EXHIBIT (d)(3)
INVESTMENT ADVISORY AGREEMENT
THIS INVESTMENT ADVISORY AGREEMENT (the "Agreement") is made as of the
1st day of September, 2003, by and between XXX XXXXXXX FUNDS, INC., a Maryland
corporation (the "Company"), on behalf of the Xxx Xxxxxxx Emerging Growth Fund
(the "Fund") and XXX XXXXXXX CAPITAL MANAGEMENT, INC., a California corporation
(the "Adviser").
WITNESSETH:
WHEREAS, the Company is an open-end management investment company,
registered with the Securities and Exchange Commission as such under the
Investment Company Act of 1940, as amended (the "Investment Company Act"); and
WHEREAS, the Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended (the "Advisers Act"), and is engaged
in the business of supplying investment advice, investment management and
administrative services; and
WHEREAS, the Company desires to retain the Adviser to render
investment advice and management services to the Fund pursuant to the terms and
provisions of this Agreement, and the Adviser is interested in furnishing said
advice and services;
NOW, THEREFORE, in consideration of the covenants and the mutual
promises hereinafter set forth, the parties hereto, intending to be legally
bound hereby, mutually agree as follows:
1. APPOINTMENT OF ADVISER. The Company hereby employs the Adviser
and the Adviser hereby accepts such employment, to render investment advice and
management services with respect to the assets of the Fund for the period and on
the terms set forth in this Agreement, subject to the supervision and direction
of the Company's Board of Directors.
2. DUTIES OF ADVISER.
(a) GENERAL DUTIES. The Adviser shall supervise and manage the
investment portfolio of the Fund, and, subject to such policies as the Board of
Directors of the Company may determine, direct the purchase and sale of
investment securities in the management of the Fund. Nothing herein contained
shall be deemed to require the Company to take any action contrary to its
Articles of Incorporation, as amended, restated or supplemented from time to
time, or any applicable statute or regulation, or to relieve or deprive the
board of directors of the Company of its responsibility for and control of the
affairs of the Fund.
(b) BROKERAGE. The Adviser, subject to the control and direction of
the Company's Board of Directors, shall have authority and discretion to select
brokers and dealers to execute portfolio transactions for the Fund and for the
selection of the markets on or in which
the transactions will be executed. In placing the Fund's securities trades, it
is recognized that the Adviser will give primary consideration to securing the
most favorable price and efficient execution, so that the Fund's total cost or
proceeds in each transaction will be the most favorable under all the
circumstances. Within the framework of this policy, the Adviser may consider the
financial responsibility, research and investment information, and other
services provided by brokers or dealers who may effect or be a party to any such
transaction or other transactions to which other clients of the Adviser may be a
party.
It is also understood that it is desirable for the Fund that the
Adviser have access to investment and market research and securities and
economic analyses provided by brokers and others. It is also understood that
brokers providing such services may execute brokerage transactions at a higher
cost to the Fund than might result from the allocation of brokerage to other
brokers on the basis of seeking the most favorable price and efficient
execution. Therefore, the purchase and sale of securities for the Fund may be
made with brokers who provide such research and analysis, subject to review by
the Company's Board of Directors from time to time with respect to the extent
and continuation of this practice to determine whether the Fund benefits,
directly or indirectly, from such practice. The Adviser shall provide such
reports as the Company's Board of Directors may reasonably request with respect
to the Fund's total brokerage and the manner in which that brokerage was
allocated. It is understood by both parties that the Adviser may select
broker-dealers for the execution of the Fund's portfolio transactions who
provide research and analysis as the Adviser may lawfully and appropriately use
in its investment management and advisory capacities, whether or not such
research and analysis may also be useful to the Adviser in connection with its
services to other clients.
Certain brokers and dealers may offer programs that effectively result
in a reduction of the Fund's operating expenses (as described in Section 7
hereof). Provided that the Adviser reasonably believes such brokers or dealers
offer best execution (as discussed above in this Section 2), and subject to the
Company's Board of Directors' general supervision of brokerage directed for this
purpose, the Adviser may lawfully direct the Fund's brokerage for the purpose of
reducing Fund expenses.
On occasions when the Adviser deems the purchase or sale of a security
to be in the best interest of the Fund as well as of other clients, the Adviser,
to the extent permitted by applicable laws and regulations, may aggregate the
securities to be so purchased or sold in order to obtain the most favorable
price or lower brokerage commissions and the most efficient execution. In such
event, allocation of the securities so purchased or sold, as well as the
expenses incurred in the transaction, will be made by the Adviser in the manner
it considers to be the most equitable and consistent with its fiduciary
obligations to the Fund and to such other clients.
3. BEST EFFORTS AND JUDGMENT. The Adviser shall use its best
judgment and efforts in rendering the advice and services to the Fund as
contemplated by this Agreement.
4. INDEPENDENT CONTRACTOR. The Adviser shall, for all purposes
herein, be deemed to be an independent contractor, and shall, unless otherwise
expressly provided and authorized to do so, have no authority to act for or
represent the Company or the Fund in any way, or in any way be deemed an agent
for the Company or for the Fund. However, one or more
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shareholders, officers, directors or employees of the Adviser may serve as
directors and/or officers of the Company, but without compensation or
reimbursement of expenses for such services from the Company.
5. ADVISER'S PERSONNEL. The Adviser shall, at its own expense,
maintain such staff and employ or retain such personnel and consult with such
other persons as it shall from time to time determine to be necessary to the
performance of its obligations under this Agreement. Without limiting the
generality of the foregoing, the staff and personnel of the Adviser shall be
deemed to include persons employed or retained by the Adviser to furnish
statistical information, research, and other factual information, advice
regarding economic factors and trends, information with respect to technical and
scientific developments, and such other information, advice and assistance as
the Adviser or the Company's Board of Directors may desire and reasonably
request.
6. REPORTS BY FUND TO ADVISER. The Fund will from time to time
furnish to the Adviser detailed statements of its investments and assets, and
information as to its investment objective and needs, and will make available to
the Adviser such financial reports, proxy statements, legal and other
information relating to the Fund's investments as may be in its possession or
available to it, together with such other information as the Adviser may
reasonably request.
7. EXPENSES. The Adviser, at its own expense and without
reimbursement from the Company or the Fund, shall furnish office space, and all
necessary office facilities, equipment and executive personnel for managing the
investments of the Fund. The Adviser shall not be required to pay any expenses
of the Fund except as provided herein.
The expenses of the Fund's operations borne by the Fund include by way
of illustration and not limitation, directors' fees paid to those directors who
are not officers of the Company, the costs of preparing and printing
registration statements required under the Securities Act of 1933 and the
Investment Company Act (and amendments thereto), the expense of registering its
shares with the Securities and Exchange Commission and in the various states,
the printing and distribution cost of prospectuses mailed to existing
shareholders, the cost of stock certificates (if any), director and officer
liability insurance, reports to shareholders, reports to government authorities
and proxy statements, interest charges, taxes, legal expenses, salaries of
administrative and clerical personnel, association membership dues, auditing and
accounting services, insurance premiums, brokerage and other expenses connected
with the execution of portfolio securities transactions, fees and expenses of
the custodian of the Fund's assets, expenses of calculating the net asset value
and repurchasing and redeeming shares, printing and mailing expenses, charges
and expenses of dividend disbursing agents, registrars and stock transfer agents
and the cost of keeping all necessary shareholder records and accounts.
8. INVESTMENT ADVISORY AND MANAGEMENT FEE.
(a) The Fund shall pay to the Adviser, and the Adviser agrees to
accept, as full compensation for all administrative and investment management
and advisory services furnished or provided to the Fund pursuant to this
Agreement, a management fee as set forth in the Fee Schedule attached hereto as
Appendix A, as may be amended in writing from time to
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time by the Company and the Adviser. The management fee shall be accrued daily
by the Fund and paid to the Adviser upon its request.
The initial fee under this Agreement shall be payable on the first
business day of the first month following the effective date of this Agreement
and shall be prorated as set forth below. If this Agreement is terminated prior
to the end of any month, the fee to the Adviser shall be prorated for the
portion of any month in which this Agreement is in effect which is not a
complete month according to the proportion which the number of calendar days in
the month during which the Agreement is in effect bears to the number of
calendar days in the month, and shall be payable within ten (10) days after the
date of termination.
(b) FEE REDUCTION. The Adviser may, but is not required to, reduce
all or a portion of its fees and/or reimburse a Fund for other expenses in order
to decrease the operating expenses of a Fund. Any such reduction, reimbursement,
or payment (collectively "subsidies") shall be applicable only to such specific
subsidy and shall not constitute an agreement to continue such subsidy in the
future. Any such subsidy will be agreed to prior to accrual of the related
expense or fee and will be estimated daily and reconciled and paid on a monthly
basis. The Adviser may also agree contractually to limit a Fund's operating
expenses. To the extent such an expense limitation has been agreed to by the
Adviser and such limit has been disclosed to shareholders of a Fund in the
Prospectus, the Adviser may not change the limitation without first disclosing
the change in an updated Prospectus.
The Adviser may seek reimbursement of any subsidies made by the
Adviser either voluntarily or pursuant to contract. The reimbursement of any
subsidy must be approved by the Company's Board of Directors and must be sought
no later than the end of the third fiscal year following the year to which the
subsidy relates. The Adviser may not request or receive reimbursement for any
subsidies before payment of a Fund's operating expenses for the current year and
cannot cause a Fund to exceed any more restrictive limitation to which the
Adviser has agreed in making such reimbursement.
(c) The Adviser may agree not to require payment of any portion of
the compensation or reimbursement of expenses otherwise due to it pursuant to
this Agreement prior to the time such compensation or reimbursement has accrued
as a liability of the Fund. Any such agreement shall be applicable only with
respect to the specific items covered thereby and shall not constitute an
agreement not to require payment of any future compensation or reimbursement due
to the Adviser hereunder.
9. FUND SHARE ACTIVITIES OF ADVISER'S DIRECTORS, OFFICERS AND
EMPLOYEES. The Adviser agrees that neither it nor any of its directors, officers
or employees shall take any short position in the shares of the Fund. This
prohibition shall not prevent the purchase of such shares by any of the officers
or bona fide employees of the Adviser or any trust, pension, profit-sharing or
other benefit plan for such persons or affiliates thereof, at a price not less
than the net asset value thereof at the time of purchase, as allowed pursuant to
rules promulgated under the Investment Company Act.
10. CONFLICTS WITH COMPANY'S GOVERNING DOCUMENTS AND APPLICABLE
LAWS. Nothing herein contained shall be deemed to require the Company or the
Fund to take any action
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contrary to the Company's Articles of Incorporation, By-Laws, or any applicable
statute or regulation, or to relieve or deprive the Board of Directors of the
Company of its responsibility for and control of the conduct of the affairs of
the Company and Fund.
11. LIABILITY OF THE ADVISER AND THE FUND.
(a) In the absence of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the obligations or duties hereunder on the
part of the Adviser, the Adviser shall not be subject to liability to the
Company or 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 by the
Fund; provided, however, that this provision shall not be construed as a waiver
or limitation of any rights which the Company or the Fund may have under
applicable federal securities laws.
(b) The Fund shall indemnify and hold harmless the Adviser and its
shareholders, directors, officers and employees (any such person, an
"Indemnified Party") against any loss, liability, claim, damage or expense
(including the reasonable cost of investigating and defending any alleged loss,
liability, claim, damage or expenses and reasonable counsel fees incurred in
connection therewith) arising out of the Indemnified Party's performance or
non-performance of any duties under this Agreement provided, however, that
nothing herein shall be deemed to protect any Indemnified Party against any
liability to which such Indemnified Party would otherwise be subject by reason
of willful misfeasance, bad faith or negligence in the performance of duties
hereunder or by reason of reckless disregard of obligations and duties under
this Agreement.
(c) The Adviser agrees to defend, indemnify and hold harmless the
Company and the Fund, and the shareholders, directors, officers and employees of
each of them against any loss, liability, claim, damage or expense (including
without limitation the reasonable cost of investigating and defending any
alleged loss, liability, claim, damage or expenses and reasonable counsel fees
incurred in connection therewith) arising out of their performance or
non-performance of any duties under, or the execution of, this Agreement;
provided, however, that nothing herein shall be deemed to protect any of them
against any liability to which they would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of duties
hereunder or by reason of reckless disregard of obligations and duties under
this Agreement.
(d) No provision of this Agreement shall be construed to protect
any director or officer of the Company, or director or officer of the Adviser,
from liability in violation of Sections 17(h) and (i) of the Investment Company
Act.
12. EXCLUSIVITY. The services of the Adviser to the Fund hereunder
are not to be deemed exclusive and the Adviser shall be free to furnish similar
services to others as long as the services hereunder are not impaired thereby.
Although the Adviser has agreed to permit the Fund and the Company to use the
name "Xxx Xxxxxxx", if they so desire, it is understood and agreed that the
Adviser reserves the right to use and to permit other persons, firms or
corporations, including investment companies, to use such name, and that the
Fund and the Company will not use such name if the Adviser ceases to be the
Fund's sole investment adviser.
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During the period that this Agreement is in effect, the Adviser shall be the
Fund's sole investment adviser.
13. TERM. This Agreement shall become effective on the date that is
the latest of (1) the execution of this Agreement, (2) the approval of this
Agreement by the Board of Directors of the Company and (3) the requisite
approval of this Agreement by the shareholders of the Fund. This Agreement shall
remain in effect for a period of two (2) years, unless sooner terminated as
hereinafter provided. This Agreement shall continue in effect thereafter for
additional periods not exceeding one (1) year so long as such continuation is
approved for the Fund at least annually by (i) the Board of Directors of the
Company or by the vote of a majority of the outstanding voting securities of the
Fund and (ii) the vote of a majority of the Directors of the Company who are not
parties to this Agreement nor interested persons thereof, cast in person at a
meeting called for the purpose of voting on such approval.
14. TERMINATION. This Agreement may be terminated by the Company on
behalf of any one or more of the Fund at any time without payment of any
penalty, by the Board of Directors of the Company or by vote of a majority of
the outstanding voting securities of a Fund, upon sixty (60) days' written
notice to the Adviser, and by the Adviser upon sixty (60) days' written notice
to a Fund.
15. TERMINATION BY ASSIGNMENT. This Agreement shall terminate
automatically in the event of any transfer or assignment thereof, as defined in
the Investment Company Act.
16. TRANSFER, ASSIGNMENT. This Agreement may not be transferred,
assigned, sold or in any manner hypothecated or pledged without the affirmative
vote or written consent of the holders of a majority of the outstanding voting
securities of the Fund.
17. SEVERABILITY. If any provision of this Agreement shall be held
or made invalid by a court decision, statute or rule, or shall be otherwise
rendered invalid, the remainder of this Agreement shall not be affected thereby.
18. DEFINITIONS. The terms "majority of the outstanding voting
securities" and "interested persons" shall have the meanings as set forth in the
Investment Company Act.
19. NOTICE OF LIMITED LIABILITY. The Adviser agrees that the
Company's obligations under this Agreement shall be limited to the Fund and to
their assets, and that the Adviser shall not seek satisfaction of any such
obligation from the shareholders of the Fund nor from any director, officer,
employee or agent of the Company or the Fund.
20. CAPTIONS. The captions in this Agreement are included for
convenience of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect.
21. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California without giving
effect to the conflict of laws principles thereof; provided that nothing herein
shall be construed to preempt, or to be
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inconsistent with, any federal law, regulation or rule, including the Investment
Company Act and the Advisers Act and any rules and regulations promulgated
thereunder.
22. NONPUBLIC PERSONAL INFORMATION. Notwithstanding any provision
herein to the contrary, the Adviser agrees on behalf of itself and its
directors, officers, and employees (1) to treat confidentially and as
proprietary information of the Company (a) all records and other information
relative to the series of the Company and their prior, present, or potential
shareholders (and clients of said shareholders) and (b) any Nonpublic Personal
Information, as defined under Section 248.3(t) of Regulation S-P ("Regulation
S-P"), promulgated under the Xxxxx-Xxxxx-Xxxxxx Act (the "G-L-B Act"), and (2)
not to use such records and information for any purpose other than the
performance of its responsibilities and duties hereunder, or as otherwise
permitted by the privacy policies adopted by the Company, the G-L-B Act or
Regulation S-P, except after prior notification to and approval in writing by
the Company. Such written approval shall not be unreasonably withheld by the
Company and may not be withheld where the Adviser may be exposed to civil or
criminal contempt proceedings for failure to comply after being requested to
divulge such information by duly constituted authorities, or when so requested
by the Company.
23. ANTI-MONEY LAUNDERING COMPLIANCE. The Adviser acknowledges
that, in compliance with the Bank Secrecy Act, as amended, and implementing
regulations ("BSA"), the Fund has adopted an Anti-Money Laundering Policy. The
Adviser agrees to comply with the Fund's Anti-Money Laundering Policy and the
BSA, as the same may apply to the Adviser, now and in the future. The Adviser
further agrees to provide to the Fund and/or the Company such reports,
certifications and contractual assurances as may be requested by the Fund or the
Company. The Company and the Fund may disclose information respecting the
Adviser to governmental and/or regulatory or self-regulatory authorities to the
extent required by applicable law or regulation and may file reports with such
authorities as may be required by applicable law or regulation.
24. CERTIFICATIONS; DISCLOSURE CONTROLS AND PROCEDURES. The Adviser
acknowledges that, in compliance with the Xxxxxxxx-Xxxxx Act of 2002, and the
implementing regulations promulgated thereunder, the Fund is required to make
certain certifications and has adopted disclosure controls and procedures. To
the extent reasonably requested by the Company or the Fund, the Adviser agrees
to use its best efforts to assist the Company and the Fund in complying with the
Xxxxxxxx-Xxxxx Act and implementing the Fund's disclosure controls and
procedures. The Adviser agrees to inform the Company and the Fund of any
material development related to the Company or the Fund that the Adviser
reasonably believes is relevant to the certification obligations of the Fund
under the Xxxxxxxx-Xxxxx Act.
25. CODE OF ETHICS. The Adviser (1) has adopted a written code of
ethics pursuant to Rule 17j-1 under the Investment Company Act; (ii) has
provided the Fund with a copy of evidence of the adoption of the code of ethics
by the Adviser; and (iii) will make such reports to the Fund as are required by
Rule 17j-1 under the Investment Company Act. The Adviser agrees to provide the
Fund with any information required to satisfy the code of ethics reporting or
disclosure requirements of the Xxxxxxxx-Xxxxx Act and any rules or regulations
promulgated by the SEC thereunder. To the extent the Adviser adopts or has
adopted a separate code of ethics or amends or has amended its code of ethics to
comply with such rules or
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regulations, the Adviser shall provide the Fund with a copy of such code of
ethics and any amendments thereto.
[signature page follows]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and attested by their duly authorized officers, all on the day
and year first above written.
XXX XXXXXXX FUNDS, INC. XXX XXXXXXX CAPITAL
MANAGEMENT, INC.
By: /s/ Xxxxxxx Xxx Xxxxxxx By: /s/ Xxxxxxx Xxx Xxxxxxx
-------------------------------- ------------------------------------
Name: Xxxxxxx Xxx Xxxxxxx Name: Xxxxxxx Xxx Xxxxxxx
----------------------------- ----------------------------------
Title: President Title: President
----------------------------- --------------------------------
Date: September 5, 2003 Date: September 5, 2003
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APPENDIX A
Fee Schedule -- Xxx Xxxxxxx Funds, Inc.
NAME OF FUND APPLICABLE FEE EFFECTIVE DATE
------------ -------------- --------------
Xxx Xxxxxxx Emerging 1.25% of the Fund's average September 1, 2003
Growth Fund daily net assets (+/-) up to
0.25% (as detailed below) of
the Fund's average daily net
assets
The basic fee rate of 1.25% of the Fund's average daily net assets may be
adjusted upward or downward (by up to 0.25% of the Fund's average daily net
assets), depending on whether, and to what extent, the investment performance of
the Fund, for the relevant performance period, exceeds or is exceeded by the
performance of the Lipper Small-Cap Growth Index over the same period. The
performance period consists of the prior 36 months and is also referred to as a
rolling 36-month period. Each 0.10% of difference of the Fund's performance
compared to the performance of the Lipper Small-Cap Growth Index is multiplied
by a performance adjustment of .025%, up to a maximum adjustment of 0.25% (as an
annual rate). Thus, an annual excess performance difference of 1.00% or more
between the Fund and the Lipper Small-Cap Growth Index would result in an annual
maximum performance adjustment of 0.25%.
The Fund's performance is calculated based on its net asset value per share
after all expenses. Similarly, the Lipper Small-Cap Growth Index is calculated
as an average of mutual funds and would reflect the performance of those funds
after fees and expenses. For purposes of calculating the performance adjustment,
any dividends or capital gains distributions paid by the Fund are treated as if
those distributions were reinvested in Fund shares at the net asset value per
share as of the record date for payment.
The basic fee and the performance adjustment are calculated once per month (but
accrued daily using the prior adjustment) and the entire advisory fee normally
is paid monthly.
XXX XXXXXXX FUNDS, INC. XXX XXXXXXX CAPITAL
MANAGEMENT, INC.
By: /s/ Xxxxxxx Xxx Xxxxxxx By: /s/ Xxxxxxx Xxx Xxxxxxx
-------------------------------- ------------------------------------
Name: Xxxxxxx Xxx Xxxxxxx Name: Xxxxxxx Xxx Xxxxxxx
----------------------------- ----------------------------------
Title: President Title: President
----------------------------- --------------------------------
Date: September 5, 2003 Date: September 5, 2003
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