<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 3, 1998
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
SCHEDULE 13E-4
ISSUER TENDER OFFER STATEMENT
(Pursuant to Section 13(e)(1) of the
Securities Exchange Act of 1934)
(Amendment No.)
Sierra Prime Income Fund
(Name of Issuer)
Sierra Prime Income Fund
(Name of Person(s) Filing Statement)
Class A Common Shares of Beneficial Interest with no par value
(Title of Class of Securities)
826461-105
(CUSIP Number of Class of Securities)
Keith B. Pipes
President and
Chief Executive Officer
Sierra Prime Income Fund
9301 Corbin Avenue, Suite 333
Northridge, CA 91324
(818) 725-0228
(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications on Behalf of Person(s) Filing Statement)
Copy to:
Joseph B. Kittredge, Jr., Esq.
Ropes & Gray
One International Place
Boston, MA 02110
(617) 951-7000
March 3, 1998
(Date Tender Offer First Published,
Sent or Given to Security Holders)
CALCULATION OF FILING FEE
- --------------------------------------------------------------------------------
Transaction Valuation: $ 1,512,230 Amount of Filing Fees: $ 302.45
- --------------------------------------------------------------------------------
(a) Calculated as the aggregate maximum purchase price to be paid for 151,223
shares in the offer.
(b) Calculated as 1/50 of 1% of the Transaction Valuation.
[ ] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the
Form or Schedule and the date of its filing.
Amount Previously Paid:
---------------------------------------------------
Form or Registration No.:
-------------------------------------------------
Filing Party:
-------------------------------------------------------------
Date Filed:
---------------------------------------------------------------
<PAGE> 2
ITEM 1. SECURITY AND ISSUER.
(a) The name of the issuer is the Sierra Prime Income Fund, a
non-diversified, closed-end management investment company organized as a
Massachusetts business trust (the "Trust"). The principal executive offices of
the Trust are located at 9301 Corbin Avenue, Suite 333, Northridge, CA 91324.
(b) The title of the securities being sought is Class A Common Shares of
beneficial interest with no par value (the "Class A Common Shares"). As of
February 20, 1998 there were approximately 756,116.198 Class A Common Shares
issued and outstanding.
The Trust is seeking tenders for 151,223 Class A Common Shares at net
asset value per share, calculated on the day the tender offer expires, upon the
terms and subject to the conditions set forth in the Offer to Purchase, dated
March 3, 1998 (the "Offer to Purchase"), and the related Letter of Transmittal
(which together constitute the "Offer"). A copy of each of the Offer to Purchase
and the form of Letter of Transmittal is attached hereto as Exhibit (a)(1)(ii)
and Exhibit (a)(2), respectively. Reference is hereby made to the Cover Page and
Section 1 "Price; Number of Class A Common Shares" of the Offer to Purchase,
which are incorporated herein by reference. The Trust has been informed that no
trustees, officers or affiliates of the Trust intend to tender Class A Common
Shares pursuant to the Offer.
(c) The Class A Common Shares are not currently traded on an established
trading market.
(d) Not Applicable.
ITEM 2. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a)-(b) Reference is hereby made to Section 12 "Source and Amount of
Funds" of the Offer to Purchase, which is incorporated herein by reference.
ITEM 3. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE ISSUER OR
AFFILIATE.
Reference is hereby made to Section 7 "Purpose of the Offer," Section 8
"Plans or Proposals of the Fund," Section 10 "Interest of Trustees and Executive
Officers; Transactions and Arrangements Concerning the Class A Common Shares,"
Section 11 "Certain Effects of the Offer" and Section 12 "Source and Amount of
Funds" of the Offer to Purchase, which are incorporated herein by reference. In
addition, the Trust regularly purchases and sells assets in its ordinary course
of business. Except as set forth herein, the Trust has no plans or proposals
which relate to or would result in (a) the acquisition by any person of
additional securities of the Trust or the disposition of securities of the
Trust; (b) an extraordinary corporate transaction, such as a merger,
reorganization or liquidation, involving the Trust; (c) a sale or transfer of a
material amount of assets of the Trust; (d) any change in the present Board of
Trustees or management of the Trust, including, but not limited to, any plans or
proposals to change the number or the term of Trustees, or to fill any existing
vacancy on the Board of Trustees or to change any material term of the
employment contract of any executive officer of the Trust; (e) any material
change in the present dividend rate or policy, or indebtedness or capitalization
of the Trust; (f) any other material change in the Trust's structure or
business, including any plans or proposals to make any changes in its investment
policy for which a vote would be required by Section 13 of the Investment
Company Act of 1940; (g) changes in the Trust's declaration of trust, bylaws or
instruments corresponding thereto or other actions which may impede the
acquisition of control of the Trust by any person; (h) a class of equity
securities of the Trust to be delisted from a national securities exchange or to
cease to be authorized to be quoted on an inter-dealer quotation system of a
registered national securities association; (i) a class of equity security of
the Trust becoming eligible for termination of registration under the Investment
Company Act of 1940; or (j) the suspension of the Trust's obligation to file
reports pursuant to Section 15(d) of the Securities Exchange Act of 1934.
Reference is hereby made to Section 10 "Interest of Trustees and
Executive Officers; Transactions and Arrangements Concerning the Class A Common
Shares" of the Offer to Purchase with respect to recent changes in the Board of
Trustees, and planned changes in management and the structure of the Trust as a
result of the merger of Great
2
<PAGE> 3
Western Financial Corporation, the indirect parent of Sierra Investment Advisors
Corporation, the Trust's current investment adviser, with and into a wholly
owned subsidiary of Washington Mutual, Inc. On December 23, 1997, shareholders
elected a Board of Trustees; approved a new Investment Management Agreement
between the Trust and Composite Research & Management Co. ("Composite") (which
is expected to be renamed "WM Advisors, Inc." on or about March 20, 1998); and
approved a new Investment Sub-Advisory Agreement for the Fund between Composite
and Van Kampen American Capital Management Inc. It is currently expected that
the Fund will be renamed "WM Prime Income Fund" on or about March 20, 1998. This
name change will have no effect on the tender offer.
ITEM 4. INTEREST IN SECURITIES OF THE ISSUER.
Reference is hereby made to Section 10 "Interest of Trustees and
Executive Officers; Transactions and Arrangements Concerning the Class A Common
Shares" of the Offer to Purchase and the financial statements included as part
of Exhibit (a)(1)(ii) attached hereto, which are incorporated herein by
reference. Except as set forth therein, there have not been any transactions
involving the Class A Common Shares of the Trust that were effected during the
past 40 business days by the Trust, any executive officer or Trustee of the
Trust, any person controlling the Trust, any executive officer or director of
any corporation ultimately in control of the Trust or by any associate or
subsidiary of any of the foregoing, including any executive officer or director
of any such subsidiary.
ITEM 5. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO THE ISSUER'S SECURITIES.
Reference is hereby made to Section 10 "Interest of Trustees and
Executive Officers; Transactions and Arrangements Concerning the Class A Common
Shares" of the Offer to Purchase which is incorporated herein by reference.
Except as set forth therein, the Trust does not know of any contract,
arrangement, understanding or relationship relating, directly or indirectly, to
the Offer (whether or not legally enforceable) between the Trust, any of the
Trust's executive officers or Trustees, any person controlling the Trust or any
officer or director of any corporation ultimately in control of the Trust and
any person with respect to any securities of the Trust (including, but not
limited to, any contract arrangement understanding or relationship concerning
the transfer or the voting of any such securities, joint ventures, loan or
option arrangements, puts or calls, guarantees of loans, guarantees against
loss, or the giving or withholding of proxies, consents or authorizations).
ITEM 6. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
No persons have been employed, retained or are to be compensated by or
on behalf of the Trust to make solicitations or recommendations in connection
with the Offer.
ITEM 7. FINANCIAL INFORMATION.
(a)-(b) Reference is hereby made to the financial statements included as
part of Exhibit (a)(1)(ii) attached hereto, which are incorporated herein by
reference.
ITEM 8. ADDITIONAL INFORMATION.
(a) Reference is hereby made to Section 10 "Interests of Trustees and
Executive Officers; Transactions and Arrangements Concerning the Class A Common
Shares" of the Offer to Purchase which is incorporated herein by reference.
(b)-(d) Not applicable.
(e) The Offer to Purchase, attached hereto as Exhibit (a)(1)(ii), is
incorporated herein by reference in its entirety.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
(a)(1)(i) Notice to Shareholders
3
<PAGE> 4
(ii) Letter to Shareholders Regarding Offer to Purchase
(iii) Offer to Purchase (including Financial Statements).
(a)(2) Form of Letter of Transmittal (including Guidelines for
Certification of Taxpayer Identification Number).
(a)(3)(i) Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees.
(ii) Form of Letter to Clients of Brokers, Dealers, Commercial
Banks, Trust Companies and Other Nominees.
(iii) Form of Letter to Authorized Dealers.
(a)(4) Form of Letter to Shareholders who have requested Offer to
Purchase.
(b) Not applicable.
(c)(1) Investment Advisory Agreement between Sierra Prime Income
Fund and Sierra Investment Advisors Corporation, dated as of
February 14, 1996.
(c)(2) Investment Sub-Advisory Agreement among the Sierra Prime
Income Fund, Sierra Investment Advisors Corporation and
Van Kampen American Capital Management Inc., dated as of
October 31, 1996.
(c)(3) Administration Agreement between Sierra Prime Income Fund
and Sierra Fund Administration Corporation, dated as of
July 1, 1996.
(c)(4) Distribution Agreement between Sierra Prime Income Fund and
Sierra Investment Services Corporation, dated as of
February 14, 1996.
(c)(5) Form of Investment Management Agreement to be dated on or
about March 20, 1998.
(c)(6) Form of Investment Sub-Advisory Agreement to be dated on or
about March 20, 1998.
(c)(7) Form of Administration Agreement to be dated on or about
March 20, 1998.
(c)(8) Form of Distribution Contract to be dated on or about
March 20, 1998.
(d)-(f) Not applicable.
4
<PAGE> 5
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
SIERRA PRIME INCOME FUND
Dated: March 2, 1998 /s/ Keith B. Pipes
------------------------
Keith B. Pipes
President and
Chief Executive Officer
5
<PAGE> 6
EXHIBIT INDEX
EXHIBIT DESCRIPTION
(a)(1)(i) Notice mailed to Shareholders
(a)(1)(ii) Letter to Shareholders Regarding Offer to Purchase
(a)(1)(iii) Offer to Purchase (including Financial Statements)
(a)(2) Form of Letter of Transmittal (including Guidelines for
Certification of Tax Identification Number)
(a)(3)(i) Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees
(a)(3)(ii) Form of Letter to Clients of Brokers, Dealers, Commercial
Banks, Trust Companies and Other Nominees
(a)(3)(iii) Form of Letter to Authorized Dealers
(a)(4) Form of Letter to Shareholders who have requested Offer to
Purchase
(c)(1) Investment Advisory Agreement between Sierra Prime Income
Fund and Sierra Investment Advisors Corporation, dated as of
February 14, 1996
(c)(2) Investment Sub-Advisory Agreement among Sierra Prime Income
Fund, Sierra Investment Advisors Corporation and Van Kampen
American Capital Management Inc., dated as of October 31,
1996.
(c)(3) Administration Agreement between Sierra Prime Income Fund
and Sierra Fund Administration Corporation, dated as of
July 1, 1996
(c)(4) Distribution Agreement between Sierra Prime Income Fund
and Sierra Investment Services Corporation, dated as of
February 14, 1996
(c)(5) Form of Investment Management Agreement to be dated on or
about March 20, 1998
(c)(6) Form of Investment Sub-Advisory Agreement to be dated on or
about March 20, 1998
(c)(7) Form of Administration Agreement to be dated on or about
March 20, 1998
(c)(8) Form of Distribution Contract to be dated on or about
March 20, 1998
6
<PAGE> 1
EXHIBIT (a)(1)(i)
[SIERRA PRIME INCOME FUND LETTERHEAD]
March 3, 1998
Dear Sierra Prime Income Fund Shareholder:
Because of the unique nature of the senior loans that the Sierra Prime Income
Fund invests in, sales of Fund shares are possible through a tender offer which
is expected to be made available once per quarter. The Fund continues to meet
its objective of a relatively stable Net Asset Value ("NAV") and is expected to
continue to earn high levels of income. As of December 31, 1997, the Fund
maintained an SEC Yield of 6.36%, over 100 basis points above the yield of a
3-month T-Bill, and 44 basis points above the yield on a 30-year Treasury
Bond.(1)
Sierra continues to stress the benefits of a long-term investment perspective,
but in addition strives to offer high levels of customer service to our
shareholders. We understand that financial emergencies arise, and therefore we
periodically provide liquidity of the shares of the Sierra Prime Income Fund.
The Fund is offering to purchase 151,223 shares of its issued and outstanding
Class A Shares Common Shares at the closing "NAV" at 2:00 P.M. Pacific Standard
Time on April 3, 1998. This tender offer period will begin on March 3, 1998 and
end on April 3, 1998. In order to participate in this offer, you must complete a
Letter of Transmittal form. A notice detailing the OFFER TO PURCHASE and other
related matters is enclosed for your information. Please read these documents
carefully before making a decision to liquidate. For further information,
current NAV quotations, or for copies of the OFFER TO PURCHASE, LETTER OF
TRANSMITTAL and any other tender offer document, please contact Sierra at:
Sierra Shareholder Services
9301 Corbin Avenue, Northridge, CA 91324
800-222-5852
6:00 A.M. to 6:00 P.M. Pacific Standard Time, Monday - Friday
6:00 A.M. to 3:00 P.M. Pacific Standard Time, Saturday
Thank you for investing in the Sierra Prime Income Fund.
Sincerely,
SIERRA PRIME INCOME FUND
- ----------------
(1) Source: Bloomberg Business News, as of December 31, 1997. Past performance
is not a guarantee of future results.
<PAGE> 1
EXHIBIT (a)(1)(ii)
This announcement is not an offer to purchase or a solicitation
of an offer to sell Class A Common Shares. The Offer is made
only by the Offer to Purchase dated March 3, 1998
and the related Letter of Transmittal.
The Offer is not being made to, nor will tenders be accepted
from or on behalf of, holders of Class A Common Shares
in any jurisdiction in which making or accepting the
Offer would violate that jurisdiction's laws.
SIERRA PRIME INCOME FUND
NOTICE OF OFFER TO PURCHASE FOR CASH 151,223
OF ITS ISSUED AND OUTSTANDING CLASS A COMMON SHARES
AT NET ASSET VALUE PER SHARE
- --------------------------------------------------------------------------------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 6:00 PM PACIFIC STANDARD
TIME ON APRIL 3, 1998, UNLESS THE OFFER IS EXTENDED.
- --------------------------------------------------------------------------------
Sierra Prime Income Fund (the "Fund") is offering to purchase 151,223
of its issued and outstanding Class A common shares of beneficial interest, no
par value ("Class A Common Shares"), at a price equal to their net asset value
("NAV") determined as of 2:00 PM Pacific Standard Time on April 3, 1998, the
Expiration Date, unless extended, upon the terms and conditions set forth in the
Offer to Purchase dated March 3, 1998 and the related Letter of Transmittal
(which together constitute the "Offer"). The NAV on February 24, 1998 was $10.00
per Class A Common Share. The purpose of the Offer is to provide liquidity to
shareholders since the Fund is unaware of any secondary market which exists for
the Class A Common Shares. The Offer is not conditioned upon the tender of any
minimum number of Class A Common Shares, but is subject to certain conditions as
set forth in the Offer.
If more than 151,223 Class A Common Shares are duly tendered prior to
the expiration of the Offer, the Fund presently intends, assuming no changes in
the factors originally considered by the Board of Trustees when it determined to
make the Offer and the other conditions set forth in the Offer, either to ( but
is under no obligation to) extend the Offer period, if necessary, and increase
the number of Class A Common Shares that the Fund is offering to purchase to an
amount which it believes will be sufficient to accommodate the excess Class A
Common Shares tendered as well as any Class A Common Shares tendered during the
extended Offer period, or to purchase 151,223 Class A Common Shares (or such
greater number of Class A Common Shares sought) on a pro rata basis.
Class A Common Shares tendered pursuant to the Offer may be withdrawn
at any time prior to 6:00 PM Pacific Standard Time on April 3, 1998, and, if not
yet accepted for payment by the Fund, Class A Common Shares may also be
withdrawn after April 3, 1998.
The information required to be disclosed by paragraph (d)(1) of Rule
13e-4 under the Securities Exchange Act of 1934, as amended, is contained in the
Offer to Purchase and is incorporated herein by reference.
The Offer to Purchase and the related Letter of Transmittal contain
important information that should be read carefully before any decision is made
with respect to the Offer.
Questions and requests for assistance, for current NAV quotations or
for copies of the Offer to Purchase, Letter of Transmittal and any other tender
offer document, may be directed to Sierra Shareholder Services at the address
and telephone number below. Copies will be furnished promptly at no expense to
you. Shareholders who do not own Class A Common Shares directly may tender their
Class A Common Shares through their broker, dealer or nominee.
SIERRA SHAREHOLDER SERVICES
9301 CORBIN AVENUE, NORTHRIDGE, CA 91324
800-222-5852
6:00 AM to 6:00 PM Pacific Standard Time,
Monday - Friday 6:00 AM to 3:00 PM
Pacific Standard Time, Saturday
March 3, 1998
<PAGE> 1
EXHIBIT (a) (1) (iii)
SIERRA PRIME INCOME FUND
OFFER TO PURCHASE FOR CASH 151,223
OF ITS ISSUED AND OUTSTANDING CLASS A COMMON SHARES
AT NET ASSET VALUE PER SHARE
- --------------------------------------------------------------------------------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 6:00 PM PACIFIC STANDARD
TIME ON APRIL 3, 1998, UNLESS THE OFFER IS EXTENDED. TO ENSURE PROCESSING OF
YOUR REQUEST, A LETTER OF TRANSMITTAL OR A MANUALLY SIGNED FACSIMILE OF
IT (TOGETHER WITH ANY CERTIFICATES FOR CLASS A COMMON SHARES AND ALL
OTHER REQUIRED DOCUMENTS) MUST BE RECEIVED BY THE ADMINISTRATOR (AS
DEFINED BELOW) ON OR BEFORE APRIL 3, 1998.
- --------------------------------------------------------------------------------
To the Holders of Class A Common Shares of
Sierra Prime Income Fund:
Sierra Prime Income Fund, a non-diversified, closed-end management
investment company organized as a Massachusetts business trust (the "Fund"), is
offering to purchase up to 151,223 of its Class A Common Shares of beneficial
interest, with no par value ("Class A Common Shares"), for cash at a price (the
"Purchase Price") equal to their net asset value ("NAV") determined as of 2:00
PM Pacific Standard Time on the Expiration Date (as defined herein), upon the
terms and conditions set forth in this Offer to Purchase and the related Letter
of Transmittal (which together constitute the "Offer"). The Offer is scheduled
to terminate as of 6:00 PM Pacific Standard Time on April 3, 1998, unless
extended. The Class A Common Shares are not currently traded on an established
trading market. The NAV on February 23, 1998 was $10.00 per Class A Common
Share. You can obtain current NAV quotations from Sierra Shareholder Services by
calling (800) 222-5852. See Section 9.
If more than 151,223 Class A Common Shares are duly tendered prior to
the expiration of the Offer, the Fund presently intends either subject to the
condition that there have been no changes in the factors originally considered
by the Board of Trustees when it determined to make the Offer and the other
conditions set forth in Section 6, but is under no obligation to, to extend the
Offer period, if necessary, and increase the number of Class A Common Shares
that the Fund is offering to purchase to an amount which it believes will be
sufficient to accommodate the excess Class A Common Shares tendered as well as
any Class A Common Shares tendered during the extended Offer period or to
purchase 151,223 Class A Common Shares (or such greater number of Class A Common
Shares as the Fund may offer to purchase) on a pro rata basis.
THIS OFFER IS BEING MADE TO ALL SHAREHOLDERS OF THE FUND
AND IS NOT CONDITIONED UPON ANY MINIMUM NUMBER
OF CLASS A COMMON SHARES BEING TENDERED.
THIS OFFER IS SUBJECT TO CERTAIN CONDITIONS. SEE SECTION 6.
<PAGE> 2
IMPORTANT
If you desire to tender all or any portion of your Class A Common
Shares, you should either (1) complete and sign the Letter of Transmittal and
mail or deliver it along with any other required documents to Shareholder
Services or (2) request your broker, dealer, commercial bank, trust company or
other nominee to effect the transaction for you. If your Class A Common Shares
are registered in the name of a broker, dealer, commercial bank, trust company
or other nominee, you must contact such broker, dealer, commercial bank, trust
company or other nominee if you desire to tender your Class A Common Shares. The
Fund will not be responsible for any failure by any such nominee to forward your
instructions to the Fund in a timely manner.
NEITHER THE FUND NOR ITS BOARD OF TRUSTEES MAKES ANY RECOMMENDATION TO
ANY SHAREHOLDER AS WHETHER TO TENDER OR REFRAIN FROM TENDERING ANY OR ALL OF
SUCH SHAREHOLDER'S CLASS A COMMON SHARES. SHAREHOLDERS ARE URGED TO EVALUATE
CAREFULLY ALL INFORMATION IN THE OFFER, CONSULT THEIR OWN INVESTMENT AND TAX
ADVISERS AND MAKE THEIR OWN DECISIONS WHETHER TO TENDER CLASS A COMMON SHARES
AND, IF SO, HOW MANY CLASS A COMMON SHARES TO TENDER.
NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY RECOMMENDATION ON BEHALF OF
THE FUND AS TO WHETHER SHAREHOLDERS SHOULD TENDER CLASS A COMMON SHARES PURSUANT
TO THE OFFER. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE
ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER OTHER THAN THOSE CONTAINED
HEREIN OR IN THE LETTER OF TRANSMITTAL. IF GIVEN OR MADE, SUCH RECOMMENDATION
AND SUCH INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE FUND.
Questions and requests for assistance may be directed to Sierra
Shareholder Services at the address and telephone number set forth below.
Requests for additional copies of this Offer to Purchase and the Letter of
Transmittal should be directed to Sierra Shareholder Services.
March 3, 1998 SIERRA PRIME INCOME FUND
Sierra Shareholder Services
9301 Corbin Avenue, Suite 333
Northridge, CA 91324
(800) 222-5852
2
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTIONS PAGE
<C> <C>
1. PRICE; NUMBER OF CLASS A COMMON SHARES......................................4
2. PROCEDURE FOR TENDERING CLASS A COMMON SHARES...............................4
3. EARLY WITHDRAWAL CHARGE.....................................................6
4. WITHDRAWAL RIGHTS...........................................................7
5. PAYMENT FOR SHARES..........................................................7
6. CERTAIN CONDITIONS OF THE OFFER.............................................8
7. PURPOSE OF THE OFFER........................................................9
8. PLANS OR PROPOSALS OF THE FUND..............................................9
9. PRICE RANGE OF CLASS A COMMON SHARES; DIVIDENDS.............................9
10. INTEREST OF TRUSTEES AND EXECUTIVE OFFICERS; TRANSACTIONS AND
ARRANGEMENTS CONCERNING THE CLASS A COMMON SHARES..........................10
11. CERTAIN EFFECTS OF THE OFFER..............................................11
12. SOURCE AND AMOUNT OF FUNDS................................................12
13. CERTAIN INFORMATION ABOUT THE FUND........................................12
14. ADDITIONAL INFORMATION....................................................13
15. CERTAIN FEDERAL INCOME TAX CONSEQUENCES...................................13
16. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENTS.......................14
17. MISCELLANEOUS.............................................................14
</TABLE>
EXHIBIT A: UNAUDITED FINANCIAL STATEMENTS FOR THE QUARTER ENDED
DECEMBER 31, 1997
3
<PAGE> 4
1. PRICE; NUMBER OF CLASS A COMMON SHARES.
The Fund will, upon the terms and subject to the conditions of the
Offer, accept for payment (and thereby purchase) 151,223 or such lesser number
of its issued and outstanding Class A Common Shares which are properly tendered
(and not withdrawn in accordance with Section 4 prior to 6:00 PM Pacific
Standard Time on April 3, 1998 (such time and date being hereinafter called the
"Initial Expiration Date"). The Fund reserves the right to extend the Offer. See
Section 16. The later of the Initial Expiration Date or the latest time and date
to which the Offer is extended is hereinafter called the "Expiration Date." The
Purchase Price of the Class A Common Shares will be their NAV determined as of
2:00 PM Pacific Standard Time on the Expiration Date. Holders of Class A Common
Shares may tender or withdraw previously tendered shares to the Administrator at
the address set forth in page 2 of this Offer to Purchase by written
telegraphic, telex or facsimile transmission of a notice of withdrawal prior to
the Expiration Date. The NAV on February 23, 1998 was $10.00 per Class A Common
Share. You can obtain current NAV quotations from Sierra Shareholder Services by
calling (800) 222-5852 between the hours of 6:00 AM and 6:00 PM Pacific Standard
Time, Monday through Friday and 6:00 AM and 3:00 PM Pacific Standard Time on
Saturday, except holidays. Shareholders tendering Class A Common Shares shall be
entitled to receive all dividends declared on or prior to settlement following
the Expiration Date, but not yet paid, on Class A Common Shares tendered
pursuant to the Offer. See Section 9. The Fund will not pay interest on the
Purchase Price under any circumstances. An Early Withdrawal Charge may be
imposed on certain Class A Common Shares accepted for payment that have been
held for less than two years. See Section 3.
The Offer is being made to all shareholders of the Fund and is not
conditioned upon any minimum number of Class A Common Shares being tendered. If
the number of Class A Common Shares properly tendered prior to the Expiration
Date and not withdrawn is less than or equal to 151,223 Class A Common Shares
(or such greater number of Class A Common Shares as the Fund may elect to
purchase pursuant to the Offer), the Fund will upon the terms and subject to the
conditions of the Offer, purchase at NAV all Class A Common Shares so tendered.
If more than 151,223 Class A Common Shares are duly tendered prior to the
expiration of the Offer and not withdrawn, the Fund presently intends to,
subject to the condition that there have been no changes in the factors
originally considered by the Board of Trustees when it determined to make the
Offer and the other conditions set forth in Section 6, but is not obligated to,
extend the Offer period, if necessary, and increase the number of Class A Common
Shares that the Fund is offering to purchase to an amount which it believes will
be sufficient to accommodate the excess Class A Common Shares tendered as well
as any Class A Common Shares tendered during the extended Offer period or
purchase 151,223 Class A Common Shares (or such greater number of Class A Common
Shares sought) on a pro rata basis.
On February 23, 1998, there were approximately 756,116.198 Class A
Common Shares issued and outstanding and there were approximately 328 holders of
record of Class A Common Shares. The Fund has been advised that no trustees,
officers or affiliates of the Fund intend to tender any Class A Common Shares
pursuant to the Offer.
The Fund reserves the right, in its sole discretion, at any time or
from time to time, to extend the period of time during which the Offer is open
by giving oral or written notice of such extension to the Administrator and
making a public announcement thereof. See Section 16. There can be no assurance,
however, that the Fund will exercise its right to extend the Offer. If the Fund
decides, in its sole discretion, to increase (except for any increase not in
excess of 2% of the outstanding Class A Common Shares) or decrease the number of
Class A Common Shares being sought and, at the time that notice of such increase
or decrease is first published, sent or given to holders of Class A Common
Shares in the manner specified below, the Offer is scheduled to expire at any
time earlier than the tenth business day from the date that such notice is first
so published, sent or given, the Offer will be extended at least until the end
of such ten business day period.
2. PROCEDURE FOR TENDERING CLASS A COMMON SHARES.
Proper Tender of Class A Common Shares. Except as otherwise set forth
under the heading "Procedures for Authorized Dealers" below, for Class A Common
Shares to be properly tendered pursuant to the Offer, a properly completed and
duly executed Letter of Transmittal (or manually signed facsimile thereof) with
any required signature
4
<PAGE> 5
guarantees and any other documents required by the Letter of Transmittal, must
be received on or before the Expiration Date by the Administrator at its address
set forth on page 2 of this Offer to Purchase.
It is a violation of Section 14(e) of the Securities and Exchange Act
of 1934 (the "Exchange Act"), and Rule 14e-4 promulgated thereunder, for a
person to tender Class A Common Shares in a partial tender offer for such
person's own account unless at the time of tender and until such time as the
securities are accepted for payment the person so tendering has a net long
position equal to or greater than the amount tendered in (i) the Class A Common
Shares and will deliver or cause to be delivered such shares for purposes of
tender to the Fund prior to or on the Expiration Date, or (ii) an equivalent
security and, upon the acceptance of his or her tender will acquire the Class A
Common Shares by conversion, exchange, or exercise of such equivalent security
to the extent required by the terms of the Offer, and will deliver or cause to
be delivered the Class A Common Shares so acquired for the purpose of tender to
the Fund prior to or on the Expiration Date.
Section 14(e) and Rule 14e-4 provide a similar restriction applicable
to the tender or guarantee of a tender on behalf of another person.
The acceptance of Class A Common Shares by the Fund for payment will
constitute a binding agreement between the tendering shareholder and the Fund
upon the terms and subject to the conditions of the Offer, including the
tendering shareholder's representation that (i) such shareholder has a net long
position in the Class A Common Shares being tendered within the meaning of Rule
14e-4 promulgated under the Exchange Act and (ii) the tender of such Class A
Common Shares complies with Rule 14e-4.
Signature Guarantees and Method of Delivery. Signatures on the Letter
of Transmittal are not required to be guaranteed unless (1) the proceeds for the
tendered Class A Common Shares will amount to more than $50,000, (2) the Letter
of Transmittal is signed by someone other than the registered holder of the
Class A Common Shares tendered therewith, or (3) payment for tendered Class A
Common Shares is to be sent to a payee other than the registered owner of such
Class A Common Shares and/or to an address other than the registered address of
the registered owner of the Class A Common Shares. In those instances, all
signatures on the Letter of Transmittal must be guaranteed by a member firm of a
national securities exchange or a commercial bank or trust company having an
office, branch or agency in the United States (an "Eligible Institution"). If
Class A Common Shares are registered in the name of a person or persons other
than the signer of the Letter of Transmittal or (a) if payment is to be made to
or (b) unpurchased Class A Common Shares are to be registered in the name of any
person other than the registered owner, then the Letter of Transmittal must be
endorsed or accompanied by appropriate authorizations, in either case signed
exactly in such name or names as appear on the registration of the Class A
Common Shares with the signatures on the authorizations guaranteed by an
Eligible Institution. See Instructions 1 and 5 of the Letter of Transmittal.
Payment for Class A Common Shares tendered and accepted for payment
pursuant to the Offer will be made only after receipt by the Administrator on or
before the Expiration Date of a properly completed and duly executed Letter of
Transmittal (or manually signed facsimile thereof) and any other documents
required by the Letter of Transmittal.
THE METHOD OF DELIVERY OF ANY DOCUMENTS IS AT THE ELECTION AND RISK OF
THE PARTY TENDERING CLASS A COMMON SHARES. IF DOCUMENTS ARE SENT BY MAIL, IT IS
RECOMMENDED THAT THEY BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH RETURN
RECEIPT REQUESTED.
Procedures for Authorized Dealers. If you are an Authorized Dealer, in
order for you to tender any Class A Common Shares pursuant to the Offer, you may
place a confirmed wire order with WM Shareholder Services, Inc., f/k/a Murphey
Favre Securities Services, Inc. (the "Transfer Agent"). All confirmed wire
orders used to tender Class A Common Shares pursuant to this Offer must be
placed on the Expiration Date only (wire orders placed on any other date will
not be accepted by the Fund). Class A Common Shares tendered by a wire order are
deemed to be tendered when the Transfer Agent receives the order but subject to
the condition subsequent that the settlement instructions, including (with
respect to tendered Class A Common Shares for which the Authorized Dealer is not
the registered owner) a properly completed and duly executed Letter of
Transmittal (or manually signed facsimile thereof), and any other documents
required by the Letter of Transmittal, are received by the Transfer Agent.
5
<PAGE> 6
Determinations of Validity. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance of tenders will be
determined by the Fund, in its sole discretion, whose determination shall be
final and binding. The Fund reserves the absolute right to reject any or all
tenders determined by it not to be in appropriate form or the acceptance of or
payment for which may, in the opinion of the Fund's counsel, be unlawful. The
Fund also reserves the absolute right to waive any of the conditions of the
Offer or any defect in any tender with respect to any particular Class A Common
Share(s) or any particular shareholder, and the Fund's interpretations of the
terms and conditions of the Offer will be final and binding. Unless waived, any
defects or irregularities in connection with tenders must be cured within such
times as the Fund shall determine. Tendered Class A Common Shares will not be
accepted for payment unless the defects or irregularities have been cured within
such time or waived. Neither the Fund, the Transfer Agent, the Administrator nor
any other person shall be obligated to give notice of any defects or
irregularities in tenders, nor shall any of them incur any liability for failure
to give such notice.
Federal Income Tax Withholding. To prevent backup federal income tax
withholding equal to 31% of the gross payments made pursuant to the Offer, each
shareholder who has not previously submitted a Form W-9 to the Fund or does not
otherwise establish an exemption from such withholding must notify the Transfer
Agent of such shareholder's correct taxpayer identification number (or certify
that such taxpayer is awaiting a taxpayer identification number) and provide
certain other information by completing the Form W-9 enclosed with the Letter of
Transmittal. Foreign shareholders who are individuals and who have not
previously submitted a Form W-9 to the Fund must do so in order to avoid backup
withholding.
The Transfer Agent will withhold 30% of the gross payments payable to
a foreign shareholder unless the Transfer Agent determines that a reduced rate
of withholding or an exemption from withholding is applicable. (Exemption from
backup withholding does not exempt a foreign shareholder from the 30%
withholding). For this purpose, a foreign shareholder in general is a
shareholder that is not (i) a citizen or resident of the United States, (ii) a
corporation, partnership or other entity created or organized in or under the
laws of the United States or any political subdivision thereof, or (iii) an
estate or trust the income of which is subject to United States federal income
taxation regardless of the source of such income. The Transfer Agent will
determine a shareholder's status as a foreign shareholder and eligibility for a
reduced rate of, or an exemption from, withholding by reference to the
shareholder's address and to any outstanding statements concerning eligibility
for a reduced rate of, or exemption from, withholding unless facts and
circumstances indicate that reliance is not warranted. A foreign shareholder who
has not previously submitted the appropriate statements with respect to a
reduced rate of, or exemption from, withholding for which such shareholder may
be eligible should consider doing so in order to avoid over-withholding. A
foreign shareholder may be eligible to obtain a refund of tax withheld if such
shareholder meets one of the three tests for capital gain or loss treatment
described in Section 15 or is otherwise able to establish that no tax or a
reduced amount of tax was due.
For a discussion of certain other federal income tax consequences to
tendering shareholders, see Section 15.
3. EARLY WITHDRAWAL CHARGE.
The Transfer Agent may impose an early withdrawal charge (the "Early
Withdrawal Charge" or "EWC") on certain Class A Common Shares accepted for
payment which have been held less than two years. An EWC of 1.0% or 0.5% may be
imposed on certain Class A Common Shares tendered and accepted for payment
within one or two years of purchase, respectively, for those Class A Common
Shares (i) purchased at NAV without a sales charge at time of purchase
(purchases of $1 million or more), (ii) acquired through an exchange for Class A
Shares of a Non-Money Fund of the Sierra Trust Funds purchased at NAV without a
sales charge at time of purchase (purchases of $1 million or more), (iii)
purchased through an employee benefit trust created pursuant to a plan qualified
under Section 401(k) of the Code ("401(k) Plan") that has invested in the
aggregate more than $1 million in the Fund, or (iv) purchased through a
retirement plan qualified under Section 403(b) of the Code ("403(b) Plan") that
has more than $1 million in the Fund. The EWCs for Class A Common Shares are
calculated on the lower of the shares' cost or current net asset value, and in
determining whether the EWC is payable, the Fund will first redeem shares not
subject to any EWC.
6
<PAGE> 7
Purchases of $1 million or more and certain other purchases are not
subject to the sales charge at the time of purchase, but may be subject to a
1.0% early withdrawal charge on repurchases or tenders within one year of
purchase or a 0.5% early withdrawal charge on repurchases or tenders during the
second year after purchase. No sales charge at time of purchase and no early
withdrawal charge will be assessed on the reinvestment of dividends or
distributions on Class A Common Shares or on purchases of Class A Common Shares
under the 180-day reinvestment privilege. The Early Withdrawal Charge may be
imposed on the number of Class A Common Shares (subject to the EWC as noted
above) accepted for payment from a record holder of Class A Common Shares the
value of which exceeds the aggregate value at the time the tendered Class A
Common Shares are accepted for payment of (a) all Class A Common Shares owned by
such holder that were purchased without being subject to the EWC, (b) the Class
A Common Shares owned by such holder that were acquired through reinvestment of
distributions, and (c) the increase, if any, of value of all other Class A
Common Shares owned by such holder over the purchase price of such Class A
Common Shares. The Early Withdrawal Charge will be paid to the Distributor on
behalf of the holder of the Class A Common Shares. In determining whether an
Early Withdrawal Charge is payable, Class A Common Shares accepted for payment
pursuant to the Offer shall be deemed to be those Class A Common Shares
purchased earliest by the Shareholder.
The following example will illustrate the operation of the Early
Withdrawal Charge. Assume that an investor purchases $1,000,000 worth of the
Fund's Class A Common Shares for cash and that 9 months later the value of the
account has grown through the reinvestment of dividends and capital appreciation
to $1,050,000. The investor then may submit for repurchase pursuant to a tender
offer up to $50,000 worth of Class A Common Shares without incurring an Early
Withdrawal Charge. If the investor should submit for repurchase pursuant to a
tender offer $75,000 worth of Class A Common Shares, an Early Withdrawal Charge
would be imposed on $25,000 worth of the Class A Common Shares submitted. The
charge would be imposed at the rate of 1% because it is in the first year after
the purchase was made and the charge would be $250.
4. WITHDRAWAL RIGHTS.
Except as otherwise provided in this Section 4, tenders of Class A
Common Shares made pursuant to the Offer will be irrevocable. You may withdraw
Class A Common Shares tendered at any time prior to the Expiration Date and, if
the Class A Common Shares have not yet been accepted for payment by the Fund, at
any time after 6:00 PM Pacific Standard Time on April 3, 1998.
To be effective, a written, telegraphic, telex or facsimile
transmission notice of withdrawal must be timely received by the Administrator
at the address set forth on page 2 of this Offer to Purchase. Any notice of
withdrawal must specify the name of the person having tendered the Class A
Common Shares to be withdrawn and the number of Class A Common Shares to be
withdrawn.
All questions as to the form and validity (including time of receipt)
of notices of withdrawal will be determined by the Fund in its sole discretion,
whose determination shall be final and binding. None of the Fund, Sierra
Shareholder Services, the Transfer Agent, the Administrator or any other person
is or will be obligated to give any notice of any defects or irregularities in
any notice of withdrawal, and none of them will incur any liability for failure
to give any such notice. Class A Common Shares properly withdrawn shall not
thereafter be deemed to be tendered for purposes of the Offer. However,
withdrawn Class A Common Shares may be retendered by following the procedures
described in Section 2 prior to the Expiration Date.
5. PAYMENT FOR SHARES.
For purposes of the Offer, the Fund will be deemed to have accepted
for payment (and thereby purchased) Class A Common Shares which are tendered and
not withdrawn when and if it gives oral or written notice to the Transfer Agent
of its acceptance of such Class A Common Shares for payment pursuant to the
Offer. Upon the terms and subject to the conditions of the Offer, the Fund will
accept for payment (and thereby purchase) Class A Common Shares properly
tendered promptly after the Expiration Date.
7
<PAGE> 8
Payment for Class A Common Shares purchased pursuant to the Offer will
be made by depositing the aggregate purchase price therefor with the Transfer
Agent, which will act as agent for tendering shareholders for the purpose of
receiving payment from the Fund and transmitting payment to the tendering
shareholders. In all cases, payment for Class A Common Shares accepted for
payment pursuant to the Offer will be made only after timely receipt by the
Administrator, as required pursuant to the Offer, of a properly completed and
duly executed Letter of Transmittal (or manually signed facsimile thereof), and
any other required documents.
The Fund will pay all transfer taxes, if any, payable on the transfer
to it of Class A Common Shares purchased pursuant to the Offer. If, however,
payment of the purchase price is to be made to, or (in the circumstances
permitted by the Offer) if unpurchased Class A Common Shares are to be
registered in the name of any person other than the registered holder, the
amount of any transfer taxes (whether imposed on the registered holder or such
other person) payable on account of the transfer to such person will be deducted
from the Purchase Price unless satisfactory evidence of the payment of such
taxes, or exemption therefrom, is submitted. Shareholders tendering Class A
Common Shares shall be entitled to receive all dividends declared on or prior to
settlement following the Expiration Date, but not yet paid, on Class A Common
Shares tendered pursuant to the Offer. The Fund will not pay any interest on the
Purchase Price under any circumstances. An Early Withdrawal Charge may be
imposed on certain Class A Common Shares accepted for payment that have been
held for less than two years. See Section 3. In addition, if certain events
occur, the Fund may not be obligated to purchase Class A Common Shares pursuant
to the Offer. See Section 6.
ANY TENDERING SHAREHOLDER OR OTHER PAYEE WHO HAS NOT PREVIOUSLY
SUBMITTED A COMPLETED AND SIGNED SUBSTITUTE FORM W-9 AND WHO FAILS TO COMPLETE
FULLY AND SIGN THE SUBSTITUTE FORM W-9 ENCLOSED WITH THE LETTER OF TRANSMITTAL
MAY BE SUBJECT TO REQUIRED FEDERAL INCOME TAX WITHHOLDING OF 31% OF THE GROSS
PROCEEDS PAID TO SUCH SHAREHOLDER OR OTHER PAYEE PURSUANT TO THE OFFER. SEE
SECTION 2.
6. CERTAIN CONDITIONS OF THE OFFER.
Notwithstanding any other provision of the Offer, the Fund shall not
be required to accept for payment, purchase or pay for any Class A Common Shares
tendered, and may terminate or amend the Offer or may postpone the acceptance
for payment of, the purchase of and payment for Class A Common Shares tendered,
if at any time at or before the time of purchase of any such Class A Common
Shares, any of the following events shall have occurred (or shall have been
determined by the Fund to have occurred) which, in the Fund's reasonable
judgment in any such case and regardless of the circumstances (including any
action or omission to act by the Fund), makes it inadvisable to proceed with the
Offer or with such purchase or payment: (1) in the reasonable and exclusive
judgment of the Trustees, there is not sufficient liquidity of the assets of the
Fund; (2) such transactions, if consummated, would (a) impair the Fund's status
as a regulated investment company under the Internal Revenue Code (which would
make the Fund a taxable entity, causing the Fund's taxable income to be taxed at
the Fund level) or (b) result in a failure to comply with applicable asset
coverage requirements; or (3) there is, in the Board of Trustees' judgment, any
(a) material legal action or proceeding instituted or threatened challenging
such transactions or otherwise materially adversely affecting the Fund, (b)
suspension of or limitation on prices for trading securities generally on any
U.S. national securities exchange or in the over-the-counter market, (c)
declaration of a banking moratorium by federal or state authorities or any
suspension of payment by banks in the United States, (d) limitation affecting
the Fund or the issuers of its portfolio securities imposed by federal or state
authorities on the extension of credit by lending institutions, (e) commencement
of war, armed hostilities or other international or national calamity directly
or indirectly involving the United States or (f) other event or condition which
would have a material adverse effect on the Fund or the holders of its Class A
Common Shares if the tendered Class A Common Shares are purchased.
The foregoing conditions are for the Fund's sole benefit and may be
asserted by the Fund regardless of the circumstances giving rise to any such
condition (including any action or inaction by the Fund), and any such condition
may be waived by the Fund in whole or in part, at any time and from time to time
in its sole discretion. The Fund's failure at any time to exercise any of the
foregoing rights shall not be deemed a waiver of any such right; the waiver of
any such right with respect to particular facts and circumstances shall not be
deemed a waiver with respect to any other facts or circumstances; and each such
right shall be deemed an ongoing right which may be asserted at any time and
from
8
<PAGE> 9
time to time. Any determination by the Fund concerning the events described in
this Section 6 shall be final and shall be binding on all parties.
If the Fund determines to terminate or amend the Offer or to postpone
the acceptance for payment of or payment for Class A Common Shares tendered, it
will, to the extent necessary, extend the period of time during which the Offer
is open as provided in Section 16. Moreover, in the event any of the foregoing
conditions arc modified or waived in whole or in part at any time, the Fund will
promptly make a public announcement of such waiver and may, depending on the
materiality of the modification or waiver, extend the Offer period as provided
in Section 16.
7. PURPOSE OF THE OFFER.
The Fund currently does not believe that an active secondary market
for its Class A Common Shares exists or is likely to develop. In recognition of
the possibility that a secondary market may not develop for the Class A Common
Shares of the Fund, or, if such a market were to develop, the Class A Common
Shares might trade at a discount, the Trustees have determined that it would be
in the best interest of its shareholders for the Fund to take action to attempt
to provide liquidity to shareholders or to reduce or eliminate any future market
value discount from NAV that might otherwise exist, respectively. To that end,
the Trustees presently intend each quarter to consider making a tender offer to
purchase Class A Common Shares at their NAV. The purpose of this Offer is to
attempt to provide liquidity to the holders of Class A Common Shares. There can
be no assurance that this Offer will provide sufficient liquidity to all holders
of Class A Common Shares that desire to sell their Class A Common Shares or that
the Fund will make any such tender offer in the future.
NEITHER THE FUND NOR ITS BOARD OF TRUSTEES MAKES ANY RECOMMENDATION TO
ANY SHAREHOLDER AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING ANY OR ALL OF
SUCH SHAREHOLDER'S CLASS A COMMON SHARES AND HAS NOT AUTHORIZED ANY PERSON TO
MAKE ANY SUCH RECOMMENDATION. SHAREHOLDERS ARE URGED TO EVALUATE CAREFULLY ALL
INFORMATION IN THE OFFER, CONSULT THEIR OWN INVESTMENT AND TAX ADVISORS AND MAKE
THEIR OWN DECISIONS WHETHER TO TENDER CLASS A COMMON SHARES AND, IF SO, HOW MANY
CLASS A COMMON SHARES TO TENDER.
8. PLANS OR PROPOSALS OF THE FUND.
The Fund has no present plan or proposals which relate to or would
result in any extraordinary transaction such as a merger, reorganization or
liquidation involving the Fund; a sale or transfer of a material amount of
assets of the Fund other than in its ordinary course of business; any material
changes in the Fund's present capitalization (except as resulting from the Offer
or otherwise set forth herein); or any other material changes in the Fund's
structure or business other than those set forth in Item 10 hereof or elsewhere
herein.
9. PRICE RANGE OF CLASS A COMMON SHARES; DIVIDENDS.
The Fund's NAV per Class A Common Share from February 14, 1996
(inception of the Fund) through February 24, 1998 ranged from a high of $10.01
to a low of $10.00. On February 24, 1998, the NAV was $10.00 per Common Share.
You can obtain current NAV quotations from Sierra Shareholder Services by
calling (800) 222-5852 between the hours of 6:00 AM and 6:00 PM Pacific Standard
Time, Monday through Friday and 6:00 AM to 3:00 PM Pacific Standard Time on
Saturday, except holidays. Holders of Class A Common Shares may tender or
withdraw previously tendered shares by written, telegraphed, telex or facsimile
transmission of a notice of withdrawal prior to the Expiration Date to the
Administrator at the address set forth on page 2 of this Offer to Purchase. The
Fund offers and sells its Class A Common Shares to the public on a continuous
basis through the Distributor as principal underwriter. The Fund is not aware of
any secondary market trading for the Class A Common Shares. Dividends on the
Class A Common Shares are declared daily and paid monthly.
9
<PAGE> 10
Since the commencement of the Trust's operations in February 1996
prior to the Offer, the Fund paid the following dividends per Class A Common
Share held for the entire respective dividend period:
<TABLE>
<CAPTION>
AMOUNT OF DIVIDEND
DIVIDEND PAYMENT PER CLASS A
DATE COMMON SHARE
- --------------------- ------------------
<S> <C>
February 29, 1996 $0.0115
March 29, 1996 $0.0475
April 30, 1996 $0.0528
May 31, 1996 $0.0596
June 28, 1996 $0.0564
July 31, 1996 $0.0582
August 30, 1996 $0.0595
September 30, 1996 $0.0555
October 31, 1996 $0.0594
November 29, 1996 $0.0589
December 31, 1996 $0.0596
January 31, 1997 $0.0595
February 28, 1997 $0.0534
March 31, 1997 $0.0619
April 30, 1997 $0.0581
May 30, 1997 $0.0614
June 30, 1997 $0.0588
July 31, 1997 $0.0626
August 30, 1997 $0.0622
September 30, 1997 $0.0561
October 31, 1997 $0.0570
November 30, 1997 $0.0570
December 31, 1997 $0.0566
January 30, 1998 $0.0559
</TABLE>
Shareholders tendering Class A Common Shares shall be entitled to receive all
dividends declared on or prior to settlement following the Expiration Date, but
not yet paid, on Class A Common Shares tendered pursuant to the Offer.
10. INTEREST OF TRUSTEES AND EXECUTIVE OFFICERS; TRANSACTIONS AND
ARRANGEMENTS CONCERNING THE CLASS A COMMON SHARES.
Except as set forth in this Section 10, as of February 23, 1998, the
trustees and executive officers of the Fund as a group beneficially owned no
Class A Common Shares. The Fund has been informed that no trustee or executive
officer of the Fund intends to tender any Class A Common Shares pursuant to the
Offer.
Except as set forth in this Section 10, based upon the Fund's records
and upon information provided to the Fund by its trustees, executive officers
and affiliates (as such term is used in the Securities Exchange Act of 1934),
neither the Fund nor, to the best of the Fund's knowledge, any of the trustees
or executive officers of the Fund, nor any associates
10
<PAGE> 11
of any of the foregoing, has effected any transactions in the Class A Common
Shares during the forty business day period prior to the date hereof.
Except as set forth in this Offer to Purchase, neither the Fund nor,
to the best of the Fund's knowledge, any of its affiliates, trustees or
executive officers, is a party to any contract, arrangement, understanding or
relationship with any other person relating, directly or indirectly, to the
Offer with respect to any securities of the Fund (including, but not limited to,
any contract, arrangement, understanding or relationship concerning the transfer
or the voting of any such securities, joint ventures, loan or option
arrangements, puts or calls, guaranties of loans, guaranties against loss or the
giving or withholding of proxies, consents or authorizations).
The Fund currently is a party to an Investment Advisory Agreement with
Sierra Investment Advisors Corporation ("Sierra Advisors") under which the Fund
accrues daily and pays monthly to Sierra Advisors an investment management fee
equal to 0.95% of the average daily net assets (i.e. the daily value of the
total assets of the Fund, minus the sum of the accrued liabilities of the Fund
other than the aggregate amount of any borrowings undertaken by the Fund).
Sierra Advisors has delegated the management of the Fund's portfolio to Van
Kampen American Capital Management Inc. ("Van Kampen" or "Sub-Advisor") pursuant
to an Investment Sub-Advisory Agreement among the Fund, Sierra Advisors and Van
Kampen. The Fund also is a party to an Administration Agreement with Sierra Fund
Administration Corporation ("Sierra Administration") and a Distribution
Agreement with Sierra Investment Services Corporation ("SISC"). Under the
current Administration Agreement, which was amended effective July 1, 1996, the
Fund pays Sierra Administration a monthly fee at the annualized rate of 0.25% of
the Fund's average daily net assets. Prior to July 1, 1996, the Fund paid Sierra
Administration a monthly fee at the annualized rate of 0.35% of the Fund's
average daily net assets. Under the Distribution Agreement, the Fund offers and
sells its Class A Common Shares to the public on a continuous basis through
SISC, as principal underwriter. Sierra Administration pursuant to a
Sub-Administration Agreement with State Street Bank & Trust Company ("State
Street") has delegated certain administrative and custodial services to State
Street. The Fund is also a party to a Transfer Agency and Services Agreement
with First Data Investor Services Group, Inc. ("First Data") in connection with
certain transfer agency responsibilities.
On July 1, 1997, Great Western Financial Corporation ("GWFC"), the
indirect parent of Sierra Advisors, and Washington Mutual, Inc. ("Washington
Mutual"), a publicly-held financial services company, consummated a previously
announced Agreement and Plan of Merger resulting in the merger of GWFC with and
into a wholly owned subsidiary of Washington Mutual (the "Merger"). As a result
of the Merger, Sierra Advisors and its affiliates are now indirect subsidiaries
of Washington Mutual. A Special Meeting of Shareholders held on December 23,
1997 (the "Special Meeting") approved the planned consolidation of the funds
managed by Sierra Advisors and its affiliates and those managed by Composite, an
investment adviser which also is an indirect subsidiary of Washington Mutual and
elected a common Board of Trustees. On or about March 20, 1998, Composite (which
is expected to be renamed "WM Advisors, Inc." on or about March 20, 1998) will
become the new investment advisor for the Fund. Van Kampen will still be the
sub-advisor for the Fund. The individual with primary responsibility for the
day-to-day management of the Fund will remain unchanged. On or about March 20,
1998, Murphey Favre Securities Services, Inc. (which is expected to be renamed
WM Shareholder Services, Inc.), an affiliate of Composite, will become the
transfer agent and administrator for the Fund. On or about March 20, 1998,
Composite Funds Distributor, Inc. (which is expected to be renamed WM Funds
Distributor, Inc.) will become the Distributor of the Fund. The Trust's new
Management Agreement and new Sub- Advisory Agreement are substantially similar
to the Trust's current investment advisory agreement and current investment
sub-advisory agreement, except for the parties and dates of execution,
effectiveness and initial term. It is currently expected that the Fund will be
renamed "WM Prime Income Fund" on or about March 20, 1998. This name change will
have no effect on the tender offer.
11. CERTAIN EFFECTS OF THE OFFER.
The purchase of Class A Common Shares pursuant to the Offer will have
the effect of increasing the proportionate interest in the Fund of shareholders
who do not tender their Class A Common Shares. If you retain your Class A Common
Shares you will be subject to any increased risks that may result from the
reduction in the Fund's aggregate assets resulting from payment for the tendered
Class A Common Shares (e.g., greater volatility due to decreased diversification
and higher expenses). However, the Fund believes that since it is engaged in a
continuous
11
<PAGE> 12
offering of the Class A Common Shares, those risks would be reduced to the
extent new Class A Common Shares of the Fund are sold. All Class A Common Shares
purchased by the Fund pursuant to the Offer will be held in treasury pending
disposition.
12. SOURCE AND AMOUNT OF FUNDS.
The total cost to the Fund of purchasing the full 151,223 Class A
Common Shares pursuant to the Offer would be approximately $1,512,230 (assuming
a NAV of $10.00 per Common Share on the Expiration Date). The Fund anticipates
that the Purchase Price for any Class A Common Shares acquired pursuant to the
Offer will first be derived from cash on hand, such as proceeds from sales of
new Class A Common Shares of the Fund and specified pay-downs from the
participation interests in senior corporate loans which it has acquired, and
then from the proceeds from the sale of cash equivalents held by the Fund. The
Fund believes that it has sufficient liquidity to purchase the Class A Common
Shares tendered pursuant to the Offer. However, if, in the judgment of the
Trustees, there is not sufficient liquidity of the assets of the Fund to pay for
tendered Class A Common Shares, the Fund may terminate the Offer. See Section 6.
13. CERTAIN INFORMATION ABOUT THE FUND.
The Fund was organized as a Massachusetts business trust on October 4,
1995 and is a non-diversified, closed-end management investment company under
the Investment Company Act of 1940. The Fund seeks as high a level of current
income as is consistent with the preservation of capital by investing in a
professionally managed portfolio of interests in floating or variable rate
senior loans ("Senior Loans") to United States corporations, partnerships and
other entities ("Borrowers"). Although the Fund's NAV will vary, the Fund's
policy of acquiring interests in floating or variable rate Senior Loans is
expected to minimize fluctuations in the Fund's NAV as a result of changes in
interest rates. Senior Loans in which the Fund will invest generally pay
interest at rates which are periodically redetermined by reference to a base
lending rate plus a premium. These base lending rates are generally the prime
rate offered by one or more major United States banks ("Prime Rate"), the London
Inter-Bank Offered Rate ("LIBOR"), the certificate of deposit rate or other base
lending rates used by commercial lenders. The Fund seeks to achieve over time a
high effective yield. The Senior Loans in the Fund's portfolio at all times have
a dollar-weighted average time until next interest rate redetermination of 90
days or less. As a result, as short-term interest rates increase, the interest
payable to the Fund from its investments in Senior Loans should increase, and as
short-term interest rates decrease, the interest payable to the Fund on its
investments in Senior Loans should decrease. The amount of time required to pass
before the Fund realizes the effects of changing short-term market interest
rates on its portfolio varies with the dollar-weighted average time until next
interest rate redetermination on securities in the Fund's portfolio.
The Fund has registered as a "non-diversified" investment company so
that, subject to its investment restrictions, it is able to invest more than 5%
of the value of its assets in the obligations of any single issuer, including
Senior Loans of a single Borrower or participations in Senior Loans purchased
from a single lender. To the extent the Fund invests a relatively high
percentage of its assets in obligations of a limited number of issuers, the Fund
will be more susceptible than a more widely diversified investment company to
any single corporate, economic, political or regulatory occurrence.
12
<PAGE> 13
The Distributor compensates Authorized Dealers participating in the
continuous offering of the Fund's Class A Common Shares pursuant to the
following schedule:
<TABLE>
<CAPTION>
Dealers' Reallowance
Amount of Transactions as a % of Offering Price
- ---------------------- ------------------------
<S> <C>
Less than $50,000 4.00%
$50,000 but less than $100,000 3.50%
$100,000 but less than $250,000 3.00%
$250,000 but less than $500,000 2.50%
$500,000 but less than $1,000,000 1.75%
$1,000,000 and over 0%
</TABLE>
The Distributor may pay Authorized Dealers a fee of up to 1.00% of net
asset value for Class A Common Share transactions over $1,000,000. The dealer
reallowance may be changed by the Distributor from time to time, and upon
notice, the Distributor may reallow up to the full applicable sales charge to
certain Authorized Dealers. In addition, if Class A Common Shares of the Fund
are sold by an Authorized Dealer, the Advisor may in its discretion pay up to a
maximum of 0.25% of the value of such Common Shares to such Authorized Dealers.
Such compensation is or will be paid by the Advisor out of its own assets, and
not out of the assets of the Fund. The compensation paid to such Authorized
Dealers and to the Distributor, including the compensation paid at the time of
purchase, the quarterly payments, any additional incentives paid from time to
time and the EWC, if any, will not in the aggregate exceed the applicable limit
(currently 8.5%) imposed by the National Association of Securities Dealers (the
"NASD"), unless the approval of the NASD has been received.
The principal executive offices of the Fund will be located at 9301
Corbin Avenue, Suite 333, Northridge, CA 91324 until on or about March 20, 1998
and thereafter will be located at 601 West Main Avenue, Suite 300, Spokane,
Washington 99201.
Reference is hereby made to Section 9 of this Offer to Purchase and
the financial statements attached hereto as Exhibit A which are incorporated
herein by reference.
14. ADDITIONAL INFORMATION.
The Fund has filed an Issuer Tender Offer Statement on Schedule 13E-4
with the Securities and Exchange Commission (the "Commission") which includes
certain additional information relating to the Offer. Such material may be
inspected and copied at prescribed rates at the Commission's public reference
facilities at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549
and 5670 Wilshire Boulevard, 11th Floor, Los Angeles, CA 90036-3648. Copies of
such material may also be obtained by mail at prescribed rates from the Public
Reference Branch of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549.
15. CERTAIN FEDERAL INCOME TAX CONSEQUENCES.
The following discussion is a general summary of the federal income
tax consequences of a sale of Class A Common Shares pursuant to the Offer.
Shareholders should consult their own tax advisers regarding the tax
consequences of a sale of Class A Common Shares pursuant to the Offer, as well
as the effects of state, local and foreign tax laws.
The sale of Class A Common Shares pursuant to the Offer will be a
taxable transaction for federal income tax purposes, either as a "sale or
exchange," or, under certain circumstances, as a "dividend." Under Section
302(b) of the
13
<PAGE> 14
Internal Revenue Code of 1986, as amended (the "Code"), a sale of Class A Common
Shares pursuant to the Offer generally will be treated as a "sale or exchange"
if the receipt of cash: (a) results in a "complete termination" of the
shareholder's interest in the Fund, (b) is "substantially disproportionate" with
respect to the shareholder, or (c) is "not essentially equivalent to a dividend"
with respect to the shareholder. In determining whether any of these tests has
been met, Class A Common Shares actually owned, as well as Class A Common Shares
considered to be owned by the shareholder by reason of certain constructive
ownership rules set forth in Section 318 of the Code, generally must be taken
into account. If any of these three tests for "sale or exchange" treatment is
met, a shareholder will recognize gain or loss equal to the difference between
the amount of cash received pursuant to the Offer and the tax basis of the Class
A Common Shares sold. If such Class A Common Shares are held as a capital asset,
the gain or loss will be a capital gain or loss.
Any such gain will be "28% Rate Gain," subject to a maximum 28%
capital gains tax rate, if such Class A Common Shares have been held for more
than one year but not more than 18 months, and a "20% Rate Gain," generally
subject to a maximum 20% capital gains tax rate (10% for shareholders in the 15%
tax bracket), if the shares have been held for more than 18 months. Any loss
realized upon a taxable sale or exchange of Class A Common Shares held for six
months or less will be treated as a long-term capital loss to the extent of any
capital gain dividends received with respect to such Class A Common Shares. For
purposes of determining whether Class A Common Shares have been held for six
months or less, the holding period is suspended for any periods during which a
Shareholder's risk of loss is diminished as a result of holding one or more
other positions in substantially similar or related property or through certain
options or short sales.
If none of the tests set forth in Section 302(b) of the Code is met,
amounts received by a shareholder who sells Class A Common Shares pursuant to
the Offer will be taxable to the shareholder as a "dividend" to the extent of
such shareholder's allocable share of the Fund's current or accumulated earnings
and profits, and the excess of such amounts received over the portion that is
taxable as a dividend would constitute a non-taxable return of capital (to the
extent of the shareholder's tax basis in the Class A Common Shares sold pursuant
to the Offer) and any amounts in excess of the shareholder's tax basis would
constitute taxable gain. Thus, a shareholder's tax basis in the Class A Common
Shares sold will not reduce the amount of the "dividend." Any remaining tax
basis in the Class A Common Shares tendered to the Fund will be transferred to
any remaining Class A Common Shares held by such shareholder. In addition, if a
tender of Class A Common Shares is treated as a "dividend" to a tendering
shareholder, a constructive dividend under Section 305(c) of the Code may
result to a non-tendering shareholder whose proportionate interest in the
earnings and profits or assets of the Fund has been increased by such tender.
16. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENTS.
The Fund reserves the right, at any time and from time to time, to
extend the period of time during which the Offer is pending by making a public
announcement thereof. In the event that the Fund so elects to extend the tender
period, the Purchase Price for the Class A Common Shares tendered will be
determined as of 2:00 PM Pacific Standard Time on the Expiration Date, as
extended, and the Offer will terminate as of 6:00 PM Pacific Standard Time on
the Expiration Date, as extended. During any such extension, all Class A Common
Shares previously tendered and not purchased or withdrawn will remain subject to
the Offer. Holders of Class A Common Shares may tender or withdraw previously
tendered shares to the Administrator at the address set forth on page 2 of this
Offer to Purchase by written, telegraphed, telex or facsimile transmission of a
notice of withdrawal prior to the Expiration Date. The Fund also reserves the
right, at any time and from time to time up to and including the Expiration
Date, to (a) terminate the Offer and not to purchase or pay for any Class A
Common Shares or, subject to applicable law, postpone payment for Class A Common
Shares upon the occurrence of any of the conditions specified in Section 6, and
(b) amend the Offer in any respect by making a public announcement thereof. Such
public announcement will be issued no later than 9:00 AM Pacific Standard Time
on the next business day after the previously scheduled Expiration Date and will
disclose the approximate number of Class A Common Shares tendered as of that
date. Without limiting the manner in which the Fund may choose to make a public
announcement of extension, termination or amendment, except as provided by
applicable law (including Rule 13e-4(e) (2)), the Fund shall have no obligation
to publish, advertise or otherwise communicate any such public announcement,
other than by making a release to the Dow Jones News Service.
If the Fund materially changes the terms of the Offer or the
information concerning the Offer, or if it waives a material condition of the
Offer, the Fund will extend the Offer to the extent required by Rule 13e-4
promulgated under the Exchange Act. These rules require that the minimum period
during which an offer must remain open following material changes in the terms
of the offer or information concerning the offer (other than a change in price
or a change in percentage of securities sought) will depend on the facts and
circumstances, including the relative materiality of such terms or information.
If (i) the Fund increases or decreases the price to be paid for Class A Common
Shares, or the Fund increases the number of Class A Common Shares being sought
by an amount exceeding 2% of the outstanding Class A Common Shares, or the Fund
decreases the number of Class A Common Shares being sought and (ii) the Offer is
scheduled to expire at any time earlier than the expiration of a period ending
on the tenth business day from, and
14
<PAGE> 15
including, the date that notice of such increase or decrease is first published,
sent or given, the Offer will be extended at least until the expiration of such
period of ten business days.
17. MISCELLANEOUS.
The Offer is not being made to, nor will the Fund accept tenders from,
owners of Class A Common Shares in any jurisdiction in which the Offer or its
acceptance would not comply with the securities or Blue Sky laws of such
jurisdiction. The Fund is not aware of any jurisdiction in which the making of
the Offer or the tender of Class A Common Shares would not be in compliance
with the laws of such jurisdiction. However, the Fund reserves the right to
exclude holders in any jurisdiction in which it is asserted that the Offer
cannot lawfully be made. So long as the Fund makes a good-faith effort to comply
with any state law deemed applicable to the Offer, the Fund believes that the
exclusion of holders residing in such jurisdiction is permitted under Rule
13e-4(f)(9) promulgated under the Exchange Act. In any jurisdiction the
securities or Blue Sky laws of which require the Offer to be made by a licensed
broker or dealer, the Offer shall be deemed to be made on the Fund's behalf by
one or more registered brokers or dealers licensed under the laws of such
jurisdiction.
March 3, 1998 SIERRA PRIME INCOME FUND
15
<PAGE> 16
Exhibit A
SIERRA PRIME INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997 (UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Investments, at value (Cost $7,983,617) (Note 2)
See portfolio of investments......................................................... $ 7,984,596
Receivable for investment securities sold............................................... 37,467
Interest receivable..................................................................... 32,111
Unamortized organization costs (Note 7)................................................. 152,634
Receivable from investment advisor (Note 3)............................................. 23,857
Other assets............................................................................ 455
---------------
Total Assets......................................................................... 8,231,120
---------------
LIABILITIES
Due to Custodian........................................................................ 9,913
Deferred facility fees (Note 2)......................................................... 742
Dividends payable....................................................................... 23,303
Administration fee payable (Note 3)..................................................... 1,720
Accrued legal........................................................................... 21,843
Accrued audit fees...................................................................... 8,766
Accrued Trustees' fees and expenses..................................................... 17,120
Accrued expenses and other payables (Note 3)............................................ 26,231
---------------
Total Liabilities.................................................................... 109,638
---------------
NET ASSETS.............................................................................. $ 8,121,482
===============
NET ASSETS CONSIST OF:
Paid in capital......................................................................... 8,114,671
Undistributed net investment income..................................................... 5,832
Net unrealized appreciation of investments.............................................. 979
---------------
NET ASSETS........................................................................... $ 8,121,482
===============
Class A Common Shares Outstanding....................................................... 811,985
===============
Net asset value per share of beneficial
interest outstanding*................................................................ $ 10.00
===============
Maximum sales charge.................................................................... 4.5%
Maximum offering price per share of
beneficial interest outstanding ($10.00/0.955)....................................... $ 10.47
===============
</TABLE>
- ----------------------------
* Redemption price per share is equal to Net Asset Value less any applicable
contingent deferred sales charge.
See Notes to Financial Statements.
A-1
<PAGE> 17
SIERRA PRIME INCOME FUND
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED DECEMBER 31, 1997 (UNAUDITED)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest................................................................................ $ 139,184
Fees (Note 2)........................................................................... 348
---------------
Total Investment Income.............................................................. 139,532
---------------
EXPENSES:
Investment advisory fee (Note 3)........................................................ 19,418
Administration fee (Note 3)............................................................. 5,110
Audit fees.............................................................................. 8,066
Legal fees.............................................................................. 15,390
Tender offer expenses (Note 5).......................................................... 201
Trustees' fees and expenses (Note 3).................................................... 15,155
Registration and filing fees............................................................ 1,103
Amortization of organization costs (Note 7)............................................. 12,311
Printing and postage.................................................................... 8,424
Other................................................................................... 2,117
---------------
87,295
Fees waived and expenses absorbed
by investment advisor (Note 3)....................................................... (87,295)
---------------
Net expenses......................................................................... 0
---------------
NET INVESTMENT INCOME................................................................... 139,532
---------------
NET UNREALIZED LOSS
ON INVESTMENTS (NOTES 2 AND 4):
Net change in unrealized depreciation of securities..................................... (472)
---------------
Net unrealized loss on investments...................................................... (472)
---------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS............................................................ $ 139,060
===============
</TABLE>
See Notes to Financial Statements.
A-2
<PAGE> 18
SIERRA PRIME INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE PERIOD
ENDED YEAR
DECEMBER 31, 1997 ENDED
(UNAUDITED) SEPTEMBER 30, 1997
----------------- ------------------
<S> <C> <C>
Net investment income............................................ $ 139,532 $ 768,608
Net realized gain from investment transactions................... 0 527
Net change in unrealized depreciation of securities.............. (472) (4,866)
------------- -------------
Net increase in net assets resulting from operations............. 139,060 764,269
------------- -------------
Distributions to shareholders from net investment income:
Class A Common Shares.......................................... (139,005) (768,608)
Distributions to shareholders from net realized gains on investments:
Class A Common Shares.......................................... (527) 0
Net decrease in net assets from Fund share transactions:
Class A Common Shares.......................................... (302,341) (4,104,901)
------------- -------------
Net decrease in net assets....................................... (302,813) (4,109,240)
------------- -------------
NET ASSETS:
Beginning of year................................................ 8,424,295 12,533,535
------------- -------------
End of period.................................................... $ 8,121,482 $ 8,424,295
============= =============
(includes undistributed net investment income
of $5,832 and $5,305, respectively)
CAPITAL STOCK ACTIVITY:
AMOUNT
Sold........................................................... $ 77,854 $ 507,414
Issued as reinvestment of dividends............................ 70,175 425,453
Repurchased.................................................... (450,370) (5,037,768)
------------- -------------
Net decrease................................................... $ (302,341) $ (4,104,901)
============= =============
SHARES
Sold........................................................... 7,789 50,711
Issued as reinvestment of dividends............................ 7,017 42,537
Repurchased.................................................... (45,037) (503,732)
------------- -------------
Net decrease................................................... (30,231) (410,484)
============= =============
</TABLE>
See Notes to Financial Statements.
A-3
<PAGE> 19
SIERRA PRIME INCOME FUND
STATEMENT OF CASH FLOWS
FOR THE PERIOD ENDED DECEMBER 31, 1997 (UNAUDITED)
<TABLE>
<S> <C>
Cash flows from operating activities:
Interest income received (excluding net
amortization of discount of $63,011)................................ $ 73,470
Payment of operating expenses....................................... (20,665)
Proceeds from sales of long-term securities......................... 1,087,534
Purchases of long-term securities................................... (195,000)
Net purchases of short-term investments............................. (526,292)
---------------
CASH PROVIDED BY OPERATING ACTIVITIES.................................... $ 419,047
Cash flows from financing activities:
Proceeds from shares sold........................................... 77,854
Payments on shares repurchased...................................... (450,370)
Distributions paid*................................................. (69,526)
Due to Custodian.................................................... 9,913
---------------
CASH USED FOR FINANCING ACTIVITIES....................................... (432,129)
---------------
Decrease in cash......................................................... (13,082)
Cash at beginning of period.............................................. 13,082
---------------
Cash at end of period.................................................... $ 0
===============
RECONCILIATION OF NET INCREASE IN NET ASSETS FROM OPERATIONS
TO CASH PROVIDED BY OPERATING ACTIVITIES:
Net increase in net assets resulting from operations................ $ 139,060
Decrease in investments**........................................ $ 341,170
Increase in interest receivable.................................. (2,703)
Increase in receivable for investment securities sold............ (37,467)
Decrease in unamortized organization costs....................... 12,311
Increase in other assets......................................... (13,930)
Decrease in accrued expenses..................................... (19,046)
Decrease in deferred facility fees............................... (348)
--------------
Total adjustments........................................ 279,987
---------------
CASH PROVIDED BY OPERATING ACTIVITIES.................................... $ 419,047
===============
</TABLE>
- ----------------------------
* Non cash activities include reinvestment of dividends of $70,175 ** Includes
unrealized appreciation of $979.
See Notes to Financial Statements.
A-4
<PAGE> 20
SIERRA PRIME INCOME FUND
FINANCIAL HIGHLIGHTS
FOR A FUND SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
PERIOD ENDED YEAR PERIOD
DECEMBER 31, 1997 ENDED ENDED
(UNAUDITED) SEPTEMBER 30, 1997 SEPTEMBER 30, 1996*
----------------- ------------------ -------------------
<S> <C> <C> <C>
Net asset value, beginning of period................ $ 10.00 $ 10.01 $ 10.00
------------ ------------ ------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............................... .17 .71 .40
Net realized and unrealized
gain/(loss) on investments....................... .00 (.01) .01
------------- ------------ ------------
Total from investment operations.................... .17 .70 .41
------------ ------------ ------------
LESS DISTRIBUTIONS:
Dividends from net investment income................ (.17) (.71) (.40)
------------ ------------ ------------
Total distributions................................. (.17) (.71) (.40)
------------ ------------ ------------
Net asset value, end of period...................... $ 10.00 $ 10.00 $ 10.01
============ ============ ============
Total return +...................................... 1.73% 7.25% 4.19%
============ ============ ============
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)................ $ 8,121 $ 8,424 $ 12,534
Ratio of operating expenses to average net assets... 0.00%** 0.00% 0.00%**
Ratio of net investment income to average net assets 6.83%** 7.11% 6.72%**
Portfolio turnover rate............................. 6% 17% 44%
Ratio of operating expenses to average net assets
without fees waived and expenses absorbed by
investment advisor............................... 4.27% 4.56% 4.75%
Net investment income per share without fees waived
and expenses absorbed by investment advisor...... $ 0.06 $ 0.26 $ 0.12
</TABLE>
- ----------------------------
* Sierra Prime Income Fund commenced operations on February 16, 1996.
** Annualized.
+ Total return represents aggregate total return for the period indicated. The
total return would have been lower if certain fees and expenses had not been
waived and absorbed by the investment advisor.
A-5
<PAGE> 21
SIERRA PRIME INCOME FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Principal Loan Stated
Amount Borrower Rate* Type Maturity** Value
--------- -------- ----- ---- ---------- -----
<S> <C> <C> <C> <C> <C>
SENIOR LOAN INTERESTS--33.2%
CABLE--4.0%
$ 328,555 Marcus Cable Operating Company, L.P. 7.101% Term 12/31/2002 $ 328,562
-----------
ENTERTAINMENT--7.5%
183,750 AMF Group, Inc.......................... 7.688 Term 03/31/2002 183,750
422,830 AMF Group, Inc.......................... 7.938 Term 03/31/2003 422,830
-----------
606,580
FOOD & BEVERAGES--4.3%
352,333 Stroh Brewery Company................... 8.500 Term 06/30/2001 352,937
-----------
FOOD STORES--4.9%
397,969 Carr-Gottstein Foods.................... 8.854 Term 12/31/2002 397,977
-----------
HEALTHCARE--4.3%
345,530 Merit Behavioral Care Corporation....... 7.938 Term 03/11/2007 345,612
-----------
PAPER--8.2%
153,266 Jefferson Smurfit Corporation........... 8.500 Term 04/30/2001 153,296
117,111 Stone Container Corporation............. 9.000 Term 04/01/2000 117,122
397,970 Stone Container Corporation............. 9.250 Term 10/01/2003 398,207
-----------
668,625
Total Senior Loan Interests (cost $2,699,314)........................... 2,700,293
-----------
U.S. GOVERNMENT AGENCY DISCOUNT NOTES--65.1% (cost $5,284,303)
5,285,000 Federal Home Loan Bank (FHLB)
4.750%, due 01/02/1998.............................................. 5,284,303
-----------
TOTAL INVESTMENTS (Cost $7,983,617+)........................ 98.3% 7,984,596
OTHER ASSETS AND LIABILITIES (Net).......................... 1.7 136,886
------
NET ASSETS.................................................. 100.0% $ 8,121,482
====== ===========
</TABLE>
See Notes to Financial Statements.
A-6
<PAGE> 22
SIERRA PRIME INCOME FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997 (UNAUDITED)
* 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 December 31, 1997.
** Senior loans in the Sierra Prime Income Fund's portfolio generally are
subject to mandatory and/or optional prepayment. Because of these mandatory
prepayment conditions and because there may be significant economic incentives
for a Borrower to prepay, prepayments of senior loans in the Fund's portfolio
may occur. As a result, the actual remaining maturity of senior loans held in
the Fund's portfolio may be substantially less than the stated maturities shown.
Although the Fund is unable to accurately estimate the actual remaining maturity
of individual senior loans, the Fund estimates that the actual average maturity
of the senior loans held in its portfolio will be approximately 18-24 months.
+ At December 31, 1997, the aggregate cost for federal tax purposes was
$7,983,617. The gross unrealized appreciation for all securities in which there
is an excess of value over tax cost was $979.
See Notes to Financial Statements.
A-7
<PAGE> 23
SIERRA PRIME INCOME FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. ORGANIZATION AND BUSINESS
Sierra Prime Income Fund (the "Fund") is registered under the Investment Company
Act of 1940, as amended ("1940 Act"), as a non-diversified, closed-end
management investment company. The Fund was organized as a Massachusetts
business trust on October 4, 1995. During the period October 4, 1995 to February
15, 1996, the Fund had no operations other than those related to organizational
matters, including the initial capital contribution of $100,000 and the issuance
of 10,000 shares of beneficial interest to Sierra Fund Administration
Corporation.
The Trustees of the Fund authorized an unlimited number of Common Shares with
separate classes of beneficial interest. Currently there are only Class A Common
Shares. Shares are continuously offered at a price equal to the next determined
net asset value ("NAV") per share plus a maximum sales charge based on a
determined schedule.
2. SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies consistently followed by the Sierra Prime Income
Fund in the preparation of its financial statements.
Portfolio Valuation:
Senior Loans are not actively traded in a public market. Sierra Investment
Advisors Corporation (the "Advisor"), and Van Kampen American Capital Management
Inc. (the "Sub-Advisor"), following procedures established by the Fund's Board
of Trustees, value the Senior Loan interests held by the Fund at fair value. In
valuing a Senior Loan interest, the Advisor and Sub-Advisor consider relevant
factors, data and information, including: (i) the characteristics of and
fundamental analytical data relating to the Senior Loan, including the cost,
size, current interest rate, period until next interest rate reset, maturity and
base lending rate of the Senior Loan interest, the terms and conditions of the
Senior Loan and any related agreements, and the position of the Senior Loan in
the Borrower's debt structure; (ii) the nature, adequacy and value of the
collateral, including the Fund's rights, remedies and interests with respect to
the collateral; (iii) the creditworthiness of the Borrower's business, cash
flows, capital structure and future prospects; (iv) information relating to the
market for Senior Loans, including price quotations for (if considered reliable)
and trading in Senior Loans and interests in similar Loans; (v) the reputation
and financial condition of the Agent and any Intermediate Participants in the
Senior Loans; and (vi) general economic and market conditions affecting the fair
value of Senior Loans.
Other Fund holdings (other than short term obligations, but including listed
issues) are valued on the basis of prices furnished by one or more pricing
services which determine prices for normal, institutional-size trading units of
such securities using market information, transactions for comparable securities
and various relationships between securities which are generally recognized by
institutional traders. In certain circumstances, portfolio securities will be
valued at the last sale price on the exchange that is the primary market for
such securities, or the average of the last quoted bid price and asked price for
those securities for which the over-the-counter market is the primary market or
for listed securities in which there were no sales during the day.
A-8
<PAGE> 24
SIERRA PRIME INCOME FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Short-term obligations which mature in 60 days or less are valued at amortized
cost, if their original term to maturity when acquired by the Fund was 60 days
or less, or are valued at amortized cost using their value on the 61st day prior
to maturity, if their original term to maturity when acquired by the Fund was
more than 60 days, unless in each case this is determined not to represent fair
value. Repurchase agreements will be valued by the Fund at cost plus accrued
interest. Securities for which there exist no price quotations or valuations and
all other assets are valued at fair value as determined in good faith by or on
behalf of the Board of Trustees.
Illiquid Investments:
Senior Loans in which the Fund invests 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 December 31, 1997. The Fund issues its shares, invests in
securities, and makes distributions from net investment income and net capital
gains (which are either paid in cash or reinvested at the discretion of
shareholders). These activities are reported in the Statement of Changes in Net
Assets. Information on cash receipts and payments is presented in the Statement
of Cash Flows.
Repurchase Agreements:
The Fund may enter into repurchase agreements (a purchase of, and a simultaneous
commitment to resell, a financial instrument at an agreed upon price on an
agreed upon date) only with member banks of the Federal Reserve System and
member firms of the New York Stock Exchange. When participating in repurchase
agreements, the Fund buys securities from a vendor (e.g., a bank or brokerage
firm) with the agreement that the vendor will repurchase the securities at a
higher price at a later date. Such transactions afford an opportunity for the
Fund to earn a return on available cash at minimal market risk, although the
Fund may be subject to various delays and risks of loss if the vendor is unable
to meet its obligation to repurchase. Under the 1940 Act, repurchase agreements
are deemed to be collateralized loans of money by the Fund to the seller. In
evaluating whether to enter into a repurchase agreement, the Advisor will
consider carefully the creditworthiness of the vendor. If the member bank or
member firm that is the party to the repurchase agreement petitions for
bankruptcy or otherwise becomes subject to the
A-9
<PAGE> 25
SIERRA PRIME INCOME FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
U.S. Bankruptcy Code, the law regarding the rights of the Fund is unsettled. The
securities underlying a repurchase agreement will be marked to market every
business day so that the value of the collateral is at least equal to the value
of the loan, including the accrued interest thereon, and the Advisor will
monitor the value or the collateral. No specific limitations exists as to the
percentage of the Fund's assets which may be used to participate in repurchase
agreements.
Securities Transactions and Investment Income:
Securities transactions are recorded on trade date (the date the order to buy or
sell is executed). Realized gains and losses from securities sold are recorded
on the identified cost basis. Income is recorded on the accrual basis and
consists of interest accrued and discount earned less premiums amortized.
Facility fees are received upon the purchase of a new loan and are recognized as
income ratably over the expected life of the loan. The deferred facility fees
are the "unearned" portion of these facility fees. The Fund may purchase and
sell interest in Senior Loans and other portfolio securities on a "when issued"
and "delayed delivery" basis. No income accrues to the Fund on such interests or
securities in connection with such purchase transactions prior to the date the
Fund actually takes delivery of such interest or securities. When the Fund is
the buyer in such a transaction, however, it will maintain, in a segregated
account with its custodian, cash or high-grade portfolio securities having an
aggregate value equal to the amount of such purchase commitments until payment
is made.
Dividends and Distributions to Shareholders:
The Fund's policy is to declare daily and pay monthly distributions to holders
of Class A Common Shares of substantially all net investment income of the Fund.
Distributions of any net long-term capital gains earned by the Fund are made
annually. Distributions of any net short-term capital gains earned by the Fund
are distributed no less frequently than annually at the discretion of the Board
of Trustees. Additional distributions of net investment income and capital gains
for the Fund may be made at the discretion of the Board of Trustees in order to
avoid the application of a 4% non-deductible excise tax on certain undistributed
amounts of ordinary income and capital gains. Income distributions and capital
gain distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
differences are primarily due to differing treatments of income and gains on
various investment securities held by the Fund, timing differences and differing
characterization of distributions made by the Fund.
Federal Income Taxes:
It is the Fund's policy to qualify as a regulated investment company by
complying with the requirements of the Internal Revenue Code of 1986, as
amended, applicable to regulated investment companies and by, among other
things, distributing substantially all of its taxable earnings to its
shareholders. Therefore, no Federal income tax provision is required.
3. INVESTMENT ADVISORY, SUB-ADVISORY, ADMINISTRATION FEES AND OTHER
TRANSACTIONS
Sierra Advisors, an indirect wholly-owned subsidiary of Washington Mutual, Inc.
("WAMU"), 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 $19,418 for the period ended December 31, 1997 and have
been voluntarily waived by Sierra Advisors. Sierra Advisors pays a monthly fee
at an annual rate of 0.475% to Van Kampen American Capital Management Inc. for
services rendered as the Sub-Advisor.
A-10
<PAGE> 26
SIERRA PRIME INCOME FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Sierra Fund Administration Corporation ("Sierra Administration") is the Fund's
administrator. Sierra Administration receives a monthly fee at an annual rate of
0.25% of the Fund's average daily net assets and the Fund pays First Data
Investor Services Group, Inc. ("First Data") directly for all transfer agent
services. The Administration fees for the period ended December 31, 1997 were
$5,110. 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.
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,
WAMU. The Fund pays the compensation of all other officers and Trustees of the
Fund. Trustees who are not interested persons are paid an annual fee of $5,000,
a fee of $1,000 per meeting of the Board of Trustees, a fee of $750 per
committee meeting of the Fund, and a fee of $1,000 per contract renewal meeting
of the Fund, plus expenses. The designated "Lead Trustee," because of increased
responsibilities, is paid 1 1/2 times the normal Trustee compensation for
meeting fees and retainer for the Fund, plus expenses.
Sierra Advisors has agreed to voluntarily reimburse the Fund's total operating
expenses. For period ended December 31, 1997 the total reimbursement to the Fund
was $67,877.
For the period ended December 31, 1997, Great Western Financial Securities
Corporation and Sierra Investment Services Corporation ("SISC"), both registered
broker-dealers, have received $1,620 and $251, 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 December 31,
1997 was $195,000 and $1,125,001, 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 December 31, 1997,
45,037 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.
A-11
<PAGE> 27
SIERRA PRIME INCOME FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (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 December 31, 1997, the following sets forth the selling participants with
respect to interests in Senior Loans purchased by the Fund on a participation
basis.
<TABLE>
<CAPTION>
Principal
Selling Participant Amount Value
- ------------------- ----------- -----------
<S> <C> <C>
Chase Securities Inc. 944,461 944,592
Bankers Trust 397,970 397,977
Morgan Guaranty 352,333 352,937
Lehman Commercial Paper, Inc. 397,970 398,207
----------- -----------
$ 2,092,734 $ 2,093,713
=========== ===========
</TABLE>
9. LINE OF CREDIT
Sierra Prime Income Fund and the Sierra Trust Funds participate in a $40 million
line of credit provided by Deutsche Bank AG, New York Branch (the "Bank") under
a Credit Agreement (the "Agreement") dated May 22, 1996, primarily for temporary
or emergency purposes, including the meeting of redemption requests that
otherwise might require the untimely disposition of securities. Under the
Agreement, Sierra Prime Income Fund may borrow up to $433,000 plus its pro rata
portion of any unused base commitment allocation of the other borrowers under
the Agreement. Interest is payable at one of the following rates depending on
the type of loan designated by the borrower: (i) the higher of 0.50% in excess
of the Federal Funds Rate and the prime lending rate announced by the Bank; (ii)
the New York Interbank Offered Rate (NIBOR) plus 0.35% on an annualized basis;
or (iii) the London Interbank Offered Rate (LIBOR) plus 0.35% on an annualized
basis. The Fund is charged an aggregate commitment fee computed at a rate equal
to 0.05% on an annual basis of the daily average unutilized credit balance. The
Agreement requires that the aggregate outstanding principal amount of the loan
made shall not exceed 33 1/3 % of the value of the total assets of the fund less
all liabilities and indebtedness not represented by senior securities. The Fund
currently expects, however, to limit its borrowing to an amount sufficient to
meet its tender offer purchases or 15% of its assets, whichever is greater.
During the period ended December 31, 1997, the
A-12
<PAGE> 28
SIERRA PRIME INCOME FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Fund had not borrowed under the Agreement. As of October 27, 1997, a Second
Amendment to the Agreement was signed extending the Agreement to December 31,
1997.
10. SUBSEQUENT EVENTS
The first tender offer for the fiscal year end September 30, 1998 commenced on
December 10, 1997 and expired on January 9, 1998. A total of 58,219 shares were
tendered to the Fund for repurchase.
A-13
<PAGE> 1
EXHIBIT (A)(2)
LETTER OF TRANSMITTAL
REGARDING CLASS A COMMON SHARES
OF
SIERRA PRIME INCOME FUND
TENDERED PURSUANT TO THE OFFER TO PURCHASE
DATED MARCH 3, 1998
- --------------------------------------------------------------------------------
THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 6:00 PM PACIFIC STANDARD TIME ON
APRIL 3, 1998, UNLESS THE OFFER IS EXTENDED
- --------------------------------------------------------------------------------
Ladies and Gentlemen:
The undersigned hereby tenders to the Sierra Prime Income Fund, a
non-diversified, closed-end management investment company organized as a
Massachusetts business trust (the "Fund"), the Class A Common Shares of
beneficial interest, with no par value, of the Fund (the "Class A Common
Shares") described below in Box No. 1, at a price (the "Purchase Price")
equal to the net asset value per Class A Common Share ("NAV") determined
as of 2:00 PM Pacific Standard Time on the Expiration Date (as defined in
the Offer to Purchase) in cash, upon the terms and conditions set forth in
the Offer to Purchase, dated March 3, 1998, receipt of which is hereby
acknowledged, and in this Letter of Transmittal and the Instructions
hereto (which together constitute the "Offer"). An Early Withdrawal Charge
or "EWC" (as defined in the Offer to Purchase) may be imposed on certain
Class A Common Shares accepted for payment which have been held for less
than two years.
Subject to and effective upon acceptance for payment of the Class A
Common Shares tendered hereby in accordance with the terms of the Offer
(including, if the Offer is extended or amended, the terms or conditions
of any such extension or amendment), the undersigned hereby sells, assigns
and transfers to or upon the order of the Fund all right, title and
interest in and to all Class A Common Shares tendered hereby that are
purchased pursuant to the Offer and hereby irrevocably constitutes and
appoints WM Shareholder Services, Inc. (the "Transfer Agent") as
attorney-in-fact of the undersigned with respect to such Class A Common
Shares, with full power of substitution (such power of attorney being
deemed to be an irrevocable power coupled with an interest), to (a)
transfer ownership of such Class A Common Shares on the Fund's books,
together with all accompanying evidences of transfer and authenticity, to
or upon the order of the Fund, upon receipt by the Transfer Agent, as the
undersigned's agent, of the NAV per Common Share with respect to such
Class A Common Shares; (b) deduct from the Purchase Price deposited with
the Transfer Agent any applicable Early Withdrawal Charge and remit such
charge to Sierra Investment Services Corporation; and (c) receive all
benefits and otherwise exercise all rights of beneficial ownership of such
Class A Common Shares, subject to the next paragraph, all in accordance
with the terms of the Offer.
The undersigned hereby represents and warrants that: (a) the
undersigned has a "net long position" in the Class A Common Shares
tendered hereby within the meaning of Rule 14e-4 promulgated under the
Securities Act of 1934, as amended, and has full power and authority to
validly tender, sell, assign and transfer the Class A Common Shares
tendered hereby; (b) when and to the extent the Fund accepts the Class A
Common Shares for purchase, the Fund will acquire good, marketable and
unencumbered title to them, free and clear of all security interests,
liens, charges, encumbrances, conditional sales agreements or other
obligations relating to their sale or transfer, and not subject to any
adverse claim; (c) on request, the undersigned will execute and deliver
any additional documents the Transfer Agent or the Fund deems necessary or
desirable to complete the assignment, transfer and purchase of the Class A
Common Shares tendered hereby; and (d) the undersigned has read and agrees
to all of the terms of this Offer.
The names and addresses of the registered owners should be printed,
if they are not already printed, in Box 1 as they appear on the
registration of the Class A Common Shares. The number of Class A Common
Shares that the undersigned wishes to tender should be indicated in Box
No. 1, which number may be determined by indicating in Option B of such
box the dollar amount of proceeds the undersigned desires to
<PAGE> 2
receive pursuant to the tender offer after any applicable Early Withdrawal
Charge ("EWC") has been deducted from such proceeds.
The undersigned recognizes that under certain circumstances set forth
in the Offer to Purchase, the Fund may terminate or amend the Offer or may
not be required to purchase any of the Class A Common Shares tendered
hereby.
The undersigned understands that acceptance of Class A Common Shares
by the Fund for payment will constitute a binding agreement between the
undersigned and the Fund upon the terms and subject to the conditions of
the Offer.
The check for the Purchase Price of the tendered Class A Common
Shares purchased, minus any applicable Early Withdrawal Charge ("EWC"),
will be issued to the order of the undersigned and mailed to the address
indicated below in Box No. 1, unless otherwise indicated below in Box No.
2. Shareholders tendering Class A Common Shares shall be entitled to
receive all dividends declared on or prior to settlement following the
Expiration Date, but not yet paid, on Class A Common Shares tendered
pursuant to the Offer. The Fund will not pay interest on the Purchase
Price under any circumstances.
All authority herein conferred or agreed to be conferred shall
survive the death or incapacity of the undersigned and all obligations of
the undersigned hereunder shall be binding upon the heirs, personal
representatives, successors and assigns of the undersigned. Except as
stated in the Offer, this tender is irrevocable.
DELIVERY TO AN ADDRESS OTHER THAN THAT SHOWN BELOW DOES NOT
CONSTITUTE VALID DELIVERY.
By Mail, Hand or Courier
Sierra Fund Administration Corporation
9301 Corbin Avenue, Suite 333
Northridge, CA 91324
Attn: Sierra Prime Income Fund
FOR ADDITIONAL INFORMATION CALL:
(800) 222-5852
<PAGE> 3
This Letter of Transmittal is to be used only if the Class A Common
Shares to be tendered are registered in the shareholders' name and the
necessary documents will be transmitted to the Administrator by the
shareholder or his broker, dealer or other Authorized Dealer. Do not use
this form if a broker, dealer or other Authorized Dealer is the registered
owner of the Class A Common Shares and is effecting the transaction for
the shareholder.
To ensure processing of your request, this Letter of Transmittal or a
manually signed facsimile of it (together with all other required
documents) must be received by the Administrator on or before the
Expiration Date (April 3, 1998).
<TABLE>
BOX NO. 1: SHAREHOLDER INFORMATION
- ---------------------------------------------------------------------------------------------------------------------------
Name and Address of Registered Owner Shareholder Information
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
PLEASE PROVIDE: Social Security No.
---------------------------------
CAESAR ACCOUNT NO.:
-----------------------------
SIERRA ACCOUNT NO.:
-----------------------------
CHECK ONE OF THE FOLLOWING AND FILL
IN THE APPROPRIATE AMOUNT
OPTION A: [ ] I hereby tender ________ Class A Common Shares of the Fund. I understand that an Early Withdrawal
Charge may be imposed on certain Class A Common Shares accepted for payment that have been held for less
than two years and that such charge, if any, will be deducted from the proceeds from such Class A Common
Shares. (See Instruction 3 and 4).
OR
OPTION B: [ ] I hereby tender that certain number of Class A Common Shares of the Fund necessary to receive $__________
from the Fund after the Early Withdrawal Charge, if applicable, has been deducted from the proceeds from
such Class A Common Shares. (See Instruction 3 and 4).
- ----------------------------------------------------------------------------------------------------------------------------
PLEASE NOTE: If the account indicated by the account number in this Box No. 1 is a Sierra Prime Income Fund IRA account,
an IRA distribution form MUST be submitted with this Letter of Transmittal.
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
BOX NO. 2: SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 2, 3 AND 4)
- ---------------------------------------------------------------------------------------------------------------------------
To be completed ONLY if checks are to be sent or wired to someone other than the undersigned or are to be sent to the
undersigned at an address other than that shown above in Box No. 1
- ---------------------------------------------------------------------------------------------------------------------------
Mail check to: Wire Proceeds To: [ ] Checking [ ]Savings
(Minimum $5,000 to be wired. A $5.00 fee may be
Name(s) __________________________________ charged for each wire transfer.)
(Please Print)
Bank
Address: __________________________________ -----------------------------------------------
(Include Zip Code) (Name)
Address
----------------------------------------------
ABA Routing No.
-------------------------------------
Account No.
-----------------------------------------
(Shareholder's Bank Account No.)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 4
- --------------------------------------------------------------------------------
BOX NO. 3: SIGNATURES (SEE INSTRUCTIONS 2, 3 AND 4)
- --------------------------------------------------------------------------------
A. By signing this Letter of Transmittal, you represent that you have
read the letter printed on the other side of this page and the
Instructions enclosed herewith, which Instructions form part of the
terms and conditions of the Offer.
B. This Letter of Transmittal must be signed by the registered owner(s)
of the Class A Common Shares tendered hereby or by person(s)
authorized to become registered owner(s) by documents transmitted
herewith. If signature is by attorney-in-fact, executor,
administrator, trustee, guardian, officer of a corporation or another
acting in a fiduciary or representative capacity, please set forth
the full title and include the required legal documents. (See
Instruction 3)
C. Your signature MUST be guaranteed and you MUST complete the signature
guarantee in this Box No. 3 if (i) the value of the Class A Common
Shares tendered herewith pursuant to the Offer is greater than
$50,000, (ii) this Letter of Transmittal is signed by someone other
than the registered holder of the Class A Common Shares tendered
herewith, or (iii) you request payment for the Class A Common Shares
tendered herewith to be sent to a person other than the registered
owner of such Class A Common Shares for the benefit of such owner(s)
and/or to an address other than the registered address of the
registered owner of the Class A Common Shares. For information with
respect to what constitutes an acceptable guarantee, please see
Instruction 3(f).
D. See Instruction 8 and Form W-9 enclosed herewith regarding backup
withholding.
------------------------------------------------
------------------------------------------------
(Signature(s) of Owner(s) Exactly as Registered)
Dated _________________, 1998 Daytime Telephone Number ( ) ______________
SIGNATURE GUARANTEE (if applicable):
----------------------------------------
Bank Name
- -------------------------------------------------------------------------------
<PAGE> 5
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. DELIVERY OF LETTER OF TRANSMITTAL. THIS LETTER OF TRANSMITTAL IS TO BE USED
ONLY IF THE CLASS A COMMON SHARES TO BE TENDERED ARE REGISTERED IN THE
SHAREHOLDER'S NAME AND THE NECESSARY DOCUMENTS WILL BE TRANSMITTED TO THE
ADMINISTRATOR by the shareholder or his broker, dealer or other Authorized
Dealer. Do not use this form if a broker, dealer or other Authorized Dealer is
the registered owner of the Class A Common Shares and is effecting the
transaction for the shareholder. A PROPERLY COMPLETED AND DULY EXECUTED LETTER
OF TRANSMITTAL OR MANUALLY SIGNED FACSIMILE OF IT, ANY CERTIFICATES REPRESENTING
CLASS A COMMON SHARES TENDERED AND ANY OTHER DOCUMENTS REQUIRED BY THIS LETTER
OF TRANSMITTAL SHOULD BE MAILED OR DELIVERED TO THE ADMINISTRATOR AT THE ADDRESS
SET FORTH IN THIS LETTER OF TRANSMITTAL AND MUST BE RECEIVED BY THE
ADMINISTRATOR ON OR PRIOR TO THE EXPIRATION DATE (APRIL 3, 1998).
The method of delivery of all documents is at the election and risk of
the tendering shareholder. If delivery is by mail, registered mail with return
receipt requested, properly insured, is recommended.
The Fund will not accept any alternative, conditional or contingent
tenders. All tendering shareholders, by execution of this Letter of Transmittal
(or a manually signed facsimile of it), waive any right to receive any notice of
the acceptance of their tender.
2. COMPLETING THIS LETTER OF TRANSMITTAL. If you intend to tender any Class A
Common Shares pursuant to the Offer, please complete the Letter of Transmittal
as follows:
(a) Read the Letter of Transmittal in its entirety. By signing the
Letter of Transmittal in Box No. 3, you agree to its terms.
(b) Complete Box No. 1 by providing your Social Security Number, your
Caesar or Sierra account number and selecting and completing either
Option A or Option B.
(c) Complete Box No. 2 any check issued in the name of a person other
than the signer of the Letter of Transmittal are to be sent or wired to
someone other than such signer or to the signer at an address other than
that shown. in Box No. 1.
(d) Complete Box No. 3 in accordance with Instruction 3 set forth below.
3. SIGNATURES ON LETTER OF TRANSMITTAL, AUTHORIZATIONS AND ENDORSEMENTS.
(a) If this Letter of Transmittal is signed by the registered owner(s)
of the Class A Common Shares tendered hereby, the signatures) must
correspond exactly with the name(s) in which the Class A Common Shares
are registered.
(b) If the Class A Common Shares are held of record by two or more joint
owners, each such owner must sign this Letter of Transmittal.
(c) If any tendered Class A Common Shares are registered in different
names, it will be necessary to complete, sign and submit as many
separate Letters of Transmittal (or manually signed facsimiles of it) as
there are different registrations of Class A Common Shares.
(d) When this Letter of Transmittal is signed by the registered owner(s)
of the Class A Common Shares listed and transmitted hereby, no
endorsements representing such Class A Common Shares or separate
authorizations are required. If, however, payment is to be made to a
person other than the registered owner(s), any unpurchased Class A
Common Shares are to be registered in the name of any person other than
the registered owner(s) must be endorsed or accompanied by appropriate
authorizations, in either case signed exactly as such name(s) appear on
the registration of the Class A Common Shares and such endorsements or
authorizations must be guaranteed by an institution described in Box No.
3.
(e) If this Letter of Transmittal or any authorizations are signed by
trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing
and must submit proper evidence satisfactory to the Fund of their
authority so to act.
(f) Your signature MUST be guaranteed and you MUST complete the
signature guarantee in Box No. 3 if (i) the value of the Class A Common
Shares tendered herewith pursuant to the Offer is greater than $50,000,
(ii) this Letter of Transmittal is signed by someone other than the
registered holder of the Class A Common Shares tendered herewith, or
(iii) you request payment for the Class A Common Shares tendered
herewith to be sent to a payee other than the registered owner of such
Class A Common Shares and/or to an address other than the registered
address of the registered owner of the Class A Common Shares. An
acceptable guarantee
<PAGE> 6
is one made by a commercial bank or trust company having an office,
branch or agency in the United States, a member firm of a registered
national securities exchange, a credit union or a savings association.
The guarantee must state the words "Signature Guaranteed" along with the
name of the granting institution. Shareholders should verify with the
institution that it is an eligible guarantor prior to signing. A
guarantee from a notary public is not acceptable.
4. TRANSFER TAXES. The Fund will pay all share transfer taxes, if any, payable
on the transfer to it of Class A Common Shares purchased pursuant to the Offer.
If, however, (a) payment of the Purchase Price is to be made to any person other
than the registered owner(s), or (b) (in the circumstances permitted by the
Offer) unpurchased Class A Common Shares are to be registered in the name(s) of
any person other than the person(s) signing this Letter of Transmittal, the
amount of any transfer taxes (whether imposed on the registered owner(s) or such
other persons) payable on account of the transfer to such person(s) will be
deducted from the Purchase Price by the Transfer Agent unless satisfactory
evidence of the payment of such taxes, or exemption therefrom, is submitted.
5. IRREGULARITIES. All questions as to the validity, form, eligibility
(including time of receipt) and acceptance of any tender of Class A Common
Shares will be determined by the Fund in its sole discretion, whose
determination shall be firm and binding on all parties. The Fund reserves the
absolute right to reject any or all tenders determined by it not to be in
appropriate form or the acceptance of or payment for any Class A Common Shares
which may, in the opinion of the Fund's counsel, be unlawful. The Fund also
reserves the absolute right to waive any of the conditions of the Offer or any
defect or irregularity in tender of any particular Class A Common Shares or any
particular shareholder, and the Fund's interpretations of the terms and
conditions of the Offer (including these Instructions) will be final and binding
on all parties. Unless waived, any defects or irregularities in connection with
tenders must be cured within such time as the Fund shall determine. Tendered
Class A Common Shares will not be accepted for payment unless all defects and
irregularities have either been cured within such time or waived by the Fund.
None of the Fund, Sierra Investment Services Corporation, the Transfer Agent,
the Administrator, or any other person shall be obligated to give notice of
defects or irregularities in tenders, nor shall any of them incur any liability
for failure to give any such notice.
6. QUESTIONS AND REQUESTS FOR ASSISTANCE AND ADDITIONAL COPIES. Questions and
requests for assistance may be directed to, and additional copies of the Offer
to Purchase and this Letter of Transmittal may be obtained from Sierra
Shareholder Services located at 9301 Corbin Avenue, Suite 333, Northridge,
California 91324, or by telephoning (800) 222-5852.
7. FORM W-9. Each tendering shareholder who has not already submitted a
completed and signed Form W-9 to the Fund is required to provide the Transfer
Agent with a correct taxpayer identification number ("TIN") on Form W-9 which is
enclosed herewith. Failure to provide the information on the form may subject
the tendering shareholder to 31% federal income tax withholding on the payments
made to the shareholder or other payee with respect to Class A Common Shares
purchased pursuant to the Offer.
8. WITHHOLDING ON FOREIGN SHAREHOLDERS. The Transfer Agent will withhold federal
income taxes equal to 30% of the gross payments payable to a foreign shareholder
unless the Transfer Agent determined that a reduced rate of withholding or an
exemption from withholding is applicable. For this purpose, a foreign
shareholder is any shareholder that is not (i) a citizen or resident of the
United States, (ii) a corporation, partnership or other entity created or
organized in or under the laws of the United States or any political subdivision
thereof, or (iii) any estate or trust the income of which is subject to United
States federal income taxation regardless of the source of such income. The
Transfer Agent will determine a shareholder's status as a foreign shareholder
and eligibility for a reduced rate of, or an exemption from, withholding by
reference to the shareholder's address or statements concerning eligibility for
a reduced rate of, or exemption from, withholding unless facts and circumstances
indicate that reliance is not warranted. A foreign shareholder who has not
previously submitted the appropriate statements with respect to a reduced rate
of, or an exemption from, withholding for which such shareholder may be eligible
should consider doing so in order to avoid overwithholding. A foreign
shareholder may be eligible to obtain a refund of tax withheld if such
shareholder meets one of the three tests for capital gain or loss treatment
described in Section 15 of the Offer to Purchase or is otherwise able to
establish that no tax or a reduced amount of tax was due.
IMPORTANT: THE LETTER OF TRANSMITTAL OR A MANUALLY SIGNED FACSIMILE OF IT
(TOGETHER WITH ALL OTHER REQUIRED DOCUMENTS) MUST BE RECEIVED BY THE
ADMINISTRATOR ON OR BEFORE THE EXPIRATION DATE.
<PAGE> 1
EXHIBIT (A)(3)(i)
OFFER BY
SIERRA PRIME INCOME FUND
TO PURCHASE FOR CASH 151,223
OF ITS CLASS A COMMON SHARES AT
NET ASSET VALUE PER COMMON SHARE
March 3, 1998
To Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:
Pursuant to your request, we are enclosing herewith the material listed
below relating to the offer of Sierra Prime Income Fund (the "Fund") to purchase
up to 151,223 of its Class A Common Shares of beneficial interest with no par
value (the "Class A Common Shares") for cash at net asset value per Common Share
("NAV") determined as of 2:00 PM Pacific Standard Time on the Expiration Date
(defined below) upon the terms and subject to the conditions set forth in the
Offer to Purchase dated March 3, 1998, and in the related Letter of Transmittal
(which together constitute the "Offer"). The Offer and withdrawal rights will
expire at 6:00 PM Pacific Standard Time on April 3, 1998, unless extended (the
"Expiration Date"). An "Early Withdrawal Charge" or "EWC" may be imposed on
certain Class A Common Shares accepted for payment which have been held for less
than two years. The Offer is not conditioned upon any minimum number of Class A
Common Shares being tendered but is subject to certain conditions as set forth
in the Offer to Purchase.
If more than 151,223 Class A Common Shares are duly tendered prior to
the expiration of the Offer, the Fund presently intends (but is not obligated
to) assuming, no changes in the factors originally considered by the Board of
Trustees when it determined to make the Offer and the other conditions set forth
in the Offer, either to extend the Offer period, if necessary, and increase the
number of Class A Common Shares that the Fund is offering to purchase to an
amount which it believes will be sufficient to accommodate the excess Class A
Common Shares tendered as well as any Class A Common Shares tendered during the
extended Offer period or to purchase 151,223 Class A Common Shares (or such
greater number of Class A Common Shares sought) on a pro rata basis.
No fees or commissions will be payable to brokers, dealers or other
persons for soliciting tenders of Class A Common Shares pursuant to the Offer.
The Fund will, however, upon request, reimburse you for customary mailing and
handling expenses incurred by you in forwarding any of the enclosed materials to
those of your clients who have requested such materials. The Fund will pay all
transfer taxes on its purchase of shares, subject to Instruction 6 of the Letter
of Transmittal. However, backup tax withholding at a 31% rate may be required
unless an exemption is proved or unless the required tax identification
information is or has previously been provided. See Section 15 of the Offer to
Purchase and Instructions 10 and 11 to the Letter of Transmittal.
For your information and for forwarding to those of your clients who
have requested them, we are enclosing the following documents:
(1) Offer to Purchase dated March 3, 1998;
(2) Letter of Transmittal to be used by holders of Class A Common Shares
to tender such shares to the Administrator directly or through their
broker, dealer or other nominee who is not the registered owner,
(3) Guidelines for Certification of Taxpayer Identification Number;
(4) Letter to Clients which may be sent to your clients for whose
account you hold Class A Common Shares registered in your name (or in
the name of your nominee, with space provided for obtaining such
clients' instructions with regard to the Offer); and
1
<PAGE> 2
(5) Return envelope addressed to the Administrator.
PLEASE NOTE THAT THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 6:00 PM PACIFIC
STANDARD TIME ON APRIL 3, 1998, UNLESS THE OFFER IS EXTENDED. TO ENSURE
PROCESSING OF YOUR OR YOUR CLIENT'S REQUEST, A LETTER OF TRANSMITTAL OR A
MANUALLY SIGNED FACSIMILE OF IT (TOGETHER WITH ANY CERTIFICATES FOR CLASS A
COMMON SHARES AND ALL OTHER REQUIRED DOCUMENTS) MUST BE RECEIVED BY THE
ADMINISTRATOR ON OR BEFORE THE EXPIRATION DATE (APRIL 3, 1998).
The Offer is not being made to (nor will tenders be accepted from or on
behalf of) holders of Class A Common Shares residing in any jurisdiction in
which the making of the Offer or the acceptance thereof would not be in
compliance with the laws of such jurisdiction.
Additional copies of the enclosed material may be obtained from Sierra
Shareholder Services at the appropriate address and telephone number set forth
in the Offer to Purchase. Any questions you have with respect to the Offer
should be directed to Sierra Shareholder Services at (800) 222-5852.
Very truly yours,
SIERRA PRIME INCOME FUND
- --------------------------------------------------------------------------------
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR
ANY OTHER PERSON, THE AGENT OF THE FUND, THE ADMINISTRATOR OR THE TRANSFER AGENT
OR AUTHORIZE YOU OR ANY OTHER PERSON TO MAKE ANY STATEMENTS OR USE ANY MATERIAL
ON THEIR BEHALF WITH RESPECT TO THE OFFER, OTHER THAN THE MATERIAL ENCLOSED
HEREWITH AND THE STATEMENTS SPECIFICALLY SET FORTH IN SUCH MATERIAL.
- --------------------------------------------------------------------------------
2
<PAGE> 1
EXHIBIT (A)(3)(ii)
OFFER BY
SIERRA PRIME INCOME FUND
TO PURCHASE FOR CASH 151,223
OF ITS CLASS A COMMON SHARES AT
NET ASSET VALUE PER COMMON SHARE
To Our Clients:
Enclosed for your consideration are the Offer to Purchase, dated March
3, 1998, of Sierra Prime Income Fund (the "Fund") and related Letter of
Transmittal pursuant to which the Fund is offering to purchase up to 151,223 of
its Class A Common Shares of beneficial interest with no par value (the "Class A
Common Shares") for cash at the net asset value per Common Share ("NAV")
determined as of 2:00 PM Pacific Standard Time on the Expiration Date (defined
below) upon the terms and subject to the conditions set forth in the Offer to
Purchase and the Letter of Transmittal (which together constitute the "Offer").
An "Early Withdrawal Charge" or "EWC" may be imposed on certain Class A Common
Shares accepted for payment which have been held for less than two years.
The Offer to Purchase and the Letter of Transmittal are being forwarded
to you as the beneficial owner of Class A Common Shares held by us for your
account but not registered in your name. A tender of such shares can be made
only by us as the holder of record and only pursuant to your instructions. WE
ARE SENDING YOU THE LETTER OF TRANSMITTAL FOR YOUR INFORMATION ONLY, YOU CANNOT
USE IT TO TENDER CLASS A COMMON SHARES WE HOLD FOR YOUR ACCOUNT.
Your attention is called to the following:
(1) The tender price is the NAV per Common Share in cash
determined as of 2:00 PM Pacific Standard Time on the Expiration Date.
An "Early Withdrawal Charge" or "EWC" may be imposed on certain Class A
Common Shares accepted for payment which have been held for less than
two years.
(2) The Offer is not conditioned upon any minimum number of
Class A Common Shares being tendered, but is subject to certain
conditions set forth in the Offer to Purchase.
(3) The Offer and withdrawal rights expire at 6:00 PM Pacific
Standard Time on April 3, 1998, unless extended (the "Expiration Date").
(4) The Offer is for 151,223 Class A Common Shares, constituting
approximately 20% of the Class A Common Shares outstanding as of
February 20, 1998.
(5) Tendering shareholders will not be obligated to pay
brokerage commissions or, subject to Instruction 6 of the Letter of
Transmittal, transfer taxes on the purchase of Class A Common Shares by
the Fund pursuant to the Offer. However, a broker, dealer or Authorized
Dealer may charge a fee for processing the transaction on your behalf.
(6) If more than 151,223 Class A Common Shares are duly tendered
prior to the expiration of the Offer, the Fund presently intends (but is
under no obligation to) assuming no changes in the factors originally
considered by the Board of Trustees when it determined to make the Offer
and the other conditions set forth in the Offer, either to extend the
Offer period, if necessary, and increase the number of Class A Common
Shares that the Fund is offering to purchase to an amount which it
believes will be sufficient to accommodate the excess Class A Common
Shares tendered as well as any Common Shares, tendered during the
extended Offer period or purchase 151,223 Class A Common Shares (or such
greater number of Class A Common Shares sought) on a pro rata basis.
1
<PAGE> 2
If you wish to have us tender any or all of your Class A Common Shares,
please so instruct us by completing, executing and returning to us the attached
instruction form. An envelope to return your instructions to us is enclosed. If
you authorize us to tender your Class A Common Shares, all such Class A Common
Shares will be tendered unless you specify otherwise on the attached instruction
form. WE MUST RECEIVE YOUR INSTRUCTIONS, IF ANY, SUFFICIENTLY IN ADVANCE OF THE
EXPIRATION DATE (APRIL 3, 1998) TO PROVIDE US WITH TIME TO PROCESS SUCH
INSTRUCTIONS AND FORWARD THEM TO THE ADMINISTRATOR SO THAT THE TRANSFER AGENT
WILL RECEIVE THEM ON OR PRIOR TO SUCH EXPIRATION DATE. THE OFFER AND WITHDRAWAL
RIGHTS EXPIRE AT 6:00 PM PACIFIC STANDARD TIME ON APRIL 3, 1998, UNLESS THE
OFFER IS EXTENDED.
The Fund is not making the Offer to, nor will it accept tenders from or
on behalf of, owners of Class A Common Shares in any jurisdiction in which the
Offer or its acceptance would violate the securities, Blue Sky or other laws of
such jurisdiction. In any jurisdiction the securities or Blue Sky laws of which
require the Offer to be made by a licensed broker or dealer, the Offer shall be
deemed to be made on the Fund's behalf by one or more registered brokers or
dealers licensed under the laws of such jurisdiction.
2
<PAGE> 3
INSTRUCTIONS
WITH RESPECT TO OFFER BY
SIERRA PRIME INCOME FUND
To Purchase For Cash 151,223
Of Its Class A Common Shares At
Net Asset Value Per Common Share
THIS FORM IS NOT TO BE USED TO TENDER CLASS A COMMON SHARES DIRECTLY TO
THE ADMINISTRATOR. IT SHOULD BE SENT TO YOUR BROKER ONLY IF YOUR BROKER IS THE
HOLDER OF RECORD OF YOUR CLASS A COMMON SHARES AND WILL BE EFFECTING THE TENDER
ON YOUR BEHALF. IT SHOULD BE SENT TO SUCH BROKER SUFFICIENTLY IN ADVANCE OF THE
EXPIRATION DATE (APRIL 3, 1998) TO PROVIDE THE BROKER WITH TIME TO PROCESS THESE
INSTRUCTIONS AND FORWARD THEM TO THE ADMINISTRATOR SO THAT THE ADMINISTRATOR
WILL RECEIVE THEM ON OR PRIOR TO THE EXPIRATION DATE (APRIL 3, 1998).
The undersigned acknowledge(s) receipt of your letter and the enclosed
Offer to Purchase, dated March 3, 1998 and the related Letter of Transmittal
(which together constitute the "Offer"), in connection with the offer by Sierra
Prime Income Fund (the "Fund") to purchase 151,223 Class A Common Shares of
beneficial interest with no par value (the "Class A Common Shares") at the net
asset value per Common Share determined as of 2:00 PM Pacific Standard Time on
the Expiration Date on the terms and subject to the conditions of the Offer. The
undersigned acknowledges that an "Early Withdrawal Charge" or "EWC" may be
imposed on certain Class A Common Shares accepted for payment which have been
held for less than two years.
The undersigned hereby instructs you to tender to the Fund the number of
Class A Common Shares indicated below (or, if no number is indicated below, all
Class A Common Shares) which are held by you for the account of the undersigned,
upon the terms and subject to the conditions of the Offer.
- --------------------------------------------------------------------------------
Aggregate number of Class A Common Shares to be tendered
by you for us (fill in number below)
Class A Common Shares
- --------------------------------------------------------------------------------
3
<PAGE> 4
Unless otherwise indicated above, it will be assumed that all of the
Class A Common Shares held for the account of the undersigned are to be
tendered.
SIGNATURE(S)
- --------------------------------------------------------------------------------
..........................................................................
..........................................................................
(Signature(s) of Beneficial Owners)
..........................................................................
(Account Number)
..........................................................................
(Please print Name(s) and Addresses here)
..........................................................................
(Area Code and Telephone Number)
..........................................................................
(Tax Identification or Social Security Number)
- --------------------------------------------------------------------------------
Date , 1998
----------------------
4
<PAGE> 1
EXHIBIT (A)(3)(iii)
[SIERRA FUND ADMINISTRATION CORPORATION LETTERHEAD]
March 3, 1998
RE: SIERRA PRIME INCOME FUND
Commencement of Tender Offer
To Our Authorized Dealers:
As you may be aware, it is the policy of the Board of Trustees of the
Sierra Prime Income Fund to consider on a quarterly basis whether to make a
tender offer for the Class A Common Shares of the Fund. We are pleased to
announce that the Board has authorized a quarterly tender offer of the Fund's
shares commencing today, March 3, 1998, for the purpose of providing liquidity
to its shareholders.
The Fund is offering to purchase up to 151,223 of its Class A Common
Shares (approximately 20% of its issued and outstanding Class A Common Shares)
for cash at a price equal to the net asset value per Class A Common Shares of
the Fund determined as of 2:00 PM Pacific Standard Time on the Expiration Date
of the Offer. The Offer is scheduled to terminate as of 6:00 PM Pacific Standard
Time on April 3, 1998, the expiration date of the offer (unless extended). An
"Early Withdrawal Charge" or "EWC" may be imposed on certain Class A Common
Shares accepted for payment that have been held for less than two years.
Terms and conditions of the tender offer are contained in the Fund's
Offer to Purchase dated March 3, 1998, and the related Letter of Transmittal,
copies of which are available to you upon request.
Should you have any questions regarding the tender offer, please contact
Sierra Shareholder Services at (800) 222-5852.
Sincerely,
SIERRA FUND ADMINISTRATION CORPORATION
<PAGE> 1
EXHIBIT (A)(4)
- -----------------------------------
N 03 21
SIERRA PRIME INCOME FUND 9301 Corbin Avenue, Suite 333
Northridge, California 91324
- -----------------------------------
March, 1998
Dear Shareholder
As you requested, we are enclosing a copy of the Sierra Prime Income Fund
("Fund") Offer to Purchase 151,223 of its issued and outstanding Class A Common
Shares of beneficial interest ("Class A Common Shares") and the related Letter
of Transmittal (which together constitute the "Offer"). The Offer is for cash at
the net asset value ("NAV") per Class A Common Share determined as of 2:00 PM
Pacific Standard Time on the Expiration Date of the Offer. An "Early Withdrawal
Charge" or "EWC" may be imposed on certain Class A Common Shares accepted for
payment that have been held for less than two years. Please read carefully the
enclosed documents, as well as the Fund's most current financial statements.
If, after reviewing the information set forth in the Offer, you wish to tender
Class A Common Shares for purchase by the Fund, please contact your investment
representative or follow the instructions contained in the Offer to Purchase and
Letter of Transmittal.
Neither the Fund nor its Board of Trustees is making any recommendation to any
holder of Class A Common Shares as to whether to tender Class A Common Shares.
Each shareholder is urged to consult his or her broker or tax adviser before
deciding whether to tender any Class A Common Shares.
The Fund's NAV per Class A Common Share from February 14, 1996 through February
23, 1998 ranged from a high of $10.01 to a low of $10.00. On February 23, 1998
the NAV was $10.00 per Common Share. You can obtain current NAV quotations from
Sierra Shareholder Services by calling (800) 222-5852 between the hours of 6:00
AM and 6:00 PM Pacific Standard Time, Monday through Friday, and 6:00 AM to 3:00
PM Pacific Standard Time, on Saturday, except holidays. The Fund offers and
sells its Class A Common Shares to the public on a continuous basis. The Fund is
not aware of any secondary market trading for the Class A Common Shares.
Should you have any questions on the enclosed material, please do not hesitate
to call Sierra Shareholder Services at (800) 222-5852 during ordinary business
hours. We appreciate your continued interest in Sierra Prime Income Fund.
Sincerely,
SIERRA PRIME INCOME FUND
- --------------------------------------------------------------------------------
TO ENSURE PROCESSING OF YOUR REQUEST, A LETTER OF TRANSMITTAL OR A MANUALLY
SIGNED FACSIMILE OF IT (TOGETHER WITH ANY CERTIFICATES FOR CLASS A COMMON SHARES
AND ALL OTHER REQUIRED DOCUMENTS) MUST BE RECEIVED BY THE ADMINISTRATOR ON OR
BEFORE THE EXPIRATION DATE (APRIL 3, 1998).
- --------------------------------------------------------------------------------
Distributed by Sierra Investment Services Corporation
<PAGE> 1
EXHIBIT (C)(1)
INVESTMENT ADVISORY AGREEMENT
Investment Advisory Agreement executed as of February 14, 1996, between
SIERRA PRIME INCOME FUND, a Massachusetts business trust (the "Trust") and
SIERRA INVESTMENT ADVISORS CORPORATION, a California corporation (the
"Advisor").
Witnesseth:
That in consideration of the mutual covenants herein contained, it is
agreed as follows:
1. SERVICES TO BE RENDERED BY ADVISOR TO THE TRUST.
(a) Subject always to the control of the Board of Trustees, the
Advisor will, at its expense, furnish continuously an investment program
for the Trust, will make investment decisions on behalf of the Trust and
will, subject to the provisions of paragraph (c), place all orders for
the purchase and sale of its portfolio securities. Subject always to the
control of the Trustees, the Advisor will also manage, supervise and
conduct the other affairs and business of the Trust and matters
incidental thereto. In the performance of its duties, the Advisor will
comply with the provisions of the Agreement and Declaration of Trust,
the By-laws of the Trust and the Trust's stated investment objectives,
policies and restrictions as set forth in its Registration Statement on
Form N-2, File No. 33- 98824 and will use its best efforts to safeguard
and promote the welfare of the Trust and to comply with other policies
which the Trustees may from time to time determine.
(b) The Advisor, at its expense, will furnish all necessary
office space and equipment, bookkeeping and clerical services (excluding
securities accounting and transfer agency services) required for it to
perform its duties hereunder and will pay all salaries, fees and
expenses of Officers and Trustees of the Trust who are affiliated with
the Advisor.
(c) In the selection of banks, syndicated loan agents, brokers,
dealers, futures commissions merchants or any other sources of portfolio
investments for the Trust (hereafter, "brokers or dealers") and the
placing of orders for the purchaser and/or sale of portfolio investments
for the Trust, the Advisor shall seek to obtain the most favorable price
and execution available, except to the extent it may be permitted to pay
higher brokerage commissions for brokerage and research services as
described below. In using its best efforts to obtain for the Trust the
most favorable price and execution available, the Advisor, bearing in
mind the Trust's best interests at all times, shall consider all factors
it deems relevant, including, by way of illustration, price, the size of
the transaction, the nature of the market for the security, the amount
of the commission, the timing of the transaction taking into account
market prices and trends, the reputation, experience and financial
stability of the broker or dealer involved and the quality of service
rendered by the broker or dealer in other transactions. Subject to such
policies as the Trustees may determine, the Advisor shall not be deemed
to have acted unlawfully or to have breached any duty created by this
Contract or otherwise solely by reason of its having caused the Trust to
pay, a broker or dealer that provides brokerage and research services to
the Advisor an amount of commission for effecting a portfolio investment
transaction in excess of the amount of commission another broker or
dealer would have charged for effecting that transaction, if the Advisor
determines in good faith that such amount of commission was reasonable
in relation to the value of the brokerage and research services provided
by such broker or dealer, viewed in terms of either that particular
transaction or the Advisor's overall responsibilities with respect to
the Trust and to other clients of the Advisor as to which the Advisor
exercised investment discretion. The Trust hereby agrees with the
Advisor and with any Sub-Advisor selected by the Advisor as provided in
Section 1(d) that any entity or person associated with the Advisor or
such Sub-Advisor which is a member of a national securities exchange is
authorized to effect any transaction on such exchange for the account of
the Trust which is permitted by Section 11(a)(1)(H) of the Securities
Exchange Act of 1934 and Rule 11a2-2(T)
2
<PAGE> 2
thereunder, and the Trust hereby consents to the retention of
compensation for such transactions in accordance with Rule
11a2-2(T)(a)(2)(iv).
(d) Subject to the provisions of the Agreement and Declaration
of Trust of the Trust and the Investment Company Act of 1940, the
Advisor, at its expense, may select and contract with one or more
investment advisers (the "Sub-Adviser") for the Trust to perform some or
all of the services for which it is responsible pursuant to paragraph
(a) of this Section 1 (and any related facilities or services for which
it is responsible under paragraph (b) of this Section 1). The Advisor
will compensate any Sub-Adviser of the Trust for its services to the
Trust. The Advisor may terminate the services of any Sub-Adviser at any
time in its sole discretion, and shall at such time assume the
responsibilities of such Sub-Advisor unless and until a successor
Sub-Adviser is selected.
(e) The Advisor shall not be obligated to pay any expenses of or
for the Trust not expressly assumed by the Advisor pursuant to this
Section other than as provided in Section 3.
2. OTHER AGREEMENTS, ETC.
It is understood that any of the shareholders, Trustees officers and
employees of the Trust may be a shareholder, director, officer or employee of,
or be otherwise interested in, the Advisor, and in any person controlled by or
under common control with the Advisor, and that the Advisor and any person
controlled by or under common control with the Advisor may have an interest in
the Trust.
The Trust also understands that the Advisor now acts, will continue to
act and may act in the future as investment adviser to fiduciary and other
managed accounts and as investment adviser to one or more other investment
companies or series of investment companies, and the Trust has no objection to
the Advisor so acting, provided that whenever the Trust and one or more other
accounts or investment companies advised by the Advisor have available funds for
investment, investments suitable and appropriate for each will be allocated in
accordance with procedures believed to be equitable to each entity. Similarly,
opportunities to sell securities will be allocated in an equitable manner. The
Trust recognizes that in some cases this procedure may adversely affect the size
of the position that may be acquired or disposed of for the Trust. In addition,
the Trust understands that the persons employed by the Advisor to assist the
performance of the Advisor's duties hereunder will not devote their full time to
such services and nothing contained herein shall be deemed to limit or restrict
the right of the Advisor or any affiliate of the Advisor to engage in and devote
time and attention to other businesses or to render services of whatever kind or
nature.
3. COMPENSATION TO BE PAID BY THE TRUST TO THE ADVISOR.
The Trust will pay to the Advisor as compensation for services rendered,
for the facilities furnished and for the expenses borne by the Advisor pursuant
to Section 1, a fee, computed and paid monthly at the annual rate of .95% of the
value of the Trust's average daily net assets. Such average daily net asset
value of the Trust shall be determined by taking an average of all of the
determinations of such net asset value during such month at the close of
business on each business day during such month while this Agreement is in
effect. Such fee shall be payable for each month within five (5) business days
after the end of such month.
In the event that expenses of the Trust for any fiscal year (not
including any interest, taxes, brokerage, extraordinary expenses or distribution
expenses paid by the Trust pursuant to any distribution plan) should exceed the
expense limitation on investment company expenses enforced by any statute or
regulatory authority of any jurisdiction in which shares of the Trust are
qualified for offer and sale, the compensation due the Advisor for such fiscal
year shall be reduced by the amount of such excess by a reduction or refund
thereof. In the event that the expenses of the Trust exceed any expense
limitation which the Advisor may, by written notice to the Trust, voluntarily
declare to be effective with respect to the Trust, subject to such terms and
conditions as the Advisor may prescribe in such notice, the compensation due the
Advisor shall be reduced, and, if necessary, the Advisor shall bear the Trust's
expenses to the extent required by such expense limitation.
3
<PAGE> 3
The Advisor shall not be required to reimburse any amount in excess of
the compensation paid to it pursuant to Section 3. If the Advisor shall serve
for less than the whole of a month, the foregoing compensation shall be
prorated.
4. ASSIGNMENT TERMINATES THIS AGREEMENT; AMENDMENTS OF THIS AGREEMENT.
This Agreement shall automatically terminate, without the payment of any
penalty, in the event of its assignment; and this Agreement shall not be amended
unless such amendment is approved at a meeting by the affirmative vote of a
majority of the outstanding shares of the Trust, and by the vote, cast in person
at a meeting called for the purpose of voting on such approval, of a majority of
the Board of Trustees who are not interested persons of the Trust or of the
Advisor or of any Sub-Adviser of the Trust as defined in the Investment Company
Act of 1940, as amended .
5. EFFECTIVE PERIOD AND TERMINATION OF THIS AGREEMENT.
This Agreement shall become effective upon its execution, and shall
remain in full force and effect continuously thereafter (unless terminated
automatically as set forth in Section 4) until terminated as follows:
(a) Either party hereto may at any time terminate this Agreement
by not more than sixty days' written notice delivered or mailed by
registered mail, postage prepaid, to the other party, or
(b) If (i) the Board of Trustees or the shareholders by the
affirmative vote of a majority of the outstanding shares of the Trust,
and (ii) a majority of the Board of Trustees who are not interested
persons of the Trust or of the Advisor, as defined in the Investment
Company Act of 1940, as amended, by vote cast in person at a meeting
called for the purpose of voting on such approval, do not specifically
approve at least annually the continuance of this Agreement, then this
Agreement shall automatically terminate at the close of business on the
second anniversary of its execution, or upon the expiration of one year
from the effective date of the last such continuance, whichever is
later; provided, however, that if the continuance of this Agreement is
submitted to the shareholders of the Trust for their approval and such
shareholders fail to approve such continuance of this Agreement as
provided herein, the Advisor may continue to serve hereunder in a manner
consistent with the Investment Company Act of 1940 and the rules and
regulations thereunder.
Action by the Trust under paragraph (a) above may be taken either (i) by
vote of a majority of its Trustees, or (ii) by the affirmative vote of a
majority of the outstanding shares of the Trust.
Termination of this Agreement pursuant to this Section 5 shall be
without the payment of any penalty.
1. CERTAIN INFORMATION.
The Advisor shall promptly notify the Trust in writing of the occurrence
of any of the following events: (a) the Advisor shall fail to be registered as
an investment adviser under the Investment Company Act of 1940, as amended, from
time to time, and under the laws of any jurisdiction in which the Advisor is
required to be registered as an investment adviser in order to perform its
obligations under this Agreement, (b) the Advisor shall have been served or
otherwise have notice of any action, suit, proceeding, inquiry or investigation,
at law or in equity, before or by any court, public board or body, involving the
affairs of the Trust and (c) there shall be any change in the control of the
Advisor.
2. CERTAIN DEFINITIONS.
For the purposes of this Agreement, the "affirmative vote of a majority
of the outstanding shares" of the Trust means the affirmative vote, at a duly
called and held meeting of shareholders, (a) of the holders of 67% or more
4
<PAGE> 4
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.
3. NONLIABILITY OF ADVISOR.
The Advisor shall exercise its best judgement in rendering its services
under this Agreement. In the absence of willful misfeasance, bad faith or gross
negligence on the part of the Advisor, or reckless disregard of its obligations
and duties hereunder, the Advisor shall not be subject to any liability to the
Trust, or to any shareholder of the Trust, for any act or omission in the course
of, or connected with, rendering services hereunder.
4. USE OF NAME.
The Advisor owns the name "Sierra", which may be used by the Trust only
with the consent of the Advisor. The Advisor consents to the use by the Trust of
the name "Sierra Prime Income Fund" or any other name embodying the name
"Sierra", but only on condition and so long as (i) this Agreement shall remain
in full force, (ii) the Trust shall fully perform, fulfill and comply with all
provisions of this Agreement expressed herein to be performed, fulfilled or
complied with by it, and (iii) Sierra Investment Advisors Corporation is the
Advisor of the Trust. No such name shall be used by the Trust at any time or in
any place or for any purposes or under any conditions except as provided in this
section. The foregoing authorization by the Advisor to the Trust to use the name
"Sierra" as part of a business or name is not exclusive of the right of the
Advisor itself to use, or to authorize others to use, the same; the Trust
acknowledges and agrees that as between the Advisor and the Trust, the Advisor
has the exclusive right so to use, or authorize others to use, said name, and
the Trust agrees to take such action as may reasonably be requested by the
Advisor to give full effect to the provisions of this section (including,
without limitation, consenting to such use of said name). Without limiting the
generality of the foregoing, the Trust agrees that, upon (i) any termination of
this Agreement by either party, (ii) the violation of any of its provisions by
the Trust or (iii) termination of this Investment Advisor Agreement between the
Advisor and the Trust, the Trust will, at the request of the Advisor, within six
months after such termination or violation, use its best efforts to change the
name of the Trust so as to eliminate all reference, if any, to the name "Sierra"
and will not thereafter transact any business in a name containing the name
"Sierra" in any form or combination whatsoever, or designate itself as the same
entity as or successor to an entity of such name, or otherwise use the name
"Sierra" or any other reference to the Advisor. Such covenants on the part of
the Trust shall be binding upon it, its trustees, offices, stockholders,
creditors and all other persons claiming under or through it.
5. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS.
A copy of the Agreement and Declaration of Trust of the Trust is on file
with the Secretary of The Commonwealth of Massachusetts, and notice is hereby
given that this instrument is executed on behalf of the Trustees of the Trust,
as Trustees, and not individually and that the obligations of this instrument
are not binding upon any of the Trustee or shareholders individually but are
binding only upon the assets and property of the Trust.
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6. COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original, but such counterparts shall together,
constitute only one instrument.
IN WITNESS WHEREOF, SIERRA PRIME INCOME FUND and SIERRA INVESTMENT
ADVISORS CORPORATION have each caused this instrument to be signed in
counterparts on its behalf by its duly authorized representative, all as of the
day and year first above written.
SIERRA PRIME INCOME FUND
By /s/ Keith Pipes
-----------------------------------
Title: Executive Vice President
and Treasurer
SIERRA INVESTMENT ADVISORS
CORPORATION
By /s/ Michael D. Goth
-----------------------------------
Title: Chief Operating Officer
6
<PAGE> 1
EXHIBIT (C)(2)
INVESTMENT SUB-ADVISORY AGREEMENT
Effective as of October 31, 1996
Van Kampen American Capital Management Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Dear Sirs:
Sierra Prime Income Fund (the "Trust"), an unincorporated business trust
organized under the laws of the Commonwealth of Massachusetts, and Sierra
Investment Advisors Corporation ("Sierra Advisors"), a corporation organized
under the laws of the State of California, hereby agree with Van Kampen American
Management Inc. (the "Sub-advisor"), a corporation organized under the laws of
the State of Delaware, as follows:
1. Investment Description; Appointment
The Trust desires to employ the capital of the Trust by investing and
reinvesting in investments of the kind and in accordance with the limitations
specified in its Agreement and Declaration of Trust, as amended ("Declaration of
Trust"), and in its Prospectus and Statement of Additional Information relating
to the Trust as in effect and which may be amended from time to time, and in
such manner and to such extent as may from time to time be approved by the Board
of Trustees of the Trust. Copies of the Trust's Prospectus and Statement of
Additional Information and the Trust's Declaration of Trust, as amended or
restated, have been or will be submitted to the Sub- advisor. The Trust agrees
to provide copies of all amendments to or restatements of the Trust's Prospectus
and Statement of Additional Information and the Trust's Declaration of Trust to
the Sub-advisor on a timely and on-going basis but in all events prior to such
time as said amendments or restatements become effective. The Sub-advisor will
be entitled to rely on all such documents furnished to it by the Trust or Sierra
Advisors. The Trust desires to employ and hereby appoints the Sub-advisor to act
as investment sub-advisor to the Trust. The Sub-advisor accepts the appointment
and agrees to furnish the services described herein for the compensation set
forth below.
2. Services as Investment Sub-advisor
Subject to the supervision of the Board of Trustees of the Trust and of
Sierra Advisors, the Trust's investment advisor, the Sub-advisor will (a) act in
conformity with the Trust's Declaration of Trust, the Investment Company Act of
1940, the Investment Advisers Act of 1940 and the Internal Revenue Code of 1986,
as the same may from time to time be amended, (b) make investment decisions for
the Trust in accordance with the Trust's investment objectives and policies as
stated in the Trust's Prospectus(es) and Statement of Additional Information as
in effect and, after timely notice to the Sub-advisor, which may be amended from
time to time, (c) place purchase and sale orders on behalf of the Trust to
effectuate the investment decisions made, (d) maintain books and records with
respect to the securities transactions of the Trust and will furnish the Trust's
Board of Trustees such periodic, regular and special reports as the Board may
reasonably request; and (e) treat confidentially and as proprietary information
of the Trust, all records and other information specifically relative to the
Trust and prior, present or potential shareholders; and will not use such
records and information for any purpose other than performance of its
responsibilities and duties hereunder, except after prior notification to and
approval in writing by the Trust, which approval shall not be unreasonably
withheld or delayed and such records may not be withheld where the Sub-advisor
is subject to audit by the U.S. Securities and Exchange Commission or other
regulatory, administrative or judicial proceeding or audit or where the
Sub-advisor may be exposed to civil or criminal contempt proceedings for failure
to comply, when requested to divulge such information
1
<PAGE> 2
by duly constituted authorities, or when so requested by the Trust. In providing
those services, the Sub-advisor will supervise the Trust's investments and
conduct a continual program of investment, evaluation and, if appropriate, sale
and reinvestment of the Trust's assets. In addition, the Sub-advisor will
furnish the Trust or Sierra Advisors with whatever statistical information the
Trust or Sierra Advisors may reasonably request with respect to the instruments
that the Trust may hold or contemplate purchasing.
3. Brokerage
In executing transactions for the Trust and selecting banks, syndicated
loan agents, brokers or dealers (hereinafter referred to as "brokers or
dealers"), the Sub-advisor will use its best efforts to seek the best overall
terms available and shall execute or direct the execution of all such
transactions in a manner permitted by law and in a manner that is in the best
interest of the Trust and its shareholders. In assessing the best overall terms
available for any Trust transaction, with respect to the lenders from whom the
Trust will purchase assignments and participations in Senior Loans the
Sub-advisor will consider all factors it deems relevant including, but not
limited to their professional ability, level of service, relationship with the
borrower, financial condition, credit standards and quality of management. With
respect to investments other than Senior Loans, the Sub-advisor will consider
all factors it deems relevant including, but not limited to, breadth of the
market in the security, the price of the security, the financial condition and
execution capability of the broker or dealer and the reasonableness of any
commission for the specific transaction and on a continuing basis. Pursuant to
its investment determinations for the Trust, in placing orders with brokers or
dealers, the Sub-advisor will attempt to obtain the best net price and the most
favorable execution of its orders. Consistent with this obligation, when the
execution and price offered by two or more brokers or dealers are comparable,
the Sub-advisor may, in its discretion, purchase and sell portfolio securities
to and from brokers or dealers who provide the Trust with research advice and
other services.
4. Information Provided to the Trust
The Sub-advisor will keep the Trust and Sierra Advisors informed of
developments materially affecting the Trust, and will on its own initiative,
furnish the Trust and Sierra Advisors on at least a quarterly basis with
whatever information the Sub-advisor reasonably believes is appropriate for this
purpose.
5. Standard of Care
The Sub-advisor shall exercise its reasonable best judgment in rendering
the services described in Paragraphs 2 and 3 above. The Sub-advisor shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Trust or the Advisor in connection with the matters to which this Agreement
relates, except (a) a loss resulting from a breach of fiduciary duty with
respect to the receipt of compensation for services (in which case any award of
damages shall be limited to the period and the amount set forth in Section
36(b)(3) of the Investment Company Act of 1940, as amended) or (b) a loss
resulting from willful misfeasance, bad faith or gross negligence on its part in
the performance of its duties or from reckless disregard by it of its
obligations and duties under this Agreement (each such breach, act or omission
described in (a) or (b) shall be referred to as "Disqualifying Conduct").
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
2
<PAGE> 3
this Agreement. For the purpose of determining fees payable to the Sub-advisor,
the value of the Trust's net assets shall be computed at the times and in the
manner specified in the Trust's Prospectus and/or Statement of Additional
Information relating to the Trust as from time to time in effect.
Should it be determined that the Investment Sub-Advisory Agreement
between the Trust, Sierra Advisors and Sub-Advisor dated February 14, 1996, is
terminated as a result of the assignment thereof prior to the effective date of
this Agreement, compensation thereunder shall commence as of the date of such
termination.
7. Expenses
The Sub-advisor will bear all expenses in connection with the
performance of its services under this Agreement, which expenses shall not
include brokerage fees or commissions in connection with the effectuation of
securities transactions. The Trust (or Sierra Advisors) will bear certain other
expenses to be incurred in its operation, including but not limited to:
organizational expenses, taxes, interest, brokerage fees and commissions, if
any; fees of Trustees of the Trust who are not officers, directors or employees
of the Sub-advisor, Sierra Advisors, the Trust's sub- administrator or any of
their affiliates; Securities and Exchange Commission fees and state Blue Sky
qualification fees; out-of-pocket expenses of custodians, transfer and dividend
disbursing agents and the Trust's sub-administrator and transaction charges of
custodians; insurance premiums; outside auditing and legal expenses; costs of
maintenance of the Trust's existence; costs attributable to investor services,
including without limitation, telephone and personnel expenses; costs of
preparing and printing prospectuses and statements of additional information for
regulatory purposes and for distribution to existing shareholders; costs of
shareholders' reports and meetings of the shareholders of the Trust and of the
officers or Board of Trustees of the Trust; and any extraordinary expenses.
8. Services to Other Companies or Accounts
The Trust understands that the Sub-advisor now acts, will continue to
act and may act in the future as investment adviser to fiduciary and other
managed accounts and as investment advisor or sub-investment advisor to one or
more other investment companies or series of investment companies, and the Trust
has no objection to the Sub-advisor so acting, provided that whenever the Trust
and one or more other accounts or investment companies advised by the Sub-
advisor have available funds for investment, investments suitable and
appropriate for each will be allocated in accordance with procedures believed to
be equitable to each entity. Similarly, opportunities to sell securities will be
allocated in an equitable manner. The Trust recognizes that in some cases this
procedure may limit the size of the position that may be acquired or disposed of
for the Trust. In addition, the Trust understands that the persons employed by
the Sub-advisor to assist in the performance of the Sub-advisor's duties
hereunder will not devote their full time to such service and nothing contained
herein shall be deemed to limit or restrict the right of the Sub-advisor or any
affiliate of the Sub- advisor to engage in and devote time and attention to
other business or to render services of whatever kind or nature.
9. Term of Agreement
This Agreement shall become effective as of the date first written
above, shall continue in effect for a period of two years thereafter, and shall
continue in effect for a period of more than two years thereafter only so long
as such continuance is specifically approved at least annually by (i) the Board
of Trustees of the Trust or (ii) a vote of a "majority" (as defined in the
Investment Company Act of 1940, as amended) of the Trust's outstanding voting
securities, provided that in either event the continuance is also approved by a
majority of the Board of Trustees who are not "interested persons" (as defined
in said Act) of any party to this Agreement, by vote cast in person at a meeting
called for the purpose of voting on such approval. This Agreement is terminable,
without penalty, on 30 days' written notice, by Sierra Advisors, the Board of
Trustees of the Trust or by vote of holders of a majority of the Trust's shares,
or upon 90 days' written notice, by the Sub-advisor and, will terminate
automatically upon any termination of the advisory agreement between the Trust
and Sierra Advisors. In addition, this Agreement will also terminate
automatically in the
3
<PAGE> 4
event of its assignment (as defined in said Act). The Sub-advisor agrees to
notify the Trust of any circumstances that might result in this Agreement being
deemed to be assigned.
10. Representations of the Trust and the Sub-advisor
The Trust represents that (i) a copy of its Agreement and Declaration of
Trust, dated October 4, 1995, and Amended Agreement and Declaration of Trust
dated January 18, 1996, together with all amendments thereto, is on file in the
office of the Secretary of the Commonwealth of Massachusetts, (ii) the
appointment of Sierra Advisors has been duly authorized, (iii) the appointment
of the Sub-advisor has been duly authorized, and (iv) it has acted and will
continue to act in conformity with the Investment Company Act of 1940, as
amended, and other applicable laws.
Sierra Advisors represents that (i) it is authorized to perform the
services herein, (ii) the appointment of the Sub-advisor has been duly
authorized, and (iii) it will act in conformity with the Investment Company Act
of 1940, as amended, and other applicable laws.
The Sub-advisor represents that it is authorized to perform the services
described herein.
11. Indemnification
Sierra Advisors shall indemnify and hold harmless the Sub-advisor, its
officers, directors, employee control persons and affiliated persons (as defined
in the Investment Company Act of 1940, as amended) from and against any and all
claims, losses, liabilities or damages (including reasonable attorneys' fees and
other related expenses), arising from or in connection with this Agreement or
the performance by the Sub-advisor of its duties hereunder; provided, however,
that nothing contained herein shall require that the Sub-advisor be indemnified
for Disqualifying Conduct.
12. Amendment of this Agreement
No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought. No amendment of this Agreement shall be effective with respect to the
Trust until approved by vote of a majority of the outstanding voting securities.
13. Limitation of Liability
This Agreement has been executed on behalf of the Trust by the
undersigned officer of the Trust in his capacity as an officer of the Trust. The
obligations of this Agreement shall be binding upon the assets and property of
the Trust only and shall not be binding upon any Trustee, officer or shareholder
of the Trust individually.
14. Entire Agreement
This Agreement constitutes the entire agreement between the parties
hereto.
15. Governing Law
This Agreement shall be governed in accordance with the laws of the
Commonwealth of Massachusetts.
4
<PAGE> 5
16. Counterparts
This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original, but such counterparts shall together,
constitute only one instrument.
If the foregoing accurately sets forth our agreement, kindly indicate
your acceptance hereof by signing and returning the enclosed copy hereof.
Very truly yours,
SIERRA PRIME INCOME FUND
Dated: 02/21/97 By /s/ F. Brian Cerini
------------------ -------------------------------
Name: F. Brian Cerini
Title: Chairman and President
SIERRA INVESTMENT ADVISORS
CORPORATION
Dated: 02/21/97 By /s/ Michael D. Goth
------------------- -------------------------------
Name: Michael D. Goth
Title: Chief Operating Officer
Accepted:
VAN KAMPEN AMERICAN CAPITAL MANAGEMENT INC.
By /s/ Edward A. Treichel Dated: 3/10/97
----------------------------------------- ------------
Name: Edward A. Treichel
Title: Senior Vice President
5
<PAGE> 1
EXHIBIT (C)(3)
ADMINISTRATION AGREEMENT
July 1, 1996
Sierra Fund Administration Corporation
9301 Corbin Avenue
Northridge, California 91324
Ladies and Gentlemen:
The Sierra Prime Income Fund (the "Trust"), an unincorporated
business trust organized under the laws of the Commonwealth of
Massachusetts, confirms its agreements with Sierra Fund Administration
Corporation ("Sierra Administration"), a corporation organized under the
laws of the state of California, regarding administrative services to be
provided by Sierra Administration in connection with the Trust. Sierra
Administration agrees to provide services upon the following terms and
conditions:
1. Investment Description; Appointment
The Fund desires to employ its capital by investing and reinvesting
(a) in investments of the kind and in accordance with the limitations
specified in (i) the Agreement and Declaration of Trust dated October 4,
1995 and the Amended Agreement and Declaration of Trust dated January 18,
1996, as amended from time to time (the "Declaration of Trust"), and (ii)
the prospectus (the "Prospectus") and statement of additional information
(the "Statement") relating to the Trust contained in the Registration
statement on Form N-2, File No. 33-98824, filed with the Securities and
Exchange Commission (the "Registration Statement") and (b) in such manner
and to such extent as may from time to time be approved by the Trust's
Board of Trustees. Copies of the Prospectus, the Statement and the
Declaration of Trust have been submitted to Sierra Administration. The
Trust desires to employ and hereby appoints Sierra Administration to act
as its administrator. Sierra Administration accepts this appointment and
agrees to furnish the services described herein for the compensation set
forth below.
2. Services as Administrator
Subject to the supervision and direction of the Board of Trustees,
Sierra Administration is responsible for all administrative functions with
respect to the Trust and will (a) assist in supervising all aspects of the
operations of the Trust except those performed by the investment adviser
and sub-advisers under their respective investment management and
sub-advisory agreements; (b) supply the Trust with office facilities
(which may be in Sierra Administration's own offices, statistical and
research data, data processing services, clerical, accounting and
bookkeeping services (including, but not limited to, the calculation of
the net asset value of shares of the Trust), internal auditing and legal
services, internal executive and administrative services, and stationery
and office supplies; (c) prepare reports to the Trust's shareholders and
materials for the Board of Trustees; (d) prepare tax returns; (e) prepare
reports to and filings with the Securities and Exchange Commission and
state regulatory authorities; (f) cooperate with the Trust's transfer
agent for the purpose of establishing and implementing procedures to
ensure that the Trust's transfer agency and shareholder relations
functions are efficiently carried out; and (g) provide such other similar
services as the Trust may reasonably request to the extent permitted under
application statutes, rules and regulations. The services to be performed
by Sierra Administration hereunder may be delegated by it, in whole or in
part, to a sub-administrator provided that any delegation of duties to the
sub-administrator shall not relieve Sierra Administration of its
responsibilities hereunder. Notwithstanding anything to the contrary in
this Agreement, Sierra Administration shall not be responsible for the
performance of any duties which are required to be performed by the
Trust's transfer agent.
<PAGE> 2
3. Compensation
(a) In consideration of services rendered pursuant to this Agreement,
the Trust will pay Sierra Administration on the first business day of each
month a fee for the previous month at an annual rate of 0.25% of the
Trust's average daily net assets, out of which fee Sierra Administration
shall pay expenses as described in Section 5 including, without
limitation, fees of any sub-administrator engaged by Sierra Administration
and the base fees and charges (but not transaction-based fees and
out-of-pocket expenses) of the Trust's custodian. The fee for the period
from the date the Trust commences operations to the end of that month
shall be prorated according to the proportion such period bears to the
full monthly period.
(b) Upon any termination of this Agreement before the end of any
month, the fee for such part of a month shall be prorated according to the
proportion which such period bears to the full monthly period and shall be
payable upon the date of termination of this Agreement. For the purpose of
determining fees payable to Sierra Administration, the value of the
Trust's net assets shall be computed at the times and in the manner
specified in the Prospectus and/or the Statement of Additional Information
as from time to time in effect.
4. Expenses
Sierra Administration will bear all expenses in connection with the
performance of its services under this Agreement, including, without
limitation, payment of the fee to the custodian and any sub-administrator
described in Paragraph 4 above. The Trust will bear certain other expenses
to be incurred in its operation, including: organizational expenses;
taxes, interest, brokerage fees and commissions, if any; fees of trustees
of the Trust who are not officers, directors, or employees of Sierra
Investment Advisors Corporation, the Trust's sub-adviser or sub-
administrator or any of their affiliates; Securities and Exchange
Commission fees and state Blue Sky qualification fees; out-of-pocket
expenses of custodians and the Trust's sub-administrator or sub-transfer
agent and transaction charges of custodians; insurance premiums; outside
auditing and legal expenses; costs of maintenance of the Trust's
existence; costs attributable to investor services, including, without
limitation, telephone and personnel expenses; costs of preparing and
printing prospectuses and statements of additional information for
regulatory purposes and for distribution to existing shareholders; costs
of shareholders' reports and meetings of the shareholders of the Trust and
of the officers or Board of Trustees of the Trust; and any extraordinary
expenses.
5. Standard of Care
Sierra Administration shall exercise its best judgment in rendering
the services listed in Paragraph 2 above. Sierra Administration shall not
be liable for any error of judgment or mistake of law or for any loss
suffered by the Trust in connection with the matters to which this
Agreement relates, except a loss resulting from willful misfeasance, bad
faith or gross negligence on its part in the performance of its duties or
from reckless disregard by it of its obligations and duties under this
Agreement.
6. Term of Agreement
This Agreement shall become effective as of the date the Trust
commences its investment operations and shall continue for an initial
two-year term and shall continue automatically from year-to-year
thereafter unless terminated in accordance with the following sentence.
This Agreement is terminable at any time, without penalty, on 60 days'
written notice, by the Board of Trustees of the Trust or upon 90 days'
written notice, by Sierra Administration.
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
2
<PAGE> 3
in this Agreement shall be deemed to limit or restrict the right of Sierra
Administration or any affiliate of Sierra Administration to engage in and
devote time and attention to other businesses or to render services of
whatever kind or nature.
8. Representations of the Trust and Sierra Administration
The Trust represents that (i) a copy of the Declaration of Trust is
on file in the office of the Secretary of the Commonwealth of
Massachusetts, (ii) the appointment of Sierra Administration has been duly
authorized and (iii) it has acted and will continue to act in conformity
with the 1940 Act and other applicable laws. Sierra Administration
represents that it is authorized to perform the services described herein.
9. Limitation of Liability
This Agreement has been executed on behalf of the Trust by the
undersigned officer of the Trust in his capacity as an officer of the
Trust. The obligations of this Agreement shall be binding only upon the
assets and property of the Trust and shall not be binding upon any
Trustee, officer, or shareholder of the Trust individually.
10. Entire Agreement
This Agreement constitutes the entire agreement between the parties
hereto.
11. Governing Law
This Agreement shall be governed in accordance with the laws of the
Commonwealth of Massachusetts.
12. Counterparts
This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original, but such counterparts shall
together, constitute only one instrument.
If the foregoing accurately sets forth our agreement, kindly indicate
your acceptance hereof by signing and returning the enclosed copy hereof.
Very truly yours,
SIERRA PRIME INCOME FUND
By /s/ F. Brian Cerini
------------------------------
F. Brian Cerini
Chairman and President
Accepted:
SIERRA FUND ADMINISTRATION CORPORATION
By /s/ Keith B. Pipes
--------------------
Keith B. Pipes
3
<PAGE> 1
Chief Financial Officer, Treasurer and
Secretary
EXHIBIT (C)(4)
DISTRIBUTION AGREEMENT
Sierra Investment Services Corporation
9301 Corbin Avenue, Suite 333
Northridge, California 91324
Ladies and Gentlemen:
This is to confirm that, whereas the undersigned Sierra Prime Income
Fund (the "Trust"), a business trust organized under the laws of the
Commonwealth of Massachusetts and registered as a closed-end, management
investment company under the Investment Company Act of 1940, as amended
(the "1940 Act"), and Sierra Investment Services Corporation ("Sierra
Services"), a corporation organized under the laws of the State of
California, have entered into a Distribution Agreement dated as of
February 14, 1996 pursuant to which the Trust and Sierra Services have
agreed that Sierra Services shall act as a distributor of the classes of
Common Shares of beneficial interest of the Trust.
Now, therefore, in consideration of the mutual promises and covenants
hereinafter contained, the Trust and Sierra Services do agree as follows:
1. Appointment
The Trust hereby appoints Sierra Services as agent of the Trust to
act, for the period and on the terms set forth in this Agreement, as a
distributor of the Trust Shares covered by the Trust's registration
statement (the "Registration Statement"), prospectuses and statements of
additional information as in effect from time to time under the Securities
Act of 1933, as amended (the "1933 Act"), and the 1940 Act, and Sierra
Services accepts such appointment and agrees to render the services herein
described for the compensation herein provided.
As used in this Agreement, the terms "registration statement,"
"prospectus," and "statement of additional information" shall mean any
registration statement, prospectus and statement of additional information
filed by the Trust with the Securities and Exchange Commission ("SEC" or
"Commission") and any amendments thereof and supplements thereto which at
any time shall have been filed with the SEC. "Prospectus" shall mean, with
respect to any Shares of the Trust at any time, the then-current
prospectus and statement of additional information relating to such
Shares. The Trust and Sierra Services acknowledge expressly that
references in this Agreement to the "term" or "period" of this Agreement
shall include the term or period of this Original Agreement.
2. Sales of Shares
A. Authorization. The Trust hereby authorizes Sierra Services to sell
Shares of the Trust, and Sierra Services agrees to use its best efforts to
solicit orders for the sale of such Shares, at such Shares' public
offering price, as determined in accordance with the Registration
Statement. Sierra Services shall have the right to order from the Trust
the Shares of the Funds needed, but not more than needed (correcting for
any clerical errors or errors of transmission), to fill such orders as are
unconditional.
<PAGE> 2
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.
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;
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(5) costs involved in obtaining whatever information,
analyses and reports with respect to marketing and
promotional activities that the Trust may, from time to
time, deem advisable; and
(6) costs of financing any of the foregoing.
B. Scope of Distribution Services. Distribution services rendered
pursuant to this Agreement with respect to any Share of the Trust shall be
deemed to be complete upon the issuance and sale of such Share.
C. Trust Expenses. Sierra Services shall not be liable to assume any
other expenses of the Trust, which other expenses may include without
limitation: investment advisory fees; charges and expenses of any
registrar, custodian or depositary appointed by the Trust for safekeeping
of its cash, portfolio securities, or other property, and any transfer,
dividend or accounting agent(s) appointed by the Trust; brokers'
commissions chargeable to the Trust in connection with its portfolio
securities transactions; all taxes, including securities issuance and
transfer taxes; all costs and expenses in connection with maintenance of
registration of the Trust, any Fund and the Shares with the SEC, various
states, and other jurisdictions (including filing and legal fees and
disbursements of counsel); expenses of printing, including typesetting,
and distributing Prospectuses to the Trust's shareholders; all expenses of
shareholders' and Trustees' meetings and of preparing, printing and
mailing proxy statements and reports to shareholders; fees and expenses of
Trustees; all expenses incident to the payment of any dividend,
distribution, withdrawal or redemption, whether in Shares or in cash;
charges and expenses of any outside service used for pricing of Shares;
charges and expenses of legal counsel and independent accountants, in
connection with any matter relating to the Trust; membership dues of
industry associations; interest payable on borrowings; postage; insurance
premiums on property or personnel (including officers and Trustees) of the
Trust that inure to its benefit; extraordinary expenses (including but not
limited to legal claims and liabilities and litigation costs and any
indemnification related thereto); and all other charges and costs of
operations unless otherwise explicitly provided herein.
4. Compensation
The Distributor will receive no compensation from the Trust in
consideration of its services in connection with the distribution of
Shares of the Trust.
A. Early Withdrawal Charges. The Trust shall cause its transfer agent
(the "Transfer Agent") to withhold, from repurchase proceeds payable to
holders of Shares of the Funds, all early withdrawal sales charges
properly payable by such holders in accordance with the terms of the
Prospectuses relating to such Shares ("EWCs") and shall cause the Transfer
Agent to pay such amounts over as promptly as possible after the
settlement date for each repurchase of such Shares.
B. Other Services; Service Fee. Upon request of the Trust's Board of
Trustees, Sierra Services may, but shall be under no duty to, perform
additional services on behalf of the Trust, which services are not
required by this Agreement but may be performed by Sierra Services in
conformity with applicable law. Any such services will be performed on
behalf of the Trust, and Sierra Services may impose additional charges for
such services, which charges may be billed to the Trust and subject to
examination by the Trust's independent accountants. Sierra Services's
payment or assumption of any expense of the Trust that Sierra Services is
not required to pay or assume under this Agreement shall not relieve
Sierra Services of any of its obligations to the Trust or obligate Sierra
Services to pay or assume any similar expense on any subsequent occasion.
Any shareholder services provided by Sierra Services to the Trust,
which services may include processing of shareholder transactions,
responding to inquiries from shareholders concerning the status of their
accounts and the operations of the Trust communicating with the Trust and
its transfer agent on behalf of such shareholders, or providing other
shareholder services, nor for any expenses associated with the provision
of such shareholder services, including office space and equipment, and
telephone facilities, shall be provided pursuant to a separate agreement.
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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;
(4) The Trust's Notification of Registration filed pursuant
to Section 8(a) of the 1940 Act on Form N-8A under the 1940
Act, as filed with the Securities and Exchange Commission
(the "SEC") on October 31, 1995;
(5) The Trust's registration statement on Form N-2 under
the 1933 Act, (File No. 33-27489) and under the 1940 Act as
filed with the SEC on October 31, 1995 relating to the
Shares of the Fund, and all amendments thereto;
(6) The most recent Prospectus relating to the Shares; and
(7) All documents, notices and reports filed with the SEC.
The Trust authorizes Sierra Services and any Broker with whom Sierra
Services has entered into Dealer Agreements to use, in connection with the
sale of Shares, any Prospectus furnished by the Trust from time to time.
Sierra Services shall not, and shall take reasonable steps to ensure that
no Broker will, give any information nor make any representations,
concerning any aspect of the Shares or the Trust to any persons or entity
unless such information or representations are contained in the
Registration Statement and/or the pertinent Prospectus, or are contained
in sales or promotional literature approved by the Trust. Sierra Services
shall not use, and shall take reasonable steps to ensure that no Broker
will, use any sales promotion material or advertising that has not been
previously approved by the Trust.
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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.
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.
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8. Representations and Warranties
A. Registration Statements and Prospectuses. The Trust represents to
Sierra Services that all Registration Statements and Prospectuses filed by
the Trust with the SEC under the 1933 Act and the 1940 Act with respect to
the Shares are in conformity with the requirements of the 1933 Act, the
1940 Act and the rules and regulations of the SEC thereunder. The Trust
represents and warrants to Sierra Services that any Registration Statement
or Prospectus, when it becomes effective, will include all statements
required to be contained therein in conformity with the 1933 Act, the 1940
Act and the rules and regulations of the SEC; that all statements of fact
contained in any Registration Statement or Prospectus will be true and
correct when such Registration Statement or Prospectus becomes effective;
and that no Registration Statement nor any Prospectus, when the same shall
become effective, will include any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading to a purchaser of Shares.
Sierra Services may, but shall not be obligated to, propose from time to
time such amendment(s) to any Registration Statement and such
supplement(s) to any Prospectus as, in the light of future developments,
may, in the opinion of Sierra Services or its counsel, be necessary or
advisable. The Trust shall not file any amendment to any Registration
Statement or supplement to any Prospectus without giving Sierra Services
reasonable notice thereof in advance; provided, however, that nothing
contained in this Agreement shall in any way limit the Trust's right to
file at any time such amendment(s) to any Registration Statement and
supplement(s) to any Prospectus, of whatever character, as the Trust may
deem advisable, such right being in all respects absolute and
unconditional.
B. Charter. The Trust represents that a copy of its Agreement and
Declaration of Trust dated October 4, 1995, together with all amendments
thereto, is on file in the office of the Secretary of the Commonwealth of
Massachusetts and the office of the City Clerk of Boston, Massachusetts.
C. Authorization. Sierra Services represents to the Trust that it is
authorized to perform the services described herein.
D. NASD. Sierra Services represents to the Trust that it is a member
in good standing of the NASD.
9. Indemnification
A. Indemnification by the Trust. The Trust agrees to indemnify,
defend and hold Sierra Services, its officers, directors, agents,
employees, and any person who controls Sierra Services within the meaning
of Section 15 of the 1933 Act (Sierra Services and such persons,
collectively, "Sierra Services Indemnified Persons"), free and harmless
from and against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) that
any Sierra Services Indemnified Person may incur under the 1933 Act, the
1940 Act or common law or otherwise, arising out of or based upon any
untrue statement (or alleged untrue statement) of a material fact
contained in any Registration Statement or Prospectus relating to Shares
of the Trust, or arising out of or based upon any omission (or alleged
omission) to state a material fact required to be stated in any
Registration Statement or Prospectus relating to Shares of the Trust, or
necessary to make the statements in such Registration Statement or
Prospectus not misleading, or arising out of or based upon the Trust's
material breach of this Agreement; provided, however, that the Trust's
agreement to indemnify Sierra Services Indemnified Persons shall not be
deemed to cover any claims, demands, liabilities or expenses arising out
of or based upon any statements or representations made by Sierra Services
or its representatives or agents other than such statements and
representations as are contained in any Registration Statement or
Prospectus and in such financial and other statements regarding the Shares
as are furnished to Sierra Services pursuant to Sections 5a and 6b of this
Agreement; provided further, that the Trust's agreement to indemnify
Sierra Services and the Trust's representations and warranties
hereinbefore set forth in Section 8 of this Agreement shall not be deemed
to cover any liability to the Trust or its shareholders to which Sierra
Services would otherwise be subject by reason of Sierra Services' willful
misfeasance, bad faith or gross negligence in the performance of its
duties, or
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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
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.
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<PAGE> 8
C. Assumption of Defense. An indemnifying party will be entitled to
assume the defense of any suit brought to enforce any such claim, demand
or liability, but, in such case, such defense shall be conducted by
counsel of good standing chosen by the indemnifying party and approved by
the indemnified party (provided that such counsel shall not, except with
the consent of an indemnified party that is a Sierra Services Indemnified
Person, be counsel to any investment fund of the Trust); provided that the
indemnified party shall be entitled to conduct its own defense with
counsel selected by it if such indemnified party is advised by counsel
that there may be a conflict of interest between the indemnified party and
the indemnifying party with respect to such defense. In the event the
indemnifying party elects to assume the defense of any such suit and
retain counsel of good standing approved by the indemnified party, the
defendant or defendants in such suit shall bear the fees and expenses of
any additional counsel retained by any of them; but in case the
indemnifying party does not elect or is not permitted to assume the
defense of any such suit, or in case the indemnified party does not
approve of counsel chosen by the indemnifying party, the indemnifying
party will reimburse the indemnified party named as defendant or
defendants in such suit, for the fees and expenses of any counsel retained
by such indemnified party.
D. Notice. Each of Sierra Services and the Trust agrees to notify the
other promptly of the commencement of any litigation or proceedings
against it or any of its officers or directors or Trustees, as applicable,
in connection with the issuance and sale of any Shares.
E. Contribution. If the indemnification provided for in this Section
shall for any reason be unavailable to or insufficient to hold harmless a
party indemnified hereunder in respect of any claim, demand, liability or
expense, or any action in respect thereof, referred to therein, then each
indemnifying party shall, in lieu of indemnifying such indemnified party,
contribute to the amount paid or payable by such indemnified party as a
result of such claim, demand, liability or expense, or action in respect
thereof, (a) in such proportion as shall be appropriate to reflect the
relative benefits received by the Trust on the one hand and Sierra
Services on the other from the offering of the Shares or (b) if the
allocation provided by clause (a) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (a) above but also the relative fault of
the Trust (and its agents other than Sierra Services) on the one hand and
Sierra Services on the other with respect to the statements or omissions
which resulted in such claim, demand, liability or expense, or action in
respect thereof, as well as any other relevant equitable considerations.
The relative benefits received by the Trust on the one hand and Sierra
Services on the other with respect to the offering of the Shares shall be
deemed to be in the same proportion as the total net proceeds from the
offering of the Shares purchased under this agreement (before deducting
expenses) received by the Trust bear to the total net underwriting
discounts and commissions received by Sierra Services with respect to the
Shares purchased under this Agreement and retained by Sierra Services
after payments to the selling agents retained by it. The relative fault
shall be determined by reference to whether the untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a
material fact relates to information supplied by the Trust (or any of its
agents other than Sierra Services) or by Sierra Services, the intent of
the parties and their relative knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Trust
and Sierra Services agree that it would not be just and equitable if
contributions pursuant to this Section were to be determined by pro rata
allocation or by any other method of allocation which does not take into
account the equitable considerations referred to herein. The amount paid
or payable by an indemnified party as a result of the claim, demand,
liability or expense, or action in respect thereof, referred to above in
this Section shall be deemed to include, for purposes of this Section, any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section, Sierra Services shall not
be required to contribute any amount in excess of the amount by which the
total net underwriting discounts and commissions received by Sierra
Services with respect to the Shares purchased under this Agreement and
retained by Sierra Services after payments to the selling agents retained
by it exceed the amount of any damages which Sierra Services has otherwise
paid or become liable to pay by reason of any untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act)
shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation.
10. Notice to Sierra Services.
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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 other agreement related to the Plan (the
"Qualified Trustees"), such vote cast in person at a
meeting called for the purpose of the voting on such
approval.
12. Termination.
A. Termination on Assignment. This Agreement shall terminate
automatically in the event of its "assignment" (as defined in the 1940
Act), it being understood that this Agreement has been approved by the
Trustees, including the Qualified Trustees. Sierra Services agrees to
notify the Trust of any circumstances that might result in this Agreement
being deemed to be assigned.
B. Voluntary Termination. The Trust may terminate this Agreement with
respect to the Trust, or in its entirety, without penalty, on 60 days'
written notice to Sierra Services, by vote of a majority of the Qualified
Trustees or by vote of a "majority of the outstanding voting securities"
of the Trust, as the case may be. Sierra Services may terminate this
Agreement on 90 days' written notice to the Trust. Termination of this
Agreement with respect to any class of shares of the Trust shall not cause
this Agreement to terminate with respect to any other class of shares of
such Trust. Notice of termination as provided for in this Section may be
waived by either party, such waiver to be in writing.
13. Miscellaneous.
A. Non-Exclusivity. The Trust recognizes that Sierra Services and its
affiliates shall be free to render distribution or other services to
others (including other investment companies) and to engage in other
activities. The Trust agrees that the directors, officers and employees of
Sierra Services shall not be prohibited by reason of this Agreement from
engaging in any other business activity or from rendering services to any
other person, or from
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<PAGE> 10
serving as partners, directors, trustees or officers of any other firm or
corporation, including the Trust and other investment companies. Sierra
Services acknowledges that its appointment as distributor pursuant to this
Agreement is not exclusive, and that the Trust may appoint one or more
other persons to act as distributor for the Shares of one or more Funds.
B. Independent Contractor. Sierra Services and any Broker shall be
independent contractors and none of them nor any of their directors,
officers or employees shall, as such, be deemed employees of the Trust.
C. Notices. Any notices under this Agreement shall be in writing,
mailed postage paid or sent by telegram, telecopy, or facsimile to the
other party at such address as such other party may designate from time to
time for the receipt of such notice.
D. Integration; Amendment; Counterparts; Governing Law.
This Agreement constitutes the entire agreement between the parties
hereto with respect to the subject matter hereof, and may not be modified,
amended, or waived except by a written instrument duly executed by the
party against whom such modification, amendment, or waiver is sought to be
enforced. If any provisions of this Agreement shall be held or made
invalid by a court decision, statute rule or otherwise, the remainder of
this Agreement shall not be affected thereby.
This Agreement shall be subject to the provisions of the 1940 Act and
the 1934 Act and the rules, regulations and rulings thereunder, and of the
applicable rules and regulations of the NASD, from time to time in effect,
and the terms hereof shall be interpreted and construed in accordance
therewith.
This Agreement may be executed in any number of counterparts, each of
which will be deemed an original, but all of which together will
constitute one and the same instrument.
This Agreement shall be governed in accordance with the internal
substantive laws of the Commonwealth of Massachusetts.
It is expressly agreed that the obligations of the Trust hereunder
shall not be binding upon any of the Trustees, shareholders, nominees,
officers, agents or employees of the Trust personally, but bind only the
trust property of the Trust, as provided in the Trust Agreement. The
execution and delivery of this Agreement have been authorized by the
Trustees and effected by an authorized officer of the Trust, acting as
such, and neither such authorization nor such execution and delivery shall
be deemed to have been made by any Trustee or officer individually or to
impose any liability on any of them personally, but shall bind only the
trust property of the Trust as provided in the Trust Agreement.
Please confirm that the foregoing accurately sets forth our agreement
by indicating your acceptance hereof at the place below indicated,
whereupon it shall become a binding agreement between us as of the date
first set forth above.
Very truly yours,
Sierra Prime Income Fund
By /s/ F. Brian Cerini
----------------------------
Title: President
ACCEPTED:
Sierra Investment Services Corporation
By /s/ Keith B. Pipes
--------------------------------------------
Title: Senior Vice President and Secretary
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EXHIBIT (C)(5)
WM PRIME INCOME FUND
INVESTMENT MANAGEMENT AGREEMENT
INVESTMENT MANAGEMENT AGREEMENT (this "Agreement"), dated March __,
1998, between the WM Prime Income Fund, formerly known as the Sierra Prime
Income Fund, a Massachusetts business trust, (the "Fund"), and WM Investment
Advisors, Inc., formerly known as Composite Research & Management Co., a
Washington corporation (the "Manager").
W I T N E S S E T H
WHEREAS, the Fund is a closed-end management investment company,
registered under the Investment Company Act of 1940, as amended (the "1940
Act"); and
WHEREAS, the Fund desires to retain the Manager to render investment
management services to the Fund, and the Manager is willing to render such
services;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the parties hereto agree as follows:
1. Appointment. The Fund hereby appoints the Manager to act as investment
manager to the Fund for the period and on the terms set forth in this Agreement.
The Manager accepts such appointment and agrees to render the services herein
described, for the compensation herein provided.
2. Management. Subject to the supervision of the Board of Trustees of the Fund,
the Manager shall manage the investment operations of the Fund and the
composition of the Fund's portfolio, including the purchase, retention and
disposition of securities therefor, in accordance with the Fund's investment
objectives, policies and restrictions as stated in the Prospectus and Statement
of Additional Information (as such terms are hereinafter defined) and
resolutions of the Fund's Board of Trustees and subject to the following
understandings:
(a) The Manager shall provide supervision of the Fund's investments,
furnish a continuous investment program for the Fund's portfolio and
determine from time to time what securities will be purchased,
retained, or sold by the Fund, and what portion of the assets will be
invested or held as cash.
(b) The Manager, in the performance of its duties and obligations
under this Agreement, shall act in conformity with the Agreement and
Declaration of Trust of the Fund and the investment policies of the
Fund as determined by the Board of Trustees of the Fund.
(c) The Manager shall determine the securities to be purchased or
sold by the Fund and shall place orders for the purchase and sale of
portfolio securities pursuant to its determinations with brokers or
dealers selected by the Manager. In executing portfolio
<PAGE> 2
transactions and selecting brokers or dealers, the Manager shall use
its best efforts to seek on behalf of the Fund the best overall terms
available. In assessing the best overall terms available for any
transaction, the Manager may consider all factors it deems relevant,
including the breadth of the market in the security, the price of the
security, the size of the transaction, the timing of the transaction,
the reputation, financial condition, experience, and execution
capability of a broker or dealer, the amount of commission, and the
value of any brokerage and research services (as those terms are
defined in Section 28(e) of the Securities Exchange Act of 1934, as
amended) provided by a broker or dealer. The Manager is authorized to
pay to a broker or dealer who provides such brokerage and research
services a commission for executing a portfolio transaction for the
Fund which is in excess of the amount of commission another broker or
dealer would have charged for effecting the transaction if the
Manager determines in good faith that such commission was reasonable
in relation to the value of the brokerage and research services
provided by such broker or dealer, viewed in terms of that particular
transaction or in terms of the overall responsibilities of the
Manager to the Fund and/or other accounts over which the Manager
exercises investment discretion.
(d) On occasions when the Manager deems the purchase or sale of a
security to be in the best interest of the Fund as well as other
fiduciary accounts for which it has investment responsibility, the
Manager, to the extent permitted by applicable laws and regulations,
may aggregate the securities to be so sold or purchased in order to
obtain the best execution, most favorable net price or lower
brokerage commissions.
(e) Subject to the provisions of the Agreement and Declaration of
Trust of the Fund and the Investment Company Act of 1940, as amended
(the "1940 Act"), the Manager, at its expense, may select and
contract with one or more investment advisers (the "Sub- adviser")
for the Fund to perform some or all of the services for which it is
responsible pursuant to this Section 2. The Manager shall be solely
responsible for the compensation of any Sub-adviser of the Fund for
its services to the Fund. The Manager 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-adviser unless and until
a successor Sub-adviser is selected. To the extent that more than one
Sub- adviser is selected, the Manager shall, in its sole discretion,
determine the amount of the Fund's assets allocated to each such
Sub-adviser.
3. Services Not Exclusive. The investment management services rendered by the
Manager hereunder to the Fund are not to be deemed exclusive, and the Manager
shall have the right to render similar services to others, including, without
limitation, other investment companies.
4. Expenses. During the term of this Agreement, the Manager shall pay all
expenses incurred by it in connection with its activities under this Agreement
including the salaries and expenses of any of the officers or employees of the
Manager who act as officers, Trustees or employees of the Fund but excluding the
cost of securities purchased for the Fund and the amount of any brokerage fees
and commissions incurred in executing portfolio transactions for
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<PAGE> 3
the Fund, and shall provide the Fund with suitable office space. Other expenses
to be incurred in the operation of the Fund (other than those borne by any third
party), including without limitation, taxes, interest, brokerage fees and
commissions, fees of Trustees who are not officers, directors, or employees of
the Manager, federal registration fees and state Blue Sky qualification fees,
administration fees, bookkeeping, charges of custodians, transfer and dividend
disbursing agents' fees, certain insurance premiums, industry association fees,
outside auditing and legal expenses, costs of maintaining the Fund's existence,
costs of independent pricing services, costs attributable to investor services
(including, without limitation, telephone and personnel expenses), costs of
preparing, printing and distributing prospectuses to existing shareholders,
costs of stockholders' reports and meetings of shareholders and Trustees of the
Fund, as applicable, and any extraordinary expenses will be borne by the Fund.
5. Compensation. For the services provided pursuant to this Agreement, the Fund
shall pay to the Manager as full compensation therefor a monthly fee computed on
the average daily net assets of the Fund as stated in Schedule A attached
hereto. The Fund acknowledges that the Manager, as agent for the Fund, will
allocate a portion of the fee equal to the sub-advisory fee payable to the
sub-advisor, if any, under its sub-advisory agreement to the sub-advisor for
sub-advisory services. The Fund acknowledges that the Manager, as agent for the
Fund, may allocate a portion of the fee to Murphey Favre Securities Services,
Inc. for administrative services, portfolio accounting and regulatory compliance
systems. The Manager also from time to time and in such amounts as it shall
determine in its sole discretion may allocate a portion of the fee to WM Funds
Distributor, Inc., f/k/a Composite Funds Distributor, Inc. for facilitating
distribution of the Fund. This payment would be made from revenue which
otherwise would be considered profit to the Manager for its services. This
disclosure is being made to the Fund solely for the purpose of conforming with
requirements of the Washington Department of Revenue for exclusion of revenue
from the Washington Business and Occupation Tax.
6. Limitation of Liability. The Manager shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Fund 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.
7. Delivery of Documents. The Fund has heretofore delivered to the Manager true
and complete copies of each of the following documents and shall promptly
deliver to it all future amendments and supplements thereto, if any:
(a) Agreement and Declaration of Trust (presently in effect and as
amended from time to time);
(b) Bylaws of the Fund;
(c) Registration Statement under the Securities Act of 1933 and under
the 1940 Act of the Fund on Form N-2, and all amendments thereto, as
filed with the Securities and
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<PAGE> 4
Exchange Commission (the "Registration Statement") relating to the Fund
and the shares of the Fund;
(d) Notification of Registration of the Fund under the 1940 Act on Form
N-8A;
(e) Prospectuses of the Fund (such prospectuses as presently in effect
and/or as amended or supplemented from time to time, the "Prospectus");
and
(f) Statement of Additional Information of the Fund (such statement as
presently in effect and/or as amended or supplemented from time to time,
the "Statement of Additional Information").
8. Duration and Termination. This Agreement shall become effective as of the
date first above-written for an initial period of two years and shall continue
thereafter so long as such continuance is specifically approved at least
annually (a) by the vote of the Board of Trustees including a majority of those
members of the Fund's Board of Trustees who are not parties to this Agreement or
"interested persons" of any such party, cast in person at a meeting called for
that purpose, or by vote of a majority of the outstanding voting securities of
the Fund. Notwithstanding the foregoing, (a) this Agreement may be terminated at
any time, without the payment of any penalty, by either the Fund (by vote of the
Fund's Board of Trustees or by vote of a majority of the outstanding voting
securities of the Fund) or the Manager, on sixty (60) days prior written notice
to the other and (b) shall automatically terminate in the event of its
assignment. As used in this Agreement, the terms "majority of the outstanding
voting securities," "interested persons" and "assignment" shall have the
meanings assigned to such terms in the 1940 Act.
9. Amendments. No provision of this Agreement may be amended, modified, waived
or supplemented except by a written instrument signed by the party against which
enforcement is sought. No amendment of this Agreement shall be effective until
approved in accordance with any applicable provisions of the 1940 Act.
10. Use of Name and Logo. The Fund agrees that it shall furnish to the Manager,
prior to any use or distribution thereof, copies of all prospectuses, statements
of additional information, proxy statements, reports to stockholders, sales
literature, advertisements, and other material prepared for distribution to
stockholders of the Fund or to the public, which in any way refer to or describe
the Manager or which include any trade names, trademarks or logos of the Manager
or of any affiliate of the Manager. The Fund further agrees that it shall not
use or distribute any such material if the Manager reasonably objects in writing
to such use or distribution within five (5) business days after the date such
material is furnished to the Manager.
The Manager and/or its affiliates own the names "Sierra,"
"Composite," "WM" and any other names which may be listed from time to time on a
Schedule B to be attached hereto that they may develop for use in connection
with the Fund, which names may be used by the Fund only with the consent of the
Manager and/or its affiliates. The Manager, on behalf of
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<PAGE> 5
itself and/or its affiliates, consents to the use by the Fund of such names or
any other names embodying such names, but only on condition and so long as (i)
this Agreement shall remain in full force, (ii) the Fund 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) the Manager is the
manager of the Fund. No such name shall be used by the Fund 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 Manager, on behalf of itself and/or
its affiliates, to the Fund to use such names as part of a business or name is
not exclusive of the right of the Manager and/or its affiliates themselves to
use, or to authorize others to use, the same; the Fund acknowledges and agrees
that as between the Manager and/or its affiliates and the Fund, the Manager
and/or its affiliates have the exclusive right so to use, or authorize others to
use, such names, and the Fund agrees to take such action as may reasonably be
requested by the Manager, on behalf of itself and/or its affiliates, to give
full effect to the provisions of this section (including, without limitation,
consenting to such use of such names). Without limiting the generality of the
foregoing, the Fund agrees that, upon (i) any violation of the provisions of
this Agreement by the Fund or (ii) any termination of this Agreement, by either
party or otherwise, the Fund will, at the request of the Manager, on behalf of
itself and/or its affiliates, made within six months after such violation or
termination, use its best efforts to change the name of the Fund so as to
eliminate all reference, if any, to such names and will not thereafter transact
any business in a name containing such names in any form or combination
whatsoever, or designate itself as the same entity as or successor to an entity
of such names, or otherwise use such names or any other reference to the Manager
and/or its affiliates, except as may be required by law. Such covenants on the
part of the Fund shall be binding upon it, its Trustees, officers, shareholders,
creditors and all other persons claiming under or through it.
The provisions of this section shall survive termination of this
Agreement.
11. Notices. Any notice or other communication required to be given pursuant to
this Agreement shall be deemed duly given if delivered or mailed by registered
mail, postage prepaid, if to the Fund: 601 W. Main Ave., Suite 300, Spokane,
Washington 99201; or if to the Manager: 1201 Third Avenue, Suite 1220, Seattle,
Washington 98101; or to either party at such other address as such party shall
designate to the other by a notice given in accordance with the provisions of
this section.
12. Miscellaneous.
(a) Except as otherwise expressly provided herein or
authorized by the Board of Trustees of the Fund from time to time,
the Manager for all purposes herein shall be deemed to be an
independent contractor and shall have no authority to act for or
represent the Fund in any way or otherwise be deemed an agent of the
Fund.
(b) The Fund shall furnish or otherwise make available to
the Manager such information relating to the business affairs of the
Fund as the Manager at any time or from time to time reasonably
requests in order to discharge its obligations hereunder.
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<PAGE> 6
(c) This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts and
shall inure to the benefit of the parties hereto and their respective
successors.
(d) If any provision of this Agreement shall be held or
made invalid or by any court decision, statute, rule or otherwise,
the remainder of this Agreement shall not be affected thereby.
13. Declaration of Trust and Limitation of Liability. A copy of the Agreement
and Declaration of Trust of the Fund is on file with the Secretary of State of
The Commonwealth of Massachusetts, and notice is hereby given that this
Agreement is executed by an officer of the Fund on behalf of the Trustees of the
Fund, as trustees and not individually, on further behalf of the Fund, and that
the obligations of this Agreement shall be binding upon the assets and
properties of the Fund only and shall not be binding upon the assets and
properties of the Trustees, officers, employees, agents or shareholders of the
Fund individually.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their officers designated below as of the date first
above-written.
WM PRIME INCOME FUND
By: __________________________________
Name:
Title:
Attest:
By: ___________________________________
Name:
Title:
WM INVESTMENT ADVISORS, INC.
By: ___________________________________
William G. Papesh
President
Attest:
By: ___________________________________
Sharon L. Howells
Secretary
6
<PAGE> 7
SCHEDULE A
WM INVESTMENT ADVISORS, INC.
ADVISORY FEES
The fees to be charged to WM Prime Income Fund for advisory services (including
any sub- advisory fees) are as follows:
<TABLE>
<CAPTION>
All Assets
----------
<S> <C>
WM Prime Income Fund ................................................ 0.950%
</TABLE>
7
<PAGE> 1
EXHIBIT (C)(6)
INVESTMENT SUB-ADVISORY AGREEMENT
Effective as of March __, 1998
Van Kampen American Capital Management Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Ladies and Gentlemen:
WM Investment Advisors, Inc., f/k/a Composite Research & Management Co.
(the "Advisor"), a corporation organized under the laws of the State of
Washington, hereby agrees with Van Kampen American Capital Management Inc. (the
"Sub-Advisor"), a corporation organized under the laws of the State of Delaware,
as follows:
1. Investment Description; Appointment
The Advisor desires to employ the capital of the WM Prime Income Fund,
formerly known as the Sierra Prime Income Fund (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 the
Advisor. The Trust desires to employ and hereby appoints the Sub-Advisor to act
as investment sub-advisor to the Trust. The Sub-Advisor accepts the appointment
and agrees to furnish the services described herein for the compensation set
forth below.
2. Services as Investment Sub-Advisor
Subject to the supervision of the Board of Trustees of the Trust and of
the Advisor, the Sub-Advisor will (a) act in conformity with the Trust's
Declaration of Trust, the Investment Company Act of 1940 (the "1940 Act"), the
Investment Advisers Act of 1940 and
<PAGE> 2
the Internal Revenue Code of 1986, as the same may from time to time be amended;
(b) make investment decisions for the Trust in accordance with the Trust's
investment objectives and policies as stated in the Trust's Prospectus(es) and
Statement of Additional Information as in effect and, after timely notice to the
Sub-Advisor, which may be amended from time to time; (c) place purchase and sale
orders on behalf of the Trust to effectuate the investment decisions made; (d)
maintain books and records with respect to the securities transactions of the
Trust and will furnish the Trust's Board of Trustees such periodic, regular and
special reports as the Board may reasonably request; and (e) treat
confidentially and as proprietary information of the Trust, all records and
other information specifically relative to the Trust and prior, present or
potential shareholders; and will not use such records and information for any
purpose other than performance of its responsibilities and duties hereunder,
except after prior notification to and approval in writing by the Trust, which
approval shall not be unreasonably withheld or delayed and such records may not
be withheld where the Sub-Advisor is subject to audit by the U.S. Securities and
Exchange Commission or other regulatory, administrative or judicial proceeding
or audit or where the Sub-Advisor may be exposed to civil or criminal contempt
proceedings for failure to comply, when requested to divulge such information by
duly constituted authorities, or when so 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 the Advisorwith whatever statistical information the Trust
or the Advisor may reasonably request with respect to the instruments that the
Trust may hold or contemplate purchasing.
3. Brokerage
In executing transactions for the Trust and selecting banks, syndicated
loan agents, brokers or dealers (hereinafter referred to as "brokers or
dealers"), the Sub-Advisor will use its best efforts to seek the best overall
terms available and shall execute or direct the execution of all such
transactions in a manner permitted by law and in a manner that is in the best
interest of the Trust and its shareholders. In assessing the best overall terms
available for any Trust transaction, with respect to the lenders from whom the
Trust will purchase assignments and participations in Senior Loans the
Sub-Advisor will consider all factors it deems relevant including, but not
limited to their professional ability, level of service, relationship with the
borrower, financial condition, credit standards and quality of management. With
respect to investments other than Senior Loans, the Sub-Advisor will consider
all factors it deems relevant including, but not limited to, breadth of the
market in the security, the price of the security, the financial condition and
execution capability of the broker or dealer and the reasonableness of any
commission for the specific transaction and on a continuing basis. Pursuant to
its investment determinations for the Trust, in placing orders with brokers or
dealers, the Sub-Advisor will attempt to obtain the best net price and the most
favorable execution of its orders. Consistent with this obligation, when the
execution and price offered by two or more brokers or dealers are comparable,
the Sub-Advisor may, in its
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<PAGE> 3
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 the Advisor informed of
developments materially affecting the Trust, and will on its own initiative,
furnish the Trust and the Advisor 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 1940 Act) 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,
the Advisor 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 for services provided hereunder and agrees to look
solely to the Advisor for payment of fees due. Upon any termination of this
Agreement before the end of a month, the fee for such part of that month shall
be prorated according to the proportion that such period bears to the full
monthly period and shall be payable upon the date of termination of this
Agreement. For the purpose of determining fees payable to the Sub-Advisor, the
value of the Trust's net assets shall be computed at the times and in the manner
specified in the Trust's Prospectus and/or Statement of Additional Information
relating to the Trust as from time to time in effect.
7. Expenses
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<PAGE> 4
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 the Advisor) 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, the Advisor, 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 investment Sub-Advisor to one or
more other investment companies or series of investment companies, and the
Advisor 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 Advisor 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 Advisor understands that the persons employed by
the Sub-Advisor to assist in the performance of the Sub-Advisor's duties
hereunder will not devote their full time to such service and nothing contained
herein shall be deemed to limit or restrict the right of the Sub-Advisor or any
affiliate of the Sub-Advisor to engage in and devote time and attention to other
business or to render services of whatever kind or nature.
9. Term of Agreement
This Agreement shall become effective as of the date first written
above, shall continue in effect for a period of two years thereafter, and shall
continue in effect for a period of more than two years thereafter only so long
as such continuance is specifically approved at least annually by (a) the Board
of Trustees of the Trust or (b) a vote of a "majority" (as defined in the 1940
Act) of the Trust's outstanding voting securities, provided that in either
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<PAGE> 5
event the continuance is also approved by a majority of the Board of Trustees
who are not "interested persons" (as defined in the 1940 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 the Advisor, 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 the Advisor. 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 (a) 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, (b) the
appointment of the Advisor has been duly authorized, (c) the appointment of the
Sub-Advisor has been duly authorized, and (d) it has acted and will continue to
act in conformity with the 1940 Act, and other applicable laws.
The Sub-Advisor represents that it is authorized to perform the services
described herein.
11. Indemnification
The Advisor 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.
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<PAGE> 6
13. Entire Agreement
This Agreement constitutes the entire agreement between the parties
hereto.
14. Governing Law
This Agreement shall be governed in accordance with the laws of The
Commonwealth of Massachusetts.
15. 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,
WM INVESTMENT ADVISORS, INC.
Dated: ___________________ By _____________________________
Name:
Title:
Accepted:
VAN KAMPEN AMERICAN CAPITAL MANAGEMENT INC.
By _________________________ Dated: _____________________
Name:
Title:
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<PAGE> 1
EXHIBIT (C)(7)
WM PRIME INCOME FUND
ADMINISTRATION AGREEMENT
March __, 1998
WM Shareholder Services, Inc.
601 W. Main Avenue, Suite 300
Spokane, WA 99201
Ladies and Gentlemen:
The WM Prime Income Fund, formerly known as the Sierra Prime Income
Fund (the "Trust"), an unincorporated business trust organized under the laws of
the Commonwealth of Massachusetts, confirms its agreements with WM Shareholder
Services, Inc. f/k/a Murphey Favre Securities Services, Inc. ("WMSS"), a
corporation organized under the laws of the state of Washington, regarding
administrative services to be provided by WMSS in connection with the Trust.
WMSS 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
WMSS. The Trust desires to employ and hereby appoints WMSS to act as its
administrator. WMSS 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,
WMSS 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 advisor and sub-advisors under their
respective investment management and sub-advisory agreements; (b)
<PAGE> 2
supply the Trust with office facilities which may be in WMSS's own offices,
statistical and research data, data processing services, clerical, accounting
and bookkeeping services (including, but not limited to, the calculation of the
no asset value of shares of the Trust), internal auditing and legal services,
internal executive and administrative services, and stationery and office
supplies; (c) prepare reports to the Trust's shareholders and materials for the
Board of Trustees; (d) prepare tax returns; (e) prepare reports to and filings
with the Securities and Exchange Commission and state regulatory authorities;
(f) cooperate with the Trust's transfer agent for the purpose of establishing
and implementing procedures to ensure that the Trust's transfer agency and
shareholder relations functions are efficiently carried out; and (g) provide
such other similar services as the Trust may reasonably request to the extent
permitted under application statutes, rules and regulations. The services to be
performed by WMSS hereunder may be delegated by it, in whole or in part, to one
or more sub-administrators provided that any delegation of duties to a
sub-administrator shall not relieve WMSS of its responsibilities hereunder.
Notwithstanding anything to the contrary in this Agreement, WMSS 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 WMSS 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 WMSS shall pay expenses as described in Section 4.
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 WMSS, 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
WMSS 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 2 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 WM Investment Advisors, Inc., the Trust's
sub-administrator or any of their affiliates; federal regulatory fees and state
Blue Sky qualification fees; fees and out-of-pocket expenses of custodians and
the Trust's sub-administrator; 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
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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
WMSS shall exercise its best judgment in rendering the services
listed in Paragraph 2 above. WMSS 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 execution date 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 WMSS.
7. Service to Other Companies or Accounts
The Trust understands that WMSS may act in the future as
administrator to other investment companies or series of investment companies,
and the Trust has no objection to WMSS's so acting. The Trust understands that
the persons employed by WMSS to assist in the performance of WMSS'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
WMSS or any affiliate of WMSS to engage in and devote time and attention to
other businesses or to render services of whatever kind or nature.
8. Representations of the Trust and WMSS
The Trust represents that (a) a copy of the Declaration of Trust is
on file in the office of the Secretary of the Commonwealth of Massachusetts, (b)
the appointment of WMSS has been duly authorized and (c) it has acted and will
continue to act in conformity with the 1940 Act and other applicable laws. WMSS
represents that it is authorized to perform the services described herein.
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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 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 counterpart, 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,
WM PRIME INCOME FUND
By: ________________________
President
Accepted:
WM SECURITIES SERVICES, INC.
By: ________________________
First Vice President
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<PAGE> 1
EXHIBIT (C)(8)
DISTRIBUTION CONTRACT
THIS DISTRIBUTION CONTRACT (this "Agreement"), dated this ____ day of
March, 1998, between WM Prime Income Fund, formerly known as Sierra Prime Income
Fund, a Massachusetts business trust (the "Trust"), and WM Funds Distributor,
Inc., formerly known as Composite Funds Distributor, Inc., a Washington
corporation doing business at Seattle, Washington, herein sometimes referred to
as the "Distributor."
RECITALS
WHEREAS, the Trust is registered as a closed-end, management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act");
WHEREAS, the Trust and the Distributor desire to enter into an
agreement that sets forth standard terms and conditions for the distribution of
the classes of common shares of beneficial interest of the Trust (the "Shares");
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration the receipt of which is
hereby acknowledged, the parties hereto agree as follows:
1. APPOINTMENT. The Trust hereby affirms the appointment of WM Funds
Distributor, Inc. as the agent for distribution of the Shares covered by the
Trust's registration statement (as hereinafter defined) and grants Distributor
the right to sell Shares on behalf of the Trust and on the terms set forth in
this Agreement. The Distributor 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. The Distributor shall
have the right to order from the Trust the Shares needed, but not more than
needed (correcting for any clerical errors or errors of transmission), to fill
such orders as are unconditional.
2. DELIVERY OF DOCUMENTS. The Trust has furnished the Distributor
with copies of:
(a) Agreement and Declaration of Trust and all amendments
thereto for the Trust (as amended from time to time, the "Declaration of
Trust");
(b) Bylaws and all amendments thereto for the Trust (as amended
from time to time, the "Bylaws"); and
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(c) The Trust's registration statement, prospectus,
statement of additional information, and any amendments and
supplements thereto, then in effect (the "Registration Statement")
under the Securities Act of 1933, as amended (the "1933 Act") and the
1940 Act.
From time to time, the Trust will furnish the Distributor with
current copies of all amendments or supplements to the foregoing, if any, and
all documents, notices and reports filed with the Securities and Exchange
Commission (the "SEC") and will make available, upon request, evidence of
payment of registration fees imposed from time to time by the States in which
Shares are sold by the Distributor.
3. DUTIES OF THE DISTRIBUTOR. The Distributor shall provide each Fund
with the benefit of its best judgment, efforts and facilities in rendering its
services as Distributor. The Distributor will act as the exclusive Distributor
of the Shares, subject to the supervision of the Trust's Board of Trustees and
the following understandings: (i) the Trust's Board of Trustees shall be
responsible for and control the conduct of the Trust's affairs; (ii) in all
matters relating to the performance of this Agreement, the Distributor will act
in conformity with the Declaration of Trust, Bylaws and Registration Statement
of the Trust and with the instructions and directions of the Trust's Board of
Trustees; (iii) the Distributor will conform to and comply with applicable
requirements of the 1940 Act, the 1933 Act and all other applicable federal or
state laws and regulations.
4. DISTRIBUTION OF SHARES. It is mutually understood and agreed that
the Distributor does not undertake to sell all or any specific portion of the
Shares. The Trust shall not sell any of its Shares except through the
Distributor. The Distributor may, as principal and on its own behalf, enter into
agreements ("Dealer Agreements"), on such terms and conditions as the
Distributor 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 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 the Distributor for sales of Shares as of the effective date of
such expulsion or suspension. Notwithstanding the provisions of the foregoing
sentence:
(a) The Distributor may, and when requested by the Trust,
shall, suspend its efforts to effectuate sales of the Trust shares at
any time when in the opinion of the Distributor or of the Trust no
sales should be made because of a need to revise a Registration
Statement, or because of market or other economic considerations or
abnormal
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<PAGE> 3
circumstances of any kind. Either party in its sole discretion may
reject orders for the purchase of such shares;
(b) The Trust may withdraw the offering of its shares (i)
at any time with the consent of the Distributor or (ii) without such
consent when so required by the provisions of any statute (including
the 1933 Act and the 1940 Act) or of any order, rule or regulation of
any governmental body having jurisdiction;
(c) The Distributor is not authorized by the Trust to
provide any information or to make any representations other than
those contained in the appropriate Registration Statements, or
contained in shareholder reports or other material that may be
prepared by or on behalf of the Trust for Distributor's use. This
shall not be construed to prevent the Distributor from preparing and
distributing sales literature or other material as it may deem
appropriate.
5. COMPENSATION. The Trust shall not pay any compensation to the
Distributor for services as principal underwriter herein, nor shall the Trust
reimburse the Distributor for any expenses related to such services.
A. Early Withdrawal Charges. The Trust shall cause its transfer agent
(the "Transfer Agent") to withhold, from repurchase proceeds payable to holders
of Shares, 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, the Distributor 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 the Distributor in conformity with applicable
law. Any such services will be performed on behalf of the Trust, and the
Distributor 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. The Distributor's payment or assumption of any expense of the Trust
that it is not required to pay or assume under this Agreement shall not relieve
the Distributor of any of its obligations ot the Trust or obligate the
Distributor to pay or assume any similar expense on any subsequent occasion.
C. Directed Payment; Allocable Portion Calculations. The Distributor
may direct the Trust to pay any part or all of the EWCs payable to the
Distributor in respect of any Shares directly to persons providing funds to the
Distributor 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. The Distributor shall, at its own expense and not as the expense
of the Trust, provide the Trust with any necessary calculations of the
Distributor'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.
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<PAGE> 4
D. Maximum Charges. Notwithstanding anything to the contrary
contained in this Agreement, EWCs paid to Distributor by any class of shares of
the Trust shall not exceed the amount permitted by the NASD Contract ("NASD
Rules"), as in effect from time to time, and the aggregate amount of EWCs paid
to the Distributor 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).
6. EXPENSES. The expenses connected with distribution shall be
allocable between the Trust and the Distributor as follows:
(a) The Distributor shall furnish the services of personnel
to the extent that such services are required to carry out its
obligations under this Agreement and shall bear all distribution
expense incurred in the distribution of Shares except those expenses
allocated specifically to the Trust in Section 6(b) of this
Agreement. For purposes of this Agreement, "distribution expenses" of
the Distributor shall mean all expenses borne by the Distributor
which represent payment for activities primarily intended to result
in the sale of the Trust shares.
(b) The Trust assumes and shall pay or cause to be paid the
following expenses incurred on its behalf:
Registration of shares including the expense of printing and
distributing prospectuses to existing shareholders; expenses incurred for
maintaining the Trust's existence, taxes and expenses related to portfolio
transactions; charges and expenses of any registrar, custodian or depository for
portfolio securities and other property, and any stock transfer, dividend or
account agent or agents; all taxes, including securities issuance and transfer
taxes, and fees payable to federal, state or other governmental agencies; costs
and expenses in connection with the registration and maintenance of registration
of the Trust and the Shares with the SEC and various states and other
jurisdictions (including filing fees, legal fees and disbursements of counsel);
expenses of shareholders' and directors' meetings and preparing, printing, and
mailing of proxy statements and reports to shareholders; fees and travel
expenses of directors who are not "interested persons" as that term is defined
in the 1940 Act; 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 the Shares; fees and expenses of legal
counsel and of independent accountants; membership dues of industry
associations; postage (excluding postage for promotional and sales literature);
insurance premiums on property of personnel (including, but not limited to legal
claims and liabilities and litigation costs and any indemnification related
thereto); and all other charges and costs of the Trust's operation unless
otherwise explicitly provided herein.
7. 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
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<PAGE> 5
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 the Distributor may designate.
B. Information Reports; Financial Data. The Trust shall furnish to
the Distributor 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 the
Distributor 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 the
Distributor, upon its request, (a) annual audits of the Trust's books and
accounts made by independent public accounts 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 the Distributor may
reasonable request from time to time.
8. NON-EXCLUSIVITY. The services of the Distributor are not exclusive
and the Distributor shall be entitled to render distribution or other services
to others (including other investment companies) and to engage in other
activities. It is understood and agreed that officers of the Distributor may
serve as officers or trustees of the Trust, and that officers or trustees of the
Trust may serve as officers of the Distributor to the extent permitted by law;
and that officers of the Distributor are not prohibited from engaging in any
other business activity or from rendering services to any other person, or from
serving as partners, officers or directors of any other firm or corporation,
including other investment companies and broker/dealers.
9. TERM AND APPROVAL. This Agreement shall become effective as of the
date first above written for an initial period of two years, and shall continue
in force and effect from year to year thereafter, provided that, with respect to
the Trust or the Trust shares, such continuance is specifically approved at
least annually:
(a) By the Trust's Board of Trustees, including the
affirmative vote of a majority of the Board of Trustees of the Trust
who are not (i) parties to this Agreement, (ii) interested persons of
any such party (as defined in Section 2(a)(19) of the 1940 Act), or
(iii) persons having a direct or indirect financial interest in the
operation of this Agreement or any agreement related to this
Agreement (the "Qualified Trustees") by votes cast in person at a
meeting called for the purpose of voting on such approval, or
(b) By the vote of a majority of the outstanding voting
securities of the Fund (as defined in Section 2(a)(42) of the 1940
Act).
10. TERMINATION. This Agreement may be terminated, with respect to
the Trust or the Trust share, at any time, without the payment of any penalty,
on sixty (60) days' written notice, by vote of the Board of Trustees of the
Trust, or by a vote of a majority of the Qualified Trustees, or by a vote of a
majority of the outstanding voting securities of the Fund (as defined in Section
2(a)(42) of the 1940 Act), or by the Distributor on sixty (60) days' written
notice to the Fund. The notice provided for herein may be waived by either
party. This Agreement shall
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<PAGE> 6
automatically terminate in the event of its assignment, the term "assignment"
for this purpose having the meaning set forth in Section (a)(4) of the 1940 Act.
11. REPRESENTATIONS AND WARRANTIES. The Trust represents and warrants
to the Distributor that any registration statement, prospectus and statement of
additional information, when such Registration Statement 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, prospectus or
statement of additional information will be true and correct when such
Registration Statement becomes effective; and that neither any registration
statement nor any prospectus or statement of additional information when such
Registration Statement becomes effective will include an 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. The Distributor may, but shall not be obligated to, propose from time to
time such amendment or amendments to any registration statement and such
supplement or supplements to any prospectus or statement of additional
information as, in the light of future developments, may, in the opinion of the
Distributor's counsel, be necessary or advisable. If the Trust shall not propose
such amendment or amendments and/or supplement or supplements within fifteen
(15) days after receipt by the Trust of a written request from the Distributor
to do so, the Distributor may, at its option, terminate this Agreement. The
Trust shall not file any amendment to any registration statement or supplement
to any prospectus or statement of additional information without giving the
Distributor 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 amendments to any registration statement and/or
supplements to any prospectus or statement of additional information, of
whatever character, as the Trust may deem advisable, such right being in all
respects absolute and unconditional.
12. AMENDMENTS. This Agreement may be amended, with respect to any
Fund or Class, by the parties hereto only if such amendment is specifically
approved (i) by the Board of Trustees of the Trust or by the vote of majority of
outstanding voting securities of the Fund, and (ii) by a majority of the
Qualified Trustees, which vote must be cast in person at a meeting called for
the purpose of voting on such approval.
13. INDEMNIFICATION.
13.1 The Trust authorizes the Distributor and any
dealers with whom Distributor has entered into dealer
agreements to use any prospectus or statement of additional
information furnished by the Trust from time to time, in
connection with the sale of shares of each Fund. The Trust
agrees to indemnify, defend and hold Distributor, its
several officers and directors, and any person who controls
Distributor within the meaning of Section 15 of the 1933
Act, 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) which Distributor, its officers and directors,
or any such controlling person, may incur under the 1933
Act, the 1940
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<PAGE> 7
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, any
prospectus or any statement of additional information, 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, any prospectus or any statement
of additional information, or necessary to make the
statements in any of them not misleading; provided,
however, that the Trust's agreement to indemnify the
Distributor, its officers or directors, and any such
controlling person shall not be deemed to cover any claims,
demands, liabilities or expenses arising out of or based
upon any statements or representations made by Distributor
or its representatives or agents other than such statements
and representations as are contained in any registration
statement, prospectus or statement of additional
information and in such financial and other statements as
are furnished to the Distributor pursuant to paragraph 2
hereof; and further provided that the Trust's agreement to
indemnify the Distributor and the Trust's representations
and warranties shall not be deemed to cover any liability
to the Trust or its shareholders to which Distributor would
otherwise be subject by reason of willful misfeasance, bad
faith or gross negligence in the performance of its duties,
or by reason of Distributor' reckless disregard of its
obligations and duties under this Agreement. The Trust's
agreement to indemnify Distributor, its officers and
directors, and any such controlling person, as aforesaid,
is expressly conditioned upon the Trust's being notified of
any action brought against Distributor, its officers or
directors, or any such controlling person, such
notification to be given by letter or by telegram addressed
to the Trust at its principal office stated herein and sent
to the Trust by the person against whom such action is
brought, within ten (10) days after the summons or other
first legal process shall have been served. 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 paragraph 12.1. The
Trust's indemnification agreement contained in this
paragraph 12.1 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 Distributor, its officers and directors,
or any controlling person, and shall survive the delivery
of any shares. This agreement of indemnity will inure
exclusively to Distributor's benefit, to the benefit of its
several officers and directors and their respective
estates, and to the benefit of the controlling persons and
their successors. The Trust agrees to notify Distributor
promptly of the commencement of any litigation or
proceedings against the Trust or any of its officers or
trustees in connection with the issuance and sale of any
shares.
13.2 Distributor agrees to indemnify, defend and
hold the Trust, its several officers and trustees, and any
person who controls the Trust within the meaning of Section
15 of the 1933 Act, free and harmless from and against any
and all claims, demands, liabilities and expenses
(including the costs of investigating
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<PAGE> 8
or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) that the
Trust, its officers or trustees or any such controlling
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 the Trust, its officers or
trustees or such controlling person resulting from such
claims or demands shall arise out of or be based upon (a)
any unauthorized sales literature, advertisements,
information, statements or representations or (b) any
untrue or allegedly untrue statement of a material fact
contained in information furnished in writing by the
Distributor to the Trust and used in the answers to any of
the items of the Registration Statement or in the
corresponding statements made in the prospectus or
statement of additional information, 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 Distributor to the Trust and
required to be stated in such answers or necessary to make
such information not misleading. Distributor's agreement to
indemnify the Trust, its officers and trustees, and any
such controlling person, as aforesaid, is expressly
conditioned upon Distributor being notified of any action
brought against the Trust, its officers or trustees, or any
such controlling person, such notification to be given by
letter or telegram addressed to Distributor at its
principal office as stated herein and sent to Distributor
by the person against whom such action is brought, within
ten days after the summons or other first legal process
shall have been served. The failure so to notify the
Distributor of any such action shall not relieve
Distributor from any liability that the Distributor may
have to the Trust, its officers or trustees, or to such
controlling person by reason of any such untrue or alleged
untrue statement or omission or alleged omission otherwise
than on account of Distributor's indemnity agreement
contained in this paragraph 12.2. The Distributor agrees to
notify the Trust promptly of the commencement of any
litigation or proceedings against Distributor or any of its
officers or directors in connection with the issuance and
sale of any shares.
13.3 In case any action shall be brought against
any indemnified party under paragraph 12.1 or 12.2, and it
shall notify the indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to
participate in, and, to the extent that it shall wish to do
so, to assume the defense thereof with counsel satisfactory
to such indemnified party. If the indemnifying party opts
to assume the defense of such action, the indemnifying
party will not be liable to the indemnified party for any
legal or other expenses subsequently incurred by the
indemnified party in connection with the defense thereof
other than (a) reasonable costs of investigation or the
furnishing of documents or witnesses and (b) all reasonable
fees and expenses of separate counsel to such indemnified
party if (i) the indemnifying party and the indemnified
party shall have agreed to the retention of such counsel or
(ii) the indemnified party shall have concluded reasonably
that representation of the indemnifying party and the
indemnified party by the same counsel would be
inappropriate due to actual or potential differing
interests between them in the conduct of the defense of
such action.
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<PAGE> 9
14. LIABILITY OF THE DISTRIBUTOR. In the performance of its duties
hereunder, the Distributor shall be obligated to exercise care and diligence and
to act in good faith and to use its best efforts within reasonable limits to
insure the accuracy of all services performed under this Agreement, but the
Distributor shall not be liable for any act or omission which does not
constitute willful misfeasance, bad faith or gross negligence on the part of the
Distributor or reckless disregard by the Distributor of its duties under this
Agreement.
15. NOTICES. Any notices under this Agreement shall be in writing,
addressed and delivered or mailed postage paid to the other party at such
address as such other party may designate for the receipt of such notice. Until
further notice to the other party, it is agreed that the address of the Trust
shall be 601 West Main Avenue, Spokane, WA 99201, and the address of the
Distributor shall be 1201 Third Avenue, Seattle, WA 98101.
16. DECLARATION OF TRUST AND LIMITATION OF LIABILITY. A copy of the
Declaration of Trust of the Trust is on file with the Secretary of State of The
Commonwealth of Massachusetts, and notice is hereby given that this Agreement is
executed by an officer of the Trust on behalf of the trustees of the Trust, as
trustees and not individually, on further behalf of each Fund, and that the
obligations of this Agreement with respect to each Fund shall be binding upon
the assets and properties of the Fund only and shall not be binding upon the
assets and properties of any other Fund or series of the Trust or upon any of
the trustees, officers, employees, agents or shareholders of the Fund or the
Trust individually.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in duplicate by their respective officers on the day and year first
above written.
WM PRIME INCOME FUND
By: _______________________________
Name:
Title:
Attest:
By: ___________________________________
Name:
Title:
WM FUNDS DISTRIBUTOR, INC.
By: _____________________________
William G. Papesh
President
Attest:
By: _________________________
Sharon L. Howells
Secretary
