PAGE 1
INVESTMENT MANAGEMENT AGREEMENT
Between
X. XXXX PRICE CAPITAL APPRECIATION FUND
and
X. XXXX PRICE ASSOCIATES, INC.
INVESTMENT MANAGEMENT AGREEMENT, made as of the 24th day of
April 1997, by and between X. Xxxx Price CAPITAL APPRECIATION
FUND, a Massachusetts business trust (hereinafter called the
"Fund"), and X. Xxxx Price ASSOCIATES, INC., a corporation
organized and existing under the laws of the State of Maryland
(hereinafter called the "Manager").
W I T N E S S E T H:
WHEREAS, the Fund is engaged in business as an open-end
management investment company and is registered as such under the
federal Investment Company Act of 1940, as amended (the "Act");
and
WHEREAS, the Manager is engaged principally in the business of
rendering investment supervisory services and is registered as an
investment adviser under the federal Investment Advisers Act of
1940, as amended; and
WHEREAS, the Fund desires the Manager to render investment
supervisory services to the Fund in the manner and on the terms
and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the
mutual promises hereinafter set forth, the parties hereto agree
as follows:
1. Duties and Responsibilities of Manager.
A. Investment Advisory Services. The Manager shall act
as investment manager and shall supervise and direct
the investments of the Fund in accordance with the
Fund s investment objective, program and restrictions
as provided in its prospectus, as amended from time
to time, and such other limitations as the Fund may
impose by notice in writing to the Manager. The
Manager shall obtain and evaluate such information
relating to the economy, industries, businesses,
securities markets and securities as it may deem
necessary or useful in the discharge of its
obligations hereunder and shall formulate and
implement a continuing program for the management of
the assets and resources of the Fund in a manner
consistent with its investment objective. In
furtherance of this duty, the Manager, as agent and
attorney-in-fact with respect to the Fund, is
authorized, in its discretion and without prior
consultation with the Fund, to:
PAGE 2
(i) buy, sell, exchange, convert, lend, and otherwise
trade in any stocks, bonds, and other securities or
assets; and
(ii) place orders and negotiate the commissions (if any)
for the execution of transactions in securities
with or through such brokers, dealers, underwriters
or issuers as the Manager may select.
B. Financial, Accounting, and Administrative Services.
The Manager shall maintain the existence and
records of the Fund; maintain the registrations and
qualifications of Fund shares under federal and
state law; monitor the financial, accounting, and
administrative functions of the Fund; maintain
liaison with the various agents employed by the
Fund (including the Fund s transfer agent,
custodian, independent accountants and legal
counsel) and assist in the coordination of their
activities on behalf of the Fund.
C. Reports to Fund. The Manager shall furnish to or
place at the disposal of the Fund such information,
reports, evaluations, analyses and opinions as the
Fund may, at any time or from time to time,
reasonably request or as the Manager may deem
helpful to the Fund.
D. Reports and Other Communications to Fund
Shareholders. The Manager shall assist the Fund in
developing all general shareholder communications,
including regular shareholder reports.
E. Fund Personnel. The Manager agrees to permit
individuals who are officers or employees of the
Manager to serve (if duly elected or appointed) as
officers, trustees, members of any committee of
trustees, members of any advisory board, or members
of any other committee of the Fund, without
remuneration from or other cost to the Fund.
F. Personnel, Office Space, and Facilities of Manager.
The Manager at its own expense shall furnish or
provide and pay the cost of such office space,
office equipment, office personnel, and office
services as the Manager requires in the performance
of its investment advisory and other obligations
under this Agreement.
2. Allocation of Expenses.
A. Expenses Paid by Manager.
(1) Salaries and Fees of Officers. The Manager shall
pay all salaries, expenses, and fees of the
officers and trustees of the Fund who are
affiliated with the Manager.
(2) Assumption of Fund Expenses by Manager. The payment
or assumption by the Manager of any expense of the
Fund that the Manager is not required by this
Agreement to pay or assume
PAGE 3
shall not obligate the Manager to pay or assume the same
or any similar expense of the Fund on any subsequent
occasion.
B. Expenses Paid by Fund. The Fund shall bear all
expenses of its organization, operations, and
business not specifically assumed or agreed to be
paid by the Manager as provided in this Agreement.
In particular, but without limiting the generality
of the foregoing, the Fund shall pay:
(1) Custody and Accounting Services. All expenses of
the transfer, receipt, safekeeping, servicing and
accounting for the Fund s cash, securities, and
other property, including all charges of
depositories, custodians, and other agents, if any;
(2) Shareholder Servicing. All expenses of maintaining
and servicing shareholder accounts, including all
charges of the Fund s transfer, shareholder
recordkeeping, dividend disbursing, redemption, and
other agents, if any;
(3) Shareholder Communications. All expenses of
preparing, setting in type, printing, and
distributing reports and other communications to
shareholders;
(4) Shareholder Meetings. All expenses incidental to
holding meetings of Fund shareholders, including
the printing of notices and proxy material, and
proxy solicitation therefor;
(5) Prospectuses. All expenses of preparing, setting in
type, and printing of annual or more frequent
revisions of the Fund s prospectus and of mailing
them to shareholders;
(6) Pricing. All expenses of computing the Fund s net
asset value per share, including the cost of any
equipment or services used for obtaining price
quotations;
(7) Communication Equipment. All charges for equipment
or services used for communication between the
Manager or the Fund and the custodian, transfer
agent or any other agent selected by the Fund;
(8) Legal and Accounting Fees and Expenses. All charges
for services and expenses of the Fund s legal
counsel and independent auditors;
(9) Trustees Fees and Expenses. All compensation of
trustees, other than those affiliated with the
Manager, and all expenses incurred in connection
with their service;
(10) Federal Registration Fees. All fees and expenses of
PAGE 4
registering and maintaining the registration of the
Fund under the Act and the registration of the
Fund s shares under the Securities Act of 1933, as
amended (the " 33 Act"), including all fees and
expenses incurred in connection with the
preparation, setting in type, printing, and filing
of any registration statement and prospectus under
the 33 Act or
the Act, and any amendments or supplements that may
be made from time to time;
(11) State Filing Fees. All fees and expenses imposed on
the Fund, as appropriate, with respect to the sale
of the Fund s shares under securities laws of
various states or jurisdictions, and under all
other laws applicable to the Fund or its business
activities (including registering the Fund as a
broker-dealer, or any officer of the Fund or any
person as agent or salesman of the Fund in any
state);
(12) Issue and Redemption of Fund Shares. All expenses
incurred in connection with the issue, redemption,
and transfer of Fund shares, including the expense
of confirming all share transactions, and of
preparing and transmitting the Fund s stock
certificates;
(13) Bonding and Insurance. All expenses of bond,
liability, and other insurance coverage required by
law or deemed advisable by the Fund s board of
trustees;
(14) Brokerage Commissions. All brokers commissions and
other charges incident to the purchase, sale, or
lending of the Fund s portfolio securities;
(15) Taxes. All taxes or governmental fees payable by or
with respect of the Fund to federal, state, or
other governmental agencies, domestic or foreign,
including stamp or other transfer taxes;
(16) Trade Association Fees. All fees, dues, and other
expenses incurred in connection with the Fund s
membership in any trade association or other
investment organization; and
(17) Nonrecurring and Extraordinary Expenses. Such
nonrecurring expenses as may arise, including the
costs of actions, suits, or proceedings to which
the Fund is a party and the expenses the Fund may
incur as a result of its legal obligation to
provide indemnification to its officers, trustees,
and agents.
3. Management Fee. The Fund shall pay the Manager a fee
("Fee") which will consist of three components: a Group
Management Fee ("Group Fee"), an Individual Fund Fee
("Fund Fee") and a performance fee
PAGE 5
adjustment ("Performance Fee Adjustment") based on the
performance of the Fund relative to the Standard & Poor s
500 Stock Index (the "Index"). The Performance Fee
Adjustment component will be in effect until October 31,
1998. After this date the Management Fee will be
calculated based on the Group Fee and Fund Fee. The Fee
shall be paid monthly to the Manager on the first business
day of the next succeeding calendar month and shall be
calculated as follows:
A. Group Fee. The monthly Group Fee ("Monthly Group
Fee") shall be the sum of the daily Group Fee
accruals ("Daily Group Fee Accruals") for each
month. The Daily Group Fee Accrual for any
particular day will be computed by multiplying the
Price Funds group fee accrual as determined below
("Daily Price Funds Group Fee Accrual") by the
ratio of the Fund s net assets for that day to the
sum of the aggregate net assets of the Price Funds
for that day. The Daily Price Funds Group Fee
Accrual for any particular day shall be calculated
by multiplying the fraction of one (1) over the
number of calendar days in the year by the
annualized Daily Price Funds Group Fee Accrual for
that day as determined in accordance with the
following schedule:
Price Funds
Annual Group Base Fee Rate
for Each Level of Assets
0.480% First $1 billion
0.450% Next $1 billion
0.420% Next $1 billion
0.390% Next $1 billion
0.370% Next $1 billion
0.360% Next $2 billion
0.350% Next $2 billion
0.340% Next $5 billion
0.330% Next $10 billion
0.320% Next $10 billion
0.310% Next $16 billion
0.305% Thereafter
The Price Funds shall include all the mutual funds
distributed by X. Xxxx Price Investment Services, Inc.
(other than institutional or "private label" funds, Equity
Index, and Spectrum Funds). For the purposes of
calculating the Daily Price Funds Group Fee Accrual for
any particular day, the net assets of each Price Fund
shall be determined in accordance with the Fund s
prospectus as of the close of business on the previous
business day on which the Fund was open for business.
B. Fund Fee. The monthly Fund Fee ("Monthly Fund Fee")
shall be the sum of the daily Fund Fee accruals
("Daily Fund Fee Accruals") for each month. The
Daily Fund Fee Accrual for any particular day will
be computed by multiplying the fraction of one (1)
over the number
PAGE 6
of calendar days in the year by the Fund Fee Rate of
0.30% and multiplying this product by the net assets of
the Fund for that day, as determined in accordance with
the Fund s prospectus as of the close of business on the
previous business day on which the Fund was open for
business.
C. Performance Fee Adjustment. This paragraph 3.C.
will be in effect through October 31, 1998, only
and will be of no force or effect thereafter. The
Monthly Group Fee and Monthly Fund Fee shall be
combined (the "Combined Fee") and shall be subject
to a downward Performance Fee Adjustment, depending
on the extent to which the total return investment
performance of the Fund is less than the total
return performance of the Index during the previous
thirty-six (36) months. The Performance Fee
Adjustment shall be computed as of the end of each
month and shall be subtracted from the Combined
Fee. No Performance Fee Adjustment will be made to
the Combined Fee unless the investment performance
("Investment Performance") of the Fund (stated as a
percent) is exceeded by the investment record
("Investment Record") of the Index (stated as a
percent) by at least one full point. (The
difference between the Investment Performance and
Investment Record is referred to as the Investment
Performance Differential.) The Performance Fee
Adjustment for any month shall be calculated by
multiplying the rate of the Performance Fee
Adjustment ("Performance Fee Adjustment Rate") (as
determined below) achieved for the 36-month period,
times the average daily net assets of the Fund for
such 36-month period and dividing the product by
12. The Performance Fee Adjustment Rate is
calculated by multiplying the Investment
Performance Differential (rounded downward to the
nearest full point) times a factor of .02%.
Regardless of the Investment Performance
Differential, the Performance Fee Adjustment Rate
shall not exceed .30%.
Example
For example, if the Investment Performance
Differential was (11.6%), it would be rounded
to (11). The Investment Performance
Differential of (11) would be multiplied by
.02% to arrive at the Performance Fee
Adjustment Rate of (.22%). The (.22%)
Performance Fee Adjustment Rate would be
multiplied by the fraction of 1/12 and that
product would be multiplied by the Fund s
average daily net assets for the 36-month
period to arrive at the Performance Fee
Adjustment.
The computation of the Investment Performance of
the Fund and the Investment Record of the Index will be
made in accordance with Rule 205-1 under the Investment
Advisers Act of 1940 or any other applicable rule as,
from time to time, may be adopted or amended. These
terms are currently defined as follows:
PAGE 7
The Investment Performance of the Fund shall be the sum
of:
(i) the change in the Fund s net asset value per
share during the period;
(ii) the value of the Fund s cash distributions per
share having an exdividend date occurring
within the period; and
(iii) the per share amount of any capital gains
taxes paid or accrued during such period by
the Fund for undistributed, realized long-
term capital gains.
The Investment Record of the Index shall be the sum
of:
(i) the change in the level of the Index during
the period; and
(ii) the value, computed consistently with the
Index, of cash distributions having an
exdividend date occurring within the period
made by companies whose securities comprise
the Index.
No Performance Fee Adjustment will made after
October 31, 1998.
D. Proration of Fee. If this Agreement becomes
effective or terminates before the end of any
month, the Fee for the period from the effective
date to the end of such 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 which such period bears to the full
month in which such effectiveness or termination
occurs.
4. Brokerage. Subject to the approval of the board of
trustees of the Fund, the Manager, in carrying out its
duties under Paragraph 1.A., may cause the Fund to pay a
broker-dealer which furnishes brokerage or research
services [as such services are defined under Section 28(e)
of the Securities Exchange Act of l934, as amended (the
" 34 Act")] a higher commission than that which might be
charged by another broker-dealer which does not furnish
brokerage or research services or which furnishes
brokerage or research services deemed to be of lesser
value, if such commission is deemed reasonable in relation
to the brokerage and research services provided by the
broker-dealer, viewed in terms of either that particular
transaction or the overall responsibilities of the Manager
with respect to the accounts as to which it exercises
investment discretion (as such term is defined under
Section 3(a)(35) of the 34 Act).
5. Manager s Use of the Services of Others. The Manager may
(at its cost except as contemplated by Paragraph 4 of this
Agreement) employ, retain or otherwise avail itself of the
services or facilities of
PAGE 8
other persons or organizations for the purpose of
providing the Manager or the Fund with such statistical
and other factual information, such advice regarding
economic factors and trends, such advice as to occasional
transactions in specific securities or such other
information, advice or assistance as the Manager may deem
necessary, appropriate or convenient for the discharge of
its obligations hereunder or otherwise helpful to the
Fund, or in the discharge of Manager s overall
responsibilities with respect to the other accounts which
it serves as investment manager.
6. Ownership of Records. All records required to be
maintained and preserved by the Fund pursuant to the
provisions of rules or regulations of the Securities and
Exchange Commission under Section 31(a) of the Act and
maintained and preserved by the Manager on behalf of the
Fund are the property of the Fund and will be surrendered
by the Manager promptly on request by the Fund.
7. Reports to Manager. The Fund shall furnish or otherwise
make available to the Manager such prospectuses, financial
statements, proxy statements, reports, and other
information relating to the business and affairs of the
Fund as the Manager may, at any time or from time to time,
reasonably require in order to discharge its obligations
under this Agreement.
8. Services to Other Clients. Nothing herein contained shall
limit the freedom of the Manager or any affiliated person
of the Manager to render investment supervisory and
corporate administrative services to other investment
companies, to act as investment manager or investment
counselor to other persons, firms or corporations, or to
engage in other business activities; but so long as this
Agreement or any extension, renewal or amendment hereof
shall remain in effect or until the Manager shall
otherwise consent, the Manager shall be the only
investment manager to the Fund.
9. Limitation of Liability of Manager. Neither the Manager
nor any of its officers, directors, or employees, nor any
person performing executive, administrative, trading, or
other functions for the Fund (at the direction or request
of the Manager) or the Manager in connection with the
Manager s discharge of its obligations undertaken or
reasonably assumed with respect to this Agreement, shall
be liable for any error of judgment or mistake of law or
for any loss suffered by the Fund in connection with the
matters to which this Agreement relates, except for loss
resulting from willful misfeasance, bad faith, or gross
negligence in the performance of its or his duties on
behalf of the Fund or from reckless disregard by the
Manager or any such person of the duties of the Manager
under this Agreement.
10. Limitation of Liability of Fund. The term "X. Xxxx Price
Capital Appreciation Fund" means and refers to the
trustees from time to time serving under the Master
Trust Agreement (Declaration of Trust) of the
PAGE 9
Fund dated May 9, 1986 as the same may subsequently
thereto have been, or subsequently hereto be, amended. It
is expressly agreed that the obligations of the Fund
hereunder shall not be binding upon any of the trustees,
shareholders, nominees, officers, agents or employees of
the Fund, personally, but bind only the trust property of
the Fund, as provided in the Declaration of Trust of the
Fund. The execution and delivery of this Agreement have
been authorized by the trustees and shareholders of the
Fund and signed by an authorized officer of the Fund,
acting as such, and neither such authorization by such
trustees and shareholders nor such execution and delivery
by such officer shall be deemed to have been made by any
of them but shall bind only the trust property of the Fund
as provided in its Declaration of Trust.
11. Use of Manager s Name. The Fund may use the name
"X. Xxxx Price Capital Appreciation Fund" or any other
name derived from the name "X. Xxxx Price" 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 Manager as investment
manager. At such time as this Agreement or any
extension, renewal or amendment hereof, or such other
similar agreement shall no longer be in effect, the Fund
will (by corporate action, if necessary) cease to use
any name derived from the name "X. Xxxx Price," any name
similar thereto or any other name indicating that it is
advised by or otherwise connected with the Manager, or
with any organization which shall have succeeded to the
Manager s business as investment manager.
12. Term of Agreement. The term of this Agreement shall
begin on the date first above written, and unless sooner
terminated as hereinafter provided, this Agreement shall
remain in effect through April 30, 1998. Thereafter,
this Agreement shall continue in effect from year to
year, subject to the termination provisions and all
other terms and conditions hereof, so long as: (a) such
continuation shall be specifically approved at least
annually by the board of trustees of the Fund or by vote
of a majority of the outstanding voting securities of
the Fund and, concurrently with such approval by the
board of trustees or prior to such approval by the
holders of the outstanding voting securities of the
Fund, as the case may be, by the vote, cast in person at
a meeting called for the purpose of voting on such
approval, of a majority of the trustees of the Fund who
are not parties to this Agreement or interested persons
of any such party; and (b) the Manager shall not have
notified the Fund, in writing, at least 60 days prior to
April 30, 1988 or prior to April 30th of any year
thereafter, that it does not desire such continuation.
The Manager shall furnish to the Fund, promptly upon its
request, such information as may reasonably be necessary
to evaluate the terms of this Agreement or any
extension, renewal or amendment hereof.
13. Amendment and Assignment of Agreement. This Agreement
may not be amended or assigned without the affirmative
vote of a majority of the outstanding voting securities
of the Fund, and this Agreement shall
PAGE 10
automatically and immediately terminate in the event of
its assignment.
14. Termination of Agreement. This Agreement may be
terminated by either party hereto, without the payment
of any penalty, upon 60 days prior notice in writing to
the other party; provided, that in the case of
termination by the Fund such action shall have been
authorized by resolution of a majority of the trustees
of the Fund who are not parties to this Agreement or
interested persons of any such party, or by vote of a
majority of the outstanding voting securities of the
Fund.
15. Miscellaneous.
A. Captions. The captions in this Agreement are
included for convenience of reference only and in
no way define or delineate any of the provisions
hereof or otherwise affect their construction or
effect.
B. Interpretation. Nothing herein contained shall be
deemed to require the Fund to take any action
contrary to its Master Trust Agreement or By-Laws,
or any applicable statutory or regulatory
requirement to which it is subject or by which it
is bound, or to relieve or deprive the board of
trustees of the Fund of its responsibility for and
control of the conduct of the affairs of the Fund.
C. Definitions. Any question of interpretation of any
term or provision of this Agreement having a
counterpart in or otherwise derived from a term or
provision of the Act shall be resolved by reference
to such term or provision of the Act and to
interpretations thereof, if any, by the United
States courts or, in the absence of any controlling
decision of any such court, by rules, regulations
or orders of the Securities and Exchange Commission
validly issued pursuant to the Act. Specifically,
the terms "vote of a majority of the outstanding
voting securities," "interested person,"
"assignment," and "affiliated person," as used in
Paragraphs 2, 8, 11, 12, and 13 hereof, shall have
the meanings assigned to them by Section 2(a) of
the Act. In addition, where the effect of a
requirement of the Act reflected in any provision
of this Agreement is relaxed by a rule, regulation
or order of the Securities and Exchange Commission,
whether of special or of general application, such
provision shall be deemed to incorporate the effect
of such rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be signed by their respective officers thereunto
duly authorized and their respective seals to be hereunto
affixed, as of the day and year first above written.
PAGE 11
Attest: X. XXXX PRICE CAPITAL
APPRECIATION FUND
_________________________________ By:
___________________________________
Assistant Secretary
Attest: X. XXXX PRICE ASSOCIATES, INC.
_________________________________ By:
____________________________________
Assistant Secretary
