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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:
<TABLE>
<S> <C>
/ / Preliminary Proxy Statement / / Confidential, for Use of the Commission
/X/ 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):
/ / $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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/X/ 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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S I E R R A P.O. Box 5118
TRUST FUNDS Westborough, MA 01581-5118
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A Family of Mutual Funds
Dear Shareholder:
The enclosed 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 "Agreement") with the current sub-advisor, Van
Kampen American Capital Management Inc. ("Van Kampen"), as a result of a merger
transaction involving Van Kampen 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 Agreement by and among Sierra Trust Funds (the
"Trust"), Sierra Investment Advisors Corporation and Van Kampen with
respect to each of the California Municipal, National Municipal,
Florida Insured Municipal, and California Insured Intermediate
Municipal Funds.
The purpose of the above recommendation is to permit each Fund to continue to
receive investment sub-advisory services from Van Kampen after the acquisition
of its parent by Morgan Stanley Group, Inc. As a result of the acquisition, a
change of control 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 postage-paid envelope. If you have any questions about the proposal, please
do not hesitate to call us at 800-222-5852. Thank you for taking the time to
consider this important proposal and for your investment in the Sierra Trust
Funds.
Sincerely,
/s/ F. Brian Cerini
F. Brian Cerini
President
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Distributed By Sierra Investment Services Corporation
<PAGE> 3
SIERRA TRUST FUNDS
9301 CORBIN AVENUE, SUITE 333
NORTHRIDGE, CALIFORNIA 91324
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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 the 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 the Trust, Sierra Investment Advisors
Corporation (the "Advisor") and Van Kampen American Capital Management, Inc.
("Capital Management" or the "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
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PROXY STATEMENT
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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:
<TABLE>
<CAPTION>
SHARES
FUND OUTSTANDING
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<S> <C>
California Municipal Fund............................ 36,444,875.256
National Municipal Fund.............................. 20,979,577.016
Florida Insured Municipal Fund....................... 3,416,421.101
California Insured Intermediate Municipal Fund....... 7,152,358.705
</TABLE>
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 the "Advisor") and Van Kampen American Capital
Management, Inc. ("Capital Management" or the "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 of 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 VK/AC Holding,
Inc. ("VKAC Holding"). 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.
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.
<PAGE> 5
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 Agreements with the current sub-advisor, Capital Management. The
New Sub-Advisory Agreements are 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 each respective current investment
sub-advisory agreement (the "Current Sub-Advisory Agreement") by and among each
of the Funds, Sierra Advisors and Capital Management.
THE PROPOSED TRANSACTION
The Funds' investment sub-advisor is Capital Management. 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 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.
VKAC Holding has entered into an Agreement and Plan of Merger ("Merger
Agreement"), dated as of June 21, 1996, by and among VKAC Holding, Morgan
Stanley Group Inc. ("Morgan Stanley"), MSAM Holdings II, Inc. ("MSAM Holdings"),
and MSAM Acquisition, Inc. ("MSAM Acquisition"), pursuant to which VKAC Holding
and Capital Management will become indirect subsidiaries of Morgan Stanley. The
Sub-Advisor expects that regulatory approvals will be received and that the
merger transaction will be consummated by the end of November 1996, provided
that a number of conditions set forth in the Merger Agreement have been met or
waived.
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
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necessary that the shareholders of each of the Funds approve a New Sub-Advisory
Agreement. The New Sub-Advisory Agreement would take effect upon the later to
occur of (i) the obtaining of shareholder approval or (ii) the closing of the
Acquisition.
THE PROPOSAL SET FORTH IN THIS PROXY STATEMENT RELATES TO THE NEW
SUB-ADVISORY AGREEMENTS. 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
SUB-ADVISORY AGREEMENTS 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 SUB-ADVISORY AGREEMENTS, RECEIVE
AS COMPENSATION UNDER THE NEW SUB-ADVISORY AGREEMENTS AN AMOUNT EQUAL TO THE
FEES IT WOULD NORMALLY RECEIVE DURING SUCH PERIOD PURSUANT TO THE CURRENT
SUB-ADVISORY AGREEMENTS. 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 AGREEMENTS 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 ADVISORY FEES AT THE CURRENT RATE DURING ANY SUCH PERIOD.
THE ACQUISITION
Pursuant to the Merger Agreement, MSAM Acquisition 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 November 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 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, their existing shares of common
stock of VKAC Holding in exchange for approximately $25 million of shares of
preferred stock of MSAM Holdings 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
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<PAGE> 7
preferred stock will represent, in the aggregate, 5% of the combined voting
power in MSAM Holdings, 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., 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 August 30, 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 and its affiliates 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
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 for a remaining term of two to four years.
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As described above, certain officers and employees of VKAC and the Sub-Advisor,
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.
INFORMATION CONCERNING MORGAN STANLEY
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 advisor, 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 Asset Management Inc. also is a
wholly-owned subsidiary of Morgan Stanley. As of June 30, 1996, Morgan Stanley
Asset 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-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.
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The Board of Trustees also considered the terms of the Merger Agreement and
the possible effects of the Acquisition upon VKAC's and the Sub-Advisor's
organization and upon the ability of the Sub-Advisor 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
Investment Policy Committee of the Advisor at which time such representatives
described the resources available to VKAC and 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 and
VKAC pursuant to employment and retention agreements and the incentives provided
to such members and other key employees of the Sub-Advisor and VKAC 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 adviser to a registered
investment company, the receipt by such investment adviser, 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 adviser acts in such
capacity as a result of the sale of such 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 adviser (or
predecessor or successor advisor), or any interested person of any such adviser,
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).
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Management of each of the Funds is aware of no circumstances arising from
the Acquisition, preparatory transactions to the Acquisition or any potential
financing that might result in the imposition of an "unfair burden" on the
Funds. Moreover, Morgan Stanley has agreed in the Merger Agreement that, upon
consummation of the Acquisition, it will take no action which would have the
effect, directly or indirectly, of violating any of the provisions of Section
15(f) of the 1940 Act in respect of the Acquisition. In this regard, the Merger
Agreement provides that Morgan Stanley will use its reasonable best efforts to
assure that (i) no "unfair burden" will be imposed on any Fund as a result of
the transactions contemplated by the Merger Agreement and (ii) except as
provided in the Merger Agreement, the investment sub-advisory fees paid by the
Funds will not be increased for a period of two years from the closing of the
Acquisition and that, during such period, advisory fee waivers shall not be
permitted to expire except in accordance with their terms. The Sub-Adviser may
permit a voluntary fee waiver unilaterally adopted by it to expire at any time
and no assurance can be given that voluntary waivers will not be permitted to
expire during the two year period. During the two year period following the
Acquisition, the Sub-Adviser does not intend to change its policies with respect
to the circumstances under which voluntary fee waivers may be permitted to
expire.
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 adviser or predecessor adviser. The current composition of the Board
of Trustees of each Fund would be in compliance with such condition subsequent
to the Acquisition.
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 9-10, 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.
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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 Capital
Management dated and approved by the Initial Shareholder of the Funds on June 7,
1993 and April 1, 1994, respectively.
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 January 29,
1993, 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 Sierra
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.
8
<PAGE> 12
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:
<TABLE>
<CAPTION>
FIRST AFTER 50; AFTER 75; AFTER 100; AFTER 125;
FUND 50* NEXT 25 NEXT 25 NEXT 25 NEXT 25 AFTER 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>
- ---------------
* Amount of Assets in Millions of dollars ($ Mil.)
(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 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 $684,267; for
the National Municipal Fund $461,755; for the Florida Insured Municipal Fund
$73,371; and for the California Insured Intermediate Municipal 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.
In the event that shareholders of a Fund do not approve the New Sub-Advisory
Agreement with respect to such Fund and the Acquisition is consummated, the
Board of Trustees of the Fund would seek to obtain for the Fund interim
investment sub-advisory services at the lesser of cost or the current fee rate
either from the Sub-Adviser or from another advisory organization. Thereafter,
the Board of Trustees of the Fund would either
9
<PAGE> 13
negotiate a new investment sub-advisory agreement with an advisory organization
selected by the Board of Trustees or make appropriate arrangements, in either
event subject to approval of the shareholders of the Fund. In the event the
Acquisition is not consummated, the Sub-Adviser would continue to serve as
investment sub-adviser of the Funds pursuant to the terms of the Current
Sub-Advisory Agreements.
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
2800 Post Oak Blvd. Director of VKAC Holding and VKAC and Chairman,
Houston, TX 77056 Chief Executive Officer and a Director of Van
Kampen American Capital Distributors, Inc. (the
"Distributor"), Van Kampen American Capital
Asset Management, Inc., Van Kampen American
Capital Investment Advisory Corp, 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
Contractual 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. 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 Van Kampen American Capital Asset Management,
Inc.
</TABLE>
10
<PAGE> 14
<TABLE>
<CAPTION>
NAME AND ADDRESS PRINCIPAL OCCUPATION
- ---------------------------- ------------------------------------------------
<S> <C>
Dennis J. McDonnell President, Chief Operating Officer and a
One Parkview Plaza Director of Van Kampen American Capital Asset
Oakbrook Terrace, IL 60181 Management, Inc., Van Kampen American Capital
Investment Advisory Corp, Van Kampen American
Capital Advisors, Inc. and Van Kampen American
Capital Management, Inc. Executive Vice
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. and 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 Van Kampen American Capital
Asset Management, Inc., Van Kampen American
Capital Investment Advisory Corp. 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
One Parkview Plaza Secretary of VKAC Holding and VKAC. Executive
Oakbrook Terrace, IL 60181 Vice President, General Counsel and a Director
of the Distributor, Van Kampen American Capital
Investment Advisory Corp., Van 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 Van Kampen American Capital Asset
Management, Inc., and Van Kampen American
Capital Investment Advisory Corp,. 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 VCJ Inc.
</TABLE>
11
<PAGE> 15
<TABLE>
<CAPTION>
NAME AND ADDRESS PRINCIPAL OCCUPATION
- ---------------------------- ------------------------------------------------
<S> <C>
William R. Rybak Executive Vice President and Chief Financial
One Parkview Plaza Officer of VKAC Holding and VKAC since February
Oakbrook Terrace, IL 60181 1993, and Treasurer of VKAC Holding through
December 1993. Executive Vice President, Chief
Financial Officer and a Director of the
Distributor, Van Kampen American Capital Asset
Management, Inc., Van Kampen American Capital
Investment Advisory Corp. 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 Assistant Treasurer of American
Capital Shareholders Corporation and Van Kampen
American Capital Services, Inc. Chief Financial
Officer and Assistant Treasurer of McCarthy,
Crisanti & Maffei, Inc. and MCM Group, 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 VCJ Inc.,
and Executive Vice President and Chief Financial
Officer of VSM Inc.
Peter W. Hegel Executive Vice President of Van Kampen American
One Parkview Plaza Capital Investment Advisory Corp., Van Kampen
Oakbrook Terrace, IL 60181 American Capital Advisors, Inc., and Van Kampen
American Capital Management, Inc. Executive Vice
President and Director of Van Kampen American
Capital Asset Management, Inc. Director of
McCarthy, Crisanti & Maffei, Inc. Vice President
of open-end investment companies and closed-end
investment companies advised by Van Kampen
American Capital Asset Management, Inc. and Van
Kampen American Capital Investment Advisory
Corp. Prior to July 1996, Director of VSM Inc.
Robert C. Peck, Jr. Executive Vice President of Van Kampen American
2800 Post Oak Blvd. Capital Investment Advisory Corp. and Van Kampen
Houston, TX 77056 American Capital Management, Inc. Executive Vice
President and Director of Van Kampen American
Capital Asset Management, Inc. and Van Kampen
American Capital Advisors, Inc. Vice President
of open-end investment companies advised by Van
Kampen American Capital Asset Management, Inc.
and Van Kampen American Capital Investment
Advisory Corp.
</TABLE>
12
<PAGE> 16
<TABLE>
<CAPTION>
NAME AND ADDRESS PRINCIPAL OCCUPATION
- ---------------------------- ------------------------------------------------
<S> <C>
Alan T. Sachdeben Executive Vice President of Van Kampen American
2800 Post Oak Blvd. Capital Investment Advisory Corp. and Van Kampen
Houston, TX 77056 American Capital Management, Inc. Executive Vice
President and a Director of Van Kampen American
Capital Asset Management, Inc. and Van Kampen
American Capital Advisors, Inc. Vice President
of open- end investment companies advised by the
Van Kampen American Capital Asset Management,
Inc. and Van Kampen American Capital Investment
Advisory Corp.
</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
NAME (SIERRA TRUST FUNDS MANAGEMENT AS OF
PORTFOLIO(S)) OF INVESTMENT COMPANY AUGUST 29, 1996 FEE SCHEDULE
- ------------------------------------ ---------------------- --------------------------
<S> <C> <C>
The Mentor Municipal Income
Portfolio
(California Municipal Fund) $ 54,788,169 .25% up to $60 million
.20% over $60 million
</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 June 30, 1996, 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
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
13
<PAGE> 17
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, the "vote of a
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 Trust and 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.
14
<PAGE> 18
APPENDIX A
FORM OF
INVESTMENT SUB-ADVISORY AGREEMENT
, 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 investment funds
listed on Annex A hereto (individually, a "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.
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 objective 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
A-1
<PAGE> 19
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 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
A-2
<PAGE> 20
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 the fees detailed in Annex 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 for the Funds listed in Annex A, are
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 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.
A-3
<PAGE> 21
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
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 Sub-Advisor has been duly authorized, and
(iii) it will act in
A-4
<PAGE> 22
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 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.
A-5
<PAGE> 23
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
By
-------------------------------------
Name:
Title:
SIERRA INVESTMENT ADVISORS
CORPORATION
By
-------------------------------------
Name:
Title:
Accepted:
VAN KAMPEN AMERICAN CAPITAL
MANAGEMENT INC.
By
- -------------------------------------
Name:
Title:
A-6
<PAGE> 24
ANNEX 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>
FIRST AFTER 50; AFTER 75; AFTER 100; AFTER 125;
FUND 50* NEXT 25 NEXT 25 NEXT 25 NEXT 25 OVER 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>
- ---------------
* Amount of assets in millions of dollars ($Mil.)
(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.
A-7
<PAGE> 25
SIERRA TRUST FUNDS Vote this proxy card TODAY! Your prompt response
will save the expense of additional mailings.
Please be sure to sign and date this Proxy.
PLEASE RETURN THE PROXY CARD IN THE ENCLOSED ENVELOPE.
Please fold and detach card at perforation before mailing
FUND NAME PRINTS HERE
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 above-referenced Fund (the "Fund")
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 Fund ("Special Meeting") to be held on October
29, 1996, and any adjournments thereof, to vote all of the shares of the Fund
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 the Fund, Sierra Advisors and Van Kampen
American Capital Management ("Capital Management").
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.
Dated: , 1996
------------------
Your signatures 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.
--------------------------------------------------------
--------------------------------------------------------
Signature(s) STF
<PAGE> 26
Vote this proxy card TODAY! Your prompt response will
save the expense of additional mailings.
Please be sure to sign and date this Proxy.
PLEASE RETURN THE PROXY CARD IN THE ENCLOSED ENVELOPE.
Please fold and detach card at perforation before mailing
THE BOARD OF TRUSTEES RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE APPROVAL
OF THE FOLLOWING PROPOSAL:
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW, AS SHOWN, USING BLUE OR
BLACK INK OR DARK PENCIL. DO NOT USE RED INK. [ ]
The undersigned, a Shareholder of the Fund, hereby votes in the following
manner:
1 Approval of a New Sub-Advisory Agreement by FOR AGAINST ABSTAIN
and among the Trust, Sierra Advisors and
Capital Management with respect to the Fund. [ ] [ ] [ ]
2 To transact such other business as may
properly come before the Meeting.
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.
STF
