Exhibit 5.1
INVESTMENT ADVISORY AGREEMENT
Agreement made this 1st day of July, 1998 between The Xxxxxxxx
Funds, Inc., a Maryland corporation (the "Company"), and The Xxxxxxxx Management
Co., L.P., a California limited partnership (the "Adviser").
W I T N E S S E T H:
WHEREAS, the Company is registered with the Securities and Exchange
Commission under the Investment Company Act of 1940 (the "Act") as an open-end
management investment company consisting of two series, the Xxxxxxxx Balanced
Fund and the Xxxxxxxx Leveraged Dogs Fund; and
WHEREAS, the Company desires to retain the Adviser, which is an
investment adviser registered under the Investment Advisers Act of 1940, as the
investment adviser for the Xxxxxxxx Balanced Fund (the "Fund")
NOW, THEREFORE, the Company and the Adviser do mutually promise and
agree as follows:
1. Employment. The Company hereby employs the Adviser to manage the
investment and reinvestment of the assets of the Fund for the period and on the
terms set forth in this Agreement. The Adviser hereby accepts such employment
for the compensation herein provided and agrees during such period to render the
services and to assume the obligations herein set forth.
2. Authority of the Adviser. The Adviser shall supervise and manage
the investment portfolio of the Fund, and, subject to such policies as the board
of directors of the Company may determine, direct the purchase and sale of
investment securities in the day to day management of the Fund. The Adviser
shall for all purposes herein be deemed to be an independent contractor and
shall, unless otherwise expressly provided or authorized, have no authority to
act for or represent the Company or the Fund in any way or otherwise be deemed
an agent of the Company or the Fund. However, one or more limited partners of
the Adviser or one or more shareholders, officers, directors or employees of the
general partner of the Adviser may serve as directors and/or officers of the
Company, but without compensation or reimbursement of expenses for such services
from the Company. Nothing herein contained shall be deemed to require the
Company to take any action contrary to its Limited Partnership Agreement or
Certificate of Limited Partnership, as either document may be amended, restated
or supplemented from time to time, or any applicable statute or regulation, or
to relieve or deprive the board of directors of the Company of its
responsibility for and control of the affairs of the Fund.
3. Expenses. The Adviser, at its own expense and without reimbursement
from the Company or the Fund, shall furnish office space, and all necessary
office facilities,
equipment and executive personnel for managing the investments of the Fund. The
Adviser shall not be required to pay any expenses of the Fund except as provided
herein if the total expenses borne by the Fund, including the Adviser's fee and
the fees paid to the Fund's Administrator but excluding all federal, state and
local taxes, interest, brokerage commissions and extraordinary items, in any
year exceed that percentage of the average net assets of the Fund for such year,
as determined by valuations made as of the close of each business day, which is
the most restrictive percentage provided by the state laws of the various states
in which the Fund's shares are qualified for sale or, if the states in which the
Fund's shares are qualified for sale impose no such restrictions, 3%. The
expenses of the Fund's operations borne by the Fund include by way of
illustration and not limitation, directors fees paid to those directors who are
not officers of the Company or interested persons of the Adviser, the costs of
preparing and printing registration statements required under the Securities Act
of 1933 and the Act (and amendments thereto), the expense of registering its
shares with the Securities and Exchange Commission and in the various states,
the printing and distribution cost of prospectuses mailed to existing
shareholders, the cost of stock certificates (if any), director and officer
liability insurance, reports to shareholders, reports to government authorities
and proxy statements, interest charges, taxes, legal expenses, salaries of
administrative and clerical personnel, association membership dues, auditing and
accounting services, insurance premiums, brokerage and other expenses connected
with the execution of portfolio securities transactions, fees and expenses of
the custodian of the Fund's assets, expenses of calculating the net asset value
and repurchasing and redeeming shares, printing and mailing expenses, charges
and expenses of dividend disbursing agents, registrars and stock transfer agents
and the cost of keeping all necessary shareholder records and accounts.
The Company shall monitor the expense ratio of the Fund on a monthly
basis. If the accrued amount of the expenses of the Fund exceeds the expense
limitation established herein, the Company shall create an account receivable
from the Adviser in the amount of such excess. In such a situation the monthly
payment of the Adviser's fee will be reduced by the amount of such excess,
subject to adjustment month by month during the balance of the Company's fiscal
year if accrued expenses thereafter fall below the expense limitation.
4. Compensation of the Adviser. For the services to be rendered by the
Adviser hereunder, the Company, through and on behalf of the Fund, shall pay to
the Adviser an advisory fee, paid monthly, based on the average net assets of
the Fund, as determined by valuations made as of the close of each business day
of the month. The monthly advisory fee shall be 1/12 of 0.60% (0.60% per annum)
on the average daily net assets of the Fund. For any month in which this
Agreement is not in effect for the entire month, such fee shall be reduced
proportionately on the basis of the number of calendar days during which it is
in effect and the fee computed upon the average daily net assets of the business
days during which it is so in effect.
5. Ownership of Shares of the Fund. The Adviser shall not take an
ownership position in the Fund, and shall not permit any of its partners or any
of the shareholders, officers, directors or employees of its general partner to
take a long or short position in the shares of the Fund, except for the purchase
of shares of the Fund for investment
purposes at the same price as that available to the public at the time of
purchase or in connection with the initial capitalization of the Fund.
6. Exclusivity. The services of the Adviser to the Fund hereunder are
not to be deemed exclusive and the Adviser shall be free to furnish similar
services to others as long as the services hereunder are not impaired thereby.
Although the Adviser has agreed to permit the Fund and the Company to use the
name "Xxxxxxxx", if they so desire, it is understood and agreed that the Adviser
reserves the right to use and to permit other persons, firms or corporations,
including investment companies, to use such name, and that the Fund and the
Company will not use such name if the Adviser ceases to be the Fund's sole
investment adviser. During the period that this Agreement is in effect, the
Adviser shall be the Fund's sole investment adviser.
7. Liability. In the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of obligations or duties hereunder on the part
of the Adviser, the Adviser shall not be subject to liability to the Fund or to
any shareholder of the Fund 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.
8. Brokerage Commissions. The Adviser, subject to the control and
direction of the Company's Board of Directors, shall have authority and
discretion to select brokers and dealers to execute portfolio transactions for
the Fund and for the selection of the markets on or in which the transactions
will be executed. The Adviser may cause the Fund to pay a broker-dealer which
provides brokerage and research services, as such services are defined in
Section 28(e) of the Securities Exchange Act of 1934 (the "Exchange Act"), to
the Adviser a commission for effecting a securities transaction in excess of the
amount another broker-dealer would have charged for effecting such transaction,
if the Adviser determines in good faith that such amount of commission is
reasonable in relation to the value of brokerage and research services provided
by the executing broker-dealer viewed in terms of either that particular
transaction or his overall responsibilities with respect to the accounts as to
which he exercises investment discretion (as defined in Section 3(a)(35) of the
Exchange Act). The Adviser shall provide such reports as the Company's Board of
Directors may reasonably request with respect to the Fund's total brokerage and
the manner in which that brokerage was allocated.
9. Code of Ethics. The Adviser has adopted a written code of ethics
complying with the requirements of Rule 17j-1 under the Act and has provided the
Company with a copy of the code of ethics and evidence of its adoption. Upon the
written request of the Company, the Adviser shall permit the Company to examine
any reports required to be made by the Adviser pursuant to Rule 17j-1(c)(1)
under the Act.
10. Amendments. This Agreement may be amended by the mutual consent of
the parties; provided, however, that in no event may it be amended without the
approval of the board of directors of the Company in the manner required by the
Act, and by the vote of the majority of the outstanding voting securities of the
Fund, as defined in the Act.
11. Termination. This Agreement may be terminated at any time, without
the payment of any penalty, by the board of directors of the Company or by a
vote of the majority of the outstanding voting securities of the Fund, as
defined in the Act, upon giving sixty (60) days' written notice to the Adviser.
This Agreement may be terminated by the Adviser at any time upon the giving of
sixty (60) days' written notice to the Company. This Agreement shall terminate
automatically in the event of its assignment (as defined in Section 2(a)(4) of
the Act). Subject to prior termination as hereinbefore provided, this Agreement
shall continue in effect for an initial period beginning as of the date hereof
and ending June 30, 1999 and indefinitely thereafter, but only so long as the
continuance after such initial period is specifically approved annually by (i)
the board of directors of the Company or by the vote of the majority of the
outstanding voting securities of the Fund, as defined in the Act, and (ii) the
board of directors of the Company in the manner required by the Act, provided
that any such approval may be made effective not more than sixty (60) days
thereafter.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed on the day first above written.
THE XXXXXXXX MANAGEMENT CO., L.P.
By: Xxxxxx X. Xxxxxxxx, Incorporated,
General Partner
By:
President
THE XXXXXXXX FUNDS, INC.
By:
President
