INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of May 16, 1997 by and among EXCELSIOR TAX-EXEMPT
FUNDS, INC., a Maryland corporation (herein called the "Company"), U.S. TRUST
COMPANY OF CONNECTICUT ("USTCT"), 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 USTCT, the "Investment
Adviser").
WHEREAS, the Company is registered as an open-end, diversified,
management investment company under the Investment Company Act of 1940;
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 and
California Tax-Exempt Income 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.
(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 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; and Class F Common Shares, $.001 par value, representing
interests in the Short-Term Tax-Exempt Securities 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:
(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;
-2-
(b) 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;
(c) 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;
(d) 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;
-3-
(e) 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 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
-4-
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: .50% of the average
daily net assets of the New York Intermediate-Term Tax-Exempt Fund; .50% of the
average daily net assets of the California Tax-Exempt Income Fund; and .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, 1997. 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,
-5-
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.)
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.
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
-6-
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, III By:/s/F.S. Wonham
------------------------- ------------------------------
Secretary President
[Seal]
Attest: U.S. TRUST COMPANY OF CONNECTICUT
/s/Xxxxxxx X. Xxxxx, Xx. By:/s/W. Xxxxxxx Xxxxx
------------------------ ------------------------------
President & CEO
UNITED STATES TRUST COMPANY OF
NEW YORK
Attest:
/s/Xxxxxxx X. Xxxxx, Xx. By:/s/Xxxxxxx X. Xxxxx
------------------------ ------------------------------
Executive Vice President
-7-
