FORM OF
EXPENSE LIMITATION
AGREEMENT
AGREEMENT made this ___ day of _______ 2003, between AFBA 5Star Fund,
Inc., a Maryland Corporation (the "Company"), on behalf of each series of the
Company (each a "Fund", together the "Funds") and AFBA 5Star Investment
Management Company, a Virginia corporation (the "Advisor").
WHEREAS, the Advisor has entered into a Management Agreement with the
Company, dated April 1, 2001 pursuant to which the Advisor provides, or arranges
for the provision of, investment advisory and management services to each Fund,
and for which it is compensated based on the average daily net assets of each
such Fund; and
WHEREAS, the Company and the Advisor have determined that it is
appropriate and in the best interests of each Fund and its shareholders to limit
the total expenses of each Fund of the Company as listed on Schedule A of this
Agreement between the Company and the Advisor, as may be amended from time to
time.
NOW, THEREFORE, the parties hereto agree as follows:
1. Fee Waiver and Expense Payments by the Advisor. The Advisor agrees to waive
or reduce all or a portion of its management fee and, if necessary, and to bear
certain other expenses (to the extent permitted by the Internal Revenue Code of
1986, as amended) associated with operating the Funds to the extent necessary to
limit the annualized expenses of each Fund (exclusive of 12b-1 fees) to the
rates reflected in Schedule A to this Agreement.
2. Duty of Fund to Reimburse. Subject to approval by the Company's Board of
Directors, each Fund agrees to reimburse the Advisor on a monthly basis such
waived fees and expenses borne pursuant to paragraph 1 together ("Deferred
Amounts"), in later periods provided, however, that a Fund is not obligated to
reimburse any such Deferred Amount more than three years after the end of the
fiscal year in which the Deferred Amount was waived or borne and will only pay
such Deferred Amounts to the extent that the Fund's annual operating expenses
plus the Deferred Amount being reimbursed do not exceed the expense cap amount
for that Fund listed in Schedule A. The Company's Board of Directors shall
review quarterly any reimbursement paid to the Advisor with respect to any Fund
in such quarter.
3. Assignment. No assignment of this Agreement shall be made by the Advisor
without the prior consent of the Company.
4. Duration and Termination. This Agreement shall be effective as to each Fund
for the period provided in Schedule A for that Fund and shall continue in effect
for a one year period thereafter provided each such continuance is specifically
approved by a majority of the Directors of the Company who (i) are not
"interested persons" of the Company or any other party to this Agreement, as
defined in the Investment Company Act of 1940, as amended, (the "Disinterested
Directors") and (ii) have no direct or indirect financial interest in the
operation of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
AFBA 5STAR FUND, INC. AFBA 5STAR INVESTMENT
MANAGEMENT COMPANY
By:________________________ By:________________________
Name:______________________ Name:______________________
Title:_____________________ Title:_____________________
SCHEDULE A
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Expense Cap Expense Cap Amount*
Fund Time Period
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AFBA 5Star Balanced Fund March 27, 2004 - July 31, 2004 1.08%
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AFBA 5Star Large Cap Fund March 27, 2004 - July 31, 2004 1.28%
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AFBA 5Star High Yield Fund March 27, 2004 - July 31, 2004 1.08%
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AFBA 5Star Mid Cap Fund August 1, 2003 - July 31, 2004 1.28%
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AFBA 5Star Science & Technology Fund August 1, 2003 - July 31, 2004 1.28%
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AFBA 5Star Small Cap Fund August 1, 2003 - July 31, 2004 1.28%
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AFBA 5Star USA Global Fund March 27, 2004 - July 31, 2004 1.28%
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* This amount is exclusive of the 12b-1 distribution fees that apply to Classes
A, B and C of the Funds
