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EXHIBIT (5)
INVESTMENT ADVISORY AGREEMENT
AGREEMENT (herein so called) made this May 31, 1997, by and between XXX XXXXXX
AMERICAN CAPITAL SMALL CAPITALIZATION 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
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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 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.
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(3) COMPENSATION PAYABLE TO THE ADVISER
The ADVISER shall provide to the FUND the services provided for herein
without charge.
The FUND's obligation to reimburse the ADVISER for certain expenses as
described in Section 1 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 recaputre all available tender offer solicitation fees and
exchange offer fees in connection with the FUND's portfolio transactions and
shall advise the Board of 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 the FUND's portfolio trasaction or other arrangements which may
benefit the FUND.
(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.
(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
not more than 60 days', nor less than 30 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
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property of the FUND. A Certificate of Trust in respect of the FUND is on file
with the Secretary of State of Delaware.
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.
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.
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. SMALL CAPITALIZATION FUND
By: /s/ Xxxxxx X. XxXxxxxxx By: /s/ Xxxxx X. Xxxxx
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Name: Xxxxxx X. XxXxxxxxx Name: Xxxxx X. Xxxxx
Its: President Its: Executive Vice President
