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EXHIBIT (C)(2)
INVESTMENT SUB-ADVISORY AGREEMENT
Effective as of October 31, 1996
Xxx Xxxxxx American Capital Management Inc.
Xxx Xxxxxxxx Xxxxx
Xxxxxxxx Xxxxxxx, Xxxxxxxx 00000
Dear Sirs:
Sierra Prime Income Fund (the "Trust"), an unincorporated business trust
organized under the laws of the Commonwealth of Massachusetts, and Sierra
Investment Advisors Corporation ("Sierra Advisors"), a corporation organized
under the laws of the State of California, hereby agree with Xxx Xxxxxx American
Management Inc. (the "Sub-advisor"), a corporation organized under the laws of
the State of Delaware, as follows:
1. Investment Description; Appointment
The Trust desires to employ the capital of the Trust by investing and
reinvesting in investments of the kind and in accordance with the limitations
specified in its Agreement and Declaration of Trust, as amended ("Declaration of
Trust"), and in its Prospectus and Statement of Additional Information relating
to the Trust as in effect and which may be amended from time to time, and in
such manner and to such extent as may from time to time be approved by the Board
of Trustees of the Trust. Copies of the Trust's Prospectus and Statement of
Additional Information and the Trust's Declaration of Trust, as amended or
restated, have been or will be submitted to the Sub- advisor. The Trust agrees
to provide copies of all amendments to or restatements of the Trust's Prospectus
and Statement of Additional Information and the Trust's Declaration of Trust to
the Sub-advisor on a timely and on-going basis but in all events prior to such
time as said amendments or restatements become effective. The Sub-advisor will
be entitled to rely on all such documents furnished to it by the Trust or Sierra
Advisors. The Trust desires to employ and hereby appoints the Sub-advisor to act
as investment sub-advisor to the Trust. The Sub-advisor accepts the appointment
and agrees to furnish the services described herein for the compensation set
forth below.
2. Services as Investment Sub-advisor
Subject to the supervision of the Board of Trustees of the Trust and of
Sierra Advisors, the Trust's investment advisor, the Sub-advisor will (a) act in
conformity with the Trust's Declaration of Trust, the Investment Company Act of
1940, the Investment Advisers Act of 1940 and the Internal Revenue Code of 1986,
as the same may from time to time be amended, (b) make investment decisions for
the Trust in accordance with the Trust's investment objectives and policies as
stated in the Trust's Prospectus(es) and Statement of Additional Information as
in effect and, after timely notice to the Sub-advisor, which may be amended from
time to time, (c) place purchase and sale orders on behalf of the Trust to
effectuate the investment decisions made, (d) maintain books and records with
respect to the securities transactions of the Trust and will furnish the Trust's
Board of Trustees such periodic, regular and special reports as the Board may
reasonably request; and (e) treat confidentially and as proprietary information
of the Trust, all records and other information specifically relative to the
Trust and prior, present or potential shareholders; and will not use such
records and information for any purpose other than performance of its
responsibilities and duties hereunder, except after prior notification to and
approval in writing by the Trust, which approval shall not be unreasonably
withheld or delayed and such records may not be withheld where the Sub-advisor
is subject to audit by the U.S. Securities and Exchange Commission or other
regulatory, administrative or judicial proceeding or audit or where the
Sub-advisor may be exposed to civil or criminal contempt proceedings for failure
to comply, when requested to divulge such information
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by duly constituted authorities, or when so requested by the Trust. In providing
those services, the Sub-advisor will supervise the Trust's investments and
conduct a continual program of investment, evaluation and, if appropriate, sale
and reinvestment of the Trust's assets. In addition, the Sub-advisor will
furnish the Trust or Sierra Advisors with whatever statistical information the
Trust or Sierra Advisors may reasonably request with respect to the instruments
that the Trust may hold or contemplate purchasing.
3. Brokerage
In executing transactions for the Trust and selecting banks, syndicated
loan agents, brokers or dealers (hereinafter referred to as "brokers or
dealers"), the Sub-advisor will use its best efforts to seek the best overall
terms available and shall execute or direct the execution of all such
transactions in a manner permitted by law and in a manner that is in the best
interest of the Trust and its shareholders. In assessing the best overall terms
available for any Trust transaction, with respect to the lenders from whom the
Trust will purchase assignments and participations in Senior Loans the
Sub-advisor will consider all factors it deems relevant including, but not
limited to their professional ability, level of service, relationship with the
borrower, financial condition, credit standards and quality of management. With
respect to investments other than Senior Loans, the Sub-advisor will consider
all factors it deems relevant including, but not limited to, breadth of the
market in the security, the price of the security, the financial condition and
execution capability of the broker or dealer and the reasonableness of any
commission for the specific transaction and on a continuing basis. Pursuant to
its investment determinations for the Trust, in placing orders with brokers or
dealers, the Sub-advisor will attempt to obtain the best net price and the most
favorable execution of its orders. Consistent with this obligation, when the
execution and price offered by two or more brokers or dealers are comparable,
the Sub-advisor may, in its discretion, purchase and sell portfolio securities
to and from brokers or dealers who provide the Trust with research advice and
other services.
4. Information Provided to the Trust
The Sub-advisor will keep the Trust and Sierra Advisors informed of
developments materially affecting the Trust, and will on its own initiative,
furnish the Trust and Sierra Advisors on at least a quarterly basis with
whatever information the Sub-advisor reasonably believes is appropriate for this
purpose.
5. Standard of Care
The Sub-advisor shall exercise its reasonable best judgment in rendering
the services described in Paragraphs 2 and 3 above. The Sub-advisor shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Trust or the Advisor in connection with the matters to which this Agreement
relates, except (a) a loss resulting from a breach of fiduciary duty with
respect to the receipt of compensation for services (in which case any award of
damages shall be limited to the period and the amount set forth in Section
36(b)(3) of the Investment Company Act of 1940, as amended) or (b) a loss
resulting from willful misfeasance, bad faith or gross negligence on its part in
the performance of its duties or from reckless disregard by it of its
obligations and duties under this Agreement (each such breach, act or omission
described in (a) or (b) shall be referred to as "Disqualifying Conduct").
6. Compensation
In consideration of the services rendered pursuant to this Agreement,
Sierra Advisors will pay the Sub- advisor on the first business day of each
month a fee for the previous month at an annual rate of .475% of the Trust's
average daily net assets. The Sub-advisor shall have no right to obtain
compensation directly from the Trust or the Trust for services provided
hereunder and agrees to look solely to Sierra Advisors for payment of fees due.
Upon any termination of this Agreement before the end of a month, the fee for
such part of that month shall be prorated according to the proportion that such
period bears to the full monthly period and shall be payable upon the date of
termination of
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this Agreement. For the purpose of determining fees payable to the Sub-advisor,
the value of the Trust's net assets shall be computed at the times and in the
manner specified in the Trust's Prospectus and/or Statement of Additional
Information relating to the Trust as from time to time in effect.
Should it be determined that the Investment Sub-Advisory Agreement
between the Trust, Sierra Advisors and Sub-Advisor dated February 14, 1996, is
terminated as a result of the assignment thereof prior to the effective date of
this Agreement, compensation thereunder shall commence as of the date of such
termination.
7. Expenses
The Sub-advisor will bear all expenses in connection with the
performance of its services under this Agreement, which expenses shall not
include brokerage fees or commissions in connection with the effectuation of
securities transactions. The Trust (or Sierra Advisors) will bear certain other
expenses to be incurred in its operation, including but not limited to:
organizational expenses, taxes, interest, brokerage fees and commissions, if
any; fees of Trustees of the Trust who are not officers, directors or employees
of the Sub-advisor, Sierra Advisors, the Trust's sub- administrator or any of
their affiliates; Securities and Exchange Commission fees and state Blue Sky
qualification fees; out-of-pocket expenses of custodians, transfer and dividend
disbursing agents and the Trust's sub-administrator and transaction charges of
custodians; insurance premiums; outside auditing and legal expenses; costs of
maintenance of the Trust's existence; costs attributable to investor services,
including without limitation, telephone and personnel expenses; costs of
preparing and printing prospectuses and statements of additional information for
regulatory purposes and for distribution to existing shareholders; costs of
shareholders' reports and meetings of the shareholders of the Trust and of the
officers or Board of Trustees of the Trust; and any extraordinary expenses.
8. Services to Other Companies or Accounts
The Trust understands that the Sub-advisor now acts, will continue to
act and may act in the future as investment adviser to fiduciary and other
managed accounts and as investment advisor or sub-investment advisor to one or
more other investment companies or series of investment companies, and the Trust
has no objection to the Sub-advisor so acting, provided that whenever the Trust
and one or more other accounts or investment companies advised by the Sub-
advisor have available funds for investment, investments suitable and
appropriate for each will be allocated in accordance with procedures believed to
be equitable to each entity. Similarly, opportunities to sell securities will be
allocated in an equitable manner. The Trust recognizes that in some cases this
procedure may limit the size of the position that may be acquired or disposed of
for the Trust. In addition, the Trust understands that the persons employed by
the Sub-advisor to assist in the performance of the Sub-advisor's duties
hereunder will not devote their full time to such service and nothing contained
herein shall be deemed to limit or restrict the right of the Sub-advisor or any
affiliate of the Sub- advisor to engage in and devote time and attention to
other business or to render services of whatever kind or nature.
9. Term of Agreement
This Agreement shall become effective as of the date first written
above, shall continue in effect for a period of two years thereafter, and shall
continue in effect for a period of more than two years thereafter only so long
as such continuance is specifically approved at least annually by (i) the Board
of Trustees of the Trust or (ii) a vote of a "majority" (as defined in the
Investment Company Act of 1940, as amended) of the Trust's outstanding voting
securities, provided that in either event the continuance is also approved by a
majority of the Board of Trustees who are not "interested persons" (as defined
in said Act) of any party to this Agreement, by vote cast in person at a meeting
called for the purpose of voting on such approval. This Agreement is terminable,
without penalty, on 30 days' written notice, by Sierra Advisors, the Board of
Trustees of the Trust or by vote of holders of a majority of the Trust's shares,
or upon 90 days' written notice, by the Sub-advisor and, will terminate
automatically upon any termination of the advisory agreement between the Trust
and Sierra Advisors. In addition, this Agreement will also terminate
automatically in the
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event of its assignment (as defined in said Act). The Sub-advisor agrees to
notify the Trust of any circumstances that might result in this Agreement being
deemed to be assigned.
10. Representations of the Trust and the Sub-advisor
The Trust represents that (i) a copy of its Agreement and Declaration of
Trust, dated October 4, 1995, and Amended Agreement and Declaration of Trust
dated January 18, 1996, together with all amendments thereto, is on file in the
office of the Secretary of the Commonwealth of Massachusetts, (ii) the
appointment of Sierra Advisors has been duly authorized, (iii) the appointment
of the Sub-advisor has been duly authorized, and (iv) it has acted and will
continue to act in conformity with the Investment Company Act of 1940, as
amended, and other applicable laws.
Sierra Advisors represents that (i) it is authorized to perform the
services herein, (ii) the appointment of the Sub-advisor has been duly
authorized, and (iii) it will act in conformity with the Investment Company Act
of 1940, as amended, and other applicable laws.
The Sub-advisor represents that it is authorized to perform the services
described herein.
11. Indemnification
Sierra Advisors shall indemnify and hold harmless the Sub-advisor, its
officers, directors, employee control persons and affiliated persons (as defined
in the Investment Company Act of 1940, as amended) from and against any and all
claims, losses, liabilities or damages (including reasonable attorneys' fees and
other related expenses), arising from or in connection with this Agreement or
the performance by the Sub-advisor of its duties hereunder; provided, however,
that nothing contained herein shall require that the Sub-advisor be indemnified
for Disqualifying Conduct.
12. Amendment of this Agreement
No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought. No amendment of this Agreement shall be effective with respect to the
Trust until approved by vote of a majority of the outstanding voting securities.
13. Limitation of Liability
This Agreement has been executed on behalf of the Trust by the
undersigned officer of the Trust in his capacity as an officer of the Trust. The
obligations of this Agreement shall be binding upon the assets and property of
the Trust only and shall not be binding upon any Trustee, officer or shareholder
of the Trust individually.
14. Entire Agreement
This Agreement constitutes the entire agreement between the parties
hereto.
15. Governing Law
This Agreement shall be governed in accordance with the laws of the
Commonwealth of Massachusetts.
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16. Counterparts
This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original, but such counterparts shall together,
constitute only one instrument.
If the foregoing accurately sets forth our agreement, kindly indicate
your acceptance hereof by signing and returning the enclosed copy hereof.
Very truly yours,
SIERRA PRIME INCOME FUND
Dated: 02/21/97 By /s/ F. Xxxxx Xxxxxx
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Name: F. Xxxxx Xxxxxx
Title: Chairman and President
SIERRA INVESTMENT ADVISORS
CORPORATION
Dated: 02/21/97 By /s/ Xxxxxxx X. Goth
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Name: Xxxxxxx X. Goth
Title: Chief Operating Officer
Accepted:
XXX XXXXXX AMERICAN CAPITAL MANAGEMENT INC.
By /s/ Xxxxxx X. Xxxxxxxx Dated: 3/10/97
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Name: Xxxxxx X. Xxxxxxxx
Title: Senior Vice President
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