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EXHIBIT 5
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of the 31st day of October 1996, by and between XXX XXXXXX
AMERICAN CAPITAL SMALL CAPITALIZATION FUND, a Delaware business trust,
hereinafter referred to as the "FUND," and XXX XXXXXX AMERICAN CAPITAL ASSET
MANAGEMENT, INC., a Delaware corporation, hereinafter referred to as the
"ADVISER".
The FUND and the ADVISER agree as follows:
l. Services Rendered and Expenses Paid by ADVISER
The ADVISER, subject to the control, direction and supervision of the FUND's
Trustees and in conformity with applicable laws, the FUND's Agreement and
Declaration of Trust ("Declaration of Trust"), By-laws, registration statements,
prospectus and stated investment objectives, policies and restrictions, shall:
a. manage the investment and reinvestment of the FUND's assets including, by
way of illustration, the evaluation of pertinent economic, statistical,
financial and other data, determination of the industries and companies to be
represented in the FUND's portfolio, and formulation and implementation of
investment programs;
b. maintain a trading desk and place all orders for the purchase and sale of
portfolio investments for the FUND's account with brokers or dealers selected by
the ADVISER;
c. conduct and manage the day-to-day operations of the FUND including, by way
of illustration, the preparation of registration statement and amendments
thereto, the furnishing of routine legal services except for services provided
by outside counsel to the FUND selected by the Trustees, and the supervision of
the FUND's Treasurer and the personnel working under his direction; and
d. furnish to the FUND office space, facilities, equipment and personnel
adequate to provide the services described in paragraphs a., b., and c. above
and pay the compensation of each FUND trustee and FUND officer who is an
affiliated person of the ADVISER, except the compensation of the FUND's
Treasurer and related expenses as provided below.
In performing the services described in paragraph b. above, the ADVISER shall
use its best efforts to obtain for the FUND the most favorable price and
execution available and shall maintain records adequate to demonstrate
compliance with this requirement. Subject to prior authorization by the FUND's
Trustees of appropriate policies and procedures, the ADVISER may, to the extent
authorized by law, cause the FUND to pay a broker or dealer that provides
brokerage and research services to the ADVISER an amount of commission for
effecting a portfolio investment transaction in excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction. In the event of such
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authorization and to the extent authorized by law the ADVISER shall not be
deemed to have acted unlawfully or to have breached any duty created by this
Agreement or otherwise solely by reason of such action.
Except as otherwise agreed, or as otherwise provided herein, the FUND shall pay,
or arrange for others to pay, all its expenses other than those expressly stated
to be payable by the ADVISER hereunder, which expenses payable by the FUND shall
include (i) interest and taxes; (ii) brokerage commissions and other costs in
connection with the purchase and sale of portfolio investments; (iii)
compensation of its trustees and officers other than those who are affiliated
persons of the ADVISER; (iv) compensation of its Treasurer, compensation of
personnel working under the Treasurer's direction, and expenses of office space,
facilities, and equipment used by the Treasurer and such personnel in the
performance of their normal duties for the FUND which consist of maintenance of
the accounts, books and other documents which constitute the record forming the
basis for the FUND's financial statements, preparation of such financial
statements and other FUND documents and reports of a financial nature required
by federal and state laws, and participation in the production of the FUND's
registration statement, prospectuses, proxy solicitation materials and reports
to stockholders; (v) fees of outside counsel to and of independent accountants
of the FUND selected by the Trustees; (vi) custodian, registrar and transfer
agent fees and expenses; (vii) expenses related to the repurchase or redemption
of its shares including expenses related to a program of periodic repurchases or
redemptions; (viii) expenses related to the issuance of its shares against
payment therefor by or on behalf of the subscribers thereto; (ix) fees and
related expenses of registering and qualifying the FUND and its shares for
distribution under state and federal securities laws, if any; (x) expenses for
servicing stockholder accounts; (xi) insurance premiums for fidelity coverage
and errors and omissions insurance; (xii) dues for the FUND's membership in
trade associations approved by the Trustees; and (xiii) such nonrecurring
expenses as may arise, including those associated with actions, suits, or
proceedings to which the FUND is a party and the legal obligation which the FUND
may have to indemnify its officers and trustees with respect thereto. To the
extent that any of the foregoing expenses are allocated between the FUND and any
other party, such allocations shall be pursuant to methods approved by the
Trustees.
2. Role of ADVISER
The ADVISER, and any person controlled by or under common control with the
ADVISER, shall be free to render similar services to others and engage in other
activities, so long as the services rendered to the FUND are not impaired.
Except as otherwise required by the Investment Company Act of 1940 any of the
shareholders, trustees, officers and employees of the FUND may be a shareholder,
director, officer or employee of, or be otherwise interested in, the ADVISER,
and in any person controlled
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by or under common control with the ADVISER, and the ADVISER, and any person
controlled by or under common control with the ADVISER, may have an interest in
the FUND.
Except as otherwise agreed, in the absence of willful misfeasance, bad faith,
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 stockholder 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.
3. Compensation Payable to ADVISER
The ADVISER shall provide to the FUND the services provided for herein without
charge.
The FUND's obligation to reimburse the ADVISER for certain expenses as described
in Section 1 shall be reduced by any commissions, tender solicitation and other
fees, brokerage or similar payments received by the ADVISER, or any other direct
or indirect majority owned subsidiary of VK/AC Holding, Inc., in connection with
the purchase and sale of portfolio investments of the FUND, less any direct
expenses incurred by such person, in connection with obtaining such commissions,
fees, brokerage or similar payments. The ADVISER shall use its best efforts to
recapture all available tender offer solicitation fees and exchange offer fees
in connection with the FUND's portfolio transactions and shall advise the Board
of Trustees of any other commissions, fees, brokerage or similar payments which
may be possible for the ADVISER or any other direct or indirect majority owned
subsidiary of VK/AC Holding, Inc. to receive in connection with the FUND's
portfolio transactions or other arrangements which may benefit the FUND.
4. Duration of Agreement
This Agreement shall become effective on the date hereof, and shall remain
in full force until May 30, 1997 unless sooner terminated as hereinafter
provided. This agreement shall continue in force from year to year
thereafter, but only so long as such continuance is approved at least annually
by the vote of a majority of the FUND's trustees who are not parties to this
Agreement or interested persons of any such parties, cast in person at a
meeting called for the purpose of voting on such approval, and by a vote of a
majority of the FUND's Trustees or a majority of the FUND's outstanding voting
securities.
This Agreement shall terminate automatically in the event of its assignment. The
Agreement may be terminated at any time by the FUND's Trustees, by vote of a
majority of the FUND's outstanding voting securities, or by the ADVISER, on not
more than 60 days', nor less than 30 days' written notice, or upon such shorter
notice as may be mutually agreed upon. Such termination shall be without payment
of any penalty.
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5. Miscellaneous Provisions
For the purposes of this Agreement, the terms "affiliated person," "assignment,"
"interested person," and "majority of the outstanding voting securities" shall
have their respective meanings defined in the Investment Company Act of 1940 and
the Rules and Regulations thereunder, subject, however, to such exemptions as
may be granted to either the ADVISER or the FUND by the Securities and Exchange
Commission, or such interpretive positions as may be taken by the Securities and
Exchange Commission or its staff, under said Act, and the term "brokerage and
research services" shall have the meaning given in the Securities Exchange Act
of 1934 and the Rules and Regulations thereunder.
The execution of this Agreement has been authorized by the FUND's Trustees and
by the sole shareholder. This Agreement is executed on behalf of the Fund or
the Trustees of the FUND 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 FUND individually but are binding only upon the assets
and property of the FUND. A Certificate of Trust in respect of the Fund is on
file with the Secretary of State of Delaware.
The parties hereto each have caused this Agreement to be signed in duplicate on
its behalf by its duly authorized officer as of the above date.
XXX XXXXXX AMERICAN CAPITAL SMALL CAPITALIZATION FUND
By: /s/ XXXXXX X. XXXXXXXXX
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Name: Xxxxxx X. XxXxxxxxx
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Its: President
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XXX XXXXXX AMERICAN CAPITAL ASSET MANAGEMENT, INC.
By: /s/ XXXXX X. XXXXX
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Name: Xxxxx X. Xxxxx
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Its: Executive Vice President
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