INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
This MANAGEMENT AGREEMENT, made this 14th day of June, 1995, by and between
State Bond Equity Funds, Inc., a Maryland corporation (hereinafter called the
"Investment Corporation"), and ARM Capital Advisors, Inc., a Delaware
corporation (hereinafter called the "Manager"),
WITNESSETH:
WHEREAS, the Investment Corporation has been organized for the purpose of
investing its funds in common stock and other securities, and wishes to make use
of the experience, sources of information, advice, assistance and facilities
available to the Manager, and to have the Manager perform for it various
management, statistical, accounting and clerical services; and the manager is
willing to furnish such advice, facilities and services on the terms and
conditions hereinafter set forth;
NOW THEREFORE, in consideration of the premises and mutual covenants herein
contained, it is agreed as follows:
1. The Investment Corporation shall at all times keep the Manager fully
enforced with regard to the securities owned by it, its funds available, or to
become available, for investment, an generally as to the condition of its
affairs. It shall furnish the Manager with a certified copy of all financial
statements, and a signed copy of each report prepared by certified public
accountants, and with such other information with regard to its affairs as the
Manager may from time to time reasonably request.
2. The Manager shall furnish to the Board of Directors and officers of the
Investment Corporation advice and recommendations with respect to the
acquisition, by purchase, exchange, subscription or otherwise, the holding and
disposal, though sale, exchange or otherwise, securities, and advice and
recommendations with respect to other aspects of the business and affairs of the
Investment Corporation; and shall perform such functions of management and
supervision as may be directed by the board of Directors of the Investment
Corporation.
3. The Manager shall supply at its expense, the Board of Directors and
Officers of the Investment Corporation with all statistical information
reasonably required by them and reasonably available to the Manager; shall
furnish the Investment Corporation with office facilities, including space,
furniture and equipment and all personnel reasonably necessary for the operation
of the Investment Corporation; shall authorize and permit any of its directors,
officers and employees, who may be elected as directors or officers of the
Investment Corporation, to serve in the capacities in which they are elected.
Other than as herein specifically indicated, the Manager will not be responsible
for Investment Corporation expenses. Such Investment Corporation expenses
include, by way of example but not by way of limitation, all expenses incurred
in the operation of the Investment Corporation and any public offering of its
shares including, among others, distribution fees payable pursuant to any plan
of distribution pursuant to Rule 12b-1 under the Investment Company Act of 1940,
as amended ("Rule 12b-1 Plan of Distribution"); legal, auditing and accounting
expenses; interest, taxes, governmental fees or membership dues; brokerage
commissions or charges; custodian, transfer agent or registrar fees; expenses of
redemption or repurchase of Investment Corporation shares; expenses of
registering and distributing reports, notices and dividends to shareholders;
costs of stationery; costs of stockholders and other meetings; and traveling
expenses of officers, directors and employees, if any.
4. No director, officer or employee of the Investment Corporation shall
receive from the Investment Corporation any salary or other compensation as such
director, officer or employee while he is at the same time a director, officer
or employee of the Manager. This paragraph shall not apply to directors,
executive committee members, consultants and other persons who are not regular
members of the Manager's staff.
5. As compensation for the services performed and the facilities furnished
by the Manager, including the services of any consultants retained by the
Manager, the Investment Corporation shall pay the Manager subject to the
provisions of Paragraph 6 hereof, as promptly as possible after the last day of
each month, a monthly fee of 1/12th of
.65 of 1% on the first $100,000,000 of average net assets of the Investment
Corporation, 1/12th of the .60 of 1% on the next $100,000,000 of average daily
net assets and 1/12th of .55 of 1% on average daily net assets over
$200,000,000. The first payment shall be made as promptly as possible at the end
of the monthly next succeeding the effective ate of this contract, and shall
constitute a full payment of the fee due the Manager for all services prior to
that date. If this Agreement is terminated as of any date not the last day of a
month, such fee shall be paid as promptly as possible after such date of
termination, shall be based on the average daily net assets of the Investment
Corporation in the period from the beginning of such month to such date of
termination and shall be that proportion of such average daily net assets as the
number of business days in such period bears to the number of business days in
such month. The average daily net assets of the Investment Corporation shall in
all cases be based only on business days and shall be completed as of the time
of closing of the New York Stock Exchange. Each such payment shall be
accompanied by a report of the Investment Corporation prepared with by the
Investment Corporation or by a reputable firm of independent accountants which
shall show the amount properly payable to the Manager under this Agreement and
the detailed computation thereof.
The parties agree that from time to time, the Manager may recommend that
the Investment Corporation execute all or a portion of its portfolio
transactions through SBM Financial Services, Inc., or some other subsidiary or
affiliate of the Manager; provided the execution of such portfolio transactions
is consistent with the Fund's obligations under the Investment Company Act of
1940, as amended. When such recommendations are accepted by the officers of the
Investment Corporation, and brokerage commissions are paid to SBM Financial
Services, Inc., or any other subsidiary of the Manager, the management fee
payable as above described will be reduced to the extent of the "net profits" of
such brokerage operation as hereinafter defined. This offset will be credited
after the close of the calendar year against the management fee due to the
Manager for the next succeeding month or months.
"Net profits" of the brokerage operations shall be determined in the
following manner:
Gross revenues of SBM Financial Services, Inc. (or other subsidiaries or
affiliates) from brokerage transactions for the portfolio of the Investment
Corporation will be credited to an "offset account" for the Investment
Corporation.
It is understood that brokerage services may also be rendered to other,
including other funds and institutions, and revenues attributable to such other
broker transactions will not be credited to the Investment Corporation's offset
account. Those revenues which cannot be specifically attributed to a particular
person or fund will be apportioned quarterly, on the basis of the volume of
portfolio transactions of the Investment Corporation (whether transacted by the
subsidiary or not), relative to the dollar volume of transactions of other funds
(whether transacted by the subsidiary or not), for which the Manager (or a
subsidiary) is the advisor, and a brokerage account is maintained with the
Manager or its subsidiaries. Such dollar volume of portfolio transactions shall
not include transactions in government securities, commercial paper, cash
equivalents, net trades, or principal transactions of the Investment
Corporation. This prorated amount will be credited to the offset account for
the Investment Corporation. Revenues to be so apportioned shall include
commissions received by the subsidiary from reciprocal transactions, including
those participations in commissions generally known as "give ups."
The offset account will be charged with all the direct expense of each
transaction, such as clearing broker fees, flow broker fees, transfer taxes,
exchange fees or other fees; and a share of the expense of the subsidiary
brokerage operations. The share of expenses to be charged to the offset account
shall be prorated on the basis of the subsidiary's gross brokerage revenues
attributable to the Investment Corporation, compared to the subsidiary's gross
brokerage revenue from all sources. Such prorated expenses shall include
salaries for all personnel regularly engaged in the brokerage operations,
including record keeping, accounting and administration. If any employee who is
regularly engaged in operation, the proportion of his salary that shall be
deemed an expense that is to be prorated shall be determined according to
generally accepted accounting principles. Other costs and expenses such as
rent, telephone, stock quotation services and other expenses and adjustments
customary to a brokerage operation which are made to the offset account shall be
determined according to generally accepted accounting principles.
In addition, there shall be a deduction for the expenses of general
overhead, executive supervision, and general administration in an amount equal
to 20% of the gross revenues allocated to the offset account. The net amount,
determined as set forth above, shall be subject to a deduction for income taxes,
the sum to be deducted for this purpose
is to be computed as if the offset account were to file a separate income tax
return. The balance of the account after all the above deductions will be
considered "net profits."
6. The maximum charges per annum incurred by the Investment Corporation,
inclusive of management fee computed without regard to the offset described
above, but exclusive of Rule 12b-1 Plan of Distribution fees, interest, taxes,
brokerage fees, and extraordinary expenses, shall not exceed one and one-half
percent (1 1/2%) of the first $30,000,000 of the average annual value of the net
assets of the Investment Corporation and one percent (1%) of the average annual
value of any additional net assets of the Investment Corporation, exclusive of
the amount, if any, of funds borrowed for investment purposes, computed at least
quarterly. The Manager will assume and pay all expenses of the Investment
Corporation in excess of the expense limitations provided for herein, up to an
amount not exceeding its management and advisory fees for the period for which
reimbursement is made, such reimbursement to be made not less frequently than
annually.
7. Appropriate officers of the Manager shall provide the directors of the
Investment Corporation with such information as is required by any plan of
distribution adopted by the Investment Corporation pursuant to Rule 12b-1 under
the Investment Company Act of 1940, as amended.
8. The Manager assumes no responsibility under this Agreement other than
to render the services called for hereunder, in good faith, and shall not be
responsible for any action of the Board of Directors of the Investment
Corporation in following or declining to follow any advance or recommendations
of the Manager.
9. Nothing in this Agreement shall limit or restrict the right of any
director, officer, or employee of the Manager who may also be a director,
officer or employee of the Investment Corporation to engage in any other
business or to devote his time and attention in part to the management or other
aspects of any other business, whether of a similar nature or a dissimilar
nature, nor to limit or restrict the right of the Manager to engage in any other
business or to render services of any kind to any other corporation, firm,
individual or association.
10. As used in this Agreement, the terms "assignment" and "majority of the
outstanding voting securities" shall have the meanings given to them by Section
2(a) of the Investment Company Act of 1940.
11. This Agreement shall terminate automatically in the event of its
assignment by the Manager and shall not be assignable by the Investment
Corporation without the consent of the Manager.
12. This Agreement may be terminated at any time, without the payment of
any penalty, (a) by the Board of Directors of the Investment Corporation or by
vote of a majority of the outstanding voting securities of the Investment
Corporation by sixty days' written notice addressed to the Manager at its
principal place of business; and (b) by the Manager by sixty days' written
notice addressed to the Investment Corporation at its principal place of
business.
13. This Agreement shall be submitted for approval to the Board of
Directors of the Investment Corporation annually and shall continue in effect
only so long as specifically approved annually by the Board of Directors or by a
majority of the outstanding voting securities, and in either event by the vote
of a majority of the directors who are not parties to such contract or
interested persons of any such party, cast in person at a meeting called for the
purpose of voting on such approval.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers thereunto duly authorized.
STATE BOND EQUITY FUNDS, INC.
By /s/ Xxxxx X. Xxxxx
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Its Vice-President
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ARM CAPITAL ADVISORS, INC.
By /s/ Xxxx X. XxXxxxxx
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Its Secretary
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