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Exhibit 5B
INVESTMENT SUBADVISORY AGREEMENT
Among
GROWTH STOCK PORTFOLIO
and
X. XXXXXX & ASSOCIATES, INC.
and
SECTOR CAPITAL MANAGEMENT, L.L.C.
This Agreement is made the ___ day of December, 1996, by and among
Growth Stock Portfolio, a trust organized and existing under the laws of the
state of New York and operating as an open-end investment company (the
"Portfolio"), X. Xxxxxx & Associates, Inc., an Ohio corporation (the
"Adviser"), and Sector Capital Management, L.L.C., a Georgia limited liability
company (the "Subadviser").
W I T N E S S E T H :
WHEREAS, the Portfolio is engaged in business as an open-end
management investment company and is registered as such under the Investment
Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Adviser and the Subadviser are each engaged principally
in the business of rendering investment supervisory services and each is
registered as an investment adviser under the Investment Advisers Act of 1940,
as amended; and
WHEREAS, the Portfolio has retained the Adviser as its investment
adviser pursuant to an Investment Advisory Agreement dated April 30, 1992
(the "Advisory Agreement") which expressly provides that the Adviser may
contract for such supplementary advisory services as it deems necessary or
desirable, provided that any such contract is approved by the Portfolio and the
holders of interests therein in accordance with the 1940 Act; and
WHEREAS, the Portfolio and the Adviser desire to retain the Subadviser
to render investment and supervisory services to the Portfolio in the manner
and on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual promises hereinafter
set forth, the parties hereto agree as follows:
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INVESTMENT RESPONSIBILITY
(1) The Portfolio and the Adviser hereby retain the Subadviser to
supervise and assist in the management of the assets of the Portfolio and to
furnish the Portfolio with a continuous program for the investment of the
Portfolio's assets.
In such capacity, the Subadviser is authorized to enter into sub-subadvisory
agreements for investment advisory services in connection with the management of
the Portfolio. Any such agreement may be entered into by the Subadviser on such
terms and in such manner as may be permitted by the 1940 Act and the rules and
regulations of the Securities and Exchange Commission thereunder. The
Subadviser will continue to have responsibility for all investment advisory
services furnished pursuant to any such sub-subadvisory agreements. The Sub-
adviser will review the performance of all sub-subadvisers and make
recommendations to the Trustees of the Portfolio with respect to their retention
and renewal of their contracts.
(2) Subject to the supervision of the Trustees of the Portfolio, and
subject to the foregoing Section (1) hereof, the Subadviser shall be responsible
for the management of the investment strategy of the Portfolio and the
composition thereof, including the purchase, retention and disposition
strategies relating thereto, in accordance with the Portfolio's investment
objective, policies and restrictions as stated in its then current registration
statement (the "Registration Statement") under the 1940 Act and subject to the
following understandings:
(a) The Subadviser, in the performance of its duties and
obligations under this Agreement shall act in conformity with the
Declaration of Trust, By-Laws and Registration Statement of the
Portfolio and with the instructions and directions of the
Trustees of the Portfolio and will conform to and comply with the
requirements of the 1940 Act and with all other applicable
federal and state laws and regulations.
(b) The Subadviser, in the performance of its duties and
obligations under this Agreement, shall also act in conformity
with the "Sector Plus" investment discipline developed by the
Subadviser, as described in the Proxy Statement dated November 15,
1996, of the Flex-funds The Growth Fund relating to the approval
by the shareholders of this Agreement.
(3) The Subadviser shall furnish to the Portfolio the services of one
or more persons who shall be authorized by the Portfolio to place orders for
the purchase and sale of securities for the account of the Portfolio. Acting
through a person so authorized by the Portfolio, the Adviser shall place orders
for the Portfolio.
(4) Notwithstanding the generality of paragraph (3) above, and subject
to the provisions of paragraphs (5) and (6) below, the Subadviser shall
endeavor to secure for the Portfolio the best possible price and execution of
every purchase and sale for the account of the Portfolio. In seeking such best
price and execution the Subadviser shall use its own judgment as to the
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implementation of its own investment recommendations, including the
Subadviser's judgment as to the time when an order should be placed, the number
of securities to be bought or sold in any one trade that is a part of any
particular recommendation, and the market in which an order should be placed.
(5) The Subadviser shall use its own judgment in determining the
broker-dealers who shall be employed to execute orders for the purchase or sale
of securities for the Portfolio, in order to:
a. Secure best price and execution on purchases and sales
for the Portfolio; and
b. Secure supplemental research and statistical data for use
in making its recommendations to the Portfolio.
(6) The Subadviser shall use its discretion as to when, and in which
market, the Portfolio's transactions shall be executed, in order to secure for
the Portfolio the benefits of best price and execution, and supplemental
research and statistical data. The use of such discretion shall be subject to
review by the Trustees of the Portfolio at any time and from time to time. The
Portfolio, acting by its Trustees, may withdraw said discretion at any time,
and may direct the execution of portfolio transactions for the Portfolio in any
lawful manner different from that provided for herein. Until a decision is made
to withdraw or limit the discretion herein granted, the Subadviser shall not be
liable for any loss suffered by the Portfolio through the exercise by the
Subadviser of that discretion unless the Subadviser shall be guilty of gross
negligence or willful misconduct.
II
COMPENSATION
The Portfolio shall not pay the Subadviser any fee pursuant to this Agreement.
Instead, the Subadviser shall be compensated by a sharing of the fee (the "Fee")
payable by the Portfolio to the Adviser under the Advisory Agreement. Such
sharing shall be in accordance with the following formula: The Adviser shall
receive 70% and the Subadviser shall receive 30% of the Fee payable with respect
to the net assets of the Portfolio as such net assets exist on the effective
date of this Agreement (the "Effective Date"). The Adviser shall receive 30% and
the Subadviser shall receive 70% of the Fee attributable to any additional net
assets of the Portfolio, up to an amount of net assets equal to the net assets
of the Portfolio on the Effective Date and the Adviser and the Subadviser shall
share equally the Fee attributable to any additional net assets of the
Portfolio, up to $50 million of such net assets. With respect to net assets of
more than $50 million and less than $100 million, the applicable Fee (75 basis
points) shall be shared such that the Adviser receives 35 basis points and the
Subadviser receives 40 basis points. With respect to net assets of $100 million
and more, the applicable Fee (60 basis points) shall be shared such that the
Adviser receives 25 basis points and the Subadviser receives 35 basis points.
The parties to this Agreement agree that arrangements may be
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made for disbursement of fees to each of the Adviser and Subadviser
directly from the Portfolio without affecting the fact that the
contractual obligation to pay fees to the Subadviser is that of the
Adviser and not the Portfolio.
III
DURATION AND TERMINATION
(1) The Effective Date of this Agreement shall be the date
first above written and, unless sooner terminated as hereinafter
provided, this Agreement shall remain in effect for a period of two
years. Thereafter this Agreement shall continue in effect from year to
year, subject to the termination provisions and all other terms and
conditions hereof; if: (a) such continuation shall be specifically
approved at least annually by vote of a majority of the outstanding
voting securities of the Portfolio or by the vote, cast in person at a
meeting called for the purpose of voting on such approval, of a
majority of the Trustees of the Portfolio who are not parties to this
Agreement or interested persons of any such party; and (b) the
Subadviser shall not have notified the Portfolio and the Adviser, in
writing, at least 60 days prior to the expiration of any term, that it
does not desire such continuation. The Subadviser shall furnish to the
Portfolio, promptly upon its request, such information as may
reasonably be necessary to evaluate the terms of this Agreement or any
extension, renewal or amendment hereof.
(2) This Agreement may not be amended, transferred, sold or
in any manner hypothecated or pledged, without the affirmative vote of
a majority of the outstanding voting securities of the Portfolio, and
this Agreement shall automatically and immediately terminate in the
event of its assignment.
(3) This Agreement may be terminated by any party hereto,
without the payment of any penalty, upon 60 days' notice in writing to
the other parties, provided, that in the case of termination by the
Portfolio such action shall have been authorized by resolution of the
Trustees or by vote of a majority of the outstanding voting securities
of the Portfolio.
IV
MISCELLANEOUS
(1) The Subadviser shall not deal with the Portfolio as
broker or dealer but the Subadviser may enter orders for the purchase
or sale of portfolio securities through a company or companies that
are under common control with the Subadviser, provided such company
acts as broker, and charges a commission that does not exceed the
usual and customary broker's commission if the sale is effected on a
securities exchange, or, 1 per centum of the purchase or sale price of
such securities if the sale is otherwise effected. In connection with
the purchase or sale of portfolio securities for the account of the
Portfolio, neither the Subadviser nor any officer or member of the
Subadviser shall act as a principal.
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(2) Except as expressly prohibited in this Agreement, nothing
herein shall in any way limit or restrict the Subadviser, or any
members, officers, shareholders or employees of the Subadviser, from
buying, selling or trading in any security for its or their own
account. Neither the Subadviser nor any officer or member thereof
shall take a short position in any shares of the Portfolio or
otherwise purchase its shares for any purpose other than that of
investment. However, the Subadviser may act as underwriter or
distributor provided it does so pursuant to a written contract
approved in the manner specified in the 1940 Act.
(3) The Subadviser may act as investment adviser to, and
provide management services for, other investment companies, and may
engage in businesses that are unrelated to investment companies,
without limitation, provided the performance of such services and the
transaction of such businesses do not impair the Subadviser's
performance of this Agreement.
The Subadviser shall not be liable for any error of judgment
or mistake of law or for any loss suffered by the Portfolio in
connection with the matters to which this Agreement relates
(including, but not limited to, loss sustained by reason of the
adoption or implementation of any investment policy or the purchase,
sale or retention of any security), except for loss resulting from
willful misfeasance, bad faith or gross negligence of the Subadviser
in the performance of its duties or from reckless disregard by the
Subadviser of its obligations and duties under this Agreement.
(5) Any question of interpretation of any term or provision
of this Agreement having a counterpart in or otherwise derived from a
term or provision of the 1940 Act shall be resolved by reference to
such term or provision of said Act and to interpretations thereof, if
any, by the United States courts or, in the absence of any controlling
decision of any such court, by rules, regulations or orders of the
Securities and Exchange Commission validly issued pursuant to said
Act. Specifically, the terms "vote of a majority of the outstanding
voting securities", "annually", "interested person", "assignment", and
"affiliated person", as used herein, shall have the meanings assigned
to them by the 1940 Act. In addition, where the effect of a
requirement of the 1940 Act reflected in any provision of this
Agreement is relaxed by a rule, regulations or order of the Securities
and Exchange Commission, whether of special or of general application,
such provision shall be deemed to incorporate the effect of such rule,
regulation or order.
(6) The Portfolio will provide the Subadviser with all
information concerning the investment policies and restrictions of the
Portfolio as the Subadviser may from time to time request or which the
Portfolio deems necessary. In the event of any change in the
investment policies or restrictions of the Portfolio, the Portfolio
will promptly provide the Subadviser with all information concerning
such change including, but not limited to, copies of all documents
filed by the Portfolio with the Securities and Exchange Commission.
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(7) The Trustees, officers, employees and agents of the
Portfolio shall not be personally bound by or liable hereunder, nor
shall resort be had to their private property for the satisfaction of
any obligation or claim hereunder.
(8) The Subadviser agrees to notify the Adviser and the
Portfolio of any change in the senior officers or members of the
Subadviser responsible for the management of the Portfolio in advance,
if reasonable, and otherwise as soon as practicable after such change
occurs.
(9) Except to the extent the provisions of this Agreement are
governed by Federal law, they shall be governed by the law of the
State of Ohio.
(10) This Agreement represents the entire agreement among the
parties hereto.
(11) This Agreement may be executed in three or more
counterparts, each of which shall be considered an original.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be signed by their respective officers thereunto duly
authorized as of the day and year first above written.
GROWTH STOCK PORTFOLIO
Attest: /s/ XXXXXX X. XXXXXX By: /s/ XXXXXX X. XXXXXX, XX.
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Xxxxxx X. Xxxxxx, Secretary Xxxxxx X. Xxxxxx, Xx., President
X. XXXXXX & ASSOCIATES, INC.
Attest: /s/ XXXXXX X. XXXXXX By: /s/ XXXXXX X. XXXXXX, XX.
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Xxxxxx X. Xxxxxx, Secretary Xxxxxx X. Xxxxxx, Xx., Chairman
SECTOR CAPITAL MANAGEMENT, L.L.C.
Attest: By: /s/ XXXXXXX X. XXXXXX
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Xxxxxxx X. Xxxxxx, President