EXHIBIT 99(D)(1)
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of May 31, 2000 by and among EXCELSIOR TAX-EXEMPT
FUNDS, INC., a Maryland corporation (herein called the "Company"), U.S. TRUST
COMPANY ("UST"), a Connecticut state bank and trust company, and UNITED STATES
TRUST COMPANY OF NEW YORK ("USTNY"), a New York state-chartered bank and trust
company (together with UST, the "Investment Adviser").
WHEREAS, the Company is registered as an open-end, diversified,
management investment company under the Investment Company Act of 1940 (the
"1940 Act");
WHEREAS, the Company desires to retain the Investment Adviser to
render investment advisory and other services to the Company for its New York
Intermediate-Term Tax-Exempt Fund, Short-Term Tax-Exempt Securities Fund,
California Tax-Exempt Income Fund, Tax-Exempt Money Fund, Intermediate-Term Tax-
Exempt Fund, Long-Term Tax-Exempt Fund and New York Tax-Exempt Money Fund
portfolios ("the Funds"), and the Investment Adviser is willing to so render
such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment.
(a) The Company hereby appoints the Investment Adviser to act as
investment adviser to the Company for the Funds for the period and on the
terms set forth in this Agreement. The Investment Adviser accepts such
appointment and agrees to render the services herein set forth for the
compensation herein provided. The Investment Adviser may, in its
discretion, provide such services through its own employees or the
employees of one or more affiliated companies that are qualified to act as
investment adviser to the Company under applicable law provided (i) that
all persons, when providing services hereunder, are functioning as part of
an organized group of persons, (ii) the use of an affiliate's employees
does not result in a change of actual control or management of the
Investment Adviser under the 1940 Act; and (iii) the use of an affiliate's
employees has been approved by the Board of Directors of the Company.
(b) In the event that the Company establishes one or more
additional portfolios with respect to which it desires to retain the
Investment Adviser to act as investment adviser hereunder, it shall notify
the Investment Adviser in writing. If the Investment Adviser is willing to
render such services under this Agreement it shall notify the Company in
writing whereupon such portfolio shall become a Fund hereunder and shall be
subject to the provisions of this Agreement to the same extent as the Funds
except to the extent that said provisions (including those relating to the
compensation payable by the Funds to the Investment Adviser)
are modified with respect to such Fund in writing by the Company and the
Investment Adviser at the time.
2. Delivery of Documents. The Company has furnished the Investment
---------------------
Adviser with copies properly certified or authenticated of each of the
following:
(a) Articles of Incorporation of the Company and any amendments
thereto;
(b) By-Laws of the Company and any amendments thereto;
(c) Resolutions of the Board of Directors of the Company
authorizing the appointment of the Investment Adviser and the execution and
delivery of this Agreement;
(d) Registration Statement under the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, on Form N-1A
(No. 2-93068) relating to shares of the Company's Class A Common Shares,
$.001 par value, representing interests in the Tax-Exempt Money Fund; Class
B Common Shares, $.001 par value, representing interests in the
Intermediate-Term Tax-Exempt Fund; Class C Common Shares, $.001 par value,
representing interests in the Long-Term Tax-Exempt Fund, Class D Common
Shares, $.001 par value, representing interests in the New York
Intermediate-Term Tax-Exempt Fund; Class E Common Shares, $.001 par value,
representing interests in the California Tax-Exempt Income Fund; Class F
Common Shares, $.001 par value, representing interests in the Short-Term
Tax-Exempt Securities Fund and Class G Common Shares, $.001 par value,
representing interests in the New York Tax-Exempt Money Fund ("Shares"),
and all amendments thereto;
(e) Notification of Registration of the Company under the
Investment Company Act of 1940, as amended, on Form N-8A as filed with the
Securities and Exchange Commission on August 31, 1984, and all amendments
thereto; and
(f) The most recent prospectuses of the Company relating to the
Funds (such prospectuses and supplements thereto, as presently in effect
and as from time to time amended and supplemented, herein called the
"Prospectuses").
The Company will furnish the Investment Adviser from time to time with
copies of all amendments of or supplements to the foregoing, if any.
3. Management. Subject to the supervision of the Board of Directors
----------
of the Company, the Investment Adviser will provide a continuous investment
program for the Funds, including investment research and management with respect
to all securities, investments, cash and cash equivalents in the Funds. The
Investment Adviser will determine from time to time what securities and other
investments will be purchased, retained or sold by the Company for the Funds.
The Investment Adviser will provide the services rendered by it hereunder in
accordance with the Funds' respective investment objectives and policies as
stated in the Prospectuses. The Investment Adviser further agrees that it:
-2-
(a) will conform with all applicable Rules and Regulations of the
Securities and Exchange Commission (herein called the "Rules"), and will in
addition conduct its activities under this Agreement in accordance with
applicable law, including but not limited to applicable banking law;
(b) will not make loans for the purpose of purchasing or carrying
Shares, or make loans to the Company;
(c) will place orders pursuant to its investment determinations for
the Funds either directly with the issuer or with any broker or dealer
selected by it. In placing orders with brokers and dealers, the Investment
Adviser will use its reasonable best efforts to obtain the best net price
and the most favorable execution of its orders, after taking into account
all factors it deems relevant, including the breadth of the market in the
security, the price of the security, the financial condition and execution
capability of the broker or dealer, and the reasonableness of the
commission, if any, both for the specific transaction and on a continuing
basis. Consistent with this obligation, the Investment Adviser may, to the
extent permitted by law, purchase and sell portfolio securities to and from
brokers and dealers who provide brokerage and research services (within the
meaning of Section 28(e) of the Securities Exchange Act of 1934) to or for
the benefit of any Fund and/or other accounts over which the Investment
Adviser or any of its affiliates exercises investment discretion. Subject
to the review of the Company's Board of Directors from time to time with
respect to the extent and continuation of the policy, the Investment
Adviser is authorized to pay to a broker or dealer who provides such
brokerage and research services a commission for effecting a securities
transaction for any Fund which is in excess of the amount of commission
another broker or dealer would have charged for effecting that transaction
if the Investment Adviser determines in good faith that such commission was
reasonable in relation to the value of the brokerage and research services
provided by such broker or dealer, viewed in terms of either that
particular transaction or the overall responsibilities of the Investment
Adviser with respect to the accounts as to which it exercises investment
discretion. In no instance will portfolio securities be purchased from or
sold to the Funds' principal underwriter, the Investment Adviser or any
affiliated person thereof except as permitted by the Securities and
Exchange Commission;
(d) will maintain books and records with respect to the Funds'
securities transactions and will render to the Company's Board of Directors
such periodic and special reports as the Board may request;
(e) will maintain a policy and practice of conducting its Asset
Management Group independently of its Banking Group. When the Investment
Adviser makes investment recommendations for the Funds, its Asset
Management Group personnel will not inquire or take into consideration
whether the issuer of securities proposed for purchase or sale for the
Funds' account are customers of the Banking Group. In dealing with
commercial customers, the Banking Group will not inquire or take into
consideration whether securities of those customers are held by the Funds;
(f) will treat confidentially and as proprietary information of the
Company all records and other information relative to the Funds and prior,
present or potential shareholders, and will not use such records and
information for any purpose other than
-3-
performance of its responsibilities and duties hereunder, except after prior
notification to and approval in writing by the Company, which approval shall not
be unreasonably withheld and may not be withheld where the Investment Adviser
may be exposed to civil or criminal contempt proceedings for failure to comply,
when requested to divulge such information by duly constituted authorities, or
when so requested by the Company. Nothing contained herein, however, shall
prohibit the Investment Adviser from advertising or soliciting the public
generally with respect to other products or services, regardless of whether such
advertisement or solicitation may include prior, present or potential
shareholders of the Company.
4. Services Not Exclusive. The investment management services
----------------------
rendered by the Investment Adviser hereunder are not to be deemed exclusive, and
the Investment Adviser shall be free to render similar services to others so
long as its services under this Agreement are not impaired thereby.
5. Books and Records. In compliance with the requirements of Rule
-----------------
31a-3 of the Rules under the Investment Company Act of 1940, the Investment
Adviser hereby agrees that all records which it maintains for the Funds are the
property of the Company and further agrees to surrender promptly to the Company
any of such records upon the Company's request. The Investment Adviser further
agrees to preserve for the periods prescribed by Rule 31a-2 the records required
to be maintained by Rule 31a-1 of the Rules.
6. Expenses. During the term of this Agreement, the Investment
--------
Adviser will pay all expenses incurred by it in connection with its activities
under this Agreement other than the cost of securities (including brokerage
commissions, if any) purchased for the Funds.
In addition, if the expenses borne by any Fund in any fiscal year
exceed the applicable expense limitations imposed by the securities regulations
of any state in which the shares of the Funds are registered or qualified for
sale to the public, the Investment Adviser shall reimburse such Fund for a
portion of any such excess in an amount equal to the proportion that the fees
otherwise payable to the Investment Adviser bear to the total amount of
investment advisory and administration fees otherwise payable by the Fund up to
the amount of the fees payable to the Investment Adviser during such fiscal year
pursuant to paragraph 7 hereof; provided, however, that notwithstanding the
foregoing, the Investment Adviser shall reimburse the Fund for a portion of any
such excess expenses in an amount equal to the proportion that the fees
otherwise payable to the Investment Adviser bear to the total amount of
investment advisory and administration fees otherwise payable by the Fund
regardless of the amount of fees paid to the Investment Adviser during such
fiscal year to the extent that the securities regulations of any state in which
Fund shares are registered or qualified for sale so require.
7. Compensation. For the services provided and the expenses
------------
assumed pursuant to this Agreement, the Company will pay the Investment Adviser
and the Investment Adviser will accept as full compensation therefor a fee,
computed daily and payable monthly, at the following annual rates: 0.25% of the
average daily net assets of the Tax-Exempt Money Fund; 0.35% of the average
daily net assets of the Intermediate-Term Tax-Exempt Fund; 0.50% of the average
daily net assets of the Long-Term Tax-Exempt Fund; 0.50% of the average daily
net assets of the New York Tax-Exempt Money Fund; 0.50% of the average daily net
assets of the New York Intermediate-Term Tax-Exempt Fund; 0.50% of the average
daily net assets of the
-4-
California Tax-Exempt Income Fund; and 0.30% of the average daily net assets of
the Short-Term Tax-Exempt Securities Fund.
8. Limitation of Liability of the Investment Adviser. The
-------------------------------------------------
Investment Adviser shall not be liable or any error of judgment or mistake of
law or for any loss suffered by the Company in connection with the matters to
which this Agreement relates, except the Investment Adviser shall be jointly,
but not severally, liable for a loss resulting from a breach of fiduciary duty
with respect to the receipt of compensation for services or a loss resulting
from willful misfeasance, bad faith or gross negligence on the part of the
Investment Adviser in the performance of its duties or from reckless disregard
by it of its obligations and duties under this Agreement.
9. Duration and Termination. This Agreement shall be effective as
------------------------
of the date hereto with respect to the Funds named hereinbefore, and with
respect to any additional Fund, on the date of receipt by the Company of notice
from the Investment Adviser in accordance with Section 1(b) hereof that the
Investment Adviser is willing to serve as investment adviser with respect to
such Fund, provided that this Agreement (as supplemented by the terms specified
in any notice and agreement pursuant to Section l(b) hereof) shall have been
approved by the shareholders of the Funds in accordance with the requirements of
the 1940 Act and unless sooner terminated as provided herein, shall continue in
effect until July 31, 2001. Thereafter, if not terminated, this Agreement shall
automatically continue in effect as to a particular Fund for successive periods
of 12 months each, provided such continuance is specifically approved at least
annually (a) by the vote of a majority of those members of the Board of
Directors of the Company who are not parties to this Agreement or interested
persons of any such party, cast in person at a meeting called for the purpose of
voting on such approval, and (b) by the Board of Directors of the Company or,
with respect to any Fund, by vote of a majority of the outstanding voting
securities of such Fund; provided, however, that this Agreement may be
terminated by the Company as to any Fund at any time, without the payment of any
penalty, by the Board of Directors of the Company or, with respect to any Fund,
by vote of a majority of the outstanding voting securities of such Fund on 60
days' written notice to the Investment Adviser, or by the Investment Adviser as
to any Fund at any time, without payment of any penalty, on 90 days' written
notice to the Company. This Agreement will immediately terminate in the event of
its assignment. (As used in this Agreement, the terms "majority of the
outstanding voting securities," "interested person" and "assignment" shall have
the same meanings as such terms have in the Investment Company Act of 1940.) An
affiliate of the Investment Adviser may assume the Investment Advisers
obligations under this Agreement provided that (i) the affiliate is qualified to
act as an investment adviser to the Company under applicable law; (ii) the
assumption will not result in a change of actual control or management of the
Investment Adviser; and (iii) the assumption of the Investment Adviser's
obligations by the affiliate is approved by the Board of Directors of the
Company.
10. Amendment of this Agreement. 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 with respect to a Fund until approved by vote of a majority of such
Fund's outstanding voting securities, if such vote is required by the
-5-
1940 Act, or by the vote of a majority of the Board of Directors of the Company
who are not parties to this Agreement or interested persons of any such party,
cast in person at a meeting called for the purpose of voting on such an
amendment.
11. Miscellaneous. The captions in this Agreement are included for
-------------
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. 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. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and shall be
governed by New York law.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
EXCELSIOR TAX-EXEMPT FUNDS, INC.
Attest:
/s/ W. Xxxxx XxXxxxxx By: /s/ Xxxxxxxxx X. Xxxxxx
------------------------- --------------------------------------
Secretary Title: President and Treasurer
Attest: U.S. TRUST COMPANY
/s/ W. Xxxxx XxXxxxxx By: /s/ W. Xxxxxxx Xxxxx
------------------------- --------------------------------------
Title: President and Chief Executive Officer
UNITED STATES TRUST COMPANY OF
NEW YORK
Attest:
/s/ W. Xxxxx XxXxxxxx By: /s/ Xxxxxxx X. Xxxxx
------------------------- --------------------------------------
Title: Executive Vice President
-6-
