Exhibit (g)2
SUB-ADVISORY AGREEMENT
BETWEEN
XXXXXX BROTHERS ASSET MANAGEMENT INC.
AND
LINCOLN CAPITAL FIXED INCOME MANAGEMENT COMPANY, LLC
AGREEMENT, made as of the __th day of ______, 2003, by and between
XXXXXX BROTHERS ASSET MANAGEMENT INC., a Delaware corporation ("Xxxxxx
Brothers"), and LINCOLN CAPITAL FIXED INCOME MANAGEMENT COMPANY, LLC, a
[Delaware] limited liability company ("Lincoln Capital").
W I T N E S S E T H
WHEREAS, Xxxxxx Brothers/First Trust Income Opportunity Fund, a
Delaware statutory trust (the "Fund"), intends to engage in business as a
diversified, closed-end management investment company and is registered as such
under the Investment Company Act of 1940, as amended (the "Investment Company
Act");
WHEREAS, Xxxxxx Brothers has entered into an Investment Advisory
Agreement with the Fund dated as of __________, 2003 (the "Investment Advisory
Agreement"), pursuant to which the Fund has retained Xxxxxx Brothers to serve as
the investment adviser of the Fund;
WHEREAS, pursuant to the Investment Advisory Agreement, Xxxxxx
Brothers is authorized to enter into a sub-advisory agreement with an investment
adviser registered under the Investment Advisers Act of 1940, as amended (the
"Investment Advisers Act"), subject to such approvals of the Board of Trustees
of the Fund (the "Board") and the shareholders of the Fund ("Shareholders") as
may be required to comply with applicable provisions of the Investment Company
Act, to obtain any or all of the investment advisory services required to be
provided by Xxxxxx Brothers under the Investment Advisory Agreement;
WHEREAS, Lincoln Capital is registered as an investment adviser
under the Investment Advisers Act and engages in the business of acting as an
investment adviser;
WHEREAS, Xxxxxx Brothers, with the approval of the Board, desires to
delegate to Lincoln Capital the duty to manage the portfolio investments of the
Fund in the manner and on the terms and conditions hereinafter set forth; and
WHEREAS, Lincoln Capital desires to be retained to perform such
services on said terms and conditions.
NOW THEREFORE, in consideration of the mutual covenants hereinafter
set forth, the parties hereto agree as follows:
1. GENERAL PROVISIONS.
Xxxxxx Brothers hereby retains Lincoln Capital to act as the
sub-adviser of the Fund and to perform, subject to the general supervision of
Xxxxxx Brothers and the Board, such duties and functions as are set forth in
paragraph 2. Lincoln Capital shall, for purposes of this Agreement, be deemed an
independent contractor and shall not have, except as expressly provided or
authorized herein, any authority to act for or represent Xxxxxx Brothers or the
Fund in any way or otherwise to serve as or to be deemed an agent of the Fund.
Lincoln Capital shall provide services hereunder in a manner consistent with:
(a) the provisions of the Investment Company Act and any applicable rules and
regulations thereunder; (b) any other applicable provisions of Federal or state
law; (c) the provisions of the Declaration of Trust, as may be amended from time
to time of the Fund ("Declaration of Trust"), as amended from time to time; (d)
the policies and determinations of the Board, (e) the investment policies and
investment restrictions of the Fund as reflected in the registration statement
of the Fund and as such policies may, from time to time, be amended; and (f) the
Prospectus and Statement of Additional Information of the Fund, as may be
amended from time to time. The appropriate officers and employees of Lincoln
Capital shall be available upon reasonable notice for consultation with any
members of the Board or officers of the Fund or Xxxxxx Brothers with respect to
any matters dealing with the business and affairs of the Fund.
2. DUTIES OF LINCOLN CAPITAL.
(a) Lincoln Capital shall, subject to the general supervision of
Xxxxxx Brothers and the Board: (i) manage the Fund's investment portfolio and
make and implement all decisions regarding the investment and reinvestment of
the assets of the Fund; (ii) provide statistical, research and other factual
data for use in connection with the Fund's investment program; (iii) place all
orders for the purchase and sale of investments by the Fund and monitor the
execution of transactions for the Fund and the settlement and clearance of such
transactions; (iv) maintain such internal systems and controls as may be
necessary to provide reasonable assurance that the investment advisory services
of Lincoln Capital provided to the Fund are provided in a manner consistent with
the investment objectives, policies and restrictions of the Fund and with the
requirements of applicable laws and regulations; (v) provide or maintain such
facilities as may be necessary in rendering the services set forth in clauses
(i) through (iv) of this paragraph 2(a); (vi) report to Xxxxxx Brothers and the
Board on the Fund's investments and performance; and (viii) provide all other
services that Xxxxxx Brothers may reasonably deem necessary or convenient to the
foregoing.
(b) Nothing in this Agreement shall prevent Lincoln Capital or any
affiliate thereof from acting as investment adviser for any other person, firm,
fund, corporation or other entity and shall not in any way limit or restrict
Lincoln Capital, or any of its affiliates, or their respective directors,
officers, stockholders or employees from buying, selling or trading any
securities or other investments for its or their own account or for the account
of others for whom it or they may be acting, provided that such activities do
not adversely affect or otherwise impair the performance by Lincoln Capital of
its duties and obligations under this Agreement and under
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the Investment Advisers Act and further provided that such activities do not
violate any provisions of the code of ethics of Lincoln Capital governing
personal securities trading by persons who are "access persons," as defined by
Rule 17j-1 under the Investment Company Act.
3. ALLOCATION OF EXPENSES.
Lincoln Capital shall pay all expenses incurred by it in providing
services under this Agreement, including, but not limited to, the salaries,
employment benefits and other related costs of those of its personnel engaged in
providing investment advice to the Fund hereunder, and the costs of office
space, office equipment, telephone and postage.
4. COMPENSATION OF LINCOLN CAPITAL.
In consideration of the services provided by Lincoln Capital under
this Agreement, Xxxxxx Brothers will pay Lincoln Capital a monthly fee computed
at the annual rate identified on Schedule A of the Fund's average daily managed
assets (the "Sub-Advisory Fee"). "Managed assets" means net assets, including
assets attributable to outstanding preferred shares, plus the aggregate amount
of any borrowings. The Sub-Advisory Fee shall accrue daily, and shall be payable
monthly, in arrears, on the first business day of the next succeeding calendar
month. The daily fee accrual shall be computed by multiplying the fraction of
one divided by the number of days in the calendar year by the Sub-Advisory Fee,
and multiplying this product by the managed assets of the Fund, as of the close
of business on the last preceding business day on which the Fund's managed
assets were determined.
5. PORTFOLIO TRANSACTIONS AND BROKERAGE.
(a) Lincoln Capital shall be responsible for the selection of
brokers or dealers to execute the Funds' portfolio transactions. In selecting
brokers or dealers to execute transactions on behalf of the Fund, Lincoln
Capital generally shall seek to obtain the best price and execution for the
transactions, taking into account factors such as price, the size and type of
the transaction; the nature and character of the markets for the security to be
purchased or sold; the execution efficiency, settlement capability and financial
condition of the dealer; the dealer's execution services rendered on a
continuing basis; and the reasonableness of any dealer spreads.
(b) Consistent with the principle of seeking best execution in
connection with the Fund's portfolio transactions, Lincoln Capital shall have
discretion, in the interests of the Fund, to place orders for the Fund with
brokers or dealers that provide Lincoln Capital with research services (as such
services are defined in Section 28(e)(3) of the Securities Exchange Act of 1934,
as amended (the "1934 Act")), including, without limitation, supplemental
research, market and statistical information, including advice as to the value
of securities, the advisability of investing in, purchasing or selling
securities, and the availability of securities or purchasers or sellers of
securities, and furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy and the performance
of accounts, which may assist Lincoln Capital in managing the assets of the Fund
or other accounts for which Lincoln Capital or any affiliate of Lincoln Capital
exercises "investment discretion" (as that term is defined in Section 3(a)(35)
of the 1934 Act). Lincoln Capital shall have discretion to cause the Fund to pay
such brokers or dealers a commission for effecting a portfolio transaction for
the
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Fund that is in excess of the amount of commission another broker or dealer
adequately qualified to effect such transaction would have charged for effecting
that transaction, if Lincoln Capital determines, in good faith, that such
commission is reasonable in relation to the value of the brokerage and/or
research services provided by such broker or dealer viewed in terms of either
that particular transaction or the overall responsibilities of Lincoln Capital
or its affiliates with respect to accounts as to which they exercise investment
discretion. In reaching such determination, Lincoln Capital will not be required
to place or attempt to place a specific dollar value on the brokerage or
research services provided or being provided by such broker or dealer. In
demonstrating that such determinations were made in good faith, Lincoln Capital
shall be prepared to show that all commissions were allocated for purposes
contemplated by this Agreement and that the total commissions paid by the Fund
over a representative period selected by the Board were reasonable in relation
to the benefits to the Fund.
(c) Lincoln Capital shall have no duty or obligation to seek
advance competitive bidding for the most favorable commission rate applicable to
any particular portfolio transactions or to select any broker or dealer on the
basis of its purported or "posted" commission rate but will endeavor to be aware
of the current level of the charges of eligible brokers or dealers and to
minimize the expense incurred by the Fund for effecting its portfolio
transactions to the extent consistent with the interests and policies of the
Fund.
(d) The Fund recognizes that a broker or dealer affiliated with
Xxxxxx Brothers or Lincoln Capital (i) may act as one of the regular brokers for
the Fund so long as it is lawful for it so to act; (ii) may be a major recipient
of brokerage commissions paid by the Fund; and (iii) may effect portfolio
transactions for the Fund only if the commissions, fees or other remuneration
received or to be received by it are determined in accordance with procedures
contemplated by any rule, regulation or order adopted under the Investment
Company Act to be within the permissible level of such commissions.
(e) Subject to the foregoing provisions of this paragraph 5,
Lincoln Capital may also consider sales of Interests as a factor in the
selection of brokers or dealers for its portfolio transactions.
6. BOOKS AND RECORDS.
Lincoln Capital agrees that all records that it maintains for the
Fund, on behalf of Xxxxxx Brothers, are the property of the Fund and further
agrees to surrender promptly to the Fund or to Xxxxxx Brothers any of such
records upon request. Lincoln Capital further agrees to preserve for the periods
prescribed by applicable laws, rules and regulations all records required to be
maintained by Lincoln Capital on behalf of Xxxxxx Brothers under such applicable
laws, rules and regulations, or such longer period as Xxxxxx Brothers may
reasonably request from time to time.
7. DURATION.
This Agreement will take effect on the date first set forth above.
Unless earlier terminated pursuant to paragraph 12 hereof, this Agreement shall
remain in effect for an initial term of two (2) years from such date and
thereafter shall continue in effect from year to year, so
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long as such continuance shall be approved at least annually by the Board or by
the holders of a "majority of the outstanding voting securities" of the Fund (as
defined in the Investment Company Act), subject in such case to the approval by
a vote of the majority of the Managers who are not parties to this Agreement or
"interested persons" (as defined in the Investment Company Act and the rules
thereunder) of any such party, cast in person at a meeting called for the
purpose of voting on such approval.
8. DISCLAIMER OF SHAREHOLDER OR TRUSTEE LIABILITY.
(a) Lincoln Capital understands and agrees that the obligations of
the Fund under this Agreement are not binding upon any Shareholder or Trustee of
the Fund personally, but bind only the Fund and the Fund's property.
(b) Lincoln Capital acknowledges that it has notice of the
provisions of the Declaration of Trust, disclaiming Shareholder and Trustee
liability for acts and obligations of the Fund.
9. EXCULPATION; INDEMNIFICATION.
(a) Lincoln Capital shall not be liable to the Fund or Xxxxxx
Brothers for any error of judgment or mistake of law or for any loss suffered by
the Fund or Xxxxxx Brothers in connection with the performance by Lincoln
Capital of its duties under this Agreement, except a loss resulting from a
breach of fiduciary duty with respect to the receipt of compensation for
services, or a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of Lincoln Capital or any of its officers, directors,
employees or agents (collectively, the "Affiliates") in the performance of their
duties under this Agreement, or from reckless disregard by Lincoln Capital or
its Affiliates of their obligations or duties under this Agreement.
(b) The Fund shall indemnify and hold harmless Lincoln Capital and
its Affiliates (each, an "Indemnified Person") against any and all losses,
claims, damages or liabilities, joint or several, including, without limitation,
reasonable attorneys' fees and disbursements, reasonably incurred by them in
connection with, or resulting from, their actions or inactions in connection
with the performance of their duties under this Agreement, except those losses,
claims, damages or liabilities resulting from willful misfeasance, bad faith or
gross negligence in the performance by the Indemnified Persons of their duties
under this Agreement, or the reckless disregard of their obligations or duties
under this Agreement.
(c) Notwithstanding any of the foregoing to the contrary, the
provisions of this paragraph 9 shall not be construed so as to relieve the
Indemnified Person of, or provide indemnification with respect to, any liability
(including liability under Federal securities laws, which under certain
circumstances, impose liability even on persons who act in good faith) to the
extent (but only to the extent) that such liability may not be waived, limited
or modified under applicable law or that such indemnification would be in
violation of applicable law, but shall be construed so as to effectuate the
provisions of this paragraph 9 to the fullest extent permitted by law.
10. REPRESENTATIONS, WARRANTIES AND COVENANTS.
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(a) Representations, Warranties and Covenants of Lincoln Capital.
(i) Lincoln Capital is now, and will continue to be, a
limited liability company duly formed and validly existing under the
laws of the State of [Delaware] and is fully authorized to enter
into this Agreement and carry out its duties and obligations
hereunder.
(ii) Lincoln Capital is registered as an investment adviser
with the Securities and Exchange Commission ("SEC") under the
Investment Advisers Act and maintains all other required
registrations and/or licenses. Lincoln Capital shall maintain any
and all required registrations and licenses in effect at all times
during the term of this Agreement.
(b) Other Covenants. Lincoln Capital further agrees that:
(i) as required by applicable laws and regulations, it will
maintain books and records with respect to the Fund's securities
transactions and it will furnish to Xxxxxx Brothers and to the Board
such periodic and special reports as Xxxxxx Brothers or the Board
may reasonably request; and
(ii) it will treat confidentially and as proprietary
information of the Fund all records and other information relative
to the Fund, and will not use 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 Xxxxxx Brothers or the Fund or when so requested by
Xxxxxx Brothers or the Fund, or required by law or regulation.
(c) Representations, Warranties and Covenants of Xxxxxx Brothers.
(i) Xxxxxx Brothers is now, and will continue to be, a
corporation duly organized and validly existing under the laws of
the State of Delaware and is fully authorized to enter into this
Agreement and to carry out its duties and obligations hereunder.
(ii) Xxxxxx Brothers is registered as an investment adviser
with the SEC under the Investment Advisers Act. Xxxxxx Brothers
shall maintain such registration in effect at all times during the
term of this Agreement.
11. ASSIGNMENT OR AMENDMENT.
Any amendment to this Agreement shall be in writing and shall be
subject to: (a) the approval of the Board, including the vote of a majority of
the Trustees who are not "interested persons," as defined by the Investment
Company Act, of the Fund or any party to this Agreement; and (b) the affirmative
vote or written consent of the holders of a "majority of the outstanding voting
securities" of the Fund," as defined by the Investment Company Act, to the
extent such a vote of security holders is required by the Investment Company
Act. This Agreement shall automatically and immediately terminate in the event
of its "assignment," as defined in the Investment Company Act.
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12. TERMINATION.
This Agreement may be terminated (a) by Lincoln Capital at any time
without penalty upon sixty (60) days' written notice to Xxxxxx Brothers and the
Fund (which notice may be waived by the Fund); (b) by Xxxxxx Brothers at any
time without penalty upon sixty (60) days' written notice to Lincoln Capital and
the Fund (which notice may be waived by the Fund) or (c) by the Fund at any time
without penalty upon sixty (60) days' written notice to Lincoln Capital or
Xxxxxx Brothers, provided that such termination by the Fund shall be directed or
approved by the Board or by the vote of the holders of a "majority of the
outstanding voting securities" of the Fund, as defined by the Investment Company
Act.
13. NOTICES.
Any notice or other communication required to be or that may be
given hereunder shall be in writing and shall be delivered personally,
telecopied, sent by certified, registered or express mail, postage prepaid or
sent by national next-day delivery service and shall be deemed given when so
delivered personally or telecopied, or if mailed, two days after the date of
mailing, or if by next-day delivery service, on the business day following
delivery thereto:
(a) If to Xxxxxx Brothers, to:
Xxxxxx Brothers Asset Management Inc.
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention:
Telecopier:
(b) If to Lincoln Capital, to:
Lincoln Capital Fixed Income Management, LLC
000 X. Xxxxxx Xxxxx
Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
Attention:
Telecopier:
14. QUESTIONS OF INTERPRETATION.
This Agreement shall be governed by the laws of the State of New
York applicable to agreements made and to be performed entirely within the State
of New York (without regard to any conflicts of law principles thereof). Any
question of interpretation of any term or provision of this Agreement having a
counterpart in or otherwise derived from a term or provision of the Investment
Company Act shall be resolved by reference to such term or provision of the
Investment Company Act and to interpretations thereof, if any, by the United
States courts or, in the absence of any controlling decision of any such court,
by rules,
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regulations or orders of the SEC issued pursuant to the Investment Company Act.
In addition, where the effect of a requirement of the Investment Company Act
reflected in any provision of this Agreement is revised by rule, regulation or
order of the Commission, such provision shall be deemed to incorporate the
effect of such rule, regulation or order.
15. DEFINITIONS.
The terms and provisions of the Agreement shall be interpreted and
defined in a manner consistent with the terms and provisions of the Investment
Company Act and the rules thereunder.
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IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement on the day and year first above written.
XXXXXX BROTHERS ASSET MANAGEMENT INC.
By: _________________________________
Name:
Title:
Date: _______________
LINCOLN CAPITAL FIXED INCOME MANAGEMENT
COMPANY, LLC
By: _________________________________
Name:
Title:
Date: _______________
The provisions of Section 9 are hereby agreed to and accepted.
XXXXXX BROTHERS/FIRST TRUST INCOME OPPORTUNITY FUND
By: ____________________________
Name:
Title:
Date: _______________
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SCHEDULE A
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MANAGED ASSETS SUB-ADVISORY FEE (AS A PERCENTAGE OF EACH
INCREMENT OF THE AVERAGE DAILY MANAGED ASSETS)
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First $25,000,000 0.55%
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Next $25,000,000 0.45%
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Next $50,000,000 0.35%
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Over $100,000,000 0.30%
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