ESC STRATEGIC FUNDS, INC.
ESC Strategic Appreciation Fund
ESC Strategic Global Equity Fund
ESC Strategic Small Cap Fund
ESC Strategic Income Fund
ESC Strategic Growth Fund
ESC Strategic Value Fund
3435 Stelzer Road
Columbus, Ohio 43219
Dear Shareholder:
As you may be aware, Equitable Securities Corporation ("Adviser"), the
investment adviser to ESC Strategic Funds, Inc. ("Company"), has entered into a
definitive agreement to be acquired by SunTrust Banks, Inc. ("SunTrust"). The
acquisition will combine the Adviser with an existing SunTrust subsidiary to
form a new SunTrust subsidiary to be named SunTrust Equitable Securities.
As required by the Investment Company Act of 1940, as amended,
consummation of this acquisition by SunTrust will result in the automatic
termination of the Company's investment advisory agreement with the Adviser. In
anticipation of the completion of this acquisition and to provide continuity in
investment advisory services to your ESC Strategic Fund, we urge you to review
the enclosed Proxy Statement. In the Proxy Statement you are asked to vote on
the approval of a new investment advisory agreement between your ESC Strategic
Fund and the Adviser, as reorganized. If you are a shareholder of ESC Strategic
Small Cap Fund, ESC Strategic Growth Fund or ESC Strategic Value Fund, you are
asked to approve a new portfolio management agreement between the Adviser, as
reorganized, and Equitable Asset Management, Inc.
The Board of Directors of ESC Strategic Funds, Inc., including the
independent directors, has voted unanimously in favor of each proposal and
recommends that you vote "FOR" them as well. You will find more information on
the proposals in the enclosed Proxy Statement.
What do these changes mean to you?
Please be assured that no fee increase is proposed in the agreements you
are asked to approve. The existing and new advisory agreements and portfolio
management agreements are substantially identical, except for their effective
dates and certain other minor changes. In addition, the Adviser will continue to
be responsible for making investment decisions for your ESC Strategic Fund.
YOUR VOTE IS IMPORTANT!
We urge you to read the enclosed Proxy Statement and to vote now by
completing, signing and returning the enclosed proxy ballot form in the prepaid
envelope. EVERY VOTE COUNTS! If you have any questions, please call Shareholder
Communications Corporation which has been retained to assist in the solicitation
of proxies at 800-733-8481, extension ____.
Sincerely,
William Howard Cammack
President
<PAGE>
ESC STRATEGIC FUNDS, INC.
ESC Strategic Appreciation Fund ESC Strategic Global Equity Fund
ESC Strategic Small Cap Fund ESC Strategic Income Fund
ESC Strategic Growth Fund ESC Strategic Value Fund
3435 Stelzer Road
Columbus, Ohio 43219
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
to be held December 19, 1997
Notice is hereby given that a special meeting of shareholders of each of the
series of ESC Strategic Funds, Inc. ("Company") -- ESC Strategic Appreciation
Fund ("Appreciation Fund"), ESC Strategic Global Equity Fund ("Global Equity
Fund"), ESC Strategic Small Cap Fund ("Small Cap Fund"), ESC Strategic Income
Fund ("Income Fund"), ESC Strategic Growth Fund ("Growth Fund")and ESC Strategic
Value Fund ("Value Fund") - will be held December 19, 1997 at 10:00 a.m., at the
offices of the Company's administrator, BISYS Fund Services, Inc., 3435 Stelzer
Road, Columbus, Ohio 43219, for the following purposes:
1. To approve or disapprove a new Investment Advisory Agreement between the
Company and SunTrust Equitable Securities Corporation ("STES")with terms
substantially identical to the terms of the present Investment Advisory
Agreement (shareholders of all Funds).
2. To approve or disapprove new Portfolio Management Agreements between
STES and Equitable Asset Management, Inc. ("EAM"), with terms substantially
identical to those of the current Portfolio Management Agreements with EAM with
respect to:
A. Small Cap Fund (for shareholders of Small Cap Fund);
B. Growth Fund (for shareholders of Growth Fund); and
C. Value Fund (for shareholders of Value Fund.)
3. To transact such other business as may properly come before the
Meeting, including any adjournment thereof.
The Board of Directors of the Company has fixed the close of business on October
24, 1997 as the record date for determining shareholders entitled to notice of,
and to vote at, the Meeting, including any adjournment thereof.
A complete list of shareholders entitled to vote at the Meeting will be
available for inspection by any Fund shareholder for any purpose relevant to the
Meeting during ordinary business hours after December 9, 1997 at BISYS Fund
Services, Inc., 3435 Stelzer Road, Columbus, Ohio 43219.
Shareholders may attend the Meeting and vote in person. Shareholders, regardless
of whether they plan to attend, are urged to complete, date and sign the
enclosed proxy and return it promptly in the enclosed envelope that requires no
postage if mailed within the United States. The enclosed proxy is solicited on
behalf of the Board of Directors of the Company.
By Order of the Board of Directors
Ellen Stoutamire
Secretary
Columbus, Ohio
[Date]
<PAGE>
ESC STRATEGIC FUNDS, INC.
ESC Strategic Appreciation Fund ESC Strategic Global Equity Fund
ESC Strategic Small Cap Fund ESC Strategic Income Fund
ESC Strategic Growth Fund ESC Strategic Value Fund
3435 Stelzer Road
Columbus, Ohio 43219
PROXY STATEMENT
-------------------------------------------------------------
This Proxy Statement is furnished in connection with the solicitation of proxies
by the Board of Directors of ESC Strategic Funds, Inc. ("Company") from
shareholders of each of its series ("Funds") - ESC Strategic Appreciation Fund
("Appreciation Fund"), ESC Strategic Global Equity Fund ("Global Equity Fund"),
ESC Strategic Small Cap Fund ("Small Cap Fund"), ESC Strategic Income Fund
("Income Fund"), ESC Strategic Growth Fund ("Growth Fund")and ESC Strategic
Value Fund ("Value Fund") for use at a Special Meeting ("Meeting") of
Shareholders of the Company to be held December 19, 1997 at 10:00 a.m., at 3435
Stelzer Road, Columbus, Ohio 43219, and at any and all adjournments thereof
(each, a Special Meeting ("Meeting")). The Meeting is being held for the
purposes set forth in the foregoing Notice. The Company's Annual Report,
including audited financial statements, for its fiscal year ended March 31,
1997, and its Semiannual Report, including unaudited financial statements, for
the period ended September 30, 1997 are available upon request without charge
from ESC Strategic Funds, Inc., 3435 Stelzer Road, Columbus, Ohio 43219, or call
1-800-261-FUND (3863). The approximate date of mailing of this Proxy Statement
and the enclosed proxy is [Date].
The matters to be voted on at the Meeting arise because of the pending
acquisition ("Acquisition") of Equitable Securities Corporation ("ESC"), the
Company's investment adviser ("Adviser") by SunTrust Banks, Inc. ("SunTrust").
The Acquisition is expected to occur no later than the first quarter of 1998. In
connection with the Acquisition, SunTrust Capital Markets, Inc. (STCM"), a
wholly-owned subsidiary of SunTrust, will be merged with and into the Adviser,
and the Adviser, as the surviving entity, will be renamed SunTrust Equitable
Securities Corporation ("STES"). The Acquisition, under applicable law and the
terms of the Company's Investment Advisory Agreement, will be deemed an
"assignment," causing an automatic termination of the Agreement. The
Acquisition, for the same reasons, will also cause an automatic termination of
each of the Portfolio Management Agreements between the Adviser and the Managers
of the various Funds. For the Adviser to be able to continue as investment
adviser to the Company, it will be necessary for shareholders to approve a new
Investment Advisory Agreement, with terms substantially identical to those of
the current Investment Advisory Agreement, except for the date and term, the
name of the Adviser and certain updating changes. With respect to the Portfolio
Management Agreements between the Adviser and the Managers of the Funds, an
exemptive order granted to the Company and ESC permits the Adviser to enter into
new Portfolio Management Agreements with Managers that are unaffiliated with the
Adviser without obtaining shareholder approval. Pursuant to this authority, the
Adviser intends to enter in new Portfolio Management Agreements with each of the
current unaffiliated Managers of the Funds. The Portfolio Management Agreements
("EAM Agreements") with Equitable Asset Management, Inc. ("EAM"), an affiliate
of the Adviser, will, however, require approval by shareholders of those Funds
for which EAM serves as Manager. These Funds are Small Cap Fund, Growth Fund and
Value Fund ("EAM Funds"). There will be no change to the operative terms of any
of the Portfolio Management Agreements except for the date, term and name of the
Adviser and certain updating changes.
The following table indicates the Funds whose shareholders are being solicited
to vote on the following proposals:
PROPOSAL FUND
Proposal 1: Approval of a new shareholders of all Funds
Investment Advisory Agreement between
the Company and STES
Proposal 2A: Approval of new shareholders of Small Cap Fund
Portfolio Management Agreements
between STES and EAM with respect to
Small Cap Fund
Proposal 2B: Approval of new Portfolio shareholders of Growth Fund
Management Agreements between STES
and EAM with respect to Growth Fund
Proposal 2C: Approval of new Portfolio shareholders of Value Fund
Management Agreements between STES and
EAM with respect to Value Fund
Voting
Shareholders of record for a Fund on October 24, 1997 ("Record Date") are
entitled to vote at the Meeting, and at any adjournment of the Meeting, on
matters submitted to shareholders of that Fund. Shareholders have one vote for
each share held in a Fund, and a fractional vote for each fraction of a share
held in that Fund, on each matter submitted to shareholders of the Fund. On the
Record Date, the following numbers of shares were outstanding for each Fund:
Name of Fund Number of Shares Outstanding
Appreciation Fund 2,535,941.624
Global Equity Fund 1,372,026.176
Small Cap Fund 6,721,306.031
Income Fund 2,580,926.521
Growth Fund 1,461,373.717
Value Fund 1,127,068.681
Approval of each proposal with respect to a particular Fund requires the
affirmative vote of a majority of the outstanding voting securities of that
Fund. For this purpose, under applicable law, "vote of a majority of the
outstanding voting securities" of a Fund means the vote of (A) 67% or more of
the voting securities of the Fund present at the Meeting, if the holders of more
than 50% of the outstanding voting securities of that Fund are present or
represented by proxy; or (B) more than 50% of the outstanding voting securities
of the Fund, whichever is less. The Merger Agreement (see "The Acquisition,"
below) additionally requires, as a condition of the Acquisition (unless waived),
that approval be obtained from shareholders representing at least 75% of the
Funds' assets as of September 30, 1997.
All shares represented by the enclosed form of proxy will be voted in accordance
with the instructions indicated on the proxy if it is completed, dated, signed
and returned in time to be voted at the Meeting and is not subsequently revoked.
If the proxy is returned properly signed and dated, but no instructions are
given, the shares represented will be voted in favor of each of the proposals.
Any proxy may be revoked by the timely submission of a properly executed
subsequent proxy, by a timely written revocation, or by an oral revocation or
vote at the Meeting prior to the finalization of the vote on a particular
proposal. Execution and submission of a proxy does not affect a shareholder's
right to attend the Meeting in person. One third of the outstanding shares of
each Fund, represented by proxy or in person, will constitute a quorum as to
matters on which shareholders of that Fund are being asked to vote. Due to
applicable legal requirements that the proposals in this Proxy Statement must be
approved by specified percentages of a Fund's outstanding shares in order to be
adopted, an abstention by a shareholder from voting on a particular proposal,
either by proxy or in person at the Meeting, has the same effect, as to that
matter, as a negative vote. Shares that are held by a broker-dealer or other
fiduciary as record owner for the account of a beneficial owner will be counted
for purposes of determining the presence of a quorum and as votes on particular
proposals if the beneficial owner has executed and timely delivered the
necessary instructions for the record owner to vote the shares, or if the record
owner has, and exercises, discretionary voting power. If the record owner does
not have discretionary voting power as to a particular proposal, but grants a
proxy for, or votes, such shares, the shares will be counted toward the quorum
but will have the effect of a negative vote as to that proposal.
In addition to the solicitation of proxies by use of the mail, proxies may be
solicited by officers of the Company, by officers and employees of the Adviser
or the Company's administrator, BISYS Fund Services, Inc. ("Administrator")
personally or by telephone or telegraph, without special compensation.
Shareholder Communications Corporation ("SCC") will be retained to assist in
solicitation of proxies.
As the meeting date approaches, certain shareholders whose votes the Company has
not yet received may receive telephone calls from representatives of SCC
requesting that they authorize SCC, by telephonic or electronically transmitted
instructions, to execute proxy cards on their behalf. Telephone authorizations
will be recorded in accordance with the procedures set forth below. The Adviser
believes that these procedures are reasonably designed to ensure that the
identity of the shareholder casting the vote and the voting instructions of the
shareholder are accurately determined.
SCC has received an opinion of Maryland counsel that addresses the validity,
under the laws of the State of Maryland, of authorization given orally to
execute a proxy. The opinion given by Maryland counsel concludes that a Maryland
court would find that there is no Maryland law or public policy against the
acceptance of proxies signed by an orally-authorized agent, provided it adheres
to the procedures set forth below.
In all cases where a telephonic proxy is solicited, the SCC representative is
required to ask the shareholder for such shareholder's full name, social
security or employer identification number, title (if the person giving the
proxy is authorized to act on behalf of an entity, such as a corporation), and
the number of shares owned, and to confirm that the shareholder has received the
Proxy Statement in the mail. If the information solicited agrees with the
information provided to SCC by the Company, the SCC representative has the
responsibility to explain the process, read the proposals listed on the proxy
card, and ask for the shareholder's instructions on each proposal. Although he
or she is permitted to answer questions about the process, the SCC
representative is not permitted to recommend to the shareholder how to vote,
other than to read any recommendation set forth in the Proxy Statement. SCC will
record the shareholder's instructions on the card. Within 72 hours, SCC will
send the shareholder a letter or mailgram confirming the shareholder's vote and
asking the shareholder to call SCC immediately if the shareholder's instructions
are not correctly reflected in the confirmation.
All costs associated with the Meeting, including the expenses of preparing,
printing and distributing this Proxy Statement and the proxy cards, legal
expenses, and solicitation expenses, will be borne by the Adviser. Such expenses
are expected to range from $_______ to $______.
The Board may seek one or more adjournments of the Meeting to solicit votes from
additional shareholders, if necessary to obtain a quorum for the Meeting or to
obtain the vote required for approval of particular proposals. An adjournment
requires approval by either (a) a majority of the shares present at the Meeting
in person or by proxy, whether or not they constitute a quorum, or (b) any
officer present entitled to preside or act as Secretary of the Meeting. A vote
may be taken at the Meeting (including any adjournment), in appropriate cases,
as to proposals for which there are sufficient votes, even though the Meeting is
adjourned as to other proposals.
The Acquisition
Pursuant to a Merger Agreement, dated as of September 26, 1997, between SunTrust
Banks, Inc., STCM and ESC, STCM will be merged into ESC, with ESC to be the
surviving company. ESC will be renamed SunTrust Equitable Securities
Corporation. Current ESC shareholders will receive SunTrust common stock in
exchange for their shares of ESC common stock. Under the terms of the Merger
Agreement, which was approved unanimously by the boards of directors of both
SunTrust and ESC, SunTrust will pay 41.8456 shares of its common stock for each
share of ESC. Of that amount, 58% will be paid automatically in five annual
installments, while the remaining 42% will be issued over a three- to five- year
period if ESC achieves specified earnings goals during that period.
The Acquisition is subject to a number of conditions, including approval
by applicable federal and state agencies and receipt by SunTrust and ESC of
favorable opinions of counsel regarding tax issues. As noted earlier, the
Acquisition is also subject to obtaining approval from shareholders representing
at least 75% of the Funds' assets as of September 30, 1997.
The Adviser
The Adviser is (and will be after the Acquisition) located at 800
Nashville City Center, Nashville, Tennessee 37219-1743. The Adviser is a
registered investment adviser, a registered broker-dealer, and a member of the
New York Stock Exchange, Inc. Together with predecessors, the Adviser has been
in business since 1930. As of December 31, 1996, the Adviser had assets under
management of approximately $1.3 billion. The Adviser has also acted as
Distributor for the Funds, although this activity will be terminated upon the
effective date of the Acquisition, as described in the Proxy Statement.
SunTrust and STCM
SunTrust is a bank holding company whose main office is at 303 Peachtree Street,
N.E., 30th Floor, Center 645 Atlanta, Georgia 30308. SunTrust provides
traditional banking, trust and investment services as well as other services and
products through its offices in Alabama, Florida, Georgia and Tennessee. At June
30, 1997, SunTrust's banking assets totaled $55.5 billion and its discretionary
trust assets totaled $62.8 billion.
STCM is a registered broker-dealer and a wholly-owned subsidiary of SunTrust.
STCM conducts a variety of underwriting and investment banking services for
corporate and institutional clients, primarily in the southeastern states. STCM
underwrites and trades municipal securities, U.S. agency securities and
commercial paper, and trades a broad range of other securities, particularly
fixed income securities.
Evaluation by the Board of Directors
At a meeting held October 20, 1997, the Board of Directors reviewed information
presented to them regarding SunTrust and STCM, and about the Acquisition and its
implications for ESC, EAM and the Company. The Directors reviewed materials
presented to them relevant to SunTrust, including SunTrust's most recent annual
and quarterly shareholders reports, "Focus Reports," information regarding
recent regulatory inspections, and the federal broker-dealer and investment
adviser registration statements filed by STCM. They were presented with
information on how the operations of ESC and STCM would be combined into STES.
They considered the capabilities of STES to provide investment advisory services
to the Company and the capabilities of EAM to continue to provide services as
Manager to Small Cap Fund, Growth Fund and Value Fund. In particular, the
Directors noted that certain advantages could flow to the Company and the Funds
as a result of the Acquisition. Directors noted that the Company and the Funds
would become affiliated with a large regional banking firm, offering the
potential for wider distribution of the Funds' shares and greater investment
resources. The Directors were also informed about certain regulatory
requirements that would become applicable to the Company's operations due to the
new affiliation of the Adviser with a bank. In particular, the Company would
need to select a new Distributor, because current interpretations of applicable
law prohibit a bank affiliate from acting as underwriter for an open-end
investment company, such as the Company. (The Adviser currently also acts as
Distributor to the Company.) The Directors reviewed and approved a proposal from
the Company's Administrator for one of the Administrator's affiliates to serve
as distributor for the Company under terms generally comparable to those of the
Company's current distribution agreement. The Directors also reviewed
information regarding the capabilities of the other Managers to continue to
provide services to the various Funds. They considered the terms of the proposed
new Investment Advisory Agreement between the Company and STES, as well as the
terms of the proposed new Portfolio Management Agreements. In particular, they
noted that no changes were proposed to the rates of compensation provided for in
those agreements or to other provisions, except for new dates and terms and a
change in the name of the Adviser, as well as certain updating changes.
The Directors were advised that the Adviser and SunTrust will rely on Section
15(f) of the Investment Company Act of 1940 ("1940 Act"), which provides a
non-exclusive safe harbor for an investment adviser to an investment company,
and any of the investment adviser's affiliated persons (as defined in the 1940
Act) to receive any amount or benefit in connection with a change in control of
the investment adviser so long as two conditions are met. First, for a period of
three years after the transaction, at least 75% of the Directors must be persons
who are not "interested persons" of the predecessor or successor Adviser. They
noted that, to come into compliance with this requirement, William H. Cammack,
Sr., currently a Director and President of the Company, as well as Chairman,
Managing Director and Director of ESC, would resign his positions with the
Company at the time of the Acquisition. The Board of Directors' remaining four
Directors would then include only one Director, William H. Cammack, Jr., who is
an interested person. The other three Directors are not currently, and will not
be after the Acquisition, interested persons. The second condition of Section
15(f) is that, for a period of two years following the Acquisition, there must
not be imposed on the Company or the Funds any "unfair burden" as a result of
the Acquisition or any express or implied terms, conditions or understandings
related to it. An "unfair burden" would include any arrangement whereby the
Adviser, or any interested person of the Adviser, would receive or be entitled
to receive any compensation, directly or indirectly, from the Company, the Funds
or their shareholders (other than fees for bona fide investment advisory or
other services) or from any person in connection with the purchase or sale of
securities or other property to, from or on behalf of the Company or Fund (other
than bona fide ordinary compensation as principal underwriter for the Company or
Fund.) In this regard, the Directors noted that no special compensation
arrangements were contemplated in connection with the Acquisition. They also
noted that the Adviser would bear the costs of preparing and distributing proxy
materials to Fund shareholders, and of holding the Meeting, as well as other
costs related to the Acquisition, such as legal fees.
In considering whether to approve the new Investment Advisory Agreement and new
Portfolio Management Agreements, the Directors considered the types and quality
of services provided to the Company and the Funds by the Adviser and the
Managers. They considered the rates of compensation payable under the new
agreements and other benefits that might flow to the Adviser and Managers from
their respective relationships with the Company and the Funds, with attention,
among other things, to fees paid by other funds for comparable services. They
also considered the performance of the Funds and comparative performance data.
Finally, they noted the desirability of retaining continuity in the management
of the Company and the Funds. Based on their review, the Directors determined
that the Acquisition would not be detrimental to the Company, the Funds or their
shareholders and that it was reasonably likely that the Adviser's ability to
provide services to the Company would continue at least the present level and
could be enhanced over the long term as a result of the Acquisition. The
Directors, including a majority of the non-interested Directors, therefore
determined to approve the new Investment Advisory Agreement and the new
Portfolio Management Agreements, to take effect at the time of the Acquisition,
subject to shareholder approval. They also determined to recommend that
shareholders vote to approve the new agreements.
PROPOSAL 1
APPROVAL OF NEW INVESTMENT ADVISORY AGREEMENT
The proposed Investment Advisory Agreement is substantially identical to
the current Investment Advisory Agreement (each, an "Agreement;" collectively,
"Agreements"), except for the name of the Adviser, the date and term of the
Agreement, an updated reference to the Company's Administrator, an updated
description of the time for determining each Fund's net asset value, and
elimination of references to state expense limitations, which are no longer
applicable to the Funds. A copy of the proposed Investment Advisory Agreement is
attached as Exhibit A hereto. The following discussion of the terms of that
Agreement is qualified in its entirety by reference to that Agreement. The other
provisions of each Agreement are as follows:
The Agreements provide that, subject to supervision by the Company's Board
of Directors, the Adviser will have sole responsibility for providing, or
arranging for others to provide, ongoing management of the Funds' assets and
placement of orders for transactions in the Funds' portfolio securities. The
Adviser is specifically authorized to retain Managers to manage particular Funds
and to monitor the activities of these Managers. The Adviser is required to keep
the Board of Directors informed regarding matters regarding the Funds'
operations, to provide information to the Funds' Administrator to assist the
Administrator in its legal compliance activities and to maintain required books
and records. The Adviser will also vote proxies relating to Fund portfolio
securities (or will delegate authority to Managers to so vote).
The Agreements provide that the Adviser shall pay the compensation and
expenses of its directors, officers and employees who serve as directors,
officers and executive employees of the Company, and the Adviser shall make
these services available without cost to the Funds. The Adviser shall also pay
fees payable to the Managers. Except for the Adviser's related employee and
overhead costs, the Adviser is not required to pay expenses of the Company or
the Funds. The expenses of the Company and the Funds include: organization and
offering expenses; fees to the Adviser, fees to entities providing
administration, custody, transfer agent, registrar and dividend disbursing
services to the Funds; legal, accounting and auditing expenses; interest;
communications costs; taxes and governmental fees, registration and compliance
costs; investment company trade association fees; payments for pricing of the
Funds' portfolio assets; expenses of printing and distributing disclosure and
other documents; expenses associated with issuing, redeeming and distributing
Fund shares; portfolio securities and transaction costs; stationery and office
supply costs; shareholders meeting costs (unless assumed by another person);
litigation and other extraordinary expenses; compensation and expenses of
non-interested Directors; and travel expenses of Adviser personnel related to
attendance at meetings of the Directors and for other business of the Company.
The Agreements require the Adviser to use its best judgment in providing
services pursuant to the Agreement, but the Adviser will not be liable for
errors of judgment, mistakes of law or losses to the Company, the Funds or their
shareholders in connection with matters to which the Agreements relate except in
the event of the Adviser's bad faith, willful misfeasance, gross negligence or
reckless disregard of its duties under the Agreements.
Each Agreement provides that it will continue for an initial two-year term
and thereafter, for successive annual periods provided that it is approved at
least annually by shareholders or by the Directors, and by a majority of the
non-interested Directors. The Agreements may be terminated at any time without
penalty by either party upon sixty days' notice, and will terminate
automatically upon assignment. The Agreements acknowledge the Adviser's property
rights to the name "ESC Strategic."
The Agreements provide that the Adviser shall receive fees, payable
monthly, at the following annual rates based on the net assets of each of the
Funds: Appreciation Fund, Global Equity Fund, Small Cap Fund and Income Fund,
1.00%; Growth Fund and Value Fund, 1.25%. Out of these fees, the Adviser pays
fees to the Managers of the respective Funds. Fees received by the Adviser
pursuant to the Agreements from each Fund, gross and net of fees to Managers,
for the fiscal year ended March 31, 1997 (audited) are as follows:
Fund Gross Fees to ESC Net Fees to ESC
Appreciation Fund $419,330 $147,441
Global Equity Fund $207,316 $102,916
Small Cap Fund $643,627 $147,751
Income Fund $380,147 $285,632
Asset Preservation Fund $30,428 $27,271
(no longer in operation)
Growth Fund (commenced $0 $0
operations 1/28/97)
Value Fund (commenced N/A N/A
operations 5/5/97)
Fees indicated above reflect fee waivers of $30,428 for Asset Preservation
Fund and $7,185 for Growth Fund. Absent these waivers, the Adviser would have
received $60,856 from Asset Preservation Fund and $7,185 from Growth Fund.
The current Agreement was initially approved by the Board of Directors,
including a majority of the non-interested Directors, at a meeting held April 4,
1994, with respect to each of the then-existing Funds (Appreciation Fund, Global
Equity Fund, Small Cap Fund and Income Fund). It was also approved by the sole
shareholder of each of those Funds on April 4, 1994. The Agreement was so
approved with respect to each of Growth Fund and Value Fund on October 23, 1996
and January 14, 1997, respectively. The current Agreement was last approved with
respect to each Fund by the Directors, including a majority of the
non-interested Directors, at their meeting January 14, 1997.
The Board of Directors recommends that shareholders of each Fund vote FOR
this Proposal 1.
PROPOSAL 2A: APPROVAL OF NEW PORTFOLIO MANAGEMENT AGREEMENT BETWEEN STES AND
EAM WITH RESPECT TO SMALL CAP FUND
PROPOSAL 2B: APPROVAL OF NEW PORTFOLIO MANAGEMENT AGREEMENT BETWEEN STES AND
EAM WITH RESPECT TO GROWTH FUND
PROPOSAL 2C: APPROVAL OF NEW PORTFOLIO MANAGEMENT AGREEMENT BETWEEN STES AND
EAM WITH RESPECT TO VALUE FUND
The proposed Portfolio Management Agreements between STES and EAM with
respect to Small Cap Fund, Growth Fund and Value Fund ("EAM Funds") are
substantially identical (a) to each other (except for the name of the EAM Fund
and the effective date and term), and (b) to the current versions of those
agreements (except for the effective date and term, the name of the Adviser, and
an updated description of the time for determining each Fund's net asset value).
A form of the proposed Portfolio Management Agreement between STES and EAM is
attached as Exhibit B hereto. The following description of the terms of the
proposed Portfolio Management Agreements is qualified in its entirety by
reference to Exhibit B. The current and proposed Portfolio Management Agreements
are referred to collectively as "EAM Agreements."
The EAM Agreements each provide that EAM, subject to supervision of the
Directors of the Company and the Adviser, shall have full responsibility to
manage such portion of the relevant EAM Fund's assets as are assigned to it.
(EAM currently manages the entire portfolios of each EAM Fund, and that no
change in this arrangement is currently contemplated.) EAM is also responsible
for placing orders for each EAM Fund's portfolio transactions.. EAM is obligated
to provide information to the Company, its Directors and to the Adviser
regarding EAM Fund matters and to provide the Company's Administrator with
information needed for regulatory compliance purposes. EAM also agrees to
maintain required books and records for each EAM Fund and to vote proxies and
exercise rights with respect to the portfolio securities of each EAM Fund.
The EAM Agreements provide that each EAM Fund's portfolio assets will be
maintained by the Company's custodian(s) and will not be maintained by EAM.
Also, the custodian(s) will settle transactions for each EAM Fund in accordance
with EAM's instructions.
The EAM Agreements provide that EAM shall pay the compensation and
expenses of its directors, officers and employees who serve as directors,
officers and executive employees of the Company, and that EAM shall make these
services available without cost to the EAM Funds. Except for EAM's related
employee and overhead costs, EAM is not required to pay expenses of the Company
or the EAM Funds Expenses of the Company and the EAM Funds include: organization
and offering expenses; fees to any other Manager, fees to entities providing
administration, custody, transfer agent, registrar and dividend disbursing
services to the EAM Funds; legal, accounting and auditing expenses; interest;
communications costs; taxes and governmental fees, registration and compliance
costs; investment company trade association fees; payments for pricing of the
EAM Funds' portfolio assets; expenses of printing and distributing disclosure
and other documents; expenses associated with issuing, redeeming and
distributing EAM Fund shares; portfolio securities and transaction costs;
stationery and office supply costs; shareholders meeting costs (unless assumed
by another person); litigation and other extraordinary expenses; compensation
and expenses of non-interested Directors; and travel expenses of EAM personnel
related to attendance at meetings of the Directors and for other business of the
Company.
The EAM Agreements require EAM to use its best judgment in providing
services pursuant to the EAM Agreement, but EAM will not be liable for errors of
judgment, mistakes of law or losses to the Company, the EAM Funds or their
shareholders in connection with matters to which each the EAM Agreements relates
except in the event of EAM's bad faith, willful misfeasance, gross negligence or
reckless disregard of its duties under the EAM Agreement.
Each EAM Agreement provides that it will continue for an initial two-year
term and thereafter, for successive annual periods provided that it is approved
at least annually by shareholders of the particular EAM Fund or by the
Directors, and by a majority of the non-interested Directors. Each EAM Agreement
may be terminated at any time without penalty by either party upon sixty days'
notice, and will terminate automatically upon assignment.
The current EAM Agreement with respect to Small Cap was initially approved
by the Board of Directors, including a majority of the non-interested Directors,
at a meeting held April 4, 1994, when it was also approved by that Fund's sole
shareholder. The EAM Agreements with respect to Growth Fund and Value Fund were
approved by the Board of Directors, including a majority of the non-interested
Directors, at meetings held October 23, 1996 and January 14, 1997, respectively.
Each was approved the sole shareholders of Growth Fund and Value Fund on those
same dates, respectively. Each EAM Agreement was most recently reapproved by the
Board of Directors, including a majority of the non-interested Directors, at a
meeting held April 15, 1997.
Each EAM Agreement provides that the Adviser shall pay EAM monthly fees at
the following annual rates based on the net assets of each of the EAM Funds:
Small Cap Fund, 0.50% on the first $5 million and 0.75% on amounts in excess of
$5 million; each of Growth Fund and Value Fund, 0.65% on the first $50 million,
0.60% on the next $50 million, 0.55% on the next $100 million and 0.50% on
assets in excess of $200 million.
Fees paid by the Adviser to EAM for Small Cap Fund and Growth Fund during
the fiscal year ended March 31, 1997 (audited) were as follows: $495,876 and
$4,177, respectively. (Value Fund had not commenced operations during that
year.)
The Board of Directors recommends that the shareholders of Small Cap Fund,
Growth Fund and Value Fund, respectively, vote FOR Proposals 2A, 2B and 2C,
respectively.
OTHER INFORMATION
Principal Officers and Directors of Adviser and EAM
The name and principal occupation of persons who will be the principal
executive officer and the directors of STES are:
Name Principal Occupation
William P. Johnston Director, Chief Executive Officer
William H. Cammack Director, Chairman of the Board
William H. Cammack, Jr. Director, Head of Investment Advisory
Group
Katie H. Gambill Director, Head of Equity Capital
Markets
Tom R. Steele Director, Head of Private Client Group
Roger T. Briggs, Jr. Director, Head of Investment Banking
Group
Stephen S. Riven Director, Co-Head of Institutional
Equity Sales
Raymond Pirtle, Jr. Director, Co-Head of Institutional
Equity Sales
The name and principal occupation of the principal executive officer and
the directors of EAM are:
Name Principal Occupation
William H. Cammack Director, Chief Executive Officer
William H. Cammack, Jr. Director, President and Chief Operating Officer
William P. Johnston Director of EAM; Chief Executive Officer of Adviser
Frank D. Inman Director, Chief Investment Officer
M. Kirk Scobey, Jr. Director of EAM; Chief Operating Officer, Equitable
Trust Company
Tom R. Steele Secretary of EAM; Head of Adviser's Private Client
Group
The address of each of the above directors and officers of STES and EAM is
800 Nashville City Center, 511 Union Street, Nashville, Tennessee
37219-1743.
Information Regarding Affiliations of Certain Company Officers and Directors
The Company currently has five Directors, including two directors who are
"interested persons," as defined in the 1940 Act. In order to comply with the
requirement of Section 15(f) of the 1940 Act that, for a period of three years
after the Acquisition, at least 75% of the Company's Directors be persons who
are not interested persons, William H. Cammack, Sr., Director and President of
the Company and Chairman, Managing Director and Director of the Adviser, intends
to resign his positions with the Company as of the effective date of the
Acquisition. Thus, only one of the Company's Directors, William H. Cammack, Jr.,
will be an interested person. Prior to the Acquisition, Mr. Cammack, Jr. served
as the Company's Treasurer. Effective upon the Acquisition, in order to satisfy
certain legal requirements limiting management interlocks between banks and
mutual funds, the Board intends to appoint new officers for the Company. Of
these, only one - John McAllister, a senior vice president of ESC who will be
the Company's Vice President and Treasurer - will be an affiliate of the
Adviser. All other officers will be persons affiliated with the Company's
Administrator.
Distribution Fees and Affiliated Brokerage
The Adviser is also a registered broker-dealer and has acted as the
Company's Distributor. As noted earlier, due to banking law interpretations
preventing banks and their affiliates from underwriting shares of open-end
investment companies such as the Company, an affiliate of the Administrator will
act as Distributor effective upon the Acquisition. During the Company's fiscal
year ended March 31, 1997, ESC, as Distributor received fees from each of the
Funds, with respect to each of their classes of shares, under the Company's plan
adopted pursuant to Rule 12b-1 under the 1940 Act. For Class A shares of the
Funds, the fees were as follows: $17,770, $42,069, $24,898, $127,326, $96,480
and $580 from ESC Strategic Asset Preservation Fund (which ceased operations as
of September 29, 1997), Income Fund, Global Equity Fund, Small Cap Fund,
Appreciation Fund and Growth Fund, respectively. (Value Fund did not commence
operations until May 5, 1997, after the close of the Company's 1997 fiscal
year.) Fees received with respect to Class D shares were as follows: $10,963,
$30,169, $108,542, $23,480 and $279 for Income, Global Equity, Small Cap,
Appreciation and Growth Funds, respectively. (Asset Preservation Fund did not
have Class D shares.)
Brokerage commissions received by ESC for effecting transactions in
portfolio securities for the Funds during the fiscal year ended March 31, 1997
totaled $49,508, or 28%, of aggregate brokerage commissions paid by the Funds
during that period.
<PAGE>
Beneficial Ownership of Fund Shares
Following is information regarding beneficial ownership of 5% or more of
the shares of each class of each Fund as of October 3, 1997:
Amount and Nature of Percent of Fund
Name and Address of Beneficial Owner Record Ownership* Shares
Appreciation Fund
Class A Shares
Equitable Trust Company 199,852.510 8.63%
800 Nashville City Center
Nashville, TN 37219-1743
BT Alex Brown Incorporated 492,342.900 21.26%
FBO 495-20895-16
P.O. Box 1346
Baltimore, MD 21203
Wachovia Bank NA 687,577.054 29.69%
Trust Avondale Hills Inc. Profit
Shr. Plan
DTD 4/01/90
Attn: Sherrie Prevette
P.O. Box 3073
301 N. Main Street - MC NC 31057
Winston-Salem, NC 27150
Class D Shares
BT Alex Brown Incorporated 24,136.469 7.44%
FBO 495-21832-10
P.O. Box 1346
Baltimore, MD 21203
<PAGE>
Global Equity Fund
Class A Shares
Comerica Bank 100,171.775 9.71%
Trst Republic Automotive Parts
Employees
Retirement Plan 72144
P.O. Box 75000
Attn: M/C 3446 M/F Dept.
Detroit, MI 48275-0001
Equitable Trust Company 210,967.726 20.45%
800 Nashville City Center
Nashville, TN 37219-1743
Class D Shares
BT Alex Brown Incorporated 22,140.234 6.56%
FBO 495-21923-10
P.O. Box 1346
Baltimore, MD 21203
Trustman 33,024.302 9.79%
Attn: Trust Account 36833400
P.O. Box 105870, Ctr. 3144
Atlanta, GA 30348-5870
BT Alex Brown Incorporated 35,192.853 10.43%
FBO 495-08452-24
P.O. Box 1346
Baltimore, MD 21203
Trustman 55,052.262 16.32%
Attn: Trust Account 36833500
P.O. Box 105870, Ctr. 3144
Atlanta, GA 30348-5870
<PAGE>
Small Cap Fund
Class A Shares
Equitable Trust Company 382,265.913 7.63%
800 Nashville City Center
Nashville, TN 37219-1743
Income Fund
Class A Shares
Homeowners Association of America 222,421.843 8.83%
P.O. Box 551510
Ft. Lauderdale, FL 33355-1510
First American National Bank 296,407.720 11.76%
Cash/Cash
800 First American Center
Nashville, TN 37237-0801
Nationsbank of TN N.A. 1,431,369.561 56.83%
Cust. Systems Foundation / Attn. SAS
A/C 65066006841050
U/A Nashville Memorial Health
P.O. Box 831575
Dallas, TX 74283-1575
<PAGE>
Class D Shares
BT Alex Brown Incorporated 6,037.127 8.32%
FBO 495-18067-12
P.O. Box 1346
Baltimore, MD 21203
BT Alex Brown Incorporated 7,483.017 10.31%
FBO 495-21922-11
P.O. Box 1346
Baltimore, MD 21203
BT Alex Brown Incorporated 11,650.209 16.05%
FBO 495-21832-10
P.O. Box 1346
Baltimore, MD 21203
BT Alex Brown Incorporated 12,307.853 16.96^
FBO 495-07032-17
P.O. Box 1346
Baltimore, MD 21203
Growth Fund
Class A Shares
Equitable Trust Company 45,807.126 5.05%
800 Nashville City Center
Nashville, TN 37219-1743
BT Alex Brown Incorporated 51,104.980 5.63%
FBO 495-08633-18
P.O. Box 1346
Baltimore, MD 21203
<PAGE>
Value Fund
Class A Shares
Equitable Trust Company 50,000.000 5.93%
Customer Fee Account
Attn: Larry Smith
800 Nashville City Center
Nashville, TN 37219-1743
Class D Shares
8T Alex Brown Incorporated 8,849.558 5.42%
FBO 496-10375-14
P.O. Box 1346
Baltimore, MD 21203
H. Ronald Burton 9,089.244 5.56%
Trst Harry Jason Phillips Trust
UA DTD 6/2/94
229 Ward Circle, Suite B-13
Brentwood, TN 37027-7518
H. Ronald Burton 10,386.062 6.36%
Trst Edward Randall Phillips II
Trust
DTD 06/27/94
229 Ward Circle, Suite B-13
Brentwood, TN 37027-7518
H. Ronald Burton 10,386.065 6.36%
Trst Charles Lee Phillips Trust
DTD 6/27/94
229 Ward Circle, Suite B-13
Brentwood, TN 37027-7518
As of October 3, 1997, directors and officers of the Company, as a group,
owned less than 1% of the outstanding shares of each Fund.
Shareholder Proposals
Shareholders who wish to submit proposals to be included in a Proxy
Statement for any subsequent meeting of shareholders should send the proposals
in writing to: [to be provided] within a reasonable period of time prior to the
time proxies are solicited for that meeting. Timely submission of a proposal
does not assure that it will be included.
Other Business
The Directors are not aware of any matters to be presented at the Meeting
other than those described in this Proxy Statement. In the event any such other
matters should be brought before the Meeting, each executed proxy will be deemed
to authorize the persons named as proxy in the accompanying form of proxy to
vote on such matters in accordance with their best judgment in the interest of
each Fund and the Company.
PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY PROMPTLY. NO POSTAGE IS
REQUIRED IF MAILED IN THE UNITED STATES. PROXY PROXY THIS PROXY IS SOLICITED BY
THE BOARD OF DIRECTORS OF ESC STRATEGIC FUNDS, INC.
SPECIAL MEETING OF SHAREHOLDERS
DECEMBER 19, 1997 - ______.M. EASTERN TIME
The undersigned hereby revokes all previous proxies for his or her shares and
appoints Jeff Young and Jeanette Peplowski, and each of them, with the power of
substitution, as Proxies, and hereby authorizes them to vote as designated
below, as effectively as the undersigned could do if personally present, all the
shares of Funds of ESC Strategic Funds, Inc. ("Fund") held of record by the
undersigned on October 24. 1997, at the Special Meeting of Shareholders, or any
adjournment thereof, to be held at ______.m. Eastern Time on December 19, 1997
at the offices of BISYS Fund Services, Inc., 3435 Stelzer Road, Columbus, Ohio
43219. SHAREHOLDERS OF ALL FUNDS VOTE FOR PROPOSAL 1. ONLY SHAREHOLDERS OF THE
PORTFOLIOS INDICATED WILL VOTE FOR PROPOSALS 2.A, 2.B, AND 2.C.
1. Approval of new Investment Advisory Agreement with SunTrust Equitable
Securities. [ALL FUNDS]
/_/ FOR /_/ AGAINST /_/ ABSTAIN
2.A. Approval of new Portfolio Management Agreement between SunTrust
Equitable Securities and Equitable Asset Management, Inc. with respect to ESC
Strategic Small Cap Fund [Small Cap Fund shareholders only]
/_/ FOR /_/ AGAINST /_/ ABSTAIN
2.B. Approval of new Portfolio Management Agreement between SunTrust
Equitable Securities and Equitable Asset Management, Inc. with respect to ESC
Strategic Growth Fund [Growth Fund shareholders only]
/_/ FOR /_/ AGAINST /_/ ABSTAIN
2.C. Approval of new Portfolio Management Agreement between SunTrust
Equitable Securities and Equitable Asset Management, Inc. with respect to ESC
Strategic Value Fund [Value Fund shareholders only]
/_/ FOR /_/ AGAINST /_/ ABSTAIN
(Continued and to be signed on reverse)
<PAGE>
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY IMMEDIATELY
IN THE POSTAGE-PAID ENVELOPE PROVIDED.
This Proxy is solicited on behalf of the Board of Directors, and when properly
executed, will be voted as specified. If no specification is made, the
undersigned's vote, as a shareholder of one or more Funds of ESC Strategic
Funds, Inc., will be cast FOR Proposal 1, and FOR such of Proposals 2.A, 2.B and
2.C as are applicable to the particular shareholder. If any other matters
properly come before the meeting of which the Directors were not aware a
reasonable time before the solicitation, the undersigned hereby authorizes proxy
holders to vote in their discretion on such matters. The undersigned
acknowledges receipt of the Notice of Meeting and Proxy Statement dated
__________, 1997.
Please sign exactly as your name or names appear below. When shares are held by
joint tenants, both should sign. If signing as attorney, executor, trustee or in
any other representative capacity, or as a corporate officer, please give full
title. Please date the proxy.
=======================================
Signature
Dated: _______________________, 1997
/_/ Check here if you plan to attend the Meeting. _______ persons will
attend.
By Order of the Board of Directors,
Ellen Stoutamire
Secretary
<PAGE>
EXHIBIT A
Proposed Investment Advisory Agreement Between the Company and STES
AGREEMENT, effective commencing on ________________, 1994, between
SunTrust Equitable Securities (the "Adviser") and ESC Strategic Funds, Inc.
(the "Company").
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 Company wishes to retain the Adviser to render investment
advisory services to the Company with respect to each of its present and future
series ("Funds"), unless otherwise specifically indicated by the Company, and
the Adviser is willing to furnish such services to the Company;
WHEREAS, the Adviser 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 Company and the Adviser as follows:
1. Appointment. The Company hereby appoints the Adviser to act as
investment adviser for the Funds for the periods and on the terms set forth
in this Agreement. The Adviser accepts such appointment and agrees to
furnish the services herein set forth, for the compensation herein provided.
2. Investment Advisory Duties. Subject to the supervision of the Directors
of the Company, the Adviser will have the sole and exclusive responsibility for
providing, or arranging for others to provide, (a) the management for the Funds'
assets in accordance with each 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, as they may be amended from time to time,
copies of which shall be provided to the Adviser by the Company; and (b) the
placement of orders to purchase and sell securities for the Funds. The Adviser,
subject to approval in each case by the Directors of the Company, shall be
authorized to retain one or more subadvisers (the "Portfolio Managers") for each
of the Funds, and to direct that such Portfolio Managers shall exercise full
discretion in furnishing investment advice to the Funds and arranging for the
execution of portfolio transactions for the Funds, subject only to general
oversight by the Adviser. The Adviser shall be responsible for monitoring, or
arranging for others to monitor, compliance by the Portfolio Managers with the
investment policies and restrictions of the respective Funds and with such other
limitations or directions as the Board of Directors of the Company may from time
to time prescribe. The Adviser 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 Adviser and Portfolio Managers to the investment policies of
the Funds.
The Adviser further agrees that, in performing its duties hereunder, it
will directly, or assure that the Portfolio Managers 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 Funds so that they will each
qualify, and continue to qualify, as regulated investment companies under
Subchapter M of the Code and regulations issued thereunder;
(c) place orders for the investments of the Funds 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 each Fund and in accordance with applicable legal requirements;
(d) furnish to the Company whatever statistical information the Company
may reasonably request with respect to the Funds' assets or contemplated
investments; keep the Company and the Directors informed of developments
materially affecting the Funds' portfolios; and, on the Adviser's or Portfolio
Managers' own initiative, furnish to the Company from time to time whatever
information the Adviser or Portfolio Manager believes appropriate for this
purpose;
(e) make available to the Company's administrator (the "Administrator"),
and the Company, promptly upon their request, such copies of its investment
records and ledgers with respect to the Funds as may be required to assist the
Administrator and the Company in their compliance with applicable laws and
regulations. The Adviser will furnish the Directors with such periodic and
special reports regarding the Funds as they may reasonably request;
(f) immediately notify the Company in the event that the Adviser or any of
its affiliates: (1) becomes aware that it is subject to a statutory
disqualification that prevents the Adviser from serving as investment adviser
pursuant to this Agreement; or (2) becomes aware that it is the subject of an
administrative proceeding or enforcement action by the Securities and Exchange
Commission ("SEC") or other regulatory authority. The Adviser further agrees to
notify the Company immediately of any material fact known to the Adviser
respecting or relating to the Adviser that is not contained in the Company's
Registration Statement regarding the Funds, 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 Funds, use no
inside information that may be in its possession or in the possession of any of
its affiliates, nor will the Adviser seek to obtain any such information.
3. Allocation of Charges and Expenses. Except as otherwise specifically
provided in this section 3, the Adviser 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 shall pay all fees payable pursuant to portfolio management
agreements with any Portfolio Managers it may retain. The Adviser shall make
available, without expense to the Funds, 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 Adviser shall not be required to pay any expenses of the Company or
the Funds other than those specifically allocated to the Adviser in this section
3. In particular, but without limiting the generality of the foregoing, the
Adviser 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 Adviser whose services may be involved, for the following expenses of the
Company or the Funds: organization and certain offering expenses of the Company
and the Funds (including out-of-pocket expenses, but not including the Adviser's
overhead and employee costs); fees payable to the Adviser; 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
Funds 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 Funds; 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 Funds; expenses relating to investor and public
relations; expenses of registering and qualifying shares of the Funds for sale;
freight, insurance and other charges in connection with the shipment of the
Funds' portfolio securities; brokerage commissions or other costs of acquiring
or disposing of any portfolio securities or other assets of the Funds, or of
entering into other transactions or engaging in any investment practices with
respect to the Funds; 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 a Fund) of officers, directors and employees
of the Company who are not interested persons of the Adviser; and travel
expenses (or an appropriate portion thereof) of officers or directors of the
Company who are officers, directors or employees of the Adviser 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.
4. Compensation. As compensation for the services provided and expenses
assumed by the Adviser under this Agreement, the Company will arrange for the
Funds to pay the Adviser at the end of each calendar month an investment
advisory fee computed daily at an annual rate equal to the percentage of each
Fund's average daily net assets specified in Schedule A hereto. The "average
daily net assets" of a Fund shall mean the average of the values placed on the
Fund's 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 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 4, the value of the net assets of the Fund as
last determined shall be deemed to be the value of its 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 a Fund has been so
suspended for a period including any month end when the Adviser's compensation
is payable pursuant to this section, then the Adviser's compensation payable at
the end of such month shall be computed on the basis of the value of the net
assets of the Fund as last determined (whether during or prior to such month).
If a Fund determines the value of the net assets of its portfolio more than once
on any day, then the last such determination thereof on that day shall be deemed
to be the sole determination thereof on that day for the purposes of this
section 4.
5. Books and Records. The Adviser agrees to maintain such books and
records with respect to its services to the Company and the Funds 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 Adviser 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 Adviser 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 Funds are being conducted in accordance with applicable laws and
regulations.
6. Standard of Care and Limitation of Liability. The Adviser shall
exercise its best judgment in rendering the services provided by it under this
Agreement. The Adviser shall not be liable for any error of judgment or mistake
of law or for any loss suffered by the Company or a Fund or the holders of a
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 Adviser against any liability to the Company, a Fund or to holders
of a Fund's shares to which the Adviser 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 Adviser's reckless disregard of
its obligations and duties under this Agreement. As used in this Section 6, the
term "Adviser" shall include any officers, directors, employees or other
affiliates of the Adviser performing services with respect to the Company or a
Fund.
7. Services Not Exclusive. It is understood that the services of the
Adviser are not exclusive, and that nothing in this Agreement shall prevent the
Adviser 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 a Fund) 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 Adviser's ability to
meet its obligations to the Company and the Funds hereunder. When the Adviser
recommends the purchase or sale of a security for other investment companies and
other clients, and at the same time the Adviser recommends the purchase or sale
of the same security for a 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 a Fund, neither the Adviser nor any of its
directors, officers or employees shall act as a principal or agent or receive
any commission. If the Adviser provides any advice to its clients concerning the
shares of the Funds, the Adviser shall act solely as investment counsel for such
clients and not in any way on behalf of the Company or a Fund.
8. Duration and Termination. This Agreement shall continue until
__________________, 199 , and thereafter shall continue automatically, with
respect to all or fewer than all the Funds, as applicable, for successive annual
periods, provided such continuance is specifically approved at least annually by
(i) the Directors or, (ii) with respect to each Fund, by vote of a "majority"
(as defined in the 1940 Act) 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 1940 Act) 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 by the Company or a Fund upon the
vote of a majority of the Directors (with respect to the Company or a Fund) or,
with respect to a Fund, by vote of the majority of the Fund's outstanding voting
securities, upon sixty (60) days' written notice to the Adviser or (b) by the
Adviser at any time without penalty, upon sixty (60) days' written notice to the
Company. This Agreement will also terminate automatically in the event of its
assignment (as defined in the 1940 Act).
9. 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
with respect to a Fund 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.
10. Proxies. Unless the Company gives written instructions to the
contrary, the Adviser shall vote all proxies solicited by or with respect to the
issuers of securities in which assets of the Funds may be invested, provided,
that the Adviser may delegate this responsibility with respect to one or more
Funds to Portfolio Managers pursuant to a portfolio management agreement. The
Adviser (or Portfolio Manager) shall use its best good faith judgment to vote
such proxies in a manner which best serves the interests of the particular
Fund's shareholders.
11. Name Reservation. The Company acknowledges and agrees that the Adviser
has property rights relating to the use of the term "ESC Strategic" and has
permitted the use of such term by the Company and its Funds. The Company agrees
that: (i) it will use the term "ESC Strategic" only as a component of the names
of the Company and the Funds and for no other purposes; (ii) it will not purport
to grant to any third party any rights in such term; (iii) at the request of the
Adviser, the Company will take such action as may be required to provide its
consent to use of the term by the Adviser, or any affiliate of the Adviser to
whom the Adviser shall have granted the right to such use; and (iv) the Adviser
may use or grant to others the right to use the term as all or a portion of a
corporate or business name or for any commercial purpose, including a grant of
such right to any other investment company. Upon termination of this Agreement
as to the Company or any Fund, the Company shall, upon request of the Adviser,
cease to use the term "ESC Strategic" as part of the name of the Company and its
Funds, or of any Fund as to which the Agreement is terminated, as applicable. In
the event of any such request by the Adviser that use of the term "ESC
Strategic" shall cease, the Company shall cause its officers, directors and
stockholders to take any and all such actions which the Adviser may request to
effect such request and to reconvey to the Adviser any and all rights to the
term "ESC Strategic."
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.
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 Adviser as
an agent of the Company or any Fund.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of ______________, 199 .
ESC STRATEGIC FUNDS, INC.
By ______________________________
President
SUNTRUST EQUITABLE SECURITIES
By ______________________________
President
<PAGE>
SCHEDULE A
Fees payable to the Adviser pursuant to paragraph 4 hereof shall be at the
following annual rates for each Fund:
ESC Strategic Appreciation Fund 1.00%
ESC Strategic Global Equity Fund 1.00%
ESC Strategic Small Cap Fund 1.00%
ESC Strategic Income Fund 1.00%
ESC Strategic Growth Fund 1.25%
ESC Strategic Value Fund 1.25%
<PAGE>
EXHIBIT B
Form of Proposed Portfolio Management Agreement
between STES and EAM with respect to the EAM Funds
ESC STRATEGIC FUNDS, INC.
AGREEMENT, effective commencing on ________________, 199_, among SunTrust
Equitable Securities (the "Adviser"), ESC Strategic Funds, Inc. (the "Company")
and _____________________ ("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 , 199_ ("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
________________________ (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 such portion of the
Fund's assets 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.
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; and keep the Adviser and the Directors and, as
appropriate, other portfolio managers informed of developments materially
affecting the Fund's portfolio;
(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 review
information in the Company's Registration Statement describing the Portfolio
Manager and to notify the Company and the Adviser if the information becomes
incorrect;
(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
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 based on the average daily net value of the
Assets as specified in the Fee Schedule attached hereto. The "average daily net
value of the Assets" shall mean the average of the values 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. 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
__________________, 199 , 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 1940 Act) 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 1940 Act) 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. Non-Competition. The Company acknowledges that the Portfolio Manager
as a firm, and not any particular employee or managing director of the Portfolio
Manager (a "Portfolio Manager Employee"), is being retained by the Company as
portfolio manager for the Fund. The Company agrees not to employ or otherwise
receive portfolio management services from any Portfolio Manager Employee,
directly or indirectly through the engagement of any person or entity which
employs or to which such services are provided by any Portfolio Manager
Employee, at any location within the States of Michigan, Ohio, Tennessee,
Kentucky or Indiana, for the 24 (twenty-four) consecutive months after the
termination of the Portfolio Manager Employee's employment. The Company
acknowledges that this provision is not contained in the investment advisory or
portfolio management agreements of all investment advisors or portfolio
managers.
13. 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.
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 ______________, 199 .
By ______________________________
President
EQUITABLE ASSET MANAGEMENT, INC.
By ______________________________
Title: _________________________
<PAGE>
FEE SCHEDULE
Fees payable to the Portfolio Manager pursuant to paragraph 5 hereof shall be at
the following annual rates:
ESC Strategic Small Cap Fund 0.50% on the first $5 million
0.75% on excess over $5 million
ESC Strategic Growth Fund and ESC 0.65% on the first $50 million
Strategic Value Fund 0.60% on the next $50 million
0.55% on the next $100 million
0.50% on assets in excess of $200
million
