INVESTMENT ADVISORY AGREEMENT
THIS INVESTMENT ADVISORY AGREEMENT ("Agreement"), made this 1st day of
October, 1999, between EASTCLIFF FUNDS, INC., a Wisconsin corporation (the
"Company"), and RESOURCE CAPITAL ADVISERS, INC., a Minnesota corporation (the
"Adviser").
W I T N E S S E T H :
WHEREAS, the Company is currently registered with the Securities and
Exchange Commission under the Investment Company Act of 1940 (the "Act") as an
open-end management investment company consisting of four series, the Eastcliff
Total Return Fund, the Eastcliff Growth Fund, the Eastcliff Regional Small
Capitalization Value Fund and Eastcliff Contrarian Value Fund;
WHEREAS, the Adviser provides investment advisory services to the Eastcliff
Total Return Fund, the Eastcliff Growth Fund, the Eastcliff Regional Small
Capitalization Value Fund and the
Eastcliff Contrarian Value Fund;
WHEREAS, the Company is in the process of creating a fifth
series, the Eastcliff Emerging Growth Fund (the "Fund"); and
WHEREAS, the Company desires to retain the Adviser, which is
an investment adviser registered under the Investment Advisers Act of 1940, as
the investment adviser for the Fund.
NOW, THEREFORE, the Company and the Adviser do mutually promise and agree
as follows:
1. Employment. The Company hereby employs the Adviser to manage the
investment and reinvestment of the assets of the Fund and to administer its
business and administrative operations, subject to the direction of the Board of
Directors of the Company (the "Board of Directors") and the officers of the
Company, for the period and on the terms set forth in this Agreement. The
Adviser hereby accepts such employment for the compensation herein provided and
agrees during such period to render the services and to assume the obligations
herein set forth.
2. Authority of the Adviser. The Adviser shall for all purposes herein be
deemed to be an independent contractor and shall, unless otherwise expressly
provided or authorized, have no authority to act for or represent the Company or
the Fund in any way or otherwise be deemed an agent of the Company or the Fund.
However, one or more shareholders, officers, directors or employees of the
Adviser may serve as directors and/or officers of the Company, but without
compensation or reimbursement of expenses for such services from the Company.
Nothing herein contained shall be deemed to require the Company to take any
action contrary to its Articles of Incorporation, as amended, restated or
supplemented, or any applicable statute or regulation, or to relieve or deprive
the Board of Directors of its responsibility for and control of the affairs of
the Fund.
3. Obligations of and Services to be Provided by the Adviser. The Adviser
undertakes to provide the services hereinafter set forth and to assume the
following obligations:
2
A. Management and Administrative Services.
(1) The Adviser shall furnish to the Company adequate office space,
which may be space within the offices of the Adviser or in such other place
as may be agreed upon from time to time, and all office furnishings,
facilities and equipment as may be reasonably required for performing
services relating to advisory, research, asset allocation, portfolio
manager selection and evaluation activities and otherwise managing and
administering the business and operations of the Fund.
(2) The Adviser shall employ or provide and compensate the executive,
administrative, secretarial and clerical personnel necessary to supervise
the provision of the services set forth in sub-paragraph 3(A)(1) and shall
bear the expense of providing such services, except as provided in Section
4 of this Agreement. The Adviser shall also compensate all officers and
employees of the Company who are officers or employees of the Adviser or
its affiliated companies.
B. Investment Management Services.
(1) The Adviser shall, subject to and in accordance with the
investment objective and policies of the Fund and any directions which the
Board of Directors may issue to the Adviser, have overall responsibility
for the general management and investment of the assets and securities
portfolios of the Fund.
(2) The Adviser may delegate its investment responsibilities under
sub-paragraph 3(B)(1) with respect to the Fund or segments thereof to one
or more
3
persons or companies ("Portfolio Manager[s]") pursuant to an agreement
between the Adviser, the Company and each such Portfolio Manager
("Sub-Advisory Agreement"). Each Sub-Advisory Agreement may provide that
the Portfolio Manager, subject to the control and supervision of the Board
of Directors and the Adviser, shall have full investment discretion for the
Fund and shall make all determinations with respect to the investment of
the Fund's assets assigned to the Portfolio Manager and the purchase and
sale of portfolio securities with those assets, and such steps as may be
necessary to implement its decision. Any delegation of duties pursuant to
this paragraph shall comply with any applicable provisions of Section 15 of
the Act, except to the extent permitted by any exemptive order of the
Securities and Exchange Commission or similar relief. Adviser shall not be
responsible or liable for the investment merits of any decision by a
Portfolio Manager to purchase, hold or sell a security for the Fund's
portfolio.
(3) The Adviser shall develop overall investment programs and
strategies for the Fund, or segments thereof, shall revise such programs as
necessary, and shall monitor and report periodically to the Board of
Directors concerning the implementation of the programs.
(4) The Adviser shall research and evaluate Portfolio Managers and
shall advise the Board of Directors of the Company of the Portfolio
Managers which the Adviser believes are best-suited to invest the assets of
the Fund; shall monitor and evaluate the investment performance of each
Portfolio Manager;
4
shall determine the portion of the Fund's assets to be managed by each
Portfolio Manager; shall recommend changes or additions of Portfolio
Managers when appropriate; and shall coordinate the investment activities
of the Portfolio Managers.
(5) The Adviser shall be solely responsible for paying the fees of
each Portfolio Manager.
(6) The Adviser shall render to the Board of Directors such periodic
reports concerning the business and investments of the Fund as the Board of
Directors shall reasonably request.
C. Provision of Information Necessary for Preparation of Securities
Registration Statements, Amendments and Other Materials.
The Adviser will make available and provide financial, accounting and
statistical information required by the Fund for the preparation of registration
statements, reports and other documents required by federal and state securities
laws, and with such information as the Fund may reasonably request for use in
the preparation of such documents or of other materials necessary or helpful for
the underwriting and distribution of the Fund's shares.
D. Provision of Personnel.
The Adviser shall make available its officers and employees to the Board of
Directors and officers of the Company for consultation and discussions regarding
the administration and management of the Company and its investment activities.
4. Expenses. The Adviser shall not be required to pay any expenses of the
Fund except as provided herein; provided, however, that if the aggregate annual
operating
5
expenses, including the Adviser's fee and the fees paid to the Fund's
Administrator but excluding all federal, state and local taxes, interest,
brokerage commissions and other costs incurred in connection with the purchase
or sale of portfolio securities and extraordinary items, in any year exceed that
percentage of the average net assets of the Fund for such year, as determined by
valuations made as of the close of each business day of the year, which is the
most restrictive percentage provided by the state laws of the various states in
which the Fund's shares are qualified for sale or, if the states in which the
Fund's shares are qualified for sale impose no such restrictions, 2%, then the
Adviser's fee shall be reduced as hereinafter provided. The expenses of the
Fund's operations borne by the Fund include by way of illustration and not
limitation, directors fees paid to those directors who are not officers of the
Company, the costs of preparing and printing registration statements required
under the Securities Act of 1933 and the Act (and amendments thereto), the
expense of registering its shares with the Securities and Exchange Commission
and in the various states, the printing and distribution cost of prospectuses
mailed to existing shareholders, the cost of stock certificates (if any),
director and officer liability insurance, reports to shareholders, reports to
government authorities and proxy statements, interest charges, taxes, legal
expenses, salaries of administrative and clerical personnel, association
membership dues, auditing and accounting services, insurance premiums, brokerage
and other expenses connected with the execution of portfolio securities
transactions, fees and expenses of the custodian of the Fund's assets, expenses
of calculating the net asset value and repurchasing and redeeming shares,
printing and mailing expenses, charges and expenses of dividend disbursing
agents, registrars and stock transfer agents and the cost of keeping all
necessary shareholder records and accounts.
6
The Company shall monitor the expense ratio of the Fund on a monthly basis.
If the accrued amount of the expenses of the Fund exceeds the expense limitation
established herein, the Company shall create an account receivable from the
Adviser in the amount of such excess. In such a situation the monthly payment of
the Adviser's fee will be reduced by the amount of such excess, subject to
adjustment month by month during the balance of the Company's fiscal year if
accrued expenses thereafter fall below the expense limitation.
5. Compensation of the Adviser. For the services to be rendered by the
Adviser hereunder, the Company, through and on behalf of the Fund, shall pay to
the Adviser an advisory fee, paid monthly, based on the average net asset value
of the Fund, as determined by valuations made as of the close of each business
day of the month. The advisory fee shall be 1/12 of 1.0% of the average daily
net asset value of the Fund. For any month in which this Agreement is not in
effect for the entire month, such fee shall be reduced proportionately on the
basis of the number of calendar days during which it is in effect and the fee
computed upon the average net asset value of the business days during which it
is so in effect.
6. Ownership of Shares of the Fund. The Adviser shall not take an ownership
position in the Fund, and shall not permit any of its shareholders, officers,
directors or employees to take a long or short position in the shares of the
Fund, except for the purchase of shares of the Fund for investment purposes at
the same price as that available to the public at the time of purchase or in
connection with the initial capitalization of the Fund.
7. Exclusivity. The services of the Adviser to the Fund hereunder are not
to be deemed exclusive and the Adviser shall be free to furnish similar services
to others as long as
7
the services hereunder are not impaired thereby. Although the Adviser has agreed
to permit the Company to use the name "Eastcliff", if it so desires, it is
understood and agreed that the Adviser reserves the right to use and to permit
other persons, firms or corporations, including investment companies, to use
such name. During the period that this Agreement is in effect, and except as
herein provided, the Adviser shall be the Fund's sole investment adviser.
8. Liability. In the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of obligations or duties hereunder on the part
of the Adviser, the Adviser shall not be subject to liability to the Fund or to
any shareholder of the Fund for any act or omission in the course of, or
connected with, rendering services hereunder, or for any losses that may be
sustained in the purchase, holding or sale of any security.
9. Brokerage Commissions. The Adviser, subject to the control and direction
of the Board of Directors, and any Portfolio Managers, subject to the control
and direction of the Board of Directors and the Adviser, shall have authority
and discretion to select brokers and dealers to execute portfolio transactions
for the Fund and for the selection of the markets on or in which the
transactions will be executed. The Adviser or the Portfolio Managers may cause
the Fund to pay a broker-dealer which provides brokerage and research services,
as such services are defined in Section 28(e) of the Securities Exchange Act of
1934 (the "Exchange Act"), to the Adviser or the Portfolio Managers a commission
for effecting a securities transaction in excess of the amount another
broker-dealer would have charged for effecting such transaction, if the Adviser
or the Portfolio Manager determines in good faith that such amount of commission
is reasonable in relation to the value of brokerage and research services
provided by the executing broker-dealer viewed in terms of either that
particular transaction or
8
his overall responsibilities with respect to the accounts as to which he
exercises investment discretion (as defined in Section 3(a)(35) of the Exchange
Act). The Adviser shall provide such reports as the Board of Directors may
reasonably request with respect to each Fund's total brokerage and the manner in
which that brokerage was allocated.
10. Code of Ethics. The Adviser has adopted a written code of ethics
complying with the requirements of Rule 17j-1 under the Act and has provided the
Company with a copy of the code of ethics and evidence of its adoption. Upon the
written request of the Company, the Adviser shall permit the Company to examine
the reports required to be made by the Adviser pursuant to Rule 17j-1(c)(1).
11. Amendments. This Agreement may be amended by the mutual consent of the
parties; provided, however, that in no event may it be amended without the
approval of the Board of Directors in the manner required by the Act, and, if
required by the Act, by the vote of the majority of the outstanding voting
securities of the Fund, as defined in the Act.
12. Termination. This Agreement may be terminated at any time, without the
payment of any penalty, by the Board of Directors or by a vote of the majority
of the outstanding voting securities of the Fund, as defined in the Act, upon
giving sixty (60) days' written notice to the Adviser. This Agreement may be
terminated by the Adviser at any time upon the giving of sixty (60) days'
written notice to the Company. This Agreement shall terminate automatically in
the event of its assignment (as defined in Section 2(a)(4) of the Act). Subject
to prior termination as hereinbefore provided, this Agreement shall continue in
effect for an initial period beginning as of the date hereof and ending October
1, 2001 and indefinitely thereafter, but only so long as the continuance after
such initial period is
9
specifically approved annually by (i) the Board of Directors or by the vote of
the majority of the outstanding voting securities of the Company, as defined in
the Act, and (ii) the Board of Directors in the manner required by the Act,
provided that any such approval may be made effective not more than sixty (60)
days thereafter.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day first above written.
RESOURCE CAPITAL ADVISERS, INC.
(the "Adviser")
By:_________________________________
▇▇▇▇ ▇. ▇▇▇▇▇▇, President
EASTCLIFF FUNDS, INC.
(the "Company")
By:_________________________________
▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇., President
10