EXHIBIT 5 (H)
ADVISORY AGREEMENT
M.S.D.& T. FUNDS, INC.
Xxx Xxxxxxx Xxxxx
Xxxxxxxxx, Xxxxxxxx 00000
____________ __, 1997
Mercantile-Safe Deposit and Trust Company
Xxx Xxxxxxx Xxxxx
Xxxxxxxxx, Xxxxxxxx 00000
Dear Sirs:
This will confirm the agreement, entered into in consideration of the
premises and mutual covenants herein contained, and for other good and valuable
consideration, between the undersigned (the "Company") and you as follows:
1. General. The Company is an open-end investment company. This
-------
Agreement relates to five of the Company's portfolios -- the Equity Income Fund,
the Equity Growth Fund, the Total Return Bond Fund, the National Tax-Exempt Bond
Fund and the Intermediate Tax-Exempt Bond Fund (individually, a "Fund" and
collectively, the "Funds"). The Company proposes to engage in the business of
investing and reinvesting the assets of each Fund in the manner and in
accordance with the investment objective, policies and limitations specified
with respect to each Fund in the Company's Prospectus and Statement of
Additional Information relating to the Funds (the "Prospectus") included in the
Company's Registration Statement on Form N-1A, as amended from time to time (the
"Registration Statement"), filed under the Investment Company Act of 1940, as
amended (the "1940 Act"), and the Securities Act of 1933, as amended. Copies of
the Prospectus have been furnished to you. Any amendments to the Prospectus
shall be furnished to you promptly.
2. Advisory Services. Subject to the supervision and approval of the
-----------------
Company's Board of Directors, you will provide investment management of each
Fund's portfolio in accordance with such Fund's investment objective, policies
and limitations as stated in the Prospectus as from time to time in effect, and
resolutions of the Company's Board of Directors of which you will be advised. In
connection therewith, you will obtain and provide
investment research and will supervise each Fund's investments and conduct a
continuous program of investment, evaluation and, if appropriate, sale and
reinvestment of such Fund's assets.
In the event that the Company establishes one or more portfolios other
than the Funds with respect to which it desires to retain you as investment
adviser hereunder, it shall notify you in writing. If you are willing to render
such services under this Agreement you 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 other Funds except to
the extent that said provisions (including those relating to compensation
payable by such additional Fund to you as investment adviser) are modified with
respect to such additional Fund in writing by you and the Company at the time.
You will comply with all rules and regulations of the Securities and
Exchange Commission applicable to you in connection with your performance of
this Agreement, and will in addition conduct your activities under this
Agreement in accordance with other law, including banking law, applicable to
you.
You will not make loans for the purpose of purchasing or carrying Fund
shares, or make interest-bearing loans to the Company.
You will place orders for the purchase and sale of portfolio
securities and will solicit broker-dealers to execute transactions in accordance
with the Funds' policies and restrictions regarding brokerage allocations. You
will place orders pursuant to your investment determination for the Funds either
directly with the issuer or with any broker or dealer selected by you. In
executing portfolio transactions and selecting brokers or dealers, you will use
your reasonable best efforts to seek the most favorable execution of orders,
after taking into account all factors you deem 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, you 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, as amended) to or for the
benefit of the Funds and/or other accounts over which you or any of your
affiliates exercises investment discretion. You are authorized to pay to a
broker or dealer who provides such brokerage and research services a commission
for executing a portfolio transaction for any Fund which is in excess of the
amount of commission another broker or dealer would have charged for effecting
that
-2-
transaction if you determine 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 your
overall responsibilities to the particular Fund and to the Company. In no
instance will portfolio securities be purchased from or sold to you, or the
Funds' principal underwriter, or any affiliated person thereof except as
permitted by the Securities and Exchange Commission.
3. Assistance. You may employ or contract with other persons to
----------
assist you in the performance of this Agreement including, without limitation,
one or more sub-advisers who may perform under your supervision any or all
services described under Section 2 for one or more of the Funds; provided,
however, that the retention of any sub-adviser shall be approved as may be
required by the 1940 Act. Such other persons and/or sub-advisers may include
other investment advisory or management firms and officers or employees who are
employed by both you and the Company. The fees or other compensation of any such
other persons or sub-advisers shall be paid by you and no obligation may be
incurred on the Company's behalf to any such person or sub-adviser.
In the event that you appoint a sub-adviser for one or more of the
Funds, you will review, monitor, and report to the Company's Board of Directors
on the performance and investment procedures of any such sub-adviser; assist and
consult with any sub-adviser in connection with such Fund's or Funds' continuous
investment program; and, if applicable, approve lists of foreign countries which
may be recommended by any sub-adviser for investment by such Fund or Funds.
4. Fees. In consideration of the advisory services rendered pursuant
----
to this Agreement, the Equity Income Fund and the Equity Growth Fund each will
pay you on the first business day of each month a fee at the annual rate of .60
of 1% of the value of such Fund's average daily net assets during the preceding
month, the Total Return Bond Fund will pay you on the first business day of each
month a fee at the annual rate of .35 of 1% of such Fund's average daily net
assets during the preceding month, and the National Tax-Exempt Bond Fund and the
Intermediate Tax-Exempt Bond Fund each will pay you on the first business day of
each month a fee at the annual rate of .50 of 1% of such Fund's average daily
net assets during the preceding month. Net asset value shall be computed in the
manner, on such days and at such time or times as described in the Funds'
Prospectus from time to time. The fee for the period from the date of
commencement of operations of each Fund to the end of the first month thereafter
shall be prorated according to the proportion which such period bears to the
full monthly period, and upon any termination of this Agreement before the end
of any
-3-
month, the fee for such part of a month shall be prorated according to the
proportion which such period bears to the full monthly period and shall be
payable upon the date of termination of this Agreement.
5. Expenses. You will bear all of your own expenses in connection
--------
with the performance of your services under this Agreement, provided that such
expenses will not include the expenses to be borne by the Funds, as set forth
below. The expenses to be borne by the Funds include, without limitation, the
following: organizational costs; taxes; interest; brokerage fees and commissions
and other expenses in any way related to the execution, recording and settlement
of portfolio security transactions; fees of Directors who are not also your
officers; Securities and Exchange Commission fees; state Blue Sky qualification
fees; charges of custodians and transfer and dividend paying agents; premiums
for directors and officers liability insurance; costs of fidelity bonds;
industry association fees; outside auditing and legal expenses; costs of
maintaining corporate existence; costs of maintaining required books and
accounts; cost of office facilities and supplies; data processing, clerical,
accounting and bookkeeping services and other administrative expenses; costs
attributable to investor services (including, without limitation, telephone and
personnel expenses); costs of Securities and Exchange Commission regulatory
reports; costs of shareholders' reports and meetings; costs of preparing,
printing and mailing prospectuses for regulatory purposes and for distribution
to existing shareholders; and any extraordinary expenses.
6. Liability. You shall exercise your best judgment in rendering the
---------
services to be provided to each Fund. You shall remit to the particular Fund or
Funds the amount of any recovery you obtain for the benefit of such Fund or
Funds from any person or sub-adviser whom you have employed or with whom you
have contracted pursuant to Section 3 of this Agreement, for the acts and
omissions of such person or sub-adviser. Subject to the foregoing, each Fund
agrees as an inducement to you and others who may assist you in providing
services to such Fund that you and such other persons shall not be liable for
any alleged or actual error of judgment or mistake of law or for any alleged or
actual loss suffered by such Fund or the Company and each Fund and the Company
agree to indemnify and hold harmless you and such other persons against and from
any claims, liabilities, actions, suits, proceedings, judgments or damages (and
expenses as and when incurred in connection therewith, including the reasonable
cost of investigating or defending same, including, but not limited to
attorneys' fees) arising out of any such alleged or actual error of judgment or
mistake of law or loss; provided, however, that nothing herein shall be deemed
-------- -------
to protect or purport to protect you or any such other persons against any
liability to any Fund or to its shareholders to which you or they
-4-
would otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of duties hereunder, or by reason of reckless
disregard of the obligations and duties hereunder; and provided further, that
-------- -------
this sentence shall not inure to the benefit of any person or sub-adviser (or
others who may assist any such person or sub-adviser) whom you have employed or
with whom you have contracted pursuant to Section 3 of this Agreement.
7. Other Accounts. The Company understands that you and other
--------------
persons with whom you contract to provide the services hereunder may from time
to time act as investment adviser to one or more other investment companies and
fiduciary or other managed accounts, and the Company has no objection to your or
their so acting. When the purchase or sale of securities of the same issuer is
suitable for the investment objectives of two or more companies or accounts
managed by you or such other persons which have available funds for investment,
the available securities may be allocated in a manner believed by you and such
other persons to be equitable to each company or account. It is recognized that
in some cases this procedure may adversely affect the price paid or received by
a Fund or the size of the position obtainable for or disposed of by a Fund.
In addition, it is understood that you and the persons with whom you
contract to assist in the performance of your duties hereunder will not devote
their full time to such service and nothing contained herein shall be deemed to
limit or restrict your or their right to engage in and devote time and attention
to similar or other businesses.
8. Books and Records. In compliance with the requirements of Rule
-----------------
31a-3 under the 1940 Act, you agree that all records which you maintain for the
Company are the property of the Company and you further agree to surrender
promptly to the Company any of such records upon the Company's request. You
further agree to preserve for the periods prescribed by Rule 31a-2 under the
1940 Act such records that you, as investment adviser, are required to maintain
by Rule 31a-1 under the 1940 Act.
9. Term. This Agreement shall continue with respect to each Fund
----
until July 20, 1999 and thereafter shall continue automatically for successive
12-month periods, provided such continuance with respect to each Fund is
specifically approved at least annually by the Company's Board of Directors or
by vote of the lesser of (a) 67% of the shares of such Fund represented at a
meeting if the holders of more than 50% of the outstanding shares of the Fund
are present in person or by proxy or (b) more than 50% of the outstanding shares
of such Fund, provided that in either event its continuance also is approved by
a majority of the Company's Directors who are not "interested persons" (as
-5-
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. This Agreement
is terminable with respect to any Fund without penalty, on 60 days' notice, by
you or by the Company's Board of Directors or by vote of the lesser of (a) 67%
of the shares of such Fund represented at a meeting if the holders of more than
50% of the outstanding shares of the Fund are present in person or by proxy or
(b) more than 50% of the outstanding shares of such Fund. This Agreement will
terminate automatically in the event of its assignment (as defined in the 1940
Act).
10. Amendment. This Agreement may be amended only by an instrument in
---------
writing signed by the party against which enforcement of the amendment is
sought. No amendment of this Agreement shall be effective with respect to a
particular Fund until approved by vote of a majority of such Fund's outstanding
voting securities.
11. M.S.D.& T. or Mercantile-Safe Deposit & Trust Company. The
-----------------------------------------------------
Company recognizes that from time to time your directors, officers and employees
may serve as directors, trustees, partners, officers and employees of other
corporations, business trusts, partnerships or other entities (including other
investment companies) and that such other entities may include the name "M.S.D.&
T." or "Mercantile-Safe Deposit & Trust Company" as part of their name. You or
your affiliates may enter into investment advisory or other agreements with such
other entities. If you cease to act as the Company's investment adviser, the
Company agrees that, at your request, the Company will take all necessary action
to change the name of the Company and its Funds to a name not including "M.S.D.&
T." or "Mercantile-Safe Deposit & Trust Company" in any form or combination of
words.
12. Miscellaneous. The captions in this Agreement are included for
-------------
convenience of reference only and in no way define or limit 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 Maryland law; provided, that nothing herein shall be construed in a
manner inconsistent with the 1940 Act, the Investment Advisers Act of 1940, as
amended, or any rule or regulation of the Securities and Exchange Commission
thereunder.
-6-
If the foregoing is in accordance with your understanding, will you
kindly so indicate by signing and returning to us the enclosed copy hereof.
Very truly yours,
M.S.D.& T. FUNDS, INC.
By: ________________________
Accepted:
MERCANTILE-SAFE DEPOSIT AND
TRUST COMPANY
By: _______________________
-7-
