EXHIBIT(g)(2)
INVESTMENT SUB-ADVISORY AGREEMENT
Effective as of March __, 1998
▇▇▇ ▇▇▇▇▇▇ American Capital Management Inc.
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Ladies and Gentlemen:
Composite Research & Management Co. ("Composite"), a corporation
organized under the laws of the State of California, hereby agrees with ▇▇▇
▇▇▇▇▇▇ American Capital Management Inc. (the "Sub-Advisor"), a corporation
organized under the laws of the State of Delaware, as follows:
1. Investment Description; Appointment
Composite desires to employ the capital of the Sierra Prime Income
Fund (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 Composite. 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 Composite, 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 "1940 Act"), 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 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 Composite with whatever statistical
information the Trust or Composite 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.
-2-
4. Information Provided to the Trust
The Sub-Advisor will keep the Trust and Composite informed of
developments materially affecting the Trust, and will on its own initiative,
furnish the Trust and Composite 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 ▇▇▇▇ ▇▇▇) 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,
Composite 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 for services provided hereunder and agrees to look solely to
Composite 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 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.
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 Composite) will bear certain other
expenses to be incurred in its operation, including but not
-3-
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, Composite, 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 investment Sub-Advisor to one or
more other investment companies or series of investment companies, and Composite
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. Composite 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, Composite 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 (a) the Board
of Trustees of the Trust or (b) a vote of a "majority" (as defined in the ▇▇▇▇
▇▇▇) 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 the ▇▇▇▇ ▇▇▇) 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 Composite, the Board of Trustees
-4-
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 Composite.
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.
10. Representations of the Trust and the Sub-Advisor
The Trust represents that (a) 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, (b) the
appointment of Composite has been duly authorized, (c) the appointment of the
Sub-Advisor has been duly authorized, and (d) it has acted and will continue to
act in conformity with the 1940 Act, and other applicable laws.
The Sub-Advisor represents that it is authorized to perform the
services described herein.
11. Indemnification
Composite 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.
13. Entire Agreement
This Agreement constitutes the entire agreement between the
parties hereto.
-5-
14. Governing Law
This Agreement shall be governed in accordance with the laws of
The Commonwealth of Massachusetts.
15. 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,
COMPOSITE RESEARCH & MANAGEMENT CO.
Dated: By
------------------- -----------------------------
Name:
Title:
Accepted:
▇▇▇ ▇▇▇▇▇▇ AMERICAN CAPITAL MANAGEMENT INC.
By Dated:
------------------------- ---------------------
Name:
Title:
-6-
