1
ESC STRATEGIC FUNDS, INC.
PORTFOLIO MANAGEMENT AGREEMENT
AGREEMENT, effective commencing on May 24, 1999 among SunTrust
Equitable Securities (the "Adviser"), ESC Strategic Funds, Inc. (the "Company")
and Westcap Investors, LLC (the "Portfolio Manager").
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 Adviser has been appointed by the Company, pursuant to an
investment advisory agreement dated January 1, 1998 ("Investment Advisory
Agreement"), to act as investment adviser to the Company with respect to each of
its present and future series ("Funds");
WHEREAS, the Adviser wishes to retain the Portfolio Manager to render
portfolio management services to the Company with respect to ESC Strategic
Appreciation Fund (the "Fund") and the Portfolio Manager is willing to furnish
such services to the Fund;
WHEREAS, the Portfolio Manager 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 Adviser and the Portfolio Manager as
follows:
1. Appointment. Pursuant to authority granted in the Investment
Advisory Agreement and with the approval of the Directors, the Adviser hereby
appoints the Portfolio Manager to act as portfolio manager for the Fund for the
periods and on the terms set forth in this Agreement. The Portfolio Manager
accepts such appointment and agrees to furnish the services herein set forth,
for the compensation herein provided.
2. Portfolio Management Duties. Subject to the overall supervision of
the Directors of the Company and the Adviser, the Portfolio Manager is hereby
granted full responsibility and discretion, with respect to only such portion of
the Fund's assets (and not other portions) as shall be allocated to it by the
Adviser for management pursuant to this Agreement from time to time (the
"Assets"), for (a) the management of the Assets in accordance with the 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
("SEC"), as they may be amended from time to time, ("Registration Statement")
copies of which shall be provided to the Portfolio Manager by the Adviser; and
(b) the placement of orders to purchase and sell securities for the Fund. At the
request of the Directors or the Adviser, the Portfolio Manager 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 Portfolio Manager to the
investment policies of the Fund.
1
2
The Portfolio Manager further agrees that, in performing its duties
hereunder, it 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 Assets, and to coordinate its
activities with the Adviser and any other portfolio manager of the Fund, so that
the Fund will qualify, and continue to qualify, as a regulated investment
company under Subchapter M of the Code and regulations issued thereunder;
(c) place orders for the investment of the Assets 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 the Fund and in accordance with applicable legal requirements;
(d) furnish to the Company, the Adviser and any other portfolio manager
whatever statistical information the Company, the Adviser or such other
portfolio manager may reasonably request with respect to the Assets or
contemplated investments; keep the Adviser and the Directors and, as
appropriate, other portfolio managers informed of developments materially
affecting the Fund's portfolio; and, on the Portfolio Manager's own initiative,
furnish to the Company, the Adviser or other portfolio manager from time to time
whatever information the Portfolio Manager believes appropriate for this
purpose;
(e) make available to the Company's administrator (the
"Administrator"), the Company or the Adviser, promptly upon their request, such
copies of its investment records and ledgers with respect to the Fund as may be
required to assist the Administrator, the Company and the Adviser in their
compliance with applicable laws and regulations. The Portfolio Manager will
furnish the Directors with such periodic and special reports regarding the Fund
as the Directors may reasonably request;
(f) immediately notify the Company and the Adviser in the event that
the Portfolio Manager or any of its affiliates: (1) becomes aware that it is
subject to a statutory disqualification that prevents the Portfolio Manager from
serving as a portfolio manager pursuant to this Agreement; or (2) becomes aware
that it is the subject of an administrative proceeding or enforcement action by
the SEC or other regulatory authority. The Portfolio Manager further agrees to
notify the Company and the Adviser immediately of any material fact known to the
Portfolio Manager respecting or relating to the Portfolio Manager that is not
contained in the Company's Registration Statement regarding the Fund, 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 Assets, use no
inside information that may be in its possession or in the possession of any of
its affiliates, nor will the Portfolio Manager seek to obtain any such
information.
3. Banking and Custody Accounts. The Portfolio Manager shall not be
required to provide or arrange for banking accounts for the Fund or to hold
money or assets on the Fund's behalf. The Portfolio Manager shall not be
required to act as the registered holder of any investment or to provide or
procure any custody or settlement services in connection with its services
hereunder. The Fund has entered into one or more agreements with providers of
banking and custody services (Custodians) whom the Fund will authorize to act
upon instructions from properly authorized representatives of the Portfolio
2
3
Manager, in connection with its services hereunder, directing the Custodian(s)
to pay, deliver or receive cash and securities in settlement of transactions
authorized by the Portfolio Manager on the Fund's behalf. The Fund's
agreement(s) with such Custodian(s) will require the Custodian(s) to settle all
transactions directed by the Portfolio Manager on the Fund's behalf.
4. Allocation of Charges and Expenses. Except as otherwise specifically
provided in this section 4, the Portfolio Manager 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 the Portfolio Manager shall make available, without
expense to the Fund, 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 Portfolio Manager shall not be required to pay any expenses of the
Company or the Fund other than those specifically allocated to the Portfolio
Manager in this section 4. In particular, but without limiting the generality of
the foregoing, the Portfolio Manager 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 Portfolio Manager whose services may be involved,
for the following expenses of the Company or the Fund: organization and certain
offering expenses of the Company and the Fund (including out-of-pocket expenses,
but not including the Portfolio Manager's overhead and employee costs); fees
payable to or expenses of other portfolio managers or consultants; 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
Fund 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, transfer agent, registrar, or dividend disbursing agent
of the Company or the Fund; 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 Fund; expenses relating to investor and public relations; expenses of
registering and qualifying shares of the Fund for sale; freight, insurance and
other charges in connection with the shipment of the Fund's portfolio
securities; brokerage commissions or other costs of acquiring or disposing of
any portfolio securities or other assets of the Fund, or of entering into other
transactions or engaging in any investment practices with respect to the Fund;
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 the Fund) of officers, directors and employees of the Company who are not
interested persons of the Portfolio Manager; and travel expenses (or an
appropriate portion thereof) of officers or directors of the Company who are
officers, directors or employees of the Portfolio Manager 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.
5. Compensation. As compensation for the services provided and expenses
assumed by the Portfolio Manager under this Agreement, the Adviser, out of its
fees from the Fund pursuant to the Investment Advisory Agreement, will pay the
Portfolio Manager at the end of each calendar month an investment management fee
computed daily at an annual rate equal to 0.50% of the average daily net value
of the Assets. The "average daily net value of the Assets" shall mean the
average of the values
3
4
placed on the net Assets as of the time at which, and on such days as, the Fund
lawfully determines the value of its net assets in accordance with the
prospectus or otherwise. The value of the net Assets, and of the 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 5, the value of the net
Assets as last determined shall be deemed to be the value of the net Assets as
of the close of the New York Stock Exchange, or as 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 the Fund
has been so suspended for a period including any month end when the Portfolio
Manager's compensation is payable pursuant to this section, then the Portfolio
Manager's compensation payable at the end of such month shall be computed on the
basis of the value of the net Assets as last determined (whether during or prior
to such month). If the Fund determines the value of the net assets of its
portfolio more than once on any day, then the last such determination thereof
with respect to the net Assets on that day shall be deemed to be the sole
determination thereof on that day with respect to the net Assets for the
purposes of this section 5.
6. Books and Records. The Portfolio Manager agrees to maintain such
books and records with respect to its services to the Fund 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
Portfolio Manager also agrees that records it maintains and preserves pursuant
to Rules 31a-1 and 31a-2 under the 1940 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 Portfolio Manager 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 Fund are being conducted in accordance with applicable laws and
regulations.
7. Standard of Care and Limitation of Liability. The Portfolio Manager
shall exercise its best judgment in rendering the services provided by it under
this Agreement. The Portfolio Manager shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Company or the Fund
or the holders of the 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 Portfolio Manager against any liability to the
Company, the Fund or to holders of the Fund's shares to which the Portfolio
Manager 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 Portfolio Manager's reckless disregard of its obligations and duties under
this Agreement. As used in this Section 7, the term "Portfolio Manager" shall
include any officers, directors, employees or other affiliates of the Portfolio
Manager performing services with respect to the Company or the Fund.
8. Services Not Exclusive. It is understood that the services of the
Portfolio Manager are not exclusive, and that nothing in this Agreement shall
prevent the Portfolio Manager 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 the Fund or
another fund of the Company) 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 Portfolio Manager's ability to meet its
obligations to the Company, the Adviser and the Fund hereunder. It is also
understood that, in performing investment advisory services for clients other
than the Fund, the Portfolio Manager may give advice and take action which may
differ in nature and/or timing from its advice or action with respect to the
Fund.
4
5
When the Portfolio Manager recommends the purchase or sale of a security for
other investment companies and other clients, and at the same time the Portfolio
Manager recommends the purchase or sale of the same security for the 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
the Fund, neither the Portfolio Manager nor any of its directors, officers or
employees shall act as a principal or agent or receive any commission. If the
Portfolio Manager provides any advice to its clients concerning the shares of
the Fund or other funds of the Company, the Portfolio Manager shall act solely
as investment counsel for such clients and not in any way on behalf of the
Company, the Fund or another fund of the Company.
9. Duration and Termination. This Agreement shall continue until May
24, 2001 and thereafter shall continue automatically for successive annual
periods, provided such continuance is specifically approved at least annually by
(i) the Directors or (ii) by vote of a "majority" (as defined in the ▇▇▇▇ ▇▇▇)
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 ▇▇▇▇ ▇▇▇) 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
(i) by the Adviser, (ii) by the Company upon the vote of a majority of the
Directors or (iii) by vote of the majority of the Fund's outstanding voting
securities, each upon sixty (60) days' written notice to the Portfolio Manager;
or (b) by the Portfolio Manager at any time without penalty, upon sixty (60)
days' written notice to the Company or the Adviser. This Agreement will also
terminate automatically in the event of its assignment (as defined in the 1940
Act).
10. 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
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.
11. Proxies and Rights. Unless the Company or the Adviser gives written
instructions to the contrary, the Portfolio Manager shall (a) vote all proxies
solicited by or with respect to the issuers of securities in which the Assets
are invested, using its best good faith judgment to vote such proxies in a
manner which best serves the interests of the Fund's shareholders, and (b)
exercise all other rights attaching to or arising with respect to the Assets,
subject to the Fund's investment objectives, policies and limitations as stated
in its Registration Statement, directing the Custodian to make any required
payment or settlement in connection therewith.
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.
5
6
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 Portfolio
Manager as an agent of the Company or the Fund.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of May 24, 1999.
SUNTRUST EQUITABLE SECURITIES
By
-----------------------------------
Chief Executive Officer
WESTCAP INVESTORS, LLC
By
-----------------------------------
6