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EXHIBIT 5.1
INVESTMENT ADVISORY AGREEMENT
AGREEMENT (hereinso called) made this 31st day of October, 1996, by and between
XXX XXXXXX AMERICAN CAPITAL TAX-EXEMPT TRUST, a Delaware business trust,
hereinafter referred to as the "TRUST," and XXX XXXXXX AMERICAN CAPITAL ASSET
MANAGEMENT, INC., a Delaware corporation, hereinafter referred to as the
"ADVISER".
The TRUST and the ADVISER agree as follows:
1. Appointment
a. The TRUST hereby appoints the ADVISER to act as investment adviser to the
TRUST'S Xxx Xxxxxx American Capital High Yield Municipal Fund ("Initial Fund"),
for the period and on the terms set forth in this Agreement. The ADVISER
accepts such appointment and agrees to furnish the services herein set forth
for the compensation herein provided.
b. In the event that the TRUST establishes one or more portfolios other than
the Initial Fund with respect to which it desires to retain the ADVISER to act
as investment adviser hereunder, it shall notify the ADVISER in writing. If the
ADVISER is willing to render such services it shall notify the TRUST in writing
whereupon such portfolio shall become a Fund hereunder and the compensation
payable by such new portfolio to the ADVISER will be as agreed in writing at
the time.
2. Services Rendered and Expenses Paid by ADVISER
The ADVISER, subject to the control, direction and supervision of the TRUST's
Trustees and in conformity with applicable laws, the TRUST's Agreement and
Declaration of Trust (Declaration of Trust"), Bylaws, registration statement,
prospectus and the stated investment objectives, policies and restrictions of
the Fund, shall:
a. manage the investment and reinvestment of the TRUST'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 TRUST's Fund, 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 account of the Fund of the TRUST with brokers or
dealers selected by the ADVISER;
c. conduct and manage the day-to-day operations of the TRUST including, by way
of illustration, the preparation of registration statements, prospectuses,
reports, proxy solicitation materials and amendments thereto, the furnishing of
legal services except for services provided by outside counsel to the TRUST
selected by the Trustees, and the supervision of the TRUST's Treasurer and the
personnel working under his direction; and
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d. furnish to the TRUST 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 TRUST trustee and TRUST officer who is an
affiliated person of the ADVISER, except the compensation of the TRUST'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 TRUST and 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 TRUST's Trustees of appropriate policies and procedures, the ADVISER may,
to the extent authorized by law, cause the TRUST 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 TRUST 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
TRUST 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 TRUST which consist
of maintenance of the accounts, books and other documents which constitute the
record forming the basis for the TRUST's financial statements, preparation of
such financial statements and other TRUST documents and reports of a financial
nature required by federal and state laws, and participation in the production
of the TRUST's registration statement, prospectuses, proxy solicitation
materials and reports to shareholders; (v) fees of outside counsel to and of
independent accountants of the TRUST 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 TRUST 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 TRUST; (xi) all other expenses incidental to holding meetings of the
TRUST's shareholders including proxy solicitations therefor; (xii) expenses for
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servicing shareholder accounts; (xiii) insurance premiums for fidelity coverage
and errors and omissions insurance; (xiv) dues for the TRUST'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 TRUST is a party and the legal obligation which the
TRUST may have to indemnify its officers and trustees with respect thereto. To
the extent that any of the foregoing expenses are allocated between the TRUST
and any other party, such allocations shall be pursuant to methods approved by
the Trustees.
3. 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 TRUST are not impaired.
Except as otherwise required by the Investment Company Act of l940 any of the
shareholders, trustees, officers and employees of the TRUST may be a
shareholder, 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 TRUST.
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, the ADVISER shall not be subject to liability to the
TRUST, or to any shareholder of the TRUST, 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.
4. Compensation Payable to ADVISER
The TRUST shall pay to the ADVISER, as compensation for the services rendered,
facilities furnished and expenses paid by the ADVISER, with respect to the
Fund a monthly fee computed at the following annual rates:
.60% on the first $300 million of the TRUST's average daily net assets; .55% on
the next $300 million of the TRUST's average daily net assets; and .50% of any
excess over $600 million.
For purposes of this calculation, assets of the Fund shall be combined
in calculating the investment advisory fee. The Fund shall bear its pro rata
share of such fee based upon its average daily net assets.
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 TRUST's Declaration of Trust. Such fee shall be payable
for each calendar month as soon as practicable after the end of that month.
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The fees payable to the ADVISER by the TRUST pursuant to this Section 4 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 TRUST, 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 each of the TRUST'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 the TRUST's portfolio transactions or other
arrangements which may benefit the TRUST.
In the event that the ordinary business expenses of the TRUST for any fiscal
year should exceed .95% of average daily net assets, 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 TRUST, and if such amount should exceed such
monthly compensation, the ADVISER shall pay the TRUST an amount sufficient to
make up the deficiency, subject to readjustment during the TRUST's fiscal year.
For purposes of this paragraph, all ordinary business expenses of the TRUST
include the investment advisory fee and other operating expenses paid by the
TRUST 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 TRUST; (iv) as a result of litigation involving a defense against a
liability asserted against the TRUST, 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
TRUST to its officers and trustees and the ADVISER in accordance with
applicable state and federal laws as a result of such litigation; (vi) amounts
paid to Xxx Xxxxxx American Capital Distributors, Inc., the distributor of the
TRUST's shares, in connection with a distribution plan adopted by the TRUST's
Trustees pursuant to Rule 12b-1 under the Investment Company Act of 1940; and
(vii) insurance premiums paid by the Fund to insure the timely payment of
principal and interest on its portfolio obligations.
If the ADVISER shall serve for less than the whole of any month, the foregoing
compensation shall be prorated.
5. 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 TRUST are the
property of the TRUST and further agrees to surrender promptly to the TRUST any
of such records upon the TRUST's request.
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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.
6. Duration and Termination
This Agreement will become effective with respect to the initial Funds
on the date hereof, and with respect to any additional Funds, on the date of
receipt by the TRUST of notice from the ADVISER in accordance with Section 1(b)
hereof that the ADVISER is willing to serve as investment adviser with respect
to such Fund, provided that this Agreement (as supplemented by the terms
specified in any notice and agreement pursuant to Section 1(b) hereof) shall
have been approved by the shareholders of each Fund subject to this Agreement,
in accordance with the requirements under the 1940 Act, and, unless sooner
terminated as provided herein, shall remain in full force until May 30, 1997.
Thereafter, if not terminated, this Agreement shall continue in effect as to a
particular Fund for successive periods of twelve months each, provided such
continuance is specifically approved at least annually, (a) by the vote of a
majority of those members of the TRUST's Trustees who are not interested
persons of any party to this Agreement, cast in person at a meeting called for
the purpose of voting on such approval, and (b) by the TRUST's Trustees or by
vote of a majority of the outstanding voting securities of such Fund. Not
withstanding the foregoing, this Agreement may be terminated as to any Fund at
any time, without the payment of any penalty, by the TRUST (by vote of the
TRUST's Trustees or by vote of a majority of the outstanding voting securities
of such Fund), or by the ADVISER, on sixty days' written notice. This Agreement
will immediately terminate in the event of its assignment.
7. 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 Investment
Company Act of l940 (the "1940 Act") and the Rules and Regulations thereunder,
subject, however, to such exemptions as may be granted to either the ADVISER or
the TRUST by the Securities and Exchange Commission, or such interpretive
positions as may be taken by the Commission or its staff, under said Act, and
the term "brokerage and research services" shall have the meaning given in the
Securities Exchange Act of l934 and the Rules and Regulations thereunder.
It is understood and agreed that the ADVISER may engage a subadviser to assist
it in the performance of its duties hereunder. The execution of this Agreement
has been authorized by the TRUST's Trustees and by the sole shareholder. This
Agreement is executed on behalf of the TRUST or the Trustees of the TRUST 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 TRUST
individually but are binding only upon the assets and
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property of the TRUST. The TRUST is composed of one fund. All obligations of
the TRUST under this Agreement shall apply only on a Fund by Fund basis and the
assets of one Fund shall not be liable for the obligations of any other Fund.
A Certificate of Trust in respect of the TRUST is on file with the Secretary of
the State of Delaware.
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 TAX-EXEMPT TRUST
By /s/ XXXXXX X. XXXXXXXXX
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Name: Xxxxxx X. XxXxxxxxx
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Its: President
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XXX XXXXXX AMERICAN CAPITAL ASSET MANAGEMENT, INC.
By /s/ XXXXX X. XXXXX
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Name: Xxxxx X. Xxxxx
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Its: Executive Vice President
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