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EXHIBIT (5)(b)
XXX XXXXXX AMERICAN CAPITAL TAX-EXEMPT
TRUST -
XXX XXXXXX AMERICAN CAPITAL HIGH YIELD
MUNICIPAL FUND
SUBADVISORY AGREEMENT
THIS AGREEMENT is made this 31st day of May, 1997, by and between XXX XXXXXX
AMERICAN CAPITAL ASSET MANAGEMENT, INC., a Delaware corporation (the "Adviser")
and XXX XXXXXX AMERICAN CAPITAL ADVISORS, INC., a Delaware corporation (the
"Subadviser").
WHEREAS, Xxx Xxxxxx American Capital Tax-Exempt Trust (the "Trust") is
registered under the Investment Company Act of 1940, as amended (the "Act"), as
an open-end, diversified management investment company, consisting of multiple
series of investment portfolios;
WHEREAS, the Adviser is registered under the Investment Advisers Act of 1940, as
amended, as an investment adviser and engages in the business of acting as an
investment adviser;
WHEREAS, the Subadviser is registered under the Investment Advisers Act of 1940,
as amended, as an investment adviser;
WHEREAS, the Agreement and Declaration of Trust authorizes the Trustees of the
Trust to classify or reclassify authorized but unissued shares of the Trust, and
as of the date of this Agreement, the Trust's Trustees have authorized the
issuance of one series of shares representing interests in one investment
portfolio--the Xxx Xxxxxx American Capital High Yield Municipal Fund (the Fund)
(such portfolio and any other portfolios hereafter added to the Trust being
referred to collectively herein as the "Funds");
WHEREAS, the Adviser has entered into an Investment Advisory Agreement dated May
31, 1997, with the Trust (the "Investment Advisory Agreement"), pursuant to
which the Adviser shall act as investment adviser with respect to the Fund; and
WHEREAS, the securities sought for the investment portfolio of the Fund are sold
in a highly specialized market and the Adviser is desirous to engage a
subadviser in an effort to improve its access to that market and enhance its
ability to acquire investment securities that meet the Fund's investment
objectives;
WHEREAS, the Adviser wishes to retain the Subadviser for purposes of rendering
such advisory services to the Adviser in connection with the Fund upon the terms
and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants herein contained and
other good and valuable consideration, the receipt whereof is hereby
acknowledged, the parties hereto agree as follows:
(1) APPOINTMENT OF SUBADVISER. The Adviser hereby appoints the Subadviser to
render investment research and advisory services to the Adviser with respect to
the Fund, under the supervision of the Adviser and subject to the approval and
direction the Trust's Trustees, and the Subadviser hereby accepts such
appointment, all subject to the terms and conditions contained herein.
(2) INVESTMENT ANALYSIS. The duties of the Subadviser shall include:
a. obtaining and evaluating pertinent information about significant
developments and economic, statistical and financial data, domestic, foreign or
otherwise, whether affecting the economy generally or the Fund, and whether
concerning the individual issuers whose securities are included in the Fund or
the activities in which such issuers engage, or with respect to securities which
the Subadviser considers desirable for inclusion in the Fund's investment
portfolio;
b. determining which issuers and securities shall be represented in the
Fund's investment portfolio
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and regularly reporting thereon to the Adviser and, at the request of the
Adviser, to the Trust's Trustees; and
c. formulating and implementing continuing programs for the purchases and
sales of the securities of such issuers and regularly reporting thereon to the
Adviser and, at the request of the Adviser, to the Trust's Trustees.
(3) CONTROL BY TRUSTEES. Any investment program undertaken by the Subadviser
pursuant to this Agreement, as well as any other activities undertaken by the
Subadviser with respect to the Fund, shall at all times be subject to any
directives of the Trust's Trustees.
(4) COMPLIANCE WITH APPLICABLE REQUIREMENTS. In carrying out its obligations
under this Agreement, the Subadviser shall at all times conform to:
a. all applicable provisions of the Act and any rules and regulations
adopted thereunder;
b. the provisions of the registration statement of the Trust, as the same
may be amended from time to time, under the Securities Act of 1933 and the Act;
c. the provisions of the Investment Advisory Agreement;
d. the provisions of the Agreement and Declaration of Trust of the Trust,
as the same may be amended from time to time;
e. the provisions of the by-laws of the Trust, as the same may be amended
from time to time; and
f. any other applicable provisions of state or federal law.
(5) COMPENSATION. The Adviser shall pay the Subadviser, as compensation for
services rendered hereunder, an annual fee, payable monthly, which for the
initial one-year term of this Agreement shall be paid according to the following
fee schedule: 0.40% of the first $20 million of the Fund's average daily net
assets, 0.25% of the next $30 million of the Fund's average daily net assets and
0.15% of the excess over $50 million of the Fund's average daily net assets. The
average daily net assets of the Fund 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 Agreement and Declaration of
Trust. After the termination of the initial term of this Agreement, such fee
schedule shall be subject to annual adjustment concurrently with renewal of this
Agreement for an additional one-year term. Each annual renewal shall be deemed
to be at the fee schedule in effect immediately prior to the expiration of the
most recent term unless a new fee schedule is set prior to renewal in writing
signed by the Adviser and the Subadviser, in which case the renewal will be
deemed to be at the fee schedule set forth in such writing.
(6) EXPENSES OF THE FUND. All of the ordinary business expenses incurred in the
operations of the Fund and the offering of its shares shall be borne by the Fund
unless specifically provided otherwise in the Investment Advisory Agreement.
(7) NON-EXCLUSIVITY. The services of the Subadviser to the Adviser with respect
to the Trust and the Fund are not to be deemed to be exclusive, and the
Subadviser shall be free to render investment advisory and administrative or
other services to others (including other investment companies) and to engage in
other activities. It is understood and agreed that officers or directors of the
Subadviser may serve as officers or directors/trustees of the Adviser or of the
Trust, and that officers or directors/trustees of the Adviser or of the Trust
may serve as officers or directors of the Subadviser to the extent permitted by
law; and that the officers and directors of the Subadviser are not prohibited
from engaging in any other business activity or from rendering services to any
other person, or from serving as partners, officers, directors or trustees of
any other firm or trust, including other investment advisory companies.
(8) TERM AND APPROVAL. This Agreement shall have an initial term through May 31,
1999, and may be continued from year to year thereafter, provided that the
continuation of the Agreement is specifically approved at least annually:
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a. (i) by the Trust's Trustees or (ii) by the vote of "a majority of the
outstanding voting securities" of the Fund (as defined in Section 2(a)(42) of
the Act); and
b. by the affirmative vote of a majority of the trustees who are not
parties to this Agreement or "interested persons" (as defined in the Act) of a
party to this Agreement (other than as Trustees of the Trust), by votes cast in
person at a meeting specifically called for such purpose.
(9) TERMINATION. This Agreement may be terminated as to the Fund at any time,
without the payment of any penalty, by vote of the Trust's Trustees or by vote
of a majority of the Fund's outstanding voting securities, or by the Adviser, or
by the Subadviser on sixty (60) days' written notice to the other party and to
the Trust. The notice provided for herein may be waived by either party. This
Agreement shall automatically terminate in the event of its assignment, the term
"assignment" for purposes of this paragraph having the meaning defined in
Section 2(a)(4) of the Act.
(10) LIABILITY OF SUBADVISER. In the absence of willful misfeasance, bad faith,
gross negligence or reckless disregard of obligations or duties hereunder on the
part of the Subadviser or any of its officers, directors or employees, the
Subadviser shall not be subject to liability to the Adviser 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.
(11) NOTICES. Any notices under this Agreement shall be in writing, addressed
and delivered or mailed postage paid to such address as may be designated for
the receipt of such notice, with a copy to the Trust. Until further notice, it
is agreed that the address of (i) the Trust shall be Xxx Xxxxxxxx Xxxxx,
Xxxxxxxx Xxxxxxx, Xxxxxxxx 00000; (ii) that of the Adviser shall be 0000 Xxxx
Xxx Xxxx., Xxxxxxx, Xxxxx 00000; and (iii) that of the Subadviser shall be 00
Xxxxx Xxxxxx, Xxxxx 000, Xxxxxx, Xxxxxxxxxxxxx 00000.
(12) QUESTIONS OF INTERPRETATION. Any question of interpretation of any term or
provision of this Agreement having a counterpart in or otherwise derived from a
term or provision of the Act shall be resolved by reference to such term or
provision of the Act and to interpretations thereof, if any, by the United
States courts or in the absence of any controlling decision of any such court,
by rules, regulations or orders of the Securities and Exchange Commission issued
pursuant to the Act. In addition, where the effect of a requirement of the Act
reflected in any provision of the Agreement is revised by rule, regulation or
order of the Securities and Exchange Commission, such provision shall be deemed
to incorporate the effect of such rule, regulation or order.
(13) MISCELLANEOUS PROVISIONS
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 property of the Trust. A Certificate of Trust in respect of the Fund is on
file with the Secretary of State of Delaware.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers on the day and year first
written above.
XXX XXXXXX XXX XXXXXX
AMERICAN CAPITAL AMERICAN CAPITAL
ADVISORS, INC. ASSET MANAGEMENT, INC.
By: /s/ Xxxxx X. Xxxxx By: /s/ Xxxxxx X. XxXxxxxxx
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Name: Xxxxx X. Xxxxx Name: Xxxxxx X. XxXxxxxxx
Its: Executive Vice President Its: President
