INVESTMENT MANAGEMENT SERVICES AGREEMENT
This Agreement dated as of December 1, 2002, is by and between AXP
Sector Series, Inc., (the "Corporation"), a Minnesota corporation, on behalf of
its underlying series AXP Utilities Fund, (the "Fund") and American Express
Financial Corporation ("AEFC"), a Delaware corporation.
Part One: INVESTMENT MANAGEMENT AND OTHER SERVICES
(1) The Corporation hereby retains AEFC, and AEFC hereby agrees, for
the period of this Agreement and under the terms and conditions hereinafter set
forth, to furnish the Corporation continuously with suggested investment
planning; to determine, consistent with the Fund's investment objectives and
policies, which securities in AEFC's discretion shall be purchased, held or
sold, and to execute or cause the execution of purchase or sell orders; to
prepare and make available to the Fund all necessary research and statistical
data in connection therewith; to furnish all other services of whatever nature
required in connection with the management of the Fund as provided under this
Agreement; and to pay such expenses as may be provided for in Part Three;
subject always to the direction and control of the Board of Directors (the
"Board"), the Executive Committee and the authorized officers of the
Corporation. AEFC agrees to maintain an adequate organization of competent
persons to provide the services and to perform the functions herein mentioned.
AEFC agrees to meet with any persons at such times as the Board deems
appropriate for the purpose of reviewing AEFC's performance under this
Agreement.
(2) AEFC agrees that the investment planning and investment decisions
will be in accordance with general investment policies of the Fund as disclosed
to AEFC from time to time by the Fund and as set forth in its prospectus and
registration statement filed with the United States Securities and Exchange
Commission (the "SEC").
(3) AEFC agrees that it will maintain all required records, memoranda,
instructions or authorizations relating to the acquisition or disposition of
securities for the Fund.
(4) The Corporation agrees that it will furnish to AEFC any information
that the latter may reasonably request with respect to the services performed or
to be performed by AEFC under this Agreement.
(5) AEFC is authorized to select the brokers or dealers that will
execute the purchases and sales of portfolio securities for the Fund and is
directed to use its best efforts to obtain the best available price and most
favorable execution, except as prescribed herein. Subject to prior authorization
by the Board of appropriate policies and procedures, and subject to termination
at any time by the Board, AEFC may also be authorized to effect individual
securities transactions at commission rates in excess of the minimum commission
rates available, to the extent authorized by law, if AEFC
determines in good faith that such amount of commission was reasonable in
relation to the value of the brokerage and research services provided by such
broker or dealer, viewed in terms of either that particular transaction or
AEFC's overall responsibilities with respect to the Fund and other funds for
which it acts as investment adviser.
(6) It is understood and agreed that in furnishing the Fund with the
services as herein provided, neither AEFC, nor any officer, director or agent
thereof shall be held liable to the Fund, shareholders, the Corporation or its
creditors for errors of judgment or for anything except willful misfeasance, bad
faith, or gross negligence in the performance of its duties, or reckless
disregard of its obligations and duties under the terms of this Agreement. It is
further understood and agreed that AEFC may rely upon information furnished to
it reasonably believed to be accurate and reliable.
Part Two: COMPENSATION TO INVESTMENT MANAGER
(1) The Corporation agrees to pay to AEFC, on behalf of the Fund, and
AEFC covenants and agrees to accept from the Corporation in full payment for the
services furnished, a fee composed of an asset charge and a performance
incentive adjustment.
(a) The Asset Charge
(i) The asset charge for each calendar day of each year
shall be equal to the total of 1/365th (1/366th in each leap
year) of the amount computed in accordance with paragraph (ii)
below. The computation shall be made for each calendar day on
the basis of net assets as of the close of the preceding
business day. In the case of the suspension of the computation
of net asset value, the fee for each calendar day during such
suspension shall be computed as of the close of business on
the last full business day on which the net assets were
computed. Net assets as of the close of a full business day
shall include all transactions in shares of the Fund recorded
on the books of the Fund for that day. The asset charge shall
be based on the net assets of the Fund as set forth in the
following table.
AXP Utilities Fund
Asset Charge
Assets Annual Rate At
(Billions) Each Asset Level
First $0.50 0.610%
Next 0.50 0.585
Next 1.00 0.560
Next 1.00 0.535
Next 3.00 0.510
Over 6.00 0.480
(b) The Performance Incentive Adjustment
(i) Calculating the Performance Incentive Adjustment. The
performance incentive adjustment shall be calculated
monthly by:
(A) Determining the difference in performance (the
"Performance Difference") between the Fund and an index of
similar funds (the "Index"), as described in paragraph
(b)(ii). For AXP Utilities Fund the Index is the Lipper
Utility Funds Index.
(B) Using the Performance Difference calculated under
paragraph (b)(ii) to determine the Adjustment Rate, as
illustrated in paragraph (b)(iii).
(C) Multiplying the current month's Adjustment Rate
by the Fund's average net assets for the comparison
period, then dividing the result by the number of months
in the comparison period to determine the monthly
adjustment. Where the performance of the Fund exceeds the
Index, the amount so determined shall be an increase in
fees as computed under paragraph (1)(a). Where Fund
performance is exceeded by the Index, the amount so
determined shall be a decrease in such fees.
(ii) Computing the Performance Difference. The Performance
Difference, calculated monthly, is determined by measuring the
percentage difference between the performance of one Class A
share of the Fund and the performance of the Index. The
performance of one Class A share of the Fund shall be measured
by computing the percentage difference, carried to two decimal
places, between the net asset value as of the last business
day of the period selected for comparison and the net asset
value of such share as of the last business day of the prior
period, adjusted for dividends or capital gain distributions
treated as reinvested immediately. The performance of the
Index will be established by measuring the percentage
difference, carried to two decimal places, between the ending
and beginning Index for the comparison period, with dividends
or capital gain distributions on the securities that comprise
the Index being treated as reinvested immediately.
(ii) Determining the Adjustment Rate. The Adjustment Rate,
computed to five decimal places, is determined in
accordance with the following table:
---------------- -----------------------------------------------------------
Performance Adjustment Rate
Difference
---------------- -----------------------------------------------------------
0.00%-0.50% 0
---------------- -----------------------------------------------------------
0.50%-1.00% 6 basis points times the performance difference over 0.50%
(maximum of 3 basis points if a 1% performance difference)
---------------- -----------------------------------------------------------
1.00%-2.00% 3 basis points, plus 3 basis points times the performance
difference over 1.00% (maximum 6 basis points if a 2%
performance difference)
---------------- -----------------------------------------------------------
2.00%-4.00% 6 basis points, plus 2 basis points times the performance
difference over 2.00% (maximum 10 basis points if a 4%
performance difference)
---------------- -----------------------------------------------------------
4.00%-6.00% 10 basis points, plus 1 basis point times the performance
difference over 4.00% (maximum 12 basis points if a 6%
performance difference)
---------------- -----------------------------------------------------------
6.00% or more 12 basis points
---------------- -----------------------------------------------------------
For example, if the performance difference is 2.38%, the
adjustment rate is 0.000676 (0.0006 [6 basis points] plus
0.0038 [the 0.38% performance difference over 2.00%] x
0.0002[2 basis points] x 100 (0.000076)). Rounded to five
decimal places, the Adjustment Rate is 0.00068.
(iv) The maximum adjustment rate is 0.00120 per year.
(v) For a period of six months beginning Dec. 1, 2002, the
adjustment will be calculated based on the lesser of the
amount due under the adjustment described above or under the
adjustment used prior to Dec. 1, 2002. The 12 month comparison
period will roll over with each succeeding month, so that it
always equals 12 months, ending with the month for which the
performance incentive adjustment is being computed.
(vi) If an Index ceases to be published for a period of
more than 90 days, changes in any material respect or
otherwise becomes impracticable to use for purposes of the
adjustment, no adjustment will be made under (b) until such
time as the Board approves a substitute index.
(2) The fee shall be paid on a monthly basis and, in the event of the
termination of this Agreement, the fee accrued shall be prorated on the basis of
the number of days that this Agreement is in effect during the month with
respect to which such payment is made.
(3) The fee provided for hereunder shall be paid in cash by the
Corporation to AEFC within five business days after the last day of each month.
Part Three: ALLOCATION OF EXPENSES
(1) The Corporation agrees to pay:
(a) Fees payable to AEFC for its services under the terms of
this Agreement.
(b) Taxes.
(c) Brokerage commissions and charges in connection with the purchase
and sale of assets.
(d) Custodian fees and charges.
(e) Fees and charges of its independent certified public accountants
for service the Corporation or the Fund requests.
(f) Premium on the bond required by Rule 17g-1 under the Investment
Company Act of 1940.
(g) Fees and expenses of attorneys (i) it employs in matters not
involving the assertion of a claim by a third party against the
Corporation, its directors and officers, (ii) it employs in
conjunction with a claim asserted by the Board against AEFC,
except that AEFC shall reimburse the Corporation for such fees and
expenses if it is ultimately determined by a court of competent
jurisdiction, or AEFC agrees, that it is liable in whole or in
part to the Corporation, and (iii) it employs to assert a claim
against a third party.
(h) Fees paid for the qualification and registration for public sale
of the securities of the Fund under the laws of the United States
and of the several states in which such securities shall be
offered for sale.
(i) Fees of consultants employed by the Corporation.
(j) Directors, officers and employees expenses which shall include
fees, salaries, memberships, dues, travel, seminars, pension,
profit sharing, and all other benefits paid to or provided for
directors, officers and employees, directors and officers
liability insurance, errors and omissions liability insurance,
worker's compensation insurance and other expenses applicable to
the directors, officers and employees, except the Corporation will
not pay any fees or expenses of any person who is an officer or
employee of AEFC or its affiliates.
(k) Filing fees and charges incurred by the Corporation in connection
with filing any amendment to its articles of incorporation, or
incurred in filing any other document with the State of Minnesota
or its political subdivisions.
(l) Organizational expenses of the Corporation.
(m) Expenses incurred in connection with lending portfolio securities
of the Funds.
(n) Expenses properly payable by the Corporation on behalf of the
Fund, approved by the Board.
(2) AEFC agrees to pay all expenses associated with the services it
provides under the terms of this Agreement.
Part Four: MISCELLANEOUS
(1) AEFC shall be deemed to be an independent contractor and, except as
expressly provided or authorized in this Agreement, shall have no authority to
act for or represent the Corporation.
(2) A "full business day" shall be as defined in the By-laws of the
Corporation.
(3) The Corporation recognizes that AEFC now renders and may continue
to render investment advice and other services to other investment companies and
persons which may or may not have investment policies and investments similar to
those of the Fund and that AEFC manages its own investments and/or those of its
subsidiaries. AEFC shall be free to render such investment advice and other
services and the Corporation hereby consents thereto.
(4) Neither this Agreement nor any transaction had pursuant hereto
shall be invalidated or in any way affected by the fact that directors,
officers, agents and/or shareholders of the Corporation are or may be interested
in AEFC or any successor or assignee thereof, as directors, officers,
stockholders or otherwise; that directors, officers, stockholders or agents of
AEFC are or may be interested in the Fund or the Corporation as directors,
officers, shareholders, or otherwise; or that AEFC or any successor or assignee,
is or may be interested in the Fund as shareholder or otherwise, provided,
however, that neither AEFC, nor any officer, director or employee thereof or of
the Corporation, shall sell to or buy from the Fund any property or security
other than shares issued by the Fund, except in accordance with applicable
regulations or orders of the SEC.
(5) Any notice under this Agreement shall be given in writing,
addressed, and delivered, or mailed postpaid, to the party to this Agreement
entitled to receive such, at such party's principal place of business in
Minneapolis, Minnesota, or to such other address as either party may designate
in writing mailed to the other.
(6) AEFC agrees that no officer, director or employee of AEFC will deal
for or on behalf of the Fund with himself as principal or agent, or with any
corporation or partnership in which he may have a financial interest, except
that this shall not prohibit:
(a) Officers, directors or employees of AEFC from having a
financial interest in the Fund or in AEFC.
(b) The purchase of securities for the Fund, or the sale of
securities owned by the Fund, through a security broker or
dealer, one or more of whose partners, officers, directors
or employees is an officer, director or employee of AEFC,
provided such transactions are handled in the capacity of
broker only and provided commissions charged do not exceed
customary brokerage charges for such services.
(c) Transactions with the Fund by a broker-dealer affiliate of
AEFC as may be allowed by rule or order of the SEC and if
made pursuant to procedures adopted by the Board.
(7) AEFC agrees that, except as herein otherwise expressly provided or
as may be permitted consistent with the use of a broker-dealer affiliate of AEFC
under applicable provisions of the federal securities laws, neither it nor any
of its officers, directors or employees shall at any time during the period of
this Agreement, make, accept or receive, directly or indirectly, any fees,
profits or emoluments of any character in connection with the purchase or sale
of securities (except shares issued by the Funds) or other assets by or for the
Funds.
(8) This Agreement shall be governed by the laws of the State of
Minnesota.
Part Five: RENEWAL AND TERMINATION
(1) This Agreement shall continue in effect until November 30, 2004 or
until a new agreement is approved by a vote of the majority of the outstanding
shares of the Fund and by vote of the Fund's Board, including the vote required
by (b) of this paragraph, and if no new agreement is so approved, this Agreement
shall continue from year to year thereafter unless and until terminated by
either party as hereinafter provided, except that such continuance shall be
specifically approved at least annually (a) by the Board or by a vote of the
majority of the outstanding shares of the Fund and (b) by the vote of a majority
of the directors who are not parties to this Agreement or interested persons of
any such party, cast in person at a meeting called for the purpose of voting on
such approval. As used in this paragraph, the term "interested person" shall
have the same meaning as set forth in the Investment Company Act of 1940, as
amended (the "1940 Act").
(2) This Agreement may be terminated by either the Corporation, on
behalf of a Fund, or AEFC at any time by giving the other party 60 days' written
notice of such intention to terminate, provided that any termination shall be
made without the payment of any penalty, and provided further that termination
may be effected either by the Board or by a vote of the majority of the
outstanding voting shares of the Fund. The vote of the majority of the
outstanding voting shares of the Fund for the purpose of this Part Five shall be
the vote at a shareholders' regular meeting, or a special meeting duly called
for the purpose, of 67% or more of the Fund's shares present at such meeting if
the holders of more than 50% of the outstanding voting shares are present or
represented by proxy, or more than 50% of the outstanding voting shares of the
Fund, whichever is less.
(3) This Agreement shall terminate in the event of its assignment, the
term "assignment" for this purpose having the same meaning as set forth in the
1940 Act.
IN WITNESS THEREOF, the parties hereto have executed the foregoing Agreement as
of the day and year first above written.
AXP SECTOR SERIES, INC.
AXP Utilities Fund
By /s/ Xxxxxx X. Xxx
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Xxxxxx X. Xxx
Vice President
AMERICAN EXPRESS FINANCIAL CORPORATION
By /s/ Xxxxx X. Xxxxx
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Xxxxx X. Xxxxx
Senior Vice President and General Manager- Mutual Funds
