<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
ESC STRATEGIC FUNDS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[X] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
[ESC Strategic Funds Logo]
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 supervising the management of your ESC Strategic Fund, and
the acquisition will cause no change in the Funds' managers.
<PAGE> 3
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 417.
Sincerely,
/s/ W. Howard Cammack, Jr.
--------------------------
W. Howard Cammack, Jr.
Treasurer
2
<PAGE> 4
ESC STRATEGIC FUNDS, INC.
<TABLE>
<S> <C>
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
</TABLE>
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 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 each Fund, voting separately).
2. To approve 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.
<PAGE> 5
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
November 21, 1997
2
<PAGE> 6
ESC STRATEGIC FUNDS, INC.
<TABLE>
<S> <C>
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
</TABLE>
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 November 21, 1997.
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
<PAGE> 7
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:
<TABLE>
<CAPTION>
PROPOSAL FUND
- -------- ----
<S> <C>
Proposal 1: Approval of a new Investment shareholders of each Fund
Advisory Agreement between the Company
and STES
Proposal 2A: Approval of new Portfolio shareholders of Small Cap Fund
Management Agreement between STES and
EAM with respect to Small Cap Fund
Proposal 2B: Approval of new Portfolio shareholders of Growth Fund
Management Agreement between STES and
EAM with respect to Growth Fund
Proposal 2C: Approval of new Portfolio shareholders of Value Fund
Management Agreement between STES and
EAM with respect to Value Fund
</TABLE>
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:
<TABLE>
<CAPTION>
NUMBER OF
SHARES
NAME OF FUND OUTSTANDING
- ------------ -------------
<S> <C>
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
</TABLE>
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
2
<PAGE> 8
"The Acquisition," below) additionally requires, as a condition of the
Acquisition (unless waived by SunTrust), 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 ("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
3
<PAGE> 9
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 $38,000 to $45,000.
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, 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 issue, at the closing of the acquisition,
1,305,000 shares of its common stock in exchange for all the outstanding shares
of ESC. Based on closing prices on September 30, 1997, this exchange represents
a purchase price of approximately $88,658,438. SunTrust may issue an additional
909,000 shares of its common stock to current ESC shareholders over a three- to
five- year period if ESC achieves specified earnings goals during that period.
It is the present intention of SunTrust, but not a continuing obligation, for
the Board of Directors of STES to have a majority consisting of pre-Acquisition
directors of ESC. Changes to management personnel of ESC and STCM are not
presently contemplated.
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
4
<PAGE> 10
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. SunTrust has a proprietary family of mutual
funds, The STI Classic Funds, managed by its subsidiary, STI Capital Management.
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's underwriting and trading activities involve municipal and
mortgage-related securities, U.S. government agency securities, consumer
receivable-related securities and commercial paper.
EVALUATION BY THE BOARD OF DIRECTORS
At meetings held October 20 and November 4, 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.
(Shareholders are not required to approve this 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
5
<PAGE> 11
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.
The Directors gave particular weight to the desirability of retaining continuity
in the management of the Company and the Funds and the fact that the services of
the Adviser and Managers would continue under substantially similar terms with
no change in fees. The Directors also gave special weight to their judgment 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 all the non-interested Directors, therefore unanimously
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.
6
<PAGE> 12
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
7
<PAGE> 13
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:
<TABLE>
<CAPTION>
FUND GROSS FEES TO ESC NET FEES TO ESC
- ---- ----------------- ---------------
<S> <C> <C>
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 (no longer in operation)... $ 30,428 $ 27,271
Growth Fund (commenced operations 1/28/97)......... $ 0 $ 0
Value Fund (commenced operations 5/5/97)........... N/A N/A
</TABLE>
Fees indicated above reflect gross 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
8
<PAGE> 14
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
9
<PAGE> 15
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 by 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:
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION
- ---- --------------------
<S> <C>
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
</TABLE>
10
<PAGE> 16
The name and principal occupation of the principal executive officer and
the directors of EAM are:
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION
- ---- --------------------
<S> <C>
William H. Cammack Director, Chief Executive Officer
William H. Cammack, Jr. Director, President and Chief Operating Officer
William P. Johnston Director of EAM;
Frank D. Inman Director, Chief Investment Officer
Director of EAM; Chief Operating Officer, Equitable Trust
M. Kirk Scobey, Jr. Company
Tom R. Steele Secretary of EAM; Head of Adviser's Private Client Group
</TABLE>
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.)
11
<PAGE> 17
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.
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:
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER RECORD OWNERSHIP* FUND SHARES
- ------------------------------------ ----------------- -----------
<S> <C> <C>
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
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
</TABLE>
12
<PAGE> 18
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER RECORD OWNERSHIP* FUND SHARES
- ------------------------------------ ----------------- -----------
<S> <C> <C>
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
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
</TABLE>
13
<PAGE> 19
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER RECORD OWNERSHIP* FUND SHARES
- ------------------------------------ ----------------- -----------
<S> <C> <C>
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
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
</TABLE>
14
<PAGE> 20
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER RECORD OWNERSHIP* FUND SHARES
- ------------------------------------ ----------------- -----------
<S> <C> <C>
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
</TABLE>
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: ESC Strategic Funds, Inc., c/o SunTrust Equitable Securities
Corporation, 800 Nashville City Center, 511 Union Street, Nashville, Tennessee
37219-1743 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 judgement 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.
By Order of the Board of Directors,
Ellen Stoutamire
Secretary
15
<PAGE> 21
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.
A-1
<PAGE> 22
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
A-2
<PAGE> 23
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
A-3
<PAGE> 24
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
A-4
<PAGE> 25
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
A-5
<PAGE> 26
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
A-6
<PAGE> 27
SCHEDULE A
Fees payable to the Adviser pursuant to paragraph 4 hereof shall be at the
following annual rates for each Fund:
<TABLE>
<S> <C>
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%
</TABLE>
A-7
<PAGE> 28
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.
B-1
<PAGE> 29
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
B-2
<PAGE> 30
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.
B-3
<PAGE> 31
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
B-4
<PAGE> 32
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
B-5
<PAGE> 33
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.
B-6
<PAGE> 34
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., on behalf
of [Name of Fund]
By
-------------------------------------
President
EQUITABLE ASSET
MANAGEMENT, INC.
By
-------------------------------------
Title:
-----------------------------------
B-7
<PAGE> 35
FEE SCHEDULE
Fees payable to the Portfolio Manager pursuant to paragraph 5 hereof shall
be at the following annual rates:
<TABLE>
<S> <C>
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
</TABLE>
B-8
<PAGE> 36
APPENDIX A
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)
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.
