XXXXXX FUNDS, INC.
INVESTMENT ADVISORY AGREEMENT
Agreement made effective as of the 1st day of July, 2002 between Xxxxxx
Funds, Inc., a Maryland corporation (the "Fund"), and Xxxxxx Advisors, LLC (the
"Advisor"), a California limited liability company.
WHEREAS, the Fund is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end management investment company.
The Fund is authorized to create separate series, each with its own separate
investment portfolio (each a "Fund" and collectively, the "Funds"), and
beneficial interest in each such series will be represented by a separate series
of shares (the "Shares"); and
WHEREAS, the Advisor is an investment adviser registered under the
Investment Advisers Act of 1940, as amended; and
WHEREAS, the Fund desires to retain the Advisor as investment adviser
to furnish investment advisory and portfolio management services to the Fund
with respect to its initial portfolio and such other portfolios as the Fund and
the Advisor shall agree upon (collectively, the "Portfolios"), and the Advisor
is willing to furnish such services and to perform the functions assigned to it
under this Agreement for the consideration provided herein;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Fund hereby appoints the Advisor as investment
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adviser and administrator of the Fund and each Portfolio listed on Schedule A of
this Agreement (as such schedule may be amended from time to time) for the
period and on the terms set forth in this Agreement. The Advisor accepts such
appointment and agrees to render the services herein set forth for the
compensation as set forth on Schedule A. In the performance of its duties, the
Advisor will act in the best interests of the Fund and each Portfolio and will
comply with (a) applicable laws and regulations, including, but not limited to,
the 1940 Act, (b) the terms of this Agreement, (c) the Fund's Articles of
Incorporation, By-Laws and currently effective registration statement under the
Securities Act of 1933, as amended, and the 1940 Act, and any amendments
thereto, (d) the stated investment objective, policies and restrictions of each
applicable Portfolio, and (e) such other guidelines as the Board of Directors of
the Fund ("Board of Directors") reasonably may establish.
2. Duties as Investment Adviser.
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(a) Subject to the supervision of the Board of Directors, the Advisor
will provide a continuous investment program for each Portfolio, including
investment research and management with respect to all securities, investments
and cash equivalents in each Portfolio. The Advisor will determine from time to
time what securities and other investments will be purchased, retained or sold
by each Portfolio. The Advisor will exercise full discretion and act for each
Portfolio in the same manner and with the same force and effect as such
Portfolio itself might or could do with respect to purchases, sales, or other
transactions, as well as with respect to all other things necessary or
incidental to the furtherance or conduct of such purchases, sales or other
transactions.
(b) The Advisor will place orders pursuant to its investment
determinations for each Portfolio either directly with the issuer or through
other brokers. In the selection of brokers and the placement of orders for the
purchase and sale of portfolio investments for the Portfolios, the Advisor shall
use its best efforts to obtain for the Portfolios the best qualitative
execution, taking into account such factors as price (including the applicable
brokerage commission or dealer spread), the execution capability, financial
responsibility and responsiveness of the broker or dealer and the brokerage and
research services provided by the broker or dealer. In using its best efforts to
obtain the most favorable price and execution available, the Advisor, bearing in
mind the Fund's best interests at all times, shall consider all factors it deems
relevant, including by way of illustration, price, the size of the transaction,
the nature of the market for the security, the amount of the commission, the
timing of the transaction taking into account market prices and trends, the
reputation, experience and financial stability of the broker involved, the
quality of service rendered by the broker in other transactions. Consistent with
the Rules of the National Association of Securities Dealers, Inc., and subject
to its obligation of seeking best qualitative execution, the Advisor may give
consideration to sales of shares of the Fund as a factor in the selection of
brokers and dealers to execute portfolio transactions. Subject to such policies
as the Board of Directors may determine, the Advisor shall not be deemed to have
acted unlawfully or to have breached any duty created by this Agreement or
otherwise solely by reason of its having caused a Portfolio to pay a broker that
provides brokerage and research services to the Advisor an amount of commission
for effecting a portfolio investment transaction in excess of the amount of
commission another broker would have charged for effecting that transaction if
the Advisor 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, viewed in terms of either that particular transaction
or the Advisor's overall responsibilities with respect to the Fund and to other
clients of the Advisor as to which the Advisor exercises investment discretion.
In no instance will portfolio securities of any Portfolio be purchased from or
sold to the Advisor or any affiliated person of the Advisor. The Fund agrees
that any entity or person associated with the Advisor which is a member of a
national securities exchange is authorized to effect any transaction on such
exchange for the account of the Fund which is permitted by Section 11(a) of the
Securities Exchange Act of 1934, as amended, and that the Fund consents to the
retention of compensation for such transactions.
(c) The Advisor will provide the Board of Directors on a regular basis
with economic and investment analyses and reports and make available to the
Board upon request any economic, statistical and investment services normally
available to institutional or other customers of the Advisor.
(d) Any of the foregoing functions with respect to any or all
Portfolios may be delegated by the Advisor, at the Advisor's expense, to another
appropriate party (including an affiliated party), subject to such approval by
the Board of Directors and shareholders of each affected Portfolio as may be
required by the 1940 Act. The Advisor shall oversee the performance of delegated
functions by any such party and shall furnish to the Fund with quarterly
evaluations and analyses concerning the performance of delegated
responsibilities by those parties.
3. Services Not Exclusive. The services furnished by the Advisor
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hereunder are not to be deemed exclusive and the Advisor shall be free to
furnish similar services to others so long as its services under this Agreement
are not impaired thereby.
4. Books and Records. In compliance with the requirements of Rule 3la-3
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under the 1940 Act, the Advisor hereby agrees that all records which it
maintains for the Fund are the property of the Fund and further agrees to
surrender promptly to the Fund any of such records upon the Fund's request. The
Advisor further agrees to preserve for the periods prescribed by Rule 3la-2
under the 1940 Act the records required to be maintained by Rule 3la-1 under the
1940 Act.
5. Expenses. During the term of this Agreement, the Fund will bear all
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expenses not specifically assumed by the Advisor incurred in its operations and
the offering of its shares. Expenses borne by the Fund will include, but not be
limited to, the following (or each Portfolio's proportionate share of the
following): (a) brokerage commissions relating to securities purchased or sold
by the Fund or any losses incurred in connection therewith; (b) fees payable to
and expenses incurred on behalf of the Fund by the Advisor; (c) expenses of
organizing the Fund and the Portfolios; (d) filing fees and expenses relating to
the registration and qualification of the Fund's shares and the Fund under
federal or state securities laws and maintaining such registrations and
qualifications; (e) distribution fees; (f) fees and salaries payable to the
members of the Board of Directors and officers who are not officers or employees
of the Advisor or interested persons (as defined in the 0000 Xxx) of any
investment adviser or distributor of the Fund; (g) taxes (including any income
or franchise taxes) and governmental fees; (h) costs of any liability,
uncollectible items of deposit and other insurance or fidelity bonds; (i) any
costs, expenses or losses arising out of any liability of or claim for damage or
other relief asserted against the Fund for violation of any law; (j) legal,
accounting and auditing expenses, including legal fees of special counsel for
the independent Directors; (k) charges of custodians, transfer agents and other
agents; (l) costs of preparing share certificates; (m) expenses of setting in
type and printing Prospectuses and supplements thereto for existing
shareholders, reports and statements to shareholders and proxy material; (n) any
extraordinary expenses (including fees and disbursements of counsel) incurred by
the Fund; and (o) fees and other expenses incurred in connection with membership
in investment company organizations.
The Fund may pay directly any expense incurred by it in its normal
operations and, if any such payment is consented to by the Advisor and
acknowledged as otherwise payable by the Advisor pursuant to this Agreement, the
Fund may reduce the fee payable to the Advisor pursuant to paragraph 7 hereof by
such amount. To the extent that such deductions exceed the fee payable to the
Advisor on any monthly payment date, such excess shall be carried forward and
deducted in the same manner from the fee payable on succeeding monthly payment
dates.
6. Compensation. For the services provided and the expenses assumed
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pursuant to this Agreement with respect to each Portfolio, the Fund will pay the
Advisor, effective from the date of this Agreement, a fee which is computed
daily and paid monthly from each Portfolio's assets at the annual rates as
percentages of that Portfolio's average daily net assets as set forth in the
attached Schedule A, which schedule can be modified from time to time to reflect
changes in annual rates or the addition or deletion of a Portfolio from the
terms of this Agreement, subject to appropriate approvals required by the 1940
Act. If this Agreement becomes effective or terminates with respect to any
Portfolio before the end of any month, the fee for the period from the effective
date to the end of the month or from the beginning of such month to the date of
termination, as the case may be, shall be prorated according to the proportion
that such period bears to the full month in which such effectiveness or
termination occurs.
Advisor agrees to waive its fee and, to extent necessary, reimburse
Fund expenses (excluding taxes, interest and extraordinary expenses) so that
total Fund operating expenses do not exceed 1.00% for the fiscal years ending
June 30, 2003 and June 30, 2004. In the event the ratio of the Fund's total
operating expenses, including organizational expenses payable in a fiscal year,
to average net assets for the fiscal periods ending June 30, 2003 and June 30,
2004 exceeds 1.00% on an annual basis as calculated monthly, Advisor agrees to
waive its investment advisory fee set forth on the schedule attributable to such
period and pay to the Fund any additional amount of such excess; provided,
however, there shall be excluded from such expenses the amount of any interest,
taxes, brokerage fees and commissions and extraordinary expenses (including but
not limited to legal claims and liabilities and litigation costs and any
indemnification related thereto) paid or payable by the Fund. Any fee returned
or waived or payments made by Advisor pursuant hereto shall be reimbursed by the
Fund in subsequent fiscal years to the extent operating expenses are less than
the percentage limitation set forth herein; provided, however, that no such
reimbursement shall be made in any fiscal year which is more than three full
fiscal years after the period in which the fee was returned or waived or such
payment was made, and all reimbursements will be credited on a first-in,
first-out basis.
7. Limitation of Liability of the Advisor. The Advisor shall not be
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liable for any error of judgment or mistake of law or for any loss suffered by
the Fund or any Portfolio in connection with the matters to which this Agreement
relate except a loss resulting from the 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. Any person,
even though also an officer, partner, employee, or agent of the Advisor, who may
be or become an officer, director, employee or agent of the Fund shall be
deemed, when rendering services to the Fund or acting in any business of the
Fund, to be rendering such services to or acting solely for the Fund and not as
an officer, partner, employee, or agent or one under the control or direction of
the Advisor even though paid by it.
8. Duration and Termination. This Agreement shall become effective upon
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its execution; provided, that with respect to any Portfolio now existing or
hereafter created, this agreement shall not take effect unless it first has been
approved (i) by a vote of the majority of those Directors of the Fund who are
not parties to this Agreement or interested persons of such party, cast in
person at a meeting called for the purpose of voting on such approval, and (ii)
by vote of a majority of that Portfolio's outstanding voting securities. This
Agreement shall remain in full force and effect continuously thereafter until
terminated without the payment of any penalty as follows:
(a) By vote of a majority of its Directors, or by the affirmative vote
of a majority of the outstanding Shares of such Portfolio, the Fund may at any
time terminate this Agreement with respect to any or all Portfolios by providing
not more than 60 days' written notice delivered or mailed by registered mail,
postage prepaid, to the Advisor at its principal offices; or
(b) With respect to any Portfolio, if (i) the Directors or the
shareholders of that Portfolio by the affirmative vote of a majority of the
outstanding shares of such Portfolio, and (ii) a majority of the Directors who
are not interested persons of the Fund or of the Advisor or of any subadviser,
by vote cast in person at a meeting called for the purpose of voting on such
approval, do not specifically approve at least annually the continuance of this
Agreement, then this Agreement shall automatically terminate at the close of
business on the second anniversary of its execution, or upon the expiration of
one year from the effective date of the last such continuance, whichever is
later; provided, however, that if the continuance of this Agreement is submitted
to the shareholders of a Portfolio for their approval and such shareholders fail
to approve such continuance of this Agreement as provided herein, the Advisor
may continue to serve hereunder in a manner consistent with the 1940 Act and the
rules and regulations thereunder with respect to that Portfolio; or
(c) The Advisor may at any time terminate this Agreement with respect
to any or all Portfolios by not less than 60 days' written notice delivered or
mailed by registered mail, postage prepaid to the Fund.
(d) This Agreement automatically and immediately will terminate in the
event of its assignment.
9. Amendment of This Agreement. No provision of this Agreement may be
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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, and no material amendment of this Agreement
with respect to any Portfolio shall be effective until approved by vote of the
holders of a majority of that Portfolio's outstanding voting securities.
10. Name of Fund. The Fund may use the name "Xxxxxx Funds" or "Xxxxxx
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Value Fund" only for so long as this Agreement or any extension, renewal or
amendment hereof remains in effect, including any similar agreement with any
organization which shall have succeeded to the business of the Advisor. At such
time as such an agreement shall no longer be in effect, the Fund will (to the
extent that it lawfully can) cease to use any name derived from "Xxxxxx Funds,"
"Xxxxxx Value Fund" or any successor organization.
11. Governing Law. This Agreement shall be construed in accordance with
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the laws of the State of California, without giving effect to the conflicts of
laws principles thereof, and the 1940 Act. To the extent the laws of the State
of California conflict with the applicable provisions of the 1940 Act, the
latter shall control.
12. Definitions. As used in this Agreement, the terms "majority of
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the outstanding voting securities," "interested person," and "assignment" shall
have the same meanings as such terms have in the 1940 Act.
13. Severability. If any provision of this Agreement shall be held or
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made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors.
14. Miscellaneous. The captions in this Agreement are included for
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convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
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IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
The Advisor:
XXXXXX ADVISORS, LLC
By: /s/ Xxxxxx X. Xxxxxx
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Xxxxxx X. Xxxxxx, Manager
The Fund:
XXXXXX FUNDS, INC
By: /s/ Xxxxxx X. Xxxxxx
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Xxxxxx X. Xxxxxx, President
Schedule A
to the
Investment Advisory Agreement
As compensation pursuant to section 7 of the Investment Advisory
Agreement between Xxxxxx Advisors, LLC (the "Advisor") and Xxxxxx Funds, Inc.
(the "Fund"), the Fund shall pay to the Advisor a fee, computed daily and paid
monthly, at the following annual rates as percentages of each Portfolio's
average daily net assets:
(1) For the Xxxxxx Value Fund:
Average Daily Advisory Fee as % of
Net Assets Average Daily Net Assets
Up to and including $500 Million 1.00%
Over $500 Million 0.80%
Dated: July 1, 2002
