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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 by
duly constituted authorities, or when so
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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 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
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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 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.
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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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