LIGHT INDEX FUND, INC.
INVESTMENT ADVISORY AGREEMENT
The INVESTMENT ADVISORY AGREEMENT ("Agreement") is made as of the ____
day of ________, 1998, by and between LIGHT INDEX FUND, INC., a Maryland
corporation (the "Company"), with respect to its series of shares known as the
LIGHT INDEX FUND (the "Fund"), and THE LIGHT INDEX INVESTMENT COMPANY, a
Washington corporation (the "Adviser").
RECITALS
1. The Company is an open-end diversified, management investment
company, registered as such under the Investment Company Act of 1940, as amended
(the "Act").
2. The Adviser is a registered 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, as an independent contractor.
3. The Company desires to retain the Adviser to render advice and
services to the Company and 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 mutually agree as follows:
1. EMPLOYMENT OF ADVISER. (a) The Company hereby employs the Adviser,
and the Adviser hereby accepts such employment, to render continuous investment
advice and investment management services with respect to the assets of the
Fund, consistent with the investment objectives and policies of the Fund and
subject to the supervision and direction of the Company's Board of Directors. As
part of such advice and services, the Adviser agrees to (i) furnish the Company
with investment advice, research and recommendations with respect to the
investment of the Fund's assets and the purchase and sale of its portfolio
securities, including the taking of such other steps as may be necessary to
implement such advice and recommendations, (ii) furnish the Company and Fund
with reports, statements and other data on securities, economic conditions and
other pertinent subjects which the Company's Board of Directors may request,
(iii) furnish such office space and personnel as are needed by the Fund, and
(iv) in general superintend and manage the investments of the Fund, subject to
the ultimate supervision and direction of the Company's Board of Directors.
(b) The Adviser shall determine the securities to be purchased
or sold by the Fund and will place orders pursuant to its determinations with or
through such persons, brokers or dealers in conformity with the policy with
respect to brokerage as set forth in the Company's Registration Statement and
the Fund's Prospectus and Statement of Additional Information or as the
Company's Directors may direct from time to time. The Advisor may also pay
higher commissions in recognition of brokerage services necessary for the
achievement of better execution, provided that the Advisor believes such
payments are in the best interest of the Fund, and the Adviser shall at all
times use its best efforts to obtain the best available price and most favorable
execution with respect to all transactions, considering the full range and
availability of brokerage services available. The Adviser shall not execute
portfolio transactions for the account of the Fund with a broker or dealer which
is an "affiliated person" (as defined in the Act) of the Adviser or the Company,
except pursuant to procedures adopted by the Directors in accordance with Rule
17e-1 under the Act. The Adviser shall render regular reports to the Directors
of the total brokerage business placed and the manner in which the allocation
has been accomplished.
2. SUB-ADVISERS AND CONSULTANTS. The Adviser may from time to time, in
its discretion, delegate certain of its responsibilities under this Agreement to
one or more qualified companies, each of which is registered under the Advisers
Act, provided that the separate costs of employing such companies and of the
companies themselves are borne by the Adviser and not by the Fund.
3. ADVISER IS INDEPENDENT CONTRACTOR. The Adviser, for all purposes
herein, shall be deemed to be an independent contractor, and unless otherwise
expressly provided and authorized, shall have no authority to act for or
represent the Company or Fund in any way, or in any way be deemed an agent for
the Company or Fund. It is expressly understood and agreed that the services to
be rendered by the Adviser to the Company and Fund under the provisions of this
Agreement are not to be deemed exclusive, and the Adviser shall be free to
render similar or different services to others so long as its ability to render
the services provided for in this Agreement shall not be impaired thereby.
4. RESPONSIBILITIES AND PERSONNEL OF ADVISER. The Adviser agrees to use
its best efforts in the furnishing of investment advice, research and
recommendations to the Fund, in the preparation of reports and information, and
in the management of the Fund's assets, all pursuant to this Agreement, and for
this purpose 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, 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 may desire and request.
5. FURNISHING OF STATEMENTS AND REPORTS. The Company shall from time to
time furnish to the Adviser detailed statements of the portfolio investments and
assets of the Fund and information as to its investment objectives and needs,
and shall make available to the Adviser such financial reports, business
descriptions and plans, proxy statements, legal and other information relating
to its investments as may be in the possession of the Company or available to
it, and shall provide such other information as the Adviser may reasonably
request.
6. EXPENSES OF EACH PARTY. (a) The Adviser shall bear all expenses in
connection with the performance of its services under this Agreement. The
Adviser shall also pay (i) all compensation, if any, to the executive officers
of the Fund and their related expenses and (ii) all compensation, if any, and
out-of-pocket expenses of the Company's directors, who are "interested persons"
of the Company (as defined in the Act). The Advisor has undertaken to reimburse
the Company to the extent that aggregate annual operating expenses, including
the investment advisory fee and the administration fee but excluding interest,
taxes, brokerage commissions and other costs incurred in connection with the
purchase or sale of portfolio securities, and extraordinary items, exceed 2.00%
of the Fund's daily net assets. Such voluntary reimbursements may be modified or
discontinued at any time by the Adviser. The Fund monitors its expense ratio
on a monthly basis. If the accrued amount of the expenses of the Fund exceeds
the expense limitations, the Fund creates an account receivable from the
Adviser for the amount of such excess. In such a situation the monthly payment
of the Adviser's fee will be reduced by the amount of such excess (and if
the amount of such excess in any month is greater than the monthly payment
of the Adviser's fee, the Adviser will pay the Fund the amount of such
difference), subject to adjustment month by month if accrued expenses
thereafter fall below this limit.
(b) The Company shall bear all expenses of the Fund's
organization, operations, and business not specifically assumed or agreed to be
paid by the Adviser as provided in this Agreement. In particular, but without
limiting the generality of the foregoing, the Company on behalf of the Fund and
out of its assets shall pay:
(A) Custody and Accounting Services. All expenses of
the transfer, receipt, safekeeping, servicing and accounting for the
cash, securities, and other property of the Fund, including all charges
of depositories, custodians, and other agents, if any;
(B) Shareholder Servicing. All expenses of
maintaining and servicing shareholder accounts, including all charges
for transfer, shareholder record keeping, dividend disbursing,
redemption, and other agents for the benefit of the Fund;
(C) Books and Records. All costs and expenses
associated with the maintenance of the Fund's books of accounts and
records as required by the Act;
(D) Shareholder Communications. All expenses of
preparing, printing, and distributing reports and other communications
to shareholders;
(E) Shareholder Meetings. All fees and expenses
incidental to holding meetings of shareholders, including the printing
of notices and proxy material, and proxy solicitation therefor,
provided that the Adviser shall be responsible for and assume all
expenses and fees with respect to meetings of the Fund's shareholders
held solely for the benefit of the Adviser;
(F) Prospectuses and Statements of Additional
Information. All expenses of preparing and printing of annual or more
frequent revisions of the Prospectus and Statement of Additional
Information relating to the offering of Fund's shares and of mailing
them to shareholders;
(G) Pricing. All expenses of computing the Fund's net
asset value per share, including the costs of any equipment or services
used for obtaining price quotations;
(H) Communication Equipment. All charges for
equipment or services for communication between the Adviser or the
Company and the custodian, transfer agent or any other agent selected
by the Company;
(I) Legal and Accounting Fees and Expenses. All
charges for services and expenses of the Company's legal counsel and
independent auditors for the benefit of the Company;
(J) Directors' Fees and Expenses. All compensation of
directors, other than those who are interested persons of or affiliated
with the Adviser, and all expenses incurred in connection with their
service and meetings;
(K) Federal Registration Fees. All fees and expenses
of registering and maintaining the registration of the Company under
the Act and the registration of Fund shares under the Securities Act of
1933, as amended (the "1933 Act"), including all fees and expenses
incurred in connection with the preparation, printing, and filing of
any registration statement, Prospectus and Statement of Additional
Information under the 1933 Act or the Act, and any amendments or
supplements thereto that may be made from time to time;
(L) State Registration Fees. All fees and expenses
(including the compensation of personnel who may be employed by the
Adviser or an affiliate) of qualifying and maintaining qualification of
the Company and of the Fund shares for sale under securities laws of
various states of jurisdictions, and of registration and qualification
of the Company, under all other laws applicable to the Company or its
business activities (including registering the Company as a
broker-dealer, or any officer of the Company or any person as agent or
salesman of the Company in any state);
(M) Issue and Redemption of Company Shares. All
expenses incurred in connection with the issue, redemption, and
transfer of Fund shares, including the expense of confirming all Fund
share transactions, and of preparing and transmitting the Fund's share
certificates;
(N) Bonding and Insurance. All expenses of bond,
liability, and other insurance coverage required by law or deemed
advisable by the Board of Directors;
(O) Brokerage Commissions. All brokerage commissions
and other charges incident to the purchase, sale or lending of the
Fund's portfolio securities;
(P) Taxes. All taxes of governmental fees payable by
or with respect of the Company or Fund to federal, state, or other
governmental agencies, domestic or foreign, including stamp or other
transfer taxes;
(Q) Trade Association Fees. All fees, dues and other
expenses incurred in connection with the Company's membership in any
trade association or other investment organization;
(R) Interest. All interest which may accrue and be
payable as a result of the Fund's activities;
(S) Stationery and Postage. The cost of all
stationery and postage required by the Fund, unless otherwise payable
by another party with respect to an activity or expense referred to
above; and
(T) Nonrecurring and Extraordinary Expenses. Such
nonrecurring expenses as may arise, including the costs of actions,
suits or proceedings to which the Company on behalf of the Fund is a
party and the expenses the Company on behalf of the Fund may incur as a
result of its legal obligation to provide indemnification to its
officers, directors, and agents.
(c) In the event that the Company offers other series of its
shares in the future, then the Fund shall only be responsible for expenses
directly attributable to it and its operations and for such other costs and
expenses of the Company as the Board of Directors may by resolution or otherwise
direct.
7. REIMBURSEMENT FOR ADVANCED COSTS AND EXPENSES. To the extent the
Adviser incurs any costs or performs any services which are an obligation of the
Company or Fund, as set forth herein, the Company on behalf of the Fund and out
of the Fund's assets shall promptly reimburse the Adviser for such costs and
expenses. To the extent the services for which the Fund is obligated to pay are
performed by the Adviser, the Adviser shall be entitled to recover from the Fund
only to the extent of its actual costs for such services.
8. FEES. (a) The Company on behalf of the Fund and out of the Fund's
assets agrees to pay to the Adviser, and the Adviser agrees to accept, as full
compensation for all services furnished or provided to the Company and Fund
hereunder, and as full reimbursement for all expenses assumed by the Adviser, a
management fee computed at the rate of 1.00% per annum of the average daily net
assets of the Fund.
(b) The management fee shall be accrued daily during each
month by the Company on behalf of the Fund and paid to the Adviser on the first
business day of the succeeding month. The initial monthly fee under this
Agreement shall be payable on the first business day of the first month
following the effective date of this Agreement. 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. If
this Agreement is terminated prior to the end of any month, the fee to the
Adviser shall be payable within ten (10) days after the date of termination.
(c) The Adviser may reduce or waive any portion of the
compensation due to it hereunder, or for reimbursement of expenses by the
Company pursuant to Paragraph 7 of this Agreement, and any such reduction or
waivers shall be applicable only with respect to the specific items waived and
shall not constitute a waiver of any future compensation or reimbursement due to
the Adviser hereunder.
(d) 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 Company. 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.
(e) Any fees payable by the Fund under this Agreement during
the period commencing on the effective date of this Agreement and ending on the
date of the initial approval of this Agreement by a majority of the outstanding
voting securities of the Fund shall be paid by the Company, on behalf of the
Fund, into an interest-bearing escrow account with an unaffiliated financial
institution, as the Company and the Adviser may establish, to be released to the
Adviser only upon such initial approval of this Agreement, or, if such approval
shall not occur within the sixty (60) days following the execution and delivery
of this Agreement to the Fund.
9. SHORT POSITIONS IN FUND'S SHARES. The Adviser agrees that neither it
nor any of its officers or employees shall (i) take any short position in the
shares of the Fund, or (ii) purchase any of such shares other than for
investment. The Adviser agrees to promptly notify the Company of any sales of
such shares by the Advisor or any of its officers or employees within two months
of their purchase of such shares. This prohibition shall not prevent the
purchase of such shares by any of the officers and directors or employees of the
Advisers 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 Act.
10. RELATIONSHIP TO PROVISIONS OF AGREEMENT. Nothing herein contained
shall be deemed to require the Company to take any action, contrary to its
Articles of Incorporation, Bylaws 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. DUTIES AND STANDARDS OF CARE. (a) In the absence of willful
misfeasance, bad faith, gross 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 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.
(b) 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 Act.
12. TERM AND RENEWAL. This Agreement shall remain in effect for a
period of two (2) years, unless sooner terminated in accordance with Paragraph
13 hereof, and shall continue in effect from year to year thereafter so long as
such continuation is approved 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 or interested persons of any such party, cast
in person at a meeting for the purpose of voting on such approval.
13. TERMINATION. This Agreement may be terminated at any time, without
payment of any penalty, by the Board of Directors of the Company or by a vote of
a majority of its outstanding voting securities, upon sixty (60) days' written
notice to the Adviser, and by the Adviser upon sixty (60) days' written notice
to the Company. This Agreement shall also terminate in the event of any transfer
or assignment thereof, as defined in the Act.
14. CERTAIN DEFINITIONS. The terms "majority of the outstanding voting
securities" of the Company or Fund and "interested persons" shall have the
meanings as set forth in the Act. The term "net assets" shall have the meaning
and shall be calculated as set forth in the Company's Registration Statement
from time to time.
15. SEVERABILITY. 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 thereby.
16. HEADINGS. The headings used herein are for convenience and ease of
reference only. No legal effect is intended, nor is to be derived from such
headings.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and attested by their duly authorized officers, all as of the day
and year first above written.
LIGHT INDEX FUND, INC.
By:_______________________
Its: President
ATTEST:
___________________________
Secretary
LIGHT INDEX INVESTMENT COMPANY
By:_______________________
Its: President
ATTEST:
___________________________
Secretary
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