EXHIBIT 5
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT, dated July 23, 1996, between Composite U.S. Government
Securities, Inc., a Washington corporation (the "Fund") and Composite Research &
Management Co., a Washington corporation (the "Manager").
W I T N E S S E T H
WHEREAS, the Fund is a diversified, open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"); and
WHEREAS, the Fund desires to retain the Manager to render investment
management services to the Fund, and the Manager is willing to render such
services;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein contained, the parties hereto agree as follows:
1. Appointment. The Fund hereby appoints the Manager to act as investment
manager to the Fund for the period and on the terms set forth in this
Agreement. The Manager accepts such appointment and agrees to render
the services herein described, for the compensation herein provided.
2. Management. Subject to the supervision of the Board of Directors of
the Fund, the Manager shall manage the investment operations of the
Fund and the composition of the Fund's portfolio, including the
purchase, retention and disposition of securities therefor, in
accordance with the Fund's investment objectives, policies and
restrictions as stated in the Prospectus and Statement of Additional
Information (as such terms are hereinafter defined) and resolutions of
the Fund's Board of Directors and subject to the following
understandings:
(a) The Manager shall provide supervision of the Fund's investments,
furnish a continuous investment program for the Fund's portfolio
and determine from time to time what securities will be
purchased, retained, or sold by the Fund, and what portion of the
assets will be invested or held as cash.
(b) The Manager shall use reasonable care and judgment in the
management of the Fund's portfolio.
(c) The Manager, in the performance of its duties and obligations
under this Agreement, shall act in conformity with the Articles
of Incorporation (as hereinafter defined) of the Fund and by the
investment policies of the Fund as determined by the Board of
Directors of the Fund and set forth in the Prospectus and
Statement of Additional Information. All acts of the Manager
shall conform to and comply with the requirements of the 1940 Act
and all other applicable federal and state laws and regulations.
(d) The Manager shall determine the securities to be purchased or
sold by the Fund and at the Fund's expense, and shall place
orders for the purchase and sale of portfolio securities pursuant
to its determinations with brokers or dealers selected by the
Manager. In executing portfolio transactions and selecting
brokers or dealers, the Manager shall use its best efforts to
seek on behalf of the Fund the best overall terms available. In
assessing the best overall terms available for any transaction,
the Manager may consider all factors it deems relevant, including
the breadth of the market in the security, the price of the
security, the financial condition and execution capability of the
broker or dealer, and the reasonableness of the commission, if
any, both for the specific transaction and on a continuing basis.
In evaluating the best overall terms available, and in selecting
the broker or dealer to execute a particular transaction, the
Manager also may consider the brokerage and research services (as
those terms are defined in Section 28(e) of the Securities
Exchange Act of 1934, as amended) provided to the Fund and/or
other accounts over which the Manager exercises investment
discretion. The Manager is authorized to pay to a broker or
dealer who provides such brokerage and research services a
commission for executing a portfolio transaction for the Fund
which is in excess of the amount of commission another broker or
dealer would have charged for effecting the transaction if the
Manager determines in good faith that such commission was
reasonable in relation to the value of the brokerage and research
services provided by such broker or dealer, viewed in terms of
that particular transaction or in terms of the overall
responsibilities of the Manager to the Fund and/or other accounts
over which the Manager exercises investment discretion.
(e) On occasions when the Manager deems the purchase or sale of a
security to be in the best interest of the Fund as well as other
fiduciary accounts for which it has investment responsibility,
the Manager, to the extent permitted by applicable laws and
regulations, may aggregate the securities to be so sold or
purchased in order to obtain the best execution, most favorable
net price or lower brokerage commissions. In such event,
allocation of the securities so purchased or sold, as well as the
expenses incurred in the transaction, shall be made by the
Manager in the manner it considers to be the most equitable and
consistent with its fiduciary obligations to the Fund and to such
other fiduciary accounts.
(f) On each business day the Manager shall provide a list of all
transactions concerning the Fund's assets.
(g) When the Manager makes investment recommendations for the Fund,
its personnel shall not inquire or take into consideration
whether the issuer of the securities proposed for purchase or
sale for the Fund's account is a customer of any affiliate of the
Manager. In dealing with commercial customers, the Manager's
affiliates shall not inquire or take into consideration whether
securities of those customers are held by the Fund.
3. Services Not Exclusive. The investment management services rendered by
the Manager hereunder to the Fund are not to be deemed exclusive, and
the Manager shall have the right to render similar services to others,
including, without limitation, other investment companies.
4. Expenses. During the term of this Agreement, the Manager shall pay all
expenses incurred by it in connection with its activities under this
Agreement including the salaries and expenses of any of its officers
or employees who act as officers, directors or employees of the Fund
but excluding the cost of securities purchased for the Fund and the
amount of any brokerage fees and commissions incurred in executing
portfolio transactions for the Fund, and provide the Fund with
suitable office space. Other expenses to be incurred in the operation
of the Fund (other than those borne by any third party), including
taxes, interest, brokerage fees and commissions, if any, fees of
directors who are not officers, directors, employees or holders of 5%
or more of the outstanding voting securities of the Manager or the
Fund's administrator or any of their affiliates, Securities and
Exchange Commission fees and state Blue Sky qualification fees,
advisory and administration fees, bookkeeping (amended 9/26/89),
charges of custodians, transfer and dividend disbursing agents' fees,
certain insurance premiums, industry association fees, outside
auditing and legal expenses, costs of maintaining corporate existence,
costs of independent pricing services, costs attributable to investor
services (including, without limitation, telephone and personnel
expenses), costs of preparing, printing and distributing prospectuses,
costs of stockholders' reports and corporate meetings, costs of
implementing and operating the Fund's service plan, and any
extraordinary expenses will be borne by the Fund. If, in any fiscal
year, the sum of the Fund's expenses (excluding taxes, interest and
brokerage fees but including the management fee) exceeds 1.5% of the
average net assets of the Company up to $30 million, and 1% of such
net assets over $30 million, or alternatively (as defined under the
securities regulations of any state having jurisdiction over the Fund)
the expense limitations of any such state, it will reimburse the Fund
for such excess.
5. Compensation. For the services provided pursuant to this Agreement,
the Fund shall pay to the Manager as full compensation therefor a
monthly fee computed on the average daily net assets of the Fund equal
to .625% per annum up to the first $250 million; on assets in excess
of $250 million, the fee decreases to .50%. The Fund acknowledges that
the Manager, as agent for the Fund, will allocate a portion of the fee
equal to .15% of such assets to Xxxxxxx Xxxxx Securities Services,
Inc. for administrative services, portfolio accounting and regulatory
compliance systems and a portion of the fee equal to .125% of such
assets to Xxxxxxx Xxxxx, Inc. for shareholder servicing activities.
6. Limitation of Liability. The Manager shall not 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 a
loss resulting from a breach of fiduciary duty with respect to the
receipt of compensation for services (in which case any award of
damages shall be limited to the period and the amount set forth in
Section 36(b) of the 0000 Xxx) or a loss resulting from 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.
7. Delivery of Documents. The Fund has heretofore delivered to the
Manager true and complete copies of each of the following documents
and shall promptly deliver to it all future amendments and supplements
thereto, if any:
(a) Articles of Incorporation of the Fund (such Articles as presently
in effect and as amended from time to time, the "Articles of
Incorporation");
(b) Bylaws of the Fund;
(c) Resolutions of the Board of Directors of the Fund authorizing the
appointment of the Manager and approving the form of this
Agreement;
(d) Registration Statement under the Securities Act of 1933 and under
the 1940 Act of the Fund on Form N-1A, and all amendments
thereto, as filed with the Securities and Exchange Commission
(the "Registration Statement") relating to the Fund and the
shares of the Fund's common stock;
(e) Notification of Registration of the Fund under the 1940 Act on
Form N-8A;
(f) Prospectus of the Fund (such prospectus as presently in effect
and/or as amended or supplemented from time to time, the
"Prospectus"); and
(g) Statement of Additional Information of the Fund (such statement
as presently in effect and/or as amended or supplemented from
time to time, the "Statement of Additional Information").
8. Duration and Termination. This Agreement is a continuation of the
agreement dated July 29, 1982. Unless terminated herein, this
Agreement shall continue in effect provided such continuance is
specifically approved at least annually (a) by the vote of a majority
of those members of the Fund's Board of Directors who are not parties
to the Contract or "interested persons" to any such party, cast in
person at a meeting called for that purpose, or by vote of a majority
of the outstanding voting securities of the Fund. Notwithstanding the
foregoing, (a) this Agreement may be terminated at any time, without
the payment of any penalty, by either the Fund (by vote of the Fund's
Board of Directors or by vote of a majority of the outstanding voting
securities of the Fund) or the Manager, on sixty (60) days prior
written notice to the other and (b) shall automatically terminate in
the event of its assignment. As used in this Agreement, the terms
"majority of the outstanding voting securities", "interested persons"
and "assignment" shall have the meanings assigned to such terms in the
1940 Act.
9. Amendments. No provision of this Agreement may be amended, modified,
waived or supplemented except by a written instrument signed by the
party against which enforcement is sought. No amendment of this
Agreement shall be effective until approved in accordance with the
provisions of the 1940 Act.
10. Use of Manager's Name and Logo. The Fund agrees that it shall furnish
to the Manager, prior to any use or distribution thereof, copies of
all prospectuses, statements of additional information, proxy
statements, reports to stockholders, sales literature, advertisements,
and other material prepared for distribution to stockholders of the
Fund or to the public, which in any way refer to or describe the
Manager or which include any trade names, trademarks or logos of the
Manager or of any affiliate of the Manager. The Fund further agrees
that it shall not use or distribute any such material if the Manager
reasonably objects in writing to such use or distribution within five
(5) business days after the date such material is furnished to the
Manager. The provisions of this section shall survive termination of
this Agreement.
11. Notices. Any notice or other communication required to be given
pursuant to this Agreement shall be deemed duly given if delivered or
mailed by registered mail, postage prepaid, if to the Fund: 000 X.
Xxxx Xxx., Xxxxx 000, Xxxxxxx, Xxxxxxxxxx 00000; or if to the Manager:
0000 Xxxxx Xxxxxx, Xxxxx 0000, Xxxxxxx, Xxxxxxxxxx 00000; or to either
party at such other address as such party shall designate to the other
by a notice given in accordance with the provisions of this section.
12. Miscellaneous.
(a) Except as otherwise expressly provided herein or authorized by
the Board of Directors of the Fund from time to time, the Manager
for all purposes herein shall be deemed to be an independent
contractor and shall have no authority to act for or represent
the Fund in any way or otherwise be deemed an agent of the Fund.
(b) The Fund shall furnish or otherwise make available to the Manager
such information relating to the business affairs of the Fund as
the Manager at any time or from time to time reasonably requests
in order to discharge its obligations hereunder.
(c) This Agreement shall be governed by and construed in accordance
with the laws of the State of Washington and shall inure to the
benefit of the parties hereto and their respective successors.
(d) If any provision of this Agreement shall be held or made invalid
or by any court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the date first above-written.
COMPOSITE U.S. GOVERNMENT SECURITIES, INC.
/s/ XXXXXXX X. XXXXXX Date----------------------------
President
COMPOSITE RESEARCH & MANAGEMENT CO.
/s/ XXXXXXX X. XXXXXX Date----------------------------
President
