shall commence as of the date of such
termination.
7. EXPENSES
The Sub-Advisor will bear all expenses in connection with the performance of
its services under this Agreement, which expenses shall not include brokerage
fees or commissions in connection with the effectuation of securities
transactions. The Trust (or Sierra Advisors) will bear certain other expenses to
be incurred in its operation, including but not limited to: organizational
expenses, taxes, interest, brokerage fees and commissions, if any; fees of
Trustees of the Trust who are not officers, directors or employees of the
Sub-Advisor, Sierra Advisors, the Trust's sub-administrator or any of their
affiliates; Securities and Exchange Commission fees and state Blue Sky
qualification fees; out- of-pocket expenses of custodians, transfer and dividend
disbursing agents and the 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'
A-3
<PAGE> 21
reports and meetings of the shareholders of the Trust and of the officers or
Board of Trustees of the Trust; and any extraordinary expenses.
8. SERVICES TO OTHER COMPANIES OR ACCOUNTS
The Trust understands that the Sub-Advisor now acts, will continue to act
and may act in the future as investment advisor to fiduciary and other managed
accounts and as investment advisor or investment Sub-Advisor to one or more
other investment companies or series of investment companies, and the Trust has
no objection to the Sub-Advisor so acting, provided that whenever the Trust and
one or more other accounts or investment companies advised by the Sub-Advisor
have available funds for investment, investments suitable and appropriate for
each will be allocated in accordance with procedures believed to be equitable to
each entity. Similarly, opportunities to sell securities will be allocated in an
equitable manner. The Trust recognizes that in some cases this procedure may
limit the size of the position that may be acquired or disposed of for the
Trust. In addition, the Trust understands that the persons employed by the
Sub-Advisor to assist in the performance of the Sub-Advisor's duties hereunder
will not devote their full time to such service and nothing contained herein
shall be deemed to limit or restrict the right of the Sub-Advisor or any
affiliate of the Sub-Advisor to engage in and devote time and attention to other
business or to render services of whatever kind or nature.
9. TERM OF AGREEMENT
This Agreement shall become effective as of the date first written above,
shall continue in effect for a period of two years thereafter, and shall
continue in effect for a period of more than two years thereafter only so long
as such continuance is specifically approved at least annually by (i) the Board
of Trustees of the Trust or (ii) a vote of a "majority" (as defined in the
Investment Company Act of 1940, as amended) of the Trust'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 said Act) of any party to this Agreement, by vote cast in person at a meeting
called for the purpose of voting on such approval. This Agreement is terminable,
without penalty, on 30 days' written notice, by Sierra Advisors, the Board of
Trustees of the Trust or by vote of holders of a majority of the Trust's shares,
or upon 90 days' written notice, by the Sub-Advisor and, will terminate
automatically upon any termination of the advisory agreement between the Trust
and Sierra Advisors. In addition, this Agreement will also terminate
automatically in the event of its assignment (as defined in said Act). The Sub-
Advisor agrees to notify the Trust of any circumstances that might result in
this Agreement being deemed to be assigned.
10. REPRESENTATIONS OF THE TRUST AND THE SUB-ADVISOR
The Trust represents that (i) a copy of its Agreement and Declaration of
Trust, dated October 4, 1995, and Amended Agreement and Declaration of Trust
dated January 18, 1996, together with all amendments thereto, is on file in the
office of the Secretary of the Commonwealth of Massachusetts, (ii) the
appointment of Sierra Advisors has been duly authorized, (iii) the appointment
of the Sub-Advisor has been duly authorized, and (iv) it has acted and will
continue to act in conformity with the Investment Company Act of 1940, as
amended, and other applicable laws.
A-4
<PAGE> 22
Sierra Advisors represents that (i) it is authorized to perform the services
herein, (ii) the appointment of the Sub-Advisor has been duly authorized, and
(iii) it will act in conformity with the Investment Company Act of 1940, as
amended, and other applicable laws.
The Sub-Advisor represents that it is authorized to perform the services
described herein.
11. INDEMNIFICATION
Sierra Advisors shall indemnify and hold harmless the Sub-Advisor, its
officers, directors, employee control persons and affiliated persons (as defined
in the Investment Company Act of 1940, as amended) from and against any and all
claims, losses, liabilities or damages (including reasonable attorneys' fees and
other related expenses), arising from or in connection with this Agreement or
the performance by the Sub-Advisor of its duties hereunder; provided, however,
that nothing contained herein shall require that the Sub-Advisor be indemnified
for Disqualifying Conduct.
12. AMENDMENT OF THIS AGREEMENT
No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought. No amendment of this Agreement shall be effective with respect to the
Trust until approved by vote of a majority of the outstanding voting securities.
13. LIMITATION OF LIABILITY
This Agreement has been executed on behalf of the Trust by the undersigned
officer of the Trust in his capacity as an officer of the Trust. The obligations
of this Agreement shall be binding upon the assets and property of the Trust
only and shall not be binding upon any Trustee, officer or shareholder of 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. COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original, but such counterparts shall together,
constitute only one instrument.
A-5
<PAGE> 23
If the foregoing accurately sets forth our agreement, kindly indicate your
acceptance hereof by signing and returning the enclosed copy hereof.
Very truly yours,
SIERRA PRIME INCOME FUND
By: ______________________
Name:
Title:
SIERRA INVESTMENT ADVISORS
CORPORATION
By: ______________________
Name:
Title:
Accepted:
VAN KAMPEN AMERICAN CAPITAL MANAGEMENT INC.
By: _________________________________
Name:
Title:
A-6
<PAGE> 24
SIERRA PRIME INCOME FUND Vote this proxy card TODAY! Your prompt response
will save the expense of additional mailings.
Please be sure to sign and date this Proxy.
PLEASE RETURN THE PROXY CARD IN THE ENCLOSED ENVELOPE.
Please fold and detach card at perforation before mailing
SIERRA PRIME INCOME FUND
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
October 29, 1996
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF SIERRA PRIME INCOME FUND
The undersigned Shareholder of the Sierra Prime Income Fund (the "Fund")
hereby appoint(s) Keith B. Pipes, Michael D. Goth and Lawrence J. Sheehan and
each of them (with full power of substitution), the proxy or proxies of the
undersigned to attend the Special Meeting of Shareholders of the Fund to be
held on October 29, 1996, and any adjournments thereof, to vote all of the
shares of the Fund that the signer would be entitled to vote if personally
present at the Special Meeting of Shareholders and on any other matters brought
before the Meeting, all as set forth in the Notice of Special Meeting of
Shareholders. Said proxies are directed to vote or refrain from voting pursuant
to the Proxy Statement as checked below upon the following matters:
The undersigned acknowledges receipt with this proxy
of a copy of the Notice of Special Meeting of Shareholders
and the Proxy Statement of the Board of Trustees.
Dated: , 1996
------------------
Your signature(s) on this proxy should be exactly as
your name or names appear on this proxy. If the shares
are held jointly, each holder should sign. If signing
is by attorney, executor, administrator, trustee or
guardian, please print your full title below your
signature.
--------------------------------------------------------
--------------------------------------------------------
Signature(s) SPIF
<PAGE> 25
Vote this proxy card TODAY! Your prompt response will
save the expense of additional mailings.
Please be sure to sign and date this Proxy.
PLEASE RETURN THE PROXY CARD IN THE ENCLOSED ENVELOPE.
Please fold and detach card at perforation before mailing
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW, AS SHOWN, USING BLUE OR
BLACK INK OR DARK PENCIL. DO NOT USE RED INK. [ ]
FOR AGAINST ABSTAIN
1 Approval of a new investment sub-advisory
agreement by and among the Fund, Sierra
Investment Advisors Corporation and Van
Kampen American Capital Management Inc. [ ] [ ] [ ]
2 To transact such other business as may
properly come before the Meeting.
ALL PROPERLY EXECUTED PROXIES WILL BE VOTED AS DIRECTED HEREIN BY THE SIGNING
SHAREHOLDER. IF NO DIRECTION IS GIVEN WHEN THE DULY EXECUTED PROXY IS
RETURNED, SUCH SHARES WILL BE VOTED IN ACCORDANCE WITH THE RECOMMENDATIONS OF
THE BOARD OF TRUSTEES FOR THE PROPOSAL.
PLEASE DATE, SIGN AND RETURN PROMPTLY.
SPIF
