1
Exhibit (5)
INVESTMENT ADVISORY AGREEMENT
AGREEMENT (herein so called) made this May 31, 1997, by and between XXX XXXXXX
AMERICAN CAPITAL EQUITY INCOME FUND, a Delaware business trust (hereinafter
referred to as the "FUND"), and XXX XXXXXX AMERICAN CAPITAL ASSET MANAGEMENT,
INC., a Delaware corporation (hereinafter referred to as the "ADVISER").
The FUND and the ADVISER agree as follows:
(1) SERVICES RENDERED AND EXPENSES PAID BY ADVISER
The ADVISER, subject to the control, direction and supervision of the
FUND's Trustees and in conformity with applicable laws, the FUND's Agreement and
Declaration of Trust ("Declaration of Trust"), By-laws, registration statements,
prospectus and stated investment objectives, policies and restrictions, shall:
a. manage the investment and reinvestment of the FUND's assets
including, by way of illustration, the evaluation of pertinent economic,
statistical, financial and other data, determination of the industries and
companies to be represented in the FUND's portfolio, and formulation and
implementation of investment programs;
b. maintain a trading desk and place all orders for the purchase and
sale of portfolio investments for the FUND's account with brokers or dealers
selected by the ADVISER;
c. conduct and manage the day-to-day operations of the FUND including,
by way of illustration, the preparation of registration statements,
prospectuses, reports, proxy solicitation materials and amendments thereto, the
furnishing of routine legal services except for services provided by outside
counsel to the FUND selected by the Trustees, and the supervision of the FUND's
Treasurer and the personnel working under his direction; and
d. furnish to the FUND office space, facilities, equipment and personnel
adequate to provide the services described in paragraphs a., b., and c. above
and pay the compensation of each FUND trustee and Fund officer who is an
affiliated person of the ADVISER, except the compensation of the FUND's
Treasurer and related expenses as provided below.
In performing the services described in paragraph b. above, the ADVISER
shall use its best efforts to obtain for the FUND the most favorable price and
execution available and shall maintain records adequate to demonstrate
compliance with this requirement. Subject to prior authorization by the FUND's
Trustees of appropriate policies and procedures, the ADVISER may, to the extent
authorized by law, cause the FUND to pay a broker or dealer that provides
brokerage and research services to the ADVISER an amount of commission for
effecting a portfolio investment transaction in excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction. In the event of such authorization and to the extent authorized by
law, the ADVISER shall not be deemed to have acted unlawfully or to have
breached any duty created by this Agreement or otherwise solely by reason of
such action.
Except as otherwise agreed, or as otherwise provided herein, the FUND
shall pay, or arrange for others to pay, all its expenses other than those
expressly stated to be payable by the ADVISER hereunder, which expenses payable
by the FUND shall include (i) interest and taxes; (ii) brokerage commissions
and other costs in connection with the purchase and sale of portfolio
investments; (iii) compensation of its trustees and officers other than those
who are affiliated persons of the ADVISER; (iv) compensation of its Treasurer,
compensation of personnel working under the Treasurer's direction, and expenses
of office space, facilities, and equipment used by the Treasurer and such
personnel in the performance of their normal duties for the FUND which consist
of maintenance of the accounts, books and other documents which constitute the
record forming the basis for the FUND's financial statements, preparation of
such
2
financial statements and other FUND documents and reports of a financial nature
required by federal and state laws, and participation in the production of the
FUND's registration statement, prospectuses, proxy solicitation materials and
reports to shareholders; (v) fees of outside counsel to and of independent
accountants of the FUND selected by the Trustees; (vi) custodian, registrar and
shareholder service agent fees and expenses; (vii) expenses related to the
repurchase or redemption of its shares including expenses related to a program
of periodic repurchases or redemptions; (viii) expenses related to the issuance
of its shares against payment therefor by or on behalf of the subscribers
thereto; (ix) fees and related expenses of registering and qualifying the FUND
and its shares for distribution under state and federal securities laws; (x)
expenses of printing and mailing of registration statements, prospectuses,
reports, notices and proxy solicitation materials of the FUND; (xi) all other
expenses incidental to holding meetings of the FUND's shareholders including
proxy solicitations therefor, (xii) expenses for servicing shareholder
accounts; (xiii) insurance premiums for fidelity coverage and errors and
omissions insurance; (xiv) dues for the FUND's membership in trade associations
approved by the Trustees; and (xv) such nonrecurring expenses as may arise,
including those associated with actions, suits or proceedings to which the FUND
is a party and the legal obligation which the FUND may have to indemnify its
officers and trustees with respect thereto. To the extent that any of the
foregoing expenses are allocated between the FUND and any other party, such
allocations shall be pursuant to methods approved by the Trustees.
For a period of one year commencing on the effective date of this
Agreement, the ADVISER and the FUND agree that the retention of (i) the chief
executive officer, president, chief financial officer and secretary of the
ADVISER and (ii) each director, officer and employee of the ADVISER or any of
its Affiliates (as defined in the Investment Company Act of 1940, as amended
(the "1940 Act")) who serves as an officer of the FUND (each person referred to
in (i) or (ii) hereinafter being referred to as an "Essential Person"), in his
or her current capacities, is in the best interest of the FUND and the FUND's
shareholders. In connection with the ADVISER's acceptance of employment
hereunder, the ADVISER hereby agrees and covenants for itself and on behalf of
its Affiliates that neither the ADVISER nor any of its Affiliates shall make any
material or significant personnel changes or replace or seek to replace any
Essential Person or cause to be replaced any Essential Person, in each case
without first informing the Board of Trustees of the FUND in a timely manner.
In addition, neither the ADVISER nor any Affiliate of the ADVISER shall change
or seek to change or cause to be changed, in any material respect, the duties
and responsibilities of any Essential Person, in each case without first
informing the Board of Trustees of the FUND in a timely manner.
(2) ROLE OF ADVISER
The ADVISER, and any person controlled by or under common control
with the ADVISER, shall be free to render similar services to others and engage
in other activities, so long as the services rendered to the FUND are not
impaired.
Except as otherwise required by the Investment Company Act of 1940 (the
"1940 Act"), any of the shareholders, trustees, officers and employees of the
FUND may be a shareholder, trustee, director, officer or employee of, or be
otherwise interested in, the ADVISER, and in any person controlled by or under
common control with the ADVISER, and the ADVISER, and any person controlled by
or under common control with the ADVISER, may have an interest in the FUND.
Except as otherwise agreed, in the absence of willful misfeasance, bad
faith, negligence or reckless disregard of obligations or duties hereunder on
the part of the ADVISER, neither the ADVISER nor any subadviser shall 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.
3
(3) COMPENSATION PAYABLE TO THE ADVISER
The FUND shall pay to the ADVISER, as compensation for the services
rendered, facilities furnished and expenses paid by the ADVISER, a monthly fee
computed at the following annual rate:
.50% on the first $150 million of the FUND's average daily net assets;
.45% on the next $100 million of the FUND's average daily net assets; .40% on
the next $100 million of the FUND's average daily net assets; and .35% of any
excess over $350 million.
Average daily net assets shall be determined by taking the average of the
net assets for each business day during a given calendar month calculated in
the manner provided in the FUND's Declaration of Trust. Such fee shall be
payable for each calendar month as soon as practicable after the end of that
month.
The fees payable to the ADVISER by the FUND pursuant to this Section 3
shall be reduced by any commissions, tender solicitation and other fees,
brokerage or similar payments received by the ADVISER, or any other direct or
indirect majority owned subsidiary of VK/AC Holding, Inc., in connection with
the purchase and sale of portfolio investments of the FUND, less any direct
expenses incurred by such person, in connection with obtaining such
commissions, fees, brokerage or similar payments. The ADVISER shall use its
best efforts to recapture all available tender offer solicitation fees and
exchange offer fees in connection with the FUND's portfolio transactions and
shall advise the Trustees of any other commissions, fees, brokerage or similar
payments which may be possible for the ADVISER or any other direct or indirect
majority owned subsidiary of VK/AC Holding, Inc. to receive in connection with
FUND's portfolio transactions or other arrangements which may benefit the FUND.
In the event that the ordinary business expenses of the FUND for any
fiscal year should exceed 1.5% of the first $30 million of the FUND's average
daily assets plus 1% of any excess over $30 million, the compensation due the
ADVISER for such fiscal year shall be reduced by the amount of such excess. The
Adviser's compensation shall be so reduced by a reduction or a refund thereof,
at the time such compensation is payable after the end of each calendar month
during such fiscal year of the FUND, and if such amount should exceed such
monthly compensation, the ADVISER shall pay the FUND an amount sufficient to
make up the deficiency, subject to readjustment during the FUND's fiscal year.
For purposes of this paragraph, all ordinary business expenses of the FUND
shall include the investment advisory fee and other operating expenses paid by
the FUND except (i) for interest and taxes; (ii) brokerage commissions; (iii)
as a result of litigation in connection with a suit involving a claim for
recovery by the FUND; (iv) as a result of litigation involving a defense
against a liability asserted against the FUND, provided that, if the ADVISER
made the decision or took the actions which resulted in such claim, it acted in
good faith without negligence or misconduct; (v) any indemnification paid by
the FUND to its officers and trustees and the ADVISER in accordance with
applicable state and federal laws as a result of such litigation; and (vi)
amounts paid to Xxx Xxxxxx American Capital Distributors, Inc., the distributor
of the FUND's shares, in connection with a distribution plan adopted by the
FUND's Trustees pursuant to Rule 12b-1 under the Investment Company Act of 1940.
If the ADVISER shall serve for less than the whole of any month, the
foregoing compensation shall be prorated.
(4) BOOKS AND RECORDS
In compliance with the requirements of Rule 31a-3 under the 1940 Act, the
ADVISER 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 ADVISER further agrees to preserve
for the periods prescribed by Rule 31a-2 under the 1940 Act the records
required to be maintained by Rule 31a-1 under the Act.
4
(5) DURATION OF AGREEMENT
This Agreement shall become effective on the date hereof, and shall remain
in full force until May 31, 1999 unless sooner terminated as hereinafter
provided. This Agreement shall continue in force from year to year thereafter,
but only so long as such continuance is approved at least annually by the vote
of a majority of the FUND's Trustees who are not parties to this Agreement or
interested persons of any such parties, cast in person at a meeting called for
the purpose of voting on such approval, and by a vote of a majority of the
FUND's Trustees or a majority of the FUND's outstanding voting securities.
This Agreement shall terminate automatically in the event of its
assignment. The Agreement may be terminated at any time by the FUND's Trustees,
by vote of a majority of the FUND's outstanding voting securities, or by the
ADVISER, on 60 days' written notice, or upon such shorter notice as may be
mutually agreed upon. Such termination shall be without payment of any penalty.
(6) MISCELLANEOUS PROVISIONS
For the purposes of this Agreement, the terms "affiliated person,"
"assignment," "interested person," and "majority of the outstanding voting
securities" shall have their respective meanings defined in the 1940 Act and the
Rules and Regulations thereunder, subject, however, to such exemptions as may be
granted to either the ADVISER or the FUND by the Securities and Exchange
Commission (the "Commission"), or such interpretive positions as may be taken by
the Commission or its staff, under the 1940 Act, and the term "brokerage and
research services" shall have the meaning given in the Securities Exchange Act
of 1934 and the Rules and Regulations thereunder.
The execution of this Agreement has been authorized by the FUND's Trustees
and by the sole shareholder. This Agreement is executed on behalf of the FUND or
the Trustees of the FUND as Trustees and not individually and that the
obligations of this Agreement are not binding upon any of the Trustees, officers
or shareholders of the FUND individually but are binding only upon the assets
and property of the FUND. A Certificate of Trust in respect of the FUND is on
file with the Secretary of State of Delaware.
All questions concerning the validity, meaning and effect of this Agreement
shall be determined in accordance with the laws (without giving effect to the
conflict-of-law principles thereof) of the State of Delaware applicable to
contracts made and to be performed in that state.
In connection with its employment hereunder, the ADVISER hereby agrees and
covenants not to change its name without the prior consent of the Board of
Trustees of the FUND.
The parties hereto each have caused this Agreement to be signed in
duplicate on its behalf by its duly authorized officer on the above date.
XXX XXXXXX AMERICAN CAPITAL XXX XXXXXX AMERICAN CAPITAL
ASSET MANAGEMENT, INC. EQUITY INCOME FUND
By: /s/ XXXXXX X. XXXXXXXXX By: /s/ XXXXX X. XXXXX
----------------------- --------------------------
Name: Xxxxxx X. XxXxxxxxx Name: Xxxxx X. Xxxxx
Its: President Its: Executive Vice President
