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EXHIBIT 5(a)
ESC STRATEGIC FUNDS, INC.
INVESTMENT ADVISORY AGREEMENT
AGREEMENT, effective commencing on ________________, 1994, between
Equitable Securities Corporation (the "Adviser") and ESC Strategic Funds, Inc.
(the "Company").
WHEREAS, the Company is a Maryland corporation of the series type
organized under Articles of Incorporation dated November 24, 1993, (the
"Articles") and is registered under the Investment Company Act of 1940, as
amended (the "1940 Act"), as an open-end, management series-type investment
company;
WHEREAS, the Company wishes to retain the Adviser to render investment
advisory services to the Company with respect to each of its present and future
series ("Funds"), unless otherwise specifically indicated by the Company, and
the Adviser is willing to furnish such services to the Company;
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 for the Funds 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 have the sole and exclusive
responsibility for providing, or arranging for others to provide, (a) the
management for the Funds' assets in accordance with each Fund's investment
objectives, policies and limitations as stated in its prospectus and Statement
of Additional Information included as part of the Company'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 Company; and (b) the placement of orders to purchase and sell securities
for the Funds. The Adviser, subject to approval in each case by the Directors
of the Company, shall be authorized to retain one or more subadvisers (the
"Portfolio Managers") for each of the Funds, and to direct that such Portfolio
Managers shall exercise full discretion in furnishing investment advice to the
Funds and arranging for the execution of portfolio transactions for the Funds,
subject only to general oversight by the Adviser. The Adviser shall be
responsible for monitoring, or arranging for
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others to monitor, compliance by the Portfolio Managers with the investment
policies and restrictions of the respective Funds and with such other
limitations or directions as the Board of Directors of the Company may from
time to time prescribe. The Adviser shall report to the Board of Directors of
the Company regularly at such times and in such detail as the Board may from
time to time determine to be appropriate, in order to permit the Board to
determine the adherence of the Adviser and Portfolio Managers to the investment
policies of the Funds.
The Adviser further agrees that, in performing its duties hereunder, it
will directly, or assure that the Portfolio Managers 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 Funds so that they will each
qualify, and continue to qualify, as regulated investment companies under
Subchapter M of the Code and regulations issued thereunder;
(c) place orders for the investments of the Funds directly with the
issuer, or with any broker or dealer, in accordance with applicable policies
expressed in the prospectus and/or Statement of Additional Information with
respect to each Fund and in accordance with applicable legal requirements;
(d) furnish to the Company whatever statistical information the Company
may reasonably request with respect to the Funds' assets or contemplated
investments; keep the Company and the Directors informed of developments
materially affecting the Funds' portfolios; and, on the Adviser's or Portfolio
Managers' own initiative, furnish to the Company from time to time whatever
information the Adviser or Portfolio Manager believes appropriate for this
purpose;
(e) make available to the Company's administrator, Xxxxxx Xxxx
Incorporated (the "Administrator"), and the Company, promptly upon their
request, such copies of its investment records and ledgers with respect to the
Funds as may be required to assist the Administrator and the Company in their
compliance with applicable laws and regulations. The Adviser will furnish the
Directors with such periodic and special reports regarding the Funds as they
may reasonably request;
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(f) immediately notify the Company 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 Company immediately of any material fact known to the Adviser
respecting or relating to the Adviser that is not contained in the Company's
Registration Statement regarding the Funds, 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;
(g) in making investment decisions with respect to the Funds, use no
inside information that may be in its possession or in the possession of any of
its affiliates, nor will the Adviser seek to obtain any such information.
3. Allocation of Charges and Expenses. Except as otherwise specifically
provided in this section 3, the Adviser shall pay the compensation and expenses
of all its directors, officers and employees who serve as directors, officers
and executive employees of the Company (including the Company's share of
payroll taxes) and shall pay all fees payable pursuant to portfolio management
agreements with any Portfolio Managers it may retain. The Adviser shall make
available, without expense to the Funds, the services of its directors,
officers and employees who may be duly elected officers or directors of the
Company, 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 Company or
the Funds other than those specifically allocated to the Adviser in this
section 3. 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 employees as are officers or
employees of the Adviser whose services may be involved, for the following
expenses of the Company or the Funds: organization and certain offering
expenses of the Company and the Funds (including out-of-pocket expenses, but
not including the Adviser's overhead and employee costs); fees payable to the
Adviser; 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 Company or the Funds in connection with membership in investment company
trade organizations; costs of insurance; fees and expenses of the Company's
Administrator or of any custodian, subcustodian,
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transfer agent, registrar, or dividend disbursing agent of the Company or the
Funds; payments for portfolio pricing or valuation services to pricing agents,
accountants, bankers and other specialists, if any; expenses of preparing and
printing share certificates; other expenses in connection with the issuance,
offering, distribution, redemption or sale of securities issued by the Funds;
expenses relating to investor and public relations; expenses of registering and
qualifying shares of the Funds for sale; freight, insurance and other charges
in connection with the shipment of the Funds' portfolio securities; brokerage
commissions or other costs of acquiring or disposing of any portfolio
securities or other assets of the Funds, or of entering into other transactions
or engaging in any investment practices with respect to the Funds; expenses of
printing and distributing prospectuses, Statements of Additional Information,
reports, notices and dividends to stockholders; costs of preparing, printing
and filing documents with regulatory agencies; costs of stationery and other
office supplies; any litigation or other extraordinary expenses; costs of
stockholders' and other meetings; the compensation and all expenses
(specifically including travel expenses relating to the business of the Company
or a Fund) 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 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, or any
committees thereof or advisory group thereto or other business of the Company
or the Funds.
4. Compensation. As compensation for the services provided and expenses
assumed by the Adviser under this Agreement, the Company will arrange for the
Funds to pay the Adviser at the end of each calendar month an investment
advisory fee computed daily at an annual rate equal to the percentage of each
Fund's average daily net assets specified in Schedule A hereto. The "average
daily net assets" of a Fund shall mean the average of the values placed on the
Fund's net assets as of 4:15 p.m. (Eastern 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 determination of net asset value for a Fund is
suspended for any particular business day, then for the purposes of this
section 4, 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 the New York Stock
Exchange, or as
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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 a Fund has been so suspended for a period including any
month end when the Adviser's compensation is payable pursuant to this section,
then the Adviser's compensation payable at the end of such month shall be
computed on the basis of the value of the net assets of the Fund as last
determined (whether during or prior to such month). If a Fund determines the
value of the net assets of its portfolio 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.
In the event that the Adviser's gross compensation hereunder shall, when
added to the other expenses of a Fund, cause the aggregate expenses of the Fund
to exceed the maximum expenses permitted under the lowest applicable expense
limitation established pursuant to the statutes or regulations of any
jurisdiction in which the shares of the Fund may be qualified for offer or
sale, the total compensation paid or payable to the Adviser shall be reduced
(but not below zero) to the extent necessary to cause the Fund not to exceed
such expense limitation. Except to the extent that such reduction has been
reflected in lower monthly payments to the Adviser, the Adviser shall refund to
a Fund the amount by which the total payments received by the Adviser are in
excess of such expense limitation as promptly as practicable after the end of
such fiscal year, provided that the Adviser shall not be required to pay a Fund
an amount greater than the fee otherwise payable to the Adviser by that Fund in
respect of such year. As used in this Section 4, "expenses" shall mean those
expenses included in the applicable expense limitation having the broadest
specifications thereof, and "expense limitation" shall mean a limitation on the
maximum annual expenses which may be incurred by an investment company as
determined by applicable law. The words "lowest applicable expense limitation"
shall be deemed to be that which results in the largest reduction of the
Adviser's compensation for any fiscal year of a Fund; provided, however, that
nothing in this Agreement shall limit the Adviser's fees if not required by an
applicable statute or regulation referred to above in this Section 4.
5. Books and Records. The Adviser agrees to maintain such books and
records with respect to its services to the Company and the Funds 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 31a-2 under the 1940
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Act and otherwise in connection with its services hereunder are the property of
the Company and will be surrendered promptly to the Company 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 Company and the Funds are being conducted in accordance with
applicable laws and regulations.
6. Standard of Care and Limitation of Liability. The Adviser shall
exercise its best judgment 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 a Fund or the holders
of a Fund's shares 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, a Fund or
to holders of a 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 Company or a
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 (whether or not their investment
objectives and policies are similar to those of a Fund) 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 Company and the Funds 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 a 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 a Fund, neither the Adviser
nor any of its directors, officers or employees shall act as a principal or
agent or receive any commission. If the Adviser provides any advice to its
clients concerning the shares of the Funds, the Adviser shall act solely as
investment counsel
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for such clients and not in any way on behalf of the Company or a Fund.
8. Duration and Termination. This Agreement shall continue until
__________________, 199 , and thereafter shall continue automatically, with
respect to all or fewer than all the Funds, as applicable, for successive
annual periods, provided such continuance is specifically approved at least
annually by (i) the Directors or, (ii) with respect to each Fund, by vote of a
"majority" (as defined in the 0000 Xxx) 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 parties
to this Agreement or "interested persons" (as defined in the 0000 Xxx) 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 or
a Fund upon the vote of a majority of the Directors (with respect to the
Company or a Fund) or, with respect to a Fund, 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
with respect to a Fund 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 such approval is required by applicable law.
10. Proxies. Unless the Company gives written instructions to the
contrary, the Adviser shall vote all proxies solicited by or with respect to
the issuers of securities in which assets of the Funds may be invested,
provided, that the Adviser may delegate this responsibility with respect to one
or more Funds to Portfolio Managers pursuant to a portfolio management
agreement. The Adviser (or Portfolio Manager) shall use its best good faith
judgment to vote such proxies in a manner which best serves the interests of
the particular Fund's shareholders.
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11. Name Reservation. The Company acknowledges and agrees that the
Adviser has property rights relating to the use of the term "ESC Strategic" and
has permitted the use of such term by the Company and its Funds. The Company
agrees that: (i) it will use the term "ESC Strategic" only as a component of
the names of the Company and the Funds and for no other purposes; (ii) it will
not purport to grant to any third party any rights in such term; (iii) at the
request of the Adviser, the Company will take such action as may be required to
provide its consent to use of the term by the Adviser, or any affiliate of the
Adviser to whom the Adviser shall have granted the right to such use; and (iv)
the Adviser may use or grant to others the right to use the term as all or a
portion of a corporate or business name or for any commercial purpose,
including a grant of such right to any other investment company. Upon
termination of this Agreement as to the Company or any Fund, the Company shall,
upon request of the Adviser, cease to use the term "ESC Strategic" as part of
the name of the Company and its Funds, or of any Fund as to which the Agreement
is terminated, as applicable. In the event of any such request by the Adviser
that use of the term "ESC Strategic" shall cease, the Company shall cause its
officers, directors and stockholders to take any and all such actions which the
Adviser may request to effect such request and to reconvey to the Adviser any
and all rights to the term "ESC Strategic."
12. Miscellaneous.
a. This Agreement shall be governed by the laws of the State of Tennessee,
provided that nothing herein shall be construed 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 any Fund.
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IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of ______________, 199__.
ESC STRATEGIC FUNDS, INC.
By
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President
EQUITABLE SECURITIES CORPORATION
By
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President
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SCHEDULE A
Fees payable to the Adviser pursuant to paragraph 4 hereof shall be at the
following annual rates for each Fund:
ESC Strategic Appreciation Fund 1.00%
ESC Strategic Global Equity Fund 1.00%
ESC Strategic Small Cap Fund 1.00%
ESC Strategic Growth Fund 1.25%
ESC Strategic Income Fund 1.00%
ESC Strategic Asset Preservation Fund 0.50%
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