As filed with the Securities and Exchange Commission on February __, 1996
1933 Act File No. 33-98824
1940 Act File No. 811-9122
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-2
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
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PRE-EFFECTIVE AMENDMENT NO. 1 / X /
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POST-EFFECTIVE AMENDMENT NO. __ / /
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and/or
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REGISTRATION STATEMENT UNDER THE INVESTMENT / X /
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COMPANY ACT OF 1940
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AMENDMENT NO. 1 / X /
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SIERRA PRIME INCOME FUND
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(Exact Name of Registrant as Specified in Declaration of Trust)
9301 Corbin Avenue, Suite 333
P.O. Box 1160
Northridge, CA 91328-1160
(Address of Principal Executive Offices)
Registrant's Telephone Number: (818) 725-0200
Copies to:
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F. Brian Cerini Richard W. Grant, Esq. Lawrence J. Sheehan, Esq.
Chairman and President Jeffrey P. Burns, Esq. O'Melveny & Meyers
Sierra Prime Income Fund Morgan, Lewis & Bockius LLP 1999 Avenue of the Stars
9301 Corbin Avenue 2000 One Logan Square #700
Northridge, CA 91324 Philadelphia, PA 19103 Los Angeles, CA 90067
(Name and Address of Agent for Service)
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Approximate Date of the proposed offering: As soon as practicable after this
Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
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reinvestment plans, check the following box. / X /
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CALCULATION OF REGISTRATION FEE
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Proposed Proposed
Amount Maximum Maximum Amount of
Title of Being Offering Price Aggregate Offering Registration
Securities Being Registered Registered Per Unit(1) Price Fee
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Shares of Beneficial Interest 5,000,000 $10.47 $52,350,000 $19,051.72(2)
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(1) Estimated solely for the purpose of calculating the registration fee.
(2) $4,448.28 was previously paid by the Registrant. Also included in this
total registration fee is a $1,000 fee for registration under the
Investment Company Act of 1940.
The Registrant hereby amends this Registration Statement under the Securities
Act of 1933 on such date or dates as may be necessary to delay its effective
date until Registrant shall file a further amendment which specifically states
that this Registration Statement shall thereafter become effective in accordance
with the provisions of Section 8(a) of the Securities Act of 1933 or until this
Registration Statement shall become effective on such date as the Securities and
Exchange Commission, acting pursuant to said Section 8(a), may determine.
The Exhibit index is located at sequentially numbered page __
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Sierra Prime Income Fund
Cross Reference Sheet
Form N-2 Item
Part A. Information Required in a Prospectus
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Item Location
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Item 1. Outside Front Cover........................................... Front Cover Page
Item 2. Inside Front and Outside Back Cover Page...................... Front Cover Page; Inside Front Cover Page; Outside
Back Cover Page
Item 3. Fee Table and Synopsis ....................................... Fund Expenses; Prospectus Summary
Item 4. Financial Highlights.......................................... Not Applicable
Item 5 Plan of Distribution ......................................... Cover Page; Prospectus Summary; Offering of Shares
Item 6. Selling Shareholders.......................................... Not Applicable
Item 7. Use of Proceeds............................................... Use of Proceeds
Item 8 General Description of the Registrant ........................ Cover Page; Prospectus Summary; Description of
Common Shares
Item 9 Management ................................................... Prospectus Summary; Management of the Fund
Item 10. Capital Stock, Long-Term Debt, and Other Securities........... Description of Common Shares; Net Asset Value
Item 11. Defaults and Arrears on Senior Securities..................... Not Applicable
Item 12. Legal Proceedings............................................. Not Applicable
Item 13. Table of Contents for the Statement of Additional Information Statement of Additional Information
Part B. Information Required in a Statement of Additional Information
Item 14. Cover Page.................................................... Cover Page
Item 15. Table of Contents............................................. Cover Page
Item 16. General Information and History............................... Not Applicable
Item 17 Investment Objectives and Policies ........................... Investment Objectives and Policies and Special
Risk Considerations
Item 18. Management.................................................... Management of the Fund; Trustees and Officers
Item 19. Control Persons and Principal Holders of Securities........... Trustees and Officers
Item 20 Investment Advisory and Other Services ....................... Management of the Fund
Item 21 Brokerage Allocation and Other Practices ..................... Portfolio Transactions
Item 22 Tax Status ................................................... Taxation
Item 23 Financial Statement ......................................... The Statement of Assets and Liabilities,
dated February 9, 1996
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Part C. Other Information
Information required to be included in Part C is set forth under
the appropriate item, so numbered, in Part C of this Registration
Statement.
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SIERRA PRIME INCOME FUND
9301 CORBIN AVENUE
P.O. BOX 1160
NORTHRIDGE, CALIFORNIA 91328-1160
Sierra Prime Income Fund (the "Fund") is a recently organized, non-diversified,
closed-end management investment company. The Fund will seek to provide a high
level of current income, consistent with preservation of capital. The Fund will
seek to achieve its objective by investing primarily in a portfolio of interests
in floating or variable rate senior loans ("Senior Loans") made primarily to
U.S. corporations, partnerships and other entities ("Borrowers"). It is expected
that such Senior Loans will pay interest at rates which float or reset at a
margin above a generally recognized base lending rate, such as the prime rate of
a designated U.S. bank, certificate of deposit rate, or the London Interbank
Offered Rate ("LIBOR"). There can be no assurance that the Fund will achieve its
objective. See "Investment Objective and Policies and Special Risk Factors."
Shares of the Fund will be offered continuously at a price equal to their net
asset value plus a sales charge of up to 4.5% of the public offering price of
the shares purchased. See "Offering of Shares."
No market presently exists for the Fund's shares, and it is not anticipated that
a secondary market will develop. To provide shareholder liquidity, the Fund
intends to make quarterly tender offers subject to approval by the Board of
Trustees to purchase a specified percentage of the Fund's outstanding shares at
net asset value. See "Repurchase of Shares." This Prospectus sets forth
concisely the information that a prospective investor should know before
investing. Please read and retain this Prospectus for future reference. A
Statement of Additional Information dated February 14, 1996 has been filed with
the Securities and Exchange Commission and can be obtained without charge upon
request at the above address or by calling 800-222-5852. This Prospectus
incorporates by reference the entire Statement of Additional Information, and
its table of contents appears on page 40 of this Prospectus.
Sierra Investment Services Corporation ("SISC"), the Distributor of the Shares
is not a bank. The Fund's Shares are not obligations, deposits or accounts
(trust or otherwise) of, or endorsed or guaranteed by, Great Western Bank, or
any of its affiliates or correspondents. The Fund's Shares are not federally
insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board
or any other governmental agency. Shares of the Fund involve investment risks,
including the possible loss of principal.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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Price to Proceeds to
Public(1) Sales Load(1) Fund(2)
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Class A Per
Share (1) ...... $ 10.47 $ 0.47 $ 10.00
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Total .......... $2,350,000 $50,000,000
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(1) The shares are offered on a best efforts basis at a price equal to the net
asset value which initially is $10.00 per share, plus a sales charge of up
to 4.50% of the public offering price. See "Offering of Shares."
(2) Before deduction of organizational expenses payable by the Trust, estimated
at $185,375 and assuming all shares currently registered are sold pursuant
to a continuous offering.
PROSPECTUS DATED FEBRUARY 14, 1996
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TABLE OF CONTENTS
Page
Fund Expenses ............................................................. 4
Prospectus Summary ........................................................ 5
The Fund .................................................................. 9
Use of Proceeds ........................................................... 11
Investment Objective and Policies and Special Risk Factors ................ 11
Certain Characteristics of Senior Loan Interests ........................ 11
Special Risk Considerations ............................................. 16
Investment Practices and Special Risks .................................... 18
Taxation .................................................................. 22
Management of the Fund .................................................... 23
Distributions ............................................................. 25
Repurchase (Tender Offer) of Shares ....................................... 25
Description of Common Shares .............................................. 27
Net Asset Value ........................................................... 28
Offering of Shares ........................................................ 29
How to Buy Shares ....................................................... 30
General Information About Purchases ..................................... 31
Reduced Sales Charge at Purchase .......................................... 34
Waivers of Class A Common Shares Sales Charges ............................ 35
Application of Class A Common Shares Early Withdrawal Charge .............. 36
Communications with Shareholders .......................................... 37
Custodian, Administrator and Transfer Agent ............................... 39
Legal Opinions ............................................................ 39
Experts ................................................................... 39
Additional Information .................................................... 39
Table of Contents for Statement of Additional Information ................. 40
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NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE FUND, THE FUND'S ADVISOR OR PRINCIPAL UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER
TO BUY ANY SECURITY OTHER THAN THE COMMON SHARES OFFERED BY THIS PROSPECTUS, NOR
DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY THE
COMMON SHARES BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, IN ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
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FUND EXPENSES
The following tables are intended to assist investors in understanding the
expected costs and expenses directly or indirectly associated with investing in
the Fund.
CLASS A COMMON SHARES
SHAREHOLDER TRANSACTION EXPENSES
Sales Load (as a percentage of offering price) .............. 4.50%
Dividend Reinvestment Plan Fees ............................. None
Early Withdrawal Charge ..................................... None*
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF NET ASSETS ATTRIBUTABLE
TO COMMON SHARES)
Management Fee .............................................. 0.95%
Interest Payments on Borrowed Funds ......................... 0.00%
Other Expenses .............................................. 0.55%
Total Annual Fund Operating Expenses ................. 1.50%**
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* Purchases of $1 million or more and certain other purchases are not subject
to the sales charge at the time of purchase, but may be subject to a 1.0%
early withdrawal charge on repurchases or tenders within one year of purchase
or a 0.5% early withdrawal charge during the second year after purchase. See
"Offering of Shares -- How to Buy Shares" for a complete description of these
charges.
** Under the Investment Advisory Agreement, the Advisor has agreed to reimburse
the Fund to the extent that the Fund's annual ordinary expenses exceed the
most stringent limits prescribed by any state in which the Fund's Shares are
offered for sale. Currently, the most restrictive applicable limitations
provide that the Fund's expenses may not exceed an annual rate of 2.5% of the
first $30 million of average net assets, 2% of the next $70 million of the
average net assets and 1 1/2% of assets in excess of that amount. Expenses
which are not subject to this limitation include interest, taxes,
amortization of organizational expenses and extraordinary expenses.
EXAMPLE
An investor would pay the following expenses on a $1,000 investment in the Fund,
assuming a 5% annual return:
CLASS A COMMON SHARES
1 YEAR 3 YEARS 5 YEARS 10 YEARS
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Assuming no tender of
Common Shares ........... $60 $90 $123 $216
This "Example" assumes that all dividends and other distributions are reinvested
at net asset value and that the percentage amounts listed under Total Annual
Operating Expenses remain the same for the completion of organization expense
amortization. The above tables and the assumptions in the Example of a 5% annual
return and reinvestment at net asset value are required by regulation of the
Securities and Exchange Commission ("SEC"); the assumed 5% annual return is not
a prediction of, and does not represent, the projected or actual performance of
the Fund's Common Shares. THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF FUTURE EXPENSES, AND THE FUND'S ACTUAL EXPENSES MAY BE MORE OR LESS THAN
THOSE SHOWN.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information included elsewhere in this Prospectus and the Statement of
Additional Information.
THE FUND Sierra Prime Income Fund (the "Fund" or "Trust") is a recently
organized, non-diversified, closed-end management investment company, organized
as a Massachusetts business trust. The Fund has no history of operations. See
"The Fund."
THE OFFERING The Fund will engage in a continuous offering of its Class A common
shares of beneficial interest ("Class A Common Shares") through Sierra
Investment Services Corporation ("SISC"), as distributor and principal
underwriter, and Authorized Dealers (i.e., dealers who are in good standing with
the NASD and who have entered into selected dealer agreements with the principal
underwriter). During the continuous offering, the Fund's shares will be valued
at a public offering price equal to the next determined net asset value ("NAV")
per share plus a maximum sales charge of 4.5% on purchases of less then $50,000,
declining to zero on purchases of $1,000,000 or greater. This sales charge, if
applicable, will be payable to SISC. See "Offering of Shares."
COMMON SHARES The Fund will offer Class A Common Shares at NAV subject to a 4.5%
sales charge on purchases of less than $50,000, declining to zero on purchases
of $1,000,000 or greater, at the time of purchase. This sales charge is payable
to SISC as principal underwriter for distribution of the Common Shares.
Purchases of $1 million or more and certain other purchases are not subject to
the sales charge at the time of purchase, but may be subject to a 1.0% early
withdrawal charge on repurchases or tenders within one year of purchase or a
0.5% early withdrawal charge during the second year after purchase. See
"Offering of Shares" for a complete description of these charges.
INVESTMENT OBJECTIVE AND POLICIES The Fund's investment objective is to provide
a high level of current income, consistent with preservation of capital. The
Fund will seek to achieve its objective by investing in a professionally managed
portfolio of interests in floating or variable rate senior loans ("Senior
Loans") made primarily to United States corporations, partnerships and other
entities ("Borrowers"). Senior Loans may take the form of syndicated loans
("Syndicated Loans") or of debt obligations of Borrowers issued directly to
investors in the form of debt securities ("Senior Notes"). Senior Loans in which
the Fund will invest generally pay interest at rates which are periodically
redetermined by reference to a base lending rate plus a premium. These base
lending rates are generally the prime rate offered by one or more major United
States banks ("Prime Rate"), the London Inter-Bank Offered Rate ("LIBOR"), the
Certificate of Deposit ("CD") rate or other base lending rates used by
commercial lenders.
The Fund will seek to achieve over time a high effective yield. Although the
Fund's net asset value will vary, the Fund's policy of acquiring interests in
floating or variable rate Senior Loans is expected to minimize fluctuations in
the Fund's net asset value as a result of changes in interest rates. While the
Fund seeks relative share price (NAV) stability, its net asset value may be
affected by changes in the credit quality of Borrowers with respect to Senior
Loan interests in which the Fund invests. An investment in the Fund may not be
appropriate for all investors and is not intended to be a complete investment
program. No assurance can be given that the Fund will achieve its investment
objective. As discussed in this Prospectus Summary under "Tender Offers," an
investment in the Common Shares should be considered illiquid.
Under normal market conditions, at least 80% of the Fund's total assets will be
invested in interests, participations and assignments of Senior Loans. The
remainder of the Fund's assets may be invested in high quality, short-term debt,
money market instruments, warrants, equity securities and junior debt securities
acquired in connection with the Fund's investment in Senior Loans. There is no
restriction or percentage limitation with respect to the Fund's investment in
illiquid securities. The Fund is not subject to any restrictions with respect to
the maturity of Senior Loans held in its portfolio. It is currently anticipated
that the Fund's assets invested in Senior Loans will consist of Senior Loans
with stated maturities of between three and seven years, inclusive, and with
rates of interest which are periodically reset with reset periods typically
ranging from 30 days to one year. Investment in Senior Loans with longer
interest rate redetermination periods may increase fluctuations in the Fund's
net asset value as a result of changes in interest rates. For further discussion
of the Fund's investment objective and policies and its investment practices and
associated considerations, see "Investment Objective and Policies and Special
Risk Factors" and "Investment Practices and Special Risks" in this Prospectus.
INVESTMENT ADVISOR Sierra Investment Advisors Corporation ("Sierra Advisors" or
"Advisor"), an indirectly wholly-owned subsidiary of Great Western Financial
Corporation ("GWFC"), is the Fund's investment advisor. The Advisor currently
manages or supervises approximately $3.3 billion in assets. Such assets include
those of twenty-seven portfolios or funds (including the Fund) comprising four
management investment companies. See "Management of the Fund."
THE SUB-ADVISOR Van Kampen American Capital Management Inc. (the "Sub-Advisor"
or "Van Kampen") is the sub-advisor to the Fund, located at One Parkview Plaza,
Oakbrook Terrace, Illinois 60181. The Sub-Advisor selects the investments made
by the Fund subject to the oversight and specific direction of the Advisor. In
particular, subject to oversights, procedures adopted by the Board of Trustees,
the Advisor with oversight of the Board may accept or reject portfolio
selections and pricing determinations of Van Kampen. In addition, the
Sub-Advisor also monitors the provisions of the Loan Agreements and any
agreements with respect to Participations and Assignments, provides
recordkeeping responsibilities with respect to Senior Loans in the Fund's
portfolio and provides certain services to holders of the Fund's Common Shares.
See "Management of the Fund." The Sub-Advisor provides investment advice to a
wide variety of individual, institutional and investment company clients and
together with its affiliated entities had aggregate assets under management or
supervision, as of December 31, 1995, of more than $54 billion. Van Kampen is a
wholly-owned subsidiary of Van Kampen American Capital, Inc. Van Kampen American
Capital, Inc. is a wholly-owned subsidiary of VK/AC Holding, Inc. VK/AC Holding,
Inc. 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 Van Kampen American Capital, Inc.
own, in the aggregate, not more than seven percent of the common stock of VK/AC
Holding, Inc. and have the right to acquire, upon the exercise of options,
approximately an additional 11% of the common stock of VK/AC Holding, Inc.
Presently, and after giving effect to the exercise of such options, no officer
or trustee of the Fund owns or would own five percent or more of the common
stock of VK/AC Holding, Inc.
ADMINISTRATOR Sierra Fund Administration Corporation ("Sierra Administration")
is the Fund's administrator. Sierra Administration is responsible for managing
the business affairs of the Fund, subject to the supervision of the Fund's Board
of Trustees, although it may delegate certain of its responsibilities to
sub-administrators. See "Management of the Fund." Sierra Administration has
delegated certain administrative and custodial services to State Street Bank &
Trust Company ("State Street"). Sierra Administration has also delegated certain
transfer agent responsibilities to First Data Investor Services Group, Inc.
("First Data").
FEES AND EXPENSES The Fund will pay the Advisor a monthly fee at an annual rate
of .95% of the average daily net assets of the Fund, out of which .475% is paid
to Van Kampen for services rendered as the Sub-Advisor. The advisory fee,
although higher than the fees paid by most other management investment companies
is comparable to the fees paid by several similar closed-end management
investment companies. The Fund will also pay the Administrator a monthly fee at
the annual rate of .35% of the average daily assets of the Fund. See "Management
of the Fund."
DISTRIBUTIONS The Fund's policy will be to declare daily and pay monthly
distributions to holders of Class A Common Shares of substantially all net
investment income of the Fund. Distributions to holders of these Common Shares
cannot be assured, and the amount of each monthly distribution is likely to
vary. Net realized long-term capital gains, if any, are to be distributed to
holders of the Common Shares at least annually. Holders of the Common Shares may
elect to have distributions automatically reinvested in additional Common
Shares. See "Distributions," "Taxation" and "Dividend Reinvestment Plan."
TENDER OFFERS The Board of Trustees of the Fund currently intends, each quarter,
to consider authorizing the Fund to make tender offers for a portion of its
outstanding Class A Common Shares at the then current net asset value of these
Common Shares. The Fund does not intend to list the Common Shares on any
national securities exchange and none of the Fund, the Advisor or SISC intends
to make a secondary trading market in the classes of the Common Shares at any
time. Accordingly, there is not expected to be any secondary trading market in
the Common Shares and an investment in such Common Shares should be considered
illiquid. There can be no assurance that the Fund will in fact tender for any of
its Common Shares. If the Fund tenders for Common Shares there is no guarantee
that all, or any, Common Shares tendered will be purchased. Subject to its
borrowing restrictions, the Fund may incur debt to finance repurchases of its
Common Shares pursuant to tender offers; such borrowings entail additional
risks. The ability of the Fund to tender for its Common Shares may be limited by
certain requirements of the Internal Revenue Code of 1986, as amended, that must
be satisfied in order for the Fund to maintain its desired tax status as a
regulated investment company. The Fund may be required to suspend the continuous
offering of its Common Shares during the term of any such tender offer
consistent with rules promulgated by the SEC under the Securities Exchange Act
of 1934, as amended. The Fund intends to seek an exemption from the SEC that
would permit the Fund to make tender offers for its Common Shares while
simultaneously engaged in the continuous offering of its Common Shares. See "The
Fund," "Offering of Shares" and "Repurchase (Tender Offers) of Shares."
SPECIAL RISK CONSIDERATIONS
Illiquidity. The Fund is a closed-end investment company designed primarily for
long-term investors and not as a trading vehicle. The Fund does not intend to
list its Common Shares for trading on any national securities exchange. There is
not expected to be any secondary trading market in the Common Shares and an
investment in the Common Shares should be considered illiquid. In the event that
the Fund's Board of Trustees does not, at any time or from time to time,
authorize the Fund to engage in tender offers for its Common Shares, it is
unlikely that a holder of Class A Common Shares will be able to otherwise sell
their shares to the Fund. The shares of closed-end investment companies often
trade at a discount from their net asset values and, in the unlikely event that
a secondary market for the Common Shares were to develop, the Common Shares
likewise may trade at a discount from net asset value. Because the Fund intends
to offer its Common Shares continuously at a price equal to net asset value, it
is unlikely that the Common Shares would trade at a Premium to net asset value
should a secondary market for the Common Shares develop.
Borrowings. The Fund as a fundamental policy is authorized to borrow money in an
amount up to 33 1/3% of the Fund's total assets (after giving effect to the
amount borrowed). The Fund currently expects, however, to limit its borrowing to
an amount sufficient to meet its tender offer purchases or 10% of its assets,
whichever is greater. Under the requirements of the 1940 Act, the Fund,
immediately after any such borrowings, is required to have asset coverage of at
least 300%. Asset coverage is the ratio which the value of the total assets of
the Fund, less all liabilities and indebtedness not represented by senior
securities (as that term is defined in the 1940 Act), bears to the aggregate
amount of any such borrowings by the Fund. The rights of any lenders to the Fund
to receive payments of interest on and repayments of principal of such
borrowings will be senior to those of the holders of Common Shares, and the
terms of any such borrowings may contain provisions which limit certain
activities of the Fund, including the payment of dividends to holders of Common
Shares in certain circumstances. Further, the terms of any such borrowings may,
and the provisions of the 1940 Act do (in certain circumstances), grant lenders
certain voting rights in the event of default in the payment of interest or
repayment of principal. In the event that such provisions would impair the
Fund's status as a regulated investment company, the Fund, subject to its
ability to liquidate its relatively illiquid portfolio, intends to repay the
borrowings. Interest payments and fees incurred in connection with any such
borrowings will reduce the amount of net income available for payment to the
holders of Common Shares. Accordingly, the Fund will not purchase additional
portfolio securities, other than with proceeds from the sale or maturity of
existing portfolio securities, at any time that borrowings, including the Fund's
commitments pursuant to reverse repurchase agreements, exceed 5% of the Fund's
total assets (after giving effect to the amount borrowed). See "Repurchase
(Tender Offer) of Shares."
Senior Loans. Senior Loans in which the Fund will invest generally will not be
rated by a nationally recognized statistical rating organization, will not be
registered with the SEC or any state securities commission and generally will
not be listed on any national securities exchange. Although the Fund will
generally have access to financial and other information made available to the
Lenders in connection with Senior Loans, the amount of public information
available with respect to Senior Loans will generally be less extensive than
that available for rated, registered and exchange-listed securities. As a
result, the performance of the Fund and its ability to meet its investment
objective is more dependent on the analytical abilities of the Advisor and
particularly the Sub-Advisor, Van Kampen, than would be the case for an
investment company that invests primarily in rated, registered or
exchange-listed securities. See "Investment Objective and Policies and Special
Risk Factors."
Interests in Senior Loans generally are not listed on any national securities
exchange or automated quotation system and no regular market has developed in
which interests in Senior Loans are traded. Any secondary market purchases and
sales of Senior Loans generally are conducted in private transactions between
buyers and sellers. Senior Loans are thus relatively illiquid, which illiquidity
may impair the Fund's ability to realize the full value of its assets in the
event of a voluntary or involuntary liquidation of such assets. Liquidity
relates to the ability of the Fund to sell an investment in a timely manner. The
market for relatively illiquid securities tends to be more volatile than the
market for liquid securities. The substantial portion of the Fund's assets
invested in relatively illiquid Senior Loan interests may restrict the ability
of the Fund to dispose of its investments in Senior Loans in a timely fashion
and at a fair price, and could result in capital losses to the Fund and holders
of Common Shares. However, many of the Senior Loans in which the Fund expects to
purchase interests are of a relatively large principal amount and are held by a
relatively large number of owners which should, in the Advisor's opinion,
enhance the relative liquidity of such interests. The risks associated with
illiquidity are particularly acute in situations where the Fund's operations
require cash, such as when the Fund tenders for its Common Shares or when the
Advisor considers it advantageous to increase the percentage of the Fund's
portfolio invested in high quality, short-term securities, and may in certain
circumstances result in the Fund engaging in borrowings to meet short-term cash
requirements. See "Investment Objective and Policies and Special Risk Factors."
Credit Risks Associated with Investments in Participations. The Fund will
purchase Participations in Senior Loans. With respect to any given Senior Loan,
the terms of Participations are arrived at through private negotiations between
the Fund and the seller of such an interest in a Senior Loan, and may result in
the Fund having rights which differ from, and are more limited than, the rights
of Lenders or of persons who acquire such interests by Assignment.
Participations typically result in the Fund having a contractual relationship
with the Lender selling the Participation, but not with the Borrower. In the
event of the insolvency of the Lender selling the Participation, the Fund may be
treated as a general creditor of such Lender, and may not have any exclusive or
senior claim with respect to such Lender's interest in, or the collateral with
respect to, the Senior Loan. As such, the Fund may incur the credit risk of the
Lender selling the Participation in addition to the credit risk of the Borrower
with respect to the Senior Loan when purchasing Participations and may not
benefit directly from the security provided by the collateral supporting the
Senior Loan with respect to which such Participation was sold. The Fund may pay
a fee or forego a portion of interest payments when acquiring Participations or
Assignments. See "Investment Objective and Policies and Special Risk Factors."
Credit Risks Associated with Senior Loans. Senior Loans, like other corporate
debt obligations, are subject to the risk of non-payment of scheduled interest
or principal. Such non-payment would result in a reduction of income to the
Fund, a reduction in the value of the Senior Loan experiencing non-payment and a
potential decrease in the net asset value of the Fund. Although Senior Loans in
which the Fund will invest generally will be secured by specific collateral,
there can be no assurance that liquidation of such collateral would satisfy the
Borrower's obligation in the event of non-payment of scheduled interest or
principal or that such collateral could be readily liquidated. In the event that
the Fund invests a portion of its assets in Senior Loans that are not secured by
specific collateral, the Fund will not enjoy the benefits associated with
collateralization with respect to such Senior Loans and such Senior Loans may
pose a greater risk of non-payment of interest or loss of principal than do
collateralized Senior Loans. See "Investment Objective and Policies and Special
Risk Factors."
Certain Investment Practices. The Fund may use various investment practices that
involve special considerations including lending its portfolio securities,
entering into when-issued and delayed-delivery transactions and entering into
repurchase and reverse repurchase agreements. In addition, the Fund has the
authority to engage in interest rate and other hedging and risk management
transactions. For further discussion of these practices and associated special
considerations, see "Investment Practices and Special Risks."
Diversification. The Fund has registered as a "non-diversified" investment
company so that it will be able to invest more than 5% of the value of its
assets in the obligations of any single issuer, including Senior Loans of a
single Borrower or Participations purchased from a single Lender. The Fund
initially, expects to invest up to 10% of the value of its assets in interests
in Senior Loans of Single Borrowers until its aggregate asset level reaches $20
million. Once this $20 million asset level is reached, the Fund intends to limit
the value of its assets in interests in Senior Loans of a single Borrower to 5%.
To the extent the Fund invests a relatively high percentage of its assets in
obligations of a limited number of issuers, the Fund will be more susceptible
than a more widely diversified investment company to any single corporate,
economic, political or regulatory occurrence. See "The Fund."
Percentage of Assets in Participations. The Fund may invest up to 100% of its
assets in Participations. The Lenders selling such Participations and other
persons interpositioned between such Lenders and the Fund with respect to such
Participations will likely conduct their principal business activities in the
bank, finance and financial services industries. Because the Fund may invest a
relatively high percentage of its assets in such Participations, the Fund may be
more susceptible than an investment company without such a policy to any single
economic, political or regulatory occurrence affecting such industries. The Fund
has taken measures which it believes significantly reduce its exposure to such
risk. See "Investment Objective and Policies and Special Risk Factors" and
"Investment Restrictions."
Anti Open-End Investment Company Provisions. The Fund's Declaration of Trust
includes provisions that may limit the ability of the shareholders to convert
the Fund to an open-end investment company as defined in the Investment Company
Act of 1940 as amended. See "Description of Common Shares -- Anti Open-End
Investment Provisions of the Declaration of Trust."
Anti-Takeover Provisions. The Fund's Declaration of Trust includes provisions
that could have the effect of limiting the ability of other persons or entities
to acquire control of the Fund or to change the composition of its Board of
Trustees. See "Description of Common Shares - Anti-Takeover Provisions of the
Declaration of Trust."
THE FUND
Sierra Prime Income Fund (the "Fund") is a recently organized, non-diversified,
closed-end management investment company whose investment objective is to
provide a high level of current income, consistent with preservation of capital.
The Fund will seek to achieve its objective through investing in a
professionally managed portfolio of interests in floating or variable rate
senior loans ("Senior Loans") to United States corporations, partnerships and
other entities ("Borrowers"). The Fund's policy of acquiring interests in
floating or variable rate Senior Loans is expected to minimize fluctuations in
the Fund's net asset value as a result of changes in interest rates. An
investment in the Fund may not be appropriate for all investors, and no
assurance can be given that the Fund will achieve its investment objective. The
Fund is designed primarily for long-term investment and not as a trading
vehicle.
The Fund was organized as a Massachusetts business trust on October 4, 1995.
Sierra Investment Advisors Corporation ("Advisors") is the Fund's investment
advisor. The Fund also employs a sub-advisor, Van Kampen American Capital
Management Inc. ("Sub-Advisor" or "Van Kampen"), who directly selects the Fund's
investments subject to the oversight and specific direction of the Advisor. The
Fund has no operating history. The Fund's principal office is located at 9301
Corbin Avenue, Northridge, CA 91324.
The Fund's Declaration of Trust authorizes the issuance of an unlimited number
of common shares of beneficial interest ("Common Shares") with no par value. The
Fund is initially offering 5,000,000 Class A Common Shares by this Prospectus in
a continuous offering pursuant to Rule 415 under the Securities Act of 1933, as
amended. Class A Common Shares are subject to a maximum sales charge of 4.5% on
purchases of less than $50,000, declining to zero on purchases of $1,000,000 at
the time of purchase. See "Offering of Shares."
The Fund is a closed-end investment company with no history of operations. The
Fund does not intend to list its Common Shares for trading on any national
securities exchange and none of the Fund, Advisor, Van Kampen or SISC intends to
make a secondary trading market in the Common Shares at any time. Accordingly,
there is not expected to be any secondary trading market in the Common Shares
and an investment in the Common Shares should be considered illiquid. The Board
of Trustees of the Fund currently intends each quarter to consider authorizing
the Fund to make tender offers for a portion of its then outstanding Common
Shares at the then current net asset value for the Common Shares. There can be
no assurance that the Fund will in fact tender for any of its Common Shares and,
in the event that the Fund does not so tender it is unlikely that a holder of
Common Shares will be able to otherwise sell the Common Shares to the Fund. If
the Fund tenders for Common Shares, there is no guarantee that all, or any,
Common Shares tendered will be purchased. Subject to its borrowing restrictions,
the Fund may incur debt to finance the repurchases of its Common Shares pursuant
to tender offers. The ability of the Fund to enter into tender offers may be
limited by certain requirements of the Internal Revenue Code of 1986, as
amended, that must be satisfied in order for the Fund to maintain its desired
tax status as a regulated investment company. See "Repurchase (Tender Offer) of
Shares."
Senior Loans in which the Fund will invest generally pay interest at rates which
are periodically redetermined by reference to a base lending rate plus a
premium. These base lending rates are generally the prime rate offered by a
major United States bank ("Prime Rate"), the London Inter-Bank Offered Rate
("LIBOR"), the certificate of deposit ("CD") rate or other base lending rates
used by commercial lenders. The Fund will seek to achieve over time an effective
yield that approximates the average published Prime Rate of major United States
banks. The Senior Loans in the Fund's portfolio will at all times have a
dollar-weighted average time until next interest rate redetermination of 90 days
or less. As a result, as short-term interest rates increase, the interest
payable to the Fund from its investments in Senior Loans should increase, and as
short-term interest rates decrease, the interest payable to the Fund on its
investments in Senior Loans should decrease. The amount of time required to pass
before the Fund will realize the effects of changing short-term market interest
rates on its portfolio will vary with the dollar-weighted average time until
next interest rate redetermination on securities in the Fund's portfolio. See
"Investment Objective and Policies."
The Fund has registered as a "non-diversified" investment company so that,
subject to its investment restrictions, it will be able to invest more than 5%
of the value of its assets in the obligations of any single issuer, including
Senior Loans of a single Borrower or Participations purchased from a single
Lender. See "Investment Restrictions." The Fund initially, expects to invest up
to 10% of the value of its assets in interest in Senior Loans of Single
Borrowers until its aggregate asset level reaches $20 million. Once this $20
million asset level is reached, the Fund intends to limit the value of its
assets in interests in Senior Loans of a single Borrower to 5%. To the extent
the Fund invests a relatively high percentage of its assets in obligations of a
limited number of issuers, the Fund will be more susceptible than a more widely
diversified investment company to any single corporate, economic, political or
regulatory occurrence.
USE OF PROCEEDS
Proceeds from the continuous offer of the Fund's Class A Common Shares may be
used to fund investments in portfolio securities, to finance the Fund's Tender
Offers (if any) and to reduce the amount of any borrowing or indebtedness
incurred by the Fund as described under "Repurchase (Tender Offer) of Shares" in
this Prospectus. The investment of proceeds from the continuous offer of the
Fund's Class A Common Shares may take one to three months, up to a maximum of
six months, from the date the Fund receives such proceeds. Pending such
investments, the proceeds will be held in cash or invested in investment grade
short-term debt obligations. Investments in such short-term debt obligations
will reduce the Fund's yield. The Fund also may acquire such debt obligations
during unusual market conditions for temporary defensive purposes.
A portion of the organizational expenses of the Fund has been advanced by the
Advisor and will be repaid by the Fund. Certain expenses of the continuous
offering of the Fund's Class A Common Shares, including distributor compensation
and sales commissions payable to authorized dealers, will be paid by SISC and/or
the Advisor, from its own assets and will not be repaid by the Fund.
INVESTMENT OBJECTIVE AND POLICIES AND SPECIAL RISK FACTORS
The Fund's investment objective is to provide a high level of current income,
consistent with preservation of capital. The Fund seeks to achieve its objective
through investment primarily in a professionally managed portfolio of interests
in floating or variable rate senior loans ("Senior Loans") to United States
corporations, partnerships and other entities ("Borrowers"). Although the Fund's
net asset value will vary, the Fund's policy of acquiring interests in floating
or variable rate Senior Loans is expected to minimize the fluctuations in the
Fund's net asset value as a result of changes in interest rates. The Fund's net
asset value may be affected by changes in the credit quality of Borrowers with
respect to Senior Loan interests in which the Fund invests. The Fund seeks to
achieve over time a high effective yield. An investment in the Fund may not be
appropriate for all investors and is not intended to be a complete investment
program. No assurance can be given that the Fund will achieve its investment
objective.
CERTAIN CHARACTERISTICS OF SENIOR LOAN INTERESTS
Senior Loans generally are arranged through private negotiations between a
Borrower and several financial institutions ("Lenders") represented in each case
by one or more such Lenders acting as agent ("Agent") of the several Lenders. On
behalf of the several Lenders, the Agent, which is frequently the commercial
bank or other entity that originates the Senior Loan and the person that invites
other parties to join the lending syndicate, will be primarily responsible for
negotiating the loan agreement or agreements ("Loan Agreement") that establish
the relative terms, conditions and rights of the Borrower and the several
Lenders. In larger transactions it is common to have several Agents; however,
generally only one such Agent has primary responsibility for documentation and
administration of the Senior Loan. Agents are typically paid a fee or fees by
the Borrower for their services.
The Fund will invest in participations ("Participations") in Senior Loans, will
purchase assignments ("Assignments") of portions of Senior Loans from third
parties and may act as one of the group of Lenders originating a Senior Loan (an
"Original Lender").
It is anticipated that the proceeds of the Senior Loans in which the Fund will
acquire interests primarily will be used to finance leveraged buyouts,
recapitalizations, mergers, acquisitions, stock repurchases, and, to a lesser
extent, to finance internal growth and for other corporate purposes of
Borrowers. The Fund currently does not intend to acquire interests in Senior
Loans the proceeds of which would be used primarily to finance construction or
real estate development projects. Senior Loans have the most senior position in
a Borrower's capital structure, although some Senior Loans may hold an equal
ranking with other senior securities of the Borrower. The capital structure of
Borrowers may include Senior Loans, senior and junior subordinated debt (which
may include "junk bonds"), preferred stock and common stock issued by the
Borrower, typically in descending order of seniority with respect to claims on
the Borrower's assets. Senior Loans generally are secured by specific
collateral, which may include guarantees. In connection with the acquisition of
collateralized Senior Loans, the Fund may invest up to 5% of its total assets in
Senior Loans which are not secured by any collateral. Such unsecured Senior
Loans would constitute an interim financing intended to be refinanced through,
in whole or in part, a collateralized Senior Loan. In the event that the Fund
invests a portion of its assets in Senior Loans that are not secured by specific
collateral, the Fund will not enjoy the benefits associated with
collateralization with respect to such Senior Loans and such Senior Loans may
pose a greater risk of non-payment of interest or loss of principal than do
collateralized Senior Loans.
At least 80% of the Fund's total assets normally will be invested in Senior
Loans. The Fund is not subject to any restrictions with respect to the maturity
of Senior Loans held in its portfolio. It is currently anticipated that the
Fund's assets invested in Senior Loans will consist of Senior Loans with stated
maturities of between three and seven years, inclusive, and with rates of
interest which are periodically reset with reset periods ranging from 30 days up
to one year. Investment in Senior Loans with longer interest rate
redetermination periods may increase fluctuations in the Fund's net asset value
as a result of changes in interest rates.
During normal market conditions, the Fund may invest up to 20% of its total
assets in (i) high quality, short-term debt securities with remaining maturities
of one year or less (including assets maintained by the Fund as a reserve
against any additional loan commitments) and (ii) warrants, equity securities
and, in certain limited circumstances discussed above, junior debt securities
acquired in connection with the Fund's investments in Senior Loans. Such high
quality, short-term securities may include commercial paper rated at least in
the top two rating categories of either S&P or Moody's, or unrated commercial
paper considered by the Advisor to be of similar quality, interests in
short-term loans of Borrowers having short-term debt obligations rated or a
short-term credit rating at least in such top two rating categories or having no
such rating but determined by the Advisor to be of comparable quality,
certificates of deposit and bankers' acceptances and securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities. Such high
quality, short-term securities may pay interest at rates which are periodically
redetermined or may pay interest at fixed rates. If the Advisor determines that
market conditions temporarily warrant a defensive investment policy, the Fund
may invest, subject to its ability to liquidate its relatively illiquid
portfolio of Senior Loans, up to 100% of its assets in cash and such high
quality, short-term debt securities. The Fund will acquire such warrants and
equity securities only as an incident to the purchase or intended purchase of
interests in collateralized Senior Loans. Warrants and equity securities will
not qualify as assets required to be maintained as a reserve against additional
loan commitments. Although the Fund generally will acquire interests in warrants
and equity securities only when the Advisor believes that the relative value
being given by the Fund in exchange for such interests is substantially
outweighed by the potential value of such instruments, investment in warrants
and equity securities entail certain risks in addition to those associated with
investments in Senior Loans. Warrants and equity securities have a subordinate
claim on a Borrower's assets as compared with debt securities and junior debt
securities have a subordinate claim on such assets as compared with Senior
Loans. As such, the values of warrants and equity securities generally are more
dependent on the financial condition of the Borrower and less dependent on
fluctuations in interest rates than are the values of many debt securities. The
values of warrants, equity securities and junior debt securities may be more
volatile than those of Senior Loans and thus may have an adverse impact on the
ability of the Fund to minimize fluctuations in its net asset value.
As discussed below, the Fund may also acquire warrants and equity securities
issued by the Borrower or its affiliates as part of a package of investments in
the Borrower or its affiliates. Warrants and equity securities will not be
treated as Senior Loans and thus assets invested in such securities will not
count toward the 80% of the Fund's total assets that normally will be invested
in Senior Loans. The Fund will acquire such interests in unsecured Senior Loans,
warrants and equity securities only as an incident to the intended purchase of
interests in collateralized Senior Loans. Loan Agreements may also include
various restrictive covenants designed to limit the activities of the Borrower
in an effort to protect the right of the Lenders to receive timely payments of
interest on and repayment of principal of the Senior Loans. In order to borrow
money pursuant to collateralized Senior Loans, a Borrower will frequently, for
the term of the Senior Loan, pledge as collateral assets, including but not
limited to, trademarks, accounts receivable, inventory, buildings, real estate,
franchises and common and preferred stock in its subsidiaries. In addition, in
the case of some Senior Loans, there may be additional collateral pledged in the
form of guarantees by and/or securities of affiliates of the Borrowers. In
certain instances, a Senior Loan may be secured only by stock in the Borrower or
its subsidiaries. Such collateral may consist of assets that may not be readily
liquidated, and there is no assurance that the liquidation of such assets would
satisfy fully a Borrower's obligations under a Senior Loan.
Restrictive covenants may include mandatory prepayment provisions arising from
excess cash flows and typically include restrictions on dividend payments,
specific mandatory minimum financial ratios, limits on total debt and other
financial tests. Breach of such covenants, if not waived by the Lenders, is
generally an event of default under the applicable Loan Agreement and may give
the Lenders the right to accelerate principal and interest payments. The Advisor
will consider the terms of such restrictive covenants in deciding whether to
invest in Senior Loans for the Fund's portfolio. When the Fund holds a
Participation in a Senior Loan it may not have the right to vote to waive
enforcement of any restrictive covenant breached by a Borrower. Lenders voting
in connection with a potential waiver of a restrictive covenant may have
interests different from those of the Fund and such Lenders may not consider the
interests of the Fund in connection with their votes.
A Lender may have certain obligations pursuant to a Loan Agreement, which may
include the obligation to make additional loans in certain circumstances. The
Fund currently intends to reserve against such contingent obligations by
segregating sufficient investments in high quality short-term, liquid
investments. The Fund will not purchase interests in Senior Loans that would
require the Fund to make any such additional loans if such additional loan
commitments would exceed 20% of the Fund's total assets or would cause the Fund
to fail to meet the diversification requirements set forth under the heading
"Diversification and Concentration."
Senior Loans in which the Fund will invest generally pay interest at rates which
are periodically redetermined by reference to a base lending rate plus a
premium. As a result, Borrowers will generally pay more than the Prime Rate to
the Fund on the Senior Loans. These base lending rates generally are the prime
rate offered by one or more major United States banks (the "Prime Rate"), the
London Inter-Bank Offered Rate ("LIBOR"), the certificate of deposit ("CD") rate
or other base lending rates used by commercial lenders. The Prime Rate quoted by
a major U.S. bank is the interest rate at which such bank is willing to lend
U.S. dollars to its most creditworthy borrowers. LIBOR, as provided for in Loan
Agreements, is an average of the interest rates quoted by several designated
banks as the rates at which such banks would offer to pay interest to major
financial institutional depositors in the London interbank market on U.S. dollar
denominated deposits for a specified period of time. The CD rate, as generally
provided for in Loan Agreements, is the average rate paid on large certificates
of deposit traded in the secondary market.
The Senior Loans in the Fund's portfolio will at all times have a
dollar-weighted average time until the next interest rate redetermination of 90
days or less. As a result, as short-term interest rates increase, interest
payable to the Fund from its investments in Senior Loans should increase, and as
short-term interest rates decrease, interest payable to the Fund from its
investments in Senior Loans should decrease. The amount of time required to pass
before the Fund will realize the effects of changing short-term market interest
rates on its portfolio will vary with the dollar-weighted average time until the
next interest rate redetermination on the Senior Loans in the Fund's portfolio.
The Fund may utilize certain investment practices to, among other things,
shorten the effective interest rate redetermination period of Senior Loans in
its portfolio. In such event, the Fund will consider such shortened period to be
the interest rate redetermination period of the Senior Loan; provided, however,
that the Fund will not invest in Senior Loans which permit the Borrower to
select an interest rate redetermination period in excess of one year. Because
most Senior Loans in the Fund's portfolio will be subject to mandatory and/or
optional prepayment and there may be significant economic incentives for a
Borrower to prepay its loans, prepayments of Senior Loans in the Fund's
portfolio may occur. Accordingly, the actual remaining maturity of the Fund's
portfolio invested in Senior Loans may vary substantially from the average
stated maturity of the Senior Loans held in the Fund's portfolio. As a result of
expected prepayments from time to time of Senior Loans in the Fund's portfolio,
the Fund estimates that the actual average maturity of the Senior Loans held in
its portfolio will be approximately 18-24 months.
When interest rates decline, the value of a portfolio invested in fixed-rate
obligations can be expected to rise. Conversely, when interest rates rise, the
value of a portfolio invested in fixed-rate obligations can be expected to
decline. Although the Fund's net asset value will vary, the Fund's management
expects the Fund's policy of acquiring interests in floating or variable rate
Senior Loans to minimize fluctuations in net asset value as a result of changes
in interest rates. Accordingly, the Fund's management expects the value of the
Fund's portfolio to fluctuate significantly less than a portfolio of fixed-rate,
longer term obligations as a result of interest rate changes. However, changes
in prevailing interest rates can be expected to cause some fluctuation in the
Fund's net asset value. In addition to changes in interest rates, changes in the
credit quality of Borrowers will also effect the Fund's net asset value.
Further, a serious deterioration in the credit quality of a Borrower could cause
a prolonged or permanent decrease in the Fund's net asset value.
Senior Loans generally are not rated by nationally recognized statistical rating
organizations. Because of the collateralized and/or guaranteed nature of most
Senior Loans, the Fund and the Advisor believe that ratings of other securities
issued by a Borrower do not necessarily reflect adequately the relative quality
of a Borrower's Senior Loans. Therefore, although the Advisor may consider such
ratings in determining whether to invest in a particular Senior Loan, the
Advisor is not required to consider such ratings and such ratings will not be
the determinative factor in the Advisor's analysis. The Fund may invest in
Senior Loans, the Borrowers of which may have outstanding debt securities rated
below investment grade by a nationally recognized statistical rating
organization or are unrated but of comparable quality to such securities. Such
Borrowers are more likely to experience difficulty in meeting payment
obligations under such debt and other subordinate obligations. These
difficulties could detract from the Borrower's perceived creditworthiness or its
abilities to obtain financing to cover short-term cash flow needs and may force
the Borrower into various forms of credit restructuring. The Fund will invest
only in those Senior Loans with respect to which the Borrower, in the opinion of
the Advisor, demonstrates certain of the following characteristics: sufficient
cash flow to service debt; adequate liquidity; successful operating history;
strong competitive position; experienced management; and, with respect to
collateralized Senior Loans, collateral coverage that equals or exceeds the
outstanding principal amount of the Senior Loan. In addition, the Advisor will
consider, and may rely in part, on the analyses performed by the Agent and other
Lenders, including such persons' determinations with respect to collateral
securing a Senior Loan.
The Fund may invest up to 100% of its assets in Participations. The selling
Lenders and other persons interpositioned between such Lenders and the Fund with
respect to such Participations will likely conduct their principal business
activities in the banking, finance and financial services industries. Although,
as discussed below, the Fund has taken measures which it believes significantly
reduce its exposure to any risks incident to such policy, the Fund may be more
susceptible than an investment company without such a policy to any single
economic, political or regulatory occurrence affecting such industries. Persons
engaged in such industries may be more susceptible than are persons engaged in
some other industry to, among other things, fluctuations in interest rates,
changes in the Federal Open Market Committee's monetary policy, governmental
regulations concerning such industries and concerning capital raising activities
generally and fluctuations in the financial markets generally.
Participations by the Fund in a Lender's portion of a Senior Loan typically
result in the Fund having a contractual relationship only with such Lender, not
with the Borrower. The Fund has the right to receive payments of principal,
interest and any fees to which it is entitled only from the Lender selling the
Participation and only upon receipt by such Lender of such payments from the
Borrower. In connection with purchasing Participations, the Fund generally will
have no right to enforce compliance by the Borrower with the terms of the Loan
Agreement, nor any rights with respect to any funds acquired by other Lenders
through set-off against the Borrower and the Fund may not directly benefit from
the collateral supporting the Senior Loan in which it has purchased the
Participation. As a result, the Fund may assume the credit risk of both the
Borrower and the Lender selling the Participation. In the event of the
insolvency of the Lender selling a Participation, the Fund may be treated as a
general creditor of such Lender, and may not benefit from any set-off between
such Lender and the Borrower. The Fund has taken the following measures in an
effort to minimize such risks. The Fund will acquire Participations only if the
Lender selling the Participation, and any other persons interpositioned between
the Fund and the Lender, (i) at the time of investment has outstanding debt or
deposit obligations rated investment grade (BBB or A-3 or higher by Standard &
Poor's Ratings Group ("S&P") or Baa or P-3 or higher by Moody's Investors
Service ("Moody's")) or determined by the Advisor to be of comparable quality
and (ii) has entered into an agreement which provides for the holding of assets
in safekeeping for, or the prompt disbursement of assets to, the Fund. Long-term
debt rated BBB by S&P is regarded by S&P as having adequate capacity to pay
interest and repay principal and debt rated Baa by Moody's is regarded by
Moody's as a medium grade obligation, i.e., it is neither highly protected nor
poorly secured. Commercial paper rated A-1 by S&P indicates that the degree of
safety regarding timely payment is considered by S&P to be either overwhelming
or very strong and issues of commercial paper rated Prime-I by Moody's are
considered by Moody's to have a superior ability for repayment of senior
short-term debt obligations. The Fund ordinarily will purchase a Participation
only if, at the time of such purchase, the Fund believes that the party from
whom it is purchasing such Participation is retaining an interest in the
underlying Senior Loan.
The Fund may also purchase Assignments from Lenders. The purchaser of an
Assignment typically succeeds to all the rights and obligations under the Loan
Agreement of the assigning Lender and becomes a Lender under the Loan Agreement
with the same rights and obligations as the assigning Lender. Assignments are,
however, arranged through private negotiations between potential assignees and
potential assignors, and the rights and obligations acquired by the purchaser of
an Assignment may differ from, and be more limited than, those held by the
assigning Lender.
When the Fund is an Original Lender originating a Senior Loan it may share in a
fee paid to the Original Lenders. The Fund will never act as the Agent or
principal negotiator or administrator of a Senior Loan. When the Fund is a
Lender, it will have a direct contractual relationship with the Borrower, may
enforce compliance by the Borrower with the terms of the Loan Agreement and may
have rights with respect to any funds acquired by other Lenders through set-off.
Lenders also have full voting and consent rights under the applicable Loan
Agreement. Action subject to Lender vote or consent generally requires the vote
or consent of the holders of some specified percentage of the outstanding
principal amount of the Senior Loan. Certain decisions, such as reducing the
amount or increasing the time for payment of interest on or repayment of
principal of a Senior Loan, or releasing collateral therefor, frequently require
the unanimous vote or consent of all Lenders affected.
The Fund will purchase an Assignment or act as a Lender with respect to a
syndicated Senior Loan only where the Agent with respect to such Senior Loan at
the time of investment has outstanding debt or deposit obligations rated
investment grade (BBB or A-3 or higher by S&P or Baa or P-3 or higher by
Moody's) or determined by the Advisor to be of comparable quality. In addition,
the Fund will purchase a Participation only where the Lender selling such
Participation, and any other person interpositioned between such Lender and the
Fund at the time of investment, have outstanding debt obligations rated
investment grade or determined by the Advisor to be of comparable quality.
Further, the Fund will not purchase interests in Senior Loans unless such Agent,
Lender or interpositioned person has entered into an agreement which provides
for the holding of assets in safekeeping for, or the prompt disbursement of
assets to, the Fund.
Loan Agreements typically provide for the termination of the Agent's agency
status in the event that it fails to act as required under the relevant Loan
Agreement, becomes insolvent, enters FDIC receivership, or if not FDIC insured,
enters into bankruptcy. Should such an Agent, Lender or assignor with respect to
an Assignment interpositioned between the Fund and the Borrower become insolvent
or enter FDIC receivership or bankruptcy, any interest in the Senior Loan of
such person and any loan payment held by such person for the benefit of the Fund
should not be included in such person's estate. If, however, any such amount
were included in such person's estate, the Fund would incur certain costs and
delays in realizing payment or could suffer a loss of principal and/or interest.
In such event, the Fund could experience a decrease in net asset value.
The Fund may be required to pay and may receive various fees and commissions in
connection with purchasing, selling and holding interests in Senior Loans. The
fees normally paid by Borrowers may include three types: facility fees,
commitment fees and prepayment penalties. Facility fees are paid to Lenders upon
origination of a Senior Loan. Commitment fees are paid to Lenders on an ongoing
basis based upon the undrawn portion committed by the Lenders of the underlying
Senior Loan. Lenders may receive prepayment penalties when a Borrower prepays
all or part of a Senior Loan. The Fund will receive these fees directly from the
Borrower if the Fund is an Original Lender, or, in the case of commitment fees
and prepayment penalties, if the Fund acquires an interest in a Senior Loan by
way of Assignment. Whether or not the Fund receives a facility fee from the
Lender in the case of an Assignment, or any fees in the case of a Participation,
depends upon negotiations between the Fund and the Lender selling such
interests. When the Fund is an assignee, it may be required to pay a fee, or
forego a portion of interest and any fees payable to it, to the Lender selling
the Assignment. Occasionally, the assignor will pay a fee to the assignee based
on the portion of the principal amount of the Senior Loan which is being
assigned. A Lender selling a Participation to the Fund may deduct a portion of
the interest and any fees payable to the Fund as an administrative fee prior to
payment thereof to the Fund. The Fund may be required to pay over or pass along
to a purchaser of an interest in a Senior Loan from the Fund a portion of any
fees that the Fund would otherwise be entitled to.
Pursuant to the relevant Loan Agreement, a Borrower may be required in certain
circumstances, and may have the option at any time, to prepay the principal
amount of a Senior Loan, often without incurring a prepayment penalty. Because
the interest rates on Senior Loans are periodically redetermined at relatively
short intervals, the Fund and the Advisor believe that the prepayment of, and
subsequent reinvestment by the Fund in, Senior Loans will not have a materially
adverse impact on the yield on the Fund's portfolio and may have a beneficial
impact on income due to receipt of prepayment penalties, if any, and any
facility fees carried in connection with reinvestment.
SPECIAL RISK CONSIDERATIONS
On behalf of the several Lenders, the Agent generally will be required to
administer and manage the Senior Loan and, with respect to collateralized Senior
Loans, to service or monitor the collateral. In this connection, the valuation
of assets pledged as collateral will reflect market value and the Agent may rely
on independent appraisals as to the value of specific collateral. The Fund
normally will rely primarily on the Agent (where the Fund is an Original Lender
or owns an Assignment) or the selling Lender (where the Fund owns a
Participation) to collect principal of and interest on a Senior Loan.
Furthermore, the Fund usually will rely on the Agent (where the Fund is an
Original Lender or owns an Assignment) or the selling Lender (where the Fund
owns a Participation) to monitor compliance by the Borrower with the restrictive
covenants in the Loan Agreement and notify the Fund of any adverse change in the
Borrower's financial condition or any declaration of insolvency.
Collateralized Senior Loans will frequently be secured by all assets of the
Borrower that qualify as collateral, which may include common stock of the
Borrower or its subsidiaries. Additionally, the terms of the Loan Agreement may
require the Borrower to pledge additional collateral to secure the Senior Loan,
and enable the Agent, upon proper authorization of the Lenders, to take
possession of and liquidate the collateral and to distribute the liquidation
proceeds pro rata among the Lenders. If the terms of a Senior Loan do not
require the Borrower to pledge additional collateral in the event of a decline
in the value of the original collateral, the Fund will be exposed to the risk
that the value of the collateral will not at all times equal or exceed the
amount of the Borrower's obligations under the Senior Loan. Lenders that have
sold participation interests in such Senior Loan will distribute liquidation
proceeds received by the Lenders pro rata among the holders of such
Participations. The Advisor will also monitor these aspects of the Fund's
investments and, where the Fund is an Original Lender or owns an Assignment,
will be directly involved with the Agent and the other Lenders regarding the
exercise of credit remedies.
Senior Loans, like other corporate debt obligations, are subject to the risk of
non-payment of scheduled interest or principal. Such non-payment would result in
a reduction of income to the Fund, a reduction in the value of the Senior Loan
experiencing non-payment and a potential decrease in the net asset value of the
Fund. Although, with respect to collateralized Senior Loans, the Fund generally
will invest only in Senior Loans that the Advisor believes are secured by
specific collateral, which may include guarantees, the value of which exceeds
the principal amount of the Senior Loan at the time of initial investment, there
can be no assurance that the liquidation of any such collateral would satisfy
the Borrower's obligation in the event of non-payment of scheduled interest or
principal payments, or that such collateral could be readily liquidated. In the
event of bankruptcy of a Borrower, the Fund could experience delays or
limitations with respect to its ability to realize the benefits of the
collateral securing a Senior Loan. To the extent that a Senior Loan is
collateralized by stock in the Borrower or its subsidiaries, such stock may lose
all or substantially all of its value in the event of bankruptcy of the
Borrower. The Agent generally is responsible for determining that the Lenders
have obtained a perfected security interest in the collateral securing the
Senior Loan. Some Senior Loans in which the Fund may invest are subject to the
risk that a court, pursuant to fraudulent conveyance or other similar laws,
could subordinate such Senior Loans to presently existing or future indebtedness
of the Borrower or take other action detrimental to the holders of Senior Loans,
such as the Fund, including, under certain circumstances, invalidating such
Senior Loans. Lenders commonly have certain obligations pursuant to the Loan
Agreement, which may include the obligation to make additional loans or release
collateral in certain circumstances.
Senior Loans in which the Fund will invest generally will not be rated by a
nationally recognized statistical rating organization, will not be registered
with the Securities and Exchange Commission ("SEC") or any state securities
commission and will not be listed on any national securities exchange. Although
the Fund will generally have access to financial and other information made
available to the Lenders in connection with Senior Loans, the amount of public
information available with respect to Senior Loans will generally be less
extensive than that available for rated, registered and/or exchange listed
securities. As a result, the performance of the Fund and its ability to meet its
investment objective is more dependent on the analytical ability of the Advisor
than would be the case for an investment company that invests primarily in
rated, registered and/or exchange listed securities.
Senior Loans are, at present, not readily marketable and may be subject to
restrictions on resale. Interests in Senior Loans generally are not listed on
any national securities exchange or automated quotation system and no regular
market has developed for such interests. Although interests in Senior Loans are
traded among certain financial institutions in private transactions between
buyers and sellers these loans continue to be considered illiquid. Senior Loans'
illiquidity may impair the Fund's ability to realize the full value of its
assets in the event of a voluntary or involuntary liquidation of such assets.
Liquidity relates to the ability of the Fund to sell an investment in a timely
manner. The market for relatively illiquid securities tends to be more volatile
than the market for more liquid securities. The Fund has no limitation on the
amount of its assets which may be invested in securities which are not readily
marketable or are subject to restrictions on resale. The substantial portion of
the Fund's assets invested in relatively illiquid Senior Loan interests may
restrict the ability of the Fund to dispose of its investments in Senior Loans
in a timely fashion and at a fair price, and could result in capital losses to
the Fund and holders of Common Shares. However, many of the Senior Loans in
which the Fund expects to purchase interests are of a relatively large principal
amount and are held by a relatively large number of owners which should, in the
Advisor's opinion, enhance the relative liquidity of such interests. The risks
associated with illiquidity are particularly acute in situations where the
Fund's operations require cash, such as when the Fund tenders for its Common
Shares, and may result in the Fund borrowing to meet short-term cash
requirements.
To the extent that legislation or state or federal regulators that regulate
certain financial institutions impose additional requirements or restrictions
with respect to the ability of such institutions to make loans in connection
with highly leveraged transactions, the availability of Senior Loan interests
for investment by the Fund may be adversely affected. In addition, such
requirements or restrictions may reduce or eliminate sources of financing for
certain Borrowers. Further, to the extent that legislation or federal or state
regulators that regulate certain financial institutions require such
institutions to dispose of Senior Loan interests relating to highly leveraged
transactions or subject such Senior Loan interests to increased regulatory
scrutiny, such financial institutions may determine to sell such Senior Loan
interests in a manner that results in a price which, in the opinion of the
Advisor, is not indicative of fair value. Were the Fund to attempt to sell a
Senior Loan interest at a time when a financial institution was engaging in such
a sale with respect to such Senior Loan interest, the price at which the Fund
could consummate such a sale might be adversely affected.
Diversification and Concentration. The Fund has registered as a
"non-diversified" investment company so that, subject to its investment
restrictions, it will be able to invest more than 5% of the value of its assets
in the obligations of any single issuer, including Senior Loans of a single
Borrower or Participations purchased from a single Lender. See "Investment
Restrictions" in the Statement of Additional Information. As a result, the Fund
is required to comply only with the diversification requirements of Subchapter M
of the Internal Revenue Code of 1986, as amended. See "Taxation" in the
Statement of Additional Information for a description of these requirements. The
Fund initially, expects to invest up to 10% of the value of its assets in
interests in Senior Loans of single Borrowers until its aggregate asset level
reaches $20 million. Once this $20 million asset level is reached, the Fund
intends to limit the value of its assets in interests in Senior Loans of a
single Borrower to 5%.
Pursuant to the Investment Company Act of 1940, as amended, a "diversified
company" is required with respect to 75% of its assets to limit investment in
any one issuer to 5% of assets. The other 25% of the investment company's assets
may be invested without regard to such restrictions. The limited number of loan
syndication and lending banks requires the Fund to register as a non-diversified
investment company in order to comply with the Investment Company Act of 1940,
as amended. Moreover, even though the Fund may be able in the future to be
classified as a "diversified" investment company, the flexibility provided by
the "non-diversified" classification for investing the Fund's assets is
essential upon commencing operations. To the extent the Fund invests a
relatively high percentage of its assets in obligations of a limited number of
issuers, the Fund will be more susceptible than a more widely diversified
investment company to any single corporate, economic, political or regulatory
occurrence.
The Fund may acquire interests in Senior Loans made to Borrowers in any
industry. However, the Fund will not invest more than 25% of its assets in
Senior Loans of Borrowers or Lending Agents determined to be issuers that are
concentrated in any one particular industry.
INVESTMENT PRACTICES AND SPECIAL RISKS
In connection with the investment objectives and policies described above, the
Fund may engage in interest rate and other hedging transactions, lend portfolio
holdings, purchase and sell interests in Senior Loans and other portfolio debt
securities on a "when issued" or "delayed delivery" basis, and enter into
repurchase and reverse repurchase agreements. These investment practices involve
certain special risk considerations. The Advisor may use some or all of the
following investment practices when, in its opinion, their use is appropriate.
Although the Advisor believes that these investment practices may further the
Fund's investment objective, no assurance can be given that these investment
practices will achieve this result.
INTEREST RATE AND OTHER HEDGING TRANSACTIONS
The Fund may enter into various interest rate hedging and risk management
transactions. The Fund expects to enter into these transactions primarily to
seek to preserve a return on a particular investment or portion of its
portfolio, and may also enter into such transactions to seek to protect against
decreases in the anticipated rate of return on floating or variable rate
financial instruments the Fund owns or anticipates purchasing at a later date,
or for other risk management strategies such as managing the effective
dollar-weighted average duration of the Fund's portfolio. In addition, with
respect to fixed-income securities and interests in Senior Loans in the Fund's
portfolio, the Fund may also engage in hedging transactions to seek to protect
the value of its portfolio against declines in net asset value resulting from
changes in interest rates or other market changes. The Fund does not intend to
engage in such transactions to enhance the yield on its portfolio to increase
income available for distributions. Market conditions will determine whether and
in what circumstances the Fund would employ any of the hedging and risk
management techniques described below. The Fund will not engage in any of the
transactions for speculative purposes and will use them only as a means to hedge
or manage the risks associated with assets held in, or anticipated to be
purchased for, the Fund's portfolio or obligations incurred by the Fund. The
successful utilization of hedging and risk management transactions requires
skills different from those needed in the selection of the Fund's portfolio
securities. The Fund believes that the Sub-Advisor possesses the skills
necessary for the successful utilization of hedging and risk management
transactions. The Fund will incur brokerage and other costs in connection with
its hedging transactions.
To the extent permitted by applicable regulatory authority, the Fund may enter
into interest rate swaps or purchase or sell interest rate caps or floors. The
Fund will not sell interest rate caps or floors that it does not own. Interest
rate swaps involve the exchange by the Fund with another party of their
respective obligations to pay or receive interest, e.g., an exchange of an
obligation to make floating rate payments for an obligation to make fixed rate
payments. For example, the Fund may seek to shorten the effective interest rate
redetermination period of a Senior Loan in its portfolio the Borrower to which
has selected an interest rate redetermination period of one year. The Fund could
exchange the Borrower's obligation to make fixed rate payments for one year for
an obligation to make payments that readjust monthly. In such event, the Fund
would consider the interest rate redetermination period of such Senior Loan to
be the shorter period.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest at the difference of the index and the predetermined rate on a notional
principal amount (the reference amount with respect to which interest
obligations are determined although no actual exchange of principal occurs) from
the party selling such interest rate cap. The purchase of an interest rate floor
entitles the purchaser, to the extent that a specified index falls below a
predetermined interest rate, to receive payments of interest at the difference
of the index and the predetermined rate on a notional principal amount from the
party selling such interest rate floor. The Fund will not enter into swaps, caps
or floors if, on a net basis, the aggregate notional principal amount with
respect to such agreements exceeds the net assets of the Fund.
In circumstances in which the Advisor anticipates that interest rates will
decline, the Fund might, for example, enter into an interest rate swap as the
floating rate payor or, alternatively, purchase an interest rate floor. In the
case of purchasing an interest rate floor, if interest rates declined below the
floor rate, the Fund would receive payments from its counterparty which would
wholly or partially offset the decrease in the payments it would receive in
respect of the portfolio assets being hedged. In the case where the Fund
purchases such an interest rate swap, if the floating rate payments fell below
the level of the fixed rate payment set in the swap agreement, the Fund's
counterparty would pay the Fund amounts equal to interest computed at the
difference between the fixed and floating rates over the notional principal
amount. Such payments would offset or partially offset the decrease in the
payments the Fund would receive in respect of floating rate portfolio assets
being hedged.
The successful use of swaps, caps and floors to preserve the rate of return on a
portfolio of financial instruments depends on the Advisor's ability to predict
correctly the direction and extent of movements in interest rates. Although the
Fund believes that use of the hedging and risk management techniques described
above will benefit the Fund, if the Advisor's judgment about the direction or
extent of the movement in interest rates is incorrect, the Fund's overall
performance would be worse than if it had not entered into any such
transactions. For example, if the Fund had purchased an interest rate swap or an
interest rate floor to hedge against its expectation that interest rates would
decline but instead interest rates rose, the Fund would lose part or all of the
benefit of the increased payments it would receive as a result of the rising
interest rates because it would have to pay amounts to its counterparty under
the swap agreement or would have paid the purchase price of the interest rate
floor.
Inasmuch as these hedging transactions are entered into for good-faith risk
management purposes, the Advisor and the Fund believe such obligations do not
constitute senior securities. The Fund will usually enter into interest rate
swaps on a net basis, i.e., where the two parties make net payments with the
Fund receiving or paying, as the case may be, only the net amount of the two
payments. The net amount of the excess, if any, of the Fund's obligations over
its entitlements with respect to each interest rate swap will be accrued and an
amount of cash or liquid securities having an aggregate net asset value at least
equal to the accrued excess will be maintained in a segregated account by the
Fund's custodian. If the Fund enters into a swap on other than a net basis, the
Fund will maintain in the segregated account the full amount of the Fund's
obligations under each such swap. Accordingly, the Fund does not treat swaps as
senior securities. The Fund may enter into swaps, caps and floors with member
banks of the Federal Reserve System, members of the New York Stock Exchange or
other entities determined by the Advisor, pursuant to procedures adopted and
reviewed on an ongoing basis by the Board of Trustees, to be creditworthy. If a
default occurs by the other party to such transaction, the Fund will have
contractual remedies pursuant to the agreements related to the transaction but
such remedies may be subject to bankruptcy and insolvency laws which could
affect the Fund's rights as a creditor. The swap market has grown substantially
in recent years with a large number of banks and financial services firms acting
both as principals and as agents utilizing standardized swap documentation. As a
result, the swap market has become relatively liquid. Caps and floors are more
recent innovations and they are less liquid than swaps. There can be no
assurance, however, that the Fund will be able to enter into interest rate swaps
or to purchase interest rate caps or floors at prices or on terms the Advisor
believes are advantageous to the Fund. In addition, although the terms of
interest rate swaps, caps and floors may provide for termination, there can be
no assurance that the Fund will be able to terminate an interest rate swap or to
sell or offset interest rate caps or floors that it has purchased.
New financial products continue to be developed and the Fund may invest in any
such products as may be developed to the extent consistent with its investment
objective and the regulatory and federal tax requirements applicable to
investment companies.
LENDING OF PORTFOLIO HOLDINGS
The Fund may seek to increase its income by lending financial instruments in its
portfolio in accordance with present regulatory policies, including those of the
Board of Governors of the Federal Reserve System and the SEC. Such loans may be
made, without limit, to brokers, dealers, banks or other recognized
institutional borrowers of financial instruments and would be required to be
secured continuously by collateral, including cash, cash equivalents or U.S.
Treasury bills maintained on a current basis at an amount at least equal to the
market value of the financial instruments loaned. The Fund would have the right
to call a loan and obtain the financial instruments loaned at any time on five
days' notice. For the duration of a loan, the Fund would continue to receive the
equivalent of the interest paid by the issuer on the financial instruments
loaned and also would receive compensation from the investment of the
collateral.
The Fund would not have the right to vote any financial instruments having
voting rights during the existence of the loan, but the Fund could call the loan
in anticipation of an important vote to be taken among holders of the financial
instruments or in anticipation of the giving or withholding of their consent on
a material matter affecting the financial instruments. As with other extensions
of credit, risks of delay in recovery or even loss of rights in the collateral
exist should the borrower of the financial instruments fail financially.
However, the loans would be made only to firms deemed by the Advisor to be of
good standing and when, in the judgment of the Advisor, the consideration which
can be earned currently from loans of this type justifies the attendant risk.
The creditworthiness of firms to which the Fund lends its portfolio holdings
will be monitored on an ongoing basis by the Advisor pursuant to procedures
adopted and reviewed, on an ongoing basis, by the Board of Trustees of the Fund.
No specific limitation exists as to the percentage of the Fund's assets which
the Fund may lend.
"WHEN ISSUED" AND "DELAYED DELIVERY" TRANSACTIONS
The Fund may also purchase and sell interests in Senior Loans and other
portfolio securities on a "when issued" and "delayed delivery" basis. No income
accrues to the Fund on such interests or securities in connection with such
purchase transactions prior to the date the Fund actually takes delivery of such
interests or securities. These transactions are subject to market fluctuation;
the value of the interests in Senior Loans and other portfolio debt securities
at delivery may be more or less than their purchase price, and yields generally
available on such interests or securities when delivery occurs may be higher or
lower than yields on the interests or securities obtained pursuant to such
transactions. Because the Fund relies on the buyer or seller, as the case may
be, to consummate the transaction, failure by the other party to complete the
transaction may result in the Fund missing the opportunity of obtaining a price
or yield considered to be advantageous.
When the Fund is the buyer in such a transaction, however, it will maintain, in
a segregated account with its custodian, cash or high-grade portfolio securities
having an aggregate value equal to the amount of such purchase commitments until
payment is made. The Fund will make commitments to purchase such interests or
securities on such basis only with the intention of actually acquiring these
interests or securities, but the Fund may sell such interests or securities
prior to the settlement date if such sale is considered to be advisable. To the
extent the Fund engages in "when issued" and "delayed delivery" transactions, it
will do so for the purpose of acquiring interests or securities for the Fund's
portfolio consistent with the Fund's investment objective and policies and not
for the purpose of investment leverage. No specific limitation exists as to the
percentage of the Fund's assets which may be used to acquire securities on a
"when issued" or "delayed delivery" basis.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements (a purchase of, and a simultaneous
commitment to resell, a financial instrument at an agreed upon price on an
agreed upon date) only with member banks of the Federal Reserve System and
member firms of the New York Stock Exchange. When participating in repurchase
agreements, the Fund buys securities from a vendor, e.g., a bank or brokerage
firm, with the agreement that the vendor will repurchase the securities at a
higher price at a later date. Such transactions afford an opportunity for the
Fund to earn a return on available cash at minimal market risk, although the
Fund may be subject to various delays and risks of loss if the vendor is unable
to meet its obligation to repurchase. Under the 1940 Act, repurchase agreements
are deemed to be collateralized loans of money by the Fund to the seller. In
evaluating whether to enter into a repurchase agreement, the Advisor will
consider carefully the creditworthiness of the vendor. If the member bank or
member firm that is the party to the repurchase agreement petitions for
bankruptcy or otherwise becomes subject to the U.S. Bankruptcy Code, the law
regarding the rights of the Fund is unsettled. The securities underlying a
repurchase agreement will be marked to market every business day so that the
value of the collateral is at least equal to the value of the loan, including
the accrued interest thereon, and the Advisor will monitor the value or the
collateral. No specific limitation exists as to the percentage of the Fund's
assets which may be used to participate in repurchase agreements.
REVERSE REPURCHASE AGREEMENTS
The Fund may enter into reverse repurchase agreements with respect to debt
obligations which could otherwise be sold by the Fund. A reverse repurchase
agreement is an instrument under which the Fund may sell an underlying debt
instrument and simultaneously obtain the commitment of the purchaser (a
commercial bank or a broker or dealer) to sell the security back to the Fund at
an agreed upon price on an agreed upon date. The Fund will maintain in a
segregated account with its custodian cash or liquid high grade portfolio
securities in an amount sufficient to cover its obligations with respect to
reverse repurchase agreements. The Fund receives payment for such securities
only upon physical delivery or evidence of book entry transfer by its custodian.
Regulations of the SEC require either that securities sold by the Fund under a
reverse repurchase agreement be segregated pending repurchase or that the
proceeds be segregated on the Fund's books and records pending repurchase.
Reverse repurchase agreements could involve certain risks in the event of
default or insolvency of the other party, including possible delays or
restrictions upon the Fund's ability to dispose of the underlying securities. An
additional risk is that the market value of securities sold by the Fund under a
reverse repurchase agreement could decline below the price at which the Fund is
obligated to repurchase them. Reverse repurchase agreements will be considered
borrowings by the Fund and as such would be subject to the restrictions on
borrowing described in the Statement of Additional Information under "Investment
Restrictions." The Fund will not hold more than 5% of the value of its total
assets in reverse repurchase agreements.
TAXATION
The following federal tax discussion is based on the advice of Morgan, Lewis &
Bockius LLP, reflects applicable tax laws as of the date of this Prospectus and
is qualified by reference to the additional federal income tax discussion
included in the Statement of Additional Information.
The Fund intends to qualify each year and to elect to be treated as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). If the Fund so qualifies and distributes each year to its
shareholders at least 90% of its net investment income (including, among other
things, interest and net short-term capital gains) in each year, the Fund will
not be required to pay federal income taxes on any income distributed to
shareholders. The Fund will not be subject to federal income tax on any net
capital gains distributed to shareholders. As a Massachusetts business trust,
the Fund will not be subject to any excise or income taxes in Massachusetts as
long as it qualifies as a regulated investment company for federal income tax
purposes.
If the Fund failed to qualify as a regulated investment company or failed to
satisfy the 90% distribution requirement in any taxable year, the Fund would be
taxed as an ordinary corporation on its taxable income (even if such income were
distributed to its shareholders) and all distributions out of earnings and
profits would be taxed to shareholders as ordinary income.
Distributions. Distributions of the Fund's net investment income are taxable to
holders of Common Shares as ordinary income, whether paid in cash or reinvested
in additional Common Shares. Distributions of the Fund's net capital gains
("capital gains dividends"), if any, are taxable to holders of Common Shares at
the rates applicable to long-term capital gains regardless of the length of time
shares of the Fund have been held by such shareholders. The Fund will inform
shareholders of the source and tax status of all distributions promptly after
the close of each calendar year.
Sale of Shares. Except as discussed below, selling shareholders will generally
recognize gain or loss in an amount equal to the difference between their
adjusted tax basis in the Common Shares and the amount received. If such Common
Shares are held as a capital asset, the gain or loss will be a capital gain or
loss and will be long-term if such Common Shares have been held for more than
one year. The federal income tax consequences of the repurchase of Common Shares
pursuant to tender offers will be disclosed in the related offering documents.
Any loss realized upon a taxable disposition of Common Shares held for six
months or less will be treated as a long-term capital loss to the extent of any
capital gains dividends received with respect to such Common Shares. For
purposes of determining whether Common Shares have been held for six months or
less, the holding period is suspended for any periods during which the Common
Shareholder's risk of loss is diminished as a result of holding one or more
other positions in substantially similar or related property or through certain
options or short sales.
General. The federal income tax discussion set forth above is for general
information only. Prospective investors should consult their advisors regarding
the specific federal and state tax consequences of holding and disposing of
Common Shares, as well as the effects of other state, local and foreign tax laws
and any proposed tax law changes.
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES
The management of the Fund, including general supervision of the duties
performed by the Advisor under the Advisory Agreement, is the responsibility of
the Fund's Board of Trustees. The trustees are experienced business persons who
meet throughout the year to oversee the Fund's activities, review contractual
arrangements with companies that provide services to the Fund, and review
performance. The majority of trustees are not affiliated with SISC, Sierra
Advisors or Sierra Administration other than as trustees of the Fund. The Fund
was organized on October 4, 1995 under the laws of the Commonwealth of
Massachusetts as a "Massachusetts business trust."
As a Massachusetts business trust, the Fund is not required to hold annual
shareholder meetings. On occasion, however, special meetings may be called to
elect or remove trustees, change fundamental policies, approve a management
contract, or for other purposes. Trustees may be removed by shareholders at a
special meeting called upon the request of shareholders among at least 10% of
the outstanding shares of the Fund. Shareholders not attending these meetings
are encouraged to vote by proxy. Sierra Administration will mail proxy materials
in advance, including a voting card and information about the proposals to be
voted on. When matters are submitted for shareholder vote, shareholders of the
Fund will have one vote for each full share owned and proportionate, fractional
votes for fractional shares held.
THE ADVISOR
Sierra Advisors was incorporated in California in 1988 and is a wholly-owned
subsidiary of Great Western Financial Corporation ("Great Western"). Great
Western's other operations include real estate finance, mortgage banking, retail
banking and consumer finance. Pursuant to the Advisory Agreement between the
Advisor and the Fund, the Advisor has specific responsibility for investment
services provided to the Fund. Accordingly, the Advisor with the general
oversight of the Board of Trustees has the authority to accept or reject
portfolio selections and pricing determinations of Van Kampen.
The Advisor currently manages or supervises over $3.3 billion in assets. The
Advisor is a registered investment advisor under the Investment Advisors Act of
1940 as amended, and in this capacity has general oversight responsibility for
the investment advisory services provided to the Trust, Sierra Trust Funds
("Sierra Trust") and The Sierra Variable Trust ("Sierra Variable"). Sierra Trust
is an open-end management investment company that currently offers three money
market funds and thirteen mutual funds. Sierra Variable is a no-load, open-end
management investment company that currently offers nine separate funds. Sierra
Variable is intended as an investment vehicle exclusively for variable annuity
or variable life insurance contracts offered by the separate accounts of various
insurance companies.
The Advisor's other responsibilities include participating in the formulation of
Sierra Trust and Sierra Variable investment policies, analyzing economic trends
affecting Sierra Trust and Sierra Variable and monitoring and evaluating the
services provided by the sub-advisors, including their adherence to Sierra Trust
and Sierra Variable investment objectives, policies and performance.
THE SUB-ADVISOR
Van Kampen is the sub-advisor to the Fund, located at One Parkview Plaza,
Oakbrook Terrace, Illinois 60181. Pursuant to the sub-advisory agreement with
the Advisor, Van Kampen selects the investments made by the Fund subject to the
oversight and specific direction of the Advisor. The Sub-Advisor also monitors
the provisions and the Loan Agreements and any agreements with respect to
Participations and Assignments, provides recordkeeping responsibilities with
respect to Senior Loans in the Fund's portfolio and provides certain services to
holders of the Fund's Common Shares.
Moreover, the Sub-Advisor also provides investment advice to a wide variety of
individual, institutional and investment company clients and has aggregate
assets under management, as of December 31, 1995, of more than $54 billion.
Moreover, Van Kampen American Capital Investment Advisory Corp., a sister
affiliate of Van Kampen, currently manages a similar prime rate fund, Van Kampen
American Capital Prime Rate Income Trust, which as of December 31, 1995
consisted of approximately $3.65 billion of assets under management. Van Kampen
is a wholly-owned subsidiary of Van Kampen American Capital, Inc. Van Kampen
American Capital, Inc. is a wholly-owned subsidiary of VK/AC Holding, Inc. VK/AC
Holding, Inc. 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 Van Kampen American Capital, Inc.
own, in the aggregate, not more than seven percent of the common stock of VK/AC
Holding, Inc. and have the right to acquire, upon the exercise of options,
approximately an additional 11% of the common stock of VK/AC Holding, Inc.
Presently, and after giving effect to the exercise of such options, no officer
or trustee of the Fund owns or would own five percent or more of the common
stock of VK/AC Holding, Inc.
Portfolio Manager. Jeffrey W. Maillet is a Senior Vice President of Van Kampen
and has been primarily responsible for the day-to-day management of Van Kampen's
Prime Rate Income Trust since the Fund's commencement of investment operations
in 1989. Mr. Maillet has been employed by Van Kampen American Capital Investment
Advisory Corp. since 1989.
THE ADMINISTRATOR
Sierra Administration provides shareholders service and other administrative
services. Sierra Administration is under common control with the Advisor and
SISC. SISC is the principal underwriter of the Common Shares in connection with
the offering thereof by the Fund. See "Offering of Shares." Sierra
Administration's principal business address is 9301 Corbin Avenue, Northridge,
CA 91324.
Pursuant to the Administration Agreement, Sierra Administration is responsible
for all administrative functions with respect to the Trust, although it
delegates certain of its responsibilities to a sub-administrator. Sierra
Administration itself or through its sub-administrator performs many shareholder
transaction and accounting functions. In addition to such services, Sierra
Administration is responsible for performing activities as Transfer/Shareholder
Servicing Agent, such as keeping records of shareholders and handling
shareholder communications. Sierra Administration is entitled to a monthly fee
at an annual rate of 0.35% of the Fund's average daily net assets. Sierra
Administration pays State Street Bank & Trust Company ("State Street") for
certain administrative and custodial services. In addition, Sierra
Administration also pays First Data Investor Services Group, Inc. ("First Data")
for certain transfer agency services. The Fund pays for the sub-transfer agent,
sub-administrator and custodial out-of-pocket expenses.
THE DISTRIBUTOR
SISC is the distributor of the Class A Common Shares of the Fund. SISC is
located at 9301 Corbin Avenue, Northridge, California 91324. SISC, an indirectly
wholly-owned subsidiary of GWFC, was established in 1992 and is a registered
broker-dealer with the NASD and a registered investment advisor.
The Fund intends to distribute the shares of the Fund in accordance with a
Distribution Agreement entered into between the Fund and SISC. Under this
Distribution Agreement, SISC will comply with the terms of the Distribution
Agreement and the NASD Rules concerning sales charges. Under the Distribution
Agreement, SISC will not be paid an annual fee as compensation in connection
with the offering and sale of the Class A Common Shares of the Fund. In
addition, the Distribution Agreement also recognizes that Sierra Advisors may
use its investment advisory fees or other resources to pay expenses associated
with activities primarily intended to result in the promotion and distribution
of the Fund's shares. SISC, may, from time to time, pay to other dealers, in
connection with retail sales or the distribution of shares of the Fund, material
compensation in the form of merchandise or trips.
DISTRIBUTIONS
The Fund's policy will be to declare daily and pay monthly distributions to
holders of Class A Common Shares of substantially all net investment income of
the Fund. Net investment income of the Fund consists of all interest income, fee
income, other ordinary income earned by the Fund on its portfolio assets and net
short-term capital gains, less all expenses of the Fund. Expenses of the Fund
will be accrued each day. Distributions to holders of Common Shares cannot be
assured, and the amount of each monthly distribution is likely to vary. Net
realized long-term capital gains, if any, are expected to be distributed to
holders of Common Shares at least annually. Holders of Common Shares may elect
to have distributions automatically reinvested in additional Common Shares.
See "Dividend Reinvestment Plan."
DISTRIBUTION OPTIONS
When you open an account, specify on your Application Form how you want to
receive your distributions. The election may be made or changed by writing to
Sierra Administration or by calling 800-222-5852. Each Fund offers two options:
REINVESTMENT OPTION. Your dividend and capital gain distributions will be
automatically reinvested in additional shares of the same Fund, unless you
instruct the Fund on the application form or later in writing or by telephone to
pay all dividends and distributions in cash. Dividends from a class of one Fund
may be reinvested in the same class of the same Fund or a different Fund. If the
Fund in which the reinvestment is made has a sales charge, you will not pay the
sales charge on the reinvested amount.
CASH OPTION. You will be sent a check for each dividend and capital gain
distribution.
REPURCHASE (TENDER OFFER) OF SHARES
The Board of Trustees of the Fund currently intends, each quarter, to consider
authorizing the Fund to make tender offers for a portion of its then outstanding
Class A Common Shares at the net asset value of such Common Shares on the
expiration date of the tender offer. Although such tender offers, if undertaken
and completed, will provide some liquidity for holders of the Common Shares,
there can be no assurance that such tender offers will in fact be undertaken or
completed or, if completed, that they will provide sufficient liquidity for all
holders of Common Shares who may desire to sell such Common Shares. Accordingly,
investment in the Common Shares should be considered illiquid.
Commencement by the Fund of such a tender offer during a period in which it is
simultaneously engaged in the continuous offering of its Common Shares may be a
violation of rules promulgated by the SEC under the Securities Exchange Act of
1934. The Fund intends to seek an exemption from the SEC that would permit the
Fund to make tender offers for its Common Shares while simultaneously engaged in
the continuous offering of its Common Shares. No assurance can be given that the
Fund will obtain such an exemption. If the Board of Trustees of the Fund
authorizes the Fund to make such a tender offer prior to such time, if any, that
the Fund shall have obtained such an exemption, the Fund intends to suspend the
continuous offering of its Common Shares during the term of such tender offer.
Although the Board of Trustees believes that tender offers for the Common Shares
generally would increase the liquidity of the Common Shares, the acquisition of
Common Shares by the Fund will decrease the total assets of the Fund and,
therefore, have the effect of increasing the Fund's expense ratio. Because of
the nature of the Fund's investment objective and policies and the Fund's
portfolio, the Advisor anticipates potential difficulty in disposing of
portfolio securities in order to consummate tender offers for the Common Shares.
As a result, the Fund may be required to borrow money in order to finance
repurchases and tenders.
As a fundamental policy of the Fund, the Fund's Declaration of Trust authorizes
the Fund, without prior approval of the holders of Common Shares, to borrow
money in an amount up to 33-1/3% of the Fund's total assets, for the purpose of,
among other things, obtaining short-term credits in connection with tender
offers by the Fund for its Common Shares. The Fund currently expects, however,
to limit its borrowing to an amount sufficient to meet its tender offer
purchases or 10% of its assets, whichever is greater. In this connection, the
Fund may issue notes or other evidence of indebtedness or secure any such
borrowings by mortgaging, pledging or otherwise subjecting as security the
Fund's assets. Under the requirements of the 1940 Act, the Fund, immediately
after any such borrowing, must have an "asset coverage" of at least 300%. With
respect to any such borrowing, asset coverage means the ratio which the value of
the total assets of the Fund, less all liabilities and indebtedness not
represented by senior securities (as defined in the 1940 Act), bears to the
aggregate amount of such borrowing by the Fund. The rights of lenders to the
Fund to receive interest on and repayment of principal of any such borrowings
will be senior to those of the holders of Common Shares, and the terms of any
such borrowings may contain provisions which limit certain activities of the
Fund, including the payment of dividends to holders of Common Shares in certain
circumstances. Further, the terms of any such borrowing may and the 1940 Act
does (in certain circumstances) grant to the lenders to the Fund certain voting
rights in the event of default in the payment of interest on or repayment of
principal. In the event that such provisions would impair the Fund's status as a
regulated investment company, the Fund, subject to its ability to liquidate its
relatively illiquid portfolio, intends to repay the borrowings. Any borrowing
will likely rank senior to or pari passu with all other existing and future
borrowings of the Fund. Interest payments and fees incurred in connection with
borrowings will reduce the amount of net income available for payment to the
holders of Common Shares. The Fund does not intend to use borrowings for
leverage purposes. Accordingly, the Fund will not purchase additional portfolio
securities, other than with proceeds from the sale or maturity of existing
portfolio securities, at any time that borrowings, including the Fund's
commitments, pursuant to reverse repurchase agreements, exceed 5% of the Fund's
total assets (after giving effect to the amount borrowed).
Any tender offer made by the Fund for its Common Shares will be at a price equal
to the net asset value of the Common Shares determined at the close of business
on the day the offer ends. During the pendency of any tender offer by the Fund,
the Fund will calculate daily the net asset value of the Common Shares and will
establish procedures which will be specified in the tender offer documents to
enable holders of Common Shares to ascertain readily such net asset value.
Each tender offer will be made and shareholders notified in accordance with the
requirements of the Securities Exchange Act of 1934, as amended, either by
publication or mailing or both. Each tender offering document will contain such
information as is prescribed by such laws and the rules and regulations
promulgated thereunder. The Fund will purchase its Common Shares tendered in
accordance with the terms of the offer unless it determines to terminate the
offer. The repurchase of tendered shares by the Fund is a taxable event. See
"Taxation." The Fund will pay all costs and expenses associated with the making
of any tender offer by the Fund. See the Statement of Additional Information for
additional information concerning repurchase of the Fund's Common Shares.
If the Fund must liquidate portfolio holdings in order to purchase Common Shares
tendered, the Fund may realize gains and losses. Such gains may be realized on
securities held for less than three months. Due to the requirement for
qualification as a regulated investment company under the Code that less than
30% of the Fund's annual gross income be derived from the disposition of
securities held for less than three months, the Fund may not be able to sell
portfolio holdings held for less than three months that the Fund may wish to
sell in the ordinary course of its portfolio management, which may affect
adversely the Fund's yield.
EXCHANGE PRIVILEGE. The Fund may make available to tendering shareholders the
privilege of exchanging Class A Common Shares for Class A shares of certain
open-end investment companies managed by the Advisor subject to any restrictions
or qualifications set forth in the prospectus of any such fund. Class A Common
Shares may be exchanged for Class A Shares of any of the funds of Sierra Trust
Funds. If the shares acquired in the exchange are subject to a higher sales
load, a sales load may be charged in an amount up to the difference between the
sales load previously paid and the initial sales load applicable to the shares
of the fund being acquired.
The exchange privilege is available only in those states where the offers and
sale of shares of the funds may legally be made. Upon 60 days' prior written
notice to shareholders, the Fund in its sole discretion may terminate or modify
the exchange privileges and restrictions and/or the Fund may begin imposing a
charge of up to $5.00 for each exchange. The prospectus for each "exchange fund"
describes its investment objectives and policies, and shareholders should obtain
a prospectus and consider the objectives and policies carefully before
requesting an exchange. Each exchange must involve shares which meet the minimal
requirements of a fund for an initial or subsequent purchase.
DESCRIPTION OF COMMON SHARES
The Fund is an unincorporated business trust established under the laws of the
Commonwealth of Massachusetts by a Declaration of Trust dated October 4, 1995
(the "Declaration of Trust"). The Declaration of Trust provides that the
Trustees of the Fund may authorize separate classes of shares of beneficial
interest. The Trustees have authorized an unlimited number of Common Shares. The
Declaration of Trust also authorizes the Fund to borrow money or otherwise
obtain credit and in this connection issue notes or other evidence of
indebtedness. The Fund does not intend to hold annual meetings of the holders of
Common Shares.
COMMON SHARES. The Declaration of Trust permits the Fund to issue an unlimited
number of full and fractional Common Shares of beneficial interest with no par
value. The Declaration of Trust also provides authorization for establishing
multiple classes of Common Shares. Each Class A Common Share represents an equal
proportionate interest in the assets of the Fund with each other Common Share in
the Fund and has identical voting, dividend, liquidation and other rights.
Holders of Common Shares will be entitled to the payment of dividends when and
if declared by the Board of Trustees. The terms of any borrowings may limit the
payment of dividends to the holders of Common Shares. Each whole Common Share
shall be entitled to one vote as to matters on which it is entitled to vote
pursuant to the terms of the Fund's Declaration of Trust on file with the SEC.
Upon liquidation of the Fund, after paying or adequately providing for the
payment of all liabilities of the Fund, and upon receipt of such releases,
indemnities and refunding agreements as they deem necessary for their
protection, the Trustees may distribute the remaining assets of the Fund among
the holders of the Common Shares. The Declaration of Trust provides that
shareholders are not liable for any liabilities of the Fund, and indemnifies
shareholders against any such liability. Although shareholders of an
unincorporated business trust established under Massachusetts law, in certain
limited circumstances, may be held personally liable for the obligations of the
Trust as though they were general partners, the provisions of the Declaration of
Trust described in the foregoing sentence make the likelihood of such personal
liability remote.
The Common Shares are not, and are not expected to be, listed for trading on any
national securities exchange nor, to the Fund's knowledge, is there, or is there
expected to be, any secondary trading market in the Common Shares.
ANTI OPEN-END INVESTMENT COMPANY PROVISIONS IN THE DECLARATION OF TRUST. The
Fund's Declaration of Trust includes provisions that could have the effect of
limiting the ability of the Fund to convert from a closed-end to an open-end
management investment company. Specifically, the Declaration of Trust provides
that an amendment to such Declaration which makes the Fund's Common Shares a
"redeemable security" as defined in the Investment Company Act of 1940, as
amended, is required to be approved by at least (a) a majority of the Trustees,
including a majority of the Trustees who are not interested persons, and (b) a
majority shareholder vote.
ANTI-TAKEOVER PROVISIONS IN THE DECLARATION OF TRUST. The Fund's Declaration of
Trust includes provisions that could have the effect of limiting the ability of
other entities or persons to acquire control of the Fund or to change the
composition of its Board of Trustees by discouraging a third party from seeking
to obtain control of the Fund. In addition, in the event a secondary market were
to develop in the Common Shares, such provisions could have the effect of
depriving holders of Common Shares of an opportunity to sell their Common Shares
at a premium over prevailing market prices. A Trustee may be removed from office
only for cause by a written instrument signed by at least two-thirds of the
remaining Trustees or by a vote of the holders of at least two-thirds of the
Common Shares.
In addition, the Declaration of Trust requires the favorable vote of the holders
of at least two-thirds of the outstanding Common Shares then entitled to vote to
approve, adopt or authorize certain transactions with 5%-or-greater holders of
Common Shares and their associates, unless the Board of Trustees shall by
resolution have approved a memorandum of understanding with such holders, in
which case normal voting requirements would be in effect. See "Repurchase
(Tender Offer) of Shares -- Anti-Takeover Provisions" in the Statement of
Additional Information.
NET ASSET VALUE
The Fund values its shares once on each day the New York Stock Exchange (the
"NYSE") is open for trading, as of the close of regular trading on the NYSE
(normally 4:00 p.m. Eastern standard time). The Fund's net asset value per share
is determined by State Street, in the manner authorized by the Board of
Trustees. The Fund will be closed for business and will not price its shares on
the following business holidays: New Year's Day, President's Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The Fund's net asset value is computed by determining the value of the total
assets (the securities it holds plus cash or other assets, including interest
accrued but not yet received), and subtracting all liabilities (including the
outstanding principal amount of any indebtedness issued and any unpaid interest
thereon). For future information regarding valuation, see "Determination of Net
Asset Value" in the Statement of Additional Information.
Because Senior Loans are not actively traded in a public market, the Advisor and
Sub-Advisor following procedures established by the Fund's Board of Trustees,
will value the Senior Loan interests held by the Fund at fair value. In valuing
a Senior Loan interest, the Advisor and Sub-Advisor, will consider relevant
factors, data and information, including: (i) the characteristics of and
fundamental analytical data relating to the Senior Loan, including the cost,
size, current interest rate, period until next interest rate reset, maturity ad
base lending rate of the Senior Loan interest, the terms and conditions of the
Senior Loan and any related agreements, and the position of the Senior Loan in
the Borrower's debt structure; (ii) the nature, adequacy and value of the
collateral, including the Fund's rights, remedies and interests with respect to
the collateral; (iii) the creditworthiness of the Borrower's business, cash
flows, capital structure and future prospects; (iv) information relating to the
market for Senior Loans, including price quotations (if considered reliable) for
and trading in Senior Loans and interests in similar Loans and the market
environment and investor attitudes towards the Senior Loans and interests in
similar Loans; (v) the reputation and financial condition of the Agent and any
Intermediate Participants in the Senior Loans; and (vi) general economic and
market conditions affecting the fair value of Senior Loans.
Other Fund holdings (other than short term obligations, but including listed
issues) may be valued on the basis of prices furnished by one or more pricing
services which determine prices for normal, institutional-size trading units of
such securities using market information, transactions for comparable securities
and various relationships between securities which are generally recognized by
institutional traders. In certain circumstances, portfolio securities will be
valued at the last sale price on the exchange that is the primary market for
such securities, or the average of the last quoted bid price and asked price for
those securities for which the over-the-counter market is the primary market or
for listed securities in which there were no sales during the day. The value of
interest rate swaps will be determined in accordance with a discounted present
value formula and then confirmed by obtaining a bank quotation.
Short-term obligations which mature in 60 days or less are valued at amortized
cost, if their original term to maturity when acquired by the Portfolio was 60
days or less, or are valued at amortized cost using their value on the 61st day
prior to maturity, if their original term to maturity when acquired by the Fund
was more than 60 days, unless in each case this is determined not to represent
fair value. Repurchase agreements will be valued by the Fund at cost plus
accrued interest. Securities for which there exist no price quotations or
valuations and all other assets are valued at fair value as determined in good
faith by or on behalf of the Board of Trustees.
OFFERING OF SHARES
The Fund will engage in a continuous offering of its Class A Common Shares
through SISC, the distributor and principal underwriter, whose offices are
located at 9301 Corbin Avenue, Northridge, CA 91324. The Class A Common Shares
may also be offered through members of the National Association of Securities
Dealers, Inc. ("NASD") or eligible non-NASD members who are acting as brokers or
agents for investors (i.e., Authorized Dealers). The Fund reserves the right to
terminate or suspend the continuous offering of its Common Shares at any time
without prior notice.
The Fund does not intend to list the Class A Common Shares on any national
securities exchange and none of the Fund, the Advisor, Van Kampen or SISC
intends to make a secondary market in such Common Shares. Accordingly, there is
not expected to be any secondary trading market in the Class A Common Shares and
an investment in these Common Shares should be considered illiquid.
The Class A Common Shares will be offered by the Fund at the public offering
price next computed after an investor places an order to purchase directly with
SISC, or with the investor's broker-dealer.
During the continuous offering, the Fund's shares will be valued at a public
offering price equal to the next determined net asset value ("NAV") per share
plus a maximum sales charge, payable to SISC, based on the following schedule:
As a % of Offering
Amount of Transaction Price Per Share
- --------------------- ---------------
Less than $50,000 4.50%
$50,000 but less than $100,000 4.00%
$100,000 but less than $250,000 3.50%
$250,000 but less than $500,000 3.00%
$500,000 but less than $1,000,000 2.00%
$1,000,000 and over 0%*
- -----------------------
* Purchases of $1 million or more and certain other purchases are not subject to
the sales charge at the time of purchase, but may be subject to a 1.0% early
withdrawal charge on repurchases or tenders within one year of purchase or a
0.5% early withdrawal charge on repurchases or tenders during the second year
after purchase. See "Application of Class A Common Shares Early Withdrawal
Charge" and "Waivers of Class A Common Shares Sales Charges" sections.
AUTHORIZED DEALERS. The price of Common Shares ordered through an Authorized
Dealer will be the public offering price next determined after the Fund receives
the order. Because the Fund determines the public offering price once daily on
each business day as of 4:00 p.m. Eastern standard time, orders placed through
an Authorized Dealer must be transmitted to the Fund by such dealer prior to
such time for the investor's order to be executed at the public offering price
to be determined that day.
SISC will compensate Authorized Dealers participating in the continuous offering
of the Fund's Class A Common Shares pursuant to the following schedule:
Dealers' Reallowance
Amount of Transactions as a % of Offering Price
- ---------------------- ------------------------
Less than $50,000 4.00%
$50,000 but less than $100,000 3.50%
$100,000 but less than $250,000 3.00%
$250,000 but less than $500,000 2.50%
$500,000 but less than $1,000,000 1.75%
$1,000,000 and over 0%*
- ---------------------------
* Investors do not pay a sales charge at the time of purchase on purchases of $1
million or more; however, except as waived by the dealer of record as stated
in the subsection "Application of Class A Common Shares Early Withdrawal
Charge," SISC may pay the investment dealers of record on purchases of Class A
Common Shares of $1 million or more a fee of up to 1% of the net asset value
of each purchase.
As mentioned above SISC may pay Authorized Dealers a fee of up to 1.00% of net
asset value for Class A Common Share transactions over $1,000,000. Dealer
reallowance may be changed by SISC from time to time, and upon notice, SISC may
reallow up to the full applicable sales charge to certain Authorized Dealers. In
addition, if Common Shares of the Fund are sold by an Authorized Dealer, SISC
may in its discretion pay up to a maximum of 0.25% of the value of such Common
Shares to such Authorized Dealers.
HOW TO BUY SHARES
If you are new to the Fund or Sierra Trust Funds, complete and sign a new
Account Application and mail it along with your check. You may also open your
account in person or by wire as described on the following pages. Shares can be
purchased directly through a representative of Great Western Financial
Securities Corporation ("GW Securities"). Payment for shares is due at GW
Securities no later than the settlement date, which is the third business day
after the order is placed. If there is no application form accompanying this
prospectus, call 800-222-5852.
AFTER HAVING READ THE FUND'S PROSPECTUS, IF YOU HAVE MONEY INVESTED IN A FUND OF
THE SIERRA TRUST FUNDS, YOU CAN:
o Mail in a check with the additional investment slip attached to your account
statement;
o Mail in a completed application form with a check; or
o Invest in the Fund by exchanging from the same Class of another Fund of the
Sierra Trust Funds by calling
800-222-5852.
IF YOU ARE INVESTING THROUGH A TAX-SHELTERED RETIREMENT PLAN, such as an IRA,
you will need a special application form. Retirement investing also involves its
own investment procedures. Call 800-222-5852 for more information and a
retirement application form.
GENERAL INFORMATION ABOUT PURCHASES.
MINIMUM INVESTMENTS
TO OPEN A CLASS A COMMON SHARES ACCOUNT
For Sierra Automatic Investment Plan Accounts $250
and
Investment of Dividends or Distributions of a
Non-Affiliated Fund (as defined in the following
paragraph) $100
For investment of Distributions Paid to GW Securities
Clients by Certain Unit Investment Trusts (each, a "UIT") $ 25
TO ADD TO A CLASS A COMMON SHARES ACCOUNT
For Sierra Automatic Investment Plan Accounts $100
and
Investment of Dividends or Distributions of a
Non-Affiliated Fund $ 25
For Investment of Distributions Paid to GW Securities
Clients by Certain UITs $ 25
MINIMUM BALANCE FOR A CLASS A COMMON SHARES
ACCOUNT $250
For Sierra Automatic Investment Plan Accounts
and
Investment of Dividends or Distributions of a
Non-Affiliated Fund None
For Investment of Distributions Paid to GW Securities
Clients by Certain UITs $ 25
The Fund has a minimum of $250 for initial investments and $100 for subsequent
investments for Class A Common Shares, except that (i) shareholders who
participate in the Sierra Automatic Investment Plan (the "Plan") may establish
Fund accounts for a minimum initial investment of $100 and subsequent automatic
investments of $25 a month (ii) shareholders of non-money market mutual funds
not affiliated with the Trust or Sierra Services (each, a "Non-Affiliated Fund")
may establish Fund accounts by investing dividends or distributions for such
Non-Affiliated Fund for a minimum initial investment of $100 and subsequent
investments of $25; and (iii) GW Securities clients may establish Fund accounts
by investing UIT distributions for a minimum initial investment of $25 and
subsequent investments of $25. For more information see section entitled
"Waivers of Class A Common Shares Sales Charge."
ACCEPTANCE OF ORDERS
The Fund reserves the right to reject any purchase order for its Common Shares
and to suspend the offering of its Common Shares for any period of time.
INVESTMENTS MADE BY CHECK
Money transmitted by a check drawn on a member of the Federal Reserve System is
converted to Federal Funds within one business day following receipt and is then
invested in the Fund. Checks drawn on banks that are not members of the Federal
Reserve System may take longer to be converted and invested. All payments must
be in U.S. Dollars.
IF YOU BUY SHARES BY CHECK and then tender those shares except in an exchange to
a fund of the Sierra Trust Funds, the payment may be delayed for up to fifteen
days or more to ensure that your check clears.
DIVIDEND REINVESTMENT PLAN
A Dividend Reinvestment Plan will be established automatically for each
shareholder unless the shareholder specifies by completing the appropriate
section of the Fund's Account Application or otherwise notifies Shareholder
Services in writing at the address provided below. Under this plan, all income
dividends and capital gain distributions will be automatically reinvested in
additional shares of the Fund that paid the dividend at the net asset value
("NAV") determined on the dividend payment date. The election may be made or
changed by writing to Sierra Administration at 9301 Corbin Avenue, Suite 333,
P.O. Box 1160, Northridge, California 91328-1160 or by telephoning Sierra
Administration at 800-222-5852.
SIERRA AUTOMATIC INVESTMENT PLAN (THE "PLAN")
One easy way to pursue your financial goals is to invest money regularly. While
regular investment plans do not guarantee a profit and will not protect you
against loss in a declining market, they can be an excellent way to invest for
retirement, a home, educational expenses, and other long-term financial goals.
Certain restrictions apply for retirement accounts. Call 800-222-5852 for more
information.
The Plan offers a simple way to maintain a regular investment program. With the
Plan, monthly investments (minimum $25) are made automatically from the
shareholder's account at a bank, savings and loan or credit union into the
shareholder's Fund account on the 15th of each month. The minimum for opening a
Fund account through the Plan is $100. By enrolling in the Plan, the shareholder
authorizes the Fund and its agents to withdraw funds from the designated account
at a bank or other financial institution. Such an account must have check or
draft writing privileges. This privilege may be selected by completing the
appropriate section of the Fund's Account Application or by contacting a GW
Securities representative, or Sierra Administration (800-222-5852) for the
appropriate forms.
Once enrolled in the Plan, shareholders will receive written confirmation of
each transaction, and a debit will appear on the shareholder's bank statement.
To change the amount, the shareholder must notify Sierra Administration at
800-222-5852 at least ten business days prior to the scheduled investment date.
Shareholders who redeem their Plan accounts in full are not required to provide
prior notification to terminate the service. The Fund may immediately terminate
a shareholder's Plan in the event that any item is unpaid by the shareholder's
financial institution. Fund shares purchased through the Plan must be owned for
15 days before they may be redeemed. The Fund may terminate or modify this
privilege at any time.
RETIREMENT PLANS
Shares of the Fund are available for purchase in connection with a variety of
tax-deferred prototype retirement plans: (1) IRAs (including "rollovers" from
existing retirement plans) for individuals and their spouses; (2) Profit Sharing
and Money-Purchase Plans for corporations and self-employed individuals and
their partners to benefit themselves and their employees; and (3) 403(b) Plans.
Custodian fees may be charged in connection with these retirement plans. If you
are investing through an IRA, you will need a special application form.
Retirement investing also involves its own investment procedures. For additional
information regarding investments made by qualified plans, see "Waivers of Class
A Common Shares Sales Charges." For more information regarding retirement plans
or to receive an IRA application form, telephone Sierra Administration at
800-222-5852.
<PAGE>
HOW TO INVEST IN THE FUND
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
TO OPEN AN ACCOUNT: TO ADD TO AN ACCOUNT:
MINIMUM $250* MINIMUM $100*
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BY PHONE o Exchange from a Sierra Trust Fund account o Exchange from a Sierra
800-222-5852 with same registration, including name, Trust Fund account with the
address, and taxpayer ID number (social same registration, including name,
security number for an individual). address, and taxpayer ID number.
o To transfer funds from your Great
o Call Sierra Administration at Western Bank Checking Account or Savings
800-222-5852. Account, or your GW Securities Brokerage
Account, call your GW Securities representative.
o Call Sierra Administration at 800-222-5852.
- --------------------------------------------------------------------------------------------------------------------
BY MAIL o Complete and sign the application. Make your o Make your check payable to "Great
check or negotiable bank draft payable to Western Financial Securities Corporation."
"Great Western Financial Securities Indicate your Fund account number on your
Corporation" or include the account number of check. Include the "next investment" stub
the Great Western account or GW Securities from your previous account statement. Mail
brokerage account from which your investment the check and stub to the address printed on
will be drawn. your account statement.
o Mail the completed application form and check o Exchange by mail: call 800-222-5852 for
to: instructions.
Sierra Prime Income Fund
9301 Corbin Avenue, Suite 333
P.O. Box 1160
Northridge, California 91328-1160
- --------------------------------------------------------------------------------------------------------------------
IN PERSON o Visit a GW Securities Representative o Visit a GW Securities Representative
at your nearest Great Western Bank branch. at your nearest Great Western Bank branch.
Call 800-222-5852 for the Great Western Bank Call 800-222-5852 for the Great Western branch
branch nearest you. nearest you.
Tables continued on following page.
BY WIRE 1. Telephone Sierra Administration and o Instruct your bank/financial institution to
give the (a) name of the account as you wish wire Federal Funds as described at left under
it to be registered; (b) address of the paragraph 2 and inform Sierra Administration
account; (c) taxpayer ID number (social 800-222-5852 of the incoming wire.
security number for an individual); and (d)
Fund name.
2. Instruct your bank to wire Federal
Funds exactly as follows:
Great Western Bank
Beverly Hills, California
aba #322270039
For credit to (Sierra Prime Income
Fund)
Account #008-852200-5
(Fund Name)
(Customer's Name)
(Customer's Social Security Number)
3. Mail the completed application form
to:
Sierra Fund Administration Corporation
9301 Corbin Avenue, Suite 333
P.O. Box 1160
Northridge, California 91328-1160
- --------------------------------------------------------------------------------------------------------------------
AUTOMATICALLY 1. Obtain and complete an application o Pre-authorized monthly investments
form. are now processed automatically.
(Minimum New
Account amount 2. Attach a voided check or deposit slip (Minimum Amount $25)
$100) from the account you would like the
investments transferred from on the 15th of
each month.
3. Mail the application to the address
listed above.
</TABLE>
o $25 minimum to open or add to an account with investment of certain UIT
distributions, and $100 minimum to open an account, and $25 minimum to add to
an account, with investment of dividends or distributions from Non-Affiliated
Funds. See "How to Buy Shares -- Minimum Investments" section.
REDUCED SALES CHARGE AT PURCHASE
As described below, the sales charge on purchases of the Fund's Class A Common
Shares may be reduced through: (1) a Right of Accumulation; (2) Quantity
Discounts; (3) a Letter of Intent; and (4) Reinvestment Privileges. Reduced
sales charges may be modified or terminated at any time as to new purchases
and/or letters of intent and are subject to confirmation of an investor's
holdings. For more information about reduced sales charges, contact your GW
Securities representative or call 800-222-5852.
RIGHT OF ACCUMULATION
Under the Right of Accumulation, the current value of an investor's existing
Class A Shares in a Non-Money Market Fund of Sierra Trust Funds and Class B and
Class S Shares in all the Funds of the Sierra Trust Funds may be combined with
the amount of the investor's current purchase in the Fund in determining the
sales charge applicable to the Class A Common Shares. In order to receive the
cumulative quantity reduction, the investor or the securities dealer must call
previous purchases of such Class A, Class B and Class S Shares to the attention
of Sierra Administration at the time of the current purchase.
QUANTITY DISCOUNTS
As shown in the tables on pages 29 and 30 and under the Right of Accumulation
section, larger purchases of the Class A Common Shares of the Fund combined with
Non-Money Fund Class A Shares and Class B and Class S Shares of all the Sierra
Trust Funds reduce the sales charge paid on the Class A Common Shares. The Fund
will combine purchases of the Class A Common Shares of the Fund with the
Non-Money Fund Class A Shares, Class B and Class S Shares of Sierra Trust Funds
made on the same day by the investor, spouse, and any minor children when
calculating the Class A Common Shares sales charge. In order to receive the
cumulative quantity reduction, the investor or the securities dealer must call
related purchases of such Class A Common Shares, Class A, Class B and Class S
Shares to the attention of Sierra Administration at the time of the current
purchase.
LETTER OF INTENT
An investor may qualify for a reduced sales charge on Class A Common Shares
immediately by signing a non-binding "Letter of Intent" stating the investor's
intention to invest during the following 13 months a specified amount in the
Class A Common Shares which, if made at one time, would qualify for a reduced
sales charge. Any redemptions of Class A Common Shares made during the 13-month
period will be subtracted from the amount of purchases of Class A Common Shares
in determining whether the terms of the Letter of Intent have been met. During
the term of a Letter of Intent, Sierra Administration will hold Class A Common
Shares representing 5% of the amount purchased in escrow for payment of a higher
sales load if the full amount specified in the Letter of Intent is not purchased
within the 13-month period. The escrowed shares will be released when the full
amount specified has been purchased. If the full amount specified is not
purchased within the 13-month period, the investor will be required to pay an
amount equal to the difference in the dollar amount of sales charge actually
paid and the amount of sales charge the investor would have had to pay on the
investor's aggregate purchases of Class A Common Shares if the total of such
purchases had been made at a single time.
REINVESTMENT PRIVILEGE
Upon repurchase of the Class A Common Shares, a shareholder has the right, to be
exercised within 180 days, to reinvest any or all of the repurchase proceeds in
Class A Common Shares of the Fund without any sales charge at the next
determined NAV after receipt of the purchase order. The shareholder must notify
GW Securities in writing concerning the reinvestment in order to avoid the sales
charge.
EXCHANGE PRIVILEGE
Shareholders of Sierra Trust Funds are permitted to exchange their Class A
Shares for the Class A Common Shares of the Fund. If the Class A Common Shares
acquired in the exchange are subject to a higher sales load, a sales load may be
charged in an amount up to the difference between the sales load previously paid
and the initial sales load applicable to the Class A Common Shares of the Fund
being acquired.
WAIVERS OF CLASS A COMMON SHARES SALES CHARGES
No initial sales charge will be assessed with respect to Class A Common Shares
of the Fund on: (1) purchases by (a) employees or retired employees of Great
Western Financial Corporation ("GWFC") or any of its affiliates and members of
their immediate families (spouses and minor children) and IRAs, Keogh Plans or
employee benefit plans for those employees and retired employees; (b) directors,
trustees, officers or advisory board members, or persons retired from such
positions, of any investment company for which GWFC or an affiliate serves as
investment advisor; (c) registered representatives or full-time employees of
Authorized Dealers or full-time employees of banks affiliated with such dealers;
(2) purchases by retirement plans created pursuant to Section 457 of the Code;
(3) purchases that are paid for with the proceeds from the redemption of shares
of a non-money market mutual fund not affiliated with the Trust or Sierra
Services, where the purchase occurs within 15 Business Days of the prior
redemption and is evidenced by a confirmation of the redemption transaction or a
broker-to-broker transfer request (Shareholder Services must be notified at the
time of purchase that the purchase being made qualifies for a purchase at NAV);
(4) purchases by employees of any of the Fund's Sub-Advisors; (5) purchases by
accounts as to which an Authorized Dealer or a bank affiliated with an
Authorized Dealer charges an account management fee, provided that the
Authorized Dealer or bank has an agreement with the Distributor; (6) purchases
by a GW Securities client through investment of distributions paid by a UIT
within 30 days of the payment of such distributions where the client's interests
in such UIT were acquired through GW Securities; and (7) purchases through
investment of dividends or distributions paid by a Non-Affiliated Fund within 30
days of the payment of such dividends or distributions.
No sales charge at purchase is assessed for Class A Common Shares purchased
through a 401(k) Plan or 403(b) Plan. Investors through 401(k) Plan or 403(b)
Plan may be subject to various account fees and purchase and tender procedures
designated by the employer who has established such a plan. Such investors
should consult their employer or account agreements for information relating to
their accounts.
The Class A Common Shares Early Withdrawal Charge ("EWC"), described below, is
waived for repurchases or tendering of Class A Common Shares (i) that are part
of exchanges for Class A Shares of Sierra Trust Funds; (ii) for distributions to
pay benefits to participants from a retirement plan qualified under Section
401(a) or 401(k) of the Code, including distributions due to the death or
disability of the participant (including one who owns the shares as a joint
tenant); (iii) for distributions from a 403(b) Plan or an IRA due to death,
disability, or attainment of age 70 1/2, including certain involuntary
distributions; (iv) for tax-free returns of excess contributions to an IRA; and
(v) for distributions by other employee benefit plans to pay benefits.
APPLICATION OF CLASS A COMMON SHARES EARLY WITHDRAWAL CHARGE
The Class A Common Shares EWC of 1.0% or 0.5% may be imposed on certain
redemptions within one or two years of purchase, respectively, with respect to
Class A Common Shares (i) purchased at NAV without a sales charge at time of
purchase (purchases of $1 million or more), (ii) acquired through an exchange
for Class A Shares of a Non-Money Fund of the Sierra Trust Funds purchased at
NAV without a sales charge at time of purchase (purchases of $1 million or
more), (iii) purchased through an employee benefit trust created pursuant to a
plan qualified under Section 401(k) of the Code ("401(k) Plan"), or (iv)
purchased through a retirement plan qualified under Section 403(b) of the Code
("403(b) Plan"). The Class A Common Shares EWC will not be imposed on Class A
Common Shares purchased by (i) a qualified retirement plan that, at the time of
purchase, had not fewer than 500 eligible employees, (ii) a qualified retirement
plan that, at the time of purchase, had assets exceeding $100 million, or (iii)
an institution investing $5 million or more in the aggregate in the portfolios
of the Fund or Sierra Trust Funds. The EWCs for Class A Common Shares are
calculated on the lower of the shares' cost or current net asset value, and in
determining whether the EWC is payable, the Fund will first redeem shares not
subject to any EWC.
Purchases of $1 million or more and certain other purchases are not subject to
the sales charge at the time of purchase, but may be subject to a 1.0% early
withdrawal charge on repurchases or tenders within one year of purchase or a
0.5% early withdrawal charge on repurchases or tenders during the second year
after purchase. For a purchase of Class A Common Shares in an amount of $1
million or more, if the Fund receives at or before the purchase a written
direction from the dealer of record that the Class A Common Shares early
withdrawal charge shall not apply, then the Class A Common Shares early
withdrawal charge shall not apply and SISC may pay the investor's dealer of
record up to 0.25% of the net asset value of the purchase. For such a purchase,
if the Fund does not receive at or before the purchase a written direction from
the dealer of record that the Class A Common Shares early withdrawal charge
shall not apply, then the Class A Common Shares early withdrawal charge shall
apply and SISC may pay the investor's dealer of record up to 1.00% of the net
asset value of the purchase. No sales charge at time of purchase and no early
withdrawal charge will be assessed on the reinvestment of dividends or
distributions on Class A Common Shares or on purchases of Class A Common Shares
under the 180-day reinvestment privilege described in a previous section.
COMMUNICATIONS WITH SHAREHOLDERS
The Fund will send semi-annual and annual reports to shareholders, including a
list of the portfolio investments held by the Fund.
From time to time advertisements and other sales materials for the Fund may
include information concerning the historical performance of the Fund. Any such
information may include a distribution rate and an average compounded
distribution rate of the Fund for specified periods of time. Such information
may also include performance rankings and similar information from independent
organizations such as Lipper Analytical Services, Inc., Business Week, Forbes or
other industry publications.
UNDERSTANDING PERFORMANCE
Because the Fund invests in floating and variable corporate loans, its
performance is related to the creditworthiness of the corporate issuers of the
loans, and to a lesser extent, the general level of interest rates. TOTAL RETURN
reflects both the reinvestment of income and the change in a Fund's share price.
Because the Fund primarily invests in floating and variabel corporate loans, its
share price volatility and TOTAL RETURN will depend largely on the
creditworthiness of each particular corporate issuer. Share value will tend to
decrease when the floating and/or variable loans of the portfolio are having
difficulty in terms of repayment. In addition, share value may decrease when
interest rates rise and increase when interest rates fall.
EXPLANATION OF TERMS
TOTAL RETURN is the change in value of an investment in a Fund over a given
period, assuming reinvestment of any dividends and capital gains. A CUMULATIVE
TOTAL RETURN reflects actual performance over a stated period of time.
An AVERAGE ANNUAL TOTAL RETURN is a hypothetical rate of return that, if
achieved annually, would have produced the same cumulative total return if
performance had been constant over the entire period. Average annual total
returns smooth out variations in performance; they are not the same as actual
year-by-year results.
YIELD of a Fund is the income generated by an investment in the Fund over a
30-day period. See below for a further description of these terms.
YIELD
From time to time, the Fund may advertise its 30-day YIELD. The 30-day YIELD of
the Fund refers to the income generated by an investment in the Fund over the
30-day period identified in the advertisement, and is computed by dividing the
net investment income per share earned by the Fund during the period by the
maximum Public Offering Price per share on the last day of the 30-day period.
This income is "annualized" by assuming that the amount of income is generated
each month over a one-year period and is compounded semiannually. The annualized
income is then shown as a percentage of the maximum Public Offering Price. In
addition, the Fund may advertise a similar 30-day YIELD computed in the same
manner except that the NAV per share is used in place of the Public Offering
Price per share. The Fund calculates the compounded distribution rate by adding
one to the monthly distribution rate, raising the sum to the power of 12 and
subtracting one from the product. In circumstances in which the Fund believes
that, as a result of decreases in market rates of interest, its expected monthly
distributions may be less than the distributions with respect to the immediately
preceding monthly distribution period, the Fund reserves the right to calculate
the distribution rate on the basis of a period of less than one month.
TOTAL RETURN
From time to time, the Fund may advertise its average annual total return over
various periods of time. Such TOTAL RETURN figures show the average percentage
change in value of an investment in the Fund from the beginning date of the
measuring period. These figures reflect changes in the price of the Fund's
shares and assume that any income dividends and/or capital gains distributions
made by the Fund during the period were reinvested in shares of the Fund.
Figures will be given for recent one-, five- and ten-year periods (if
applicable), and may be given for other periods as well (such as from
commencement of the Fund's operations, or on a year-by-year basis).
ADDITIONAL PERFORMANCE QUOTATIONS. Advertisements of total return will always
show a calculation that includes the effect of the maximum sales charge but may
also show total return without giving effect to that charge. Similarly, the Fund
may provide yield quotations in investor communications based on the Fund's net
asset value (rather than its Public Offering Price) per share on the last day of
the period covered by the yield computation. Because these additional quotations
will not reflect the maximum sales charge payable, such performance quotations
will be higher than the performance quotations that include the maximum sales
charge.
TOTAL RETURNS AND YIELDS ARE BASED ON PAST RESULTS AND ARE NOT A PREDICTION OF
FUTURE PERFORMANCE.
PERFORMANCE COMPARISONS
In reports or other communications to shareholders or in advertising material, a
Fund may compare the performance of its Class A Common Shares with that of other
mutual funds as listed in the rankings prepared by Lipper Analytical Services,
Inc., CDA Technologies, Inc. or similar independent services that monitor the
performance of mutual funds or with other appropriate indexes of investment
securities. In addition, certain indexes may be used to illustrate historic
performance of select asset classes. These may include, among others, the prime
rate, CD rate, money market rate and LIBOR. The performance information may also
include evaluations of the Funds published by nationally recognized ranking
services and by financial publications that are nationally recognized, such as
Business Week, Forbes, Fortune, Institutional Investor, Money and The Wall
Street Journal. If the Fund compares its performance to other funds or to
relevant indexes, the Fund's performance will be stated in the same terms in
which such comparative data and indexes are stated, which is normally total
return rather than yield. For these purposes the performance of the Fund, as
well as the performance of such investment companies or indexes, may not reflect
sales charges, which, if reflected, would reduce performance results.
OBTAINING PERFORMANCE INFORMATION
The Fund's strategies, performance, and holdings will be detailed twice a year
in fund reports, which are sent to all shareholders. The SAI describes the
methods used to determine the Fund's performance. Shareholders may call
800-222-5852 for performance information. Shareholders may make inquiries
regarding the Fund, including current total return figures, to any
representative of GW Securties, or by calling 800-222-5852.
The following table is intended to provide investors with a comparison of
short-term money market rates. This comparison should not be considered a
representation of future money market rates, nor what an investment in the Fund
may earn or what an investor's yield or total return may be in the future. These
comparisons may be used in advertisements and in information furnished to
present or prospective shareholders.
<TABLE>
<CAPTION>
COMPARISON OF PRIME RATE,
CERTIFICATE OF DEPOSIT RATE, MONEY MARKET RATE AND
LONDON INTER-BANK OFFERED RATE
(AVERAGE OF CALENDAR YEAR)
-----------------------------------------------------------------
1989 1990 1991 1992 1993 1994
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Prime Rate(1) ........................... 10.88% 10.01% 8.46% 6.25% 6.00% 8.50%
C.D. Rate(2) ........................... 9.08 8.17 5.91 3.76 3.28 6.90
Money Market Rate (3) ................... 8.53 7.82 5.44 3.36 2.70 3.75
LIBOR(4) ................................ 8.37 7.56 4.25 3.43 3.37 6.50
</TABLE>
- -----------
(1) The Prime Rate quoted by a major U.S. bank is the base rate on corporate
loans at large U.S. money center commercial banks. Source: Federal Reserve
Bulletin.
(2) The Certificate of Deposit Rate represents the average annual rate paid on
large six-month CDs traded in the secondary market. Source: Bloomberg.
(3) The Money Market Rate represents Donoghue's Money Fund Averages for taxable
money market funds.
(4) The London Inter-Bank Offered Rate represents the rate at which most
creditworthy international banks dealing in Eurodollars charge each other
for large loans. Source: Bloomberg.
CUSTODIAN, ADMINISTRATOR AND TRANSFER AGENT
State Street Bank & Trust Company located at 225 Franklin Street, Boston, MA
02110 is the custodian of the Fund and has custody of the securities and cash of
the Fund. The custodian, among other things, attends to the collection of
principal and income and payment for and collection of proceeds of securities
bought and sold by the Fund. Sierra Administration is the dividend disbursing
and transfer agent of the Fund, and will also perform certain accounting
services pursuant to an Administration Agreement between it and the Fund.
LEGAL OPINIONS
Certain legal matters in connection with the Common Shares offered hereby have
been passed upon for the Fund by Morgan, Lewis & Bockius LLP.
EXPERTS
The financial statements included in the Statement of Additional Information
have been so included in reliance on the report of Price Waterhouse LLP,
independent public accountants, given on the authority of said firm as
experts in auditing and accounting.
ADDITIONAL INFORMATION
The Prospectus and the Statement of Additional Information do not contain all of
the information set forth in the Registration Statement that the Fund has filed
with the SEC. The complete Registration Statement may be obtained from the SEC
upon payment of the fee prescribed by its Rules and Regulations.
Statements contained in this Prospectus as to the contents of any contract or
other documents referred to are not necessarily complete, and, in each instance,
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement of which this Prospectus forms a part,
each such statement being qualified in all respects by such reference.
The Table of Contents for the Statement of Additional Information is as follows:
PAGE
Investment Objective and Policies and Special Risk Factors ........... B-2
Investment Restrictions .............................................. B-9
Officers and Trustees ................................................ B-11
Portfolio Transactions ............................................... B-14
Management of the Fund ............................................... B-15
Net Asset Value ...................................................... B-17
Determination of Performance ......................................... B-18
Taxation ............................................................. B-20
Repurchase (Tender Offer) of Shares .................................. B-22
Independent Auditor's Report ......................................... FS-1
Financial Statements ................................................. FS-2
<PAGE>
SIERRA PRIME INCOME FUND
STATEMENT OF ADDITIONAL INFORMATION
Sierra Prime Income Fund (the "Fund") is a non-diversified, closed-end
management investment company whose investment objective is to provide Common
Shareholders with a high level of current income, consistent with preservation
of capital. This Statement of Additional Information is not a prospectus, but
should be read in conjunction with the Prospectus for the Fund dated February
14, 1996 (the "Prospectus"). This Statement of Additional Information does not
include all information that a prospective investor should consider before
purchasing shares of the Fund, and investors should obtain and read the
Prospectus prior to purchasing shares. A copy of the Prospectus may be obtained
without charge, by calling 800-222-5852. This Statement of Additional
Information incorporates by reference the entire Prospectus.
TABLE OF CONTENTS
Page
----
Investment Objective and Policies and Special Risk Factors ........... B-2
Investment Restrictions .............................................. B-9
Trustees and Officers ................................................ B-11
Portfolio Transactions .............................................. B-14
Management of the Fund ............................................... B-15
Net Asset Value ...................................................... B-17
Determination of Performance.......................................... B-18
Taxation ............................................................. B-20
Repurchase (Tender Offer) of Shares .................................. B-22
Independent Auditor's Report.......................................... FS-1
Financial Statements.................................................. FS-2
The Prospectus and this Statement of Additional Information omit certain
information contained in the registration statement filed with the Securities
and Exchange Commission, Washington, D.C. (the "SEC"). These items may be
obtained from the SEC upon payment of the fee prescribed or inspected at the
SEC's office at no charge.
THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED FEBRUARY 14, 1996.
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
AND SPECIAL RISK FACTORS
The Fund's investment objective is to provide a high level of current income,
consistent with preservation of capital. The Fund seeks to achieve its objective
through investment primarily in a professionally managed portfolio of interests
in floating or variable rate Senior Loans to Borrowers. Although the Fund's net
asset value will vary, the Fund's policy of acquiring interests in floating or
variable rate Senior Loans is expected to minimize the fluctuations in the
Fund's net asset value as a result of changes in interest rates. While the Fund
seeks relative share price (NAV) stability, its net asset value may be affected
by changes in the credit quality of Borrowers with respect to Senior Loan
interests in which the Fund invests. The Fund seeks to achieve over time a high
effective yield. An investment in the Fund may not be appropriate for all
investors and is not intended to be a complete investment program. No assurance
can be given that the Fund will achieve its investment objective.
CERTAIN CHARACTERISTICS OF SENIOR LOAN INTERESTS
Senior Loans generally are arranged through private negotiations between a
Borrower and several financial institutions ("Lenders") represented in each case
by one or more such Lenders acting as agent ("Agent") of the several Lenders. On
behalf of the several Lenders, the Agent, which is frequently the commercial
bank or other entity that originates the Senior Loan and the person that invites
other parties to join the lending syndicate, will be primarily responsible for
negotiating the loan agreement or agreements ("Loan Agreement") that establish
the relative terms, conditions and rights of the Borrower and the several
Lenders. In larger transactions it is common to have several Agents; however,
generally only one such agent has primary responsibility for documentation and
administration of the Senior Loan. Agents are typically paid a fee or fees by
the Borrower for their services.
The Fund will invest in participations ("Participations") in Senior Loans, will
purchase assignments ("Assignments") of portions of Senior Loans from third
parties and may act as one of the group of Lenders originating a Senior Loan (an
"Original Lender").
It is anticipated that the proceeds of the Senior Loans in which the Fund will
acquire interests primarily will be used to finance leveraged buyouts,
recapitalizations, mergers, acquisitions, stock repurchases, and, to a lesser
extent, to finance internal growth and for other corporate purposes of
Borrowers. The Fund currently does not intend to acquire interests in Senior
Loans the proceeds of which would be used primarily to finance construction or
real estate development projects. Senior Loans have the most senior position in
a Borrower's capital structure, although some Senior Loans may hold an equal
ranking with other senior securities of the Borrower. The capital structure of
Borrowers may include Senior Loans, senior and junior subordinated debt (which
may include "junk bonds"), preferred stock and common stock issued by the
Borrower, typically in descending order of seniority with respect to claims on
the Borrower's assets. Senior Loans generally are secured by specific
collateral, which may include guarantees. In connection with the acquisition of
collateralized Senior Loans, the Fund may invest up to 5% of its total assets in
Senior Loans which are not secured by any collateral. Such unsecured Senior
Loans would constitute an interim financing intended to be refinanced through,
in whole or in part, a collateralized Senior Loan. In the event that the Fund
invests a portion of its assets in Senior Loans that are not secured by specific
collateral, the Fund will not enjoy the benefits associated with
collateralization with respect to such Senior Loans and such Senior Loans may
pose a greater risk of nonpayment of interest or loss of principal than do
collateralized Senior Loans.
As discussed below, the Fund may also acquire warrants and equity securities
issued by the Borrower or its affiliates as part of a package of investments in
the Borrower or its affiliates. Warrants and equity securities will not be
treated as Senior Loans and thus assets invested in such securities will not
count toward the 80% of the Fund's total assets that normally will be invested
in Senior Loans. The Fund will acquire such interests in unsecured Senior Loans,
warrants and equity securities only as an incident to the intended purchase of
interests in collateralized Senior Loans. Loan Agreements may also include
various restrictive covenants designed to limit the activities of the Borrower
in an effort to protect the right of the Lenders to receive timely payments of
interest on and repayment of principal of the Senior Loans. In order to borrow
money pursuant to collateralized Senior Loans, a Borrower will frequently, for
the term of the Senior Loan, pledge as collateral assets, including but not
limited to, trademarks, accounts receivable, inventory, buildings, real estate,
franchises, and common and preferred stock in its subsidiaries. In addition, in
the case of some Senior Loans, there may be additional collateral pledged in the
form of guarantees by and/or securities of affiliates of the Borrowers. In
certain instances, a Senior Loan may be secured only by stock in the Borrower or
its subsidiaries. Such collateral may consist of assets that may not be readily
liquidated, and there is no assurance that the liquidation of such assets would
satisfy fully a Borrower's obligations under a Senior Loan.
Restrictive covenants may include mandatory prepayment provisions arising from
excess cash flows and typically include restrictions on dividend payments,
specific mandatory minimum financial ratios, limits on total debt and other
financial tests. Breach of such covenants, if not waived by the Lenders, is
generally an event of default under the applicable Loan Agreement and may give
the Lenders the right to accelerate principal and interest payments. The Advisor
will consider the terms of such restrictive covenants in deciding whether to
invest in Senior Loans for the Fund's portfolio. When the Fund holds a
Participation in a Senior Loan it may not have the right to vote to waive
enforcement of any restrictive covenant breached by a Borrower. Lenders voting
in connection with a potential waiver of a restrictive covenant may have
interests different from those of the Fund and such Lenders may not consider the
interests of the Fund in connection with their votes.
Senior Loans in which the Fund will invest generally pay interest at rates which
are periodically redetermined by reference to a base lending rate plus a
premium. As a result Lenders will pay more than the Prime Rate to the Fund on
their Senior Loans. These base lending rates are generally the Prime Rate,
LIBOR, the CD rate or other base lending rates used by commercial lenders. The
Prime Rate quoted by a major U.S. bank is the interest rate at which such bank
is willing to lend U.S. dollars to its most creditworthy borrowers. LIBOR, as
provided for in Loan Agreements, is an average of the interest rates quoted by
several designated banks as the rates at which such banks would offer to pay
interest to major financial institutional depositors in the London interbank
market on U.S. dollar-denominated deposits for a specified period of time. The
CD rate, as generally provided for in Loan Agreements, is the average rate paid
on large certificates of deposit traded in the secondary market.
At least 80% of the Fund's total assets normally will be invested in Senior
Loans. In normal market conditions, at least 65% of the Fund's assets will be
invested in Senior Loans which, at the time of the Fund's initial investment in
such Senior Loans, provide the Fund with a rate of return which approximates the
Prime Rate existing on the date of such initial investment. The Fund is not
subject to any restrictions with respect to the maturity of Senior Loans held in
its portfolio. It is currently anticipated that the Fund's assets invested in
Senior Loans will consist of Senior Loans with stated maturities of between
three and seven years, inclusive, and with rates of interest which are
periodically reset with reset periods typically ranging from 30 days to one
year. Investment in Senior Loans with longer interest rate redetermination
periods may increase fluctuations in the Fund's net asset value as a result of
changes in interest rates. The Senior Loans in the Fund's portfolio will at all
times have a dollar-weighted average time until the next interest rate
redetermination of 90 days or less. As a result, as short-term interest rates
increase, interest payable to the Fund from its investments in Senior Loans
should increase, and as short-term interest rates decrease, interest payable to
the Fund from its investments in Senior Loans should decrease. The amount of
time required to pass before the Fund will realize the effects of changing
short-term market interest rates on its portfolio will vary with the
dollar-weighted average time until the next interest rate redetermination on the
Senior Loans in the Fund's portfolio. The Fund may utilize certain investment
practices to, among other things, shorten the effective interest rate
redetermination period of Senior Loans in its portfolio. In such event, the Fund
will consider such shortened period to be the interest rate redetermination
period of the Senior Loan; provided, however, that the Fund will not invest in
Senior Loans which permit the Borrower to select an interest rate
redetermination period in excess of one year. Because most Senior Loans in the
Fund's portfolio will be subject to mandatory and/or optional prepayment and
there may be significant economic incentives for a Borrower to prepay its loans,
prepayments of Senior Loans in the Fund's portfolio may occur. Accordingly, the
actual remaining maturity of the Fund's portfolio invested in Senior Loans may
vary substantially from the average stated maturity of the Senior Loans held in
the Fund's portfolio. As a result of expected prepayments from time to time of
Senior Loans in the Fund's portfolio, the Fund estimates that the actual average
maturity of the Senior Loans held in its portfolio will be approximately 18-24
months.
When interest rates decline, the value of a portfolio invested in fixed-rate
obligations can be expected to rise. Conversely, when interest rates rise, the
value of a portfolio invested in fixed-rate obligations can be expected to
decline. Although the Fund's net asset value will vary, the Fund's management
expects the Fund's policy of acquiring interests in floating or variable rate
Senior Loans to minimize fluctuations in net asset value as a result of changes
in interest rates. Accordingly, the Fund's management expects the value of the
Fund's portfolio to fluctuate significantly less than a portfolio of fixed-rate,
longer term obligations as a result of interest rate changes. However, changes
in prevailing interest rates can be expected to cause some fluctuation in the
Fund's net asset value. In addition to changes in interest rates, changes in the
credit quality of Borrowers will also affect the Fund's net asset value.
Further, a serious deterioration in the credit quality of a Borrower could cause
a prolonged or permanent decrease in the Fund's net asset value.
Senior Loans generally are not rated by nationally recognized statistical rating
organizations. Because of the collateralized and/or guaranteed nature of most
Senior Loans, the Fund and the Advisor believe that ratings of other securities
issued by a Borrower do not necessarily reflect adequately the relative quality
of a Borrower's Senior Loans. Therefore, although the Advisor may consider such
ratings in determining whether to invest in a particular Senior Loan, the
Advisor is not required to consider such ratings and such ratings will not be
the determinative factor in the Advisor's analysis. The Fund may invest in
Senior Loans, the Borrowers with respect to which have outstanding debt
securities which are rated below investment grade by a nationally recognized
statistical rating organization or are unrated but of comparable quality to such
securities. Such Borrowers are more likely to experience difficulty in meeting
payment obligations under such debt and other subordinated obligations. These
difficulties could detract from the Borrower's perceived creditworthiness or its
ability to obtain financing to cover short-term cash flow needs and may force
the Borrower into bankruptcy or other forms of credit restrictions. The Fund
will invest only in those Senior Loans with respect to which the Borrower, in
the opinion of the Advisor, demonstrates certain of the following
characteristics: sufficient cash flow to service debt; adequate liquidity;
successful operating history; strong competitive position; experienced
management; and, with respect to collateralized Senior Loans, collateral;
coverage that equals or exceeds the outstanding principal amount of the Senior
Loan. In addition, the Advisor will consider, and may rely in part, on the
analyses performed by the Agent and other Lenders, including such persons'
determinations with respect to collateral securing a Senior Loan.
The Fund may invest up to 100% of its assets in Participations. The selling
Lenders and other persons interpositioned between such Lenders and the Fund with
respect to such Participations will likely conduct their principal business
activities in the banking, finance and financial services industries. Although,
as discussed below, the Fund has taken measures which it believes significantly
reduce its exposure to any risks incident to such policy, the Fund may be more
susceptible than an investment company without such a policy to any single
economic, political or regulatory occurrence affecting such industries. Persons
engaged in such industries may be more susceptible than are persons engaged in
some other industry to, among other things, fluctuations in interest rates,
changes in the Federal Open Market Committee's monetary policy, governmental
regulations concerning such industries and concerning capital raising activities
generally and fluctuations in the financial markets generally.
Participations by the Fund in a Lender's portion of a Senior Loan typically
result in the Fund having a contractual relationship only with such Lender, not
with the Borrower. The Fund has the right to receive payments of principal,
interest and any fees to which it is entitled only from the Lender selling the
Participation and only upon receipt by such Lender of such payments from the
Borrower. In connection with purchasing Participations, the Fund generally will
have no right to enforce compliance by the Borrower with the terms of the Loan
Agreement, nor any rights with respect to any funds acquired by other Lenders
through set-off against the Borrower and the Fund may not directly benefit from
the collateral supporting the Senior Loan in which it has purchased the
Participation. As a result, the Fund may assume the credit risk of both the
Borrower and the Lender selling the Participation. In the event of the
insolvency of the Lender selling a Participation, the Fund may be treated as a
general creditor of such Lender, and may not benefit from any set-off between
such Lender and the Borrower. The Fund has taken the following measures in an
effort to minimize such risks. The Fund will only acquire Participations if the
Lender selling the Participation, and any other persons interpositioned between
the Fund and the Lender, (i) at the time of investment has outstanding debt or
deposit obligations rated investment grade (BBB or A-3 or higher by Standard &
Poor's Ratings Group ("S&P") or Baa or P-3 or higher by Moody's Investors
Service ("Moody's")) or determined by the Advisor to be of comparable quality
and (ii) has entered into an agreement which provides for the holding of assets
in safekeeping for, or the prompt disbursement of assets to, the Fund. Long-term
debt rated BBB by S&P is regarded by S&P as having adequate capacity to pay
interest and repay principal and debt rated Baa by Moody's is regarded by
Moody's as a medium grade obligation, i.e., it is neither highly protected nor
poorly secured. Commercial paper rated A-1 by S&P indicates that the degree of
safety regarding timely payment is considered by S&P to be either overwhelming
or very strong and issues of commercial paper rated Prime-1 by Moody's are
considered by Moody's to have a superior ability for repayment of senior
short-term debt obligations. The Fund ordinarily will purchase a Participation
only if, at the time of such purchase, the Fund believes that the party from
whom it is purchasing such Participation is retaining an interest in the
underlying Senior Loan. In the event that the Fund does not so believe, it will
only purchase such a Participation if, in addition to the requirements set forth
above, the party from whom the Fund is purchasing such Participation (i) is a
bank, a member of a national securities exchange or other entity designated in
the Investment Company Act of 1940, as amended, as qualified to serve as a
custodian for a registered investment company and (ii) has been approved as a
custodian by the Board of Trustees of the Fund (a "Designated Custodian").
The Fund may also purchase Assignments from Lenders. The purchaser of an
Assignment typically succeeds to all the rights and obligations under the Loan
Agreement of the assigning Lender and becomes a Lender under the Loan Agreement
with the same rights and obligations as the assigning Lender. Assignments are,
however, arranged through private negotiations between potential assignees and
potential assignors, and the rights and obligations acquired by the purchaser of
an Assignment may differ from, and be more limited than, those held by the
assigning Lender.
When the Fund is an Original Lender originating a Senior Loan it may share in a
fee paid to the Original Lenders. The Fund will never act as the Agent or
principal negotiator or administrator of a Senior Loan. When the Fund is a
Lender, it will have a direct contractual relationship with the Borrower, may
enforce compliance by the Borrower with the terms of the Loan Agreement and may
have rights with respect to any funds acquired by other Lenders through set-off.
Lenders also have full voting and consent rights under the applicable Loan
Agreement. Action subject to Lender vote or consent generally requires the vote
or consent of the holders of some specified percentage of the outstanding
principal amount of the Senior Loan. Certain decisions, such as reducing the
amount or increasing the time for payment of interest on or repayment of
principal of a Senior Loan, or releasing collateral therefor, frequently require
the unanimous vote or consent of all Lenders affected.
The Fund will purchase an Assignment or act as a Lender with respect to a
syndicated Senior Loan only where the Agent with respect to such Senior Loan at
the time of investment has outstanding debt or deposit obligations rated
investment grade (BBB or A-3 or higher by S&P or Baa or P-3 or higher by
Moody's) or determined by the Advisor to be of comparable quality. In addition,
the Fund will purchase a Participation only where the Lender selling such
Participation, and any other person interpositioned between such Lender and the
Fund at the time of investment have outstanding debt obligations rated
investment grade or determined by the Advisor to be of comparable quality.
Further, the Fund will not purchase interests in Senior Loans unless such Agent,
Lender or interpositioned person has entered into an agreement which provides
for the prompt disbursement of assets to the Fund.
Loan Agreements typically provide for the termination of the Agent's agency
status in the event that it fails to act as required under the relevant Loan
Agreement, becomes insolvent, enters FDIC receivership, or if not FDIC insured,
enters into bankruptcy. Should such an Agent, Lender or assignor with respect to
an Assignment interpositioned between the Fund and the Borrower become insolvent
or enter FDIC receivership or bankruptcy, any interest in the Senior Loan of
such person and any loan payment held by such person for the benefit of the Fund
should not be included in such person's estate. If, however, any such amount
were included in such person's estate, the Fund would incur certain costs and
delays in realizing payment or could suffer a loss of principal and/or interest.
In such event, the Fund could experience a decrease in net asset value.
The Fund may be required to pay and may receive various fees and commissions in
connection with purchasing, selling and holding interests in Senior Loans. The
fees normally paid by Borrowers may include three types: facility fees,
commitment fees and prepayment penalties. Facility fees are paid to Lenders upon
origination of a Senior Loan. Commitment fees are paid to Lenders on an ongoing
basis based upon the undrawn portion committed by the Lenders of the underlying
Senior Loan. Lenders may receive prepayment penalties when a Borrower prepays
all or part of a Senior Loan. The Fund will receive these fees directly from the
Borrower if the Fund is an Original Lender, or, in the case of commitment fees
and prepayment penalties, if the Fund acquires an interest in a Senior Loan by
way of Assignment. Whether or not the Fund receives a facility fee from the
Lender in the case of an Assignment, or any fees in the case of a Participation,
depends upon negotiations between the Fund and the Lender selling such
interests. When the Fund is an assignee, it may be required to pay a fee, or
forgo a portion of interest and any fees payable to it, to the Lender selling
the Assignment. Occasionally, the assignor will pay a fee to the assignee based
on the portion of the principal amount of the Senior Loan which is being
assigned. A Lender selling a Participation to the Fund may deduct a portion of
the interest and any fees payable to the Fund as an administrative fee prior to
payment thereof to the Fund. The Fund may be required to pay over or pass along
to a purchaser of an interest in a Senior Loan from the Fund a portion of any
fees that the Fund would otherwise be entitled to.
Pursuant to the relevant Loan Agreement, a Borrower may be required in certain
circumstances, and may have the option at any time, to prepay the principal
amount of a Senior Loan, often without incurring a prepayment penalty. Because
the interest rates on Senior Loans are periodically redetermined at relatively
short intervals, the Fund and the Advisor believe that the prepayment of, and
subsequent reinvestment by the Fund in, Senior Loans will not have a materially
adverse impact on the yield on the Fund's portfolio and may have a beneficial
impact on income due to receipt of prepayment penalties, if any, and any
facility fees earned in connection with reinvestment.
A Lender may have certain obligations pursuant to a Loan Agreement, which may
include the obligation to make additional loans in certain circumstances. The
Fund currently intends to reserve against such contingent obligations by
segregating sufficient investments in high quality short-term, liquid
investments. The Fund will not purchase interests in Senior Loans that would
require the Fund to make any such additional loans if such additional loan
commitments would exceed 20% of the Fund's total assets or would cause the Fund
to fail to meet the diversification requirements set forth under the heading
"Investment Restrictions."
During normal market conditions, the Fund may invest up to 20% of its total
assets in (i) high quality, short-term debt securities with remaining maturities
of one year or less (including assets maintained by the Fund as a reserve
against any additional loan commitments) and (ii) warrants, equity securities,
convertible debt securities and, in certain limited circumstances discussed
above, junior debt securities acquired in connection with the Fund's investments
in Senior Loans. If the Advisor determines that market conditions temporarily
warrant a defensive investment policy, the Fund may invest, subject to its
ability to liquidate its relatively illiquid portfolio of Senior Loans, up to
100% of its assets in cash and such high quality, short-term debt securities.
The Fund will acquire such warrants and equity securities only as an incident to
the purchase or intended purchase of interests in collateralized Senior Loans.
Warrants and equity securities will not qualify as assets required to be
maintained as a reserve against additional loan commitments. Although the Fund
generally will acquire interests in warrants and equity securities only when the
Advisor believes that the relative value being given by the Fund in exchange for
such interests is substantially outweighed by the potential value of such
instruments, investment in warrants and equity securities entail certain risks
in addition to those associated with investments in Senior Loans. Warrants and
equity securities have a subordinate claim on a Borrower's assets as compared
with debt securities and junior debt securities have a subordinate claim on such
assets as compared with Senior Loans. As such, the values of warrants and equity
securities generally are more dependent on the financial condition of the
Borrower and less dependent on fluctuations in interest rates than are the
values of many debt securities. The values of warrants, equity securities and
junior debt securities may be more volatile than those of Senior Loans and thus
may have an adverse impact on the ability of the Fund to minimize fluctuations
in its net asset value.
SPECIAL RISK CONSIDERATIONS
On behalf of the several Lenders, the Agent generally will be required to
administer and manage the Senior Loan and, with respect to collateralized Senior
Loans, to service or monitor the collateral. In this connection, the valuation
of assets pledged as collateral will reflect market value and the Agent may rely
on independent appraisals as to the value of specific collateral. The Agent,
however, may not obtain an independent appraisal as to the value of assets
pledged as collateral in all cases. The Fund normally will rely primarily on the
Agent (where the Fund is an Original Lender or owns an Assignment) or the
selling Lender (where the Fund owns a Participation) to collect principal of and
interest on a Senior Loan. Furthermore, the Fund usually will rely on the Agent
(where the Fund is an Original Lender or owns an Assignment) or the selling
Lender (where the Fund owns a Participation) to monitor compliance by the
Borrower with the restrictive covenants in the Loan Agreement and notify the
Fund of any adverse change in the Borrower's financial condition or any
declaration of insolvency. Collateralized Senior Loans will frequently be
secured by all assets of the Borrower that qualify as collateral, which may
include common stock of the Borrower or its subsidiaries. Additionally, the
terms of the Loan Agreement may require the Borrower to pledge additional
collateral to secure the Senior Loan, and enable the Agent, upon proper
authorization of the Lenders, to take possession of and liquidate the collateral
and to distribute the liquidation proceeds pro rata among the Lenders. If the
terms of a Senior Loan do not require the Borrower to pledge additional
collateral in the event of a decline in the value of the original collateral,
the Fund will be exposed to the risk that the value of the collateral will not
at all times equal or exceed the amount of the Borrower's obligations under the
Senior Loan. Lenders that have sold Participation interests in such Senior Loan
will distribute liquidation proceeds received by the Lenders pro rata among the
holders of such Participations. The Advisor will also monitor these aspects of
the Fund's investments and, where the Fund is an Original Lender or owns an
Assignment, will be directly involved with the Agent and the other Lenders
regarding the exercise of credit remedies. Senior Loans, like other corporate
debt obligations, are subject to the risk of non-payment of scheduled interest
or principal. Such non-payment would result in a reduction of income to the
Fund, a reduction in the value of the Senior Loan experiencing non-payment and a
potential decrease in the net asset value of the Fund. Although, with respect to
collateralized Senior Loans, the Fund generally will invest only in Senior Loans
that the Advisor believes are secured by specific collateral which may include
guarantees, the value of which exceeds the principal amount of the Senior Loan
at the time of initial investment, there can be no assurance that the
liquidation of any such collateral would satisfy the Borrower's obligation in
the event of non-payment of scheduled interest or principal payments, or that
such collateral could be readily liquidated. In the event of bankruptcy of a
Borrower, the Fund could experience delays or limitations with respect to its
ability to realize the benefits of the collateral securing a Senior Loan. To the
extent that a Senior Loan is collateralized by stock in the Borrower or its
subsidiaries, such stock may lose all or substantially all of its value in the
event of bankruptcy of the Borrower. The Agent generally is responsible for
determining that the Lenders have obtained a perfected security interest in the
collateral securing the Senior Loan. In the event that the Fund does not believe
that a perfected security interest has been obtained with respect to a
collateralized Senior Loan, the Fund will only obtain an interest in such Senior
Loan if the Agent is a Designated Custodian. Some Senior Loans in which the Fund
may invest are subject to the risk that a court, pursuant to fraudulent
conveyance or other similar laws, could subordinate such Senior Loans to
presently existing or future indebtedness of the Borrower or take other action
detrimental to the holders of Senior Loans, such as the Fund, including, under
certain circumstances, invalidating such Senior Loans. Lenders commonly have
certain obligations pursuant to the Loan Agreement, which may include the
obligation to make additional loans or release collateral in certain
circumstances.
Senior Loans in which the Fund will invest generally will not be rated by a
nationally recognized statistical rating organization, will not be registered
with the SEC or any state securities commission and will not be listed on any
national securities exchange. Although the Fund will generally have access to
financial and other information made available to the Lenders in connection with
Senior Loans, the amount of public information available with respect to Senior
Loans will generally be less extensive than that available for rated, registered
and/or exchange listed securities. As a result, the performance of the Fund and
its ability to meet its investment objective is more dependent on the analytical
ability of the Advisor and Van Kampen American Capital Management Inc. (the
"Sub-Advisor" or "Van Kampen") than would be the case for an investment company
that invests primarily in rated, registered and/or exchange listed securities.
Senior Loans are, at present, not readily marketable and may be subject to
restrictions on resale. Interests in Senior Loans generally are not listed on
any national securities exchange or automated quotation system and no regular
market has developed for such interests. Any secondary market purchases and
sales of Senior Loans generally are conducted in private transactions between
buyers and sellers. Senior Loans are thus relatively illiquid, which illiquidity
may impair the Fund's ability to realize the full value of its assets in the
event of a voluntary or involuntary liquidation of such assets. Liquidity
relates to the ability of the Fund to sell an investment in a timely manner. The
market for relatively illiquid securities tends to be more volatile than the
market for more liquid securities. The Fund has no limitation on the amount of
its assets which may be invested in securities which are not readily marketable
or are subject to restrictions on resale. The substantial portion of the Fund's
assets invested in relatively illiquid Senior Loan interests may restrict the
ability of the Fund to dispose of its investments in Senior Loans in a timely
fashion and at a fair price, and could result in capital losses to the Fund and
holders of Common Shares. However, many of the Senior Loans in which the Fund
expects to purchase interests are of a relatively large principal amount and are
held by a relatively large number of owners which should, in the Advisor's
opinion, enhance the relative liquidity of such interests. The risks associated
with illiquidity are particularly acute in situations where the Fund's
operations require cash, such as when the Fund tenders for its Common Shares,
and may result in the Fund borrowing to meet short-term cash requirements.
To the extent that legislation or state or federal regulators that regulate
certain financial institutions impose additional requirements or restrictions
with respect to the ability of such institutions to make loans in connection
with highly leveraged transactions, the availability of Senior Loan interests
for investment by the Fund may be adversely affected. In addition, such
requirements or restrictions may reduce or eliminate sources of financing for
certain Borrowers. Further, to the extent that legislation or federal or state
regulators that regulate certain financial institutions require such
institutions to dispose of Senior Loan interests relating to highly leveraged
transactions or subject such Senior Loan interests to increased regulatory
scrutiny, such financial institutions may determine to sell such Senior Loan
interests in a manner that results in a price which, in the opinion of the
Advisor, is not indicative of fair value. Were the Fund to attempt to sell a
Senior Loan interest at a time when a financial institution was engaging in such
a sale with respect to such Senior Loan interest, the price at which the Fund
could consummate such a sale might be adversely affected.
The Fund may use various investment practices that involve special
considerations including engaging in interest rate and other hedging
transactions, lending its portfolio securities, entering into when-issued and
delayed delivery transactions and entering into repurchase and reverse
repurchase agreements. For further discussion of these practices and associated
special considerations, see "Investment Practices and Special Risks" in the
Prospectus.
INVESTMENT RESTRICTIONS
The Fund's investment objective and the following investment restrictions are
fundamental and cannot be changed without the approval of the holders of a
majority (defined as the lesser of (i) 67 percent or more of the voting
securities present at a meeting of shareholders, if the holders of more than 50
percent of the outstanding voting securities are present or represented by proxy
at such meeting, or (ii) more than 50 percent of the outstanding voting
securities) of the Fund's outstanding Common Shares. All other investment
policies or practices are considered by the Fund not to be fundamental and
accordingly may be changed without shareholder approval. If a percentage
restriction on investment or use of assets set forth below is adhered to at the
time a transaction is effected, later changes in percentage resulting from
changing market values will not be considered a deviation from policy. In
accordance with the foregoing, the Fund may not:
1. Purchase any securities (other than obligations issued or guaranteed
by the United States Government or by its agencies or
instrumentalities), if as a result more than 5% of the Fund's total
assets would then be invested in securities of a single issuer or if
as a result the Fund would hold more than 10% of the outstanding
voting securities of any single issuer; provided that, with respect to
50% of the Fund's assets, the Fund may invest up to 25% of its assets
in the securities of any one issuer. For purposes of this restriction,
the term "issuer" includes both the Borrower under a Loan Agreement
and the Lender selling a Participation to the Fund together with any
other persons interpositioned between such Lender and the Fund with
respect to a Participation.
2. Purchase any security if, as a result of such purchase, more than 25%
of the Fund's total assets (taken at current value) would be invested
in the securities of Borrowers and other issuers having their
principal business activities in the same industry (the electric, gas,
water and telephone utility industries, commercial banks, thrift
institutions and finance companies being treated as separate
industries for purposes of this restriction); provided, that this
limitation shall not apply with respect to obligations issued or
guaranteed by the U.S. Government or by its agencies or
instrumentalities.
3. Issue senior securities (including borrowing money or entering into
reverse repurchase agreements) in excess of 33 1/3% of its total
assets (including the amount of senior securities issued but excluding
any liabilities and indebtedness not constituting senior securities)
except that the Fund may borrow up to an additional 5% of its total
assets for temporary purposes, or pledge its assets other than to
secure such issuance or in connection with hedging transactions,
when-issued and delayed delivery transactions and similar investment
strategies.
4. Make loans of money or property to any person, except for obtaining
interests in Senior Loans in accordance with its investment objective,
through loans of portfolio securities or the acquisition of securities
subject to repurchase agreements.
5. Buy any security "on margin." Neither the deposit of initial or
variation margin in connection with hedging transactions nor
short-term credits as may be necessary for the clearance of such
transactions is considered the purchase of a security on margin.
6. Sell any security "short," write, purchase or sell puts, calls or
combinations thereof, or purchase or sell financial futures or
options, except to the extent that the hedging transactions in which
the Fund may engage would be deemed to be any of the foregoing
transactions.
7. Act as an underwriter of securities, except to the extent the Fund may
be deemed to be an underwriter in connection with the sale of or
granting of interests in Senior Loans or other securities acquired by
the Fund.
8. Make investments for the purpose of exercising control or
participation in management, except to the extent that exercise by the
Fund of its rights under Loan Agreements would be deemed to constitute
such control or participation.
9. Invest in securities of other investment companies, except as part of
a merger, consolidation or other acquisition or pursuant to an order
granted by the Commission and in accordance with applicable law, to
the extent that deferred compensation of the Fund's trustees under the
Fund's deferred compensation plan for its trustees is valued in
deferred fee accounts by reference to a hypothetical investment in
such other investment companies. The Fund will rely on representations
of Borrowers in Loan Agreements in determining whether such Borrowers
are investment companies.
10. Buy or sell oil, gas or other mineral leases, rights or royalty
contracts except pursuant to the exercise by the Fund of its rights
under Loan Agreements. In addition, the Fund may purchase securities
of issuers which deal in, represent interests in or are secured by
interests in such leases, rights or contracts.
11. Purchase or sell real estate, commodities or commodities contracts
except pursuant to the exercise by the Fund of its rights under Loan
Agreements, except to the extent the interests in Senior Loans the
Fund may invest in are considered to be interests in real estate,
commodities or commodities contracts and except to the extent that
hedging instruments the Fund may invest in are considered to be
commodities or commodities contracts.
For purposes of investment restriction number 2, the Fund will consider all
relevant factors in determining whether to treat the Lender selling a
Participation and any persons interpositioned between such Lender and the Fund
as an issuer, including: the terms of the Loan Agreement and other relevant
agreements (including inter-creditor agreements and any agreements between such
person and the Fund's custodian); the credit quality of such Lender or
interpositioned person; general economic conditions applicable to such Lender or
interpositioned person; and other factors relating to the degree of credit risk,
if any, of such Lender or interpositioned person incurred by the Fund.
The Fund generally will not engage in the trading of securities for the purpose
of realizing short-term profits, but it will adjust its portfolio as it deems
advisable in view of prevailing or anticipated market conditions to accomplish
the Fund's investment objective. For example, the Fund may sell portfolio
securities in anticipation of a movement in interest rates. Frequency of
portfolio turnover will not be a limiting factor if the Fund considers it
advantageous to purchase or sell securities. The Fund anticipates that the
annual portfolio turnover rate of the Fund will not be in excess of 100%. A high
rate of portfolio turnover involves correspondingly greater expenses than a
lower rate, which expenses must be borne by the Fund and its shareholders. High
portfolio turnover also may result in the realization of substantial net
short-term capital gains. Due to the requirement for qualification as a
regulated investment company under the Internal Revenue Code of 1986, as
amended, that less than 30% of the Fund's annual gross income be derived from
the disposition of securities held for less than three months, the Fund may not
be able to sell portfolio holdings held for less than three months that the Fund
may wish to sell in the ordinary course of management, which may affect
adversely the Fund's yield.
TRUSTEES AND OFFICERS
The names of the Trustees and executive officers of the Fund, together with
information as to their principal business occupations, are set forth below. The
executive officers of the Fund are employees of organizations that provide
services to the Fund. Each Trustee who is an "interested person" of the Company,
as defined in the Investment Company Act of 1940, as amended (the "Investment
Company Act"), is indicated by an asterisk.
TRUSTEES:
*F. BRIAN CERINI
President
Sierra Asset Management Corporation
9301 Corbin Avenue
Northridge, CA 91324
Mr. Cerini serves as President and CEO of Sierra Asset Management
Corp. (formerly Great Western Investment Management Corporation).
Formed Great Western Financial Securities ("GW Securities") in 1985
and served as its President and Chairman until January 1996. Prior to
joining GW Securities, he served as First Vice President, Financial
Services for Bateman Eichler, Hill Richards, Inc., a regional
brokerage firm where he directed the firm's off exchange product
responsibilities and marketing. Previously, he worked for Pacific
Southwest Airlines for seven years as Assistant to the President. He
holds a BA degree in Economics from the University of Southern
California and an MBA from the USC Graduate School of Business.
ARTHUR H. BERNSTEIN, ESQ.
President
Bancorp Capital Group, Inc.
11661 San Vicente Blvd., #405
Los Angeles, CA 90049
President of Bancorp Capital Group, Inc. and President of Bancorp
Venture Capital, Inc. since 1988. He has been a Trustee of Sierra
Trust Funds since 1989. Previously served on the Board of Directors of
Great Western Leasing Corporation, a subsidiary of Great Western
Financial Corporation, until the subsidiary was sold in 1987. Director
of Ryder System, Inc.; Chairman of the Board of Trustees of the
California Family Studies Center and Phillips Graduate Institute since
1984. He was educated at Cornell University and a graduate of the
Cornell Law School.
DAVID E. ANDERSON
Retired, Former President & CEO
GTE California, Inc.
17960 Seabreeze Drive
Pacific Palisades, CA 90272
Retired in 1988 from GTE California, Inc. after 40 years of service.
Held the position of President and CEO from 1979 to 1988. Director of
Barclay's Bank of California until 1988. Currently involved in the
following charitable organizations as a director on the following
boards: Board Chairman, Children's Bureau Foundation; Board member,
Upward Bound House of Santa Monica; Past Campaign Chairman of United
Way; Past Chairman, Los Angeles Area Chamber of Commerce. Holds BSEE
degree from Iowa State.
EDMOND R. DAVIS, ESQ.
Partner
Brobeck, Phleger & Harrison
550 South Hope Street, 21st Floor
Los Angeles, CA 90071-2604
Joined the firm as a Partner in 1987 and is responsible for estate
planning, and trusts and estate matters in the Los Angeles office.
Prior to joining the firm, had a similar position for 20 years with the
law firm of Overton, Lyman & Prince in Los Angeles. His expertise has
been recognized in Who's Who in California, The Best Lawyers of
America, and Who's Who in American Law. Member of the Board of
Directors of the following non-profit, charitable organizations:
Fifield Manors, Children's Bureau of Los Angeles, Children's Bureau
Foundation, and Braille Institute of America, Inc. Educated at
Pepperdine University and is an Order of the Coif graduate of Hastings
College of the Law.
JOHN W. ENGLISH
Retired, former Vice President & Chief Investment Officer
Ford Foundation
50 H New England Ave.
P.O. Box 640
Summit, NJ 07902-0640
Retired Vice President and Chief Investment Officer, the Ford
Foundation (a non-profit charitable organization). Chairman of the
Board and Director, The China Fund, Inc. (a closed-end mutual fund).
Director, Paribas Trust for Institutions (an open-end mutual fund).
Trustee, Retail Property Trust (a company providing management
services for a shopping center).
OFFICERS:
F. BRIAN CERINI, CHAIRMAN AND PRESIDENT
Mr. Cerini acts as a Trustee of the Fund as well as President.
Information regarding Mr. Cerini's background is listed above under
"Trustees and Officers."
KEITH PIPES, EXECUTIVE VICE PRESIDENT, TREASURER AND SECRETARY
Mr. Pipes is a Senior Vice President, Chief Financial Officer and
Secretary of Sierra Asset Management Corporation, and is responsible
for its general accounting, financial planning, compliance
administration and systems development. He joined Great Western Bank
in 1983 as Manager of Strategic Planning for the Bank and later served
as product manager for the Bank's savings products before joining GW
Securities in 1986. Prior to joining the firm, Mr. Pipes served as
Senior Planning Analyst in the Mergers and Acquisitions Department of
Mattel Corporation. He holds an undergraduate degree in Economics as
well as an MBA in Finance from UCLA.
MICHAEL D. GOTH, SENIOR VICE PRESIDENT
Since January 1991, Mr. Goth has served as Chief Operating Officer and
Portfolio Manager of Sierra Investment Advisors Corporation ("Sierra
Advisors"). Prior to joining Great Western, Mr. Goth worked for 2-1/2
years as a senior manager of Transfer Agent operations at The
Shareholder Services Group, Inc. ("TSSG") and The Boston Company. In
addition, Mr. Goth has 10 years experience as executive vice president
of the GIT mutual fund group, responsible for most aspects of that
fund group, including investments. Other experience includes 4 years
as a corporate banking officer at Citibank and 1-1/2 years in
investment banking with Drexel Firestone. He holds B.S. and M.S.
degrees from Rensselaer Polytechnic Institute and an MBA in Finance
from Harvard Business School.
STEPHEN C. SCOTT, SENIOR VICE PRESIDENT
Joined GW Securities in August 1988 to form GW Advisors, now known as
Sierra Advisors, and currently serves as the President and Chief
Investment Officer of Sierra Advisors. Prior to joining GW Securities,
served as President and Chairman of SDS Investment Advisors, a firm he
founded in which he developed asset allocation technology. Previously,
President and Chairman of Smathers and Co., an investment advisory
firm. For nine years, served as the Senior Pension Investment
Consultant for the Group Pension Investment Division of Equitable Life
Insurance, responsible for their major corporate clients. Has served
as a member on Board of Directors of several corporations and private
organizations. For 17 years, has served as a Trustee on the Long Beach
State University Foundation and currently chairs the Investment
Committee. He holds a B.A. degree in Economics and Finance from Long
Beach State University, and continued with an MBA in Finance.
RICHARD W. GRANT, ASSISTANT SECRETARY
Has been a Partner in the firm of Morgan, Lewis & Bockius LLP since
1989. Prior to that he was a Partner in the firm of Ballard, Spahr,
Andrews & Ingersoll beginning in 1983. He received his A.B. in 1968
from Brown University and his J.D. in 1971 from the Boston University
School of Law.
CRAIG M. MILLER, ASSISTANT TREASURER
Joined Great Western Investment Management Corporation in July 1993.
Currently acts as Vice President and Controller of Sierra Asset
Management Corporation. Prior thereto, acted as Audit Manager for
Coopers & Lybrand. He holds a Master's degree in Taxation from Bentley
College, where he also received his B.S. in Accountancy.
The compensation of the officers and trustees who are interested persons (as
defined in the 1940 Act) of the Advisor is paid by the Advisor or by its parent,
Great Western Financial Corporation. The Fund pays the compensation of all other
officers and trustees of the Fund. During the next year, the Fund expects to pay
the trustees who are not interested persons an annual fee of $5,000, a fee of
$1,000 per meeting of the Board of Trustees and a fee of $750 per committee
meeting of the Fund, plus expenses.
PORTFOLIO TRANSACTIONS
With respect to interests in Senior Loans, the Fund generally will engage in
privately negotiated transactions for purchase or sale in which the Sub-Advisor
will negotiate on behalf of the Fund. The Fund may be required to pay fees, or
forgo a portion of interest and any fees payable to the Fund, to the Lender
selling Participations or Assignments to the Fund. The Sub-Advisor will
determine the Lenders from whom the Fund will purchase Assignments and
Participations by considering their professional ability, level of service,
relationship with the Borrower, financial condition, credit standards and
quality of management. Although the Fund intends generally to hold interests in
Senior Loans until maturity or prepayment of the Senior Loan, the illiquidity of
Senior Loans may restrict the ability of the Sub-Advisor to locate in a timely
manner persons willing to purchase the Fund's interests in Senior Loans at a
fair price should the Fund desire to sell such interests. See "Investment
Objective and Policies."
With respect to investments other than in Senior Loans, the Sub-Advisor will
place orders for portfolio transactions for the Fund with broker-dealer firms
giving consideration to the quality, quantity and nature of each firm's
professional services. These services include execution, clearance procedures,
wire service quotations and statistical and other research information provided
to the Fund or Sub-Advisor, including quotations necessary to determine the
value of the Fund's net assets. Any research benefits so obtained are available
for all clients of the Sub-Advisor. Because statistical and other research
information only supplements the research efforts of the Sub-Advisor and still
must be analyzed and reviewed by its staff, the receipt of research information
is not expected to reduce materially its expenses. In selecting among the firms
believed to meet the criteria for handling a particular transaction, the
Sub-Advisor may take into consideration the fact that certain firms have sold
the Common Shares of the Fund and that certain firms provide market, statistical
or other research information to the Fund, Advisor and Sub-Advisor and may
select firms that are affiliated with the Fund, the Advisor, the Sub-Advisor,
Sierra Investment Services Corporation ("SISC") or Great Western Financial
Corporation.
If it is believed to be in the best interest of the Fund, the Sub-Advisor may
place portfolio transactions with brokers who provide the types of services
described above, even if the Fund will have to pay a higher commission (or, if
the broker's profit is part of the cost of the security, will have to pay a
higher price for the security) than would be the case if the Sub-Advisor did not
consider the broker's furnishing of such services. This will be done, however,
only if, in the opinion of the Sub-Advisor, the amount of additional commission
or increased cost is reasonable in relation to the value of the services.
If purchases or sales of financial instruments for the Fund and for one or more
other investment companies or clients advised by the Sub-Advisor are considered
at or about the same time, transactions in such financial instruments will be
allocated among the several investment companies and clients, in a manner deemed
equitable by the Sub-Advisor, to each such investment company or client, taking
into account their respective sizes and the aggregate amount of financial
instruments to be purchased or sold. Although in some cases this procedure could
have a detrimental effect on the price paid by the Fund for the financial
instrument or the volume of the financial instrument purchased by the Fund, the
ability to participate in volume transactions and to negotiate lower
commissions, fees and expenses possibly could benefit the Fund.
Although the Sub-Advisor will be responsible for the management of the Fund's
portfolio, the policies and practices in this regard must be consistent with the
foregoing and will be subject at all times to review by the Advisor and Trustees
of the Fund. The Fund anticipates that the annual portfolio turnover rate will
not exceed 100%.
The Trustees have adopted certain policies incorporating the standards of Rule
17e-1 issued by the SEC under the 1940 Act, which requires that the commissions
paid to affiliates of the Fund, or to affiliates of such persons, be reasonable
and fair compared to the commissions, fees or other remuneration received or to
be received by other brokers in connection with comparable transactions
involving similar financial instruments during a comparable period of time. The
rule and procedures also contain review requirements and require the Advisor and
Sub-Advisor to furnish reports to the Trustees and to maintain records in
connection with such reviews. After review of all factors deemed relevant, the
Trustees will consider from time to time whether the advisory fee will be
reduced by all or a portion of the brokerage commissions given to brokers that
are affiliated with the Fund.
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES
The Board of Trustees is responsible for the management of the business and
affairs of the Trust as provided in the laws of the Commonwealth of
Massachusetts and the Trust's Declaration of Trust and By-Laws. The Trustees are
experienced business persons who meet several times during the year to oversee
the Trust's activities, review contractual arrangements with companies that
provide services to the Trust, and review performance. The majority of the
Trustees are not otherwise affiliated with Sierra Advisors or the Sub-Advisor.
INVESTMENT MANAGEMENT
INVESTMENT ADVISOR. Sierra Advisors, 9301 Corbin Avenue, Northridge, California
91324, is the Investment Advisor to the Trust. Sierra Advisors is an indirect
wholly-owned subsidiary of Great Western Financial Corporation ("Great
Western"), a publicly owned financial services company listed on the New York,
London and Pacific stock exchanges, and has general oversight responsibility for
the investment advisory services provided to the Funds. Responsibilities of
Sierra Advisors include formulating the Fund's investment policies, analyzing
economic trends affecting the Fund, and directing and evaluating the investment
services provided by the Sub-Advisor, including their adherence to the Fund's
investment objectives and policies and the Fund's investment performance. In
particular, the Advisor with the oversight of the Board of Trustees may accept
or reject portfolio selections and pricing determinations of Van Kampen. In
connection with these activities, Sierra Advisors may initiate action to change
the Sub-Advisor if it deems such action to be in the best interest of the
shareholders. Sierra Advisors is registered as an investment advisor under the
Investment Advisers Act of 1940. Sierra Advisors performs similar services for
Sierra Trust Funds which had approximately $2.8 billion in assets as of December
31, 1995.
INVESTMENT ADVISORY AGREEMENT. The business and affairs of the Fund will be
managed under the direction of the Fund's Board of Trustees. Subject to their
authority, the Advisor and the Fund's officers will supervise and implement the
Fund's investment activities and will be responsible for overall management of
the Fund's business affairs. The investment advisory agreement (the "Advisory
Agreement") between the Advisor and the Fund provides that the Advisor will
supply investment research and portfolio management, including the selection of
securities for the Fund to purchase, hold, or sell and the selection of brokers
through whom the Fund's portfolio transactions are executed. The Advisor also
furnishes offices, necessary facilities and equipment and permits its officers
and employees to serve without compensation as Trustees and officers of the Fund
if duly elected to such positions.
The Advisory Agreement provides that the Advisor shall not be liable for any
error of judgment or of law, or for any loss suffered by the Fund in connection
with the matters to which the Advisory Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
the Advisor in the performance of its obligations and duties or by reason of its
reckless disregard of its obligations and duties under the Advisory Agreement.
For the services provided by the Advisor under the Advisory Agreement, the Fund
will pay the Advisor an annualized fee (accrued daily and paid monthly) equal to
0.95% of the average daily net assets of the Fund (which, for purposes of
determining such fee, shall mean the average daily value of the total assets of
the Fund minus the sum of the accrued liabilities of the Fund other than the
aggregate amount of any borrowings undertaken by the Fund). The advisory fee is
higher than the fees paid by most management investment companies, although it
is comparable to the fees paid by several publicly offered, closed-end
management investment companies with investment objectives and policies similar
to those of the Fund.
SUB-ADVISOR. In accordance with the Fund's investment objective and policies and
under the supervision of Sierra Advisors and the Trust's Board of Trustees, the
Fund's Sub-Advisor is responsible for the day-to-day investment management of
the Fund, makes investment decisions for the Fund and places orders on behalf of
the Fund to effect the investment decisions made. Jeffrey W. Maillet, a Senior
Vice President of Van Kampen, will be the portfolio manager for the Fund. Mr.
Maillet has been responsible for the day-to-day management of the Van Kampen
American Capital Prime Rate Income Trust since such Fund's commencement of
investment operations, and has been employed by Van Kampen American Capital
Investment Advisory Corp., a sister affiliate of Van Kampen since 1989.
FUND EXPENSES
In addition to investment advisory and certain administrative expenses incurred
by Sierra Fund Administration Corporation ("Sierra Administration"), the Fund
pays all expenses not assumed by Sierra Advisors. Such expenses include or could
include investment-related expenses, such as brokers' commissions, transfer
taxes and fees related to the purchase, sale, or loan of securities; fees and
expenses for Trustees not affiliated with Sierra Advisors or the Sub-Advisors;
fees and expenses of its independent auditors and legal counsel; costs of
Trustee and shareholder meetings; SEC fees; expenses of preparing and filing
registration statements; the cost of the printing and mailing to existing
Contract owners of proxy statements, prospectuses and statements of additional
information; proxy solicitors' fees; expenses of preparation, printing and
mailing to Contract owners of semi-annual shareholder reports; bank transaction
charges and certain custodians' fees and expenses; federal, state or local
income or other taxes; costs of maintaining the Trust's corporate existence;
membership fees for the Investment Company Institute and similar organizations;
fidelity bond and Trustees' liability insurance premiums; and any extraordinary
expenses such as indemnification payments or damages awarded in litigation or
settlements made. All these expenses will be passed on to the shareholders
through a daily charge made to the assets held in the Funds, which will be
reflected in share prices.
DISTRIBUTOR
Sierra Investment Services Corporation ("SISC") is the distributor of the Fund's
shares on a best efforts basis. SISC is located at 9301 Corbin Avenue,
Northridge, California 91324. SISC, as principal underwriter and distributor
will bear all of the Fund's marketing expenses. This includes the cost of
reproducing prospectuses, statements of additional information or any other
Trust documents (such as semi-annual reports) used as sales materials.
ADMINISTRATION
Subject to the authority of the Board of Trustees, Sierra Administration is
responsible for all administrative and recordkeeping functions of the Fund. It
provides office facilities and supplies; provides clerical, executive,
accounting and administrative services; prepares reports to shareholders and
filings with regulatory authorities; prepares materials for the Board of
Trustees meetings; computes and pays dividends to shareholders; and provides
securities accounting and calculates net assets. Pursuant to the terms of the
Administration Agreement, Sierra Administration has delegated certain of these
functions to State Street Bank and Trust Company ("State Street"). In addition,
Sierra Administration acts as the Fund's transfer and dividend paying agent and
has delegated certain of these functions to First Data Investor Services Group,
Inc. ("First Data"). Sierra Administration is also an indirect wholly-owned
subsidiary of Great Western Financial Corporation.
For its services, Sierra Administration is paid a monthly fee at an effective
annual rate of 0.35% of the Fund's average net assets. Sierra Administration
pays State Street a fee based on the average daily assets of the Fund and its
expenses as well as basic fees and charges for custody services. Sierra
Administration also pays First Data a fee for certain transfer agency services.
Sierra Administration may voluntarily waive fees payable to it and reimburse
expenses from time to time.
NET ASSET VALUE
The net asset value per share of the Fund's Common Shares is determined by
calculating the total value of the Fund's assets, deducting its total
liabilities, and dividing the result by the number of Common Shares outstanding.
The net asset value will be computed on each business day as of the close of
regular trading on the New York Stock Exchange, normally 4:00 p.m. Eastern
standard time. The Fund reserves the right to calculate the net asset value more
frequently if deemed desirable.
The value of the Fund's portfolio will be determined by the Advisor, following
guidelines established and periodically reviewed by the Trustees. Interests in
Senior Loans will be valued by the Advisor on behalf of the Fund based on the
recommendations provided by the Sub-Advisor. Said recommendation of the
Sub-Advisor may either be accepted or rejected by the Advisor upon the advice
and consent of the Board of Trustees. Senior Loan evaluations will be based on
market quotations and transactions in instruments which the Advisor believes may
be comparable to Senior Loan interests with respect to the following
characteristics: credit quality, interest rate, interest rate redetermination
period and maturity. Such instruments may include commercial paper, negotiable
certificates of deposit and short-term variable rate securities which have
adjustment periods comparable to the Senior Loan interests in the Fund's
portfolio. In determining the relationship between such instruments and the
Senior Loan interests in the Fund's portfolio, the Advisor will consider on an
ongoing basis, among other factors, (i) the creditworthiness of the Borrower and
(ii) the current interest rate, the period until next interest rate
redetermination and maturity of such Senior Loan interests. It is expected that
the Fund's net asset value will fluctuate as a function of interest rate and
credit factors. Because of the short-term nature of such instruments, however,
the Fund's net asset value is expected to fluctuate less in response to changes
in interest rates than the net asset values of investment companies with
portfolios consisting primarily of fixed-income or longer term securities. The
Advisor believes that Lenders selling Senior Loan interests or otherwise
involved in a Senior Loan transaction may tend, in valuing Senior Loan interests
for their own account, to be less sensitive to interest rate and credit quality
changes and, accordingly, the Advisor does not intend to rely solely on such
valuations in valuing the Senior Loan interests for the Fund's account. In
addition, because a secondary trading market in Senior Loans has not yet fully
developed, in valuing Senior Loans, the Advisor may not rely solely on but may
consider, to the extent the Advisor believes such information to be reliable,
prices or quotations provided by banks, dealers or pricing services with respect
to secondary market transactions in Senior Loans. To the extent that an active
secondary market in Senior Loan interests develops to a reliable degree, the
Advisor may rely to an increasing extent on such market prices and quotations in
valuing the Senior Loan interests in the Fund's portfolio. In light of the
senior nature of Senior Loan interests included in the Fund's portfolio and
taking into account the Fund's access to non-public information with respect to
Borrowers relating to such Senior Loan interests, the Advisor does not currently
believe that consideration on a systematic basis of ratings provided by any
nationally recognized statistical rating organization or price fluctuations with
respect to long- or short-term debt of such Borrowers subordinate to the Senior
Loans of such Borrowers is necessary for the determination of the value of such
Senior Loan interests. Accordingly, the Advisor generally does not
systematically consider (but may consider in certain instances) and, in any
event, does not rely upon such ratings or price fluctuations in determining the
value of Senior Loan interests in the Fund's portfolio.
Other portfolio securities (other than short-term obligations, but including
listed issues) may be valued on the basis of prices furnished by one or more
pricing services which determine prices for normal, institutional-size trading
units of such securities using market information, transactions for comparable
securities and various relationships between securities which are generally
recognized by institutional traders. In certain circumstances, portfolio
securities will be valued at the last sale price on the exchange that is the
primary market for such securities, or the last quoted bid price for those
securities for which the over-the-counter market is the primary market or for
listed securities in which there were no sales during the day. The value of
interest rate swaps will be determined in accordance with a discounted present
value formula and then confirmed by obtaining a bank quotation.
Short-term obligations which mature in 60 days or less are valued at amortized
cost, if their original term to maturity when acquired by the Fund was 60 days
or less, or are valued at amortized cost using their value on the 61st day prior
to maturity, if their original term to maturity when acquired by the Fund was
more than 60 days, unless in each case this is determined not to represent fair
value. Repurchase agreements will be valued at cost plus accrued interest.
Securities for which there exist no price quotations or valuations and all other
assets are valued at fair value as determined in good faith by or on behalf of
the Trustees.
DETERMINATION OF PERFORMANCE
From time to time, the Fund may quote the performance of its Class A Common
Shares in terms of yield, actual distributions, total return or capital
appreciation in reports or other communications to shareholders or in
advertising material.
The Fund may quote a 30-day yield figure (the "SEC Yield") which is calculated
according to a formula prescribed by the SEC. The formula can be expressed as
follows:
YIELD = 2[(a-b + 1)/6/ - 1]
---
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of
reimbursement).
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends.
d = the maximum offering price per share on the last
day of the period.
For the purpose of determining the interest earned (variable "a" in the formula)
on debt obligations that were purchased by the Fund at a discount or premium,
the formula generally calls for amortization of the discount or premium; the
amortization schedule will be adjusted monthly to reflect changes in the market
values of the debt obligations.
The Fund may also quote a 30-day yield based on actual distributions during a
30-day period that is computed by dividing the net investment income per share
earned by the Fund during the period by the maximum Public Offering Price per
share on the last day of the 30-day period. This income is "annualized" by
assuming that the amount of income is generated each month over a one-year
period and is compounded semiannually. The annualized income is then shown as a
percentage of the maximum Public Offering Price. In addition, the Bond Funds may
advertise a similar 30-day yield computed in the same manner except that the NAV
per share is used in place of the Public Offering Price per share.
Capital appreciation for the Class A Common Shares of the Fund shows principal
changes for the period indicated, and total return combines principal changes
and dividend and interest income reinvested for the periods indicated. Principal
changes are based on the difference between the beginning and closing net asset
values for the period. Actual distributions include short-term capital gains
derived from option writing or other sources. The period selected for
performance data will depend upon the purpose of reporting the performance.
The total return of the Class A Common Shares may be calculated on an "average
annual total return" basis, and may also be calculated on an "aggregate total
return" basis, for various periods. Average annual total return reflects the
average annual percentage change in the value of an investment in a Fund over
the particular measuring period. Aggregate total return reflects the cumulative
percentage change in value over the measuring period. Average annual total
return figures provided for the Class A Common Shares will be computed according
to a formula prescribed by the SEC. The formula can be expressed as follows:
P(1+T)/n/ = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return/aggregate total return
n = number of years
ERV = Ending Redeemable Value of a hypothetical $1,000
payment made at the beginning of the 1, 5 or 10
years (or other) periods or the life of the Fund
The formula for calculating aggregate total return can be expressed as
follows:
Aggregate Total Return = [ (ERV) - 1 ]
----
P
The calculation of average annual total return and aggregate total return
assumes reinvestment of all income dividends and capital gain distributions on
the reinvestment dates during the period and includes all recurring fees charged
to all shareholder accounts. In addition, with respect to the Class A Common
Shares, the maximum 4.5% sales charge is deducted from the initial $1,000
Payment (variable "P" in the formula).
The ERV assumes complete redemption of the hypothetical investment at the end of
the measuring period and reflects deduction of all nonrecurring charges at the
end of the measuring period covered by the computation. A Fund's net investment
income changes in response to fluctuations in interest rates and the expenses of
the Fund.
The performance of the Class A Common Shares will vary from time to time
depending upon market conditions, the composition of the Fund's portfolio and
the Fund's operating expenses. Consequently, any given performance quotation
should not be considered representative of the Fund's performance for any
specified period in the future. In addition, because performance will fluctuate,
it may not provide a basis for comparing an investment in a Fund with certain
bank deposits or other investments that pay a fixed yield or return for a stated
period of time.
Investors should recognize that, because the Fund will have a high component of
variable and floating corporate loans, yields will change in response to the
perceived creditworthiness of the corporate issuers backing such loans. In
addition, the trend in interest rates will also have an impact on the Fund's
yield, although it will be noticeably smaller as compared to the
creditworthiness of corporate issuers. Accordingly, in periods of declining
interest rates the yield of the Fund will tend to be somewhat higher than
prevailing market rates, and in periods of rising interest rates yields will
tend to be somewhat lower. Comparative performance information may be used from
time to time in advertising the Class A Common Shares, including data from
Lipper Analytical Services, Inc. and other industry publications providing a
comparison of short-term money market rates.
TAXATION
The following federal income tax discussion is based on the advice of Morgan,
Lewis & Bockius LLP, and reflects applicable tax laws as of the date of this
Statement of Additional Information.
FEDERAL TAXATION
The Fund intends to qualify each year and to elect to be treated as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). To qualify as a regulated investment company, the Fund
must, among other things: (a) derive at least 90% of its gross income from
dividends, interest, payments with respect to loans of securities and gains from
the sale or other disposition of securities or certain other related income; (b)
derive less than 30% of its gross income from gains from the sale or other
disposition of securities and certain other investments held for less than three
months (the "short-short rule"); and (c) diversify its holdings so that at the
end of each quarter of the Fund's taxable year (i) at least 50% of the value of
the Fund's assets is represented by cash, U.S. government securities, securities
of other regulated investment companies, and other securities which, with
respect to any one issuer, do not represent more than 5% of the value of the
Fund's assets or more than 10% of the voting securities of such issuer, and (ii)
not more than 25% of the value of the Fund's assets is invested in the
securities of any one issuer (other than U.S. government securities or the
securities of other regulated investment companies).
If the Fund so qualifies and distributes each year to its Shareholders at least
90% of its net investment income (including among other things, interest and net
short-term capital gain, but not net capital gains, which are the excess of net
long-term capital gains over net short-term capital losses), in each year, it
will not be required to pay federal income taxes on any income distributed to
Shareholders. The Fund intends to distribute at least the minimum amount of net
investment income necessary to satisfy the 90% distribution requirement. The
Fund will not be subject to federal income tax on any net capital gains
distributed to Shareholders. As a Massachusetts business trust, the Fund will
not be subject to any excise or income taxes in Massachusetts as long as it
qualifies as a regulated investment company for federal income tax purposes.
In order to avoid a 4% excise tax, the Fund will be required to distribute, by
December 31 of each year, at least 98% of its ordinary income for such year and
at least 98% of its capital gain net income (the latter of which generally is
computed on the basis of the one-year period ending on October 31 of such year),
plus any amounts that were not distributed in previous taxable years. For
purposes of the excise tax, any ordinary income or capital gain net income
retained by, and subject to federal income tax in the hands of, the Fund will be
treated as having been distributed.
If the Fund failed to qualify as a regulated investment company or failed to
satisfy the 90% distribution requirement in any taxable year, the Fund would be
taxed as an ordinary corporation on its taxable income (even if such income was
distributed to its Shareholders) and all distributions out of earnings and
profits would be taxed to Shareholders as ordinary income. To qualify again as a
regulated investment company in a subsequent year, the Fund may be required to
pay an interest charge on 50% of its earnings and profits attributable to
non-regulated investment company years and would be required to distribute such
earnings and profits to shareholders (less any interest charge). In addition, if
the Fund failed to qualify as a regulated investment company for its first
taxable year or, if immediately after qualifying as a regulated investment
company for any taxable year, it failed to qualify for a period greater than one
taxable year, the Fund would be required to recognize any net built-in gains
(the excess of aggregate gains, including items of income, over aggregate losses
that would have been realized if it had been liquidated) in order to qualify as
a regulated investment company in a subsequent year.
Some of the Fund's investment practices are subject to special provisions of the
Code that, among other things, may defer the use of certain losses of the Fund
and affect the holding period of the securities held by the Fund and the
character of the gains or losses realized by the Fund. These provisions may also
require the Fund to mark-to-market some of the positions in its portfolio (i.e.,
treat them as if they were closed out), which may cause the Fund to recognize
income without receiving cash with which to make distributions in amounts
necessary to satisfy the 90% distribution requirement and the distribution
requirements for avoiding income and excise taxes. The Fund will monitor its
transactions and may make certain tax elections in order to mitigate the effect
of these rules and prevent disqualification of the Fund as a regulated
investment company.
Investments of the Fund in securities issued at a discount or providing for
deferred interest or payment of interest in kind are subject to special tax
rules that will affect the amount, timing and character of distributions to
Shareholders. For example, with respect to certain securities issued at a
discount, the Fund will be required to accrue as income each year a portion of
the discount and to distribute such income each year in order to maintain its
qualification as a regulated investment company and to avoid income and excise
taxes. In order to generate sufficient cash to make distributions necessary to
satisfy the 90% distribution requirement and to avoid income and excise taxes,
the Fund may have to dispose of securities that it would otherwise have
continued to hold.
The Fund's ability to dispose of portfolio securities may be limited by the
requirement for qualification as a regulated investment company that less than
30% of the Fund's gross income be derived from the disposition of securities
held for less than three months.
Income from investments in foreign securities received by the Fund may be
subject to withholding or other taxes imposed by foreign countries and U.S.
possessions. Such taxes will not be deductible or creditable by shareholders.
DISTRIBUTIONS
Distributions of the Fund's net investment income are taxable to Common
Shareholders as ordinary income, whether paid in cash or reinvested in
additional Common Shares. Distributions of the Fund's net capital gains
("capital gains dividends"), if any, are taxable to Common Shareholders at the
rates applicable to long-term capital gains regardless of the length of time
Shares of the Fund have been held by such Common Shareholders. Distributions in
excess of the Fund's earnings and profits will first reduce the adjusted tax
basis of a holder's Common Shares and, after such adjusted tax basis is reduced
to zero, will constitute capital gains to such holder (assuming such Common
Shares are held as a capital asset). It is not expected that any portion of the
distributions from the Fund will be eligible for the dividends received
deduction for corporations. The Fund will inform Shareholders of the source and
tax status of all distributions promptly after the close of each calendar year.
Common Shareholders receiving distributions in the form of additional Common
Shares issued by the Fund will be treated for federal income tax purposes as
receiving a distribution in an amount equal to the fair market value of the
Common Shares received, determined as of the distribution date. The basis of
such Common Shares will equal the fair market value on the distribution date.
Although dividends generally will be treated as distributed when paid, dividends
declared in October, November or December, payable to Shareholders of record on
a specified date in such a month and paid during January of the following year
will be treated as having been distributed by the Fund and received by the
Shareholders on the December 31 prior to the date of payment. In addition,
certain other distributions made after the close of a taxable year of the Fund
may be "spilled back" and treated as paid by the Fund (except for purposes of
the 4% excise tax) during such taxable year. In such case, Shareholders will be
treated as having received such dividends in the taxable year in which the
distribution was actually made.
The Fund is required, in certain circumstances, to withhold 31% of taxable
dividends and certain other payments, including redemptions, paid to Common
Shareholders who do not furnish to the Fund their correct taxpayer
identification number (in the case of individuals, their social security number)
and certain required certifications or who are otherwise subject to backup
withholding.
SALE OF SHARES
Except as discussed below, selling Common Shareholders will generally recognize
gain or loss in an amount equal to the difference between their adjusted tax
basis in the Common Shares and the amount received. If such Common Shares are
held as a capital asset, the gain or loss will be a capital gain or loss and
will be long-term if such Common Shares have been held for more than one year.
It is possible, although the Fund believes it is unlikely, that tendering
holders of Common Shares may not qualify for gain or loss treatment as described
above, which in turn may result in deemed distributions to non-tendering holders
of Common Shares. The federal income tax consequences of repurchase of Common
Shares pursuant to tender offers will be disclosed in the related offering
documents. Any loss realized upon a taxable disposition of Common Shares held
for six months or less will be treated as a long-term capital loss to the extent
of any capital gains dividends received with respect to such Common Shares. For
purposes of determining whether Common Shares have been held for six months or
less, the holding period is suspended for any periods during which the Common
Shareholder's risk of loss is diminished as a result of holding one or more
other positions in substantially similar or related property or through certain
options or short sales.
GENERAL
The federal income tax discussion set forth above is for general information
only. Prospective investors should consult their advisors regarding the specific
federal tax consequences of holding and disposing of Common Shares, as well as
the effects of state, local and foreign tax laws and any proposed tax law
changes.
REPURCHASE (TENDER OFFER) OF SHARES
Commencement by the Fund of a tender offer during a period in which it is
simultaneously engaged in the continuous offering of its Common Shares may be a
violation of rules promulgated by the SEC under the Securities Exchange Act of
1934. The Fund intends to seek an exemption from the SEC that would permit the
Fund to make tender offers for its Common Shares while simultaneously engaged in
the continuous offering of its Common Shares. The Fund expects the SEC to grant
this exemption which is based on prior exemptions received by similar existing
"prime rate funds." No assurance can be given that the Fund will be able to
maintain such exemption indefinitely. If the Board of Trustees of the Fund
authorizes a tender offer when the Fund is unable to rely on its exemption, the
Fund intends to suspend the continuous offering of its Common Shares during the
term of such tender offer.
Even if a tender offer has been made, it is the policy of the Fund (which may be
changed by the Trustees) that it cannot accept tenders if (1) in the sole and
exclusive judgment of the Trustees, there is not sufficient liquidity of the
assets of the Fund; (2) such transactions, if consummated, would (a) impair the
Fund's status as a regulated investment company under the Code (which would make
the Fund a taxable entity, causing the Fund's taxable income to be taxed at the
Fund level, as more fully described in "Taxation") or (b) result in a failure to
comply with applicable asset coverage requirements; or (3) there is, in the
Board of Trustees' judgment, any (a) material legal action or proceeding
instituted or threatened challenging such transactions or otherwise materially
adversely affecting the Fund, (b) suspension of or limitation on prices for
trading securities generally on any United States national securities exchange
or in the over-the-counter market, (c) declaration of a banking moratorium by
federal or state authorities or any suspension of payment by banks in the United
States or New York State, (d) limitation affecting the Fund or the issuers of
its portfolio securities imposed by federal or state authorities on the
extension of credit by lending institutions, (e) commencement of war, armed
hostilities or other international or national calamity directly or indirectly
involving the United States or (f) other event or condition which would have a
material adverse effect on the Fund or the holders of its Common Shares if
Common Shares were repurchased. The Trustees may modify these conditions in
light of experience.
Under the requirements of the 1940 Act, the Fund cannot accept tenders or effect
repurchases of the Common Shares if, after deducting the amount of the purchase
or tender price, the Fund's total assets, less all liabilities or indebtedness
of the Fund, would fall below 200% of the aggregate liquidation value of the
Preferred Shares, if applicable. In addition, the Fund may be precluded from
accepting tenders or effecting repurchases at any time dividends on the
Preferred Shares, if outstanding, are in arrears. Any tender offer made by the
Fund for its Common Shares will be at a price equal to the net asset value of
the Common Shares determined at the close of business on the day the offer ends.
During the pendency of any tender offer by the Fund, the Fund will calculate
daily the net asset value of the Common Shares and will establish procedures
which will be specified in the tender offer documents, to enable Common
Shareholders to ascertain readily such net asset value. The relative illiquidity
of some of the Fund's portfolio securities could adversely impact the Fund's
ability to calculate net asset value in connection with determinations of
pricing for tender offers, if any. Each offer will be made and Common
Shareholders notified in accordance with the requirements of the Securities
Exchange Act of 1934, as amended, and the 1940 Act, either by publication or
mailing or both. Each offering document will contain such information as is
prescribed by such laws and the rules and regulations promulgated thereunder.
Tendered Common Shares that have been accepted and repurchased by the Fund will
be held in treasury and may be retired by the Board of Trustees. Treasury Common
Shares will be recorded and reported as an offset to Shareholders' equity and
accordingly will reduce the Fund's total assets. If Treasury Common Shares are
retired, Common Shares issued and outstanding and capital in excess of par value
will be reduced accordingly.
If the Fund must liquidate portfolio securities in order to repurchase Common
Shares tendered, the Fund may realize gains and losses. Such gains may be
realized on securities held for less than three months. Because of the
limitation of 30% on the portion of the Fund's gross income that may be derived
from the sale or disposition of stocks and securities held less than three
months (in order to retain the Fund's tax status as a regulated investment
company under the Code), such gains would reduce the ability of the Fund to sell
other securities held for less than three months that the Fund may wish to sell
in the ordinary course of its portfolio management which may adversely affect
the Fund's yield.
EXCHANGE PRIVILEGE
The Fund may make available to tendering shareholders the privilege of
exchanging Class A Common Shares of the Fund at net asset value for Class A
Shares of all portfolios of the Sierra Trust Funds ("Sierra Trust"), an open-end
investment company managed by the Advisor. A shareholder would be entitled to
exchange all or part of their Class A Common Shares of the Fund for Class A
shares of Sierra Trust. If the shares acquired in the exchange are subject to a
higher sales load, a sales load may be charged in an amount up to the difference
between the sales load previously paid and the initial sales load applicable to
the shares of the fund being acquired. See "Repurchase of Shares -- Exchange
Privilege" in the Prospectus for information regarding the application of sales
charges to certain exchanges. Shareholders of the Sierra Trust Funds may
exchange their Class A Shares for the Class A Common Shares of the Fund. If the
Class A Common Shares acquired in the exchange are subject to a higher sales
load, a sales load may be charged in an amount up to the difference between the
sales load previously paid and the initial sales load applicable to the Class A
Common Shares of the Fund being acquired. See "Reduced Sales Charge at Purchase
- -- Exchange Privilege" in the Prospectus.
An exchange of shares is treated for federal income tax purposes as a redemption
(sale) of shares given in exchange by the shareholder, and an exchanging
shareholder may, therefore, realize a taxable gain or loss in connection with
the exchange. See discussion of "Taxation" in the Statement of Additional
Information. Upon 60 days prior written notice to shareholders, the exchange
privilege may be modified or terminated and the Fund may impose a charge of up
to $5 for exchanges.
Shareholders of the Fund are entitled to exchange their shares for shares of the
Funds of Sierra Trust only during the tender offer period. The exchange
privilege enables a shareholder to acquire the Class A shares in Sierra Trust
with different investment objectives or policies when the shareholder believes
that a shift between funds is an appropriate investment decision. This privilege
is available to shareholders residing in any state in which shares of the Funds
being acquired may legally be sold.
Upon receipt of proper instructions and all necessary supporting documents,
shares submitted for exchange are redeemed at the then-current net asset value
and the proceeds are immediately invested, at a price as described above, in the
same class of shares of the Fund being acquired. The Company reserved the right
to reject any exchange request.
ANTI-TAKEOVER PROVISIONS
For purposes of these provisions, a 5%-or-greater holder of Common Shares (a
"Principal Shareholder") refers to any person who, whether directly or
indirectly and whether alone or together with its affiliates and associates,
beneficially owns 5% or more of the outstanding Common Shares of the Fund. The
transactions subject to these special approval requirements are: (i) the merger
or consolidation of the Fund or any subsidiary of the Fund with or into any
Principal Shareholder; (ii) the issuance of any securities of the Fund to any
Principal Shareholder for cash; (iii) the sale, lease or exchange of all or any
substantial part of the assets of the Fund to any Principal Shareholder (except
assets having an aggregate fair market value of less than $1,000,000,
aggregating for the purpose of such computation all assets sold, leased or
exchanged in any series of similar transactions within a twelve-month period);
or (iv) the sale, lease or exchange to the Fund or any subsidiary thereof, in
exchange for securities of the Fund, of any assets of any Principal Shareholder
(except assets having an aggregate fair market value of less than $1,000,000,
aggregating for the purposes of such computation all assets sold, leased or
exchanged in any series of similar transactions within a twelve-month period).
The Board of Trustees has determined that the voting requirements described
above, which are greater than the minimum requirements under Massachusetts law
or the 1940 Act, are in the best interests of shareholders generally. Reference
should be made to the Declaration of Trust on file with the SEC for the full
text of these provisions.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The following are the Audited Financial Statements for the initial
capitalization of the Fund and the report of the Independent Auditors Price
Waterhouse LLP dated February 9, 1996.
<PAGE>
Sierra Prime Income Fund
Statement of Assets and Liabilities
February 9, 1996
ASSETS
Cash $100,000
Deferred organizational expenses 185,375
--------
Total Assets 285,375
LIABILITIES
Organizational expenses payable 185,375
--------
Total Liabilities 185,375
--------
NET ASSETS $100,000
========
Shares issued and outstanding:
Class A shares 10,000
========
Net asset value per share $ 10.00
========
Maximum sales charge 4.50%
========
Maximum offering price per share
($10.00 / 0.955) $ 10.47
========
See accompanying notes.
<PAGE>
Sierra Prime Income Fund
Notes to Statement of Assets and Liabilities
February 9, 1996
1. ORGANIZATION
Sierra Prime Income Fund (the "Fund"), was organized as a Massachusetts business
trust on October 4, 1995. The Fund is registered under the Investment Company
Act of 1940, as amended, as a closed-end non-diversified management investment
company. The Board of Trustees has authorized the Fund to issue five million
shares of Class A common stock. Two additional classes of common stock have been
authorized for issue by the Board of Trustees. As of February 9, 1996, the Fund
had not registered such classes for issue.
On February 6, 1996, the Fund sold 10,000 Class A shares at net asset value (the
"Initial Shares") to Sierra Fund Administration Corporation ("Sierra
Administration"), a wholly owned subsidiary of Great Western Financial
Corporation.
The costs of organizing the Fund and registering its shares will be paid by
Sierra Administration and reimbursed by the Fund at the time of the initial
offering. The organization costs will be deferred and amortized on a straight
line basis over a period of sixty months from the commencement of investment
operations. If any of the Initial Shares are redeemed before the end of the
amortization period, the proceeds of the redemption will be reduced by the pro
rata share of the unamortized organization costs.
The Fund seeks to achieve its investment objective to provide a high level of
current income, consistent with preservation of capital, by investing primarily
in a portfolio of interests in floating or variable rate senior loans made
primarily to U.S. corporations, partnerships and other entities.
2. AGREEMENTS AND TRANSACTIONS WITH AFFILIATES
The Fund has an Investment Management Agreement with Sierra Investment Advisors
Corporation ("Sierra Advisors"), under which Sierra Advisors manages the
investments of the Fund. For its services, Sierra Advisors receives a fee from
the Fund at an annual rate of 0.95% of the average daily net assets of the Fund.
Sierra Advisors has entered into an Investment Sub-Advisory Agreement with Van
Kampen American Capital Management Inc. ("Van Kampen"). Van Kampen, under the
supervision of Sierra Advisors, is responsible for selecting the investments to
be made by the Fund, and monitoring the provisions of the investment agreements
made between the Fund and the companies in which the Fund invests. For these
services, Van Kampen receives a fee from Sierra Advisors at an annual rate of
0.475% of the average daily net assets of the Fund.
Sierra Administration has entered into a Fund Administration Agreement with the
Fund, under which Sierra Administration manages the business affairs of the
Fund. For its services, Sierra Administration receives a fee from the Fund at an
annual rate of 0.35% of the average daily net assets of the Fund. Sierra
Administration has delegated certain administration, custodian and accounting
responsibilities to State Street Bank and Trust Company ("State Street"), and
delegated certain transfer agency responsibilities to First Data Investor
Services Group, Inc. ("FDISG"), a wholly owned subsidiary of First Data
Corporation. Both State Street and FDISG receive compensation for services
directly from Sierra Administration.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and Trustees
of Sierra Prime Income Fund
In our opinion, the accompanying statement of assets and liabilities presents
fairly, in all material respects, the financial position of Sierra Prime Income
Fund (the "Fund") at February 9, 1996, in conformity with generally accepted
accounting principles. This financial statement is the responsibility of the
Fund's management; our responsibility is to express an opinion on this financial
statement based on our audit. We conducted our audit of this financial statement
in accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statement is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statement, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
February 9, 1996
<PAGE>
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(1) Financial Statements:
The Statement of Assets and Liabilities as of February 9, 1996
(2) Exhibits
(a) (1) Agreement and Declaration of Trust*
(2) Amended Agreement and Declaration of Trust
(b) By-laws*
(c) Not applicable
(d) Not applicable
(e) Not applicable
(f) (1) Form of Investment Advisory Agreement
(2) Form of Sub-Investment Advisory Agreement
(g) (1) Form of Distribution Agreement
(2) Form of Broker-Dealer Agreement
(h) Not applicable
(i) Form of Custody Agreement
(j) (1) Form of Administration Agreement
(2) Form of Transfer Agency and Registrar Agreement
(k) Opinion and consent of Morgan, Lewis & Bockius LLP
(l) Not applicable
(m) Consent of Price Waterhouse LLP
(n) Not applicable
(o) Purchase Agreement with Sierra Fund Administration
Corporation
(p) Not applicable
- ---------------------
* Previously filed with original filing on Form N-2 (1933 Act No. 33-98824 and
1940 Act No. 811-9122) on October 31, 1995.
<PAGE>
ITEM 25. MARKETING ARRANGEMENTS
Not applicable
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses expected to be incurred in
connection with the offering described in the Registration Statement:
Securities and Exchange Commission
Registration Fee ................................ $ 19,051.72
NASD Filing Fee .................................. $ 1,500.00
Blue Sky Fees and Expenses.......................... $ 3,500.00
Legal Fees and Expenses............................. $148,127.00
Accounting Fees and Expenses........................ $ 5,000.00
Printing Expenses................................... $ 2,186.00
Transfer Agent and Registration
fees and expenses................................ $ 0.00
Miscellaneous....................................... $ 6,010.00
Total $185,374.72
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Registrant is controlled by its Board of Trustees.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
As of the filing of this Registration Statement, 10,000 shares of
beneficial interest of the Registrant had been issued to Sierra Fund
Administration Corporation.
ITEM 29. INDEMNIFICATION
Under Section 8.1 of Registrant's Amended Agreement and Declaration of
Trust ("Declaration of Trust"), any past or present Trustee or officer of
Registrant (including persons who serve at Registrant's request as directors,
officers or trustees of another organization in which Registrant has any
interest as a shareholder, creditor or otherwise (hereinafter referred to as a
"Covered Person"), is indemnified to the fullest extent permitted by law against
liability and all expenses reasonably incurred by him in connection with any
action, suit or proceeding to which he may be a party or otherwise involved by
reason of his being or having been a Covered Person. This provision does not
authorize indemnification when it is determined, in the manner specified in the
Declaration of Trust, that a Covered Person has not acted in good faith in the
reasonable belief that his actions were in or not opposed to the best interests
of Registrant. Moreover, this provision does not authorize indemnification when
it is determined, in the manner specified in the Declaration of Trust, that the
Covered Person would otherwise be liable to Registrant or its shareholders by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of his duties. Expenses may be paid by Registrant in advance of the final
disposition of any action, suit or proceeding upon receipt of an undertaking by
a Covered Person to repay those expenses to Registrant in the event that it is
ultimately determined that indemnification of the expenses is not authorized
under the Declaration of Trust and the Covered Person either provides security
for such undertaking or insures Registrant against losses from such advances or
the disinterested Trustees or independent legal counsel determines, in the
manner specified in the Declaration of Trust, that there is reason to believe
the Covered Person will be found to be entitled to indemnification.
Insofar as indemnification for liability arising under the Securities
Act of 1933, as amended (the "1933 Act"), may be permitted to Trustees, officers
and controlling persons of Registrant pursuant to the foregoing provisions, or
otherwise, Registrant has been advised that, in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the 1933 Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
Registrant of expenses incurred or paid by a Trustee, officer or controlling
person of Registrant in the successful defense of any action, suit or
proceeding) is asserted by such Trustee, officer or controlling person in
connection with the securities being registered, Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the 1933 Act and
will by governed by the final adjudication of such issue.
Item 30(a). Business and Other Connections of Investment Adviser
--Sierra Investment Advisors Corporation
The list required by this Item 30 of officers and directors of Sierra
Advisors, together with information as to any other business, profession,
vocation or employment of substantial nature engaged in by such officers and
directors during the past two years, is incorporated by reference to Schedules A
and D of Form ADV filed by Sierra Advisors pursuant to the Advisers Act (SEC
File No. 801-32921).
30(b). Business and Other Connections of Investment Sub-Advisor
-- Van Kampen American Capital Management Inc.
Van Kampen is a wholly-owned subsidiary of Van Kampen American Capital,
Inc. Van Kampen American Capital, Inc. is a wholly-owned subsidiary of VK/AC
Holding, Inc. VK/AC Holding, Inc. 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
Van Kampen American Capital, Inc. own, in the aggregate, not more than seven
percent of the common stock of VK/AC Holding, Inc. and have the right to
acquire, upon the exercise of options, approximately an additional 11% of the
common stock of VK/AC Holding, Inc. Presently, and after giving effect to the
exercise of such options, no officer or trustee of the Fund owns or would own
five percent or more of the common stock of VK/AC Holding, Inc. Van Kampen is an
investment advisor registered under the Advisers Act and provides investment
advice to a wide variety of individual, institutional and investment company
clients.
The list required by this Item 30 of officers and directors of Van
Kampen, together with information as to any other business, profession, vocation
or employment of a substantial nature engaged in by such officers and directors
during the past two years, is incorporated by reference to Schedules A and D of
Form ADV filed by Van Kampen pursuant to the Advisers Act (SEC File No.
801-40808).
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS
(1) Sierra Prime Income Fund
9301 Corbin Avenue
Northridge, California 91324
(declaration of trust and by-laws)
(2) Sierra Investment Advisors Corporation
9301 Corbin Avenue
Northridge, California 91324
(with respect to their services as investment advisor)
(3) Great Western Financial Securities Corporation
9301 Corbin Avenue
Northridge, California 91324
(with respect to their services as a dealer)
(4) Sierra Fund Administration Corporation
9301 Corbin Avenue
Northridge, California 91324
(with respect to their services as administrator
shareholder servicing agent and transfer agent)
(5) State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
(with respect to their services as an administrator and
custodian)
(6) First Data Investor Services Group, Inc.
One Exchange Place
Boston, Massachusetts 02109
(with respect to their services as a sub-transfer agent)
(7) Van Kampen American Capital Management Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
(with respect to their services as investment sub-advisor)
(8) Sierra Investment Services Corporation 9301
Corbin Avenue Northridge, California 91324
(with respect to their services as a principal underwriter)
(9) Morgan, Lewis & Bockius LLP 2000 One Logan
Square Philadelphia, Pennsylvania 19103
(with respect to their services as counsel to the Fund)
ITEM 32. MANAGEMENT SERVICES
Not Applicable.
ITEM 33. UNDERTAKINGS
1. Registrant undertakes to suspend offering of its Common Shares until
it amends its prospectus if (1) subsequent to the effective date of its
Registration Statement, the net asset value declines more than 10 percent from
its net asset value as of the effective date of the Registration Statement, or
(2) the net asset value increases to an amount greater than its net proceeds as
stated in the prospectus.
2. Not applicable
3. Not applicable
4. Pursuant to Rule 415 under the Securities Act of 1933 and Item
512(a) of Registration S-K, the Registrant hereby undertakes: (1) to file during
any period in which offers or sales are being made, a post-effective amendment
to this registration statement: (i) to include any prospectus required by
Section 10(a)(3) of the Securities Act of 1933; (ii) to reflect in the
Prospectus any facts or events arising after the effective date of the
registration statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental change in the
information set forth in the registration statement; and (iii) to include any
material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement; (2) that, for the purpose of
determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof; and
(3) to remove from registration be means of post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering.
5. Not applicable
6. The Registrant undertakes to send by first class mail or other means
designed to ensure equally prompt delivery, within two business days of receipt
of a written or oral request, its Statement of Additional Information.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, the Registrant has duly
caused this Pre-Effective Amendment No. 1 to Registration Statement to be signed
on its behalf by the undersigned, thereto duly authorized, in the City of Los
Angeles and State of California on the 9th day of February, 1996.
SIERRA PRIME INCOME FUND
By: /s/ F. Brian Cerini
-----------------------
F. Brian Cerini
President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Pre-Effective Amendment No. 1 to Registration Statement has been signed
below by the following persons in the capacities and on the date(s) indicated.
Signature Title(s) Date
- --------- -------- ----
/s/ F. Brian Cerini President and Trustee February 9, 1996
- ------------------------------- ----------------
F. Brian Cerini
(Principal Executive Officer)
/s/ Keith B. Pipes Executive Vice President, February 9, 1996
- ------------------------------ Treasurer and ----------------
Keith B. Pipes Secretary
(Principal Financial and
Accounting Officer)
/s/ Arthur H. Bernstein, Esq. Trustee February 9, 1996
- ------------------------------- ----------------
Arthur H. Bernstein, Esq.
/s/ David E. Anderson Trustee February 9, 1996
- ------------------------------ ----------------
David E. Anderson
/s/ Edmond R. Davis, Esq. Trustee February 9, 1996
- ------------------------------- ----------------
Edmond R. Davis, Esq.
/s/ John W. English Trustee February 9, 1996
- ------------------------------ ----------------
John W. English
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Exhibit Page
- ----------- ---------------------- ----
1 Declaration of Trust dated October 4, 1995
1-A Amended Agreement and Declaration of Trust
dated January 18, 1996
2 By-Laws
6 Form of Investment Advisory Agreement
6-A Form of Investment Sub-Advisory Agreement
7 Form of Distribution Agreement
7-A Form of Broker-Dealer Agreement
9 Form of Custody Agreement
10 Form of Administration Agreement
10-A Form of Transfer Agency and Registrar Agreement
11 Opinion and Consent of Morgan, Lewis & Bockius LLP
13 Consent of Price Waterhouse LLP
15 Purchase Agreement with Sierra Fund
Administration Corporation
<PAGE>
Exhibit 99.1(A)
Sierra Prime Income Fund
AMENDED AGREEMENT AND DECLARATION OF TRUST
January 18, 1996
<PAGE>
AMENDED AGREEMENT AND DECLARATION OF TRUST
PAGE
ARTICLE I. NAME AND DEFINITIONS 2
Section 1.1 Name 2
Section 1.2 Definitions 2
a) "Trust" 2
b) "Trustees" 2
c) "Shares" 2
d) "Shareholder" 2
e) "1940 Act" 2
f) "Affiliated Person,"
"Assignment," "Commission,"
"Interested Person,"
"Principal Underwriter," and
"Majority Shareholder Vote" 2
g) "Declaration of Trust" 2
h) "By-Laws" 2
ARTICLE II. PURPOSE OF THE TRUST 2
Section 2.1 Purpose of the Trust 2
ARTICLE III. THE TRUSTEES 3
Section 3.1 Election, Resignation, Vacancies, etc. 3
a) Election 3
b) Effect of Death, Resignation, etc. 3
c) No Accounting 3
d) Vacancies 3
Section 3.2 Powers of Trustees 4
a) Investments 4
b) Disposition of Assets 4
c) Act as Distributor, Underwriter,
Broker, Dealer 5
d) Ownership Powers 5
e) Subscription 5
f) Form of Holding 5
g) Allocation of Assets and
Liabilities 5
h) Reorganization, etc. 5
i) Voting Trusts, etc. 5
j) Compromise 5
k) Partnerships, etc. 6
l) Borrowing 6
m) Guarantees, etc. 6
n) Insurance 6
o) Pensions 6
p) Any Other Lawful Activity 6
Section 3.3 Advisory, Management and Distribution 7
Section 3.4 Payment of Expenses by the Trust 8
Section 3.5 Ownership of Assets of the Trust 9
ARTICLE IV. SHARES 9
Section 4.1 Beneficial Interest 9
Section 4.2 Ownership of Shares 9
Section 4.3 Investment in the Trust 9
Section 4.4 No Preemption Rights 10
Section 4.5 Status of Shares and Limitation
of Personal Liability 10
ARTICLE V. SHAREHOLDERS' VOTING POWERS AND MEETINGS 10
Section 5.1 Shareholders' Voting Powers and Meetings 10
ARTICLE VI. DISTRIBUTIONS AND REPURCHASES 10
Section 6.1 Distributions 10
Section 6.2 Repurchases 11
Section 6.3 Dividends, Distributions and Repurchases 11
ARTICLE VII. COMPENSATION AND LIMITATION OF LIABILITY
OF TRUSTEES 11
Section 7.1 Compensation 11
Section 7.2 Limitation of Liability 11
ARTICLE VIII. INDEMNIFICATION 12
Section 8.1 Trustees, Officers, etc. 12
Section 8.2 Compromise Payment 12
Section 8.3 Indemnification Not Exclusive 13
Section 8.4 Shareholders 13
ARTICLE IX. MISCELLANEOUS 14
Section 9.1 Trustees, Shareholders, etc. Not
Personally Liable; Notice 14
Section 9.2 Trustee's Good Faith Action,
Expert Advice, No Bond or Surety 14
Section 9.3 Liability of Third Persons Dealing
with Trustees 15
Section 9.4 Merger of Classes of Shares of the
Trust 15
Section 9.5 Duration and Termination of Trust 16
Section 9.6 Merger, Consolidation and Sale of Assets 16
Section 9.7 Conversion to Open-End Management
Investment Company 17
Section 9.8 Certain Transactions 17
Section 9.9 Amendments 19
Section 9.10 Resident Agent 19
Section 9.11 Filing of Copies; References; Headings 19
Section 9.12 Applicable Law 20
Section 9.13 Provisions in Conflict with Laws
or Regulations 20
Section 9.14 Use of Name 21
<PAGE>
Sierra Prime Income Fund
CROSS-REFERENCE SHEET
Pursuant to CMR 116.00:
116.03 (a) Name of organization or trust:
Sierra Prime Income Fund
(b) Date of organization:
October 4, 1995
(c) Names and address of the trustees:
F. Brian Cerini
9301 Corbin Avenue
Northridge, CA 91324
(d) Original signatures of all trustees:
See page 21.
(e) Principal place of business:
9301 Corbin Avenue
Northridge, CA 91324
(f) Statement that beneficial interest is
divided into transferable certificates of
participation or shares;
See Section 4.1, page 9.
(g) Ability to merge:
See Section 9.6, page 16.
(h) The name and address of the resident agent
in Massachusetts:
The Prentice-Hall Corporation System, Inc.
84 State Street
Boston, MA 02109
<PAGE>
SIERRA PRIME INCOME FUND
AMENDED AGREEMENT AND DECLARATION OF TRUST
AMENDED AGREEMENT AND DECLARATION OF TRUST made at Boston,
Massachusetts this 18th day of January, 1996, by the Trustees hereunder, and by
the holders of shares of beneficial interest to be issued hereunder as
hereinafter provided.
WITNESSETH
WHEREAS this Trust has been formed to carry on the business of
an investment company; and
WHEREAS this Trust is authorized to issue its shares of
beneficial interest in accordance with the provisions hereinafter set forth; and
WHEREAS the Trustees have agreed to manage all property coming
into their hands as trustees of a Massachusetts business trust in accordance
with the provisions hereinafter set forth.
NOW, THEREFORE, the Trustees hereby declare that they will
hold all cash, securities and other assets which they may from time to time
acquire in any manner as Trustees hereunder IN TRUST to manage and dispose of
the same upon the following terms and conditions for the benefit of the holders
from time to time of shares of beneficial interest in this Trust.
<PAGE>
ARTICLE I
NAME AND DEFINITIONS
Section 1.1 Name. This Trust shall be known as the "Sierra
Prime Income Fund" and the Trustees shall conduct the business of the Trust
under that name or any other name or names as they may from time to time
determine.
Section 1.2 Definitions. Whenever used herein, unless
otherwise required by the context or specifically provided:
(a) The "Trust" refers to the Massachusetts business trust
established by an Agreement and Declaration of Trust dated October 4, 1995, as
amended from time to time;
(b) "Trustees" refers to the Trustees of the Trust hereunder
named herein or elected in accordance with Article III;
(c) "Shares" refers to the transferable units of interest into
which the beneficial interest in the Trust shall be divided from time to time;
(d) "Shareholder" means a record owner of Shares;
(e) The "1940 Act" refers to the Investment Company Act of
1940 and the Rules and Regulations thereunder, all as amended from time to time;
(f) The terms "Affiliated Person," "Assignment," "Commission,"
"Interested Person," "Principal Underwriter" and "Majority Shareholder Vote"
(the 67% or 50% requirement of the third sentence of Section 2(a)(42) of the
1940 Act, whichever may be applicable) shall have the meanings given them in the
1940 Act;
(g) "Declaration of Trust" shall mean this Amended Agreement
and Declaration of Trust as amended or restated from time to time; and
(h) "By-Laws" shall mean the By-Laws of the Trust as amended
from time to time.
ARTICLE II
PURPOSE OF THE TRUST
Section 2.1 Purpose of the Trust. The purpose of the Trust is
to operate as an investment company and to provide investors a managed
investment primarily in securities and to carry on such other business as the
Trustees may from time to time determine pursuant to their authority under this
Amended Agreement and Declaration of Trust.
ARTICLE III
THE TRUSTEES
Section 3.1 Election, Resignation, Vacancies, etc..
(a) Election. There shall initially be one Trustee who shall
be F. Brian Cerini. The number of Trustees shall be as provided in the By-laws
or as fixed from time to time by the Trustees. The Shareholders may elect
Trustees at any meeting of Shareholders called by the Trustees for that purpose.
Each Trustee shall serve during the continued lifetime of the Trust until he or
she dies, resigns or is removed, or, if sooner, until the next meeting of
Shareholders called for the purpose of electing Trustees and the election and
qualification of his or her successor. Any Trustee may resign at any time by
written instrument signed by him or her and delivered to any officer of the
Trust, to each other Trustee or to a meeting of the Trustees. Such resignation
shall be effective upon receipt unless specified to be effective at some other
time. Except to the extent expressly provided in a written agreement with the
Trust, no Trustee resigning and no Trustee removed shall have any right to any
compensation for any period following his resignation or removal, or any right
to damages on account of such removal.
(b) Effect of Death, Resignation, etc. of a Trustee. The
death, declination, resignation, retirement, removal or incapacity of the
Trustees, or any one of them, shall not operate to annul the Trust or to revoke
any existing agency created pursuant to the terms of this Amended Declaration of
Trust.
(c) No Accounting. Except to the extent required by the 1940
Act or under circumstances which would justify his or her removal for cause, no
person ceasing to be a Trustee as a result of his or her death, resignation,
retirement, removal or incapacity (nor the estate of any such person) shall be
required to make an accounting to the Shareholders or remaining Trustees upon
such cessation.
(d) Vacancies. Any vacancy or anticipated vacancy resulting
from any reason, including without limitation the death, resignation,
retirement, removal or incapacity of any of the Trustees, or resulting from an
increase in the number of Trustees by the other Trustees may (but so long as
there are at least two remaining Trustees, need not unless required by the 1940
Act) be filled by a majority of the remaining Trustees, subject to the
provisions of Section 16(a) of the 1940 Act, through the appointment in writing
of such other person as such remaining Trustees in their discretion shall
determine and such appointment shall be effective upon the written acceptance of
the person named therein to serve as a Trustee and agreement by such person to
be bound by the provisions of this Amended Agreement and Declaration of Trust,
except that any such appointment in anticipation of a vacancy to occur by reason
of retirement, resignation, or increase in number of Trustees to be effective at
a later date shall become effective only at or after the effective date of said
retirement, resignation, or increase in number of Trustees. As soon as any
Trustee so appointed shall have accepted such appointment and shall have agreed
in writing to be bound by this Amended Agreement and Declaration of Trust and
the appointment is effective, the Trust estate shall vest in the new Trustee,
together with the continuing Trustees, without any further act or conveyance.
Section 3.2. Powers. Subject to the provisions of this Amended
Agreement and Declaration of Trust, the business of the Trust shall be managed
by the Trustees, and they shall have all powers necessary or convenient to carry
out that responsibility. Without limiting the foregoing, the Trustees may adopt
By-laws not inconsistent with this Declaration of Trust providing for the
conduct of the business of the Trust and may amend and repeal them to the extent
that such By-laws do not reserve that right to the Shareholders; they may
enlarge or reduce their number, may fill vacancies in their number, including
vacancies caused by enlargement of their number, and may remove Trustees with or
without cause; they may elect and remove, with or without cause, such officers
and appoint and terminate such agents as they consider appropriate; they may
appoint from their own number, and terminate, any one or more committees
consisting of two or more Trustees, including an executive committee which may,
when the Trustees are not in session, exercise some or all of the power and
authority of the Trustees as the Trustees may determine; they may employ one or
more custodians of the assets of the Trust and may authorize such custodians to
employ subcustodians and to deposit all or any part of such assets in a system
or systems for the central handling of securities, retain a transfer agent or a
Shareholder servicing agent, or both, provide for the distribution of Shares by
the Trust, through one or more principal underwriters or otherwise, set record
dates for the determination of Shareholders with respect to various matters, and
in general delegate such authority as they consider desirable to any officer of
the Trust, to any committee of the Trustees and to any agent or employee of the
Trust or to any such custodian or underwriter.
Without limiting the foregoing, the Trustees shall have power and authority:
(a) To invest and reinvest cash, and to hold cash uninvested;
(b) To sell, exchange, lend, pledge, mortgage, hypothecate,
write options on and lease any or all of the assets of the Trust;
(c) To act as a distributor of shares and as underwriter of,
or broker or dealer in, securities or other property;
(d) To vote or give assent, or exercise any rights of
ownership, with respect to stock or other securities or property; and to execute
and deliver proxies or powers of attorney to such person or persons as the
Trustees shall deem proper, granting to such person or persons such power and
discretion with relation to securities or property as the Trustees shall deem
proper;
(e) To exercise powers and rights of subscription or otherwise
which in any manner arise out of ownership of securities;
(f) To hold any security or property in a form not indicating
any trust, whether in bearer, unregistered or other negotiable form, or in the
name of the Trustees or of the Trust or in the name of a custodian, subcustodian
or other depository or a nominee or nominees or otherwise;
(g) To allocate assets, liabilities and expenses of the Trust
to a particular class of Shares or to apportion the same among two or more
classes of Shares, provided that any liabilities or expenses incurred by a
particular class of Shares shall be payable solely out of the assets of that
class.
(h) To consent to or participate in any plan for the
reorganization, consolidation or merger of any corporation or issuer, any
security of which is or was held in the Trust; to consent to any contract,
lease, mortgage, purchase or sale of property by such corporation or issuer, and
to pay calls or subscriptions with respect to any security held in the Trust;
(i) To join with other security holders in acting through a
committee depositary, voting trustee or otherwise, and in that connection to
deposit any security with, or transfer any security to, any such committee,
depositary or trustee, and to delegate to them such power and authority with
relation to any security (whether or not so deposited or transferred) as the
Trustees shall deem proper, and to agree to pay, and to pay, such portion of the
expenses and compensation of such committee, depositary or trustee as the
Trustees shall deem proper;
(j) To compromise, arbitrate or otherwise adjust claims in
favor of or against the Trust or any matter in controversy, including but not
limited to claims for taxes;
(k) To enter into joint ventures, general or limited
partnerships and any other combinations or associations;
(l) To borrow funds;
(m) To endorse or guarantee the payment of any notes or other
obligations of any person; to make contracts of guaranty or suretyship, or
otherwise assume liability for payment thereof; and to mortgage and pledge the
Trust property or any part thereof to secure any of or all such obligations;
(n) To purchase and pay for entirely out of Trust property
such insurance as they may deem necessary or appropriate for the conduct of the
business, including without limitation, insurance policies insuring the assets
of the Trust and payment of distributions and principal on its portfolio
investments, and insurance policies insuring the Shareholders, Trustees,
officers, employees, agents, investment advisers or managers, principal
underwriters, or independent contractors of the Trust individually against all
claims and liabilities of every nature arising by reason of holding, being or
having held any such office or position, or by reason of any action alleged to
have been taken or omitted by any such person as Shareholder, Trustee, officer,
employee, agent, investment adviser or manager, principal underwriter, or
independent contractor, including any action taken or omitted that may be
determined to constitute negligence, whether or not the Trust would have the
power to indemnify such person against such liability;
(o) To pay pensions for faithful service, as deemed
appropriate by the Trustees, and to adopt, establish and carry out pension,
profit-sharing, share bonus, share purchase, savings, thrift and other
retirement, incentive and benefit plans, trusts and provisions, including the
purchasing of life insurance and annuity contracts as a means of providing such
retirement and other benefits, for any or all of the Trustees, officers,
employees and agents of the Trust; and
(p) To engage in any other lawful act or activity in which
corporations organized under the Massachusetts Business Corporation Law may
engage.
The Trustees shall not in any way be bound or limited by any
present or future law or custom in regard to investments by trustees. Except as
otherwise provided herein or from time to time in the By-laws, any action to be
taken by the Trustees may be taken by a majority of the Trustees present at a
meeting of Trustees (a quorum being present), within or without Massachusetts,
including any meeting held by means of a conference telephone or other
communications equipment by means of which all persons participating in the
meeting can hear each other at the same time and participation by such means
shall constitute presence in person at a meeting, or by written consents of a
majority of the Trustees then in office.
Section 3.3 Advisory, Management and Distribution. The
Trustees may, at any time and from time to time, contract for exclusive or
nonexclusive advisory and/or management services with any corporation, trust,
association or other organization (the "Advisor"), every such contract to comply
with such requirements and restrictions as may be set forth in the By-laws; and
any such contract may provide for one or more Sub-advisers who shall perform all
or part of the obligations of the Advisor under such contract and may contain
such other terms interpretive of or in addition to said requirements and
restrictions as the Trustees may determine, including, without limitation,
authority to determine from time to time what investments shall be purchased,
held, sold or exchanged and what portion, if any, of the assets of the Trust
shall be held uninvested and to make changes in the Trust's investments. The
Trustees may also, at any time and from time to time, contract with the Advisor
or any other corporation, trust, association or other organization, appointing
it exclusive or nonexclusive distributor or principal underwriter for the
Shares, every such contract to comply with such requirements and restrictions as
may be set forth in the By-laws; and any such contract may contain such other
terms interpretive of or in addition to said requirements and restrictions as
the Trustees may determine.
The fact that:
(i) any of the Shareholders, Trustees or officers of
the Trust is a shareholder, director, officer, partner,
trustee, employee, manager, adviser, principal underwriter or
distributor or agent of or for any corporation, trust,
association, or other organization, or of or for any parent or
affiliate of any organization, with which an advisory or
management contract, or principal underwriter's or
distributor's contract, or transfer, shareholder servicing or
other agency contract may have been or may hereafter be made,
or that any such organization, or any parent or affiliate
thereof, is a Shareholder or has an interest in the Trust, or
that
(ii) any corporation, trust, association or other
organization with which an advisory or management contract or
principal underwriter's or distributor's contract, or
transfer, shareholder servicing or other agency contract may
have been or may hereafter be made also has an advisory or
management contract, or principal underwriter's or
distributor's contract, or transfer, Shareholder servicing or
other agency contract with one or more other corporations,
trusts, associations, or other organizations, or has other
business or interests
shall not affect the validity of any such contract or disqualify any
Shareholder, Trustee or officer of the Trust from voting upon or executing the
same or create any liability or accountability to the Trust or its Shareholders.
Section 3.4 Payment of Expenses by the Trust. The Trustees are
authorized to pay or to cause to be paid out of the principal or income of the
Trust, or partly out of principal and partly out of income, as they deem fair,
all expenses, fees, charges, taxes and liabilities incurred or arising in
connection with the Trust, in connection with the management thereof, or in
connection with the financing of the sale of Shares, including, but not limited
to, the Trustees' compensation and such expenses and charges for the services of
the Trust's officers, employees, any investment adviser, manager, or
sub-adviser, principal underwriter, auditor, counsel, custodian, transfer agent,
shareholder servicing agent, and such other agents or independent contractors
and such other expenses and charges as the Trustees may deem necessary or proper
to incur; provided, however, that all expenses, fees, charges, taxes and
liabilities incurred or arising in connection with a particular series or class
of Shares as determined by the Trustees, shall be payable solely out of the
assets of that series or class. Any general liabilities, expenses, costs,
charges or reserves of the Trust which are not readily identifiable as belonging
to any particular series shall be allocated and charged by the Trustees between
or among any one or more of the series in such manner as the Trustees in their
sole discretion deem fair and equitable. Each such allocation shall be
conclusive and binding upon the Shareholders of all series for all purposes. Any
creditor of any series may look only to the assets of that series to satisfy
such creditor's debt.
The Trustees shall have the power, as frequently as they may
determine, to cause each Shareholder to pay directly, in advance or arrears, for
any and all expenses of the Trust, an amount fixed from time to time by the
Trustees, by setting off such charges due from such Shareholder from declared
but unpaid dividends owed such Shareholder and/or by reducing the number of
Shares in the account of such Shareholder by that number of full and/or
fractional Shares which represents the outstanding amount of such charges due
from such Shareholder.
Section 3.5 Ownership of Assets of the Trust. Title to all of
the assets of the Trust shall at all times be considered as vested in the
Trustees.
ARTICLE IV
SHARES
Section 4.1 Beneficial Interest. The Shares of the Trust shall
have no par value and shall be issued in one or more classes or series as the
Trustees may, without shareholder approval, authorize. Each class or series of
Shares shall represent an equal proportionate interest in the assets and
liabilities of the Trust, with no class or series having priority or preference
over another. If the Trustees have authorized the issuance of two or more
classes or series of Shares, then the classes or series may have such variations
as to dividend, redemption, voting rights, net asset values, expenses borne by
the classes, and other matters as the Trustees have authorized. The number of
Shares authorized shall be unlimited.
Section 4.2 Ownership of Shares. The ownership of Shares shall
be recorded on the books of the Trust or a transfer or similar agent. No
certificates certifying the ownership of Shares shall be issued except as the
Trustees may otherwise determine from time to time. The Trustees may make such
rules as they consider appropriate for the issuance of Share certificates, the
transfer of Shares and similar matters. The record books of the Trust as kept by
the Trust or any transfer or similar agent, as the case may be, shall be
conclusive as to who are the Shareholders of each class or series and as to the
number of Shares of each class or series held from time to time by each
Shareholder.
Section 4.3 Investment in the Trust. The Trustees shall accept
investments in the Trust from such persons and on such terms and for such
consideration, which may consist of cash or tangible or intangible property or a
combination thereof, as they from time to time authorize.
All consideration received by the Trust for the issue or sale
of Shares of each class or series of Shares, together with all income, earnings,
profits, and proceeds thereof, including any proceeds derived from the sale,
exchange or liquidation thereof, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be, shall
irrevocably belong to the class or series of Shares with respect to which the
same were received by the Trust for all purposes, subject only to the rights of
creditors, and shall be so handled upon the books of account of the Trust and
are herein referred to as "assets of" such class or series of shares.
Section 4.4 No Preemptive Rights. Shareholders shall have no
preemptive or other right to subscribe to any additional Shares or other
securities issued by the Trust.
Section 4.5 Status of Shares and Limitation of Personal
Liability. Shares shall be deemed to be personal property giving only the rights
provided in this instrument. Every Shareholder by virtue of having become a
Shareholder shall be held to have expressly assented and agreed to the terms
hereof and to have become a party hereto. The death of a Shareholder during the
continuance of the Trust shall not operate to terminate the same nor entitle the
representative of any deceased Shareholder to an accounting or to take any
action in court or elsewhere against the Trust or the Trustees, but only to the
rights of said decedent under this Trust. Ownership of Shares shall not entitle
the Shareholder to any title in or to the whole or any part of the Trust
property or right to call for a partition or division of the same or for an
accounting, nor shall the ownership of Shares constitute the Shareholders
partners. Neither the Trust nor the Trustees, nor any officer, employee or agent
of the Trust shall have any power to bind personally any Shareholder, nor except
as specifically provided herein to call upon any Shareholder for the payment of
any sum of money or assessment whatsoever other than such as the Shareholder may
at any time personally agree to pay.
ARTICLE V
SHAREHOLDERS' VOTING POWERS AND MEETINGS
Section 5.1 Shareholders' Voting Powers and Meetings.
Shareholders shall have such power to vote as is provided for in, and may hold
meetings and take actions pursuant to the provisions of the By-laws.
ARTICLE VI
DISTRIBUTIONS AND REPURCHASES
Section 6.1 Distributions. The Trustees may each year, or more
frequently if they so determine, distribute to the Shareholders of each class or
series of Shares such income and capital gains, accrued or realized, as the
Trustees may determine, after providing for actual and accrued expenses and
liabilities (including such reserves as the Trustees may establish) determined
in accordance with good accounting practices. The Trustees shall have full
discretion to determine which items shall be treated as income and which items
as capital and their determination shall be binding upon the Shareholders.
Distributions of each year's income of each class or series of Shares shall be
distributed pro rata to Shareholders in proportion to the number of Shares of
each class or series held by each of them. Such distributions shall be made in
cash or Shares or a combination thereof as determined by the Trustees. Any such
distribution paid in Shares will be paid at the net asset value thereof as
determined in accordance with the By-laws.
Section 6.2 Repurchases. The Trustees may in their business
judgment authorize the Trust to repurchase all or a portion of its outstanding
classes or series of Shares at the net asset value of such Shares thereof as
determined in accordance with the By-Laws. Such Share repurchases are expected
to be in the form of tender offers by the Trust to the Shareholders.
Section 6.3 Dividends, Distributions and Repurchases. No
dividend or distribution (including, without limitation, any distribution paid
upon termination of the Trust or of a class or series of Shares) with respect to
the Shares shall be effected by the Trust other than from the assets of such
Trust. The Trust may borrow against its assets for the purpose of funding said
repurchase of Shares.
ARTICLE VII
COMPENSATION AND LIMITATION OF LIABILITY OF TRUSTEES
Section 7.1 Compensation. The Trustees as such shall be
entitled to reasonable compensation from the Trust; they may fix the amount of
their compensation. Nothing herein shall in any way prevent the employment of
any Trustee for advisory, management, legal, accounting, investment banking,
underwriting, brokerage, or investment dealer or other services and payment for
the same by the Trust.
Section 7.2 Limitation of Liability. The Trustees shall not
be responsible or liable in any event for any neglect or wrongdoing of any
officer, agent, employee, manager or principal underwriter of the Trust, nor
shall any Trustee be responsible for the act or omission of any other Trustee,
but nothing herein contained shall protect any Trustee against any liability to
which he or she would otherwise be subject by reason of wilful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his or her office.
Every note, bond, contract, instrument, certificate, Share or
undertaking and every other act or thing whatsoever executed or done by or on
behalf of the Trust or the Trustees or any of them in connection with the Trust
shall be conclusively deemed to have been executed or done only in or with
respect to their or his or her capacity as Trustees or Trustee, and such
Trustees or Trustee shall not be personally liable thereon.
ARTICLE VIII
INDEMNIFICATION
Section 8.1 Trustees, Officers, etc. The Trust shall indemnify
each of its Trustees and officers (including persons who serve at the Trust's
request as directors, officers or trustees of another organization in which the
Trust has any interest as a shareholder, creditor or otherwise) (hereinafter
referred to as a "Covered Person") against all liabilities and expenses,
including but not limited to amounts paid in satisfaction of judgments, in
compromise or as fines and penalties, and counsel fees reasonably incurred by
any Covered Person in connection with the defense or disposition of any action,
suit or other proceeding, whether civil or criminal, before any court or
administrative or legislative body, in which such Covered Person may be or may
have been involved as a party or otherwise or with which such Covered Person may
be or may have been threatened, while in office or thereafter, by reason of
being or having been such a Covered Person except with respect to any matter as
to which such Covered Person shall have been finally adjudicated in any such
action, suit or other proceeding to be liable to the Trust or its Shareholders
by reason of wilful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of such Covered Person's office.
Expenses, including counsel fees so incurred by any such Covered Person (but
excluding amounts paid in satisfaction of judgments, in compromise or as fines
or penalties), shall be paid from time to time by the Trust in advance of the
final disposition of any such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such Covered Person to repay amounts so paid to
the Trust if it is ultimately determined that indemnification of such expenses
is not authorized under this Article; provided, however, that either (a) such
Covered Person shall have provided appropriate security for such undertaking,
(b) the Trust shall be insured against losses arising from any such advance
payments or (c) either a majority of the disinterested Trustees acting on the
matter (provided that a majority of the disinterested Trustees then in office
act on the matter), or independent legal counsel in a written opinion, shall
have determined, based upon a review of readily available facts (as opposed to a
full trial type inquiry) that there is reason to believe that such Covered
Person will be found entitled to indemnification under this Article.
Section 8.2 Compromise Payment. As to any matter disposed of
(whether by a compromise payment, pursuant to a consent decree or otherwise)
without an adjudication by a court, or by any other body before which the
proceeding was brought, that such Covered Person is liable to the Trust or its
Shareholders by reason of wilful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her office,
indemnification shall be provided if (a) approved, after notice that it involves
such indemnification, by at least a majority of the disinterested Trustees
acting on the matter (provided that a majority of the disinterested Trustees
then in office act on the matter) upon a determination, based upon a review of
readily available facts (as opposed to a full trial type inquiry) that such
Covered Person is not liable to the Trust or its Shareholders by reasons of
wilful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his or her office, or (b) there has been
obtained an opinion in writing of independent legal counsel, based upon a review
of readily available facts (as opposed to a full trial type inquiry) to the
effect that such indemnification would not protect such Person against any
liability to the Trust or to its shareholders to which he or she would otherwise
be subject by reason of wilful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office. Any
approval pursuant to this Section shall not prevent the recovery from any
Covered Person of any amount paid to such Covered Person in accordance with this
Section as indemnification if such Covered Person is subsequently adjudicated by
a court of competent jurisdiction to have been liable to the Trust or its
Shareholders by reason of wilful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of such Covered
Person's office.
Section 8.3 Indemnification Not Exclusive. The right of
indemnification hereby provided shall not be exclusive of or affect any other
rights to which such Covered Person may be entitled. As used in this Article
VIII, the term "Covered Person" shall include such person's heirs, executors and
administrators and a "disinterested Trustee" is a Trustee who is not an
"interested person" of the Trust as defined in Section 2 (a)(19) of the
Investment Company Act of 1940, as amended, (or who has been exempted from being
an "interested person" by any rule, regulation or order of the Commission) and
against whom none of such actions, suits or other proceedings or another action,
suit or other proceeding on the same or similar grounds is then or has been
pending. Nothing contained in this Article shall affect any rights to
indemnification to which personnel of the Trust, other than Trustees or
officers, and other persons may be entitled by contract or otherwise under law,
nor the power of the Trust to purchase and maintain liability insurance on
behalf of any such person.
Section 8.4 Shareholders. In case any Shareholder or former
Shareholder shall be held to be personally liable solely by reason of his or her
being or having been a Shareholder and not because of his or her acts or
omissions or for some other reason, the Shareholder or former Shareholder (or
his or her heirs, executors, administrators or other legal representatives or in
the case of a corporation or other entity, its corporate or other general
successor) shall be entitled to be held harmless from and indemnified against
all loss and expense arising from such liability, but only out of the assets of
the particular class or series of Shares of which he or she is or was a
Shareholder.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Trustees, Shareholders, etc. Not Personally
Liable; Notice. All persons extending credit to, contracting with or having any
claim against the Trust shall look only to the assets of the Trust for payment
under such credit, contract or claim; and neither the Shareholders nor the
Trustees, nor any of the Trust's officers, employees or agents, whether past,
present or future, shall be personally liable therefor. Nothing in this
Declaration of Trust shall protect any Trustee against any liability to which
such Trustee would otherwise be subject by reason of wilful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of the office of Trustee.
Every note, bond, contract, instrument, certificate or
undertaking made or issued by the Trustees or by any officer or officers shall
give notice that this Amended Agreement and Declaration of Trust is on file with
the Secretary of the Commonwealth of Massachusetts and shall recite that the
same was executed or made by or on behalf of the Trust or by them as Trustee or
Trustees or as officers or officer and not individually and that the obligations
of such instrument are not binding upon any of them or the Shareholders
individually but are binding only upon the assets and property of the Trust, and
may contain such further recital as he or she or they may deem appropriate, but
the omission thereof shall not operate to bind any Trustee or Trustees or
officer or officers or Shareholder or Shareholders individually.
Section 9.2 Trustee's Good Faith Action, Expert Advice, No
Bond or Surety. The exercise by the Trustees of their powers and discretions
hereunder shall be binding upon everyone interested. A Trustee shall be liable
for his or her own wilful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of the office of Trustee, and
for nothing else, and shall not be liable for errors of judgment or mistakes of
fact or law. The Trustees may take advice of counsel or other experts with
respect to the meaning and operation of this Amended Agreement and Declaration
of Trust, and shall be under no liability for any act or omission in accordance
with such advice or for failing to follow such advice. The Trustees shall not be
required to give any bond as such, nor any surety if a bond is required.
Section 9.3 Liability of Third Persons Dealing with Trustees.
No person dealing with the Trustees shall be bound to make any inquiry
concerning the validity of any transaction made or to be made by the Trustees or
to see to the application of any payments made or property transferred to the
Trust or upon its order.
Section 9.4 Merger or Combination of Classes or Series of
Shares of the Trust. If permitted by regulatory authorities, the Trust, by
resolution of its Board of Trustees, may direct that the separate portfolios of
two or more classes or series of the Trust's shares be combined into a single
portfolio on such terms as the Board of Trustees may deem appropriate or which
regulatory authorities may require for the protection of the rights of holders
of each class or series of shares. If portfolios are combined, the following
provisions shall apply to the classes or series of shares:
(a) The assets of the combined portfolio and the income
from investment and reinvestment of the assets shall be
allocated to each class or series of shares in accordance with
the number of shares of that class or series outstanding for
purposes of determining the net asset value of each class or
series of shares, the amounts distributable to holders of
shares of each class or series of shares in the event of
dissolution and liquidation of the Trust and the dividends
payable with respect to shares of each class or series of
shares.
(b) The liabilities and expenses of the Trust with
respect to a class or series of the Trust's shares shall be
charged to that class or series. Liabilities and expenses
chargeable to more than one class of shares shall be allocated
by or in accordance with procedures adopted by the Board of
Trustees. The determination of the Board of Trustees shall be
conclusive as to the charging or allocation of liabilities.
(c) Each class or series of shares shall be entitled to
such dividends or distributions, in shares or cash or both, as
may be declared by the Board of Trustees with respect to such
class or series. Dividends or distributions may be paid only
out of net income or surplus of that class or series.
(d) In the event of the liquidation or dissolution of
the Trust, the holders of each class or series of the Trust's
shares shall be entitled to receive that class or series share
of the assets of the Trust less the liabilities of the Trust
allocable to that class or series as determined by or in
accordance with procedures adopted by the Board of Trustees.
The assets so distributable to the holders of a particular
class or series shall be distributed among them in proportion
to the number of shares of the class or series held by each of
them and recorded on the books of the Trust.
If the Board of Trustees orders the combination of portfolios of classes or
series of shares, it may at any time thereafter by resolution order that the
portfolios be segregated or combined with portfolios of other classes or series
on such terms as the Board of Trustees determines are desirable for the
protection of the interests of the Trust and its shareholders or to comply with
regulatory requirements.
Section 9.5 Duration and Termination of Trust. Unless
terminated as provided herein, the Trust shall continue without limitation of
time. The Trust may be terminated at any time by the vote of Shareholders
holding at least a majority of the Shares entitled to vote or by the Trustees by
written notice to the Shareholders. Any class or series of Shares may be
terminated at any time by vote of Shareholders holding at least a majority of
the Shares of such class or series entitled to vote or by the Trustees by
written notice to the Shareholders of such class or series.
Upon termination of the Trust or of any one or more classes or
series of Shares, after paying or otherwise providing for all charges, taxes,
expenses and liabilities, whether due or accrued or anticipated, of the Trust or
of the particular class or series as may be determined by the Trustees, the
Trust shall, in accordance with such procedures as the Trustees shall consider
appropriate, reduce the remaining assets to distributable form in cash or shares
or other securities, or any combination thereof, and distribute the proceeds to
the Shareholders of the series involved, ratably according to the aggregate net
asset value of Shares of such class or series of Shares held by the several
Shareholders of such class or series of Shares on the date of termination.
Section 9.6 Merger, Consolidation and Sale of Assets. Subject
to Section 9.8, the Trust may merge or consolidate with any other corporation,
association, trust or other organization, or may sell, lease or exchange all or
substantially all of the Trust Property, including its goodwill, upon such terms
and conditions and for such consideration when and as authorized at any meeting
of the Shareholders called for the purpose by the affirmative vote of the
holders of not less than two-thirds of the the Shares outstanding and entitled
to vote, or by an instrument or instruments in writing without a meeting,
consented to by the holders of not less than two-thirds of the Shares, provided,
however, that if such merger, consolidation, sale, lease or exchange is
recommended by the Trustees, the vote or written consent of the holders of a
majority of the Shares outstanding and entitled to vote shall be sufficient
authorization and any such merger, consolidation, sale, lease or exchange shall
be deemed for all purposes to have been accomplished under and pursuant to the
statutes of the Commonwealth of Massachusetts.
Section 9.7 Conversion to Open-End Management Investment
Company. Notwithstanding any other provisions of this Declaration or the
By-Laws, an amendment to this Declaration that makes the Common Shares a
"redeemable security" (as that term is defined in the 1940 Act) shall be
required to be approved by at least (a) a majority of the Trustees, including a
majority of the Trustees who are not Interested Persons; and (b) a Majority
Shareholder Vote.
The Trust shall notify the holders of all capital
securities of the approval, in accordance with the preceding paragraph of this
Section 9.7, of any amendment to this Declaration that makes the Shares a
"redeemable security" (as that term is defined in the 1940 Act) no later than
thirty (30) days prior to the date of filing of such amendment with the
Secretary of State of the Commonwealth of Massachusetts; provided, however, that
such amendment may not be so filed until the later of ninety (90) days following
the date of approval of such amendment by the holders of the Shares in
accordance with the preceding paragraph of this Section 9.7 or thirty (30) days
following the date on which notice of the approval of such amendment is first
given to Shareholders.
Section 9.8 Certain Transactions. (a) Notwithstanding any
other provision of this Declaration and subject to the exceptions provided in
paragraph (d) of this Section, the types of transactions described in paragraph
(c) of this Section shall require the affirmative vote or consent of the holders
of not less than two-thirds of the Shares outstanding and entitled to vote when
a Principal Shareholder (as defined in paragraph (b) of this Section) is a party
to the transaction. Such affirmative vote or consent shall be in addition to the
vote or consent of the holders of the Shares otherwise required by law or any
agreement between the Trust and any national securities exchange.
(b) The term "Principal Shareholder" shall mean any
corporation, person or other entity which is the beneficial owner, directly or
indirectly, of more than five percent (5%) of the outstanding Shares and shall
include any affiliate or associate, as such terms are defined in clause (ii)
below, of a Principal Shareholder. For the purposes of this Section, in addition
to the Shares which a corporation, person or other entity beneficially owns
directly, (a) any corporation, person or other entity shall be deemed to be the
beneficial owner of any Shares (i) which it has the right to acquire pursuant to
any agreement or upon exercise of conversion rights or warrants, or otherwise
(but excluding share options granted by the Trust), or (ii) which are
beneficially owned, directly or indirectly (including Shares deemed owned
through application of clause (i) above, by any other corporation, person or
entity with which it or its "affiliate" or "associate" (as defined below) has
any agreement, arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of Shares, or which is its "affiliate" or
"associate" as those terms are defined in Rule 12b-2 under the Securities
Exchange Act of 1934, as amended, and (b) the outstanding Shares shall include
Shares deemed owned through application of clauses (i) and (ii) above but shall
not include any other Shares which may be issuable pursuant to any agreement, or
upon exercise of conversion rights or warrants, or otherwise.
(c) This Section shall apply to the following
transactions:
(1) The merger or consolidation of the Trust or
any subsidiary of the Trust with or into any Principal
Shareholder.
(2) The issuance of any securities of the Trust to
any Principal Shareholder for cash.
(3) The sale, lease or exchange of all or any
substantial part of the assets of the Trust to any Principal
Shareholder (except assets having an aggregate fair market
value of less than $1,000,000, aggregating for the purpose of
such computation all assets sold, leased or exchanged in any
series of similar transactions within a twelve-month period).
(4) The sale, lease or exchange to the Trust or
any subsidiary thereof, in exchange for securities of the
Trust of any assets of any Principal Shareholder (except
assets having an aggregate fair market value of less than
$1,000,000, aggregating for the purposes of such computation
all assets sold, leased or exchanged in any series of similar
transactions within a twelve-month period).
(d) The provisions of this Section shall not be
applicable to (i) any of the transactions described in paragraph (c) of this
Section if the Trustees shall by resolution have approved a memorandum of
understanding with such Principal Shareholder with respect to and substantially
consistent with such transaction, or (ii) any such transaction with any
corporation of which a majority of the outstanding shares of all classes of
stock normally entitled to vote in elections of trustees is owned of record or
beneficially by the Trust and its subsidiaries.
(e) The Trustees shall have the power and duty to
determine for the purposes of this Section, on the basis of information known to
the Trust, whether (i) a corporation, person or entity beneficially owns more
than five percent (5%) of the outstanding Shares, (ii) a corporation, person or
entity is an "affiliate" or "associate" (as defined above) of another, (iii) the
assets being acquired or leased to or by the Trust, or any subsidiary thereof,
constitute a substantial part of the assets of the Trust and have an aggregate
fair market value of less than $1,000,000, and (iv) the memorandum of
understanding referred to in paragraph (d) hereof is substantially consistent
with the transaction covered thereby. Any such determination shall be conclusive
and binding for all purposes of this Section.
Section 9.9 Amendments. This Declaration of Trust may be
amended at any time by an instrument in writing signed by a majority of the then
Trustees when authorized to do so by vote of Shareholders holding a majority of
the Shares of each class or series entitled to vote, except that an amendment
which shall affect the holders of one or more classes or series of Shares but
not the holders of all outstanding class or series shall be authorized by vote
of the Shareholders holding a majority of the Shares entitled to vote of each
class or series affected and no vote of Shareholders of a class or series not
affected shall be required. Any amendment which shall affect the holders of
Shares of one or more classes of a series but not the holders of all Shares of a
series shall be authorized by vote of the Shareholders holding a majority of the
Shares of such classes affected by the amendment voting together as a single
class, and no vote of Shareholders of the classes not affected shall be
required. Amendments having the purpose of changing the name of the Trust, of
establishing, changing, or eliminating the par value of the shares or of
supplying any omission, curing any ambiguity or curing, correcting or
supplementing any defective or inconsistent provision contained herein shall not
require authorization by Shareholder vote.
Section 9.10 Resident Agent. The Trust may appoint and
maintain a resident agent in the Commonwealth of Massachusetts.
Section 9.11 Filing of Copies; References; Headings. The
original or a copy of this instrument and of each amendment hereto shall be kept
at the office of the Trust where it may be inspected by any Shareholder. A copy
of this instrument and of each amendment hereto shall be filed by the Trust with
the Secretary of the Commonwealth of Massachusetts and with the Boston City
Clerk, as well as any other governmental office where such filing may from time
to time be required, but the failure to make any such filing shall not impair
the effectiveness of this instrument or any such amendment. Anyone dealing with
the Trust may rely on a certificate by an officer of the Trust as to whether or
not any such amendments have been made, as to the identities of the Trustees and
officers, and as to any matters in connection with the Trust hereunder; and,
with the same effect as if it were the original, may rely on a copy certified by
an officer of the Trust to be a copy of this instrument or of any such
amendments. In this instrument and in any such amendment, references to this
instrument, and all expressions like "herein", "hereof" and "hereunder" shall be
deemed to refer to this instrument as a whole as the same may be amended or
affected by any such amendments. The masculine gender shall include the feminine
and neuter genders. Headings are placed herein for convenience of reference only
and shall not be taken as a part hereof or control or affect the meaning,
construction or effect of this instrument. This instrument may be executed in
any number of counterparts each of which shall be deemed an original.
Section 9.12 Applicable Law. This Amended Agreement and
Declaration of Trust is made in the Commonwealth of Massachusetts, and it is
created under and is to be governed by and construed and administered according
to the laws of said Commonwealth, including the Massachusetts Business
Corporation Law as the same may be amended from time to time, to which reference
is made with the intention that matters not specifically covered herein or as to
which an ambiguity may exist shall be resolved as if the Trust were a business
corporation organized in Massachusetts, but the reference to said Business
Corporation Law is not intended to give the Trust, the Trustees, the
Shareholders or any other person any right, power, authority or responsibility
available only to or in connection with an entity organized in corporate form.
The Trust shall be of the type referred to in Section 1 of Chapter 182 of the
Massachusetts General Laws and of the type commonly called a Massachusetts
business trust, and without limiting the provisions hereof, the Trust may
exercise all powers which are ordinarily exercised by such a trust.
Section 9.13 Provisions in Conflict with Laws and Regulations.
(a) The provisions of this Amended Agreement and Declaration of Trust are
severable, and if the Trustees shall determine, with the advice of counsel, that
any of such provisions is in conflict with the 1940 Act, the regulated
investment company provisions of the Internal Revenue Code of 1986, or any
amendments or successor statute thereto, or with other applicable laws and
regulations, the conflicting provision shall be deemed not to constitute and
never to have constituted a part of the Declaration; provided, however, that
such determination shall not affect any of the remaining provisions of the
Amended Agreement and Declaration of Trust or render invalid or improper any
action taken or omitted prior to such determination.
(b) If any provision of the Amended Agreement and
Declaration of Trust shall be held invalid or unenforceable in any jurisdiction,
such invalidity or unenforceability shall apply only to such provision in such
jurisdiction and shall not in any manner affect such provision in any other
jurisdiction or any other provision of the Declaration in any jurisdiction.
Section 9.14 Use of the Name. Sierra Investment Advisors
Corporation ("Sierra Advisors") has consented to the use by the Trust of the
identifying word or name "Sierra" in the name of the Trust. Such consent is
conditioned upon the employment of Sierra Advisors, its successors or any
affiliate thereof as Investment Advisor or administrator of the Trust. As
between the Trust and Sierra, Sierra controls the use of the name of the Trust
insofar as such name contains "Sierra." The name or identifying word "Sierra"
may be used from time to time in other connections and for other purposes by
Sierra or affiliated entities. Sierra may require the Trust to cease using
"Sierra" in the name of the Trust if the Trust ceases to employ, for any reason,
Sierra, an affiliate or any successor as Investment Advisor of the Trust.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand
and seal for himself and his assigns, as of the ____ day of January, 1996.
-------------------------------
F. Brian Cerini
<PAGE>
THE STATE OF CALIFORNIA
COUNTY OF LOS ANGELES January ___, 1996
Then personally appeared the above-named F. Brian Cerini and
acknowledged the foregoing instrument to be his free act and deed, before me.
---------------------------
Notary Public
My. Commission expires:
[Notary Seal]
<PAGE>
Exhibit 99.6
FORM OF
INVESTMENT ADVISORY AGREEMENT
Investment Advisory Agreement executed as of _______________, 1996,
between SIERRA PRIME INCOME FUND, a Massachusetts business trust (the "Trust")
and SIERRA INVESTMENT ADVISORS CORPORATION, a California corporation (the
"Advisor").
Witnesseth:
That in consideration of the mutual covenants herein contained, it is
agreed as follows:
1. SERVICES TO BE RENDERED BY ADVISOR TO THE TRUST.
(a) Subject always to the control of the Board of Trustees, the
Advisor will, at its expense, furnish continuously an investment program for the
Trust, will make investment decisions on behalf of the Trust and will, subject
to the provisions of paragraph (c), place all orders for the purchase and sale
of its portfolio securities. Subject always to the control of the Trustees, the
Advisor will also manage, supervise and conduct the other affairs and business
of the Trust and matters incidental thereto. In the performance of its duties,
the Advisor will comply with the provisions of the Agreement and Declaration of
Trust, the By-laws of the Trust and the Trust's stated investment objectives,
policies and restrictions as set forth in its Registration Statement on Form
N-2, File No. 33-_______ and will use its best efforts to safeguard and promote
the welfare of the Trust and to comply with other policies which the Trustees
may from time to time determine.
(b) The Advisor, at its expense, will furnish all necessary
office space and equipment, bookkeeping and clerical services (excluding
securities accounting and transfer agency services) required for it to perform
its duties hereunder and will pay all salaries, fees and expenses of Officers
and Trustees of the Trust who are affiliated with the Advisor.
(c) In the selection of banks, syndicated loan agents, brokers,
dealers, futures commissions merchants or any other sources of portfolio
investments for the Trust (hereafter, "brokers or dealers") and the placing of
orders for the purchaser and/or sale of portfolio investments for the Trust, the
Advisor shall seek 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 for the Trust the most favorable price and execution available, the
Advisor, bearing in mind the Trust'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 may
determine, the Advisor shall not be deemed to have acted unlawfully or to have
breached any duty created by this Contract or otherwise solely by reason of its
having caused the Trust to pay, a broker or dealer that provides brokerage and
research services to the Advisor 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
Advisor 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
Advisor's overall responsibilities with respect to the Trust and to other
clients of the Advisor as to which the Advisor exercised investment discretion.
The Trust hereby agrees with the Advisor and with any Sub-Advisor selected by
the Advisor as provided in Section 1(d) that any entity or person associated
with the Advisor or such Sub-Advisor which is a member of a national securities
exchange is authorized to effect any transaction on such exchange for the
account of the Trust which is permitted by Section 11(a)(1)(H) of the Securities
Exchange Act of 1934 and Rule 11a2-2(T) thereunder, and the Trust hereby
consents to the retention of compensation for such transactions in accordance
with Rule 11a2-2(T)(a)(2)(iv).
(d) Subject to the provisions of the Agreement and Declaration
of Trust of the Trust and the Investment Company Act of 1940, the Advisor, at
its expense, may select and contract with one or more investment advisers (the
"Sub-Adviser") for the Trust to perform some or all of the services for which it
is responsible pursuant to paragraph (a) of this Section 1 (and any related
facilities or services for which it is responsible under paragraph (b) of this
Section 1). The Advisor will compensate any Sub-Adviser of the Trust for its
services to the Trust. The Advisor 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-Advisor unless and until a successor Sub-Adviser is
selected.
(e) The Advisor shall not be obligated to pay any expenses of or
for the Trust not expressly assumed by the Advisor pursuant to this Section
other than as provided in Section 3.
2. OTHER AGREEMENTS, ETC.
It is understood that any of the shareholders, Trustees officers and
employees of the Trust may be a shareholder, director, officer or employee of,
or be otherwise interested in, the Advisor, and in any person controlled by or
under common control with the Advisor, and that the Advisor and any person
controlled by or under common control with the Advisor may have an interest in
the Trust.
The Trust also understands that the Advisor now acts, will continue to
act and may act in the future as investment adviser to fiduciary and other
managed accounts and as investment adviser to one or more other investment
companies or series of investment companies, and the Trust has no objection to
the Advisor so acting, PROVIDED THAT whenever the Trust and one or more other
accounts or investment companies advised by the 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 adversely affect 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 Advisor to assist the
performance of the Advisor's duties hereunder will not devote their full time to
such services and nothing contained herein shall be deemed to limit or restrict
the right of the Advisor or any affiliate of the Advisor 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 TRUST TO THE ADVISOR.
The Trust will pay to the Advisor as compensation for services
rendered, for the facilities furnished and for the expenses borne by the Advisor
pursuant to Section 1, a fee, computed and paid monthly at the annual rate of
.95% of the value of the Trust's average daily net assets. Such average daily
net asset value of the Trust 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 Agreement is in
effect. Such fee shall be payable for each month within five (5) business day
after the end of such month.
In the event that expenses of the Trust for any fiscal year (not
including any interest, taxes, brokerage, extraordinary expenses or distribution
expenses paid by the Trust pursuant to any distribution plan) should exceed the
expense limitation on investment company expenses enforced by any statute or
regulatory authority of any jurisdiction in which shares of the Trust are
qualified for offer and sale, the compensation due the Advisor for such fiscal
year shall be reduced by the amount of such excess by a reduction or refund
thereof. In the event that the expenses of the Trust exceed any expense
limitation which the Advisor may, by written notice to the Trust, voluntarily
declare to be effective with respect to the Trust, subject to such terms and
conditions as the Advisor may prescribe in such notice, the compensation due the
Advisor shall be reduced, and, if necessary, the Advisor shall bear the Trust's
expenses to the extent required by such expense limitation.
The Advisor shall not be required to reimburse any amount in excess of
the compensation paid to it pursuant to Section 3. If the Advisor shall serve
for less than the whole of a month, the foregoing compensation shall be
prorated.
4. ASSIGNMENT TERMINATES THIS AGREEMENT; AMENDMENTS OF THIS AGREEMENT.
This Agreement shall automatically terminate, without the payment of
any penalty, in the event of its assignment; and this Agreement shall not be
amended unless such amendment is approved at a meeting by the affirmative vote
of a majority of the outstanding shares of the Trust, and by the vote, cast in
person at a meeting called for the purpose of voting on such approval, of a
majority of the Board of Trustees who are not interested persons of the Trust or
of the Advisor or of any Sub-Adviser of the Trust as defined in the Investment
Company Act of 1940, as amended.
5. 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) Either party hereto may at any time terminate this
Agreement by not more than sixty days' written notice delivered or
mailed by registered mail, postage prepaid, to the other party, or
(b) If (i) the Board of Trustees or the shareholders by
the affirmative vote of a majority of the outstanding shares of the
Trust, and (ii) a majority of the Board of Trustees who are not
interested persons of the Trust or of the Advisor, as defined in the
Investment Company Act of 1940, as amended, 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 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
Trust for their approval and such shareholders fail to approve such
continuance of this Agreement as provided herein, the Advisor may
continue to serve hereunder in a manner consistent with the Investment
Company Act of 1940 and the rules and regulations thereunder.
Action by the Trust under paragraph (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 Trust.
Termination of this Agreement pursuant to this Section 5 shall be
without the payment of any penalty.
6. CERTAIN INFORMATION.
The Advisor shall promptly notify the Trust in writing of the
occurrence of any of the following events: (a) the Advisor shall fail to be
registered as an investment adviser under the Investment Company Act of 1940, as
amended, from time to time, and under the laws of any jurisdiction in which the
Advisor is required to be registered as an investment adviser in order to
perform its obligations under this Agreement, (b) the Advisor 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 Advisor.
7. CERTAIN DEFINITIONS.
For the purposes of this Agreement, the "affirmative vote of a majority
of the outstanding shares" of the Trust 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 Trust 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 the
Trust 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 Trust entitled
to vote at such meeting, whichever is less.
For the purposes of this Agreement, the terms "affiliated person",
"control", "interested person" and "assignment" shall have their respective
meanings defined in the Investment Company Act of 1940, as amended, and the
rules and regulations thereunder, subject, however, to such exemptions as may be
granted by the Securities and Exchange Commission under said Act; the term
"specifically approve at least annually" shall be construed in a manner
consistent with the Investment Company Act of 1940 and the rules and regulations
thereunder; and the term "brokerage and research services" shall have the
meaning given in the Securities Exchange Act of 1934, as amended, and the rules
and regulations thereunder.
8. NONLIABILITY OF ADVISOR.
The Advisor shall exercise its best judgement in rendering its services
under this Agreement. In the absence of willful misfeasance, bad faith or gross
negligence on the part of the Advisor, or reckless disregard of its obligations
and duties hereunder, the Advisor shall not be subject to any liability to the
Trust, or to any shareholder of the Trust, for any act or omission in the course
of, or connected with, rendering services hereunder.
9. USE OF NAME.
The Advisor owns the name "Sierra", which may be used by the Trust only
with the consent of the Advisor. The Advisor consents to the use by the Trust of
the name "Sierra Prime Income Fund" or any other name embodying the name
"Sierra", but only on condition and so long as (i) this Agreement shall remain
in full force, (ii) 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) Sierra Investment Advisors Corporation is the
Advisor of the Trust. No such name shall be used by 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 Advisor to the Trust to use the name
"Sierra" as part of a business or name is not exclusive of the right of the
Advisor itself to use, or to authorize others to use, the same; the Trust
acknowledges and agrees that as between the Advisor and the Trust, the Advisor
has the exclusive right so to use, or authorize others to use, said name, and
the Trust agrees to take such action as may reasonably be requested by the
Advisor to give full effect to the provisions of this section (including,
without limitation, consenting to such use of said name). Without limiting the
generality of the foregoing, the Trust agrees that, upon (i) any termination of
this Agreement by either party, (ii) the violation of any of its provisions by
the Trust or (iii) termination of this Investment Advisor Agreement between the
Advisor and the Trust, the Trust will, at the request of the Advisor, within six
months after such termination or violation, use its best efforts to change the
name of the Trust so as to eliminate all reference, if any, to the name "Sierra"
and will not thereafter transact any business in a name containing the name
"Sierra" in any form or combination whatsoever, or designate itself as the same
entity as or successor to an entity of such name, or otherwise use the name
"Sierra" or any other reference to the Advisor. Such covenants on the part of
the Trust shall be binding upon it, its trustees, offices, stockholders,
creditors and all other persons claiming under or through it.
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 executed on behalf of the Trustees of the
Trust, as Trustees, and not individually and that the obligations of this
instrument are not binding upon any of the Trustee or shareholders individually
but are binding only upon the assets and property of the Trust.
IN WITNESS WHEREOF, SIERRA PRIME INCOME TRUST and SIERRA INVESTMENT
ADVISORS CORPORATION have each caused this instrument to be signed in duplicate
on its behalf by its duly authorized representative, all as of the day and year
first above written.
SIERRA PRIME INCOME TRUST
By ______________________
Name:
Title:
SIERRA INVESTMENT ADVISORS CORPORATION
By _______________________
Name:
Title:
<PAGE>
Exhibit 99.6(A)
FORM OF
INVESTMENT SUB-ADVISORY AGREEMENT
February __, 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 or said amendments or restatements become
effective. The Sub-advisor will be entitled to rely on 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 Board of Trustees such periodic, regular and special
reports as the Board may personally 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 what 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 ???????? relationship with the
business, financial condition, audit standard's 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.
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 or 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.
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 Senior 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' 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 adviser to fiduciary and
other managed accounts and as investment advisor or sub-investment 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, 1989, 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.
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.
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 ADVISORY CORP.
By _________________________
Name:
Title:
<PAGE>
Exhibit 99.7
FORM OF DISTRIBUTION AGREEMENT
Sierra Investment Services Corporation
9301 Corbin Avenue
Northridge, CA 91328
Ladies and Gentlemen:
This is to confirm that, whereas the undersigned Sierra Prime Income
Fund (the "Trusts"), a business trust organized under the laws of the
Commonwealth of Massachusetts and registered as an open-end, management
investment company under the Investment Trust Act of 1940, as amended (the "1940
Act"), and Sierra Investment Services Corporation ("Sierra Services"), a
corporation organized under the laws of the Commonwealth of Massachusetts, have
entered into a Distribution Agreement dated as of ___________________, pursuant
to which the Trust and Sierra Services have agreed that Sierra Services shall
act as a distributor of the classes of Common Shares of beneficial interest of
the Trust.
Now, therefore, in consideration of the mutual promises and covenants
hereinafter contained, the Trust and Sierra Services do agree as follows:
I. Appointment
The Trust hereby appoints Sierra Services as agent of the Trust to act,
for the period and on the terms set forth in this Agreement, as a distributor of
for the Trust Shares covered by the Trust's registration statement (the
"Registration Statement"), prospectuses and statements of additional information
as in effect from time to time under the Securities Act of 1933, as amended (the
"1933 Act"), and the 1940 Act, and Sierra Services accepts such appointment and
agrees to render the services herein described for the compensation herein
provided.
As used in this Agreement, the terms "registration statement,"
"prospectus," and "statement of additional information" shall mean any
registration statement, prospectus and statement of additional information filed
by the Trust with the SEC and any amendments thereof and supplements thereto
which at any time shall have been filed with the SEC. "Prospectus" shall mean,
with respect to any Shares of the Trust at any time, the then-current prospectus
and statement of additional information relating to such Shares. The Trust and
Sierra Services acknowledge expressly that references in this Agreement to the
"term" or "period" of this Agreement shall include the term or period of this
Original Agreement.
II. Sales of Shares
A. Authorization. The Trust hereby authorizes Sierra Services to sell
Shares of the Trust, and Sierra Services agrees to use its best efforts to
solicit orders for the sale of such Shares, at such Shares' public offering
price, as determined in accordance with the Registration Statement. Sierra
Services shall have the right to order from the Trust the Shares of the Funds
needed, but not more than needed (correcting for any clerical errors or errors
of transmission), to fill such orders as are unconditional.
B. Selling Broker-Dealers and Other Agents. Sierra Services may, as
principal and on its own behalf, enter into agreements ("Dealer Agreements"), on
such terms and conditions as Sierra Services determines are not inconsistent
with this Agreement, with (a) any broker-dealer who is (i) registered under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), (ii) registered as
required under applicable state securities or blue sky laws, and (iii) a member
in good standing of the National Association of Securities Dealers, Inc.
("NASD"); and (b) any other person (as such term is defined in the 1934 Act)
that is not required, for purposes of effecting transactions in securities, to
be registered under the 1934 Act, but is registered as required under applicable
state securities or blue sky laws, authorizing such broker-dealers and other
persons (collectively, "Brokers") to act as agents in connection with the sale
of the Shares of the Trust (which may include accepting orders for the purchase
or redemption of Shares, responding to inquiries regarding the Trust or the
Funds, and performing other related functions). Expulsion or suspension from the
NASD of any Broker required to be registered under the 1934 Act shall
automatically terminate such Broker's Dealer Agreement with Sierra Services for
sales of Shares as of the effective date of such expulsion or suspension.
C. Refusal and Suspension of Sales. Each of Sierra Services and the
Trust reserves the right to refuse at any time or times (a) to sell any Shares
for any reason, and (b) to accept an order for Shares for any reason. Sierra
Services acknowledges specifically that, whenever in the judgment of the Trust's
officers such action is warranted for any reason, including, without limitation,
market, economic or political conditions, The Trust may decline to accept any
orders for, or make any sales of, any Shares until such time as those officers
deem it advisable to accept such orders and to make such sales.
No Shares shall be offered and no orders for the purchase or sale of
Shares under any provisions of this Agreement shall be accepted by the Trust (a)
if and so long as the effectiveness of the Registration Statement or any
necessary amendments thereto shall be suspended under any provisions of the 1933
Act, or (b) if and so long as a current prospectus as required by Section
5(b)(2) of the 1933 Act is not on file with the SEC.
III. Distribution Services and Expenses
A. Distribution Expenses. Sierra Services will bear all expenses in
connection with the performance of its services and the incurring of
distribution expenses under this Agreement. For purposes of this Agreement,
"distribution expenses" of Sierra Services shall mean all expenses borne by
Sierra Services or by any other person with which Sierra Services has an
agreement (including but not limited to Dealer Agreements) approved by the
Trust, which expenses represent payment for activities primarily intended to
result in the sale of Shares, including, but not limited to, the following
(provided, that "distribution expenses" shall not include any expenditures in
connection with services that Sierra Services or any other person have agreed to
bear or provide without reimbursement or compensation):
(1) payments made to, and expenses of, registered representatives
and other employees of Sierra Services or of Brokers;
(2) payments made to, and expenses of, persons providing support
services in connection with the distribution of Shares,
including but not limited to office space and equipment,
telephone facilities, answering routine inquiries regarding the
Trust, and processing transactions;
(3) costs relating to the formulation and implementation of
marketing and promotional activities, including but not limited
to direct mail promotions and television, radio, newspaper,
magazine and other mass media advertising, and costs involved in
preparing, printing and distributing advertising and sales
literature pertaining to the Trust;
(4) costs of printing and distributing Prospectuses and reports of
the Trust to prospective Shareholders;
(5) costs involved in obtaining whatever information, analyses and
reports with respect to marketing and promotional activities
that the Trust may, from time to time, deem advisable; and
(6) costs of financing any of the foregoing.
B. Quarterly Expense Reports. Sierra Services shall prepare and deliver
quarterly reports to the Treasurer of the Trust and to the advisor,
administrator and/or sub-administrator, showing distribution expenses incurred
pursuant to this Agreement and the relevant Plan (as defined in Section 8a of
this Agreement) and the purposes therefor, as well as any supplemental reports
as the Trustees, from time to time, may reasonably request.
C. Scope of Distribution Services. Distribution services rendered
pursuant to this Agreement with respect to any Share of the Trust shall be
deemed to be complete upon the issuance and sale of such Share.
D. Trust Expenses. Sierra Services shall not be liable to assume any
other expenses of the Trust, which other expenses may include without
limitation: investment advisory fees; charges and expenses of any registrar,
custodian or depositary appointed by the Trust for safekeeping of its cash,
portfolio securities, or other property, and any transfer, dividend or
accounting agent(s) appointed by the Trust; brokers' commissions chargeable to
the Trust in connection with its portfolio securities transactions; all taxes,
including securities issuance and transfer taxes; all costs and expenses in
connection with maintenance of registration of the Trust, any Fund and the
Shares with the SEC, various states, and other jurisdictions (including filing
and legal fees and disbursements of counsel); expenses of printing, including
typesetting, and distributing Prospectuses to the Trust's shareholders; all
expenses of shareholders' and Trustees' meetings and of preparing, printing and
mailing proxy statements and reports to shareholders; fees and expenses of
Trustees; all expenses incident to the payment of any dividend, distribution,
withdrawal or redemption, whether in Shares or in cash; charges and expenses of
any outside service used for pricing of Shares; charges and expenses of legal
counsel and independent accountants, in connection with any matter relating to
the Trust; membership dues of industry associations; interest payable on
borrowings; postage; insurance premiums on property or personnel (including
officers and Trustees) of the Trust that inure to its benefit; extraordinary
expenses (including but not limited to legal claims and liabilities and
litigation costs and any indemnification related thereto); and all other charges
and costs of operations unless otherwise explicitly provided herein.
IV. Compensation
The Distributor will receive no compensation from the Trust in
consideration of its services in connection with the distribution of Shares of
the Trust.
A. Early Withdrawal Charges. The Trust shall cause its transfer agent
(the "Transfer Agent") to withhold, from repurchase proceeds payable to holders
of Shares of the Funds, all early withdrawal sales charges properly payable by
such holders in accordance with the terms of the Prospectuses relating to such
Shares ("EWCs") and shall cause the Transfer Agent to pay such amounts over as
promptly as possible after the settlement date for each repurchase of such
Shares.
B. Other Services; Service Fee. Upon request of the Trust's Board of
Trustees, Sierra Services may, but shall be under no duty to, perform additional
services on behalf of the Trust, which services are not required by this
Agreement but may be performed by Sierra Services in conformity with applicable
law. Any such services will be performed on behalf of the Trust, and Sierra
Services may impose additional charges for such services, which charges may be
billed to the Trust and subject to examination by the Trust's independent
accountants. Sierra Services's payment or assumption of any expense of the Trust
that Sierra Services is not required to pay or assume under this Agreement shall
not relieve Sierra Services of any of its obligations to the Trust or obligate
Sierra Services to pay or assume any similar expense on any subsequent occasion.
Any shareholder services provided by Sierra Services to the Trust, which
services may include processing of shareholder transactions, responding to
inquiries from shareholders concerning the status of their accounts and the
operations of the Trust communicating with the Trust and its transfer agent on
behalf of such shareholders, or providing other shareholder services, nor for
any expenses associated with the provision of such shareholder services,
including office space and equipment, and telephone facilities, shall be
provided pursuant to a separate agreement.
C. Directed Payment; Allocable Portion Calculations. Sierra Services may
direct the Trust to pay any part or all of the EWCs payable to Sierra Services
in respect of any Shares directly to persons providing funds to Sierra Services
to cover or otherwise enable the incurring of expenses associated with
distribution services, and the Trust agrees to accept and to comply with such
direction. Sierra Services shall, at its own expense and not the expense of the
Trust, provide the Trust with any necessary calculations of Sierra Services's
Allocable Portion of any EWCs, and the Trust shall be entitled to rely
conclusively on such calculations, without prejudice to any claim it may have
concerning the accuracy of such calculations.
D. Maximum Charges. Notwithstanding anything to the contrary contained
in this Agreement, EWCs paid to Sierra Services by any class of shares of the
Trust shall not exceed the amount permitted by the Rules of Fair Practice of the
NASD ("NASD Rules"), as in effect from time to time, and the aggregate amount of
EWCs paid to Sierra Services by any class of shares of the Trust shall not
exceed _______(%) of the total issue price of such Shares plus interest thereon
from the date of issuance through the date of payment at the prime rate
(determined in accordance with the NASD Rules in effect from time to time) plus
one percent (1%) per annum.
V. Disclosure and Sales Materials
A. Trust Governing Documents. The Trust shall have furnished Sierra
Services with copies, properly certified or authenticated as Sierra Services may
reasonably request, of the following documents and of all amendments or
supplements thereto ("Governing Documents"):
(1) The Agreement and Declaration of Trust, as amended and in effect
as of the date of this Agreement (such Declaration of Trust, as
they may be amended from time to time hereafter, the
"Declaration of Trust");
(2) The Trust's Bylaws, as amended and in effect as of the date of
this Agreement (such Bylaws, as they may be amended from time to
time hereafter, the "Bylaws");
(3) Resolutions of the Trust's Board of Trustees authorizing the
appointment of Sierra Services as a Distributor of the Shares
and authorizing this Agreement as hereby amended and restated;
(4) The Trust's Notification of Registration filed pursuant to
Section 8(a) of the 1940 Act on Form N-8A under the 1940 Act, as
filed with the Securities and Exchange Commission (the "SEC") on
October 31, 1995;
(5) The Trust's registration statement on Form N-2 under the
Securities Act of 1933, as amended (the "1933 Act"), (File No.
33-27489) and under the 1940 Act as filed with the SEC on
October 31, 1995 relating to the Shares of the Fund, and all
amendments thereto;
(6) The most recent Prospectus relating to the Shares; and
(7) All documents, notices and reports filed with the SEC.
B. The Trust authorizes Sierra Services and any Broker with whom Sierra
Services has entered into Dealer Agreements to use, in connection with the sale
of Shares, any Prospectus furnished by the Trust from time to time. Sierra
Services shall not, and shall take reasonable steps to ensure that no Broker
will, give any information nor make any representations, concerning any aspect
of the Shares or the Trust to any persons or entity unless such information or
representations are contained in the Registration Statement and/or the pertinent
Prospectus, or are contained in sales or promotional literature approved by the
Trust. Sierra Services shall not use, and shall take reasonable steps to ensure
that no Broker will, use any sales promotion material or advertising that has
not been previously approved by the Trust.
VI. Duties of the Trust
A. The Trust agrees at its own expense to execute any and all documents,
to furnish any and all information and to take any other actions that may be
reasonably necessary in connection with (a) the registration of Shares under the
1933 Act and (b) the qualification, pursuant to state securities laws, of the
Shares for sale in those states that Sierra Services may designate.
B. Information Reports; Financial Data. The Trust shall furnish to
Sierra Services from time to time, for use in connection with the sale of the
Shares, such information reports with respect to the Trust and the Shares as
Sierra Services may reasonably request. Such reports shall be signed by officers
of the Trust duly authorized; the Trust warrants the statements contained in any
reports so signed to be true and correct. The Trust shall furnish to Sierra
Services, upon its request, (a) annual audits of the Trust's books and accounts
made by independent public accountants regularly retained by the Trust, (b)
semiannual unaudited financial statements pertaining to the Trust, (c) quarterly
earnings statements prepared by the Trust, (d) a monthly itemized list of the
securities in the portfolio of the Trust, (e) monthly balance sheets as soon as
practicable after the end of each month and (f) such additional information
regarding the Trust's financial condition as Sierra Services may reasonably
request from time to time.
VII. Compliance; Standard of Care
A. Compliance. In performing any activity as distributor for the Shares
pursuant to this Agreement, Sierra Services shall comply with:
(1) all applicable provisions of the 1940 Act and any rules and
regulations thereunder;
(2) all provisions of the Registration Statement relating to the
Trust;
(3) all provisions of the Trust's Governing Documents;
(4) all rules and regulations of the NASD and all other
self-regulatory organizations applicable to the sale of
investment company shares; and
(5) any other applicable provisions of federal and state law.
Sierra Services shall use its best efforts to maintain all required
licenses and registrations for itself as a broker or dealer, and for its
registered representatives or other associated persons, under the 1934 Act and
applicable state securities or blue sky laws. Sierra Services shall be
responsible for ensuring that each Broker and its representatives engaged in
selling Shares of the Trust shall be duly and appropriately licensed, registered
and otherwise qualified to do so under the 1934 Act and any applicable blue sky
laws of each state or other jurisdiction in which such Shares may be sold.
Sierra Services shall be responsible for ensuring that each Broker supervises
its representatives. Expulsion or suspension of Sierra Services from the NASD
shall automatically terminate this Agreement on the effective date of such
expulsion or suspension.
B. Direction of the Board. Any distribution activities undertaken by
Sierra Services pursuant to this Agreement or any other services undertaken by
Sierra Services on behalf of the Trust, shall at all times be subject to any
directives of the Board of Trustees of the Trust.
C. Standard of Care. In performing its duties under this Agreement,
Sierra Services shall be obligated to exercise care and diligence and to act in
good faith and to use its best efforts within reasonable limits in performing
all services provided for under this Agreement, but shall not be liable for any
act or omission not constituting Sierra Services's willful misfeasance, bad
faith or gross negligence, or Sierra Services's reckless disregard of its duties
under this Agreement.
VIII. Representations and Warranties
A. Registration Statements and Prospectuses. The Trust represents to
Sierra Services that all Registration Statements and Prospectuses filed by the
Trust with the SEC under the 1933 Act and the 1940 Act with respect to the
Shares are in conformity with the requirements of the 1933 Act, the 1940 Act and
the rules and regulations of the SEC thereunder. The Trust represents and
warrants to Sierra Services that any Registration Statement or Prospectus, when
it becomes effective, will include all statements required to be contained
therein in conformity with the 1933 Act, the 1940 Act and the rules and
regulations of the SEC; that all statements of fact contained in any
Registration Statement or Prospectus will be true and correct when such
Registration Statement or Prospectus becomes effective; and that no Registration
Statement nor any Prospectus, when the same shall become effective, will include
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading to a purchaser of Shares. Sierra Services may, but shall not be
obligated to, propose from time to time such amendment(s) to any Registration
Statement and such supplement(s) to any Prospectus as, in the light of future
developments, may, in the opinion of Sierra Services or its counsel, be
necessary or advisable. The Trust shall not file any amendment to any
Registration Statement or supplement to any Prospectus without giving Sierra
Services reasonable notice thereof in advance; provided, however, that nothing
contained in this Agreement shall in any way limit the Trust's right to file at
any time such amendment(s) to any Registration Statement and supplement(s) to
any Prospectus, of whatever character, as the Trust may deem advisable, such
right being in all respects absolute and unconditional.
B. Charter. The Trust represents that a copy of its Agreement and
Delcaration of Trust dated October 4, 1995, together with all amendments
thereto, is on file in the office of the Secretary of the Commonwealth of
Massachusetts and the office of the City Clerk of Boston, Massachusetts.
C. Authorization. Sierra Services represents to the Trust that it is
authorized to perform the services described herein.
D. NASD. Sierra Services represents to the Trust that it is a member in
good standing of the NASD.
IX. Indemnification
A. Indemnification by the Trust. The Trust agrees to indemnify, defend
and hold Sierra Services, its officers, directors, agents, employees, and any
person who controls Sierra Services within the meaning of Section 15 of the 1933
Act (Sierra Services and such persons, collectively, "Sierra Services
Indemnified Persons"), free and harmless from and against any and all claims,
demands, liabilities and expenses (including the cost of investigating or
defending such claims, demands or liabilities and any counsel fees incurred in
connection therewith) that any Sierra Services Indemnified Person may incur
under the 1933 Act, the 1940 Act or common law or otherwise, arising out of or
based upon any untrue statement (or alleged untrue statement) of a material fact
contained in any Registration Statement or Prospectus relating to Shares of the
Trust, or arising out of or based upon any omission (or alleged omission) to
state a material fact required to be stated in any Registration Statement or
Prospectus relating to Shares of the Trust, or necessary to make the statements
in such Registration Statement or Prospectus not misleading, or arising out of
or based upon the Trust's material breach of this Agreement; provided, however,
that the Trust's agreement to indemnify Sierra Services Indemnified Persons
shall not be deemed to cover any claims, demands, liabilities or expenses
arising out of or based upon any statements or representations made by Sierra
Services or its representatives or agents other than such statements and
representations as are contained in any Registration Statement or Prospectus and
in such financial and other statements regarding the Shares as are furnished to
Sierra Services pursuant to Sections 5a and 6b of this Agreement; provided
further, that the Trust's agreement to indemnify Sierra Services and the Trust's
representations and warranties hereinbefore set forth in Section 8 of this
Agreement shall not be deemed to cover any liability to the Trust or its
shareholders to which Sierra Services would otherwise be subject by reason of
Sierra Services's willful misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of Sierra Services's reckless disregard
of its obligations and duties under this Agreement; and provided further, that
this Section 9 shall apply to all acts or omissions by the parties hereto that
occur on or after the date first written above and the indemnification
provisions of this Agreement shall apply to all acts or omissions by the parties
hereto that occur prior to such date.
The Trust's agreement to indemnify Sierra Services Indemnified Persons
is expressly conditioned upon such Sierra Services Indemnified Person's
notifying the Trust, or causing the Trust to be notified, of any action brought
against such Sierra Services Indemnified Person, such notification to be given
by letter, telegram, telecopy or facsimile addressed to the Trust at its
principal office, within ten (10) days after the summons or other first legal
process shall be served; provided that the failure to provide such notification
within such time limit shall limit the Trust's obligation to indemnify such
persons only to the extent such failure causes prejudice to the interests of the
Trust with respect to such action. The failure so to notify the Trust of any
such action shall not relieve the Trust from any liability that the Trust may
have to the person against whom such action is brought by reason of any such
untrue (or alleged untrue) statement or omission (or alleged omission) otherwise
than on account of the Trust's indemnity agreement contained in this Section 9a.
The Trust's indemnification agreement contained in this Section 9a and the
Trust's representations and warranties in this Agreement shall remain operative
and in full force and effect regardless of any investigation made by or on
behalf of any Sierra Services Indemnified Person, and shall survive the delivery
of any Shares and, to the extent permitted by law, the termination of this
Agreement. This agreement of indemnity will inure exclusively to the benefit of
Sierra Services Indemnified Persons and their respective estates or successors,
as applicable.
B. Indemnification by Sierra Services. Sierra Services agrees to
indemnify, defend and hold the Trust, its officers, directors, agents,
employees, and any person who controls the Trust within the meaning of Section
15 of the 1933 Act (the Trust and such persons, collectively, "Trust Indemnified
Persons"), free and harmless from and against any and all claims, demands,
liabilities and expenses (including the costs of investigating or defending such
claims, demands or liabilities and any counsel fees incurred in connection
therewith) that any Trust Indemnified Person may incur under the 1933 Act, the
1940 Act or common law or otherwise, but only to the extent that such liability
or expense incurred by such Trust Indemnified Person shall arise out of or be
based upon (a) any unauthorized sales literature, advertisements, information,
statements or representations or (b) any untrue statement (or alleged untrue
statement) of a material fact contained in information furnished in writing by
Sierra Services to the Trust and used in the answers to any of the items of the
Registration Statement or in the corresponding statements made in any
Prospectus, or shall arise out of or be based upon any omission (or alleged
omission) to state a material fact in connection with such information furnished
in writing by Sierra Services to the Trust and required to be stated in such
answers or necessary to make such information not misleading, or shall arise out
of or be based upon Sierra Services's material breach of this Agreement;
provided, that this Section 9 shall apply to all acts or omissions by the
parties hereto that occur on or after the date first written above and the
indemnification provisions of the Original Agreement shall apply to all acts or
omissions by the parties hereto that occur prior to such date.
Sierra Services's agreement to indemnify Trust Indemnified Persons is
expressly conditioned upon such Trust Indemnified Person's notifying Sierra
Services, or causing Sierra Services to be notified, of any action brought
against such Trust Indemnified Person, such notification to be given by letter,
telegram, telecopy or facsimile addressed to Sierra Services at its principal
office, within ten (10) days after the summons or other first legal process
shall be served; provided that the failure to provide such notification within
such time limit shall limit Sierra Services's obligation to indemnify such
persons only to the extent such failure causes prejudice to the interests of
Sierra Services with respect to such action. The failure so to notify Sierra
Services of any such action shall not relieve Sierra Services from any liability
that Sierra Services may have to the Trust Indemnified Person by reason of any
such untrue (or alleged untrue) statement or omission (or alleged omission)
otherwise than on account of Sierra Services's indemnity agreement contained in
this Section 9b. Sierra Services's indemnification agreement contained in this
Section 9b and its representations and warranties in this Agreement shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any Trust Indemnified Person, and shall survive the delivery of
any Shares and, to the extent permitted by law, the termination of this
Agreement. This agreement of indemnity will inure exclusively to the benefit of
Trust Indemnified Persons and their respective estates or successors, as
applicable.
C. Assumption of Defense. An indemnifying party will be entitled to
assume the defense of any suit brought to enforce any such claim, demand or
liability, but, in such case, such defense shall be conducted by counsel of good
standing chosen by the indemnifying party and approved by the indemnified party
(provided that such counsel shall not, except with the consent of an indemnified
party that is an Sierra Services Indemnified Person, be counsel to any
investment fund of the Trust); provided that the indemnified party shall be
entitled to conduct its own defense with counsel selected by it if such
indemnified party is advised by counsel that there may be a conflict of interest
between the indemnified party and the indemnifying party with respect to such
defense. In the event the indemnifying party elects to assume the defense of any
such suit and retain counsel of good standing approved by the indemnified party,
the defendant or defendants in such suit shall bear the fees and expenses of any
additional counsel retained by any of them; but in case the indemnifying party
does not elect or is not permitted to assume the defense of any such suit, or in
case the indemnified party does not approve of counsel chosen by the
indemnifying party, the indemnifying party will reimburse the indemnified party
named as defendant or defendants in such suit, for the fees and expenses of any
counsel retained by such indemnified party.
D. Notice. Each of Sierra Services and the Trust agrees to notify the
other promptly of the commencement of any litigation or proceedings against it
or any of its officers or directors or Trustees, as applicable, in connection
with the issuance and sale of any Shares.
E. Contribution. If the indemnification provided for in this Section
shall for any reason be unavailable to or insufficient to hold harmless a party
indemnified hereunder in respect of any claim, demand, liability or expense, or
any action in respect thereof, referred to therein, then each indemnifying party
shall, in lieu of indemnifying such indemnified party, contribute to the amount
paid or payable by such indemnified party as a result of such claim, demand,
liability or expense, or action in respect thereof, (a) in such proportion as
shall be appropriate to reflect the relative benefits received by the Trust on
the one hand and Sierra Services on the other from the offering of the Shares or
(b) if the allocation provided by clause (a) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (a) above but also the relative fault of
the Trust (and its agents other than Sierra Services) on the one hand and Sierra
Services on the other with respect to the statements or omissions which resulted
in such claim, demand, liability or expense, or action in respect thereof, as
well as any other relevant equitable considerations. The relative benefits
received by the Trust on the one hand and Sierra Services on the other with
respect to the offering of the Shares shall be deemed to be in the same
proportion as the total net proceeds from the offering of the Shares purchased
under this agreement (before deducting expenses) received by the Trust bear to
the total net underwriting discounts and commissions received by Sierra Services
with respect to the Shares purchased under this Agreement and retained by Sierra
Services after payments to the selling agents retained by it. The relative fault
shall be determined by reference to whether the untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a material
fact relates to information supplied by the Trust (or any of its agents other
than Sierra Services) or by Sierra Services, the intent of the parties and their
relative knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Trust and Sierra Services agree that it would
not be just and equitable if contributions pursuant to this Section were to be
determined by pro rata allocation or by any other method of allocation which
does not take into account the equitable considerations referred to herein. The
amount paid or payable by an indemnified party as a result of the claim, demand,
liability or expense, or action in respect thereof, referred to above in this
Section shall be deemed to include, for purposes of this Section, any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section, Sierra Services shall not be required to contribute
any amount in excess of the amount by which the total net underwriting discounts
and commissions received by Sierra Services with respect to the Shares purchased
under this Agreement and retained by Sierra Services after payments to the
selling agents retained by it exceed the amount of any damages which Sierra
Services has otherwise paid or become liable to pay by reason of any untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933
Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation.
X. Notice to Sierra Services.
a. The Trust agrees to advise Sierra Services immediately in writing:
(1) of any request by the SEC for amendments to the Registration
Statement or Prospectus then in effect or for additional
information;
(2) in the event of the issuance by the SEC of any stop order
suspending the effectiveness of the Registration Statement or
Prospectus then in effect or the initiation of any proceeding
for that purpose;
(3) of the happening of any event that makes untrue any statement of
a material fact made in the Registration Statement or Prospectus
then in effect or that requires the making of a change in such
Registration Statement or Prospectus in order to make the
statements therein not misleading; and
(4) of all actions of the SEC with respect to any amendment to any
Registration Statement or Prospectus that may from time to time
be filed with the SEC.
XI. Term of Agreement.
a. This Agreement shall become effective as of the date first set forth
above, shall remain in effect for an initial period of two years, and shall
continue thereafter from year to year for so long as such continuance is
specifically approved at least annually by
(1) the Trust's Board of Trustees or a vote of a "majority of the
outstanding voting securities" (as defined in the 1940 Act) of
the Trust; and
(2) a vote of a majority of the Trustees who are not "interested
persons" (as defined in the 1940 Act) of the Trust and who have
no direct or indirect financial interest in the operation of the
Plan, in this Agreement or any other agreement related to the
Plan (the "Qualified Trustees"), such vote cast in person at a
meeting called for the purpose of the voting on such approval.
XII. Termination.
A. Termination on Assignment. This Agreement shall terminate
automatically in the event of its "assignment" (as defined in the 1940 Act), it
being understood that this Agreement has been approved by the Trustees,
including the Qualified Trustees. Sierra Services agrees to notify the Trust of
any circumstances that might result in this Agreement being deemed to be
assigned.
B. Voluntary Termination. The Trust may terminate this Agreement with
respect to the Trust, or in its entirety, without penalty, on 60 days' written
notice to Sierra Services, by vote of a majority of the Qualified Trustees or by
vote of a "majority of the outstanding voting securities" of the Trust, as the
case may be. Sierra Services may terminate this Agreement on 90 days' written
notice to the Trust. Termination of this Agreement with respect to any class of
shares of the Trust shall not cause this Agreement to terminate with respect to
any other class of shares of such Trust. Notice of termination as provided for
in this Section may be waived by either party, such waiver to be in writing.
XIII. Miscellaneous.
A. Non-Exclusivity. The Trust recognizes that Sierra Services and its
affiliates shall be free to render distribution or other services to others
(including other investment companies) and to engage in other activities. The
Trust agrees that the directors, officers and employees of Sierra Services shall
not be prohibited by reason of this Agreement from engaging in any other
business activity or from rendering services to any other person, or from
serving as partners, directors, trustees or officers of any other firm or
corporation, including the Trust and other investment companies. Sierra Services
acknowledges that its appointment as distributor pursuant to this Agreement is
not exclusive, and that the Trust may appoint one or more other persons to act
as distributor for the Shares of one or more Funds.
B. Independent Contractor. Sierra Services and any Broker shall be
independent contractors and none of them nor any of their directors, officers or
employees shall, as such, be deemed employees of the Trust.
C. Notices. Any notices under this Agreement shall be in writing, mailed
postage paid or sent by telegram, telecopy, or facsimile to the other party at
such address as such other party may designate from time to time for the receipt
of such notice.
D. Integration; Amendment; Counterparts; Governing Law.
This Agreement constitutes the entire agreement between the parties
hereto with respect to the subject matter hereof, and may not be modified,
amended, or waived except by a written instrument duly executed by the party
against whom such modification, amendment, or waiver is sought to be enforced.
If any provisions of this Agreement shall be held or made invalid by a court
decision, statute rule or otherwise, the remainder of this Agreement shall not
be affected thereby.
This Agreement shall be subject to the provisions of the 1940 Act and
the 1934 Act and the rules, regulations and rulings thereunder, and of the
applicable rules and regulations of the NASD, from time to time in effect, and
the terms hereof shall be interpreted and construed in accordance therewith.
This Agreement may be executed in any number of counterparts, each of
which will be deemed an original, but all of which together will constitute one
and the same instrument.
This Agreement shall be governed in accordance with the internal
substantive laws of the Commonwealth of Massachusetts.
It is expressly agreed that the obligations of the Trust hereunder shall
not be binding upon any of the Trustees, shareholders, nominees, officers,
agents or employees of the Trust personally, but bind only the trust property of
the Trust, as provided in the Trust Agreement. The execution and delivery of
this Agreement have been authorized by the Trustees and effected by an
authorized officer of the Trust, acting as such, and neither such authorization
nor such execution and delivery shall be deemed to have been made by any Trustee
or officer individually or to impose any liability on any of them personally,
but shall bind only the trust property of the Trust as provided in the Trust
Agreement.
Please confirm that the foregoing accurately sets forth our agreement by
indicating your acceptance hereof at the place below indicated, whereupon it
shall become a binding agreement between us as of the date first set forth
above.
Very truly yours,
Sierra Prime Income Fund
By _____________________
Name: F. Brian Cerini
Title: President
ACCEPTED:
Sierra Investment Services, Inc.
By _____________________
Name:
Title: Authorized Officer
<PAGE>
Exhibit 99.7(A)
FORM OF BROKER/DEALER AGREEMENT
Sierra Investment Services Corporation
9301 Corbin Avenue, Suite 333
Northridge, California 91324
We desire to enter into an Agreement with you for the sale of units of
beneficial interest of the Sierra Prime Income Fund that are now or hereafter
available for sale to our customer. You are the principal underwriter (as such
term is defined in the Investment Company Act of 1940, as amended) of the
offering of shares of the Trust and the agent for the continuous distribution of
such shares. As used herein the term "Prospectus" means the prospectuses and,
unless the context otherwise requires, related statement of additional
information (the "Statement of Additional Information") incorporated therein by
reference, as the same are amended and supplemented from time to time for the
Trust.
In consideration for the mutual covenants contained herein, it is hereby
agreed that our respective rights and obligations shall be as follows:
1. Customers of ours who purchase Fund shares are for all purposes our
customers and not customers of the Trust. We shall be responsible
for opening, approving and monitoring customer accounts and for the
review and supervision of these accounts, all in accordance with the
rules of the Securities and Exchange Commission ("SEC") and National
Association of Securities Dealers, Inc. (the "NASD"). In no
transaction involving shares shall we have any authority to act as
agent for the Trust or for you.
2. All orders for the purchase of any Trust share shall be executed at
the then current public offering price per share (i.e., the net
asset value per share plus the applicable sales load, if any) and
all orders for the redemption of any Trust shares shall be executed
at the net asset value per share, in each case as described in the
Prospectus. The minimum initial purchase order shall be as set forth
in the Prospectus. The Trust reserves the right to reject any
purchase order. Unless otherwise mutually agreed in writing, each
transaction shall be promptly confirmed in writing to the customer
on a fully disclosed basis and a copy of each confirmation shall be
sent simultaneously to us. We agree that upon receipt of duplicate
confirmations we will examine the same and promptly notify the Trust
of any errors or discrepancies which we discover and shall promptly
bring to the attention of the Trust any errors in such confirmations
claimed by our customers. The Trust reserves the right at its
discretion and without notice, to suspend the sale of shares or
withdraw entirely the sale of shares.
3. In ordering shares of the Trust, we shall rely solely and
conclusively on the representations contained in the Prospectus. We
agree that we shall not offer or sell shares of the Trust or of any
series of the Trust, except in compliance with all applicable
federal and state securities laws and the rules and regulations of
applicable regulatory agencies or authorities. In connection with
offers to sell and sales of shares of the Trust, we agree to deliver
or cause to be delivered to each person to whom any such offer or
sale is made, at or prior to the time of such offer or sale, a copy
of the Prospectus, and upon request, the Statement of Additional
Information, of the Trust and the calls of shares involved. We
further agree to obtain for each customer to whom we sell shares any
taxpayer identification number certification required under Section
3406 of the Internal Revenue Code of 1986, as amended (the "Code"),
and the regulations promulgated thereunder, and to provide you or
your designed with timely written notice of any failure to obtain
such taxpayer identification number certification in order to enable
the implementation of any required backup withholding in accordance
with Section 3406 of the Code and the regulation thereunder. Unless
otherwise mutually agreed in writing, you shall deliver or cause to
be delivered to each customer who purchases shares through us copies
of all annual interim reports, proxy solicitation materials and any
such other information and materials relating to such Trust and
prepared by or on behalf of you, the Trust or its investment
adviser, investment sub-adviser, custodian, transfer agent or
dividend disbursing agent for distribution to such customer. You
agree to supply us with copies of the Prospectus, Statement of
Additional Information, annual reports, interim reports, proxy
solicitation materials and any such other information and materials
relating to the shares of the Trust in reasonable quantities upon
request. We acknowledge that any materials or information that you
furnish to us, other than Prospectuses, annual and interim reports
to shareholders and proxy solicitation materials prepared by the
Trust, are your sole responsibility and not the responsibility of
the Trust.
4. We shall not make any representation concerning any shares or series
of the Trust shares other than those contained in the Prospectus or
in any promotional materials or sales literature furnished to us by
you or the Company. We shall not furnish or cause to be furnished to
any person or display or publish any information or materials
relating to Trust shares (including, without limitation, promotional
materials and sales literature, advertisements, press releases,
announcements, statements, posters, signs or other similar
materials), except such information and materials as may be
furnished to us by you or the Trust, and such other information and
materials as may be approved in writing by you.
5. In determining the amount of any dealer allowance or sales
commission payable to us hereunder, you reserve the right to exclude
any sales which you reasonably determine are not made in accordance
with the terms of the applicable Prospectus and the provisions of
this Agreement. Unless at the time of transmitting an order we
advise you or the transfer agent for the Trust involved (the
"Transfer Agent") to the contrary, the shares ordered will be deemed
to be the total holdings of the specified investor.
6. (a) In accordance with the terms of the Prospectus of the Trust sold
with a sales load at the then current public offering price per
share applicable to the total value (based on the higher of current
net asset value or the public offering price originally paid) of (i)
current purchases plus (ii) shares of such Trust (and any other fund
of the Sierra Trust Funds as may be permitted by the applicable
Prospectus that are already beneficially owned at the time purchased
by the customer on which a sales load has been paid. Certain
purchases made by a customer and certain other persons (for example,
a customer's spouse and minor children) as set forth from time to
time in the applicable Prospectus may be combined for purposes of
qualifying for a reduced sales charge. In each case where a reduced
sales load is applicable, we agree to furnish to the Transfer Agent
sufficient information to permit confirmation of qualification for a
reduced sales load, and acceptance of the purchase order is subject
to such confirmation. Reduced sales charges may be modified or
terminated at any time at the sole discretion of the Trust.
(b) We acknowledge that certain classes of investors may be entitled
to purchase sales at net asset value without a sales load as from
time to time provided in the applicable Prospectus.
(c) We agree to advise you promptly at your request as to the amount
of any and all sales by us qualifying for a reduced sales load or no
sales load.
(d) Exchanges (the investment of the proceeds from the liquidation
of shares of the Trust or series of the Trust in the shares of
another Trust or class of a Fund and vice-versa) shall, where
available, be made in accordance with the terms of each applicable
Prospectus.
7. The procedures relating to orders and the handling thereof will be
subject to the terms of the Prospectus of the Trust involved and
instructions received by us from you or the Transfer Agent from time
to time. No conditional order will be accepted. We agree that
purchase orders placed by us will be made only for the purpose of
covering purchase orders already received from our customers and
that we will not make purchases for any other securities dealer or
broker. Furthermore, we shall place purchase orders from customers
with the Trust immediately and shall not withhold the placement of
such orders so as to profit ourselves; provided, however, that the
foregoing shall not prevent the purchase of shares of any Trust by
us for our own bona fide investment. We agree that: (a) we shall not
effect any transactions (including, without limitation, any purchase
and redemptions) in any Trust shares registered in the name of, or
beneficially owned by, any customer unless such customer has granted
us full right, power and authority to effect such transactions on
his or her behalf, and (b) you, the Trust, each Transfer Agent and
your and their respective officers, directors or trustees, agents,
employees and affiliates shall not be liable for, and shall be fully
indemnified and held harmless by us from and against, any and all
claims, demands, liabilities and expenses (including, without
limitation, reasonable attorney's fees) which may be incurred by you
or any of the foregoing persons entitled to indemnification from us
hereunder arising out of or in connection with the execution of any
transactions in Trust shares registered in the name of, or
beneficially owed by, any customer in reliance upon any oral or
written instructions believed to be genuine and to have been given
by or on behalf of us. The indemnification agreement contained in
this Paragraph 7 shall survive the termination of this Agreement.
8. (a) We agree that payment for orders from us for the purchase of
Trust shares will be made in accordance with the terms of the
Prospectus. On or before the settlement date of each purchase order
for shares of any Trust, we shall either (1) remit to an account
designated by you with the Transfer Agent an amount equal to the
then current public offering price of such shares being purchased
less our dealer allowance, if any, with respect to such purchase
order as determined by you in accordance with the terms of the
applicable Prospectus, or (2) remit to an account designated by you
with the Transfer Agent an amount equal to the then current public
offering price of such shares being purchase order as determined by
you in accordance with the terms of the applicable Prospectus, in
which case our dealer allowance, if any, shall be payable to us on
at least a monthly basis. If payment for any purchase order is not
received in accordance with the terms of the applicable Prospectus,
you reserve the right, without notice, to cancel the sale and to
hold us responsible for any loss sustained as a result thereof.
(b) If any shares sold under the terms of this Agreement are sold
with a sales load and are repurchased for the account of a Trust or
are tendered for repurchase within seven (7) business days after
confirmation of our purchase order for such shares: (i) we shall
forthwith refund to you the full dealer allowance received by us on
the sale; and (ii) you shall forthwith pay to the Trust your portion
of the sales load on the sale which had been retained by you, if
any, and shall also pay to the Company the amount refunded by us.
9. We hereby represent and warrant that: (a) we are a corporation,
partnership or other entity duly organized and validly existing in
good standing under the laws of the jurisdiction in which we are
organized; (b) the execution and delivery of this Agreement and the
performance of the transactions contemplated hereby have been duly
authorized by all necessary action and all other authorizations and
approvals (if any) required for our lawful execution and delivery of
this Agreement and our performance hereunder have been obtained; and
(c) upon execution and delivery by us, and assuming due and valid
execution and delivery by you, this Agreement will constitute a
valid and binding agreement, enforceable against us in accordance
with its terms.
10. We further represent and warrant that we are a member of NASD and,
with respect to any sales in the United States, we agree to abide by
all of the rules and regulations of the NASD, including, without
limitation, its Rules of Fair Practice. We agree to comply with all
applicable federal and state laws, rules and regulations. You agree
to inform us, upon request, as to the states in which you believe
the shares of the Trust have been qualified for sale under, or
exempt from the requirements of, the respective securities laws of
such states, but you shall have no obligation or responsibility to
make shares available for sale to our customers in any jurisdiction.
We agree to notify you immediately in the event of our expulsion or
suspension from the NASD. Our expulsion from the NASD will
automatically terminate this Agreement immediately without notice.
Our suspension from the NASD will terminate this Agreement effective
immediately upon written notice of termination to us.
11. The names and addresses and other information concerning our
customers are and shall remain our sole property, and neither you
nor your affiliates shall use such name, address or other
information for any purpose except in connection with the
performance of your duties and responsibilities hereunder and except
for servicing and informational mailings relating to the Trust.
Notwithstanding the foregoing, this Paragraph 11 shall not prohibit
you or any of your affiliates from utilizing for any purpose the
names, addresses or other information concerning any of our
customers if such names, addresses or other information are obtained
in any manner other than from us pursuant to this Agreement. The
provisions of this Paragraph 11 shall survive the termination of
this Agreement.
12. Neither this Agreement nor the performance of the services of the
respective parties hereunder shall be considered to constitute an
exclusive arrangement, or to create a partnership, association or
joint venture between you and us. Neither party hereto shall be, act
as, or represent itself as, the agent or representative of the
other, nor shall either party have the right or authority to assume,
create or incur any liability or any obligation of any kind, express
or implied, against or in the name of, or on behalf of, the other
party. This Agreement is not intended to, and shall not, create any
rights against either party hereto by any third party solely on
account of this Agreement. Neither party hereto shall use the name
of the other party in any manner without the other party's prior
written consent, except as required by any applicable federal or
state law, rule or regulation, and except pursuant to any
promotional programs mutually agreed upon in writing by the parties
hereto.
13. Except as otherwise specifically provided herein, all notices
required or permitted to be given pursuant to this Agreement shall
be given in writing and delivered by personal delivery (with
confirming copy by mail as provided herein). Unless otherwise
notified in writing, all notices to you shall be given or sent to
you at your office, located at 9301 Corbin Avenue, Suite 333,
Northridge, California 91324, and all notices to us shall be given
or sent to us at our address shown below.
14. This Agreement shall become effective only when accepted and signed
by you, and may be terminated at any time by either party hereto
upon fifteen (15) days prior written notice to the other party. This
Agreement may be amended only by a written instrument signed by both
of the parties hereto and may not be assigned by either party
without the prior written consent of the other party. This Agreement
constitutes the entire agreement and understanding between the
parties hereto relating to the subject matter hereof and supersedes
any and all prior agreements between the parties relating to said
subject matter.
<PAGE>
15. This Agreement shall be governed by and construed in accordance with
the internal laws of the State of California, without giving effect
to principles of conflicts of laws.
Very truly yours,
Name of Broker/Dealer: _____________________
(Please print or type)
Address: ___________________________________
___________________________________
Telephone Number: __________________________
Date: __________ By: _______________________
Authorized Officer
________________________
(Please print or type)
<PAGE>
NOTE: Please sign and return both copies of this Agreement to Sierra Investment
Services Corporation. Upon acceptance, one countersigned copy will be
returned to you for your files.
Accepted:
SIERRA INVESTMENT SERVICES CORPORATION
9301 Corbin Avenue, Suite 333
Northridge, California 91324
Date: __________ By: _______________________
Authorized Officer
Exhibit 99.9
CUSTODIAN CONTRACT
Between
SIERRA PRIME INCOME TRUST
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
CUSTODIAN CONTRACT
This Contract between Sierra Prime Income Trust, a business trust
organized and existing under the laws of , having its principal place of
business at , hereinafter called the "Fund", and State Street
Bank and Trust Company, a Massachusetts trust company, having its principal
place of business at 225 Franklin Street, Boston, Massachusetts, 02110,
hereinafter called the "Custodian".
WHEREAS, the Fund now owns or may hereafter acquire certain securities
including but not limited to commercial loans and debt securities (such
commercial loans and debt securities, as defined below, are collectively
referred to as the Senior Loans) or now has or may hereafter acquire a
participating interest in such Senior Loans; and
WHEREAS, with respect to such Senior Loans, the Fund has or shall have
the right to receive payments (together with investment earnings received
hereunder, the "Payments") under and in accordance with the terms and provisions
of the documents, certificates and such other instruments (hereafter
collectively referred to as the "Financing Documents") as may evidence the Loans
or may evidence the Fund's participation in the Senior Loans, as applicable; and
WHEREAS, the Fund desires to appoint the Custodian as its agent to
hold, in safekeeping, all securities, including but not limited to Senior Loans
and the related Financing Documents and to receive, deposit, invest and disburse
the Payments, all as more fully hereafter provided, and the Custodian is willing
to accept such appointment, subject to the terms and provisions hereof.
WITNESSETH: That in consideration of the mutual covenants and
agreements hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
The Fund hereby employs the Custodian as the custodian of its assets
pursuant to the provisions of the Fund's Declaration of Trust as amended and
restated from time to time and hereby appoints the Custodian as its agent (a) to
hold in safekeeping all of its securities (which term as used herein shall
include interests in Senior Loans as defined in the Fund's then current
Prospectus or Statement of Additional Information), (b) to hold in safekeeping
the Financing Documents which the Fund may deliver, or may cause to be
delivered, to the Custodian from time to time, and (c) to receive, deposit and
invest the Payments as hereafter provided.
The Fund agrees to deliver to the Custodian all securities and cash
owned by it, and all payments of income, payments of principal or capital
distributions received by it with respect to all securities owned by the Fund
from time to time, and the cash consideration received by it for such new or
treasury shares of beneficial interest, ("Shares") of the Fund as may be issued
or sold from time to time. With respect to each Senior Loan to be held by the
custodian hereunder in accordance with the provisions hereof, the Fund shall on
a timely basis (a) cause the Financing Documents evidencing such Senior Loan to
be delivered to the Custodian, (b) include with such Financing Documents an
amortization schedule of payments (the "Payment Schedule") identifying the
amount and due dates of scheduled principal payments, (c) provide for the direct
payment of the Payments (or the netting thereof) to the Custodian pursuant to
wire instructions, (d) deliver market price changes or a confirmation of no
market price changes with respect to the Senior Loans daily to the Custodian,
and (e) provide any other information with respect to the Senior Loans as the
Custodian shall reasonably request. The Custodian shall not be responsible for
any property of the Fund held or received by the Fund and not delivered to the
Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Article
3), the Custodian shall from time to time employ one or more sub-custodians, but
only in accordance with an applicable vote by the Board of Trustees of the Fund,
and provided that the Custodian shall have no more or less responsibility or
liability to the Fund on account of any actions or omissions of any
sub-custodian so employed than any such sub-custodian has to the Custodian.
2. Duties of the Custodian with Respect to Property of the Fund Held By the
Custodian
2.1 Holding Securities. The Custodian shall hold and physically segregate for
the account of the Fund all non-cash property, including all agreements
governing, among other things, the making, guarantee, repayment or security
for all of the Fund's interests in Senior Loans, any documents or
instruments evidencing collateral relating to the Senior Loans which may
become available to the Fund in connection with a default of a Senior Loan
and all other including all securities owned by the Fund, other than (a)
securities which are maintained pursuant to Section 2.10 in a clearing
agency which acts as a securities depository or in a book-entry system
authorized by the U.S. Department of the Treasury, collectively referred to
herein as "Securities System" and (b) commercial paper of an issuer for
which State Street Bank and Trust Company acts as issuing and paying agent
("Direct Paper") which is deposited and/or maintained in the Direct Paper
System of the Custodian pursuant to Section 2.11.
2.2 Delivery of Securities. The Custodian shall release and deliver securities
owned by the Fund held by the Custodian or in a Securities System account
of the Custodian or in the Custodian's Direct Paper book entry system
account ("Direct Paper System Account") only upon receipt of Proper
Instructions, which may be continuing instructions when deemed appropriate
by the parties, and only in the following cases:
1) Upon sale of such securities for the account of the Fund and receipt of
payment therefor;
2) Upon the receipt of payment in connection with any repurchase agreement
related to such securities entered into by the Fund;
3) In the case of a sale effected through a Securities System, in
accordance with the provisions of Section 2.10 hereof;
4) To the depository agent in connection with tender or other similar
offers for securities of the Fund;
5) To the issuer thereof or its agent when such securities are called,
redeemed, retired or otherwise become payable; provided that, in any
such case, the cash or other consideration is to be delivered to the
Custodian;
6) To the issuer thereof, or its agent, for transfer into the name of the
Fund or into the name of any nominee or nominees of the Custodian or
into the name or nominee name of any agent appointed pursuant to
Section 2.9 or into the name or nominee name of any sub-custodian
appointed pursuant to Article 1; or for exchange for a different number
of bonds, certificates or other evidence representing the same
aggregate face amount or number of units; provided that, in any such
case, the new securities are to be delivered to the Custodian;
7) Upon the sale of such securities for the account of the Fund, to the
broker or its clearing agent, against a receipt, for examination in
accordance with "street delivery" custom; provided that in any such
case, the Custodian shall have no responsibility or liability for any
loss arising from the delivery of such securities prior to receiving
payment for such securities except as may arise from the Custodian's
own negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment of the
securities of the issuer of such securities, or pursuant to provisions
for conversion contained in such securities, or pursuant to any deposit
agreement; provided that, in any such case, the new securities and
cash, if any, are to be delivered to the Custodian;
9) In the case of warrants, rights or similar securities, the surrender
thereof in the exercise of such warrants, rights or similar securities
or the surrender of interim receipts or temporary securities for
definitive securities; provided that, in any such case, the new
securities and cash, if any, are to be delivered to the Custodian;
10) For delivery in connection with any loans of securities made by the
Fund, but only against receipt of adequate collateral as agreed upon
from time to time by the Custodian and the Fund, which may be in the
form of cash or obligations issued by the United States government, its
agencies or instrumentalities, except that in connection with any loans
for which collateral is to be credited to the Custodian's account in
the book-entry system authorized by the U.S. Department of the
Treasury, the Custodian will not be held liable or responsible for the
delivery of securities owned by the Fund prior to the receipt of such
collateral;
11) For delivery as security in connection with any borrowings by the
Fund requiring a pledge of assets by the Fund, but only against receipt
of amounts borrowed;
12) For delivery in accordance with the provisions of any agreement among
the Fund, the Custodian and a broker-dealer registered under the
Securities Exchange Act of 1934 (the "Exchange Act") and a member of
The National Association of Securities Dealers, Inc. ("NASD"), relating
to compliance with the rules of The Options Clearing Corporation and of
any registered national securities exchange, or of any similar
organization or organizations, regarding escrow or other arrangements
in connection with transactions by the Fund;
13) For delivery in accordance with the provisions of any agreement among
the Fund, the Custodian, and a Futures Commission Merchant registered
under the Commodity Exchange Act, relating to compliance with the rules
of the Commodity Futures Trading Commission and/or any Contract Market,
or any similar organization or organizations, regarding account
deposits in connection with transactions by the Fund; and
14) For any other proper corporate purpose, but only upon receipt of, in
addition to Proper Instructions, a certified copy of a resolution of
the Board of Trustees or of the Executive Committee signed by an
officer and certified by the Secretary or an Assistant Secretary,
specifying the securities to be delivered, setting forth the purpose
for which such delivery is to be made, declaring such purpose to be a
proper corporate purpose, and naming the person or persons to whom
delivery of such securities shall be made.
2.3 Registration of Securities. Securities held by the Custodian (other than
bearer securities) shall be registered in the name of the Fund or in the
name of any nominee of the Fund or of any nominee of the Custodian which
nominee shall be assigned exclusively to the Fund, unless the Fund has
authorized in writing the appointment of a nominee to be used in common
with other registered investment companies having the same investment
adviser as the Fund, or in the name or nominee name of any agent appointed
pursuant to Section 2.9 or in the name or nominee name of any sub-custodian
appointed pursuant to Article 1. All securities accepted by the Custodian
on behalf of the Fund under the terms of this Contract shall be in "street
name" or other good delivery form. If, however, the Fund directs the
Custodian to maintain securities in "street name", the Custodian shall
utilize its best efforts only to timely collect income due the Fund on such
securities and to notify the Fund on a best efforts basis only of relevant
corporate actions including, without limitation, pendency of calls,
maturities, tender or exchange offers.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the name of the Fund, subject only to draft or order
by the Custodian acting pursuant to the terms of this Contract, and shall
hold in such account or accounts, subject to the provisions hereof, all
cash received by it from or for the account of the Fund, other than cash
maintained by the Fund in a bank account established and used in accordance
with Rule 17f-3 under the Investment Company Act of 1940. Funds held by the
Custodian for the Fund may be deposited by it to its credit as Custodian in
the Banking Department of the Custodian or in such other banks or trust
companies as it may in its discretion deem necessary or desirable;
provided, however, that every such bank or trust company shall be qualified
to act as a custodian under the Investment Company Act of 1940 and that
each such bank or trust company and the funds to be deposited with each
such bank or trust company shall be approved by vote of a majority of the
Board of Trustees of the Fund. Such funds shall be deposited by the
Custodian in its capacity as Custodian and shall be withdrawable by the
Custodian only in that capacity.
2.5 Availability of Federal Funds. Upon mutual agreement between the Fund and
the Custodian, the Custodian shall, upon the receipt of Proper
Instructions, make federal funds available to the Fund as of specified
times agreed upon from time to time by the Fund and the Custodian in the
amount of checks received in payment for Shares of the Fund which are
deposited into the Fund's account.
2.6 Collection of Income. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other payments
with respect to registered securities held hereunder to which the Fund
shall be entitled either by law or pursuant to custom in the securities
business, and shall collect on a timely basis all income and other payments
with respect to bearer securities if, on the date of payment by the issuer,
such securities are held by the Custodian or its agent thereof and shall
credit such income, as collected, to the Fund's custodian account. Without
limiting the generality of the foregoing, the Custodian shall detach and
present for payment all coupons and other income items requiring
presentation as and when they become due and shall collect interest when
due on securities held hereunder. Income due the Fund on securities loaned
pursuant to the provisions of Section 2.2 (10) shall be the responsibility
of the Fund. The Custodian will have no duty or responsibility in
connection therewith, other than to provide the Fund with such information
or data as may be necessary to assist the Fund in arranging for the timely
delivery to the Custodian of the income to which the Fund is properly
entitled.
2.7 Payment of Fund Monies. Upon receipt of Proper Instructions, which may be
continuing instructions when deemed appropriate by the parties, the
Custodian shall pay out monies of the Fund in the following cases only:
1) Upon the purchase of securities, options, futures contracts or options
on futures contracts for the account of the Fund but only (a) against
the delivery of such securities or evidence of title to such options,
futures contracts or options on futures contracts to the Custodian (or
any bank, banking firm or trust company doing business in the United
States or abroad which is qualified under the Investment Company Act of
1940, as amended, to act as a custodian and has been designated by the
Custodian as its agent for this purpose) registered in the name of the
Fund or in the name of a nominee of the Custodian referred to in
Section 2.3 hereof or in proper form for transfer; (b) in the case of a
purchase effected through a Securities System, in accordance with the
conditions set forth in Section 2.10 hereof; (c) in the case of a
purchase involving the Direct Paper System, in accordance with the
conditions set forth in Section 2.11; (d) in the case of repurchase
agreements entered into between the Fund and the Custodian, or another
bank, or a broker-dealer which is a member of NASD, (i) against
delivery of the securities either in certificate form or through an
entry crediting the Custodian's account at the Federal Reserve Bank
with such securities or (ii) against delivery of the receipt evidencing
purchase by the Fund of securities owned by the Custodian along with
written evidence of the agreement by the Custodian to repurchase such
securities from the Fund or (e) for transfer to a time deposit account
of the Fund in any bank whether foreign or domestic; such transfer may
be effected prior to receipt of a confirmation from a broker and/or the
applicable bank pursuant to Proper Instructions as defined in Article
3;
2) In connection with conversion, exchange or surrender of securities
owned by the Fund as set forth in Section 2.2 hereof;
3) For the payment of any expense or liability incurred by the Fund,
including but not limited to the following payments for the account of
the Fund: interest, taxes, management, accounting, transfer agent and
legal fees, and operating expenses of the Fund whether or not such
expenses are to be in whole or part capitalized or treated as deferred
expenses;
4) For the payment of any dividends declared pursuant to the governing
documents of the Fund;
5) For payment of the amount of dividends received in respect of
securities sold short;
6) For the fulfillment of the Fund's obligations with respect to unfunded
commitments incurred in connection with Senior Loans;
7) For any other proper purpose,but only upon receipt of, in addition to
Proper Instructions, a certified copy of a resolution of the Board of
Trustees or of the Executive Committee of the Fund signed by an officer
of the Fund and certified by its Secretary or an Assistant Secretary,
specifying the amount of such payment, setting forth the purpose for
which such payment is to be made, declaring such purpose to be a proper
purpose, and naming the person or persons to whom such payment is to be
made.
2.8 Liability for Payment in Advance of Receipt of Securities Purchased. Except
as specifically stated otherwise in this Contract, in any and every case
where payment for purchase of securities for the account of the Fund is
made by the Custodian in advance of receipt of the securities purchased in
the absence of specific written instructions from the Fund to so pay in
advance, the Custodian shall be absolutely liable to the Fund for such
securities to the same extent as if the securities had been received by the
Custodian.
2.9 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act of 1940,
as amended, to act as a custodian, as its agent to carry out such of the
provisions of this Article 2 as the Custodian may from time to time direct;
provided, however, that the appointment of any agent shall not relieve the
Custodian of its responsibilities or liabilities hereunder.
2.10 Deposit of Fund Assets in Securities Systems. The Custodian may deposit
and/or maintain securities owned by the Fund in a clearing agency
registered with the Securities and Exchange Commission under Section 17A of
the Securities Exchange Act of 1934, which acts as a securities depository,
or in the book-entry system authorized by the U.S. Department of the
Treasury and certain federal agencies, collectively referred to herein as
"Securities System" in accordance with applicable Federal Reserve Board and
Securities and Exchange Commission rules and regulations, if any, and
subject to the following provisions:
l) The Custodian may keep securities of the Fund in a Securities System
provided that such securities are represented in an account ("Account")
of the Custodian in the Securities System which shall not include any
assets of the Custodian other than assets held as a fiduciary,
custodian or otherwise for customers;
2) The records of the Custodian with respect to securities of the Fund
which are maintained in a Securities System shall identify by
book-entry those securities belonging to the Fund;
3) The Custodian shall pay for securities purchased for the account of the
Fund upon (i) receipt of advice from the Securities System that such
securities have been transferred to the Account, and (ii) the making of
an entry on the records of the Custodian to reflect such payment and
transfer for the account of the Fund. The Custodian shall transfer
securities sold for the account of the Fund upon (i) receipt of advice
from the Securities System that payment for such securities has been
transferred to the Account, and (ii) the making of an entry on the
records of the Custodian to reflect such transfer and payment for the
account of the Fund. Copies of all advices from the Securities System
of transfers of securities for the account of the Fund shall identify
the Fund, be maintained for the Fund by the Custodian and be provided
to the Fund at its request. Upon request, the Custodian shall furnish
the Fund confirmation of each transfer to or from the account of the
Fund in the form of a written advice or notice and shall furnish to the
Fund copies of daily transaction sheets reflecting each day's
transactions in the Securities System for the account of the Fund;
4) The Custodian shall provide the Fund with any report obtained by the
Custodian on the Securities System's accounting system, internal
accounting control and procedures for safeguarding securities deposited
in the Securities System;
5) The Custodian shall have received the initial or annual certificate, as
the case may be, required by Article 13 hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for any loss or damage to the
Fund resulting from use of the Securities System by reason of any
negligence, misfeasance or misconduct of the Custodian or any of its
agents or of any of its or their employees or from failure of the
Custodian or any such agent to enforce effectively such rights as it
may have against the Securities System; at the election of the Fund, it
shall be entitled to be subrogated to the rights of the Custodian with
respect to any claim against the Securities System or any other person
which the Custodian may have as a consequence of any such loss or
damage if and to the extent that the Fund has not been made whole for
any such loss or damage.
2.11 Fund Assets Held in the Custodian's Direct Paper System. The Custodian may
deposit and/or maintain securities owned by the Fund in the Direct Paper
System of the Custodian subject to the following provisions:
1) No transaction relating to securities in the Direct Paper System will
be effected in the absence of Proper Instructions;
2) The Custodian may keep securities of the Fund in the Direct Paper
System only if such securities are represented in an account
("Account") of the Custodian in the Direct Paper System which shall not
include any assets of the Custodian other than assets held as a
fiduciary, custodian or otherwise for customers;
3) The records of the Custodian with respect to securities of the Fund
which are maintained in the Direct Paper System shall identify by
book-entry those securities belonging to the Fund;
4) The Custodian shall pay for securities purchased for the account of the
Fund upon the making of an entry on the records of the Custodian to
reflect such payment and transfer of securities to the account of the
Fund. The Custodian shall transfer securities sold for the account of
the Fund upon the making of an entry on the records of the Custodian to
reflect such transfer and receipt of payment for the account of the
Fund;
5) The Custodian shall furnish the Fund confirmation of each transfer to
or from the account of the Fund, in the form of a written advice or
notice, of Direct Paper on the next business day following such
transfer and shall furnish to the Fund copies of daily transaction
sheets reflecting each day's transaction in the Securities System for
the account of the Fund;
6) The Custodian shall provide the Fund with any report on its system of
internal accounting control as the Fund may reasonably request from
time to time.
2.12 Segregated Account. The Custodian shall upon receipt of Proper Instructions
establish and maintain a segregated account or accounts for and on behalf
of the Fund, into which account or accounts may be transferred cash and/or
securities, including securities maintained in an account by the Custodian
pursuant to Section 2.10 hereof, (i) in accordance with the provisions of
any agreement among the Fund, the Custodian and a broker-dealer registered
under the Exchange Act and a member of the NASD (or any futures commission
merchant registered under the Commodity Exchange Act), relating to
compliance with the rules of The Options Clearing Corporation and of any
registered national securities exchange (or the Commodity Futures Trading
Commission or any registered contract market), or of any similar
organization or organizations, regarding escrow or other arrangements in
connection with transactions by the Fund, (ii) for purposes of segregating
cash or government securities in connection with options purchased, sold or
written by the Fund or commodity futures contracts or options thereon
purchased or sold by the Fund, or unfunded commitments in connection with
interests in Senior Loans, (iii) for the purposes of compliance by the Fund
with the procedures required by Investment Company Act Release No. 10666,
or any subsequent release or releases of the Securities and Exchange
Commission relating to the maintenance of segregated accounts by registered
investment companies and (iv) for other proper corporate purposes, but
only, in the case of clause (iv), upon receipt of, in addition to Proper
Instructions, a certified copy of a resolution of the Board of Trustees or
of the Executive Committee signed by an officer of the Fund and certified
by the Secretary or an Assistant Secretary, setting forth the purpose or
purposes of such segregated account and declaring such purposes to be
proper corporate purposes.
2.13 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and state
tax purposes in connection with receipt of income or other payments with
respect to securities of the Fund held by it and in connection with
transfers of securities.
2.14 Proxies. The Custodian shall, with respect to the securities held
hereunder, cause to be promptly executed by the registered holder of such
securities, if the securities are registered otherwise than in the name of
the Fund or a nominee of the Fund, all proxies, without indication of the
manner in which such proxies are to be voted, and shall promptly deliver to
the Fund such proxies, all proxy soliciting materials and all notices
relating to such securities.
2.15 Services Relating to Senior Loans and Communications Relating to all Fund
Portfolio Securities. The Custodian shall perform certain additional
services with respect to the Fund's interests in Senior Loans, all as more
completely described from time to time on Schedule I hereto.
Subject to the provisions of Section 2.3, the Custodian shall transmit
promptly to the Fund all written information (including, without
limitation, pendency of calls and maturities of securities and expirations
of rights in connection therewith and notices of exercise of call and put
options written by the Fund and the maturity of futures contracts purchased
or sold by the Fund) received by the Custodian from issuers (which term,
for this purpose, includes sellers of participations in Senior Loans) of
the securities being held for the Fund. With respect to tender or exchange
offers, the Custodian shall transmit promptly to the Fund all written
information received by the Custodian from issuers of the securities whose
tender or exchange is sought and from the party (or his agents) making the
tender or exchange offer. If the Fund desires to take action with respect
to any tender offer, exchange offer or any other similar transaction, the
Fund shall notify the Custodian at least three business days prior to the
date on which the Custodian is to take such action.
3. Proper Instructions
Proper Instructions as used herein means a writing signed or initialed
by one or more person or persons as the Board of Trustees shall have from time
to time authorized. Each such writing shall set forth the specific transaction
or type of transaction involved, including a specific statement of the purpose
for which such action is requested. Oral instructions will be considered Proper
Instructions if the Custodian reasonably believes them to have been given by a
person authorized to give such instructions with respect to the transaction
involved. The Fund shall cause all oral instructions to be confirmed in writing.
Upon receipt of a certificate of the Secretary or an Assistant Secretary as to
the authorization by the Board of Trustees of the Fund accompanied by a detailed
description of procedures approved by the Board of Trustees, Proper Instructions
may include communications effected directly between electro-mechanical or
electronic devices provided that the Board of Trustees and the Custodian are
satisfied that such procedures afford adequate safeguards for the Fund's assets.
For purposes of this Section, Proper Instructions shall include instructions
received by the Custodian pursuant to any three-party agreement which requires a
segregated asset account in accordance with Section 2.12.
4. Actions Permitted without Express Authority
The Custodian may in its discretion, without express authority from the
Fund:
1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under this
Contract, provided that all such payments shall be accounted for to the
Fund;
2) surrender securities in temporary form for securities in definitive
form;
3) endorse for collection, in the name of the Fund, checks, drafts and
other negotiable instruments; and
4) in general, attend to all non-discretionary details in connection with
the sale, exchange, substitution, purchase, transfer and other dealings
with the securities and property of the Fund except as otherwise
directed by the Board of Trustees of the Fund.
5. Evidence of Authority
The Custodian shall be protected in acting upon any instructions,
notice, request, consent, certificate or other instrument or paper believed by
it to be genuine and to have been properly executed by or on behalf of the Fund.
The Custodian may receive and accept a certified copy of a vote of the Board of
Trustees of the Fund as conclusive evidence (a) of the authority of any person
to act in accordance with such vote or (b) of any determination or of any action
by the Board of Trustees pursuant to the Declaration of Trust as described in
such vote, and such vote may be considered as in full force and effect until
receipt by the Custodian of written notice to the contrary.
6. Duties of Custodian with Respect to the Books of Account and Calculation of
Net Asset Value and Net Income
The Custodian shall cooperate with and supply necessary information to the
entity or entities appointed by the Board of Trustees of the Fund to keep the
books of account of the Fund and/or compute the net asset value per share of the
outstanding shares of the Fund or, if directed in writing to do so by the Fund,
shall itself keep such books of account and/or compute such net asset value per
share to include market value of Senior Loans calculated in the manner set forth
in Schedule II attached hereto as the same may be modified from time to time by
the Fund. If so directed, the Custodian shall also calculate daily the net
income of the Fund as described in the Fund's currently effective prospectus and
shall advise the Fund and the Transfer Agent daily of the total amounts of such
net income and, if instructed in writing by an officer of the Fund to do so,
shall advise the Transfer Agent periodically of the division of such net income
among its various components. The calculations of the net asset value per share
and the daily income of the Fund shall be made at the time or times described
from time to time in the Fund's currently effective prospectus.
7. Records
The Custodian shall create and maintain all records relating to its
activities and obligations under this Contract in such manner as will meet the
obligations of the Fund under the Investment Company Act of 1940, with
particular attention to Section 31 thereof and Rules 3la-1 and 3la-2
thereunder. All such records shall be the property of the Fund and shall at all
times during the regular business hours of the Custodian be open for inspection
by duly authorized officers, employees or agents of the Fund and employees and
agents of the Securities and Exchange Commission. The Custodian shall, at the
Fund's request, supply the Fund with a tabulation of securities owned by the
Fund and held by the Custodian and shall, when requested to do so by the Fund
and for such compensation as shall be agreed upon between the Fund and the
Custodian, include certificate numbers in such tabulations.
8. Opinion of Fund's Independent Accountant
The Custodian shall take all reasonable action, as the Fund may from time
to time request, to obtain from year to year favorable opinions from the Fund's
independent accountants with respect to its activities hereunder in connection
with the preparation of the Fund's Form N-2, and Form N-SAR or other annual
reports to the Securities and Exchange Commission and with respect to any other
requirements of such Commission.
9. Reports to Fund by Independent Public Accountants
The Custodian shall provide the Fund, at such times as the Fund may
reasonably require, with reports by independent public accountants on the
accounting system, internal accounting control and procedures for safeguarding
securities, futures contracts and options on futures contracts, including
securities deposited and/or maintained in a Securities System, relating to the
services provided by the Custodian under this Contract; such reports, shall be
of sufficient scope and in sufficient detail, as may reasonably be required by
the Fund to provide reasonable assurance that any material inadequacies would be
disclosed by such examination, and, if there are no such inadequacies, the
reports shall so state.
10. Compensation of Custodian
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between the
Fund and the Custodian.
11. Responsibility of Custodian
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties,
including any futures commission merchant acting pursuant to the terms of a
three-party futures or options agreement. The Custodian shall be held to the
exercise of reasonable care in carrying out the provisions of this Contract, but
shall be kept indemnified by and shall be without liability to the Fund for any
action taken or omitted by it in good faith without negligence. It shall be
entitled to rely on and may act upon advice of counsel (who may be counsel for
the Fund) on all matters, and shall be without liability for any action
reasonably taken or omitted pursuant to such advice.
If the Fund requires the Custodian to take any action with respect to
securities, which action involves the payment of money or which action may, in
the opinion of the Custodian, result in the Custodian or its nominee assigned to
the Fund being liable for the payment of money or incurring liability of some
other form, the Fund, as a prerequisite to requiring the Custodian to take such
action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it.
If the Fund requires the Custodian, its affiliates, subsidiaries or
agents, to advance cash or securities for any purpose (including but not limited
to securities settlements foreign exchange contracts and assumed settlement) or
in the event that the Custodian or its nominee shall incur or be assessed any
taxes, charges, expenses, assessments, claims or liabilities in connection with
the performance of this Contract, except such as may arise from its or its
nominee's own negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of the Fund shall be security
therefor and should the Fund fail to repay the Custodian promptly, the Custodian
shall be entitled to utilize available cash and to dispose of the Fund's assets
to the extent necessary to obtain reimbursement.
The Custodian shall have no responsibilities or duties whatsoever under
this Agreement, or otherwise in respect of the Account, the Senior Loans or the
Financing Documents, except for such responsibilities as are expressly set forth
herein. Without limiting the generality of the foregoing, the Custodian shall
have no obligation to preserve any rights against prior parties or to exercise
any right to perform any obligation in connection with the Senior Loans except
as expressly provided herein. In case any question arises as to its duties
hereunder, the Custodian may request instructions from the Fund and shall be
entitled at all times to refrain from taking any action unless it has received
Proper Instructions from the Fund and the custodian shall in all events have no
liability, risk or cost for any action taken pursuant to and in compliance with
the Proper Instructions.
12. Effective Period, Termination and Amendment
This Contract shall become effective as of its execution, shall continue
in full force and effect until terminated as hereinafter provided, may be
amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than thirty (30) days after the date of such delivery or mailing; provided,
however that the Custodian shall not act under Section 2.10 hereof in the
absence of receipt of an initial certificate of the Secretary or an Assistant
Secretary that the Board of Trustees of the Fund has approved the initial use of
a particular Securities System, as required by Rule 17f-4 under the Investment
Company Act of 1940, as amended and that the Custodian shall not act under
Section 2.11 hereof in the absence of receipt of an initial certificate of the
Secretary or an Assistant Secretary that the Board of Trustees has approved the
initial use of the Direct Paper System; provided further, however, that the Fund
shall not amend or terminate this Contract in contravention of any applicable
federal or state regulations, or any provision of the Declaration of Trust, and
further provided, that the Fund may at any time by action of its Board of
Trustees (i) substitute another bank or trust company for the Custodian by
giving notice as described above to the Custodian, or (ii) immediately terminate
this Contract in the event of the appointment of a conservator or receiver for
the Custodian by the Comptroller of the Currency or upon the happening of a like
event at the direction of an appropriate regulatory agency or court of competent
jurisdiction.
Upon termination of the Contract, the Fund shall pay to the Custodian such
compensation as may be due as of the date of such termination and shall likewise
reimburse the Custodian for its costs, expenses and disbursements.
13. Successor Custodian
If a successor custodian shall be appointed by the Board of Trustees of
the Fund, the Custodian shall, upon termination, deliver to such successor
custodian at the office of the Custodian, duly endorsed and in the form for
transfer, all securities then held by it hereunder and shall transfer to an
account of the successor custodian all of the Fund's securities held in a
Securities System.
If no such successor custodian shall be appointed, the Custodian shall, in
like manner, upon receipt of a certified copy of a vote of the Board of Trustees
of the Fund, deliver at the office of the Custodian and transfer such
securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Trustees shall have been delivered to
the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the Investment Company Act of 1940,
doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
properties held by the Custodian and all instruments held by the Custodian
relative thereto and all other property held by it under this Contract and to
transfer to an account of such successor custodian all of the Fund's securities
held in any Securities System. Thereafter, such bank or trust company shall be
the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Trustees to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
14. Interpretive and Additional Provisions
In connection with the operation of this Contract, the Custodian and the
Fund, may from time to time agree on such provisions interpretive of or in
addition to the provisions of this Contract as may in their joint opinion be
consistent with the general tenor of this Contract. Any such interpretive or
additional provisions shall be in a writing signed by both parties and shall be
annexed hereto, provided that no such interpretive or additional provisions
shall contravene any applicable federal or state regulations or any provision of
the Declaration of Trust of the Fund. No interpretive or additional provisions
made as provided in the preceding sentence shall be deemed to be an amendment of
this Contract.
15. Massachusetts Law to Apply
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
16. Prior Contracts
This Contract supersedes and terminates, as of the date hereof, all prior
contracts between the Fund and the Custodian relating to the custody of the
Fund's assets.
17. Shareholder Communications Election
Securities and Exchange Commission Rule 14b-2 requires banks which hold
securities for the account of customers to respond to requests by issuers of
securities for the names, addresses and holdings of beneficial owners of
securities of that issuer held by the bank unless the beneficial owner has
expressly objected to disclosure of this information. In order to comply with
the rule, the Custodian needs the Fund to indicate whether it authorizes the
Custodian to provide the Fund's name, address, and share position to requesting
companies whose securities the Fund owns. If the Fund tells the Custodian "no",
the Custodian will not provide this information to requesting companies. If the
Fund tells the Custodian "yes" or does not check either "yes" or "no" below, the
Custodian is required by the rule to treat the Fund as consenting to disclosure
of this information for all securities owned by the Fund or any funds or
accounts established by the Fund. For the Fund's protection, the Rule prohibits
the requesting company from using the Fund's name and address for any purpose
other than corporate communications. Please indicate below whether the Fund
consents or objects by checking one of the alternatives below.
YES [ ] The Custodian is authorized to release the Fund's name, address,
and share positions.
NO [ ] The Custodian is not authorized to release the Fund's name,
address, and share positions.
<PAGE>
SCHEDULE I
TO THE
CUSTODIAN CONTRACT
BETWEEN
SIERRA PRIME INCOME TRUST
and
STATE STREET BANK AND TRUST COMPANY
1. The Custodian shall on a daily basis (1) accept such Financing
Documents as may be delivered to it from time to time by the Fund or its
investment advisor, Sierra Investment Advisors Corporation. ("Advisors"), (2)
deposit on the date of receipt into the Fund's Account, and (3) subject to the
Data Access Services Agreement attached hereto as Exhibit A and made a part
hereof, make available via computer link to those persons designated by the
Fund, the daily, monthly and/or periodic reports listed on the Schedule of
Reports attached hereto and made a part hereof. Certain of such reports may not
be available on-line at the inception of services under this Agreement in which
case any such report shall be transmitted by facsimile until electronic
transmittal becomes available (which in the case of certain reports is not
anticipated.)
2. If Payments are not received by the Custodian on the date on which they
are due as reflected in the Payment Schedule (as such term is defined in Section
1 of the Custodian Contract as may be amended), or on the date specified on the
payment notification, the Custodian (1) shall promptly, but in no event later
than the next Business Day after the Payment Date, give both telephonic and
written notice to the party obligated under the Financing Documents to make such
Payment (the "Obligor") of its failure to make timely payment, and (2) shall
promptly notify Advisors of such Obligor's failure to make the Payment. The
Custodian shall use reasonable efforts to collect Payments which are past due
and to track miswired and misdirected Payments.
3. The Custodian shall promptly, but in no event later than the next
Business Day after receipt, forward via facsimile to Advisors all payment and
rate notices identified as being sent to it in connection with the Senior Loans
which it receives from an Obligor, participating bank under the Financing
Documents or from a servicer of said Senior Loans.
4. The Custodian shall be responsible and accountable only for Payments
actually received by it and identified for deposit into the Fund's Account; any
and all credits and payments, and other items, added to the Account shall be
conditional upon clearance and actual receipt by the Custodian, with immediate
credit for any and all wire transfers.
5. The proceeds of any investment of the Payments shall be credited to the
Fund's Account, unless otherwise instructed by the Fund. The Custodian shall on
a daily basis invest the Fund's excess cash in overnight investments as directed
by Advisors. With the exception of such overnight investments, the Custodian
shall have no obligation to invest (or otherwise pay interest on) any funds on
or credited to the Account in the absence of receipt by the Custodian of
investment instructions from the Fund. The Custodian shall have no
responsibility or liability for any loss on any investment made by the Custodian
pursuant to and in compliance with the instructions of the Fund except as
Obligor upon its money market obligations.
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the day of , 1996.
ATTEST
- ------------------------------
By
-----------------------------------
ATTEST STATE STREET BANK AND TRUST COMPANY
- ------------------------------
By
-----------------------------------
Executive Vice President
<PAGE>
Exhibit 99.10
ADMINISTRATION AGREEMENT
Agreement dated as of , 199 by and between State
Street Bank and Trust Company, a Massachusetts trust company (the
"Administrator"), and ____________ (the "Fund").
WHEREAS, the Fund is registered as [an open-end/a closed-end],
management investment company under the Investment Company Act of 1940, as
amended (the " 1940 Act"); and
WHEREAS, the Fund desires to retain the Administrator to
furnish certain administrative services to the Fund, and the Administrator is
willing to furnish such services, on the terms and conditions hereinafter set
forth.
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, the parties hereto agree as follows:
1. APPOINTMENT OF ADMINISTRATOR
The Fund hereby appoints the Administrator to act as
administrator with respect to the Fund for purposes of providing certain
administrative services for the period and on the terms set forth in this
Agreement. The Administrator accepts such appointment and agrees to render the
services stated herein.
The Fund will initially consist of the portfolio(s) and/or
class(es) of shares (each an "Investment Fund") listed in Schedule A to this
Agreement. In the event that the Fund establishes one or more additional
Investment Funds with respect to which it wishes to retain the Administrator to
act as administrator hereunder, the Fund shall notify the Administrator in
writing. Upon written acceptance by the Administrator, such Investment Fund
shall become subject to the provisions of this Agreement to the same extent as
the existing Investment Funds, except to the extent that such provisions
(including those relating to the compensation and expenses payable by the Fund
and its Investment Funds) may be modified with respect to each additional
Investment Fund in writing by the Fund and the Administrator at the time of the
addition of the Investment Fund.
2. DELIVERY OF DOCUMENTS
The Fund will promptly deliver to the Administrator copies of
each of the following documents and all future amendments and supplements, if
any:
a. The Fund's charter document and by-laws;
b. The Fund's currently effective registration statement
under the Securities Act of 1933, as amended (the " 1933
Act"), and the 1940 Act and the Fund's Prospectus(es) and
Statement(s) of Additional Information relating to all
Investment Funds and all amendments and supplements
thereto as in effect from time to time;
c. Certified copies of the resolutions of the Board of
[Directors/Trustees] of the Fund (the "Board")
authorizing (1) the Fund to enter into this Agreement and
(2) certain individuals on behalf of the Fund to (a) give
instructions to the Administrator pursuant to this
Agreement and (b) sign checks and pay expenses;
d. A copy of the investment advisory agreement between the
Fund and its investment adviser; and
e. Such other certificates, documents or opinions which the
Administrator may, in its reasonable discretion, deem
necessary or appropriate in the proper performance of its
duties.
3. REPRESENTATION AND WARRANTIES OF THE ADMINISTRATOR
The Administrator represents and warrants to the Fund that:
a. It is a Massachusetts trust company, duly organized,
existing and in good standing under the laws of The
Commonwealth of Massachusetts;
b. It has the corporate power and authority to carry on its
business in The Commonwealth of Massachusetts;
c. All requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement;
d. No legal or administrative proceedings have been
instituted or threatened which would impair the
Administrator's ability to perform its duties and
obligations under this Agreement; and
e. Its entrance into this Agreement shall not cause a
material breach or be in material conflict with any other
agreement or obligation of the Administrator or any law
or regulation applicable to it.
4. REPRESENTATIONS AND WARRANTIES OF THE FUND
The Fund represents and warrants to the Administrator that:
a. It is a [form of organization], duly organized
and existing and in good standing under the laws of ;
b. It has the corporate power and authority under applicable
laws and by its charter and by-laws to enter into and
perform this Agreement;
c. All requisite proceedings have been taken to authorize it
to enter into and perform this Agreement;
d. It is an investment company properly registered under the
1940 Act;
e. A registration statement under the 1933 Act and the 1940
Act has been filed and will be effective and remain
effective during the term of this Agreement. [If Blue Sky
services are not to be provided by the Administrator: The
Fund also warrants to the Administrator that all
necessary filings under the securities laws of the states
in which the Fund offers or sells its shares will have
been made and will be current during the term of this
Agreement; If Blue Sky services are to be provided by the
Administrator: The Fund also warrants to the
Administrator that as of the effective date of this
Agreement, all necessary filings under the securities
laws of the states in which the Fund offers or sells its
shares have been made;]
f. No legal or administrative proceedings have been
instituted or threatened which would impair the Fund's
ability to perform its duties and obligations under this
Agreement;
g. Its entrance into this Agreement shall not cause a
material breach or be in material conflict with any other
agreement or obligation of the Fund or any law or
regulation applicable to it; and
h. As of the close of business on the date of this
Agreement, the Fund is authorized to issue shares of
[capital stock/beneficial interest], and it will
initially offer shares, in the authorized amounts as set
forth in Schedule A to this Agreement.
5. ADMINISTRATION SERVICES
The Administrator shall provide the following services, in
each case, subject to the control, supervision and direction of the Fund and the
review and comment by the Fund's auditors and legal counsel and in accordance
with procedures which may be established from time to time between the Fund and
the Administrator:
a. Oversee the determination and publication of the Fund's
net asset value in accordance with the Fund's policy as
adopted from time to time by the Board;
b. Oversee the maintenance by the Fund's custodian of
certain books and records of the Fund as required under
Rule 31a-l(b) of the 1940 Act;
c. Prepare the Fund's federal, state and local income tax
returns for review by the Fund's independent accountants
and filing by the Fund's treasurer;
d. Review calculation, submit for approval by officers of
the Fund and arrange for payment of the Fund's expenses;
e. Prepare for review and approval by officers of the Fund
financial information for the Fund's semi-annual and
annual reports, proxy statements and other communications
required or otherwise to be sent to Fund shareholders,
and arrange for the printing and dissemination of such
reports and communications to shareholders;
f. Prepare for review by an officer of and legal counsel for
the Fund the Fund's periodic financial reports required
to be filed with the Securities and Exchange Commission
("SEC") on Form N-SAR and financial information required
by Form [N-lA/N-2] and such other reports, forms or
filings as may be mutually agreed upon;
g. Prepare reports relating to the business and affairs of
the Fund as may be mutually agreed upon and not otherwise
prepared by the Fund's investment adviser, custodian,
legal counsel or independent accountants;
h. Make such reports and recommendations to the Board
concerning the performance of the independent accountants
as the Board may reasonably request;
i. Make such reports and recommendations to the Board
concerning the performance and fees of the Fund's
custodian and transfer and dividend disbursing agent
("Transfer Agent") as the Board may reasonably request or
deems appropriate;
j. Oversee and review calculations of fees paid to the
Fund's investment adviser, custodian and Transfer Agent;
k. Consult with the Fund's officers, independent
accountants, legal counsel, custodian and Transfer Agent
in establishing the accounting policies of the Fund;
1. Review implementation of any dividend reinvestment
programs authorized by the Board;
m. Respond to, or refer to the Fund's officers or Transfer
Agent, shareholder inquiries relating to the Fund;
n. Provide periodic testing of portfolios to assist the
Fund's investment adviser in complying with Internal
Revenue Code mandatory qualification requirements, the
requirements of the 1940 Act and Fund prospectus
limitations as may be mutually agreed upon;
[Items o through aa to be inserted only if Legal Administration Services are to
be provided.]
o. Review and provide assistance on shareholder
communications;
p. Maintain general corporate calendar;
q. Maintain copies of the Fund's charter and by-laws;
r. File annual and semi-annual shareholder reports with the
appropriate regulatory agencies; review text of
"President's letters" to shareholders and "Management's
Discussion of Fund Performance" (which shall also be
subject to review by the Fund's legal counsel);
s. Organize, attend and prepare minutes of shareholder
meetings;
t. Provide consultation on regulatory matters relating to
portfolio management, Fund operations and any potential
changes in the Fund's investment policies, operations or
structure; act as liaison to legal counsel to the Fund
and, where applicable, to legal counsel to the Fund's
independent Board members;
u. Maintain continuing awareness of significant emerging
regulatory and legislative developments which may affect
the Fund, update the Board and the investment adviser on
those developments and provide related planning
assistance where requested or appropriate;
v. Develop or assist in developing guidelines and procedures
to improve overall compliance by the Fund and its various
agents;
w. Counsel and assist the Fund in the handling of routine
regulatory examinations and work closely with the Fund's
legal counsel in response to any non-routine regulatory
matters;
Subject to review and comment by the Fund's legal counsel:
x. Prepare and file with the SEC amendments to the Fund's
registration statement, including updating the Prospectus
and Statement of Additional Information, where
applicable;
y. Prepare and file with the SEC proxy statements; provide
consultation on proxy solicitation matters;
z. Prepare agenda and background materials for Board
meetings, make presentations where appropriate, prepare
minutes and follow-up on matters raised at Board
meetings; and
aa. Prepare and file with the SEC Rule 24f-2 notices.
[bb. Prepare and file state registrations of the Fund's
securities pursuant to the specific instructions of the
Fund and as detailed in Schedule C to this Agreement.]
[Item bb to be inserted only if Blue Sky services are to
be provided.]
The Administrator shall provide the office facilities and the personnel required
by it to perform the services contemplated herein.
6. FEES; EXPENSES; EXPENSE REIMBURSEMENT
The Administrator shall receive from the Fund such
compensation for the Administrator's services provided pursuant to this
Agreement as may be agreed to from time to time in a written fee schedule
approved by the parties and initially set forth in Schedule B to this Agreement.
The fees are accrued daily and billed monthly and shall be due and payable upon
receipt of the invoice. Upon the termination of this Agreement before the end of
any month, the fee for the part of the month before such termination shall be
prorated according to the proportion which such part bears to the full monthly
period and shall be payable upon the date of termination of this Agreement. In
addition, the Fund shall reimburse the Administrator for its out-of-pocket costs
incurred in connection with this Agreement.
The Fund agrees promptly to reimburse the Administrator for
any equipment and supplies specially ordered by or for the Fund through the
Administrator and for any other expenses not contemplated by this Agreement that
the Administrator may incur on the Fund's behalf at the Fund's request or with
the Fund's consent.
The Fund will bear all expenses that are incurred in its
operation and not specifically assumed by the Administrator. Expenses to be
borne by the Fund, include, but are not limited to: organizational expenses;
cost of services of independent accountants and outside legal and tax counsel
(including such counsel's review of the Fund's registration statement, proxy
materials, federal and state tax qualification as a regulated investment company
and other reports and materials prepared by the Administrator under this
Agreement); cost of any services contracted for by the Fund directly from
parties other than the Administrator; cost of trading operations and brokerage
fees, commissions and transfer taxes in connection with the purchase and sale of
securities for the Fund; investment advisory fees; taxes, insurance premiums and
other fees and expenses applicable to its operation; costs incidental to any
meetings of shareholders including, but not limited to, legal and accounting
fees, proxy filing fees and the costs of preparation, printing and mailing of
any proxy materials; costs incidental to Board meetings, including fees and
expenses of Board members; the salary and expenses of any officer,
director/trustee or employee of the Fund; costs incidental to the preparation,
printing and distribution of the Fund's registration statements and any
amendments thereto and shareholder reports; cost of typesetting and printing of
prospectuses; cost of preparation and filing of the Fund's tax returns, Form
N-1A or N-2 and Form N-SAR, and all notices, registrations and amendments
associated with applicable federal and state tax and securities laws; all
applicable registration fees and filing fees required under federal and state
securities laws; fidelity bond and directors' and officers' liability insurance;
and cost of independent pricing services used in computing the Fund's net asset
value.
The Administrator is authorized to and may employ or associate
with such person or persons as the Administrator may deem desirable to assist it
in performing its duties under this Agreement; provided, however, that the
compensation of such person or persons shall be paid by the Administrator and
that the Administrator shall be as fully responsible to the Fund for the acts
and omissions of any such person or persons as it is for its own acts and
omissions.
7. INSTRUCTIONS AND ADVICE
At any time, the Administrator may apply to any officer of the
Fund for instructions and may consult with its own legal counsel or outside
counsel for the Fund or the independent accountants for the Fund at the expense
of the Fund, with respect to any matter arising in connection with the services
to be performed by the Administrator under this Agreement. The Administrator
shall not be liable, and shall be indemnified by the Fund, for any action taken
or omitted by it in good faith in reliance upon any such instructions or advice
or upon any paper or document believed by it to be genuine and to have been
signed by the proper person or persons. The Administrator shall not be held to
have notice of any change of authority of any person until receipt of written
notice thereof from the Fund. Nothing in this paragraph shall be construed as
imposing upon the Administrator any obligation to seek such instructions or
advice, or to act in accordance with such advice when received.
8. LIMITATION OF LIABILITY AND INDEMNIFICATION
The Administrator shall be responsible for the performance of
only such duties as are set forth in this Agreement and, except as otherwise
provided under Section 6, shall have no responsibility for the actions or
activities of any other party, including other service providers. The
Administrator shall have no liability for any error of judgement or mistake of
law or for any loss or damage resulting from the performance or nonperformance
of its duties hereunder unless solely caused by or resulting from the gross
negligence or willful misconduct of the Administrator, its officers or
employees. The Administrator shall not be liable for any special, indirect,
incidental, or consequential damages of any kind whatsoever (including, without
limitation, attorneys' fees) under any provision of this Agreement or for any
such damages arising out of any act or failure to act hereunder. In any event,
the Administrator's liability under this Agreement shall be limited to its total
annual compensation earned and fees paid hereunder during the preceding twelve
months for any liability or loss suffered by the Fund including, but not limited
to, any liability relating to qualification of the Fund as a regulated
investment company or any liability relating to the Fund's compliance with any
federal or state tax or securities statute, regulation or ruling.
The Administrator shall not be responsible or liable for any
failure or delay in performance of its obligations under this Agreement arising
out of or caused, directly or indirectly, by circumstances beyond its control,
including without limitation, work stoppage, power or other mechanical failure,
computer virus, natural disaster, governmental action or communication
disruption, nor shall any such failure or delay give the Fund the right to
terminate this Agreement.
The Fund shall indemnify and hold the Administrator harmless
from all loss, cost, damage and expense, including reasonable fees and expenses
for counsel, incurred by the Administrator resulting from any claim, demand,
action or suit in connection with the Administrator's acceptance of this
Agreement, any action or omission by it in the performance of its duties
hereunder, or as a result of acting upon any instructions reasonably believed by
it to have been duly authorized by the Fund, provided that this indemnification
shall not apply to actions or omissions of the Administrator, its officers or
employees in cases of its or their own gross negligence or willful misconduct.
The Fund will be entitled to participate at its own expense in
the defense, or, if it so elects, to assume the defense of any suit brought to
enforce any liability subject to the indemnification provided above. In the
event the Fund elects to assume the defense of any such suit and retain counsel,
the Administrator or any of its affiliated persons, named as defendant or
defendants in the suit, may retain additional counsel but shall bear the fees
and expenses of such counsel unless (i) the Fund shall have specifically
authorized the retaining of such counsel or (ii) the Administrator shall have
determined in good faith that the retention of such counsel is required as a
result of a conflict of interest.
The indemnification contained herein shall survive the
termination of this Agreement.
9. CONFIDENTIALITY
The Administrator agrees that, except as otherwise required by
law or in connection with any required disclosure to a banking or other
regulatory authority, it will keep confidential all records and information in
its possession relating to the Fund or its shareholders or shareholder accounts
and will not disclose the same to any person except at the request or with the
written consent of the Fund.
10. COMPLIANCE WITH GOVERNMENTAL RULES AND REGULATIONS; RECORDS
The Fund assumes full responsibility for complying with all
securities, tax, commodities and other laws, rules and regulations applicable to
it.
In compliance with the requirements of Rule 31a-3 under the
1940 Act, the Administrator agrees that all records which it maintains for the
Fund shall at all times remain the property of the Fund, shall be readily
accessible during normal business hours, and shall be promptly surrendered upon
the termination of the Agreement or otherwise on written request. The
Administrator further agrees that all records which it maintains for the Fund
pursuant to Rule 31a-1 under the 1940 Act will be preserved for the periods
prescribed by Rule 31a-2 under the 1940 Act unless any such records are earlier
surrendered as provided above. Records shall be surrendered in usable
machine-readable form.
11. SERVICES NOT EXCLUSIVE
The services of the Administrator to the Fund are not to be
deemed exclusive, and the Administrator shall be free to render similar services
to others. The Administrator shall be deemed to be an independent contractor and
shall, unless otherwise expressly provided herein or authorized by the Fund from
time to time, have no authority to act or represent the Fund in any way or
otherwise be deemed an agent of the Fund.
12. TERM, TERMINATION AND AMENDMENT
This Agreement shall become effective on _______. The
Agreement shall remain in effect for a period of _______ from [the effective
date/the date the Fund first accepts money for investment], and shall
automatically continue in effect thereafter with respect to the Fund unless
terminated in writing by either party at the end of such period or thereafter on
sixty (60) days' prior written notice given by either party to the other party.
Termination of this Agreement with respect to any given Investment Fund shall in
no way affect the continued validity of this Agreement with respect to any other
Investment Fund. Upon termination of this Agreement, the Fund shall pay to the
Administrator such compensation and any reimbursable expenses as may be due
under the terms hereof as of the date of such termination, including reasonable
out-of-pocket expenses associated with such termination. This Agreement may be
modified or amended from time to time by mutual written agreement of the parties
hereto.
13. NOTICES
Any notice or other communication authorized or required by
this Agreement to be given to either party shall be in writing and deemed to
have been given when delivered in person or by confirmed facsimile, or posted by
certified mail, return receipt requested, to the following address (or such
other address as a party may specify by written notice to the other): if to the
Fund: __________________________, Attn: __________, fax: __________; if to the
Administrator: State Street Bank and Trust Company, 1776 Heritage Drive, North
Quincy, Massachusetts 02171, Attn: David M. Elwood, Vice President and Senior
Counsel, fax: (617) 985-2497.
14. NON-ASSIGNABILITY
This Agreement shall not be assigned by either party hereto
without the prior consent in writing of the other party, except that the
Administrator may assign this Agreement to a successor of all or a substantial
portion of its business, or to a party controlling, controlled by or under
common control with the Administrator.
15. SUCCESSORS
This Agreement shall be binding on and shall inure to the
benefit of the Fund and the Administrator and their respective successors and
permitted assigns.
16. ENTIRE AGREEMENT
This Agreement contains the entire understanding between the
parties hereto with respect to the subject matter hereof and supersedes all
previous representations, warranties or commitments regarding the services to be
performed hereunder whether oral or in writing.
17. WAIVER
The failure of a party to insist upon strict adherence to any
term of this Agreement on any occasion shall not be considered a waiver nor
shall it deprive such party of the right thereafter to insist upon strict
adherence to that term or any term of this Agreement. Any waiver must be in
writing signed by the waiving party.
18. SEVERABILITY
If any provision of this Agreement is invalid or
unenforceable, the balance of the Agreement shall remain in effect, and if any
provision is inapplicable to any person or circumstance it shall nevertheless
remain applicable to all other persons and circumstances.
19. GOVERNING LAW
This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their Officers designated below as of the date first written above.
[NAME OF FUND]
By:_______________________________
Name:_____________________________
Title:____________________________
STATE STREET BANK AND TRUST COMPANY
By:_______________________________
Name:_____________________________
Title:____________________________
<PAGE>
ADMINISTRATION AGREEMENT
[NAME OF FUND]
SCHEDULE A
LISTING OF INVESTMENT FUNDS AND AUTHORIZED SHARES
Investment Fund Authorized Shares
<PAGE>
ADMINISTRATION AGREEMENT
[NAME OF FUND]
SCHEDULE B
FEES AND EXPENSES
<PAGE>
ADMINISTRATION AGREEMENT
[NAME OF FUND]
SCHEDULE C
REGISTRATION OF FUND SHARES
WITH STATE SECURITIES ADMINISTRATORS
AT THE SPECIFIC DIRECTION OF THE FUND, THE ADMINISTRATOR WILL PREPARE REQUIRED
DOCUMENTATION AND REGISTER FUND SHARES IN ACCORDANCE WITH THE SECURITIES LAWS OF
EACH JURISDICTION IN WHICH FUND SHARES ARE TO BE OFFERED OR SOLD PURSUANT TO
INSTRUCTIONS GIVEN TO THE ADMINISTRATOR BY THE FUND.
THE FUND SHALL BE SOLELY RESPONSIBLE FOR THE DETERMINATION (I) OF THOSE
JURISDICTIONS IN WHICH FUND SHARES ARE TO BE REGISTERED AND (II) THE NUMBER OF
FUND SHARES TO BE REGISTERED IN EACH SUCH JURISDICTION. IN THE EVENT THAT THE
ADMINISTRATOR BECOMES AWARE OF (A) THE SALE OF FUND SHARES IN A JURISDICTION IN
WHICH FUND SHARES ARE NOT REGISTERED FOR OFFER AND SALE OR (B) THE SALE OF FUND
SHARES IN EXCESS OF THE NUMBER OF FUND SHARES REGISTERED IN SUCH JURISDICTION,
THE ADMINISTRATOR SHALL REPORT SUCH INFORMATION TO THE FUND, AND IT SHALL BE THE
FUND'S RESPONSIBILITY TO DETERMINE APPROPRIATE CORRECTIVE ACTION AND INSTRUCT
THE ADMINISTRATOR WITH RESPECT THERETO.
The registration services shall consist of the following:
1. Filing of Fund's Application to Register Securities and
amendments, if directed by the Fund;
2. Filing of amendments to the Fund's registration statement;
3. Filing Fund sales reports and advertising literature where
required;
4. Payment at the expense of the Fund of all Fund state registration
and filing fees;
5. Filing the Prospectuses and Statements of Additional Information
and any supplements thereto;
6. Filing of annual reports and proxy statements where required; and
7. The performance of such additional services as the Administrator
and the Fund may agree upon in writing.
Unless otherwise specified in writing by the Administrator, registration
services by the Administrator shall not include determining the availability of
exemptions under a jurisdiction's blue sky law. Any such determination shall be
made by the Fund or its legal counsel. In connection with the services described
herein, the Fund shall issue in favor of the Administrator a power of attorney
to register Fund shares on behalf of the Fund, which power of attorney shall be
substantially in the form of Exhibit I attached hereto.
<PAGE>
EXHIBIT I
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, as of _________, 199_ that the undersigned [NAME
OF FUND] with principal offices at __________ (individually the "Fund") makes,
constitutes, and appoints STATE STREET BANK AND TRUST COMPANY (the
"Administrator") with principal offices at 225 Franklin Street, Boston,
Massachusetts its lawful attorney-in-fact for it to do as if it were itself
acting, the following:
1. REGISTRATION OF FUND SHARES. The power to register shares of the Fund in
each jurisdiction in which Fund shares are offered or sold and in
connection therewith the power to prepare, execute, and deliver and file
any and all Fund applications, including without limitation, applications
to register shares, consents, including consents to service of process,
reports, including without limitation, all periodic reports, claims for
exemption, or other documents and instruments now or hereafter required or
appropriate in the judgement of the Administrator in connection with the
registration of Fund shares.
2. AUTHORIZED SIGNERS. Pursuant to this Limited Power of Attorney, individuals
holding the titles of Officer, Blue Sky Manager, or Senior Blue Sky
Administrator at the Administrator shall have authority to act on behalf of
the Fund with respect to item 1 above.
The execution of this limited power of attorney shall be deemed coupled with an
interest and shall be revocable only upon receipt by the Administrator of such
termination of authority. Nothing herein shall be construed to constitute the
appointment of the Administrator as or otherwise authorize the Administrator to
act as an officer, director or employee of the Fund.
IN WITNESS WHEREOF, the Fund has caused this Agreement to be executed in its
name and on its behalf by and through its duly authorized officer, as of the
date first written above.
[NAME OF FUND]
By:_________________________
Name:_______________________
Title:______________________
<PAGE>
Exhibit 99.10(A)
TRANSFER AGENCY AND REGISTRAR AGREEMENT
AGREEMENT, as of __________, 1996, between SIERRA PRIME INCOME FUND,
(the "Trust"), a Massachusetts business trust having its principal place of
business at 9301 Corbin Avenue, Northridge, California 91324, and Sierra Fund
Administration Corporation ("Sierra Administration," the "Transfer Agent") a
corporation organized under the laws of California.
WITNESSETH
That for and in consideration of the mutual covenants and promises
hereinafter set forth, the Trust and the Transfer Agent agree as follows:
1. Definitions. Whenever used in this Agreement, the following words
and phrases, unless the context otherwise requires, shall have the following
meanings:
(a) "Articles of Incorporation" shall mean the Articles of
Incorporation, Declaration of Trust, Partnership Agreement, or similar
organizational document as the case may be, of the Trust as the same may be
amended from time to time.
(b) "Authorized Persons" shall be deemed to include any
person, whether or not such person is an officer or employee of the Trust, duly
authorized to give Oral Instructions or Written Instructions on behalf of the
Trust as indicated in a certificate furnished to the Transfer Agent pursuant to
Section 4(c) hereof as may be received by the Transfer Agent from time to time.
(c) "Board of Trustees" shall mean the Board of Trustees of
the Trust.
(d) "Commission" shall mean the Securities and Exchange
Commission.
(e) "Custodian" refers to any custodian or subcustodian of
securities and other property which the Trust may from time to time deposit, or
cause to be deposited or held under the name or account of such a custodian
pursuant to a Custodian Agreement.
(f) "Oral instructions" shall mean instructions, other than
Written Instructions, actually received by the Transfer Agent from a person
reasonably believed by the Transfer Agent to be an Authorized Person.
(g) "Prospectus" shall mean the most recently dated Trust
Prospectus and Statement of Additional Information, including any supplements
thereto if any, which has become effective under the Securities Act of 1933 and
the 1940 Act.
(h) "Shares" refers collectively to such shares of capital
stock beneficial interest or limited partnership interests, as the case may be,
of the Trust as may be issued from time to time and, if the Trust is a
closed-end or a series fund, as such terms are used in the 1940 Act any other
classes or series of stock shares of beneficial interest or limited partnership
interests that may be issued from time to time.
(i) "Shareholder" shall mean a holder of shares of capital
stock beneficial interest or any other class or series, and also refers to
partners of limited partnerships.
(j)"Trust" refers to Sierra Prime Income Fund, and such other
separate and distinct portfolios as may be established and designated by the
Trust and as agreed upon by the Trust and the Transfer Agent.
(k) "Written Instructions" shall mean a written communication
signed by a person reasonably believed by the Transfer Agent to be an Authorized
Person and actually received by the Transfer Agent. Written instructions shall
include manually executed originals and authorized electronic transmissions,
including telefacsimile of a manually executed original or other process.
(1) "1940 Act" shall mean the Investment Company Act of 1940
and the Rules and Regulations promulgated thereunder, as amended from time to
time.
2. Appointment of the Transfer Agent. The Trust hereby appoints and
constitutes the Transfer Agent as transfer agent registrar and dividend
disbursing agent for Shares of the Trust and as shareholder servicing agent for
the Trust. The Transfer Agent accepts such appointments or appoints a service
agent and agrees to perform the duties hereinafter set forth.
3. Compensation.
(a) The Trust will compensate or cause the Transfer Agent to
be compensated for the performance of its obligations hereunder in accordance
with the fees set forth in the written schedule of fees annexed hereto as
Schedule A and incorporated herein. The Transfer Agent will transmit an invoice
to the Trust as soon as practicable after the end of each calendar month which
will be detailed in accordance with Schedule A, and the Trust will pay to the
Transfer Agent the amount of such invoice as soon as reasonable after the
Trust's receipt of the invoice.
In addition, the Trust agrees to pay, and will be billed
separately for, out-of-pocket expenses incurred by the Transfer Agent and its
service agent in the performance of the duties hereunder. Out-of-pocket expenses
shall include, but shall not be limited to, the items specified in the written
schedule of out-of-pocket charges annexed hereto as Schedule B and incorporated
herein. Schedule B may be modified by the Transfer Agent upon not less than 30
days' prior written notice to the Trust.
Unspecified out-of-pocket expenses shall be limited to those
out-of-pocket expenses reasonably incurred by the Transfer Agent and its service
agent in the performance of the obligations hereunder. Reimbursement by the
Trust for expenses incurred by the Transfer Agent and its service agent in any
month shall be made as soon as practicable after receipt of an itemized bill
from the Transfer Agent.
(b) Any compensation agreed to hereunder may be adjusted from
time to time by attaching to Schedule A, a revised fee schedule executed and
dated by the parties hereto.
4. Documents. In connection with the appointment of the Transfer Agent,
the Trust shall deliver or cause to be delivered to the Transfer Agent or its
service agent the following documents on or before the date this Agreement goes
into effect, but in any case within a reasonable period of time for the Transfer
Agent and its service agent to prepare to perform its duties hereunder:
(a) All account application forms and other documents relating
to Shareholder accounts or to any plan, program or service offered by the
Trust.
(b) A signature card bearing the signatures of any officer of
the Trust or other Authorized Person who will sign Written Instructions or is
authorized to give Oral Instructions.
(c) A certified copy of the Articles of Incorporation.
(d) A certified copy of the By-laws of the Trust, as amended.
(e) A copy of the resolution of the Board of Trustees
authorizing the execution and delivery of this Agreemant.
(f) A certified list of Shareholders of the Trust with the
name, address and taxpayer identification number of each Shareholder, and the
number of Shares of the Trust held by each, certificate numbers and
denominations (if any certificates have been issued), lists of any accounts
against which stop transfer orders have been placed, together with the reasons
therefore, and the number of Shares redeemed by the Trust.
(g) An opinion of counsel for the Trust with respect to the
validity of the Shares and the status of such Shares under the Securities Act of
1933, as amended.
5. Further Documentation. The Trust will also furnish the Transfer
Agent and its service agent with copies of the following documents promptly
after the same shall become available:
(a) each resolution of the Board of Trustees authorizing the
issuance of Shares;
(b) any registration statements filed on behalf of the Trust
and all pre-effective and post-effective amendments thereto filed with the
Commission;
(c) a certified copy of each amendment to the Articles of
Incorporation or the Bylaws of the Trust;
(d) certified copies of each resolution of the Board of
Trustees or other authorization designating Authorized Persons; and
(e) such other certificates, documents, or opinions as the
Transfer Agent may be reasonably requested in connection with the performance of
its duties hereunder.
6. Representations of the Trust. The Trust represents to the Transfer
Agent that all outstanding Shares are validly issued, fully paid and
non-assessable. When Shares are hereafter issued in accordance with the terms of
the Trust's Articles of Incorporation and its Prospectus, such Shares shall be
validly issued, fully paid and non-assessable.
7. Distributions Payable in Shares. In the event that the Board of
Trustees of the Trust shall declare a distribution payable in Shares, the Trust
shall deliver or cause to be delivered to the Transfer Agent or its service
agent written notice of such declaration signed on behalf of the Trust by an
officer thereof, upon which the Transfer Agent or its service agent shall be
entitled to rely for all purposes, certifying (i) the identity of the Shares
involved, (ii) the number of Shares involved, and (iii) that all appropriate
action has been taken.
8. Duties of the Transfer Agent. The Transfer Agent or its designee
shall be responsible for administering and/or perfoming those functions
typically performed by a transfer agent; for acting as service agent in
connection with dividend and distribution functions; and for performing
shareholder account and administrative agent functions in connection with the
issuance, transfer, and redemption or repurchase (including coordination with
the Custodian) of Shares in accordance with the terms of the Prospectus and
applicable law. The operating standards and procedures to be followed shall be
determined from time to time by agreement between the Trust and the Transfer
Agent and shall initially be as described in Schedule C attached hereto. In
addition, the Trust shall deliver to the Transfer Agent all notices issued by
the Trust with respect to the Shares in accordance with and pursuant to the
Articles of Incorporation or By-laws of the Trust or as required by law and
shall perform such other specific duties as are set forth in the Articles of
Incorporation including the giving of notice of any special or annual meeting of
shareholders and any other notices required thereby.
9. Record Keeping and Other Information. The Transfer Agent shall
create and maintain all records required of it pursuant to its duties hereunder
and as set forth in Schedule C in accordance with all applicable laws, rules and
regulations, including records required by Section 31(a) of the 1940 Act. All
records shall be available during regular business hours for inspection and use
by the Trust. Where applicable, such records shall be maintained by the Transfer
Agent and its designee for the periods and in the places required by Rule 31a-2
under the 1940 Act.
Upon reasonable notice by the Trust, the Transfer Agent and its
designee shall make available during regular business hours such of its
facilities and premises employed in connection with the performance of its
duties under this Agreement for reasonable visitation by the Trust, or any
person retained by the Trust as may be necessary for the Trust to evaluate the
quality of the services performed by the Transfer Agent pursuant hereto.
10. Other Duties. In addition to the duties set forth in Schedule C,
the Transfer Agent shall perform such other duties and functions, and shall be
paid such amounts therefore, as may from time to time be agreed upon in writing
between the Trust and the Transfer Agent. The compensation for such other duties
and functions shall be reflected in a written amendment to Schedule A or B and
the duties and functions shall be reflected in an amendment to Schedule C, both
dated and signed by authorized persons of the parties hereto.
11. Reliance by Transfer Agent: Instructions
(a) The Transfer Agent will have no liability when acting upon
Written or Oral Instructions believed to have been executed or orally
communicated by an Authorized Person and will not be held to have any notice of
any change of authority of any person until receipt of a Written Instruction
thereof from the Trust pursuant to Section 4(b).
(b) At any time, the Transfer Agent may apply to any
Authorized Person of the Trust for Written Instructions and may seek advice from
legal counsel for the Trust, or its own legal counsel, with respect to any
matter arising in connection with this Agreement, and it shall not be liable for
any action taken or not taken or suffered by it in good faith in accordance with
such Written Instructions or in accordance with the opinion of counsel for the
Trust or for the Transfer Agent. Written Instructions requested by the Transfer
Agent will be provided by the Trust within a reasonable period of time. In
addition, the Transfer Agent, its officers, agents or employees, shall accept
Oral Instructions or Written Instructions given to them by any person
representing or acting on behalf of the Trust only if said representative is an
Authorized Person. The Trust agrees that Oral Instructions shall be followed
within one business day by confirming Written Instructions, and that the Trust's
failure to so shall not impair in any respect the Transfer Agent's right to rely
on Oral Instructions. The Transfer Agent shall have no duty or obligation to
inquire into, nor shall the Transfer Agent be responsible for, the legality of
any act done by it upon the request or direction of a person reasonably believed
by the Transfer Agent to be an Authorized Person.
(c) Notwithstanding any of the foregoing provisions of this
Agreement, the Transfer Agent shall be under no duty or obligation to inquire
into, and shall not be liable for: (i) the legality of the issuance or sale of
any Shares or the sufficiency of the amount to be received therefor; (ii) the
legality of the redemption of any Shares, or the propriety of the amount to be
paid therefor; (iii) the legality of the declaration of any dividend by the
Board of Trustees, or the legality of the issuance of any Shares in payment of
any dividend; or (iv) the legality of any recapitalization or readjustment of
the Shares.
12. Acts of God, etc. The Transfer Agent will not be liable or
responsible for delays or errors by acts of God or by reason of circumstances
beyond its control including acts of civil or military authority, national
emergencies, labor difficulties, mechanical breakdown, insurrection, war, riots,
or failure or unavailability of transportation, communication or power supply,
fire, flood or other catastrophe.
13. Duly of Care and Indemnification. The Trust will indemnify the
Transfer Agent against and hold it harmless from any and all losses, claims,
damages, liabilities or expenses of any sort or kind (including reasonable
counsel fees and expenses) resulting from any claim, demand, action or suit or
other proceeding (a "Claim") unless such Claim has been judicially determined to
have resulted from a negligent failure to act or omission to act or bad faith of
the Transfer Agent in the performance of its duties hereunder. In addition, the
Trust will indemnify the Transfer Agent against and hold it harmless from any
claim, damages, liabilities, or expenses (including reasonable counsel fees)
that is a result of- (i) any action taken in accordance with Written or Oral
Instructions, or any other instructions reasonably believed by the Transfer
Agent to be genuine and to be signed, countersigned or executed, or orally
communicated by an Authorized Person; (ii) any action taken in accordance with
written or oral advice reasonably believed by the Transfer Agent to have been
given by counsel for the Trust or its own counsel; or (iii) any action taken as
a result of any error or omission in any record (including but not limited to
magnetic tapes, computer printouts, hard copies and microfilm copies) delivered,
or caused to be delivered by the Trust to the Transfer Agent in connection with
this Agreement.
In any case in which the Trust may be asked to indemnify or hold
the Transfer Agent harmless, the Trust shall be advised of all pertinent facts
concerning the situation in question. The Transfer Agent will notify the Trust
promptly after identifying any situation which it believes presents or appears
likely to present a claim for indemnification against the Trust although the
failure to do so shall not prevent recovery by the Transfer Agent. Trust shall
have the option to defend the Transfer Agent against any Claim which may be the
subject of this indemnification, and, in the event that the Trust so elects,
such defense shall be conducted by counsel chosen by the Trust and satisfactory
to the Transfer Agent, and thereupon the Trust shall take over complete defense
of the Claim and the Transfer Agent shall sustain no further legal or other
expenses in respect of such claim. The Transfer Agent will not confess any Claim
or make any compromise in any case in which the Trust will be asked to provide
indemnification, except with the Trust's prior written consent. The obligations
of the parties hereto under this Section shall survive the termination of this
Agreement.
14. Consequential Damages. In no event and under no circumstances shall
either party under this Agreement be liable to the other party for consequential
or indirect loss of profits, reputation or business or any other special damages
under any provision of this Agreement or for any act or failure to act
hereunder.
15. Term and Termination.
(a) This Agreement shall be effective on the date first
written above and shall continue for one year, and thereafter shall
automatically continue for successive annual periods ending on the anniversary
of the date first written above, provided that it may be terminated by either
party upon written notice given at least 90 days prior to such anniversary date.
(b) In the event a termination notice is given by the Trust,
it shall be accompanied by a resolution of the Board of Trustees, certified by
the Secretary of the Trust, designating a successor transfer agent. Upon such
termination and at the expense of the Trust, the Transfer Agent will deliver to
such successor a certified list of shareholders of the Trust (with names and
addresses), and all other relevant books, records, correspondence and other
Trust records or data in the possession of the Transfer Agent, and the Transfer
Agent will cooperate with the Trust and any successor transfer agent or agents
in the substitution process.
16. Confidentiality. Both parties hereto agree that any non-public
information obtained hereunder concerning the other party is confidential and
may not be disclosed to any other person without the consent of the other party,
except as may be required by applicable law or at the request of the Commission
or other governmental agency. The parties further agree that a breach of this
provision would irreparably damage the other party and accordingly agree that
each of them is entitled, without bond or other security, to an injunction or
injunctions to prevent breaches of this provision.
17. Amendment. This Agreement may only be amended or modified by a
written instrument executed by both parties.
18. Subcontracting. The Trust agrees that the Transfer Agent may, in
its discretion, subcontract for certain of the services described under this
Agreement or the Schedules hereto; provided that the appointment of any such
Transfer Agent shall not relieve the Transfer Agent of its responsibilities
hereunder.
19. Miscellaneous.
(a) Notices. Any notice or other instrument authorized or
required by this Agreement to be given in writing to the Trust or the Transfer
Agent, shall be sufficiently given if addressed to that party and received by it
at its office set forth below or at such other place as it may from time to time
designate in writing.
To the Trust:
Sierra Prime Income Fund
9301 Corbin Avenue, Suite 333
Northridge, CA 91324
Attention: F. Brian Cerini, President
with a copy to: Richard W. Grant, Esq.
Morgan, Lewis & Bockius
2000 One Logan Square
Philadelphia, PA 19103-6993
Lawrence J. Sheehan, Esq.
O'Melveney & Myers
1999 Avenue of the Stars, Suite 700
Los Angeles, CA 90067
To the Transfer Agent:
Sierra Fund Administration Corporation
9301 Corbin Avenue, Suite 333
Northridge, CA 91324
(b) Successors. This Agreement shall extend to and shall be
binding upon the parties hereto, and their respective successors and assigns,
provided, however, that this Agreement shall not be assigned to any person other
than a person controlling, controlled by or under common control with the
assignor without the written consent of the other party, which consent shall not
be unreasonably withheld.
(c) Governing Law. This Agreement shall be governed
exclusively by the laws of the State of California.
(d) 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.
(e) Captions. The captions of this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
(f) Independent Contractors. The parties agree that they are
independent contractors and not partners or co-venturers.
(g) Entire Agreement: Severability. This Agreement and the
Schedules attached hereto constitute the entire agreement of the parties hereto
relating to the matters covered hereby and supersede any previous agreements. If
any provision is held to be illegal, unenforceable or invalid for any reason,
the remaining provisions shall not be affected or impaired thereby.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed by their duly authorized officers, as of the day and year first
above written.
<PAGE>
SIERRA PRIME INCOME FUND
By____________________________
F. Brian Cerini
Title_________________________
Chairman
SIERRA FUND ADMINISTRATION CORP.
By____________________________
Name
Title_________________________
<PAGE>
Exhibit 99.11
2000 One Logan Square Morgan, Lewis
Philadelphia, PA 19103-6993 & Bockius LLP
215-963-5000 COUNSELORS AT LAW
Fax: 215-963-5299
February 8, 1996
Sierra Prime Income Fund
9301 Corbin Avenue, Suite 333
P.O. Box 1160
Northridge, California 91328-1160
Gentlemen:
We are furnishing this opinion with respect to the proposed offer and sale from
time to time of units of beneficial interest, without par value, of Class A
Common Shares (the "Class A Common Shares"), of the Sierra Prime Income Fund
(the "Fund"), a Massachusetts business trust, registered under the Securities
Act of 1933 and the Investment Company Act of 1940, by a Registration Statement
on Form N-2 (File Nos. 33-98824 and 811-9122) as amended from time to time (the
"Registration Statement").
We have acted as special counsel to the Fund in connection with the initial
organization and registration, and we are familiar with the actions taken by its
Trustees to authorize the issuance of the Class A Common Shares. We have
reviewed the Agreement and Declaration of Trust, as amended, By-laws, minute
books and such other certificates, documents and opinions of counsel as deemed
necessary for the purpose of this opinion.
We have reviewed the Fund's Notification of Registration on Form N-8A under the
Investment Company Act of 1940. We have assisted in the preparation of the
Fund's Registration Statement, including all pre-effective amendments thereto,
filed or to be filed with the Securities and Exchange Commission.
We have assumed that appropriate action will be taken to register or qualify the
sale of the Class A Common Shares under any applicable state and federal laws
regulating sales and offerings of such securities.
Based upon the foregoing, we are of the opinion that:
1. The Fund is a business trust validly existing under the laws of the
Commonwealth of Massachusetts. The Fund is authorized to issue an unlimited
number of shares in such series or classes as the Trustees may hereafter duly
authorize.
2. Upon the issuance of any Class A Common Shares of the Fund for payment
therefor as described in the prospectus and Statement of Additional Information
filed as part of the Registration Statement, the Class A Common Shares so issued
will be validly issued, fully paid and non-assessable.
This opinion is intended only for your use in connection with the offering of
the Class A Common Shares and may not be relied upon by any other person.
We hereby consent to the inclusion of this opinion as Exhibit 11 to the Fund's
Registration Statement on Form N-2 to be filed with the Securities and Exchange
Commission.
Very truly yours,
/s/ Morgan, Lewis & Bockius LLP
Philadelphia Washington New York Los Angeles Miami Harrisburg
Princeton London Brussels Frankfurt Tokyo
Exhibit 99.13
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Pre-Effective Amendment No. 1 to the registration
statement on Form N-2 (the "Registration Statement") of our report dated
February 12, 1996, relating to the statement of assets and liabilities of Sierra
Prime Income Fund which appears in such Statement of Additional Information. We
also consent to the reference to us under the heading "Experts" in such
Statement of Additional Information.
Price Waterhouse LLP
Boston, Massachusetts
February 12, 1996
<PAGE>
Exhibit 99.15
FORM OF PURCHASE AGREEMENT
Sierra Prime Income Fund, a closed-end management investment company
(the "Fund"), and Sierra Fund Administration Corporation, a California
Corporation ("Sierra Administration"), intending to be legally bound, hereby
agree as follow:
1. In order to provide the Fund with its initial capital, the Fund
hereby sells to Sierra Administration and Sierra Administration hereby purchases
shares of Class A Common Shares, with no par value per share, (the "Class A
Common Shares") of the Fund as follows: 10,000 shares of the Class A Common
Shares of Sierra Prime Income Fund at $10.00 per share. The Fund hereby
acknowledges receipt from Sierra Administration of $100,000 in full payment for
the Shares.
2. Sierra Administration represents and warrants to the Fund that the
Class A Common Shares are being acquired for investment and not with a view to
distribution thereof and that Sierra Administration has no present intention to
redeem or dispose of any of the Class A Common Shares.
3. Sierra Administration hereby agrees that it will not redeem any of
the Class A Common Shares prior to the time that the Fund has completed the
amortization of its organizational expenses. In the event that the Fund
liquidates before the deferred organizational expenses are fully amortized, then
the Class A Common Shares shall bear their proportionate share of such
unamortized organizational expenses.
IN WITNESS WHEREOF, the parties have executed this agreement as of the
__ day of February, 1996.
SIERRA PRIME INCOME FUND
By: _____________________________
F. Brian Cerini
Title: President
SIERRA FUND ADMINISTRATION CORPORATION
By: _____________________________
Keith B. Pipes
Title: Chief Financial Officer,
Secretary and Treasurer
