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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
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<S> <C>
/X/ Preliminary Proxy Statement / / Confidential, for Use of the Commission
/ / Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
Sierra Trust Funds
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
SIERRA TRUST FUNDS
CALIFORNIA MUNICIPAL, NATIONAL MUNICIPAL, FLORIDA INSURED MUNICIPAL AND
CALIFORNIA INSURED INTERMEDIATE MUNICIPAL FUNDS
Dear Shareholder:
The attached proxy statement solicits your vote as a Shareholder of the
California Municipal, National Municipal, Florida Insured Municipal and/or
California Insured Intermediate Municipal Funds (individually a "Fund" or
collectively, the "Funds") for the purpose of approving a new investment
sub-advisory agreement (the "New Sub-Advisory Agreement") with the current
sub-advisor, Van Kampen American Capital Management Inc. ("Capital Management"
or "Sub-Advisor"), as a result of a merger transaction involving the Sub-Advisor
and its parent.
A Special Meeting of Shareholders of the Funds has been scheduled for
October 29, 1996. While you are, of course, welcome to join us at the meeting,
most Shareholders cast their votes by filling out and signing the proxy card
that accompanies this proxy statement.
The attached proxy statement is designed to give you information
relating to the proposal on which you will be asked to vote. We encourage you
to support the Trustees' recommendation. The proposal described in the proxy
statement relates to the following matter:
Approval of the New Sub-Advisory Agreement by and among each Fund,
Sierra Investment Advisors Corporation and the Sub-Advisor with respect
to each of the California Municipal, National Municipal, Florida
Insured Municipal and California Insured Intermediate Municipal Funds
of the Sierra Trust Funds.
The purpose of the above recommendation is to permit each Fund to
continue to receive investment sub-advisory services from the Sub-Advisor after
the acquisition of the Sub-Advisor's parent by Morgan Stanley Group, Inc.
("Morgan Stanley"). As a result of the acquisition, a change of control of the
Sub-Advisor is deemed to have occurred which automatically terminates the Funds'
current investment sub-advisory agreements.
Your vote is important to us. Please mark, sign and date the enclosed
proxy card and return it as soon as possible. For your convenience, we have
enclosed a self-addressed stamped envelope. If you have any questions about
the proposal, please do not hesitate to call 800-222-5852. Thank you for
taking the time to consider this important proposal and for your investment in
Sierra Trust Funds.
Sincerely,
F. Brian Cerini
President and Chief Executive Officer
Sierra Trust Funds
<PAGE> 3
SIERRA TRUST FUNDS
9301 Corbin Avenue, Suite 333
Northridge, California 91324
_________________________
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To be held on October 29, 1996
To the Shareholders of
California Municipal Fund
National Municipal Fund
Florida Insured Municipal Fund
California Insured Intermediate Municipal Fund:
Notice is hereby given that a Special Meeting (the "Special Meeting")
of Shareholders of California Municipal Fund, National Municipal Fund, Florida
Insured Municipal Fund and California Insured Intermediate Municipal Funds
(individually a "Fund" and collectively, the "Funds") of the Sierra Trust Funds
(the "Trust"), a Massachusetts business trust, will be held at the offices of
Sierra Fund Administration Corporation, 9301 Corbin Avenue, Suite 333,
Northridge, California 91324, on October 29, 1996 at 9:00 a.m. Pacific Standard
Time, to consider and act on the following matters:
1. Proposal to approve a new investment sub-advisory agreement
(the "New Sub-Advisory Agreement") by and among each Fund,
Sierra Investment Advisors Corporation (the "Advisor") and Van
Kampen American Capital Management Inc. ("Capital Management"
or "Sub-Advisor") with respect to each of the California
Municipal, National Municipal, Florida Insured Municipal and
California Insured Intermediate Municipal Funds of the Trust.
2. To consider and act upon any other matters as may properly
come before the Special Meeting.
All shareholders of the Funds are cordially invited to attend the
Special Meeting. Regardless of whether you plan to attend the Special Meeting,
please complete, sign and date the enclosed proxy and return it promptly in the
enclosed envelope so that a quorum will be present and a maximum number of
shares may be voted. If you are present at the Special Meeting, you may change
your vote, if desired, at that time.
Shareholders of record at the close of business on September 10, 1996
are entitled to notice of and to vote at the Special Meeting or any adjournment
thereof.
By Order of the Board of Trustees
Keith B. Pipes
Secretary
September 26, 1996
PROMPT EXECUTION AND RETURN OF THE ENCLOSED PROXY IS REQUESTED. A
SELF-ADDRESSED, POSTAGE-PAID ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE.
<PAGE> 4
SIERRA TRUST FUNDS
9301 Corbin Avenue, Suite 333
Northridge, California 91324
_________________________
PROXY STATEMENT
_________________________
This Proxy Statement is furnished by the Board of Trustees of the
Sierra Trust Funds (individually, a "Fund" and collectively, the "Funds") in
connection with the solicitation of proxies for use at the Special Meeting of
Shareholders to be held on October 29, 1996 at 9:00 a.m., Pacific Standard Time,
at the offices of Sierra Fund Administration Corporation ("Sierra
Administration"), 9301 Corbin Avenue, Suite 333, Northridge, California 91324
(the "Special Meeting" or "Meeting"). Shareholders of record of the Funds at
the close of business on September 10, 1996 (the "Record Date") are entitled to
vote at the Meeting. The table below sets forth the number of shares
outstanding for each of the Funds being solicited by this Proxy Statement as of
September 10, 1996:
Fund Shares Outstanding
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California Municipal Fund
National Municipal Fund
Florida Insured Municipal Fund
California Insured Intermediate Municipal Fund
Each share is entitled to one vote and each fractional share is entitled to a
proportionate fractional vote on each matter as to which such shares are to be
voted at the Meeting. Shareholders of each Fund will vote separately on the
proposal to approve a new investment sub-advisory agreement (the "New
Sub-Advisory Agreement") by and among the Fund, Sierra Investment Advisors
Corporation ("Sierra Advisors" or "Advisor") and Van Kampen American Capital
Management Inc. ("Capital Management" or "Sub-Advisor"), with approval for each
Fund occurring if, and only if, approved by shareholders of each Fund.
In addition to the solicitation of proxies by mail, Trustees and
officers of the Funds and officers and employees Sierra Administration or third
parties hired for the purpose, may solicit proxies in person or by telephone.
Persons holding shares as nominees will, upon request, be reimbursed for their
reasonable expenses incurred in sending soliciting materials to their
principals. The general cost of solicitation will be borne by Capital
Management. It is expected that the Notice of Special Meeting, the Proxy
Statement and Proxy Card will be mailed to shareholders on or about September
26, 1996.
<PAGE> 5
Shares represented by duly executed proxies will be voted in
accordance with the instructions given. Proxies may be revoked at any time
before they are exercised by a written revocation received by the President of
the Fund at 9301 Corbin Avenue, Suite 333, Northridge, California 91324, by
properly executing a later-dated proxy, or by attending the Meeting and voting
in person.
INTRODUCTION
The Funds are organized as a Massachusetts business trust and are not
required to hold annual meetings of Shareholders. The Meeting is being called
in order to permit the Shareholders of the Funds to vote on the approval of the
New Sub-Advisory Agreement with the current sub- advisor, Capital Management.
This New Sub-Advisory Agreement is considered appropriate because consummation
of the merger transaction involving the Sub-Advisor and its parent, described
below, might be deemed under the Investment Company Act of 1940, as amended
(the "1940 Act") to cause termination of the current investment sub-advisory
agreement (the "Current Sub-Advisory Agreement") by and among the Fund, Sierra
Investment Advisors Corporation ("Sierra Advisors" or "Advisor") and Capital
Management.
THE PROPOSED TRANSACTION
The Funds' investment sub-advisor is Capital Management. The
Sub-Advisor which currently is a wholly-owned subsidiary of Van Kampen American
Capital, Inc. ("VKAC"), which is a wholly-owned subsidiary of VKAC Holding,
which in turn is controlled, through the ownership of a substantial majority of
its common stock, by The Clayton & Dubilier Private Equity Fund IV Limited
Partnership ("C&D L.P."), a Connecticut limited partnership. C&D L.P. is
managed by Clayton, Dubilier & Rice, Inc., a New York based private investment
firm. The General Partner of C&D L.P. is Clayton & Dubilier Associates IV
Limited Partnership ("C&D Associates L.P.").
On June 21, 1996, an Agreement and Plan of Merger ("Merger Agreement")
was entered into by and among VK/AC Holding, Morgan Stanley Group Inc. ("Morgan
Stanley"), MSAM Holdings II, Inc. ("MSAM Holdings"), and MSAM Acquisition, Inc.
("MSAM Acquisition"), pursuant to which VK/AC Holding and Capital Management
will become indirect subsidiaries of Morgan Stanley. Morgan Stanley expects
that regulatory approvals will be received and that the merger transaction will
be consummated before the end of October, 1996.
Under the terms of the Current Sub-Advisory Agreements and as required
by the 1940 Act, the Current Sub-Advisory Agreements automatically terminate
upon their assignment. As more fully discussed below, the consummation of the
contemplated acquisition of the Sub- Advisor by Morgan Stanley may constitute
an assignment of the Current Sub-Advisory Agreements. Therefore, in order for
the Funds to continue to receive investment sub-advisory services from the
Sub-Advisor after such assignment, it is necessary that the shareholders of the
Funds approve the New Sub-Advisory Agreement.
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<PAGE> 6
The proposal set forth in this Proxy Statement relates to the New
Sub-Advisory Agreement. THE TERMS OF THE NEW SUB-ADVISORY AGREEMENT ARE NOT
DIFFERENT IN ANY MATERIAL WAY FROM THOSE OF THE CURRENT SUB-ADVISORY AGREEMENTS
WITH RESPECT TO DUTIES, FEES AND THE STANDARD OF CARE, EXCEPT THAT THE NEW
AGREEMENT WILL PROVIDE THAT THE CURRENT SUB-ADVISOR MAY, IF IT CONTINUES TO
SERVE IN THOSE CAPACITIES DURING ANY PERIOD BETWEEN THE CLOSING OF THE MERGER
TRANSACTION AND APPROVAL OF THE NEW AGREEMENT, RECEIVE AS COMPENSATION UNDER
THE NEW AGREEMENT AN AMOUNT EQUAL TO THE FEES THEY WOULD NORMALLY RECEIVE
DURING SUCH PERIOD PURSUANT TO THE CURRENT SUB-ADVISORY AGREEMENT. THIS
PROVISION ENSURES THAT CAPITAL MANAGEMENT WILL BE COMPENSATED FOR THEIR
SERVICES DURING SUCH PERIOD EVEN IF IT SHOULD BE DETERMINED THAT AN ASSIGNMENT
OF THE CURRENT SUB-ADVISORY AGREEMENT OCCURRED. PROVIDING FOR SUCH
COMPENSATION SHOULD NOT HAVE ANY MATERIAL IMPACT ON THE NET ASSET VALUE PER
SHARE OR EXPENSE RATIO OF THE FUNDS BECAUSE THE FUNDS WILL CONTINUE TO ACCRUE
FOR ADVISORY FEES AT THE CURRENT RATE DURING ANY SUCH PERIOD.
THE ACQUISITION
Pursuant to the Merger Agreement, MSAM Acquisition Inc. will be merged
with and into VKAC Holding and VKAC Holding will be the surviving corporation
(the "Acquisition"). Following the Acquisition, VKAC Holding and the
Sub-Advisor will be indirect subsidiaries of Morgan Stanley.
The Sub-Advisor anticipates that the consummation of the Acquisition
will occur by the end of October 1996 provided that a number of conditions set
forth in the Merger Agreement are met or waived. The conditions require, among
other things, that as of the closing the shareholders of certain investment
companies (including the Funds) and investors in certain accounts advised by
the Sub-Advisor or its affiliates, which investment companies and accounts have
aggregate assets in excess of a specified minimum amount, have approved new
investment advisory agreements or consented to the assignment of existing
investment advisory agreements. At the closing, MSAM Acquisition Inc. will pay
approximately $740 million (based on VKAC's long-term debt outstanding as of
July 31, 1996) in cash to the stockholders of VKAC Holding (excluding certain
management stockholders), and to persons owning options to purchase stock of
VKAC Holding, subject to certain purchase price adjustments set forth in the
Merger Agreement. As of July 31, 1996, VKAC had long-term debt outstanding of
approximately $410 million. To the extent that pre-tax income of VKAC prior to
the closing of the Acquisition permits the repayment of its long-term debt, the
purchase price for the equity interests in VKAC Holding will be increased by
the amount of long-term debt repaid. The purchase price also is subject to
certain adjustments based, among other things, on assets under management of
VKAC and its subsidiaries at the time of closing. The Sub-Advisor also
contemplates that, as part of the Acquisition, certain officers and directors
of VKAC Holding and its affiliates will contribute to MSAM Holdings II, Inc.
their existing shares of common stock of VKAC Holding in exchange for
approximately $25 million of shares of preferred stock of MSAM Holdings II,
Inc. which, in turn, will be exchangeable into common stock, par value $1.00
per share, of Morgan Stanley at specified times over a four-year period. Such
shares of preferred stock will represent, in the
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<PAGE> 7
aggregate, 5% of the combined voting power in MSAM Holdings II, Inc., the
remainder of which will be indirectly owned by Morgan Stanley.
VKAC Holding will engage in certain preparatory transactions prior to
the Acquisition, including the distribution to stockholders of VKAC Holding of
(i) all of VKAC Holding's investment in McCarthy, Crisanti & Maffei, Inc., a
wholly-owned subsidiary engaged in the business of distributing research and
financial information, (ii) all of VKAC Holding's investment in Hansberger
Global Investors, Inc. ("HGI"), a company in which VKAC Holding made a minority
investment in May 1996, and (iii) certain related cash amounts.
There is no financing condition to the closing of the Acquisition.
VKAC has been advised by Morgan Stanley that as of , 1996, no
determination has been made whether any additional indebtedness will be
incurred by Morgan Stanley and its affiliates or VKAC and its affiliates in
connection with the Acquisition. In addition, the disposition of VKAC's
outstanding long-term indebtedness (including its bank loans and senior notes)
in connection with the Acquisition has not yet been determined.
The operating revenue of VKAC and its subsidiaries for the fiscal year
ended December 31, 1995, less expenses for the same period, was more than
adequate to service VKAC's outstanding debt. VKAC prepaid $80 million of its
long-term debt in 1995, and has continued to make debt prepayments during 1996.
VKAC Holding and VKAC believe, based on the earnings experience of VKAC and its
subsidiaries, that after the Acquisition the operating revenue of VKAC and its
subsidiaries should be more than sufficient to service their debt and that VKAC
and its subsidiaries should be able to conduct their respective operations as
now conducted and as proposed to be conducted.
The Merger Agreement does not contemplate any changes, other than
changes in the ordinary course of business, in the management or operation of
the Sub-Advisor relating to the Funds, the personnel managing the Funds or
other services or business activities of the Funds. The Acquisition is not
expected to result in material changes in the business, corporate structure or
composition of the senior management or personnel of the Sub-Advisor, or in the
manner in which the Sub-Advisor renders services to the Funds. Morgan Stanley
has agreed in the Merger Agreement that, for a period of two years from the
date of the Acquisition, it will cause the Sub-Advisor to provide compensation
and employee benefits which are substantially comparable in the aggregate to
those presently provided. The Sub-Advisor does not anticipate that the
Acquisition or any ancillary transactions will cause a reduction in the quality
of services now provided to the Funds, or have any adverse effect on the
Sub-Advisor's ability to fulfill its obligations under the New Sub-Advisory
Agreement or to operate its business in a manner consistent with past business
practices.
Certain officers of the Sub-Advisor, including Dennis J. McDonnell and
Don G. Powell previously entered into employment agreements with VKAC Holding
which expire from between 1997 and 2000. Certain officers of the Sub-Advisor
also previously entered into retention
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<PAGE> 8
agreements with VKAC Holding, which will remain in place for two years
following the consummation of the Acquisition. The Merger Agreement
contemplates that Morgan Stanley will, and will cause VKAC Holding to, honor
such employment and retention agreements. The employment agreements and
retention agreements are intended to assure that the services of the officers
are available to the Sub-Advisor (and thus to the Funds) for a remaining term
of two to four-years. As described above, certain officers and employees of
VKAC and the Sub-Advisor, including Mr. McDonnell and Mr. Powell, are expected
to contribute their existing shares of common stock of VKAC Holding to MSAM
Holdings II, Inc. in exchange for approximately $25 million of preferred stock
in MSAM Holdings II, Inc. which, in turn, will be exchangeable into common
stock, par value $1.00 per share, of Morgan Stanley at specified times over a
four-year period. Such shares of preferred stock will represent, in the
aggregate, 5% of the combined voting power in MSAM Holdings II, Inc.
Morgan Stanley and various of its directly or indirectly owned
subsidiaries, including Morgan Stanley & Co. Incorporated ("Morgan Stanley &
Co."), a registered broker-dealer and investment adviser, and Morgan Stanley
International, are engaged in a wide range of financial services. Their
principal businesses include securities underwriting, distribution and trading;
merger, acquisition, restructuring and other corporate finance advisory
activities; merchant banking; stock brokerage and research services; asset
management; trading of futures, options, foreign exchange, commodities and
swaps (involving foreign exchange, commodities, indices and interest rates);
real estate advice, financing and investing; and global custody, securities
clearance services and securities lending. Morgan Stanley Capital Management
Inc. also is a wholly-owned subsidiary of Morgan Stanley. As of June 30, 1996,
Morgan Stanley Capital Management Inc., together with its affiliated investment
advisory companies, had approximately $103.5 billion of assets under management
and fiduciary advice.
TRUSTEES' CONSIDERATIONS
The Board of Trustees believes that the terms of the New Sub-Advisory
Agreement are fair to and in the best interest of the Funds and their
Shareholders. The Board of Trustees, including all of the non-interested
Trustees, recommends approval by Shareholders of the New Sub-Advisory
Agreement. In determining to recommend that the shareholders approve the New
Sub-Advisory Agreement, the Board of Trustees took into account that, except for
changes in the ownership of the Sub-Advisor and the dates of execution,
effectiveness and termination, there are no differences between the terms and
conditions of the Current Sub-Advisory Agreement and the proposed New
Sub-Advisory Agreement, including the terms relating to the services to be
provided thereunder by the Sub-Advisor and the fees and expenses payable by the
Funds. The Board of Trustees also considered that the terms of the New
Sub-Advisory Agreement do not contemplate change in the investment objectives or
policies of the Funds, the management or operations of the Sub-Advisor relating
to the Funds, the personnel managing the Funds, or the shareholder services or
other business activities of the Funds. As the Sub-Advisor has indicated to the
Trustees, the Acquisition is not expected to result in any such change. The
Board also considered the skills and capabilities of the Sub-Advisor and the
representations of the Sub-
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Advisor and Morgan Stanley that no material change was planned in the current
management of the Sub-Advisor. There can be no assurance that such changes may
not occur. If, after the Acquisition, changes in the Sub-Advisor are proposed
that might affect its services to the Funds, the Trustees will consider the
effect of those changes and take such action as they deem advisable under the
circumstances.
The Board of Trustees also considered the terms of the Merger
Agreement and the possible effects of the Acquisition upon the Sub-Advisor's
organization and upon the ability of the Sub-Advisors to provide investment
sub-advisory services to the Funds. The Board of Trustees considered the
skills and capabilities of the Sub-Advisor and the representations of Morgan
Stanley that no material change was planned in the current management or
facilities of the Sub-Advisor. In this regard, representatives of Morgan
Stanley met with the Board of Trustees at which time such representatives
described the resources available to the Sub-Advisor, after giving effect to
the Acquisition, to secure for the Funds quality investment research,
investment advice and other client services. The Board of Trustees considered
the financial resources of Morgan Stanley and Morgan Stanley's representation
to the Board of Trustees that it will provide sufficient capital to support the
operations of the Sub-Advisor. The Board of Trustees also considered the
reputation, expertise and resources of Morgan Stanley and its affiliates in
domestic and international financial markets. The Board of Trustees considered
the continued employment of members of senior management of the Sub-Advisor
pursuant to employment and retention agreements and the incentives provided to
such members and other key employees of the Sub-Advisor to be important to help
to assure continuity of the personnel primarily responsible for maintaining the
quality of investment advisory and other services for the Funds.
The Board of Trustees considered the effects on the Funds of the
Sub-Advisor becoming an affiliated person of Morgan Stanley. Following the
Acquisition, the 1940 Act will prohibit or impose certain conditions on the
ability of the Funds to engage in certain transactions with Morgan Stanley and
its affiliates. For example, absent exemptive relief, the Funds will be
prohibited from purchasing securities from Morgan Stanley & Co., a wholly-owned
broker-dealer subsidiary of Morgan Stanley, in transactions in which Morgan
Stanley & Co. acts as a principal, and the Funds will have to satisfy certain
conditions in order to engage in securities transactions in which Morgan
Stanley & Co. acts as a broker or to purchase securities in an underwritten
offering in which Morgan Stanley & Co. is acting as an underwriter. In this
connection, management of the Sub-Advisor represented to the Board of Trustees
that they do not believe these prohibitions or conditions will have a material
effect on the management or performance of the Funds.
The Board of Trustees was advised that Section 15(f) of the 1940 Act
is applicable to the Acquisition. Section 15(f) of the 1940 Act permits, in
the context of a "change in control" of an investment advisor to a registered
investment company, the receipt by such investment advisor, or any of its
affiliated persons, of an amount of benefit in connection with such sale, as
long as two conditions are satisfied. First, an "unfair burden" must not be
imposed on the investment company for which the investment advisor acts in such
capacity as a result of the sale of such
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<PAGE> 10
interest, or any express or implied terms, conditions or understandings
applicable thereto. The term "unfair burden," as defined in the 1940 Act,
includes any arrangement during the two-year period after the transaction
whereby the investment advisor (or predecessor or successor advisor), or any
interested person of any such advisor, receives or is entitled to receive any
compensation, directly or indirectly, from the investment company or its
security holders (other than fees for bona fide investment advisory and other
services), or from any person in connection with the purchase or sale of
securities or other property to, from or on behalf of the investment company
(other than ordinary fees for bona fide principal underwriting services). The
second condition of Section 15(f) is that during the three-year period
immediately following a transaction to which Section 15(f) is applicable, at
least 75% of the subject investment company's board of directors must not be
"interested persons" (as defined in the 1940 Act) of the investment company's
investment advisor or predecessor advisor.
None of the current members of the Board of Trustees of the Funds is
an interested person of Capital Management. Additionally, the Board of
Trustees of the Funds has received assurances from Capital Management and
Morgan Stanley that no "unfair burden" will be imposed on the Funds as a result
of the merger transaction.
On the basis of their review of the information and factors discussed
above, the Trustees, including a majority of the Disinterested Trustees, have
concluded that it is in the best interests of the Funds and their shareholders
to approve the New Sub-Advisory Agreement, thereby enabling the Funds to
receive investment sub-advisory services from the Sub-Advisor.
PROPOSAL I: APPROVAL OF THE NEW INVESTMENT SUB-ADVISORY AGREEMENT
In anticipation of the possibility of an assignment of the Current
Sub-Advisory Agreement of the Funds in connection with the Acquisition, at a
meeting held on September 9, 1996, the Board of Trustees, including a majority
of the Trustees who are not "interested persons" as such term is defined in the
1940 Act, concluded that if the Acquisition takes place, entry into the New
Sub-Advisory Agreement by the Funds would be in the best interests of the Funds
and their shareholders. Therefore, the Board of Trustees is recommending that
Shareholders of the Funds approve the selection of Capital Management to
continue to serve as the investment sub-advisor to the Funds after the merger
transaction of its parent is completed, and approve the New Sub-Advisory
Agreement. Other than the provision assuring continuity of compensation and the
effective and termination dates, there are no material differences between the
Current and New Sub-Advisory Agreements.
DESCRIPTION OF THE CURRENT SUB-ADVISORY AGREEMENTS
Capital Management currently serves as the investment Sub-Advisor to
the Florida Insured Municipal Fund and California Insured Intermediate Municipal
Fund pursuant to agreements by and among such Funds, Sierra Advisors and the
Sub-Advisor dated and approved by the Initial Shareholder of the Funds on June
2, 1993 and April 1, 1994, respectively.
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<PAGE> 11
Capital Management currently serves as investment Sub-Advisor to the California
Municipal Fund and National Municipal Fund pursuant to investment sub-advisory
agreements by and among the Funds, Sierra Advisors and the Sub-Advisor dated
February 17, 1993 and approved by shareholders on __________________, for the
purpose of continuing sub-advisory services with Capital Management after a
change of control of its parent.
Under the Current Sub-Advisory Agreements, Capital Management makes the
day-to-day investment decisions for the assets of the Funds, subject to the
supervision of, and policies established by, Sierra Advisors and the Trustees
of the Funds. The form of the New Sub-Advisory Agreement is attached to this
Proxy Statement as Appendix A and the description of the New Sub-Advisory
Agreement set forth in this Proxy Statement is qualified in its entirety by
reference to Appendix A.
Except for changes in the ownership of the Sub-Advisor, and the dates
of execution, effectiveness and termination, the terms of the New Sub-Advisory
Agreement are the same as the terms of the Current Sub-Advisory Agreements.
Capital Management will be paid the same fees under the proposed New
Sub-Advisory Agreement.
Under the Current Sub-Advisory Agreement, Capital Management shall not
be liable for any error of judgment or for any loss suffered by the Funds or
Sierra Advisors in connection with performance of its obligations under the
Agreement, except for any losses resulting from a breach of a fiduciary duty
with respect to the receipt of compensation for services, or resulting from
willful misfeasance, bad faith or gross negligence on Capital Management's part
in the performance of its duties or from reckless disregard of its obligations
and duties under the Agreement.
The Current Sub-Advisory Agreements have an initial term of two years
from their effective date, and thereafter shall continue for successive annual
periods, provided the continuation is approved by the Funds' Board of Trustees
or by vote of a majority of its outstanding voting securities, as well as by a
majority of the Funds' Trustees who are not "interested persons" as defined in
the 1940 Act. The Current Sub-Advisory Agreements may be terminated, without
the payment of any penalty on 30 days' written notice by Sierra Advisors, the
Board of Trustees or upon 90 days' written notice by Capital Management. In
addition, the Current Sub-Advisory Agreement will also terminate automatically
upon the termination of the investment advisory agreement between the Funds and
Service Advisors, as well as in the event of an assignment. The New
Sub-Advisory Agreement's approval and termination provisions are in substance
identical to those of the Current Sub-Advisory Agreements so that the New
Sub-Advisory Agreement will have an initial term of two years from the date of
execution.
Under the Current Sub-Advisory Agreement, Capital Management is
entitled to a fee from Sierra Advisors which is calculated daily and paid
monthly, based upon the Funds' average daily net assets as follows:
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<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
After After After After
Amount of 50; next 75; next 100; next 125; next
Assets ($Mil.) First 50 25 25 25 25 After 150
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
California
Municipal Fund .20% .20% .20% .20% .20% .15%
(1)
- --------------------------------------------------------------------------------------------------------------
National
Municipal Fund .20% .20% .20% .20% .20% .15%
(1)
- --------------------------------------------------------------------------------------------------------------
Florida Insured
Municipal Fund .20% .20% .125% .125% .125% .125%
- --------------------------------------------------------------------------------------------------------------
California
Insured
Intermediate .20% .20% .125% .125% .125% .125%
Municipal Fund
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Pursuant to the investment sub-advisory agreements with respect to
each of the California Municipal and National Municipal Funds, when
the combined average daily net assets of the California Municipal and
National Municipal Funds (the "Combined Assets") exceed $750 million,
the Sub-Advisor will be paid a fee with respect to each Fund in
proportion to each Fund's average net assets at the following annual
rate: .15% of the Combined Assets up to $1 billion; plus .125% of the
Combined Assets over $1 billion.
Capital Management may from time to time and at its discretion voluntarily
waive all or a portion of its fees in order to assist the Funds in maintaining
competitive expense ratios. Capital Management reserves the right to terminate
any voluntary fee waiver and reimbursement at any time. Capital Management
will be entitled to receive the same fees under the New Sub-Advisory Agreement,
except that, if Capital Management continues to provide investment advisory
services during any period between the time of the closing of the merger
transaction and entry into the New Sub-Advisory Agreement, Capital Management
will be entitled to receive its normal fee, even if it is determined that the
merger resulted in termination of the Current Sub-Advisory Agreement.
As compensation for investment sub-advisory services to the Funds for
the fiscal year ended June 30, 1996, Capital Management received compensation
with respect to each Fund as follows: for the California Municipal Fund
$684,287; for the National Municipal Fund $461,755; for the Florida Insured
Municipal Fund $73,371; and for the California Insured Intermediate Fund
$143,109.
REQUIRED VOTE
The affirmative vote of a majority of the outstanding shares of
beneficial interest of a Fund is required to approve the New Sub- Advisory
Agreement with respect to such Fund. If the New Sub-Advisory Agreement is not
approved by the holders of a majority of the outstanding shares of a Fund, the
Board of Trustees will reconsider the Fund's contractual relationship with the
Sub-Advisor regarding the investment sub-advisory services provided to the
Fund.
INFORMATION REGARDING CAPITAL MANAGEMENT
Capital Management acts as investment Sub-Advisor for the Funds and
has acted as investment sub-advisor for the Funds since each commenced its
investment operations.
The Sub-Advisor currently is a wholly-owned subsidiary of Van Kampen
American Capital, Inc. ("VKAC"), which is a wholly-owned subsidiary of VKAC
Holding, which in turn is controlled, through the ownership of a substantial
majority of its common stock, by The Clayton & Dubilier Private Equity Fund IV
Limited Partnership ("C&D L.P."), a Connecticut limited partnership. C&D L.P.
is managed by Clayton, Dubilier & Rice, Inc., a New
-9-
<PAGE> 13
York based private investment firm. The General Partner of C&D L.P. is Clayton
& Dubilier Associates IV Limited Partnership ("C&D Associates L.P."). The
general partners of C&D Associates L.P. are Joseph L. Rice, III, B. Charles
Ames, William A. Barbe, Alberto Cribiore, Donald J. Gogel, Leon J. Hendrix,
Jr., Hubbard C. Howe and Andrall E. Pearson, each of whom is a principal of
Clayton, Dubilier & Rice, Inc. In addition, certain officers, directors and
employees of VKAC own, in the aggregate, approximately 6% of the common stock
of VKAC Holding and have the right to acquire, upon the exercise of options
(whether or not vested), approximately an additional 12% of the common stock of
VKAC Holding. Currently, and after giving effect to the exercise of such
options, no officer or trustee of the Funds owns or would own 5% or more of the
common stock of VKAC Holding. The addresses of VKAC Holding, VKAC and the
Sub-Advisor are One Parkview Plaza, Oakbrook Terrace, Illinois 60181 and 2800
Post Oak Boulevard, Houston, Texas 77056.
The Directors and principal executive officers of the Sub-Advisor and
their principal occupations are listed below.
<TABLE>
<CAPTION>
NAME AND ADDRESS PRINCIPAL OCCUPATION
- ---------------- --------------------
<S> <C>
Don G. Powell...................President, Chief Executive Officer and a Director of VKAC
2800 Post Oak Blvd. Holding and VKAC and Chairman, Chief Executive Officer
Houston, TX 77056 and a Director of Van Kampen American Capital Distributors,
Inc. (the "Distributor"), the Advisers. Van Kampen American
Capital Management, Inc. and Van Kampen American Capital
Advisors, Inc. Chairman, President and a Director of Van
Kampen American Capital Exchange Corporation, American
Capital Commercial Services, Inc., Van Kampen Merritt Equity
Holdings Corp., and American Capital Shareholders
Corporation. Chairman and a Director of ACCESS Investor
Services, Inc. ("ACCESS"), Van Kampen Merritt Equity
Advisors Corp., McCarthy, Crisanti & Maffei, Inc., and Van
Kampen American Capital Trust Company. Chairman, President
and a Director of Van Kampen American Capital Services, Inc.
President, Chief Executive Officer and a Trustee/Director of
certain open-end investment companies and closed-end investment
companies advised by the Texas Adviser. Prior to July 1996,
Chairman and Director of VSM Inc. and VCI Inc. Prior to July
1996, President, Chief Executive Officer and a Trustee/Director of
certain open-end investment companies and certain closed-end
investment companies advised by Asset Management.
Dennis J. McDonnell.............President, Chief Operating Officer and a Director of Advisers,
One Parkview Plaza Van Kampen American Capital Advisors, Inc. and Van
Oakbrook Terrace, IL Kampen American Capital Management, Inc. Executive Vice
60181 President and a Director of VKAC Holding and VKAC.
President and Director of Van Kampen Merritt Equity Advisors
Corp. Director of Van Kampen Merritt Equity Holdings Corp.
and McCarthy, Crisanti & Maffei, S.A. Chief Executive Officer
and Director of McCarthy, Crisanti & Maffei, Inc. Chairman
and a Director of MCM Asia Pacific Company, Limited.
President and Trustee/Director of open-end investment
companies and closed-end investment companies advised by the
Advisers. Prior to July 1996, President, Chief Operating Officer
and Director of VSM Inc. and VCI Inc. Prior to December
1991, Senior Vice President of Van Kampen Merritt, Inc.
Ronald A. Nyberg................Executive Vice President, General Counsel and Secretary of
One Parkview Plaza VKAC Holding and VKAC. Executive Vice President, General
Oakbrook Terrace, IL Counsel and a Director of the Distributor, the Advisers, Van
60181 Kampen American Capital Management, Inc., Van Kampen
Merritt Equity Advisors Corp., and Van Kampen Merritt
Equity Holdings Corp. Executive Vice President, General
Counsel and Assistant Secretary of Van Kampen American
Capital Advisors, Inc., American Capital Contractual Services,
Inc., Van Kampen American Capital Exchange Corporation,
ACCESS, Van Kampen American Capital Services, Inc. and
American Capital Shareholders Corporation. Executive Vice
President, General Counsel. Assistant Secretary and Director of
Van Kampen American Capital Trust Company. General
Counsel of McCarthy, Crisanti & Maffei, Inc. Vice President
and Secretary of open-end investment companies and closed-
end investment companies advised by the Advisers. Director of
ICI Mutual Insurance Co., a provider of insurance to members
of the Investment Company Institute. Prior to July 1996,
Executive Vice President and General Counsel of VSM Inc.,
and Executive Vice President, General Counsel and Director of
VCI Inc.
William R. Rybak................Executive Vice President and Chief Financial Officer of VKAC
One Parkview Plaza Holding and VKAC since February 1993, and Treasurer of
Oakbrook Terrace, IL VKAC Holding through December 1993. Executive Vice
60181 President, Chief Financial Officer and a Director of the
Distributor, the Advisers, and Van Kampen American Capital
Management, Inc. Executive Vice President, Chief Financial
Officer, Treasurer and a Director of Van Kampen Merritt
Equity Advisors Corp. and Van Kampen Merritt Equity
Holdings Corp. Executive Vice President and Chief Financial
Officer of the Van Kampen American Capital Advisors, Inc.,
Van Kampen American Capital Exchange Corporation, Van
Kampen American Capital Trust Company, ACCESS, and
American Capital Contractual Services, Inc. Executive Vice
President, Chief Financial Officer and Treasurer of American
Capital Shareholders Corporation and Van Kampen American
Capital Services, Inc. Chief Financial Officer and Treasurer of
McCarthy, Crisanti & Maffei, Inc. Chairman of the Board of
Hinsdale Financial Corp., a savings and loan holding company.
Prior to July 1996, Executive Vice President, Chief Financial
Officer and a Director of VCI Inc., and Executive Vice
President and Chief Financial Officer of VSM Inc.
Peter W. Hegel..................Executive Vice President of Advisory Corp., Van Kampen
One Parkview Plaza American Capital Advisors, Inc., and Van Kampen American
Oakbrook Terrace, IL Capital Management, Inc. Executive Vice President and
60181 Director of Asset Management. Director of McCarthy,
Crisanti & Maffei, Inc. Vice President of open-end investment
companies and closed-end investment companies advised by the
Advisers. Prior to July 1996, Director of VSM Inc.
Robert C. Peck, Jr. ............Executive Vice President of Advisory Corp. and Van Kampen
2800 Post Oak Blvd. American Capital Management, Inc. Executive Vice President
Houston, TX 77056 and Director of Asset Management and Van Kampen American
Capital Advisors, Inc. Vice President of open-end investment
companies advised by the Advisers.
Alan T. Sachdeben...............Executive Vice President of Advisory Corp. and Van Kampen
2800 Post Oak Blvd. American Capital Management, Inc. Executive Vice President
Houston, TX 77056 and a Director of Asset Management and Van Kampen
American Capital Advisors, Inc. Vice President of open-end
investment companies advised by the Advisers.
</TABLE>
None of the Officers or Trustees of the Funds is an officer, employee,
director, or shareholder of the Sub-Advisor.
The Sub-Advisor currently provides investment services to the
following investment companies having an investment objective similar to the
investment objective of the Funds:
<TABLE>
<CAPTION>
AMOUNT OF ASSETS UNDER
MANAGEMENT AS OF
NAME OF INVESTMENT COMPANY AUGUST 29, 1996 FEE SCHEDULE
- -------------------------- ---------------------- ------------
<S> <C> <C>
Municipal Income Fund $989,882,660 First $500 million .500%
(National Municipal Fund) Over $500 million .450%
Florida Insured Tax Free Income Fund $33,675,408 First $500 million .500%
(Florida Insured Municipal Fund) Over $500 million .450%
California Insured Tax Free Income Fund $173,614,724 First $100 million .500%
(California Municipal Fund and Next $150 million .450%
California Insured Intermediate Next $250 million .425%
Municipal Fund) Over $500 million .400%
</TABLE>
GENERAL INFORMATION ABOUT THE FUND AND OTHER MATTERS DISTRIBUTION
Sierra Investment Services Corporation ("Sierra Services"), located at
9301 Corbin Avenue, Northridge, California 91324, acts as the Funds'
Distributor. Sierra Services is a wholly-owned subsidiary of Sierra Capital
Management Corporation, which is located at the same address.
PORTFOLIO TRANSACTIONS
For the fiscal year ended _________, the Funds paid no brokerage
commissions to affiliated brokers.
BENEFICIAL OWNERSHIP
As of September 10, 1996, to the Funds' knowledge, no person held
beneficially 5% or more of the outstanding shares of any of the Funds.
ADJOURNMENT
-10-
<PAGE> 14
In the event that sufficient votes in favor of the Proposal set forth
in the Notice of the Special Meeting are not received by the time scheduled for
the Special Meeting, the persons named as proxies may propose one or more
adjournments of the Special Meeting for a period or periods of not more than 60
days in the aggregate to permit further solicitation of proxies with respect to
such Proposal. Any such adjournment will require the affirmative vote of a
majority of the votes cast on the question in person or by proxy at the session
of the meeting to be adjourned. The persons named as proxies will vote in
favor of such adjournment those proxies which they are entitled to vote in
favor of the Proposal. They will vote against any such adjournment those
proxies required to be voted against the Proposal. The costs of any such
additional solicitation and of any adjourned session will be borne by Capital
Management.
REQUIRED VOTE
Approval of the Proposal requires the affirmative vote of a majority
of the outstanding shares of a Fund. As defined in the 1940 Act, "majority of
the outstanding shares" means the vote of (i) 67% or more of the Fund's
outstanding shares present at a Meeting, if the holders of more than 50% of the
outstanding shares of the Fund are present or represented by proxy, or (ii)
more than 50% of the Fund's outstanding shares, whichever is less.
Abstentions and "broker non-votes" will not be counted for or against
the Proposal, but will be counted for purposes of determining whether a quorum
is present. Abstentions will be counted as votes present for purposes of
determining a "majority of the outstanding voting securities" present at the
Special Meeting, and will therefore have the effect of counting against the
Proposal.
SHAREHOLDER PROPOSALS
As a Massachusetts business trust, the Funds are not required to hold
annual shareholders' meetings. Shareholders wishing to submit proposals for
inclusion in a proxy statement for a subsequent meeting should send their
written proposals to Sierra Trust Funds, 9301 Corbin Avenue, Northridge,
California 91324, c/o Secretary, Sierra Trust Funds.
REPORTS TO SHAREHOLDERS
THE FUNDS WILL FURNISH, WITHOUT CHARGE, A COPY OF THE MOST RECENT
ANNUAL REPORT TO SHAREHOLDERS OF THE FUNDS AND THE MOST RECENT SEMI-ANNUAL
REPORT SUCCEEDING SUCH ANNUAL REPORT, IF ANY, ON REQUEST. REQUESTS SHOULD BE
DIRECTED TO SIERRA FUND ADMINISTRATION CORPORATION AT 9301 CORBIN AVENUE, SUITE
333, NORTHRIDGE, CALIFORNIA 91324 OR BY CALLING 800-222-5852.
OTHER MATTERS
The Trustees know of no other business to be brought before the
Meeting. However, if any other matters properly come before the meeting, it is
the intention that proxies which do not contain specific restrictions to the
contrary will be voted on such matters in accordance with the judgment of the
persons named in the enclosed form of proxy.
________________________________
SHAREHOLDERS ARE URGED TO COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AND RETURN
IT PROMPTLY.
-11-
<PAGE> 15
INVESTMENT SUB-ADVISORY AGREEMENT
October___, 1996
Van Kampen American Capital Management Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Dear Sirs:
Sierra Trust Funds (the "Company"), an unincorporated business trust
organized under the laws of the Commonwealth of Massachusetts, and Sierra
Investment Advisors Corporation ("Sierra Advisors"), a corporation organized
under the laws of the state of California, hereby agree with Van Kampen
American Capital Management Inc. (the "Sub-Advisor"), a corporation organized
under the laws of the state of Delaware, as follows:
1. Investment Description; Appointment
The Company desires to employ the capital of the Company's California
Municipal Fund, National Municipal Fund, Florida Insured Municipal Fund, and
California Insured Intermediate Municipal Fund (individually, the "Fund" and
collectively, the "Funds") by investing and reinvesting in investments of the
kind and in accordance with the limitations specified in its Master Trust
Agreement, as amended, and in their Prospectus and Statement of Additional
Information relating to the Funds 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 Company. Copies of the Funds'
Prospectus and Statement of Additional Information and the Company's Master
Trust Agreement, as amended, have been or will be submitted to the Sub-Advisor.
The Company agrees to provide copies of all amendments to the Funds' Prospectus
and Statement of Additional Information and the Company's Master Trust
Agreement to the Sub-Advisor on an on-going basis. The Company desires to
employ and hereby appoints the Sub-Advisor to act as investment sub-advisor to
the Funds. The Sub-Advisor accepts the appointment and agrees to furnish the
services described herein for the compensation set forth below.
<PAGE> 16
2. Services as Investment Sub-Advisor
Subject to the supervision of the Board of Trustees of the Company and
of Sierra Advisors, the Funds' investment adviser, the Sub-Advisor will (a)
act in conformity with the Company's Master Trust Agreement, 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 Funds in accordance with the Funds' investment
objectives) and policies as stated in the Funds' Prospectus and Statement of
Additional Information as in effect and, after notice to the Sub-Advisor, and
which may be amended from time to time, (c) place purchase and sale orders on
behalf of the Funds to effectuate the investment decisions made, (d) maintain
books and records with respect to the securities transactions of the Funds and
will furnish the Company's Board of Trustees such periodic, regular and special
reports as the Board may request; and (e) treat confidentially and as
proprietary information of the Company, all records and other information
relative to the Company 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 Company, which approval shall not be
unreasonably withheld and such records may not be withheld 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 Company. In providing
those services, the Sub-Advisor will supervise the Funds' investments and
conduct a continual program of investment, evaluation and, if appropriate, sale
and reinvestment of the Funds' assets. In addition, the Sub-Advisor will
furnish the Funds or Sierra Advisors with whatever statistical information the
Funds or Sierra Advisors may reasonably request with respect to the instruments
that the Funds may hold or contemplate purchasing.
3. Brokerage
In executing transactions for the Funds and selecting brokers or
dealers, the Sub-Advisor will use its best efforts to seek the best overall
terms available and shall execute or direct
-2-
<PAGE> 17
the execution of all such transactions in a manner permitted by law and in a
manner that is in the best interest of the Funds and their shareholders. In
assessing the best overall terms available for any Funds transactions, 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 Funds, in
placing orders with brokers and 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 and dealers who
provide the Company with research advice and other services.
4. Information Provided to the Company
The Sub-Advisor will keep the Company and Sierra Advisors informed of
developments materially affecting the Funds, and will on its own initiative,
furnish the Company and Sierra Advisors on at least a quarterly basis with
whatever information the Sub-Advisor believes is appropriate for this purpose.
5. Standard of Care
The Sub-Advisor shall exercise its 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 Funds 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").
-3-
<PAGE> 18
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 the fees detailed in Appendix A attached to
this Agreement. The Sub-Advisor shall have no right to obtain compensation
directly from the Funds or the Company for services provided hereunder and
agrees to look solely to Sierra Advisors for payment of fees due. Upon any
termination of this Agreement before the end of a month, the fee for such part
of that month shall be prorated according to the proportion that such period
bears to the full monthly period and shall be payable upon the date of
termination of this Agreement. For the purpose of determining fees payable to
the Sub-Advisor, the value of the Funds' net assets shall be computed at the
times and in the manner specified in the Funds' Prospectus or Statement of
Additional Information relating to the Funds as from time to time in effect.
Should it be determined that the Investment Sub-Advisory Agreements
between the Trust, Advisor and Sub-Advisor dated __________________________,
terminated as a result of the assignment thereof prior to the effective date of
this Agreement, compensation hereunder 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 Company 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 Company who are not officers, directors or employees of the
Sub-Advisor, Sierra Advisors, the Funds' 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 Company's sub-administrator and transaction
charges of custodians; insurance premiums; outside auditing and legal expenses;
costs of maintenance of the
-4-
<PAGE> 19
Company'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 Funds and of the officers or Board of
Trustees of the Company; and any extraordinary expenses. In addition, the
Funds pay a distribution fee pursuant to the terms of Distribution Plans
adopted under Rule 12b-1 of the Investment Company Act of 1940, as amended.
8. Services to Other Companies or Accounts
The Company 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 adviser to one or more other investment
companies or series of investment companies, and the Company has no objection
to the Sub-Advisor so acting, provided that whenever the Funds 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 Company recognizes that in some cases this procedure
may limit the size of the position that may be acquired or disposed of for the
Funds. In addition, the Company 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 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
-5-
<PAGE> 20
Trustees of the Company or (ii) a vote of a "majority" (as defined in the
Investment Company Act of 1940, as amended) of the Funds' 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 Company or by vote of holders of a majority of the
Funds' shares, or upon 90 days' written notice, by the Sub-Advisor and, will
terminate automatically upon any termination of the advisory agreement between
the Company and Sierra Advisors. In addition, this Agreement will also
terminate automatically in the event of its assignment (as defined in said
Act). The Sub-Advisor agrees to notify the Company of any circumstances that
might result in this Agreement being deemed to be assigned.
10. Representations of the Company and the Sub-Advisor
The Company represents that (i) a copy of its Master Trust Agreement,
dated February 22, 1989, together with all amendments thereto, is on file in
the office of the Secretary of the Commonwealth of Massachusetts, (ii) the
appointment of the Sub-Advisor has been duly authorized, and (iii) 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 SubAdviser 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 from
and against any and all claims, losses, liabilities or damages (including
reasonable attorneys' fees and other related expenses), howsoever arising from
or in connection
-6-
<PAGE> 21
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 any
Fund until approved by vote of a majority of the outstanding voting securities
of such Fund.
13. Limitation of Liability
This Agreement has been executed on behalf of the Company by the
undersigned officer of the Company in his capacity as an officer of the
Company. The obligations of this Agreement shall be binding upon the assets
and property of the Funds only and not upon the assets and property of any
other investment fund of the Company and shall not be binding upon any Trustee,
officer or shareholder of the Funds and/or the Company 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.
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 TRUST FUNDS
-7-
<PAGE> 22
By __________________________
Name:
Title:
SIERRA INVESTMENT ADVISORS
CORPORATION
By __________________________
Name:
Title:
Accepted:
VAN KAMPEN AMERICAN CAPITAL MANAGEMENT INC.
By ____________________________
Name:
Title:
-8-
<PAGE> 23
APPENDIX A
For the services provided and expenses assumed pursuant to the Agreement, the
Sub-Advisor will be paid a monthly fee, absent fee waivers, based upon each
Fund's average daily net assets as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
After After After After
Amount of Daily Net Assets 50; next 75; next 100; next 125; next Over
($Mil.) First 50 25 25 25 25 150
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
California Municipal Fund(1) .20% .20% .20% .20% .20% .15%
- --------------------------------------------------------------------------------------------------------------------------
National Municipal Fund(1) .20% .20% .20% .20% .20% .15%
- --------------------------------------------------------------------------------------------------------------------------
Florida Insured Municipal Fund .20% .20% .125% .125% .125% .125%
- --------------------------------------------------------------------------------------------------------------------------
California Insured Intermediate
Municipal Fund .20% .20% .125% .125% .125% .125%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) With respect to each of the California Municipal and National
Municipal Funds, when the combined average daily net assets of the
California Municipal and National Municipal Funds (the "Combined
Assets") exceed $750 million, the Sub-Advisor will be paid a fee with
respect to each Fund in proportion to each Fund's average net assets
at the following annual rate: .15% of the Combined Assets up to $1
billion; plus .125% of the Combined Assets over $1 billion.
-9-
<PAGE> 24
CALIFORNIA MUNICIPAL, NATIONAL MUNICIPAL, FLORIDA INSURED MUNICIPAL AND
CALIFORNIA INSURED INTERMEDIATE MUNICIPAL FUNDS OF SIERRA TRUST FUNDS
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
October 29, 1996
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF SIERRA TRUST FUNDS
The undersigned Shareholder of the California Municipal, National
Municipal, Florida Insured Municipal and/or California Insured Intermediate
Municipal Funds (individually a "Fund" or collectively, the "Funds") of the
Sierra Trust Funds (the "Trust") hereby appoint(s) Keith B. Pipes, Michael D.
Goth and Lawrence J. Sheehan and each of them (with full power of substitution),
the proxy or proxies of the undersigned to attend the Special Meeting of
Shareholders of the Funds ("Special Meeting") to be held on October 29, 1996,
and any adjournments thereof, to vote all of the shares of each of the Funds
that the signer would be entitled to vote if personally present at the Special
Meeting and on any other matters brought before the Special Meeting, all as set
forth in the Notice of Special Meeting of Shareholders. Said proxies are
directed to vote or refrain from voting pursuant to the Proxy Statement as
indicated upon the matters set forth below. The Board of Trustees is soliciting
approval of the New Investment Sub-Advisory Agreement ("New Sub-Advisory
Agreement") between and among each of the Funds, Sierra Advisors and Capital
Management. In order to be approved, greater than 50% of the shares of the Fund
that are outstanding and entitled to vote at the Special Meeting must vote to
approve the New Sub-Advisory Agreement.
THE BOARD OF TRUSTEES RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR"
THE APPROVAL OF THE FOLLOWING PROPOSAL:
1 The undersigned, a Shareholder(s) of the California Municipal Fund,
hereby votes in the following manner:
Approval of a proposal to approve the New Sub-Advisory Agreement by
and among the Fund, Sierra Advisors and Capital Management with
respect to the Fund.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2 The undersigned, a Shareholder(s) of the National Municipal Fund,
hereby votes in the following manner:
Approval of a proposal to approve the New Sub-Advisory Agreement by
and among the Fund, Sierra Advisors and Capital Management with
respect to the Fund.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3 The undersigned, a Shareholder(s) of the Florida Insured Municipal
Fund, hereby votes in the following manner:
Approval of a proposal to approve the New Sub-Advisory Agreement by
and among the Fund, Sierra Advisors and Capital Management with
respect to the Fund.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4 The undersigned, a Shareholder(s) of the California Insured
Intermediate Municipal Fund, hereby votes in the following manner:
Approval of a proposal to approve the New Sub-Advisory Agreement by
and among the Fund, Sierra Advisors and Capital Management with
respect to the Fund.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5 To transact such other business as may properly come before the
Meeting.
The undersigned acknowledges receipt with this proxy of a copy of the
Notice of Special Meeting of Shareholders and the Proxy Statement of the Board
of Trustees.
Your signature(s) on this proxy should be exactly as your name or
names appear on this proxy. If the shares are held jointly, each holder should
sign. If signing is by attorney, executor, administrator, trustee or guardian,
please print your full title below your signature.
Dated: _____________1996
_____________________________________________
Signature
_____________________________________________
Signature
ALL PROPERLY EXECUTED PROXIES WILL BE VOTED AS DIRECTED HEREIN BY THE SIGNING
SHAREHOLDER. IF NO DIRECTION IS GIVEN WHEN THE DULY EXECUTED PROXY IS
RETURNED, SUCH SHARES WILL BE VOTED IN ACCORDANCE WITH THE RECOMMENDATIONS OF
THE BOARD OF TRUSTEES FOR THE PROPOSAL.
PLEASE DATE, SIGN AND RETURN PROMPTLY.
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