CAPSTONE INVESTMENT SERIES TRUST
INVESTMENT ADVISORY AGREEMENT
AGREEMENT, effective commencing on ______________, 1998, between CAPSTONE
ASSET MANAGEMENT COMPANY (the "Adviser") and CAPSTONE INVESTMENT SERIES TRUST
(the "Trust") with respect to the Money Market Fund, the Short-Term Bond Fund,
the Intermediate-Term Bond Fund, the Large Cap Equity Fund, the Small Cap Equity
Fund and the International Equity Fund (the "Funds").
WHEREAS, the Trust is a Massachusetts business trust organized under a
Declaration of Trust dated ________, 1998 ("Declaration of Trust") and is
authorized to divide and classify its shares of beneficial interest into
separate series of shares and is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end, diversified management
investment company;
WHEREAS, the Funds are separate series of the Trust's shares of beneficial
interest;
WHEREAS, the Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940 ("Advisers Act");
WHEREAS, the Trust wishes to retain the Adviser to render investment
advisory services to the Funds and the Adviser is willing to furnish such
services to the Funds;
NOW THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed between the Trust and the Adviser as follows:
1. Appointment. The Trust hereby appoints the Adviser to act as
investment adviser to the Funds for the periods 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.
2. Investment Advisory Duties. Subject to the supervision of the
Trustees of the Trust, the Adviser will (a) provide a program of continuous
investment management for the Funds in accordance with the Funds' investment
objectives, policies and limitations as stated in the Trust's combined
prospectus and Statement of Additional Information included as part of the
Trust's Registration Statement filed with the Securities and Exchange
Commission, as they may be amended from time to time, copies of which shall be
provided to the Adviser by the Trust; (b) make investment decisions for the
Funds; and (c) place orders to purchase and sell securities for the Funds.
In performing its investment management services to the Funds
hereunder, the Adviser will provide the Funds with ongoing investment guidance
and policy direction, including oral and written research, analysis, advice,
statistical and economic data and judgments regarding individual investments,
general economic conditions and trends and long-range investment policy. The
Adviser will determine the securities, instruments, currencies, repurchase
agreements, futures, options and other investments and techniques that the Funds
will purchase, sell, enter into or use, and will provide an ongoing evaluation
of the Funds' portfolios. The Adviser will determine what portion of the Funds'
portfolios shall be invested in securities and other assets and what portion, if
any, should be held uninvested.
The Adviser further agrees that it will:
(a) comply with the 1940 Act and all rules and regulations thereunder,
the Advisers Act, the Internal Revenue Code (the "Code") and all other
applicable federal and state laws and regulations, and with any applicable
procedures adopted by the Trustees;
(b) use reasonable efforts to manage the Funds so that the Trust will
qualify, and continue to qualify, as a regulated investment company under
Subchapter M of the Code and regulations issued thereunder;
(c) place orders pursuant to its investment determinations for the
Funds directly with the issuer, or with any broker or dealer, in accordance with
applicable policies expressed in the Trust's combined prospectus and/or
Statement of Additional Information and in accordance with applicable legal
requirements;
(d) furnish to the Funds whatever statistical information the Funds may
reasonably request with respect to the Funds' assets or contemplated
investments. In addition, the Adviser will keep the Funds and the Trustees
informed of developments materially affecting the Funds' portfolios and shall,
on the Adviser's own initiative, furnish to the Funds and the Trust from time to
time whatever information the Adviser believes appropriate for this purpose;
(e) make available to the Funds' administrator, Capstone Asset
Management Company (the "Administrator"), and the Funds, promptly upon their
request, copies of all its investment records and ledgers with respect to the
Funds to assist the Administrator and the Funds in their compliance with
applicable laws and regulations. The Adviser will furnish the Trustees with such
periodic and special reports regarding the Funds as they may reasonably request;
(f) immediately notify the Trust in the event that the Adviser or any of
its affiliates: (1) becomes subject to a statutory disqualification that
prevents the Adviser from serving as investment adviser pursuant to this
Agreement; or (2) has been the subject of an administrative proceeding or
enforcement action by the Securities and Exchange Commission ("SEC") or other
regulatory authority. The Adviser further agrees to notify the Trust immediately
of any material fact known to the Adviser respecting or relating to the Adviser
that is not contained in the Trust's Registration Statement with respect to the
Funds, or any amendment or supplement thereto, and of any statement contained
therein that becomes untrue in any material request.
3. Allocation of Charges and Expenses. Except as otherwise specifically
provided in this section 3, the Adviser shall pay the compensation and expenses
of all its directors, officers and employees who serve as officers and executive
employees of the Trust (including the Trust's share of payroll taxes) and of all
Trustees of the Trust who are interested persons of the Adviser, and the Adviser
shall make available, without expense to the Trust or the Funds, the service of
its directors, officers and employees who may be duly elected officers of the
Trust, subject to their individual consent to serve and to any limitations
imposed by law.
The Adviser shall not be required to pay any expenses of the Trust or
the Funds other than those specifically allocated to the Adviser in this section
3. In particular, but without limiting the generality of the foregoing, the
Adviser shall not be responsible, except to the extent of the reasonable
compensation of such of the Trust's employees as are directors, officers or
employees of the Adviser whose services may be involved, for the following
expenses of the Trust or the Funds: organization and certain offering expenses
of the Funds (including out-of-pocket expenses, but not including the Adviser's
overhead and employee costs); fees payable to the Adviser and to any other Fund
advisers or consultants; legal expenses; auditing and accounting expenses;
interest expenses; telephone, telex, facsimile, postage and other communications
expenses; taxes and governmental fees; fees, dues and expenses incurred by or
with respect to the Funds in connection with membership in investment company
trade organizations; cost of insurance relating to fidelity coverage for the
Trust's officers and employees, fees and expenses of the Funds' Administrator or
of any custodian, subcustodian, transfer agent, registrar, or dividend
disbursing agent of the Trust on behalf of the Funds; payments for portfolio
pricing or valuation services to pricing agents, accountants, bankers and other
specialists; expenses in connection with the issuance, offering, distribution or
sale of securities issued by the Funds; expenses relating to investor and public
relations; expenses of registering and qualifying shares of the Funds for sale;
freight, insurance and other charges in connection with the shipment of the
Funds' portfolio securities; brokerage commissions or other costs of acquiring
or disposing of any portfolio securities or other assets of the Funds, or of
entering into other transactions or engaging in any investment practices with
respect to the Fund; expenses of printing and distributing prospectuses,
Statements of Additional Information, reports, notices and dividends to
shareholders; costs of stationery; any litigation expenses; costs of
shareholders' and other meetings; the compensation and all expenses
(specifically including travel expenses relating to the Trust business) of
Trustees, officers and employees of the Trust who are not interested persons of
the Adviser or Administrator; and travel expenses (or an appropriate portion
thereof) of Trustees and officers of the Trust who are directors, officers or
employees of the Adviser or the Administrator to the extent that such expenses
relate to attendance at meetings of the Board of Trustees of the Trust or any
committees thereof or advisers thereto.
The Adviser shall not be required to pay expenses of any activity
which is primarily intended to result in sales of shares of the Funds if and to
the extent that (i) such expenses are assumed or required to be borne by the
Funds' principal underwriter or some other party, or (ii) the Trust on behalf of
the Funds shall have adopted a plan in conformity with Rule 12b-1 under the 1940
Act providing that the Funds (or some other party) shall assume some or all of
such expenses. The Adviser shall be required to pay such of the foregoing sales
expenses as are not assumed or required to be paid by the principal underwriter
or some other party or are not permitted to be paid by the Funds (or some other
party) pursuant to such a plan.
4. Compensation. As compensation for the services provided and expenses
assumed by the Adviser under this Agreement, each Fund will pay the Adviser at
the end of each calendar month an advisory fee computed daily at the following
annual rates. The fee rate indicated for the Money Market Fund is based on the
average daily net assets of that Fund. The annual fee rates indicated for the
other five Funds are applied to the aggregate average daily net assets of those
Funds, as a group, and the resulting total fees are pro rated among those Funds
based on their relative net assets.
Annual Fee rate as a percentage
Name of Fund of average daily net assets
Money Market Fund 0.05%
Aggregate assets of Short-Term Bond 0.15% of the first $500 million
Fund, Intermediate-Term Bond Fund, 0.10% of the next $250 million
Large Cap Equity Fund, Small Cap 0.075% of the next $250 million
Equity Fund, International Equity Fund 0.05% of assets over $1 billion
The "average daily net assets" of a Fund shall mean the average of the values
placed on the Fund's net assets as of 4:00 p.m. (New York time) on each day on
which the net asset value of the Fund is determined consistent with the
provisions of Rule 22c-1 under the 1940 Act or, if the Fund lawfully determines
the value of its net assets as of some other time on each business day, as of
such other time. The value of net assets of the Fund shall always be determined
pursuant to the applicable provisions of the Declaration of Trust and the
Registration Statement. If, pursuant to such provisions, the determination of
net asset value is suspended for any particular business day, then for the
purposes of this section 4, the value of the net assets of the Fund as last
determined shall be deemed to be the value of its net assets as of the close of
the New York Stock Exchange, or as of such other time as the value of the net
assets of the Fund's portfolio may lawfully be determined, on that day. If the
determination of the net asset value of the shares of the Fund has been so
suspended for a period including any month end when the Adviser's compensation
is payable pursuant to this section, then the Adviser's compensation payable at
the end of such month shall be computed on the basis of the value of the net
assets of the Fund as last determined (whether during or prior to such month).
If the Fund determines the value of the net assets of its portfolio more than
once on any day, then the last such determination thereof on that day shall be
deemed to be the sole determination thereof on that day for the purposes of this
section 4.
5. Books and Records. The Adviser agrees to maintain such books and records
with respect to its services to the Trust on behalf of the Funds as are required
by Section 31 under the 1940 Act, and rules adopted thereunder, and by other
applicable legal provisions, and to preserve such records for the periods and in
the manner required by that Section, and those rules and legal provisions. The
Adviser also agrees that records it maintains and preserves pursuant to Rules
31a-1 and Rule 31a-2 under the 1940 Act and otherwise in connection with its
services hereunder are the property of the Trust and will be surrendered
promptly to the Trust upon its request. And the Adviser further agrees that it
will furnish to regulatory authorities having the requisite authority any
information or reports in connection with its services hereunder which may be
requested in order to determine whether the operations of the Trust or the Funds
are being conducted in accordance with applicable laws and regulations.
6. Standard of Care and Limitation of Liability. The Adviser shall exercise
its best judgment in rendering the services provided by it under this Agreement.
The Adviser shall not be liable for any error of judgment or mistake of law or
for any loss suffered by the Trust or the Funds in connection with the matters
to which this Agreement relates, provided that nothing in this Agreement shall
be deemed to protect or purport to protect the Adviser against any liability to
the Trust, the Funds or to holders of the Funds' shares to which the Adviser
would otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or by reason of the
Adviser's reckless disregard of its obligations and duties under this Agreement.
7. Services Not Exclusive. It is understood that the services of the
Adviser are not exclusive, and nothing in this Agreement shall prevent the
Adviser from providing similar services to other investment companies (whether
or not their investment objectives and policies are similar to those of the
Funds) or from engaging in other activities, provided such other services and
activities do not, during the term of this Agreement, interfere in a material
manner with the Adviser's ability to meet its obligations to the Funds and to
the Trust hereunder. When the Adviser recommends the purchase or sale of a
security for other investment companies and other clients, and at the same time
the Adviser recommends the purchase or sale of the same security for a Fund, it
is understood that in light of its fiduciary duty to the Trust on behalf of the
Funds, such transactions will be executed on a basis that is fair and equitable
to the Trust. In connection with purchases or sales of portfolio securities for
the account of the Funds, neither the Adviser nor any of its directors, officers
or employees shall act as a principal or agent or receive any commission. If the
Adviser provides any advice to its clients concerning the shares of the Funds,
the Adviser shall act solely as investment counsel for such clients and not in
any way on behalf of the Funds.
8. Duration and Termination. This Agreement shall continue until
___________, 2000, and thereafter shall continue automatically for successive
annual periods, provided such continuance is specifically approved at least
annually by (i) the Trustees or (ii) a vote of a "majority" (as defined in the
0000 Xxx) of each Fund's outstanding voting securities (as defined in the 1940
Act), provided that in either event the continuance is also approved by a
majority of the Trustees who are not "interested persons" (as defined in the
0000 Xxx) of any party to this Agreement, by vote cast in person at a meeting
called for the purpose of voting on such approval. Notwithstanding the
foregoing, this Agreement may be terminated: (a) at any time without penalty by
the Trust upon the vote of a majority of the Trustees or by vote of the majority
of each Fund's outstanding voting securities, upon sixty (60) days' written
notice to the Adviser or (b) by the Adviser at any time without penalty, upon
ninety (90) days' written notice to a Fund. This Agreement will also terminate
automatically in the event of its assignment (as defined in the 1940 Act).
9. Amendments. No provision of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought, and no amendment of this Agreement shall be effective
until approved by an affirmative vote of (i) a majority of the outstanding
voting securities of the Funds, and (ii) a majority of the Trustees who are not
interested persons of any part to this Agreement, cast in person at a meeting
called for the purpose of voting on such approval, if such approval is required
by applicable law.
10. Limitation of Liability for Claim. The Declaration of Trust of the
Trust, a copy of which, together with all amendments thereto, is on file in the
Office of the Secretary of the Commonwealth of Massachusetts, provides that the
name "Capstone Indexed Series Trust" refers to the Trustees under the
Declaration of Trust collectively as trustees and not as individuals or
personally, and that no shareholder of the Funds, or Trustee, officer, employee
or agent of the Trust, shall be subject to claims against or obligations of the
Trust or of the Funds to any extent whatsoever, but that the Trust estate only
shall be liable.
The Adviser is hereby expressly put on notice of the limitation of
liability as set forth in the Declaration of Trust and hereby agrees that the
obligations assumed by the Trust on behalf of the Funds pursuant to this
Agreement shall be limited in all cases to the Funds and their assets, and the
Adviser shall not seek satisfaction of any such obligation from shareholders or
any shareholder of the Funds or any other series of the Trust or their
shareholders, or from any Trustee, officer, employee or agent of the Trust. The
Adviser understands that the rights and obligations of each Fund, or series,
under the Declaration are separate and distinct from those of any and all other
series.
11. Miscellaneous.
a. This Agreement shall be governed by the laws of the Commonwealth of
Massachusetts, provided that nothing herein shall be construed in a manner
inconsistent with the 1940 Act, the Advisers Act, or rules or orders of the SEC
thereunder.
b. The captions of this Agreement are included for convenience only and in
no way define or limit any of the provisions hereof or otherwise affect their
construction or effect.
c. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected hereby and, to this extent, the provisions of this
Agreement shall be deemed to be severable.
d. Nothing herein shall be construed as constituting the Adviser as an
agent of the Trust or the Funds.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of _________________, 1998.
CAPSTONE INVESTMENT SERIES TRUST
By ___________________________________
President
CAPSTONE ASSET MANAGEMENT COMPANY
By ___________________________________
President
