SIERRA PRIME INCOME FUND, SC 13E4, 1997-09-10

SIERRA PRIME INCOME FUND
SC 13E4, 1997-09-10

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<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 10, 1997
- -------------------------------------------------------------------------------

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)

Keith B. Pipes
Executive Vice President,
Treasurer and Secretary
Sierra Prime Income Fund
9301 Corbin Avenue, Suite 333
Northridge, CA 91324
(818) 725-0228

(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

September 10, 1997
(Date Tender Offer First Published,
Sent or Given to Security Holders)

CALCULATION OF FILING FEE

Transaction Valuation: $ 1,679,570 Amount of Filing Fees: $ 335.91

(a) Calculated as the aggregate maximum purchase price to be paid for
167,957 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
September 2, 1997, there were approximately 839,786.670 Class A Common Shares
issued and outstanding.

The Trust is seeking tenders for 167,957 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
September 10, 1997 (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.

2
<PAGE> 3
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) Notice to Shareholders
(ii) Form of Letter to Shareholders Regarding Offer to Purchase
(iii) 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.
(a)(4) Form of Letter to Shareholders who have requested Offer to
Purchase.
(b)(1) Credit Agreement between the Sierra Prime Income Fund and
Deutsche Bank AG, New York Branch dated as of May 22, 1996.

3
<PAGE> 4
(2) First Amendment to Credit Agreement between Sierra Prime
Income Fund and Deutsche Bank AG, New York Branch, dated as of
July 30, 1997
(c)(1) Investment Advisory Agreement between Sierra Prime Income Fund
and Sierra Investment Advisors Corporation, dated as of
February 14, 1996.
(c)(2) Investment Sub-Advisory Agreement among the Sierra Prime
Income Fund, Sierra Investment Advisors Corporation and Van
Kampen American Capital Management Inc., dated as of October
31, 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
<PAGE> 5
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: September 10, 1997 /s/ KEITH B. PIPES
----------------------------
Keith B. Pipes
Executive Vice President,
Treasurer and Secretary

5
<PAGE> 6
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<S> <C>
(a)(1)(i) Notice mailed to Shareholders

(a)(1)(ii) Form of Letter to Shareholders Regarding Offer to Purchase

(a)(1)(iii) 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)(1) Credit Agreement between the Sierra Prime Income Fund and Deutsche Bank AG,
New York Branch dated as of May 22, 1996

(b)(2) First Amendment to Credit Agreement between Sierra Prime Income Fund and Deutsche Bank
AG, New York Branch, dated as of July 30, 1997

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

(c)(2) Investment Sub-Advisory Agreement among Sierra Prime Income Fund, Sierra Investment
Advisors Corporation and Van Kampen American Capital Management Inc., dated as of
October 31, 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 September 10, 1997 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 167,957
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
OCTOBER 10, 1997, UNLESS
THE OFFER IS EXTENDED.

Sierra Prime Income Fund (the "Fund") is offering to purchase 167,957
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 October 10, 1997,
the Expiration Date, unless extended, upon the terms and conditions set forth
in the Offer to Purchase dated September 10, 1997 and the related Letter of
Transmittal (which together constitute the "Offer"). The NAV on September 2,
1997 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 167,957 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 167,957 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 October 10, 1997, and, if
not yet accepted for payment by the Fund, Class A Common Shares may also be
withdrawn after October 10, 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

September 10, 1997

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

[SIERRA PRIME INCOME FUND LETTERHEAD]

September 10, 1997

Dear Sierra Prime Income Fund Shareholder:

Because of the unique nature of the senior loans that the Sierra Prime Income
Fund invests in, sales of Fund shares are possible through a tender offer which
is expected to be made available once per quarter. The Fund continues to meet
its objective of a relatively stable Net Asset Value ("NAV") and is expected to
continue to earn high levels of income. As of June 30, 1997, the Fund
maintained an SEC Yield of 6.84%, over 150 basis points above the yield of a
3-month T-Bill, and nearly as high as the yield on a 20-year Treasury Bond.(1/)

Sierra continues to stress the benefits of a long-term investment perspective,
but in addition strives to offer high levels of customer service to our
shareholders. We understand that financial emergencies arise, and therefore we
periodically provide liquidity of the shares of the Sierra Prime Income Fund.
The Fund is offering to purchase 167,957 shares of its issued and outstanding
Class A Common Shares at the closing "NAV" at 2:00 P.M. Pacific Standard Time on
October 10, 1997. This tender offer period will begin on September 10, 1997 and
end on October 10, 1997. In order to participate in this offer, you must
complete a Letter of Transmittal form. A notice detailing the OFFER TO PURCHASE
and other related matters is enclosed for your information. Please read these
documents carefully before making a decision to liquidate. For further
information, current NAV quotations, or for copies of the OFFER TO PURCHASE,
LETTER OF TRANSMITTAL and any other tender offer document, please contact Sierra
at:

Sierra Shareholder Services
9301 Corbin Avenue, Northridge, CA 91324
800-222-5852
6:00 A.M. to 6:00 P.M. Pacific Standard Time, Monday - Friday
6:00 A.M. to 3:00 P.M. Pacific Standard Time, Saturday

Thank you for investing in the Sierra Prime Income Fund.

Sincerely,

SIERRA PRIME INCOME FUND

____________________

(1/) Source: Bloomberg Business News, as of June 30, 1997. Past performance
is not a guarantee of future results.

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

SIERRA PRIME INCOME FUND

OFFER TO PURCHASE FOR CASH 167,957
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 OCTOBER 10, 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 OCTOBER 10, 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 167,957 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 October 10, 1997, unless
extended. The Class A Common Shares are not currently traded on an established
trading market. The NAV on September 2, 1997 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 167,957 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
167,957 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.

September 10, 1997 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
<PAGE> 3
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 JUNE 30, 1997

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) 167,957 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 October 10, 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 September 2,
1997 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 167,957 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 167,957 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 167,957 Class A Common Shares (or such
greater number of Class A Common Shares sought) on a pro rata basis.

On September 2, 1997, there were approximately 839,786.670 Class A
Common Shares issued and outstanding and there were approximately 358 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 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.

4
<PAGE> 5
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.

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

5
<PAGE> 6
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 October 10, 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 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.

8
<PAGE> 9
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 September 10, 1997 ranged from a high of $10.01
to a low of $10.00. On September 2, 1997, 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.

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:

9
<PAGE> 10

<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
December 31, 1996 $0.0596
January 31, 1997 $0.0595
February 28, 1997 $0.0534
March 31, 1997 $0.0619
April 30, 1997 $0.0581
May 30, 1997 $0.0614
June 30, 1997 $0.0589
July 31, 1997 $0.0627
August 29, 1997 $0.0623
</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 September 2, 1997, 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

10
<PAGE> 11
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 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 167,957 Class A
Common Shares pursuant to the Offer would be approximately $1,679,570 (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"), extended to October 28,
1997 by a first amendment dated as of July 30, 1997, 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.

11
<PAGE> 12
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.

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

12
<PAGE> 13

Bank; (iv) failure to comply with the Funds
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;
(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.

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
Exhibits (B)(1) and (B)(2) 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.

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

13
<PAGE> 14
<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.

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.

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 eighteen months.

14
<PAGE> 15
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 profits or 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 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

15
<PAGE> 16
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.

September 10, 1997 SIERRA PRIME INCOME FUND

16
<PAGE> 17
EXHIBIT A

SIERRA PRIME INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1997 (UNAUDITED)

<TABLE>
<S> <C>
ASSETS
Investments, at value (Cost $9,678,694) (Note 2)
See portfolio of investments ................. $ 9,682,635
Receivable for investment securities sold ....... 111,877
Interest receivable ............................. 56,036
Unamortized organization costs (Note 7) ......... 177,252
Receivable from investment advisor (Note 3) ..... 47,088
Other assets .................................... 1,125
-----------
Total Assets ................................. 10,076,013
-----------

LIABILITIES
Deferred facility fees (Note 2) ................. 2,483
Dividends payable ............................... 25,417
Administration fee payable (Note 3) ............. 2,030
Accrued legal ................................... 33,294
Accrued audit fees .............................. 23,934
Accrued Trustees' fees and expenses ............. 15,346
Due to Custodian ................................ 49,837
Accrued expenses and other payables (Note 3) .... 12,227
-----------
Total Liabilities ............................ 164,568
-----------
NET ASSETS ...................................... $ 9,911,445
===========

NET ASSETS CONSIST OF:
Paid in capital ................................. 9,906,659
Undistributed net investment income ............. 845
Net unrealized appreciation of investments ...... 3,941
-----------
NET ASSETS ................................... $ 9,911,445
===========

Class A Common Shares Outstanding ............... 990,735
===========
Net asset value per share of beneficial
interest outstanding* ........................ $ 10.00
===========
Maximum sales charge ............................ 4.5%
Maximum offering price per share of
beneficial interest outstanding ($10.00/0.955) $ 10.47
===========
</TABLE>

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

See Notes to Financial Statements.

-1-
<PAGE> 18
SIERRA PRIME INCOME FUND
STATEMENT OF OPERATIONS
NINE MONTHS ENDED JUNE 30, 1997 (UNAUDITED)

<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest ......................................................... $ 604,785
Fees ............................................................. 8,332
---------
Total Investment Income ....................................... 613,117
---------

EXPENSES:
Investment advisory fee (Note 3) ................................. 82,132
Administration fee (Note 3) ...................................... 21,614
Audit fees ....................................................... 25,934
Legal fees ....................................................... 90,000
Tender offer expenses ............................................ 48,778
Trustees' fees and expenses (Note 3) ............................. 59,892
Registration and filing fees ..................................... 4,560
Amortization of organization costs ............................... 36,529
Printing and postage ............................................. 27,613
Other ............................................................ 7,016
---------
Subtotal ...................................................... 404,068
Fees waived and expenses absorbed
by investment advisor (Note 3) ................................ (404,068)
---------
Total expenses ................................................ 0
---------
NET INVESTMENT INCOME ............................................ 613,117
---------

NET UNREALIZED LOSS
ON INVESTMENTS (NOTES 2 AND 4):
Net change in unrealized appreciation/(depreciation) of securities (2,376)
---------
Net unrealized loss on investments ............................... (2,376)
---------

NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ..................................... $ 610,741
=========
</TABLE>

See Notes to Financial Statements.

-2-

<PAGE> 19
SIERRA PRIME INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
NINE
MONTHS ENDED PERIOD
JUNE 30, 1997 ENDED
(UNAUDITED) SEPTEMBER 30, 1996*
------------- ------------------
<S> <C> <C>
Net investment income .............................................. $ 613,117 $ 416,342
Net change in unrealized appreciation/(depreciation) of securities . (2,376) 6,317
------------ ------------
Net increase in net assets resulting from operations ............... 610,741 422,659
------------ ------------

Distributions to shareholders from net investment income:
Class A Common Shares ........................................... (613,117) (416,342)
Net increase/(decrease) in net assets from Fund share transactions:
Class A Common Shares ........................................... (2,619,714) 12,427,218
------------ ------------
Net increase/(decrease) in net assets .............................. (2,622,090) 12,433,535
------------ ------------

NET ASSETS:
Beginning of period ................................................ 12,533,535 100,000
------------ ------------
End of period ...................................................... $ 9,911,445 $ 12,533,535
(includes undistributed net investment income of $845 ============ ============
and $845, respectively)

CAPITAL STOCK ACTIVITY:
AMOUNT
Sold .......................................................... $ 500,218 $ 12,610,620
Issued as reinvestment of dividends ........................... 349,456 255,107
Repurchased ................................................... (3,469,388) (438,509)
------------ ------------
Net increase/(decrease) ....................................... $ (2,619,714) $ 12,427,218
============ ============

SHARES
Sold .......................................................... 49,993 1,261,061
Issued as reinvestment of dividends ........................... 34,937 25,490
Repurchased ................................................... (346,895) (43,851)
------------ ------------
Net increase/(decrease) ....................................... (261,965) 1,242,700
============ ============
</TABLE>

- ----------
* Sierra Prime Income Fund commenced operations on February 16, 1996.

See Notes to Financial Statements.

-3-

<PAGE> 20
SIERRA PRIME INCOME FUND
STATEMENT OF CASH FLOWS
NINE MONTHS ENDED JUNE 30, 1997 (UNAUDITED)

<TABLE>
<S> <C>
Cash flows from operating activities:
Investment income received.......................................... $ 413,250
Fee income received................................................. 4,211
Payment of operating expenses....................................... 27,901
Proceeds from sales of long-term securities......................... 2,465,825
Purchases of long-term securities................................... (1,025,217)
Net proceeds from short-term investments............................ 1,300,437
---------------
CASH PROVIDED BY OPERATING ACTIVITIES.................................... $ 3,186,407
Cash flows from financing activities:
Proceeds from shares sold........................................... 503,091
Payments on shares repurchased...................................... (3,469,388)
Distributions paid*................................................. (266,477)
Due to Custodian.................................................... 46,367
---------------
CASH USED FOR FINANCING ACTIVITIES....................................... (3,186,407)
---------------
Increase in cash......................................................... 0
Cash at beginning of period.............................................. 0
---------------
Cash at end of period.................................................... $ 0
===============

RECONCILIATION OF NET INCREASE IN NET ASSETS FROM OPERATIONS
TO CASH PROVIDED BY OPERATING ACTIVITIES:
Net increase in net assets resulting from operations................ $ 610,741
Decrease in investments**........................................ $ 2,662,474
Increase in interest receivable.................................. (1,098)
Increase in receivable for investment securities sold............ (109,490)
Decrease in unamortized organization costs....................... 36,529
Increase in other assets......................................... (18,842)
Increase in accrued expenses..................................... 10,214
Decrease in deferred facility fees............................... (4,121)
---------------
Total adjustments........................................ 2,575,666
---------------
CASH PROVIDED BY OPERATING ACTIVITIES.................................... $ 3,186,407
===============
</TABLE>

- ----------
* Non cash activities include reinvestment of dividends of $349,456
** Includes unrealized appreciation of $3,941.

See Notes to Financial Statements.

-4-

<PAGE> 21
SIERRA PRIME INCOME FUND
FINANCIAL HIGHLIGHTS
FOR A FUND SHARE OUTSTANDING THROUGHOUT THE PERIOD

<TABLE>
<CAPTION>
NINE MONTHS
ENDED PERIOD
JUNE 30, 1997 ENDED
(UNAUDITED) SEPTEMBER 30, 1996*
------------- ------------------
<S> <C> <C>
Net asset value, beginning of period................................... $ 10.01 $ 10.00
------------ ------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................................................. .53 .40
Net realized and unrealized gain/(loss) on investments................. (.01) .01
------------ ------------
Total from investment operations....................................... .52 .41
------------ ------------
LESS DISTRIBUTIONS:
Dividends from net investment income................................... (.53) (.40)
------------ ------------
Total distributions.................................................... (.53) (.40)
------------ ------------
Net asset value, end of period......................................... $ 10.00 $ 10.01
============ ============

Total return +......................................................... 5.33% 4.19%
============ ============

RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)................................... $ 9,911 $ 12,534
Ratio of operating expenses to average net assets...................... 0.00%** 0.00%**
Ratio of net investment income to average net assets................... 7.09%** 6.72%**
Portfolio turnover rate................................................ 16% 44%
Ratio of operating expenses to average net assets without fees
waived and expenses absorbed by investment advisor.................. 4.67%** 4.75%**
Net investment income per share without fees waived
and expenses absorbed by investment advisor......................... $ 0.18 $ 0.12
</TABLE>

- ----------
* Sierra Prime Income Fund commenced operations on February 16, 1996.
** 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.

See Notes to Financial Statements.

-5-

<PAGE> 22
SIERRA PRIME INCOME FUND
PORTFOLIO OF INVESTMENTS
JUNE 30, 1997 (UNAUDITED)

<TABLE>
<CAPTION>
Principal Loan Stated
Amount Borrower Rate* Type Maturity** Value
--------- -------- ----- ---- ---------- -----

<S> <C> <C> <C> <C> <C>
SENIOR LOAN INTERESTS -- 50.3%
BROADCASTING -- 8.0%
$ 796,258 Benedek Broadcasting Corporation........ 10.105% Term 05/01/2001 $ 797,492
--------------

CABLE -- 3.5%
344,000 Marcus Cable Operating Company, L.P.6.913Term 12/31/2002 344,003
--------------

ENTERTAINMENT -- 7.5%
315,000 AMF Group, Inc. ........................ 8.656 Term 03/31/2001 315,000
425,094 AMF Group, Inc. ........................ 8.812 Term 03/31/2003 425,117
--------------
740,117
--------------

FOOD & BEVERAGES -- 11.6%
251,550 SC International Services, Inc.......... 8.819 Term 09/30/2001 251,571
321,185 SC International Services, Inc.......... 8.819 Term 09/30/2002 321,211
70,465 SC International Services, Inc.......... 9.069 Term 09/30/2003 70,472
500,914 Stroh Brewery Company................... 8.313 Term 06/30/2001 501,846
--------------
1,145,100
--------------

FOOD STORES -- 6.0%
590,634 Carr-Gottstein Foods.................... 8.875 Term 12/31/2002 590,727
--------------

HEALTHCARE -- 3.6%
355,410 Merit Behavioral Care Corporation....... 8.563 Term 10/06/2003 355,432
--------------

PAPER -- 8.3%
84,933 Fort Howard Corporation................. 7.440 Term 03/31/2002 84,933
153,266 Jefferson Smurfit Corporation........... 8.216 Term 04/30/2001 153,262
117,741 Stone Container Corporation............. 8.875 Term 04/01/2000 117,743
470,226 Stone Container Corporation............. 9.125 Term 10/01/2003 470,737
--------------
826,675
--------------

RETAIL -- 1.8%
182,018 Federated Department Stores, Inc........ 6.563 Term 03/31/2000 183,089
--------------

Total Senior Loan Interests (cost $4,978,694)........................... 4,982,635
--------------

U.S. GOVERNMENT AGENCY DISCOUNT NOTES -- 47.4% (cost $4,700,000)
4,700,000 Federal Home Loan Bank (FHLB)
5.380%, due 07/01/1997.............................................. 4,700,000
--------------
</TABLE>

See Notes to Financial Statements.

-6-

<PAGE> 23
SIERRA PRIME INCOME FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 1997 (UNAUDITED)

<TABLE>
<CAPTION>
Value
-----
<S> <C> <C>
TOTAL INVESTMENTS (Cost $9,678,694+)........................ 97.7% $9,682,635
OTHER ASSETS AND LIABILITIES (Net).......................... 2.3 228,810
------ ----------

NET ASSETS.................................................. 100.0% $9,911,445
====== ==========
</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 June 30, 1997.

** 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 June 30, 1997, the aggregate cost for federal tax purposes was $9,678,694.
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 $3,945 and
$4, respectively.

See Notes to Financial Statements.

-7-

<PAGE> 24
SIERRA PRIME INCOME FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

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 June 30, 1997
there were no interest rate swaps.

-8-
<PAGE> 25
SIERRA PRIME INCOME FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (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 Fund was 60 days
or less, or are valued at amortized cost using their value on the 61st day prior
to maturity, if their original term to maturity when acquired by the Fund was
more than 60 days, unless in each case this is determined not to represent fair
value. Repurchase agreements will be valued 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 June 30, 1997. 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

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

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 $82,132 for the period ended June 30, 1997
and have been voluntarily waived by Sierra Advisors. Sierra Advisors pays a
monthly fee at an 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. Sierra Administration receives a monthly fee at an annual rate of
0.25% of the Fund's average daily net assets and the Fund pays First Data
Investor Services Group, Inc. ("First Data") directly for all transfer agent

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

services. The Administration fees for the period ended June 30, 1997 were
$21,614. 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 June 30, 1997 the total reimbursement to the Fund
was $321,936.

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, a fee of $750 per
committee meeting of the Fund, and a fee of $1,000 per contract renewal meeting
of the Fund, plus expenses. The designated "Lead Trustee," because of increased
responsibilities, is paid 1-1/2 times the normal Trustee compensation for
meeting fees and retainer for the Fund, plus expenses.

As of June 30, 1997 there was one shareholder who owned greater than five
percent of Class A Common Shares, representing 11.82% of the Fund at this date.

For the period ended June 30, 1997, Great Western Financial Securities
Corporation and Sierra Investment Services Corporation ("SISC"), both registered
broker-dealers, have received $5,336 and $683, 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 June 30, 1997
was $1,025,217 and $2,575,315, 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 June 30, 1997, 346,895
shares were tendered and repurchased by the Fund with no early withdrawal
charge.

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

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

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 June 30, 1997, 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>
Goldman Sachs Credit Partners $ 2,179,554 $2,180,863
Chase Securities Inc. 1,146,527 1,151,305
Bankers Trust 590,633 590,727
Morgan Guaranty 500,913 501,846
Lehman Commercial Paper, Inc. 470,226 470,737
NationsBank 90,841 87,157
----------- -----------
$ 4,978,694 $ 4,982,635
=========== ===========
</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 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 15% of its assets, whichever is greater.
During the period ended June 30, 1997, the Fund had not borrowed under the
Agreement. As of July 30, 1997, a First Amendment to the Agreement was signed
extending the Agreement to October 28, 1997.

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

10. SUBSEQUENT EVENTS

The third tender offer for the fiscal year ended September 30, 1997 commenced on
June 11, 1997 and expired on July 11, 1997. As of this date an additional
156,838 Class A Common Shares were tendered and repurchased by the Fund.

On March 6, 1997, GWFC, the indirect parent of Sierra Advisors, the Fund's
investment advisor, and Washington Mutual, Inc. ("Washington Mutual"), a
financial services company, announced that they had entered into an Agreement
and Plan of Merger providing for the merger of GWFC with and into a wholly-owned
subsidiary of Washington Mutual (the "Merger"). Effective July 1, 1997, the
merger of GWFC into Washington Mutual was completed. As a result, Sierra
Advisors, Sierra Administration, Sierra Services and GW Securities are now
indirect wholly-owned subsidiaries of Washington Mutual.

-13-

<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 SEPTEMBER 10, 1997

THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 6:00 PM PACIFIC STANDARD
TIME ON OCTOBER 10, 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 September 10, 1997, 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.

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.

<PAGE> 2
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 (October
10, 1997).

BOX NO. 1: SHAREHOLDER INFORMATION

<TABLE>
<S> <C>
Name and Address of Registered Owner Shareholder Information
- ---------------------------------------------------------------------------------------------
PLEASE PROVIDE: Social Security No.______________

CAESAR ACCOUNT NO.:______________________________

SIERRA ACCOUNT NO.:______________________________

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

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).

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
Name(s) __________________________________ (Minimum $5,000 to be wired. A $5.00 fee may be
(Please Print) charged for each wire transfer.)

Address:__________________________________ Bank______________________________________
(Name)
__________________________________
(Include Zip Code) Address___________________________________

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 (OCTOBER 10, 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 if any check is issued in
the name of a person other than the signer of the Letter of Transmittal
or is 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, 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

<PAGE> 6
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, 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 167,957
OF ITS CLASS A COMMON SHARES AT
NET ASSET VALUE PER COMMON SHARE

September 10, 1997

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 167,957 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 September 10, 1997, 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 October 10, 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 167,957 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 167,957 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 September 10, 1997;
(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
(5) Return envelope addressed to the Administrator.

<PAGE> 2
PLEASE NOTE THAT THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 6:00 PM PACIFIC
STANDARD TIME ON OCTOBER 10, 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 (OCTOBER 10, 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 167,957
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
September 10, 1997, of Sierra Prime Income Fund (the "Fund") and related Letter
of Transmittal pursuant to which the Fund is offering to purchase up to 167,957
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 October 10, 1997, unless extended (the "Expiration
Date").

(4) The Offer is for 167,957 Class A Common Shares, constituting
approximately 20% of the Class A Common Shares outstanding as of
September 10, 1997.

(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 167,957 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 period or purchase 167,957 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

<PAGE> 2
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 (OCTOBER 10, 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 OCTOBER 10, 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.

<PAGE> 3
INSTRUCTIONS
WITH RESPECT TO OFFER BY
SIERRA PRIME INCOME FUND
To Purchase For Cash 167,957
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 (OCTOBER 10, 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 (OCTOBER 10,
1997).

The undersigned acknowledge(s) receipt of your letter and the enclosed
Offer to Purchase, dated September 10, 1997 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 167,957 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

<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]

September 10, 1997

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, September 10, 1997, for the purpose of providing
liquidity to its shareholders.

The Fund is offering to purchase up to 167,957 of its Class A Common
Shares (approximately 20% 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 October 10, 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 September 10, 1997, 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
- ------------------------------------

September, 1997

Dear Shareholder

As you requested, we are enclosing a copy of the Sierra Prime Income Fund
("Fund") Offer to Purchase 167,957 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 September
2, 1997 ranged from a high of $10.01 to a low of $10.00. On September 2, 1997
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 (OCTOBER 10, 1997).

Distributed by Sierra Investment Services Corporation

<PAGE> 1
EXHIBIT (B)(1)

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> 2
TABLE OF CONTENTS

<TABLE>
<S> <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>

-i-

<PAGE> 3
<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>

-ii-

<PAGE> 4
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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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,
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.

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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 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

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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.

(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

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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' 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.

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(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).

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.

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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 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).

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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 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.

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<PAGE> 12

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
shall 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).

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

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<PAGE> 13
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 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.

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<PAGE> 14

(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
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

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<PAGE> 15

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.

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

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<PAGE> 16
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 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;

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<PAGE> 17

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).

"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.

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<PAGE> 18

"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.

"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

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<PAGE> 19

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.

"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.

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<PAGE> 20

"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.

"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.

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<PAGE> 21

"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).

"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.

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<PAGE> 22

"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 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

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<PAGE> 23

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
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.

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<PAGE> 24

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.

(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.

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<PAGE> 25

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.

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<PAGE> 26
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 --------------------------------
Attn: Keith B. Pipes Name: Keith Pipes
Chief Financial Officer Title: Executive Vice President

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 --------------------------------
Attn: Keith B. Pipes Name: Keith Pipes
Chief Financial Officer Title: Executive Vice President

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 -------------------------------
Attn: Keith B. Pipes Name: Keith Pipes
Chief Financial Officer Title: Executive Vice President

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 -------------------------------
Attn: Keith B. Pipes Name: Keith Pipes
Chief Financial Officer Title: Executive Vice President

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 ---------------------------------
Attn: Keith B. Pipes Name: Keith Pipes
Chief Financial Officer Title: Executive Vice President

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<PAGE> 27
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 ---------------------------------
Attn: Keith B. Pipes Name: Keith Pipes
Chief Financial Officer Title: Executive Vice President

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 ---------------------------------
Attn: Keith B. Pipes Name: Keith Pipes
Chief Financial Officer 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 ---------------------------------
Attn: Keith B. Pipes Name: Keith Pipes
Chief Financial Officer 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 ---------------------------------
Attn: Keith B. Pipes Name: Keith Pipes
Chief Financial Officer 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 ---------------------------------
Attn: Keith B. Pipes Name: Keith Pipes
Chief Financial Officer Title: Executive Vice President

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<PAGE> 28
Address: SIERRA TRUST FUNDS, ON BEHALF OF
Growth Fund GROWTH FUND
9301 Corbin Avenue, Suite 333
Northridge, CA 91324
Telephone: 818-725-0228 /s/ KEITH PIPES
Telecopier: 818-725-0269 ---------------------------------
Attn: Keith B. Pipes Name: Keith Pipes
Chief Financial Officer Title: Executive Vice President

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 ---------------------------------
Attn: Keith B. Pipes Name: Keith Pipes
Chief Financial Officer Title: Executive Vice President

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 ---------------------------------
Attn: Keith B. Pipes Name: Keith Pipes
Chief Financial Officer Title: Executive Vice President

DEUTSCHE BANK AG NEW YORK BRANCH

/s/ PETER BASSLER
--------------------------------
By: Peter Bassler
Title: Assistant Vice President

/s/ INDRA KISH
-------------------------------
By: Indra Kish
Title: Associate

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<PAGE> 29
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> 30
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> 31
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> 32
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> <C>
$ ($ ) ($ )
$ ($ ) ($ )
$ ($ ) ($ )
$ ($ ) ($ )

Totals $__________ ($_________) ($________)

Net Wire: To (From) $_____________
{Name of Borrower}
</TABLE>

---------------------
Authorized Signature

-28-
<PAGE> 33
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> 34
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> 35
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 general equitable principles (regardless of whether the issue of
enforceability is considered in a proceeding in equity or at law).

-31-
<PAGE> 36
EXHIBIT C
page 2

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> 37
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 _________(2) (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.

<TABLE>
<CAPTION>
Name(3) Office Signature
<S> <C> <C>
----- ------ ---------

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

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

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 ___________(4/) 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 and
the application of the proceeds thereof and the conditions specified in Sections
3.05, 3.06 and 4.01 have been satisfied.

- --------
(2/) Insert a date prior to the time of any corporate action relating to the
Credit Agreement.
(3/) 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.
(4/) Insert same date as in paragraph 2 of this certificate.

-33-
<PAGE> 38

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 (B)(2)

FIRST AMENDMENT TO CREDIT AGREEMENT

FIRST AMENDMENT (this "Amendment"), dated as of July 30, 1997 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 not otherwise defined shall have the respective meanings provided in the
Credit Agreement referred to below.

W I T N E S S E T H:

WHEREAS, the Borrowers and the Bank are parties to a Credit Agreement,
dated as of May 22, 1996 (the "Credit Agreement");

WHEREAS, the Borrowers and the Bank wish to amend the Credit Agreement
as herein provided;

NOW, THEREFORE, it is agreed:

1. The definition of "Expiry Date" is hereby deleted in its entirety and
replaced with the following:

"Expiry Date" shall mean October 28, 1997

2. In order to induce the Bank to enter into this Agreement (a) each
Borrower hereby makes each of the representatives, warranties and agreements
contained in Section 5 of the Credit Agreement on the Amendment Date, after
giving effect to this Amendment and (b) represents that no Default or Event of
Default exists or shall exist after giving effect to this Amendment.

3. This Amendment is limited as specified and shall not constitute a
modification, acceptance or waiver of any provision of either the Credit
Agreement or any other Credit Documents.

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

-35-
<PAGE> 2

5. This Amendment and the rights and obligations of the parties
hereunder shall be construed in accordance with and governed by the laws of the
State of New York.

6. This Amendment shall become effective on the date (the "Amendment
Date") when the Borrowers and the Bank shall have signed a copy hereof (whether
the same or different copies) and shall have delivered (including by way of
telecopier) the same to the Bank at its Notice Office.

IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
officers to execute and deliver this Amendment 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
Telecopier: 818-725-0269 /s/ KEITH PIPES
---------------------------
Attn: Keith B. Pipes Name: Keith Pipes
Chief Financial Officer Title: Executive Vice President

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 -----------------------------
Attn: Keith B. Pipes Name: Keith Pipes
Chief Financial Officer Title: Executive Vice President

-36-
<PAGE> 3

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 --------------------------------
Attn: Keith B. Pipes Name: Keith Pipes
Chief Financial Officer Title: Executive Vice President

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
Telecopier: 818-725-0269 /s/ KEITH PIPES
Attn: Keith B. Pipes --------------------------------
Chief Financial Officer Name: Keith Pipes
Title: Executive Vice President

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
Telecopier: 818-725-0269 /s/ KEITH PIPES
Attn: Keith B. Pipes --------------------------------
Chief Financial Officer Name: Keith Pipes
Title: Executive Vice President

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
Telecopier: 818-725-0269 /s/ KEITH PIPES
Attn: Keith B. Pipes --------------------------------
Chief Financial Officer Name: Keith Pipes
Title: Executive Vice President

-37-
<PAGE> 4

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
Telecopier: 818-725-0269 /s/ KEITH PIPES
Attn: Keith B. Pipes ----------------------------------
Chief Financial Officer Name: Keith Pipes
Title: Executive Vice President

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
Telecopier: 818-725-0269 /s/ KEITH PIPES
Attn: Keith B. Pipes ----------------------------------
Chief Financial Officer Name: Keith Pipes
Title: Executive Vice President

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
Telecopier: 818-725-0269 /s/ KEITH PIPES
Attn: Keith B. Pipes ----------------------------------
Chief Financial Officer Name: Keith Pipes
Title: Executive Vice President

-38-
<PAGE> 5
Address: SIERRA TRUST FUNDS, ON BEHALF OF
Growth Fund GROWTH FUND
9301 Corbin Avenue, Suite 333
Northridge, CA 91324
Telephone: 818-725-0228 /s/ KEITH PIPES
Telecopier: 818-725-0269 -----------------------------------
Attn: Keith B. Pipes Name: Keith Pipes
Chief Financial Officer Title: Executive Vice President

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
Telecopier: 818-725-0269 /s/ KEITH PIPES
Attn: Keith B. Pipes ----------------------------------
Chief Financial Officer Name: Keith Pipes
Title: Executive Vice President

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
Telecopier: 818-725-0269 /s/ KEITH PIPES
Attn: Keith B. Pipes --------------------------------
Chief Financial Officer Name: Keith Pipes
Title: Executive Vice President

DEUTSCHE BANK AG NEW YORK BRANCH

/s/ AARON H. DORR
-------------------------------
By: Aaron H. Dorr
Title: Assistant Vice President

/s/ ANTOU RODULIAN
-------------------------------
By:
Title:

-39-

<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) thereunder, and the Trust hereby
consents to the retention of compensation for such transactions in accordance
with Rule 11a2-2(T)(a)(2)(iv).

-40-
<PAGE> 2
(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.

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.

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<PAGE> 3

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 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

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<PAGE> 4

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.

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.

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<PAGE> 5

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

-44-

<PAGE> 1
EXHIBIT (C)(2)

INVESTMENT SUB-ADVISORY AGREEMENT

Effective as of October 31, 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 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

<PAGE> 2

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").

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

-2-
<PAGE> 3

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 Sub-Advisor dated February 14,
1996, is terminated as a result of the assignment thereof prior to the effective
date of this Agreement, compensation thereunder shall commence as of the date of
such termination.

7. Expenses

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

8. Services to Other Companies or Accounts

The Trust understands that the Sub-advisor now acts, will
continue to act and may act in the future as investment adviser to fiduciary and
other managed accounts and as investment advisor or sub-investment advisor to
one or more other investment companies or series of investment companies, and
the Trust has no objection to the Sub-advisor so acting, provided that whenever
the Trust and one or more other accounts or investment companies advised by the
Sub-advisor have available funds for investment, investments suitable and
appropriate for each will be allocated in accordance with procedures believed to
be equitable to each entity. Similarly, opportunities to sell securities will be
allocated in an equitable manner. The Trust recognizes that in some cases this
procedure may limit the size of the position that may be acquired or disposed of
for the Trust. In addition, the Trust understands that the persons employed by
the Sub-advisor to assist in the performance of the Sub-advisor's duties
hereunder will not devote their full time to such service and nothing contained
herein shall be deemed to limit or restrict the right of the Sub-advisor or any
affiliate of the Sub-advisor to engage in and devote time and attention to other
business or to render services of whatever kind or nature.

9. Term of Agreement

This Agreement shall become effective as of the date first
written above, shall continue in effect for a period of two years thereafter,
and shall continue in effect for a period of more than two years thereafter only
so long as such continuance is specifically approved at least annually by (i)
the Board of Trustees of the Trust or (ii) a vote of a "majority" (as defined in
the Investment Company Act of 1940, as amended) of the Trust's outstanding
voting securities, provided that in either event the continuance is also
approved by a majority of the Board of Trustees who are not "interested persons"
(as defined in said Act) of any party to this Agreement, by vote cast in person
at a meeting called for the purpose of voting on such approval. This Agreement
is terminable, without penalty, on 30 days' written notice, by Sierra Advisors,
the Board of Trustees of the Trust or by vote of holders of a majority of the
Trust's shares, or upon 90 days' written notice, by the Sub-advisor and, will
terminate automatically upon any termination of the advisory agreement between
the Trust and Sierra Advisors. In addition, this Agreement will also terminate
automatically in the event of its assignment (as defined in said Act). The
Sub-advisor agrees to notify the Trust of any circumstances that might result in
this Agreement being deemed to be assigned.

-3-
<PAGE> 4
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.

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.

-4-
<PAGE> 5
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

Dated: 02/21/97 By /s/ F. BRIAN CERINI
------------------------------
Name: F. Brian Cerini
Title: Chairman and President

SIERRA INVESTMENT ADVISORS
CORPORATION

Dated: 02/21/97 By /s/ MICHAEL D. GOTH
------------------------------
Name: Michael D. Goth
Title: Chief Operating Officer

Accepted:

VAN KAMPEN AMERICAN CAPITAL MANAGEMENT INC.

By /s/ EDWARD A. TREICHEL Dated: 3/10/97
--------------------------------------
Name: Edward A. Treichel
Title: Senior Vice President

-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.

3. Compensation

<PAGE> 2
(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.

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.

-2-
<PAGE> 3
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

By /s/ KEITH B. PIPES
-------------------------------
Keith B. Pipes
Chief Financial Officer, Treasurer and
Secretary

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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 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

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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.

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,

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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 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).

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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.

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.

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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 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.

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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 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,

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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 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

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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;

(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

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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.

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.

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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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