1
INVESTMENT ADVISORY AGREEMENT
-----------------------------
INVESTMENT ADVISORY AGREEMENT, DATED 10/1/1991, between Gabelli Equity
Series Funds, Inc. (the "Company"), a Maryland corporation, and Gabelli Funds,
Inc. (the "Adviser"), a Delaware Corporation.
In consideration of the mutual promises and agreements herein contained
and other good and valuable consideration, the receipt of which is hereby
acknowledged, it is agreed by and between the parties hereto as follows:
1. IN GENERAL
The Adviser agrees, all as more fully set forth herein, to act as
investment adviser to the Company with respect to the investment of the assets
of the Trust allocated to the Gabelli Small Cap Growth Fund Stock (the "Fund")
and to supervise and arrange the purchase and sale of assets held in the
investment portfolio of the Fund.
2. DUTIES AND OBLIGATIONS OF THE ADVISER WITH RESPECT TO INVESTMENTS OF
ASSETS OF THE FUND
(a) Subject to the succeeding provisions of this paragraph and
subject to the direction and control of the Company's Board of Directors, the
Adviser shall (i) act as investment adviser for and supervise and manage the
investment and reinvestment of the Fund's assets and in connection therewith
have complete discretion in purchasing and selling securities and other assets
for the Fund and in voting, exercising consents and exercising all other rights
appertaining to such securities and other assets on behalf of the Fund; (ii)
arrange for the purchase and sale of securities and other assets held in the
investment portfolio of the Fund and (iii) oversee the administration of all
aspects of the Fund's business and affairs and provide, or arrange for others
whom it believes to be competent to provide, certain services as specified in
subparagraph (b) below. Nothing contained herein shall be construed to restrict
the Company's right to hire its own employees or to contract for administrative
services to be performed by third parties, including but not limited to, the
calculation of the net asset value of the Fund's shares.
(b) The specific services to be provided
74
2
or arranged for by the Adviser for the Fund are (i) maintaining the Fund's books
and records, such as journals, ledger accounts and other records in accordance
with applicable laws and regulations to the extent not maintained by the Fund's
custodian, transfer agent and dividend disbursing agent; (ii) transmitting
purchase and redemption orders for Fund shares to the extent not transmitted by
the Fund's distributor or others who purchase and redeem shares; (iii)
initiating all money transfers to the Fund's custodian and from the Fund's
custodian for the payment of the Fund's expenses, investments, dividends and
share redemptions; (iv) reconciling account information and balances among the
Fund's custodian, transfer agent, distributor, dividend disbursing agent and the
Adviser; (v) providing the Fund, upon request, with such office space and
facilities, utilities and office equipment as are adequate for the Fund's needs;
(vi) preparing, but not paying for, all reports by the Company, on behalf of the
Fund, to its shareholders and all reports and filings required to maintain the
registration and qualification of the Fund's shares under federal and state law
including periodic updating of the Company's registration statement and
Prospectus (including its Statement of Additional Information); (vii)
supervising the calculation of the net asset value of the Fund's shares; and
(viii) preparing notices and agendas for meetings of the Fund's shareholders and
the Company's Board of Directors as well as minutes of such meetings in all
matters required by applicable law to be acted upon by the Board of Directors.
(c) In the performance of its duties under this Agreement, the
Adviser shall at all times use all reasonable efforts to conform to, and act in
accordance with, any requirements imposed by (i) the provisions of the
Investment Company Act of 1940 (the "Act"), and of any rules or regulations in
force thereunder; (ii) any other applicable provision of law; (iii) the
provisions of the Articles of Incorporation and By-Laws of the Company, as such
documents are amended from time to time; (iv) the investment objective, policies
and restrictions applicable to the Fund as set forth in the Company's
Registration Statement on Form N-lA and (v) any policies and determinations of
the Board of Directors of the Company with respect to the Fund.
(d) The Adviser will seek to provide qualified personnel to fullfil
its duties hereunder and will bear all costs and expenses (including any
overhead and personnel costs) incurred in connection with its
75
3
duties hereunder and shall bear the costs of any salaries or directors fees of
any officers or directors of the Company who are affiliated persons (as defined
in the Act) of the Adviser. If in any fiscal year the Fund's aggregate expenses
(excluding interest, taxes, distribution expenses, brokerage commissions and
extraordinary expenses) exceed the most restrictive expense limitation imposed
by the securities law of any state in which the shares of the Fund are
registered or qualified for sale, the Adviser will reimburse the Company for the
amount of such excess up to the amount of fees accrued for such fiscal year
hereunder. The amount of such reimbursement shall be calculated monthly and an
appropriate amount shall be held back or released to the Adviser each month so
that the aggregate amount held back at any particular time shall equal the net
amount of the reimbursement on a cummulative year-to-date basis. As of the end
of the year the final amount of the total reimbursement shall be calculated and
the appropriate amount released to the Fund or the Adviser or paid to the Fund
by the Adviser. Subject to the foregoing, the Company shall be responsible for
the payment of all the Fund's other expenses, including (i) payment of the fees
payable to the Adviser under paragraph 4 hereof; (ii) organizational expenses;
(iii) brokerage fees and commissions; (iv) taxes; (v) interest charges on
borrowings; (vi) the cost of liability insurance or fidelity bond coverage for
the Company officers and employees, and directors' and officers' errors and
omissions insurance coverage; (vii) legal, auditing and accounting fees and
expenses; (viii) charges of the Fund's custodian, transfer agent and dividend
disbursing agent; (ix) the Fund's pro rata portion of dues, fees and charges of
any trade association of which the Company is a member; (x) the expenses of
printing, preparing and mailing proxies, stock certificates and reports,
including the Fund's prospectuses and statements of additional information, and
notices to shareholders; (xi) filing fees for the registration or qualification
of the Fund and its shares under federal or state securities laws; (xii) the
fees and expenses involved in registering and maintaining registration of the
Fund's shares with the Securities and Exchange Commission; (xiii) the expenses
of holding shareholder meetings; (xiv) the compensation, including fees, of any
of the Company's directors, officers or employees who are not affiliated persons
of the Adviser; (xv) all expenses of computing the Fund's net asset value per
share, including any equipment or services obtained solely for the purpose of
pricing shares or valuing the Fund's investment portfolio; (xvi) expenses of
personnel performing shareholder servicing
76
4
functions and all other distribution expenses payable by the Company; and (xvii)
litigation and other extraordinary or non-recurring expenses and other expenses
properly payable by the Fund.
(e) The Adviser shall give the Fund the benefit of its best judgment
and effort in rendering services hereunder, but neither the Adviser nor any of
its officers, directors, employees, agents or controlling persons shall be
liable for any act or omission or for any loss sustained by the Fund in
connection with the matters to which this Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of its reckless disregard of its
obligations and duties under this Agreement; provided, however, that the
foregoing shall not constitute a waiver of any rights which the Company may have
which may not be waived under applicable law.
(f) Nothing in this Agreement shall prevent the Adviser or any
director, officer, employee or other affiliate thereof from acting as investment
adviser for any other person, firm or corporation, or from engaging in any other
lawful activity, and shall not in any way limit or restrict the Adviser or any
of its directors, officers, employees or agents from buying, selling or trading
any securities for its or their own accounts or for the accounts of others for
whom it or they may be acting.
3. PORTFOLIO TRANSACTIONS
In the course of the Adviser's execution of portfolio transactions
for the Fund, it is agreed that the Adviser shall employ securities brokers and
dealers which, in its judgment, will be able to satisfy the policy of the Fund
to seek the best execution of its portfolio transactions at reasonable expenses.
For purposes of this agreement, "best execution" shall mean prompt, efficient
and reliable execution at the most favorable price obtainable. Under such
conditions as may be specified by the Company's Board of Directors in the
interest of its shareholders and to ensure compliance with applicable law and
regulations, the Adviser may (a) place orders for the purchase or sale of the
Fund's portfolio securities with its affiliate, Gabelli & Company, Inc.; (b) pay
commissions to brokers other than its affiliate which are higher than might be
charged by another qualified broker to obtain brokerage and/or research services
considered by the Adviser to be useful or desirable in the performance
77
5
of its duties hereunder and for the investment management of other advisory
accounts over which it or its affiliates exercise investment discretion; and (c)
consider sales by brokers (other than its affiliate distributor) of shares of
the Fund and any other mutual fund for which it or its affiliates act as
investment adviser, as a factor in its selection of brokers and dealers for Fund
portfolio transactions.
4. COMPENSATION OF THE ADVISER
(a) Subject to paragraph 2(b), the Company agrees to pay to the
Adviser out of the Fund's assets and the Adviser agrees to accept as full
compensation for all services rendered by or through the Adviser (other than any
amounts payable to the Adviser pursuant to paragraph 4(b)) a fee computed and
payable monthly in an amount equal on an annualized basis to 1.0% of the Fund's
daily average net asset value. For any period less than a month during which
this Agreement is in effect, the fee shall be prorated according to the
proportion which such period bears to a full month of 28, 29, 30 or 31 days, as
the case may be.
(b) The Company will pay the Adviser separately for any costs and
expenses incurred by the Adviser in connection with distribution of the Fund's
shares in accordance with the terms (including proration or nonpayment as a
result of allocations of payments) of a Plan of Distribution (the "Plan")
adopted for the Fund pursuant to Rule 12b-l under the Act as such Plan may be in
effect from time to time; provided, however, that no payments shall be due or
paid to the Adviser hereunder unless and until this Agreement shall have been
approved by Director Approval and Disinterested Director Approval (as such terms
are defined in such Plan). The Company reserves the right to modify or terminate
such Plan at any time as specified in the Plan and Rule 12b-l, and this
subparagraph shall thereupon be modified or terminated to the same extent
without further action of the parties. The persons authorized to direct the
payment of the funds pursuant to this Agreement and the Plan shall provide to
the Company's Board of Directors, and the Directors shall review, at least
quarterly a written report of the amount so paid and the purposes for which such
expenditures were made.
(c) For purposes of this Agreement, the net asset of the Fund shall
be calculated pursuant to the procedures adopted by resolutions of the Directors
of the
78
6
Company for calculating the net asset value of the Fund's shares.
5. INDEMNITY.
(a) The Company hereby agrees to indemnify the Adviser and each of
the Adviser's directors, officers, employees, and agents (including any
individual who serves at the Adviser's request as director, officer, partner,
trustee or the like of another corporation) and controlling persons (each such
person being an "indemnitee) against any liabilities and expenses, including
amounts paid in satisfaction of judgments, in compromise or as fines and
penalties, and counsel fees (all as provided in accordance with applicable
corporate law) reasonably incurred by such indemnitee in connection with the
defense or disposition of any action, suit or other proceeding, whether civil
or criminal, before any court or administrative or investigative body in which
he may be or may have been involved as a party or otherwise or with which he
may be or may have been threatened, while acting in any capacity set forth
above in this paragraph or thereafter by reason of his having acted in any such
capacity, except with respect to any matter as to which he shall have been
adjudicated not to have acted in good faith in the reasonable belief that his
action was in the best interest of the Company and furthermore, in the case of
any criminal proceeding, so long as he had no reasonable cause to believe that
the conduct was unlawful, provided, however, that (1) no indemnitee shall be
indemnified hereunder against any liability to the Company or its shareholders
or any expense of such indemnitee arising by reason of (i) willful misfeasance,
(ii) bad faith, (iii) gross negligence (iv) reckless disregard of the duties
involved in the conduct of his position (the conduct referred to in such
clauses (i) through (v) being sometimes referred to herein as "disabling
conduct"), (2) as to any matter disposed of by settlement or a compromise
payment by such indemnitee, pursuant to a consent decree or otherwise, no
indemnification either for said payment or for any other expenses shall be
provided unless there has been a determination that such settlement or
compromise is in the best interests of the Company and that such indemnitee
appears to have acted in good faith in the reasonable belief that his action
was in the best interest of the Company and did not involve disabling conduct
by such indemnitee and (3) with respect to any action, suit or other proceeding
voluntarily prosecuted by any indemnitee as plaintiff, indemnification shall be
mandatory only if the prosecution of such action, suit or
79
7
other proceeding by such indemnitee was authorized by a majority of the full
Board of the Company. Notwithstanding the foregoing the Company shall not be
obligated to provide any such indemnification to the extent such provision would
waive any right which the Company cannot lawfully waive.
(b) The Company shall make advance payments in connection with the
expenses of defending any action with respect to which indemnification might be
sought hereunder if the Company receives a written affirmation of the
indemnitee's good faith belief that the standard of conduct necessary for
indemnification has been met and a written undertaking to reimburse the Company
unless it is subsequently determined that he is entitled to such indemnification
and if the directors of the Company determine that the facts then known to them
would not preclude indemnification. In addition, at least one of the following
conditions must be met: (A) the indemnitee shall provide a security for his
undertaking, (B) the Company shall be insured against losses arising by reason
of any lawful advances, or (C) a majority of a quorum of directors of the
Company who are neither "interested persons" of the Company (as defined in
Section 2(a)(19) of the Act) nor parties to the proceeding ("Disinterested
Non-Party Directors") or an independent legal counsel in a written opinion,
shall determine, based on a review of readily available facts (as opposed to a
full trial-type inquiry), that there is reason to believe that the indemnitee
ultimately will be found entitled to indemnification.
(c) All determinations with respect to indemnification hereunder
shall be made (1) by a final decision on the merits by a court or other body
before whom the proceeding was brought that such indemnitee is not liable by
reason of disabling conduct or, (2) in the absence of such a decision, by (i) a
majority vote of a quorum of the Disinterested Non-party Directors of the
Company, or (ii) if such a quorum is not obtainable or even, if obtainable, if a
majority vote of such quorum so directs, independent legal counsel in a written
opinion.
The rights accruing to any indemnitee under these provisions shall
not exclude any other right to which he may be lawfully entitled.
6. DURATION AND TERMINATION
80
8
This Agreement shall become effective upon on the date hereof and shall
continue in effect for a period of two years and thereafter from year to year,
but only so long as such continuation is specifically approved at least annually
in accordance with the requirements of the Act.
This Agreement may be terminated by the Adviser at any time without
penalty upon giving the Company sixty days written notice (which notice may be
waived by the Company) and may be terminated by the Company at any time without
penalty upon giving the Adviser sixty days notice (which notice may be waived by
the Adviser), provided that such termination by the Company shall be directed or
approved by the vote of a majority of the Directors of the Company in office at
the time or by the vote of the holders of a "majority of the voting securities"
(as defined in the Act) of the Fund at the time outstanding and entitled to vote
or, with respect to paragraph 4(b), by a majority of the Directors of the
Company who are not "interested persons" of the Company and who have no direct
or indirect financial interest in the operation of the Plan or any agreements
related to the Plan. This Agreement shall terminate automatically in the event
of its assignment (as "assignment" is defined in the Act and the rules
thereunder.)
7. NOTICES
Any notice under this Agreement shall be in writing to the other party
at such address as the other party may designate from time to time for the
receipt of such notice and shall be deemed to be received on the earlier of the
date actually received or on the fourth day after the postmark if such notice is
mailed first class postage prepaid.
8. GOVERNING LAW
This Agreement shall be construed in accordance with the laws of the
State of New York for contracts to be performed entirely therein and in
accordance with the applicable provisions of the Act.
81
9
IN WITNESS WHEREOF, the parties hereto have caused the foregoing
instrument to be executed by their duly authorized officers, all as of the day
and the year first above written.
GABELLI EQUITY SERIES FUNDS, INC.
By: /s/
---------------------------------------
Name:
Title:
GABELLI FUNDS, INC.
By: /s/
---------------------------------------
Name:
Title:
82
