LINCOLN NATIONAL CAPITAL APPRECIATION FUND, INC.
ADVISORY AGREEMENT
This Agreement, made this 23rd day of September, 1993 between Lincoln
National Capital Appreciation Fund, Inc., a Maryland corporation (the "Fund"),
and Lincoln National Investment Management Company (the Adviser"),
WHEREAS, the Fund is to be an 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 Advisor to render investment
advisory and administrative services to the Fund, and the Adviser is willing to
render such services;
NOW, THEREFORE, in consideration of the premises and mutual promises
hereinafter set forth, the parties hereto agree as follows:
1. Appointment of Adviser. The Fund hereby amounts the Adviser to act as
investment adviser to the Fund and to administer its corporate affairs, subject
to the supervision of the Board of Directors of the Fund for the period and on
the terms set forth in this Agreement. The Adviser accepts such appointment and
agrees to render the services herein set forth, for the compensation herein
provided.
2. Investment Advisory Duties. Subject to the supervision of the Board of
Directors of the Fund, the Adviser shall manage the investment operations of the
Fund, subject to the following:
(a) The Adviser shall provide supervision of the Fund's investments,
furnish a continuous investment program for the Fund's portfolio,
determine from time to time what securities will purchased, retained
or sold by the Fund, and what portion of the assets will be invested
or held uninvested as cash;
(b) The Adviser shall use the same skill and care in the management of
the Fund's portfolio as it uses in the management of other accounts
for which it has investment responsibility;
(c) The Adviser, in the performance of its duties and obligations under
this Agreement, shall act in conformity with the Articles of
Incorporation, Bylaws and prospectus of the Fund and with the
instructions and directions of the Board of Directors of the Fund
and will conform to and comply with the requirements of the 1940 Act
and all other applicable federal and state laws and regulations;
(d) The Adviser shall determine the securities to be purchased or sold
by the Fund and will place orders pursuant to its
determinations either directly with the issuer or with any broker
and/or dealer who specializes in the securities in which the Fund is
active, but shall in no event place such orders with any affiliated
person of the Adviser. In placing orders with brokers and/or dealers
the Adviser shall attempt to obtain the best price and the most
favorable execution of its orders, subject to such other
considerations as may be set forth in the then most recent
prospectus of the Fund;
(e) The Adviser shall maintain books and records with respect to the
Fund's securities transactions and shall render to the Fund's Board
of Directors such periodic and special reports as the Fund's Board
of Directors may reasonably request;
(f) The investment advisory services of the Adviser to the Fund under
this Agreement are not to be deemed exclusive, and the Adviser shall
be free to render similar services to others. In addition, it is
understood that the persons employed by the Adviser to assist in the
performance of its duties under this Agreement will not necessarily
devote their full time to such activity.
(g) For purposes of this Agreement, the term "prospectus" includes the
Statement of Additional Information for the Fund pursuant to the
requirements of the 1940 Act and regulations thereunder.
3. Administrative Functions. The Adviser will administer the Fund's
corporate affairs, subject to the overall supervision of the Board of Directors
of the Fund and, in connection therewith, shall furnish the Fund with office
space and all necessary office facilities, equipment and personnel, and shall
provide all necessary executive and other personnel (including certain of its
officers and employees) for managing the investments and affairs of the Fund.
The Fund delegates to the Adviser the authority to vote proxies of the companies
whose securities are held in the Fund's portfolio.
In connection with its administration of the affairs of the Fund, the
Adviser will bear all of the following expenses:
(i) The salaries and expenses of all personnel, except the fees and
expenses of directors who are not "interested persons" of the Fund,
as that term is defined in the 1940 Act;
(ii) All expenses incurred by the Adviser in connection with
administering the Fund's business other than those assumed by the
Fund herein; and
The Fund assumes and will pay the following expenses, except to the extent
incurred in connection with the organization of the Fund:
(a) The fee of the Adviser;
(b) The compensation and expenses of directors who are not "interested
persons" of the Fund;
-2-
(c) The fees and expenses of the custodian of the Fund's assets;
(d) The fees and expenses of independent accountants for the Fund;
(e) Brokerage commissions and securities transaction costs incurred by
the Fund, including any portion of such commissions attributable to
research and brokerage services as defined by Section 28(e) of the
Securities Exchange Act of 1934, as amended;
(f) All taxes and corporate fees payable by the Fund to federal, state
or other governmental agencies;
(g) The fees of any trade association of which the Fund may be a member;
(h) The cost of stock certificates representing shares of the Fund;
(i) The fees and expenses involved in registering and maintaining
registrations of the Fund and its shares with the Securities and
Exchange Commission (the "Commission"), and qualifying its shares
under state securities laws, including the preparation and printing
of the Fund's registration statements and updated prospectuses
provided to current stockholders;
(j) Expenses of stockholders' and directors' meetings and of preparing
and printing proxy material and mailing reports to stockholders;
(k) The charges and expenses of outside legal counsel for the Fund,
including legal services rendered in connection with the Fund's
corporate existence, corporate and financial structure and relations
with its stockholders, registrations and qualifications of
securities and litigation; and
(l) Expenses of any extraordinary nature (including litigation and
indemnification expenses) which are not incurred in the ordinary
course of the Fund's business.
4. Contractual Services. The Adviser may contract with other entities to
assist it in rendering services described in this Agreement; provided, however,
that the Adviser will continue to be contractually bound with respect to the
performance of its duties and obligations as set forth herein.
5. Books and Records. The Adviser shall keep the Fund's books and records
required to be maintained by it pursuant to paragraph 2 hereof. The Adviser
agrees that all records which it maintains for the Fund are the property of the
Fund and it will surrender promptly to the Fund any of such records upon the
Fund's request. The Adviser further agrees to preserve for the periods
prescribed by Rule 31a-2 of the Commission under the 1940 Act any such records
as are required to be maintained by Rule 31a-1 of the Commission under the 1940
Act. (See also paragraph 13, Right to Audit.)
-3-
6. Compensation. The Fund shall pay the Adviser, as full compensation for
all services rendered and all facilities and personnel furnished hereunder, a
monthly fee at the annual rate of .80 of 1% of the average daily net asset value
of the Fund during the fiscal year, computed in the manner used for the
determination of the offering price of shares of the Fund. The fee for each
month shall be payable to the Adviser not later than the tenth day of the
following month.
7. Reimbursement of Expenses. If, in any fiscal year, the total of the
Fund's expenses (including the fee payable pursuant to paragraph 6 hereof, but
excluding taxes, interest, brokerage commissions relating to the purchase or
sale of portfolio securities and extraordinary non-recurring expenses) exceeds
1-1/2% of the average daily net asset value of the Fund, computed in the manner
above described, the Adviser will pay such excess. For purposes of this
paragraph, the term "fiscal year" shall include the portion of any fiscal year
which shall have elapsed at the date of termination of this Agreement, and the
expense limitation shall be that part of 1-1/2% proportioned to the portion of a
full fiscal year elapsed.
8. Limitation of Liability. The Adviser shall not be liable for any error
of judgment or mistake of law or fact or for any loss suffered by the Fund in
connection with the matters in which this Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on its part in
the performance of its duties or from reckless disregard of its obligations and
duties under this Agreement.
9. Duration and Termination. This Agreement, unless sooner terminated as
provided herein, shall continue until the earlier of one year from the effective
date of the Fund's Registration Statement or the date of the first annual or
special meeting of the stockholders of the Fund, and, if approved by a majority
of the Fund's outstanding voting securities (as defined in the 1940 Act),
thereafter shall continue automatically for periods of one calendar year so long
as such continuance is specifically approved at least annually (a) by the vote
of a majority of the Fund's outstanding voting securities or by the Fund's Board
of Directors, and (b) by the vote of a majority of those members of the Board of
Directors of the Fund who are not parties to this Agreement or interested
persons (as defined in the 0000 Xxx) of any such party, cast in person at a
meeting called for the purpose of voting on such approval; provided, however,
that this Agreement may be terminated by the Fund at any time, without the
payment of any penalty, by vote of a majority of the entire Board of Directors
of the Fund or by vote of a majority of the Fund's outstanding voting securities
on 60 days' written notice to the Adviser, or by the Adviser at any time,
without the payment of any penalty, on 90 days' written notice to the Fund. This
Agreement will automatically and immediately terminate in the event of its
"assignment" (as defined in the 1940 Act).
10. Amendment of Agreement. This Agreement may be amended by mutual
consent, but the consent of the Fund must be approved (a) by vote of a majority
of those members of the Board of Directors of the Fund 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 amendment, and (b) by vote
-4-
of a majority of the Fund's outstanding voting securities, provided, however,
that compliance with subparagraph (b) of this paragraph 10 shall not be required
in order to amend this Agreement to lower the Adviser's compensation under
paragraph 6 hereof.
12. Dispute Resolution. Prior to proceeding to trial over any dispute
arising out of or relating to this agreement the parties shall attempt in good
faith to resolve the dispute by the following means:
(a) Negotiation. Either party may give the other party written notice of
any dispute not resolved in the normal course of business. Within
twenty (20) days after delivery of that notice, executives from the
parties who have authority to settle the controversy shall meet at a
mutually acceptable time and place, and thereafter as often as they
reasonably deem necessary, to exchange relevant information and to
attempt to resolve the dispute. If the matter has not been resolved
within 120 days of the disputing party's notice, or if the parties
fail to meet within the twenty (20) days, either party may initiate
a minitrial of the controversy or claim as provided in Paragraph b.
If a negotiator intends to be accompanied at a meeting by an
attorney, the other negotiator shall be given at least three (3)
working days' notice of such intention and may also be accompanied
by an attorney.
(b) Minitrial. If the dispute has not been resolved by negotiation as
provided herein, the parties shall endeavor to settle the dispute by
minitrial under the then current Center For Public Resources ("CPR")
Model Minitrial Procedure, assisted by a neutral third party who
will be selected by the disputing parties from the CPR Panels of
Neutrals. If the parties encounter difficulty in agreeing on a
neutral, they will seek the assistance of CPR in the selection
process.
(c) Extension of Deadlines. By mutual agreement any or all of the
deadlines set forth in this Section 12 may be extended by mutual
agreement of the disputing parties.
(d) Confidentiality. All negotiations pursuant to this Section 12 are
confidential and shall be treated as compromise and settlement
negotiations for purposes of the Federal Rules of Evidence and
applicable State Rules of Evidence.
(e) No Waiver. Nothing in this Section 12 shall be construed to
constitute a waiver of any right provided by the Investment Advisors
Act of 1940 to any party to this agreement.
13. Right to Audit. The Adviser shall permit employees or legal
representatives of the Fund (including independent auditors), at the Fund's
discretion, to audit the books and records of Adviser which relate to
-5-
transactions which are the subject of this agreement. For purposes of this
agreement, "books and records" shall be deemed to include, but not by way of
limitation, all records processed or managed through electronic data processing,
such as E-mail, on-line files and any data in storage. Any audit will be
conducted during normal business hours of the Adviser and on the Adviser's
premises. Adviser agrees to provide to the Fund, without charge, reasonable
access to its facilities and personnel during the conduct of an audit. Adviser
may charge a reasonable fee for photocopying and other out-of-pocket costs
associated with an audit conducted under this paragraph. The Adviser may not
charge for salaries of Adviser's personnel who participate in the audit.
IN WITNESS WHEREOF, the parties hereto have caused this instrument, in two
counterparts (each of which shall be deemed an original), to be executed by
their officers designated below as of the day and year first above written.
Lincoln National Capital Appreciation
Fund, Inc.
By /s/ Xxxxxx X. Xxxxxx
------------------------------
Xxxxxx X. Xxxxxx, President
ATTEST:
/s/ Xxxxxxx X. Xxxx
----------------------------
Assistant Secretary
Lincoln National Investment
Management Company
By /s/ Xxx X Xxxxxx
------------------------------
Xxx X Xxxxxx, President
ATTEST:
/s/ Xxxxxxx X. Xxxx
----------------------------
Assistant Secretary
-6-
