SIERRA PRIME INCOME FUND, SC 13E4, 1996-12-16

SIERRA PRIME INCOME FUND
SC 13E4, 1996-12-16

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 16, 1996
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

SCHEDULE 13E-4
ISSUER TENDER OFFER STATEMENT

(Pursuant to Section 13(e)(1) of the
Securities Exchange Act of 1934)

(Amendment No.)

Sierra Prime Income Fund
(Name of Issuer)

Sierra Prime Income Fund
(Name of Person(s) Filing Statement)

Class A Common Shares of Beneficial Interest with no par value
(Title of Class of Securities)

826461-105
(CUSIP Number of Class of Securities)

F. Brian Cerini
Chairman and President
Sierra Prime Income Fund
9301 Corbin Avenue, Suite 333
Northridge, CA 91324
(818) 725-0222

(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications on Behalf of Person(s) Filing Statement)

Copies to:
Richard W. Grant, Esq.
Jeffrey P. Burns, Esq.
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103
215-963-5000

December 16, 1996
(Date Tender Offer First Published,
Sent or Given to Security Holders)

CALCULATION OF FILING FEE
- --------------------------------------------------------------------------------
Transaction Valuation $1,244,440 Amount of Filing Fees: $248.89
- --------------------------------------------------------------------------------
(a) Calculated as the aggregate maximum purchase price to be paid for
124,444 shares in the offer.
(b) Calculated as 1/50 of 1% of the Transaction Valuation.
[ ] Check box if any part of the fee is offset as provided by
Rule 0-11(a)(2) and identify the filing with which the offsetting fee
was previously paid. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
Amount Previously Paid:______________________________________________
Form or Registration No.:____________________________________________
Filing Party:________________________________________________________
Date Filed:__________________________________________________________

- --------------------------------------------------------------------------------

<PAGE> 2
ITEM 1. SECURITY AND ISSUER.

(a) The name of the issuer is the Sierra Prime Income Fund, a
non-diversified, closed-end management investment company organized as a
Massachusetts business trust (the "Trust"). The principal executive offices of
the Trust are located at 9301 Corbin Avenue, Suite 333, Northridge, CA 91324.

(b) The title of the securities being sought is Class A Common Shares of
beneficial interest with no par value (the "Class A Common Shares"). As of
December 6, 1996, there were approximately 1,244,440.100 Class A Common Shares
issued and outstanding.

The Trust is seeking tenders for 124,444 Class A Common Shares at net
asset value per share, calculated on the day the tender offer expires, upon the
terms and subject to the conditions set forth in the Offer to Purchase, dated
December 16, 1996 (the "Offer to Purchase"), and the related Letter of
Transmittal (which together constitute the "Offer"). A copy of each of the
Offer to Purchase and the form of Letter of Transmittal is attached hereto as
Exhibit (a)(1)(ii) and Exhibit (a)(2), respectively. Reference is hereby made
to the Cover Page and Section 1 "Price; Number of Class A Common Shares" of the
Offer to Purchase, which are incorporated herein by reference. The Trust has
been informed that no trustees, officers or affiliates of the Trust intend to
tender Class A Common Shares pursuant to the Offer.

(d) Not Applicable.

ITEM 2. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.

(a)-(b) Reference is hereby made to Section 12 "Source and Amount of
Funds" of the Offer to Purchase, which is incorporated herein by reference.

ITEM 3. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE ISSUER OR
AFFILIATE.

Reference is hereby made to Section 7 "Purpose of the Offer," Section 8
"Plans or Proposals of the Fund," Section 10 "Interest of Trustees and
Executive Officers; Transactions and Arrangements Concerning the Class A Common
Shares," Section 11 "Certain Effects of the Offer" and Section 12 "Source and
Amount of Funds" of the Offer to Purchase, which are incorporated herein by
reference. In addition, the Trust regularly purchases and sells assets in its
ordinary course of business. Except as set forth above, the Trust has no plans
or proposals which relate to or would result in (a) the acquisition by any
person of additional securities of the Trust or the disposition of securities
of the Trust; (b) an extraordinary corporate transaction, such as a merger,
reorganization or liquidation, involving the Trust; (c) a sale or transfer of a
material amount of assets of the Trust; (d) any change in the present Board of
Trustees or management of the Trust, including, but not limited to, any plans
or proposals to change the number or the term of Trustees, or to fill any
existing vacancy on the Board of Trustees or to change any material term of the
employment contract of any executive officer of the Trust; (e) any material
change in the present dividend rate or policy, or indebtedness or
capitalization of the Trust; (f) any other material change in the Trust's
structure or business, including any plans or proposals to make any changes in
its investment policy for which a vote would be required by Section 13 of the
Investment Company Act of 1940; (g) changes in the Trust's declaration of
trust, bylaws or instruments corresponding thereto or other actions which may
impede the acquisition of control of the Trust by any person; (h) a class of
equity securities of the Trust to be delisted from a national securities
exchange or to cease to be authorized to be quoted on an inter-dealer quotation
system of a registered national securities association; (i) a class of equity
security of the Trust becoming eligible for termination of registration under
the Investment Company Act of 1940; or (j) the suspension of the Trust's
obligation to file reports pursuant to Section 15(d) of the Securities Exchange
Act of 1934.

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ITEM 4. INTEREST IN SECURITIES OF THE ISSUER.

Reference is hereby made to Section 10 "Interest of Trustees and Executive
Officers; Transactions and Arrangements Concerning the Class A Common Shares"
of the Offer to Purchase and the financial statements included as part of
Exhibit (a)(1)(ii) attached hereto, which are incorporated herein by reference.
Except as set forth therein, there have not been any transactions involving the
Class A Common Shares of the Trust that were effected during the past 40
business days by the Trust, any executive officer or Trustee of the Trust, any
person controlling the Trust, any executive officer or director of any
corporation ultimately in control of the Trust or by any associate or
subsidiary of any of the foregoing, including any executive officer or director
of any such subsidiary.

ITEM 5. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO THE ISSUER'S SECURITIES.

Reference is hereby made to Section 10 "Interest of Trustees and Executive
Officers; Transactions and Arrangements Concerning the Class A Common Shares"
of the Offer to Purchase which is incorporated herein by reference. Except as
set forth therein, the Trust does not know of any contract, arrangement,
understanding or relationship relating, directly or indirectly, to the Offer
(whether or not legally enforceable) between the Trust, any of the Trust's
executive officers or Trustees, any person controlling the Trust or any officer
or director of any corporation ultimately in control of the Trust and any
person with respect to any securities of the Trust (including, but not limited
to, any contract arrangement understanding or relationship concerning the
transfer or the voting of any such securities, joint ventures, loan or option
arrangements, puts or calls, guarantees of loans, guarantees against loss, or
the giving or withholding of proxies, consents or authorizations).

ITEM 6. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.

No persons have been employed, retained or are to be compensated by or on
behalf of the Trust to make solicitations or recommendations in connection with
the Offer.

ITEM 7. FINANCIAL INFORMATION.

(a)-(b) Reference is hereby made to the financial statements included as
part of Exhibit (a)(1)(ii) attached hereto, which are incorporated herein by
reference.

ITEM 8. ADDITIONAL INFORMATION.

(a) Reference is hereby made to Section 10 "Interests of Trustees and
Executive Officers; Transactions and Arrangements Concerning the Class A Common
Shares" of the Offer to Purchase which is incorporated herein by reference.

(b)-(d) Not applicable.

(e) The Offer to Purchase, attached hereto as Exhibit (a)(1)(ii), is
incorporated herein by reference in its entirety.

ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.

(a)(1)(i) Advertisement printed in The Wall Street Journal
(ii) Offer to Purchase (including Financial Statements).
(a)(2) Form of Letter of Transmittal (including Guidelines for
Certification of Taxpayer Identification Number).
(a)(3)(i) Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees.
(ii) Form of Letter to Clients of Brokers, Dealers, Commercial
Banks, Trust Companies and Other Nominees.
(iii) Form of Letter to Authorized Dealers.

3
<PAGE> 4
(a)(4) Form of Letter to Shareholders who have requested Offer to
Purchase.
(b) Credit Agreement between the Sierra Prime Income Fund and
Deutsche Bank AG, New York Branch dated as of May 22, 1996.
(c)(1) Investment Advisory Agreement between Sierra Prime Income Fund
and Sierra Investment Advisors Corporation, dated as of
February 14, 1996.
(c)(2) Form of Investment Sub-Advisory Agreement among the Sierra
Prime Income Fund, Sierra Investment Advisors Corporation and
Van Kampen American Capital Management Inc.,approved by
shareholders as of October 29, 1996.
(c)(3) Administration Agreement between Sierra Prime Income Fund and
Sierra Fund Administration Corporation, dated as of
July 1, 1996.
(c)(4) Distribution Agreement between Sierra Prime Income Fund and
Sierra Investment Services Corporation, dated as of
February 14, 1996.
(d)-(f) Not applicable.

4
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SIGNATURE

After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.

SIERRA PRIME INCOME FUND

Dated: December 13, 1996 /s/ F. Brian Cerini
------------------------------------
F. Brian Cerini
Chairman and President

5
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EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<S> <C>
(a)(1)(i) Advertisement printed in The Wall Street Journal

(a)(1)(ii) Offer to Purchase (including Financial Statements)

(a)(2) Form of Letter of Transmittal (including Guidelines
for Certification of Tax Identification Number)

(a)(3)(i) Form of Letter to Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees

(a)(3)(ii) Form of Letter to Clients of Brokers, Dealers,
Commercial Banks, Trust Companies and Other Nominees

(a)(3)(iii) Form of Letter to Authorized Dealers

(a)(4) Form of Letter to Shareholders who have requested
Offer to Purchase

(b) Credit Agreement between the Sierra Prime Income Fund
and Deutsche Bank AG, New York Branch dated as of
May 22, 1996

(c)(1) Investment Advisory Agreement between Sierra Prime
Income Fund and Sierra Investment Advisors
Corporation, dated as of February 14, 1996

(c)(2) Form of Investment Sub-Advisory Agreement among
Sierra Prime Income Fund, Sierra Investment Advisors
Corporation and Van Kampen American Capital
Management Inc., approved by shareholders as of
October 29, 1996

(c)(3) Administration Agreement between Sierra Prime Income
Fund and Sierra Fund Administration Corporation, dated
as of July 1, 1996

(c)(4) Distribution Agreement between Sierra Prime Income
Fund and Sierra Investment Services Corporation,
dated as of February 14, 1996
</TABLE>

<PAGE> 1
EXHIBIT (a)(1)(i)

This announcement is not an offer to purchase or a solicitation of an offer
to sell Class A Common Shares. The Offer is made only by the Offer to Purchase
dated December 16, 1996 and the related Letter of Transmittal.
The Offer is not being made to, nor will tenders be
accepted from or on behalf of,
holders of Class A Common Shares in any jurisdiction in which making or
accepting the Offer would violate that jurisdiction's laws.

SIERRA PRIME INCOME FUND

NOTICE OF OFFER TO PURCHASE FOR CASH 124,444
OF ITS ISSUED AND OUTSTANDING CLASS A COMMON SHARES
AT NET ASSET VALUE PER SHARE

THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 6:00 PM PACIFIC
STANDARD TIME ON JANUARY 17, 1997, UNLESS THE OFFER IS EXTENDED.

Sierra Prime Income Fund (the "Fund") is offering to purchase 124,444
of its issued and outstanding Class A common shares of beneficial interest, no
par value ("Class A Common Shares"), at a price equal to their net asset value
("NAV") determined as of 2:00 PM Pacific Standard Time on January 17, 1997,
the Expiration Date, unless extended, upon the terms and conditions set forth
in the Offer to Purchase dated December 16, 1996 and the related Letter of
Transmittal (which together constitute the "Offer"). The NAV on December 6,
1996 was $10.00 per Class A Common Share. The purpose of the Offer is to
provide liquidity to shareholders since the Fund is unaware of any secondary
market which exists for the Class A Common Shares. The Offer is not
conditioned upon the tender of any minimum number of Class A Common Shares, but
is subject to certain conditions as set forth in the Offer.

If more than 124,444 Class A Common Shares are duly tendered prior to
the expiration of the Offer, the Fund presently intends to, assuming no changes
in the factors originally considered by the Board of Trustees when it
determined to make the Offer and the other conditions set forth in the Offer,
but is under no obligation to, extend the Offer period, if necessary, and
increase the number of Class A Common Shares that the Fund is offering to
purchase to an amount which it believes will be sufficient to accommodate the
excess Class A Common Shares tendered as well as any Class A Common Shares
tendered during the extended Offer period, or purchase 124,444 Class A Common
Shares (or such greater number of Class A Common Shares sought) on a pro rata
basis.

Class A Common Shares tendered pursuant to the Offer may be withdrawn
at any time prior to 6:00 PM Pacific Standard Time on January 17, 1997, and, if
not yet accepted for payment by the Fund, Class A Common Shares may also be
withdrawn after January 17, 1997.

The information required to be disclosed by paragraph (d)(1) of Rule
13e-4 under the Securities Exchange Act of 1934, as amended, is contained in
the Offer to Purchase and is incorporated herein by reference.

The Offer to Purchase and the related Letter of Transmittal contain
important information that should be read carefully before any decision is made
with respect to the Offer.

Questions and requests for assistance, for current NAV quotations or
for copies of the Offer to Purchase, Letter of Transmittal and any other tender
offer document, may be directed to Sierra Shareholder Services at the address
and telephone number below. Copies will be furnished promptly at no expense to
you. Shareholders who do not own Class A Common Shares directly may tender
their Class A Common Shares through their broker, dealer or nominee.

SIERRA SHAREHOLDER SERVICES
9301 CORBIN AVENUE, NORTHRIDGE, CA 91324
800-222-5852
6:00 AM to 6:00 PM Pacific Standard Time, Monday - Friday
6:00 AM to 3:00 PM Pacific Standard Time, Saturday

December 16, 1996

<PAGE> 1
EXHIBIT (a) (1) (ii)

SIERRA PRIME INCOME FUND

OFFER TO PURCHASE FOR CASH 124,444
OF ITS ISSUED AND OUTSTANDING CLASS A COMMON SHARES
AT NET ASSET VALUE PER SHARE

THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 6:00 PM PACIFIC STANDARD TIME
ON JANUARY 17, 1997, UNLESS THE OFFER IS EXTENDED. TO ENSURE PROCESSING OF
YOUR REQUEST, A LETTER OF TRANSMITTAL OR A MANUALLY SIGNED FACSIMILE OF IT
(TOGETHER WITH ANY CERTIFICATES FOR CLASS A COMMON SHARES AND ALL OTHER
REQUIRED DOCUMENTS) MUST BE RECEIVED BY THE ADMINISTRATOR (AS DEFINED BELOW)
ON OR BEFORE JANUARY 17, 1997.

To the Holders of Class A Common Shares of
Sierra Prime Income Fund:

Sierra Prime Income Fund, a non-diversified, closed-end management
investment company organized as a Massachusetts business trust (the "Fund"), is
offering to purchase up to 124,444 of its Class A Common Shares of beneficial
interest, with no par value ("Class A Common Shares"), for cash at a price (the
"Purchase Price") equal to their net asset value ("NAV") determined as of 2:00
PM Pacific Standard Time on the Expiration Date (as defined herein), upon the
terms and conditions set forth in this Offer to Purchase and the related Letter
of Transmittal (which together constitute the "Offer"). The Offer is scheduled
to terminate as of 6:00 PM Pacific Standard Time on January 17, 1997, unless
extended. The Class A Common Shares are not currently traded on an established
trading market. The NAV on December 6, 1996 was $10.00 per Class A Common
Share. You can obtain current NAV quotations from Sierra Shareholder Services
by calling (800) 222-5852. See Section 9.

If more than 124,444 Class A Common Shares are duly tendered prior to
the expiration of the Offer, the Fund presently intends to, subject to the
condition that there have been no changes in the factors originally considered
by the Board of Trustees when it determined to make the Offer and the other
conditions set forth in Section 6, but is under no obligation to, extend the
Offer period, if necessary, and increase the number of Class A Common Shares
that the Fund is offering to purchase to an amount which it believes will be
sufficient to accommodate the excess Class A Common Shares tendered as well as
any Class A Common Shares tendered during the extended Offer period or purchase
124,444 Class A Common Shares (or such greater number of Class A Common Shares
sought) on a pro rata basis.

THIS OFFER IS BEING MADE TO ALL SHAREHOLDERS OF THE FUND
AND IS NOT CONDITIONED UPON ANY MINIMUM NUMBER
OF CLASS A COMMON SHARES BEING TENDERED.

THIS OFFER IS SUBJECT TO CERTAIN CONDITIONS. SEE SECTION 6.

<PAGE> 2
IMPORTANT

If you desire to tender all or any portion of your Class A Common
Shares, you should either (1) complete and sign the Letter of Transmittal and
mail or deliver it along with any other required documents to Sierra Fund
Administration Corporation ("Sierra Administration" or the "Administrator") or
(2) request your broker, dealer, commercial bank, trust company or other
nominee to effect the transaction for you. If your Class A Common Shares are
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee, you must contact such broker, dealer, commercial bank, trust
company or other nominee if you desire to tender your Class A Common Shares.

NEITHER THE FUND NOR ITS BOARD OF TRUSTEES MAKES ANY RECOMMENDATION TO
ANY SHAREHOLDER AS WHETHER TO TENDER OR REFRAIN FROM TENDERING ANY OR ALL OF
SUCH SHAREHOLDER'S CLASS A COMMON SHARES. SHAREHOLDERS ARE URGED TO EVALUATE
CAREFULLY ALL INFORMATION IN THE OFFER, CONSULT THEIR OWN INVESTMENT AND TAX
ADVISERS AND MAKE THEIR OWN DECISIONS WHETHER TO TENDER CLASS A COMMON SHARES
AND, IF SO, HOW MANY CLASS A COMMON SHARES TO TENDER.

NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY RECOMMENDATION ON BEHALF OF
THE FUND AS TO WHETHER SHAREHOLDERS SHOULD TENDER CLASS A COMMON SHARES
PURSUANT TO THE OFFER. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER OTHER THAN THOSE
CONTAINED HEREIN OR IN THE LETTER OF TRANSMITTAL, IF GIVEN OR MADE, SUCH
RECOMMENDATION AND SUCH INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE FUND.

Questions and requests for assistance may be directed to Sierra
Shareholder Services at the address and telephone number set forth below.
Requests for additional copies of this Offer to Purchase and the Letter of
Transmittal should be directed to Sierra Fund Administration Corporation.

December 16, 1996 SIERRA PRIME INCOME FUND

Sierra Shareholder Services SIERRA FUND ADMINISTRATION CORPORATION:
9301 Corbin Avenue, Suite 333
Northridge, CA 91324 By Mail Hand Delivery or Courier:
(800) 222-5852 9301 Corbin Avenue, Suite 333
Northridge, CA 91324
Attn: Sierra Prime Income Fund

2
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TABLE OF CONTENTS

<TABLE>
<CAPTION>
SECTIONS PAGE
- -------- ----
<S> <C> <C>
1. PRICE; NUMBER OF CLASS A COMMON SHARES . . . . . . . . . . . . . 4

2. PROCEDURE FOR TENDERING CLASS A COMMON SHARES . . . . . . . . . 4

3. EARLY WITHDRAWAL CHARGE . . . . . . . . . . . . . . . . . . . . 6

4. WITHDRAWAL RIGHTS . . . . . . . . . . . . . . . . . . . . . . . 7

5. PAYMENT FOR SHARES . . . . . . . . . . . . . . . . . . . . . . . 7

6. CERTAIN CONDITIONS OF THE OFFER . . . . . . . . . . . . . . . . 8

7. PURPOSE OF THE OFFER . . . . . . . . . . . . . . . . . . . . . . 9

8. PLANS OR PROPOSALS OF THE FUND . . . . . . . . . . . . . . . . . 9

9. PRICE RANGE OF CLASS A COMMON SHARES; DIVIDENDS . . . . . . . . .9

10. INTEREST OF TRUSTEES AND EXECUTIVE OFFICERS; TRANSACTIONS
AND ARRANGEMENTS CONCERNING THE CLASS A COMMON SHARES . . . . . 10

11. CERTAIN EFFECTS OF THE OFFER . . . . . . . . . . . . . . . . . . 11

12. SOURCE AND AMOUNT OF FUNDS . . . . . . . . . . . . . . . . . . . 11

13. CERTAIN INFORMATION ABOUT THE FUND . . . . . . . . . . . . . . . 13

14. ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . 14

15. CERTAIN FEDERAL INCOME TAX CONSEQUENCES . . . . . . . . . . . . 14

16. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENTS . . . . . . 15

17. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>

EXHIBIT A: UNAUDITED FINANCIAL STATEMENTS FOR THE PERIOD ENDED SEPTEMBER
30, 1996

3
<PAGE> 4
1. PRICE; NUMBER OF CLASS A COMMON SHARES.

The Fund will, upon the terms and subject to the conditions of the
Offer, accept for payment (and thereby purchase) 124,444 or such lesser number
of its issued and outstanding Class A Common Shares which are properly tendered
(and not withdrawn in accordance with Section 4 prior to 6:00 PM Pacific
Standard Time on January 17, 1997 (such time and date being hereinafter called
the "Initial Expiration Date"). The Fund reserves the right to extend the
Offer. See Section 16. The later of the Initial Expiration Date or the latest
time and date to which the Offer is extended is hereinafter called the
"Expiration Date." The Purchase Price of the Class A Common Shares will be
their NAV determined as of 2:00 PM Pacific Standard Time on the Expiration
Date. Holders of Class A Common Shares may tender or withdraw previously
tendered shares to the Administrator at the address set forth in page 2 of this
Offer to Purchase by written telegraphic, telex or facsimile transmission of a
notice of withdrawal prior to the Expiration Date. The NAV on December 6, 1996
was $10.00 per Class A Common Share. You can obtain current NAV quotations
from Sierra Shareholder Services by calling (800) 222-5852 between the hours of
6:00 AM and 6:00 PM Pacific Standard Time, Monday through Friday and 6:00 AM
and 3:00 PM Pacific Standard Time on Saturday, except holidays. Shareholders
tendering Class A Common Shares shall be entitled to receive all dividends
declared on or prior to settlement following the Expiration Date, but not yet
paid, on Class A Common Shares tendered pursuant to the Offer. See Section 9.
The Fund will not pay interest on the Purchase Price under any circumstances.
An Early Withdrawal Charge may be imposed on certain Class A Common Shares
accepted for payment that have been held for less than two years. See Section
3.

The Offer is being made to all shareholders of the Fund and is not
conditioned upon any minimum number of Class A Common Shares being tendered.
If the number of Class A Common Shares properly tendered prior to the
Expiration Date and not withdrawn is less than or equal to 124,444 Class A
Common Shares (or such greater number of Class A Common Shares as the Fund may
elect to purchase pursuant to the Offer), the Fund will upon the terms and
subject to the conditions of the Offer, purchase at NAV all Class A Common
Shares so tendered. If more than 124,444 Class A Common Shares are duly
tendered prior to the expiration of the Offer and not withdrawn, the Fund
presently intends to, subject to the condition that there have been no changes
in the factors originally considered by the Board of Trustees when it
determined to make the Offer and the other conditions set forth in Section 6,
but is not obligated to, extend the Offer period, if necessary, and increase
the number of Class A Common Shares that the Fund is offering to purchase to an
amount which it believes will be sufficient to accommodate the excess Class A
Common Shares tendered as well as any Class A Common Shares tendered during the
extended Offer period or purchase 124,444 Class A Common Shares (or such
greater number of Class A Common Shares sought) on a pro rata basis.

On December 6, 1996, there were approximately 1,244,440.100 Class A
Common Shares issued and outstanding and there were approximately 427 holders
of record of Class A Common Shares. The Fund has been advised that no
trustees, officers or affiliates of the Fund intend to tender any Class A
Common Shares pursuant to the Offer.

The Fund reserves the right, in its sole discretion, at any time or
from time to time, to extend the period of time during which the Offer is open
by giving oral or written notice of such extension to the Administrator and
making a public announcement thereof. See Section 16. There can be no
assurance, however, that the Fund will exercise its right to extend the Offer.
If the Fund decides, in its sole discretion, to increase (except for any
increase not in excess of 2% of the outstanding Class A Common Shares) or
decrease the number of Class A Common Shares being sought and, at the time that
notice of such increase or decrease is first published, sent or given to
holders of Class A Common Shares in the manner specified below, the Offer is
scheduled to expire at any time earlier than the tenth business day from the
date that such notice is first so published, sent or given, the Offer will be
extended at least until the end of such ten business day period.

2. PROCEDURE FOR TENDERING CLASS A COMMON SHARES.

Proper Tender of Class A Common Shares. Except as otherwise set forth
under the heading "Procedures for Authorized Dealers" below, for Class A Common
Shares to be properly tendered pursuant to the Offer, a properly completed and
duly executed Letter of Transmittal (or manually signed facsimile thereof) with
any required signature

4
<PAGE> 5
guarantees and any other documents required by the Letter of Transmittal, must
be received on or before the Expiration Date by the Administrator at its
address set forth on page 2 of this Offer to Purchase.

It is a violation of Section 14(e) of the Securities and Exchange Act
of 1934 (the "Exchange Act"), and Rule 14e-4 promulgated thereunder, for a
person to tender Class A Common Shares in a partial tender offer for such
person's own account unless at the time of tender and until such time as the
securities are accepted for payment the person so tendering has a net long
position equal to or greater than the amount tendered in (i) the Class A Common
Shares and will deliver or cause to be delivered such shares for purposes of
tender to the Fund prior to or on the Expiration Date, or (ii) an equivalent
security and, upon the acceptance of his or her tender will acquire the Class A
Common Shares by conversion, exchange, or exercise of such equivalent security
to the extent required by the terms of the Offer, and will deliver or cause to
be delivered the Class A Common Shares so acquired for the purpose of tender to
the Fund prior to or on the Expiration Date.

Section 14(e) and Rule 14e-4 provide a similar restriction applicable
to the tender or guarantee of a tender on behalf of another person.

The acceptance of Class A Common Shares by the Fund for payment will
constitute a binding agreement between the tendering shareholder and the Fund
upon the terms and subject to the conditions of the Offer, including the
tendering shareholder's representation that (i) such shareholder has a net long
position in the Class A Common Shares being tendered within the meaning of Rule
14e-4 promulgated under the Exchange Act and (ii) the tender of such Class A
Common Shares complies with Rule 14e-4.

Signature Guarantees and Method of Delivery. Signatures on the Letter
of Transmittal are not required to be guaranteed unless (1) the proceeds for
the tendered Class A Common Shares will amount to more than $50,000, (2) the
Letter of Transmittal is signed by someone other than the registered holder of
the Class A Common Shares tendered therewith, or (3) payment for tendered Class
A Common Shares is to be sent to a payee other than the registered owner of
such Class A Common Shares and/or to an address other than the registered
address of the registered owner of the Class A Common Shares. In those
instances, all signatures on the Letter of Transmittal must be guaranteed by a
member firm of a national securities exchange or a commercial bank or trust
company having an office, branch or agency in the United States (an "Eligible
Institution"). If Class A Common Shares are registered in the name of a person
or persons other than the signer of the Letter of Transmittal or (a) if payment
is to be made to or (b) unpurchased Class A Common Shares are to be registered
in the name of any person other than the registered owner, then the Letter of
Transmittal must be endorsed or accompanied by appropriate authorizations, in
either case signed exactly is such name or names as appear on the registration
of the Class A Common Shares with the signatures on the authorizations
guaranteed by an Eligible Institution. See Instructions 1 and 5 of the Letter
of Transmittal.

Payment for Class A Common Shares tendered and accepted for payment
pursuant to the Offer will be made only after receipt by the Administrator on
or before the Expiration Date of a properly completed and duly executed Letter
of Transmittal (or manually signed facsimile thereof) and any other documents
required by the Letter of Transmittal.

THE METHOD OF DELIVERY OF ANY DOCUMENTS IS AT THE ELECTION AND RISK OF
THE PARTY TENDERING CLASS A COMMON SHARES. IF DOCUMENTS ARE SENT BY MAIL, IT
IS RECOMMENDED THAT THEY BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH
RETURN RECEIPT REQUESTED.

Procedures for Authorized Dealers. If you are an Authorized Dealer, in
order for you to tender any Class A Common Shares pursuant to the Offer, you
may place a confirmed wire order with First Data Investor Services Group, Inc.
("First Data" or the "Transfer Agent"). All confirmed wire orders used to
tender Class A Common Shares pursuant to this Offer must be placed on the
Expiration Date only (wire orders placed on any other date will not be accepted
by the Fund). Class A Common Shares tendered by a wire order are deemed to be
tendered when the Transfer Agent receives the order but subject to the
condition subsequent that the settlement instructions, including (with respect
to tendered Class A Common Shares for which the Authorized Dealer is not the
registered owner) a properly completed and duly executed Letter of Transmittal
(or manually signed facsimile thereof), any other documents required by the
Letter of Transmittal, are received by the Transfer Agent.

5
<PAGE> 6
Determinations of Validity. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance of tenders will be
determined by the Fund, in its sole discretion, whose determination shall be
final and binding. The Fund reserves the absolute right to reject any or all
tenders determined by it not to be in appropriate form or the acceptance of or
payment for which may, in the opinion of the Fund's counsel, be unlawful. The
Fund also reserves the absolute right to waive any of the conditions of the
Offer or any defect in any tender with respect to any particular Common
Share(s) or any particular shareholder, and the Fund's interpretations of the
terms and conditions of the Offer will be final and binding. Unless waived,
any defects or irregularities in connection with tenders must be cured within
such times as the Fund shall determine. Tendered Class A Common Shares will
not be accepted for payment unless the defects or irregularities have been
cured within such time or waived. Neither the Fund, the Transfer Agent, the
Administrator nor any other person shall be obligated to give notice of any
defects or irregularities in tenders, nor shall any of them incur any liability
for failure to give such notice.

Federal Income Tax Withholding. To prevent backup federal income tax
withholding equal to 31% of the gross payments made pursuant to the Offer, each
shareholder who has not previously submitted a Form W-9 to the Fund or does not
otherwise establish an exemption from such withholding must notify the Transfer
Agent of such shareholder's correct taxpayer identification number (or certify
that such taxpayer is awaiting a taxpayer identification number) and provide
certain other information by completing the Form W-9 enclosed with the Letter
of Transmittal. Foreign shareholders who are individuals and who have not
previously submitted a Form W-9 to the Fund must do so in order to avoid backup
withholding.

The Transfer Agent will withhold 30% of the gross payments payable to a
foreign shareholder unless the Transfer Agent determines that a reduced rate of
withholding or an exemption from withholding is applicable. (Exemption from
backup withholding does not exempt a foreign shareholder from the 30%
withholding). For this purpose, a foreign shareholder, in general is a
shareholder that is not (i) a citizen or resident of the United States, (ii) a
corporation, partnership or other entity created or organized in or under the
laws of the United States or any political subdivision thereof, or (iii) an
estate or trust the income of which is subject to United States federal income
taxation regardless of the source of such income. The Transfer Agent will
determine a shareholder's status as a foreign shareholder and eligibility for a
reduced rate of, or an exemption from, withholding by reference to the
shareholder's address and to any outstanding statements concerning eligibility
for a reduced rate of, or exemption from, withholding unless facts and
circumstances indicate that reliance is not warranted. A foreign shareholder
who has not previously submitted the appropriate statements with respect to a
reduced rate of, or exemption from, withholding for which such shareholder may
be eligible should consider doing so in order to avoid over-withholding. A
foreign shareholder may be eligible to obtain a refund of tax withheld if such
shareholder meets one of the three tests for capital gain or loss treatment
described in Section 15 or is otherwise able to establish that no tax or a
reduced amount of tax was due.

For a discussion of certain other federal income tax consequences to
tendering shareholders, see Section 15.

3. EARLY WITHDRAWAL CHARGE.

The Transfer Agent may impose an early withdrawal charge (the "Early
Withdrawal Charge" or "EWC") on certain Class A Common Shares accepted for
payment which have been held less than two years. An EWC of 1.0% or 0.5% may
be imposed on certain Class A Common Shares tendered and accepted for payment
within one or two years of purchase, respectively, for those 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") that has invested in
the aggregate more than $1 million in the Fund, or (iv) purchased through a
retirement plan qualified under Section 403(b) of the Code ("403(b) Plan") that
has more than $1 million in the Fund. 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.

6
<PAGE> 7
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. 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. The Early Withdrawal Charge may be imposed on
the number of Class A Common Shares (subject to the EWC as noted above)
accepted for payment from a record holder of Class A Common Shares the value of
which exceeds the aggregate value at the time the tendered Class A Common
Shares are accepted for payment of (a) all Class A Common Shares owned by such
holder that were purchased without being subject to the EWC, (b) the Class A
Common Shares owned by such holder that were acquired through reinvestment of
distributions, and (c) the increase, if any, of value of all other Class A
Common Shares owned by such holder over the purchase price of such Class A
Common Shares. The Early Withdrawal Charge will be paid to SISC on behalf of
the holder of the Class A Common Shares. In determining whether an Early
Withdrawal Charge is payable, Class A Common Shares accepted for payment
pursuant to the Offer shall be deemed to be those Class A Common Shares
purchased earliest by the Shareholder.

The following example will illustrate the operation of the Early
Withdrawal Charge. Assume that an investor purchases $1,000,000 worth of the
Fund's Class A Common Shares for cash and that 9 months later the value of the
account has grown through the reinvestment of dividends and capital
appreciation to $1,050,000. The investor then may submit for repurchase
pursuant to a tender offer up to $50,000 worth of Class A Common Shares without
incurring an Early Withdrawal Charge. If the investor should submit for
repurchase pursuant to a tender offer $75,000 worth of Class A Common Shares,
an Early Withdrawal Charge would be imposed on $25,000 worth of the Class A
Common Shares submitted. The charge would be imposed at the rate of 1% because
it is in the first year after the purchase was made and the charge would be
$250.

4. WITHDRAWAL RIGHTS.

Except as otherwise provided in this Section 4, tenders of Class A
Common Shares made pursuant to the Offer will be irrevocable. You may withdraw
Class A Common Shares tendered at any time prior to the Expiration Date and, if
the Class A Common Shares have not yet been accepted for payment by the Fund,
at any time after 6:00 PM Pacific Standard Time on January 17, 1997.

To be effective, a written, telegraphic, telex or facsimile
transmission notice of withdrawal must be timely received by the Administrator
at the address set forth on page 2 of this Offer to Purchase. Any notice of
withdrawal must specify the name of the person having tendered the Class A
Common Shares to be withdrawn and the number of Class A Common Shares to be
withdrawn.

All questions as to the form and validity (including time of receipt)
of notices of withdrawal will be determined by the Fund in its sole discretion,
whose determination shall be final and binding. None of the Fund, Sierra
Shareholder Services, the Transfer Agent, the Administrator or any other person
is or will be obligated to give any notice of any defects or irregularities in
any notice of withdrawal, and none of them will incur any liability for failure
to give any such notice. Class A Common Shares properly withdrawn shall not
thereafter be deemed to be tendered for purposes of the Offer. However,
withdrawn Class A Common Shares may be retendered by following the procedures
described in Section 2 prior to the Expiration Date.

5. PAYMENT FOR SHARES.

For purposes of the Offer, the Fund will be deemed to have accepted for
payment (and thereby purchased) Class A Common Shares which are tendered and
not withdrawn when, and if it gives oral or written notice to the Transfer
Agent of its acceptance of such Class A Common Shares for payment pursuant to
the Offer. Upon the terms and subject to the conditions of the Offer, the Fund
will accept for payment (and thereby purchase) Class A Common Shares properly
tendered promptly after the Expiration Date.

7
<PAGE> 8
Payment for Class A Common Shares purchased pursuant to the Offer will
be made by depositing the aggregate purchase price therefor with the Transfer
Agent, which will act as agent for tendering shareholders for the purpose of
receiving payment from the Fund and transmitting payment to the tendering
shareholders. In all cases, payment for Class A Common Shares accepted for
payment pursuant to the Offer will be made only after timely receipt by the
Administrator, as required pursuant to the Offer, of a properly, completed and
duly executed Letter of Transmittal (or manually signed facsimile thereof), and
any other required documents.

The Fund will pay all transfer taxes, if any, payable on the transfer
to it of Class A Common Shares purchased pursuant to the Offer. If, however,
payment of the purchase price is to be made to, or (in the circumstances
permitted by the Offer) of unpurchased Class A Common Shares are to be
registered in the name of any person other than the registered holder the
amount of any transfer taxes (whether imposed on the registered holder or such
other person) payable on account of the transfer to such person will be
deducted from the Purchase Price unless satisfactory evidence of the payment of
such taxes, or exemption therefrom, is submitted. Shareholders tendering Class
A Common Shares shall be entitled to receive all dividends declared on or prior
to settlement following the Expiration Date, but not yet paid, on Class A
Common Shares tendered pursuant to the Offer. The Fund will not pay any
interest on the Purchase Price under any circumstances. An Early Withdrawal
Charge may be imposed on certain Class A Common Shares accepted for payment
that have been held for less than two years. See Section 3. In addition, if
certain events occur, the Fund may not be obligated to purchase Class A Common
Shares pursuant to the Offer. See Section 6.

ANY TENDERING SHAREHOLDER OR OTHER PAYEE WHO HAS NOT PREVIOUSLY
SUBMITTED A COMPLETED AND SIGNED SUBSTITUTE FORM W-9 AND WHO FAILS TO COMPLETE
FULLY AND SIGN THE SUBSTITUTE FORM W-9 ENCLOSED WITH THE LETTER OF TRANSMITTAL
MAY BE SUBJECT TO REQUIRED FEDERAL INCOME TAX WITHHOLDING OF 31% OF THE GROSS
PROCEEDS PAID TO SUCH SHAREHOLDER OR OTHER PAYEE PURSUANT TO THE OFFER. SEE
SECTION 2.

6. CERTAIN CONDITIONS OF THE OFFER.

Notwithstanding any other provision of the Offer, the Fund shall not be
required to accept for payment, purchase or pay for any Class A Common Shares
tendered, and may terminate or amend the Offer or may postpone the acceptance
for payment of, the purchase of and payment for Class A Common Shares tendered,
if at any time at or before the time of purchase of any such Class A Common
Shares, any of the following events shall have occurred (or shall have been
determined by the Fund to have occurred) which, in the Fund's reasonable
judgment in any such case and regardless of the circumstances (including any
action or omission to act by the Fund), makes it inadvisable to proceed with
the Offer or with such purchase or payment: (1) in the reasonable 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 Internal Revenue Code (which
would make the Fund a taxable entity, causing the Fund's taxable income to be
taxed at the Fund level) 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,
(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 Class A Common Shares if the tendered Class A Common
Shares are purchased.

The foregoing conditions are for the Fund's sole benefit and may be
asserted by the Fund regardless of the circumstances giving rise to any such
condition (including any action or inaction by the Fund), and any such
condition may be waived by the Fund in whole or in part, at any time and from
time to time in its sole discretion. The Fund's failure at any time to
exercise any of the foregoing, rights shall not be deemed a waiver of any such
right; the waiver of any such right with respect to particular facts and
circumstances shall not be deemed a waiver with respect to any other facts or
circumstances; and each such right shall be deemed an ongoing right which may
be asserted at any time and from

8
<PAGE> 9
time to time. Any determination by the Fund concerning the events described in
this Section 6 shall be final and shall be binding on all parties.

If the Fund determines to terminate or amend the Offer or to postpone
the acceptance for payment of or payment for Class A Common Shares tendered, it
will, to the extent necessary, extend the period of time during which the Offer
is open as provided in Section 16. Moreover, in the event any of the foregoing
conditions arc modified or waived in whole or in part at any time, the Fund
will promptly make a public announcement of such waiver and may, depending on
the materiality of the modification or waiver, extend the Offer period as
provided in Section 16.

7. PURPOSE OF THE OFFER.

The Fund currently does not believe that an active secondary market for
its Class A Common Shares exists or is likely to develop. In recognition of
the possibility that a secondary market may not develop for the Class A Common
Shares of the Fund, or, if such a market were to develop, the Class A Common
Shares might trade at a discount, the Trustees have determined that it would be
in the best interest of its shareholders for the Fund to take action to attempt
to provide liquidity to shareholders or to reduce or eliminate any future
market value discount from NAV that might otherwise exist, respectively. To
that end, the Trustees presently intend each quarter to consider making a
tender offer to purchase Class A Common Shares at their NAV. The purpose of
this Offer is to attempt to provide liquidity to the holders of Class A Common
Shares. There can be no assurance that this Offer will provide sufficient
liquidity to all holders of Class A Common Shares that desire to sell their
Class A Common Shares or that the Fund will make any such tender offer in the
future.

NEITHER THE FUND NOR ITS BOARD OF TRUSTEES MAKES ANY RECOMMENDATION TO
ANY SHAREHOLDER AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING ANY OR ALL OF
SUCH SHAREHOLDER'S CLASS A COMMON SHARES AND HAS NOT AUTHORIZED ANY PERSON TO
MAKE ANY SUCH RECOMMENDATION. SHAREHOLDERS ARE URGED TO EVALUATE CAREFULLY ALL
INFORMATION IN THE OFFER, CONSULT THEIR OWN INVESTMENT AND TAX ADVISORS AND
MAKE THEIR OWN DECISIONS WHETHER TO TENDER CLASS A COMMON SHARES AND, IF SO,
HOW MANY CLASS A COMMON SHARES TO TENDER.

8. PLANS OR PROPOSALS OF THE FUND.

The Fund has no present plan or proposals which relate to or would
result in any extraordinary transaction such as a merger, reorganization or
liquidation involving the Fund; a sale or transfer of a material amount of
assets of the Fund other than in its ordinary course of business; any material
changes in the Fund's present capitalization (except as resulting from the
Offer or otherwise set forth herein); or any other material changes in the
Fund's structure or business.

9. PRICE RANGE OF CLASS A COMMON SHARES; DIVIDENDS.

The Fund's NAV per Class A Common Share from February 14, 1996
(inception of the Fund) through December 6, 1996 ranged from a high of $10.01
to a low of $10.00. On December 6, 1996, the NAV was $10.00 per Common Share.
You can obtain current NAV quotations from Sierra Shareholder Services by
calling (800) 222-5852 between the hours of 6:00 AM and 6:00 PM Pacific
Standard Time, Monday through Friday and 6:00 AM to 3:00 PM Pacific Standard
Time on Saturday, except holidays. Holders of Class A Common Shares may tender
or withdraw previously tendered shares to the Administrator at the address set
forth on page 2 of this Offer to Purchase by written, telegraphed, telex or
facsimile transmission of a notice of withdrawal prior to the Expiration Date.
The Fund offers and sells its Class A Common Shares to the public on a
continuous basis through SISC as principal underwriter. The Fund is not aware
of any secondary market trading for the Class A Common Shares. Dividends on
the Class A Common Shares are declared daily and paid monthly.

9
<PAGE> 10
Since the commencement of the Trust's operations in February 1996 prior
to the Offer, the Fund paid the following dividends per Class A Common Share
held for the entire respective dividend period:

<TABLE>
<CAPTION>
AMOUNT OF DIVIDEND
DIVIDEND PAYMENT PER CLASS A
DATE COMMON SHARE
----------------------- ------------
<S> <C>
February 29, 1996 $0.0115
March 29, 1996 $0.0475
April 30, 1996 $0.0528
May 31, 1996 $0.0596
June 28, 1996 $0.0564
July 31, 1996 $0.0582
August 30, 1996 $0.0595
September 30, 1996 $0.0555
October 31, 1996 $0.0594
November 29, 1996 $0.0589
</TABLE>

Shareholders tendering Class A Common Shares shall be entitled to receive all
dividends declared on or prior to settlement following the Expiration Date, but
not yet paid, on Class A Common Shares tendered pursuant to the Offer.

10. INTEREST OF TRUSTEES AND EXECUTIVE OFFICERS; TRANSACTIONS AND
ARRANGEMENTS CONCERNING THE CLASS A COMMON SHARES.

Except as set forth in this Section 10, as of December 6, 1996, the
trustees and executive officers of the Fund as a group beneficially owned no
Class A Common Shares. The Fund has been informed that no trustee or executive
officer of the Fund intends to tender any Class A Common Shares pursuant to the
Offer.

Except as set forth in this Section 10, based upon the Fund's records
and upon information provided to the Fund by its trustees, executive officers
and affiliates (as such term is used in the Securities Exchange Act of 1934),
neither the Fund nor, to the best of the Fund's knowledge, any of the trustees
or executive officers of the Fund, nor any associates of any of the foregoing,
has effected any transactions in the Class A Common Shares during the forty
business day period prior to the date hereof.

Except as set forth in this Offer to Purchase, neither the Fund nor, to
the best of the Fund's knowledge, any of its affiliates, trustees or executive
officers, is a party to any contract, arrangement, understanding or
relationship with any other person relating, directly or indirectly, to the
Offer with respect to any securities of the Fund (including, but not limited
to, any contract, arrangement, understanding or relationship concerning the
transfer or the voting of any such securities, joint ventures, loan or option
arrangements, puts or calls, guaranties of loans, guaranties against loss or
the giving or withholding of proxies, consents or authorizations).

The Fund currently is a party to an Investment Advisory Agreement with
Sierra Investment Advisors Corporation ("Sierra Advisors" or "Adviser") under
which the Fund accrues daily and pays monthly to Sierra Advisors an investment
management fee equal to 0.95% of the average daily net assets (i.e. the 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). Sierra Advisors has delegated the management of the Fund's portfolio to
Van Kampen American Capital Management Inc. ("Van Kampen" or "Sub-Advisor")
pursuant to an Investment Sub-Advisory Agreement among the Fund, Sierra
Advisors and Van Kampen. The Fund also is a party to an Administration
Agreement with Sierra Fund Administration Corporation ("Sierra Administration")
and a Distribution Agreement with Sierra Investment Services Corporation
("SISC"). Under the current Administration Agreement, which was amended
effective

10
<PAGE> 11
July 1, 1996, the Fund pays Sierra Administration a monthly fee at the
annualized rate of 0.25% of the Fund's average daily net assets. Prior to July
1, 1996, the Fund paid Sierra Administration a monthly fee at the annualized
rate of 0.35% of the Fund's average daily net assets. Under the Distribution
Agreement, the Fund offers and sells its Class A Common Shares to the public on
a continuous basis through SISC, as principal underwriter. Sierra
Administration pursuant to a Sub-Administration Agreement with State Street
Bank & Trust Company ("State Street") has delegated certain administrative and
custodial services to State Street. The Fund is also a party to a Transfer
Agency and Services Agreement with First Data Investor Services Group, Inc.
("First Data") in connection with certain transfer agency responsibilities.

11. CERTAIN EFFECTS OF THE OFFER.

The purchase of Class A Common Shares pursuant to the Offer will have
the effect of increasing the proportionate interest in the Fund of shareholders
who do not tender their Class A Common Shares. If you retain your Class A
Common Shares you will be subject to any increased risks that may result from
the reduction in the Fund's aggregate assets resulting from payment for the
tendered Class A Common Shares (e.g., greater volatility due to decreased
diversification and higher expenses). However, the Fund believes that since it
is engaged in a continuous offering of the Class A Common Shares, those risks
would be reduced to the extent new Class A Common Shares of the Fund are sold.
All Class A Common Shares purchased by the Fund pursuant to the Offer will be
held in treasury pending disposition.

12. SOURCE AND AMOUNT OF FUNDS.

The total cost to the Fund of purchasing the full 124,444 Class A
Common Shares pursuant to the Offer would be approximately $1,244,440 (assuming
a NAV of $10.00 per Common Share on the Expiration Date). The Fund anticipates
that the Purchase Price for any Class A Common Shares acquired pursuant to the
Offer will first be derived from cash on hand, such as proceeds from sales of
new Class A Common Shares of the Fund and specified pay-downs from the
participation interests in senior corporate loans which it has acquired, and
then from the proceeds from the sale of cash equivalents held by the Fund.
Although the Fund is authorized to borrow money to finance the repurchase of
Class A Common Shares, the Fund believes that it has sufficient liquidity to
purchase the Class A Common Shares tendered pursuant to the Offer without
utilizing such borrowing. However, if, in the judgment of the Trustees, there
is not sufficient liquidity of the assets of the Fund to pay for tendered Class
A Common Shares, the Fund may terminate the Offer. See Section 6.

The Fund has entered into a Credit Agreement dated May 22, 1996, with
Deutsche Bank AG, New York Branch ("Deutsche Bank"), pursuant to which Deutsche
Bank has agreed to provide a credit facility in the maximum amount of
$40,000,000 in the aggregate to the Fund and the Sierra Trust Funds, which is
not secured by the assets of the Fund or other collateral. The Fund and/or the
Sierra Trust Funds have not drawn down any of the money available under the
Deutsche Bank Agreement. The purpose of the Deutsche Bank Agreement is to
provide the Fund with additional liquidity to meet its obligations to purchase
Common Shares pursuant to any tender offer that it may make. The Deutsche Bank
Agreement has terms and conditions substantially similar to the following:

a. The Fund is entitled to borrow from Deutsche Bank
amounts which in the aggregate do not exceed
$433,000. The Fund together with the portfolios of
the Sierra Trust Funds will be limited to a maximum
credit extension of $40,000,000. The Fund will be
entitled to obtain a Base Rate or NIBOR loan on the
business day Deutsche Bank receives a Notice of
Borrowing if provided by 12:00 pm (Eastern standard
time). For LIBOR Loans, the Fund will be entitled to
a loan on the third business day following the Notice
of Borrowing is provided to Deutsche Bank.

b. The aggregate principal amount of each borrowing
under the Deutsche Bank Agreement must be at least
$50,000, with additional amounts in $10,000
increments.

11
<PAGE> 12
c. Base Rate Loans made under the Deutsche Bank
Agreement, if any, will bear interest daily at a rate
equal to the higher of (i) one-half of one percent
(1/2 of 1%) in excess of the Federal Funds Rate and
(ii) the Prime Lending Rate. Such interest will be
due on the outstanding principal amount of each loan
on the last business day of March, June, September
and December. Overdue payments of principal and
interest will bear interest, payable upon demand, at
a penalty rate.

d. NIBOR Loans made under the Deutsche Bank Agreement,
if any, will bear interest daily at a rate equal to
the sum of the NIBOR Rate plus 35% of 1%. The NIBOR
Rate is the offered quotation in the New York
Interbank market to Deutsche Bank for loans of
comparable interest and maturity. Such interest will
be due on the outstanding principal amount of each
loan on each Interest Payment Date, which at the
option of the Fund may be either 30 days or
quarterly. Overdue payments of principal and
interest will bear interest, payable on demand, at a
penalty rate.

e. LIBOR Loans made under the Deutsche Bank Agreement,
if any, will bear interest daily at a rate equal to
the sum of the LIBOR Rate plus 35% of 1%. The LIBOR
Rate is the offered quotation in the London Interbank
market to Deutsche Bank for loans of comparable
principal and maturity. Such interest will be due on
the outstanding principal amount of each loan on each
Interest Payment Date, which at the option of the
Fund, may be a one, two, three or six-month period.
Overdue payments of principal and interest will bear
interest, payable on demand, at a penalty rate.

f. During the term of the Deutsche Bank Agreement, the
Fund is obligated to pay a commitment fee computed at
a rate equal to 1/20 of 1% per annum on the average
daily amount of the unutilized commitment.

g. The principal amount of loans made under the Deutsche
Bank Agreement, if any, are required to be paid on
the last day of the applicable Interest Period. Any
loans outstanding must be repaid in full not later
than the Expiration Date of the Agreement. On the
Expiration Date, all outstanding principal and
accrued interest under the Deutsche Bank will be due
and payable in full.

h. The Deutsche Bank Agreement contains various
affirmative and negative covenants of the Fund,
including, without limitation, obligations: (i) to
provide periodic financial information; (ii) to not
consolidate with or merge into any other entity or
have any other entity merge into it or sell all or
substantially all of its assets; (iii) to continue to
engage in its current type of business and to
maintain its existence as a business trust; (iv) to
comply with applicable laws, rules and regulations
and perform its obligations under the Deutsche Bank
Agreement; (v) to not own, control or hold with power
to vote 5% or more of the outstanding voting
securities of Deutsche Bank; (vi) to comply with the
investment practices and restrictions set forth in
the Fund's prospectus and statement of additional
information; and (vii) to not create any lien, with
certain exceptions.

i. The Deutsche Bank Agreement also contains various
events of default (with certain specified grace
periods), including, without limitation: (i) failure
to pay when due any amounts required to be paid to
Deutsche Bank under the Deutsche Bank Agreement or
the Note; (ii) any material misrepresentations in the
Deutsche Bank Agreement or documents delivered to
Deutsche Bank; (iii) failure to observe or perform
certain terms, covenants and agreements contained in
the Deutsche Bank Agreement, the Deutsche Bank Note
or other documents delivered to Deutsche Bank; (iv)
failure to comply with the Fund's fundamental
investment policies and investment restrictions; (v)
failure to comply with all material provisions of the
Investment Company Act of 1940; (vi) the voluntary or
involuntary bankruptcy of the Fund;

12
<PAGE> 13
(vii) the entry of judgments for the payment of money which exceeds the
lower of $25 million or 3% of the Fund's asset coverage ratio; (viii) a
change in the Investment Advisors; and (ix) a change of control in the
Investment Advisors.

j. The credit facility provided pursuant to the Deutsche
Bank Agreement will terminate on May 21, 1997, unless
extended pursuant to the terms thereof, and all
accrued interest and principal will be due thereon.

The Fund intends to repay any loans under the Deutsche Bank Agreement
from the specified pay-downs from interests in Senior Loans which will be
acquired and from the sale of Common Shares.

The foregoing descriptions of the Deutsche Bank Agreement do not
purport to be complete or final and are qualified in their entirety by
reference to the Deutsche Bank Agreement included as Exhibit (B) to the Issuer
Tender Offer Statement on Schedule 13E-4 of the Fund. See Section 14.

13. CERTAIN INFORMATION ABOUT THE FUND.

The Fund was organized as a Massachusetts business trust on October 4,
1995 and is a non-diversified, closed-end management investment company under
the Investment Company Act of 1940. The Fund seeks as high a level of current
income as is consistent with the preservation of capital by 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"). Although the Fund's NAV 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 NAV as a result of changes in
interest rates. 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 rate or
other base lending rates used by commercial lenders. The Fund seeks to achieve
over time a high effective yield. The Senior Loans in the Fund's portfolio 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 realizes the effects of
changing short-term market interest rates on its portfolio varies with the
dollar-weighted average time until next interest rate redetermination on
securities in the Fund's portfolio.

The Fund has registered as a "non-diversified" investment company so
that, subject to its investment restrictions, it is 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 in Senior Loans purchased
from a single lender. 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.

13
<PAGE> 14
SISC compensates Authorized Dealers participating in the
continuous offering of the Fund's Class A Common Shares pursuant to the
following schedule:

<TABLE>
<CAPTION>
Dealers' Reallowance
Amount of Transactions as a % of Offering Price
---------------------- ------------------------
<S> <C>
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%
</TABLE>

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. The 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 Class A Common Shares of the Fund are sold by an Authorized Dealer, Sierra
Advisors may in its discretion pay up to a maximum of 0.25% of the value of
such Common Shares to such Authorized Dealers. Such compensation is or will be
paid by Sierra Advisors out of its own assets, and not out of the assets of the
Fund. The compensation paid to such Authorized Dealers and to SISC, including
the compensation paid at the time of purchase, the quarterly payments, any
additional incentives paid from time to time and the EWC, if any, will not in
the aggregate exceed the applicable limit (currently 8.5%) imposed by the
National Association of Securities Dealers (the "NASD"), unless the approval of
the NASD has been received.

On October 31, 1996, VKAC Holding, the parent of Van Kampen, was merged
with the Morgan Stanley Group, Inc. ("Morgan Stanley") whereby VKAC Holding and
Van Kampen became indirect subsidiaries of Morgan Stanley. As a result of this
merger, a Special Meeting of Shareholders of record at the close of business on
September 10, 1996, was held on October 29, 1996, to vote on approval of a new
investment sub-advisory agreement with Van Kampen. Shareholders approved this
new investment sub-advisory agreement with Van Kampen resulting from the
"change of control" due to the merger with Morgan Stanley.

The principal executive offices of the Fund are located at 9301 Corbin
Avenue, Suite 333, Northridge, CA 91324.

Reference is hereby made to Section 9 of this Offer to Purchase and the
financial statements attached hereto as Exhibit A which are incorporated herein
by reference.

14. ADDITIONAL INFORMATION.

The Fund has filed an Issuer Tender Offer Statement on Schedule 13E-4
with the Securities and Exchange Commission (the "Commission") which includes
certain additional information relating to the Offer. Such material may be
inspected and copied at prescribed rates at the Commission's public reference
facilities at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549
and 5670 Wilshire Boulevard, 11th Floor, Los Angeles, CA 90036-3648. Copies
of such material may also be obtained by mail at prescribed rates from the
Public Reference Branch of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549.

15. CERTAIN FEDERAL INCOME TAX CONSEQUENCES.

The following discussion is a general summary of the federal income tax
consequences of a sale of Class A Common Shares pursuant to the Offer.
Shareholders should consult their own tax advisers regarding the tax
consequences of a sale of Class A Common Shares pursuant to the Offer, as well
as the effects of state, local and foreign tax laws.

14
<PAGE> 15
The sale of Class A Common Shares pursuant to the Offer will be a
taxable transaction for federal income tax purposes, either as a "sale or
exchange," or, under certain circumstances, as a "dividend." Under Section
302(b) of the Internal Revenue Code of 1986, as amended (the "Code"), a sale of
Class A Common Shares pursuant to the Offer generally will be treated as a
"sale or exchange" if the receipt of cash: (a) results in a "complete
termination" of the shareholder's interest in the Fund, (b) is "substantially
disproportionate" with respect to the shareholder, or (c) is "not essentially
equivalent to a dividend" with respect to the shareholder. In determining
whether any of these tests has been met, Class A Common Shares actually owned,
as well as Class A Common Shares considered to be owned by the shareholder by
reason of certain constructive ownership rules set forth in Section 318 of the
Code, generally must be taken into account. If any of these three tests for
"sale or exchange" treatment is met, a shareholder will recognize gain or loss
equal to the difference between the amount of cash received pursuant to the
Offer and the tax basis of the Class A Common Shares sold. If such Class A
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 Class A Common Shares have been held
for more than one year.

If none of the tests set forth in Section 302(b) of the Code is met,
amounts received by a shareholder who sells Class A Common Shares pursuant to
the Offer will be taxable to the shareholder as a "dividend" to the extent of
such shareholder's allocable share of the Fund's current or accumulated
earnings and profits, and the excess of such amounts received over the portion
that is taxable as a dividend would constitute a non-taxable return of capital
(to the extent of the shareholder's tax basis in the Class A Common Shares sold
pursuant to the Offer) and any amounts in excess of the shareholder's tax basis
would constitute taxable gain. Thus, a shareholder's tax basis in the Class A
Common Shares sold will not reduce the amount of the "dividend." Any remaining
tax basis in the Class A Common Shares tendered to the Fund will be transferred
to any remaining Class A Common Shares held by such shareholder. In addition,
if a tender of Class A Common Shares is treated as a "dividend" to a tendering
shareholder, a constructive dividend under Section 305 (c) of the Code may
result to a non-tendering shareholder whose proportionate interest in the
earnings and assets of the Fund has been increased by such tender.

16. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENTS.

The Fund reserves the right, at any time and from time to time, to
extend the period of time during which the Offer is pending by making a public
announcement thereof. In the event that the Fund so elects to extend the
tender period, the Purchase Price for the Class A Common Shares tendered will
be determined as of 2:00 PM Pacific Standard Time on the Expiration Date, as
extended, and the Offer will terminate as of 6:00 PM Pacific Standard Time on
the Expiration Date, as extended. During any such extension, all Class A
Common Shares previously tendered and not purchased or withdrawn will remain
subject to the Offer. Holders of Class A Common Stock may tender or withdraw
previously tendered shares to the Administrator at the address set forth on
page 2 of this Offer to Purchase by written, telegraphed, telex or facsimile
transmission of a notice of withdrawal prior to the Expiration Date. The Fund
also reserves the right, at any time and from time to time up to and including
the Expiration Date, to (a) terminate the Offer and not to purchase or pay for
any Class A Common Shares or, subject to applicable law, postpone payment for
Class A Common Shares upon the occurrence of any of the conditions specified in
Section 6, and (b) amend the Offer in any respect by making a public
announcement thereof. Such public announcement will be issued no later than
9:00 AM Pacific Standard Time on the next business day after the previously
scheduled Expiration Date and will disclose the approximate number of Class A
Common Shares tendered as of that date. Without limiting the manner in which
the Fund may choose to make a public announcement of extension, termination or
amendment, except as provided by applicable law (including Rule 13e-4(e) (2)),
the Fund shall have no obligation to publish, advertise or otherwise
communicate any such public announcement, other than by making a release to the
Dow Jones News Service.

If the Fund materially changes the terms of the Offer or the
information concerning the Offer, or if it waives a material condition of the
Offer, the Fund will extend the Offer to the extent required by Rule 13e-4
promulgated under the Exchange Act. These rules require that the minimum
period during which an offer must remain open following material changes in the
terms of the offer or information concerning the offer (other than a change in
price or a change in percentage of securities sought) will depend on the facts
and circumstances, including the relative materiality of such terms or
information. If (i) the Fund increases or decreases the price to be paid for
Class A Common Shares, or the Fund increases the number of Class A Common
Shares being sought by an amount exceeding 2% of the outstanding Class A

15
<PAGE> 16
Common Shares, or the Fund decreases the number of Class A Common Shares being
sought and (ii) the Offer is scheduled to expire at any time earlier than the
expiration of a period ending on the tenth business day from, and including,
the date that notice of such increase or decrease is first published, sent or
given, the Offer will be extended at least until the expiration of such period
of ten business days.

17. MISCELLANEOUS.

The Offer is not being made to, nor will the Fund accept tenders from,
owners of Class A Common Shares in any jurisdiction in which the Offer or its
acceptance would not comply with the securities or Blue Sky laws of such
jurisdiction. The Fund is not aware of any jurisdiction in which the making of
the Offer or the tender of Class A Common Shares would not be in compliances
with the laws of such jurisdiction. However, the Fund reserves the right to
exclude holders in any jurisdiction in which it is asserted that the Offer
cannot lawfully be made. So long as the Fund makes a good-faith effort to
comply with any state law deemed applicable to the Offer, the Fund believes
that the exclusion of holders residing in such jurisdiction is permitted under
Rule 13e-4(f)(9) promulgated under the Exchange Act. In any jurisdiction the
securities or Blue Sky laws of which require the Offer to be made by a licensed
broker or dealer, the Offer shall be deemed to be made on the Fund's behalf by
one or more registered brokers or dealers licensed under the laws of such
jurisdiction.

December 16, 1996 SIERRA PRIME INCOME FUND

16
<PAGE> 17
EXHIBIT A

SIERRA PRIME INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1996

<TABLE>
<S> <C>
ASSETS
Investments, at value (Cost $12,338,792) (Note 2)
See portfolio of investments . . . . . . . . . . . . $ 12,345,109
Receivable for investment securities sold . . . . . . . . 2,387
Receivable for Fund shares sold . . . . . . . . . . . . . 2,873
Interest receivable . . . . . . . . . . . . . . . . . . . 54,938
Unamortized organization costs (Note 7) . . . . . . . . . 213,781
Receivable from investment advisor (Note 3) . . . . . . . 29,252
Other assets . . . . . . . . . . . . . . . . . . . . . . 119
--------------
Total Assets . . . . . . . . . . . . . . . . . . . . 12,648,459
--------------

LIABILITIES
Deferred facility fees (Note 2) . . . . . . . . . . . . . 6,604
Dividends payable . . . . . . . . . . . . . . . . . . . . 28,233
Administration fee payable (Note 3) . . . . . . . . . . . 2,554
Accrued legal . . . . . . . . . . . . . . . . . . . . . . 35,601
Accrued audit fees . . . . . . . . . . . . . . . . . . . 30,000
Accrued Trustees' fees and expenses . . . . . . . . . . . 1,000
Due to Custodian . . . . . . . . . . . . . . . . . . . . 3,470
Accrued expenses and other payables (Note 3) . . . . . . 7,462
--------------
Total Liabilities . . . . . . . . . . . . . . . . . . 114,924
--------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . $ 12,533,535
==============

NET ASSETS CONSIST OF:
Paid in capital . . . . . . . . . . . . . . . . . . . . . 12,526,373
Undistributed net investment income . . . . . . . . . . . 845
Net unrealized appreciation of investments . . . . . . . 6,317
--------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . $ 12,533,535
==============

Class A Common Shares Outstanding . . . . . . . . . . . . 1,252,700
==============
Net asset value per share of beneficial
interest outstanding* . . . . . . . . . . . . . . . . $ 10.01
==============
Maximum sales charge . . . . . . . . . . . . . . . . . . 4.5%
Maximum offering price per share of
beneficial interest outstanding ($10.01/0.955) . . . $ 10.48
==============
</TABLE>

____________________________

* Redemption price per share is equal to Net Asset Value less any applicable
contingent deferred sales charge.

See Notes to Financial Statements

A - 1
<PAGE> 18
SIERRA PRIME INCOME FUND
STATEMENT OF OPERATIONS
FOR THE PERIOD FEBRUARY 16, 1996* THROUGH SEPTEMBER 30, 1996

<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest . . . . . . . . . . . . . . . . . . . . . . . . $ 414,601
Fees . . . . . . . . . . . . . . . . . . . . . . . . . . 1,741
--------------
Total Investment Income . . . . . . . . . . . . . . . 416,342
--------------

EXPENSES:
Investment advisory fee (Note 3) . . . . . . . . . . . . 58,878
Administration fee (Note 3) . . . . . . . . . . . . . . . 18,571
Legal fees . . . . . . . . . . . . . . . . . . . . . . . 105,570
Audit fees . . . . . . . . . . . . . . . . . . . . . . . 32,750
Trustees' fees and expenses (Note 3) . . . . . . . . . . 31,434
Amortization of organization costs . . . . . . . . . . . 30,426
Printing and postage . . . . . . . . . . . . . . . . . . 10,813
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 5,782
--------------
Subtotal . . . . . . . . . . . . . . . . . . . . . . 294,224
Fees waived and expenses absorbed
by investment advisor (Note 3) . . . . . . . . . . . (294,224)
--------------
Total expenses . . . . . . . . . . . . . . . . . . . 0
--------------
NET INVESTMENT INCOME . . . . . . . . . . . . . . . . . . 416,342
--------------

NET UNREALIZED GAIN
ON INVESTMENTS (Notes 2 and 4):
Net change in unrealized appreciation of securities . . . 6,317
--------------
Net unrealized gain on investments . . . . . . . . . . . 6,317
--------------

NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS . . . . . . . . . . . . . . $ 422,659
==============
</TABLE>

____________________________

* Commencement of operations.

See Notes to Financial Statements

A-2
<PAGE> 19
SIERRA PRIME INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD FEBRUARY 16, 1996* THROUGH SEPTEMBER 30, 1996

<TABLE>
<S> <C>
Net investment income . . . . . . . . . . . . . . . . . . $ 416,342
Net unrealized appreciation of investments
during the period . . . . . . . . . . . . . . . . . . . 6,317
--------------
Net increase in net assets resulting from operations . . 422,659
--------------

Distributions to shareholders from net investment income:
Class A Common Shares . . . . . . . . . . . . . . . . (416,342)
Net increase in net assets from Fund share transactions:
Class A Common Shares . . . . . . . . . . . . . . . . 12,427,218
--------------
Net increase in net assets . . . . . . . . . . . . . . . 12,433,535
--------------

NET ASSETS:
Beginning of year . . . . . . . . . . . . . . . . . . 100,000
--------------
End of year (includes undistributed net
investment income of $845) . . . . . . . . . . . . $ 12,533,535
==============

AMOUNT
Sold . . . . . . . . . . . . . . . . . . . . . . . . $ 12,610,620
Issued as reinvestment of dividends . . . . . . . . . 255,107
Repurchased . . . . . . . . . . . . . . . . . . . . . (438,509)
--------------
Net Increase . . . . . . . . . . . . . . . . . . . . $ 12,427,218
==============

SHARES
Sold . . . . . . . . . . . . . . . . . . . . . . . . 1,261,061
Issued as reinvestment of dividends . . . . . . . . . 25,490
Repurchased . . . . . . . . . . . . . . . . . . . . . (43,851)
--------------
Net Increase . . . . . . . . . . . . . . . . . . . . 1,242,700
==============
</TABLE>

____________________________

* Commencement of operations.

See Notes to Financial Statements

A-3
<PAGE> 20
SIERRA PRIME INCOME FUND
STATEMENT OF CASH FLOWS
FOR THE PERIOD FEBRUARY 16, 1996* THROUGH SEPTEMBER 30, 1996

<TABLE>
<S> <C> <C>
Cash flows from operating activities:
Investment income received . . . . . . . . . . . . . . . . . . $ 220,511
Fee income received . . . . . . . . . . . . . . . . . . . . . . 8,345
Payment of operating expenses . . . . . . . . . . . . . . . . . (166,535)
Proceeds from sales of long-term securities . . . . . . . . . . 1,981,821
Purchases of long-term securities . . . . . . . . . . . . . . . (8,513,000)
Net proceeds from short-term investments . . . . . . . . . . . (5,670,848)
----------------
CASH USED FOR OPERATING ACTIVITIES . . . . . . . . . . . . . . . . $ (12,139,706)
Cash flows from financing activities:
Proceeds from shares sold . . . . . . . . . . . . . . . . . . . 12,607,747
Payments on shares repurchased . . . . . . . . . . . . . . . . (438,509)
Distributions paid** . . . . . . . . . . . . . . . . . . . . . (133,002)
Due to Custodian . . . . . . . . . . . . . . . . . . . . . . . 3,470
----------------
CASH PROVIDED BY FINANCING ACTIVITIES . . . . . . . . . . . . . . . 12,039,706
-----------------
Decrease in cash . . . . . . . . . . . . . . . . . . . . . . . . . (100,000)
Cash at beginning of period . . . . . . . . . . . . . . . . . . . . 100,000
-----------------
Cash at end of period . . . . . . . . . . . . . . . . . . . . . . . $ 0
=================

RECONCILIATION OF NET INCREASE IN NET ASSETS FROM OPERATIONS
TO CASH USED FOR OPERATING ACTIVITIES:
Net increase in net assets resulting from operations . . . . . $ 422,659
Increase in investments+ . . . . . . . . . . . . . . . . . $ (12,345,109)
Increase in interest receivable . . . . . . . . . . . . . (54,938)
Increase in receivable for investment securities sold . . (2,387)
Increase in unamortized organization costs . . . . . . . . (213,781)
Increase in other assets . . . . . . . . . . . . . . . . . (29,371)
Increase in accrued expenses . . . . . . . . . . . . . . . 76,617
Increase in deferred facility fees . . . . . . . . . . . . 6,604
----------------
Total adjustments . . . . . . . . . . . . . . . . . . . . (12,562,365)
----------------
CASH PROVIDED BY OPERATING ACTIVITIES . . . . . . . . . . . . . . . $ (12,139,706)
==================
</TABLE>

____________________________

* Commencement of operations.
** Non cash activities include reinvestment of dividends of $255,107.
+ Includes unrealized appreciation of $6,317.

See Notes to Financial Statements.

A-4
<PAGE> 21
SIERRA PRIME INCOME FUND
FINANCIAL HIGHLIGHTS
FOR A FUND SHARE OUTSTANDING THROUGHOUT THE PERIOD
FEBRUARY 16, 1996* TO SEPTEMBER 30, 1996

<TABLE>
<S> <C>
Net asset value, beginning of period . . . . . . . . . . . . . $ 10.00
----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income . . . . . . . . . . . . . . . . . . . . . .40
Net realized and unrealized gain on investments . . . . . . . . .01
----------
Total from investment operations . . . . . . . . . . . . . . . .41
----------
LESS DISTRIBUTIONS:
Dividends from net investment income . . . . . . . . . . . . . (.40)
----------
Total distributions . . . . . . . . . . . . . . . . . . . . . . (.40)
----------
Net asset value, end of period . . . . . . . . . . . . . . . . $ 10.01
==========

TOTAL RETURN+ . . . . . . . . . . . . . . . . . . . . . . . . . 4.19%
==========

RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) . . . . . . . . . . . . . $ 12,534
Ratio of operating expenses to average net assets . . . . . . . 0.00%**
Ratio of net investment income to average net assets . . . . . 6.72%**
Portfolio turnover rate . . . . . . . . . . . . . . . . . . . . 44%
Ratio of operating expenses to average net assets without fees
waived and expenses absorbed by investment advisor . . . . 4.75%**
Net investment income per share without fees waived
and expenses absorbed by investment advisor . . . . . . . . $ 0.12
</TABLE>

___
* Commencement of operations.
** Annualized.
+ Total return represents aggregate total return for the period indicated.
The total return would have been lower if certain fees and expenses had not
been waived and absorbed by the investment advisor.

A-5
<PAGE> 22
SIERRA PRIME INCOME FUND
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1996

<TABLE>
<CAPTION>
Principal Loan Stated
Amount Borrower Rate* Type Maturity** Value
------ -------- ---- ---- -------- -----
<S> <C> <C> <C> <C> <C>
SENIOR LOAN INTERESTS--52.1%
BROADCASTING--0.8%
$ 104,259 SKTV, Inc. . . . . . . . . . . . .7.440% Term 07/31/2000 $ 104,259
--------------

CABLE--2.7%
344,000 Marcus Cable Operating Company, Term 12/31/2002 344,017
L.P. . . . . . . . . . . . . . . . 7.136 --------------

FOOD & BEVERAGES--14.6%
573,000 Keebler Holding Corporation . . . . 7.874 Term 01/31/2002 572,813
259,565 SC International Services, Inc. . . 8.624 Term 09/30/2001 259,565
323,710 SC International Services, Inc. . . 8.624 Term 09/30/2002 323,710
71,187 SC International Services, Inc. . . 8.874 Term 09/30/2003 71,187
600,000 Stroh Brewery Company . . . . . . . 8.127 Term 06/30/2001 601,551
--------------
1,828,826
--------------
FOOD STORES--5.6%
104,125 Bruno's, Inc. . . . . . . . . . . . 7.775 Term 02/18/2002 104,109
596,630 Carr-Gottstein Foods . . . . . . . 8.625 Term 12/31/2002 596,684
--------------
700,793
--------------
HEALTHCARE--2.9%
359,000 Merit Behavioral Care Corporation . 8.434 Term 10/06/2003 358,968
--------------

MANUFACTURING--5.0%
358,820 International Wire Group, Inc. . . 8.545 Term 09/30/2002 358,783
161,061 T.K.G. Acquisition Corporation . . 7.749 Term 02/28/2002 161,053
111,714 Thompson Minwax Company . . . . . . 8.440 Term 12/31/2002 111,714
--------------
631,550
--------------
PAPER--6.8%
107,708 Fort Howard Corporation . . . . . . 7.719 Term 03/31/2002 107,712
158,464 Jefferson Smurfit Corporation . . . 6.938 Term 04/30/2001 158,465
118,370 Stone Container Corporation . . . . 8.655 Term 04/01/2000 118,379
472,613 Stone Container Corporation . . . . 8.813 Term 10/01/2003 473,556
--------------
858,112
--------------
RETAIL--3.6%
446,791 Federated Department Stores, Inc. . 6.219 Term 03/31/2000 448,725
--------------

OTHER--10.1%
361,875 AMF Group, Inc. . . . . . . . . . . 8.063 Term 03/31/2001 361,855
429,057 AMF Group, Inc. . . . . . . . . . . 8.438 Term 03/31/2003 429,033
169,132 AMF Group, Inc. . . . . . . . . . . 8.688 Term 03/31/2004 169,123
297,711 Borg-Warner Security Corporation . 8.750 Term 12/31/1998 299,848
--------------
1,259,859
--------------

Total Senior Loan Interests (cost $6,528,792) 6,535,109
--------------
</TABLE>

See Notes to Financial Statements

A-6
<PAGE> 23
SIERRA PRIME INCOME FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
SEPTEMBER 30, 1996

<TABLE>
<CAPTION>
Principal
Amount Value
------ -----
<S> <C> <C>
U.S. GOVERNMENT AGENCY DISCOUNT NOTES--46.4% (cost $5,810,000)
$ 5,810,000 Federal Home Loan Bank (FHLB)
5.700%, due 10/01/1996 . . . . . $ 5,810,000
--------------

TOTAL INVESTMENTS (Cost $12,338,792+) . . . . . . . . . 98.5% 12,345,109
OTHER ASSETS AND LIABILITIES (Net) . . . . . . . . . . 1.5 188,426
------------- --------------
NET ASSETS . . . . . . . . . . . . . . . . 100.0% $ 12,533,535
============= ==============
</TABLE>

____________________________

* Senior loans in which the Sierra Prime Income Fund invests 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 (i)
the prime rate offered by one or more major United States banks; (ii) the
lending rate offered by one or more major European banks, such as the London
Inter-Bank Offered Rate (LIBOR); or (iii) the certificate of deposit ratio.
Senior loans are generally considered to be restricted in that the Fund
ordinarily is contractually obligated to receive approval from the Agent Bank
and/or borrower prior to the disposition of a senior loan. Within each loan
there may be different rates due to different reset dates. The rates disclosed
for each loan are the weighted average coupon rates as of September 30, 1996.

** Senior loans in the Sierra Prime Income Fund's portfolio generally are
subject to mandatory and/or optional prepayment. Because of these mandatory
prepayment conditions and because there may be significant economic incentives
for a Borrower to prepay, prepayments of senior loans in the Fund's portfolio
may occur. As a result, the actual remaining maturity of senior loans held in
the Fund's portfolio may be substantially less than the stated maturities
shown. Although the Fund is unable to accurately estimate the actual remaining
maturity of individual senior loans, the Fund estimates that the actual average
maturity of the senior loans held in its portfolio will be approximately 18-24
months.

+ At September 30, 1996 the aggregate cost for federal tax purposes was
$12,338,792. The gross unrealized appreciation for all securities in which
there is an excess of value over tax cost and aggregate gross unrealized
depreciation for all securities in which there is an excess of tax cost over
value were $6,694 and $377, respectively.

See Notes to Financial Statements

A-7
<PAGE> 24
SIERRA PRIME INCOME FUND
NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION AND BUSINESS

Sierra Prime Income Fund (the "Fund") is registered under the Investment
Company Act of 1940, as amended ("1940 Act"), as a non-diversified, closed-end
management investment company. The Fund was organized as a Massachusetts
business trust on October 4, 1995. During the period October 4, 1995 to
February 15, 1996, the Fund had no operations other than those related to
organizational matters, including the initial capital contribution of $100,000
and the issuance of 10,000 shares of beneficial interest to Sierra Fund
Administration Corporation.

The Trustees of the Fund authorized an unlimited number of Common Shares with
separate classes of beneficial interest. Currently there are only Class A
Common Shares. Shares are continuously offered at a price equal to the next
determined net asset value ("NAV") per share plus a maximum sales charge based
on a determined schedule.

2. SIGNIFICANT ACCOUNTING POLICIES

The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures in the financial statements.
Actual results could differ from those estimates. The following is a summary
of significant accounting policies consistently followed by the Sierra Prime
Income Fund in the preparation of its financial statements.

Portfolio Valuation:

Senior Loans are not actively traded in a public market. Sierra Investment
Advisors Corporation (the "Advisor"), and Van Kampen American Capital
Management Inc. (the "Sub-Advisor"), following procedures established by the
Fund's Board of Trustees, value the Senior Loan interests held by the Fund at
fair value. In valuing a Senior Loan interest, the Advisor and Sub-Advisor
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 and 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
for (if considered reliable) and trading in 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) are 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 is determined in accordance with a
discounted present value formula and then confirmed by obtaining a bank
quotation. As of September 30, 1996 there were no interest rate swaps.

A-8
<PAGE> 25
SIERRA PRIME INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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.

Illiquid Investments:

Senior Loans in which the Fund will invest presently are 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 restriction 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 invests
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 (Note 5) for its Common Shares and may result in the
Fund borrowing to meet short-term cash requirements.

Cash Flow Information:

The cash amount in the Statement of Cash Flows is the amount reported in the
Statement of Assets and Liabilities and does not include any short-term
investments at September 30, 1996. The Fund issues its shares, invests in
securities, and makes distributions from net investment income and net capital
gains (which are either paid in cash or reinvested at the discretion of
shareholders). These activities are reported in the Statement of Changes in
Net Assets. Information on cash receipts and payments is presented in the
Statement of Cash Flows.

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

A-9
<PAGE> 26
SIERRA PRIME INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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 limitations exists as to the percentage of the Fund's
assets which may be used to participate in repurchase agreements.

Securities Transactions and Investment Income:

Securities transactions are recorded on trade date (the date the order to buy
or sell is executed). Realized gains and losses from securities sold are
recorded on the identified cost basis. Income is recorded on the accrual basis
and consists of interest accrued and discount earned less premiums amortized.
Facility fees are received upon the purchase of a new loan and are recognized
as income ratably over the expected life of the loan. The deferred facility
fees are the "unearned" portion of these facility fees. The Fund may purchase
and sell interest 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 interest or securities. 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.

Dividends and Distributions to Shareholders:

The Fund's policy is to declare daily and pay monthly distributions to holders
of Class A Common Shares of substantially all net investment income of the
Fund. Distributions of any net long-term capital gains earned by the Fund are
made annually. Distributions of any net short-term capital gains earned by
the Fund are distributed no less frequently than annually at the discretion of
the Board of Trustees. Additional distributions of net investment income and
capital gains for the Fund may be made at the discretion of the Board of
Trustees in order to avoid the application of a 4% non-deductible excise tax on
certain undistributed amounts of ordinary income and capital gains. Income
distributions and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments of
income and gains on various investment securities held by the Fund, timing
differences and differing characterization of distributions made by the Fund.

For the year ended September 30, 1996, permanent differences resulting from
book and tax accounting for organizational costs were reclassified causing a
decrease of $845 to paid-in capital and an increase to undistributed net
investment income for the same amount.

Federal Income Taxes:

It is the Fund's policy to qualify as a regulated investment company by
complying with the requirements of the Internal Revenue Code of 1986, as
amended, applicable to regulated investment companies and by, among other
things, distributing substantially all of its taxable earnings to its
shareholders. Therefore, no Federal income tax provision is required.

3. INVESTMENT ADVISORY, SUB-ADVISORY, ADMINISTRATION FEES AND OTHER
TRANSACTIONS

Sierra Advisors, an indirect wholly-owned subsidiary of Great Western Financial
Corporation ("GWFC"), is the Fund's investment advisor. Sierra Advisors is
entitled to a monthly fee at an annual rate of 0.95% of the average daily net
assets of the Fund. These fees were $58,878 for the period ended September 30,
1996 and have been voluntarily waived by Sierra Advisors. Sierra Advisors pays
a monthly fee at an

A-10
<PAGE> 27
SIERRA PRIME INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

annual rate of 0.475% to Van Kampen American Capital Management Inc. for
services rendered as the Sub-Advisor.

Sierra Fund Administration Corporation ("Sierra Administration") is the Fund's
administrator. As a result of a change in transfer agent responsibilities
effective July 1, 1996, Sierra Administration now receives a monthly fee at an
annual rate of 0.25% of the Fund's average daily net assets and the Fund now
pays First Data Investor Services Group, Inc. ("First Data") directly for all
transfer agent services. Prior to this Sierra Administration was entitled to a
monthly fee at an annual rate of 0.35% of the Fund's average daily net assets,
and Sierra Administration paid First Data for certain transfer agency services.
The Administration fees for the period ended September 30, 1996 were $18,571.
Sierra Administration pays State Street Bank and Trust Company ("State Street")
for certain administrative and custodial services. The Fund pays for the
sub-administrator and custodial out-of pocket expenses.

Sierra Advisors has agreed to voluntarily reimburse the Fund's total operating
expenses. For the period ended September 30, 1996 the total reimbursement to
the Fund was $235,346.

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, GWFC. The Fund pays the compensation of all other officers and
Trustees of the Fund. Trustees who are not interested persons are paid 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.

As of September 30, 1996 there was one shareholder who owned greater than five
percent of Class A Common Shares, representing 16.55% of the Fund at this date.

For the period ended September 30, 1996, Great Western Financial Securities
Corporation and Sierra Investment Services Corporation ("SISC"), both
registered broker-dealers, have received $232,067 and $32,221, respectively,
representing commissions (front-end sales charges).

4. PURCHASE AND SALES OF SECURITIES

The aggregate cost of purchases and proceeds from sales of securities,
excluding U.S. Government and short-term investments, for the period ended
September 30, 1996 was $8,513,000 and $1,984,208, respectively.

5. TENDER 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 outstanding
Class A Common Shares at the then current net asset value of these Common
Shares. The Fund does not intend to list its 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. An early
withdrawal charge may be charged by SISC on those repurchases or tenders done
during the first or second year after purchase. For the period ended September
30, 1996, 43,851 shares were tendered and repurchased by the Fund with no early
withdrawal charge.

A-11
<PAGE> 28
SIERRA PRIME INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

6. SHARES OF BENEFICIAL INTEREST

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
Fund initially is offering 5,000,000 Class A Common Shares in a continuous
offering pursuant to Rule 415 under the Securities Act of 1933, as amended.

7. ORGANIZATION COSTS

Expenses incurred in connection with the organization of the Fund, including
the fees and expenses of registering and qualifying its shares for distribution
under Federal and state securities regulations, are being amortized on a
straight-line basis over a period of five years from commencement of operations
of the Fund. In the event any of the initial shares of the Fund are redeemed
by any holder thereof during the amortization period, the proceeds of such
redemptions will be reduced by an amount equal to the pro-rata portion of
unamortized deferred organizational expenses in the same proportion as the
number of shares being redeemed bears to the number of initial shares of such
Fund outstanding at the time of such redemption. To the extent that proceeds
of the redemptions are less than such pro-rata portion of any unamortized
organizational expenses, Sierra Administration has agreed to reimburse the
Fund.

8. SENIOR LOAN PARTICIPATIONS

The Fund invests primarily in participations, assignments, or acts as a party
to the primary lending syndicate of a Variable Rate Senior Loan interest to
United States corporations, partnerships, and other entities. When the Fund
purchases a participation of a Senior Loan interest, the Fund typically enters
into a contractual agreement with the lender or other third party selling the
participation, but not with the borrower directly. As such, the Fund assumes
the credit risk of the Borrower, Selling Participant or other persons
interpositioned between the Fund and the Borrower.

At September 30, 1996, the following sets forth the selling participants with
respect to interests in Senior Loans purchased by the Fund on a participation
basis.

<TABLE>
<CAPTION>
Principal
Selling Participant Amount Value
------------------- ------------- -----
<S> <C> <C>
Pearl Street L.P. $ 2,187,525 $ 2,187,286
Chase Securities Inc. 2,001,911 2,001,831
Morgan Guaranty 600,000 601,550
Bankers Trust 596,630 596,684
Lehman Commercial Paper, Inc. 472,613 473,557
Canadian Imperial Bank of Commerce 458,772 460,901
NationsBank 211,341 213,300
------------- ------------
$ 6,528,792 $ 6,535,109
============= ============
</TABLE>

9. LINE OF CREDIT

Sierra Prime Income Fund and the Sierra Trust Funds participate in a $40
million line of credit provided by Deutsche Bank AG, New York Branch (the
"Bank") under a Credit Agreement (the "Agreement") dated May 22, 1996,
primarily for temporary or emergency purposes, including the meeting of
redemption requests that otherwise might require the untimely disposition of
securities. Under the Agreement, Sierra Prime Income Fund may borrow up to
$433,000 plus its pro rata portion of any unused base commitment allocation of
the other borrowers under the Agreement. Interest is payable at one of the
following rates depending on the type of loan designated by the borrower: (i)
the higher of 0.50% in excess of the Federal Funds Rate and the prime lending
rate announced by the Bank; (ii) the New York Interbank Offered Rate (NIBOR)
plus 0.35% on an annualized basis; or (iii) the London Interbank Offered Rate
(LIBOR) plus

A-12
<PAGE> 29
SIERRA PRIME INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

0.35% on an annualized basis. The Fund is charged an aggregate commitment fee
computed at a rate equal to 0.05% on an annual basis of the daily average
unutilized credit balance. The Agreement requires that the aggregate
outstanding principal amount of the loan made shall not exceed 33 1/3 % of the
value of the total assets of the fund less all liabilities and indebtedness not
represented by senior securities. 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. During the period ended September
30, 1996, the Fund had not borrowed under the Agreement.

10. SUBSEQUENT EVENTS (UNAUDITED)

The second tender offer of the Sierra Prime Income Fund expired on October 25,
1996. As of this date 44,043 additional shares were tendered and repurchased
by the Fund.

On October 31, 1996 VKAC Holding, the parent of the Sub-Advisor, was merged
with Morgan Stanley Group Inc. ("Morgan Stanley") whereby VKAC Holding and the
Sub-Advisor became indirect subsidiaries of Morgan Stanley. As a result of
this merger, a Special Meeting of Shareholders, of record of the Fund at the
close of business on September 10, 1996, was held on October 29, 1996, to vote
on approval of a new investment sub- advisory agreement with the current
Sub-Advisor, Van Kampen American Capital Management Inc.. The voting results
were as follows:

<TABLE>
<CAPTION>
Number of Shares % of Outstanding Shares % of Shares Voted
---------------- ----------------------- -----------------
<S> <C> <C> <C>
Affirmative 679,731 54.638% 89.666%
Against 2,558 .206% .338%
Abstain 75,780 6.091% 9.996%
--------------- -------------------- ----------------
Total 758,069 60.935% 100.000%
=============== ==================== ================
</TABLE>

Accordingly, shareholders of the Fund approved the new investment sub-advisory
agreement with the Sub-Advisor resulting from the "change of control" due to
its merger with Morgan Stanley.

A-13
<PAGE> 30
Sierra Prime Income Fund
Report of Independent Accountants

TO THE SHAREHOLDERS AND TRUSTEES
OF SIERRA PRIME INCOME FUND

In our opinion, the accompanying statements of assets and liabilities,
including the portfolio of investments, and the related statements of
operations, of changes in net assets and of cash flows and the financial
highlights present fairly, in all material respects, the financial position of
Sierra Prime Income Fund (the "Fund") at September 30, 1996, the results of its
operations, its cash flows, the changes in its net assets and the financial
highlights for the period February 16, 1996 (commencement of operations)
through September 30, 1996, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit, which included
confirmation of securities owned at September 30, 1996 by correspondence with
the custodian, and with respect to senior collateralized loans by
correspondence with the selling participants and agent banks, provides a
reasonable basis for the opinion expressed above.

As explained in Note 2, the financial statements include senior collateralized
loans valued at $6,535,109 (52.1 percent of net assets), whose values have been
determined in accordance with procedures established by the Trustees in the
absence of readily ascertainable market values. We have reviewed the
procedures which were established by the Trustees in determining the fair
values of such senior collateralized loans and have inspected underlying
documentation, and, in the circumstances, we believe the procedures are
reasonable and the documentation appropriate. However, because of the inherent
uncertainty of valuation, those values determined in accordance with procedures
established by the Trustees may differ significantly from the values that would
have been used had a ready market for the senior collateralized loans existed,
and the differences could be material.

PRICE WATERHOUSE LLP
Boston, Massachusetts
November 6, 1996

A-14

<PAGE> 1
EXHIBIT (A)(2)

LETTER OF TRANSMITTAL
REGARDING CLASS A COMMON SHARES
OF
SIERRA PRIME INCOME FUND
TENDERED PURSUANT TO THE OFFER TO PURCHASE
DATED DECEMBER 16, 1996

THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 6:00 PM PACIFIC
STANDARD TIME ON JANUARY 17, 1997, UNLESS THE OFFER IS EXTENDED

Ladies and Gentlemen:

The undersigned hereby tenders to the Sierra Prime Income Fund, a
non-diversified, closed-end management investment company organized as a
Massachusetts business trust (the "Fund"), the Class A Common Shares of
beneficial interest, with no par value, of the Fund (the "Class A Common
Shares") described below in Box No. 1, at a price (the "Purchase Price") equal
to the net asset value per Class A Common Share ("NAV") determined as of 2:00
PM Pacific Standard Time on the Expiration Date (as defined in the Offer to
Purchase) in cash, upon the terms and conditions set forth in the Offer to
Purchase, dated December 16, 1996, receipt of which is hereby acknowledged, and
in this Letter of Transmittal and the Instructions hereto (which together
constitute the "Offer"). An Early Withdrawal Charge or "EWC" (as defined in
the Offer to Purchase) may be imposed on certain Class A Common Shares accepted
for payment which have been held for less than two years.

Subject to and effective upon acceptance for payment of the Class A
Common Shares tendered hereby in accordance with the terms of the Offer
(including, if the Offer is extended or amended, the terms or conditions of any
such extension or amendment), the undersigned hereby sells, assigns and
transfers to or upon the order of the Fund all right, title and interest in and
to all Class A Common Shares tendered hereby that are purchased pursuant to the
Offer and hereby irrevocably constitutes and appoints First Data Investor
Services Group, Inc.("First Data" or the "Transfer Agent") as attorney-in-fact
of the undersigned with respect to such Class A Common Shares, with full power
of substitution (such power of attorney being deemed to be an irrevocable power
coupled with an interest), to (a) transfer ownership of such Class A Common
Shares on the Fund's books, together with all accompanying evidences of
transfer and authenticity, to or upon the order of the Fund, upon receipt by
the Transfer Agent, as the undersigned's agent, of the NAV per Common Share
with respect to such Class A Common Shares; (b) deduct from the Purchase Price
deposited with the Transfer Agent any applicable Early Withdrawal Charge and
remit such charge to Sierra Investment Services Corporation; and (c) receive
all benefits and otherwise exercise all rights of beneficial ownership of such
Class A Common Shares, subject to the next paragraph, all in accordance with
the terms of the Offer.

The undersigned hereby represents and warrants that: (a) the
undersigned has a "net long position" in the Class A Common Shares tendered
hereby within the meaning of Rule 14e-4 promulgated under the Securities Act of
1934, as amended, and has full power and authority to validly tender, sell,
assign and transfer the Class A Common Shares tendered hereby; (b) when and to
the extent the Fund accepts the Class A Common Shares for purchase, the Fund
will acquire good, marketable and unencumbered title to them, free and clear of
all security interests, liens, charges, encumbrances, conditional sales
agreements or other obligations relating to their sale or transfer, and not
subject to any adverse claim; (c) on request, the undersigned will execute and
deliver any additional documents the Transfer Agent or the Fund deems necessary
or desirable to complete the assignment, transfer and purchase of the Class A
Common Shares tendered hereby; and (d) the undersigned has read and agrees to
all of the terms of this Offer.
<PAGE> 2

The names and addresses of the registered owners should be printed, if
they are not already printed, in Box 1 as they appear on the registration of
the Class A Common Shares. The number of Class A Common Shares that the
undersigned wishes to tender should be indicated in Box No. 1, which number may
be determined by indicating in Option B of such box the dollar amount of
proceeds the undersigned desires to receive pursuant to the tender offer after
any applicable Early Withdrawal Charge ("EWC") has been deducted from such
proceeds.

The undersigned recognizes that under certain circumstances set forth
in the Offer to Purchase, the Fund may terminate or amend the Offer or may not
be required to purchase any of the Class A Common Shares tendered hereby.

The undersigned understands that acceptance of Class A Common Shares by
the Fund for payment will constitute a binding agreement between the
undersigned and the Fund upon the terms and subject to the conditions of the
Offer.

The check for the Purchase Price of the tendered Class A Common Shares
purchased, minus any applicable Early Withdrawal Charge ("EWC"), will be issued
to the order of the undersigned and mailed to the address indicated below in
Box No. 1, unless otherwise indicated below in Box No. 2. Shareholders
tendering Class A Common Shares shall be entitled to receive all dividends
declared on or prior to settlement following the Expiration Date, but not yet
paid, on Class A Common Shares tendered pursuant to the Offer. The Fund will
not pay interest on the Purchase Price under any circumstances.

All authority herein conferred or agreed to be conferred shall survive
the death or incapacity of the undersigned and all obligations of the
undersigned hereunder shall be binding upon the heirs, personal
representatives, successors and assigns of the undersigned. Except as stated
in the Offer, this tender is irrevocable.

DELIVERY TO AN ADDRESS OTHER THAN THAT SHOWN BELOW
DOES NOT CONSTITUTE VALID DELIVERY.

By Mail, Hand or Courier
Sierra Fund Administration Corporation
9301 Corbin Avenue, Suite 333
Northridge, CA 91324
Attn: Sierra Prime Income Fund

FOR ADDITIONAL INFORMATION CALL:
(800) 222-5852
<PAGE> 3
This Letter of Transmittal is to be used only if the Class A Common
Shares to be tendered are registered in the shareholders' name and the
necessary documents will be transmitted to the Administrator by the shareholder
or his broker, dealer or other Authorized Dealer. Do not use this form if a
broker, dealer or other Authorized Dealer is the registered owner of the Class
A Common Shares and is effecting the transaction for the shareholder.

To ensure processing of your request, this Letter of Transmittal or a
manually signed facsimile of it (together with all other required documents)
must be received by the Administrator on or before the Expiration Date (January
17, 1997).

BOX NO. 1: SHAREHOLDER INFORMATION

Name and Address of
Registered Owner Shareholder Information

PLEASE PROVIDE: Social Security No.

CAESAR ACCOUNT NO.:
-----------------

SIERRA ACCOUNT NO.:
-----------------

CHECK ONE OF THE FOLLOWING AND FILL
IN THE APPROPRIATE AMOUNT

OPTION A: [ ] I hereby tender ________ Class A Common Shares of the Fund.
I understand that an Early Withdrawal Charge may be imposed
on certain Class A Common Shares accepted for payment that
have been held for less than two years and that such
charge, if any, will be deducted from the proceeds from
such Class A Common Shares. (See Instruction 3 and 4).
OR
OPTION B: [ ] I hereby tender that certain number of Class A Common
Shares of the Fund necessary to receive $__________ from
the Fund after the Early Withdrawal Charge, if applicable,
has been deducted from the proceeds from such Class A
Common Shares. (See Instruction 3 and 4).

PLEASE NOTE: If the account indicated by the account number in this Box No.
1 is a Sierra Prime Income Fund IRA account, an IRA distribution form MUST
be submitted with this Letter of Transmittal.

BOX NO. 2: SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 2, 3 AND
4)

To be completed ONLY if checks are to be sent or wired to someone other than
the undersigned or are to be sent to the undersigned at an address other
than that shown above in Box No. 1

<TABLE>
<S> <C>
Mail check to: Wire Proceeds To: [ ] Checking [ ] Savings
(Minimum $5,000 to be wired. A $5.00 fee may be
Name(s) __________________________________ charged for each wire transfer.)
(Please Print)
Bank______________________________________________
Address: __________________________________ (Name)

__________________________________ Address___________________________________________
(Include Zip Code)
ABA Routing No.___________________________________

Account No._______________________________________
(Shareholder's Bank Account No.)
</TABLE>
<PAGE> 4

BOX NO. 3: SIGNATURES (SEE INSTRUCTIONS 2, 3 AND 4)

A. By signing this Letter of Transmittal, you represent that you have
read the letter printed on the other side of this page and the
Instructions enclosed herewith, which Instructions form part of the
terms and conditions of the Offer.

B. This Letter of Transmittal must be signed by the registered owner(s)
of the Class A Common Shares tendered hereby or by person(s)
authorized to become registered owner(s) by documents transmitted
herewith. If signature is by attorney-in-fact, executor,
administrator, trustee, guardian, officer of a corporation or
another acting in a fiduciary or representative capacity, please set
forth the full title and include the required legal documents. (See
Instruction 3)

C. Your signature MUST be guaranteed and you MUST complete the
signature guarantee in this Box No. 3 if (i) the value of the Class
A Common Shares tendered herewith pursuant to the Offer is greater
than $50,000, (ii) this Letter of Transmittal is signed by someone
other than the registered holder of the Class A Common Shares
tendered herewith, or (iii) you request payment for the Class A
Common Shares tendered herewith to be sent to a person other than
the registered owner of such Class A Common Shares for the benefit
of such owner(s) and/or to an address other than the registered
address of the registered owner of the Class A Common Shares. For
information with respect to what constitutes an acceptable
guarantee, please see Instruction 3(f).

D. See Instruction 8 and Form W-9 enclosed herewith regarding backup
withholding.

________________________________________

________________________________________
(Signature(s) of Owner(s) Exactly as Registered)

Dated _________________________, 19____

Daytime Telephone Number ( ) _____________________

SIGNATURE GUARANTEE (if applicable):

________________________________________
Bank Name
<PAGE> 5
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER

1. DELIVERY OF LETTER OF TRANSMITTAL. THIS LETTER OF TRANSMITTAL IS TO BE
USED ONLY IF THE CLASS A COMMON SHARES TO BE TENDERED ARE REGISTERED IN THE
SHAREHOLDER'S NAME AND THE NECESSARY DOCUMENTS WILL BE TRANSMITTED TO THE
ADMINISTRATOR by the shareholder or his broker, dealer or other Authorized
Dealer. Do not use this form if a broker, dealer or other Authorized Dealer is
the registered owner of the Class A Common Shares and is effecting the
transaction for the shareholder. A PROPERLY COMPLETED AND DULY EXECUTED LETTER
OF TRANSMITTAL OR MANUALLY SIGNED FACSIMILE OF IT, ANY CERTIFICATES
REPRESENTING CLASS A COMMON SHARES TENDERED AND ANY OTHER DOCUMENTS REQUIRED BY
THIS LETTER OF TRANSMITTAL SHOULD BE MAILED OR DELIVERED TO THE ADMINISTRATOR
AT THE ADDRESS SET FORTH IN THIS LETTER OF TRANSMITTAL AND MUST BE RECEIVED BY
THE ADMINISTRATOR ON OR PRIOR TO THE EXPIRATION DATE (JANUARY 17, 1997).

The method of delivery of all documents is at the election and risk of
the tendering shareholder. If delivery is by mail, registered mail with return
receipt requested, properly insured, is recommended.

The Fund will not accept any alternative, conditional or contingent
tenders. All tendering shareholders, by execution of this Letter of
Transmittal (or a manually signed facsimile of it), waive any right to receive
any notice of the acceptance of their tender.

2. COMPLETING THIS LETTER OF TRANSMITTAL. If you intend to tender any
Class A Common Shares pursuant to the Offer, please complete the Letter of
Transmittal as follows:

(a) Read the Letter of Transmittal in its entirety. By signing
the Letter of Transmittal in Box No. 3, you agree to its terms.

(b) Complete Box No. 1 by providing your Social Security Number,
your Caesar or Sierra account number and selecting and completing
either Option A or Option B.

(c) Complete Box No. 2 any check issued in the name of a person
other than the signer of the Letter of Transmittal are to be sent or
wired to someone other than such signer or to the signer at an address
other than that shown. in Box No. 1.

(d) Complete Box No. 3 in accordance with Instruction 3 set forth
below.

3. SIGNATURES ON LETTER OF TRANSMITTAL, AUTHORIZATIONS AND ENDORSEMENTS.

(a) If this Letter of Transmittal is signed by the registered
owner(s) of the Class A Common Shares tendered hereby, the signatures)
must correspond exactly with the name(s) in which the Class A Common
Shares are registered.

(b) If the Class A Common Shares are held of record by two or more
joint owners, each such owner must sign this Letter of Transmittal.

(c) If any tendered Class A Common Shares are registered in
different names, it will be necessary to complete, sign and submit as
many separate Letters of Transmittal (or manually signed facsimiles of
it) as there are different registrations of Class A Common Shares.

(d) When this Letter of Transmittal is signed by the registered
owner(s) of the Class A Common Shares listed and transmitted hereby, no
endorsements representing such Class A Common Shares or separate
authorizations are required. If, however, payment is to be made to a
person other than the registered owner(s), any unpurchased Class A
Common Shares are to be registered in the name of any person other than
the registered owner(s) must be endorsed or accompanied by appropriate
authorizations, in either case signed exactly as such name(s) appear on
the registration of the Class A Common Shares and such endorsements or
authorizations must be guaranteed by an institution described in Box
No. 3.

(e) If this Letter of Transmittal or any authorizations are signed
by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or
representative capacity,
<PAGE> 6
such persons should so indicate when signing and must submit proper
evidence satisfactory to the Fund of their authority so to act.

(f) Your signature MUST be guaranteed and you MUST complete the
signature guarantee in Box No. 3 if (i) the value of the Class A Common
Shares tendered herewith pursuant to the Offer is greater than $50,000,
(ii) this Letter of Transmittal is signed by someone other than the
registered holder of the Class A Common Shares tendered herewith, or
(iii) you request payment for the Class A Common Shares tendered
herewith to be sent to a payee other than the registered owner of such
Class A Common Shares and/or to an address other than the registered
address of the registered owner of the Class A Common Shares. An
acceptable guarantee is one made by a commercial bank or trust company
having an office, branch or agency in the United States, a member firm
of a registered national securities exchange, a credit union or a
savings association. The guarantee must state the words "Signature
Guaranteed" along with the name of the granting institution.
Shareholders should verify with the institution that it is an eligible
guarantor prior to signing. A guarantee from a notary public is not
acceptable.

4. TRANSFER TAXES. The Fund will pay all share transfer taxes, if any,
payable on the transfer to it of Class A Common Shares purchased pursuant to
the Offer. If, however, (a) payment of the Purchase Price is to be made to any
person other than the registered owner(s), (b) (in the circumstances permitted
by the Offer) unpurchased Class A Common Shares are to be registered in the
name(s) of any person other than the person(s) signing this Letter of
Transmittal, the amount of any transfer taxes (whether imposed on the
registered owner(s) or such other persons) payable on account of the transfer
to such person(s) will be deducted from the Purchase Price by the Transfer
Agent unless satisfactory evidence of the payment of such taxes, or exemption
therefrom, is submitted.

5. IRREGULARITIES. All questions as to the validity, form, eligibility
(including time of receipt) and acceptance of any tender of Class A Common
Shares will be determined by the Fund in its sole discretion, whose
determination shall be firm and binding on all parties. The Fund reserves the
absolute right to reject any or all tenders determined by it not to be in
appropriate form or the acceptance of or payment for any Class A Common Shares
which may, in the opinion of the Fund's counsel, be unlawful. The Fund also
reserves the absolute right to waive any of the conditions of the Offer or any
defect or irregularity in tender of any particular Class A Common Shares or any
particular shareholder, and the Fund's interpretations of the terms and
conditions of the Offer (including these Instructions) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders must be cured within such time as the Fund shall
determine. Tendered Class A Common Shares will not be accepted for payment
unless all defects and irregularities have either been cured within such time
or waived by the Fund. None of the Fund, Sierra Investment Services
Corporation, the Transfer Agent, the Administrator, or any other person shall
be obligated to give notice of defects or irregularities in tenders, nor shall
any of them incur any liability for failure to give any such notice.

6. QUESTIONS AND REQUESTS FOR ASSISTANCE AND ADDITIONAL COPIES. Questions
and requests for assistance may be directed to, and additional copies of the
Offer to Purchase and this Letter of Transmittal may be obtained from Sierra
Shareholder Services located at 9301 Corbin Avenue, Suite 333, Northridge,
California 91324, or by telephoning (800) 222-5852.

7. FORM W-9. Each tendering shareholder who has not already submitted a
completed and signed Form W-9 to the Fund is required to provide the Transfer
Agent with a correct taxpayer identification number ("TIN") on Form W-9 which
is enclosed herewith. Failure to provide the information on the form may
subject the tendering shareholder to 31% federal income tax withholding on the
payments made to the shareholder or other payee with respect to Class A Common
Shares purchased pursuant to the Offer.

8. WITHHOLDING ON FOREIGN SHAREHOLDERS. The Transfer Agent will withhold
federal income taxes equal to 30% of the gross payments payable to a foreign
shareholder unless the Transfer Agent determined that a reduced rate of
withholding or an exemption from withholding is applicable. For this purpose,
a foreign shareholder is any shareholder that is not (i) a citizen or resident
of the United States, (ii) a corporation, partnership or other entity created
or organized in or under the laws of the United States or any political
subdivision thereof, or (iii) any estate or trust the income of which is
subject to United States federal income taxation regardless of the source of
such income. The Transfer Agent will determine a shareholder's status as a
foreign shareholder and eligibility for a reduced rate of, or an exemption
from,
<PAGE> 7
withholding by reference to the shareholder's address or statements
concerning eligibility for a reduced rate of, or exemption from,
withholding unless facts and circumstances indicate that reliance is
not warranted. A foreign shareholder who has not previously submitted
the appropriate statements with respect to a reduced rate of, or an
exemption from, withholding for which such shareholder may be eligible
should consider doing so in order to avoid overwithholding. A foreign
shareholder may be eligible to obtain a refund of tax withheld if such
shareholder meets one of the three tests for capital gain or loss
treatment described in Section 15 of the Offer to Purchase or is
otherwise able to establish that no tax or a reduced amount of tax was
due.

IMPORTANT: THE LETTER OF TRANSMITTAL OR A MANUALLY SIGNED FACSIMILE OF IT
(TOGETHER WITH ALL OTHER REQUIRED DOCUMENTS) MUST BE RECEIVED BY THE
ADMINISTRATOR ON OR BEFORE THE EXPIRATION DATE.

<PAGE> 1
EXHIBIT (A)(3)(I)

OFFER BY

SIERRA PRIME INCOME FUND
TO PURCHASE FOR CASH 124,444
OF ITS CLASS A COMMON SHARES AT
NET ASSET VALUE PER COMMON SHARE

December 16, 1996

To Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:

Pursuant to your request, we are enclosing herewith the material
listed below relating to the offer of Sierra Prime Income Fund (the "Fund") to
purchase up to 124,444 of its Class A Common Shares of beneficial interest with
no par value (the "Class A Common Shares") for cash at net asset value per
Common Share ("NAV") determined as of 2:00 PM Pacific Standard Time on the
Expiration Date (defined below) upon the terms and subject to the conditions
set forth in the Offer to Purchase dated December 16, 1996, and in the related
Letter of Transmittal (which together constitute the "Offer"). The Offer and
withdrawal rights will expire at 6:00 PM Pacific Standard Time on January 17,
1997, unless extended (the "Expiration Date"). An "Early Withdrawal Charge" or
"EWC" may be imposed on certain Class A Common Shares accepted for payment
which have been held for less than two years. The Offer is not conditioned
upon any minimum number of Class A Common Shares being tendered but is subject
to certain conditions as set forth in the Offer to Purchase.

If more than 124,444 Class A Common Shares are duly tendered prior to
the expiration of the Offer, the Fund presently intends to, assuming no changes
in the factors originally considered by the Board of Trustees when it
determined to make the Offer and the other conditions set forth in the Offer,
but is not obligated to, extend the Offer period, if necessary, and increase
the number of Class A Common Shares that the Fund is offering to purchase to an
amount which it believes will be sufficient to accommodate the excess Class A
Common Shares tendered as well as any Class A Common Shares tendered during the
extended Offer period or purchase 124,444 Class A Common Shares (or such
greater number of Class A Common Shares sought) on a pro rata basis.

No fees or commissions will be payable to brokers, dealers or other
persons for soliciting tenders of Class A Common Shares pursuant to the Offer.
The Fund will, however, upon request, reimburse you for customary mailing and
handling expenses incurred by you in forwarding any of the enclosed materials
to those of your clients who have requested such materials. The Fund will pay
all transfer taxes on its purchase of shares, subject to Instruction 6 of the
Letter of Transmittal. However, backup tax withholding at a 31% rate may be
required unless an exemption is proved or unless the required tax
identification information is or has previously been provided. See Section 15
of the Offer to Purchase and Instructions 10 and 11 to the Letter of
Transmittal.

For your information and for forwarding to those of your clients who
have requested them, we are enclosing the following documents:

(1) Offer to Purchase dated December 16, 1996;

(2) Letter of Transmittal to be used by holders of Class A Common
Shares to tender such shares to the Administrator directly or
through their broker, dealer or other nominee who is not the
registered owner,

(3) Guidelines for Certification of Taxpayer Identification
Number;

(4) Letter to Clients which may be sent to your clients for whose
account you hold Class A Common Shares registered in your name
(or in the name of your nominee, with space provided for
obtaining such clients' instructions with regard to the
Offer); and

1
<PAGE> 2
(5) Return envelope addressed to the Administrator.

PLEASE NOTE THAT THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 6:00 PM PACIFIC
STANDARD TIME ON JANUARY 17, 1997, UNLESS THE OFFER IS EXTENDED. TO ENSURE
PROCESSING OF YOUR OR YOUR CLIENT'S REQUEST, A LETTER OF TRANSMITTAL OR A
MANUALLY SIGNED FACSIMILE OF IT (TOGETHER WITH ANY CERTIFICATES FOR CLASS A
COMMON SHARES AND ALL OTHER REQUIRED DOCUMENTS) MUST BE RECEIVED BY THE
ADMINISTRATOR ON OR BEFORE THE EXPIRATION DATE (JANUARY 17, 1997).

The Offer is not being made to (nor will tenders be accepted from or
on behalf of) holders of Class A Common Shares residing in any jurisdiction in
which the making of the Offer or the acceptance thereof would not be in
compliance with the laws of such jurisdiction.

Additional copies of the enclosed material may be obtained from Sierra
Shareholder Services at the appropriate address and telephone number set forth
in the Offer to Purchase. Any questions you have with respect to the Offer
should be directed to Sierra Shareholder Services at (800) 222-5852.

Very truly yours,

SIERRA PRIME INCOME FUND

NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU
OR ANY OTHER PERSON THE AGENT OF THE FUND, THE ADMINISTRATOR OR THE TRANSFER
AGENT OR AUTHORIZE YOU OR ANY OTHER PERSON TO MAKE ANY STATEMENTS OR USE
ANY MATERIAL ON THEIR BEHALF WITH RESPECT TO THE OFFER, OTHER THAN THE
MATERIAL ENCLOSED HEREWITH AND THE STATEMENTS SPECIFICALLY SET FORTH IN SUCH
MATERIAL.

<PAGE> 1
EXHIBIT (A)(3)(II)

OFFER BY

SIERRA PRIME INCOME FUND
TO PURCHASE FOR CASH 124,444
OF ITS CLASS A COMMON SHARES AT
NET ASSET VALUE PER COMMON SHARE

To Our Clients:

Enclosed for your consideration are the Offer to Purchase, dated
December 16, 1996, of Sierra Prime Income Fund (the "Fund") and related Letter
of Transmittal pursuant to which the Fund is offering to purchase up to 124,444
of its Class A Common Shares of beneficial interest with no par value (the
"Class A Common Shares") for cash at the net asset value per Common Share
("NAV") determined as of 2:00 PM Pacific Standard Time on the Expiration Date
(defined below) upon the terms and subject to the conditions set forth in the
Offer to Purchase and the Letter of Transmittal (which together constitute the
"Offer"). An "Early Withdrawal Charge" or "EWC" may be imposed on certain
Class A Common Shares accepted for payment which have been held for less than
two years.

The Offer to Purchase and the Letter of Transmittal are being
forwarded to you as the beneficial owner of Class A Common Shares held by us
for your account but not registered in your name. A tender of such shares can
be made only by us as the holder of record and only pursuant to your
instructions. WE ARE SENDING YOU THE LETTER OF TRANSMITTAL FOR YOUR
INFORMATION ONLY, YOU CANNOT USE IT TO TENDER CLASS A COMMON SHARES WE HOLD FOR
YOUR ACCOUNT.

Your attention is called to the following:

(1) The tender price is the NAV per Common Share in cash
determined as of 2:00 PM Pacific Standard Time on the Expiration Date.
An "Early Withdrawal Charge" or "EWC" may be imposed on certain Class
A Common Shares accepted for payment which have been held for less
than two years.

(2) The Offer is not conditioned upon any minimum number
of Class A Common Shares being tendered, but is subject to certain
conditions set forth in the Offer to Purchase.

(3) The Offer and withdrawal rights expire at 6:00 PM
Pacific Standard Time on January 17, 1997, unless extended (the
"Expiration Date").

(4) The Offer is for 124,444 Class A Common Shares,
constituting approximately 10% of the Class A Common Shares
outstanding as of December 6, 1996.

(5) Tendering shareholders will not be obligated to pay
brokerage commissions or, subject to Instruction 6 of the Letter of
Transmittal, transfer taxes on the purchase of Class A Common Shares
by the Fund pursuant to the Offer. However, a broker, dealer or
Authorized Dealer may charge a fee for processing the transaction on
your behalf.

(6) If more than 124,444 Class A Common Shares are duly
tendered prior to the expiration of the Offer, the Fund presently
intends to, assuming no changes in the factors originally considered
by the Board of Trustees when it determined to make the Offer and the
other conditions set forth in the Offer, but is under no obligation
to, extend the Offer period, if necessary, and increase the number of
Class A Common Shares that the Fund is offering to purchase to an
amount which it believes will be sufficient to accommodate the excess
Class A Common Shares tendered as well as any Common Shares, tendered
during the extended Offer
<PAGE> 2
period or purchase 124,444 Class A Common Shares (or such greater
number of Class A Common Shares sought) on a pro rata basis.

If you wish to have us tender any or all of your Class A Common
Shares, please so instruct us by completing, executing and returning to us the
attached instruction form. An envelope to return your instructions to us is
enclosed. If you authorize us to tender your Class A Common Shares, all such
Class A Common Shares will be tendered unless you specify otherwise on the
attached instruction form. WE MUST RECEIVE YOUR INSTRUCTIONS, IF ANY,
SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE (JANUARY 17, 1997) TO PROVIDE US
WITH TIME TO PROCESS SUCH INSTRUCTIONS AND FORWARD THEM TO THE ADMINISTRATOR SO
THAT THE TRANSFER AGENT WILL RECEIVE THEM ON OR PRIOR TO SUCH EXPIRATION DATE.
THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 6:00 PM PACIFIC STANDARD TIME ON
JANUARY 17, 1997, UNLESS THE OFFER IS EXTENDED.

The Fund is not making the Offer to, nor will it accept tenders from
or on behalf of, owners of Class A Common Shares in any jurisdiction in which
the Offer or its acceptance would violate the securities, Blue Sky or other
laws of such jurisdiction. In any jurisdiction the securities or Blue Sky laws
of which require the Offer to be made by a licensed broker or dealer, the Offer
shall be deemed to be made on the Fund's behalf by one or more registered
brokers or dealers licensed under the laws of such jurisdiction.

2
<PAGE> 3
INSTRUCTIONS
WITH RESPECT TO OFFER BY
SIERRA PRIME INCOME FUND
To Purchase For Cash 124,444
Of Its Class A Common Shares At
Net Asset Value Per Common Share

THIS FORM IS NOT TO BE USED TO TENDER CLASS A COMMON SHARES DIRECTLY
TO THE ADMINISTRATOR. IT SHOULD BE SENT TO YOUR BROKER ONLY IF YOUR BROKER IS
THE HOLDER OF RECORD OF YOUR CLASS A COMMON SHARES AND WILL BE EFFECTING THE
TENDER ON YOUR BEHALF. IT SHOULD BE SENT TO SUCH BROKER SUFFICIENTLY IN
ADVANCE OF THE EXPIRATION DATE (JANUARY 17, 1997) TO PROVIDE THE BROKER WITH
TIME TO PROCESS THESE INSTRUCTIONS AND FORWARD THEM TO THE ADMINISTRATOR SO
THAT THE ADMINISTRATOR WILL RECEIVE THEM ON OR PRIOR TO THE EXPIRATION DATE
(JANUARY 17, 1997).

The undersigned acknowledge(s) receipt of your letter and the enclosed
Offer to Purchase, dated December 16, 1996 and the related Letter of
Transmittal (which together constitute the "Offer"), in connection with the
offer by Sierra Prime Income Fund (the "Fund") to purchase 124,444 Class A
Common Shares of beneficial interest with no par value (the "Class A Common
Shares") at the net asset value per Common Share determined as of 2:00 PM
Pacific Standard Time on the Expiration Date on the terms and subject to the
conditions of the Offer. The undersigned acknowledges that an "Early
Withdrawal Charge" or "EWC" may be imposed on certain Class A Common Shares
accepted for payment which have been held for less than two years.

The undersigned hereby instructs you to tender to the Fund the number
of Class A Common Shares indicated below (or, if no number is indicated below,
all Class A Common Shares) which are held by you for the account of the
undersigned, upon the terms and subject to the conditions of the Offer.

Aggregate number of Class A Common Shares to be tendered
by you for us (fill in number below)

__________________________ Class A Common Shares

3
<PAGE> 4
Unless otherwise indicated above, it will be assumed that all of the
Class A Common Shares held for the account of the undersigned are to be
tendered.

SIGNATURE(S)

...............................................................................

...............................................................................
(Signature(s) of Beneficial Owners)

...............................................................................
(Account Number)

...............................................................................
(Please print Name(s) and Addresses here)

...............................................................................
(Area Code and Telephone Number)

...............................................................................
(Tax Identification or Social Security Number)

Date , 199__

<PAGE> 1
EXHIBIT (A)(3)(III)

[SIERRA FUND ADMINISTRATION CORPORATION LETTERHEAD]

December 16, 1996

RE: SIERRA PRIME INCOME FUND
Commencement of Tender Offer

To Our Authorized Dealers:

As you may be aware, it is the policy of the Board of Trustees of the
Sierra Prime Income Fund to consider on a quarterly basis whether to make a
tender offer for the Class A Common Shares of the Fund. We are pleased to
announce that the Board has authorized a quarterly tender offer of the Fund's
shares commencing today, December 16, 1996, for the purpose of providing
liquidity to its shareholders. The commencement of the tender offer was
announced in the Wall Street Journal today.

The Fund is offering to purchase up to 124,444 of its Class A Common
Shares (approximately 10% of its issued and outstanding Class A Common Shares)
for cash at a price equal to the net asset value per Class A Common Shares of
the Fund determined as of 2:00 PM Pacific Standard Time on the Expiration Date
of the Offer. The Offer is scheduled to terminate as of 6:00 PM Pacific
Standard Time on January 17, 1997, the expiration date of the offer (unless
extended). An "Early Withdrawal Charge" or "EWC" may be imposed on certain
Class A Common Shares accepted for payment that have been held for less than
two years.

Terms and conditions of the tender offer are contained in the Fund's
Offer to Purchase dated December 16, 1996, and the related Letter of
Transmittal, copies of which are available to you upon request.

Should you have any questions regarding the tender offer, please
contact Sierra Shareholder Services at (800) 222-5852.

Sincerely,

SIERRA FUND ADMINISTRATION CORPORATION

<PAGE> 1
EXHIBIT (A)(4)

N 03 21
SIERRA PRIME INCOME FUND 9301 Corbin Avenue, Suite 333
Northridge, California 91324

December, 1996

Dear Shareholder

As you requested, we are enclosing a copy of the Sierra Prime Income Fund
("Fund") Offer to Purchase 124,444 of its issued and outstanding Class A Common
Shares of beneficial interest ("Class A Common Shares") and the related Letter
of Transmittal (which together constitute the "Offer"). The Offer is for cash
at the net asset value ("NAV") per Class A Common Share determined as of 2:00
PM Pacific Standard Time on the Expiration Date of the Offer. An "Early
Withdrawal Charge" or "EWC" may be imposed on certain Class A Common Shares
accepted for payment that have been held for less than two years. Please read
carefully the enclosed documents, as well as the Fund's most current financial
statements.

If, after reviewing the information set forth in the Offer, you wish to tender
Class A Common Shares for purchase by the Fund, please contact your Great
Western Financial Securities Representative or follow the instructions
contained in the Offer to Purchase and Letter of Transmittal.

Neither the Fund nor its Board of Trustees is making any recommendation to any
holder of Class A Common Shares as to whether to tender Class A Common Shares.
Each shareholder is urged to consult his or her broker or tax adviser before
deciding whether to tender any Class A Common Shares.

The Fund's NAV per Class A Common Share from February 14, 1996 through December
6, 1996 ranged from a high of $10.01 to a low of $10.00. On December 6, 1996
the NAV was $10.00 per Common Share. You can obtain current NAV quotations
from Sierra Shareholder Services by calling (800) 222-5852 between the hours of
6:00 AM and 6:00 PM Pacific Standard Time, Monday through Friday, and 6:00 AM
to 3:00 PM Pacific Standard Time, on Saturday, except holidays. The Fund
offers and sells its Class A Common Shares to the public on a continuous basis.
The Fund is not aware of any secondary market trading for the Class A Common
Shares.

Should you have any questions on the enclosed material, please do not hesitate
to call Sierra Shareholder Services at (800) 222-5852 during ordinary business
hours. We appreciate your continued interest in Sierra Prime Income Fund.

Sincerely,

SIERRA PRIME INCOME FUND

TO ENSURE PROCESSING OF YOUR REQUEST, A LETTER OF TRANSMITTAL OR A MANUALLY
SIGNED FACSIMILE OF IT (TOGETHER WITH ANY CERTIFICATES FOR CLASS A COMMON
SHARES AND ALL OTHER REQUIRED DOCUMENTS) MUST BE RECEIVED BY THE
ADMINISTRATOR ON OR BEFORE THE EXPIRATION DATE (JANUARY 17, 1997).
<PAGE> 2
EXHIBIT (B)

CREDIT AGREEMENT

among

The Entities Listed on the Signature Pages Hereto

and

DEUTSCHE BANK AG,
NEW YORK BRANCH

____________________________

Dated as of May 22, 1996

_____________________________
<PAGE> 3
TABLE OF CONTENTS

<TABLE>
<S> <C> <C>
SECTION 1. Amount and Terms of Credit . . . . . . . . . . . . . . -1-
1.01 The Commitment . . . . . . . . . . . . . . . . . . . . -1-
1.02 Minimum Amount of Each Borrowing . . . . . . . . . . . -1-
1.03 Notice of Borrowing . . . . . . . . . . . . . . . . . -1-
1.04 Disbursement of Funds . . . . . . . . . . . . . . . . -2-
1.05 Revolving Notes . . . . . . . . . . . . . . . . . . . -2-
1.06 Bank Notations . . . . . . . . . . . . . . . . . . . . -2-
1.07 Interest . . . . . . . . . . . . . . . . . . . . . . . -2-
1.08 Interest Periods . . . . . . . . . . . . . . . . . . . -3-
1.09 Compensation . . . . . . . . . . . . . . . . . . . . . -4-
1.10 Increased Costs, Illegality, etc. . . . . . . . . . . -4-

SECTION 2. Prepayments; Payments; Fees . . . . . . . . . . . . . -6-
2.01 Repayments . . . . . . . . . . . . . . . . . . . . . . -6-
2.02 Method and Place of Payment . . . . . . . . . . . . . -7-
2.03 Fees . . . . . . . . . . . . . . . . . . . . . . . . . -7-
2.04 Voluntary Termination of the
Unutilized Commitment . . . . . . . . . . . . . . . . -7-
2.05 Expiry Date . . . . . . . . . . . . . . . . . . . . . -7-

SECTION 3. Conditions Precedent to Effective Date . . . . . . . . -8-
3.01 Execution of Agreement; Notes . . . . . . . . . . . . -8-
3.02 Officer's Certificate . . . . . . . . . . . . . . . . -8-
3.03 Opinions of Counsel . . . . . . . . . . . . . . . . . -8-
3.04 Corporate Documents; Proceedings; etc. . . . . . . . . -8-
3.05 Adverse Change, etc. . . . . . . . . . . . . . . . . . -9-
3.06 Litigation . . . . . . . . . . . . . . . . . . . . . . -9-

SECTION 4. Conditions Precedent to All Loans . . . . . . . . . . -9-
4.01 No Default; Representations and Warranties . . . . . . -9-
4.02 Notice of Borrowing . . . . . . . . . . . . . . . . . -10-

SECTION 5. Representations, Warranties and Agreements . . . . . . -10-
5.01 Corporate or Trust Status . . . . . . . . . . . . . . -10-
5.02 Power and Authority . . . . . . . . . . . . . . . . . -10-
5.03 No Violation . . . . . . . . . . . . . . . . . . . . . -11-
5.04 Governmental Approvals . . . . . . . . . . . . . . . . -11-
5.05 Financial Statements; Financial Condition;
Undisclosed Liabilities; etc. . . . . . . . . . . . . -11-
5.06 Litigation . . . . . . . . . . . . . . . . . . . . . . -12-
5.07 True and Complete Disclosure . . . . . . . . . . . . . -12-
5.08 Use of Proceeds; Margin Regulations . . . . . . . . . -12-
5.09 ERISA . . . . . . . . . . . . . . . . . . . . . . . . -12-
5.10 Compliance with Statutes, etc . . . . . . . . . . . . -12-
5.11 Investment Company . . . . . . . . . . . . . . . . . . -13-
5.12 Investment Adviser . . . . . . . . . . . . . . . . . . -13-
5.13 Affiliation with the Bank . . . . . . . . . . . . . . -13-
5.14 Senior Status . . . . . . . . . . . . . . . . . . . . -13-

SECTION 6. Affirmative Covenants . . . . . . . . . . . . . . . . -13-
6.01 Information Covenants . . . . . . . . . . . . . . . . -13-
</TABLE>

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<PAGE> 4
<TABLE>
<S> <C>
6.02 Books, Records and Inspections . . . . . . . . . . . . -14-
6.03 Compliance with Statutes, etc . . . . . . . . . . . . -15-
6.04 Investment Company . . . . . . . . . . . . . . . . . . -15-
6.05 Compliance with Investment Practices . . . . . . . . . -15-

SECTION 7. Negative Covenants . . . . . . . . . . . . . . . . . . -15-
7.01 Liens . . . . . . . . . . . . . . . . . . . . . . . . -15-
7.02 Consolidation, Merger, Sale or Purchase
of Assets, etc . . . . . . . . . . . . . . . . . . . . -16-
7.03 Modifications of Investment Practices,
Articles of Incorporation, By-Laws
and Certain Other Agreements . . . . . . . . . . . . . -16-
7.04 Business . . . . . . . . . . . . . . . . . . . . . . . -16-
7.05 ERISA . . . . . . . . . . . . . . . . . . . . . . . . -17-
7.06 Affiliated Person . . . . . . . . . . . . . . . . . . -17-
7.07 Custodian Long-Term Debt Rating . . . . . . . . . . . -17-

SECTION 8. Events of Default . . . . . . . . . . . . . . . . . . -17-
8.01 Payments . . . . . . . . . . . . . . . . . . . . . . . -17-
8.02 Representations, etc . . . . . . . . . . . . . . . . . -17-
8.03 Covenants . . . . . . . . . . . . . . . . . . . . . . -17-
8.04 Default Under Other Agreements . . . . . . . . . . . . -17-
8.05 Bankruptcy, etc . . . . . . . . . . . . . . . . . . . -18-
8.06 Judgments . . . . . . . . . . . . . . . . . . . . . . -18-
8.07 Investment Adviser . . . . . . . . . . . . . . . . . . -18-
8.08 Asset Coverage . . . . . . . . . . . . . . . . . . . . -18-
8.09 Change of Control . . . . . . . . . . . . . . . . . . -18-

SECTION 9. Definitions and Accounting Terms . . . . . . . . . . . -19-
9.01 Defined Terms . . . . . . . . . . . . . . . . . . . . -19-

SECTION 10. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . -26-
10.01 Payment of Expenses, etc . . . . . . . . . . . . . . . -26-
10.02 Right of Setoff . . . . . . . . . . . . . . . . . . . -26-
10.03 Notices . . . . . . . . . . . . . . . . . . . . . . . -26-
10.04 Benefit of Agreement . . . . . . . . . . . . . . . . . -27-
10.05 No Waiver; Remedies Cumulative . . . . . . . . . . . . -28-
10.06 Calculations; Computations . . . . . . . . . . . . . . -28-
10.07 GOVERNING LAW: SUBMISSION TO JURISDICTION; VENUE;
WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . -29-
10.08 Counterparts . . . . . . . . . . . . . . . . . . . . . -30-
10.09 Headings Descriptive . . . . . . . . . . . . . . . . . -30-
10.10 Amendment or Waiver; etc . . . . . . . . . . . . . . . -30-
10.11 Survival . . . . . . . . . . . . . . . . . . . . . . . -30-
10.12 Domicile of Loans . . . . . . . . . . . . . . . . . . -30-
10.13 Separate Agreements . . . . . . . . . . . . . . . . . -30-
10.14 Limitation of Liability . . . . . . . . . . . . . . . -30-
</TABLE>

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<PAGE> 5
SCHEDULE I Base Commitments
SCHEDULE II List of Investment Advisory and Management Agreements
SCHEDULE III List of Prospectuses

EXHIBIT A Notice of Borrowing
EXHIBIT B Note
EXHIBIT C Form of Opinion
EXHIBIT D Officer's Certificate

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<PAGE> 1
CREDIT AGREEMENT, dated as of May 22, 1996, among the entities listed
on the signature pages hereto (each a "Borrower" and collectively the
"Borrowers"), and Deutsche Bank AG, New York Branch (together with its
successors and assigns, the "Bank"; all capitalized terms used herein and
defined in Section 9 are used herein as therein defined).

W I T N E S S E T H :

WHEREAS, subject to and upon the terms and conditions herein set
forth, the Borrowers may request that the Bank make available the credit
facilities provided for herein;

NOW, THEREFORE, IT IS AGREED:

SECTION 1. Amount and Terms of Credit.

1.01 The Commitment. (a) Subject to and upon the terms and
conditions set forth herein, the Bank agrees, at any time and from time to time
on and after the Effective Date and prior to the Expiry Date, at the request of
a Borrower, to make Loans (each a "Loan" and, collectively, the "Loans") to
such Borrower, which Loans (i) shall, at the option of such Borrower, be Base
Rate Loans, LIBOR Loans or NIBOR Loans, provided that all Loans comprising the
same Borrowing shall at all times be of the same Type, (ii) may be repaid and
reborrowed in accordance with the provisions hereof, and (iii) shall not exceed
for any particular Borrower the lesser of such Borrower's Borrowing Base and,
when aggregated with all Loans then outstanding, the commitment. If more than
one Borrower desires to make a Borrowing on any Business Day, each Borrower,
subject to the terms and conditions contained herein, shall have the right to
obtain up to the amount specified on Schedule I, shall have the right to obtain
up to the amount specified on Schedule I (the "Base Commitment") and to the
extent that any Borrower has not requested its Base Commitment, the unused
portion shall be available to other Borrowers on a pro rata basis in proportion
to their Base Commitment. The Borrowers may from time to time revise their
Base Commitment if approved by the Board of Trustees of each Borrower and a
copy of any such revisions is furnished to the Bank whereupon Schedule I hereto
shall be deemed modified to reflect such revisions; provided, however, that the
total of the base Commitments shall not exceed the lesser of the Commitment
and, for any particular Borrower, such Borrower's Borrowing Base. Any
revisions to the Base Commitment shall become effective upon written notice to
the Bank from the Investment Advisor on behalf of the Borrowers.

1.02 Minimum Amount of Each Borrowing. The aggregate principal
amount of each Borrowing shall not be less than $50,000 and, if greater, shall
be in an integral multiple of $10,000. More than one Borrowing may occur on
the same date.

1.03 Notice of Borrowing. Whenever the Borrower desires to make a
Base Rate or NIBOR Borrowing hereunder, it shall give the Bank as its Notice
Office notice of its intention to borrow before 12:00 p.m. (New York time) on
the Business day on which it desires to incur such Loan. Whenever the
Borrower desire to make a LIBOR Borrowing hereunder it shall give the Bank at
its Notice Office notice of its intention to borrow at least three Business
Days' prior to the Business Day on which such Loan is to be made, provided that
any such notice shall be deemed to have been given on a certain day only if
given before 12:00 Noon (New York time) on such day. All such notices relating
to Base Rate, LIBOR and NIBOR borrowings (each a "Notice of Borrowing") shall
be in the form of Exhibit A, appropriately completed to specify (a) the
identity of such Borrower, (b) the aggregate principal amount of the Loans to
be made pursuant to such Borrowing, (c) the Business Day on which such Loans
are to be made, (d) whether such Loans are to be Base Rate Loans, LIBOR Loans
or NIBOR Loans, (e) the aggregate amount of principal and interest on
outstanding Loans which are payable by such Borrower on such date; (f) if the
amount specified pursuant to clause (b) is greater than the amount specified
pursuant to clause (e), the net amount to be remitted by the Bank pursuant to
Section 1.04 at the time the Bank makes the Loan and (g) if the amount
specified pursuant to clause (e) is greater than the amount specified pursuant
to clause (b), the net amount to be remitted by such Borrower pursuant to
Section 2.02.

1.04 Disbursement of Funds. The Bank will make funds available to
the relevant Borrower in an amount equal to the net amount, if any specified in
the related Notice of Borrowing pursuant to Section 1.03(g) by a wire transfer,
<PAGE> 2
initiated no later than 2:00 P.M. New York time on the date specified in the
Notice of Borrowing, of immediately available funds to an account specified by
or on behalf of such Borrower.

1.05 Notes. Each Borrower's obligation to pay the principal of,
and interest on, the Loans made to it by the Bank shall be evidenced by a
promissory note duly executed and delivered by such Borrower substantially in
the form of Exhibit B, with blanks appropriately completed in conformity
herewith (each a "Note" and collectively the "Notes"). The Note shall (i) be
executed by the relevant Borrower, (ii) be payable to the Bank and be dated the
Effective Date, (iii) be in a stated principal amount of the Loans evidenced
thereby, (iv) bear interest as provided in the appropriate clause of Section
1.07 in respect of the Base Rate Loans, LIBOR Loans or NIBOR Loans, as the case
may be, evidenced thereby, (vi) be subject to mandatory repayment as provided
in Section 2.01 and (vii) be entitled to the benefits of this Agreement and the
other Credit Documents.

1.06 Bank Notations. The Bank will note on its internal records
the amount of each Loan made by it to a Borrower and each payment in respect
thereof and will prior to any transfer of any of its Notes endorse on the
reverse side thereof the outstanding principal amount of Loans evidenced
thereby. Failure to make any such notation shall not affect such Borrower's
obligations in respect of such Loans.

1.07 Interest. (a) Each Borrower agrees to pay interest in
respect of the unpaid principal amount of each Base Rate Loan made to it from
the date the proceeds thereof are made available to such Borrower until the
maturity thereof (whether by acceleration, demand or otherwise) at a rate per
annum which shall be equal to the Base Rate in effect from time to time.

(b) Each Borrower agrees to pay interest in respect of the unpaid
principal amount of each NIBOR Loan made to it from the date the proceeds
thereof are made available to such Borrower until the maturity thereof (whether
by acceleration, demand or otherwise) at a rate per annum shall, during each
Interest Period applicable thereto, be equal to the sum of the NIBOR Rate for
such Interest Period plus 35% of 1%.

(c) Each Borrower agrees to pay interest in respect of the unpaid
principal amount of each LIBOR Loan made to it from the date the proceeds
thereof are made available to such Borrower until the maturity thereof (whether
by acceleration, demand or otherwise) at a rate per annum which shall, during
each Interest Period applicable thereto, be equal to the sum of the LIBOR Rate
for such Interest Period plus 35% of 1%.

(d) Overdue principal and, to the extent permitted by law, overdue
interest in respect of each Loan and other overdue amount payable hereunder
shall, in each case, bear interest at a rate per annum equal to the greater of
(x) 2% per annum in excess of the rate otherwise applicable to Loans maintained
as Base Rate Loans from time to time or (y) the rate which is 2% in excess of
the rate then borne by such Loans, in each case with such interest to be
payable on demand by the relevant Borrower.

(e) Accrued (and therefore unpaid) interest shall be payable (i)
in respect of each Base Rate Loan, quarterly in arrears on the last Business
Day of March, June, September and December; (ii) in respect of each Fixed Rate
Loan, on the last day of each Interest Period applicable thereto and (ii) in
respect of each Loan, on any repayment or prepayment (on the amount repaid or
prepaid), at maturity (whether by acceleration, demand or otherwise) and, after
such maturity, on demand.

(f) Upon each Interest Determination Date, the Bank shall
determine the interest rate for the Fixed Rate Loans, for which such
determination is being made and shall promptly notify the relevant Borrower
thereof. The Bank shall make such determination promptly following its
determination to make a Loan hereunder. Each determination of the interest
rate shall, absent manifest error, be final and conclusive and binding on all
parties hereto.

1.08 Interest Periods. At the time it gives any Notice of
Borrowing in respect of the making of any Fixed Rate Loan, each Borrower shall
have the right to elect, by giving the Bank notice thereof, the interest period
(each an "Interest Period") applicable to such Fixed Rate Loan, which Interest
Period shall, at the option of such Borrower, in the case of a LIBOR Loan, be a
one, two, three or six month period, and in the case of a NIBOR Loan be a
period of up to

-2-
<PAGE> 3
thirty days, provided that: (i) all Fixed Rate Loans comprising a Borrowing
shall at all times have the same Interest Period; (ii) the initial Interest
Period for any Fixed Rate Loan shall commence on the date of Borrowing of such
Loan (including the date of any conversion thereof into a Loan of different
Type) and each Interest Period occurring thereafter in respect of such Loan
shall commence on the day on which the next preceding Interest Period
applicable thereto expires; (iii) if any Interest Period relating to a Fixed
Rate Loan begins on a day for which there is no numerically corresponding day
in the calendar month at the end of such Interest Period, such Interest Period
shall end on the last Business Day of such calendar month; (iv) if any
Interest Period would otherwise expire on a day which is not a Business Day,
such Interest Period shall expire on the next succeeding Business Day, provided
that if any Interest Period for a LIBOR Loan would otherwise expire on a day
which is not a Business Day but is a day of the month after which no further
Business Day occurs in such month, such Interest Period shall expire on the
next preceding Business Day; (v) no Interest Period shall extend beyond the
Expiry Date. If upon the expiration of any Interest Period applicable to a
Fixed Rate Loan, the Borrower has failed to elect a new Interest Period to be
applicable to such Fixed Rate Loan as provided above, the Borrower shall be
deemed to have elected to convert such Loan into a Base Rate Loan effective as
of the expiration date of such current Interest Period.

1.09 Compensation. Each Borrower shall compensate the Bank, upon
its written request (which request shall set forth the basis for requesting
such compensation), for all reasonable losses, expenses and liabilities
(including, without limitation, any loss, expense or liability incurred by
reason of the liquidation or reemployment of deposits or other funds required
by the Bank to fund its Fixed Rate Loans) which such Bank may sustain: (i) if
for no reason (other than the Bank's failure to make a loan) a Borrowing of
Fixed Rate Loans does not occur on a date specified therefor in a Notice of
Borrowing; (ii) if any repayment (including any repayment made pursuant to
Section 2 or a result of any demand made by the Bank or an acceleration of the
Loans pursuant to Section 8) of any of its Fixed Rate Loans occurs on a date
which is not the last day of an Interest Period with respect thereto; or (iii)
as a consequence of any other default by such Borrower to repay its Loans when
required by the terms of this Agreement or any Note held by the Bank.

1.10 Increased Costs, Illegality, etc. (a) In the event that the
Bank shall have determined (which determination shall, absent manifest error,
be final and conclusive and binding upon all parties hereto): (i) on any
Interest Determination Date that, by reason of any changes arising after the
date of this Agreement affecting the interbank market, adequate and fair means
do not exist for ascertaining the applicable interest rate on the basis
provided for in the definition of NIBOR or LIBOR; or (ii) at any time, that the
Bank shall incur increased costs or reductions in the amounts received or
receivable hereunder with respect to any Fixed Rate Loan because of any change
since the date of this Agreement in any applicable law or governmental rule,
regulation, order or request (whether or not having the force of law) (or in
the interpretation or administration thereof and including the introduction of
any new law or governmental rule, regulation, order or request), such as, for
example, but not limited to, (A) a change in the basis of taxation of payments
to the Bank or its applicable lending office of the principal of or interest on
the Notes or any other amounts payable hereunder (except for changes in the
rate of tax on, or determined by reference to, the net income or profits of the
Bank or its applicable lending office imposed by the jurisdiction in which
principal office or applicable lending office is located) or (B) a change in
official reserve requirements, but, in all events, excluding reserves required
under Regulation D to the extent covered by Section 1.10(d) or included in the
computation of NIBOR or LIBOR; or (iii) at any time, that the making or
continuance of any Fixed Rate Loan has been made (x) unlawful by an law or
governmental rule, regulation or order, or (y) impossible by compliance by the
Bank with any governmental request (whether or not having force of law); then,
and in any such event, the Bank shall promptly give notice (by telephone
confirmed in writing) to each of the Borrowers. Thereafter (x) in the case of
clause (i) above, the Fixed Rate Loans shall no longer be available until such
time as the Bank notifies the Borrowers that the circumstances giving rise to
such notice by the Bank no longer exist, and any Request for Borrowing given by
a Borrower with respect to Fixed Rate Loans which have not yet been incurred
shall be deemed rescinded by such Borrower; (y) in the case of clause (ii)
above, each relevant Borrower shall pay to the Bank, within two Business Days
after written demand therefor, such additional amounts (in the form of an
increased rate of, or a different method of calculating, interest or otherwise
as the Bank in its sole discretion shall determine) as shall be required to
compensate the Bank for such increased costs or reductions in amounts received
or receivable hereunder (a written notice as to the additional amounts owed to
the Bank, showing the basis for the calculation thereof, submitted to each of
the relevant Borrowers by the Bank shall be conclusive, absent manifest error);
and (z) in the case of clause (iii) above, taken one of the actions specified
in Section 1.10(b) as promptly as possible and, in any event, within the time
period required by law.

-3-
<PAGE> 4
(b) At any time that any Fixed Rate Loan is affected by the
circumstances described in Section 1.10(a)(ii) or (iii), each relevant Borrower
may (and, in the case of a Fixed Rate Loan affected by the circumstances
described in Section 1.10(a)(iii), shall) either (i) if the affected Fixed Rate
Loan is then being made initially or pursuant to a conversion, cancel said
Borrowing, or change the Type of Loan to become a Base Rate Loan by giving the
Bank notice by telephone (confirmed in writing) of the cancellation on the same
date (if practicable) that such Borrower was notified by the Bank pursuant to
Section 1.10(a)(ii) or (iii); or (ii) if the affected Loan is then outstanding,
upon at least three Business Days' written notice, require the Bank to convert
such Fixed Rate Loan into a Base Rate Loan.

(c) If the Bank determines at any time that any change since the
date of this Agreement in any applicable law or governmental rule, regulation,
order or request (whether or not having the same force of law) concerning
capital adequacy, or any change since the date of this Agreement in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency, will have the effect of increasing the amount of
capital required or expected to be maintained by the Bank based on the
existence of the Bank's obligations hereunder, then the Borrowers shall pay to
the Bank, upon its written demand therefor, such additional amounts as shall be
required to compensate the Bank for the increased cost to the Bank as a result
of such increase of capital. The Bank, upon determining that any additional
amounts will be payable pursuant to this Section 1.10(c), will give prompt
written notice thereof to the Borrowers, which notice shall show the basis for
calculation of such additional amounts. In determining such additional
amounts, the Bank will act reasonably and in good faith and will use averaging
and attribution methods that are reasonable; provided that the Bank's
determination of compensation owing under this Section 1.10(c) shall be
conclusive, absent manifest error.

(d) In the event that the Bank shall determine (which
determination shall be prima facie evidence with respect to all the parties
hereto) at any time that by reason of Regulation D the Bank's lending office is
required to maintain reserves in respect of Eurocurrency liabilities (as
defined in Regulation D) during any period in which it has a Fixed Rate Loan
outstanding (each such period, for the Bank, a "Eurocurrency Reserve Period"),
then the Bank shall promptly give notice (by telephone confirmed in writing) to
the Borrowers of such determination, and the Borrowers shall pay to the Bank
additional interest on the unpaid principal amount of each Fixed Rate Loan of
the Bank during such Eurocurrency Reserve Period at a rate per annum which
shall, during each Interest Period applicable to such Fixed Rate Loan, be the
amount by which (i) the NIBOR or LIBOR for such Interest Period divided (and
rounded to the nearest whole multiple of 1/16 of 1%) by a percentage equal to
100% minus the then maximum rate of all reserve requirements (including,
without limitation, any marginal, emergency, supplemental, special or other
reserves) applicable to any member bank of the Federal Reserve System in
respect of Eurocurrency liabilities (as defined in Regulation D) exceeds (ii)
the NIBOR or LIBOR for such Interest Period. Additional interest payable
pursuant to the immediately preceding sentence shall be paid by each such
relevant Borrower at the time that it is otherwise required to pay interest in
respect of such Fixed Rate Loan. The Bank agrees that if it gives notice to
the Borrowers of the existence of a Eurocurrency Reserve Period, it shall
promptly notify the Borrowers of any termination thereof, at which time the
Borrowers shall cease to be obligated to pay additional interest to such Bank
pursuant to the first sentence of this Section 1.10(d) until such time, if any,
as a subsequent Eurocurrency Reserve Period shall occur.

SECTION 2. Prepayments; Payments; Fees.

2.01 Repayments. (a) On any day on which the aggregate
outstanding principal amount of Loans made to a Borrower when aggregated with
all Loans then outstanding exceeds the Commitment as then in effect, such
Borrower shall prepay principal of Loans in an amount equal to such excess.

(b) If on any date the aggregate outstanding principal amount of
Loans made to a Borrower exceeds such Borrower's Borrowing Base, such Borrower
shall promptly (and in any event within 2 Business Days) after the occurrence
of such date, prepay principal of Loans in an amount equal to such excess.

(c) Each Borrower shall have the right to prepay the Loans made to
it, subject to Section 1.09, in whole or in part at any time and from time to
time on the following terms and conditions: (i) such Borrower shall give the
Bank prior to 11:00 A.M. (New York time) (x) at least one Business Days' prior
written notice (or telephonic notice promptly confirmed in writing) of its
intent to prepay Base Rate Loans on such Business Day) and (y) at least Two
Business Days'

-4-
<PAGE> 5
prior written notice (or telephonic notice promptly confirmed in writing) of
its intent to prepay Fixed Rate Loans, the amount of such prepayment and the
Types of Loans to be prepaid and, in the case of Fixed Rate Loans the specific
Borrowing or Borrowings pursuant to which made, and (ii) each prepayment shall
be in an aggregate principal amount of at least US$100,000.00.

(d) Notwithstanding anything to the contrary contained elsewhere
in this Agreement, each Borrower shall repay the outstanding principal amount
of each Loan made to it on the last day of the Interest Period for such Loan
and all then outstanding Loans shall be repaid in full on the Expiry Date.

2.02 Method and Place of Payment. Except as otherwise specifically
provided herein, all payments shall be made in Dollars in immediately available
funds at the Payment Office of the Bank no later than 2:30 P.M. (New York time)
on the date such payments are due. In the event that, on any date on which a
payment of principal or interest is due on a Loan to a Borrower, the Bank
elects to make a new Loan to such Borrower pursuant to the terms hereof, such
Borrower shall only be obligated to remit to the Bank an amount equal to the
difference, if a positive number, between the amount of such payment of
principal and interest less the amount of the new Loan. Whenever any payment
to be made hereunder or under any Note shall be stated to be due on a day which
is not a Business Day, the due date thereof shall be extended to the next
succeeding Business Day and, with respect to payments of principal, interest
shall be payable at the applicable rate during such extension.

2.03 Fees. Each Borrower agrees to pay to the Bank on a pro rate
basis (or such other basis as shall be permitted by the Investment company Act
and approved by the Board of Trustees of each Borrower as the Investment
Advisor on behalf of the Borrowers may specify to the Bank from time to time in
writing) calculated according to its average net assets (as may be adjusted
based on such Borrower's Base Commitment and any other factors permitted by the
Investment Company Act) a commitment fee (the "Commitment Fee") for the period
from the Effective Date until the Expiry Date (or such earlier date as the
Commitment shall have terminated) computed at a rate equal to 1/20 of 1% per
annum on the daily average Unutilized Commitment of the Bank. Accrued
Commitment Fees shall be due and payable quarterly in arrears on the last
Business Day of each March, June, September and December of each year and on
the Expiry Date or upon such earlier date as the Commitment shall be
terminated.

2.04 Voluntary Termination of the Unutilized Commitment. Upon at
least five Business Days' prior notice to the Bank at its Notice Office, any
Borrower (with the unanimous consent of each Borrower hereunder) shall have the
right, without premium or penalty, to terminate the Unutilized Commitment in
whole or in part, in integral multiples of $5,000,000.

2.05 Expiry Date. The expiration of the Commitment of the Bank
shall be 364 days from the Effective Date (the "Expiry Date"); provided,
however, that before (but not earlier than 120 days nor later than 90 days
before) each anniversary of the Effective Date, the Borrowers may make a
written request (an "Extension Request") to the Bank at its Notice Office that
the Expiry Date be extended by 364 days. Such Extension Request shall include
a certification by a senior officer of each of the Borrowers that no Default or
Event of Default has occurred and is continuing and all representations and
warranties contained herein and the other Credit Documents are true and correct
in all material aspects on and as of the date of the extension Request (it
being understood and agreed that any representation or warranty which expressly
refers by its terms to a specified date shall be required to be true only as of
such date). If the Bank agrees thereto, "Expiry Date" shall mean the day 364
days following the Expiry Date then in effect, provided that any failure by the
Bank to notify the Borrower shall be deemed to be a disapproval by the Bank of
the Borrower's Extension Request. The Bank shall not be obligated to grant any
extension pursuant to this Section 2.05 and any such extension shall be in the
sole discretion of the Bank. The Borrowers shall pay to the Bank if it does
not so agree all amounts owing under the Notes and this Agreement on the Expiry
Date or upon the termination of the Bank's Commitment. In the event of any
extension pursuant to this Section 2.05, each Borrower shall be deemed to have
represented and warranted on and as of the effective date of such extension
that no Default or Event of Default has occurred and is continuing and all
representations and warranties contained herein and the other Credit Documents
are true and correct in all material respects on and as of the date of such
extension (it being understood and agreed that any representation or warranty
which expressly refers by its terms to a specified date shall be required to be
true only as of such date).

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<PAGE> 6
SECTION 3. Conditions Precedent to Effective Date. This
Agreement will become effective on the date (the "Effective Date") on which the
following conditions have been satisfied:

3.01 Execution of Agreement; Notes. Each Borrower and the Bank
shall have executed a counterpart of this Agreement and there shall have been
delivered to the Bank the appropriate Note executed by each Borrower in the
amount, maturity and as otherwise provided herein.

3.02 Officer's Certificate. The Bank shall have received a
certificate dated the Effective Date signed on behalf of each Borrower by any
authorized officer of such Borrower stating that all of the conditions set
forth in Sections 3.04, 3.05, 3.06 and 4.01 have been satisfied on such date.

3.03 Opinions of Counsel. The Bank shall have received from
counsel to each Borrower, an opinion addressed to the Bank and dated the
Effective Date covering the matters set forth in Exhibit C and such other
matters incident to the transactions contemplated herein as the Bank may
reasonably request.

3.04 Corporate Documents; Proceedings; etc. (a) The Bank shall
have received a certificate, dated the Effective Date, signed by any authorized
officer of each Borrower, and attested to by the Secretary or any Assistant
Secretary of such Borrower, in the form of Exhibit D with appropriate
insertions, together with copies of the Articles of Incorporation and By-Laws
or Declaration of Trust of such Borrower and the resolutions of such Borrower
referred to in such certificate, and the foregoing shall be acceptable to the
Bank.

(b) All corporate and legal proceedings and all instruments and
agreements in connection with the transactions contemplated by this Agreement
and the other Credit Documents shall be satisfactory in form and substance to
the Bank and the Bank shall have received all information and copies of all
documents and papers, including records of corporate proceedings, governmental
approvals, good standing certificates and bring-down telegrams, if any, which
the Bank reasonably may have requested in connection therewith, such documents
and papers where appropriate to be certified by proper corporate or
governmental authorities.

3.05 Adverse Change, etc. (a) Nothing shall have occurred (and
the Bank shall not have become aware of any facts or conditions not previously
known) which has, or could reasonably be expected to have, a material adverse
effect on the rights or remedies of the Bank, or on the ability of any Borrower
to perform its obligations to the Bank or which has, or could reasonably be
expected to have, a materially adverse effect on the business, operations,
property, assets, liabilities, condition (financial or otherwise) or prospects
of such Borrower.

(b) All necessary governmental (domestic and foreign) and third
party approvals, if any, in connection with the transactions contemplated by
the Credit Documents and otherwise referred to herein or therein shall have
been obtained and remain in effect, and all applicable waiting periods shall
have expired without any action being taken by any competent authority which
restrains, prevents or imposes materially adverse conditions upon the
consummation of the transactions contemplated by the Credit Documents and
otherwise referred to herein or therein. Additionally, there shall not exist
any judgment, order, injunction or other restraint issued or filed or a hearing
seeking injunctive relief or other restraint pending or notified prohibiting or
imposing materially adverse conditions upon the consummation of the
transactions contemplated by the Credit Documents or the making of the Loans.

3.06 Litigation. No litigation by any entity (private or
governmental) shall be pending or threatened with respect to this Agreement or
any documentation executed in connection herewith or the transactions
contemplated hereby, or which could reasonably be expected to have a materially
adverse effect on the business, operations, property, assets, liabilities,
condition (financial or otherwise) or prospects of any Borrower.

SECTION 4. Conditions Precedent to All Loans. No Loan shall be
made to any Borrower hereunder unless the following conditions are satisfied:

4.01 No Default; Representations and Warranties. At the time of
each such Loan and also after giving effect thereto (i) there shall exist no
Default or Event of Default with respect to such Borrower, (ii) such Borrower
shall be in

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<PAGE> 7
full compliance with the Investment Company Act (including without limitation
Section 18 thereof) and (iii) all representations and warranties by or with
respect to such Borrower contained herein (other than the representation
contained in Section 4.05(a)) shall be true and correct in all material
respects with the same effect as though such representations and warranties had
been made on the date of the making of such Loan (it being understood and
agreed that any representation or warranty which by its terms is made as of a
specified date shall be required to be true and correct in all material
respects only as of such specified date).

4.02 Notice of Borrowing. Prior to the making of each Loan, the
Bank shall have received a Notice of Borrowing meeting the requirements of
Section 1.03.

The acceptance of the proceeds of each Loan shall constitute a representation
and warranty by the relevant Borrower to the Bank that all the conditions
specified in Section 3 (other than the condition specified in Section 3.05) and
in Sections 4.01 and 4.02 and applicable to such Loan are satisfied as of that
time. All of the Notes, certificates, legal opinions and other documents and
papers referred to in Section 3 and in Section 4, unless otherwise specified,
shall be delivered to the Bank at its Notice Office and shall be in form and
substance satisfactory to the Bank (it being understood and agreed that the
Notes, certificates, legal opinions and other documents specified in Section 3
shall be dated as of the Effective Date).

SECTION 5. Representations, Warranties and Agreements. In order
to induce the Bank to enter into this Agreement and to make the Loans, each
Borrower makes the following representations, warranties and agreements as to
itself, all of which shall survive the execution and delivery of this Agreement
and the Notes and the making of the Loans, with the incurrence of each Loan on
or after the Initial Borrowing Date being deemed to constitute a representation
and warranty that the matters specified in this Section 5 are true and correct
on and as of the Effective Date and on the date of each such Loan:

5.01 Corporate or Trust Status. Such Borrower (i) is a duly
organized and validly existing trust, series of a trust or corporation in good
standing under the laws of the jurisdiction of its establishment or
incorporation, (ii) has the trust or corporate power and authority to own its
property and assets and to transact the business in which it is engaged and
presently proposes to engage and (iii) is duly qualified and is authorized to
do business and is in good standing in each jurisdiction where the ownership,
leasing or operation of its property or the conduct of its business requires
such qualifications except for failures to be so qualified which, individually
or in the aggregate, could not reasonably be expected to have a material
adverse effect on the business, operations, property, assets, liabilities,
condition (financial or otherwise) or prospects of such Borrower.

5.02 Power and Authority. Such Borrower has the power and
authority to execute, deliver and perform the terms and provisions of each of
the Credit Documents and has taken all necessary corporate action to authorize
the execution, delivery and performance by it of each of the Credit Documents.
Such Borrower has duly executed and delivered each of the Credit Documents to
which it is a party, and each of the Credit Documents constitutes its legal,
valid and binding obligation enforceable against it in accordance with its
terms, except to the extent that the enforceability thereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws generally affecting creditors' rights and by equitable principles
(regardless of whether enforcement is sought in equity or at law).

5.03 No Violation. To the best of such Borrower's after due
inquiry, neither the execution, delivery or performance (including such
Borrowing of Loans hereunder) by any Borrower of any of the Credit Documents,
nor compliance by it with the terms and provisions thereof, (i) will contravene
any provision of any law, statute, rule or regulation (including, without
limitation, the Investment Company Act) which may result in any adverse effect
on the legality, validity or enforceability of any Credit Document or any
order, writ, injunction or decree of any court or governmental instrumentality,
(ii) will conflict with or result in any breach of any of the terms, covenants,
conditions or provisions of, or constitute a default under, or result in the
creation or imposition of (or the obligation to create or impose) any Lien upon
any of the property or assets of any Borrower pursuant to the terms of any
indenture, mortgage, deed of trust, credit agreement or loan agreement material
to the business, operations, property, assets, liabilities, condition
(financial or otherwise) or prospects of such Borrower, or any other material
agreement, contract or instrument

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<PAGE> 8
to which such Borrower is a party or by which it or any of its property or
assets is bound or to which it may be subject or (iii) will violate or conflict
with any material portion of its Investment Practices or any material provision
of the Articles of Incorporation, By-Laws or Declaration of Trust of such
Borrower.

5.04 Governmental Approvals. No order, consent, approval, license,
authorization or validation of, or filing, recording or registration with
(except as have been obtained or made prior to the Effective Date and which
remain in full force and effect), or exemption by, any governmental or public
body or authority, or any subdivision thereof, is required to authorize, or is
required in connection with, (i) the execution, delivery and performance by
such Borrower of any such Credit Document to which it is a party or (ii) the
legality, validity, binding effect or enforceability of any such Credit
Document.

5.05 Financial Statements; Financial Condition; Undisclosed
Liabilities; etc. (a) The statements or financial condition of such Borrower
as of September 30, 1995 in the case of Sierra Prime Income Trust and as of
June 30, 1995 in the case of each other Borrower and the related statements of
assets and liabilities, operations and changes in net assets of such Borrower
for the fiscal year ended on such date, and furnished to the Bank prior to the
Effective Date present fairly the financial condition of such Borrower at the
date of such statements of financial condition and the results of the
operations of such Borrower for such fiscal year. All such financial
statements have been prepared in accordance with generally accepted accounting
principles and practices consistently applied. From the period beginning as of
the date specified above, through the Effective Date there was no material
adverse change in the business, operations, property, assets, liabilities,
condition (financial or otherwise) or prospects of such Borrower that would
materially and adversely affect its ability to perform its obligations
hereunder).

(b) Except as fully disclosed in the financial statements
delivered pursuant to Section 5.05(a), there were as of the Effective Date no
liabilities or obligations with respect to such Borrower of any nature
whatsoever (whether absolute, accrued, contingent or otherwise and whether or
not due) which, either individually or in aggregate, would be materially adverse
to such Borrower. As of the Effective Date, no Borrower knows of any basis for
the assertion against it of any liability or obligation of any nature whatsoever
that is not fully disclosed in the financial statements delivered pursuant to
Section 5.05(a) which, either individually or in the aggregate, would be
materially adverse to such Borrower.

5.06 Litigation. There are no actions, suits or proceedings
pending or, to the best knowledge of such Borrower after due inquiry,
threatened against such Borrower (i) with respect to any Credit Document or
(ii) that could reasonably be expected to materially and adversely affect the
business, operations, property, assets, liabilities, condition (financial or
otherwise) or prospects of such Borrower.

5.07 True and Complete Disclosure. All factual information (taken
as a whole) furnished by or on behalf of such Borrower in writing to the Bank
(including, without limitation, all information contained in the Credit
Documents) for purposes of or in connection with this Agreement, the other
Credit Documents or any transaction contemplated herein or therein is, and all
other such factual information (taken as a whole) hereafter furnished by or on
behalf of such Borrower in writing to the Bank will be, true and accurate in
all material respects on the date as of which such information is dated or
certified and not incomplete by omitting to state any fact necessary to make
such information (taken as a whole) not misleading in any material respect at
such time in light of the circumstances under which such information was
provided.

5.08 Use of Proceeds; Margin Regulations. (a) The proceeds of all
Loans shal1 be utilized by such Borrower to repay Loans outstanding hereunder
and to finance temporarily until settlement the sale or purchase of portfolio
securities by such Borrower, the repurchase or redemption of shares of such
Borrower at the request of the holders of such shares and other temporary and
emergency purposes.

(b) Neither the making of any Loan nor the use of the proceeds
thereof will violate or be inconsistent with the provisions of Regulations G,
T, U or X of the Board of Governors of the Federal Reserve System.

5.09 ERISA. No Borrower nor any ERISA Affiliate has ever
maintained or been obligated to contribute to any "employee benefit plan" (as
defined in Section 3(3) of ERISA).

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<PAGE> 9
5.10 Compliance with Statutes, etc. Such Borrower is in compliance
with (i) all applicable statutes (including, without limitation, the Investment
Company Act), regulations and orders of, and all applicable restrictions
imposed by, all governmental bodies, domestic or foreign, in respect of the
conduct of its business and the ownership of its property, except such
noncompliance as could not, individually or in the aggregate, reasonably be
expected to have a material adverse effect on the business, operations,
property, assets, liabilities, condition (financial or otherwise) or prospects
of such Borrower or any adverse effect an the legality, validity or
enforceability of this Agreement or any of the other Credit Documents and (ii)
all material investment policies and restrictions set forth in its Articles of
Incorporation, By-Laws or Declaration of Trust, as applicable, and Investment
Practices.

5.11 Investment Company. Such Borrower is duly registered under
the Investment Company Act as in the case of Sierra Prime Income Trust a
closed-end management investment company and in the case of each other Borrower
as a series of an open-end management investment company, and such registration
has not been revoked or rescinded and is in full force and effect.

5.12 Investment Adviser. The Investment Adviser to such Borrower
is duly registered as an investment adviser under the Investment Advisers Act
and is the primary investment adviser to such Borrower.

5.13 Affiliation with the Bank. Neither such Borrower nor any
Affiliated Person of such Borrower is an Affiliated Person of the Bank.

5.14 Senior Status. The Indebtedness of each Borrower hereunder
ranks pari passu with all other Indebtedness of such Borrower other than
Indebtedness secured by Liens permitted under Section 7.01.

SECTION 6. Affirmative Covenants. Each Borrower covenants and
agrees that on and after the Effective Date and until Loans and Notes, together
with interest, incurred hereunder and thereunder are paid in full:

6.01 Information Covenants. Such Borrower will deliver to the Bank:

(a) Semi-Annual and Annual Financial Statements. Within
90 days after the close of each semi-annual and annual accounting
period in each fiscal year of such Borrower, the statement of assets
and liabilities, operations and changes in net assets of such Borrower
as of the end of such semi-annual and annual accounting period, in
each case setting forth comparative figures where applied for the
related periods in the prior fiscal year, all of which shall be
certified by the Treasurer of such Borrower, subject to normal
year-end audit adjustments, together with, in the case of annual
statements, a certification by an independent certified Public
accountant of recognized standing stating that its regular audit was
conducted in accordance with Generally accepted audit standards.

(b) Semiannual Reports. On each Semiannual Valuation
Date, a semiannual unaudited statement (each a "Semiannual Report"),
prepared in accordance with generally accepted accounting principles,
listing (i) the value (as determined in accordance with the definition
of "Asset Coverage Numerator") of all of such Borrower's assets and
(ii) the Asset Coverage Ratio (and, in each case, showing in
reasonable detail the calculation thereof), all as of the open of
business on such Semiannual Valuation Date, and certified by the
Treasurer of such Borrower, which certification shall also include the
calculations required to establish the Asset Coverage Ratio as of such
Semiannual Valuation Date.

(c) Officer's Certificates. At the time of the delivery
of the financial statements provided for in Section 6.01(a) and (b), a
certificate by the Treasurer of such Borrower to the effect that the
representations and warranties by or with respect to such Borrower are
true and correct in all material respects and no Default or Event of
Default has occurred and is continuing or, if any Default or Event of
Default has occurred and is continuing, specifying the nature and
extent thereof, which certificate shall set forth the calculations
required

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<PAGE> 10
to establish the Borrowing Base and the Asset Coverage Ratio of such
Borrower at the end of such monthly, semi-annual or annual period, as
the case may be.

(d) Notice of Default, Litigation or Asset Coverage
Deterioration. Promptly, and in any event within three Business Days
after an officer of such Borrower obtains knowledge thereof, such
Borrower shall (or shall cause the Investment Advisor to) give notice
of (i) the occurrence of any event which constitutes a Default or an
Event of Default with respect to itself or any other Borrower, (ii)
any litigation or governmental investigation or proceeding pending (x)
against any Borrower which materially and adversely affects the
business, operations, property, assets, liabilities, condition
(financial or otherwise) or prospects of such Borrower or (y) with
respect to any Credit Document and (iii) its Asset Coverage Ratio
decreases by more than 75% from its Asset Coverage Ratio as of the
immediately preceding Semiannual Valuation Date.

(e) Other Reports and Filings. Promptly, copies of all
financial information, proxy materials, prospectuses, statements of
additional information, registration statements and other information
and reports (including without limitation all information, material
and reports filed or distributed pursuant to Section 30 of the
Investment Company Act) which such Borrower shall deliver to its
shareholders or deliver to the holders of its Indebtedness pursuant to
the terms of the documentation governing such Indebtedness (or any
trustee, agent or other representative therefor).

(f) Other Information. From time to time, such other
information or documents (financial or otherwise) with respect to such
Borrower or any of its investments as the Bank may reasonably request.

6.02 Books, Records and Inspections. Such Borrower will keen
proper books of record and account in which full, true and correct entries in
conformity with generally accepted accounting principles and all requirements
of Law shall be made of all dealings and transactions in relation to its
business and activities. On and after the occurrence of a Default or Event of
Default and at such other times as the Bank may reasonably request, such
Borrower will permit officers and designated representatives of the Bank to
visit and inspect, under guidance of officers of such Borrower, any of the
properties of such Borrower, and to examine the books of account of such
Borrower and discuss the affairs, finances and accounts of such Borrower with,
and be advised as to the same by, its officers and independent accountants, all
at such reasonable times and intervals and to such reasonable extent as the
Bank may request.

6.03 Compliance with Statutes, etc. Such Borrower will comply with
all applicable statutes (including, without limitation, the Investment Company
Act), regulations and orders or, and all applicable restrictions imposed by,
all governmental bodies, domestic or foreign, in respect of the conduct of its
business and the ownership of its property, except such noncompliance as could
not, individually or in the aggregate, reasonably be expected to have a
material adverse effect on the business, operations, property, assets,
liabilities, condition (financial or otherwise) or prospects of such Borrower
or any adverse effect on the legality, validity or enforceability of this
Agreement or any of the other Credit Documents.

6.04 Investment Company. Such Borrower will at all times (x) be a
registered closed-end or series of an open-end management investment company
under the Investment Company Act, as applicable and (y) qualify and be treated
as a regulated investment company under the Code.

6.05 Compliance with Investment Practices. Such Borrower will at
all times comply in all material respects with the investment policies and
restrictions set forth in its Investment Practices.

SECTION 7. Negative Covenants. Each Borrower covenants and
agrees that on and after the Effective Date and until the Loans and Notes,
together with interest and all other obligations incurred by such Borrower
hereunder and thereunder are paid in full:

7.01 Liens. Such Borrower will not create, incur, assume or suffer
to exist any Lien upon or with respect to any of its property or assets (real
or personal, tangible or intangible), whether now owned or hereafter acquired,
or

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<PAGE> 11
sell any such property or assets subject to an understanding or
agreement, contingent or otherwise, to repurchase such property or
assets (including pursuant to repurchase agreements relating to
securities), or assign any right to receive income or permit the
filing of any financing statement under the UCC or any other similar
notice of Lien under any similar recording or notice statute; provided
that the provisions of this Section 7.01 shall not prevent the
creation, incurrence, assumption or existence of the following:

(i) Inchoate Liens for taxes, assessments or governmental
charges or levies not vet due or Liens for taxes, assessments or
governmental charges or levies being contested in good faith and by
appropriate Proceedings for which adequate reserves have been
established in accordance with generally accepted accounting
principles;

(ii) Liens in respect of property or assets of such
Borrower imposed by law, which were incurred in the ordinary course of
business and do not secure Indebtedness for borrowed money, such as
carriers', warehousemen's, materialmen's and mechanics' liens and
other similar Liens arising in the ordinary course of business, and
(x) which do not in the aggregate materially detract from the value of
a Borrower's property or assets or materially impair the use thereof
in the operation of the business of a Borrower or (y) which are being
contested in good faith by appropriate proceedings, which proceedings
have the effect of preventing the forfeiture or sale of the property
or assets subject to any such Lien;

(iii) Liens in respect of Hedging Agreements entered into
in the ordinary course of business; and

(iv) Liens securing Indebtedness consisting of fee,
overdraft and indemnity arrangements owing to Boston Safe Deposit
Corporation acting in its capacity as custodian (or any successor or
substitute custodian) for custodial services typical and Customary in
the business to the extent such Liens extend only to the property and
assets held by such custodian.

7.02 Consolidation, Merger, Sale or Purchase of Assets, etc. Such
Borrower will not wind up, liquidate or dissolve its affairs or enter into any
transaction of merger or consolidation, or convey, sell, lease or otherwise
dispose of (or agree to do any of the foregoing at any future time) all or
substantially all of its property or assets, or enter into any short sales
contracts or contracts to sell assets that it does not yet own, or enter into
any sale-leaseback transactions, or purchase or otherwise acquire (in one or a
series of related transactions) all or substantially all of the property or
assets of any Person, provided that each Borrower may consolidate and merge
into another Borrower or any other entity so long as (x) such Borrower is the
surviving entity or the surviving entity assumes all obligations hereunder and
(y) the surviving entity is a registered investment company under and in
compliance with the Investment Company Act.

7.03 Modifications of Investment Practices, Articles of
Incorporation, By-Laws and Certain Other Agreements. Such Borrower will not
(i) amend or modify, or permit the amendment or modification of, any material
provision or portion of its Investment Practices, (ii) amend, modify or change
its Articles of Incorporation (including, without limitation, by the filing or
modification of any certificate of designation) or By-Laws or trust
documentation, or any agreement entered into by it with respect to its capital
stock, or enter into any new agreement with respect to its capital stock or
(iii) amend, modify or change its Investment Advisory and Management Agreement
other than any amendments, modifications or changes pursuant to clauses (i),
(ii) or (iii) of this Section 7.03 which are not in any way materially adverse
to its ability to perform its obligations hereunder and copies of which are
provided to the Bank.

7.04 Business. Such Borrower will not engage (directly or
Indirectly) in any business other than the business in which such Borrower is
engaged on the Effective Date and other businesses reasonably related thereto.

7.05 ERISA. Such Borrower will not and will not permit any ERISA
Affiliate to maintain or become obligated to contribute to any Plan.

7.06 Affiliated Person. Neither such Borrower nor any Affiliated
Person of such Borrower will directly or indirectly own, control or hold with
power to vote 5% or more of the outstanding voting securities of (or otherwise
be or become an Affiliated Person of) the Bank.

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<PAGE> 12
7.07 Custodian Long-Term Debt Rating. The long-term debt rating
assigned by Moody's Investors Services, Inc. and Standard & Poors to Boston
Safe Deposit Corporation (or any successor or substitute custodian) shall not
be less than A.

SECTION 8. Events of Default. Upon the occurrence of any of the
following specified events (each an "Event of Default"):

8.01 Payments. A Borrower shall (i) default in the payment when
due of any principal of any Loan or any Note or (ii) default, and such default
shall continue unremedied for two or more Business Days, in the payment when
due of any interest on any Loan or Note, or any other amounts owing hereunder
or thereunder; or

8.02 Representations, etc. Any representation, warranty or
statement made by a Borrower herein or in any other Credit Document or in any
certificate delivered pursuant hereto or thereto shall prove to be untrue in
any material respect on the date as of which made or deemed made; or

8.03 Covenants. (a) A Borrower shall (i) default in the due
performance or observance by it of any term, covenant or agreement contained in
Section 6.05 or Section 7 (other than Section 7.07), (ii) default in the due
performance or observance by it of any other term, covenant or agreement
contained in this Agreement (other than Section 7.07) and such default shall
continue unremedied for a period of 30 days after written notice to such
Borrower by the Bank or (iii) default in the due performance or observance by
it of any term, covenant or agreement contained in Section 7.07 and such
default shall continue unremedied for a period of 60 days after written notice
to such Borrower by the Bank; or

8.04 Default Under Other Agreements. A Borrower shall (i) default
in any payment of any Indebtedness which individually or in the aggregate
equals or exceeds the lower of $25 million or 3% of such Borrower's net asset
value determined in accordance with GAAP beyond the period of grace, if any,
provided in the instrument or agreement under which such Indebtedness was
created or (ii) default in the observance or performance of any agreement or
condition relating to such Indebtedness or contained in any instrument or
agreement evidencing, securing or relating thereto, or any other event shall
occur or condition exist, the effect of which default or other event or
condition is to cause, or to permit the holder or holders of such Indebtedness
(or a trustee or agent on behalf of such holder or holders) to cause
(determined without regard to whether any notice is required) any such
Indebtedness to become due prior to its stated maturity, or (iii) any such
indebtedness of a Borrower shall be declared to be due and payable, or required
to be prepaid other than by a regularly scheduled required prepayment, prior to
the stated maturity thereof, provided that it shall not be a Default or an
Event of Default under this Section 8.04; or

8.05 Bankruptcy, etc. A Borrower shall commence a voluntary case
concerning itself under Title 11 of the United States Code entitled
"Bankruptcy," as now or hereafter in effect, or any successor thereto (the
"Bankruptcy Code") ; or an involuntary case is commenced against a Borrower,
and the petition is not controverted within 10 days, or is not dismissed within
60 days, after commencement of the case; or a custodian (as defined in the
Bankruptcy Code) is appointed for, or takes charge of, all or substantially all
of the property of a Borrower, or a Borrower commences any other proceeding
under any reorganization, arrangement, adjustment of debt, relief of debtors,
dissolution, insolvency or liquidation or similar law of any Jurisdiction
whether now or hereafter in effect relating to such Borrower, or there is
commenced against a Borrower any such proceeding which remains undismissed for
a period of 60 days, or a Borrower is adjudicated insolvent or bankrupt; or any
order of relief or other order approving any such case or proceeding is
entered; or a Borrower suffers any appointment of any custodian or the like for
it or any substantial part of its property to continue undischarged or unstayed
for a period of 60 days; or a Borrower makes a general assignment for the
benefit of creditors; or any corporate action is taken by a Borrower for the
purpose of effecting any of the foregoing; or

8.06 Judgments. One or more judgments or decrees shall be entered
against a Borrower involving a liability (not paid or fully covered by a
reputable and solvent insurance company) and such judgments and decrees either
shall be final and non-appealable or shall not be vacated, discharged or stayed
or bonded pending appeal for any period of

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<PAGE> 13
30 consecutive days, and the aggregate amount of all such judgments which
individually or in the aggregate equals or exceeds the lower of $25 million or
3% of such Borrower's net asset value determined in accordance with GAAP; or

8.07 Investment Adviser. (i) Sierra Investment Advisors
Corporation shall cease to be the primary investment adviser to any Borrower or
(ii) any Investment Advisory and Management Agreement shall cease to be in full
force and effect or the Investment Adviser shall deny or disaffirm any of its
obligations to be performed by it under its Investment Advisory and Management
Agreement or shall default in the performance of any such obligations; or

8.08 Asset Coverage. The aggregate outstanding principal amount of
Loans made to a Borrower shall exceed an amount equal to 33- 1/3% of the Asset
Coverage Numerator at such time; or

8.09 Change of Control. The Investment Advisor shall cease to be
directly or indirectly wholly owned by Great Western Financial Corporation;

then, and in any such event, and at any time thereafter, if any Event of
Default shall then be continuing, the Bank, may by written notice to the
relevant Borrower, take any or all of the following actions, without prejudice
to the rights of the Bank or the holder of any Note to enforce its claims
against any Borrower (provided, that, if an Event of Default specified in
Section 8.05 shall occur, the result which would occur upon the giving of
written notice by the Bank to such Borrower as specified in clauses (i) and
(ii) below shall occur automatically without the giving of any such notice) :
(i) declare the Total Borrower Facility terminated with respect to such
Borrower; and (ii) declare the principal of and any accrued interest in respect
of all Loans made to such Borrower and the Note issued by such Borrower and all
Obligations owing by such Borrower hereunder and thereunder to be, whereupon
the same shall become, forthwith due and payable without any other presentment,
demand, protest or other notice of any kind, all of which are hereby waived by
each Borrower.

SECTION 9. Definitions and Accounting Terms.

9.01 Defined Terms. As used in this Agreement, the following terms
shall have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):

"Affiliated Person" shall have the meaning provided in the Investment
Company Act.

"Agreement" shall mean this Credit Agreement, as modified,
supplemented or amended from time to time.

"Asset Coverage Denominator" at any time shall mean the aggregate
amount of Senior Securities (including in any event all Loans hereunder)
representing indebtedness of a Borrower, determined in accordance with Section
18 of the Investment Company Act.

"Asset Coverage Numerator" shall mean the value of the total assets of
a Borrower, less all liabilities and indebtedness not represented by Senior
Securities, all determined in accordance with Section 18 of the Investment
Company Act, provided that for purposes of this Agreement (x) in no event shall
the value of the total assets of a Borrower as so calculated exceed the values
of the assets as same would be determined in computing net asset value as
described in the Prospectus of each Borrower under the heading "Net Asset
Value" and (y) in no event shall the liabilities and indebtedness (other than
Senior Securities) be less than the respective liabilities as same would be
determined in calculating net asset value as described under the heading "Net
Asset Value" in such Prospectus.

"Asset Coverage Ratio" at any time shall mean the ratio of the Asset
Coverage Numerator at such time to the Asset Coverage Denominator at such time.

"Bank" shall mean Deutsche Bank AG, New York Branch as well as any
Person which becomes a "Bank" hereunder pursuant to 10.04(b).

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<PAGE> 14
"Bankruptcy Code" shall have the meaning provided in Section 8.05.

"Base Commitment" shall have the meaning provided in Section 1.01.

"Base Rate" at any time shall mean the higher of (i) 1/2 of 1% in
excess of the Federal Funds Rate and (ii) the Prime Lending Rate.

"Base Rate Loan" shall mean each Loan designated or deemed Designated
as such by a Borrower at the time of the incurrence thereof or conversion
thereto.

"Borrower" and "Borrowers" shall have the meaning provided in the
first paragraph of this Agreement.

"Borrowing" shall mean and include the borrowing of one Type of Loan
from the Bank on a given date.

"Borrowing Base" shall mean, with respect to a Borrower, 33-1/3% of
its Asset Coverage Ratio at the time of determination (or such lesser amount as
shall be permitted indebtedness pursuant to such Borrower's Prospectus).

"Business Day" shall mean (i) for all purposes other than as covered
by clauses (ii) and (iv) below, any day except Saturday, Sunday and any day
which shall be in New York City a legal holiday or a day on which banking
institutions are authorized or required by law or other to all notices and
government action to close, (ii) with respect to all notices and determinations
in connection with, and payments of principal and interest on, NIBOR Loans, any
day which is a Business Day described in clause (i) above and which is also a
day for trading by and between banks in the New York interbank market and (iii)
with respect to all notices and determinations in connection with, and payments
of principal and interest on, LIBOR Loans, any day which is a Business Day
described in clause (i) above and which is also a day for trading by and
between banks in the London interbank market and (iv) with respect to the
information required to be delivered in each Quarterly Report, any day which is
a Business Day described in clause (i) above and which is also a day on which
the New York Stock Exchange is open for trading.

"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time and the regulations promulgated and the rulings issued thereunder.
Section references to the Code are to the Code, as in effect at the date of
this Agreement, and to any subsequent provision of the Code, amendatory
thereof, supplemental thereto or substituted therefor.

"Commitment" shall mean $40 Million, as may be reduced or terminated
in accordance with the terms of this Agreement.

"Commitment Fee" shall have the meaning provided in section 2.03.

"Contingent Obligation" shall mean, as to any Person, any obligation
of such Person guaranteeing or intended to guarantee any Indebtedness, leases,
dividends or other obligations ("Primary obligations") of any other Person (the
"primary obligor") in any manner, whether directly or indirectly, including,
without limitation, any obligation of such Person, whether or not contingent,
(i) to purchase any such primary obligation or any property constituting direct
or indirect security therefor, (ii) to advance or supply funds (x) for the
purchase or payment of any such primary obligation or (y) to maintain working
capital or equity capital of the primary obligor or otherwise to maintain the
net worth or solvency of the primary obligor, (iii) to purchase property,
securities or services primarily for the purpose of assuring the owner of any
such primary obligation of the ability of the Primary obligor to make payment
of such primary obligation or (iv) otherwise to assure or hold harmless the
holder of such primary obligation against loss in respect thereof; provided
that the term Contingent Obligation shall not include endorsements or
instruments for deposit or collection in the ordinary course of business. The
amount of any Contingent Obligation shall be deemed to be an amount equal to
the stated or determinable amount of the primary obligation in respect of which
such Contingent Obligation is made or, if not stated or determinable, the
maximum reasonably anticipated liability in respect thereof assuming such
Person is required to perform thereunder) as determined by such Person in good
faith.

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<PAGE> 15
"Credit Documents" shall mean this Agreement and, after the execution
and delivery thereof, each Note.

"Default" shall mean any event, act or condition which with notice or
lapse of time, or both, would constitute an Event of Default.

"Dollars" and the sign " $ " shall each mean freely transferable
lawful money of the United States.

"Effective Date" shall have the meaning provided in Section 3.

"Eligible Transferee" shall mean and include a commercial bank,
financial institution or other "accredited investor" (as defined in Regulation
D of the Securities Act); provided that no Affiliated Person of a Borrower and
no Affiliated Person of such an Affiliated Person of a Borrower shall be an
Eligible Transferee.

"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations promulgated and rulings
issued thereunder. Section references to ERISA are to ERISA, as in effect at
the date of this Agreement, and to any subsequent provisions of ERISA,
amendatory thereof, supplemental thereto or substituted therefor.

"ERISA Affiliate" shall mean each person (as defined in Section 3(9)
of ERISA) which together with a Borrower would be deemed to be a "single
employer" within the meaning of Section 414(b), (c), (m) or (o) of the Code.

"Event of Default" shall have the meaning provided in Section B.

"Expiry Date" shall mean May 21, 1997 as may be extended pursuant to
Section 2.05.

"Federal Funds Rate" shall mean the rate at which the Bank, as a
branch of a foreign bank, in its sole discretion can obtain federal funds in
the interbank overnight federal funds market including through brokers of
recognized standing.

"Fixed Rate Loan" shall mean any NIBOR Loan and any LIBOR Loan.

"GAAP" means generally accepted accounting principles in the United
States.

"Hedging Agreement" shall mean any Repurchase Agreement, Reverse
Repurchase Agreements, securities lending arrangements, financial futures
contracts, agreement to purchase or sell (or write) exchange listed or
over-the-counter put and call options on securities or securities, indices,
Interest Rate Protection Agreement, foreign exchange contracts, currency swap
agreements, forward contracts for the purchase of securities, including
mortgage-backed securities and dollar roll transactions or other similar
agreements or arrangements.

"Indebtedness" shall mean, as to any Person, without duplication, (i)
all indebtedness (including principal, interest, fees and charges) of such
Person for borrowed money or for the deferred purchase price of property or
services, (ii) the maximum amount available to be drawn under all letters of
credit issued for the account of such Person and all unpaid drawings in respect
of such letters of credit, (iii) all Indebtedness of the types described in
clause (i), (ii), (iv), (v), (vi), (vii) or (viii) of this definition secured
by any Lien on any property owned by such Person, whether or not such
Indebtedness has been assumed by such Person, (iv) the aggregate amount
required to be capitalized under leases under which such Person is the Lessee,
(v) all obligations of such person to pay a specified purchase price for goods
or services, whether or not delivered or accepted, i.e., take-or-pay and
similar obligations, (vi) all Contingent obligations of such Person, (vii)
borrowings of securities by such Person, and (viii) all obligations under any
Hedging Agreement.

"Initial Borrowing Date" shall mean the date occurring on or after the
Effective Date on which the initial Borrowing of Loans hereunder occurs.

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<PAGE> 16
"Interest Determination Date" shall mean (i) with respect to any NIBOR
or Base Rate Loan, the Business Day any NIBOR or Base Rate Loan is made on and
(ii) with respect to any LIBOR loan the second Business Day prior to the
commencement of any Interest Period relating to any LIBOR Loan.

"Interest Period" shall have the meaning provided in Section 1.08.

"Interest Rate Protection Agreement" shall mean any interest rate swap
agreement, interest rate cap agreement, interest collar agreement, interest
rate hedging agreement or other similar agreement or arrangement.

"Investment Advisor" shall mean Sierra Investments Advisors
Corporation.

"Investment Advisers Act" shall mean the Investment Advisers Act of
1940, as amended, including the rules and regulations promulgated thereunder.

"Investment Advisory and Management Agreement" shall mean collectively
those agreements listed on Schedule II hereto, as each such agreement may be
amended from time to time in accordance with the terms of this Agreement.

"Investment Company Act" shall mean the Investment Company Act of
1940, as amended, including the rules and regulations promulgated thereunder.

"Investment Practices" shall mean the investment objectives,
investment policies and investment restrictions of a Borrower as set forth in
the Prospectus.

"LIBOR" or "LIBOR Rate"" shall mean the offered quotation in the
London interbank market to Deutsche Bank AG, New York Branch for Dollar
deposits of amounts in immediately available funds comparable to the
outstanding principal amount of the LIBOR Loan with respect to which such
determination is being made with maturities comparable to the interest Period
applicable to such LIBOR Loan commencing on the Business Day which is the
commencement of such Interest Period rounded off to the nearest 1/16 of 1%.

"LIBOR Loan" shall mean each Loan designated as such by a Borrower at
the time of the incurrence thereof or conversion thereto.

"Lien" shall mean any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or other), preference,
priority or other security agreement of any kind or nature whatsoever
(including, without limitation, any conditional sale or other title retention
agreement, any financing or similar statement or notice filed under the UCC or
any other similar recording or notice statute, and any lease having
substantially the same effect as any of the foregoing).

"Loan" shall have the meaning provided in Section 1.01(a).

"NIBOR" or "NIBOR Rate" shall mean the offered quotation in the New
York interbank market to Deutsche Bank AG, New York Branch for Dollar deposits
of amounts in immediately available funds comparable to the outstanding
principal amount of the NIBOR Loan with respect to which such determination is
being made with maturities comparable to the Interest Period applicable to such
NIBOR Loan commencing on the Business Day which is the commencement of such
Interest Period rounded off to the nearest 1/16 of 1%.

"NIBOR Loan" shall mean each Loan designated as such by a Borrower at
the time of the incurrence thereof or conversion thereto.

"Note" shall have the meaning provided in Section 1.05.

"Notice of Borrowings, shall have the meaning provided in Section
1.03.

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<PAGE> 17
"Notice Office" shall mean the office of the Bank located at 31 West
52 Street, New York, New York 10019, Attention: Lynn Sierra, or such other
office as the Bank may hereafter designate in writing as such to the other
parties hereto.

"Obligations" shall mean all amounts owing to the Bank pursuant to the
terms of this Agreement or any other Credit Document.

"Payment Office" shall mean the office of the Bank located at 31 West
52 Street, New York, New York 10019, or such other office in the United States
as the Bank may hereafter designate in writing as such to the other parties
hereto.

"Permitted Investments" shall mean those investments in portfolio
securities permitted to be made by a Borrower in accordance with (X) its
Investment Practices and (y) the terms of this Agreement.

"Person" shall mean any individual, partnership, joint venture, firm,
corporation, association, trust or other enterprise or any government or
political subdivision any agency, department or Instrumentality thereof.

"Plan" shall mean any multiemployer or single employer plan as defined
in Section 4001 of ERISA, which is maintained or contributed to by (or to which
there is an obligation to contribute of) a Borrower or an ERISA Affiliate.

"Prime Lending Rate" shall mean the rate which Deutsche Bank AG, New
York Branch announces from time to time as its prime lending rate, the Prime
Lending Rate to change when and as such prime lending rate changes. The Prime
Lending Rate is a reference rate and does not necessarily represent the lowest
or best rate actually charged to any customer. Deutsche Bank AG, New York
Branch may make commercial loans or other loans at rates of interest at, above
or below the Prime Lending Rate.

"Prospectus" shall mean each Prospectus listed on Schedule III hereto,
together with any Statement of Additional Information incorporated therein.

"Registration Statement" shall mean each Borrower's Registration
Statement.

"Regulation D" shall mean Regulation D of the Board of Governors of
the Federal Reserve System as from time to time in effect and any successor to
all or a portion thereof establishing reserve requirements.

"Regulations G, T, U and X" shall mean Regulations G, T, U and X of
the Board of Governors of the Federal Reserve System as from time to time in
effect and any successor to all or a portion thereof.

"Repurchase Agreement" shall mean any agreement to purchase an asset
presently and then to sell such asset to a third party in the future.

"Reverse Repurchase Agreement" shall mean any agreement to sell an
asset presently and then to repurchase such asset in the future.

"SEC" shall mean the Securities and Exchange Commission.

"Securities Act" shall mean the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.

"Securities Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.

"Semiannual Report" shall have the meaning provided in Section
6.01(b).

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<PAGE> 18
"Semiannual Valuation Date" shall mean the last Friday of each
six-month period, or if such Friday is not a Business Day, the immediately
preceding Business Day.

"Senior Securities" shall have the meaning ascribed to such term in
Section 18 of the Investment Company Act.

"Subsidiary" shall mean, as to any Person, (i) any corporation more
than 50% of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned by such Person and/or one or
more Subsidiaries of such Person and (ii) any partnership, association joint
venture or other entity in which such Person and/or one or more Subsidiaries of
such Person has more than a 50% equity interest at the time.

"Type" shall mean the type of Loan determined with regard to the
interest option applicable thereto, i.e., whether a LIBOR Loan, a Base Rate
Loan or a NIBOR Loan.

"UCC" shall mean the Uniform Commercial Code as from time to time in
effect in the relevant jurisdiction.

"United States" and "U.S." shall each mean the United States of
America.

"Unutilized Commitment" shall mean the Commitment less the aggregate
principal amount of all Loans under the Agreement then outstanding.

"Valuation Date" shall mean each Monthly Valuation Date, each day on
which a Borrowing occurs and the first day of each Interest Period.

SECTION 10. Miscellaneous.

10.01 Payment of Expenses, etc. Each Borrower, on a pro rata basis
(or such basis as shall be permitted by the Investment Company Act and approved
by the Board of Trustees of each Borrower as the Investment Advisor on behalf
of the Borrowers may specify to the Bank from time to time in writing)
calculated in a manner consistent with Section 2.03 shall pay all out-of-pocket
costs and expenses of the Bank (including, without limitation, the reasonable
fees and disbursements of counsel) in connection with the preparation hereof
(in an amount not to exceed $15,000) or any amendment, waiver or consent
relating hereto or thereto, and of the Bank in connection with the enforcement
of this Agreement and the other Credit Documents and the documents and
instruments referred to herein and therein (including, without limitation, the
reasonable fees and disbursements of counsel for the Bank).

10.02 Right of Setoff. in addition to any rights now or hereafter
granted under applicable law or otherwise, and not by way of limitation of any
such rights, upon the occurrence of an Event of Default, the Bank is hereby
authorized at any time or from time to time, without presentment, demand,
protest or other notice of any kind to the relevant Borrower or to any other
Person, any such notice being hereby expressly waived, to set off and to
appropriate and apply any and all deposits (general or special) and any other
Indebtedness at any time held or owing by the Bank (including, without
limitation, by branches and agencies of the Bank wherever located) to or for
the credit or the account of the relevant Borrower against and on account of
the Obligations and liabilities of such Borrower to the Bank under this
Agreement or under any of the other Credit Documents, including, without
limitation, all interests in Obligations purchased by the Bank pursuant to
Section 10.04(b), and all other claims of any nature or description arising out
of or connected with this Agreement or any other Credit Document, irrespective
of whether or not the Bank shall have made any demand hereunder and although
said Obligations, liabilities or claims, or any of them, shall be contingent or
unmatured.

10.03 Notices. Except as otherwise expressly provided herein, all
notices and other communications provided for hereunder shall be in writing
(including telegraphic, telex, telecopier or cable communication) and mailed,
telegraphed, telexed, telecopied, cabled or delivered: if to a Borrower, at
such Borrower's address specified opposite its

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<PAGE> 19
signature below; if to the Bank, at its Notice office; or, as to either
Borrower or the Bank, at such other address as shall be designated by such
party in a written notice to the other parties hereto. All such notices and
communications shall, when mailed, telegraphed, telexed, telecopied, or cabled
or sent by overnight courier, be effective when deposited in the mails,
delivered to the telegraph company, cable company or overnight courier, as the
case may be, or sent by telex or telecopier.

10.04 Benefit of Agreement. (a) This Agreement shall be binding
upon and inure to the benefit of and be enforceable by the respective
successors and assigns of the parties hereto; provided, that no Borrower may
assign or transfer any of its rights, obligations or interest hereunder or
under any other Credit Document without the prior written consent of the Bank
and, provided further, that although the Bank may transfer, assign or grant
participations in its rights hereunder, the Bank shall remain a "Bank" for all
purposes hereunder (and may not transfer or assign all or any portion of its
Loans hereunder except as provided in Section 10.04(b)) and the transferee,
assignee or participant, as the case may be, shall not constitute a "Bank"
hereunder and, provided further, that the Bank shall not transfer or grant any
participation without each Borrower's consent and in any event shall not
transfer or grant any participation under which the participant shall have
rights to approve any amendment to or waiver of this Agreement or any other
Credit Document except to the extent such amendment or waiver would (i) extend
the final scheduled maturity of any Loan or Note in which such participant is
participating, or reduce the rate or extend the time of payment of interest
thereon (except in connection with a waiver of applicability of any
post-default increase in interest rates) or reduce the principal amount
thereof, or increase the amount of the participant's participation over the
amount thereof then in effect, or (ii) consent to the assignment or transfer by
a Borrower of any of its rights and obligations under this Agreement. In the
case of any such participation, the participant shall not have any rights under
this Agreement or any of the other Credit Documents (the participant's rights
against the Bank in respect of such participation to be those set forth in the
agreement executed by such Bank in favor of the participant relating thereto)
and all amounts payable by the Borrowers hereunder shall be determined as if
such Bank had not sold such participation.

(b) Notwithstanding the foregoing, the Bank may (x) assign all or
a portion of its Loans, rights and related outstanding Obligations hereunder to
its parent company and/or any affiliate of such Bank or to any one or more
Banks, provided that any such assignee is a bank (as defined in the Investment
Company Act) or (y) with the consent of each Borrower assign all or a portion
of such Loans, rights and Obligations to one or more Eligible Transferees, each
of which assignees shall become party to this Agreement as a Bank by execution
of an Assignment and Assumption Agreement, provided that (i) at such time the
Banks and the Borrower shall modify this Agreement to the extent necessary to
effect such assignment and (ii) new Notes will be issued, at the Borrowers'
expense, to such new Bank and to the assigning Bank upon the request of such
new Bank or assigning Bank, such new Notes to be in conformity with the
requirements of Section 1.05. To the extent of any assignment pursuant to this
Section 10.04(b), the assigning Bank shall be relieved of its obligations
hereunder with respect to its assigned Loans, rights and Obligations.

(c) Notwithstanding anything to the contrary contained above, in
connection with any participation or assignment pursuant to preceding Sections
10.04(a) or (b), the Bank granting the assignment or participation shall, in
the agreement with respect thereto, obtain a representation from the
participant or assignee to the effect that it is not an Affiliated Person of
any Borrower or an Affiliated Person of such an Affiliated Person of any
Borrower.

(d) Nothing in this Agreement shall prevent or prohibit the Bank
from pledging its Loans and Notes hereunder to a Federal Reserve Bank in
support of borrowings made by the Bank from such Federal Reserve Bank.

(e) Each Borrower hereby acknowledges and agrees that the Bank may
share with any of its affiliates any information related to such Borrower and
its affiliates (including, without limitation, any non-public customer
information regarding the creditworthiness of such Borrower and its
affiliates), provided that such affiliate shall keep any such information
confidential in accordance with its customary banking procedures.

10.05 No Waiver; Remedies Cumulative; Recourse.

No failure or delay on the part of the Bank or any holder of any Note
in exercising any right, power or privilege hereunder or under any other Credit
Document and no course of dealing between any Borrower and the Bank or the

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<PAGE> 20
holder of any Note shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, power or privilege hereunder or under any other
Credit Document preclude any other or further exercise thereof or the exercise
of any other right, power or privilege hereunder or thereunder. The rights,
powers and remedies herein or in any other Credit Document expressly provided
are cumulative and not exclusive of any rights, powers or remedies which the
Bank or the holder of any Note would otherwise have. No notice to or demand on
a Borrower in any case shall entitle such Borrower to any other or further
notice or demand in similar or other circumstances or constitute a waiver of
the rights of the Bank or the holder of any Note to any other or further action
in any circumstances without notice or demand.

10.06 Calculations; Computations. (a) The financial statements to
be furnished to the Bank and the calculation of Asset Coverage Ratios and
Borrowing Base pursuant hereto shall be made and prepared in accordance with
generally accepted accounting principles in the United States consistently
applied throughout the periods involved (except as set forth in the notes
thereto or as otherwise disclosed in writing by the relevant Borrower to the
Bank); provided that, except as otherwise specifically provided herein, all
computations determining compliance with Section 6, shall utilize accounting
principles and policies in conformity with those used to prepare the historical
financial statements delivered to the Bank pursuant to Section 5.05(a).

(b) All computations of interest and fees hereunder shall be made
on the basis of year of 360 days for the actual number of days including the
first day but excluding the last day) occurring in the period for which such
interest is payable.

10.07 GOVERNING LAW: SUBMISSION TO JURISDICTION; VENUE; WAIVER OF
JURY TRIAL. (a) THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS
AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE CONSTRUED IN
ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK. ANY LEGAL
ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER CREDIT
DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED
STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, AND BY EXECUTION AND DELIVERY OF
THIS AGREEMENT, EACH BORROWER HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN
RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE
AFORESAID COURTS. EACH BORROWER HEREBY FURTHER IRREVOCABLY WAIVES ANY CLAIM
THAT SUCH COURTS LACK JURISDICTION OVER SUCH BORROWER, AND AGREES NOT TO PLEAD
OR CLAIM, IN ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR
ANY OTHER CREDIT DOCUMENT BROUGHT IN ANY OF THE AFORESAID COURTS, THAT ANY SUCH
COURT LACKS JURISDICTION OVER SUCH BORROWER. EACH BORROWER FURTHER IRREVOCABLY
CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN
ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR
CERTIFIED MAIL, POSTAGE PREPAID, TO SUCH BORROWER AT ITS ADDRESS SET FORTH
OPPOSITE ITS SIGNATURE BELOW, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER
SUCH MAILING. EACH BORROWER HEREBY IRREVOCABLY WAIVES ANY OBJECTION TO SUCH
SERVICE OF PROCESS AND FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR
CLAIM IN ANY ACTION OR PROCEEDING COMMENCED UNDER THIS AGREEMENT OR UNDER ANY
OTHER CREDIT DOCUMENT THAT SERVICE OF PROCESS WAS IN ANY WAY INVALID OR
INEFFECTIVE. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE BANK UNDER THIS
AGREEMENT, THE BANK OR THE HOLDER OF ANY NOTE TO SERVE PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED
AGAINST ANY BORROWER IN ANY OTHER JURISDICTION.

(b) EACH BORROWER HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT
MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID
ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR
ANY OTHER CREDIT DOCUMENT BROUGHT IN THE COURTS REFERRED TO IN CLAUSE (a) ABOVE
AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY
SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS
BEEN BROUGHT IN AN INCONVENIENT FORUM.

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<PAGE> 21
(c) EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY
WAIVES ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER CREDIT DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

10.08 Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A set of counterparts
executed by all the parties hereto shall be lodged with the Borrowers and the
Bank.

10.09 Headings Descriptive. The headings of the several sections
and subsections of this Agreement are inserted for convenience only and shall
not in any way affect the meaning or construction of any provision of this
Agreement.

10.10 Amendment or Waiver; etc. Neither this Agreement nor any
other Credit Document nor any terms hereof or thereof may be changed, waived,
discharged or terminated unless such change, waiver, discharge or termination
is in writing signed by the Borrowers and the Bank.

10.11 Survival. All indemnities set forth herein shall survive the
execution, delivery and termination of this Agreement and the Notes and the
making and repayment of the Loans.

10.12 Domicile of Loans. The Bank may transfer and carry its Loans
at, to or for the account of any office, Subsidiary or banking affiliate of the
Bank provided that any such transfer shall not conflict with the Investment
Company Act as applicable to the Borrowers and the Borrowers shall not be
responsible for any additional cost hereunder resulting from such transfer.

10.13 Separate Agreements. Notwithstanding any other provision, the
relationship and agreements as set forth in the Agreement between each Borrower
and the Bank shall be several, separate and distinct from those between each
other Borrower and the Bank, to the same effect as would be the case if each
Borrower executed a separate Agreement with the Bank in the form hereof without
execution thereof by any other such Borrower.

10.14 Limitation of Liability. The Bank acknowledges that the
Sierra Prime Income Fund is a business trust organized under the laws of the
Commonwealth of Massachusetts and that Sierra Trust Funds is a business trust
organized under the laws of the commonwealth of Massachusetts in series form
and that this Agreement is entered into by Sierra Trust Funds on behalf of and
with respect to each series named below (hereinafter referred to as a
"Portfolio") as a Borrower hereunder. All references to a "Borrower" which is a
series of Sierra Trust Funds are to the individual Portfolio. All obligations
of such Borrower shall be satisfied solely from the assets of the appropriate
Portfolio and not from the assets of any other series or Portfolio of such
trust or of any other trust. The Bank and each trust agrees that the
obligations of the Borrower under this Agreement shall not be binding upon any
of the trustees, shareholders, nominees, officers, employees or agents, whether
past, present or future, of any trust individually, but are binding only upon
the assets and property of each Borrower. The execution and delivery of this
Agreement have been authorized by the trustees of each trust and signed by an
authorized officer of each trust, acting as such, and neither such
authorization by such trustees nor such execution and delivery by such officer
shall be deemed to have been made by any of them or any shareholder of either
trust or a Portfolio thereof individually or to impose any liability on any of
them or any shareholder of the trust or any Portfolio personally but shall bind
only the assets and property of each Borrower covered under this Agreement as
provided in the Agreement of Trust for each trust.

-21-
<PAGE> 22
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and deliver this Agreement as of the date first
above written.

Address: SIERRA PRIME INCOME FUND
Sierra Prime Income Fund
9301 Corbin Avenue, Suite 333
Northridge, CA 91324
Telephone: 818-725-0228 /s/ Keith Pipes
Telecopier: 818-725-0269 Name: Keith Pipes
Attn: Keith B. Pipes Title: Executive Vice President
Chief Financial Officer

Address: SIERRA TRUST FUNDS, ON BEHALF OF
Short Term High Quality Bond Fund SHORT TERM HIGH QUALITY BOND FUND
9301 Corbin Avenue, Suite 333
Northridge, CA 91324
Telephone: 818-725-0228 /s/ Keith Pipes
Telecopier: 818-725-0269 Name: Keith Pipes
Attn: Keith B. Pipes Title: Executive Vice President
Chief Financial Officer

Address: SIERRA TRUST FUNDS, ON BEHALF OF
Short Term Global Government Fund SHORT TERM GLOBAL GOVERNMENT FUND
9301 Corbin Avenue, Suite 333
Northridge, CA 91324
Telephone: 818-725-0228 /s/ Keith Pipes
Telecopier: 818-725-0269 Name: Keith Pipes
Attn: Keith B. Pipes Title: Executive Vice President
Chief Financial Officer

Address: SIERRA TRUST FUNDS, ON BEHALF OF
U.S. Government Fund U.S. GOVERNMENT FUND
9301 Corbin Avenue, Suite 333
Northridge, CA 91324
Telephone: 818-725-0228 /s/ Keith Pipes
Telecopier: 818-725-0269 Name: Keith Pipes
Attn: Keith B. Pipes Title: Executive Vice President
Chief Financial Officer

Address: SIERRA TRUST FUNDS, ON BEHALF OF
Corporate Income Fund CORPORATE INCOME FUND
9301 Corbin Avenue, Suite 333
Northridge, CA 91324
Telephone: 818-725-0228 /s/ Keith Pipes
Telecopier: 818-725-0269 Name: Keith Pipes
Attn: Keith B. Pipes Title: Executive Vice President
Chief Financial Officer

-22-
<PAGE> 23
Address: SIERRA TRUST FUNDS, ON BEHALF OF
California Municipal Fund CALIFORNIA MUNICIPAL FUND
9301 Corbin Avenue, Suite 333
Northridge, CA 91324
Telephone: 818-725-0228 /s/ Keith Pipes
Telecopier: 818-725-0269 Name: Keith Pipes
Attn: Keith B. Pipes Title: Executive Vice President
Chief Financial Officer

Address: SIERRA TRUST FUNDS, ON BEHALF OF
Florida Insured Municipal Fund FLORIDA INSURED MUNICIPAL FUND
9301 Corbin Avenue, Suite 333
Northridge, CA 91324
Telephone: 818-725-0228 /s/ Keith Pipes
Telecopier: 818-725-0269 Name: Keith Pipes
Attn: Keith B. Pipes Title: Executive Vice President
Chief Financial Officer

Address: SIERRA TRUST FUNDS, ON BEHALF OF
California Insured Intermediate CALIFORNIA INSURED INTERMEDIATE
Municipal Fund MUNICIPAL FUND
9301 Corbin Avenue, Suite 333
Northridge, CA 91324
Telephone: 818-725-0228 /s/ Keith Pipes
Telecopier: 818-725-0269 Name: Keith Pipes
Attn: Keith B. Pipes Title: Executive Vice President
Chief Financial Officer

Address: SIERRA TRUST FUNDS, ON BEHALF OF
National Municipal Fund NATIONAL MUNICIPAL FUND
9301 Corbin Avenue, Suite 333
Northridge, CA 91324
Telephone: 818-725-0228 /s/ Keith Pipes
Telecopier: 818-725-0269 Name: Keith Pipes
Attn: Keith B. Pipes Title: Executive Vice President
Chief Financial Officer

Address: SIERRA TRUST FUNDS, ON BEHALF OF
Growth & Income Fund GROWTH & INCOME FUND
9301 Corbin Avenue, Suite 333
Northridge, CA 91324
Telephone: 818-725-0228 /s/ Keith Pipes
Telecopier: 818-725-0269 Name: Keith Pipes
Attn: Keith B. Pipes Title: Executive Vice President
Chief Financial Officer

Address: SIERRA TRUST FUNDS, ON BEHALF OF
Growth Fund GROWTH FUND

-23-
<PAGE> 24
9301 Corbin Avenue, Suite 333
Northridge, CA 91324
Telephone: 818-725-0228 /s/ Keith Pipes
Telecopier: 818-725-0269 Name: Keith Pipes
Attn: Keith B. Pipes Title: Executive Vice President
Chief Financial Officer

Address: SIERRA TRUST FUNDS, ON BEHALF OF
Emerging Growth Fund EMERGING GROWTH FUND
9301 Corbin Avenue, Suite 333
Northridge, CA 91324
Telephone: 818-725-0228 /s/ Keith Pipes
Telecopier: 818-725-0269 Name: Keith Pipes
Attn: Keith B. Pipes Title: Executive Vice President
Chief Financial Officer

Address: SIERRA TRUST FUNDS, ON BEHALF OF
International Growth Fund INTERNATIONAL GROWTH FUND
9301 Corbin Avenue, Suite 333
Northridge, CA 91324
Telephone: 818-725-0228 /s/ Keith Pipes
Telecopier: 818-725-0269 Name: Keith Pipes
Attn: Keith B. Pipes Title: Executive Vice President
Chief Financial Officer

DEUTSCHE BANK AG NEW YORK BRANCH

/s/ Peter Bassler
By: Peter Bassler
Title: Assistant Vice President

/s/ Indra Kish
By: Indra Kish
Title: Associate

-24-
<PAGE> 25
SCHEDULE I

BASE COMMITMENTS

<TABLE>
<CAPTION>
Fund Allocation
- ---- ----------
<S> <C>
Sierra Trust Funds, on behalf of
U.S. Government Fund $5,065,000

Sierra Trust Funds, on behalf of
Corporate Income Fund $3,799,000

Sierra Trust Funds, on behalf of
California Municipal Fund $6,488,000

Sierra Trust Funds, on behalf of
National Municipal Fund $4,015,000

Sierra Trust Funds, on behalf of
Florida Insured Municipal Fund $ 584,000

Sierra Trust Funds, on behalf of
California Insured Intermediate
Municipal Fund $1,209,000

Sierra Trust Funds, on behalf of
Short Term High Quality Bond Fund $ 375,000

Sierra Trust Funds, on behalf of
Short Term Global Government Fund $ 349,000

Sierra Trust Fund, on behalf of
Emerging Growth Fund $5,385,000

Sierra Trust Funds, on behalf of
Growth & Income Fund $4,198,000

Sierra Trust Funds, on behalf of
International Growth Fund $3,237,000

Sierra Trust Funds, on behalf of
Growth Fund $4,818,000

Sierra Prime Income Fund $ 433,000
----------

$40,000,000
</TABLE>

-25-
<PAGE> 26
SCHEDULE II

LIST OF INVESTMENT ADVISORY
AND MANAGEMENT AGREEMENTS

Investment Advisory Agreement dated February 14, 1996 between the Investment
Adviser and Sierra Prime Income Fund

Investment Advisory Agreements between the Investment Adviser and Sierra Trust
Funds with respect to the following Portfolios dated as of the dates indicated:
California Insured Intermediate Municipal Fund dated April 1, 1994; California
Municipal Fund dated July 7, 1989; Corporate Income Fund dated July 18, 1990;
Emerging Growth Fund dated October 22, 1993; Florida Insured Municipal Fund
dated June 2, 1993; Growth and Income Fund dated October 22, 1993; Growth Fund
dated April 1, 1993; International Growth Fund dated November 1, 1994; National
Municipal Fund dated July 18, 1990; Short Term Global Government Fund dated
February 3, 1992; Short Term High Quality Bond Fund dated September 6, 1993;
and U.S. Government Fund dated July 7, 1989; as each such agreement may be
amended from time to time in accordance with the provisions of the Investment
Company Act.

-26-
<PAGE> 27
SCHEDULE III

LIST OF PROSPECTUSES

Sierra Trust Funds, its Prospectus dated October 31, 1995, with respect to the
public offering of its shares of beneficial interest together with its
Statement of Additional Information incorporated therein.

Sierra Prime Income Fund, its Prospectus dated February 14, 1996, with respect
to the public offering of its shares of beneficial interest together with its
Statement of Additional Information incorporated therein.

-27-
<PAGE> 28
EXHIBIT A

Wire Instructions
DATE: ABA#
TO: Deutsche Bank AG, New York
Branch
Acct#
FROM:[NAME OF BORROWER] Ref Sierra Investment Advisors
RE: Loan Transactions - Corporation, on behalf of Sierra
Sierra Trust Funds Trust Funds

<TABLE>
<CAPTION>
Fund # Fund Name New Borrowings Principal Daily Accrued
Repayments Interest Payment
<S> <C> <C> <C>
$ ($ ) ($ )
$ ($ ) ($ )
$ ($ ) ($ )
$ ($ ) ($ )

Totals $__________ ($_________) ($___________)

Net Wire: To (From) $_____________
{Name of Borrower}

_____________________
Authorized Signature
</TABLE>

-28-
<PAGE> 29
EXHIBIT B

REVOLVING DEMAND NOTE

[DATE]

FOR VALUE RECEIVED, {NAME OF BORROWER (the "Borrower"), hereby
promises to pay to the order of DEUTSCHE BANK AG, NEW YORK BRANCH (the "Bank"),
in lawful money of the United States of America in immediately available funds,
at the office of Deutsche Bank AG, New York Branch, located at 31 West 52nd
Street, New York, New York 10019, on the earlier of any date on which the Bank
demands repayment and Expiry Date (capitalized term used herein and not
otherwise defined shall have the meaning in the Agreement referred to below),
the principal sum of _________________ ($_____________) or, if less, the then
unpaid principal amount of the Loan made to the Borrower evidenced by this Note
and outstanding on such date.

The Borrower promises also to pay interest on the unpaid
principal amount of this Note in like money at such office from the date hereof
until paid at the rates and at the times provided in Section 1.05 of the
Agreement.

This Note is one of the Notes referred to in the Credit
Agreement dated as of May 22, 1996 among the Borrowers listed therein and the
Bank (as amended, modified and supplemented from time to time, the
"Agreement"), and is entitled to the benefits thereof.

In case an Event of Default shall occur and be continuing, the
principal of and accrued interest on this Note may be declared to be due and
payable in the manner and with the effect provided in the Agreement.

The Borrower hereby waives presentment, demand, protest or
notice of any kind in connection with this Note.

THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE
GOVERNED BY THE LAW OF THE STATE OF NEW YORK.

[NAME OF BORROWER]

By_________________________
Name:
Title:

-29-
<PAGE> 30
GRID

<TABLE>
<CAPTION>
Unpaid
Principal
Amount Paid or Principal Amount Notation
Date of Loan Prepaid of Note Made by
--------- ------- ------- ------- -------
<S> <C> <C> <C> <C>

- -------------------------------------------------------------------------------------------------------

- -------------------------------------------------------------------------------------------------------
</TABLE>

-30-
<PAGE> 31
EXHIBIT C

OPINION OF COUNSEL

[Date]

To the Bank party to the
Credit Agreement referred to below

Ladies and Gentlemen:

We have acted as counsel for [Name of Borrowers}, each a
corporation or trust organized and existing under the laws of
_____________________ (each a "Borrower" and collectively the "Borrowers"), in
connection with the execution and delivery of the following documents
(collectively, the "Credit Documents"):

(a) the Credit Agreement, dated as of May 22, 1996 among
the Borrowers and Deutsche Bank AG, New York Branch, (the "Agreement"); and

(b) the Notes of each Borrower, dated the date hereof and
delivered pursuant to the Agreement;

This opinion is delivered to you pursuant to Section 3.03 of
the Agreement. Terms used herein which are defined in the Agreement shall have
the respective meanings set forth in the Agreement, unless otherwise defined
herein.

In connection with this opinion, we have examined the
originals, or certified, conformed or reproduction copies of all records,
agreements, instruments and documents as we have deemed relevant or necessary
as the basis for the opinions hereinafter expressed. In stating our opinion,
we have assumed the genuineness of all signatures on original or certified
copies, the authenticity of documents submitted to us as originals and the
conformity to original or certified copies of all copies submitted to us as
certified or reproduction copies.

We have also assumed, for purposes of the opinions expressed
herein, that the parties to the Credit Documents other than the Borrowers have
the corporate power and authority to enter into and perform each of the Credit
Documents and that each of the Credit Documents has been duly authorized,
executed and delivered by each such other party.

Based upon the foregoing, and subject to the qualifications
set forth herein, we are of the opinion that:

1. Each Borrower (i) is a duly organized and validly
existing trust or corporation in good standing under the laws of the
jurisdiction of its incorporation, (ii) has the power and authority to own its
property and assets and to transact the business in which it is engaged and
(iii) is duly qualified as a foreign corporation and in good standing in each
jurisdiction where the ownership, leasing or operation of property or the
conduct of its business requires such qualification.

2. Each Borrower has the corporate or trust power to
execute, deliver and perform the terms and provisions of each of the Credit
Documents to which it is party and has taken all necessary corporate action to
authorize the execution, delivery and performance by it of each of such Credit
Documents. Each Borrower has duly execute and delivered each of the Credit
Documents to which it is party, and each of such Credit Documents constitutes
its legal, valid and binding obligation enforceable in accordance with its
terms except as the enforceability thereof may be limited by applicable
bankruptcy, insolvency, reorganization or other similar laws affecting
creditors' rights generally and by

-31-
<PAGE> 32
general equitable principles (regardless of whether the issue of enforceability
is considered in a proceeding in equity or at law).

3. Neither the execution, delivery or performance by any
Borrower of the Credit Documents to which it is a party, nor compliance by it
with the terms and provisions thereof, (i) will contravene any provision of any
law, statute, rule or regulation (including, without limitation, the Investment
Company Act and Regulations G, T, U and X of the Board of Governors of the
Federal Reserve System) or, to the best of our knowledge after due inquiry, any
order, writ, injunction or decree of any court or governmental instrumentality,
(ii) will conflict or be inconsistent with or result in any breach of any of
the terms, covenants, conditions or provisions of, or constitute- a default
under, or result in the creation or imposition of (or the obligation to create
or impose) any Lien upon any of the property or assets of such Borrower,
pursuant to the terms of any indenture, mortgage, deed of trust, credit
agreement, loan agreement or any other agreement, contract or instrument of
which we are aware to which any Borrower, is a party or by which it or any of
its property or assets is bound or to which it may be subject or (iii) will
violate any provision of the Certificate of Incorporation or By-Laws or trust
documentation of any Borrower.

4. To the best of our knowledge after due inquiry, there
are no actions, suits or proceedings pending or threatened (i) with respect to
any Credit Document or (ii) that are reasonably likely to materially and
adversely affect the operations, business, property, assets, condition
(financial or otherwise) or prospects or any Borrower.

5. No order, consent, approval, license, authorization
or validation of, or filing, recording or registration with (except as have
been obtained or made prior to the Effective Date), or exemption by, any
governmental or public body or authority, or any subdivision thereof, is
required to authorize, or is required in connection with, (i) the execution,
delivery and performance of any Credit document to which a Borrower or (ii) the
legality, validity, binding effect or enforceability of any such Credit
Document.

6. Each Borrower is duly registered as a
non-diversified, open-end management investment company under the Investment
Company Act and such registration and has not been revoked and is in full force
and effect. Tax Fund is not an "investment company" or a company controlled by
an investment company within the meaning of the Investment Company Act of 1940,
as amended.

We are members of the Bar of the State of New York and we do
not hold ourselves out as being conversant with, and express no opinion as to,
the laws of any jurisdiction other than those of the United States of America
and the State of New York.

The opinions expressed herein are solely for your benefit and
may not be relied upon in any manner or for any purpose by any other person.

Very truly yours,

-32-
<PAGE> 33
EXHIBIT D

[NAME OF BORROWER]

Officers' Certificate

I, the undersigned, [President/Vice-President] of (Name of Borrower), a
[corporation] [trust] organized and existing under the laws of _________
__________ (the "Borrower"), DO HEREBY CERTIFY that:

1. This Certificate is furnished pursuant to Section
3.02 of the Credit Agreement, dated as of May 22, 1996 among the Borrowers
listed therein and Deutsche Bank AG, New York Branch (such Credit Agreement, as
in effect on the date of this Certificate, being herein called the "Credit
Agreement"). Unless otherwise defined herein capitalized terms used in this
Certificate have the meanings assigned to those terms in the Credit Agreement.

2. The persons named below have been duly elected, have,
duly qualified as and at all times since _______________ (1) (to and including
and date hereof) have been officers of the Borrower, holding the respective
offices below set opposite their names, and the signatures below set opposite
their names are their genuine signatures.

Name(2) Office Signature

_______ _______ __________

3. Attached hereto as Exhibit A is a copy of the [Trust
Charter] [Certificate of Incorporation] of the Borrower as filed in the
_____________________ Office of _____________________ on ______________ 19__,
together with all amendments thereto adopted through the date hereof.

4. Attached hereto as Exhibit B is a true and correct
copy of the By-Laws of the Borrower as in effect on (3) together with
all amendments thereto adopted through the date hereof.

5. Attached hereto as Exhibit C is a true and correct
copy of resolutions duly adopted by the Board of [Trustees] [Directors] of the
Borrower at a meeting on _________________ at which a quorum was present and
acting throughout, which resolutions have not been revoked, modified, amended
or rescinded and are still in full force and effect. Except as attached hereto
as Exhibit C, no resolutions have been adopted by the Board of [Trustees]
[Directors] of the Borrower which deal with the execution, delivery or
performance of any of the Credit Documents.

6. On the date hereof, the representations and
warranties contained in Section 5 of the Credit Agreement are true and correct,
both before and after giving effect to each Borrowing to be incurred on the
date hereof

____________________

(1) Insert a date prior to the time of any corporate action relating
to the Credit Agreement.

(2) Include name, office and signature of each officer who will sign
any Credit Document, including the officer who will sign the
certification at the end of this certificate.

(3) Insert same date as in paragraph 2 of this certificate.

-33-
<PAGE> 34
and the application of the proceeds thereof and the conditions specified in
Sections 3.05, 3.06 and 4.01 have been satisfied.

7. On the date hereof, no Default or Event of Default
has occurred and is continuing or would result from the Borrowings to be
incurred on the date hereof or from the application of the proceeds thereof.

8. I know of no proceedings for the dissolution or
liquidation of the Borrower or threatening its existence.

IN WITNESS WHEREOF, I have hereunto set my hand this ___ day of
April, 1996.

[Name of Borrower]

Name:_________________________

Title:________________________

I, the undersigned (Secretary/Assistant Secretary) of the Borrower, DO HEREBY
CERTIFY that:

1. [Insert name of Person making the above
certifications] is the duly elected and qualified of the Borrower and the
signature above is his genuine signature.

2. The certifications made by [name] in items 2, 3, 4
and 5 above are true and correct.

3. I know of no proceeding for the dissolution or
liquidation of the Borrower or threatening its existence.

IN WITNESS WHEREOF, I have hereunto set my hand this __th day
of May, 1996.

[Name of Borrower]

Name:_________________________

Title:________________________

-34-

<PAGE> 1
EXHIBIT (C)(1)

INVESTMENT ADVISORY AGREEMENT

Investment Advisory Agreement executed as of February 14, 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- 98824 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)

-35-
<PAGE> 2
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 days 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.

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<PAGE> 3
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.

1. 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.

2. 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

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<PAGE> 4
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.

3. 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.

4. 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.

5. 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.

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<PAGE> 5
6. 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.

IN WITNESS WHEREOF, SIERRA PRIME INCOME FUND and SIERRA INVESTMENT
ADVISORS CORPORATION have each caused this instrument to be signed in
counterparts on its behalf by its duly authorized representative, all as of the
day and year first above written.

SIERRA PRIME INCOME FUND

By /s/ Keith Pipes
------------------------------------------
Title: Executive Vice President and Treasurer

SIERRA INVESTMENT ADVISORS
CORPORATION

By /s/ Michael D. Goth
------------------------------------------
Title: Chief Operating Officer

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<PAGE> 1
EXHIBIT (C)(2)

FORM OF
INVESTMENT SUB-ADVISORY AGREEMENT

__________ ___, 1996

Van Kampen American Capital Management Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181

Dear Sirs:

Sierra Prime Income Fund (the "Trust"), an unincorporated
business trust organized under the laws of the Commonwealth of Massachusetts,
and Sierra Investment Advisors Corporation ("Sierra Advisors"), a corporation
organized under the laws of the State of California, hereby agree with Van
Kampen American Management Inc. (the "Sub-advisor"), a corporation organized
under the laws of the State of Delaware, as follows:

1. Investment Description; Appointment

The Trust desires to employ the capital of the Trust by
investing and reinvesting in investments of the kind and in accordance with the
limitations specified in its Agreement and Declaration of Trust, as amended
("Declaration of Trust"), and in its Prospectus and Statement of Additional
Information relating to the Trust as in effect and which may be amended from
time to time, and in such manner and to such extent as may from time to time be
approved by the Board of Trustees of the Trust. Copies of the Trust's
Prospectus and Statement of Additional Information and the Trust's Declaration
of Trust, as amended or restated, have been or will be submitted to the
Sub-advisor. The Trust agrees to provide copies of all amendments to or
restatements of the Trust's Prospectus and Statement of Additional Information
and the Trust's Declaration of Trust to the Sub-advisor on a timely and
on-going basis but in all events prior to such time as said amendments or
restatements become effective. The Sub-advisor will be entitled to rely on all
such documents furnished to it by the Trust or Sierra Advisors. The Trust
desires to employ and hereby appoints the Sub-advisor to act as investment
sub-advisor to the Trust. The Sub-advisor accepts the appointment and agrees
to furnish the services described herein for the compensation set forth below.

2. Services as Investment Sub-advisor

Subject to the supervision of the Board of Trustees of the
Trust and of Sierra Advisors, the Trust's investment advisor, the Sub-advisor
will (a) act in conformity with the Trust's Declaration of Trust, the
Investment Company Act of 1940, the Investment Advisers Act of 1940 and the
Internal Revenue Code of 1986, as the same may from time to time be amended,
(b) make investment decisions for the Trust in accordance with the Trust's
investment objectives and policies as stated in the Trust's Prospectus(es) and
Statement of Additional Information as in effect and, after timely notice to
the Sub-advisor, which may be amended from time to time, (c) place purchase and
sale orders on behalf of the Trust to effectuate the investment decisions made,
(d) maintain books and records with respect to the securities transactions of
the Trust and will furnish the Trust's 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
<PAGE> 2
not use such records and information for any purpose other than performance of
its responsibilities and duties hereunder, except after prior notification to
and approval in writing by the Trust, which approval shall not be unreasonably
withheld or delayed and such records may not be withheld where the Sub-advisor
is subject to audit by the U.S. Securities and Exchange Commission or other
regulatory, administrative or judicial proceeding or audit or where the
Sub-advisor may be exposed to civil or criminal contempt proceedings for
failure to comply, when requested to divulge such information by duly
constituted authorities, or when so requested by the Trust. In providing those
services, the Sub-advisor will supervise the Trust's investments and conduct a
continual program of investment, evaluation and, if appropriate, sale and
reinvestment of the Trust's assets. In addition, the Sub-advisor will furnish
the Trust or Sierra Advisors with whatever statistical information the Trust or
Sierra Advisors may reasonably request with respect to the instruments that the
Trust may hold or contemplate purchasing.

3. Brokerage

In executing transactions for the Trust and selecting banks,
syndicated loan agents, brokers or dealers (hereinafter referred to as "brokers
or dealers"), the Sub-advisor will use its best efforts to seek the best
overall terms available and shall execute or direct the execution of all such
transactions in a manner permitted by law and in a manner that is in the best
interest of the Trust and its shareholders. In assessing the best overall
terms available for any Trust transaction, with respect to the lenders from
whom the Trust will purchase assignments and participations in Senior Loans the
Sub-advisor will consider all factors it deems relevant including, but not
limited to their professional ability, level of service, relationship with the
borrower, financial condition, credit standards and quality of management.
With respect to investments other than Senior Loans, the Sub-advisor will
consider all factors it deems relevant including, but not limited to, breadth
of the market in the security, the price of the security, the financial
condition and execution capability of the broker or dealer and the
reasonableness of any commission for the specific transaction and on a
continuing basis. Pursuant to its investment determinations for the Trust, in
placing orders with brokers or dealers, the Sub-advisor will attempt to obtain
the best net price and the most favorable execution of its orders. Consistent
with this obligation, when the execution and price offered by two or more
brokers or dealers are comparable, the Sub- advisor may, in its discretion,
purchase and sell portfolio securities to and from brokers or dealers who
provide the Trust with research advice and other services.

4. Information Provided to the Trust

The Sub-advisor will keep the Trust and Sierra Advisors
informed of developments materially affecting the Trust, and will on its own
initiative, furnish the Trust and Sierra Advisors on at least a quarterly basis
with whatever information the Sub-advisor reasonably believes is appropriate
for this purpose.

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").

-2-
<PAGE> 3
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.

Should it be determined that the Investment Sub-Advisory
Agreement between the Trust, Sierra Advisors and the Sub-Advisor dated Feb. 14,
1996, is terminated as a result of the assignment thereof prior to the effective
date of this Agreement, compensation thereunder shall commence as of the date of
such termination.

7. Expenses

The Sub-advisor will bear all expenses in connection with the
performance of its services under this Agreement, which expenses shall not
include brokerage fees or commissions in connection with the effectuation of
securities transactions. The Trust (or Sierra Advisors) will bear certain
other expenses to be incurred in its operation, including but not limited to:
organizational expenses, taxes, interest, brokerage fees and commissions, if
any; fees of Trustees of the Trust who are not officers, directors or employees
of the Sub-advisor, Sierra Advisors, the Trust's sub-administrator or any of
their affiliates; Securities and Exchange Commission fees and state Blue Sky
qualification fees; out-of-pocket expenses of custodians, transfer and dividend
disbursing agents and the Trust's sub-administrator and transaction charges of
custodians; insurance premiums; outside auditing and legal expenses; costs of
maintenance of the Trust's existence; costs attributable to investor services,
including without limitation, telephone and personnel expenses; costs of
preparing and printing prospectuses and statements of additional information
for regulatory purposes and for distribution to existing shareholders; costs of
shareholders' 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

-3-
<PAGE> 4
Trust or (ii) a vote of a "majority" (as defined in the Investment Company Act
of 1940, as amended) of the Trust's outstanding voting securities, provided
that in either event the continuance is also approved by a majority of the
Board of Trustees who are not "interested persons" (as defined in said Act) of
any party to this Agreement, by vote cast in person at a meeting called for the
purpose of voting on such approval. This Agreement is terminable, without
penalty, on 30 days' written notice, by Sierra Advisors, the Board of Trustees
of the Trust or by vote of holders of a majority of the Trust's shares, or upon
90 days' written notice, by the Sub-advisor and, will terminate automatically
upon any termination of the advisory agreement between the Trust and Sierra
Advisors. In addition, this Agreement will also terminate automatically in the
event of its assignment (as defined in said Act). The Sub-advisor agrees to
notify the Trust of any circumstances that might result in this Agreement being
deemed to be assigned.

10. Representations of the Trust and the Sub-advisor

The Trust represents that (i) a copy of its Agreement and
Declaration of Trust, dated October 4, 1995, and Amended Agreement and
Declaration of Trust dated January 18, 1996, together with all amendments
thereto, is on file in the office of the Secretary of the Commonwealth of
Massachusetts, (ii) the appointment of Sierra Advisors has been duly
authorized, (iii) the appointment of the Sub-advisor has been duly authorized,
and (iv) it has acted and will continue to act in conformity with the
Investment Company Act of 1940, as amended, and other applicable laws.

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.

-4-
<PAGE> 5

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
-------------------------------------------
Title: Executive Vice President & Treasurer

SIERRA INVESTMENT ADVISORS
CORPORATION

By
-------------------------------------------
Title: Chief Operating Officer

Accepted:

VAN KAMPEN AMERICAN CAPITAL MANAGEMENT INC.

By
--------------------------------------------
Title: President and Chief Operating Officer

-5-

<PAGE> 1
EXHIBIT (C)(3)

ADMINISTRATION AGREEMENT

July 1, 1996

Sierra Fund Administration Corporation
9301 Corbin Avenue
Northridge, California 91324

Ladies and Gentlemen:

The Sierra Prime Income Fund (the "Trust"), an unincorporated business
trust organized under the laws of the Commonwealth of Massachusetts, confirms
its agreements with Sierra Fund Administration Corporation ("Sierra
Administration"), a corporation organized under the laws of the state of
California, regarding administrative services to be provided by Sierra
Administration in connection with the Trust. Sierra Administration agrees to
provide services upon the following terms and conditions:

1. Investment Description; Appointment

The Fund desires to employ its capital by investing and reinvesting
(a) in investments of the kind and in accordance with the limitations specified
in (i) the Agreement and Declaration of Trust dated October 4, 1995 and the
Amended Agreement and Declaration of Trust dated January 18, 1996, as amended
from time to time (the "Declaration of Trust"), and (ii) the prospectus (the
"Prospectus") and statement of additional information (the "Statement")
relating to the Trust contained in the Registration statement on Form N-2, File
No. 33-98824, filed with the Securities and Exchange Commission (the
"Registration Statement") and (b) in such manner and to such extent as may from
time to time be approved by the Trust's Board of Trustees. Copies of the
Prospectus, the Statement and the Declaration of Trust have been submitted to
Sierra Administration. The Trust desires to employ and hereby appoints Sierra
Administration to act as its administrator. Sierra Administration accepts this
appointment and agrees to furnish the services described herein for the
compensation set forth below.

2. Services as Administrator

Subject to the supervision and direction of the Board of Trustees,
Sierra Administration is responsible for all administrative functions with
respect to the Trust and will (a) assist in supervising all aspects of the
operations of the Trust except those performed by the investment adviser and
sub-advisers under their respective investment management and sub-advisory
agreements; (b) supply the Trust with office facilities (which may be in Sierra
Administration's own offices, statistical and research data, data processing
services, clerical, accounting and bookkeeping services (including, but not
limited to, the calculation of the net asset value of shares of the Trust),
internal auditing and legal services, internal executive and administrative
services, and stationery and office supplies; (c) prepare reports to the
Trust's shareholders and materials for the Board of Trustees; (d) prepare tax
returns; (e) prepare reports to and filings with the Securities and Exchange
Commission and state regulatory authorities; (f) cooperate with the Trust's
transfer agent for the purpose of establishing and implementing procedures to
ensure that the Trust's transfer agency and shareholder relations functions are
efficiently carried out; and (g) provide such other similar services as the
Trust may reasonably request to the extent permitted under application
statutes, rules and regulations. The services to be performed by Sierra
Administration hereunder may be delegated by it, in whole or in part, to a sub-
administrator provided that any delegation of duties to the sub-administrator
shall not relieve Sierra Administration of its responsibilities hereunder.
Notwithstanding anything to the contrary in this Agreement, Sierra
Administration shall not be responsible for the performance of any duties which
are required to be performed by the Trust's transfer agent.
<PAGE> 2

3. Compensation

(a) In consideration of services rendered pursuant to this Agreement,
the Trust will pay Sierra Administration on the first business day of each
month a fee for the previous month at an annual rate of 0.25% of the Trust's
average daily net assets, out of which fee Sierra Administration shall pay
expenses as described in Section 5 including, without limitation, fees of any
sub-administrator engaged by Sierra Administration and the base fees and
charges (but not transaction-based fees and out-of-pocket expenses) of the
Trust's custodian. The fee for the period from the date the Trust commences
operations to the end of that month shall be prorated according to the
proportion such period bears to the full monthly period.

(b) Upon any termination of this Agreement before the end of any
month, the fee for such part of a month shall be prorated according to the
proportion which 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 Sierra Administration, the value of the Trust's net
assets shall be computed at the times and in the manner specified in the
Prospectus and/or the Statement of Additional Information as from time to time
in effect.

4. Expenses

Sierra Administration will bear all expenses in connection with the
performance of its services under this Agreement, including, without
limitation, payment of the fee to the custodian and any sub-administrator
described in Paragraph 4 above. The Trust will bear certain other expenses to
be incurred in its operation, including: organizational expenses; taxes,
interest, brokerage fees and commissions, if any; fees of trustees of the Trust
who are not officers, directors, or employees of Sierra Investment Advisors
Corporation, the Trust's sub-adviser or sub-administrator or any of their
affiliates; Securities and Exchange Commission fees and state Blue Sky
qualification fees; out-of-pocket expenses of custodians and the Trust's
sub-administrator or sub-transfer agent 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.

5. Standard of Care

Sierra Administration shall exercise its best judgment in rendering
the services listed in Paragraph 2 above. Sierra Administration shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Trust in connection with the matters to which this Agreement relates,
except a loss resulting from willful misfeasance, bad faith or gross negligence
on its part in the performance of its duties or from reckless disregard by it
of its obligations and duties under this Agreement.

6. Term of Agreement

This Agreement shall become effective as of the date the Trust
commences its investment operations and shall continue for an initial two-year
term and shall continue automatically from year-to-year thereafter unless
terminated in accordance with the following sentence. This Agreement is
terminable at any time, without penalty, on 60 days' written notice, by the
Board of Trustees of the Trust or upon 90 days' written notice, by Sierra
Administration.

-2-
<PAGE> 3
7. Service to Other Companies or Accounts

The Trust understands that Sierra Administration may act in the future
as administrator to other investment companies or series of investment
companies, and the Trust has no objection to Sierra Administration's so acting.
The Trust understands that the persons employed by Sierra Administration to
assist in the performance of Sierra Administration's duties under this
Agreement will not devote their full time to such services and nothing
contained in this Agreement shall be deemed to limit or restrict the right of
Sierra Administration or any affiliate of Sierra Administration to engage in
and devote time and attention to other businesses or to render services of
whatever kind or nature.

8. Representations of the Trust and Sierra Administration

The Trust represents that (i) a copy of the Declaration of Trust is on
file in the office of the Secretary of the Commonwealth of Massachusetts, (ii)
the appointment of Sierra Administration has been duly authorized and (iii) it
has acted and will continue to act in conformity with the 1940 Act and other
applicable laws. Sierra Administration represents that it is authorized to
perform the services described herein.

9. 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 only upon the assets and
property of the Trust and shall not be binding upon any Trustee, officer, or
shareholder of the Trust individually.

10. Entire Agreement

This Agreement constitutes the entire agreement between the parties
hereto.

11. Governing Law

This Agreement shall be governed in accordance with the laws of the
Commonwealth of Massachusetts.

12. 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 /s/ F. Brian Cerini
-----------------------------------------
F. Brian Cerini
Chairman and President
Accepted:

SIERRA FUND ADMINISTRATION CORPORATION

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<PAGE> 4
By /s/ Keith B. Pipes
----------------------------------------
Keith B. Pipes
Chief Financial Officer, Treasurer and
Secretary

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<PAGE> 1
EXHIBIT (C)(4)
DISTRIBUTION AGREEMENT

Sierra Investment Services Corporation
9301 Corbin Avenue, Suite 333
Northridge, California 91324

Ladies and Gentlemen:

This is to confirm that, whereas the undersigned Sierra Prime Income
Fund (the "Trust"), a business trust organized under the laws of the
Commonwealth of Massachusetts and registered as a closed-end, management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"), and Sierra Investment Services Corporation ("Sierra Services"), a
corporation organized under the laws of the State of California, have entered
into a Distribution Agreement dated as of February 14, 1996 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:

1. 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 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 Securities and Exchange Commission ("SEC" or
"Commission") 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.

2. 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
<PAGE> 2
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.

3. 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.

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<PAGE> 3
B. 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.

C. 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.

4. 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

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<PAGE> 4
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 8.50% of the offering price (determined in accordance
with the NASD Rules in effect from time to time).

5. 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 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.

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.

6. 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.

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<PAGE> 5
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.

7. 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.

8. 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

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<PAGE> 6
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 Declaration 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.

9. 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' willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of Sierra Services'
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

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<PAGE> 7
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' 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' 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' 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' indemnity agreement
contained in this Section 9b. Sierra Services' 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 a 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

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<PAGE> 8
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.

10. 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;

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<PAGE> 9
(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.

11. 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.

12. 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.

13. 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.

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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 /s/ F. Brian Cerini
-------------------------
Title: President

ACCEPTED:

Sierra Investment Services Corporation

By /s/ Keith B. Pipes
----------------------------------------
Title: Senior Vice President and Secretary

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