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EXHIBIT 5
INVESTMENT MANAGEMENT AGREEMENT
THIS AGREEMENT, dated and effective as of the 1st day of July,
1996, is made and entered into by and between Seneca Funds, a Delaware business
trust, (hereinafter called the "Trust"), and GMG/Seneca Capital Management, LLC,
a California limited limited liability company (hereinafter called the
"Manager").
WHEREAS the Trust is engaged in business as an open-end,
diversified management investment company of the series type and is so
registered under the Investment Trust Act of 1940 (the "1940 Act"); and
WHEREAS the Manager is engaged principally in the business of
rendering investment management services and is so registered under the
Investment Managers Act of 1940; and
WHEREAS the Trust is authorized to issue shares of capital
stock in separate series (the "Series") with each Series representing interests
in a separate portfolio of securities and other assets (a "Fund," collectively
the "Funds"); and
WHEREAS the Trust intends initially to offer shares in four
series, the Seneca Growth Fund, the Seneca Mid-Cap Growth Fund, the Seneca Bond
Fund, and the Seneca Real Estate Investment Fund (collectively, the "Initial
Series"); and
WHEREAS the Trust desires to retain the Manager to render
investment management services as described hereunder with respect to the
Initial Series and the Manager is willing so to do.
NOW, THEREFORE, WITNESSETH: That it is hereby agreed between
the parties hereto as follows:
4. (a) Initial Series. The Trust hereby appoints
the Manager to act as adviser and investment manager to each of the Initial
Series for the period and on the terms herein set forth. The Manager accepts
such appointment and agrees to render the services herein set forth, for the
compensation herein provided.
(b) Additional Series. In the event that the
Trust establishes one or more series of shares other than the Initial Series as
to which it desires to retain the Manager to render management and investment
advisory services hereunder, it shall so notify the Manager in writing,
indicating the advisory fee which will be payable as to the additional series of
shares. If the Manager is willing to render such services, it shall so notify
the Trust in writing, whereupon such series of shares shall become a Series
hereunder.
The Manager shall, for all purposes herein, be deemed an
independent contractor and not an agent of the Trust.
5. INVESTMENT MANAGEMENT SERVICES.
(a) Subject to the supervision of the Trustees
of the Trust ("Trustees"), the Manager agrees to provide supervision of the
portfolio of each Series and to determine what securities or other property
shall be purchased or sold by each Series, giving due consideration
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to the policies of each Series as expressed in the Trust's Agreement and
Declaration of Trust, By-laws, Form N-1A Registration Statement ("Registration
Statement") under the 1940 Act and under the Securities Act of 1933, as amended
(the "1933 Act"), and prospectus as in use from time to time, as well as to the
factors affecting the status of each Series as a "regulated investment company"
under the Internal Revenue Code of 1986, as amended. In its duties hereunder,
the Manager shall further be bound by any and all determinations by the Trustees
relating to investment policy, which determinations shall in writing be
communicated to the Manager.
(b) Except as to assets placed with another adviser
or a Sub-adviser as provided hereinbelow, the Manager shall provide adequate
facilities and qualified personnel for the placement of, and shall place orders
for the purchase, or other acquisition, and sale, or other disposition, of
portfolio securities for each Series. As to such transactions, the Manager,
subject to such direction as may be furnished from time to time by the Trustees,
shall endeavor as the primary objective to obtain the most favorable prices and
executions of orders. Subject to such primary objective, the Manager may place
orders with brokerage firms that have sold shares of any Series. Subject to such
primary objective and also to compliance with such procedures and requirements
as the Trustees may establish pursuant to Rule 17e-1 under the 1940 Act and
other requirements of applicable law, the Manager is specifically authorized to
place orders for portfolio brokerage transactions with brokerage firms that are
"affiliated persons" of the Trust or of any "affiliated person" of such
affiliated person, within the meaning of the 1940 Act. The Manager is also
specifically authorized to allocate portfolio brokerage and portfolio principal
transactions business to firms that provide brokerage and research services or
facilities and to cause the Series to pay a member of a securities exchange, or
any other securities broker or dealer, an amount of commission for effecting a
securities transaction in excess of the amount of commission another member of
an exchange, broker or dealer would have charged for effecting that transaction,
if the Manager determines in good faith that such amount of commission is
reasonable in relation to the commissions paid by other similarly situated
investors and the value of the brokerage and research services (as such services
are defined for purposes of Section 28(e) of the Securities Exchange Act of
1934) provided by such member, broker or dealer, viewed in terms of either that
particular transaction or the overall responsibilities of the Manager with
respect to the Series and other accounts over which the Manager has investment
discretion. The authority to pay higher brokerage commissions, as provided in
the preceding sentence, shall not apply with respect to portfolio transactions
which are fixed, rather than negotiated. The receipt by the Manager of any such
brokerage and research services shall not be deemed to give rise to any
requirement for abatement of the compensation payable to the Manager pursuant to
Section 3 hereof.
(c) On occasions when the Manager deems the purchase
or sale of a security or other asset to be in the best interests of a Series as
well as other clients of the Manager, including investment limited partnerships
or accounts in which the Manager or one or more associated persons (with the
meaning of the Investment Advisers Act of 1940) or affiliated persons (within
the meaning of the 1940 Act) is a general partner, or has an other financial
interest based on the gains or profits of such limited partnerships or accounts,
the Manager, to the extent permitted by applicable laws and regulations, may
aggregate the securities or other assets to be so sold or purchased when the
Manager believes that to do so will be in the best interests of the Series. In
such event, allocation of the securities or other assets so purchased or sold,
as well as the expenses incurred in the transaction, will be made by the Manager
in the manner the Manager considers to be the most equitable and consistent with
its fiduciary obligations to the Series and to such other clients.
(d) In compliance with the requirements of Rule 31a-3
under the 1940 Act, the Manager hereby agrees that all records which it
maintains for the Trust are the property of the Trust, agrees to preserve for
the periods prescribed by Rule 31a-2 under the 1940 Act any
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records which it maintains for the Trust and which are required to be maintained
by Rule 31a-1 under the 1940 Act, and further agrees to surrender promptly to
the Trust any records which it maintains for the Trust upon request by the
Trust.
6. INVESTMENT MANAGEMENT FEES.
(a) Each Series shall pay to the Manager on or before
the tenth (10th) day of each month, as compensation for the services rendered by
the Manager during the preceding month, an amount to be computed by applying to
the daily total net asset value of such Series the applicable annual rates set
forth on Appendix A hereto.
(b) The fees on Appendix A shall be computed and
accrued daily at one three-hundred-sixty-fifth (1/365th) of the applicable rates
set forth therein. The net asset value of each Series shall be determined in the
manner set forth in the Registration Statement after the close of the New York
Stock Exchange on each day on which said Exchange is open, and in the case of
Saturdays, Sundays, and other days on which said exchange shall not be open, in
the manner further set forth in said Registration Statement. In the event of
termination other than at the end of a calendar month, the monthly fee shall be
prorated for the portion of the month prior to termination and paid on or before
the tenth (10th) day subsequent to termination.
(c) The Manager agrees to reduce the investment
management fee payable to it under this Agreement, if any, by the amount by
which the expenses of the Trust for any fiscal year of the Trust shall exceed
the most stringent limits prescribed by any state in which the Trust shares are
offered for sale. Notwithstanding the foregoing, during any fiscal year of the
Trust in which no investment management fee is payable to the Manager, the
Manager agrees to pay the Trust the amount by which the expenses of the Trust
for such fiscal year of the Trust shall exceed the most stringent limits
prescribed by any state in which the Trust shares are offered for sale. The
expense limitation commitment of the Manager is subject to the qualification
that if, as a result of so fully reimbursing the Trust for such excess expenses,
less than 90% of the Trust's gross income would be derived from qualifying
sources described in Section 851(b)(2) of the Internal Revenue Code of 1986 or
any successor provisions (which include dividends, interest, payments with
respect to securities loans and gains from the sale of stock, certain other
securities or foreign currencies and certain other income), treating as income
for this purpose any expense reimbursement, then the Manager will reimburse the
Trust only in such an amount as will not result in less than 90% of the Trust's
gross income being received from qualifying sources and any unreimbursed portion
of the excess will be carried forward for a period of up to three fiscal years.
Costs incurred in connection with the purchase or sale of portfolio securities,
including brokerage fees and commissions, that are capitalized in accordance
with generally accepted accounting principles applicable to investment
companies, shall be accounted for as capital items and not as expenses. Expenses
shall be excluded from the calculation of the applicable expense limitations to
the fullest extent authorized by applicable law. Proper accruals shall be made
by the Trust for any projected reduction of investment management fees (or cash
reimbursement) hereunder and corresponding amounts shall be withheld from the
fees paid by the Trust to the Manager or paid by the Manager, subject to
recovery by the Manager of any amounts withheld or paid in excess of the actual
reduction or reimbursement for any fiscal year. Any additional reduction (or
cash reimbursement) computed at the end of the fiscal year shall be deducted
from the fee for the last month of such fiscal year (or thereupon promptly paid
by the Manager).
(d) The above provision in subsection (c) as to
expense limitation shall be calculated and administered separately as to each
Series and as to each class within each Series, as opposed to the Trust in the
aggregate, if and to the extent so required by state securities authorities.
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7. EXPENSES.
(a) The Manager assumes and shall pay for the cost of
maintaining the staff and personnel necessary to perform its obligations under
this Agreement. Except as otherwise expressly provided herein, the Trust assumes
and shall pay or cause to be paid all expenses of the Trust, including, without
limitation: (a) all costs and expenses incident to (i) the registration of the
Trust under the 1940 Act or (ii) any public offering of capital stock ("Shares")
of the Series, for cash or otherwise, including costs and expenses relating to
the registration of Shares under the Securities Act of 1933 (the "1933 Act"),
the qualification of Shares under state securities laws, the printing or other
reproduction and distribution of any registration statement (and all amendments
thereto) under the 1933 Act, the preliminary and final prospectuses included
therein, and any other necessary documents incident to such public offering; (b)
the charges and expenses of any custodian appointed by the Trust for the
safekeeping of its cash, portfolio securities and other property, and the
charges and expenses of auditors and bookkeepers; (c) the investment management
fees payable hereunder to the Manager; (d) the charges and expenses of auditors
and bookkeepers; (e) the charges and expenses of any Share transfer, dividend
agent or registrar appointed by Trust; (f) broker's commissions chargeable to
the Trust in connection with portfolio securities transactions to which a Series
is a party; (g) all taxes, including securities issuance and transfer taxes, and
organizational fees payable by the Trust to Federal, state or other governmental
agencies; (h) the costs and expenses of engraving or printing of certificates
representing Shares of the Series; (i) fees involved in registering and
maintaining registrations of the Trust and of Shares with the Securities and
Exchange Commission and various states and other jurisdictions; (j) all expenses
of meetings of shareholders and the Trustees of the Trust and of preparing,
printing and mailing proxy statements and quarterly, semiannual, annual and any
other reports to shareholders; (k) fees and travel expenses of Trustees and
officers of the Trust; (l) all fees and expenses incident to any dividend or
distribution reinvestment program; (m) charges and expenses of legal counsel in
connection with matters relating to the Trust, including without limitation,
legal services rendered in connection with the Trust's organization, financial
structure and relations with its shareholders, issuance of Shares, and
registrations and qualifications of Shares under Federal, state and other laws;
(n) association dues; (o) interest payable on Series borrowings; (p) fees and
expenses of obtaining any exemptions from any provisions of any Federal, state
or other securities laws; (q) fees or expenses incurred incident to the
obtaining of any rulings of, or advice from, the U.S. Internal Revenue Service
or any other taxing authority incident to the taxation of a Series or its
shareholders; (r) costs of information obtained from sources other than the
Manager or its affiliated persons (as defined in the 0000 Xxx) relating to the
pricing and valuation of securities; and (s) postage.
(b) The payment or assumption by the Manager of any
expense of the Trust or any Series that the Manager is not required by this
Agreement to pay or assume shall not obligate the Manager to pay or assume the
same or any similar expense of the Trust or any Series on any subsequent
occasion.
(c) The Trust will reimburse the Manager for any
expenses of the Trust paid, but not assumed by, the Manager from time to time
upon presentation to the Trust of an itemized schedule of such expenses.
8. OTHER BUSINESS OF THE MANAGER. Nothing contained in
this Agreement shall be construed to prohibit the Manager from performing
investment advisory, management, or distribution services for other investment
companies and other persons or companies, or to prohibit affiliates of the
Manager from engaging in such businesses or in other related or unrelated
businesses.
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9. INDEMNIFICATION. The Trust agrees (i) not to hold the
Manager or any of its officers or employees liable for, and (ii) to indemnify or
insure the Manager and its officers and employees ("Indemnified Parties")
against, any costs and liabilities the Indemnified Parties may incur as a result
of any claim against the Indemnified Parties in the good faith exercise of their
powers hereunder or arising out of an act or omission of the Trust's custodian
of assets, or of any broker or agent selected by the Manager in a commercially
reasonable manner, excepting matters as to which the Indemnified Parties shall
be finally adjudged to have been guilty of willful misfeasance, bad faith, gross
negligence, reckless disregard of duty, or breach of fiduciary duty (all as used
in the 1940 Act).
10. TERM OF AGREEMENT.
(a) This Agreement shall become effective with
respect to the Initial Series on the date hereof (the "Effective Date") and, as
to any additional Series, on the date of receipt by the Trust of notice from the
Manager in accordance with Section 1(b) hereof that the Manager is willing to
serve as Manager with respect to such Series. Unless terminated as herein
provided, this Agreement shall remain in full force and effect until December
31, 1996 from the Effective Date with respect to the Initial Series and, as to
each additional Series, until the December 31 following the first anniversary of
the date on which such Series becomes a Series hereunder, and shall continue in
full force and effect for periods of one year thereafter as to each Series so
long as such continuance as to any such Series is approved at least annually (i)
by either the Trustees or by a vote of a majority (as defined in the 0000 Xxx)
of the outstanding voting securities of such Series, and (ii) in either event by
the vote of a majority of the Directors of the Trust 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.
Any approval of this Agreement by a majority (as defined in
the 0000 Xxx) of the outstanding voting securities of any Series shall be
effective to continue this Agreement as to any such Series notwithstanding (i)
that this Agreement has not been approved by the holders of a majority (as
defined in the 0000 Xxx) of the outstanding voting securities of any other
Series not affected thereby, and (ii) that this Agreement has not been approved
by the vote of a majority (as defined in the 0000 Xxx) of the outstanding voting
securities of the Trust, unless such approval shall be required by any
applicable law or otherwise.
(b) This Agreement may be terminated as to any Series
at any time, without payment of any penalty, by the Trustees or by the vote of a
majority (as defined in the 0000 Xxx) of the outstanding voting securities of
the affected Series, on sixty (60) days written notice to the Manager, or by the
Manager on 180 days written notice to the Trust.
(c) This Agreement shall automatically and
immediately terminate in the event of its assignment.
11. DELEGATION OF THE MANAGER'S DUTIES AS INVESTMENT MANAGER.
As to one or more of the Series, the Manager may enter into one or more
agreements ("Sub-Advisory Contract") with a sub-adviser (a "Sub-adviser") in
which the Manager delegates to such Sub- adviser the performance of any or all
of the services specified in Sections 2 and 3 of this Agreement, provided that:
(i) each Sub-Advisory Contract imposes on the Sub-adviser bound thereby all the
duties and conditions to which the Manager is subject with respect to the
covered services under Sections 2 and 3 of this Agreement; (ii) each
Sub-Advisory Contract meets all requirements of the 1940 Act and rules
thereunder; and (iii) the Manager shall not enter into a Sub-Advisory Contract
unless it is approved by the Trustees and the shareholders of the affected
Series, if required by the 1940 Act, prior to implementation.
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12. MISCELLANEOUS MATTERS.
(a) This Agreement supersedes any prior agreement
relating to the subject matter thereof between the parties.
(b) 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.
(c) All notices or communications hereunder shall be
in writing and, if sent to the Manager shall be mailed by certified or
registered mail, or delivered, faxed, or telegraphed and confirmed in writing to
the Manager at 000 Xxxxxxxxxx Xxxxxx, Xxxxx 000, Xxx Xxxxxxxxx, Xxxxxxxxxx
00000, Att'n: Xxxx X. Seneca and if to the Trust shall be mailed by certified or
registered mail, or delivered, faxed, or telegraphed and confirmed in writing to
the Trust at 000 Xxxxxxxxxx Xxxxxx, Xxxxx 000, Xxx Xxxxxxxxx, Xxxxxxxxxx 00000.
13. CHOICE OF LAW. This Agreement shall be construed in
accordance with the laws of the State of California and the 1940 Act. To the
extent that the applicable laws of the State of California conflict with the
applicable provisions of the 1940 Act, the latter shall control.
14. INTERPRETATION. This Agreement has been negotiated at
arm's length and between persons sophisticated and knowledgeable in the matters
dealt with in this Agreement. Accordingly, any rule of law (including California
Civil Code section 1654) or legal decision that would require interpretation of
any ambiguities in this Agreement against the party that has drafted it is not
applicable and is waived. The provisions of this Agreement shall be interpreted
in a reasonable manner to effect the purpose of the parties and this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in duplicate originals by their officers thereunto duly
authorized as of the date first above written.
SENECA FUNDS GMG/SENECA CAPITAL MANAGEMENT,
LLC
By By
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Its Its
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APPENDIX A
Annual
Management
Fee
Seneca Growth Fund 0.70%
Seneca Mid-Cap Growth Fund 0.80%
Seneca Bond Fund 0.50%
Seneca Real Estate Securities Fund 0.75%
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