<PAGE> 1
As filed with the Securities and Exchange Commission on January 28, 1997
1933 Act File No. 33-98824
1940 Act File No. 811-9122
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. 1 / X /
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT / X /
COMPANY ACT OF 1940
AMENDMENT NO. 2 / X /
SIERRA PRIME INCOME FUND
------------------------
(Exact Name of Registrant as Specified in Declaration of Trust)
9301 Corbin Avenue, Suite 333
P.O. Box 1160
Northridge, CA 91328-1160
(Address of Principal Executive Offices)
Registrant's Telephone Number: (818) 725-0200
Copies to:
F. Brian Cerini Richard W. Grant, Esq.
Chairman and President Jeffrey P. Burns, Esq.
Sierra Prime Income Fund Morgan, Lewis & Bockius LLP
9301 Corbin Avenue 2000 One Logan Square
Northridge, CA 91324 Philadelphia, PA 19103
(Name and Address of Agent for Service)
It is proposed that this filing will become effective when declared effective by
the Commission pursuant to Section 8(c) under the Securities Act of 1933.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / X /
---
<PAGE> 2
Sierra Prime Income Fund
Cross Reference Sheet
Form N-2 Item
<TABLE>
<CAPTION>
Item Location
- ---- --------
<S> <C> <C>
Part A. Information Required in a Prospectus
Item 1. Outside Front Cover........................................... Front Cover Page
Item 2. Inside Front and Outside Back
Cover Page.................................................... Front Cover Page; Inside Front
Cover Page; Outside Back Cover
Page
Item 3. Fee Table and Synopsis........................................ Fund Expenses; Prospectus
Summary
Item 4. Financial Highlights.......................................... Financial Highlights
Item 5. Plan of Distribution.......................................... Cover Page; Prospectus Summary;
Offering of Shares
Item 6. Selling Shareholders.......................................... Not Applicable
Item 7. Use of Proceeds............................................... Use of Proceeds
Item 8. General Description of the Registrant......................... Cover Page; Prospectus Summary;
Description of Common Shares
Item 9. Management.................................................... Prospectus Summary; Management
of the Fund
Item 10. Capital Stock, Long-Term Debt,
and Other Securities.......................................... Description of Common Shares; Net
Asset Value
Item 11. Defaults and Arrears on Senior Securities..................... Not Applicable
Item 12. Legal Proceedings............................................. Not Applicable
Item 13. Table of Contents for the
Statement of Additional Information........................... Statement of Additional Information
Part B. Information Required in a Statement of Additional Information
Item 14. Cover Page.................................................... Cover Page
Item 15. Table of Contents............................................. Cover Page
Item 16. General Information and History............................... Not Applicable
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
Item 17. Investment Objectives and Policies............................ Investment Objectives and Policies
and Special Risk Considerations
Item 18. Management.................................................... Management of the Fund; Officers
and Trustees
Item 19. Control Persons and Principal
Holders of Securities......................................... Officers and Trustees
Item 20. Investment Advisory and Other Services........................ Management of the Fund
Item 21. Brokerage Allocation and Other Practices...................... Portfolio Transactions
Item 22. Tax Status.................................................... Taxation
Item 23. Financial Statements.......................................... Financial Statements
</TABLE>
Part C. Other Information
Information required to be included in Part C is set forth under
the appropriate item, so numbered, in Part C of this Registration
Statement.
<PAGE> 4
The Prospectus for the Sierra Prime Income Fund is incorporated by reference to
Pre-Effective Amendment No. 1 to the Registrant's Registration Statement on
Form N-2 (File No. 33-98824) filed in Final Form under Rule 497(e) with the SEC
on February 28, 1996 (Accession Number 0000950156-96-000213), as supplemented
by filings made under Rule 497(e) with the SEC on April 8, 1996 (Accession
Number 0000950156-96-000365) and July 2, 1996 (Accession Number
0000950156-96-000569).
<PAGE> 5
SUPPLEMENT DATED FEBRUARY 1, 1997
TO PROSPECTUS DATED FEBRUARY 14, 1996
OF
SIERRA PRIME INCOME FUND
P.O. BOX 5118
WESTBORO, MASSACHUSETTS 01581-5118
The Prospectus, dated February 14, 1996, as supplemented to date, for the Class
A Common Shares of the Sierra Prime Income Fund (the "Fund") is hereby amended
and supplemented as follows:
On page 8 before the section "THE FUND" add the section "FINANCIAL HIGHLIGHTS"
with the following information:
The following schedule presents financial highlights for one Class
A Common Share of the Fund outstanding through the period
indicated. The information for the period February 16, 1996
(commencement of operations) to September 30, 1996 is audited. The
financial highlights have been audited by Price Waterhouse LLP,
independent accountants, for the period indicated and their report
thereon appears in the Fund's related Statement of Additional
Information. This information should be read in conjunction with
the financial statements and related notes included in the
Statement of Additional Information.
<TABLE>
<S> <C>
Net asset value, beginning of period..................................... $ 10.00
--------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................................................... .40
Net realized and unrealized gain on investments.......................... .01
--------
Total from investment operations......................................... .41
--------
LESS DISTRIBUTIONS:
Dividends from net investment income..................................... (.40)
--------
Total distributions...................................................... (.40)
--------
Net asset value, end of period........................................... $ 10.01
--------
TOTAL RETURN+ 4.19%
========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)..................................... $ 12,534
Ratio of operating expenses to average net assets........................ 0.00%*
Ratio of net investment income to average net assets..................... 6.72%*
Portfolio turnover rate.................................................. 44%
Ratio of operating expenses to average net assets without fees
waived and expenses absorbed by investment advisor.................. 4.75%*
Net investment income per share without fees waived and
expenses absorbed by investment advisor.............................. $ 0.12
</TABLE>
- ----------
* 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.
In the section "MANAGEMENT OF THE FUND" under the heading "THE SUB-ADVISOR" on
page 22, replace the information from the sixth line of the second paragraph to
the end of such paragraph, with the following:
On June 21, 1996, an Agreement and Plan of Merger ("Merger
Agreement") was entered into by and among VK/AC Holding, Inc.
("VK/AC Holding") (the parent of the Sub-Advisor), Morgan
Stanley Group, Inc. ("Morgan Stanley"), MSAM Holdings II, Inc.
("MSAM Holdings") and MSAM Acquisition, Inc. ("MSAM
Acquisition"), pursuant to which it was proposed that VK/AC
Holding and the Sub-Advisor would become indirect subsidiaries
of Morgan Stanley. On October 31, 1996, VK/AC Holding was merged
with Morgan Stanley whereby VK/AC Holding and the Sub-Advisor
became indirect subsidiaries of Morgan Stanley. As a result,
both Van Kampen and VK/AC Holdin are now wholly-owned
subsidiaries of Morgan Stanley.
A Special Meeting of Shareholders of record of the Fund, at the
close of business on September 10, 1996, was held on October 29,
1996 in order to vote on approval of a new investment
sub-advisory agreement required by the "change of control" of the
Sub-Advisor's parent, VK/AC Holding. Shareholders approved the
new investment sub-advisory agreement thereby continuing current
sub-advisory services with the Fund.
PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE
PISH (1/97)
<PAGE> 6
The Statement of Additional Information for the Sierra Prime Income Fund is
incorporated by reference to Pre-Effective Amendment No. 1 to the Registrant's
Registration Statement on Form N-2 (File No. 33-98824) filed in Final Form under
Rule 497(e) with the SEC on March 25, 1996 (Accession Number
0000950156-96-000316), as supplemented by a filing made under Rule 497(e) with
the SEC on September 20, 1996 (Accession Number 0000950156-96-001016).
<PAGE> 7
SUPPLEMENT DATED FEBRUARY 1, 1997
TO STATEMENT OF ADDITIONAL INFORMATION DATED FEBRUARY 14, 1996
OF
SIERRA PRIME INCOME FUND
P.O. BOX 5118
WESTBORO, MASSACHUSETTS 01581-5118
The Statement of Additional Information, dated February 14, 1996 of the Sierra
Prime Income Fund (the "Fund") is hereby amended and supplemented by the
following:
The section "FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR'S REPORT" is amended
and restated by the following:
<PAGE> 8
SIERRA PRIME INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1996
<TABLE>
<S> <C>
ASSETS
Investments, at value (Cost $12,338,792) (Note 2)
See portfolio of investments ............................. $12,345,109
Receivable for investment securities sold ................... 2,387
Receivable for Fund shares sold ............................. 2,873
Interest receivable ......................................... 54,938
Unamortized organization costs (Note 7) ..................... 213,781
Receivable from investment advisor (Note 3) ................. 29,252
Other assets ................................................ 119
-----------
Total Assets ............................................. 12,648,459
-----------
LIABILITIES
Deferred facility fees (Note 2) ............................. 6,604
Dividends payable ........................................... 28,233
Administration fee payable (Note 3) ......................... 2,554
Accrued legal ............................................... 35,601
Accrued audit fees .......................................... 30,000
Accrued Trustees' fees and expenses ......................... 1,000
Due to Custodian ............................................ 3,470
Accrued expenses and other payables (Note 3) ................ 7,462
-----------
Total Liabilities ........................................ 114,924
-----------
NET ASSETS .................................................. $12,533,535
===========
NET ASSETS CONSIST OF:
Paid in capital ............................................. 12,526,373
Undistributed net investment income ......................... 845
Net unrealized appreciation of investments .................. 6,317
-----------
NET ASSETS ............................................... $12,533,535
===========
Class A Common Shares Outstanding ........................... 1,252,700
===========
Net asset value per share of beneficial
interest outstanding* .................................... $ 10.01
===========
Maximum sales charge ........................................ 4.5%
Maximum offering price per share of
beneficial interest outstanding ($10.01/0.955) ........... $ 10.48
===========
</TABLE>
- ----------
* Redemption price per share is equal to Net Asset Value less any applicable
contingent deferred sales charge.
See Notes to Financial Statements.
- 8 -
<PAGE> 9
SIERRA PRIME INCOME FUND
STATEMENT OF OPERATIONS
FOR THE PERIOD FEBRUARY 16, 1996* THROUGH SEPTEMBER 30, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest ...................................................... $ 414,601
Fees .......................................................... 1,741
---------
Total Investment Income .................................... 416,342
---------
EXPENSES:
Investment advisory fee (Note 3) .............................. 58,878
Administration fee (Note 3) ................................... 18,571
Legal fees .................................................... 105,570
Audit fees .................................................... 32,750
Trustees' fees and expenses (Note 3) .......................... 31,434
Amortization of organization costs ............................ 30,426
Printing and postage .......................................... 10,813
Other ......................................................... 5,782
---------
Subtotal ................................................... 294,224
Fees waived and expenses absorbed
by investment advisor (Note 3) ............................. (294,224)
---------
Total expenses ............................................. 0
---------
NET INVESTMENT INCOME ......................................... 416,342
---------
NET UNREALIZED GAIN
ON INVESTMENTS (NOTES 2 AND 4):
Net change in unrealized appreciation of securities ........... 6,317
---------
Net unrealized gain on investments ............................ 6,317
---------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS .................................. $ 422,659
=========
</TABLE>
- ----------
* Commencement of operations.
See Notes to Financial Statements.
- 9 -
<PAGE> 10
SIERRA PRIME INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD FEBRUARY 16, 1996* THROUGH SEPTEMBER 30, 1996
<TABLE>
<S> <C>
Net investment income ............................................ $ 416,342
Net unrealized appreciation of investments during the period ..... 6,317
------------
Net increase in net assets resulting from operations ............. 422,659
------------
Distributions to shareholders from net investment income:
Class A Common Shares ......................................... (416,342)
Net increase in net assets from Fund share transactions:
Class A Common Shares ......................................... 12,427,218
------------
Net increase in net assets ....................................... 12,433,535
------------
NET ASSETS:
Beginning of year ................................................ 100,000
------------
End of year (includes undistributed net investment income of $845) $ 12,533,535
============
AMOUNT
Sold ........................................................ $ 12,610,620
Issued as reinvestment of dividends ......................... 255,107
Repurchased ................................................. (438,509)
------------
Net Increase ................................................ $ 12,427,218
============
SHARES
Sold ........................................................ 1,261,061
Issued as reinvestment of dividends ......................... 25,490
Repurchased ................................................. (43,851)
------------
Net Increase ................................................ 1,242,700
============
</TABLE>
- ----------
* Commencement of operations.
See Notes to Financial Statements.
- 10 -
<PAGE> 11
SIERRA PRIME INCOME FUND
STATEMENT OF CASH FLOWS
FOR THE PERIOD FEBRUARY 16, 1996* THROUGH SEPTEMBER 30, 1996
<TABLE>
<S> <C>
Cash flows from operating activities:
Investment income received ............................................... $ 220,511
Fee income received ...................................................... 8,345
Payment of operating expenses ............................................ (166,535)
Proceeds from sales of long-term securities .............................. 1,981,821
Purchases of long-term securities ........................................ (8,513,000)
Net proceeds from short-term investments ................................. (5,670,848)
------------
CASH USED FOR OPERATING ACTIVITIES .......................................... $(12,139,706)
------------
Cash flows from financing activities:
Proceeds from shares sold ................................................ 12,607,747
Payments on shares repurchased ........................................... (438,509)
Distributions paid** ..................................................... (133,002)
Due to Custodian ......................................................... 3,470
------------
CASH PROVIDED BY FINANCING ACTIVITIES ....................................... 12,039,706
------------
Decrease in cash ............................................................ (100,000)
Cash at beginning of period ................................................. 100,000
------------
Cash at end of period ....................................................... $ 0
============
RECONCILIATION OF NET INCREASE IN NET ASSETS FROM OPERATIONS TO CASH USED FOR
OPERATING ACTIVITIES:
Net increase in net assets resulting from operations ..................... $ 422,659
------------
Increase in investments+ ............................................... $(12,345,109)
Increase in interest receivable ........................................ (54,938)
Increase in receivable for investment securities sold .................. (2,387)
Increase in unamortized organization costs ............................. (213,781)
Increase in other assets ............................................... (29,371)
Increase in accrued expenses ........................................... 76,617
Increase in deferred facility fees ..................................... 6,604
------------
Total adjustments ...................................................... (12,562,365)
------------
CASH PROVIDED BY OPERATING ACTIVITIES ....................................... $(12,139,706)
============
</TABLE>
- ----------
* Commencement of operations.
** Non cash activities include reinvestment of dividends of $255,107.
+ Includes unrealized appreciation of $6,317.
See Notes to Financial Statements.
- 11 -
<PAGE> 12
SIERRA PRIME INCOME FUND
FINANCIAL HIGHLIGHTS
FOR A FUND SHARE OUTSTANDING THROUGHOUT THE PERIOD
FEBRUARY 16, 1996* TO SEPTEMBER 30, 1996
<TABLE>
<S> <C>
Net asset value, beginning of period ......................... $ 10.00
----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ........................................ .40
Net realized and unrealized gain on investments .............. .01
----------
Total from investment operations ............................. .41
----------
LESS DISTRIBUTIONS:
Dividends from net investment income ......................... (.40)
----------
Total distributions .......................................... (.40)
----------
Net asset value, end of period ............................... $ 10.01
==========
Total return+ ................................................ 4.19%
==========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) ......................... $ 12,534
Ratio of operating expenses to average net assets ............ 0.00%**
Ratio of net investment income to average net assets ......... 6.72%**
Portfolio turnover rate ...................................... 44%
Ratio of operating expenses to average net assets without fees
waived and expenses absorbed by investment advisor ........ 4.75%**
Net investment income per share without fees waived
and expenses absorbed by investment advisor ............... $ 0.12
</TABLE>
- ----------
* Commencement of operations.
** Annualized.
+ Total return represents aggregate total return for the period indicated.
The total return would have been lower if certain fees and expenses had not
been waived and absorbed by the investment advisor.
- 12 -
<PAGE> 13
SIERRA PRIME INCOME FUND
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Principal Loan Stated
Amount Borrower Rate* Type Maturity** Value
------ -------- ----- ---- ---------- -----
<S> <C> <C> <C> <C> <C>
SENIOR LOAN INTERESTS--52.1%
BROADCASTING--0.8%
$ 104,259 SKTV, Inc.................................... 7.440% Term 07/31/2000 $ 104,259
---------
CABLE--2.7%
344,000 Marcus Cable Operating Company, L.P.......... 7.136 Term 12/31/2002 344,017
---------
FOOD & BEVERAGES--14.6%
573,000 Keebler Holding Corporation.................. 7.874 Term 01/31/2002 572,813
259,565 SC International Services, Inc............... 8.624 Term 09/30/2001 259,565
323,710 SC International Services, Inc............... 8.624 Term 09/30/2002 323,710
71,187 SC International Services, Inc............... 8.874 Term 09/30/2003 71,187
600,000 Stroh Brewery Company........................ 8.127 Term 06/30/2001 601,551
---------
1,828,826
---------
FOOD STORES--5.6%
104,125 Bruno's, Inc................................. 7.775 Term 02/18/2002 104,109
596,630 Carr-Gottstein Foods......................... 8.625 Term 12/31/2002 596,684
---------
700,793
---------
HEALTHCARE--2.9%
359,000 Merit Behavioral Care Corporation............ 8.434 Term 10/06/2003 358,968
---------
MANUFACTURING--5.0%
358,820 International Wire Group, Inc................ 8.545 Term 09/30/2002 358,783
161,061 T.K.G. Acquisition Corporation............... 7.749 Term 02/28/2002 161,053
111,714 Thompson Minwax Company...................... 8.440 Term 12/31/2002 111,714
---------
631,550
---------
PAPER--6.8%
107,708 Fort Howard Corporation...................... 7.719 Term 03/31/2002 107,712
158,464 Jefferson Smurfit Corporation................ 6.938 Term 04/30/2001 158,465
118,370 Stone Container Corporation.................. 8.655 Term 04/01/2000 118,379
472,613 Stone Container Corporation.................. 8.813 Term 10/01/2003 473,556
---------
858,112
---------
RETAIL--3.6%
446,791 Federated Department Stores, Inc............. 6.219 Term 03/31/2000 448,725
---------
OTHER--10.1%
361,875 AMF Group, Inc............................... 8.063 Term 03/31/2001 361,855
429,057 AMF Group, Inc............................... 8.438 Term 03/31/2003 429,033
169,132 AMF Group, Inc............................... 8.688 Term 03/31/2004 169,123
297,711 Borg-Warner Security Corporation............. 8.750 Term 12/31/1998 299,848
---------
1,259,859
---------
Total Senior Loan Interests (cost $6,528,792)........................................ 6,535,109
---------
</TABLE>
See Notes to Financial Statements.
- 13 -
<PAGE> 14
SIERRA PRIME INCOME FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Principal
Amount Value
------ -----
<S> <C> <C>
U.S. GOVERNMENT AGENCY DISCOUNT NOTES--46.4% (cost $5,810,000)
$ 5,810,000 Federal Home Loan Bank (FHLB)
5.700%, due 10/01/1996............ $ 5,810,000
----------
TOTAL INVESTMENTS (Cost $12,338,792+)................................. 98.5% 12,345,109
OTHER ASSETS AND LIABILITIES (Net).................................... 1.5 188,426
----- -----------
NET ASSETS............................................................ 100.0% $12,533,535
===== ===========
</TABLE>
- ----------
* Senior loans in which the Sierra Prime Income Fund invests generally pay
interest at rates which are periodically redetermined by reference to a base
lending rate plus a premium. These base lending rates are generally (i) the
prime rate offered by one or more major United States banks; (ii) the lending
rate offered by one or more major European banks, such as the London Inter-Bank
Offered Rate (LIBOR); or (iii) the certificate of deposit ratio. Senior loans
are generally considered to be restricted in that the Fund ordinarily is
contractually obligated to receive approval from the Agent Bank and/or borrower
prior to the disposition of a senior loan. Within each loan there may be
different rates due to different reset dates. The rates disclosed for each loan
are the weighted average coupon rates as of September 30, 1996.
** Senior loans in the Sierra Prime Income Fund's portfolio generally are
subject to mandatory and/or optional prepayment. Because of these mandatory
prepayment conditions and because there may be significant economic incentives
for a Borrower to prepay, prepayments of senior loans in the Fund's portfolio
may occur. As a result, the actual remaining maturity of senior loans held in
the Fund's portfolio may be substantially less than the stated maturities shown.
Although the Fund is unable to accurately estimate the actual remaining maturity
of individual senior loans, the Fund estimates that the actual average maturity
of the senior loans held in its portfolio will be approximately 18-24 months.
+ At September 30, 1996 the aggregate cost for federal tax purposes was
$12,338,792. The gross unrealized appreciation for all securities in which there
is an excess of value over tax cost and aggregate gross unrealized depreciation
for all securities in which there is an excess of tax cost over value were
$6,694 and $377, respectively.
See Notes to Financial Statements.
- 14 -
<PAGE> 15
SIERRA PRIME INCOME FUND
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS
Sierra Prime Income Fund (the "Fund") is registered under the Investment Company
Act of 1940, as amended ("1940 Act"), as a non-diversified, closed-end
management investment company. The Fund was organized as a Massachusetts
business trust on October 4, 1995. During the period October 4, 1995 to February
15, 1996, the Fund had no operations other than those related to organizational
matters, including the initial capital contribution of $100,000 and the issuance
of 10,000 shares of beneficial interest to Sierra Fund Administration
Corporation.
The Trustees of the Fund authorized an unlimited number of Common Shares with
separate classes of beneficial interest. Currently there are only Class A Common
Shares. Shares are continuously offered at a price equal to the next determined
net asset value ("NAV") per share plus a maximum sales charge based on a
determined schedule.
2. SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies consistently followed by the Sierra Prime Income
Fund in the preparation of its financial statements.
Portfolio Valuation:
Senior Loans are not actively traded in a public market. Sierra Investment
Advisors Corporation (the "Advisor"), and Van Kampen American Capital Management
Inc. (the "Sub-Advisor"), following procedures established by the Fund's Board
of Trustees, value the Senior Loan interests held by the Fund at fair value. In
valuing a Senior Loan interest, the Advisor and Sub-Advisor consider relevant
factors, data and information, including: (i) the characteristics of and
fundamental analytical data relating to the Senior Loan, including the cost,
size, current interest rate, period until next interest rate reset, maturity and
base lending rate of the Senior Loan interest, the terms and conditions of the
Senior Loan and any related agreements, and the position of the Senior Loan in
the Borrower's debt structure; (ii) the nature, adequacy and value of the
collateral, including the Fund's rights, remedies and interests with respect to
the collateral; (iii) the creditworthiness of the Borrower's business, cash
flows, capital structure and future prospects; (iv) information relating to the
market for Senior Loans, including price quotations for (if considered reliable)
and trading in Senior Loans and interests in similar Loans; (v) the reputation
and financial condition of the Agent and any Intermediate Participants in the
Senior Loans; and (vi) general economic and market conditions affecting the fair
value of Senior Loans.
Other Fund holdings (other than short term obligations, but including listed
issues) are valued on the basis of prices furnished by one or more pricing
services which determine prices for normal, institutional-size trading units of
such securities using market information, transactions for comparable securities
and various relationships between securities which are generally recognized by
institutional traders. In certain circumstances, portfolio securities will be
valued at the last sale price on the exchange that is the primary market for
such securities, or the average of the last quoted bid price and asked price for
those securities for which the over-the-counter market is the primary market or
for listed securities in which there were no sales during the day. The value of
interest rate swaps is determined in accordance with a discounted present value
formula and then confirmed by obtaining a bank quotation. As of September 30,
1996 there were no interest rate swaps.
- 15 -
<PAGE> 16
SIERRA PRIME INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Short-term obligations which mature in 60 days or less are valued at amortized
cost, if their original term to maturity when acquired by the Portfolio was 60
days or less, or are valued at amortized cost using their value on the 61st day
prior to maturity, if their original term to maturity when acquired by the Fund
was more than 60 days, unless in each case this is determined not to represent
fair value. Repurchase agreements will be valued by the Fund at cost plus
accrued interest. Securities for which there exist no price quotations or
valuations and all other assets are valued at fair value as determined in good
faith by or on behalf of the Board of Trustees.
Illiquid Investments:
Senior Loans in which the Fund will invest presently are not readily marketable
and may be subject to restrictions on resale. Interests in Senior Loans
generally are not listed on any national securities exchange or automated
quotation system and no regular market has developed for such interests.
Although interests in Senior Loans are traded among certain financial
institutions in private transactions between buyers and sellers these loans
continue to be considered illiquid. Senior Loans' illiquidity may impair the
Fund's ability to realize the full value of its assets in the event of a
voluntary or involuntary liquidation of such assets. Liquidity relates to the
ability of the Fund to sell an investment in a timely manner. The market for
relatively illiquid securities tends to be more volatile than the market for
more liquid securities. The Fund has no limitation on the amount of its assets
which may be invested in securities which are not readily marketable or are
subject to restriction on resale. The substantial portion of the Fund's assets
invested in relatively illiquid Senior Loan interests may restrict the ability
of the Fund to dispose of its investments in Senior Loans in a timely fashion
and at a fair price, and could result in capital losses to the Fund and holders
of Common Shares. However, many of the Senior Loans in which the Fund invests
are of a relatively large principal amount and are held by a relatively large
number of owners which should, in the Advisor's opinion, enhance the relative
liquidity of such interests. The risks associated with illiquidity are
particularly acute in situations where the Fund's operations require cash, such
as when the Fund tenders (Note 5) for its Common Shares and may result in the
Fund borrowing to meet short-term cash requirements.
Cash Flow Information:
The cash amount in the Statement of Cash Flows is the amount reported in the
Statement of Assets and Liabilities and does not include any short-term
investments at September 30, 1996. The Fund issues its shares, invests in
securities, and makes distributions from net investment income and net capital
gains (which are either paid in cash or reinvested at the discretion of
shareholders). These activities are reported in the Statement of Changes in Net
Assets. Information on cash receipts and payments is presented in the Statement
of Cash Flows.
Repurchase Agreements:
The Fund may enter into repurchase agreements (a purchase of, and a simultaneous
commitment to resell, a financial instrument at an agreed upon price on an
agreed upon date) only with member banks of the Federal Reserve System and
member firms of the New York Stock Exchange. When participating in repurchase
agreements, the Fund buys securities from a vendor (e.g., a bank or brokerage
firm) with the agreement that the vendor will repurchase the securities at a
higher price at a later date. Such transactions afford an opportunity for the
Fund to earn a return on available cash at minimal market risk, although the
Fund may be subject to various delays and risks of loss if the vendor is unable
to meet its obligation to repurchase. Under the 1940 Act, repurchase agreements
are deemed to be collateralized loans of money by the Fund to the seller. In
evaluating whether to enter into a repurchase agreement, the Advisor will
consider carefully the creditworthiness of the vendor. If the member bank or
member firm that is the party to the repurchase agreement petitions for
bankruptcy or otherwise becomes subject to the U.S. Bankruptcy Code, the law
regarding the rights of the Fund is unsettled. The securities underlying a
- 16 -
<PAGE> 17
SIERRA PRIME INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
repurchase agreement will be marked to market every business day so that the
value of the collateral is at least equal to the value of the loan, including
the accrued interest thereon, and the Advisor will monitor the value or the
collateral. No specific limitations exists as to the percentage of the Fund's
assets which may be used to participate in repurchase agreements.
Securities Transactions and Investment Income:
Securities transactions are recorded on trade date (the date the order to buy or
sell is executed). Realized gains and losses from securities sold are recorded
on the identified cost basis. Income is recorded on the accrual basis and
consists of interest accrued and discount earned less premiums amortized.
Facility fees are received upon the purchase of a new loan and are recognized as
income ratably over the expected life of the loan. The deferred facility fees
are the "unearned" portion of these facility fees. The Fund may purchase and
sell interest in Senior Loans and other portfolio securities on a "when issued"
and "delayed delivery" basis. No income accrues to the Fund on such interests or
securities in connection with such purchase transactions prior to the date the
Fund actually takes delivery of such interest or securities. When the Fund is
the buyer in such a transaction, however, it will maintain, in a segregated
account with its custodian, cash or high-grade portfolio securities having an
aggregate value equal to the amount of such purchase commitments until payment
is made.
Dividends and Distributions to Shareholders:
The Fund's policy is to declare daily and pay monthly distributions to holders
of Class A Common Shares of substantially all net investment income of the Fund.
Distributions of any net long-term capital gains earned by the Fund are made
annually. Distributions of any net short-term capital gains earned by the Fund
are distributed no less frequently than annually at the discretion of the Board
of Trustees. Additional distributions of net investment income and capital gains
for the Fund may be made at the discretion of the Board of Trustees in order to
avoid the application of a 4% non-deductible excise tax on certain undistributed
amounts of ordinary income and capital gains. Income distributions and capital
gain distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
differences are primarily due to differing treatments of income and gains on
various investment securities held by the Fund, timing differences and differing
characterization of distributions made by the Fund.
For the year ended September 30, 1996, permanent differences resulting from book
and tax accounting for organizational costs were reclassified causing a decrease
of $845 to paid-in capital and an increase to undistributed net investment
income for the same amount.
Federal Income Taxes:
It is the Fund's policy to qualify as a regulated investment company by
complying with the requirements of the Internal Revenue Code of 1986, as
amended, applicable to regulated investment companies and by, among other
things, distributing substantially all of its taxable earnings to its
shareholders. Therefore, no Federal income tax provision is required.
3. INVESTMENT ADVISORY, SUB-ADVISORY, ADMINISTRATION FEES AND OTHER TRANSACTIONS
Sierra Advisors, an indirect wholly-owned subsidiary of Great Western Financial
Corporation ("GWFC"), is the Fund's investment advisor. Sierra Advisors is
entitled to a monthly fee at an annual rate of 0.95% of the average daily net
assets of the Fund. These fees were $58,878 for the period ended September 30,
1996 and have been voluntarily waived by Sierra Advisors. Sierra Advisors pays a
monthly fee at an annual rate of 0.475% to Van Kampen American Capital
Management Inc. for services rendered as the Sub-Advisor.
- 17 -
<PAGE> 18
SIERRA PRIME INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Sierra Fund Administration Corporation ("Sierra Administration") is the Fund's
administrator. As a result of a change in transfer agent responsibilities
effective July 1, 1996, Sierra Administration now receives a monthly fee at an
annual rate of 0.25% of the Fund's average daily net assets and the Fund now
pays First Data Investor Services Group, Inc. ("First Data") directly for all
transfer agent services. Prior to this Sierra Administration was entitled to a
monthly fee at an annual rate of 0.35% of the Fund's average daily net assets,
and Sierra Administration paid First Data for certain transfer agency services.
The Administration fees for the period ended September 30, 1996 were $18,571.
Sierra Administration pays State Street Bank and Trust Company ("State Street")
for certain administrative and custodial services. The Fund pays for the
sub-administrator and custodial out-of pocket expenses.
Sierra Advisors has agreed to voluntarily reimburse the Fund's total operating
expenses. For the period ended September 30, 1996 the total reimbursement to the
Fund was $235,346.
The compensation of the officers and Trustees who are interested persons (as
defined in the 1940 Act) of the Advisor is paid by the Advisor or by its parent,
GWFC. The Fund pays the compensation of all other officers and Trustees of the
Fund. Trustees who are not interested persons are paid an annual fee of $5,000,
a fee of $1,000 per meeting of the Board of Trustees and a fee of $750 per
committee meeting of the Fund, plus expenses.
As of September 30, 1996 there was one shareholder who owned greater than five
percent of Class A Common Shares, representing 16.55% of the Fund at this date.
For the period ended September 30, 1996, Great Western Financial Securities
Corporation and Sierra Investment Services Corporation ("SISC"), both registered
broker-dealers, have received $232,067 and $32,221, respectively, representing
commissions (front-end sales charges).
4. PURCHASE AND SALES OF SECURITIES
The aggregate cost of purchases and proceeds from sales of securities, excluding
U.S. Government and short-term investments, for the period ended September 30,
1996 was $8,513,000 and $1,984,208, respectively.
5. TENDER OF SHARES
The Board of Trustees of the Fund currently intends, each quarter, to consider
authorizing the Fund to make tender offers for a portion of its outstanding
Class A Common Shares at the then current net asset value of these Common
Shares. The Fund does not intend to list its Common Shares on any national
securities exchange and none of the Fund, the Advisor or SISC intends to make a
secondary trading market in the classes of the Common Shares at any time.
Accordingly, there is not expected to be any secondary trading market in the
Common Shares and an investment in such Common Shares should be considered
illiquid. There can be no assurance that the Fund will in fact tender for any of
its Common Shares. If the Fund tenders for Common Shares there is no guarantee
that all, or any, Common Shares tendered will be purchased. An early withdrawal
charge may be charged by SISC on those repurchases or tenders done during the
first or second year after purchase. For the period ended September 30, 1996,
43,851 shares were tendered and repurchased by the Fund with no early withdrawal
charge.
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.
- 18 -
<PAGE> 19
SIERRA PRIME INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. ORGANIZATION COSTS
Expenses incurred in connection with the organization of the Fund, including the
fees and expenses of registering and qualifying its shares for distribution
under Federal and state securities regulations, are being amortized on a
straight-line basis over a period of five years from commencement of operations
of the Fund. In the event any of the initial shares of the Fund are redeemed by
any holder thereof during the amortization period, the proceeds of such
redemptions will be reduced by an amount equal to the pro-rata portion of
unamortized deferred organizational expenses in the same proportion as the
number of shares being redeemed bears to the number of initial shares of such
Fund outstanding at the time of such redemption. To the extent that proceeds of
the redemptions are less than such pro-rata portion of any unamortized
organizational expenses, Sierra Administration has agreed to reimburse the Fund.
8. SENIOR LOAN PARTICIPATIONS
The Fund invests primarily in participations, assignments, or acts as a party to
the primary lending syndicate of a Variable Rate Senior Loan interest to United
States corporations, partnerships, and other entities. When the Fund purchases a
participation of a Senior Loan interest, the Fund typically enters into a
contractual agreement with the lender or other third party selling the
participation, but not with the borrower directly. As such, the Fund assumes the
credit risk of the Borrower, Selling Participant or other persons
interpositioned between the Fund and the Borrower.
At September 30, 1996, the following sets forth the selling participants with
respect to interests in Senior Loans purchased by the Fund on a participation
basis.
<TABLE>
<CAPTION>
Principal
Selling Participant Amount Value
- ----------------- ---------- ----------
<S> <C> <C>
Pearl Street L.P. $2,187,525 $2,187,286
Chase Securities Inc. 2,001,911 2,001,831
Morgan Guaranty 600,000 601,550
Bankers Trust 596,630 596,684
Lehman Commercial Paper, Inc. 472,613 473,557
Canadian Imperial Bank of Commerce 458,772 460,901
NationsBank 211,341 213,300
---------- ----------
$6,528,792 $6,535,109
========== ==========
</TABLE>
- 19 -
<PAGE> 20
SIERRA PRIME INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 10% of its assets, whichever is greater.
During the period ended September 30, 1996, the Fund had not borrowed under the
Agreement.
10. SUBSEQUENT EVENTS (UNAUDITED)
The second tender offer of the Sierra Prime Income Fund expired on October 25,
1996. As of this date 44,043 additional shares were tendered and repurchased by
the Fund.
On October 31, 1996 VKAC Holding, the parent of the Sub-Advisor, was merged with
Morgan Stanley Group Inc. ("Morgan Stanley") whereby VKAC Holding and the
Sub-Advisor became indirect subsidiaries of Morgan Stanley. As a result of this
merger, a Special Meeting of Shareholders, of record of the Fund at the close of
business on September 10, 1996, was held on October 29, 1996, to vote on
approval of a new investment sub-advisory agreement with the current Sub-
Advisor, Van Kampen American Capital Management Inc.. The voting results were as
follows:
<TABLE>
<CAPTION>
% of % of
Number of Outstanding Shares
Shares Shares Voted
--------- ----------- -------
<S> <C> <C> <C>
Affirmative 679,731 54.638% 89.666%
Against 2,558 .206% .338%
Abstain 75,780 6.091% 9.996%
------- ------ -------
Total 758,069 60.935% 100.000%
======= ====== =======
</TABLE>
Accordingly, shareholders of the Fund approved the new investment sub-advisory
agreement with the Sub-Advisor resulting from the "change of control" due to its
merger with Morgan Stanley.
- 20 -
<PAGE> 21
Sierra Prime Income Fund
Report of Independent Accountants
TO THE SHAREHOLDERS AND TRUSTEES
OF SIERRA PRIME INCOME FUND
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations, of
changes in net assets and of cash flows and the financial highlights present
fairly, in all material respects, the financial position of Sierra Prime Income
Fund (the "Fund") at September 30, 1996, and the results of its operations, its
cash flows, the changes in its net assets and the financial highlights for the
period February 16, 1996 (commencement of operations) through September 30,
1996, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit, which included confirmation of securities owned at
September 30, 1996 by correspondence with the custodian and, with respect to
senior collateralized loans, the selling participants and agent banks, provides
a reasonable basis for the opinion expressed above.
As explained in Note 2, the financial statements include senior collateralized
loans valued at $6,535,109 (52.1 percent of net assets), which values have been
determined in accordance with procedures established by the Trustees in the
absence of readily ascertainable market values. We have reviewed the procedures
which were established by the Trustees in determining the fair values of such
senior collateralized loans and have inspected underlying documentation, and, in
the circumstances, we believe the procedures are reasonable and the
documentation appropriate. However, those values determined in accordance with
procedures established by the Trustees may differ significantly from the
values that would have been used had a ready market for the senior
collateralized loans existed, and the differences could be material.
PRICE WATERHOUSE LLP
Boston, Massachusetts
November 6, 1996
PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE
- 21 -
<PAGE> 22
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(1) Financial Statements:
Financial Statements included in Part A:
-Financial Highlights (audited)
Financial Statements included in Part B:
-Portfolio of Investments (audited)
-Statement of Assets and Liabilities as of September 30,
1996 (audited)
-Statement of Operations for the period ended
September 30, 1996 (audited)
-Statement of Changes in Net Assets for the period ended
September 30, 1996 (audited)
-Notes to Financial Statements (audited)
(2) Exhibits
(a)(1)...............Agreement and Declaration of Trust dated
October 4, 1995 originally filed as
Exhibit (2)(a) of Registrant's Registration
Statement on Form N-2 filed with the
Securities and Exchange Commission on
October 31, 1995 is filed herewith.
(2)..............Amended Agreement and Declaration of Trust
dated January 18, 1996 originally filed as
Exhibit (2)(a)(2) of Registrant's
Registration Statement on Form N-2 filed
with the Securities and Exchange
Commission on February 14, 1996 is filed
herewith.
(b)..................By-laws originally filed as Exhibit (2)(b)
of Registrant's Registration Statement on
Form N-2 filed with the Securities and
Exchange Commission on October 31, 1995 are
filed herewith.
(c)..................Not applicable
(d)..................Not applicable
(e)..................Not applicable
(f)..................Not applicable
(g)(1)...............Investment Advisory Agreement dated
February 14, 1996 is filed herewith.
(2)...............Sub-Investment Advisory Agreement dated
February 14, 1996 is filed herewith.
(h)(1)...............Distribution Agreement dated February 14,
1996 is filed herewith.
(2)...............Form of Broker-Dealer Agreement*
(i)..................Not applicable
- 22 -
<PAGE> 23
(j).............Form of Custody Agreement*
(k)(1)..........Administration Agreement dated February 16,
1996 is filed herewith.
(2)..........Transfer Agency and Services Agreement dated
May 1, 1996 is filed herewith.
(3)..........Pricing Agreement dated August 14, 1996 is
filed herewith.
(4)..........Credit Agreement dated May 22, 1996 is filed
herewith.
(l).............Opinion and consent of Morgan, Lewis &
Bockius LLP*
(m).............Not applicable
(n).............Consent of Price Waterhouse LLP
(o).............Not applicable
(p).............Purchase Agreement between Sierra Fund
Administration Corporation and the Sierra
Prime Income Fund dated Febraury 6, 1996 is
filed herewith.
(q).............Not applicable
(24)............Powers of Attorney for Arthur H. Bernstein,
Esq., David E. Anderson, Edmond R. Davis,
Esq., John W. English and Alfred E. Osborn,
Jr., Ph.D. are filed herewith
(27)............Financial Data Schedule is filed herewith
- ----------
* Incorporated by reference to Pre-Effective Amendment No. 1 to Form N-2
(1933 Act No. 33-98824 and 1940 Act No. 811-9122) filed with the SEC on
February 14, 1996.
ITEM 25. MARKETING ARRANGEMENTS
Not applicable
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Not applicable
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Registrant is controlled by its Board of Trustees.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
Title of Class Number of Record Holders
Class A Common Shares
- 23 -
<PAGE> 24
ITEM 29. INDEMNIFICATION
Under Section 8.1 of Registrant's Amended Agreement and
Declaration of Trust ("Declaration of Trust"), any past or present Trustee or
officer of Registrant (including persons who serve at Registrant's request as
directors, officers or trustees of another organization in which Registrant has
any interest as a shareholder, creditor or otherwise (hereinafter referred to as
a "Covered Person"), is indemnified to the fullest extent permitted by law
against liability and all expenses reasonably incurred by him in connection with
any action, suit or proceeding to which he may be a party or otherwise involved
by reason of his being or having been a Covered Person. This provision does not
authorize indemnification when it is determined, in the manner specified in the
Declaration of Trust, that a Covered Person has not acted in good faith in the
reasonable belief that his actions were in or not opposed to the best interests
of Registrant. Moreover, this provision does not authorize indemnification when
it is determined, in the manner specified in the Declaration of Trust, that the
Covered Person would otherwise be liable to Registrant or its shareholders by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of his duties. Expenses may be paid by Registrant in advance of the final
disposition of any action, suit or proceeding upon receipt of an undertaking by
a Covered Person to repay those expenses to Registrant in the event that it is
ultimately determined that indemnification of the expenses is not authorized
under the Declaration of Trust and the Covered Person either provides security
for such undertaking or insures Registrant against losses from such advances or
the disinterested Trustees or independent legal counsel determines, in the
manner specified in the Declaration of Trust, that there is reason to believe
the Covered Person will be found to be entitled to indemnification.
Insofar as indemnification for liability arising under the
Securities Act of 1933, as amended (the "1933 Act"), may be permitted to
Trustees, officers and controlling persons of Registrant pursuant to the
foregoing provisions, or otherwise, Registrant has been advised that, in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the 1933 Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by Registrant of expenses incurred or paid
by a Trustee, officer or controlling person of Registrant in the successful
defense of any action, suit or proceeding) is asserted by such Trustee, officer
or controlling person in connection with the securities being registered,
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the 1933 Act and will by governed by the final adjudication of such
issue.
ITEM 30(A). BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
--Sierra Investment Advisors Corporation
As of October 9, 1992, the name of Great Western Financial
Advisors Corporation was changed to Sierra Investment Advisors Corporation
("Sierra Advisors"). Sierra Advisors is an investment advisor registered under
the Investment Advisers Act of 1940, as amended, (the "Advisers Act").
The list required by this Item 30 of officers and directors of
Sierra Advisors, together with information as to any other business, profession,
vocation or employment of substantial nature engaged in by such officers and
directors during the past two years, is incorporated by reference to Schedules A
and D of Form ADV filed by Sierra Advisors pursuant to the Advisers Act (SEC
File No. 801-32921).
30(B). BUSINESS AND OTHER CONNECTIONS OF INVESTMENT SUB-ADVISOR
-- Van Kampen American Capital Management Inc.
Van Kampen American Capital Management Inc. ("Van Kampen") is a
wholly-owned subsidiary of VK/AC Holding, Inc. VK/AC Holding, Inc. is a
wholly-owned subsidiary of Morgan Stanley Group Inc. Van Kampen provides
investment advice to a wide variety of individual, institutional and investment
company clients.
- 24 -
<PAGE> 25
The list required by this Item 30 of officers and directors of Van
Kampen, together with information as to any other business, profession, vocation
or employment of a substantial nature engaged in by such officers and directors
during the past two years, is incorporated by reference to Schedules A and D of
Form ADV filed by Van Kampen pursuant to the Advisers Act (SEC File No.
801-40808).
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS
(1) Sierra Prime Income Fund
9301 Corbin Avenue
Northridge, California 91324
(declaration of trust and by-laws)
(2) Sierra Investment Advisors Corporation
9301 Corbin Avenue Northridge, California 91324
(with respect to their services as investment
advisor)
(3) Great Western Financial Securities Corporation
9301 Corbin Avenue Northridge, California 91324
(with respect to their services as a dealer)
(4) Sierra Fund Administration Corporation
9301 Corbin Avenue
Northridge, California 91324)
(with respect to their services as administrator)
(5) State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
(with respect to their services as a
sub-administrator and custodian)
(6) First Data Investor Services Group, Inc.
One Exchange Place Boston, Massachusetts 02109
(with respect to their services as a shareholder
servicing agent and transfer agent)
(7) Van Kampen American Capital Management Inc.
1001 Warrenville Road
Lisle, Illinois 60532
(with respect to their services as investment
sub-advisor)
(8) Sierra Investment Services Corporation
9301 Corbin Avenue
Northridge, California 91324
(with respect to their services as a principal
underwriter)
(9) Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, Pennsylvania 19103
(with respect to their services as counsel to the
Fund)
- 25 -
<PAGE> 26
ITEM 32. MANAGEMENT SERVICES
Not Applicable.
ITEM 33. UNDERTAKINGS
1. Registrant undertakes to suspend offering of its Common Shares
until it amends its prospectus if (1) subsequent to the effective date of its
Registration Statement, the net asset value declines more than 10 percent from
its net asset value as of the effective date of the Registration Statement, or
(2) the net asset value increases to an amount greater than its net proceeds as
stated in the prospectus.
2. Not applicable
3. Not applicable
4. Pursuant to Rule 415 under the Securities Act of 1933 and Item
512(a) of Registration S-K, the Registrant hereby undertakes: (1) to file during
any period in which offers or sales are being made, a post-effective amendment
to this registration statement: (i) to include any prospectus required by
Section 10(a)(3) of the Securities Act of 1933; (ii) to reflect in the
Prospectus any facts or events arising after the effective date of the
registration statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental change in the
information set forth in the registration statement; and (iii) to include any
material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement; (2) that, for the purpose of
determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof; and
(3) to remove from registration be means of post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering.
5. Not applicable
6. The Registrant undertakes to send by first class mail or other
means designed to ensure equally prompt delivery, within two business days of
receipt of a written or oral request, its Statement of Additional Information.
- 26 -
<PAGE> 27
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, the Registrant has
duly caused this Post-Effective Amendment No. 1 to this Registration Statement
to be signed on its behalf by the undersigned, thereto duly authorized, in the
City of Northridge and State of California on the 27th day of January, 1997.
SIERRA PRIME INCOME FUND
By: /s/ F. Brian Cerini
-----------------------------
F. Brian Cerini
President
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Post-Effective Amendment No. 1 to this Registration Statement has
been signed below by the following persons in the capacities and on the date(s)
indicated.
<TABLE>
<CAPTION>
Signature Title(s) Date
- --------- -------- ----
<S> <C> <C>
/s/ F. Brian Cerini President and Trustee January 27, 1997
- -----------------------------------
F. Brian Cerini
(Principal Executive Officer)
/s/ Keith B. Pipes Executive Vice President, January 27, 1997
- ----------------------------------- Treasurer and Secretary
Keith B. Pipes
(Principal Financial and Accounting
Officer)
* Trustee January 27, 1997
- -----------------------------------
Arthur H. Bernstein, Esq.
* Trustee January 27, 1997
- -----------------------------------
David E. Anderson
* Trustee January 27, 1997
- -----------------------------------
Edmond R. Davis, Esq.
* Trustee January 27, 1997
- -----------------------------------
John W. English
* Trustee January 27, 1997
- -----------------------------------
Alfred E. Osborne, Jr., Ph.D.
</TABLE>
*By: /s/ F. Brian Cerini
-------------------------------
F. Brian Cerini
Executed by F. Brian Cerini pursuant to a Power of
Attorney filed with this Post-Effective Amendment No.1
to this Registration Statement.
- 27 -
<PAGE> 28
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
- ----------- ----------------------
<S> <C>
(a)(1) Agreement and Declaration of Trust
(a)(2) Amended Agreement and Declaration of Trust
(b) By-Laws
(g)(1) Investment Advisory Agreement
(g)(2) Investment Sub-Advisory Agreement
(h) Distribution Agreement
(k)(1) Administration Agreement
(k)(2) Transfer Agency and Services Agreement
(k)(3) Pricing Agreement
(k)(4) Credit Agreement
(n) Consent of Price Waterhouse LLP
(p) Purchase Agreement
24 Powers of Attornay
27 Financial Data Schedule
</TABLE>
- 28 -
<PAGE> 1
THE SIERRA PRIME INCOME TRUST
AGREEMENT AND DECLARATION OF TRUST
October 4, 1995
<PAGE> 2
AGREEMENT AND DECLARATION OF TRUST
PAGE
ARTICLE I. NAME AND DEFINITIONS 2
Section 1.1 Name 2
Section 1.2 Definitions 2
a) "Trust" 2
b) "Trustees" 2
c) "Shares" 2
d) "Shareholder" 2
e) "1940 Act" 2
f) "Affiliated Person,"
"Assignment," "Commission,"
"Interested Person,"
"Principal Underwriter," and
"Majority Shareholder Vote" 2
g) "Declaration of Trust" 2
h) "By-Laws" 2
ARTICLE II. PURPOSE OF THE TRUST 2
Section 2.1 Purpose of the Trust 2
ARTICLE III. THE TRUSTEES 3
Section 3.1 Election, Resignation, Vacancies, etc. 3
a) Election 3
b) Effect of Death, Resignation, etc. 3
c) No Accounting 3
d) Vacancies 3
Section 3.2 Powers of Trustees 4
a) Investments 4
b) Disposition of Assets 4
c) Act as Distributor, Underwriter,
Broker, Dealer 5
d) Ownership Powers 5
e) Subscription 5
f) Form of Holding 5
g) Allocation of Assets and
Liabilities 5
h) Reorganization, etc. 5
i) Voting Trusts, etc. 5
j) Compromise 5
k) Partnerships, etc. 6
l) Borrowing 6
(i)
<PAGE> 3
m) Guarantees, etc. 6
n) Insurance 6
o) Pensions 6
p) Any Other Lawful Activity 6
Section 3.3 Advisory, Management and Distribution 7
Section 3.4 Payment of Expenses by the Trust 8
Section 3.5 Ownership of Assets of the Trust 9
ARTICLE IV. SHARES 9
Section 4.1 Beneficial Interest 9
Section 4.2 Ownership of Shares 9
Section 4.3 Investment in the Trust 9
Section 4.4 No Preemption Rights 10
Section 4.5 Status of Shares and Limitation
of Personal Liability 10
ARTICLE V. SHAREHOLDERS' VOTING POWERS AND MEETINGS 10
Section 5.1 Shareholders' Voting Powers and Meetings 10
ARTICLE VI. DISTRIBUTIONS AND REPURCHASES 10
Section 6.1 Distributions 10
Section 6.2 Repurchases 11
Section 6.3 Dividends, Distributions and Repurchases 11
ARTICLE VII. COMPENSATION AND LIMITATION OF LIABILITY
OF TRUSTEES 11
Section 7.1 Compensation 11
Section 7.2 Limitation of Liability 11
ARTICLE VIII. INDEMNIFICATION 12
(ii)
<PAGE> 4
Section 8.1 Trustees, Officers, etc. 12
Section 8.2 Compromise Payment 12
Section 8.3 Indemnification Not Exclusive 13
Section 8.4 Shareholders 13
ARTICLE IX. MISCELLANEOUS 14
Section 9.1 Trustees, Shareholders, etc. Not
Personally Liable; Notice 14
Section 9.2 Trustee's Good Faith Action,
Expert Advice, No Bond or Surety 14
Section 9.3 Liability of Third Persons Dealing
with Trustees 15
Section 9.4 Merger of Classes of Shares of the
Trust 15
Section 9.5 Duration and Termination of Trust 15
Section 9.6 Merger, Consolidation and Sale of Assets 15
Section 9.7 Conversion to Open-End Management
Investment Company 16
Section 9.8 Certain Transactions 16
Section 9.9 Amendments 18
Section 9.10 Resident Agent 18
Section 9.11 Filing of Copies; References; Headings 18
Section 9.12 Applicable Law 19
Section 9.13 Provisions in Conflict with Laws
or Regulations 19
Section 9.14 Use of Name 20
(iii)
<PAGE> 5
THE SIERRA PRIME INCOME TRUST
CROSS-REFERENCE SHEET
Pursuant to CMR 116.00:
116.03 (a) Name of organization or trust:
The Sierra Prime Income Trust
(b) Date of organization:
October 4, 1995
(c) Names and address of the trustees:
F. Brian Cerini
9301 Corbin Avenue
Northridge, CA 91324
(d) Original signatures of all trustees:
See page 20.
(e) Principal place of business:
One Exchange Place
Boston, MA 02108
(f) Statement that beneficial interest is
divided into transferable certificates of
participation or shares;
See Section 4.1, page 9.
(g) Ability to merge:
See Section 9.6, page 15.
(h) The name and address of the resident agent in
Massachusetts:
The Prentice-Hall Corporation System, Inc.
84 State Street
Boston, MA 02109
<PAGE> 6
SIERRA PRIME INCOME TRUST
AGREEMENT AND DECLARATION OF TRUST
AGREEMENT AND DECLARATION OF TRUST made at Boston, Massachusetts this
4th day of October, 1995, by the Trustees hereunder, and by the holders of
shares of beneficial interest to be issued hereunder as hereinafter provided.
WITNESSETH
WHEREAS this Trust has been formed to carry on the business of an investment
company; and
WHEREAS this Trust is authorized to issue its shares of beneficial
interest in accordance with the provisions hereinafter set forth; and
WHEREAS the Trustees have agreed to manage all property coming into
their hands as trustees of a Massachusetts business trust in accordance with
the provisions hereinafter set forth.
NOW, THEREFORE, the Trustees hereby declare that they will hold all
cash, securities and other assets which they may from time to time acquire in
any manner as Trustees hereunder IN TRUST to manage and dispose of the same
upon the following terms and conditions for the benefit of the holders from
time to time of shares of beneficial interest in this Trust.
<PAGE> 7
ARTICLE I
NAME AND DEFINITIONS
Section 1.1 Name. This Trust shall be known as "The Sierra Prime
Income Trust" and the Trustees shall conduct the business of the Trust under
that name or any other name or names as they may from time to time determine.
Section 1.2 Definitions. Whenever used herein, unless otherwise
required by the context or specifically provided:
(a) The "Trust" refers to the Massachusetts business trust
established by this Trust Agreement, as amended from time to time;
(b) "Trustees" refers to the Trustees of the Trust hereunder named
herein or elected in accordance with Article III;
(c) "Shares" refers to the transferable units of interest into
which the beneficial interest in the Trust shall be divided from time to time;
(d) "Shareholder" means a record owner of Shares;
(e) The "1940 Act" refers to the Investment Company Act of 1940
and the Rules and Regulations thereunder, all as amended from time to time;
(f) The terms "Affiliated Person," "Assignment," "Commission,"
"Interested Person," "Principal Underwriter" and "Majority Shareholder Vote"
(the 67% or 50% requirement of the third sentence of Section 2(a)(42) of the
1940 Act, whichever may be applicable) shall have the meanings given them in
the 1940 Act;
(g) "Declaration of Trust" shall mean this Agreement and
Declaration of Trust as amended or restated from time to time; and
(h) "By-Laws" shall mean the By-Laws of the Trust as amended from
time to time.
ARTICLE II
PURPOSE OF THE TRUST
Section 2.1 Purpose of the Trust. The purpose of the Trust is to
operate as an investment company and to provide investors a managed investment
primarily in securities and to carry
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<PAGE> 8
on such other business as the Trustees may from time to time determine pursuant
to their authority under this Declaration of Trust.
ARTICLE III
THE TRUSTEES
Section 3.1 Election, Resignation, Vacancies, etc..
(a) Election. There shall initially be one Trustee who shall be
F. Brian Cerini. The number of Trustees shall be as provided in the By-laws or
as fixed from time to time by the Trustees. The Shareholders may elect
Trustees at any meeting of Shareholders called by the Trustees for that
purpose. Each Trustee shall serve during the continued lifetime of the Trust
until he or she dies, resigns or is removed, or, if sooner, until the next
meeting of Shareholders called for the purpose of electing Trustees and the
election and qualification of his or her successor. Any Trustee may resign at
any time by written instrument signed by him or her and delivered to any
officer of the Trust, to each other Trustee or to a meeting of the Trustees.
Such resignation shall be effective upon receipt unless specified to be
effective at some other time. Except to the extent expressly provided in a
written agreement with the Trust, no Trustee resigning and no Trustee removed
shall have any right to any compensation for any period following his
resignation or removal, or any right to damages on account of such removal.
(b) Effect of Death, Resignation, etc. of a Trustee. The death,
declination, resignation, retirement, removal or incapacity of the Trustees, or
any one of them, shall not operate to annul the Trust or to revoke any existing
agency created pursuant to the terms of this Declaration of Trust.
(c) No Accounting. Except to the extent required by the 1940 Act
or under circumstances which would justify his or her removal for cause, no
person ceasing to be a Trustee as a result of his or her death, resignation,
retirement, removal or incapacity (nor the estate of any such person) shall be
required to make an accounting to the Shareholders or remaining Trustees upon
such cessation.
(d) Vacancies. Any vacancy or anticipated vacancy resulting from
any reason, including without limitation the death, resignation, retirement,
removal or incapacity of any of the Trustees, or resulting from an increase in
the number of Trustees by the other Trustees may (but so long as there are at
least two
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<PAGE> 9
remaining Trustees, need not unless required by the 1940 Act) be filled by a
majority of the remaining Trustees, subject to the provisions of Section 16(a)
of the 1940 Act, through the appointment in writing of such other person as
such remaining Trustees in their discretion shall determine and such
appointment shall be effective upon the written acceptance of the person named
therein to serve as a Trustee and agreement by such person to be bound by the
provisions of this Declaration of Trust, except that any such appointment in
anticipation of a vacancy to occur by reason of retirement, resignation, or
increase in number of Trustees to be effective at a later date shall become
effective only at or after the effective date of said retirement, resignation,
or increase in number of Trustees. As soon as any Trustee so appointed shall
have accepted such appointment and shall have agreed in writing to be bound by
this Declaration of Trust and the appointment is effective, the Trust estate
shall vest in the new Trustee, together with the continuing Trustees, without
any further act or conveyance.
Section 3.2. Powers. Subject to the provisions of this Declaration
of Trust, the business of the Trust shall be managed by the Trustees, and they
shall have all powers necessary or convenient to carry out that responsibility.
Without limiting the foregoing, the Trustees may adopt By-laws not inconsistent
with this Declaration of Trust providing for the conduct of the business of the
Trust and may amend and repeal them to the extent that such By-laws do not
reserve that right to the Shareholders; they may enlarge or reduce their
number, may fill vacancies in their number, including vacancies caused by
enlargement of their number, and may remove Trustees with or without cause;
they may elect and remove, with or without cause, such officers and appoint and
terminate such agents as they consider appropriate; they may appoint from their
own number, and terminate, any one or more committees consisting of two or more
Trustees, including an executive committee which may, when the Trustees are not
in session, exercise some or all of the power and authority of the Trustees as
the Trustees may determine; they may employ one or more custodians of the
assets of the Trust and may authorize such custodians to employ subcustodians
and to deposit all or any part of such assets in a system or systems for the
central handling of securities, retain a transfer agent or a Shareholder
servicing agent, or both, provide for the distribution of Shares by the Trust,
through one or more principal underwriters or otherwise, set record dates for
the determination of Shareholders with respect to various matters, and in
general delegate such authority as they consider desirable to any officer of
the Trust, to any committee of the Trustees and to any agent or employee of the
Trust or to any such custodian or underwriter.
Without limiting the foregoing, the Trustees shall have power and
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<PAGE> 10
authority:
(a) To invest and reinvest cash, and to hold cash
uninvested;
(b) To sell, exchange, lend, pledge, mortgage,
hypothecate, write options on and lease any or all of the assets of
the Trust;
(c) To act as a distributor of shares and as underwriter
of, or broker or dealer in, securities or other property;
(d) To vote or give assent, or exercise any rights of
ownership, with respect to stock or other securities or property; and
to execute and deliver proxies or powers of attorney to such person or
persons as the Trustees shall deem proper, granting to such person or
persons such power and discretion with relation to securities or
property as the Trustees shall deem proper;
(e) To exercise powers and rights of subscription or
otherwise which in any manner arise out of ownership of securities;
(f) To hold any security or property in a form not
indicating any trust, whether in bearer, unregistered or other
negotiable form, or in the name of the Trustees or of the Trust or in
the name of a custodian, subcustodian or other depository or a nominee
or nominees or otherwise;
(g) To allocate assets, liabilities and expenses of the
Trust to a particular class of Shares or to apportion the same among
two or more classes of Shares, provided that any liabilities or
expenses incurred by a particular class of Shares shall be payable
solely out of the assets of that class.
(h) To consent to or participate in any plan for the
reorganization, consolidation or merger of any corporation or issuer,
any security of which is or was held in the Trust; to consent to any
contract, lease, mortgage, purchase or sale of property by such
corporation or issuer, and to pay calls or subscriptions with respect
to any security held in the Trust;
(i) To join with other security holders in acting through
a committee depositary, voting trustee or
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<PAGE> 11
otherwise, and in that connection to deposit any security with, or
transfer any security to, any such committee, depositary or trustee,
and to delegate to them such power and authority with relation to any
security (whether or not so deposited or transferred) as the Trustees
shall deem proper, and to agree to pay, and to pay, such portion of
the expenses and compensation of such committee, depositary or trustee
as the Trustees shall deem proper;
(j) To compromise, arbitrate or otherwise adjust claims
in favor of or against the Trust or any matter in controversy,
including but not limited to claims for taxes;
(k) To enter into joint ventures, general or limited
partnerships and any other combinations or associations;
(l) To borrow funds;
(m) To endorse or guarantee the payment of any notes or
other obligations of any person; to make contracts of guaranty or
suretyship, or otherwise assume liability for payment thereof; and to
mortgage and pledge the Trust property or any part thereof to secure
any of or all such obligations;
(n) To purchase and pay for entirely out of Trust
property such insurance as they may deem necessary or appropriate for
the conduct of the business, including without limitation, insurance
policies insuring the assets of the Trust and payment of distributions
and principal on its portfolio investments, and insurance policies
insuring the Shareholders, Trustees, officers, employees, agents,
investment advisers or managers, principal underwriters, or
independent contractors of the Trust individually against all claims
and liabilities of every nature arising by reason of holding, being or
having held any such office or position, or by reason of any action
alleged to have been taken or omitted by any such person as
Shareholder, Trustee, officer, employee, agent, investment adviser or
manager, principal underwriter, or independent contractor, including
any action taken or omitted that may be determined to constitute
negligence, whether or not the Trust would have the power to indemnify
such person against such liability;
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<PAGE> 12
(o) To pay pensions for faithful service, as deemed
appropriate by the Trustees, and to adopt, establish and carry out
pension, profit-sharing, share bonus, share purchase, savings, thrift
and other retirement, incentive and benefit plans, trusts and
provisions, including the purchasing of life insurance and annuity
contracts as a means of providing such retirement and other benefits,
for any or all of the Trustees, officers, employees and agents of the
Trust; and
(p) To engage in any other lawful act or activity in
which corporations organized under the Massachusetts Business
Corporation Law may engage.
The Trustees shall not in any way be bound or limited by any present
or future law or custom in regard to investments by trustees. Except as
otherwise provided herein or from time to time in the By-laws, any action to be
taken by the Trustees may be taken by a majority of the Trustees present at a
meeting of Trustees (a quorum being present), within or without Massachusetts,
including any meeting held by means of a conference telephone or other
communications equipment by means of which all persons participating in the
meeting can hear each other at the same time and participation by such means
shall constitute presence in person at a meeting, or by written consents of a
majority of the Trustees then in office.
Section 3.3 Advisory, Management and Distribution. The Trustees may,
at any time and from time to time, contract for exclusive or nonexclusive
advisory and/or management services with any corporation, trust, association or
other organization (the "Advisor"), every such contract to comply with such
requirements and restrictions as may be set forth in the By-laws; and any such
contract may provide for one or more Sub-advisers who shall perform all or part
of the obligations of the Advisor under such contract and may contain such
other terms interpretive of or in addition to said requirements and
restrictions as the Trustees may determine, including, without limitation,
authority to determine from time to time what investments shall be purchased,
held, sold or exchanged and what portion, if any, of the assets of the Trust
shall be held uninvested and to make changes in the Trust's investments. The
Trustees may also, at any time and from time to time, contract with the Advisor
or any other corporation, trust, association or other organization, appointing
it exclusive or nonexclusive distributor or principal underwriter for the
Shares, every such contract to comply with such requirements and restrictions
as may be set forth in the By-laws; and any such contract may contain such
other terms interpretive of or in addition to said requirements and
restrictions as the Trustees may determine.
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<PAGE> 13
The fact that:
(i) any of the Shareholders, Trustees or officers of the
Trust is a shareholder, director, officer, partner, trustee, employee,
manager, adviser, principal underwriter or distributor or agent of or
for any corporation, trust, association, or other organization, or of
or for any parent or affiliate of any organization, with which an
advisory or management contract, or principal underwriter's or
distributor's contract, or transfer, shareholder servicing or other
agency contract may have been or may hereafter be made, or that any
such organization, or any parent or affiliate thereof, is a
Shareholder or has an interest in the Trust, or that
(ii) any corporation, trust, association or other
organization with which an advisory or management contract or
principal underwriter's or distributor's contract, or transfer,
shareholder servicing or other agency contract may have been or may
hereafter be made also has an advisory or management contract, or
principal underwriter's or distributor's contract, or transfer,
Shareholder servicing or other agency contract with one or more other
corporations, trusts, associations, or other organizations, or has
other business or interests
shall not affect the validity of any such contract or disqualify any
Shareholder, Trustee or officer of the Trust from voting upon or executing the
same or create any liability or accountability to the Trust or its
Shareholders.
Section 3.4 Payment of Expenses by the Trust. The Trustees are
authorized to pay or to cause to be paid out of the principal or income of the
Trust, or partly out of principal and partly out of income, as they deem fair,
all expenses, fees, charges, taxes and liabilities incurred or arising in
connection with the Trust, in connection with the management thereof, or in
connection with the financing of the sale of Shares, including, but not limited
to, the Trustees' compensation and such expenses and charges for the services
of the Trust's officers, employees, any investment adviser, manager, or
sub-adviser, principal underwriter, auditor, counsel, custodian, transfer
agent, shareholder servicing agent, and such other agents or independent
contractors and such other expenses and charges as the Trustees may deem
necessary or proper to incur; provided, however, that all expenses, fees,
charges, taxes and liabilities incurred or arising in connection with a
particular series or class of Shares as determined by the Trustees, shall be
payable solely out of the assets of that series
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<PAGE> 14
or class. Any general liabilities, expenses, costs, charges or reserves of the
Trust which are not readily identifiable as belonging to any particular series
shall be allocated and charged by the Trustees between or among any one or more
of the series in such manner as the Trustees in their sole discretion deem fair
and equitable. Each such allocation shall be conclusive and binding upon the
Shareholders of all series for all purposes. Any creditor of any series may
look only to the assets of that series to satisfy such creditor's debt.
The Trustees shall have the power, as frequently as they may
determine, to cause each Shareholder to pay directly, in advance or arrears,
for any and all expenses of the Trust, an amount fixed from time to time by the
Trustees, by setting off such charges due from such Shareholder from declared
but unpaid dividends owed such Shareholder and/or by reducing the number of
Shares in the account of such Shareholder by that number of full and/or
fractional Shares which represents the outstanding amount of such charges due
from such Shareholder.
Section 3.5 Ownership of Assets of the Trust. Title to all of the
assets of the Trust shall at all times be considered as vested in the Trustees.
ARTICLE IV
SHARES
Section 4.1 Beneficial Interest. The Shares of the Trust shall have
no par value and shall be issued in one or more classes as the Trustees may,
without shareholder approval, authorize. Each class of Shares shall represent
an equal proportionate interest in the assets and liabilities of the Trust,
with no class having priority or preference over another. If the Trustees have
authorized the issuance of two or more classes of Shares, then the classes may
have such variations as to dividend, redemption, voting rights, net asset
values, expenses borne by the classes, and other matters as the Trustees have
authorized. The number of Shares authorized shall be unlimited.
Section 4.2 Ownership of Shares. The ownership of Shares shall be
recorded on the books of the Trust or a transfer or similar agent. No
certificates certifying the ownership of Shares shall be issued except as the
Trustees may otherwise determine from time to time. The Trustees may make such
rules as they consider appropriate for the issuance of Share certificates, the
transfer of Shares and similar matters. The record books of the Trust as kept
by the Trust or any transfer or similar agent, as the case may be, shall be
conclusive as to who are the Shareholders of each class
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<PAGE> 15
and as to the number of Shares of each class held from time to time by each
Shareholder.
Section 4.3 Investment in the Trust. The Trustees shall accept
investments in the Trust from such persons and on such terms and for such
consideration, which may consist of cash or tangible or intangible property or
a combination thereof, as they from time to time authorize.
All consideration received by the Trust for the issue or sale of
Shares of each class of Shares, together with all income, earnings, profits,
and proceeds thereof, including any proceeds derived from the sale, exchange or
liquidation thereof, and any funds or payments derived from any reinvestment of
such proceeds in whatever form the same may be, shall irrevocably belong to the
class of Shares with respect to which the same were received by the Trust for
all purposes, subject only to the rights of creditors, and shall be so handled
upon the books of account of the Trust and are herein referred to as "assets
of" such class of shares.
Section 4.4 No Preemptive Rights. Shareholders shall have no
preemptive or other right to subscribe to any additional Shares or other
securities issued by the Trust.
Section 4.5 Status of Shares and Limitation of Personal Liability.
Shares shall be deemed to be personal property giving only the rights provided
in this instrument. Every Shareholder by virtue of having become a Shareholder
shall be held to have expressly assented and agreed to the terms hereof and to
have become a party hereto. The death of a Shareholder during the continuance
of the Trust shall not operate to terminate the same nor entitle the
representative of any deceased Shareholder to an accounting or to take any
action in court or elsewhere against the Trust or the Trustees, but only to the
rights of said decedent under this Trust. Ownership of Shares shall not
entitle the Shareholder to any title in or to the whole or any part of the
Trust property or right to call for a partition or division of the same or for
an accounting, nor shall the ownership of Shares constitute the Shareholders
partners. Neither the Trust nor the Trustees, nor any officer, employee or
agent of the Trust shall have any power to bind personally any Shareholder, nor
except as specifically provided herein to call upon any Shareholder for the
payment of any sum of money or assessment whatsoever other than such as the
Shareholder may at any time personally agree to pay.
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ARTICLE V
SHAREHOLDERS' VOTING POWERS AND MEETINGS
Section 5.1 Shareholders' Voting Powers and Meetings. Shareholders
shall have such power to vote as is provided for in, and may hold meetings and
take actions pursuant to the provisions of the By-laws.
ARTICLE VI
DISTRIBUTIONS AND REPURCHASES
Section 6.1 Distributions. The Trustees may each year, or more
frequently if they so determine, distribute to the Shareholders of each class
of Shares such income and capital gains, accrued or realized, as the Trustees
may determine, after providing for actual and accrued expenses and liabilities
(including such reserves as the Trustees may establish) determined in
accordance with good accounting practices. The Trustees shall have full
discretion to determine which items shall be treated as income and which items
as capital and their determination shall be binding upon the Shareholders.
Distributions of each year's income of each class of Shares shall be
distributed pro rata to Shareholders in proportion to the number of Shares of
each class held by each of them. Such distributions shall be made in cash or
Shares or a combination thereof as determined by the Trustees. Any such
distribution paid in Shares will be paid at the net asset value thereof as
determined in accordance with the By-laws.
Section 6.2 Repurchases. The Trustees may in their business judgment
authorize the Trust to repurchase all or a portion of its outstanding classes
of Shares at the net asset value of such Shares thereof as determined in
accordance with the By-Laws. Such Share repurchases are expected to be in the
form of tender offers by the Trust to the Shareholders.
Section 6.3 Dividends, Distributions and Repurchases. No dividend or
distribution (including, without limitation, any distribution paid upon
termination of the Trust or of a class of Shares) with respect to the Shares
shall be effected by the Trust other than from the assets of such Trust. The
Trust may borrow against its assets for the purpose of funding said repurchase
of Shares.
ARTICLE VII
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COMPENSATION AND LIMITATION OF LIABILITY OF TRUSTEES
Section 7.1 Compensation. the Trustees as such shall be entitled to
reasonable compensation from the Trust; they may fix the amount of their
compensation. Nothing herein shall in any way prevent the employment of any
Trustee for advisory, management, legal, accounting, investment banking,
underwriting, brokerage, or investment dealer or other services and payment for
the same by the Trust.
Section 7.2. Limitation of Liability. The Trustees shall not be
responsible or liable in any event for any neglect or wrongdoing of any
officer, agent, employee, manager or principal underwriter of the Trust, nor
shall any Trustee be responsible for the act or omission of any other Trustee,
but nothing herein contained shall protect any Trustee against any liability to
which he or she would otherwise be subject by reason of wilful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his or her office.
Every note, bond, contract, instrument, certificate, Share or
undertaking and every other act or thing whatsoever executed or done by or on
behalf of the Trust or the Trustees or any of them in connection with the Trust
shall be conclusively deemed to have been executed or done only in or with
respect to their or his or her capacity as Trustees or Trustee, and such
Trustees or Trustee shall not be personally liable thereon.
ARTICLE VIII
INDEMNIFICATION
Section 8.1 Trustees, Officers, etc. The Trust shall indemnify each
of its Trustees and officers (including persons who serve at the Trust's
request as directors, officers or trustees of another organization in which the
Trust has any interest as a shareholder, creditor or otherwise) (hereinafter
referred to as a "Covered Person") against all liabilities and expenses,
including but not limited to amounts paid in satisfaction of judgments, in
compromise or as fines and penalties, and counsel fees reasonably incurred by
any Covered Person in connection with the defense or disposition of any action,
suit or other proceeding, whether civil or criminal, before any court or
administrative or legislative body, in which such Covered Person may be or may
have been involved as a party or otherwise or with which such Covered Person
may be or may have been threatened, while in office or thereafter, by reason of
being or having been such a Covered Person except with respect to any matter as
to which such Covered Person shall have been finally adjudicated in any such
action, suit or other proceeding to
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be liable to the Trust or its Shareholders by reason of wilful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of such Covered Person's office. Expenses, including counsel fees so
incurred by any such Covered Person (but excluding amounts paid in satisfaction
of judgments, in compromise or as fines or penalties), shall be paid from time
to time by the Trust in advance of the final disposition of any such action,
suit or proceeding upon receipt of an undertaking by or on behalf of such
Covered Person to repay amounts so paid to the Trust if it is ultimately
determined that indemnification of such expenses is not authorized under this
Article; provided, however, that either (a) such Covered Person shall have
provided appropriate security for such undertaking, (b) the Trust shall be
insured against losses arising from any such advance payments or (c) either a
majority of the disinterested Trustees acting on the matter (provided that a
majority of the disinterested Trustees then in office act on the matter), or
independent legal counsel in a written opinion, shall have determined, based
upon a review of readily available facts (as opposed to a full trial type
inquiry) that there is reason to believe that such Covered Person will be found
entitled to indemnification under this Article.
Section 8.2 Compromise Payment. As to any matter disposed of
(whether by a compromise payment, pursuant to a consent decree or otherwise)
without an adjudication by a court, or by any other body before which the
proceeding was brought, that such Covered Person is liable to the Trust or its
Shareholders by reason of wilful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her office,
indemnification shall be provided if (a) approved, after notice that it
involves such indemnification, by at least a majority of the disinterested
Trustees acting on the matter (provided that a majority of the disinterested
Trustees then in office act on the matter) upon a determination, based upon a
review of readily available facts (as opposed to a full trial type inquiry)
that such Covered Person is not liable to the Trust or its Shareholders by
reasons of wilful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his or her office, or (b)
there has been obtained an opinion in writing of independent legal counsel,
based upon a review of readily available facts (as opposed to a full trial type
inquiry) to the effect that such indemnification would not protect such Person
against any liability to the Trust or to its shareholders to which he or she
would otherwise be subject by reason of wilful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office. Any approval pursuant to this Section shall not prevent the recovery
from any Covered Person of any amount paid to such Covered Person in accordance
with this Section as indemnification
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<PAGE> 19
if such Covered Person is subsequently adjudicated by a court of competent
jurisdiction to have been liable to the Trust or its Shareholders by reason of
wilful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of such Covered Person's office.
Section 8.3 Indemnification Not Exclusive. The right of
indemnification hereby provided shall not be exclusive of or affect any other
rights to which such Covered Person may be entitled. As used in this Article
VIII, the term "Covered Person" shall include such person's heirs, executors
and administrators and a "disinterested Trustee" is a Trustee who is not an
"interested person" of the Trust as defined in Section 2 (a)(19) of the
Investment Company Act of 1940, as amended, (or who has been exempted from
being an "interested person" by any rule, regulation or order of the
Commission) and against whom none of such actions, suits or other proceedings
or another action, suit or other proceeding on the same or similar grounds is
then or has been pending. Nothing contained in this Article shall affect any
rights to indemnification to which personnel of the Trust, other than Trustees
or officers, and other persons may be entitled by contract or otherwise under
law, nor the power of the Trust to purchase and maintain liability insurance on
behalf of any such person.
Section 8.4 Shareholders. In case any Shareholder or former
Shareholder shall be held to be personally liable solely by reason of his or
her being or having been a Shareholder and not because of his or her acts or
omissions or for some other reason, the Shareholder or former Shareholder (or
his or her heirs, executors, administrators or other legal representatives or
in the case of a corporation or other entity, its corporate or other general
successor) shall be entitled to be held harmless from and indemnified against
all loss and expense arising from such liability, but only out of the assets of
the particular series of Shares of which he or she is or was a Shareholder.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Trustees, Shareholders, etc. Not Personally Liable;
Notice. All persons extending credit to, contracting with or having any claim
against the Trust shall look only to the assets of the Trust for payment under
such credit, contract or claim; and neither the Shareholders nor the Trustees,
nor any of the Trust's officers, employees or agents, whether past, present or
future, shall be personally liable therefor. Nothing in this Declaration of
Trust shall protect any Trustee against any liability to which
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<PAGE> 20
such Trustee would otherwise be subject by reason of wilful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of the office of Trustee.
Every note, bond, contract, instrument, certificate or undertaking
made or issued by the Trustees or by any officer or officers shall give notice
that this Declaration of Trust is on file with the Secretary of the
Commonwealth of Massachusetts and shall recite that the same was executed or
made by or on behalf of the Trust or by them as Trustee or Trustees or as
officers or officer and not individually and that the obligations of such
instrument are not binding upon any of them or the Shareholders individually
but are binding only upon the assets and property of the Trust, and may contain
such further recital as he or she or they may deem appropriate, but the
omission thereof shall not operate to bind any Trustee or Trustees or officer
or officers or Shareholder or Shareholders individually.
Section 9.2 Trustee's Good Faith Action, Expert Advice, No Bond or
Surety. The exercise by the Trustees of their powers and discretions hereunder
shall be binding upon everyone interested. A Trustee shall be liable for his
or her own wilful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of the office of Trustee, and
for nothing else, and shall not be liable for errors of judgment or mistakes of
fact or law. The Trustees may take advice of counsel or other experts with
respect to the meaning and operation of this Declaration of Trust, and shall be
under no liability for any act or omission in accordance with such advice or
for failing to follow such advice. The Trustees shall not be required to give
any bond as such, nor any surety if a bond is required.
Section 9.3 Liability of Third Persons Dealing with Trustees. No
person dealing with the Trustees shall be bound to make any inquiry concerning
the validity of any transaction made or to be made by the Trustees or to see to
the application of any payments made or property transferred to the Trust or
upon its order.
Section 9.4 Merger of Classes of Shares of the Trust. If the Trust
issues more than one class of Shares, then such classes may be merged,
consolidated or combined at any time by the vote of Shareholders holding at
least a majority of the Shares of each class entitled to vote or by the
Trustees by written notice to the Shareholders of each class of Shares.
Section 9.5 Duration and Termination of Trust. Unless terminated as
provided herein, the Trust shall continue without limitation of time. The
Trust may be terminated at any time by the
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<PAGE> 21
vote of Shareholders holding at least a majority of the Shares entitled to vote
or by the Trustees by written notice to the Shareholders. Any class of Shares
may be terminated at any time by vote of Shareholders holding at least a
majority of the Shares of such class entitled to vote or by the Trustees by
written notice to the Shareholders of such class.
Upon termination of the Trust or of any one or more classes of Shares,
after paying or otherwise providing for all charges, taxes, expenses and
liabilities, whether due or accrued or anticipated, of the Trust or of the
particular class as may be determined by the Trustees, the Trust shall, in
accordance with such procedures as the Trustees shall consider appropriate,
reduce the remaining assets to distributable form in cash or shares or other
securities, or any combination thereof, and distribute the proceeds to the
Shareholders of the series involved, ratably according to the aggregate net
asset value of Shares of such class of Shares held by the several Shareholders
of such class of Shares on the date of termination.
Section 9.6 Merger, Consolidation and Sale of Assets. Subject to
Section 9.8, the Trust may merge or consolidate with any other corporation,
association, trust or other organization, or may sell, lease or exchange all or
substantially all of the Trust Property, including its goodwill, upon such
terms and conditions and for such consideration when and as authorized at any
meeting of the Shareholders called for the purpose by the affirmative vote of
the holders of not less than two-thirds of the the Shares outstanding and
entitled to vote, or by an instrument or instruments in writing without a
meeting, consented to by the holders of not less than two-thirds of the Shares,
provided, however, that if such merger, consolidation, sale, lease or exchange
is recommended by the Trustees, the vote or written consent of the holders of a
majority of the Shares outstanding and entitled to vote shall be sufficient
authorization and any such merger, consolidation, sale, lease or exchange shall
be deemed for all purposes to have been accomplished under and pursuant to the
statutes of the Commonwealth of Massachusetts.
Section 9.7 Conversion to Open-End Management Investment Company.
Notwithstanding any other provisions of this Declaration or the By- Laws, an
amendment to this Declaration that makes the Common Shares a "redeemable
security" (as that term is defined in the 1940 Act) shall be required to be
approved by at least (a) a majority of the Trustees, including a majority of
the Trustees who are not Interested Persons; and (b) a Majority Shareholder
Vote.
The Trust shall notify the holders of all capital securities
of the approval, in accordance with the preceding
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<PAGE> 22
paragraph of this Section 9.7, of any amendment to this Declaration that makes
the Shares a "redeemable security" (as that term is defined in the 1940 Act) no
later than thirty (30) days prior to the date of filing of such amendment with
the Secretary of State of the Commonwealth of Massachusetts; provided, however,
that such amendment may not be so filed until the later of ninety (90) days
following the date of approval of such amendment by the holders of the Shares
in accordance with the preceding paragraph of this Section 9.7 or thirty (30)
days following the date on which notice of the approval of such amendment is
first given to Shareholders.
Section 9.8 Certain Transactions. (a) Notwithstanding any other
provision of this Declaration and subject to the exceptions provided in
paragraph (d) of this Section, the types of transactions described in paragraph
(c) of this Section shall require the affirmative vote or consent of the
holders of not less than two-thirds of the Shares outstanding and entitled to
vote when a Principal Shareholder (as defined in paragraph (b) of this Section)
is a party to the transaction. Such affirmative vote or consent shall be in
addition to the vote or consent of the holders of the Shares otherwise required
by law or any agreement between the Trust and any national securities exchange.
(b) The term "Principal Shareholder" shall mean any
corporation, person or other entity which is the beneficial owner, directly or
indirectly, of more than five percent (5%) of the outstanding Shares and shall
include any affiliate or associate, as such terms are defined in clause (ii)
below, of a Principal Shareholder. For the purposes of this Section, in
addition to the Shares which a corporation, person or other entity beneficially
owns directly, (a) any corporation, person or other entity shall be deemed to
be the beneficial owner of any Shares (i) which it has the right to acquire
pursuant to any agreement or upon exercise of conversion rights or warrants, or
otherwise (but excluding share options granted by the Trust), or (ii) which are
beneficially owned, directly or indirectly (including Shares deemed owned
through application of clause (i) above, by any other corporation, person or
entity with which it or its "affiliate" or "associate" (as defined below) has
any agreement, arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of Shares, or which is its "affiliate" or
"associate" as those terms are defined in Rule 12b-2 under the Securities
Exchange Act of 1934, as amended, and (b) the outstanding Shares shall include
Shares deemed owned through application of clauses (i) and (ii) above but shall
not include any other Shares which may be issuable pursuant to any agreement,
or upon exercise of conversion rights or warrants, or otherwise.
(c) This Section shall apply to the following
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transactions:
(1) The merger or consolidation of the
Trust or any subsidiary of the Trust with or into any Principal
Shareholder.
(2) The issuance of any securities of
the Trust to any Principal Shareholder for cash.
(3) The sale, lease or exchange of all
or any substantial part of the assets of the Trust to any Principal
Shareholder (except assets having an aggregate fair market value of
less than $1,000,000, aggregating for the purpose of such computation
all assets sold, leased or exchanged in any series of similar
transactions within a twelve-month period).
(4) The sale, lease or exchange to the
Trust or any subsidiary thereof, in exchange for securities of the
Trust of any assets of any Principal Shareholder (except assets having
an aggregate fair market value of less than $1,000,000, aggregating
for the purposes of such computation all assets sold, leased or
exchanged in any series of similar transactions within a twelve-month
period).
(d) The provisions of this Section shall not be
applicable to (i) any of the transactions described in paragraph (c) of this
Section if the Trustees shall by resolution have approved a memorandum of
understanding with such Principal Shareholder with respect to and substantially
consistent with such transaction, or (ii) any such transaction with any
corporation of which a majority of the outstanding shares of all classes of
stock normally entitled to vote in elections of directors is owned of record or
beneficially by the Trust and its subsidiaries.
(e) The Trustees shall have the power and duty to
determine for the purposes of this Section, on the basis of information known
to the Trust, whether (i) a corporation, person or entity beneficially owns
more than five percent (5%) of the outstanding Shares, (ii) a corporation,
person or entity is an "affiliate" or "associate" (as defined above) of
another, (iii) the assets being acquired or leased to or by the Trust, or any
subsidiary thereof, constitute a substantial part of the assets of the Trust
and have an aggregate fair market value of less than $1,000,000, and (iv) the
memorandum of understanding referred to in paragraph (d) hereof is
substantially consistent with the transaction covered thereby. Any such
determination shall be conclusive and binding for all purposes of this Section.
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<PAGE> 24
Section 9.9 Amendments. This Declaration of Trust may be amended at
any time by an instrument in writing signed by a majority of the then Trustees
when authorized to do so by vote of Shareholders holding a majority of the
Shares of each series entitled to vote, except that an amendment which shall
affect the holders of one or more series of Shares but not the holders of all
outstanding series shall be authorized by vote of the Shareholders holding a
majority of the Shares entitled to vote of each series affected and no vote of
Shareholders of a series not affected shall be required. Any amendment which
shall affect the holders of Shares of one or more classes of a series but not
the holders of all Shares of a series shall be authorized by vote of the
Shareholders holding a majority of the Shares of such classes affected by the
amendment voting together as a single class, and no vote of Shareholders of the
classes not affected shall be required. Amendments having the purpose of
changing the name of the Trust, of establishing, changing, or eliminating the
par value of the shares or of supplying any omission, curing any ambiguity or
curing, correcting or supplementing any defective or inconsistent provision
contained herein shall not require authorization by Shareholder vote.
Section 9.10 Resident Agent. The Trust may appoint and maintain a
resident agent in the Commonwealth of Massachusetts.
Section 9.11 Filing of Copies; References; Headings. The original or
a copy of this instrument and of each amendment hereto shall be kept at the
office of the Trust where it may be inspected by any Shareholder. A copy of
this instrument and of each amendment hereto shall be filed by the Trust with
the Secretary of the Commonwealth of Massachusetts and with the Boston City
Clerk, as well as any other governmental office where such filing may from time
to time be required, but the failure to make any such filing shall not impair
the effectiveness of this instrument or any such amendment. Anyone dealing
with the Trust may rely on a certificate by an officer of the Trust as to
whether or not any such amendments have been made, as to the identities of the
Trustees and officers, and as to any matters in connection with the Trust
hereunder; and, with the same effect as if it were the original, may rely on a
copy certified by an officer of the Trust to be a copy of this instrument or of
any such amendments. In this instrument and in any such amendment, references
to this instrument, and all expressions like "herein", "hereof" and "hereunder"
shall be deemed to refer to this instrument as a whole as the same may be
amended or affected by any such amendments. The masculine gender shall include
the feminine and neuter genders. Headings are placed herein for convenience of
reference only and shall not be taken as a part hereof or control or affect the
meaning, construction or effect of this instrument. This
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<PAGE> 25
instrument may be executed in any number of counterparts each of which shall be
deemed an original.
Section 9.12 Applicable Law. This Declaration of Trust is made in
the Commonwealth of Massachusetts, and it is created under and is to be
governed by and construed and administered according to the laws of said
Commonwealth, including the Massachusetts Business Corporation Law as the same
may be amended from time to time, to which reference is made with the intention
that matters not specifically covered herein or as to which an ambiguity may
exist shall be resolved as if the Trust were a business corporation organized
in Massachusetts, but the reference to said Business Corporation Law is not
intended to give the Trust, the Trustees, the Shareholders or any other person
any right, power, authority or responsibility available only to or in
connection with an entity organized in corporate form. The Trust shall be of
the type referred to in Section 1 of Chapter 182 of the Massachusetts General
Laws and of the type commonly called a Massachusetts business trust, and
without limiting the provisions hereof, the Trust may exercise all powers which
are ordinarily exercised by such a trust.
Section 9.13 Provisions in Conflict with Laws and Regulations. (a)
The provisions of the Declaration are severable, and if the Trustees shall
determine, with the advice of counsel, that any of such provisions is in
conflict with the 1940 Act, the regulated investment company provisions of the
Internal Revenue Code of 1986, or any amendments or successor statute thereto,
or with other applicable laws and regulations, the conflicting provision shall
be deemed not to constitute and never to have constituted a part of the
Declaration; provided, however, that such determination shall not affect any of
the remaining provisions of the Declaration or render invalid or improper any
action taken or omitted prior to such determination.
(b) If any provision of the Declaration shall be held
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall apply only to such provision in such jurisdiction and
shall not in any manner affect such provision in any other jurisdiction or any
other provision of the Declaration in any jurisdiction.
Section 9.14 Use of the Name. Sierra Investment Advisors
Corporation ("Sierra") has consented to the use by the Trust of the identifying
word or name "Sierra" in the name of the Trust. Such consent is conditioned
upon the employment of Sierra, its successors or any affiliate thereof as
Investment Advisor or administrator of the Trust. As between the Trust and
Sierra, Sierra controls the use of the name of the Trust insofar as such
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<PAGE> 26
name contains "Sierra." The name or identifying word "Sierra" may be used from
time to time in other connections and for other purposes by Sierra or
affiliated entities. Sierra may require the Trust to cease using "Sierra" in
the name of the Trust if the Trust ceases to employ, for any reason, Sierra, an
affiliate or any successor as Investment Advisor of the Trust.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
for himself and his assigns, as of the 4th day of October, 1995.
/s/ F. Brian Cerini
---------------------------
F. Brian Cerini
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<PAGE> 27
THE STATE OF CALIFORNIA
COUNTY OF LOS ANGELES
October 4, 1995
Then personally appeared the above-named F. Brian Cerini and
acknowledged the foregoing instrument to be his free act and deed, before me.
/s/ Azie Avanian
---------------------------
Notary Public
My. Commission expires: 2/26/1999
[Notary Seal]
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<PAGE> 1
Sierra Prime Income Fund
AMENDED AGREEMENT AND DECLARATION OF TRUST
January 18, 1996
<PAGE> 2
AMENDED AGREEMENT AND DECLARATION OF TRUST
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I. NAME AND DEFINITIONS 2
- ---------- --------------------
Section 1.1 Name 2
Section 1.2 Definitions 2
a) "Trust" 2
b) "Trustees" 2
c) "Shares" 2
d) "Shareholder" 2
e) "1940 Act" 2
f) "Affiliated Person,"
"Assignment," "Commission,"
"Interested Person,"
"Principal Underwriter," and
"Majority Shareholder Vote" 2
g) "Declaration of Trust" 2
h) "By-Laws" 2
ARTICLE II. PURPOSE OF THE TRUST 2
- ----------- --------------------
Section 2.1 Purpose of the Trust 2
ARTICLE III. THE TRUSTEES 3
- ------------ ------------
Section 3.1 Election, Resignation, Vacancies, etc. 3
a) Election 3
b) Effect of Death, Resignation, etc. 3
c) No Accounting 3
d) Vacancies 3
Section 3.2 Powers of Trustees 4
a) Investments 4
b) Disposition of Assets 4
c) Act as Distributor, Underwriter,
Broker, Dealer 5
d) Ownership Powers 5
e) Subscription 5
f) Form of Holding 5
g) Allocation of Assets and
Liabilities 5
h) Reorganization, etc. 5
i) Voting Trusts, etc. 5
j) Compromise 5
k) Partnerships, etc. 6
l) Borrowing 6
m) Guarantees, etc. 6
n) Insurance 6
</TABLE>
(i)
<PAGE> 3
<TABLE>
<S> <C> <C>
o) Pensions 6
p) Any Other Lawful Activity 6
Section 3.3 Advisory, Management and Distribution 7
Section 3.4 Payment of Expenses by the Trust 8
Section 3.5 Ownership of Assets of the Trust 9
ARTICLE IV. SHARES 9
- ----------- ------
Section 4.1 Beneficial Interest 9
Section 4.2 Ownership of Shares 9
Section 4.3 Investment in the Trust 9
Section 4.4 No Preemption Rights 10
Section 4.5 Status of Shares and Limitation
of Personal Liability 10
ARTICLE V. SHAREHOLDERS' VOTING POWERS AND MEETINGS 10
- ---------- ----------------------------------------
Section 5.1 Shareholders' Voting Powers and Meetings 10
ARTICLE VI. DISTRIBUTIONS AND REPURCHASES 10
- ----------- -----------------------------
Section 6.1 Distributions 10
Section 6.2 Repurchases 11
Section 6.3 Dividends, Distributions and Repurchases 11
ARTICLE VII. COMPENSATION AND LIMITATION OF LIABILITY
- ------------ ----------------------------------------
OF TRUSTEES 11
-----------
Section 7.1 Compensation 11
Section 7.2 Limitation of Liability 11
ARTICLE VIII. INDEMNIFICATION 12
- ------------- ---------------
Section 8.1 Trustees, Officers, etc. 12
Section 8.2 Compromise Payment 12
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<S> <C> <C>
Section 8.3 Indemnification Not Exclusive 13
Section 8.4 Shareholders 13
ARTICLE IX. MISCELLANEOUS 14
- ----------- -------------
Section 9.1 Trustees, Shareholders, etc. Not
Personally Liable; Notice 14
Section 9.2 Trustee's Good Faith Action,
Expert Advice, No Bond or Surety 14
Section 9.3 Liability of Third Persons Dealing
with Trustees 15
Section 9.4 Merger of Classes of Shares of the
Trust 15
Section 9.5 Duration and Termination of Trust 16
Section 9.6 Merger, Consolidation and Sale of Assets 16
Section 9.7 Conversion to Open-End Management
Investment Company 17
Section 9.8 Certain Transactions 17
Section 9.9 Amendments 19
Section 9.10 Resident Agent 19
Section 9.11 Filing of Copies; References; Headings 19
Section 9.12 Applicable Law 20
Section 9.13 Provisions in Conflict with Laws
or Regulations 20
Section 9.14 Use of Name 21
</TABLE>
(iii)
<PAGE> 5
Sierra Prime Income Fund
CROSS-REFERENCE SHEET
Pursuant to CMR 116.00:
116.03 (a) Name of organization or trust:
Sierra Prime Income Fund
(b) Date of organization:
October 4, 1995
(c) Names and address of the trustees:
F. Brian Cerini
9301 Corbin Avenue
Northridge, CA 91324
(d) Original signatures of all trustees:
See page 21.
(e) Principal place of business:
One Exchange Place
Boston, MA 02108
(f) Statement that beneficial interest is
divided into transferable certificates of
participation or shares;
See Section 4.1, page 9.
(g) Ability to merge:
See Section 9.6, page 16.
(h) The name and address of the resident agent in
Massachusetts:
The Prentice-Hall Corporation System,
Inc.
84 State Street
Boston, MA 02109
<PAGE> 6
SIERRA PRIME INCOME FUND
AMENDED AGREEMENT AND DECLARATION OF TRUST
AMENDED AGREEMENT AND DECLARATION OF TRUST made at Boston,
Massachusetts this 18th day of January, 1996, by the Trustees hereunder, and by
the holders of shares of beneficial interest to be issued hereunder as
hereinafter provided.
WITNESSETH
WHEREAS this Trust has been formed to carry on the business of
an investment company; and
WHEREAS this Trust is authorized to issue its shares of
beneficial interest in accordance with the provisions hereinafter set forth;
and
WHEREAS the Trustees have agreed to manage all property coming
into their hands as trustees of a Massachusetts business trust in accordance
with the provisions hereinafter set forth.
NOW, THEREFORE, the Trustees hereby declare that they will
hold all cash, securities and other assets which they may from time to time
acquire in any manner as Trustees hereunder IN TRUST to manage and dispose of
the same upon the following terms and conditions for the benefit of the holders
from time to time of shares of beneficial interest in this Trust.
<PAGE> 7
ARTICLE I
NAME AND DEFINITIONS
Section 1.1 Name. This Trust shall be known as the "Sierra
Prime Income Fund" and the Trustees shall conduct the business of the Trust
under that name or any other name or names as they may from time to time
determine.
Section 1.2 Definitions. Whenever used herein, unless
otherwise required by the context or specifically provided:
(a) The "Trust" refers to the Massachusetts business
trust established by an Agreement and Declaration of Trust dated October 4,
1995, as amended from time to time;
(b) "Trustees" refers to the Trustees of the Trust
hereunder named herein or elected in accordance with Article III;
(c) "Shares" refers to the transferable units of interest
into which the beneficial interest in the Trust shall be divided from time to
time;
(d) "Shareholder" means a record owner of Shares;
(e) The "1940 Act" refers to the Investment Company Act
of 1940 and the Rules and Regulations thereunder, all as amended from time to
time;
(f) The terms "Affiliated Person," "Assignment,"
"Commission," "Interested Person," "Principal Underwriter" and "Majority
Shareholder Vote" (the 67% or 50% requirement of the third sentence of Section
2(a)(42) of the 1940 Act, whichever may be applicable) shall have the meanings
given them in the 1940 Act;
(g) "Declaration of Trust" shall mean this Amended
Agreement and Declaration of Trust as amended or restated from time to time;
and
(h) "By-Laws" shall mean the By-Laws of the Trust as
amended from time to time.
ARTICLE II
PURPOSE OF THE TRUST
Section 2.1 Purpose of the Trust. The purpose of the Trust
is to operate as an investment company and to provide investors a managed
investment primarily in securities and to carry on such other business as the
Trustees may from time to time
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<PAGE> 8
determine pursuant to their authority under this Amended Agreement and
Declaration of Trust.
ARTICLE III
THE TRUSTEES
Section 3.1 Election, Resignation, Vacancies, etc..
(a) Election. There shall initially be one Trustee who
shall be F. Brian Cerini. The number of Trustees shall be as provided in the
By-laws or as fixed from time to time by the Trustees. The Shareholders may
elect Trustees at any meeting of Shareholders called by the Trustees for that
purpose. Each Trustee shall serve during the continued lifetime of the Trust
until he or she dies, resigns or is removed, or, if sooner, until the next
meeting of Shareholders called for the purpose of electing Trustees and the
election and qualification of his or her successor. Any Trustee may resign at
any time by written instrument signed by him or her and delivered to any
officer of the Trust, to each other Trustee or to a meeting of the Trustees.
Such resignation shall be effective upon receipt unless specified to be
effective at some other time. Except to the extent expressly provided in a
written agreement with the Trust, no Trustee resigning and no Trustee removed
shall have any right to any compensation for any period following his
resignation or removal, or any right to damages on account of such removal.
(b) Effect of Death, Resignation, etc. of a Trustee. The
death, declination, resignation, retirement, removal or incapacity of the
Trustees, or any one of them, shall not operate to annul the Trust or to revoke
any existing agency created pursuant to the terms of this Amended Declaration
of Trust.
(c) No Accounting. Except to the extent required by the
1940 Act or under circumstances which would justify his or her removal for
cause, no person ceasing to be a Trustee as a result of his or her death,
resignation, retirement, removal or incapacity (nor the estate of any such
person) shall be required to make an accounting to the Shareholders or
remaining Trustees upon such cessation.
(d) Vacancies. Any vacancy or anticipated vacancy
resulting from any reason, including without limitation the death, resignation,
retirement, removal or incapacity of any of the Trustees, or resulting from an
increase in the number of Trustees by the other Trustees may (but so long as
there are at least two remaining Trustees, need not unless required by the 1940
Act) be filled by a majority of the remaining Trustees, subject to the
provisions of Section 16(a) of the 1940 Act, through the
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<PAGE> 9
appointment in writing of such other person as such remaining Trustees in their
discretion shall determine and such appointment shall be effective upon the
written acceptance of the person named therein to serve as a Trustee and
agreement by such person to be bound by the provisions of this Amended
Agreement and Declaration of Trust, except that any such appointment in
anticipation of a vacancy to occur by reason of retirement, resignation, or
increase in number of Trustees to be effective at a later date shall become
effective only at or after the effective date of said retirement, resignation,
or increase in number of Trustees. As soon as any Trustee so appointed shall
have accepted such appointment and shall have agreed in writing to be bound by
this Amended Agreement and Declaration of Trust and the appointment is
effective, the Trust estate shall vest in the new Trustee, together with the
continuing Trustees, without any further act or conveyance.
Section 3.2. Powers. Subject to the provisions of this
Amended Agreement and Declaration of Trust, the business of the Trust shall be
managed by the Trustees, and they shall have all powers necessary or convenient
to carry out that responsibility. Without limiting the foregoing, the Trustees
may adopt By-laws not inconsistent with this Declaration of Trust providing for
the conduct of the business of the Trust and may amend and repeal them to the
extent that such By-laws do not reserve that right to the Shareholders; they
may enlarge or reduce their number, may fill vacancies in their number,
including vacancies caused by enlargement of their number, and may remove
Trustees with or without cause; they may elect and remove, with or without
cause, such officers and appoint and terminate such agents as they consider
appropriate; they may appoint from their own number, and terminate, any one or
more committees consisting of two or more Trustees, including an executive
committee which may, when the Trustees are not in session, exercise some or all
of the power and authority of the Trustees as the Trustees may determine; they
may employ one or more custodians of the assets of the Trust and may authorize
such custodians to employ subcustodians and to deposit all or any part of such
assets in a system or systems for the central handling of securities, retain a
transfer agent or a Shareholder servicing agent, or both, provide for the
distribution of Shares by the Trust, through one or more principal underwriters
or otherwise, set record dates for the determination of Shareholders with
respect to various matters, and in general delegate such authority as they
consider desirable to any officer of the Trust, to any committee of the
Trustees and to any agent or employee of the Trust or to any such custodian or
underwriter.
Without limiting the foregoing, the Trustees shall have power and authority:
(a) To invest and reinvest cash, and to hold cash
uninvested;
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(b) To sell, exchange, lend, pledge, mortgage,
hypothecate, write options on and lease any or all of the
assets of the Trust;
(c) To act as a distributor of shares and as
underwriter of, or broker or dealer in, securities or other
property;
(d) To vote or give assent, or exercise any
rights of ownership, with respect to stock or other securities
or property; and to execute and deliver proxies or powers of
attorney to such person or persons as the Trustees shall deem
proper, granting to such person or persons such power and
discretion with relation to securities or property as the
Trustees shall deem proper;
(e) To exercise powers and rights of subscription
or otherwise which in any manner arise out of ownership of
securities;
(f) To hold any security or property in a form
not indicating any trust, whether in bearer, unregistered or
other negotiable form, or in the name of the Trustees or of
the Trust or in the name of a custodian, subcustodian or other
depository or a nominee or nominees or otherwise;
(g) To allocate assets, liabilities and expenses
of the Trust to a particular class of Shares or to apportion
the same among two or more classes of Shares, provided that
any liabilities or expenses incurred by a particular class of
Shares shall be payable solely out of the assets of that
class.
(h) To consent to or participate in any plan for
the reorganization, consolidation or merger of any corporation
or issuer, any security of which is or was held in the Trust;
to consent to any contract, lease, mortgage, purchase or sale
of property by such corporation or issuer, and to pay calls or
subscriptions with respect to any security held in the Trust;
(i) To join with other security holders in acting
through a committee depositary, voting trustee or otherwise,
and in that connection to deposit any security with, or
transfer any security to, any such committee, depositary or
trustee, and to delegate to them such power and authority with
relation to any security (whether or not so deposited or
transferred) as the Trustees shall deem proper, and to agree
to pay, and to pay, such portion of the expenses and
compensation of such
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committee, depositary or trustee as the Trustees shall deem
proper;
(j) To compromise, arbitrate or otherwise adjust
claims in favor of or against the Trust or any matter in
controversy, including but not limited to claims for taxes;
(k) To enter into joint ventures, general or
limited partnerships and any other combinations or
associations;
(l) To borrow funds;
(m) To endorse or guarantee the payment of any
notes or other obligations of any person; to make contracts of
guaranty or suretyship, or otherwise assume liability for
payment thereof; and to mortgage and pledge the Trust property
or any part thereof to secure any of or all such obligations;
(n) To purchase and pay for entirely out of Trust
property such insurance as they may deem necessary or
appropriate for the conduct of the business, including without
limitation, insurance policies insuring the assets of the
Trust and payment of distributions and principal on its
portfolio investments, and insurance policies insuring the
Shareholders, Trustees, officers, employees, agents,
investment advisers or managers, principal underwriters, or
independent contractors of the Trust individually against all
claims and liabilities of every nature arising by reason of
holding, being or having held any such office or position, or
by reason of any action alleged to have been taken or omitted
by any such person as Shareholder, Trustee, officer, employee,
agent, investment adviser or manager, principal underwriter,
or independent contractor, including any action taken or
omitted that may be determined to constitute negligence,
whether or not the Trust would have the power to indemnify
such person against such liability;
(o) To pay pensions for faithful service, as
deemed appropriate by the Trustees, and to adopt, establish
and carry out pension, profit-sharing, share bonus, share
purchase, savings, thrift and other retirement, incentive and
benefit plans, trusts and provisions, including the purchasing
of life insurance and annuity contracts as a means of
providing such retirement and other benefits, for any or all
of the Trustees, officers, employees and agents of the Trust;
and
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(p) To engage in any other lawful act or activity
in which corporations organized under the Massachusetts
Business Corporation Law may engage.
The Trustees shall not in any way be bound or limited by any
present or future law or custom in regard to investments by trustees. Except
as otherwise provided herein or from time to time in the By-laws, any action to
be taken by the Trustees may be taken by a majority of the Trustees present at
a meeting of Trustees (a quorum being present), within or without
Massachusetts, including any meeting held by means of a conference telephone or
other communications equipment by means of which all persons participating in
the meeting can hear each other at the same time and participation by such
means shall constitute presence in person at a meeting, or by written consents
of a majority of the Trustees then in office.
Section 3.3 Advisory, Management and Distribution. The
Trustees may, at any time and from time to time, contract for exclusive or
nonexclusive advisory and/or management services with any corporation, trust,
association or other organization (the "Advisor"), every such contract to
comply with such requirements and restrictions as may be set forth in the
By-laws; and any such contract may provide for one or more Sub-advisers who
shall perform all or part of the obligations of the Advisor under such contract
and may contain such other terms interpretive of or in addition to said
requirements and restrictions as the Trustees may determine, including, without
limitation, authority to determine from time to time what investments shall be
purchased, held, sold or exchanged and what portion, if any, of the assets of
the Trust shall be held uninvested and to make changes in the Trust's
investments. The Trustees may also, at any time and from time to time,
contract with the Advisor or any other corporation, trust, association or other
organization, appointing it exclusive or nonexclusive distributor or principal
underwriter for the Shares, every such contract to comply with such
requirements and restrictions as may be set forth in the By-laws; and any such
contract may contain such other terms interpretive of or in addition to said
requirements and restrictions as the Trustees may determine.
The fact that:
(i) any of the Shareholders, Trustees or officers
of the Trust is a shareholder, director, officer, partner,
trustee, employee, manager, adviser, principal underwriter or
distributor or agent of or for any corporation, trust,
association, or other organization, or of or for any parent or
affiliate of any organization, with which an advisory or
management contract, or principal underwriter's or
distributor's contract, or transfer, shareholder servicing or
other agency contract
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may have been or may hereafter be made, or that any such
organization, or any parent or affiliate thereof, is a
Shareholder or has an interest in the Trust, or that
(ii) any corporation, trust, association or other
organization with which an advisory or management contract or
principal underwriter's or distributor's contract, or
transfer, shareholder servicing or other agency contract may
have been or may hereafter be made also has an advisory or
management contract, or principal underwriter's or
distributor's contract, or transfer, Shareholder servicing or
other agency contract with one or more other corporations,
trusts, associations, or other organizations, or has other
business or interests
shall not affect the validity of any such contract or disqualify any
Shareholder, Trustee or officer of the Trust from voting upon or executing the
same or create any liability or accountability to the Trust or its
Shareholders.
Section 3.4 Payment of Expenses by the Trust. The Trustees
are authorized to pay or to cause to be paid out of the principal or income of
the Trust, or partly out of principal and partly out of income, as they deem
fair, all expenses, fees, charges, taxes and liabilities incurred or arising in
connection with the Trust, in connection with the management thereof, or in
connection with the financing of the sale of Shares, including, but not limited
to, the Trustees' compensation and such expenses and charges for the services
of the Trust's officers, employees, any investment adviser, manager, or
sub-adviser, principal underwriter, auditor, counsel, custodian, transfer
agent, shareholder servicing agent, and such other agents or independent
contractors and such other expenses and charges as the Trustees may deem
necessary or proper to incur; provided, however, that all expenses, fees,
charges, taxes and liabilities incurred or arising in connection with a
particular series or class of Shares as determined by the Trustees, shall be
payable solely out of the assets of that series or class. Any general
liabilities, expenses, costs, charges or reserves of the Trust which are not
readily identifiable as belonging to any particular series shall be allocated
and charged by the Trustees between or among any one or more of the series in
such manner as the Trustees in their sole discretion deem fair and equitable.
Each such allocation shall be conclusive and binding upon the Shareholders of
all series for all purposes. Any creditor of any series may look only to the
assets of that series to satisfy such creditor's debt.
The Trustees shall have the power, as frequently as they may
determine, to cause each Shareholder to pay directly, in advance or arrears,
for any and all expenses of the Trust, an
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amount fixed from time to time by the Trustees, by setting off such charges due
from such Shareholder from declared but unpaid dividends owed such Shareholder
and/or by reducing the number of Shares in the account of such Shareholder by
that number of full and/or fractional Shares which represents the outstanding
amount of such charges due from such Shareholder.
Section 3.5 Ownership of Assets of the Trust. Title to all
of the assets of the Trust shall at all times be considered as vested in the
Trustees.
ARTICLE IV
SHARES
Section 4.1 Beneficial Interest. The Shares of the Trust
shall have no par value and shall be issued in one or more classes or series as
the Trustees may, without shareholder approval, authorize. Each class or
series of Shares shall represent an equal proportionate interest in the assets
and liabilities of the Trust, with no class or series having priority or
preference over another. If the Trustees have authorized the issuance of two
or more classes or series of Shares, then the classes or series may have such
variations as to dividend, redemption, voting rights, net asset values,
expenses borne by the classes, and other matters as the Trustees have
authorized. The number of Shares authorized shall be unlimited.
Section 4.2 Ownership of Shares. The ownership of Shares
shall be recorded on the books of the Trust or a transfer or similar agent. No
certificates certifying the ownership of Shares shall be issued except as the
Trustees may otherwise determine from time to time. The Trustees may make such
rules as they consider appropriate for the issuance of Share certificates, the
transfer of Shares and similar matters. The record books of the Trust as kept
by the Trust or any transfer or similar agent, as the case may be, shall be
conclusive as to who are the Shareholders of each class or series and as to the
number of Shares of each class or series held from time to time by each
Shareholder.
Section 4.3 Investment in the Trust. The Trustees shall
accept investments in the Trust from such persons and on such terms and for
such consideration, which may consist of cash or tangible or intangible
property or a combination thereof, as they from time to time authorize.
All consideration received by the Trust for the issue or sale
of Shares of each class or series of Shares, together with all income,
earnings, profits, and proceeds thereof, including any proceeds derived from
the sale, exchange or liquidation thereof, and any funds or payments derived
from any reinvestment of such
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proceeds in whatever form the same may be, shall irrevocably belong to the
class or series of Shares with respect to which the same were received by the
Trust for all purposes, subject only to the rights of creditors, and shall be
so handled upon the books of account of the Trust and are herein referred to as
"assets of" such class or series of shares.
Section 4.4 No Preemptive Rights. Shareholders shall have no
preemptive or other right to subscribe to any additional Shares or other
securities issued by the Trust.
Section 4.5 Status of Shares and Limitation of Personal
Liability. Shares shall be deemed to be personal property giving only the
rights provided in this instrument. Every Shareholder by virtue of having
become a Shareholder shall be held to have expressly assented and agreed to the
terms hereof and to have become a party hereto. The death of a Shareholder
during the continuance of the Trust shall not operate to terminate the same nor
entitle the representative of any deceased Shareholder to an accounting or to
take any action in court or elsewhere against the Trust or the Trustees, but
only to the rights of said decedent under this Trust. Ownership of Shares
shall not entitle the Shareholder to any title in or to the whole or any part
of the Trust property or right to call for a partition or division of the same
or for an accounting, nor shall the ownership of Shares constitute the
Shareholders partners. Neither the Trust nor the Trustees, nor any officer,
employee or agent of the Trust shall have any power to bind personally any
Shareholder, nor except as specifically provided herein to call upon any
Shareholder for the payment of any sum of money or assessment whatsoever other
than such as the Shareholder may at any time personally agree to pay.
ARTICLE V
SHAREHOLDERS' VOTING POWERS AND MEETINGS
Section 5.1 Shareholders' Voting Powers and Meetings.
Shareholders shall have such power to vote as is provided for in, and may hold
meetings and take actions pursuant to the provisions of the By-laws.
ARTICLE VI
DISTRIBUTIONS AND REPURCHASES
Section 6.1 Distributions. The Trustees may each year, or
more frequently if they so determine, distribute to the Shareholders of each
class or series of Shares such income and capital gains, accrued or realized,
as the Trustees may determine, after providing for actual and accrued expenses
and liabilities (including such reserves as the Trustees may establish)
determined
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in accordance with good accounting practices. The Trustees shall have full
discretion to determine which items shall be treated as income and which items
as capital and their determination shall be binding upon the Shareholders.
Distributions of each year's income of each class or series of Shares shall be
distributed pro rata to Shareholders in proportion to the number of Shares of
each class or series held by each of them. Such distributions shall be made in
cash or Shares or a combination thereof as determined by the Trustees. Any
such distribution paid in Shares will be paid at the net asset value thereof as
determined in accordance with the By-laws.
Section 6.2 Repurchases. The Trustees may in their business
judgment authorize the Trust to repurchase all or a portion of its outstanding
classes or series of Shares at the net asset value of such Shares thereof as
determined in accordance with the By-Laws. Such Share repurchases are expected
to be in the form of tender offers by the Trust to the Shareholders.
Section 6.3 Dividends, Distributions and Repurchases. No
dividend or distribution (including, without limitation, any distribution paid
upon termination of the Trust or of a class or series of Shares) with respect
to the Shares shall be effected by the Trust other than from the assets of such
Trust. The Trust may borrow against its assets for the purpose of funding said
repurchase of Shares.
ARTICLE VII
COMPENSATION AND LIMITATION OF LIABILITY OF TRUSTEES
Section 7.1 Compensation. the Trustees as such shall be
entitled to reasonable compensation from the Trust; they may fix the amount of
their compensation. Nothing herein shall in any way prevent the employment of
any Trustee for advisory, management, legal, accounting, investment banking,
underwriting, brokerage, or investment dealer or other services and payment for
the same by the Trust.
Section 7.2. Limitation of Liability. The Trustees shall not
be responsible or liable in any event for any neglect or wrongdoing of any
officer, agent, employee, manager or principal underwriter of the Trust, nor
shall any Trustee be responsible for the act or omission of any other Trustee,
but nothing herein contained shall protect any Trustee against any liability to
which he or she would otherwise be subject by reason of wilful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his or her office.
Every note, bond, contract, instrument, certificate,
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Share or undertaking and every other act or thing whatsoever executed or done
by or on behalf of the Trust or the Trustees or any of them in connection with
the Trust shall be conclusively deemed to have been executed or done only in or
with respect to their or his or her capacity as Trustees or Trustee, and such
Trustees or Trustee shall not be personally liable thereon.
ARTICLE VIII
INDEMNIFICATION
Section 8.1 Trustees, Officers, etc. The Trust shall
indemnify each of its Trustees and officers (including persons who serve at the
Trust's request as directors, officers or trustees of another organization in
which the Trust has any interest as a shareholder, creditor or otherwise)
(hereinafter referred to as a "Covered Person") against all liabilities and
expenses, including but not limited to amounts paid in satisfaction of
judgments, in compromise or as fines and penalties, and counsel fees reasonably
incurred by any Covered Person in connection with the defense or disposition of
any action, suit or other proceeding, whether civil or criminal, before any
court or administrative or legislative body, in which such Covered Person may
be or may have been involved as a party or otherwise or with which such Covered
Person may be or may have been threatened, while in office or thereafter, by
reason of being or having been such a Covered Person except with respect to any
matter as to which such Covered Person shall have been finally adjudicated in
any such action, suit or other proceeding to be liable to the Trust or its
Shareholders by reason of wilful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of such Covered
Person's office. Expenses, including counsel fees so incurred by any such
Covered Person (but excluding amounts paid in satisfaction of judgments, in
compromise or as fines or penalties), shall be paid from time to time by the
Trust in advance of the final disposition of any such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such Covered
Person to repay amounts so paid to the Trust if it is ultimately determined
that indemnification of such expenses is not authorized under this Article;
provided, however, that either (a) such Covered Person shall have provided
appropriate security for such undertaking, (b) the Trust shall be insured
against losses arising from any such advance payments or (c) either a majority
of the disinterested Trustees acting on the matter (provided that a majority of
the disinterested Trustees then in office act on the matter), or independent
legal counsel in a written opinion, shall have determined, based upon a review
of readily available facts (as opposed to a full trial type inquiry) that there
is reason to believe that such Covered Person will be found entitled to
indemnification under this Article.
Section 8.2 Compromise Payment. As to any matter
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disposed of (whether by a compromise payment, pursuant to a consent decree or
otherwise) without an adjudication by a court, or by any other body before
which the proceeding was brought, that such Covered Person is liable to the
Trust or its Shareholders by reason of wilful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
or her office, indemnification shall be provided if (a) approved, after notice
that it involves such indemnification, by at least a majority of the
disinterested Trustees acting on the matter (provided that a majority of the
disinterested Trustees then in office act on the matter) upon a determination,
based upon a review of readily available facts (as opposed to a full trial type
inquiry) that such Covered Person is not liable to the Trust or its
Shareholders by reasons of wilful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her office,
or (b) there has been obtained an opinion in writing of independent legal
counsel, based upon a review of readily available facts (as opposed to a full
trial type inquiry) to the effect that such indemnification would not protect
such Person against any liability to the Trust or to its shareholders to which
he or she would otherwise be subject by reason of wilful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office. Any approval pursuant to this Section shall not prevent
the recovery from any Covered Person of any amount paid to such Covered Person
in accordance with this Section as indemnification if such Covered Person is
subsequently adjudicated by a court of competent jurisdiction to have been
liable to the Trust or its Shareholders by reason of wilful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of such Covered Person's office.
Section 8.3 Indemnification Not Exclusive. The right of
indemnification hereby provided shall not be exclusive of or affect any other
rights to which such Covered Person may be entitled. As used in this Article
VIII, the term "Covered Person" shall include such person's heirs, executors
and administrators and a "disinterested Trustee" is a Trustee who is not an
"interested person" of the Trust as defined in Section 2 (a)(19) of the
Investment Company Act of 1940, as amended, (or who has been exempted from
being an "interested person" by any rule, regulation or order of the
Commission) and against whom none of such actions, suits or other proceedings
or another action, suit or other proceeding on the same or similar grounds is
then or has been pending. Nothing contained in this Article shall affect any
rights to indemnification to which personnel of the Trust, other than Trustees
or officers, and other persons may be entitled by contract or otherwise under
law, nor the power of the Trust to purchase and maintain liability insurance on
behalf of any such person.
Section 8.4 Shareholders. In case any Shareholder or
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former Shareholder shall be held to be personally liable solely by reason of
his or her being or having been a Shareholder and not because of his or her
acts or omissions or for some other reason, the Shareholder or former
Shareholder (or his or her heirs, executors, administrators or other legal
representatives or in the case of a corporation or other entity, its corporate
or other general successor) shall be entitled to be held harmless from and
indemnified against all loss and expense arising from such liability, but only
out of the assets of the particular class or series of Shares of which he or
she is or was a Shareholder.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Trustees, Shareholders, etc. Not Personally
Liable; Notice. All persons extending credit to, contracting with or having
any claim against the Trust shall look only to the assets of the Trust for
payment under such credit, contract or claim; and neither the Shareholders nor
the Trustees, nor any of the Trust's officers, employees or agents, whether
past, present or future, shall be personally liable therefor. Nothing in this
Declaration of Trust shall protect any Trustee against any liability to which
such Trustee would otherwise be subject by reason of wilful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of the office of Trustee.
Every note, bond, contract, instrument, certificate or
undertaking made or issued by the Trustees or by any officer or officers shall
give notice that this Amended Agreement and Declaration of Trust is on file
with the Secretary of the Commonwealth of Massachusetts and shall recite that
the same was executed or made by or on behalf of the Trust or by them as
Trustee or Trustees or as officers or officer and not individually and that the
obligations of such instrument are not binding upon any of them or the
Shareholders individually but are binding only upon the assets and property of
the Trust, and may contain such further recital as he or she or they may deem
appropriate, but the omission thereof shall not operate to bind any Trustee or
Trustees or officer or officers or Shareholder or Shareholders individually.
Section 9.2 Trustee's Good Faith Action, Expert Advice, No
Bond or Surety. The exercise by the Trustees of their powers and discretions
hereunder shall be binding upon everyone interested. A Trustee shall be liable
for his or her own wilful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of the office of Trustee, and
for nothing else, and shall not be liable for errors of judgment or mistakes of
fact or law. The Trustees may take advice of counsel or other experts with
respect to the meaning and operation of this
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Amended Agreement and Declaration of Trust, and shall be under no liability for
any act or omission in accordance with such advice or for failing to follow
such advice. The Trustees shall not be required to give any bond as such, nor
any surety if a bond is required.
Section 9.3 Liability of Third Persons Dealing with Trustees.
No person dealing with the Trustees shall be bound to make any inquiry
concerning the validity of any transaction made or to be made by the Trustees
or to see to the application of any payments made or property transferred to
the Trust or upon its order.
Section 9.4 Merger or Combination of Classes or Series of
Shares of the Trust. If permitted by regulatory authorities, the Trust, by
resolution of its Board of Trustees, may direct that the separate portfolios of
two or more classes or series of the Trust's shares be combined into a single
portfolio on such terms as the Board of Trustees may deem appropriate or which
regulatory authorities may require for the protection of the rights of holders
of each class or series of shares. If portfolios are combined, the following
provisions shall apply to the classes or series of shares:
(a) The assets of the combined portfolio and the
income from investment and reinvestment of the assets shall be
allocated to each class or series of shares in accordance with
the number of shares of that class or series outstanding for
purposes of determining the net asset value of each class or
series of shares, the amounts distributable to holders of
shares of each class or series of shares in the event of
dissolution and liquidation of the Trust and the dividends
payable with respect to shares of each class or series of
shares.
(b) The liabilities and expenses of the Trust
with respect to a class or series of the Trust's shares shall
be charged to that class or series. Liabilities and expenses
chargeable to more than one class of shares shall be allocated
by or in accordance with procedures adopted by the Board of
Trustees. The determination of the Board of Trustees shall be
conclusive as to the charging or allocation of liabilities.
(c) Each class or series of shares shall be
entitled to such dividends or distributions, in shares or cash
or both, as may be declared by the Board of Trustees with
respect to such class or series. Dividends or distributions
may be paid only out of net income or surplus of that class or
series.
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(d) In the event of the liquidation or
dissolution of the Trust, the holders of each class or series
of the Trust's shares shall be entitled to receive that class
or series share of the assets of the Trust less the
liabilities of the Trust allocable to that class or series as
determined by or in accordance with procedures adopted by the
Board of Trustees. The assets so distributable to the holders
of a particular class or series shall be distributed among
them in proportion to the number of shares of the class or
series held by each of them and recorded on the books of the
Trust.
If the Board of Trustees orders the combination of portfolios of classes or
series of shares, it may at any time thereafter by resolution order that the
portfolios be segregated or combined with portfolios of other classes or series
on such terms as the Board of Trustees determines are desirable for the
protection of the interests of the Trust and its shareholders or to comply with
regulatory requirements.
Section 9.5 Duration and Termination of Trust. Unless
terminated as provided herein, the Trust shall continue without limitation of
time. The Trust may be terminated at any time by the vote of Shareholders
holding at least a majority of the Shares entitled to vote or by the Trustees
by written notice to the Shareholders. Any class or series of Shares may be
terminated at any time by vote of Shareholders holding at least a majority of
the Shares of such class or series entitled to vote or by the Trustees by
written notice to the Shareholders of such class or series.
Upon termination of the Trust or of any one or more classes or
series of Shares, after paying or otherwise providing for all charges, taxes,
expenses and liabilities, whether due or accrued or anticipated, of the Trust
or of the particular class or series as may be determined by the Trustees, the
Trust shall, in accordance with such procedures as the Trustees shall consider
appropriate, reduce the remaining assets to distributable form in cash or
shares or other securities, or any combination thereof, and distribute the
proceeds to the Shareholders of the series involved, ratably according to the
aggregate net asset value of Shares of such class or series of Shares held by
the several Shareholders of such class or series of Shares on the date of
termination.
Section 9.6 Merger, Consolidation and Sale of Assets.
Subject to Section 9.8, the Trust may merge or consolidate with any other
corporation, association, trust or other organization, or may sell, lease or
exchange all or substantially all of the Trust Property, including its
goodwill, upon such terms and conditions and for such consideration when and as
authorized at any meeting of the Shareholders called for the purpose by the
affirmative vote of the holders of not less than two-thirds of the the Shares
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outstanding and entitled to vote, or by an instrument or instruments in writing
without a meeting, consented to by the holders of not less than two-thirds of
the Shares, provided, however, that if such merger, consolidation, sale, lease
or exchange is recommended by the Trustees, the vote or written consent of the
holders of a majority of the Shares outstanding and entitled to vote shall be
sufficient authorization and any such merger, consolidation, sale, lease or
exchange shall be deemed for all purposes to have been accomplished under and
pursuant to the statutes of the Commonwealth of Massachusetts.
Section 9.7 Conversion to Open-End Management Investment
Company. Notwithstanding any other provisions of this Declaration or the
By-Laws, an amendment to this Declaration that makes the Common Shares a
"redeemable security" (as that term is defined in the 1940 Act) shall be
required to be approved by at least (a) a majority of the Trustees, including a
majority of the Trustees who are not Interested Persons; and (b) a Majority
Shareholder Vote.
The Trust shall notify the holders of all capital
securities of the approval, in accordance with the preceding paragraph of this
Section 9.7, of any amendment to this Declaration that makes the Shares a
"redeemable security" (as that term is defined in the 1940 Act) no later than
thirty (30) days prior to the date of filing of such amendment with the
Secretary of State of the Commonwealth of Massachusetts; provided, however,
that such amendment may not be so filed until the later of ninety (90) days
following the date of approval of such amendment by the holders of the Shares
in accordance with the preceding paragraph of this Section 9.7 or thirty (30)
days following the date on which notice of the approval of such amendment is
first given to Shareholders.
Section 9.8 Certain Transactions. (a) Notwithstanding any
other provision of this Declaration and subject to the exceptions provided in
paragraph (d) of this Section, the types of transactions described in paragraph
(c) of this Section shall require the affirmative vote or consent of the
holders of not less than two-thirds of the Shares outstanding and entitled to
vote when a Principal Shareholder (as defined in paragraph (b) of this Section)
is a party to the transaction. Such affirmative vote or consent shall be in
addition to the vote or consent of the holders of the Shares otherwise required
by law or any agreement between the Trust and any national securities exchange.
(b) The term "Principal Shareholder" shall mean
any corporation, person or other entity which is the beneficial owner, directly
or indirectly, of more than five percent (5%) of the outstanding Shares and
shall include any affiliate or associate, as such terms are defined in clause
(ii) below, of a Principal Shareholder. For the purposes of this Section, in
addition to the Shares which a corporation, person or other entity beneficially
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owns directly, (a) any corporation, person or other entity shall be deemed to
be the beneficial owner of any Shares (i) which it has the right to acquire
pursuant to any agreement or upon exercise of conversion rights or warrants, or
otherwise (but excluding share options granted by the Trust), or (ii) which are
beneficially owned, directly or indirectly (including Shares deemed owned
through application of clause (i) above, by any other corporation, person or
entity with which it or its "affiliate" or "associate" (as defined below) has
any agreement, arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of Shares, or which is its "affiliate" or
"associate" as those terms are defined in Rule 12b-2 under the Securities
Exchange Act of 1934, as amended, and (b) the outstanding Shares shall include
Shares deemed owned through application of clauses (i) and (ii) above but shall
not include any other Shares which may be issuable pursuant to any agreement,
or upon exercise of conversion rights or warrants, or otherwise.
(c) This Section shall apply to the following
transactions:
(1) The merger or consolidation of
the Trust or any subsidiary of the Trust with or into any
Principal Shareholder.
(2) The issuance of any securities of
the Trust to any Principal Shareholder for cash.
(3) The sale, lease or exchange of all
or any substantial part of the assets of the Trust to any
Principal Shareholder (except assets having an aggregate fair
market value of less than $1,000,000, aggregating for the
purpose of such computation all assets sold, leased or
exchanged in any series of similar transactions within a
twelve-month period).
(4) The sale, lease or exchange to the
Trust or any subsidiary thereof, in exchange for securities of
the Trust of any assets of any Principal Shareholder (except
assets having an aggregate fair market value of less than
$1,000,000, aggregating for the purposes of such computation
all assets sold, leased or exchanged in any series of similar
transactions within a twelve-month period).
(d) The provisions of this Section shall
not be applicable to (i) any of the transactions described in paragraph (c) of
this Section if the Trustees shall by resolution have approved a memorandum of
understanding with such Principal Shareholder with respect to and substantially
consistent with such transaction, or (ii) any such transaction with any
corporation of
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which a majority of the outstanding shares of all classes of stock normally
entitled to vote in elections of trustees is owned of record or beneficially by
the Trust and its subsidiaries.
(e) The Trustees shall have the power
and duty to determine for the purposes of this Section, on the basis of
information known to the Trust, whether (i) a corporation, person or entity
beneficially owns more than five percent (5%) of the outstanding Shares, (ii) a
corporation, person or entity is an "affiliate" or "associate" (as defined
above) of another, (iii) the assets being acquired or leased to or by the
Trust, or any subsidiary thereof, constitute a substantial part of the assets
of the Trust and have an aggregate fair market value of less than $1,000,000,
and (iv) the memorandum of understanding referred to in paragraph (d) hereof is
substantially consistent with the transaction covered thereby. Any such
determination shall be conclusive and binding for all purposes of this Section.
Section 9.9 Amendments. This Declaration of Trust may be
amended at any time by an instrument in writing signed by a majority of the
then Trustees when authorized to do so by vote of Shareholders holding a
majority of the Shares of each class or series entitled to vote, except that an
amendment which shall affect the holders of one or more classes or series of
Shares but not the holders of all outstanding class or series shall be
authorized by vote of the Shareholders holding a majority of the Shares
entitled to vote of each class or series affected and no vote of Shareholders
of a class or series not affected shall be required. Any amendment which shall
affect the holders of Shares of one or more classes of a series but not the
holders of all Shares of a series shall be authorized by vote of the
Shareholders holding a majority of the Shares of such classes affected by the
amendment voting together as a single class, and no vote of Shareholders of the
classes not affected shall be required. Amendments having the purpose of
changing the name of the Trust, of establishing, changing, or eliminating the
par value of the shares or of supplying any omission, curing any ambiguity or
curing, correcting or supplementing any defective or inconsistent provision
contained herein shall not require authorization by Shareholder vote.
Section 9.10 Resident Agent. The Trust may appoint and
maintain a resident agent in the Commonwealth of Massachusetts.
Section 9.11 Filing of Copies; References; Headings. The
original or a copy of this instrument and of each amendment hereto shall be
kept at the office of the Trust where it may be inspected by any Shareholder.
A copy of this instrument and of each amendment hereto shall be filed by the
Trust with the Secretary of the Commonwealth of Massachusetts and with the
Boston City Clerk, as well as any other governmental office where such
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filing may from time to time be required, but the failure to make any such
filing shall not impair the effectiveness of this instrument or any such
amendment. Anyone dealing with the Trust may rely on a certificate by an
officer of the Trust as to whether or not any such amendments have been made,
as to the identities of the Trustees and officers, and as to any matters in
connection with the Trust hereunder; and, with the same effect as if it were
the original, may rely on a copy certified by an officer of the Trust to be a
copy of this instrument or of any such amendments. In this instrument and in
any such amendment, references to this instrument, and all expressions like
"herein", "hereof" and "hereunder" shall be deemed to refer to this instrument
as a whole as the same may be amended or affected by any such amendments. The
masculine gender shall include the feminine and neuter genders. Headings are
placed herein for convenience of reference only and shall not be taken as a
part hereof or control or affect the meaning, construction or effect of this
instrument. This instrument may be executed in any number of counterparts each
of which shall be deemed an original.
Section 9.12 Applicable Law. This Amended Agreement and
Declaration of Trust is made in the Commonwealth of Massachusetts, and it is
created under and is to be governed by and construed and administered according
to the laws of said Commonwealth, including the Massachusetts Business
Corporation Law as the same may be amended from time to time, to which
reference is made with the intention that matters not specifically covered
herein or as to which an ambiguity may exist shall be resolved as if the Trust
were a business corporation organized in Massachusetts, but the reference to
said Business Corporation Law is not intended to give the Trust, the Trustees,
the Shareholders or any other person any right, power, authority or
responsibility available only to or in connection with an entity organized in
corporate form. The Trust shall be of the type referred to in Section 1 of
Chapter 182 of the Massachusetts General Laws and of the type commonly called a
Massachusetts business trust, and without limiting the provisions hereof, the
Trust may exercise all powers which are ordinarily exercised by such a trust.
Section 9.13 Provisions in Conflict with Laws and
Regulations. (a) The provisions of this Amended Agreement and Declaration of
Trust are severable, and if the Trustees shall determine, with the advice of
counsel, that any of such provisions is in conflict with the 1940 Act, the
regulated investment company provisions of the Internal Revenue Code of 1986,
or any amendments or successor statute thereto, or with other applicable laws
and regulations, the conflicting provision shall be deemed not to constitute
and never to have constituted a part of the Declaration; provided, however,
that such determination shall not affect any of the remaining provisions of the
Amended Agreement and Declaration of Trust or render invalid or improper any
action taken or omitted
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prior to such determination.
(b) If any provision of the Amended Agreement and
Declaration of Trust shall be held invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall apply only to such
provision in such jurisdiction and shall not in any manner affect such
provision in any other jurisdiction or any other provision of the Declaration
in any jurisdiction.
Section 9.14 Use of the Name. Sierra Investment
Advisors Corporation ("Sierra Advisors") has consented to the use by the Trust
of the identifying word or name "Sierra" in the name of the Trust. Such
consent is conditioned upon the employment of Sierra Advisors, its successors
or any affiliate thereof as Investment Advisor or administrator of the Trust.
As between the Trust and Sierra, Sierra controls the use of the name of the
Trust insofar as such name contains "Sierra." The name or identifying word
"Sierra" may be used from time to time in other connections and for other
purposes by Sierra or affiliated entities. Sierra may require the Trust to
cease using "Sierra" in the name of the Trust if the Trust ceases to employ,
for any reason, Sierra, an affiliate or any successor as Investment Advisor of
the Trust.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand
and seal for himself and his assigns, as of the 29th day of January, 1996.
/s/ F. Brian Cerini
-----------------------------------
F. Brian Cerini
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THE STATE OF CALIFORNIA
COUNTY OF LOS ANGELES January 29th, 1996
Then personally appeared the above-named F. Brian Cerini and
acknowledged the foregoing instrument to be his free act and deed, before me.
/s/ Azie Avanian
-----------------------------------
Notary Public
My. Commission expires: 2/26/99
[Notary Seal]
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<PAGE> 1
BY-LAWS
OF
THE SIERRA PRIME INCOME TRUST
ARTICLE 1
Agreement and Declaration of Trust and Principal Office
1.1 Agreement and Declaration of Trust. These By-laws shall be
subject to the Agreement and Declaration of Trust, as from time to time in
effect (the "Declaration of Trust"), of The Sierra Prime Income Trust, the
Massachusetts business trust established by the Declaration of Trust (the
"Trust").
1.2 Principal Office of the Trust. A principal office of the
Trust shall be located in Boston, Massachusetts. The Trust may have such other
offices within or without Massachusetts as the Trustees may determine or as
they may authorize.
ARTICLE 2
Meetings of Trustees
2.1 Regular Meetings. Regular meetings of the Trustees may be
held without call or notice at such places and at such times as the Trustees
may from time to time determine, provided that notice of the first regular
meeting following any such determination shall be given to absent Trustees.
2.2 Special Meetings. Special meetings of the Trustees may be
held at any time and at any place designated in the call of the meeting when
called by the Chairman of the Trustees, the President or the Treasurer or by
two or more Trustees, sufficient notice thereof being given to each Trustee by
the Secretary or an Assistant Secretary or by the officer or the Trustees
calling the meeting.
2.3 Notice. It shall be sufficient notice to a Trustee of a
special meeting to send notice by mail at least forty-eight hours or by
telegram, telex or telecopy or other electronic facsimile transmission method
at least twenty-four hours before the meeting addressed to the Trustee at his
or her usual or last known business or residence address or to give notice to
him or her in person or by telephone at least twenty-four hours before the
meeting. Notice of a meeting need not be given to any Trustee if a written
waiver of notice, executed by him or her before the meeting, is filed with the
records of the meeting, or to any Trustee who attends the meeting without
protesting prior thereto or at its commencement the lack of notice to him or
her.
<PAGE> 2
Neither notice of a meeting nor a waiver of a notice need specify the purposes
of the meeting.
2.4 Quorum. At any meeting of the Trustee a majority of the
Trustees then in office shall constitute a quorum. Any meeting may be
adjourned from time to time by a majority of the votes cast upon the question,
whether or not a quorum is present, and the meeting may be held as adjourned
without further notice.
ARTICLE 3
Officers
3.1 Enumeration; Qualification. The officers of the Trust shall
be a President, a Treasurer, a Secretary, and such other officers, including a
Chairman of the Trustees and a Controller, if any, as the Trustees from time to
time may in their discretion elect. The Trust may also have such agents as the
Trustees from time to time may in their discretion appoint. The Chairman of
the Trustees, if one is elected, shall be a Trustee and may but need not be a
shareholder; and any other officer may but not need be a Trustee or a
shareholder. Any two or more offices may be held by the same person.
3.2 Election. The President, the Treasurer, and the Secretary
shall be elected annually by the Trustees. Other officers, if any, may be
elected or appointed by the Trustees at such or any other time. Vacancies in
any office may be filled at any time.
3.3 Tenure. The Chairman of the Trustees, if one is elected, the
President, the Treasurer and the Secretary shall hold office until their
respective successors are chosen and qualified, or in each case until he or she
sooner dies, resigns, is removed or becomes disqualified. Each other officer
shall hold office and each agent shall retain authority at the pleasure of the
Trustees.
3.4 Powers. Subject to the other provisions of these By-laws,
each officer shall have, in addition to the duties and powers herein and in the
Declaration of Trust set forth, such duties and powers as are commonly incident
to the office occupied by him or her as if the Trust were organized as a
Massachusetts business corporation and such other duties and powers as the
Trustees may from time to time designate.
3.5 Chairman; President. Unless the Trustees otherwise provide,
the Chairman of the Trustees or, if there is none or in the absence of the
Chairman, the President shall preside at all
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meetings of the shareholders and of the Trustees. The President shall be the
chief executive officer.
3.6 Treasurer and Controller. The Treasurer shall be the chief
financial officer and, if no Controller is elected, chief accounting officer of
the Trust, and shall, subject to the provisions of the Declaration of Trust and
to any arrangement made by the Trustees with a custodian, investment adviser or
manager, or transfer, shareholder servicing or similar agent, be in charge of
the valuable papers and, if no Controller is elected, the books of account and
accounting records of the Trust, and shall have such other duties and powers as
may be designated from time to time by the Trustees or by the President.
The Controller, if any, shall be the chief accounting officer of the
Trust and shall be in charge of its books of account and accounting records.
The Controller shall be responsible for preparation of financial statements of
the Trust and shall have such other duties and powers as may be designated from
time to time by the Trustees or the President.
3.7 Secretary. The Secretary shall record all proceedings of the
shareholders and the Trustees in books to be kept therefor, which books or a
copy thereof shall be kept at the principal office of the Trust or at the
office of the Trust's counsel. In the absence of the Secretary from any
meeting of the shareholders or Trustees, an assistant Secretary, or if there be
none or if he or she is absent, a temporary Secretary chosen at such meeting
shall record the proceedings thereof in the aforesaid books.
3.8 Resignations. Any Trustee or officer may resign at any time
by written instrument signed by him or her and delivered to the Chairman, the
President or the Secretary or to a meeting of the Trustees. Such resignation
shall be effective upon receipt unless specified to be effective at some other
time. Except to the extent expressly provided in a written agreement with the
Trust, no officer resigning and no officer removed shall have any right to any
compensation for any period following his or her resignation or removal, or any
right to damages on account of such removal.
ARTICLE 4
Committees
4.1 Quorum; Voting. A majority of the members of any Committee of
the Trustees shall constitute a quorum for the transaction of business, and any
action of such a Committee may
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be taken at a meeting by a vote of a majority of the members present (a quorum
being present) or evidenced by one or more writings signed by such a majority.
Members of a Committee may participate in a meeting of such Committee by means
of a conference telephone or other communications equipment by means of which
all persons participating in the meeting can hear each other at the same time
and participation by such means shall constitute presence in person at a
meeting.
ARTICLE 5
Reports
5.1 General. The Trustees and officers shall render reports at
the time and in the manner required by the Declaration of Trust or any
applicable law. Officers and Committees shall render such additional reports
as they may deem desirable or as may from time to time be required by the
Trustees.
ARTICLE 6
Fiscal Year
6.1 General. Except as from time to time otherwise provided by
the Trustees, the initial fiscal year of the Trust shall end on such date as is
determined in advance or in arrears by the Treasurer, and subsequent fiscal
years shall end on such date in subsequent years.
ARTICLE 7
Seal
7.1 General. The seal of the Trust shall consist of a flat-faced
die with the word "Massachusetts", together with the name of the Trust and the
year of its organization cut or engraved thereon but, unless otherwise required
by the Trustees, the seal shall not be necessary to be placed on, and its
absence shall not impair the validity of, any document, instrument or other
paper executed and delivered by or on behalf of the Trust.
ARTICLE 8
Execution of Papers
8.1 General. Except as the Trustees may generally or in
particular cases authorize the execution thereof in some other manner, all
deeds, leases, contracts, notes and other obligations
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made by the Trustees shall be signed by the President or by the Treasurer and
need not bear the seal of the Trust.
ARTICLE 9
Share Certificates
9.1 Share Certificates. No certificates certifying the ownership
of shares shall be issued except as the Trustees may otherwise authorize. In
the event that the Trustees authorize the issuance of share certificates,
subject to the provisions of Section 9.3, each shareholder shall be entitled to
a certificate stating the number of shares and the series or class owned by him
or her, in such form as shall be prescribed from time to time by the Trustees.
Such certificates shall be signed by the President or any Vice-President and by
the Treasurer or any Assistant Treasurer. Such signatures may be facsimiles if
the certificate is signed by a transfer agent, or by a registrar, other than a
Trustee, officer or employee of the Trust. In case any officer who has signed
or whose facsimile signature has been placed on such certificate shall cease to
be such officer before such certificate is issued, it may be issued by the
Trust with the same effect as if he or she were such officer at the time of its
issue.
In lieu of issuing certificates for shares, the Trustees or the
transfer agent may either issue receipts therefor or may keep accounts upon the
books of the Trust for the record holders of such shares, who shall in either
case be deemed, for all purposes hereunder, to be the holders of certificates
for such shares as if they had accepted such certificates and shall be held to
have expressly assented and agreed to the terms hereof.
9.2 Loss of Certificates. In case of the alleged loss or
destruction or the mutilation of a share certificate, a duplicate certificate
may be issued in place thereof, upon such terms as the Trustees may prescribe.
9.3 Discontinuance of Issuance of Certificates. The Trustees may
at any time discontinue the issuance of share certificates and may, by written
notice to each shareholder, require the surrender of share certificates to the
Trust for cancellation. Such surrender and cancellation shall not effect the
ownership of shares in the Trust.
ARTICLE 10
Provisions Relating to the Conduct of the Trust's Business
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10.1 Certain Definitions. When used herein the following words
shall have the following meanings: "Distributor" shall mean any one or more
corporations, firms, or associations which have distributor's or principal
underwriter's contracts in effect with the Trust providing that the common
shares issued by the Trust shall be offered and sold by such Distributor.
"Advisor" shall mean any corporation, firm or association which may at the time
have an advisory or management contract with the Trust and any corporation,
firm or association which may at any time have a sub-advisory contract relating
to the Trust with any such Advisor.
10.2 Limitation on Holdings by the Trust of Certain Securities and
on Dealings with Officers or Trustees. The Trust may not purchase or retain
shares or securities issued by an issuer if one or more of the holders of the
shares or securities issued by an issuer or one or more of the officers or
directors of such issuer is an officer or Trustee of the Trust or officer or
director of the Advisor and if one or more of such officers, Trustees or
directors owns beneficially more than 1/2 of 1% of the shares or securities, or
both, of such issuer and such officers, Trustees and directors owning more than
1/2 of 1% of such shares or securities together own beneficially more than 5%
of such shares or securities. Each officer and Trustee of the Trust shall keep
the Treasurer of the Trust informed of the names of all issuers shares or
securities of which are held in the portfolio of the Trust and in which such
officer or Trustee owns as much as 1/2 of 1% of the outstanding shares or
securities.
The Trust will not lend any of its assets to the Distributor or
Advisor or to any officer or director of the Distributor or Advisor or any
officer or Trustee of the Trust, and shall not permit any officer or Trustee or
any officer or director of the Distributor or Advisor to deal for or on behalf
of the Trust with himself or herself as principal or agent, or with any
partnership, association or corporation in which he or she has a financial
interest; provided that the foregoing provisions shall not prevent (a) officers
and Trustees of the Trust or officers and directors of the Distributor or
Advisor from buying, holding or selling shares in the Trust or from being
partners, offices or directors of or otherwise financially interested in the
Distributor or the Advisor; (b) purchases or sales of securities or other
property if such transaction is permitted by or is exempt or exempted from the
provisions of the Investment Company Act of 1940 or any Rule or Regulation
thereunder (together, the "1940 Act"); (c) employment of legal counsel,
registrar, transfer agent, shareholder servicing agent, dividend disbursing
agent or custodian who is, or has a partner, shareholder, officer or director
who is, an officer or Trustee of the Trust or an officer
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or director of the Distributor or Advisor; (d) sharing statistical, research,
legal and management expenses and office hire and expenses with any other
investment company in which an officer or Trustee of the Trust or an officer or
director of the Distributor or Advisor is an officer or director or otherwise
financially interested.
10.3 Limitation on Dealing in Securities of the Trust by Certain
Officers, Trustees, Distributor or Advisor. Neither the Distributor nor
Advisor, nor any officer or Trustee of the Trust or officer or director of the
Distributor or Advisor shall take long or short positions in securities issued
by the Trust; provided, however, that:
(a) the Distributor may purchase from the Trust and otherwise deal
in shares issued by the Trust pursuant to the terms of its
contract with the Trust;
(b) any officer or Trustee of the Trust or officer or director of
the Distributor or Advisor or any trustee or fiduciary for the
benefit of any of them may at any time, or from time to time,
purchase from the Trust or from the Distributor shares issued
by the Trust at the price available to the public or to such
officer, Trustee, director, trustee or fiduciary, no such
purchase to be in contravention of any applicable state or
federal requirement; and
(c) the Distributor or the Advisor may at any time, or from time
to time, purchase for investment shares issued by the Trust.
10.4 Securities and Cash of the Trust to be held by Custodian subject
to certain Terms and Conditions.
(a) All securities and cash owned by this Trust shall be held by
or deposited with one or more banks or trust companies having
(according to its last published report) not less than
$5,000,000 aggregate capital, surplus and undivided profits
(any such bank or trust company being hereby designated as
"Custodian"), provided such a Custodian can be found ready and
willing to act; subject to such rules, regulations and orders,
if any, as the Securities and Exchange Commission may adopt,
this Trust may, or may permit any Custodian to, deposit all or
any part of the securities owned by this Trust in a system for
the central handling of securities pursuant to which all
securities of any particular class or series of any issue
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deposited within the system may be transferred or pledged by
bookkeeping entry, without physical delivery. The Custodian
may appoint, subject to the approval of the Trustees, one or
more subcustodians.
(b) The Trust shall enter into a written contract with each
Custodian regarding the powers, duties and compensation of
such Custodian with respect to the cash and securities of the
Trust held by such Custodian. Said contract and all
amendments thereto shall be approved by the Trustees.
(c) The Trust shall upon the resignation or inability to serve of
any Custodian or upon change of any Custodian:
(i) in cash of such resignation or inability to
serve, use its best efforts to obtain a
successor Custodian;
(ii) require that the cash and securities owned by
the Trust be delivered directly to the
successor Custodian; and
(iii) in the event that no successor Custodian can
be found, submit to the shareholders, before
permitting delivery of the cash and
securities owned by the Trust otherwise than
to a successor Custodian, the question
whether the Trust shall be liquidated or
shall function without a Custodian.
10.5 Requirements and Restrictions Regarding the Management Contract.
Every advisory or management contract entered into by the Trust shall provide
that in the event that the total expenses of the Trust for any fiscal year
should exceed the limits imposed on investment company expenses imposed by any
statute or regulatory authority of any jurisdiction in which shares of the
Trust are offered for 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.
10.6 Reports to Shareholders: Distributions from Realized Gains.
The Trust shall send to each shareholder of record at least semi- annually a
statement of the condition of the Trust and of the results of its operations,
containing all information required by applicable laws or regulations.
10.7 Determination of Net Asset Value Per Share. Net asset value per
share of each class of shares of the Trust shall mean:
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(i) the value of all the assets of such class of shares; (ii) less total
liabilities of such class of shares; (iii) divided by the number of shares of
such class of shares outstanding, in each case at the time of each
determination. The net asset value per share of each class of shares shall be
determined as of the normal close of trading on the New York Stock Exchange on
each day on which such Exchange is open. As of any time other than the normal
close of trading on such Exchange, the Trustees may cause the net asset value
per share last determined to be determined again in a similar manner or
adjusted to reflect changes in market values of securities in the portfolio,
such adjustment to be made on the basis of changes in selected security prices
determined by the Trustees to be relevant to the portfolio of such class of
shares or in averages or in other standard and readily ascertainable market
data, and the Trustees may fix the time when such redetermined or adjusted net
asset value per share of each class of shares shall become effective.
In valuing the portfolio investments for a determination of net asset
value per share of each class of shares, securities for which market quotations
are readily available shall be valued at prices which, in the opinion of the
Trustees or the person designated by the Trustees to make the determination,
most nearly represent the market value of such securities, and other securities
and assets shall be valued at their fair value as determined by or pursuant to
the direction of the Trustees, which in the case of interests in floating or
variable note senior loans, may, but need not be, on the basis of quoted yields
for securities of comparable maturity, quality and type. In the case of
certain short term debt obligations, commercial paper and repurchase
agreements, fair value may, but not need be, determined on the basis of quoted
yields for securities of comparable maturity, quality and type, or on the basis
of amortized cost. Expenses and liabilities of the Trust shall be accrued each
day. Liabilities may include such reserves for taxes, estimated accrued
expenses and contingencies as the Trustees or their designates may in their
sole discretion deem fair and reasonable under the circumstances. No accruals
shall be made in respect of taxes on unrealized appreciation of securities
owned unless the Trustees shall otherwise determine. Dividends payable by the
Trust shall be deducted as at the time of but immediately prior to the
determination of net asset value per share on the record date therefor.
The Trustees may suspend the determination of net asset value for the
Fund when conditions indicate that a determination of fair value for the
portfolio investments is not reliable and/or cannot be reasonably ascertained.
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10.8. Derivative Claims. No Shareholder shall have the right to
bring or maintain any court action, proceeding or claim on behalf of the Trust
or any class thereof without first making demand on the Trustees requesting the
Trustees to bring or maintain such action, proceeding or claim. Such demand
shall be excused only when the plaintiff makes a specific showing that
irreparable injury to the Trust or class would otherwise result. Such demand
shall be made to the Secretary or the Trust at the Trust's principal office and
shall set forth in reasonable detail the nature of the proposed court action,
proceeding or claim and the essential facts relied upon by the Shareholder to
support the allegations made in the demand. The Trustees shall consider such
demand within 45 days of its receipt by the Trust. In their sole discretion,
the Trustees may submit the matter to a vote of Shareholders of the Trust or
class, as appropriate. Any decision by the Trustees to bring, maintain or
settle (or not to bring, maintain or settle) such court action, proceeding or
claim, or to submit the matter to a vote of Shareholders shall be made by the
Trustees in their business judgment and shall be binding upon the Shareholders.
Any decision by the Trustees to bring or maintain a court action, proceeding or
suit on behalf of the Trust or a class shall be subject to the right of the
Shareholders under Section 1 of Article 11 of these By-laws to vote on whether
or not such court action, proceeding or suit should or should not be brought or
maintained.
ARTICLE 11
Shareholders' Voting Powers and Meetings
11.1 Voting Powers. The Shareholders shall have power to vote only
(i) for the election of Trustees as provided in Article III, Section 3.1 of the
Declaration of Trust, provided, however, that no meeting of Shareholders is
required to be called for the purpose of electing Trustees unless and until
such time as less than a majority of the Trustees have been elected by the
Shareholders, (ii) with respect to any Advisor or Sub-Adviser as provided in
Article III, Section 3.3 of the Declaration of Trust to the extent required by
the 1940 Act, (iii) with respect to any termination of this Trust to the extent
and as provided in Article IX, Section 9.5 of the Declaration of Trust, (iv)
with respect to any amendment of the Declaration of Trust to the extent and as
provided in Article IX, Section 9.9 of the Declaration of Trust, (v) to the
same extent as the stockholders of a Massachusetts business corporation as to
whether or not a court action, proceeding or claim should or should not be
brought or maintained derivatively or as a class action on behalf of the Trust
or the Shareholders, and (vi) with respect to such additional matters relating
to the Trust as may be required by law, the Declaration of Trust, these By-laws
or any registration
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of the Trust with the Commission (or any successor agency) or any state, or as
the Trustees may consider necessary or desirable. Each whole Share shall be
entitled to one vote as to any matter on which it is entitled to vote and each
fractional Share shall be entitled to a proportionate fractional vote. The
Shareholders of any particular class shall not be entitled to vote on any
matters as to which such class is not affected. Except with respect to matters
as to which the Trustees have determined that only the interests of one or more
particular classes are affected or as required by law, all of the Shares of
each class shall, on matters as to which such class is entitled to vote, vote
with other classes so entitled as a single class. Notwithstanding the
foregoing, with respect to matters which would otherwise be voted on by two or
more classes as a single class, the Trustees may, in their sole discretion,
submit such matters to the Shareholders of any or all such classes, separately.
There shall be no cumulative voting in the election of Trustees. Shares may be
voted in person or by proxy. The placing of a Shareholder's name on a proxy
pursuant to telephonic or electronically transmitted instructions obtained
pursuant to procedures reasonably designed to verify that such instructions
have been authorized by such Shareholder shall constitute election of such
proxy by or on behalf of such Shareholder. A proxy with respect to Shares held
in the name of two or more persons shall be valid if executed by any one of
them unless at or prior to exercise of the proxy the Trust receives a specific
written notice to the contrary from any one of them. A proxy purporting to be
executed by or on behalf of a Shareholder shall be deemed valid unless
challenged at or prior to its exercise and the burden of proving invalidity
shall rest on the challenger. Until Shares are issued, the Trustees may
exercise all rights of Shareholders and may take any action required by law,
the Declaration of Trust or these By-laws to be taken by shareholders.
11.2 Voting Power and Meetings. Meetings of the Shareholders of the
Trust or of one or more classes of shares may be called by the Trustees for the
purpose of electing Trustees as provided in Article IV, Section 1 of the
Declaration of Trust and for such other purposes as may be prescribed by law,
by the Declaration of Trust or by these By-laws. Meetings of the Shareholders
of the Trust or of one or more classes of shares may also be called by the
Trustees from time to time for the purpose of taking action upon any other
matter deemed by the Trustees to be necessary or desirable. A meeting of
Shareholders may be held at any place designated by the Trustees. Written
notice of any meeting of Shareholders shall be given or caused to be given by
the Trustees by mailing such notice at least seven days before such meeting,
postage prepaid, stating the time and place of the meeting, to each Shareholder
at the Shareholder's address as it
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appears on the records of the Trust. Whenever notice of a meeting is required
to be given to a Shareholder under the Declaration of Trust or these By-laws, a
written waiver thereof, executed before or after the meeting by such
Shareholder or his attorney thereunto authorized and filed with the records of
the meeting, shall be deemed equivalent to such notice.
11.3 Quorum and Required Vote. Thirty percent (30%) of Shares
entitled to vote shall be a quorum for the transaction of business at a
Shareholders' meeting, except that where any provision of law or of the
Declaration of Trust or these By-laws permits or requires that holders of any
class of shares shall vote as a class, as the case may be, then thirty percent
(30%) of the aggregate number of Shares of that class entitled to vote shall be
necessary to constitute a quorum for the transaction of business by that class.
Any lesser number shall be sufficient for adjournments. Any adjourned session
or sessions may be held, within a reasonable time after the date set for the
original meeting, without the necessity of further notice. Except when a
larger vote is required by any provision of law or the Declaration of Trust or
these By-laws, a majority of the Shares voted shall decide any questions and a
plurality shall elect a Trustee, provided that where any provision of law or of
the Declaration of Trust or these By-laws permits or requires that the holders
of any class shall vote as a class, as the case may be, then a majority of the
Shares of that class voted on the matter (or a plurality with respect to the
election of a Trustee) shall decide that matter insofar as that class is
concerned.
11.4 Action by Written Consent. Any action taken by Shareholders may
be taken without a meeting if a majority of Shareholders entitled to vote on
the matter (or such larger proportion thereof as shall be required by any
express provision of law or the Declaration of Trust or these By-laws) consent
to the action in writing and such written consents are filed with the records
of the meetings of Shareholders. Such consent shall be treated for all
purposes as a vote taken at a meeting of Shareholders.
11.5 Record Dates. For the purpose of determining the shareholders
who are entitled to vote or act at any meeting or any adjournment thereof, or
who are entitled to receive payment of any dividend or of any other
distribution, or for the purpose of any other action, etc., the Trustees may
from time to time fix a time, which shall be not more than 60 days before the
date of any meeting of shareholders or the date for the payment of any dividend
or of any other distribution, as the record date for determining the
shareholders having the right to notice of and to vote at such meeting and any
adjournment thereof or the right to
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receive such dividend or distribution, and in such case only shareholders of
record on such record date shall have such right notwithstanding any transfer
of shares on the books of the Trust after the record date; or without fixing
such record date the Trustees may for any of such purposes close the register
or transfer books for all or any part of such period.
11.6 Removal of Trustees. No natural person shall serve as Trustee
after the holders of record of not less than two-thirds of the outstanding
Shares (as defined in the Declaration of Trust) have declared that such Trustee
be removed from that office either by declaration in writing filed with the
Trust's custodian or by votes cast in person or by proxy at a meeting called
for the purpose. The Trustees shall promptly call a meeting of shareholders
for the purpose of voting upon the question of removal of any Trustee when
requested in writing so to do by the record holders of not less than 10 per
centum of the outstanding Shares.
Whenever ten or more shareholders of record who have been such for at
least six months preceding the date of application, and who hold in the
aggregate Shares having a net asset value of at least 21 per centum of the
outstanding Shares shall apply to the Trustees in writing, stating that they
wish to communicate with other shareholders with a view to obtaining signatures
to a request for a meeting pursuant to this Section and accompanied by a form
of communication and request which they wish to transmit, the Trustees shall
within five business days after receipt of such application either (a) afford
to such applicants access to a list of the names and addresses of all
shareholders as recorded on the books of the Trust; or (b) inform such
applicants as to the approximate number of shareholders of record, and the
approximate cost of mailing to them the proposed communication and form of
request. If the Trustees elect to follow the course specified in clause (b)
above, the Trustees, upon the written request of such applicants, accompanied
by a tender of the material to be mailed and of the reasonable expenses of
mailing, shall, with reasonable promptness, mail such material to all
shareholders of record at their addressees as recorded on the books of the
Trust, unless within five business days after such tender the Trustees shall
mail to such applicants and file with the Securities and Exchange Commission,
together with a copy of the material proposed to be mailed, a written statement
signed by at least a majority of the Trustees to the effect that in their
opinion either such material contains untrue statements of fact or omits to
state facts necessary to make the statements contained therein not misleading,
or would be in violation of applicable law, and specifying the basis of such
opinion. If the Securities and Exchange Commission shall enter an order
refusing
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to sustain any of the objections specified in the written statement so filed,
or if, after the entry of an order sustaining one or more of such objections,
the Securities and Exchange Commission shall find, after notice and opportunity
for hearing, that all objections so sustained have been met, and shall enter an
order so declaring, the Trustees shall mail copies of such material to all
shareholders with reasonable promptness after the entry of such order and the
renewal of such tender.
ARTICLE 12
Amendments to the By-laws
12.1 General. These By-laws may be amended or repealed, in whole or
in part, by a majority of the Trustees then in office at any meeting of the
Trustees, or by one or more writings signed by such a majority.
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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
<PAGE> 2
service rendered by the broker or dealer in other transactions. Subject to
such policies as the Trustees may determine, the Advisor shall not be deemed to
have acted unlawfully or to have breached any duty created by this Contract or
otherwise solely by reason of its having caused the Trust to pay, a broker or
dealer that provides brokerage and research services to the Advisor an amount
of commission for effecting a portfolio investment transaction in excess of the
amount of commission another broker or dealer would have charged for effecting
that transaction, if the Advisor determines in good faith that such amount of
commission was reasonable in relation to the value of the brokerage and
research services provided by such broker or dealer, viewed in terms of either
that particular transaction or the Advisor's overall responsibilities with
respect to the Trust and to other clients of the Advisor as to which the
Advisor exercised investment discretion. The Trust hereby agrees with the
Advisor and with any Sub-Advisor selected by the Advisor as provided in Section
1(d) that any entity or person associated with the Advisor or such Sub-Advisor
which is a member of a national securities exchange is authorized to effect any
transaction on such exchange for the account of the Trust which is permitted by
Section 11(a)(1)(H) of the Securities Exchange Act of 1934 and Rule 11a2-2(T)
thereunder, and the Trust hereby consents to the retention of compensation for
such transactions in accordance with Rule 11a2-2(T)(a)(2)(iv).
(d) Subject to the provisions of the Agreement and Declaration of
Trust of the Trust and the Investment Company Act of 1940, the Advisor, at its
expense, may select and contract with one or more investment advisers (the
"Sub-Adviser") for the Trust to perform some or all of the services for which
it is responsible pursuant to paragraph (a) of this Section 1 (and any related
facilities or services for which it is responsible under paragraph (b) of this
Section 1). The Advisor will compensate any Sub-Adviser of the Trust for its
services to the Trust. The Advisor may terminate the services of any
Sub-Adviser at any time in its sole discretion, and shall at such time assume
the responsibilities of such Sub-Advisor unless and until a successor
Sub-Adviser is selected.
(e) The Advisor shall not be obligated to pay any expenses of or
for the Trust not expressly assumed by the Advisor pursuant to this Section
other than as provided in Section 3.
2. OTHER AGREEMENTS, ETC.
It is understood that any of the shareholders, Trustees officers and
employees of the Trust may be a shareholder, director, officer or employee of,
or be otherwise interested in, the Advisor, and in any person controlled by or
under common control with the Advisor, and that the Advisor and any person
controlled by or under common control with the Advisor may have an interest in
the Trust.
The Trust also understands that the Advisor now acts, will continue to
act and may act in the future as investment adviser to fiduciary and other
managed accounts and as investment adviser to one or more other investment
companies or series of investment companies, and the Trust has no objection to
the Advisor so acting, PROVIDED THAT whenever the Trust and one or
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<PAGE> 3
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.
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,
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<PAGE> 4
and by the vote, cast in person at a meeting called for the purpose of voting
on such approval, of a majority of the Board of Trustees who are not interested
persons of the Trust or of the Advisor or of any Sub-Adviser of the Trust as
defined in the Investment Company Act of 1940, as amended.
5. EFFECTIVE PERIOD AND TERMINATION OF THIS AGREEMENT.
This Agreement shall become effective upon its execution, and shall
remain in full force and effect continuously thereafter (unless terminated
automatically as set forth in Section 4) until terminated as follows:
(a) Either party hereto may at any time terminate this
Agreement by not more than sixty days' written notice delivered or
mailed by registered mail, postage prepaid, to the other party, or
(b) If (i) the Board of Trustees or the shareholders by
the affirmative vote of a majority of the outstanding shares of the
Trust, and (ii) a majority of the Board of Trustees who are not
interested persons of the Trust or of the Advisor, as defined in the
Investment Company Act of 1940, as amended, by vote cast in person at
a meeting called for the purpose of voting on such approval, do not
specifically approve at least annually the continuance of this
Agreement, then this Agreement shall automatically terminate at the
close of business on the second anniversary of its execution, or upon
the expiration of one year from the effective date of the last such
continuance, whichever is later; provided, however, that if the
continuance of this Agreement is submitted to the shareholders of the
Trust for their approval and such shareholders fail to approve such
continuance of this Agreement as provided herein, the Advisor may
continue to serve hereunder in a manner consistent with the Investment
Company Act of 1940 and the rules and regulations thereunder.
Action by the Trust under paragraph (a) above may be taken either (i)
by vote of a majority of its Trustees, or (ii) by the affirmative vote of a
majority of the outstanding shares of the Trust.
Termination of this Agreement pursuant to this Section 5 shall be
without the payment of any penalty.
6. CERTAIN INFORMATION.
The Advisor shall promptly notify the Trust in writing of the
occurrence of any of the following events: (a) the Advisor shall fail to be
registered as an investment adviser under the Investment Company Act of 1940,
as amended, from time to time, and under the laws of any jurisdiction in which
the Advisor is required to be registered as an investment adviser in order to
perform its obligations under this Agreement, (b) the Advisor shall have been
served or otherwise
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<PAGE> 5
have notice of any action, suit, proceeding, inquiry or investigation, at law
or in equity, before or by any court, public board or body, involving the
affairs of the Trust and (c) there shall be any change in the control of the
Advisor.
7. CERTAIN DEFINITIONS.
For the purposes of this Agreement, the "affirmative vote of a
majority of the outstanding shares" of the Trust means the affirmative vote, at
a duly called and held meeting of shareholders, (a) of the holders of 67% or
more of the shares of the Trust present (in person or by proxy) and entitled to
vote at such meeting, if the holders of more than 50% of the outstanding shares
of the Trust entitled to vote at such meeting are present in person or by
proxy, or (b) of the holders of more than 50% of the outstanding shares of the
Trust entitled to vote at such meeting, whichever is less.
For the purposes of this Agreement, the terms "affiliated person",
"control", "interested person" and "assignment" shall have their respective
meanings defined in the Investment Company Act of 1940, as amended, and the
rules and regulations thereunder, subject, however, to such exemptions as may
be granted by the Securities and Exchange Commission under said Act; the term
"specifically approve at least annually" shall be construed in a manner
consistent with the Investment Company Act of 1940 and the rules and
regulations thereunder; and the term "brokerage and research services" shall
have the meaning given in the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder.
8. NONLIABILITY OF ADVISOR.
The Advisor shall exercise its best judgement in rendering its
services under this Agreement. In the absence of willful misfeasance, bad
faith or gross negligence on the part of the Advisor, or reckless disregard of
its obligations and duties hereunder, the Advisor shall not be subject to any
liability to the Trust, or to any shareholder of the Trust, for any act or
omission in the course of, or connected with, rendering services hereunder.
9. USE OF NAME.
The Advisor owns the name "Sierra", which may be used by the Trust
only with the consent of the Advisor. The Advisor consents to the use by the
Trust of the name "Sierra Prime Income Fund" or any other name embodying the
name "Sierra", but only on condition and so long as (i) this Agreement shall
remain in full force, (ii) the Trust shall fully perform, fulfill and comply
with all provisions of this Agreement expressed herein to be performed,
fulfilled or complied with by it, and (iii) Sierra Investment Advisors
Corporation is the Advisor of the Trust. No such name shall be used by the
Trust at any time or in any place or for any purposes or under any conditions
except as provided in this section. The foregoing authorization by the Advisor
to the Trust to use the name "Sierra" as part of a business or name is not
exclusive of the right of the Advisor itself to use, or to authorize others to
use, the same; the Trust acknowledges and agrees that as between
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<PAGE> 6
the Advisor and the Trust, the Advisor has the exclusive right so to use, or
authorize others to use, said name, and the Trust agrees to take such action as
may reasonably be requested by the Advisor to give full effect to the
provisions of this section (including, without limitation, consenting to such
use of said name). Without limiting the generality of the foregoing, the Trust
agrees that, upon (i) any termination of this Agreement by either party, (ii)
the violation of any of its provisions by the Trust or (iii) termination of
this Investment Advisor Agreement between the Advisor and the Trust, the Trust
will, at the request of the Advisor, within six months after such termination
or violation, use its best efforts to change the name of the Trust so as to
eliminate all reference, if any, to the name "Sierra" and will not thereafter
transact any business in a name containing the name "Sierra" in any form or
combination whatsoever, or designate itself as the same entity as or successor
to an entity of such name, or otherwise use the name "Sierra" or any other
reference to the Advisor. Such covenants on the part of the Trust shall be
binding upon it, its trustees, offices, stockholders, creditors and all other
persons claiming under or through it.
10. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS.
A copy of the Agreement and Declaration of Trust of the Trust is on
file with the Secretary of The Commonwealth of Massachusetts, and notice is
hereby given that this instrument is executed on behalf of the Trustees of the
Trust, as Trustees, and not individually and that the obligations of this
instrument are not binding upon any of the Trustee or shareholders individually
but are binding only upon the assets and property of the Trust.
11. 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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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
-------------------------------------
Name: Keith Pipes
Title: Executive Vice President &
Treasurer
SIERRA INVESTMENT ADVISORS CORPORATION
By /s/ Michael D. Goth
-------------------------------------
Name: Michael D. Goth
Title: Chief Operating Officer
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<PAGE> 1
INVESTMENT SUB-ADVISORY AGREEMENT
February 14, 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.
<PAGE> 2
2. Services as Investment Sub-advisor
Subject to the supervision of the Board of Trustees of the Trust and
of Sierra Advisors, the Trust's investment advisor, the Sub- advisor will (a)
act in conformity with the Trust's Declaration of Trust, the Investment Company
Act of 1940, the Investment Advisers Act of 1940 and the Internal Revenue Code
of 1986, as the same may from time to time be amended, (b) make investment
decisions for the Trust in accordance with the Trust's investment objectives
and policies as stated in the Trust's Prospectus(es) and Statement of
Additional Information as in effect and, after timely notice to the
Sub-advisor, which may be amended from time to time, (c) place purchase and
sale orders on behalf of the Trust to effectuate the investment decisions made,
(d) maintain books and records with respect to the securities transactions of
the Trust and will furnish the Trust's Board of Trustees such periodic, regular
and special reports as the Board may reasonably request; and (e) treat
confidentially and as proprietary information of the Trust, all records and
other information specifically relative to the Trust and prior, present or
potential shareholders; and will not use such records and information for any
purpose other than performance of its responsibilities and duties hereunder,
except after prior notification to and approval in writing by the Trust, which
approval shall not be unreasonably withheld or delayed and such records may not
be withheld where the Sub-advisor is subject to audit by the U.S. Securities
and Exchange Commission or other regulatory, administrative or judicial
proceeding or audit or hwere the Sub-advisor may be exposed to civil or
criminal contempt proceedings for failure to comply, when requested to divulge
such information by duly constituted authorities, or when so requested by the
Trust. In providing those services, the Sub-advisor will supervise the Trust's
investments and conduct a continual program of investment, evaluation and, if
appropriate, sale and reinvestment of the Trust's assets. In addition, the
Sub-advisor will furnish the Trust or Sierra Advisors with whatever statistical
information the Trust or Sierra Advisors may reasonably request with respect to
the instruments that the Trust may hold or contemplate purchasing.
3. Brokerage
In executing transactions for the Trust and selecting banks,
syndicated loan agents, brokers or dealers (hereinafter referred to as "brokers
or dealers"), the Sub-advisor will use its best efforts to seek the best
overall terms available and shall execute or direct the execution of all such
transactions in a manner permitted by law and in a manner that is in the best
interest of the Trust and its shareholders. In assessing the best overall
terms available for any Trust transaction, with respect to the lenders from
whom the Trust will purchase assignments and participations in Senior Loans the
Sub-advisor will consider all factors it deems relevant including, but not
limited to their professional ability, level of service, relationship with the
borrower, financial condition, credit standards and quality of management.
With respect to investments other than Senior Loans, the Sub-advisor will
consider all factors it deems relevant including, but not limited to, breadth
of the market in the security, the price of the security, the financial
condition and execution capability of the broker or dealer and the
reasonableness of any commission for the
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<PAGE> 3
specific transaction and on a continuing basis. Pursuant to its investment
determinations for the Trust, in placing orders with brokers or dealers, the
Sub-advisor will attempt to obtain the best net price and the most favorable
execution of its orders. Consistent with this obligation, when the execution
and price offered by two or more brokers or dealers are comparable, the
Sub-advisor may, in its discretion, purchase and sell portfolio securities to
and from brokers or dealers who provide the Trust with research advice and
other services.
4. Information Provided to the Trust
The Sub-advisor will keep the Trust and Sierra Advisors informed of
developments materially affecting the Trust, and will on its own initiative,
furnish the Trust and Sierra Advisors on at least a quarterly basis with
whatever information the Sub-advisor reasonably believes is appropriate for
this purpose.
5. Standard of Care
The Sub-advisor shall exercise its reasonable best judgment in
rendering the services described in Paragraphs 2 and 3 above. The Sub- advisor
shall not be liable for any error of judgment or mistake of law or for any loss
suffered by the Trust or the Advisor in connection with the matters to which
this Agreement relates, except (a) a loss resulting from a breach of fiduciary
duty with respect to the receipt of compensation for services (in which case
any award of damages shall be limited to the period and the amount set forth in
Section 36(b)(3) of the Investment Company Act of 1940, as amended) or (b) a
loss resulting from willful misfeasance, bad faith or gross negligence on its
part in the performance of its duties or from reckless disregard by it of its
obligations and duties under this Agreement (each such breach, act or omission
described in (a) or (b) shall be referred to as "Disqualifying Conduct").
6. Compensation
In consideration of the services rendered pursuant to this Agreement,
Sierra Advisors will pay the Sub-advisor on the first business day of each
month a fee for the previous month at an annual rate of .475% of the Trust's
average daily net assets. The Sub-advisor shall have no right to obtain
compensation directly from the Trust or the Trust for services provided
hereunder and agrees to look solely to Sierra Advisors for payment of fees due.
Upon any termination of this Agreement before the end of a month, the fee for
such part of that month shall be prorated according to the proportion that such
period bears to the full monthly period and shall be payable upon the date of
termination of this Agreement. For the purpose of determining fees payable to
the Sub-advisor, the value of the Trust's net assets shall be computed at the
times and in the manner specified in the Trust's Prospectus and/or Statement of
Additional Information relating to the Trust as from time to time in effect.
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<PAGE> 4
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
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<PAGE> 5
more than two years thereafter only so long as such continuance is specifically
approved at least annually by (i) the Board of Trustees of the Trust or (ii) a
vote of a "majority" (as defined in the Investment Company Act of 1940, as
amended) of the Trust's outstanding voting securities, provided that in either
event the continuance is also approved by a majority of the Board of Trustees
who are not "interested persons" (as defined in said Act) of any party to this
Agreement, by vote cast in person at a meeting called for the purpose of voting
on such approval. This Agreement is terminable, without penalty, on 30 days'
written notice, by Sierra Advisors, the Board of Trustees of the Trust or by
vote of holders of a majority of the Trust's shares, or upon 90 days' written
notice, by the Sub-advisor and, will terminate automatically upon any
termination of the advisory agreement between the Trust and Sierra Advisors.
In addition, this Agreement will also terminate automatically in the event of
its assignment (as defined in said Act). The Sub-advisor agrees to notify the
Trust of any circumstances that might result in this Agreement being deemed to
be assigned.
10. Representations of the Trust and the Sub-advisor
The Trust represents that (i) a copy of its Agreement and Declaration
of Trust, dated October 4, 1995, and Amended Agreement and Declaration of Trust
dated January 18, 1996, together with all amendments thereto, is on file in the
office of the Secretary of the Commonwealth of Massachusetts, (ii) the
appointment of Sierra Advisors has been duly authorized, (ii) the appointment
of the Sub-advisor has been duly authorized, and (iv) it has acted and will
continue to act in conformity with the Investment Company Act of 1940, as
amended, and other applicable laws.
Sierra Advisors represents that (i) it is authorized to perform the
services herein, (ii) the appointment of the Sub-advisor has been duly
authorized, and (iii) it will act in conformity with the Investment Company Act
of 1940, as amended, and other applicable laws.
The Sub-advisor represents that it is authorized to perform the
services described herein.
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<PAGE> 6
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.
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<PAGE> 7
15. Governing Law
This Agreement shall be governed in accordance with the laws
of the Commonwealth of Massachusetts.
16. Counterparts
This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original, but such counterparts shall
together, constitute only one instrument.
If the foregoing accurately sets forth our agreement, kindly indicate
your acceptance hereof by signing and returning the enclosed copy hereof.
Very truly yours,
SIERRA PRIME INCOME FUND
By /s/ Keith B. Pipes
-------------------------------------
Name: Keith B. Pipes
Title: Executive Vice President & Treasurer
SIERRA INVESTMENT ADVISORS
CORPORATION
By /s/ Michael D. Goth
-------------------------------------
Name: Michael D. Goth
Title: Chief Operating Officer
Accepted:
VAN KAMPEN AMERICAN CAPITAL MANAGEMENT INC.
By /s/ Dennis J. McDonnell
---------------------------------------------
Name: Dennis J. McDonnell
Title: President and Chief Operating Officer
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<PAGE> 1
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 Company ("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.
<PAGE> 2
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 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.
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<PAGE> 3
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;
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<PAGE> 4
charges and expenses of any registrar, custodian or depositary appointed by the
Trust for safekeeping of its cash, portfolio securities, or other property, and
any transfer, dividend or accounting agent(s) appointed by the Trust; brokers'
commissions chargeable to the Trust in connection with its portfolio securities
transactions; all taxes, including securities issuance and transfer taxes; all
costs and expenses in connection with maintenance of registration of the Trust,
any Fund and the Shares with the SEC, various states, and other jurisdictions
(including filing and legal fees and disbursements of counsel); expenses of
printing, including typesetting, and distributing Prospectuses to the Trust's
shareholders; all expenses of shareholders' and Trustees' meetings and of
preparing, printing and mailing proxy statements and reports to shareholders;
fees and expenses of Trustees; all expenses incident to the payment of any
dividend, distribution, withdrawal or redemption, whether in Shares or in cash;
charges and expenses of any outside service used for pricing of Shares; charges
and expenses of legal counsel and independent accountants, in connection with
any matter relating to the Trust; membership dues of industry associations;
interest payable on borrowings; postage; insurance premiums on property or
personnel (including officers and Trustees) of the Trust that inure to its
benefit; extraordinary expenses (including but not limited to legal claims and
liabilities and litigation costs and any indemnification related thereto); and
all other charges and costs of operations unless otherwise explicitly provided
herein.
4. Compensation
The Distributor will receive no compensation from the Trust in
consideration of its services in connection with the distribution of Shares of
the Trust.
A. Early Withdrawal Charges. The Trust shall cause its transfer
agent (the "Transfer Agent") to withhold, from repurchase proceeds payable to
holders of Shares of the Funds, all early withdrawal sales charges properly
payable by such holders in accordance with the terms of the Prospectuses
relating to such Shares ("EWCs") and shall cause the Transfer Agent to pay such
amounts over as promptly as possible after the settlement date for each
repurchase of such Shares.
B. Other Services; Service Fee. Upon request of the Trust's
Board of Trustees, Sierra Services may, but shall be under no duty to, perform
additional services on behalf of the Trust, which services are not required by
this Agreement but may be performed by Sierra Services in conformity with
applicable law. Any such services will be performed on behalf of the Trust,
and Sierra Services may impose additional charges for such services, which
charges may be billed to the Trust and subject to examination by the Trust's
independent accountants. Sierra Services's payment or assumption of any
expense of the Trust that Sierra Services is not required to pay or assume
under this Agreement shall not relieve Sierra Services of any of its
obligations to the Trust or obligate Sierra Services to pay or assume any
similar expense on any subsequent occasion.
4
<PAGE> 5
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).
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;
5
<PAGE> 6
(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.
B. The Trust authorizes Sierra Services and any Broker with whom
Sierra Services has entered into Dealer Agreements to use, in connection with
the sale of Shares, any Prospectus furnished by the Trust from time to time.
Sierra Services shall not, and shall take reasonable steps to ensure that no
Broker will, give any information nor make any representations, concerning any
aspect of the Shares or the Trust to any persons or entity unless such
information or representations are contained in the Registration Statement
and/or the pertinent Prospectus, or are contained in sales or promotional
literature approved by the Trust. Sierra Services shall not use, and shall
take reasonable steps to ensure that no Broker will, use any sales promotion
material or advertising that has not been previously approved by the Trust.
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.
6
<PAGE> 7
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
7
<PAGE> 8
1933 Act, the 1940 Act and the rules and regulations of the SEC thereunder.
The Trust represents and warrants to Sierra Services that any Registration
Statement or Prospectus, when it becomes effective, will include all statements
required to be contained therein in conformity with the 1933 Act, the 1940 Act
and the rules and regulations of the SEC; that all statements of fact contained
in any Registration Statement or Prospectus will be true and correct when such
Registration Statement or Prospectus becomes effective; and that no
Registration Statement nor any Prospectus, when the same shall become
effective, will include any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading to a purchaser of Shares. Sierra Services
may, but shall not be obligated to, propose from time to time such amendment(s)
to any Registration Statement and such supplement(s) to any Prospectus as, in
the light of future developments, may, in the opinion of Sierra Services or its
counsel, be necessary or advisable. The Trust shall not file any amendment to
any Registration Statement or supplement to any Prospectus without giving
Sierra Services reasonable notice thereof in advance; provided, however, that
nothing contained in this Agreement shall in any way limit the Trust's right to
file at any time such amendment(s) to any Registration Statement and
supplement(s) to any Prospectus, of whatever character, as the Trust may deem
advisable, such right being in all respects absolute and unconditional.
B. Charter. The Trust represents that a copy of its Agreement
and 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,
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<PAGE> 9
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,
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
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<PAGE> 10
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
10
<PAGE> 11
retain counsel of good standing approved by the indemnified party, the
defendant or defendants in such suit shall bear the fees and expenses of any
additional counsel retained by any of them; but in case the indemnifying party
does not elect or is not permitted to assume the defense of any such suit, or
in case the indemnified party does not approve of counsel chosen by the
indemnifying party, the indemnifying party will reimburse the indemnified party
named as defendant or defendants in such suit, for the fees and expenses of any
counsel retained by such indemnified party.
D. Notice. Each of Sierra Services and the Trust agrees to
notify the other promptly of the commencement of any litigation or proceedings
against it or any of its officers or directors or Trustees, as applicable, in
connection with the issuance and sale of any Shares.
E. Contribution. If the indemnification provided for in this
Section shall for any reason be unavailable to or insufficient to hold harmless
a party indemnified hereunder in respect of any claim, demand, liability or
expense, or any action in respect thereof, referred to therein, then each
indemnifying party shall, in lieu of indemnifying such indemnified party,
contribute to the amount paid or payable by such indemnified party as a result
of such claim, demand, liability or expense, or action in respect thereof, (a)
in such proportion as shall be appropriate to reflect the relative benefits
received by the Trust on the one hand and Sierra Services on the other from the
offering of the Shares or (b) if the allocation provided by clause (a) above is
not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (a) above but also
the relative fault of the Trust (and its agents other than Sierra Services) on
the one hand and Sierra Services on the other with respect to the statements or
omissions which resulted in such claim, demand, liability or expense, or action
in respect thereof, as well as any other relevant equitable considerations.
The relative benefits received by the Trust on the one hand and Sierra Services
on the other with respect to the offering of the Shares shall be deemed to be
in the same proportion as the total net proceeds from the offering of the
Shares purchased under this agreement (before deducting expenses) received by
the Trust bear to the total net underwriting discounts and commissions received
by Sierra Services with respect to the Shares purchased under this Agreement
and retained by Sierra Services after payments to the selling agents retained
by it. The relative fault shall be determined by reference to whether the
untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact relates to information supplied by the Trust
(or any of its agents other than Sierra Services) or by Sierra Services, the
intent of the parties and their relative knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Trust and
Sierra Services agree that it would not be just and equitable if contributions
pursuant to this Section were to be determined by pro rata allocation or by any
other method of allocation which does not take into account the equitable
considerations referred to herein. The amount paid or payable by an
indemnified party as a result of the claim, demand, liability or expense, or
action in respect thereof, referred to above in this Section shall be deemed to
include, for purposes of this Section, any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or
defending any such action or claim. Notwithstanding the provisions of this
11
<PAGE> 12
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
this Agreement or any
12
<PAGE> 13
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.
XIII. Miscellaneous.
A. Non-Exclusivity. The Trust recognizes that Sierra Services
and its affiliates shall be free to render distribution or other services to
others (including other investment companies) and to engage in other
activities. The Trust agrees that the directors, officers and employees of
Sierra Services shall not be prohibited by reason of this Agreement from
engaging in any other business activity or from rendering services to any other
person, or from serving as partners, directors, trustees or officers of any
other firm or corporation, including the Trust and other investment companies.
Sierra Services acknowledges that its appointment as distributor pursuant to
this Agreement is not exclusive, and that the Trust may appoint one or more
other persons to act as distributor for the Shares of one or more Funds.
B. Independent Contractor. Sierra Services and any Broker shall
be independent contractors and none of them nor any of their directors,
officers or employees shall, as such, be deemed employees of the Trust.
C. Notices. Any notices under this Agreement shall be in
writing, mailed postage paid or sent by telegram, telecopy, or facsimile to the
other party at such address as such other party may designate from time to time
for the receipt of such notice.
13
<PAGE> 14
D. Integration; Amendment; Counterparts; Governing Law.
This Agreement constitutes the entire agreement between the parties
hereto with respect to the subject matter hereof, and may not be modified,
amended, or waived except by a written instrument duly executed by the party
against whom such modification, amendment, or waiver is sought to be enforced.
If any provisions of this Agreement shall be held or made invalid by a court
decision, statute rule or otherwise, the remainder of this Agreement shall not
be affected thereby.
This Agreement shall be subject to the provisions of the 1940 Act and
the 1934 Act and the rules, regulations and rulings thereunder, and of the
applicable rules and regulations of the NASD, from time to time in effect, and
the terms hereof shall be interpreted and construed in accordance therewith.
This Agreement may be executed in any number of counterparts, each of
which will be deemed an original, but all of which together will constitute one
and the same instrument.
This Agreement shall be governed in accordance with the internal
substantive laws of the Commonwealth of Massachusetts.
It is expressly agreed that the obligations of the Trust hereunder
shall not be binding upon any of the Trustees, shareholders, nominees,
officers, agents or employees of the Trust personally, but bind only the trust
property of the Trust, as provided in the Trust Agreement. The execution and
delivery of this Agreement have been authorized by the Trustees and effected by
an authorized officer of the Trust, acting as such, and neither such
authorization nor such execution and delivery shall be deemed to have been made
by any Trustee or officer individually or to impose any liability on any of
them personally, but shall bind only the trust property of the Trust as
provided in the Trust Agreement.
Please confirm that the foregoing accurately sets forth our agreement
by indicating your acceptance hereof at the place below indicated, whereupon it
shall become a binding agreement between us as of the date first set forth
above.
Very truly yours,
Sierra Prime Income Fund
By /s/ F. Brian Cerini
---------------------------------
Title: President
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<PAGE> 15
ACCEPTED:
Sierra Investment Services Corporation
By /s/ Keith B. Pipes
---------------------------------
Title: Senior Vice President and Secretary
15
<PAGE> 1
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,
<PAGE> 2
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 applicable 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. Nothwithstanding 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
(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;
-2-
<PAGE> 3
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.
-3-
<PAGE> 4
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
-4-
<PAGE> 5
Chairman and President
Accepted:
SIERRA FUND ADMINISTRATION CORPORATION
By: /s/ Keith B. Pipes
-----------------------------------
Keith B. Pipes
Chief Financial Officer, Treasurer and
Secretary
-5-
<PAGE> 1
TRANSFER AGENCY AND SERVICES AGREEMENT
THIS AGREEMENT, dated as of this 1st day of May, 1996 between Sierra
Trust Funds, Sierra Prime Income Fund, Sierra Asset Management Portfolios, each
a Massachusetts business trust having its principal place of business at 9301
Corbin Avenue, Northridge, California 91324 and FIRST DATA INVESTOR SERVICES
GROUP, INC. ("FDISG"), a Massachusetts corporation with principal offices at
4400 Computer Drive, Westboro, Massachusetts 01581.
WITNESSETH
WHEREAS, Sierra Trust Funds and Sierra Asset Management Portfolios
(the "Series Funds") are authorized to issue Shares in separate series, with
each such series representing interests in a separate portfolio of securities
and other assets;
WHEREAS, the Series Funds initially intend to offer shares in those
Portfolios identified in the attached Exhibit 1, each such Portfolio, together
with all other Portfolios subsequently established by the Series Funds shall be
subject to this Agreement in accordance with Article 14;
WHEREAS, the Funds desire to appoint FDISG as its transfer agent,
dividend disbursing agent and agent in connection with certain other activities
and FDISG desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants and promises
hereinafter set forth, the Funds and FDISG agree as follows:
Article 1 Definitions.
1.1 Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
(a) "Articles of Incorporation" shall mean the Articles
of Incorporation, Declaration of Trust, or other similar
organizational document as the case may be, of the Fund as the same
may be amended from time to time;
(b) "Authorized Person" shall be deemed to include (i)
any authorized officer of the applicable Fund; or (ii) any person,
whether or not such person is an officer or employee of such Fund,
duly authorized to give Oral Instructions or Written Instructions on
behalf of such Fund as indicated in writing to FDISG from time to
time;
(c) "Board of Directors" shall mean the Board of
Directors or Board of
1
<PAGE> 2
Trustees of each Fund, as the case may be;
(d) "Commission" shall mean the Securities and Exchange
Commission;
(e) "Custodian" refers to any custodian or subcustodian
of securities and other property which the Fund may from time to time
deposit, or cause to be deposited or held under the name or account of
such a custodian pursuant to a Custodian Agreement;
(f) "Funds" shall mean Sierra Trust Funds on behalf of
its Portfolios, Sierra Prime Income Fund and Sierra Asset Management
Portfolios on behalf of its Portfolios;
(g) "1934 Act" shall mean the Securities Exchange Act of
1934 and the rules and regulations promulgated thereunder, all as
amended from time to time;
(h) "1940 Act" shall mean the Investment Company Act of
1940 and the rules and regulations promulgated thereunder, all as
amended from time to time;
(i) "Oral Instructions" shall mean instructions, other
than Written Instructions, actually received by FDISG from a person
reasonably believed by FDISG to be an Authorized Person;
(j) "Portfolio" shall mean each separate series of shares
offered by the Series Funds representing interest in a separate
portfolio of securities and other assets;
(k) "Prospectus" shall mean the most recently dated Fund
Prospectus and Statement of Additional Information, including any
supplements thereto if any, which has become effective under the
Securities Act of 1933 and the 1940 Act;
(l) "Series Funds" refers collectively to Sierra Trust
Funds and Sierra Asset Management Portfolios;
(m) "Shares" refers collectively to such shares of
capital stock or beneficial interest, as the case may be, or class
thereof, of the Funds as may be issued from time to time;
(n) "Shareholder" shall mean a record owner of Shares;
(o) "Written Instructions" shall mean a written
communication signed by a person reasonably believed by FDISG to be an
Authorized Person and actually received by FDISG. Written
Instructions shall include manually executed originals and authorized
electronic transmissions, including telefacsimile of a manually
executed original or other
2
<PAGE> 3
process.
Article 2 Appointment of FDISG.
The Funds hereby appoint and constitute FDISG as transfer agent and
dividend disbursing agent for Shares and as shareholder servicing agent for the
Funds and FDISG hereby accepts such appointments and agrees to perform the
duties hereinafter set forth.
Article 3 Duties of FDISG.
3.1 FDISG shall be responsible for:
(a) Administering and/or performing the customary
services of a transfer agent; acting as service agent in connection
with dividend and distribution functions; and for performing
shareholder account and administrative agent functions in connection
with the issuance, transfer and redemption or repurchase (including
coordination with the Custodian) of Shares, as more fully described in
the written schedule of Duties of FDISG annexed hereto as Schedule A
and incorporated herein, and in accordance with the terms of the
Prospectus of the Funds, applicable law and the procedures
established from time to time between FDISG and the Funds.
(b) Recording the issuance of Shares and maintaining
pursuant to Rule 17Ad-10(e) of the 1934 Act a record of the total
number of Shares which are authorized, based upon data provided to it
by the Funds, and issued and outstanding. FDISG shall provide the
Funds on a regular basis with the total number of Shares which are
authorized and issued and outstanding and shall have no obligation,
when recording the issuance of Shares, to monitor the issuance of such
Shares or to take cognizance of any laws relating to the issue or sale
of such Shares, which functions shall be the sole responsibility of
the Fund.
(c) Notwithstanding any of the foregoing provisions of
this Agreement, FDISG shall be under no duty or obligation to inquire
into, and shall not be liable for: (i) the legality of the issuance
or sale of any Shares or the sufficiency of the amount to be received
therefor; (ii) the legality of the redemption of any Shares, or the
propriety of the amount to be paid therefor; (iii) the legality of the
declaration of any dividend by the Board of Directors, or the legality
of the issuance of any Shares in payment of any dividend; or (iv) the
legality of any recapitalization or readjustment of the Shares.
3.2 In addition, the Funds shall (i) identify to FDISG in writing
those transactions and assets to be treated as exempt from blue sky reporting
for each State and (ii) verify the establishment of transactions for each
State on the system prior to activation and thereafter
3
<PAGE> 4
monitor the daily activity for each State. The responsibility of FDISG for the
Funds blue sky State registration status is solely limited to the initial
establishment of transactions subject to blue sky compliance by the Funds and
the reporting of such transactions to the Funds as provided above.
3.3 In addition to the duties set forth herein, FDISG shall
perform such other duties and functions, and shall be paid such amounts
therefor, as may from time to time be agreed upon in writing between the Funds
and FDISG.
3.4 FDISG agrees to provide the services described herein in
accordance with the Performance Standards annexed hereto as Exhibit 1 of
Schedule A and incorporated herein (the "Performance Standards"). Such
Performance Standards may be amended from time to time upon written agreement
by the parties.
Article 4 Recordkeeping and Other Information.
4.1 FDISG shall create and maintain all records required of it
pursuant to its duties hereunder and as set forth in Schedule A in accordance
with all applicable laws, rules and regulations, including records required by
Section 31(a) of the 1940 Act. Where applicable, such records shall be
maintained by FDISG for the periods and in the places required by Rule 31a-2
under the 1940 Act.
4.2 To the extent required by Section 31 of the 1940 Act, FDISG
agrees that all such records prepared or maintained by FDISG relating to the
services to be performed by FDISG hereunder are the property of each respective
Fund and will be preserved, maintained and made available in accordance with
such section, and will be surrendered promptly to such Fund on and in
accordance with such Funds request.
4.3 In case of any requests or demands for the inspection of
Shareholder records of a Fund, FDISG will endeavor to notify the respective
Fund of such request and secure Written Instructions as to the handling of such
request. FDISG reserves the right, however, to exhibit the Shareholder records
to any person whenever it is advised by its counsel that it may be held liable
for the failure to comply with such request.
Article 5 Fund Instructions.
5.1 FDISG will have no liability when acting upon Written or Oral
Instructions believed to have been executed or orally communicated by an
Authorized Person and will not be held to have any notice of any change of
authority of any person until receipt of a Written Instruction thereof from the
Funds.
4
<PAGE> 5
5.2 At any time, FDISG may request Written Instructions from the
Funds and may seek advice from legal counsel for the Funds, or its own legal
counsel, with respect to any matter arising in connection with this Agreement,
and it shall not be liable for any action taken or not taken or suffered by it
in good faith in accordance with such Written Instructions or in accordance
with the opinion of counsel for the Funds or for FDISG. Written Instructions
requested by FDISG will be provided by the Fund within a reasonable period of
time.
5.3 FDISG, its officers, agents or employees, shall accept Oral
Instructions or Written Instructions given to them by any person representing
or acting on behalf of the Funds only if said representative is an Authorized
Person. The Funds agree that all Oral Instructions shall be followed within
one business day by confirming Written Instructions, and that the Funds
failure to so confirm shall not impair in any respect FDISG's right to rely on
Oral Instructions.
Article 6 Compensation.
6.1 (a) Sierra Trust Funds has arranged for its administrator,
Sierra Fund Administration to compensate FDISG for the performance of
the services provided to the Sierra Trust Funds portfolios hereunder
in accordance with the fees set forth in the written Fee Schedule
annexed hereto as Schedule B and incorporated herein.
Nothwithstanding the foregoing the parties acknowledge that the Sierra
Trust Funds on behalf of each of its Portfolios will remain
responsible for the payment of such compensation in the event Sierra
Fund Administration fails to make such payments.
(b) The Sierra Prime Income Fund will compensate FDISG for
the performance of the services provided to the Sierra Prime Income
Fund hereunder in accordance with the fees set forth in Schedule B.
(c) The Sierra Asset Management Portfolios on behalf of its
Portfolios will compensate FDISG for the performance of the services
provided to such Portfolios hereunder in accordance with the fees set
forth in Schedule B.
6.2 (a) In the event that FDISG has failed to meet a specific
Performance Standard category, as set forth on Exhibit 1 of Schedule
A, in two of any rolling three month periods, the Funds may reduce the
total amount of fees due to FDISG under this Agreement, excluding
out-of-pocket expenses, by an amount equal to five percent (5%) of the
fees for the third month. Notwithstanding the foregoing, the Fund's
rights under this Section 6.2, shall not become effective until August
1, 1996 with respect to the Print Mail and Shareholder Services
Performance Standards and October 1, 1996 with respect to Transaction
Processing (Financials and Non-Financials) Performance Standards.
(b) For purposes of the fee reduction set forth in Section
6.2(a) above, FDISG's
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obligation to meet the Performance Standards shall be measured in the
aggregate with respect to all of the Funds.
6.3 In addition to those fees set forth in Section 6.1 above, the
Funds agree to pay, and will be billed separately for, out-of-pocket expenses
incurred by FDISG in the performance of its duties hereunder. Out-of-pocket
expenses shall include, but shall not be limited to, the items specified in the
written schedule of out-of-pocket charges annexed hereto as Schedule C and
incorporated herein. Schedule C may be modified by written agreement between
the parties. Unspecified out-of-pocket expenses shall be limited to those
out-of-pocket expenses reasonably incurred by FDISG in the performance of its
obligations hereunder.
6.4 The Funds agree that all fees and out-of-pocket expenses shall
be paid within fifteen (15) days following the receipt of the respective
invoice.
6.5 Any compensation agreed to hereunder may be adjusted from time
to time by attaching to Schedule B, a revised Fee Schedule executed and dated
by the parties hereto.
6.6 The Funds acknowledge that the fees that FDISG charges the
Funds under this Agreement reflect the allocation of risk between the parties,
including the disclaimer of warranties in Section 9.3 and the limitations on
liability and exclusion of remedies in Section 11.2 and Article 12. Modifying
the allocation of risk from what is stated here would affect the fees that
FDISG charges, and in consideration of those fees, the Funds agree to the
stated allocation of risk.
Article 7 Documents.
In connection with the appointment of FDISG, the Funds shall, on or
before the date this Agreement goes into effect, but in any case within a
reasonable period of time for FDISG to prepare to perform its duties hereunder,
each deliver or caused to be delivered to FDISG the documents set forth in the
written schedule of Fund Documents annexed hereto as Schedule D.
Article 8 Transfer Agent System.
8.1 FDISG shall retain title to and ownership of any and all data
bases, computer programs, screen formats, report formats, interactive design
techniques, derivative works, inventions, discoveries, patentable or
copyrightable matters, concepts, expertise, patents, copyrights, trade secrets,
and other related legal rights utilized by FDISG in connection with the
services provided by FDISG to the Funds herein (the "FDISG System").
8.2 FDISG hereby grants to the Funds a limited license to the
FDISG System for the sole and limited purpose of having FDISG provide the
services contemplated hereunder and nothing contained in this Agreement shall
be construed or interpreted otherwise and such license shall immediately
terminate with the termination of this Agreement.
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<PAGE> 7
8.3 FDISG agrees to maintain a dedicated transmission link to the
Funds broker-dealer system in order to allow for automated entry of
transactions and new accounts initiated by Great Western Financial Securities
into the Funds.
8.4 FDISG agrees to enhance its propriatary image system (IMPRESS)
in order to support financial transactions by December 31, 1996.
Article 9 Representations and Warranties.
9.1 FDISG represents and warrants to the Funds that:
(a) it is a corporation duly organized, existing and in
good standing under the laws of the Commonwealth of Massachusetts;
(b) it is empowered under applicable laws and by its
Articles of Incorporation and By-Laws to enter into and perform this
Agreement;
(c) all requisite corporate proceedings have been taken
to authorize it to enter into this Agreement;
(d) it is duly registered with its appropriate regulatory
agency as a transfer agent and such registration will remain in effect
for the duration of this Agreement; and
(e) it has and will continue to have access to the
necessary facilities, equipment and personnel to perform its duties
and obligations under this Agreement.
9.2 Each Fund represents and warrants to FDISG that:
(a) it is duly organized, existing and in good standing
under the laws of the jurisdiction in which it is organized;
(b) it is empowered under applicable laws and by its
Article of Incorporation and By-Laws to enter into this Agreement;
(c) all corporate proceedings required by said Articles
of Incorporation, By-Laws and applicable laws have been taken to
authorize it to enter into this Agreement;
(d) a registration statement under the Securities Act of
1933, as amended, and the 1940 Act on behalf of each of the
Portfolios, with respect to the Series Funds, is currently effective
and will remain effective, and all appropriate state securities law
filings have been made and will continue to be made, with respect to
all Shares of the Funds
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<PAGE> 8
being offered for sale; and
(e) all outstanding Shares are validly issued, fully paid
and non-assessable and when Shares are hereafter issued in accordance
with the terms of the Fund s Articles of Incorporation and its
Prospectus with respect to each Portfolio for the Series Funds, such
Shares shall be validly issued, fully paid and non-assessable.
9.3 THIS IS A SERVICE AGREEMENT. EXCEPT AS EXPRESSLY PROVIDED IN
THIS AGREEMENT, FDISG DISCLAIMS ALL OTHER REPRESENTATIONS OR WARRANTIES,
EXPRESS OR IMPLIED, MADE TO THE FUNDS OR ANY OTHER PERSON, INCLUDING, WITHOUT
LIMITATION, ANY WARRANTIES REGARDING QUALITY, SUITABILITY, MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE OR OTHERWISE (IRRESPECTIVE OF ANY COURSE OF
DEALING, CUSTOM OR USAGE OF TRADE) OF ANY SERVICES OR ANY GOODS PROVIDED
INCIDENTAL TO SERVICES PROVIDED UNDER THIS AGREEMENT. FDISG DISCLAIMS ANY
WARRANTY OF TITLE OR NON- INFRINGEMENT EXCEPT AS OTHERWISE SET FORTH IN THIS
AGREEMENT.
Article 10 Indemnification.
10.1 FDISG shall not be responsible for and each Fund shall
separately indemnify and hold FDISG harmless from and against any and all
claims, costs, expenses (including reasonable attorneys' fees), losses,
damages, charges, payments and liabilities of any sort or kind which may be
asserted against FDISG or for which FDISG may be held to be liable (a "Claim")
arising out of or attributable to any of the following:
(a) any actions of FDISG required to be taken pursuant to
this Agreement unless such Claim resulted from a negligent act or
omission to act or bad faith by FDISG in the performance of its duties
hereunder, with respect to such Fund;
(b) FDISG's reasonable reliance on, or reasonable use of
information, data, records and documents (including but not limited to
magnetic tapes, computer printouts, hard copies and microfilm copies)
received by FDISG from such Fund, or any authorized third party acting
on behalf of such Fund, including but not limited the prior transfer
agent for such Fund, in the performance of FDISG's duties and
obligations hereunder, with respect to such Fund;
(c) the reliance on, or the implementation of, any
Written or Oral Instructions or any other instructions or requests of
such Fund;
(d) the offer or sale of shares in violation of any
requirement under the
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<PAGE> 9
securities laws or regulations of any state that such shares be
registered in such state or in violation of any stop order or other
determination or ruling by any state with respect to the offer or sale
of such shares in such state, with respect to such Fund; and
(e) such Fund's refusal or failure to comply with the
terms of this Agreement, or any Claim which arises out of such Funds
negligence or misconduct or the breach of any representation or
warranty of such Fund made herein.
10.2 In any case in which a Fund may be asked to indemnify or hold
FDISG harmless, FDISG will notify such Fund promptly after identifying any
situation which it believes presents or appears likely to present a claim for
indemnification against such Fund although the failure to do so shall not
prevent recovery by FDISG and shall keep such Fund advised with respect to all
developments concerning such situation. The applicable Fund shall have the
option to defend FDISG against any Claim which may be the subject of this
indemnification, and, in the event that such Fund so elect, such defense shall
be conducted by counsel chosen by such Fund and satisfactory to FDISG, and
thereupon such Fund shall take over complete defense of the Claim and FDISG
shall sustain no further legal or other expenses in respect of such Claim.
FDISG will not confess any Claim or make any compromise in any case in which
such Fund will be asked to provide indemnification, except with such Fund's
prior written consent. The obligations of the parties hereto under this
Article 10 shall survive the termination of this Agreement.
10.3 Any claim for indemnification under this Agreement must be
made prior to the earlier of:
(a) one year after the applicable Fund becomes aware of
the event for which indemnification is claimed; or
(b) one year after the earlier of the termination of this
Agreement or the expiration of the term of this Agreement.
10.4 Except for remedies that cannot be waived as a matter of law
(and injunctive or provisional relief), the provisions of this Article 10 shall
be FDISG s sole and exclusive remedy for claims or other actions or proceedings
to which the Funds indemnification obligations pursuant to this Article 10 may
apply.
Article 11 Standard of Care.
11.1 FDISG shall at all times act in good faith and agrees to use its
best efforts within commercially reasonable limits to ensure the accuracy of
all services performed under this Agreement, but assumes no responsibility for
loss or damage to the Funds unless said errors are caused by FDISG's own
negligence, bad faith or willful misconduct or that of its employees.
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<PAGE> 10
11.2 Notwithstanding any provision in this Agreement to the contrary
and except for the gross negligence or willful misconduct of FDISG, FDISG's
cumulative liability (to the Funds) for all losses, claims, suits,
controversies, breaches, or damages for any cause whatsoever (including but not
limited to those arising out of or related to this Agreement) and regardless of
the form of action or legal theory shall not exceed (i) four million dollars
($4,000,000) or (ii) the fees received by FDISG for services provided under
this Agreement during the twelve months immediately prior to the date of such
loss or damage. The Funds understand the limitation on FDISG's damages to be a
reasonable allocation of risk and the Funds expressly consent with respect to
such allocation of risk. In allocating risk under the Agreement, the parties
agree that the damage limitation set forth above shall apply to any alternative
remedy ordered by a court in the event such court determines that sole and
exclusive remedy provided for in the Agreement fails of its essential purpose.
11.3 Neither party may assert any cause of action against the other
party under this Agreement that accrued more than two (2) years prior to the
filing of the suit (or commencement of arbitration proceedings) alleging such
cause of action.
11.4 Each party shall have the duty to mitigate damages for which the
other party may become responsible.
Article 12 Consequential Damages.
NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, IN NO
EVENT SHALL FDISG, ITS AFFILIATES OR ANY OF ITS OR THEIR DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS OR SUBCONTRACTORS BE LIABLE UNDER ANY THEORY OF TORT,
CONTRACT, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY FOR LOST PROFITS,
EXEMPLARY, PUNITIVE, SPECIAL, INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES,
EACH OF WHICH IS HEREBY EXCLUDED BY AGREEMENT OF THE PARTIES REGARDLESS OF
WHETHER SUCH DAMAGES WERE FORESEEABLE OR WHETHER EITHER PARTY OR ANY ENTITY HAS
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
Article 13 Term and Termination.
13.1 This Agreement shall be effective on the date first written
above and shall continue for a period of five (5) years (the "Initial Term").
13.2 Upon the expiration of the Initial Term, this Agreement shall
automatically renew for successive terms of three (3) years ("Renewal Terms")
each, unless the Funds or FDISG provide written notice to the other of its
intent not to renew. Such notice must be received not less than ninety (90)
days and not more than one-hundred eighty (180) days prior to the expiration of
the Initial Term or the then current Renewal Term.
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<PAGE> 11
13.3 In the event a termination notice is given by the Funds, all
expenses associated with movement of records and materials and conversion
thereof to a successor transfer agent will be borne by the Funds, provided,
however, FDISG shall use its best efforts to mitigate the costs associated with
such conversion .
13.4 If a party hereto is guilty of a material failure to perform its
duties and obligations hereunder (a "Defaulting Party") the other party (the
"Non-Defaulting Party") may give written notice thereof to the Defaulting
Party, and if such material breach shall not have been remedied within thirty
(30) days after such written notice is given, then the Non-Defaulting Party may
terminate this Agreement by giving thirty (30) days written notice of such
termination to the Defaulting Party. If FDISG is the Non-Defaulting Party, its
termination of this Agreement shall not constitute a waiver of any other rights
or remedies of FDISG with respect to services performed prior to such
termination or rights of FDISG to be reimbursed for out-of-pocket expenses. In
all cases, termination by the Non-Defaulting Party shall not constitute a
waiver by the Non-Defaulting Party of any other rights it might have under this
Agreement or otherwise against the Defaulting Party.
13.5 (a) In the event that FDISG has failed to meet a specific
performance standard category, as set forth in Exhibit 1 of Schedule
A, with respect to in four of any rolling six month periods, the Funds
may terminate this Agreement. The Funds will provide FDISG with sixty
(60) days notice in writing if the Funds intend to exercise its option
under this Section 13.5. Notwithstanding the foregoing, the Funds
rights under this Section 13.2, shall not become effective until
August 1, 1996 with respect to the Print Mail and Shareholder Services
Performance Standards and October 1, 1996 with respect to Transaction
Processing (Financials and Non-Financials) Performance Standards.
(b) For purposes of the Funds option to terminate this
Agreement under Section 13.5(a) above, FDISG s obligation to meet the
Performance Standards shall be measured in the aggregate with respect
to all of the Funds.
Article 14 Additional Portfolios.
In the event that either Series Fund establishes one or more
Portfolios in addition to those identified in Exhibit 1, with respect to which
the Series Fund desires to have FDISG render services as transfer agent under
the terms hereof, the Series Fund shall so notify FDISG in writing, and Exhibit
1 shall be amended to include such additional Portfolios.
Article 15 Confidentiality.
15.1 The parties agree that the Proprietary Information (defined
below) and the contents of this Agreement (collectively "Confidential
Information") are confidential information
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of the parties and their respective licensors. The Funds and FDISG shall
exercise at least the same degree of care, but not less than reasonable care,
to safeguard the confidentiality of the Confidential Information of the other
as it would exercise to protect it's own confidential information of a similar
nature. The Funds and FDISG may use the Confidential Information only to
exercise its rights under this Agreement. The Funds and FDISG shall not
duplicate, sell or disclose to others the Confidential Information of the
other, in whole or in part, without the prior written permission of the other
party. The Funds and FDISG may, however, disclose Confidential Information to
its employees who have a need to know the Confidential Information to perform
work for the other, provided that each shall use reasonable efforts to ensure
that the Confidential Information is not duplicated or disclosed by its
employees in breach of this Agreement. The Funds and FDISG may also disclose
the Confidential Information to independent contractors, auditors, and
professional advisors, provided they first agree in writing to be bound by the
confidentiality obligations substantially similar to this Section 15.1.
Notwithstanding the previous sentence, in no event shall either the Funds or
FDISG disclose the Confidential Information to any competitor of the other
without specific, prior written consent.
15.2 Proprietary Information means:
(a) any data or information that is competitively
sensitive material, and not generally known to the public, including,
but not limited to, information about product plans, marketing
strategies, finance, operations, customer relationships, customer
profiles, sales estimates, business plans, and internal performance
results relating to the past, present or future business activities of
the Funds or FDISG, their respective subsidiaries and affiliated
companies and the customers, clients and suppliers of any of them;
(b) any scientific or technical information, design,
process, procedure, formula, or improvement that is commercially
valuable and secret in the sense that its confidentiality affords the
Funds or FDISG a competitive advantage over its competitors; and
(c) all confidential or proprietary concepts,
documentation, reports, data, specifications, computer software,
source code, object code, flow charts, databases, inventions,
know-how, show-how and trade secrets, whether or not patentable or
copyrightable.
15.3 Confidential Information includes, without limitation, all
documents, inventions, substances, engineering and laboratory notebooks,
drawings, diagrams, specifications, bills of material, equipment, prototypes
and models, and any other tangible manifestation of the foregoing of either
party which now exist or come into the control or possession of the other.
Article 16 Force Majeure.
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No party shall be liable for any default or delay in the performance
of its obligations under this Agreement if and to the extent such default or
delay is caused, directly or indirectly, by (i) fire, flood, elements of nature
or other acts of God; (ii) any outbreak or escalation of hostilities, war,
riots or civil disorders in any country, (iii) any act or omission of the other
party or any governmental authority; (iv) any labor disputes (whether or not
the employees' demands are reasonable or within the party's power to satisfy);
or (v) nonperformance by a third party or any similar cause beyond the
reasonable control of such party, including without limitation, failures or
fluctuations in telecommunications or other equipment. In any such event, the
non-performing party shall be excused from any further performance and
observance of the obligations so affected only for as long as such
circumstances prevail and such party continues to use commercially reasonable
efforts to recommence performance or observance as soon as practicable.
Article 17 Assignment and Subcontracting.
This Agreement, its benefits and obligations shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns. This Agreement may not be assigned or otherwise transferred
by either party hereto, without the prior written consent of the other party,
which consent shall not be unreasonably withheld; provided, however, that FDISG
may, in its sole discretion, assign all its right, title and interest in this
Agreement to an affiliate, parent or subsidiary, or to the purchaser of
substantially all of its business. FDISG may, in its sole discretion, engage
subcontractors to perform any of the obligations contained in this Agreement to
be performed by FDISG.
Article 18 Arbitration.
18.1 Any claim or controversy arising out of or relating to this
Agreement, or breach hereof, shall be settled by arbitration administered by
the American Arbitration Association in Boston, Massachusetts in accordance
with its applicable rules, except that the Federal Rules of Evidence and the
Federal Rules of Civil Procedure with respect to the discovery process shall
apply.
18.2 The parties hereby agree that judgment upon the award rendered
by the arbitrator may be entered in any court having jurisdiction.
18.3 The parties acknowledge and agree that the performance of the
obligations under this Agreement necessitates the use of instrumentalities of
interstate commerce and, notwithstanding other general choice of law provisions
in this Agreement, the parties agree that the Federal Arbitration Act shall
govern and control with respect to the provisions of this Article 18.
Article 19 Notice.
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Any notice or other instrument authorized or required by this
Agreement to be given in writing to the Funds or FDISG, shall be sufficiently
given if addressed to that party and received by it at its office set forth
below or at such other place as it may from time to time designate in writing.
To the Funds:
Sierra Trust Funds,
Sierra Prime Income Fund, or
Sierra Asset Management Portfolios (as the case may be)
9301 Corbin Avenue
Northridge, California 91324
Attention: __________________
To FDISG:
First Data Investor Services Group, Inc.
4400 Computer Drive
Westboro, Massachusetts 01581
Attention: President
with a copy to FDISG's General Counsel
Article 20 Governing Law/Venue.
The laws of the Commonwealth of Massachusetts, excluding the laws on
conflicts of laws, shall govern the interpretation, validity, and enforcement
of this agreement. All actions arising from or related to this Agreement
shall be brought in the state and federal courts sitting in the City of Boston,
and FDISG and Client hereby submit themselves to the exclusive jurisdiction of
those courts.
Article 21 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.
Article 22 Captions.
The captions of this Agreement are included for convenience of
reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect.
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Article 23 Publicity.
Neither FDISG nor the Funds shall release or publish news releases,
public announcements, advertising or other publicity relating to this Agreement
or to the transactions contemplated by it without the prior review and written
approval of the other party; provided, however, that either party may make such
disclosures as are required by legal, accounting or regulatory requirements
after making reasonable efforts in the circumstances to consult in advance with
the other party.
Article 24 Relationship of Parties/Non-Solicitation.
24.1 The parties agree that they are independent contractors and not
partners or co-venturers and nothing contained herein shall be interpreted or
construed otherwise.
24.2 During the term of this Agreement and for one (1) year
afterward, the Funds shall not recruit, solicit, employ or engage, for the
Funds or others, FDISG's employees.
Article 25 Entire Agreement; Severability.
25.1 This Agreement, including Schedules, Addenda, and Exhibits
hereto, constitutes the entire Agreement between the parties with respect to
the subject matter hereof and supersedes all prior and contemporaneous
proposals, agreements, contracts, representations, and understandings, whether
written or oral, between the parties with respect to the subject matter hereof.
No change, termination, modification, or waiver of any term or condition of the
Agreement shall be valid unless in writing signed by each party. No such
writing shall be effective as against FDISG unless said writing is executed by
a Senior Vice President, Executive Vice President, or President of FDISG. A
party s waiver of a breach of any term or condition in the Agreement shall not
be deemed a waiver of any subsequent breach of the same or another term or
condition.
25.2 The parties intend every provision of this Agreement to be
severable. If a court of competent jurisdiction determines that any term or
provision is illegal or invalid for any reason, the illegality or invalidity
shall not affect the validity of the remainder of this Agreement. In such
case, the parties shall in good faith modify or substitute such provision
consistent with the original intent of the parties. Without limiting the
generality of this paragraph, if a court determines that any remedy stated in
this Agreement has failed of its essential purpose, then all other provisions
of this Agreement, including the limitations on liability and exclusion of
damages, shall remain fully effective.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized officers, as of the day and year first
above written.
SIERRA TRUST FUNDS
By: /s/ Keith Pipes
---------------------------------------
Keith Pipes
Title: Executive Vice President
------------------------------------
SIERRA PRIME INCOME FUND
By: /s/ Keith Pipes
---------------------------------------
Keith Pipes
Title: Executive Vice President
------------------------------------
SIERRA ASSET MANAGEMENT PORTFOLIOS
By: /s/ Keith Pipes
---------------------------------------
Keith Pipes
Title: Executive Vice President
------------------------------------
FIRST DATA INVESTOR SERVICES GROUP, INC.
By: /s/ Gerald G. Kokos
---------------------------------------
Gerald G. Kokos
Title: Executive Vice President
------------------------------------
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Exhibit 1
LIST OF PORTFOLIOS
Sierra Trust Funds
US Government Money Fund
California Money Fund
Global Money Fund
US Government Fund
California Municipal Fund
Growth and Income Fund
Corporate Income Fund
National Municipal Fund
Emerging Growth Fund
International Growth Fund
Short Term Global Government Fund
Growth Fund
Florida Insured Municipal Fund
Short Term High Quality Bond Fund
California Insured Intermediate Municipal Fund
Target Maturity 2000 Fund
Sierra Asset Management Portfolios
Capital Growth Portfolio
Growth Portfolio
Balanced Portfolio
Value Portfolio
Income Portfolio
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Schedule A
DUTIES OF FDISG
1. Shareholder Information. FDISG shall maintain a record of
the number of Shares held by each Shareholder of record which shall include
name, address, taxpayer identification and which shall indicate whether such
Shares are held in certificates or uncertificated form.
2. Shareholder Services. FDISG shall respond as appropriate to
all inquiries and communications from Shareholders relating to Shareholder
accounts with respect to its duties hereunder and as may be from time to time
mutually agreed upon between FDISG and the Funds.
3. Mailing Communications to Shareholders; Proxy Materials.
FDISG will address and mail to Shareholders of the Funds, all reports to
Shareholders, dividend and distribution notices and proxy material for the
Funds meetings of Shareholders. In connection with meetings of Shareholders,
FDISG will prepare Shareholder lists, mail and certify as to the mailing of
proxy materials, process and tabulate returned proxy cards, report on proxies
voted prior to meetings, act as inspector of election at meetings and certify
Shares voted at meetings.
4. Sales of Shares
(a) FDISG shall not be required to issue any Shares of the
Funds where it has received a Written Instruction from the Funds or official
notice from any appropriate authority that the sale of the Shares of the Funds
has been suspended or discontinued. The existence of such Written Instructions
or such official notice shall be conclusive evidence of the right of FDISG to
rely on such Written Instructions or official notice.
(b) In the event that any check or other order for the
payment of money is returned unpaid for any reason, FDISG will endeavor to:
(i) give prompt notice of such return to the Funds or its designee; (ii) place
a stop transfer order against all Shares issued as a result of such check or
order; and (iii) take such actions as FDISG may from time to time deem
appropriate.
5. Transfer and Repurchase
(a) FDISG shall process all requests to transfer or redeem
Shares in accordance with the transfer or repurchase procedures set forth in
the Fund's Prospectus.
(b) FDISG will transfer or repurchase Shares upon receipt of
Oral or Written Instructions or otherwise pursuant to the Prospectus and Share
certificates, if any, properly endorsed for transfer or redemption, accompanied
by such documents as FDISG reasonably may deem necessary.
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(c) FDISG reserves the right to refuse to transfer or
repurchase Shares until it is satisfied that the endorsement on the
instructions is valid and genuine. FDISG also reserves the right to refuse to
transfer or repurchase Shares until it is satisfied that the requested transfer
or repurchase is legally authorized, and it shall incur no liability for the
refusal, in good faith, to make transfers or repurchases which FDISG, in its
good judgement, deems improper or unauthorized, or until it is reasonably
satisfied that there is no basis to any claims adverse to such transfer or
repurchase.
(d) When Shares are redeemed, FDISG shall, upon receipt of
the instructions and documents in proper form, deliver to the Custodian and the
Fund or its designee a notification setting forth the number of Shares to be
repurchased. Such repurchased shares shall be reflected on appropriate
accounts maintained by FDISG reflecting outstanding Shares of the Funds and
Shares attributed to individual accounts.
(e) FDISG, upon receipt of the monies provided to it by the
Custodian for the repurchase of Shares, pay such monies as are received from
the Custodian, all in accordance with the procedures described in the written
instruction received by FDISG from the Funds.
(f) FDISG shall not process or effect any repurchase with
respect to Shares of the Funds after receipt by FDISG or its agent of
notification of the suspension of the determination of the net asset value of
the Funds.
6. Dividends
(a) Upon the declaration of each dividend and each capital
gains distribution by the Board of Directors of the Funds with respect to
Shares of the Funds, the Funds shall furnish or cause to be furnished to FDISG
Written Instructions setting forth the date of the declaration of such dividend
or distribution, the ex-dividend date, the date of payment thereof, the record
date as of which Shareholders entitled to payment shall be determined, the
amount payable per Share to the Shareholders of record as of that date, the
total amount payable on the payment date and whether such dividend or
distribution is to be paid in Shares at net asset value.
(b) On or before the payment date specified in such
resolution of the Board of Directors, the Funds will provide FDISG with
sufficient cash to make payment to the Shareholders of record as of such
payment date.
(c) If FDISG does not receive sufficient cash from the
Funds to make total dividend and/or distribution payments to all Shareholders
of the Funds as of the record date, FDISG will, upon notifying the Funds,
withhold payment to all Shareholders of record as of the record date until
sufficient cash is provided to FDISG.
7. In addition to and neither in lieu nor in contravention of the
services set forth above,
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FDISG shall perform all the customary services of a transfer agent, registrar,
dividend disbursing agent and agent of the dividend reinvestment and cash
purchase plan as described herein consistent with those requirements in effect
as at the date of this Agreement. The detailed definition, frequency,
limitations and associated costs (if any) set out in the attached fee schedule,
include but are not limited to: maintaining all Shareholder accounts, preparing
Shareholder meeting lists, mailing proxies, tabulating proxies, mailing
Shareholder reports to current Shareholders, withholding taxes on U.S. resident
and non-resident alien accounts where applicable, preparing and filing U.S.
Treasury Department Forms 1099 and other appropriate forms required with
respect to dividends and distributions by federal authorities for all
Shareholders.
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Exhibit 1 of Schedule A
Performance Standards
FDISG's obligation to meet the following Performance Standards shall be
measured in the aggregate with respect to all Funds.
First Data will report to Sierra on a monthly basis the percent of items
completed within standard as well as a quality rating. Reporting will be
detailed to the transaction type level. A pass/fail determination for
contractual penalties will however be based on the categories listed below.
For example, the accuracy of purchases, redemptions, exchanges and adjustments
will be reported to Sierra on an individual basis and as a collective group.
First Data will receive a "fail" for the month if the collective score for all
financials falls below the contractual level. Note that completion standards
are measured in business days.
CATEGORY COMPONENTS (TO BE REPORTED INDIVIDUALLY)
- -------------------------------------------------------------------------------
Financials Purchases, Redemptions, Exchanges, Adjustments (both
financial and non-financial adjustments)
Minimum Acceptable Quality Score: 99%
Non-Financials Maintenance (including address changes, option
changes, ROA/LOI), Legal Transfers, New Accounts
Minimum Acceptable Quality Score: 98%
Print Mail Statements, Confirms, Checks
Minimum Acceptable Quality Score: 98%
Shareholder Service Telephones, Correspondence
Minimum Acceptable Quality Score: 98%
COMPLETION STANDARDS
TRANSACTION PROCESSING
A. Complete on day of receipt:
- Purchases, redemptions, exchanges, financial adjustments,
new accounts
B. Complete within three days of receipt:
- Non-financial adjustments, legal transfers
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<PAGE> 22
C. Complete within 5 days of receipt
- Maintenance
PRINT MAIL *
D. Mailed on day of receipt
- Shareholder Checks
E. Mailed within one day of receipt
- Confirms
F. Mailed within five business days following the end of the reporting
period
- Statements, Commission Checks
* Note that Print Mail performance standards will be in effect
only for those mailings where services are provided by FDISG.
SHAREHOLDER SERVICES
G. Telephone calls abandoned no greater than 2% of calls received
(excluding calls that abandon in less than 20 seconds)
H. Financial Correspondence mailed within two days of receipt
I. Non-financial Correspondence mailed within four days of receipt
In addition to the foregoing, the Funds and FDISG will agree to an industry
quality service ranking, such as DALBAR. In connection therewith, the Funds
and FDISG shall review the criteria and ranking on an annual basis.
22
<PAGE> 23
Schedule B
FEE SCHEDULE
Sierra Trust Funds
Sierra Prime Income Fund
Sierra Asset Management Portfolios
1) Per Account Fee $16.00 per Shareholder account
Closed Account Fee $2.50
SAM Accounts and Portfolio Accounts:
First Shareholder Account $16.00*
* The above referenced per account fee shall be subject to the
following "Subsequent Account" sliding scale. A "Subsequent
Account" is defined as any additional account under an asset
allocation strategy, with like registration and account
number, maintained by a Shareholder in any other Sierra
Capital Management mutual fund that is serviced by FDISG as
transfer agent.
Subsequent Account Sliding Scale:
First 100,000 Subsequent Accounts $5.50 per Subsequent Account
Next 50,000 Subsequent Accounts $5.00 per Subsequent Account
150,001+ Subsequent Accounts $4.50 per Subsequent Account
_ Each year, effective on the anniversary date of the Agreement, the per
account fee will increase by a percentage equal to an amount one
percent greater than the Consumer Price Index as reported monthly by
Bloomberg Financial Markets and Commodity News in the month preceding
the effective date of the increase. This provides FDISG with an
opportunity to manage uncontrollable expenses due to inflationary
increases.
2) Dedicated Systems Development Team:
The Funds shall jointly pay $275,000.00 annually for a
dedicated systems development team consisting of 1.5
programmers, .5 system manager and .5 BSA. In the event that
the Funds desire to discontinue this service, the Funds shall
provide FDISG 60 days written notice. In the event of such
termination, the Funds shall be responsible for the pro rata
share of the stated annual dedicated System Development Team
fee.
23
<PAGE> 24
Incremental systems resources will be billed at a rate of $100.00 per hour
The number of hours worked, projects and status will be reported monthly
FEES INCLUDE:
_ Shareholder and Broker Servicing
_ Transaction Processing, Correspondence, and Research
_ Settlement and Reconciliation
_ Corporate Actions
_ Tax Reporting and Compliance
_ NSCC Support
_ Management Company and Broker/Dealer Support
_ Asset Allocation Processing for all distribution channels
_ Cost Basis Accounting [For those Shareholder Accounts defined in the
attached Exhibit 1 to this Schedule B]
ADDITIONAL FEES:
_ NSCC charges
_ Banking fees
_ Standard Out-of Pocket-expenses
VALUE ADDED SERVICES
1. DAZL Pricing:
Set Up Fee: $5,000.00
Monthly Usage Fee: $1,000.00
Transmission Charge:$.03 per record (Price record transmission cost is
$.015 per record.)
2. Voice Response Unit (VRU)
$25,000 set up fee
$.29 per minute maintenance charge
The Dedicated Systems Development Team and the Value Added Services Fees set
forth above represent the total fee to be paid jointly by the Sierra Capital
Management mutual funds which have entered into similar transfer agency and
services agreements with FDISG.
24
<PAGE> 25
Exhibit 1 of Schedule B
Cost Basis Accounting - Shareholder Accounts
Cost Basis tracking will be performed for Fund accounts that do not
meet the following conditions: retirement accounts, Networking Level
III, and money market accounts. In addition, certain transactions may
disqualify accounts from cost basis tracking. These transactions
include, but are not limited to, transfers from ineligible CBA
accounts, share adjustments, and LOI default adjustments.
25
<PAGE> 26
Schedule C
OUT-OF-POCKET EXPENSES
The Funds shall reimburse FDISG monthly for applicable out-of-pocket
expenses, including, but not limited to the following items:
- Microfiche/Microfilm/Image production
- Magnetic media tapes and freight
- Printing costs, including certificates, envelopes, checks and
stationery
- Postage (bulk, pre-sort, ZIP+4, barcoding, first class) direct
pass through to the Funds
- Due diligence mailings
- Telephone and telecommunication costs, including all lease,
maintenance and line costs
- Ad hoc reports
- Proxy solicitations, mailings and tabulations
- Daily & Distribution advice mailings
- Shipping, Certified and Overnight mail and insurance
- Year-end form production and mailings
- Terminals, communication lines, printers and other equipment
and any expenses incurred in connection with such terminals
and lines
- Duplicating services
- Courier services
- Incoming and outgoing wire charges
- Federal Reserve charges for check clearance
- Overtime, as approved by the Funds
- Temporary staff, as approved by the Funds
- Travel and entertainment, as approved by the Funds
- Record retention, retrieval and destruction costs, including,
but not limited to exit fees charged by third party record
keeping vendors
- Third party audit reviews
- Ad hoc SQL time
- All Systems enhancements after the conversion at the rate of
$100.00 per hour
- Insurance
- Such other miscellaneous expenses reasonably incurred by FDISG
in performing its duties and responsibilities under this
Agreement.
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<PAGE> 27
The Funds agree that postage and mailing expenses will be paid on the
day of or prior to mailing as agreed with FDISG. In addition, the Funds will
promptly reimburse FDISG for any other unscheduled expenses incurred by FDISG
whenever the Funds and FDISG mutually agree that such expenses are not
otherwise properly borne by FDISG as part of its duties and obligations under
the Agreement.
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<PAGE> 28
Schedule D
Fund Documents
- - Certified copy of the Articles of Incorporation of the Fund, as
amended
- - Certified copy of the By-laws of the Fund, as amended,
- - Copy of the resolution of the Board of Directors authorizing the
execution and delivery of this Agreement
- - Specimens of the certificates for Shares of the Fund, if applicable,
in the form approved by the Board of Directors of the Fund, with a
certificate of the Secretary of the Fund as to such approval
- - All account application forms and other documents relating to
Shareholder accounts or to any plan, program or service offered by the
Fund
- - Certified list of Shareholders of the Fund with the name, address and
taxpayer identification number of each Shareholder, and the number of
Shares of the Fund held by each, certificate numbers and denominations
(if any certificates have been issued), lists of any accounts against
which stop transfer orders have been placed, together with the reasons
therefore, and the number of Shares redeemed by the Fund
- - All notices issued by the Fund with respect to the Shares in
accordance with and pursuant to the Articles of Incorporation or
By-laws of the Fund or as required by law and shall perform such other
specific duties as are set forth in the Articles of Incorporation
including the giving of notice of any special or annual meetings of
shareholders and any other notices required thereby.
28
<PAGE> 1
AGREEMENT
AGREEMENT, dated as of August 14, 1996 by and among Sierra Prime Income
Fund, an unincorporated business trust, organized under the laws of the
Commonwealth of Massachusetts (the "Fund"), Sierra Investment Advisors
Corporation, a California corporation ("Sierra Advisors") and Van Kampen
American Capital Management Inc., a Delaware corporation ("Management Inc.").
WITNESSETH:
WHEREAS, Sierra Advisors acts as the investment advisor to the Fund;
WHEREAS, Management Inc., pursuant to that certain Investment
Sub-Advisory Agreement by and among the Fund, Sierra Advisors and Management
Inc. dated February 14, 1996, acts as the investment sub-advisor to the Fund;
WHEREAS, the Fund invests principally in interests in floating or
variable rate senior loans made primary to United States corporations,
partnerships and other entities (the "Senior Loan Interests") which Senior Loan
Interests generally pay interest at rates which are periodically redetermined by
reference to a base lending rate plus a premium;
WHEREAS, the Board of Trustees of the Fund have established certain
procedures for the valuation of the Senior Loan Interests in the Fund's
portfolio (the "Senior Loan Interest Pricing Procedures") and credit quality
review procedures for Senior Loan Interests in the Fund's portfolio (the "Credit
Quality Review Procedures") in accordance with certain resolutions adopted by
the Board of Trustees of the Fund (the "Senior Loan Interest Valuation
Resolutions") and guidelines for valuing senior loan interests (the Senior Loan
Interest Valuation Guidelines") utilized by Management Inc.;
WHEREAS, the Fund and Sierra Advisors desire that Management Inc.
provide to the Fund valuations for the Senior Loan Interests in the Fund's
portfolio in accordance with the Senior Loan Interest Pricing Procedures and the
Senior Loan Interest Valuation Guidelines, and oversee the credit quality of the
Senior Loan Interests in the Fund's portfolio pursuant to the Credit Quality
Review Procedures;
WHEREAS, Management Inc. desires to provide such Senior Loan Interest
valuations, and to oversee the credit quality of such Senior Loan Interests, to
the Fund and Sierra Advisors;
WHEREAS, each of the parties hereto desire to set forth their
understandings with respect to Management Inc.'s provision of valuations and
credit quality review for Senior Loan Interests in the Fund's portfolio.
THEREFORE, in consideration of the mutual agreements and covenants of
the parties set forth herein and such other good and valuable consideration, the
legally sufficiency of which is acknowledged, the parties hereto agree as
follows:
1
<PAGE> 2
1. SERVICES.
For the term of this Agreement, Management Inc. agrees to provide to
Fund, Sierra Advisors as well as to such other appropriate service
provider to the Fund as the Fund or Sierra Advisors may direct,
including State Street Bank & Trust Company as Custodian and
Administrator of the Fund, its valuations for Senior Loan Interests in
the Fund's portfolio in the time and manner as specified in the Senior
Loan Interest Pricing Procedures as more fully set forth in Section 2
hereof. Further, Management Inc. agrees to provide to the Fund and
Sierra Advisors credit review of the Senior Loan Interests in the
Fund's portfolio pursuant to the Credit Quality Review Procedures as
more fully set forth in Section 2 hereof.
2. PRICING PROCEDURES/SENIOR LOAN INTEREST GUIDELINES.
Each of the Fund and Sierra Advisors represent and warrant to
Management Inc. that the Senior Loan Interest Pricing Procedures (and
the attached Senior Loan Interest Valuation Resolutions and Senior Loan
Interest Valuation Guidelines) attached hereto and made part hereof as
Exhibit A and Attachments 1 and 2 thereto, respectively, have been
adopted by the Board of Trustees of the Fund. Each of the Fund and
Sierra Advisory further represent and warrant to Management Inc. that
the Credit Quality Review Procedures attached hereto and made part
hereof as Exhibit B have been adopted by the Board of Trustees of the
Fund. The Fund and Sierra Advisors agree to provide copies of all
amendments to or restatements of the Senior Loan Interest Pricing
Procedures, Senior Loan Interest Valuation Resolutions, Senior Loan
Interest Guidelines and Credit Quality Review Procedures to Management
Inc. on a timely and on-going basis, but in all events prior to such
time as said amendments become effective. Management Inc. is entitled
to rely on all such documents furnished to it by the Fund and Sierra
Advisors.
3. TERM.
The term of this Agreement shall be coterminous with the term of the
Investment Sub-Advisory Agreement and shall be terminable as set forth
in Section 9 of said Investment Sub-Advisory Agreement.
4. FEES.
In consideration of its retention as the investment sub-advisor for the
Fund, Management Inc. shall provide the Services indicated herein at no
cost to the Fund or Sierra Advisors.
5. NO WARRANTIES AND LIMITATION OF LIABILITY.
Management Inc. will use reasonable efforts to provide accurate,
complete and timely Senior Loan Interest valuations to the Fund and
Sierra Advisors. Subject to Management Inc.'s contractual obligation to
use reasonable efforts as set forth in the
2
<PAGE> 3
preceding sentence, Management Inc. does not warrant the accuracy or
completeness or timeliness of any of the recommendations supplied by it
under this Agreement. THERE ARE NO WARRANTIES, EXPRESS OR IMPLIED,
INCLUDING BUT NOT LIMITED TO ANY WARRANTY OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE OR ANY OTHER WARRANTY IN CONNECTION WITH
ANYTHING DONE OR SUPPLIED BY MANAGEMENT INC. PURSUANT TO THIS
AGREEMENT.
IN NO EVENT WILL MANAGEMENT INC. BE LIABLE FOR ANY INDIRECT, SPECIAL OR
CONSEQUENTIAL DAMAGES, INCLUDING, BUT NOT LIMITED TO, LOST PROFITS OR
GOOD WILL, WHETHER IN CONTRACT, TORT (INCLUDING NEGLIGENCE), STRICT
LIABILITY OR OTHERWISE AND WHETHER OR NOT SUCH DAMAGES ARE FORESEEN OR
UNFORESEEN, WITH RESPECT TO ANY CLAIM BY THE FUND, SIERRA ADVISORS OR
MANAGEMENT INC. AS THE CASE MAY BE OR ANY THIRD PARTY ARISING FROM OR
RELATING TO THIS AGREEMENT OR ANY OF THE SERVICES PROVIDED UNDER THIS
AGREEMENT INCLUDING WITHOUT LIMITATION CLAIMS RELATING TO THE
COMPLETENESS OR ACCURACY OR TIMELINESS OR DELIVERY OF ANY
RECOMMENDATIONS SUPPLIED, THE RESULTS OBTAINED FROM THE USE OF THE
RECOMMENDATIONS, TRANSMISSION DELAYS OR OMISSIONS, INTERRUPTIONS IN
SERVICE, OR ANY OTHER CLAIM ARISING OUT OF THE USE OF THE DATA OR THE
FAILURE TO SUPPLY ANY DATA.
6. REPRESENTATIONS AND WARRANTIES.
Each of the parties hereto represents and warrants to the other party
hereto as follows:
(a) it has full power and authority (including full corporate
power and authority) to execute and deliver this Agreement and
to perform its obligations hereunder and this Agreement
constitutes the valid and legally binding obligation of such
party, enforceable in accordance with its terms and
conditions; and
(b) the execution, delivery and performance of this Agreement and
the transactions contemplated hereby do not conflict with or
violate in any material respect: (i) said party's charter or
by-laws; (ii) any contract or agreement to which it is a
party; (iii) any order, decree or judgment of any court or
governmental authority; or (iv) any Federal or State statute,
rule or regulation.
7. COVENANTS.
During the term of this Agreement, each of the parties agree:
(a) to consult with the other parties hereto prior to recommending
any changes or modifications in the Guidelines;
(b) to comply with all codes, regulations and laws applicable to
the provision of the services to be provided by it under this
Agreement;
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<PAGE> 4
(c) to execute and deliver such further documents and instruments
and take such other actions as the other parties hereto may
reasonably request to more effectively carry out the Services
to be provided pursuant to this Agreement; and
(d) to take no action that would be expected to result in any of
its representations and warranties set forth in this Agreement
being or becoming untrue in any material respect.
8. CONFIDENTIALITY.
Management Inc. agrees to provide information in support of its
valuations of Senior Loan Interests to the Fund and Sierra Advisors
pursuant to their reasonable request from time to time. All information
in support of the valuation of Senior Loan Interests deemed to be
significant by Management, Inc. will be provided pursuant to the
reasonable request noted above. Both the Fund and Sierra Advisors
acknowledge and agree that any such information provided by Management
Inc. will be treated as material non-public information and will hold
such information strictly confidential. Further, the Fund and Sierra
Advisors agree that any such information provided by Management Inc.
may have the effect of limiting the Fund or Sierra Advisors' ability to
trade in other securities of the issuers of Senior Loan Interests
pursuant to Federal Insider Trading laws and other applicable law.
9. INDEMNIFICATION.
(a) The Fund and Sierra Advisors shall indemnify and hold harmless
Management Inc., its affiliated persons (as defined in the Investment
Company Act of 1940, as amended) and its and their directors, officers,
employees, agents, advisors, representatives and affiliated persons,
control persons or any of its affiliates (each an "Indemnified Party")
against, and the Fund and Sierra Advisors agree that no Indemnified
Party shall have any liability to the Fund or Sierra Advisors or any of
their trustees, directors, officers, employees, agents, advisors,
representatives and affiliated persons and each person who controls
either the Fund or Sierra Advisors or any of each of their respective
affiliated persons for, any judgment, loss, claim, damage or
liabilities, joint or several (including litigation costs and
reasonable attorneys' fees) arising from, based upon or related to the
services provided by Management Inc. (or any other Indemnified Party)
in good faith and in the absence of gross negligence or willful
misconduct under this Agreement. Management Inc. (or such other
Indemnified Party) shall have the right, at their expense, to
participate in the defense of any such claim through counsel of their
own choosing; provided, however, that neither the Fund or Sierra
Advisor shall be required to pay any settlement amount that it has not
approved in advance. Notwithstanding the above, neither Management Inc.
(nor any other Indemnified Party) shall be entitled to indemnification
hereunder to the extent that the judgment, loss, claim, damage or
liabilities arising from a claim for which indemnification is sought
hereunder results directly or indirectly from the gross negligence or
willful misconduct of Management Inc. (or such other Indemnified
Party).
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<PAGE> 5
(b) Except for any judgment, loss, claim, damage or liability arising
from the conduct of Management, Inc. deemed to be grossly negligent or
willful or wanton, if the foregoing indemnification is unavailable to an
Indemnified Party with respect to any judgment, loss, claim, damage,
liability or expense referred to therein, then in lieu of
indemnification, the Fund and Sierra Advisors shall contribute to the
amount paid or payable by an Indemnified Party.
10. NOTICES.
All notices hereunder shall be in writing and shall be delivered in
person, or sent by overnight courier service, to the address of the
party set forth below, or to such other address as may be stipulated in
writing by the parties pursuant hereto. Unless otherwise provided,
notice shall be effective on the date it is officially recorded as
delivered.
(a) If to the Fund:
Sierra Prime Income Fund
9301 Corbin Avenue
Northridge, California 91324
Attention: Keith B. Pipes
(b) If to Sierra Advisors:
Sierra Investment Advisors Corporation
9301 Corbin Avenue
Northridge, California 91324
Attention: Michael D. Goth
with a copy to:
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103-6993
Attention: Jeffrey P. Burns, Esq.
(b) If to Management Inc.:
Van Kampen American Capital Management, Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Attention: Edward A. Treichel
with a copy to:
Van Kampen American Capital, Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Attention: General Counsel
5
<PAGE> 6
11. AMENDMENT: ASSIGNMENT.
This Agreement may not be amended except by written instrument executed
by each party hereto. No party may assign this Agreement to any third
party, without the express written consent of the other party hereto.
12. SURVIVAL OF CERTAIN PROVISIONS.
Notwithstanding the termination of this Agreement, those provisions of
this Agreement that by their nature are intended to survive such
termination shall survive, including without limitation, the provisions
of Sections 8 and 9.
13. ENTIRE AGREEMENT.
This Agreement contains the entire understanding of the parties on the
subject hereof and terminates and supersedes all previous verbal and
written agreements on such subject.
14. RELATIONSHIP OF THE PARTIES.
It is understood that each party hereto that Management Inc. is an
independent contractor and that in performing services under this
Agreement, the employees of Management Inc. will in no sense be the
employees of the Fund or Sierra Advisors. It is further acknowledged and
agreed that the parties do not intend to constitute or establish a
partnership or any other business entity under any state law.
15. SEVERABILITY.
In the event any provision of this Agreement or application hereof to
any party or in any circumstances shall be determined to be invalid,
unlawful or unenforceable to any extent, the remainder of this Agreement
and the application of any provision to parties or circumstances other
than those as to which it is determined to be unlawful, invalid or
unenforceable, shall not be affected thereby, and each remaining
provision of this Agreement shall continue to be valid and may be
enforced to the fullest extent permitted by law.
16. NON-WAIVER.
No delay or failure by any party in exercising any right under this
Agreement and no partial or single exercise of that right shall
constitute a waiver of that or any other right.
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<PAGE> 7
17. ARBITRATION AND GOVERNING LAW.
(a) Any dispute, controversy or difference which may arise among the
parties hereto out of or in connection with this Agreement or
any agreement entered into among the parties pursuant to this
Agreement or any breach hereof or thereof shall, if possible, be
settled by mutual consultation in good faith between senior
executive officers of the parties having requisite decision
making authority. Such mutual consultation shall take place as
soon as practicable after the receipt by one party of a written
notice from another party describing the dispute, controversy or
difference between them. Except as provided in Section 8, in the
event that the dispute is not resolved to the satisfaction of
such parties by such consultation within 90 days of the written
notice given to one party pursuant to this Section 17(a) then by
agreement of the parties such dispute may be subject to
arbitration procedures as agreed to by such parties.
(b) Regardless of the situs of the arbitration, this Agreement shall
be governed by and construed and enforced in accordance with the
laws of the State of Illinois.
(c) An arbitration award rendered shall be final and binding upon
the parties hereto. The amount of the costs of any such
arbitration and by whom they shall be paid will be determined as
part of the arbitration. Judgment upon such arbitration award
may be entered in any court having jurisdiction over the parties
or their assets.
18. CONSEQUENTIAL DAMAGES.
Except pursuant to Sections 8 and 9, no party shall be liable to any
other party for any consequential, indirect, incidental or special
damages, even if advised of the possibility of such damages.
19. NO THIRD PARTY BENEFICIARIES.
Except as provided in Section 9 with respect to indemnification, nothing
in this Agreement shall confer any rights upon any person or entity
other than the parties hereto and their respective heirs, successors and
permitted assigns.
7
<PAGE> 8
20. CAPTIONS.
The captions used herein are for convenience only and constitute no part
of this Agreement.
IN WITNESS WHEREOF, the undersigned parties have duly executed this
Agreement as of the date first above written.
SIERRA PRIME INCOME FUND
By: /s/ KEITH B. PIPES
--------------------------------
Name: Keith B. Pipes
Title: Executive Vice President
SIERRA INVESTMENT ADVISORS CORPORATION
By: /s/ F. BRIAN CERINI
--------------------------------
Name: F. Brian Cerini
Title: Chairman
VAN KAMPEN AMERICAN CAPITAL MANAGEMENT, INC.
By: /s/ EDWARD A. TREICHEL
--------------------------------
Name: Edward A. Treichel
Title: Senior Vice President
8
<PAGE> 9
EXHIBIT A
SIERRA PRIME INCOME FUND
PRICING COMMITTEE PROCEDURES
A. PRICING COMMITTEE
1. Function and Responsibility
a. The Pricing Committee is generally responsible
for overseeing the valuation of assets held by
Sierra Prime Income Fund (the "Trust") to ensure
that such valuations are consistent with
valuation resolutions adopted by the Board of
Trustees (Attachment 1) and Senior Loan Interest
("SLI") Valuation Guidelines utilized by Van
Kampen American Capital Management Inc. (the
"Sub-Adviser") (the "Guidelines") (Attachment
Z).
2. Composition
a. At least 2 voting members, including at least 1
member who does not serve on the Credit
Committee for the Trust (either currently or,
with respect to any particular SLI, the Credit
Committee at the time of the original purchase
decision by the Trust); and
b. One non-voting member and secretary. Such member
shall be, the Secretary, or Assistant Secretary
of the Trust, or their delegate.
B. MEETINGS
1. The Pricing Committee shall have special meetings:
a. If called by any member of the Pricing
Committee, or
b. If, as determined by the Portfolio Manager
(discussed below), any of the following events
occurs with respect to any SLI in the Trust's
portfolio ("Special Situations")
I. Sub-Adviser becomes aware that obligor
announces intent to file bankruptcy;
II. Sub-Adviser becomes aware that obligor
announces inability to make payments on
Senior Loan;
III. Sub-Adviser becomes aware that obligor
is negotiating for debtor-in-possession
financing;
IV. Sub-Advisor becomes aware that agent (or
other intermediary) may be insolvent.
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<PAGE> 10
2. The Pricing Committee shall determine, at each special
meeting called:
a. The current Credit Component value (as such term
is utilized in the Guidelines) for each SLI
that, just prior to commencement of such
meeting, had a Credit Component value of less
than par (the "troubled credits") and each SLI
which is on the "Watch List", as discussed
below; and
b. The appropriateness of assumptions used in
connection with the Interest Rate Component (as
such term is utilized in the Guidelines);
3. The Pricing Committee shall determine, at each special
meeting, the current Credit Component value for the SLI
or SLIs that are the subject of such special meeting;
and
4. The Pricing Committee shall consider, in determining
estimated value of an SLI, the information contained in
the "Pricing Memo" (as discussed below).
C. REFERENCE FROM THE PRICING COMMITTEE TO THE CREDIT COMMITTEE
1. The Pricing Committee shall promptly refer to the
Credit Committee for the Credit Committee's
determination as to a sale recommendation if:
a. Any SLI with respect to which a Special
Situation shall have occurred; and
b. Any other SLI with respect to which the Pricing
Committee determines it to be appropriate to
refer such SLI to the Credit Committee for such
determination.
D. PORTFOLIO MANAGER
1. It shall be the responsibility of the Portfolio Manager
to identify "Special Situations" (as defined above)
requiring the calling of a special meeting of the
Pricing Committee and to maintain a list (the "Watch
List") to be submitted to the Credit Committee of all
SLIs for which the following events, and other events of
similar credit impact have occurred;
a. Sub-Adviser becomes aware that the obligor has
filed, announced it is considering filing or is
reported to be considering filing for bankruptcy
protection;
b. Sub-Adviser becomes aware that the obligor has
defaulted in, has announced its inability to
make, or is reported as being unable to make
scheduled payments or principal and/or
interest with respect to any debt obligations
of such obligor;
c. Sub-Adviser becomes aware that the obligor or
any creditor of the obligor has proposed a plan
of reorganization or restructuring with respect
to the obligor;
d. Sub-Adviser becomes aware that the obligor has
violated any covenant with respect to the Senior
Loan Agreements;
e. Sub-Adviser becomes aware that the obligor has
requested, has indicated that it intends to
request or is reported to be considering
requesting a commitment for debtor-in-possession
financing;
<PAGE> 11
f. Sub-Adviser becomes aware that the obligor has
suspended, has reported that it may suspend or
is reported to be considering suspending
payments to its trade creditors;
g. Sub-Adviser becomes aware that the obligor has
been denied credit by its suppliers;
h. Sub-Adviser becomes aware that secondary market
indications suggest a principal value of less
than par; or that facility fee or interest rate
spread (over base lending rate) indications
materially differ from general market
indications;
i. Sub-Adviser becomes aware that the agent bank
(or other intermediary) is or is reported to be
insolvent or has had its short-term credit
rating reduced, with respect to banks through
whom the Trust has purchased a participation, to
A-1/P-1 (or its equivalent) or lower or, with
respect to banks through whom the Trust has
purchased an assignment, to A-2/P-2 (or its
equivalent) or lower;
j. Sub-Adviser becomes aware of any material
adverse change in cashflow or liquidity of the
obligor;
k. Sub-Adviser becomes aware of any material
adverse change in the operating performance or
results of obligor; or
l. A member of the Pricing Committee, the Credit
Committee or the Board of Trustees of the Trust
has requested inclusion on the Watch List.
2. The Portfolio Manager shall submit the Watch List,
together with the factors causing each SLI to be placed
on the Watch List, to each member of the pricing
Committee prior to the next regularly scheduled Pricing
Committee meeting.
3. Once an SLI has been placed on the Watch List, it may be
removed only by a vote of the Pricing Committee.
E. DOCUMENTATION
1. For each date on which the Pricing Committee considers a
change in the Credit Component Value of an SLI held by
the Trust, a memo (the "Pricing Memo") with respect to
such SLI shall be created and kept with the pricing
records of the Trust. One member of the Pricing
Committee shall be responsible for the Pricing Memo. The
Pricing Memo shall contain a brief description of the
basis for the determination of the estimated fair value
of the principal amount of the SLI. For example, the
Pricing Memo may (to the extent applicable) include, but
is not limited to the following:
a. Any material events relative to the credit
quality of the obligor which have occurred since
the date of the last Pricing Memo;
b. The estimated period of time that any lapse in
payment of principal or interest will last;
c. The adequacy of the Collateral Coverage for the
Senior Loan (equaling the difference between the
collateral valuation of the obligor and the
aggregate stated principal amount of all senior
indebtedness of such obligor), including the
calculation thereof;
d. Whether the Sub-Adviser believes there is a
risk of liquidation of the obligor;
3
<PAGE> 12
e. Market rates of interest for higher risk
obligors, e.g., contractual default rates; yield
on "junk bond" index; yield with respect to well
secured debt obligations of non-investment grade
obligors; and
f. The factors considered in the review of the
Interest Rate Component, and any adjustments
thereto.
2. The Pricing Committee shall review the logs showing
actual current spreads and fees for representative
transactions in both the primary and secondary market
for SLIs, and include in the Pricing Memo a summary of
such Review.
3. The Pricing Committee shall prepare a report summarizing
adjustment to the value of each SLI adjusted during a
quarter, together with a brief summary of the reasons
for such adjustments, for submission to the Board of
Trustees of the Trust at each regularly scheduled
quarterly meeting of the Board. In addition, the records
of the Pricing Committee, including the Pricing Memos,
shall be made available to the Board of Trustees upon
their request.
<PAGE> 13
Attachment 1
SIERRA PRIME INCOME FUND
SENIOR LOAN INTEREST VALUATION RESOLUTIONS
[Resolutions adopted by the Board of Trustees on , 199 ]
----------------- -
RESOLVED, that Senior Loan interests shall be valued by Van Kampen American
Capital Management Inc. (the "Investment Sub-Adviser") on behalf of the Fund on
the basis of market quotations and transactions in instruments which the
investment Sub-Advisor believes are comparable to senior loan interests in one
or more of the following characteristics: credit quality, interest rate,
interest rate redetermination period and maturity. Such instruments include
commercial paper, negotiable certificates of deposit, treasury bills and
short-term variable rate securities which have adjustment periods comparable to
the senior loan interest in the Fund's portfolio. These instruments fluctuate in
value as a function of interest rate and credit factors and it is expected that
the Fund's net asset value will fluctuate accordingly. Because of the
short-term nature of such instruments, however, the Fund's net asset value is
expected to fluctuate less than the net asset values of investment companies
with portfolios consisting primarily of fixed-income or longer term securities;
and
FURTHER RESOLVED, that in determining the relationship between such instruments
and the senior loan interests in the Fund's portfolio, the Investment Sub-
Advisor will consider, among other factors (i) the creditworthiness of the
borrower and (ii) the current interest rate, the period until the next interest
rate redetermination and maturity of such senior loan interests. The Investment
Sub-Advisor believes that lenders selling senior loan interests or otherwise
involved in senior loan transactions may tend, in valuing senior loan interests
for their own account, to be less sensitive to interest rate and credit quality
changes and, accordingly, the Investment Sub-Advisor does not intend to rely on
such valuations in valuing the senior loan interests for the Fund's account.
However, a secondary trading market in senior loan interests is developing,
although such market has not, in the view of the Board of Trustees and the
Investment Sub-Advisor, developed to the extent to enable undo reliance, in
valuing such interests, on prices or quotations provided by banks, dealers or
pricing services with respect to secondary market transactions in senior loan
interests. To the extent that an active secondary market in senior loan
interests develops, the Investment Sub-Advisor may rely to an increasing extent
on such market prices and quotations in valuing loan interests in the Fund's
portfolio.
<PAGE> 14
ATTACHMENT 2
SIERRA PRIME INCOME FUND
Senior Loan Interest Valuation Guidelines
I. Introduction
These guidelines set forth the general valuation considerations utilized
by Van Kampen American Capital Management, Inc., (the "Sub-Adviser"),
the investment sub-adviser to Sierra Prime Income Fund (the "Trust"), on
behalf of the Trust with respect to interests (the "Senior Loan
Interests") in senior loans (the "Senior Loans") in which the Trust
invests. The Sub-Adviser determines the value of the Trust's portfolio
pursuant to guidelines established and periodically reviewed by the
Board of Trustees of the Trust.
The value of a Senior Loan Interest in the Trust's portfolio is
determined with references to changes in market interest rates (the
"Interest Component") and to the creditworthiness of the obligor with
respect to the Senior Loan underlying the Senior Loan Interest (the
"Credit Component"). In valuing Senior Loan Interests in the Trust's
portfolio the Sub-Adviser considers market quotations and transactions
in instruments that the Sub-Adviser believes may be comparable to such
Senior Loan Interests. In determining the relationship between such
instruments and the Senior Loan Interests in the Trust's portfolio, the
Sub-Adviser considers such factors as the creditworthiness of the
obligor, the current interest rate, the period until next interest rate
redetermination and maturity of such Senior Loan Interests. To the
extent that the Sub-Adviser believes such information to be reliable,
the Sub-Adviser considers prices, quotations and market indications
provided by the banks, dealers or pricing services with respect to
transactions in Senior Loan Interests.
II. The Interest Component
Interest payments with respect to Senior Loan Interests generally are
determined with reference to a base interest rate, such as the prime
rate, the London interbank offer rate or the certificate of deposit
("CD") rate, plus a premium or spread. Additionally, the effective rate
of return on a Senior Loan Interest may be adjusted through receipt or
payment of a fee, if any, at the time of purchase or sale of the Senior
Loan Interest. Pursuant to the loan documents with respect to the Senior
Loan, the applicable interest rate on the Senior Loan will be
redetermined on a periodic basis, e.g., daily, monthly, quarterly,
semi-annually or annually.
A. Fluctuations in the Base Rate
The following guidelines should be utilized to take into account
changes in value of the Senior Loan Interests in the Trust's
portfolio as a result of fluctuations in market rates of
interest.
1. Compare the base interest rate in effect with
respect to a Senior Loan Interest (the
"effective base rate") to publicly reported
current market rates of interest on instruments
with a comparable base rate of interest (the
"current base rate").
2. Calculate the amount of discount or premium
between the amount of Interest scheduled to be
received until the next interest rate
redetermination date, calculated with reference
to the effective base rate, and the amount of
interest that would be received if the current
base rate were in effect.
1
<PAGE> 15
3. Calculate the present value of such amount of
discount or premium, if any, using a discount
factor based on short-term market rates of
interest derived from market quotations in
comparable securities, e.g., the 90-day retail
CD rate.
B. Fluctuations in Spreads
The following guidelines should be utilized to take into account
changes in the value of the Senior Loan Interests in the Trust's
portfolio as a result of fluctuations in market spreads.
1. Consider primary and secondary market information with
respect to spreads applicable to current transactions in
Senior Loan Interests in order to determine the spread
which the Sub-Adviser believes would be applicable to a
current transaction in such Senior Loan Interest (the
"current spread"). Compare the actual spread with
respect to the Senior Loan Interest (the "actual
spread") to the current spread.
2. Calculate the amount of discount or premium between the
amount of interest which would be received during the
life of the Senior Loan, calculated with reference to
the actual spread, and the amount of interest that would
be received if the current spread were applicable to the
Senior Loan Interest.
3. Calculate the present value of such amount of discount
or premium, if any, using a discount factor based on
short-term market rates of interest derived from market
quotations in comparable securities.
C. Fluctuations in Facility Fees
The following guidelines should be utilized to take into account
changes in the value of the Senior Loan Interests in the Trust's
portfolio as a result of fluctuations in market facility fees.
1. Consider primary and secondary market information with
respect to facility fees applicable to current
transactions in Senior Loan Interests in order to
determine the facility fee which the Adviser believes
would be applicable to a current transaction in such
Senior Loan Interest (the "current fee").
2. Calculate the premium or discount between the
unamortized portion of any facility fee received by the
Trust with respect to a Senior Loan Interest and the
current fee.
III. The Credit Component
The following guidelines should be utilized to take into account changes
in the value of the Senior Loan Interests in the Trust's portfolio as a
result of changes in the credit quality of the obligor with respect to a
Senior Loan.
1. Creditworthiness. Analyze the creditworthiness of the obligor
with respect to the Senior Loan underlying the Senior Loan
Interest to determine whether such creditworthiness necessitates
any adjustment to the stated principal value of the Senior Loan
Interest.
(a) Delayed Payment. Attempt to determine whether there is a
material risk of a lapse in the scheduled repayment of
principal and/or in payment of interest on the Senior
Loan, the likely duration of any such lapse and whether
all or portion
2
<PAGE> 16
of any default in the repayment of principal and/or the
payment of interest will ultimately be recovered by the
Trust.
(b) Collateral Valuation.
(i) If upon best information and belief it appears
to the adviser that the obligor with respect to
the Senior Loan will continue to be operated as
a going concern, estimate the value of the
obligor as a going concern and compare such
valuation to the principal amount of the Senior
Loan and any other senior securities of such
obligor with an equal capital structure ranking
to that of the Senior Loan. In making such
estimations, utilize, to the extent appropriate,
traditional valuation methods, e.g., by making
reference to earnings multiples for purchases
and sales of companies in the same or similar
industries as that of the obligor.
(ii) If upon best information and belief the
Sub-Adviser believes it unlikely that the
obligor with respect to the Senior Loan will
continue to be operated as a going concern,
attempt to estimate the liquidation value of the
obligor focusing on the value of specific
collateral securing the Senior Loan and compare
such valuation to the principal amount of the
Senior Loan and any other senior securities of
such obligor with an equal capital structure
ranking to that of the Senior Loan.
2. Affect on Principal. If warranted by the foregoing
credit analysis, reduce the principal value of the
Senior Loan interest to an amount which, in
consideration of any other circumstances deemed relevant
by the Advisor, reflects the estimated fair value of
such Senior Loan Interest.
IV. Secondary Market Data
In addition to the interest Component and Credit Component, consider, to
the extent deemed to be reliable, any available secondary market prices
or quotations for trades in the Senior Loan Interests in the Trust's
portfolio, any available bid and ask quotations regarding such Senior
Loan Interests and other market information. Determine the reliability
of the market data by considering such factors as:
1. the parties to any trades in Senior Loan Interest and whether
such transaction was a transfer of the Senior Loan Interest to a
new lender or was a repositioning of interests among the
existing lenders;
2. the recency of any trade in a Senior Loan interest;
3. the size of any trade in relation to the size of the Trust's
portfolio position in such Senior Loan Interest;
4. whether the seller with respect to any trade as know to be a
distressed company in need of cash;
5. the reliability of the source of market information; and
6. whether the Sub-Adviser has access to financial information
regarding the obligor with respect to the Senior Loan that such
source may not.
3
<PAGE> 17
EXHIBIT B
SIERRA PRIME INCOME FUND
CREDIT QUALITY REVIEW PROCEDURES
A. Credit Committee
1. Function and Responsibility
a) The Credit Committee shall be responsible generally for
reviewing the overall credit quality of the portfolio of
Sierra Prime Income Fund (the "Fund") including, but not
limited to, (i) reviewing at least semi-annually the
credit quality of every Senior Loan Interest (SLI) in
the Fund's portfolio; (ii) approving and periodically
reviewing the credit quality of agents and selling
lenders associated with SLIs which the Fund acquires;
and (iii) approving and periodically reviewing issuers
with respect to short-term investments made by the Fund;
and
b) The Credit Committee shall have particular
responsibility for (i) pre-authorizing all purchases of
SLIs by the Fund and (ii) determining whether to
recommend the sale of any SLI referred to the Credit
Committee by the Pricing Committee.
2. Composition
a) Consist of at least 2 voting members,
b) Not complete overlap with the Pricing Committee, and
c) Include, as a non-voting member and secretary for any
meetings, the Secretary, any Assistant Secretary of the
Fund or their delegate (the "Secretary").
3. Operation
a) The Credit Committee shall meet as necessary to (i)
pre-authorize SLI purchases (excluding subsequent
additional purchases of previously approved SLIs with
total commitments up to $50,000,000), (ii) determine
whether to recommend SLI sales, and (iii) consider such
other issues with respect to the overall credit quality
of the Fund as may be appropriate.
b) The Credit Committee shall request of the Portfolio
Manager such reports, research, summaries, memoranda or
other materials as deemed appropriate by the Credit
Committee in connection with the discharge of its
responsibilities pursuant hereto; and
c) The Secretary shall keep minutes of all meetings of the
Credit Committee.
B. Portfolio Manager
1. The Portfolio Manager shall not acquire any SLI without
obtaining pre-authorization of the Credit Committee (except with
regard to subsequent additional purchases of previously approved
SLIs with total commitments up to $50,000,000).
2. The Portfolio Manager shall have the authority to sell any SLI
on behalf of the Fund without obtaining the prior authorization
of the Credit Committee;
<PAGE> 18
3. The Portfolio Manager shall use its best efforts to effect the
sale of any SLI recommended by the Credit Committee and shall
report promptly to the Credit Committee, as the case may be, in
the events that a sale of the terms so recommended is not
readily achievable.
4. The Portfolio Manager shall have the authority to acquire (i)
short-term SLIs with respect to issuers approved by the Credit
Committee and, to the extent required by applicable law, the
Fund's prospectus or the policies of the Fund, by the board of
Trustees and (ii) other high quality, short-term securities
described in the Fund's prospectus; and
5. The Portfolio Manager shall prepare or oversee the preparation
of such reports, research, summaries, memoranda or other
material as the Credit Committee may request in connection with
the discharge of its responsibilities.
C. Reference from Pricing Committee
1. The Pricing Committee promptly shall reference to the Credit
Committee for the Credit Committee's determination as to a sale
recommendation:
a) Any SLI with respect to which a Special Situation (as
defined in the Pricing Committee Procedures) shall have
occurred;
b) Any SLI that has been designated by the Pricing
Committee as a Watch List SLI (as provided in the
Pricing Committee Procedures); and
c) Any other SLI with respect to which the Pricing
Committee determines it to be appropriate to refer such
SLI to the Credit Committee for such determination.
D. Reporting to Board of Trustees
1. The Credit Committee shall present a credit report, for each SLI
referred to the Credit Committee from the Pricing Committee, as
of the close of each quarter, to the Board of Trustees of the
Fund at each regularly scheduled quarterly meeting of the Board.
In addition, the minutes of the Credit Committee meetings shall
be made available to the Board of Trustees upon their request.
<PAGE> 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
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 Corporate 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-
-i-
<PAGE> 3
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-
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 . . -16-
Incorporation, By-Laws and Certain Other Agreements
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-
-ii-
<PAGE> 4
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-
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
-iii-
<PAGE> 5
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, (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
-1-
<PAGE> 6
the Bank at 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 desires 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.
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 equal to the Commitment
and be payable in the 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.
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(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 which 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 any 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 a different Type) and each Interest Period occurring thereafter in
respect of such Loan shall commence on the day on which the next preceding
Interest Period applicable thereto expires; (iii) if any Interest Period
relating to a Fixed Rate Loan begins on a day for which there is no
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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 any 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 its
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
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<PAGE> 9
made (x) unlawful by any 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, take 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 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 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.
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(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 stated 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
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the case of Fixed Rate Loans the specific Borrowing or Borrowings pursuant to
which made, and (ii) each prepayment shall be in an aggregate principal amount
of at least US$100,000.00.
(d) Notwithstanding anything to the contrary contained elsewhere
in this Agreement, each Borrower shall repay the outstanding principal amount
of each Loan made to it on the last day of the Interest Period for such Loan
and all then outstanding Loans shall be repaid in full on the Expiry Date.
2.02 Method and Place of Payment. Except as otherwise specifically
provided herein, all payments shall be made in Dollars in immediately available
funds at the Payment Office of the Bank not 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 rata
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 been 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
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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.
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.
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(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
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such representations and warranties had been made on the date of the making of
such Loan (it being understood and agreed that any representation or warranty
which by its terms is made as of a specified date shall be required to be true
and correct in all material respects only as of such specified date).
4.02 Notice of Borrowing. Prior to the making of each Loan, the
Bank shall have received a Notice of Borrowing meeting the requirements of
Section 1.03.
The acceptance of the proceeds of each Loan shall constitute a representation
and warranty by the relevant Borrower to the Bank that all the conditions
specified in Section 3 (other than the condition specified in Section 3.05) and
in Sections 4.01 and 4.02 and applicable to such Loan are satisfied as of that
time. All of the Notes, certificates, legal opinions and other documents and
papers referred to in Section 3 and in Section 4, unless otherwise specified,
shall be delivered to the Bank at its Notice Office and shall be in form and
substance satisfactory to the Bank (it being understood and agreed that the
Notes, certificates, legal opinions and other documents specified in Section 3
shall be dated as of the Effective Date).
SECTION 5. Representations, Warranties and Agreements. In order
to induce the Bank to enter into this Agreement and to make the Loans, each
Borrower makes the following representations, warranties and agreements as to
itself, all of which shall survive the execution and delivery of this Agreement
and the Notes and the making of the Loans, with the incurrence of each Loan on
or after the Initial Borrowing Date being deemed to constitute a representation
and warranty that the matters specified in this Section 5 are true and correct
on and as of the Effective Date and on the date of each such Loan:
5.01 Corporate or Trust Status. Such Borrower (i) is a duly
organized and validly existing trust, series of a trust or corporation in good
standing under the laws of the jurisdiction of its establishment or
incorporation, (ii) has the trust or corporate power and authority to own its
property and assets and to transact the business in which it is engaged and
presently proposes to engage and (iii) is duly qualified and is authorized to
do business and is in good standing in each jurisdiction where the ownership,
leasing or operation of its property or the conduct of its business requires
such qualifications except for failures to be so qualified which, individually
or in the aggregate, could not reasonably be expected to have a material
adverse effect on the business, operations, property, assets, liabilities,
condition (financial or otherwise) or prospects of such Borrower.
5.02 Power and Authority. Such Borrower has the power and
authority to execute, deliver and perform the terms and provisions of each of
the Credit Documents and has taken all necessary corporate action to authorize
the execution, delivery and performance by it of each of the Credit Documents.
Such Borrower has duly executed and delivered each of the Credit Documents to
which it is 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
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<PAGE> 15
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 knowledge 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 Credit Document to which it is a party or (ii) the
legality, validity, binding effect or enforceability of any such credit
document.
5.05 Financial Statements; Financial Condition; Undisclosed
Liabilities; etc. (a) The statements of 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).
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(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,
could 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
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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 and (ii) all material investment
policies and restrictions set forth in its Articles of Incorporation, By-Laws
or Declaration of Trust, as applicable, and Investment Practices.
5.11 Investment Company. Such Borrower is duly registered under
the Investment Company Act as in the case of Sierra Prime Income Trust a
closed-end management investment company and in the case of each other Borrower
as a series of an open-end management investment company, and such registration
has not been revoked or rescinded and is in full force and effect.
5.12 Investment Adviser. The Investment Adviser to such Borrower
is duly registered as an investment adviser under the Investment Advisers Act
and is the primary investment adviser to such Borrower.
5.13 Affiliation with the Bank. Neither such Borrower nor any
Affiliated Person of such Borrower is an Affiliated Person of the Bank.
5.14 Senior Status. The Indebtedness of each Borrower hereunder
ranks pari passu with all other Indebtedness of such Borrower other than
Indebtedness secured by Liens permitted under Section 7.01.
SECTION 6. Affirmative Covenants. Each Borrower covenants and
agrees that on and after the Effective Date and until Loans and Notes, together
with interest, incurred hereunder and thereunder are paid in full:
6.01 Information Covenants. Such Borrower will deliver to the
Bank:
(a) Semi-Annual and Annual Financial Statements. Within
90 days after the close of each semi-annual and annual accounting
period in each fiscal year of such Borrower, the statement of assets
and liabilities, operations and changes in net assets of such Borrower
as of the end of such semi-annual and annual accounting period, in
each case setting forth comparative figures where applied for the
related periods in the prior fiscal year, all of which shall be
certified by the Treasurer of such Borrower, subject to normal
year-end audit adjustments, together with, in the case of annual
statements, a certification by an independent certified public
accountant of recognized standing stating that its regular audit was
conducted in accordance with generally accepted audit standards.
(b) Semiannual Reports. On each Semiannual Valuation
Date, a semiannual unaudited statement (each a "Semiannual Report"),
prepared in accordance with generally
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<PAGE> 18
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.
(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 keep
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
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<PAGE> 19
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 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 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 yet 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;
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<PAGE> 20
(ii) Liens in respect of property or assets of such
Borrower imposed by law, which were incurred in the ordinary course of
business and do not secure Indebtedness for borrowed money, such as
carriers', warehousemen's, materialmen's and mechanics' liens and
other similar Liens arising in the ordinary course of business, and
(x) which do not in the aggregate materially detract from the value of
a Borrower's property or assets or materially impair the use thereof
in the operation of the business of a Borrower or (y) which are being
contested in good faith by appropriate proceedings, which proceedings
have the effect of preventing the forfeiture or sale of the property
or assets subject to any such Lien;
(iii) Liens in respect of Hedging Agreements entered into
in the ordinary course of business; and
(iv) Liens securing Indebtedness consisting of fee,
overdraft and indemnity arrangements owing to Boston Safe Deposit
Corporation acting in its capacity as custodian (or any successor or
substitute custodian) for custodial services typical and customary in
the business to the extent such Liens extend only to the property and
assets held by such custodian.
7.02 Consolidation, Merger, Sale or Purchase of Assets, etc. Such
Borrower will not wind up, liquidate or dissolve its affairs or enter into any
transaction of merger or consolidation, or convey, sell, lease or otherwise
dispose of (or agree to do any of the foregoing at any future time) all or
substantially all of its property or assets, or enter into any short sales
contracts or contracts to sell assets that it does not yet own, or enter into
any sale-leaseback transactions, or purchase or otherwise acquire (in one or a
series of related transactions) all or substantially all of the property or
assets of any Person, provided that each Borrower may consolidate and merge
into another Borrower or any other entity so long as (x) such Borrower is the
surviving entity or the surviving entity assumes all obligations hereunder and
(y) the surviving entity is a registered investment company under and in
compliance with the Investment Company Act.
7.03 Modifications of Investment Practices, Articles of
Incorporation, By-Laws and Certain Other Agreements. Such Borrower will not (i)
amend or modify, or permit the amendment or modification of, any material
provision or portion of its Investment Practices, (ii) amend, modify or change
its Articles of Incorporation (including, without limitation, by the filing or
modification of any certificate of designation) or By-Laws or trust
documentation, or any agreement entered into by it with respect to its capital
stock, or enter into any new agreement with respect to its capital stock or
(iii) amend, modify or change its Investment Advisory and Management Agreement
other than any amendments, modifications or changes pursuant to clauses (i),
(ii) or (iii) of this Section 7.03 which are not in any way materially adverse
to its ability to perform its obligations hereunder and copies of which are
provided to the Bank.
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<PAGE> 21
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
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
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<PAGE> 22
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
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8.09 Change of Control. The Investment Advisor shall cease to be
directly or indirectly wholly owned by Great Western Financial Corporation;
then, and in any such event, and at any time thereafter, if any Event of
Default shall then be continuing, the Bank, may by written notice to the
relevant Borrower, take any or all of the following actions, without prejudice
to the rights of the Bank or the holder of any Note to enforce its claims
against any Borrower (provided, that, if an Event of Default specified in
Section 8.05 shall occur, the result which would occur upon the giving of
written notice by the Bank to such Borrower as specified in clauses (i) and
(ii) below shall occur automatically without the giving of any such notice):
(i) declare the Total Borrower Facility terminated with respect to such
Borrower; and (ii) declare the principal of and any accrued interest in respect
of all Loans made to such Borrower and the Note issued by such Borrower and all
Obligations owing by such Borrower hereunder and thereunder to be, whereupon
the same shall become, forthwith due and payable without any other presentment,
demand, protest or other notice of any kind, all of which are hereby waived by
each Borrower.
SECTION 9. Definitions and Accounting Terms.
9.01 Defined Terms. As used in this Agreement, the following terms
shall have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
"Affiliated Person" shall have the meaning provided in the Investment
Company Act.
"Agreement" shall mean this Credit Agreement, as modified,
supplemented or amended from time to time.
"Asset Coverage Denominator" at any time shall mean the aggregate
amount of Senior Securities (including in any event all Loans hereunder)
representing indebtedness of a Borrower, determined in accordance with Section
18 of the Investment Company Act.
"Asset Coverage Numerator" shall mean the value of the total assets of
a Borrower, less all liabilities and indebtedness not represented by Senior
Securities, all determined in accordance with Section 18 of the Investment
Company Act, provided that for purposes of this Agreement (x) in no event shall
the value of the total assets of a Borrower as so calculated exceed the values
of the assets as same would be determined in computing net asset value as
described in the Prospectus of each Borrower under the heading "Net Asset
Value" and (y) in no event shall the liabilities and indebtedness (other than
Senior Securities) be less than the respective liabilities as same would be
determined in calculating net asset value as described under the heading "Net
Asset Value" in such Prospectus.
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<PAGE> 24
"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.
"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 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.
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<PAGE> 25
"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 of
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 date of this Agreement, and to any
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<PAGE> 26
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 8.
"Expiry Date" shall mean May 21, 1997 as may be extended pursuant to
Section 2.05.
"Federal Funds Rate" shall mean the rate at which the Bank, as a
branch of a foreign bank, in its sole discretion can obtain federal funds in
the interbank overnight federal funds market including through brokers of
recognized standing.
"Fixed Rate Loan" shall mean any NIBOR Loan and any LIBOR Loan.
"GAAP" means generally accepted accounting principles in the United
States.
"Hedging Agreement" shall mean any Repurchase Agreement, Reverse
Repurchase Agreements, securities lending arrangements, financial futures
contracts, agreement to purchase or sell (or write) exchange listed or
over-the-counter put and call options on securities or securities, indices,
Interest Rate Protection Agreement, foreign exchange contracts, currency swap
agreements, forward contracts for the purchase of securities, including
mortgage-backed securities and dollar roll transactions or other similar
agreements or arrangements.
"Indebtedness" shall mean, as to any Person, without duplication, (i)
all indebtedness (including principal, interest, fees and charges) of such
Person for borrowed money or for the deferred purchase price of property or
services, (ii) the maximum amount available to be drawn under all letters of
credit issued for the account of such Person and all unpaid drawings in respect
of such letters of credit, (iii) all Indebtedness of the types described in
clause (i), (ii), (iv), (v), (vi), (vii) or (viii) of this definition secured
by any Lien on any property owned by such Person, whether or not such
Indebtedness has been assumed by such Person, (iv) the aggregate amount
required to be capitalized under leases under which such Person is the Lessee,
(v) all obligations of such person to pay a specified purchase price for goods
or services, whether or not delivered or accepted, i.e., take-or-pay and
similar obligations, (vi) all Contingent Obligations of such Person, (vii)
borrowings of securities by such Person, and (viii) all obligations under any
Hedging Agreement.
"Initial Borrowing Date" shall mean the date occurring on or after the
Effective Date on which the initial Borrowing of Loans hereunder occurs.
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"Interest Determination Date" shall mean (i) with respect to any NIBOR
or Base Rate Loan, the Business Day any NIBOR or Base Rate Loan is made on and
(ii) with respect to any LIBOR loan the second Business Day prior to the
commencement of any Interest Period relating to any LIBOR Loan.
"Interest Period" shall have the meaning provided in Section 1.08.
"Interest Rate Protection Agreement" shall mean any interest rate swap
agreement, interest rate cap agreement, interest collar agreement, interest
rate hedging agreement or other similar agreement or arrangement.
"Investment Advisor" shall mean Sierra Investments Advisors
Corporation.
"Investment Advisers Act" shall mean the Investment Advisers Act of
1940, as amended, including the rules and regulations promulgated thereunder.
"Investment Advisory and Management Agreement" shall mean collectively
those agreements listed on Schedule II hereto, as each such agreement may be
amended from time to time in accordance with the terms of this Agreement.
"Investment Company Act" shall mean the Investment Company Act of
1940, as amended, including the rules and regulations promulgated thereunder.
"Investment Practices" shall mean the investment objectives,
investment policies and investment restrictions of a Borrower as set forth in
the Prospectus.
"LIBOR" or "LIBOR Rate" shall mean the offered quotation in the London
interbank market to Deutsche Bank AG, New York Branch for Dollar deposits of
amounts in immediately available funds comparable to the outstanding principal
amount of the LIBOR Loan with respect to which such determination is being made
with maturities comparable to the Interest Period applicable to such LIBOR Loan
commencing on the Business Day which is the commencement of such Interest
Period rounded off to the nearest 1/16 of 1%.
"LIBOR Loan" shall mean each Loan designated as such by a Borrower at
the time of the incurrence thereof or conversion thereto.
"Lien" shall mean any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or other), preference,
priority or other security agreement of any kind or nature whatsoever
(including, without limitation, any conditional sale or other title retention
agreement, any financing or similar statement or notice filed under the UCC or
any other similar recording or notice statute, and any lease having
substantially the same effect as any of the foregoing).
-23-
<PAGE> 28
"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 Borrowing" 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 or any agency, department or instrumentality thereof.
"Plan" shall mean any multiemployer or single-employer plan as defined
in Section 4001 of ERISA, which is maintained or contributed to by (or to which
there is an obligation to contribute of) a Borrower or an ERISA Affiliate.
"Prime Lending Rate" shall mean the rate which Deutsche Bank AG, New
York Branch announces from time to time as its prime lending rate, the Prime
Lending Rate to change when and as such prime lending rate changes. The Prime
Lending Rate is a reference rate and does not necessarily represent the lowest
or best rate actually charged to any customer. Deutsche Bank
-24-
<PAGE> 29
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
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<PAGE> 30
Person and (ii) any partnership, association, joint venture or other entity in
which such Person and/or one or more Subsidiaries of such Person has more than
a 50% equity interest at the time.
"Type" shall mean the type of Loan determined with regard to the
interest option applicable thereto, i.e., whether a LIBOR Loan, a Base Rate
Loan or a NIBOR Loan.
"UCC" shall mean the Uniform Commercial Code as from time to time in
effect in the relevant jurisdiction.
"United States" and "U.S." shall each mean the United States of
America.
"Unutilized Commitment" shall mean the Commitment less the aggregate
principal amount of all Loans under the Agreement then outstanding.
"Valuation Date" shall mean each Monthly Valuation Date, each day on
which a Borrowing occurs and the first day of each Interest Period.
SECTION 10. Miscellaneous.
10.01 Payment of Expenses, etc. Each Borrower, on a pro rata basis
(or such basis as shall be permitted by the Investment Company Act and approved
by the Board of Trustees of each Borrower as the Investment Advisor on behalf
of the Borrowers may specify to the Bank from time to time in writing)
calculated in a manner consistent with Section 2.03 shall pay all out-of-pocket
costs and expenses of the Bank (including, without limitation, the reasonable
fees and disbursements of counsel) in connection with the preparation hereof
(in an amount not to exceed $15,000) or any amendment, waiver or consent
relating hereto or thereto, and of the Bank in connection with the enforcement
of this Agreement and the other Credit Documents and the documents and
instruments referred to herein and therein (including, without limitation, the
reasonable fees and disbursements of counsel for the Bank).
10.02 Right of Setoff. In addition to any rights now or hereafter
granted under applicable law or otherwise, and not by way of limitation of any
such rights, upon the occurrence of an Event of Default, the Bank is hereby
authorized at any time or from time to time, without presentment, demand,
protest or other notice of any kind to the relevant Borrower or to any other
Person, any such notice being hereby expressly waived, to set off and to
appropriate and apply any and all deposits (general or special) and any other
Indebtedness at any time held or owing by the Bank (including, without
limitation, by branches and agencies of the Bank wherever located) to or for
the credit or the account of the relevant Borrower against and on account of
the Obligations and liabilities of such Borrower to the Bank under this
Agreement or under any of the other Credit Documents, including, without
limitation, all interests in Obligations purchased by the Bank pursuant to
Section 10.04(b), and all other claims of any nature or description arising out
of or connected with this Agreement or any other Credit Document, irrespective
of whether
-26-
<PAGE> 31
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 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
-27-
<PAGE> 32
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
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<PAGE> 33
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 a year of 360 days for the actual number of days (including the
first day but excluding the last day) occurring in the period for which such
interest is payable.
10.07 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE; WAIVER OF
JURY TRIAL. (a) THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS
AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE CONSTRUED IN
ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK. ANY LEGAL
ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER CREDIT
DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED
STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF
THIS AGREEMENT, EACH BORROWER HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN
RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE
AFORESAID COURTS. EACH BORROWER HEREBY FURTHER IRREVOCABLY WAIVES ANY CLAIM
THAT SUCH COURTS LACK JURISDICTION OVER SUCH BORROWER, AND AGREES NOT TO PLEAD
OR CLAIM, IN ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR
ANY OTHER CREDIT DOCUMENT BROUGHT IN ANY OF THE AFORESAID COURTS, THAT ANY SUCH
COURT LACKS JURISDICTION OVER SUCH BORROWER. EACH BORROWER FURTHER IRREVOCABLY
CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN
ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR
CERTIFIED MAIL, POSTAGE PREPAID, TO SUCH BORROWER AT ITS ADDRESS SET FORTH
OPPOSITE ITS SIGNATURE BELOW, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER
SUCH MAILING. EACH BORROWER HEREBY IRREVOCABLY WAIVES ANY OBJECTION TO SUCH
SERVICE OF PROCESS AND FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR
CLAIM IN ANY ACTION OR PROCEEDING COMMENCED UNDER THIS AGREEMENT OR UNDER ANY
OTHER CREDIT DOCUMENT THAT SERVICE OF PROCESS WAS IN ANY WAY INVALID OR
INEFFECTIVE. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE BANK UNDER THIS
AGREEMENT, THE BANK OR THE HOLDER OF ANY NOTE TO SERVE PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED
AGAINST ANY BORROWER IN ANY OTHER JURISDICTION.
(b) EACH BORROWER HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT
MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID
ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR
ANY OTHER CREDIT DOCUMENT
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<PAGE> 34
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.
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
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<PAGE> 35
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.
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.0 Pies Name: Keith Pipes
Chief Financial Officer Title: Executive Vice President
Address: SIERRA TRUST FUNDS, ON BEHALF OF
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<PAGE> 36
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
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
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
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<PAGE> 37
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
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
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
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
-------------------------------------
Name: Keith Pipes
Title: Executive Vice President
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<PAGE> 38
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 Name: Keith Pipes
Attn: Keith B. Pipes Title: Executive Vice President
Chief Financial Officer
Address: SIERRA TRUST FUNDS, ON BEHALF OF
International Growth Fund INTERNATIONAL GROWTH FUND
9301 Corbin Avenue, Suite 333
Northridge, CA 91324
Telephone: 818-725-0228 /s/ Keith Pipes
Telecopier: 818-725-0269 -------------------------------------
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
-34-
<PAGE> 39
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 $ 394,000
Sierra Trust Funds, 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>
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<PAGE> 40
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.
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<PAGE> 41
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.
<PAGE> 42
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
Sierra Trust Funds of Sierra Trust Funds
<TABLE>
<CAPTION>
Fund # Fund Name New Borrowings Principal Daily Accrued
Repayments Interest Payment
<S> <C> <C> <C>
$ ($ ) ($ )
$ ($ ) ($ )
$ ($ ) ($ )
$ ($ ) ($ )
Totals $__________ ($________) ($ )
</TABLE>
Net Wire: To (From) $_____________
[Name of Borrower]
_____________________
Authorized Signature
<PAGE> 43
EXHIBIT B
REVOLVING DEMAND NOTE
[DATE]
FOR VALUE RECEIVED, [NAME OF BORROWER] (the "Borrower"),
hereby promises to pay to the order of DEUTSCHE BANK AG, NEW YORK BRANCH (the
"Bank"), in lawful money of the United States of America in immediately
available funds, at the office of Deutsche Bank AG, New York Branch, located at
31 West 52nd Street, New York, New York 10019, on the earlier of any date on
which the Bank demands repayment and Expiry Date (capitalized terms used herein
and not otherwise defined shall have the meaning in the Agreement referred to
below), the principal sum of _________________ ($_____________) 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:
<PAGE> 44
GRID
Unpaid
Principal Principal
Amount Paid or Amount Notation
Date of Loan Prepaid of Note Made by
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<PAGE> 45
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.
-1-
<PAGE> 46
Exhibit C
Page 2
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).
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 of 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
-2-
<PAGE> 47
Exhibit C
Page 3
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,
-3-
<PAGE> 48
EXHIBIT D
[NAME OF BORROWER]
Officers' Certificate
I, the undersigned, [President/Vice-President] of (Name of Borrower), a
[corporation] [trust] organized and existing under the laws of _________
__________ (the "Borrower"), DO HEREBY CERTIFY that:
1. This Certificate is furnished pursuant to Section
3.02 of the Credit Agreement, dated as of May 22, 1996 among the Borrowers
listed therein and Deutsche Bank AG, New York Branch (such Credit Agreement, as
in effect on the date of this Certificate, being herein called the "Credit
Agreement"). Unless otherwise defined herein capitalized terms used in this
Certificate have the meanings assigned to those terms in the Credit Agreement.
2. The persons named below have been duly elected, have,
duly qualified as and at all times since _______________ (1) (to and including
and date hereof) have been officers of the Borrower, holding the respective
offices below set opposite their names, and the signatures below set opposite
their names are their genuine signatures.
Name(2) Office Signature
_______ _______ __________
_______ _______ __________
_______ _______ __________
3. Attached hereto as Exhibit A is a copy of the [Trust
Charter] [Certificate of Incorporation] of the Borrower as filed in the
_____________________ Office of _____________________ on ______________ ,
together with all amendments thereto adopted through the date hereof.
____________________
1/ Insert a date prior to the time of any corporate action relating to the
Credit Agreement.
2/ Include name, office and signature of each officer who will sign any
Credit Document, including the officer who will sign the certification at
the end of this certificate.
-1-
<PAGE> 49
4. Attached hereto as Exhibit B is a true and correct
copy of the By-Laws of the Borrower as in effect on _________(3) together with
all amendments thereto adopted through the date hereof.
5. Attached hereto as Exhibit C is a true and correct
copy of resolutions duly adopted by the Board of [Trustees] [Directors] of the
Borrower at a meeting on _________________ at which a quorum was present and
acting throughout, which resolutions have not been revoked, modified, amended
or rescinded and are still in full force and effect. Except as attached hereto
as Exhibit C, no resolutions have been adopted by the Board of [Trustees]
[Directors] of the Borrower which deal with the execution, delivery or
performance of any of the Credit Documents.
6. On the date hereof, the representations and
warranties contained in Section 5 of the Credit Agreement are true and correct,
both before and after giving effect to each Borrowing to be incurred on the
date hereof and the application of the proceeds thereof and the conditions
specified in Sections 3.05, 3.06 and 4.01 have been satisfied.
7. On the date hereof, no Default or Event of Default
has occurred and is continuing or would result from the Borrowings to be
incurred on the date hereof or from the application of the proceeds thereof.
8. I know of no proceedings for the dissolution or
liquidation of the Borrower or threatening its existence.
IN WITNESS WHEREOF, I have hereunto set my hand this ___ day
of April, 1996.
[Name of Borrower]
Name:_________________________
Title:________________________
____________________
3/ Insert same date as in paragraph 2 of this certificate.
-2-
<PAGE> 50
EXHIBIT D
Page 3
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:________________________
-3-
<PAGE> 1
CONSENT OF PRICE WATERHOUSE LLP
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 1 to the registration
statement on Form N-2 (the "Registration Statement") of our report dated
November 6, 1996, relating to the financial statements and financial highlights
of Sierra Prime Income Fund, which appears in such Statement of Additional
Information, and to the incorporation by reference of our report into the
Prospectus which constitutes part of this Registration Statement. We also
consent to the references to us under the headings "Financial Highlights" in
such Prospectus and "Experts" in such Statement of Additional Information.
[SIG]
PRICE WATERHOUSE LLP
Boston, Massachusetts
January 24, 1997
<PAGE> 1
PURCHASE AGREEMENT
Sierra Prime Income Fund, a closed-end management investment
company (the "Fund"), and Sierra Fund Administration Corporation, a California
Corporation ("Sierra Administration"), intending to be legally bound, hereby
agree as follow:
1. In order to provide the Fund with its initial
capital, the Fund hereby sells to Sierra Administration and Sierra
Administration hereby purchases shares of Class A Common Shares, with no par
value per share, (the "Class A Common Shares") of the Fund as follows: 10,000
shares of the Class A Common Shares of Sierra Prime Income Fund at $10.00 per
share. The Fund hereby acknowledges receipt from Sierra Administration of
$100,000 in full payment for the Shares.
2. Sierra Administration represents and warrants to the
Fund that the Class A Common Shares are being acquired for investment and not
with a view to distribution thereof and that Sierra Administration has no
present intention to redeem or dispose of any of the Class A Common Shares.
3. Sierra Administration hereby agrees that it will not
redeem any of the Class A Common Shares prior to the time that the Fund has
completed the amortization of its organizational expenses. In the event that
the Fund liquidates before the deferred organizational expenses are fully
amortized, then the Class A Common Shares shall bear their proportionate share
of such unamortized organizational expenses.
IN WITNESS WHEREOF, the parties have executed this agreement
as of the 6th day of February, 1996.
SIERRA PRIME INCOME FUND
By: /s/ F. Brian Cerini
-------------------------------
President
SIERRA FUND ADMINISTRATION CORPORATION
By: /s/ Craig M. Miller
-------------------------------
Vice President and Controller
<PAGE> 1
SIERRA PRIME INCOME FUND
POWER OF ATTORNEY
F. Brian Cerini, whose signature appears below, does hereby constitute
and appoint Keith B. Pipes, Michael D. Goth and Richard W. Grant, and each of
them acting alone, his true and lawful attorney and agent, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments which said attorney and agent may deem necessary or
advisable or which may be required to enable the Sierra Prime Income Fund (the
"Fund") to comply with the Securities Act of 1933, as amended (the "1933 Act")
and the Investment Company Act of 1940, as amended (the "1940 Act"), and any
rules, regulations or requirements of the Securities and Exchange Commission in
respect thereof, in connection with the Fund's Registration Statement on Form
N-2 pursuant to the 1933 Act and the 1940 Act, together with any and all
amendments thereto, including specifically, but without limiting the generality
of the foregoing, the power and authority to sign, in the name and on behalf of
the undersigned as a trustee and officer of the Fund, such Registration
Statement and any and all such amendments filed with the Securities and Exchange
Commission under the 1933 Act and the 1940 Act, and any other instruments or
documents related thereto, and the undersigned does hereby ratify and confirm
all that said attorney and agent shall do or cause to be done by virtue hereof.
/s/ F. BRIAN CERINI
-------------------
F. Brian Cerini
Date: October 24, 1996
----------------
<PAGE> 2
SIERRA PRIME INCOME FUND
POWER OF ATTORNEY
Arthur H. Bernstein, whose signature appears below, does hereby
constitute and appoint F. Brian Cerini, Keith B. Pipes, Michael D. Goth and
Richard W. Grant, and each of them acting alone, his true and lawful attorney
and agent, with power of substitution or resubstitution, to do any and all acts
and things and to execute any and all instruments which said attorney and agent
may deem necessary or advisable or which may be required to enable the Sierra
Prime Income Fund (the "Fund") to comply with the Securities Act of 1933, as
amended (the "1933 Act") and the Investment Company Act of 1940, as amended (the
"1940 Act"), and any rules, regulations or requirements of the Securities and
Exchange Commission in respect thereof, in connection with the Fund's
Registration Statement on Form N-2 pursuant to the 1933 Act and the 1940 Act,
together with any and all amendments thereto, including specifically, but
without limiting the generality of the foregoing, the power and authority to
sign, in the name and on behalf of the undersigned as a trustee of the Fund,
such Registration Statement and any and all such amendments filed with the
Securities and Exchange Commission under the 1933 Act and the 1940 Act, and any
other instruments or documents related thereto, and the undersigned does hereby
ratify and confirm all that said attorney and agent shall do or cause to be done
by virtue hereof.
/s/ ARTHUR H. BERNSTEIN
-----------------------
Arthur H. Bernstein
Date: October 24, 1996
----------------
<PAGE> 3
SIERRA PRIME INCOME FUND
POWER OF ATTORNEY
David E. Anderson, whose signature appears below, does hereby constitute
and appoint F. Brian Cerini, Keith B. Pipes, Michael D. Goth and Richard W.
Grant, and each of them acting alone, his true and lawful attorney and agent,
with power of substitution or resubstitution, to do any and all acts and things
and to execute any and all instruments which said attorney and agent may deem
necessary or advisable or which may be required to enable the Sierra Prime
Income Fund (the "Fund") to comply with the Securities Act of 1933, as amended
(the "1933 Act") and the Investment Company Act of 1940, as amended (the "1940
Act"), and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-2 pursuant to the 1933 Act and the 1940 Act, together with
any and all amendments thereto, including specifically, but without limiting the
generality of the foregoing, the power and authority to sign, in the name and on
behalf of the undersigned as a trustee of the Fund, such Registration Statement
and any and all such amendments filed with the Securities and Exchange
Commission under the 1933 Act and the 1940 Act, and any other instruments or
documents related thereto, and the undersigned does hereby ratify and confirm
all that said attorney and agent shall do or cause to be done by virtue hereof.
/s/ DAVID E. ANDERSON
---------------------
David E. Anderson
Date: October 24, 1996
----------------
<PAGE> 4
SIERRA PRIME INCOME FUND
POWER OF ATTORNEY
Edmond R. Davis, whose signature appears below, does hereby constitute
and appoint F. Brian Cerini, Keith B. Pipes, Michael D. Goth and Richard W.
Grant, and each of them acting alone, his true and lawful attorney and agent,
with power of substitution or resubstitution, to do any and all acts and things
and to execute any and all instruments which said attorney and agent may deem
necessary or advisable or which may be required to enable the Sierra Prime
Income Fund (the "Fund") to comply with the Securities Act of 1933, as amended
(the "1933 Act") and the Investment Company Act of 1940, as amended (the "1940
Act"), and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-2 pursuant to the 1933 Act and the 1940 Act, together with
any and all amendments thereto, including specifically, but without limiting the
generality of the foregoing, the power and authority to sign, in the name and on
behalf of the undersigned as a trustee of the Fund, such Registration Statement
and any and all such amendments filed with the Securities and Exchange
Commission under the 1933 Act and the 1940 Act, and any other instruments or
documents related thereto, and the undersigned does hereby ratify and confirm
all that said attorney and agent shall do or cause to be done by virtue hereof.
/s/ EDMOND R. DAVIS
-------------------
Edmond R. Davis
Date: October 24, 1996
----------------
<PAGE> 5
SIERRA PRIME INCOME FUND
POWER OF ATTORNEY
John W. English, whose signature appears below, does hereby constitute and
appoint F. Brian Cerini, Keith B. Pipes, Michael D. Goth and Richard W. Grant,
and each of them acting alone, his true and lawful attorney and agent, with
power of substitution or resubstitution, to do any and all acts and things and
to execute any and all instruments which said attorney and agent may deem
necessary or advisable or which may be required to enable the Sierra Prime
Income Fund (the "Fund") to comply with the Securities Act of 1933, as amended
(the "1933 Act") and the Investment Company Act of 1940, as amended (the "1940
Act"), and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-2 pursuant to the 1933 Act and the 1940 Act, together with
any and all amendments thereto, including specifically, but without limiting the
generality of the foregoing, the power and authority to sign, in the name and on
behalf of the undersigned as a trustee of the Fund, such Registration Statement
and any and all such amendments filed with the Securities and Exchange
Commission under the 1933 Act and the 1940 Act, and any other instruments or
documents related thereto, and the undersigned does hereby ratify and confirm
all that said attorney and agent shall do or cause to be done by virtue hereof.
/s/ JOHN W. ENGLISH
-------------------
John W. English
Date: October 24, 1996
----------------
<PAGE> 6
SIERRA PRIME INCOME FUND
POWER OF ATTORNEY
Alfred E. Osborne, Jr., whose signature appears below, does hereby
constitute and appoint F. Brian Cerini, Keith B. Pipes, Michael D. Goth and
Richard W. Grant, and each of them acting alone, his true and lawful attorney
and agent, with power of substitution or resubstitution, to do any and all acts
and things and to execute any and all instruments which said attorney and agent
may deem necessary or advisable or which may be required to enable the Sierra
Prime Income Fund (the "Fund") to comply with the Securities Act of 1933, as
amended (the "1933 Act") and the Investment Company Act of 1940, as amended (the
"1940 Act"), and any rules, regulations or requirements of the Securities and
Exchange Commission in respect thereof, in connection with the Fund's
Registration Statement on Form N-2 pursuant to the 1933 Act and the 1940 Act,
together with any and all amendments thereto, including specifically, but
without limiting the generality of the foregoing, the power and authority to
sign, in the name and on behalf of the undersigned as a trustee of the Fund,
such Registration Statement and any and all such amendments filed with the
Securities and Exchange Commission under the 1933 Act and the 1940 Act, and any
other instruments or documents related thereto, and the undersigned does hereby
ratify and confirm all that said attorney and agent shall do or cause to be done
by virtue hereof.
/s/ ALFRED E. OSBORNE, JR.
--------------------------
Alfred E. Osborne, Jr.
Date: October 24, 1996
----------------
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001002948
<NAME> SIERRA PRIME INCOME FUND
<S> <C>
<PERIOD-TYPE> 8-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> FEB-16-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 12,338,792
<INVESTMENTS-AT-VALUE> 12,345,109
<RECEIVABLES> 89,450
<ASSETS-OTHER> 213,900
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 12,648,459
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 114,924
<TOTAL-LIABILITIES> 114,924
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 12,526,373
<SHARES-COMMON-STOCK> 1,252,700
<SHARES-COMMON-PRIOR> 10,000
<ACCUMULATED-NII-CURRENT> 845
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6,317
<NET-ASSETS> 12,533,535
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 414,601
<OTHER-INCOME> 1,741
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 416,342
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 6,317
<NET-CHANGE-FROM-OPS> 422,659
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (416,342)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,261,061
<NUMBER-OF-SHARES-REDEEMED> (43,851)
<SHARES-REINVESTED> 25,490
<NET-CHANGE-IN-ASSETS> 12,433,535
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 58,878
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 294,224
<AVERAGE-NET-ASSETS> 9,948,927
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .40
<PER-SHARE-GAIN-APPREC> .01
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.40)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.01
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
