EXHIBIT (h)(1)
DISTRIBUTION CONTRACT
THIS DISTRIBUTION CONTRACT (this "Agreement"), dated this ____ day of
March, 1998, between Sierra Prime Income Fund, a Massachusetts business trust
(the "Trust"), and Composite Funds Distributor, Inc., a Washington corporation
doing business at Seattle, Washington, herein sometimes referred to as the
"Distributor."
RECITALS
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WHEREAS, the Trust is registered as a closed-end, management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the Trust and the Distributor desire to enter into an agreement
that sets forth standard terms and conditions for the distribution of the
classes of common shares of beneficial interest of the Trust (the "Shares");
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration the receipt of which is hereby
acknowledged, the parties hereto agree as follows:
1. APPOINTMENT. The Trust hereby affirms the appointment of Composite
Funds Distributor, Inc. as the agent for distribution of the Shares covered by
the Trust's registration statement (as hereinafter defined) and grants
Distributor the right to sell Shares on behalf of the Trust and on the terms set
forth in this Agreement. The Distributor agrees to use its best efforts to
solicit orders for the sale of such Shares, at such Shares' public offering
price, as determined in accordance with the Registration Statement. The
Distributor shall have the right to order from the Trust the Shares needed, but
not more than needed (correcting for any clerical errors or errors of
transmission), to fill such orders as are unconditional.
2. DELIVERY OF DOCUMENTS. The Trust has furnished the Distributor with
copies of:
(a) Agreement and Declaration of Trust and all amendments thereto
for the Trust (as amended from time to time, the "Declaration of Trust");
(b) Bylaws and all amendments thereto for the Trust (as amended
from time to time, the "Bylaws"); and
(c) The Trust's registration statement, prospectus, statement of
additional information, and any amendments and supplements thereto, then in
effect (the "Registration Statement") under the Securities Act of 1933, as
amended (the "1933 Act") and the 1940 Act.
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From time to time, the Trust will furnish the Distributor with current
copies of all amendments or supplements to the foregoing, if any, and all
documents, notices and reports filed with the Securities and Exchange Commission
(the "SEC") and will make available, upon request, evidence of payment of
registration fees imposed from time to time by the States in which Shares are
sold by the Distributor.
3. DUTIES OF THE DISTRIBUTOR. The Distributor shall provide each Fund
with the benefit of its best judgment, efforts and facilities in rendering its
services as Distributor. The Distributor will act as the exclusive Distributor
of the Shares, subject to the supervision of the Trust's Board of Trustees and
the following understandings: (i) the Trust's Board of Trustees shall be
responsible for and control the conduct of the Trust's affairs; (ii in all
matters relating to the performance of this Agreement, the Distributor will act
in conformity with the Declaration of Trust, Bylaws and Registration Statement
of the Trust and with the instructions and directions of the Trust's Board of
Trustees; (ii the Distributor will conform to and comply with applicable
requirements of the 1940 Act, the 1933 Act and all other applicable federal or
state laws and regulations.
4. DISTRIBUTION OF SHARES. It is mutually understood and agreed that the
Distributor does not undertake to sell all or any specific portion of the
Shares. The Trust shall not sell any of its Shares except through the
Distributor. The Distributor may, as principal and on its own behalf, enter
into agreements ("Dealer Agreements"), on such terms and conditions as the
Distributor determines are not inconsistent with this Agreement, with (a) any
broker-dealer who is (i) registered under the Securities Exchange Act of 1934,
as amended (the "1934 Act"), (ii) registered as required under applicable state
securities or blue sky laws, and (iii) a member in good standing of the National
Association of Securities Dealers, Inc. ("NASD"); and (b) any other person (as
such term is defined in the 0000 Xxx) that is not required, for purposes of
effecting transactions in securities, to be registered under the 1934 Act, but
is registered as required under applicable state securities or blue sky laws,
authorizing such broker-dealers and other persons (collectively, "Brokers") to
act as agents in connection with the sale of Shares of the Trust (which may
include accepting orders for the purchase or redemption of Shares, responding to
inquiries regarding the Trust or the Funds, and performing other related
functions). Expulsion or suspension from the NASD of any Broker required to be
registered under the 1934 Act shall automatically terminate such Broker's Dealer
Agreement with the Distributor for sales of Shares as of the effective date of
such expulsion or suspension. Notwithstanding the provisions of the foregoing
sentence:
(a) The Distributor may, and when requested by the Trust, shall,
suspend its efforts to effectuate sales of the Trust shares at any time
when in the opinion of the Distributor or of the Trust no sales should be
made because of a need to revise a Registration Statement, or because of
market or other economic considerations or abnormal circumstances of any
kind. Either party in its sole discretion may reject orders for the
purchase of such shares;
(b) The Trust may withdraw the offering of its shares (i) at any
time with the consent of the Distributor or (ii without such consent when
so required by the provisions
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of any statute (including the 1933 Act and the 0000 Xxx) or of any order,
rule or regulation of any governmental body having jurisdiction;
(c) The Distributor is not authorized by the Trust to provide any
information or to make any representations other than those contained in
the appropriate Registration Statements, or contained in shareholder
reports or other material that may be prepared by or on behalf of the Trust
for Distributor's use. This shall not be construed to prevent the
Distributor from preparing and distributing sales literature or other
material as it may deem appropriate.
5. COMPENSATION. The Trust shall not pay any compensation to the
Distributor for services as principal underwriter herein, nor shall the Trust
reimburse the Distributor for any expenses related to such services.
A. Early Withdrawal Charges. The Trust shall cause its transfer agent
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(the "Transfer Agent") to withhold, from repurchase proceeds payable to holders
of Shares, all early withdrawal sales charges properly payable by such holders
in accordance with the terms of the Prospectuses relating to such Shares
("EWCs") and shall cause the Transfer Agent to pay such amounts over as promptly
as possible after the settlement date for each repurchase of such Shares.
B. Other Services; Service Fee. Upon request of the Trust's Board of
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Trustees, the Distributor may, but shall be under no duty to, perform additional
services on behalf of the Trust, which services are not required by this
Agreement but may be performed by the Distributor in conformity with applicable
law. Any such services will be performed on behalf of the Trust, and the
Distributor may impose additional charges for such services, which charges may
be billed to the Trust and subject to examination by the Trust's independent
accountants. The Distributor's payment or assumption of any expense of the
Trust that it is not required to pay or assume under this Agreement shall not
relieve the Distributor of any of its obligations to the Trust or obligate the
Distributor to pay or assume any similar expense on any subsequent occasion.
C. Directed Payment; Allocable Portion Calculations. The Distributor may
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direct the Trust to pay any part or all of the EWCs payable to the Distributor
in respect of any Shares directly to persons providing funds to the Distributor
to cover or otherwise enable the incurring of expenses associated with
distribution services, and the Trust agrees to accept and to comply with such
direction. The Distributor shall, at its own expense and not as the expense of
the Trust, provide the Trust with any necessary calculations of the
Distributor's Allocable Portion of any EWCs, and the Trust shall be entitled to
rely conclusively on such calculations, without prejudice to any claim it may
have concerning the accuracy of such calculations.
D. Maximum Charges. Notwithstanding anything to the contrary contained
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in this Agreement, EWCs paid to Distributor by any class of shares of the Trust
shall not exceed the amount permitted by the NASD Contract ("NASD Rules"), as
in effect from time to time, and the aggregate amount of EWCs paid to the
Distributor by any class of shares of the Trust shall not exceed 8.50% of the
offering price (determined in accordance with the NASD Rules in effect from time
to time).
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6. EXPENSES. The expenses connected with distribution shall be allocable
between the Trust and the Distributor as follows:
(a) The Distributor shall furnish the services of personnel to the
extent that such services are required to carry out its obligations under
this Agreement and shall bear all distribution expense incurred in the
distribution of Shares except those expenses allocated specifically to the
Trust in Section 6(b) of this Agreement. For purposes of this Agreement,
"distribution expenses" of the Distributor shall mean all expenses borne by
the Distributor which represent payment for activities primarily intended
to result in the sale of the Trust shares.
(b) The Trust assumes and shall pay or cause to be paid the
following expenses incurred on its behalf:
Registration of shares including the expense of printing and distributing
prospectuses to existing shareholders; expenses incurred for maintaining the
Trust's existence, taxes and expenses related to portfolio transactions; charges
and expenses of any registrar, custodian or depository for portfolio securities
and other property, and any stock transfer, dividend or account agent or agents;
all taxes, including securities issuance and transfer taxes, and fees payable to
federal, state or other governmental agencies; costs and expenses in connection
with the registration and maintenance of registration of the Trust and the
Shares with the SEC and various states and other jurisdictions (including filing
fees, legal fees and disbursements of counsel); expenses of shareholders' and
directors' meetings and preparing, printing, and mailing of proxy statements and
reports to shareholders; fees and travel expenses of directors who are not
"interested persons" as that term is defined in the 1940 Act; expenses incident
to the payment of any dividend, distribution, withdrawal or redemption, whether
in shares or in cash; charges and expenses of any outside service used for
pricing of the Shares; fees and expenses of legal counsel and of independent
accountants; membership dues of industry associations; postage (excluding
postage for promotional and sales literature); insurance premiums on property of
personnel (including, but not limited to legal claims and liabilities and
litigation costs and any indemnification related thereto); and all other charges
and costs of the Trust's operation unless otherwise explicitly provided herein.
7. DUTIES OF THE TRUST.
A. The Trust agrees at its own expense to execute any and all documents,
to furnish any and all information and to take any other actions that may be
reasonably necessary in connection with (a) the registration of Shares under the
1933 Act and (b) the qualification, pursuant to state securities laws, of the
Shares for sale in those states that the Distributor may designate.
B. Information Reports; Financial Data. The Trust shall furnish to the
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Distributor from time to time, for use in connection with the sale of the
Shares, such information reports with respect to the Trust and the Shares as the
Distributor may reasonably request. Such reports shall be signed by officers of
the Trust duly authorized; the Trust warrants the statements contained in any
reports so signed to be true and correct. The Trust shall furnish to the
Distributor, upon its
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request, (a) annual audits of the Trust's books and accounts made by independent
public accounts regularly retained by the Trust, (b) semiannual unaudited
financial statements pertaining to the Trust, (c) quarterly earnings statements
prepared by the Trust, (d) a monthly itemized list of the securities in the
portfolio of the Trust, (e) monthly balance sheets as soon as practicable after
the end of each month and (f) such additional information regarding the Trust's
financial condition as the Distributor may reasonable request from time to time.
8. NON-EXCLUSIVITY. The services of the Distributor are not exclusive and
the Distributor shall be entitled to render distribution or other services to
others (including other investment companies) and to engage in other activities.
It is understood and agreed that officers of the Distributor may serve as
officers or trustees of the Trust, and that officers or trustees of the Trust
may serve as officers of the Distributor to the extent permitted by law; and
that officers of the Distributor are not prohibited from engaging in any other
business activity or from rendering services to any other person, or from
serving as partners, officers or directors of any other firm or corporation,
including other investment companies and broker/dealers.
9. TERM AND APPROVAL. This Agreement shall become effective as of the
date first above written for an initial period of two years, and shall continue
in force and effect from year to year thereafter, provided that, with respect to
the Trust or the Trust shares, such continuance is specifically approved at
least annually:
(a) By the Trust's Board of Trustees, including the affirmative
vote of a majority of the Board of Trustees of the Trust who are not (i)
parties to this Agreement, (ii) interested persons of any such party (as
defined in Section 2(a)(19) of the 1940 Act), or (iii) persons having a
direct or indirect financial interest in the operation of this Agreement or
any agreement related to this Agreement (the "Qualified Trustees") by votes
cast in person at a meeting called for the purpose of voting on such
approval, or
(b) By the vote of a majority of the outstanding voting securities
of the Fund (as defined in Section 2(a)(42) of the 1940 Act).
10. TERMINATION. This Agreement may be terminated, with respect to the
Trust or the Trust share, at any time, without the payment of any penalty, on
sixty (60) days' written notice, by vote of the Board of Trustees of the Trust,
or by a vote of a majority of the Qualified Trustees, or by a vote of a majority
of the outstanding voting securities of the Fund (as defined in Section 2(a)(42)
of the 1940 Act), or by the Distributor on sixty (60) days' written notice to
the Fund. The notice provided for herein may be waived by either party. This
Agreement shall automatically terminate in the event of its assignment, the term
"assignment" for this purpose having the meaning set forth in Section (a)(4) of
the 1940 Act.
11. REPRESENTATIONS AND WARRANTIES. The Trust represents and warrants to
the Distributor that any registration statement, prospectus and statement of
additional information, when such Registration Statement becomes effective, will
include all statements required to be contained therein in conformity with the
1933 Act, the 1940 Act and the rules and regulations of the SEC; that all
statements of fact contained in any registration statement,
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prospectus or statement of additional information will be true and correct when
such Registration Statement becomes effective; and that neither any registration
statement nor any prospectus or statement of additional information when such
Registration Statement becomes effective will include an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading to a purchaser of
shares. The Distributor may, but shall not be obligated to, propose from time to
time such amendment or amendments to any registration statement and such
supplement or supplements to any prospectus or statement of additional
information as, in the light of future developments, may, in the opinion of the
Distributor's counsel, be necessary or advisable. If the Trust shall not propose
such amendment or amendments and/or supplement or supplements within fifteen
(15) days after receipt by the Trust of a written request from the Distributor
to do so, the Distributor may, at its option, terminate this Agreement. The
Trust shall not file any amendment to any registration statement or supplement
to any prospectus or statement of additional information without giving the
Distributor reasonable notice thereof in advance; provided, however, that
nothing contained in this Agreement shall in any way limit the Trust's right to
file at any time such amendments to any registration statement and/or
supplements to any prospectus or statement of additional information, of
whatever character, as the Trust may deem advisable, such right being in all
respects absolute and unconditional.
12. AMENDMENTS. This Agreement may be amended, with respect to any Fund
or Class, by the parties hereto only if such amendment is specifically approved
(i) by the Board of Trustees of the Trust or by the vote of majority of
outstanding voting securities of the Fund, and (ii by a majority of the
Qualified Trustees, which vote must be cast in person at a meeting called for
the purpose of voting on such approval.
13. INDEMNIFICATION.
13.1 The Trust authorizes the Distributor and any dealers with
whom Distributor has entered into dealer agreements to use any
prospectus or statement of additional information furnished by the
Trust from time to time, in connection with the sale of shares of each
Fund. The Trust agrees to indemnify, defend and hold Distributor, its
several officers and directors, and any person who controls
Distributor within the meaning of Section 15 of the 1933 Act, free and
harmless from and against any and all claims, demands, liabilities and
expenses (including the cost of investigating or defending such
claims, demands or liabilities and any counsel fees incurred in
connection therewith) which Distributor, its officers and directors,
or any such controlling person, may incur under the 1933 Act, the 1940
Act or common law or otherwise, arising out of or based upon any
untrue statement or alleged untrue statement of a material fact
contained in any registration statement, any prospectus or any
statement of additional information, or arising out of or based upon
any omission or alleged omission to state a material fact required to
be stated in any registration statement, any prospectus or any
statement of additional information, or necessary to make the
statements in any of them not misleading; provided, however, that the
Trust's agreement to indemnify the Distributor, its officers or
directors, and any such controlling person shall not be
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deemed to cover any claims, demands, liabilities or expenses arising
out of or based upon any statements or representations made by
Distributor or its representatives or agents other than such
statements and representations as are contained in any registration
statement, prospectus or statement of additional information and in
such financial and other statements as are furnished to the
Distributor pursuant to paragraph 2 hereof; and further provided that
the Trust's agreement to indemnify the Distributor and the Trust's
representations and warranties shall not be deemed to cover any
liability to the Trust or its shareholders to which Distributor would
otherwise be subject by reason of willful misfeasance, bad faith or
gross negligence in the performance of its duties, or by reason of
Distributor' reckless disregard of its obligations and duties under
this Agreement. The Trust's agreement to indemnify Distributor, its
officers and directors, and any such controlling person, as aforesaid,
is expressly conditioned upon the Trust's being notified of any action
brought against Distributor, its officers or directors, or any such
controlling person, such notification to be given by letter or by
telegram addressed to the Trust at its principal office stated herein
and sent to the Trust by the person against whom such action is
brought, within ten (10) days after the summons or other first legal
process shall have been served. The failure so to notify the Trust of
any such action shall not relieve the Trust from any liability that
the Trust may have to the person against whom such action is brought
by reason of any such untrue or alleged untrue statement or omission
or alleged omission otherwise than on account of the Trust's indemnity
agreement contained in this paragraph 12.1. The Trust's
indemnification agreement contained in this paragraph 12.1 and the
Trust's representations and warranties in this Agreement shall remain
operative and in full force and effect regardless of any investigation
made by or on behalf of Distributor, its officers and directors, or
any controlling person, and shall survive the delivery of any shares.
This agreement of indemnity will inure exclusively to Distributor's
benefit, to the benefit of its several officers and directors and
their respective estates, and to the benefit of the controlling
persons and their successors. The Trust agrees to notify Distributor
promptly of the commencement of any litigation or proceedings against
the Trust or any of its officers or trustees in connection with the
issuance and sale of any shares.
13.2 Distributor agrees to indemnify, defend and hold the
Trust, its several officers and trustees, and any person who controls
the Trust within the meaning of Section 15 of the 1933 Act, free and
harmless from and against any and all claims, demands, liabilities and
expenses (including the costs of investigating or defending such
claims, demand or liabilities and any counsel fees incurred in
connection therewith) that the Trust, it officers or trustees or any
such controlling person may incur under the 1933 Act, the 1940 Act or
common law or otherwise, but only to the extent that such liability or
expense incurred by the Trust, its officers or trustees or such
controlling person resulting from such claims or demands shall arise
out of or be based upon (a) any unauthorized sales literature,
advertisements, information, statements or representations or (b) any
untrue or allegedly untrue statement of material fact contained in
information furnished in
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writing by the Distributor to the Trust and used in the answers to any
of the items of the Registration Statement or in the corresponding
statements made in the prospectus or statement of additional
information, or shall arise out of or be based upon any omission or
alleged omission to state a material fact in connection with such
information furnished in writing by Distributor to the Trust and
required to be stated in such answers or necessary to make such
information not misleading. Distributor's agreement to indemnify the
Trust, its officers and trustees, and any such controlling person, as
aforesaid, is expressly conditioned upon Distributor being notified of
any action brought against the Trust, its officers or trustees, or any
such controlling person, such notification to be given by letter or
telegram addressed to Distributor at its principal office as stated
herein and sent to Distributor by the person against whom such action
is brought, within ten days after the summons or other first legal
process shall have been served. The failure so to notify the
Distributor of any such action shall not relieve Distributor from any
liability that the Distributor may have to the Trust, its officers or
trustees, or to such controlling person by reason of any such untrue
or alleged untrue statement or omission or alleged omission otherwise
than on account of Distributor's indemnity agreement contained in this
paragraph 12.2. The Distributor agrees to notify the Trust promptly of
the commencement of any litigation or proceedings against Distributor
or any of its officers or directors in connection with the issuance
and sale of any shares.
13.3 In case any action shall be brought against any
indemnified party under paragraph 12.1 or 12.2, and it shall notify
the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate in, and, to the extent that it
shall wish to do so, to assume the defense thereof with counsel
satisfactory to such indemnified party. If the indemnifying party opts
to assume the defense of such action, the indemnifying party will not
be liable to the indemnified party for any legal or other expenses
subsequently incurred by the indemnified party in connection with the
defense thereof other than (a) reasonable costs of investigation or
the furnishing of documents or witnesses and (b) all reasonable fees
and expenses of separate counsel to such indemnified party if (i) the
indemnifying party and the indemnified party shall have agreed to the
retention of such counsel or (ii) the indemnified party shall have
concluded reasonably that representation of the indemnifying party and
the indemnified party by the same counsel would be inappropriate due
to actual or potential differing interests between them in the conduct
of the defense of such action.
14. LIABILITY OF THE DISTRIBUTOR. In the performance of its duties
hereunder, the Distributor shall be obligated to exercise care and diligence and
to act in good faith and to use its best efforts within reasonable limits to
insure the accuracy of all services performed under this Agreement, but the
Distributor shall not be liable for any act or omission which does not
constitute willful misfeasance, bad faith or gross negligence on the part of the
Distributor or reckless disregard by the Distributor of its duties under this
Agreement.
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15. NOTICES. Any notices under this Agreement shall be in writing,
addressed and delivered or mailed postage paid to the other party at such
address as such other party may designate for the receipt of such notice. Until
further notice to the other party, it is agreed that the address of the Trust
shall be 000 Xxxx Xxxx Xxxxxx, Xxxxxxx, XX 00000, and the address of the
Distributor shall be 0000 Xxxxx Xxxxxx, Xxxxxxx, XX 00000.
16. DECLARATION OF TRUST AND LIMITATION OF LIABILITY. A copy of the
Declaration of Trust of the Trust is on file with the Secretary of State of The
Commonwealth of Massachusetts, and notice is hereby given that this Agreement is
executed by an officer of the Trust on behalf of the trustees of the Trust, as
trustees and not individually, on further behalf of each Fund, and that the
obligations of this Agreement with respect to each Fund shall be binding upon
the assets and properties of the Fund only and shall not be binding upon the
assets and properties of any other Fund or series of the Trust or upon any of
the trustees, officers, employees, agents or shareholders of the Fund or the
Trust individually.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers on the day and year first
above written.
SIERRA PRIME INCOME FUND
By:
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Name:
Title:
Attest:
By:
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Name:
Title:
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COMPOSITE FUNDS DISTRIBUTOR, INC.
By:
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Xxxxxxx X. Xxxxxx
President
Attest:
By:
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Xxxxxx X. Xxxxxxx
Secretary
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