1
CAPSTONE EMPLOYEE STOCK OWNERSHIP FUND
INVESTMENT ADVISORY AGREEMENT
AGREEMENT, effective commencing on ___________, 2001, between Capstone
Asset Management Company (the "Adviser") and Capstone Series Fund, Inc.
("Company") on behalf of Capstone Employee Stock Ownership Fund (the "Fund").
WHEREAS, the Company is a Maryland corporation organized under Articles of
Incorporation dated May 11, 1992, (the "Articles") 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 Company wishes to retain the Adviser to render investment
advisory services to the Fund, and the Adviser is willing to furnish such
services to the Fund;
WHEREAS, the Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended ("Advisers Act");
NOW THEREFORE, in consideration of the promises and mutual covenants herein
contained, it is agreed between the Company and the Adviser as follows:
1. Appointment. The Company hereby appoints the Adviser to act as
investment adviser to the Fund 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 Directors
of the Company, the Adviser will (a) provide a program of continuous investment
management for the Fund in accordance with the Fund's investment objectives,
policies and limitations as stated in the Fund's prospectus and Statement of
Additional Information included as part of the Fund'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 Fund; (b)
make investment decisions for the Fund; and (c) place orders to purchase and
sell securities for the Fund.
In performing its investment management services to the Fund hereunder,
the Adviser will provide the Fund 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 trend and long-range investment policy. The Adviser will
determine the securities, instruments, repurchase agreements, options, futures
and other investments and techniques that the Fund will purchase, sell, enter
into or use, and will provide an ongoing evaluation of the Fund's portfolio.
The Adviser will determine what portion of the Fund's portfolio shall be
invested in securities and other assets, and what portion if any, should be held
uninvested.
The Adviser further agrees that, in performing its duties hereunder, 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 Directors;
(b) use reasonable efforts to manage the Fund so that it will
qualify, and continue to qualify, as a regulated investment company under
Subchapter M of the Code of regulations issued thereunder;
(c) place orders pursuant to its investment determinations for the
Fund directly with the issuer, or with any broker or dealer, in accordance
with applicable policies expressed in the Fund's prospectus and/or Statement of
Additional Information and in accordance with applicable legal requirements;
(d) furnish to the Fund whatever statistical information the Fund
may reasonably request with respect to the Fund's assets or contemplated
investments. In addition, the Adviser will keep the Fund and the Directors
informed of developments materially affecting the Fund's portfolio and shall,
on the Adviser's own initiative, furnish to the Fund from time to time
whatever information the Adviser believes appropriate for the purpose;
(e) make available to the Fund, promptly upon its request, such
copies of the Adviser's investment records and ledgers with respect to the
Fund as may be required to assist the Fund in its compliance with applicable
laws and regulations. The Adviser will furnish the Directors with such periodic
and special reports regarding the Fund as they may reasonably request;
(f) Immediately notify the Fund in the event that the Adviser or any of
its affiliates: (1) becomes aware that it is subject to a statutory
disqualification that prevents the Adviser from serving as investment adviser
pursuant to this Agreement; or (2) becomes aware that it is 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 Fund immediately of any material fact known to the Adviser respecting
or relating to the Adviser that is not contained in the Fund's Registration
Statement, or any amendment or supplement thereto, but that is required to be
disclosed therein, and of any statement contained therein that becomes untrue in
any material respect.
3. Allocation of Charges and Expenses. Except as otherwise specifically
provided in this Section 4, the Adviser shall pay the compensation and expenses
of all its directors, officers and employees who serve as officers and executive
employees of the Fund (including the Company's share of payroll taxes for such
persons), and the Adviser shall make available, without expense to the Company
or the Fund, the services of its directors, officers and employees who may be
duly elected officers of the Company or the Fund, 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 Fund or the
Company other than those specifically allocated to the Adviser in this Section
4. 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 Company's or Fund's employees as are officers or
employees of the Adviser whose services may be involved, for the following
expenses of the Fund or the Company: organization and certain offering expenses
of the Fund (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
or Company 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 Fund in connection with membership in
investment company trade organizations; cost of insurance relating to fidelity
coverage for the Company's or Fund's officers and employees; fees and expenses
of the Fund's Administrator or of any custodian, subcustodian, transfer agent,
registrar, or dividend disbursing agent; payments to the Adviser for maintaining
the Fund's financial books and records and calculating its daily net asset value
pursuant to Section 3 hereof; other payments for portfolio pricing or valuation
services to pricing agents, accountants, bankers and other specialists, if any;
expenses of preparing share certificates; other expenses in connection with the
issuance, offering, distribution, sale or redemption of securities issued by the
Fund; expenses relating to investor and public relations; expenses of
registering and qualifying shares of the Fund for sale; freight, insurance and
other charges in connection with the shipment of the Fund's portfolio
securities; brokerage commissions or other costs of acquiring or disposing of
any portfolio securities or other assets of the Fund, 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 stockholders; cost of stationery;
any litigation expenses; cost of stockholders' meetings; the compensation and
all expenses (specifically including travel expenses relating to the Fund's
business) of officers, directors and employees of the Company who are not
interested persons of the Adviser; and travel expenses (or an appropriate
portion thereof) of officers or directors of the Company or Fund who are
officers, directors or employees of the Adviser to the extent that such expenses
relate to attendance at meetings of the Board of Directors of the Company with
respect to matters concerning the Company or the Fund, 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 Fund if and to the extent
that (i) such expenses are assumed or required to be borne by the Fund's
principal underwriter or some other party, or (ii) the Company on behalf of the
Fund shall have adopted a plan in conformity with Rule 12b-1 under the 1940 Act
providing that the Fund (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 Fund (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, the Fund will pay the Adviser at
the end of each calendar month an advisory fee computed daily at an annual rate
equal to 0.675 of 1% per annum on the first $250 million of the Fund's net
assets, and 0.60 of 1% per annum on all of the Fund's net assets in excess of
$250 million. The "average daily net assets" of the 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 Articles and the
Registration Statement. If, pursuant to such provisions, the determinations of
net asset value is suspended for any particular business day, then for the
purposes of this Section 5, 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
regular trading on 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 at the end of such month, then such value shall be
computed on the basis of the value of net assets of the Fund as last determined
(whether during or prior to such month). If the Fund determines the value of its
net assets 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 Fund 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 Rules
31a-2 under the 1940 Act and otherwise in connection with its services hereunder
are the property of the Fund and will be surrendered promptly to the Fund 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 Fund are being conducted in accordance
with applicable laws and regulations.
6. Standard of Care and Limitation of Liability. The Adviser shall exercise
its best judgement 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 Company or the Fund 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 Company, the Fund or to holders of the Fund's 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. As used in this Section 6, the term "Adviser" shall include any
officers, directors, employees or other affiliates of the Adviser performing
services with respect to the Fund.
7. Services Not Exclusive. It is understood that the services of the
Adviser are not exclusive, and that nothing in this Agreement shall prevent the
Adviser from providing similar services to other investment companies or to
other series of investment companies, 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 Fund 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
the Fund, it is understood that in light of its fiduciary duty to the Fund, such
transactions will be executed on a basis that is fair and equitable to the Fund.
In connection with purchases or sales of portfolio securities for the account of
the Fund, neither the Adviser nor any of its directors, officers or employees
shall act as a principal or agent or receive any commission, provided that
portfolio transactions for the Fund may be executed through firms affiliated
with the Adviser, in accordance with applicable legal requirements. If the
Adviser provides any advice to its clients concerning the shares of the Fund,
the Adviser shall act solely as investment counsel for such clients and not in
any way on behalf of the Fund.
8. Duration and Termination. This Agreement shall continue until
____________, ______, and thereafter shall continue automatically for successive
annual periods, provided such continuance is specifically approved at least
annually by (i) the Directors or (ii) a vote of a "majority" (as defined in the
▇▇▇▇ ▇▇▇) of the 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 Directors who are not "interested persons" (as defined in the
▇▇▇▇ ▇▇▇) 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 Company upon the vote of a majority of the Directors or by vote of the
majority of the 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 sixty (60) days' written notice to the Company. 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 Fund, and (ii) a majority of the Directors, including a
majority of Directors 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
approval, if, in either case, such approval is required by applicable law.
10. Miscellaneous.
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a. This Agreement shall be governed by the laws of the State of Texas,
provided that nothing herein shall be constructed 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 Company or the Fund.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of __________, ______,.
CAPSTONE GROWTH FUND, INC., on behalf of
CAPSTONE EMPLOYEE STOCK OWNERSHIP FUND
By __________________________
President
CAPSTONE ASSET MANAGEMENT COMPANY
By __________________________
President