1
EXHIBIT (5)(a)
INVESTMENT ADVISORY AGREEMENT
THIS INVESTMENT ADVISORY AGREEMENT, dated as of May 31, 1997 (the "Agreement"),
by and between XXX XXXXXX AMERICAN CAPITAL EQUITY TRUST, a Delaware business
trust (the "Trust"), on behalf of its series, XXX XXXXXX AMERICAN CAPITAL
UTILITY FUND (the "Fund") and XXX XXXXXX AMERICAN CAPITAL INVESTMENT ADVISORY
CORP. (the "ADVISER"), a Delaware corporation.
1. (a) RETENTION OF ADVISER BY FUND. Subject to the terms and conditions
set forth herein, the Fund hereby employs the Adviser to act as the investment
adviser for and to manage the investment and reinvestment of the assets of the
Fund in accordance with the Fund's investment objectives and policies and
limitations, and to administer its affairs to the extent requested by, and
subject to the review and supervision of, the Board of Trustees of the Fund for
the period and upon the terms herein set forth. The investment of funds shall
be subject to all applicable restrictions of applicable law and of the
Declaration of Trust and By-Laws of the Trust, and resolutions of the Board of
Trustees of the Fund as may from time to time be in force and delivered or made
available to the Adviser.
(b) ADVISER'S ACCEPTANCE OF EMPLOYMENT. The Adviser accepts such
employment and agrees during such period to render such services, to supply
investment research and portfolio management (including without limitation the
selection of securities for the Fund to purchase, hold or sell and the
selection of brokers through whom the Fund's portfolio transactions are
executed, in accordance with the policies adopted by the Fund and its Board of
Trustees), to administer the business affairs of the Fund, to furnish offices
and necessary facilities and equipment to the Fund, to provide administrative
services for the Fund, to render periodic reports to the Board of Trustees of
the Fund, and to permit any of its officers or employees to serve without
compensation as trustees or officers of the Fund if elected to such positions.
(c) ESSENTIAL PERSONNEL. For a period of one year commencing on the
effective date of this Agreement, the Adviser and the Fund agree that the
retention of (i) the chief executive officer, president, chief financial
officer and secretary of the Adviser and (ii) each director, officer and
employee of the Adviser or any of its Affiliates (as defined in the Investment
Company Act of 1940, as amended (the "1940 Act")) who serves as an officer of
the Fund (each person referred to in (i) or (ii) hereinafter being referred to
as an "Essential Person"), in his or her current capacities, is in the best
interest of the Fund and the Fund's shareholders. In connection with the
Adviser's acceptance of employment hereunder, the Adviser hereby agrees and
covenants for itself and on behalf of its Affiliates that neither the Adviser
nor any of its Affiliates shall make any material or significant personnel
changes or replace or seek to replace any Essential Person or cause to be
replaced any Essential Person, in each case without first informing the Board
of Trustees of the Fund in a timely manner. In Addition, neither the Adviser
nor any Affiliate of the Adviser shall change or seek to change or cause to be
changed, in any material respect, the duties and responsibilities of any
Essential Person, in each case without first informing the Board of Trustees of
the Fund in a timely manner.
(d) INDEPENDENT CONTRACTOR. The Adviser shall be deemed to be an
independent contractor under this Agreement and, unless otherwise expressly
provided or authorized, shall have no authority to act for or represent the
Fund in any way or otherwise be deemed as agent of the Fund.
(e) NON-EXCLUSIVE AGREEMENT. The services of the Adviser to the Fund
under this Agreement are not to be deemed exclusive, and the Adviser shall be
free to render similar services or other services to others so long as its
services hereunder are not impaired thereby.
2
2. (a) FEE. For the services and facilities described in Section 1, the
Fund will accrue daily and pay to the Adviser at the end of each calendar month
an investment management fee computed based on a fee rate (expressed as a
percentage per annum) applied to the average daily net assets of the Fund as
follows:
FEE PERCENT
PER ANNUM OF
AVERAGE DAILY AVERAGE DAILY
NET ASSETS (MILLIONS) NET ASSETS
--------------------- -------------
First $500 0.65 of 1.00%
Next $500 0.60 of 1.00%
Over $1 billion 0.55 of 1.00%
(b) EXPENSE LIMITATION. The adviser's compensation for any fiscal year of
the Fund shall be reduced by the amount, if any, by which the Fund's expense
for such fiscal year exceeds the most restrictive applicable expense limitation
in any jurisdiction in which the Fund's shares are qualified for offer and
sale, as such limitations set forth in the most recent notice thereof furnished
by the Adviser to the Fund. For purposes of this paragraph there shall be
excluded from computation of the Fund's expenses any amount borne directly or
indirectly by the Fund which is permitted to be excluded from the computation
of such limitation by such statue or regulatory authority. If for any month
expenses of the Fund properly included in such calculation exceed 1/12 of the
amount permitted annually by the most restrictive applicable expense
limitation, the payment to the Adviser for that month shall be reduced, and, if
necessary, the Adviser shall make a refund payment to the Fund, so that the
total net expense for the month will not exceed 1/12 of such amount. As of the
end of the Fund's fiscal year, however, the computations and payments shall be
readjusted so that the aggregate compensation payable to the Adviser for the
year is equal to the fee set forth in subsection (a) of this Section 2,
diminished to the extent necessary so that the expenses for the year do not
exceed those permitted by the applicable expense limitation.
(c) DETERMINATION OF NET ASSET VALUE. The net asset value of the Fund
shall be calculated as of on each day the Exchange is open for trading or such
other time or times as the trustees may determine in accordance with the
provisions of applicable law and the Declaration of Trust and By-Laws of the
Trust, and resolutions of the Board of Trustees of the Fund as from time to
time in force. For the purpose of the foregoing computations, on each such day
when net asset value is not calculated, the net asset value of a share of
beneficial interest of the Fund shall be deemed to be the net asset value of
such share as of the close of business of the last day on which such
calculation was made.
(d) PRORATION. For the month and year in which this Agreement becomes
effective or terminates, there shall be an appropriate proration of the
Adviser's fee on the basis of the number of days that the Agreement is in
effect during such month and year, respectively.
3
3. EXPENSES. In addition to the fee of the Adviser, the Fund shall assume
and pay any expenses for services rendered by a custodian for the safekeeping
of the Fund's securities or other property, for keeping its books of account,
for any other changes of the custodian and for calculating the net asset value
of the Fund as provided above. The adviser shall not be required to pay, and
the Fund shall assume and pay, the charges and expenses of its operations,
including compensation of the trustees (other than those who are interested
persons of the Adviser and other than those who are interested persons of the
distributor of the Fund but not of the Adviser, if the distributor has agreed
to pay such compensation), charges and expenses of independent accountants, of
legal counsel and of any transfer or dividend disbursing agent, costs of
acquiring and disposing of portfolio securities, cost of listing shares on the
New York Stock Exchange or other exchange, interest (if any) on obligations
incurred by the Fund, costs of shares certificates, membership dues in the
Investment Company Institute or any similar organization, costs of reports and
notices to shareholders, cost of registering shares of the Fund under the
federal securities laws, miscellaneous expenses and all taxes and fees to
federal, state or other governmental agencies on account of the registration of
securities issued by the Fund, filing of corporate documents or otherwise. The
Fund shall not pay or incur any obligation for any management or administrative
expenses for which the Fund intends to seek reimbursement from the Adviser
without first obtaining the written approval of the Adviser. The Adviser shall
arrange, if desired by the Fund, for officers or employees of the Adviser to
serve, without compensation from the Fund, as trustees, officers or agents of
the Fund if duly elected or appointed to such positions and subject to their
individual consent and to any limitations imposed by the law.
4. INTERESTED PERSONS. Subject to applicable statutes and regulations, it
is understood that trustees, officers, shareholders and agents of the Fund are
or may be interested in the Adviser as directors, officers, shareholders,
agents or otherwise and that the directors, officers, shareholders and agents
of the Adviser may be interested in the Fund as trustees, officers,
shareholders, agents or otherwise.
5. LIABILITY. The Adviser shall not be liable for any error of judgment
or of law, or for any loss suffered by the Fund in connection with the matters
to which this Agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Adviser in the
performance of its obligations and duties, or by reason of its reckless
disregard of its obligations and duties under this Agreement.
6. (a) TERM. This Agreement shall become effective on the date hereof
and shall remain in full force until May 31, 1999 unless sooner terminated as
hereinafter provided. This Agreement shall continue in force from year to year
thereafter, but only for so long as such continuance is specifically approved
as least annually, in the manner required by the 1940 Act.
(b) TERMINATION. This Agreement shall automatically terminate in the
event of its assignment. This Agreement may be terminated at any time without
the payment of any penalty by the Fund or by the Adviser on sixty (60) days
written notice to the other party. The Fund may effect termination by action
of the Board of Trustees or by vote of a majority of the outstanding
shares of stock of the Fund, accompanied by appropriate notice. This Agreement
may be terminated at any time without the payment of any penalty and without
advance notice by the Board of Trustees or by vote of a majority of the
outstanding shares of the Fund in the event that it shall have been established
by a court of competent jurisdiction that the Adviser or any officer or
director of the Adviser has taken any action which results in a breach of the
covenants of the Adviser set forth herein.
(c) PAYMENT UPON TERMINATION. Termination of this Agreement shall not
affect the right of the Adviser to receive payment on any unpaid balance of the
compensation described in Section 2 earned prior to such termination.
7. SEVERABILITY. If any provision of this Agreement shall be held or
made invalid by a court decision, statue, rule or otherwise, the remainder
shall not thereby be affected.
8. NOTICES. Any notice under this Agreement shall be in writing,
addressed and delivered or mailed, postage prepaid, to the other party at such
address as such other party may designate for the receipt of such notice.
9. DISCLAIMER. The Adviser acknowledges and agrees that, as provided
by Section 8.1 of the Declaration of Trust of the Trust, (i) this Agreement has
been executed by officers of the Trust in their capacity as officers, and not
individually, and (ii) the shareholders, trustees, officers, employees and
other agents of the Trust and the Fund shall not personally be bound by or
liable hereunder, nor shall resort be had to their private property for the
satisfaction of any obligation or claim hereunder and that any such resort may
only be had upon the assets and property of the Fund.
10. GOVERNING LAW. All questions concerning the validity, meaning and
effect of this Agreement shall be determined in accordance with the laws
(without giving effect to the conflict-of-law principles thereof) of the State
of Delaware applicable to contracts made and to be performed in that state.
11. NAME. In connection with its employment hereunder, the Adviser
hereby agrees and covenants not to change its name without the prior consent of
the Board of Trustees of the Fund.
4
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below on the day and year first above
written.
XXX XXXXXX AMERICAN XXX XXXXXX AMERICAN
CAPITAL INVESTMENT ADVISORY CAPITAL EQUITY TRUST,
CORP. on behalf of its series,
XXX XXXXXX AMERICAN CAPITAL
UTILITY FUND
By: /s/ Xxxxxx X. XxXxxxxxx By: /s/ Xxxxxx X. Xxxxxx
----------------------- --------------------
Name: Xxxxxx X. XxXxxxxxx Name: Xxxxxx X. Xxxxxx
Title: President Title: Vice President & Secretary
