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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
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<S> <C>
/X/ Preliminary Proxy Statement / / Confidential, for Use of the Commission
/ / Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
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SIERRA PRIME INCOME FUND
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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SIERRA PRIME INCOME FUND
Dear Shareholder:
The attached proxy statement solicits your vote as a Shareholder of the
Sierra Prime Income Fund (the "Fund") for the purpose of approving a new
investment sub-advisory agreement (the "Non Sub-Advisory Agrement") with the
current sub-advisor, Van Kampen American Capital Management Inc. (the
"Sub-Advisor"), as a result of a merger transaction involving the Sub-Advisor
and its parent.
A Special Meeting of Shareholders of the Fund has been scheduled for
October 29, 1996. While you are, of course, welcome to join us at the meeting,
most Shareholders cast their votes by filling out and signing the proxy card
that accompanies this proxy statement.
The attached proxy statement is designed to give you information
relating to the proposal on which you will be asked to vote. We encourage you
to support the Trustees' recommendation. The proposal described in the proxy
statement relates to the following matter:
Approval of the New Sub-Advisory Agreement by and among the Fund,
Sierra Investment Advisors Corporation and the Sub-Advisor with respect
to the Sierra Prime Income Fund.
The purpose of the above recommendation is to permit the Fund to
continue to receive investment sub-advisory services from the Sub-Advisor after
the acquisition of the Sub-Advisor's parent by Morgan Stanley Group, Inc. As a
result of the acquisition, a change of control of the Sub-Advisor is deemed to
have occurred which automatically terminates the Fund's current investment
sub-advisory agreement.
Your vote is important to us. Please mark, sign and date the enclosed
proxy card and return it as soon as possible. For your convenience, we have
enclosed a self-addressed stamped envelope. If you have any questions about
the proposal, please do not hesitate to call 800-222-5852. Thank you for
taking the time to consider this important proposal and for your investment in
the Sierra Prime Income Fund.
Sincerely,
F. Brian Cerini
President and Chief Executive Officer
Sierra Prime Income Fund
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SIERRA PRIME INCOME FUND
9301 Corbin Avenue, Suite 333
Northridge, California 91324
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To be Held on October 29, 1996
To the Shareholders of
Sierra Prime Income Fund:
Notice is hereby given that a Special Meeting (the "Special Meeting")
of Shareholders of the Sierra Prime Income Fund (the "Fund"), a Massachusetts
business trust, will be held at the offices of Sierra Fund Administration
Corporation, 9301 Corbin Avenue, Suite 333, Northridge, California 91324, on
October 29, 1996 at 9:00 a.m. Pacific Standard Time, to consider and act on the
following matters:
1. Proposal to approve a new investment sub-advisory agreement
(the "New Sub-Advisory Agreement") by and among the Fund,
Sierra Investment Advisors Corporation (the "Advisor") and Van
Kampen American Capital Management Inc. ("Capital Management"
or "Sub-Advisor").
2. To consider and act upon any other matters as may properly
come before the Special Meeting.
All shareholders of the Fund are cordially invited to attend the
Special Meeting. Regardless of whether you plan to attend the Special Meeting,
please complete, sign and date the enclosed proxy and return it promptly in the
enclosed envelope so that a quorum will be present and a maximum number of
shares may be voted. If you are present at the Special Meeting, you may change
your vote, if desired, at that time.
Shareholders of record at the close of business on September 10, 1996
are entitled to notice of and to vote at the Special Meeting or any adjournment
thereof.
By Order of the Board of Trustees
Keith B. Pipes
Secretary
September 26, 1996
PROMPT EXECUTION AND RETURN OF THE ENCLOSED PROXY IS REQUESTED. A
SELF-ADDRESSED, POSTAGE-PAID ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE.
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SIERRA PRIME INCOME FUND
9301 Corbin Avenue, Suite 333
Northridge, California 91324
___________________
PROXY STATEMENT
___________________
This Proxy Statement is furnished by the Board of Trustees of the
Sierra Prime Income Fund (the "Fund") in connection with the solicitation of
proxies for use at the Special Meeting of Shareholders to be held on October
29, 1996 at 9:00 a.m., Pacific Standard Time, at the offices of Sierra Fund
Administration Corporation, 9301 Corbin Avenue, Suite 333, Northridge,
California 91324 (the "Special Meeting" or "Meeting"). Shareholders of record
of the Fund at the close of business on September 10, 1996 (the "Record Date")
are entitled to vote at the Meeting.
As of September 10, 1996, the Fund had __________ shares issued and
outstanding. Each share is entitled to one vote and each fractional share is
entitled to a proportionate fractional vote on each matter as to which such
shares are to be voted at the Meeting.
In addition to the solicitation of proxies by mail, Trustees and
officers of the Fund and officers and employees of Sierra Fund Administration
Corporation ("Sierra Administration") or third parties hired for the purpose,
may solicit proxies in person or by telephone. Persons holding shares as
nominees will, upon request, be reimbursed for their reasonable expenses
incurred in sending soliciting materials to their principals. The general cost
of solicitation will be borne by Van Kampen American Capital Management Inc.
("Capital Management" or "Sub-Advisor"). It is expected that the Notice of
Special Meeting, the Proxy Statement and Proxy Card will be mailed to
shareholders on or about September 26, 1996.
Shares represented by duly executed proxies will be voted in
accordance with the instructions given. Proxies may be revoked at any time
before they are exercised by a written revocation received by the President of
the Fund at 9301 Corbin Avenue, Suite 333, Northridge, California 91324, by
properly executing a later-dated proxy, or by attending the Meeting and voting
in person.
INTRODUCTION
The Fund is organized as a Massachusetts business trust and is not
required to hold annual meetings of Shareholders. The Meeting is being called
in order to permit the Shareholders of the Fund to vote on the approval of a
new investment sub-advisory agreement (the "New Sub-Advisory Agreement") with
the current sub-advisor, Capital Management. This New Sub-Advisory Agreement
is considered appropriate because consummation of the merger transaction
involving the Sub-Advisor and its parent, described below, might be deemed
under the Investment Company Act of 1940, as amended (the "1940 Act") to cause
termination of the current investment sub-advisory agreement by and among the
Fund, Sierra Investment Advisors Corporation ("Sierra Advisors" or "Advisor")
and Capital Management (the "Current Sub-Advisory Agreement").
THE PROPOSED TRANSACTION
The Fund's investment sub-advisor is Capital Management, which
currently is a wholly-owned subsidiary of Van Kampen American Capital, Inc.
("VKAC"), which is a wholly-owned subsidiary of VKAC Holding, which in turn is
controlled, through the ownership of a substantial majority of its common
stock, by The Clayton & Dubilier
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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.").
On June 21, 1996, an Agreement and Plan of Merger ("Merger Agreement")
was entered into by and among VK/AC Holding, Morgan Stanley Group Inc. ("Morgan
Stanley"), MSAM Holdings II, Inc. ("MSAM Holdings"), and MSAM Acquisition, Inc.
("MSAM Acquisition"), pursuant to which VK/AC Holding and Capital Management
will become indirect subsidiaries of Morgan Stanley. Morgan Stanley expects
that regulatory approvals will be received and that the merger transaction will
be consummated before the end of October, 1996.
Under the terms of the Current Sub-Advisory Agreement and as required
by the 1940 Act, the Current Sub-Advisory Agreement automatically terminates
upon its assignment. As more fully discussed below, the consummation of the
contemplated acquisition of the Sub-Advisor by Morgan Stanley may constitute an
assignment of the Current Sub-Advisory Agreement. Therefore, in order for the
Fund to continue to receive investment sub-advisory services from the
Sub-Advisor after such assignment, it is necessary that the shareholders of the
Fund approve the New Sub-Advisory Agreement.
The proposal set forth in this Proxy Statement relates to the New
Sub-Advisory Agreement. THE TERMS OF THE NEW SUB-ADVISORY AGREEMENT ARE NOT
DIFFERENT IN ANY MATERIAL WAY FROM THOSE OF THE CURRENT SUB-ADVISORY AGREEMENT
WITH RESPECT TO DUTIES, FEES AND THE STANDARD OF CARE, EXCEPT THAT THE NEW
AGREEMENT WILL PROVIDE THAT THE CURRENT SUB-ADVISOR MAY, IF IT CONTINUES TO
SERVE IN THOSE CAPACITIES DURING ANY PERIOD BETWEEN THE CLOSING OF THE MERGER
TRANSACTION AND APPROVAL OF THE NEW AGREEMENT, RECEIVE AS COMPENSATION UNDER
THE NEW AGREEMENT AN AMOUNT EQUAL TO THE FEES THEY WOULD NORMALLY RECEIVE
DURING SUCH PERIOD PURSUANT TO THE CURRENT SUB-ADVISORY AGREEMENT. THIS
PROVISION ENSURES THAT CAPITAL MANAGEMENT WILL BE COMPENSATED FOR THEIR
SERVICES DURING SUCH PERIOD EVEN IF IT SHOULD BE DETERMINED THAT AN ASSIGNMENT
OF THE CURRENT SUB-ADVISORY AGREEMENT OCCURRED. PROVIDING FOR SUCH
COMPENSATION SHOULD NOT HAVE ANY MATERIAL IMPACT ON THE NET ASSET VALUE PER
SHARE OR EXPENSE RATIO OF THE FUND BECAUSE THE FUND WILL CONTINUE TO ACCRUE FOR
ADVISORY FEES AT THE CURRENT RATE DURING ANY SUCH PERIOD.
THE ACQUISITION
Pursuant to the Merger Agreement, MSAM Acquisition Inc. will be merged
with and into VKAC Holding and VKAC Holding will be the surviving corporation
(the "Acquisition"). Following the Acquisition, VKAC Holding and the
Sub-Advisor will be indirect subsidiaries of Morgan Stanley.
The Sub-Advisor anticipates that the consummation of the Acquisition
will occur by the end of October 1996 provided that a number of conditions set
forth in the Merger Agreement are met or waived. The conditions require, among
other things, that as of the closing the shareholders of certain investment
companies (including the Fund) and investors in certain accounts advised by the
Sub-Advisor or its affiliates, which investment companies and accounts have
aggregate assets in excess of a specified minimum amount, have approved new
investment advisory agreements or consented to the assignment of existing
investment advisory agreements. At the closing, MSAM Acquisition Inc. will pay
approximately $740 million (based on VKAC's long-term debt outstanding as of
July 31, 1996) in cash to the stockholders of VKAC Holding (excluding certain
management stockholders), and to persons owning options to purchase stock of
VKAC Holding, subject to certain purchase price adjustments set forth in the
Merger Agreement. As of July 31, 1996, VKAC had long-term debt outstanding of
approximately $410 million. To the extent that pre-tax income of VKAC prior to
the closing of the Acquisition permits the repayment of its long-term debt, the
purchase price for the equity interests in VKAC Holding will be increased by
the amount of long-term debt repaid. The purchase price also is subject to
certain adjustments based, among other things, on assets under management of
VKAC and its subsidiaries at the time of closing. The Sub-Advisor also
contemplates that, as part of the Acquisition, certain officers and directors
of VKAC Holding and its affiliates will contribute to MSAM Holdings II, Inc.
their existing shares of common stock of VKAC Holding in exchange for
approximately $25 million of shares of preferred stock
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of MSAM Holdings II, Inc. which, in turn, will be exchangeable into common
stock, par value $1.00 per share, of Morgan Stanley at specified times over a
four-year period. Such shares of preferred stock will represent, in the
aggregate, 5% of the combined voting power in MSAM Holdings II, Inc., the
remainder of which will be indirectly owned by Morgan Stanley.
VKAC Holding will engage in certain preparatory transactions prior to
the Acquisition, including the distribution to stockholders of VKAC Holding of
(i) all of VKAC Holding's investment in McCarthy, Crisanti & Maffei, Inc., a
wholly-owned subsidiary engaged in the business of distributing research and
financial information, (ii) all of VKAC Holding's investment in Hansberger
Global Investors, Inc. ("HGI"), a company in which VKAC Holding made a minority
investment in May 1996, and (iii) certain related cash amounts.
There is no financing condition to the closing of the Acquisition.
VKAC has been advised by Morgan Stanley that as of , 1996, no
determination has been made whether any additional indebtedness will be
incurred by Morgan Stanley and its affiliates or VKAC and its affiliates in
connection with the Acquisition. In addition, the disposition of VKAC's
outstanding long-term indebtedness (including its bank loans and senior notes)
in connection with the Acquisition has not yet been determined.
The operating revenue of VKAC and its subsidiaries for the fiscal year
ended December 31, 1995, less expenses for the same period, was more than
adequate to service VKAC's outstanding debt. VKAC prepaid $80 million of its
long-term debt in 1995, and has continued to make debt prepayments during 1996.
VKAC Holding and VKAC believe, based on the earnings experience of VKAC and its
subsidiaries, that after the Acquisition the operating revenue of VKAC and its
subsidiaries should be more than sufficient to service their debt and that VKAC
and its subsidiaries should be able to conduct their respective operations as
now conducted and as proposed to be conducted.
The Merger Agreement does not contemplate any changes, other than
changes in the ordinary course of business, in the management or operation of
the Sub-Advisor relating to the Fund, the personnel managing the Fund or other
services or business activities of the Fund. The Acquisition is not expected
to result in material changes in the business, corporate structure or
composition of the senior management or personnel of the Sub-Advisor, or in the
manner in which the Sub-Advisor renders services to the Fund. Morgan Stanley
has agreed in the Merger Agreement that, for a period of two years from the
date of the Acquisition, it will cause the Sub-Advisor to provide compensation
and employee benefits which are substantially comparable in the aggregate to
those presently provided. The Sub-Advisor does not anticipate that the
Acquisition or any ancillary transactions will cause a reduction in the quality
of services now provided to the Fund, or have any adverse effect on the
Sub-Advisor's ability to fulfill its obligations under the New Sub-Advisory
Agreement or to operate its business in a manner consistent with past business
practices.
Certain officers of the Sub-Advisor, including Dennis J. McDonnell and
Don G. Powell prior to July 1996, previously entered into employment agreements
with VKAC Holding which expire from between 1997 and 2000. Certain officers of
the Sub-Advisor also previously entered into retention agreements with VKAC
Holding, which will remain in place for two years following the consummation of
the Acquisition. The Merger Agreement contemplates that Morgan Stanley will,
and will cause VKAC Holding to, honor such employment and retention agreements.
The employment agreements and retention agreements are intended to assure that
the services of the officers are available to the Sub-Advisor (and thus to the
Fund) for a remaining term of two to four years. As described above, certain
officers and employees of VKAC and the Sub-Advisor, including Mr. McDonnell and
Mr. Powell, are expected to contribute their existing shares of common stock of
VKAC Holding to MSAM Holdings II, Inc. in exchange for approximately $25
million of preferred stock in MSAM Holdings II, Inc. which, in turn, will be
exchangeable into common stock, par value $1.00 per share, of Morgan Stanley at
specified times over a four-year period. Such shares of preferred stock will
represent, in the aggregate, 5% of the combined voting power in MSAM Holdings
II, Inc.
Morgan Stanley and various of its directly or indirectly owned
subsidiaries, including Morgan Stanley & Co. Incorporated ("Morgan Stanley &
Co."), a registered broker-dealer and investment adviser, and Morgan Stanley
International, are engaged in a wide range of financial services. Their
principal businesses include securities
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underwriting, distribution and trading; merger, acquisition, restructuring and
other corporate finance advisory activities; merchant banking; stock brokerage
and research services; asset management; trading of futures, options, foreign
exchange, commodities and swaps (involving foreign exchange, commodities,
indices and interest rates); real estate advice, financing and investing; and
global custody, securities clearance services and securities lending. Morgan
Stanley Capital Management Inc. also is a wholly-owned subsidiary of Morgan
Stanley. As of June 30, 1996, Morgan Stanley Capital Management Inc., together
with its affiliated investment advisory companies, had approximately $103.5
billion of assets under management and fiduciary advice.
TRUSTEES' CONSIDERATIONS
The Board of Trustees believes that the terms of the New Sub-Advisory
Agreement are fair to and in the best interest of the Fund and its
Shareholders. The Board of Trustees, including all of the non-interested
Trustees, recommends approval by Shareholders of the New Sub-Advisory
Agreement. In determining to recommend that the shareholders approve the New
Sub-Advisory Agreement, the Board of Trustees took into account that, except
for changes in the ownership of the Sub-Advisor and the dates of execution,
effectiveness and termination, there are no differences between the terms and
conditions of the Current Sub-Advisory Agreement and the proposed New
Sub-Advisory Agreement, including the terms relating to the services to be
provided thereunder by the Sub-Advisor and the fees and expenses payable by the
Fund. The Board of Trustees also considered that the terms of the New
Sub-Advisory Agreement do not contemplate change in the investment objective or
policies of the Fund, the management or operations of the Sub-Advisor relating
to the Fund, the personnel managing the Fund, or the shareholder services or
other business activities of the Fund. As the Sub-Advisor has indicated to the
Trustees, the Acquisition is not expected to result in any such change. The
Board also considered the skills and capabilities of the Sub-Advisor and the
representations of the Sub-Advisor and Morgan Stanley that no material change
was planned in the current management of the Sub-Advisor. There can be no
assurance that such changes may not occur. If, after the Acquisition, changes
in the Sub-Advisor are proposed that might affect its services to the Fund, the
Trustees will consider the effect of those changes and take such action as they
deem advisable under the circumstances.
The Board of Trustees also considered the terms of the Merger
Agreement and the possible effects of the Acquisition upon the Sub-Advisor's
organization and upon the ability of the Sub-Advisors to provide investment
sub-advisory services to the Fund. The Board of Trustees considered the skills
and capabilities of the Sub-Advisor and the representations of Morgan Stanley
that no material change was planned in the current management or facilities of
the Sub-Advisor. In this regard, representatives of Morgan Stanley met with
the Board of Trustees at which time such representatives described the
resources available to the Sub-Advisor, after giving effect to the Acquisition,
to secure for the Fund quality investment research, investment advice and other
client services. The Board of Trustees considered the financial resources of
Morgan Stanley and Morgan Stanley's representation to the Board of Trustees
that it will provide sufficient capital to support the operations of the
Sub-Advisor. The Board of Trustees also considered the reputation, expertise
and resources of Morgan Stanley and its affiliates in domestic and
international financial markets. The Board of Trustees considered the
continued employment of members of senior management of the Sub-Advisor
pursuant to employment and retention agreements and the incentives provided to
such members and other key employees of the Sub-Advisor to be important to help
to assure continuity of the personnel primarily responsible for maintaining the
quality of investment advisory and other services for the Fund.
The Board of Trustees considered the effects on the Fund of the
Sub-Advisor becoming an affiliated person of Morgan Stanley. Following the
Acquisition, the 1940 Act will prohibit or impose certain conditions on the
ability of the Fund to engage in certain transactions with Morgan Stanley and
its affiliates. For example, absent exemptive relief, the Fund will be
prohibited from purchasing securities from Morgan Stanley & Co., a wholly-owned
broker-dealer subsidiary of Morgan Stanley, in transactions in which Morgan
Stanley & Co. acts as a principal, and the Fund will have to satisfy certain
conditions in order to engage in securities transactions in which Morgan
Stanley & Co. acts as a broker or to purchase securities in an underwritten
offering in which Morgan Stanley & Co. is acting as an underwriter. In this
connection, management of the Sub-Advisor represented to the Board of Trustees
that they
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do not believe these prohibitions or conditions will have a material effect on
the management or performance of the Fund.
The Board of Trustees was advised that Section 15(f) of the 1940 Act
is applicable to the Acquisition. Section 15(f) of the 1940 Act permits, in
the context of a "change in control" of an investment advisor to a registered
investment company, the receipt by such investment advisor, or any of its
affiliated persons, of an amount of benefit in connection with such sale, as
long as two conditions are satisfied. First, an "unfair burden" must not be
imposed on the investment company for which the investment advisor acts in such
capacity as a result of the sale of such interest, or any express or implied
terms, conditions or understandings applicable thereto. The term "unfair
burden," as defined in the 1940 Act, includes any arrangement during the
two-year period after the transaction whereby the investment advisor (or
predecessor or successor advisor), or any interested person of any such
advisor, receives or is entitled to receive any compensation, directly or
indirectly, from the investment company or its security holders (other than
fees for bona fide investment advisory and other services), or from any person
in connection with the purchase or sale of securities or other property to,
from or on behalf of the investment company (other than ordinary fees for bona
fide principal underwriting services). The second condition of Section 15(f)
is that during the three-year period immediately following a transaction to
which Section 15(f) is applicable, at least 75% of the subject investment
company's board of directors must not be "interested persons" (as defined in
the 1940 Act) of the investment company's investment adviser or predecessor
adviser.
None of the current members of the Board of Trustees of the Fund is an
interested person of Capital Management. Additionally, the Board of Trustees
of the Fund has received assurances from Capital Management and Morgan Stanley
that no "unfair burden" will be imposed on the Fund as a result of the merger
transaction.
On the basis of their review of the information and factors discussed
above, the Trustees, including a majority of the Disinterested Trustees, have
concluded that it is in the best interests of the Fund and its shareholders to
approve the New Sub-Advisory Agreement, thereby enabling the Fund to receive
investment sub-advisory services from the Sub-Advisor.
PROPOSAL I: APPROVAL OF THE NEW INVESTMENT SUB-ADVISORY AGREEMENT
In anticipation of the possibility of an assignment of the Current
Sub-Advisory Agreement of the Fund in connection with the Acquisition, at a
meeting held on September 9, 1996, the Board of Trustees, including a majority
of the Trustees who are not "interested persons in such term as defined in the
1940 Act, concluded that if the Acquisition takes place, entry into the New
Sub-Advisory Agreement by the Fund would be in the best interest of the Fund
and its shareholders. Therefore, the Board of Trustees is recommending that
Shareholders of the Fund approve the selection of Capital Management to continue
to serve as the investment sub-advisor to the Fund after the merger transaction
of its parent is completed, and approve the New Sub-Advisory Agreement. Other
than the provision assuring continuity of compensation and the effective and
termination dates, there are no material differences between the Current and New
Sub-Advisory Agreements.
DESCRIPTION OF THE CURRENT SUB-ADVISORY AGREEMENT
Capital Management currently serves as the investment Sub-Advisor to
the Fund pursuant to an agreement by and among the Fund, Sierra Advisors, and
the Sub-Advisor dated February 14, 1996. Under the Current Sub-Advisory
Agreement, Capital Management makes the day-to-day investment decisions for the
assets of the Fund, subject to the supervision of, and policies established by,
Sierra Advisors and the Trustees of the Fund. The Current Sub-Advisory
Agreement was approved by the Initial Shareholder of the Fund on February 14,
1996. The form of the New Sub-Advisory Agreement is attached to this Proxy
Statement as Appendix A and the description of the New Sub-Advisory Agreement
set forth in this Proxy Statement is qualified in its entirety by reference to
Appendix A.
Except for changes in the ownership of the Sub-Advisor, and the dates
of execution, effectiveness and termination, the terms of the New Sub-Advisory
Agreement are the same as the terms of the Current Sub-Advisory Agreement.
Capital Management will be paid the same fees under the proposed New
Sub-Advisory Agreement.
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Under the Current Sub-Advisory Agreement, Capital Management shall not
be liable for any error of judgment or for any loss suffered by the Fund or
Sierra Advisors in connection with performance of its obligations under the
Agreement, except for any losses resulting from a breach of a fiduciary duty
with respect to the receipt of compensation for services, or resulting from
willful misfeasance, bad faith or gross negligence on Capital Management's part
in the performance of its duties or from reckless disregard of its obligations
and duties under the Agreement.
The Current Sub-Advisory Agreement has an initial term of two years
from its effective date, and thereafter shall continue for successive annual
periods, provided the continuation is approved by the Fund's Board of Trustees
or by vote of a majority of its outstanding voting securities, as well as by a
majority of the Fund's Trustees who are not "interested persons" as defined in
the 1940 Act. The Current Sub-Advisory Agreement may be terminated, without the
payment of any penalty on 30 days' written notice by Sierra Advisors, the Board
of Trustees or by the vote of a majority of the outstanding voting securities of
the Fund, upon 90 days' written notice by Capital Management. In addition, the
Current Sub-Advisory Agreement will also terminate automatically upon the
termination of the ?????? advisory agreement between the Fund and Sierra
Advisors, as well as in the event of an assignment. The New Sub-Advisory
Agreement's approval and termination provisions are in substance identical to
those of the Current Sub-Advisory Agreement so that the New Sub-Advisory
Agreement will have an initial term of two years from the date of execution.
Under the Current Sub-Advisory Agreement, Capital Management is
entitled to a fee from Sierra Advisors which is calculated daily and paid
monthly, at an annual rate of .475% of the Fund's average daily net assets.
Capital Management may from time to time and at its discretion voluntarily
waive all or a portion of its fees in order to assist the Fund in maintaining a
competitive expense ratio. Capital Management reserves the right to terminate
any voluntary fee waiver and reimbursement at any time. Capital Management
will be entitled to receive the same fees under the New Sub-Advisory Agreement,
except that, if Capital Management continues to provide investment advisory
services during any period between the time of the closing of the merger
transaction and entry into the New Sub-Advisory Agreement, Capital Management
will be entitled to receive its normal fee, even if it is determined that the
merger resulted in termination of the Current Sub-Advisory Agreement.
As compensation for investment sub-advisory services to the Fund for
the period February 14, 1996 (inception) to June 30, 1996, Capital Management
received compensation of $14,614.35.
REQUIRED VOTE
The affirmative vote of a majority of the outstanding shares of
beneficial interest of the Fund is required to approve the New Sub-Advisory
Agreement. If the New Sub-Advisory Agreement is not approved by the holders of
a majority of the outstanding shares of the Fund, the Board of Trustees will
reconsider the Fund's contractual relationship with the Sub-Advisor regarding
the investment sub-advisory services provided to the Fund.
INFORMATION REGARDING CAPITAL MANAGEMENT
Capital Management acts as investment Sub-Advisor for the Fund and has
acted as investment Sub-Advisor for the Fund since it commenced its investment
operations.
The Sub-Advisor currently is a wholly-owned subsidiary of Van Kampen
American Capital, Inc. ("VKAC"), which is a wholly-owned subsidiary of VKAC
Holding, which in turn is controlled, through the ownership of a substantial
majority of its common stock, by The Clayton & Dubilier Private Equity Fund IV
Limited Partnership ("C&D L.P."), a Connecticut limited partnership. C&D L.P.
is managed by Clayton, Dubilier & Rice, Inc., a New York based private
investment firm. The General Partner of C&D L.P. is Clayton & Dubilier
Associates IV Limited Partnership ("C&D Associates L.P."). The general
partners of C&D Associates L.P. are Joseph L. Rice, III, B. Charles Ames,
William A. Barbe, Alberto Cribiore, Donald J. Gogel, Leon J. Hendrix, Jr.,
Hubbard C. Howe and Andrall E. Pearson, each of whom is a principal of Clayton,
Dubilier & Rice, Inc. In addition, certain officers,
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<PAGE> 10
directors and employees of VKAC own, in the aggregate, approximately 6% of the
common stock of VKAC Holding and have the right to acquire, upon the exercise
of options (whether or not vested), approximately an additional 12% of the
common stock of VKAC Holding. Currently, and after giving effect to the
exercise of such options, no officer or trustee of the Funds owns or would own
5% or more of the common stock of VKAC Holding. The addresses of VKAC Holding,
VKAC and the Sub-Advisor are One Parkview Plaza, Oakbrook Terrace, Illinois
60181 and 2800 Post Oak Boulevard, Houston, Texas 77056.
The Directors and principal executive officers of the Sub-Advisor and
their principal occupations are listed below.
<TABLE>
<CAPTION>
NAME AND ADDRESS PRINCIPAL OCCUPATION
- ---------------- --------------------
<S> <C>
Don G. Powell .............. President, Chief Executive Officer and a Director of VKAC Holding and VKAC and Chairman, Chief
2800 Post Oak Blvd. Executive Officer and a Director of Van Kampen American Capital Distributors, Inc. (the
Houston, TX 77056 "Distributor"), the Advisers, Van Kampen American Capital Management, Inc. and Van Kampen American
Capital Advisors, Inc. Chairman, President and a Director of Van Kampen American Capital Exchange
Corporation, American Capital Continental Services, Inc., Van Kampen Merritt Equity Holdings Corp.,
and American Capital Shareholders Corporation. Chairman and a Director of ACCESS Investor Services,
Inc. ("ACCESS"), Van Kampen Merritt Equity Advisors, Corp., McCarthy, Crisanti & Maffei, Inc. and
Van Kampen American Capital Trust Company. Chairman, President and a Director of Van Kampen
American Capital Services, Inc. President, Chief Executive Officer and a Trustee/Director of certain
open-end investment companies and closed-end investment companies advised by the Texas Adviser.
Prior to July 1996, Chairman and Director of VSM Inc. and VCI Inc. Prior to July 1996, President,
Chief Executive Officer and a Trustee/Director of certain open-end investment companies and certain
closed-end investment companies advised by Asset Management.
Dennis J. McDonnell ...... President, Chief Operating Officer and a Director of Advisers, Van Kampen American Capital Advisors,
One Parkview Plaza Inc. and Van Kampen American Capital Management, Inc. Executive Vice President and a Director of
Oakbrook Terrace, IL VKAC Holding and VKAC. President and Director of Van Kampen Merritt Equity Advisors Corp. Director
60181 of Van Kampen Merritt Equity Holdings Corp. and McCarthy, Crisanti & Maffei, S.A. Chief Executive
Officer and Director of McCarthy, Crisanti & Maffei, Inc. Chairman and a Director of MCM Asia
Pacific Company, Limited. President and Trustee/Director of open-end investment companies and
closed-end investment companies advised by the Advisers. Prior to July 1996, President, Chief
Operating Officer and Director of VSM Inc. and VCI Inc. Prior to December, 1991, Senior Vice
President of Van Kampen Merritt, Inc.
Ronald A. Nyberg ......... Executive Vice President, General Counsel and Secretary of VKAC Holding and VKAC. Executive Vice
One Parkview Plaza President, General Counsel and a Director of the Distributor, the Advisers, Van Kampen American
Oakbrook Terrace, IL Capital Management, Inc., Van Kampen Merritt Equity Advisors Corp. and Van Kampen Merritt Equity
60181 Holdings Corp. Executive Vice President, General Counsel and Assistant Secretary of Van Kampen
American Capital Advisors, Inc., American Capital Contractual Services, Inc., Van Kampen American
Capital Exchange Corporation, ACCESS, Van Kampen American Capital Services, Inc. and American
Capital Shareholders Corporation. Executive Vice President, General Counsel, Assistant Secretary and
Director of Van Kampen American Capital Trust Company. General Counsel of McCarthy, Crisanti &
Maffei, Inc. Vice President and Secretary of open-end investment companies and closed-end investment
companies advised by the Advisers. Director of ICI Mutual Insurance Co., a provider of insurance to
members of the Investment Company Institute. Prior to July 1996, Executive Vice President and
General Counsel of VSM Inc., and Executive Vice President, General Counsel and Director of VCI Inc.
William R. Rybak ......... Executive Vice President and Chief Financial Officer of VKAC Holding and VKAC since February 1993,
One Parkview Plaza and Treasurer of VKAC Holding through December 1993. Executive Vice President, Chief Financial
Oakbrook Terrace, IL Officer and a Director of the Distributor, the Advisers and Van Kampen American Capital Management,
60181 Inc. Executive Vice President, Chief Financial Officer, Treasurer and a Director of Van Kampen
Merritt Equity Advisors Corp. and Van Kampen Merritt Equity Holdings Corp. Executive Vice President
and Chief Financial Officer of the Van Kampen American Capital Advisors, Inc., Van Kampen American
Capital Exchange Corporation, Van Kampen American Capital Trust Company, ACCESS, and American
Capital Contractual Services, Inc. Executive Vice President, Chief Financial Officer and Treasurer
of American Capital Shareholders Corporation and Van Kampen American Capital Services, Inc. Chief
Financial Officer and Treasurer of McCarthy, Crisanti & Maffei, Inc. Chairman of the Board of
Hinsdale Financial Corp., a savings and loan holding company. Prior to July 1996, Executive Vice
President, Chief Financial Officer and a Director of VCI Inc., and Executive Vice President and
Chief Financial Officer of VSM Inc.
Peter W. Hegel ........... Executive Vice President of Advisory Corp., Van Kampen American Capital Advisors, Inc. and Van
One Parkview Plaza Kampen American Capital Management, Inc. Executive Vice President and Director of Asset Management.
Oakbrook Terrace, IL Director of McCarthy, Crisanti & Maffei, Inc. Vice President of open-end investment companies and
60181 closed-end investment companies advised by the Advisers. Prior to July 1996, Director VSM Inc.
Robert C. Peck, Jr. ...... Executive Vice President of Advisory Corp. and Van Kampen American Capital Management, Inc.
2800 Post Oak Blvd. Executive Vice President and Director of Asset Management and Van Kampen American Capital Advisors,
Houston, TX 77056 Inc. Vice President of open-end investment companies advised by the Advisers.
Alan T. Sachtleben ....... Executive Vice President of Advisory Corp. and Van Kampen American Capital Management, Inc.
2800 Post Oak Blvd. Executive Vice President and a Director of Asset Management and Van Kampen American Capital
Houston, TX 77056 Advisors, Inc. Vice President of open-end investment companies advised by the Advisers.
</TABLE>
None of the Officers or Trustees of the Fund is an officer, employee,
director, or shareholder of the Sub-Advisor.
The Sub-Advisor currently provides investment services to the
following investment companies having an investment objective similar to the
investment objective of the Fund:
<TABLE>
<CAPTION>
AMOUNT OF ASSETS UNDER
NAME OF INVESTMENT COMPANY MANAGEMENT* RATE OF COMPENSATION
- -------------------------- ---------------------- --------------------
<S> <C> <C>
Van Kampen Prime Rate $4,990,920,239 First $4.0 billion .950%
Income Trust Next $3.5 billion .900%
Next $2.5 billion .875%
Over $10.0 billion .850%
</TABLE>
________________
* As of August 29, 1996
GENERAL INFORMATION ABOUT THE FUND AND OTHER MATTERS
DISTRIBUTION
Sierra Investment Services Corporation ("Sierra Services"), located at
9301 Corbin Avenue, Northridge, California 91324, acts as the Fund's
Distributor. Sierra Services is a wholly-owned subsidiary of Sierra Capital
Management Corporation, which is located at the same address.
PORTFOLIO TRANSACTIONS
For the period ended June 30, 1996, the Fund paid no brokerage
commissions to affiliated brokers.
BENEFICIAL OWNERSHIP
As of September 10, 1996, to the Fund's knowledge, no person held
beneficially 5% or more of the outstanding shares of the Fund.
ADJOURNMENT
In the event that sufficient votes in favor of the Proposal set forth
in the Notice of the Special Meeting are not received by the time scheduled for
the Special Meeting, the persons named as proxies may propose one or more
-7-
<PAGE> 11
adjournments of the Special Meeting for a period or periods of not more than 60
days in the aggregate to permit further solicitation of proxies with respect to
such Proposal. Any such adjournment will require the affirmative vote of a
majority of the votes cast on the question in person or by proxy at the session
of the meeting to be adjourned. The persons named as proxies will vote in
favor of such adjournment those proxies which they are entitled to vote in
favor of the Proposal. They will vote against any such adjournment those
proxies required to be voted against the Proposal. The costs of any such
additional solicitation and of any adjourned session will be borne by
Capital Management.
REQUIRED VOTE
Approval of the Proposal requires the affirmative vote of a majority
of the outstanding shares of a the Fund. As defined in the 1940 Act, "majority
of the outstanding shares" means the vote of (i) 67% or more of the Fund's
outstanding shares present at a Meeting, if the holders of more than 50% of the
outstanding shares of the Fund are present or represented by proxy, or (ii)
more than 50% of the Fund's outstanding shares, whichever is less.
Abstentions and "broker non-votes" will not be counted for or against
the Proposal, but will be counted for purposes of determining whether a quorum
is present. Abstentions will be counted as votes present for purposes of
determining a "majority of the outstanding voting securities" present at the
Special Meeting, and will therefore have the effect of counting against the
Proposal.
SHAREHOLDER PROPOSALS
As a Massachusetts business trust, the Fund is not required to hold
annual shareholders' meetings. Shareholders wishing to submit proposals for
inclusion in a proxy statement for a subsequent meeting should send their
written proposals to Sierra Prime Income Fund, 9301 Corbin Avenue, Northridge,
California 91324, c/o Keith B. Pipes, Secretary, Sierra Prime Income Fund.
REPORTS TO SHAREHOLDERS
THE FUND WILL FURNISH, WITHOUT CHARGE, A COPY OF THE MOST RECENT
ANNUAL REPORT TO SHAREHOLDERS OF THE FUND AND THE MOST RECENT SEMI-ANNUAL
REPORT SUCCEEDING SUCH ANNUAL REPORT, IF ANY, ON REQUEST. REQUESTS SHOULD BE
DIRECTED TO SIERRA FUND ADMINISTRATION CORPORATION AT 9301 CORBIN AVENUE, SUITE
333, NORTHRIDGE, CALIFORNIA 91324 OR BY CALLING 800-222-5852.
OTHER MATTERS
The Trustees know of no other business to be brought before the
Meeting. However, if any other matters properly come before the meeting, it is
the intention that proxies which do not contain specific restrictions to the
contrary will be voted on such matters in accordance with the judgment of the
persons named in the enclosed form of proxy.
________________________________
SHAREHOLDERS ARE URGED TO COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AND RETURN
IT PROMPTLY.
-8-
<PAGE> 12
APPENDIX A
INVESTMENT SUB-ADVISORY AGREEMENT
________ __, 1996
Van Kampen American Capital Management Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Dear Sirs:
Sierra Prime Income Fund (the "Trust"), an unincorporated business
trust organized under the laws of the Commonwealth of Massachusetts, and Sierra
Investment Advisors Corporation ("Sierra Advisors"), a corporation organized
under the laws of the State of California, hereby agree with Van Kampen American
Capital Management Inc. (the "Sub-advisor"), a corporation organized under the
laws of the State of Delaware, as follows:
1. Investment Description; Appointment
The Trust desires to employ the capital of the Trust by investing and
reinvesting in investments of the kind and in accordance with the limitations
specified in its Agreement and Declaration of Trust, as amended ("Declaration
of Trust"), and in its Prospectus and Statement of Additional Information
relating to the Trust as in effect and which may be amended from time to time,
and in such manner and to such extent as may from time to time be approved by
the Board of Trustees of the Trust. Copies of the Trust's Prospectus and
Statement of Additional Information and the Trust's Declaration of Trust, as
amended or restated, have been or will be submitted to the Sub-advisor. The
Trust agrees to provide copies of all amendments to or restatements of the
Trust's Prospectus and Statement of Additional Information and the Trust's
Declaration of Trust to the Sub-advisor on a timely and on-going basis but in
all events prior to such time as said amendments or restatements become
effective. The Sub-advisor will be entitled to rely on all such documents
furnished to it by the Trust or Sierra Advisors. The Trust desires to employ
and hereby appoints the Sub-advisor to act as investment sub-advisor to the
Trust. The Sub-advisor accepts the appointment and agrees to furnish the
services described herein for the compensation set forth below.
-9-
<PAGE> 13
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 reasonably request; and (e) treat
confidentially and as proprietary information of the Trust, all records and
other information specifically relative to the Trust and prior, present or
potential shareholders; and will not use such records and information for any
purpose other than performance of its responsibilities and duties hereunder,
except after prior notification to and approval in writing by the Trust, which
approval shall not be unreasonably withheld or delayed and such records may not
be withheld where the Sub-advisor is subject to audit by the U.S. Securities
and Exchange Commission or other regulatory, administrative or judicial
proceeding or audit or hwere the Sub-advisor may be exposed to civil or
criminal contempt proceedings for failure to comply, when requested to divulge
such information by duly constituted authorities, or when so requested by the
Trust. In providing those services, the Sub-advisor will supervise the Trust's
investments and conduct a continual program of investment, evaluation and, if
appropriate, sale and reinvestment of the Trust's assets. In addition, the
Sub-advisor will furnish the Trust or Sierra Advisors with whatever statistical
information the Trust or Sierra Advisors may reasonably request with respect to
the instruments that the Trust may hold or contemplate purchasing.
3. Brokerage
In executing transactions for the Trust and selecting banks,
syndicated loan agents, brokers or dealers (hereinafter referred to as "brokers
or dealers"), the Sub-advisor will use its best efforts to seek the best
overall terms available and shall execute or direct the execution of all such
transactions in a manner permitted by law and in a manner that is in the best
interest of the Trust and its shareholders. In assessing the best overall
terms available for any Trust transaction, with respect to the lenders from
whom the Trust will purchase assignments and participations in Senior Loans the
Sub-advisor will consider all factors it deems relevant including, but not
limited to their professional ability, level of service, relationship with the
borrower, financial condition, credit standards and quality of management.
With respect to investments other than Senior Loans, the Sub-advisor will
consider all factors it deems relevant including, but not limited to, breadth
of the market in the security, the price of the security, the financial
condition and execution capability of the broker or dealer and the
reasonableness of any commission for the specific transaction and
-10-
<PAGE> 14
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
-11-
<PAGE> 15
manner specified in the Trust's Prospectus and/or Statement of Additional
Information relating to the Trust as from time to time in effect.
Should it be determined that the Investment Sub-Advisory Agreement
between the Trust, Sierra Advisors and Sub-advisor dated February 14, 1996,
terminated as a result of the assignment thereof prior to the effective date of
this Agreement, compensation thereunder shall commence as of the date of such
termination.
7. Expenses
The Sub-advisor will bear all expenses in connection with the
performance of its services under this Agreement, which expenses shall not
include brokerage fees or commissions in connection with the effectuation of
securities transactions. The Trust (or Sierra Advisors) will bear certain
other expenses to be incurred in its operation, including but not limited to:
organizational expenses, taxes, interest, brokerage fees and commissions, if
any; fees of Trustees of the Trust who are not officers, directors or employees
of the Sub-advisor, Sierra Advisors, the Trust's sub-administrator or any of
their affiliates; Securities and Exchange Commission fees and state Blue Sky
qualification fees; out- of-pocket expenses of custodians, transfer and
dividend disbursing agents and the Trust's sub-administrator and transaction
charges of custodians; insurance premiums; outside auditing and legal expenses;
costs of maintenance of the Trust's existence; costs attributable to investor
services, including without limitation, telephone and personnel expenses; costs
of preparing and printing prospectuses and statements of additional information
for regulatory purposes and for distribution to existing shareholders; costs of
shareholders' 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
-12-
<PAGE> 16
Sub-advisor or any affiliate of the Sub-advisor to engage in and devote time
and attention to other business or to render services of whatever kind or
nature.
9. Term of Agreement
This Agreement shall become effective as of the date first written
above, shall continue in effect for a period of two years thereafter, and shall
continue in effect for a period of more than two years thereafter only so long
as such continuance is specifically approved at least annually by (i) the Board
of Trustees of the Trust or (ii) a vote of a "majority" (as defined in the
Investment Company Act of 1940, as amended) of the Trust's outstanding voting
securities, provided that in either event the continuance is also approved by a
majority of the Board of Trustees who are not "interested persons" (as defined
in said Act) of any party to this Agreement, by vote cast in person at a
meeting called for the purpose of voting on such approval. This Agreement is
terminable, without penalty, on 30 days' written notice, by Sierra Advisors,
the Board of Trustees of the Trust or by vote of holders of a majority of the
Trust's shares, or upon 90 days' written notice, by the Sub-advisor and, will
terminate automatically upon any termination of the advisory agreement between
the Trust and Sierra Advisors. In addition, this Agreement will also terminate
automatically in the event of its assignment (as defined in said Act). The
Sub-advisor agrees to notify the Trust of any circumstances that might result
in this Agreement being deemed to be assigned.
10. Representations of the Trust and the Sub-advisor
The Trust represents that (i) a copy of its Agreement and Declaration
of Trust, dated October 4, 1995, and Amended Agreement and Declaration of Trust
dated January 18, 1996, together with all amendments thereto, is on file in the
office of the Secretary of the Commonwealth of Massachusetts, (ii) the
appointment of Sierra Advisors has been duly authorized, (ii) 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.
-13-
<PAGE> 17
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.
-14-
<PAGE> 18
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 MANAGEMENT INC.
By _________________________
Name:
Title:
-15-
<PAGE> 19
SIERRA PRIME INCOME FUND
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
October 29, 1996
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF SIERRA PRIME INCOME FUND
The undersigned Shareholder of the Sierra Prime Income Fund (the
"Fund") hereby appoint(s) Keith B. Pipes, Michael D. Goth and Lawrence J.
Sheehan and each of them (with full power of substitution), the proxy or
proxies of the undersigned to attend the Special Meeting of Shareholders of the
Fund to be held on October 29, 1996, and any adjournments thereof, to vote all
of the shares of the Fund that the signer would be entitled to vote if
personally present at the Special Meeting of Shareholders and on any other
matters brought before the Meeting, all as set forth in the Notice of Special
Meeting of Shareholders. Said proxies are directed to vote or refrain from
voting pursuant to the Proxy Statement as checked below upon the following
matters:
1. Approval of a new investment sub-advisory agreement by and among the
Fund, Sierra Investment Advisors Corporation and Van Kampen American
Capital Management Inc.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. To transact such other business as may properly come before the
Meeting.
The undersigned acknowledges receipt with this proxy of a copy of the
Notice of Special Meeting of Shareholders and the Proxy Statement of the Board
of Trustees.
Your signature(s) on this proxy should be exactly as your name or
names appear on this proxy. If the shares are held jointly, each holder should
sign. If signing is by attorney, executor, administrator, trustee or guardian,
please print your full title below your signature.
Dated: _____________1996
_____________________________________________
Signature
_____________________________________________
Signature
ALL PROPERLY EXECUTED PROXIES WILL BE VOTED AS DIRECTED HEREIN BY THE SIGNING
SHAREHOLDER. IF NO DIRECTION IS GIVEN WHEN THE DULY EXECUTED PROXY IS
RETURNED, SUCH SHARES WILL BE VOTED IN ACCORDANCE WITH THE RECOMMENDATIONS OF
THE BOARD OF TRUSTEES FOR THE PROPOSAL.
PLEASE DATE, SIGN AND RETURN PROMPTLY.
-16-
