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EXHIBIT (5)(a)
INVESTMENT ADVISORY AGREEMENT
AGREEMENT (herein so called) made this May 31, 1997, by and between XXX XXXXXX
AMERICAN CAPITAL TAX-EXEMPT TRUST, a Delaware business trust (hereinafter
referred to as the "TRUST"), and XXX XXXXXX AMERICAN CAPITAL ASSET MANAGEMENT,
INC., a Delaware corporation (hereinafter referred to as the "ADVISER").
The TRUST and the ADVISER agree as follows:
(1) APPOINTMENT
a. The TRUST hereby appoints the ADVISER to act as investment adviser to the
TRUST's Xxx Xxxxxx American Capital High Yield Municipal Fund ("Initial Fund"),
for the period and on the terms set forth in this Agreement. The ADVISER accepts
such appointment and agrees to furnish the services herein set forth for the
compensation herein provided.
b. In the event that the TRUST establishes one or more portfolios other than the
Initial Fund with respect to which it desires to retain the ADVISER to act as
investment adviser hereunder, it shall notify the ADVISER in writing. If the
ADVISER is willing to render such services it shall notify the TRUST in writing
whereupon such portfolio shall become a Fund hereunder and the compensation
payable by such new portfolio to the ADVISER will be as agreed in writing at the
time.
(2) SERVICES RENDERED AND EXPENSES PAID BY ADVISER
The ADVISER, subject to the control, direction and supervision of the TRUST's
Trustees and in conformity with applicable laws, the TRUST's Agreement and
Declaration of Trust ("Declaration of Trust"), By-laws, registration statements,
prospectus and stated investment objectives, policies and restrictions, shall:
a. manage the investment and reinvestment of the TRUST's assets including,
by way of illustration, the evaluation of pertinent economic, statistical,
financial and other data, determination of the industries and companies to be
represented in the Trust's Fund, and formulation and implementation of
investment programs;
b. maintain a trading desk and place all orders for the purchase and sale
of portfolio investments for the account of the Fund of the TRUST with brokers
or dealers selected by the ADVISER;
c. conduct and manage the day-to-day operations of the TRUST including, by
way of illustration, the preparation of registration statements, prospectuses,
reports, proxy solicitation materials and amendments thereto, the furnishing of
routine legal services except for services provided by outside counsel to the
TRUST selected by the Trustees, and the supervision of the TRUST's Treasurer and
the personnel working under his direction; and
d. furnish to the TRUST office space, facilities, equipment and personnel
adequate to provide the services described in paragraphs a., b., and c. above
and pay the compensation of each TRUST trustee and TRUST officer who is an
affiliated person of the ADVISER, except the compensation of the TRUST's
Treasurer and related expenses as provided below.
In performing the services described in paragraph b. above, the ADVISER shall
use its best efforts to obtain for the TRUST and the Fund the most favorable
price and execution available and shall maintain records adequate to demonstrate
compliance with this requirement. Subject to prior authorization by the TRUST's
Trustees of appropriate policies and procedures, the ADVISER may, to the extent
authorized by
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law, cause the TRUST to pay a broker or dealer that provides brokerage and
research services to the ADVISER an amount of commission for effecting a
portfolio investment transaction in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction. In the event
of such authorization and to the extent authorized by law, the ADVISER shall not
be deemed to have acted unlawfully or to have breached any duty created by this
Agreement or otherwise solely by reason of such action.
Except as otherwise agreed, or as otherwise provided herein, the TRUST shall
pay, or arrange for others to pay, all its expenses other than those expressly
stated to be payable by the ADVISER hereunder, which expenses payable by the
TRUST shall include (i) interest and taxes; (ii) brokerage commissions and other
costs in connection with the purchase and sale of portfolio investments; (iii)
compensation of its trustees and officers other than those who are affiliated
persons of the ADVISER; (iv) compensation of its Treasurer, compensation of
personnel working under the Treasurer's direction, and expenses of office space,
facilities, and equipment used by the Treasurer and such personnel in the
performance of their normal duties for the TRUST which consist of maintenance of
the accounts, books and other documents which constitute the record forming the
basis for the TRUST's financial statements, preparation of such financial
statements and other TRUST documents and reports of a financial nature required
by federal and state laws, and participation in the production of the TRUST's
registration statement, prospectuses, proxy solicitation materials and reports
to shareholders; (v) fees of outside counsel to and of independent accountants
of the TRUST selected by the Trustees; (vi) custodian, registrar and shareholder
service agent fees and expenses; (vii) expenses related to the repurchase or
redemption of its shares including expenses related to a program of periodic
repurchases or redemptions; (viii) expenses related to the issuance of its
shares against payment therefor by or on behalf of the subscribers thereto; (ix)
fees and related expenses of registering and qualifying the TRUST and its shares
for distribution under state and federal securities laws; (x) expenses of
printing and mailing of registration statements, prospectuses, reports, notices
and proxy solicitation materials of the TRUST; (xi) all other expenses
incidental to holding meetings of the TRUST's shareholders including proxy
solicitations therefor; (xii) expenses for servicing shareholder accounts;
(xiii) insurance premiums for fidelity coverage and errors and omissions
insurance; (xiv) dues for the TRUST's membership in trade associations approved
by the Trustees; and (xv) such nonrecurring expenses as may arise, including
those associated with actions, suits or proceedings to which the TRUST is a
party and the legal obligation which the TRUST may have to indemnify its
officers and trustees with respect thereto. To the extent that any of the
foregoing expenses are allocated between the TRUST and any other party, such
allocations shall be pursuant to methods approved by the Trustees.
For a period of one year commencing on the effective date of this Agreement,
the ADVISER and the TRUST 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 TRUST (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 TRUST and the TRUST'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 TRUST 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 TRUST in a timely manner.
(3) ROLE OF ADVISER
The ADVISER, and any person controlled by or under common control with the
ADVISER, shall be free to render similar services to others and engage in other
activities, so long as the services rendered to the TRUST are not impaired.
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Except as otherwise required by the Investment Company Act of 1940 (the
"1940 Act"), any of the shareholders, trustees, officers and employees of the
TRUST may be a shareholder, trustee, director, officer or employee of, or be
otherwise interested in, the ADVISER, and in any person controlled by or under
common control with the ADVISER, and the ADVISER, and any person controlled by
or under common control with the ADVISER, may have an interest in the TRUST.
Except as otherwise agreed, in the absence of willful misfeasance, bad
faith, negligence or reckless disregard of obligations or duties hereunder on
the part of the ADVISER, neither the ADVISER nor any subadviser shall be subject
to liability to the TRUST, or to any shareholder of the TRUST, for any act or
omission in the course of, or connected with, rendering services hereunder or
for any losses that may be sustained in the purchase, holding or sale of any
security.
(4) COMPENSATION PAYABLE TO THE ADVISER
The TRUST shall pay to the ADVISER, as compensation for the services
rendered, facilities furnished and expenses paid by the ADVISER, a monthly fee
computed at the following annual rate:
For purposes of this calculation, assets of the Fund shall be combined in
calculating the investment advisory fee. The Fund shall bear is pro rata share
of such fee based upon its average daily net assets.
.60% on the first $300 million of the TRUST's average daily net assets;
.55% on the next $300 million of the TRUST's average daily net assets; and .50%
of any excess over $600 million.
Average daily net assets shall be determined by taking the average of the
net assets for each business day during a given calendar month calculated in the
manner provided in the TRUST's Declaration of Trust. Such fee shall be payable
for each calendar month as soon as practicable after the end of that month.
The fees payable to the ADVISER by the TRUST pursuant to this Section 4
shall be reduced by any commissions, tender solicitation and other fees,
brokerage or similar payments received by the ADVISER, or any other direct or
indirect majority owned subsidiary of VK/AC Holding, Inc., in connection with
the purchase and sale of portfolio investments of the TRUST, less any direct
expenses incurred by such person, in connection with obtaining such commissions,
fees, brokerage or similar payments. The ADVISER shall use its best efforts to
recapture all available tender offer solicitation fees and exchange offer fees
in connection with the TRUST's portfolio transactions and shall advise the
Trustees of any other commissions, fees, brokerage or similar payments which may
be possible for the ADVISER or any other direct or indirect majority owned
subsidiary of VK/AC Holding, Inc. to receive in connection with TRUST's
portfolio transactions or other arrangements which may benefit the TRUST.
In the event that the ordinary business expenses of the TRUST for any
fiscal year should exceed .95% of average daily net assets, the compensation due
the ADVISER for such fiscal year shall be reduced by the amount of such excess.
The Adviser's compensation shall be so reduced by a reduction or a refund
thereof, at the time such compensation is payable after the end of each calendar
month during such fiscal year of the TRUST and if such amount should exceed such
monthly compensation, the ADVISER shall pay the TRUST an amount sufficient to
make up the deficiency, subject to readjustment during the TRUST's fiscal year.
For purposes of this paragraph, all ordinary business expenses of the TRUST
shall include the investment advisory fee and other operating expenses paid by
the TRUST except (i) for interest and taxes; (ii) brokerage commissions; (iii)
as a result of litigation in connection with a suit involving a claim for
recovery by the TRUST; (iv) as a result of litigation involving a defense
against a liability asserted against the TRUST, provided that, if the ADVISER
made the decision or took the actions which resulted in such claim, it acted in
good faith without negligence or misconduct; (v) any indemnification paid by the
TRUST to its officers and trustees and the ADVISER in accordance with applicable
state and federal laws as a result of such litigation; and (vi) amounts paid to
Xxx Xxxxxx American Capital Distributors, Inc., the distributor of the TRUST's
shares, in connection with a distribution plan adopted by the FUND's Trustees
pursuant to Rule 12b-1 under the Investment Company Act of 1940.
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If the ADVISER shall serve for less than the whole of any month, the
foregoing compensation shall be prorated.
(5) BOOKS AND RECORDS
In compliance with the requirements of Rule 31a-3 under the 1940 Act, the
ADVISER hereby agrees that all records which it maintains for the TRUST are the
property of the TRUST and further agrees to surrender promptly to the TRUST any
of such records upon the TRUST's request. The ADVISER further agrees to preserve
for the periods prescribed by Rule 31a-2 under the 1940 Act the records required
to be maintained by Rule 31a-1 under the Act.
(6) DURATION OF AGREEMENT
This Agreement shall become effective with respect to the initial Fund on
the date hereof, and with respect to any additional Portfolios, on the date of
receipt by the TRUST of notice from the ADVISER in accordance with Section 1(b)
hereof that the ADVISER is willing to serve as investment adviser with respect
to such Portfolio, provided that this Agreement (as supplemented by the terms
specified in any notice and agreement pursuant to Section 1(b) hereof) shall
have been approved by the shareholders of each Portfolio subject to this
Agreement, in accordance with the requirements under the 1940 Act, and shall
remain in full force until May 31, 1999 unless sooner terminated as hereinafter
provided. This Agreement shall continue in force as to a particular Fund from
year to year thereafter, but only so long as such continuance is approved at
least annually by the vote of a majority of the TRUST's Trustees who are not
parties to this Agreement or interested persons of any such parties, cast in
person at a meeting called for the purpose of voting on such approval , and by a
vote of a majority of the TRUST's Trustees or a majority of the TRUST's
outstanding voting securities.
This Agreement shall terminate automatically in the event of its
assignment. The Agreement may be terminated as to any Fund, at any time by the
TRUST's Trustees, by vote of a majority of the TRUST's outstanding voting
securities, or by the ADVISER, on 60 days' written notice, or upon such shorter
notice as may be mutually agreed upon. Such termination shall be without payment
of any penalty.
(7) MISCELLANEOUS PROVISIONS
For the purposes of this Agreement, the terms "affiliated person, "
"assignment," "interested person," and "majority of the outstanding voting
securities" shall have their respective meanings defined in the 1940 Act and the
Rules and Regulations thereunder, subject, however, to such exemptions as may be
granted to either the ADVISER or the TRUST by the Securities and Exchange
Commission (the "Commission"), or such interpretive positions as may be taken by
the Commission or its staff, under the 1940 Act, and the term "brokerage and
research services" shall have the meaning given in the Securities Exchange Act
of 1934 and the Rules and Regulations thereunder.
It is understood and agreed that the ADVISER may engage a subadviser to
assist it in the performance of its duties hereunder. The execution of this
Agreement has been authorized by the TRUST's Trustees and by the sole
shareholder. This Agreement is executed on behalf of the TRUST or the Trustees
of the TRUST as Trustees and not individually and that the obligations of this
Agreement are not binding upon any of the Trustees, officers or shareholders of
the TRUST individually but are binding only upon the assets and property of the
TRUST. The TRUST is composed of one Fund. All obligations of the TRUST under
this Agreement shall apply only on a Fund by Fund basis and the assets of one
Fund shall not be liable for the obligations of any other Fund. A Certificate of
Trust in respect of the TRUST is on file with the Secretary of State of
Delaware.
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.
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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 TRUST.
The parties hereto each have caused this Agreement to be signed in
duplicate on its behalf by its duly authorized officer on the above date.
XXX XXXXXX AMERICAN CAPITAL XXX XXXXXX AMERICAN CAPITAL
ASSET MANAGEMENT, INC. TAX-EXEMPT TRUST
By:/s/ Xxxxxx X. XxXxxxxxx By: /s/ Xxxxx X. Xxxxx
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Name: Xxxxxx X. XxXxxxxxx Name: Xxxxx X. Xxxxx
Its: President Its: Executive Vice President
