EXHIBIT 5
COPY OF THE
INVESTMENT ADVISORY AGREEMENT
INVESTMENT ADVISORY AGREEMENT
AGREEMENT, effective commencing on May 1, 1998, between Key Equity Management
Corporation, a Maryland corporation (the "Advisor") and Greenspring Fund,
Incorporated, a Maryland corporation (the "Fund").
WHEREAS, the Fund is a Maryland corporation organized under Articles of
Incorporation dated October 21, 1982 (the "Articles") and is registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end,
diversified management investment company; and
WHEREAS, the Fund wishes to retain the Advisor to render investment advisory
services to the Fund and the Advisor is willing to furnish such services to the
Fund; and
WHEREAS, the Advisor is registered as an investment advisor under the
Investment Advisers Act of 1940, as amended (the "Advisers Act");
NOW, THEREFORE, in consideration of the premises and mutual covenants herein
contained, it is agreed between the Fund and the Advisor as follows:
1. APPOINTMENT. The Fund hereby appoints the Advisor to act as investment
advisor to the Fund for the periods and on the terms set forth in this
Agreement. The Advisor accepts such appointment and agrees to furnish the
services herein set forth, for the compensation herein provided. The
Advisor will furnish, without cost to the Fund, or provide and pay the cost
of, such office facilities, furnishings, and office equipment as may be
required by the Fund.
2. INVESTMENT ADVISORY DUTIES.
(A) Subject to the supervision of the Board of Directors of the Fund,
the Advisor will (I) provide a program of continuous investment management for
the Fund in accordance with the 1940 Act, the Fund's investment objectives,
policies and limitations as stated in the Fund's Prospectus (the "Prospectus")
and Statement of Additional Information included as part of the Fund'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 Advisor by the Fund; (ii) make investment decisions for the Fund; and (iii)
place orders to purchase and sell for the Fund.
(B) In performing its investment management services to the Fund
hereunder, the Advisor will provide the Fund with ongoing investment guidance
and policy direction, including oral and/or written research, analysis, advice,
statistical and economic data and judgments regarding individual investments,
general economic conditions and trends and long-range investment policy. The
Advisor will determine the securities, instruments, repurchase agreements,
options, futures and other investments and techniques that the Fund will
purchase, sell, enter into or use, and will provide an ongoing evaluation of the
Fund's investments. The Advisor will determine what portion of the Fund's
investments shall be invested in securities and other assets, and what portion,
if any, should be held invested in money market equivalents or held in cash
reserves. Subject to the approval of the Board of Directors (including a
majority of the Fund's Directors who are not "interested persons" of the Fund
as defined in the 0000 Xxx) and of the shareholders of the Fund, the Advisor
may delegate to a sub-advisor its duties enumerated in Section 2 hereof. The
Advisor shall continue to supervise the performance of any such sub-advisor and
shall report regularly thereon to the Fund's Board of Directors.
(C) The Advisor shall be responsible for selecting members of
securities exchanges, brokers and dealers (such members, brokers and dealers
being hereinafter referred to as "brokers") for the execution of the Fund's
portfolio transactions consistent with the Fund's brokerage policy and, when
applicable, the negotiation of commissions in connection therewith. All
decisions and placements shall be made in accordance with the following
principles:
(i) Purchase and sale orders will usually be placed with brokers
that are selected by the Advisor as able to achieve "best execution" of such
orders. "Best execution" shall mean prompt and reliable execution at the most
favorable securities price, taking into account the other provisions
hereinafter set forth. The determination of what may constitute best execution
and price in the execution of a securities transaction by a broker involves a
number of considerations, including, without limitation, the overall direct
net economic result to the Fund (involving both price paid or received and any
commissions and other costs paid), the efficiency with which the transaction is
executed, the ability to effect the transaction at all where a large block is
involved, availability of the broker to stand ready to execute possibly
difficult transactions in the future, and the financial strength and stability
of the broker. Such considerations are judgmental and are weighed by the
Advisor in determining the overall reasonableness of brokerage commissions.
(ii) In selecting brokers for portfolio transactions, the Advisor
shall take into account its past experience as to brokers qualified to achieve
"best execution," including brokers who specialize in any foreign securities
held by the Fund.
(iii) If the Board of Directors so authorizes the Advisor, the
Advisor may allocate brokerage business to brokers who have provided brokerage
and research services, as such services are defined in Section 28(e) of the
Securities Exchange Act of 1934, as amended (the "1934 Act") for the
Fund and/or other accounts, if any, for which the Advisor exercises investment
discretion (as defined in Section 3(a)(35) of the 0000 Xxx) and, as to
transactions for which fixed minimum commission rates are not applicable, to
pay a commission for effecting a securities transaction in excess of the amount
another broker would have charged for effecting that transaction, if the Advisor
determines in good faith that such amount of commission is reasonable in
relation to the value of the brokerage and research services provided by such
broker, viewed in terms of either that particular transaction or the Advisor's
overall responsibilities with respect to the Fund and the other accounts, if
any, as to which it exercises investment discretion. In reaching
such determination, the Advisor will not be required to place or attempt to
place a specific dollar value on the research or execution services of a broker
or on the portion of any commission reflecting either of said
services. In demonstrating that such determinations were made in good faith,
the Advisor shall be prepared to show that all commissions were allocated and
paid for purposes contemplated by the Fund's brokerage policy; that the
research services provide lawful and appropriate assistance to the Advisor in
the performance of its investment decision-making responsibilities, and that the
commissions were within a reasonable range. Whether commissions were within a
reasonable range shall be based on any available information as to the
level of commissions known to be charged by other brokers on comparable
transactions, but there shall be taken into account the Fund's policies that
(a) obtaining a low commission is deemed secondary to obtaining
a favorable securities price, since it is recognized that usually it is more
beneficial to the Fund to obtain a favorable price than to pay the lowest
commission; and (b) the quality, comprehensiveness and frequency of
research studies which are provided for the Advisor are useful to the Advisor in
performing its advisory services under this Agreement. Research services
provided by brokers to the Advisor are considered to be in addition to, and
not in lieu of, services required to be performed by the Advisor under this
Agreement. Research furnished by brokers through which the Fund effects
securities transactions may be used by the Advisor for any of its accounts,
and not all such research may be used by the Advisor for the Fund. When
execution of portfolio transactions is allocated to brokers trading on exchanges
with fixed brokerage commission rates, account may be taken of various services
provided by the broker.
(iv) Purchases and sales of portfolio securities within
the United States other than on a securities exchange shall be executed with
primary market makers acting as principal, except where, in the judgment of
the Advisor, better prices and execution may be obtained on a commission basis
or from other sources.
(D) The Advisor further agrees that, in performing its duties hereunder, it
will:
(i) 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;
(ii) use reasonable efforts to manage the Fund so
that it will qualify, and continue to qualify, as a regulated investment
company under Subchapter M of the Code and regulations issued thereunder;
(iii) place orders pursuant to its investment
determinations for the Fund directly with the issuer, or with any broker or
dealer, in accordance with applicable policies expressed in the Fund's
Prospectus and/or Statement of Additional Information and/or in this Agreement
and in accordance with applicable legal requirements;
(iv) furnish to the Fund whatever statistical
information the Fund may reasonably request with respect to the Fund's assets or
contemplated investments. In addition, the Advisor will keep the Fund and
its Directors informed of developments materially affecting the Fund's
investments and shall, on the Advisor's own initiative, furnish to the Fund from
time to time whatever information the Advisor believes appropriate for this
purpose;
(v) make available to the Fund, promptly upon its
request, such copies of the Advisor's investment records and ledgers with
respect to the Fund as may be required to assist the Fund in its
compliance with applicable laws and regulations. The Advisor will furnish
the Directors with such periodic and special reports regarding the Fund as
they may reasonably request; and
(vi) immediately notify the Fund in the event that the
Advisor or any of its affiliates (a) becomes aware that it is subject to a
statutory disqualification that prevents the Advisor from serving as investment
advisor pursuant to this Agreement; or (b) becomes aware that it is the subject
of an administrative inquiry, proceeding or enforcement action by the Securities
and Exchange Commission ("SEC") or other regulatory authority. The Advisor
further agrees to notify the Fund immediately of any material fact known to
the Advisor respecting or relating to the Advisor that is not contained in the
Fund's Registration Statement, or any amendment or supplement thereto that may
reasonably be required to be disclosed therein, and of any statement contained
therein that becomes untrue in any material respect.
3. ALLOCATION OF CHARGES AND EXPENSES. Except as otherwise specifically
provided in this Section 3, the Advisor shall pay the compensation and expenses
of all of its directors, officers and employees who serve as officers and
executive employees of the Fund (including the Fund's share of payroll taxes
for such persons), and the Advisor shall make available, without expenses to the
Fund, the service of its directors, officers and employees who may be
duly-elected officers of the Fund, subject to their individual consent to
serve and to any limitations imposed by law.
The Advisor shall not be required to pay any expenses of the Fund other than
those specifically allocated to the Advisor in this Section 3. In particular,
but without limiting the generality of the foregoing, the Advisor shall not
be responsible, except to the extent of the reasonable compensation of such of
the Fund's employees as are officers or employees of the Advisor whose services
may be involved, for the following expenses of the Fund; organization and
certain offering expenses of the Fund (including out-of-pocket expenses, but
not including the Advisor's overhead and employee costs); fees payable to the
Advisor and to any other Fund advisors 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 Fund in
connection with membership in investment company trade organizations; costs of
insurance relating to fidelity coverage for the Fund's officers and employees;
fees and expenses of the Fund's custodian, any sub-custodian, transfer agent,
registrar, or dividend disbursing agent; payments to the Advisor for maintaining
the Fund's financial books and records and calculating the daily net asset value
pursuant to Section 4 hereof, other payments for portfolio pricing or valuation
services to pricing agents, accountants, bankers and other specialists, if any;
expenses of preparing share certificates; other expenses in connection with the
issuance, offering, distribution, sale or redemption of securities issued by the
Fund; expenses relating to investor 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 stationery; any
litigation expenses; costs of stockholders' meetings; the compensation and all
expenses (specifically including travel expenses relating to the Fund's
business) of officers, directors and employees of the Fund who are not officers
or employees of the Advisor, and travel expenses (or an appropriate portion
thereof) of officers or directors of the Fund who are officers, directors or
employees of the Advisor to the extent that such expenses relate to attendance
at meetings of the Board of Directors of the Fund with respect
to matters concerning the Fund, or any committees thereof or advisors thereto.
4. COMPENSATION. As compensation for the services provided and expenses
assumed by the Advisor under this Agreement, the Fund will pay the Advisor at
the end of each calendar month an advisory fee as set forth in Schedule A
hereto. The advisory fee is computed daily as a percentage of the Fund's net
assets. The "net assets" of the Fund shall mean the average of the values
placed on the Fund's net assets as of 4:00 p.m. (Eastern time) on each day on
which the net asset value of the Fund is determined consistent with the
provisions of Rule 22c-1 under the 1940 Act or, if the Fund lawfully determines
the value of its net assets as of some other time on each business day, as of
such other time. 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 is suspended for any particular business day, then for the purposes of
this Section 4, the value of the net assets of the Fund as last
determined shall be deemed to be the value of its net assets as of the close of
regular trading on the New York Stock Exchange, or as of such other time as the
value of the net assets of the Fund's securities 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 when
the Advisor's compensation is payable at the end of such month, then such value
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 the Fund determines
the value of the net assets 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.
In the event that the Advisor's gross compensation hereunder shall, when added
to the other expenses of the Fund, cause the aggregate expenses of the Fund
to exceed the maximum expenses permitted under the lowest applicable expense
limitation established pursuant to the statutes or regulations of any
jurisdiction in which the shares of the Fund may be qualified for offer and
sale, the total compensation paid or payable to the Advisor shall be reduced
(but not below zero), to the extent necessary to cause the Fund not
to exceed such expense limitation. Except to the extent that such reduction has
been reflected in lowered monthly payments to the Advisor, the Advisor shall
refund to the Fund the amount by which the total of payments received by the
Advisor are in excess of such expense limitation as promptly as practicable
after the end of such fiscal year, provided that the Advisor shall not be
required to pay the Fund an amount greater than the fee otherwise payable to
the Advisor in respect of such year. As used in this Section 4, "expenses"
shall mean those expenses included in the applicable expense limitation having
the broadest specifications thereof and "expense limitation" shall mean a
limitation on the maximum annual expenses which may be incurred by an investment
company as determined by applicable law. The words "lowest applicable expense
limitation" shall be deemed to be that which results in the largest reduction of
the Advisor's compensation for any fiscal year of the Fund; provided, however,
that nothing in this Agreement shall limit the Advisor's fees if not required
by an applicable statute or regulation referred to above in this Section 4.
5. BOOKS AND RECORDS. The Advisor agrees to maintain such books and records
with respect to its services to the Fund as are required by Section 31 of 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 Advisor also agrees that records it maintains and preserves pursuant to
Rules 31a-1 and 31a-2 under the 1940 Act in connection with its
services hereunder are the property of the Fund and will be surrendered promptly
to the Fund upon its request. The Advisor 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 Fund are being conducted in
accordance with applicable law and regulations.
6. STANDARD OF CARE AND LIMITATION OF LIABILITY. The Advisor shall exercise
its best judgment in rendering the services provided by it under this Agreement.
The Advisor shall not be liable for any error of judgment or mistake of law or
for any loss suffered by 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
Advisor against any liability to the Fund or to holders of the Fund's shares to
which the Advisor 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 Advisor's directors, employees or other affiliates of
the Advisor performing services with respect to the Fund.
7. SERVICES NOT EXCLUSIVE. It is understood that the services of the
Advisor are not exclusive, and that nothing in this Agreement shall prevent the
Advisor from providing similar services to other investment companies or to
other series of investment companies, or from engaging in other activities,
provided such other services and activities do not, during the term of the
Agreement, interfere in a material manner with the Advisor's ability to meet
its obligations to the Fund hereunder. When the Advisor 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 Advisor
nor any of its directors, officers or employees shall act as a principal or
agent or receive any commission, provided that portfolio transactions for the
Fund may be executed through firms affiliated with the Advisor, in accordance
with applicable legal requirements. If the Advisor provides any advice to its
clients concerning the shares of the Fund, the Advisor shall act solely as
investment counsel for such clients and not in any way on behalf of the Fund.
8. DURATION AND TERMINATION. This Agreement shall continue until May 1,
2000, and thereafter shall continue automatically for successive annual periods,
provided such continuance is specifically approved at least annually by (a)
the Directors or (b) a vote of a "majority" (as defined in the 0000 Xxx) 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 "interested persons" (as defined in the 0000 Xxx) of any
party to this Agreement, by vote cast in person at a meeting called for the
purpose of voting on such approval. Notwithstanding the foregoing, this
Agreement may be terminated (a) at any time without penalty by the Fund upon the
vote of a majority of the Directors or by vote of the majority
of the Fund's outstanding voting securities, upon sixty (60) days written notice
to the Advisor or (b) by the Advisor at any time without penalty, upon sixty
(60) days written notice to the Fund. Notwithstanding the foregoing, this
Agreement will 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
until approved by an affirmative vote of (a) a majority of the outstanding
voting securities of the Fund, and (b) 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. MISCELLANEOUS.
A. This Agreement shall be governed by the laws of the State of
Maryland, provided that nothing herein shall be construed in a manner
inconsistent with the 1940 Act, the Advisers Act, or rules, regulations 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 Advisor as
an agent of the Fund.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their officers designated below as of May 1, 1998.
GREENSPRING FUND, INCORPORATED
By: ___________________________________
Its: ___________________________________
KEY EQUITY MANAGEMENT CORPORATION
By: ____________________________________
Its: ____________________________________
SCHEDULE A
TO THE INVESTMENT ADVISORY AGREEMENT
DATED MAY 1, 1998 BETWEEN
GREENSPRING FUND, INC. AND
KEY EQUITY MANAGEMENT CORPORATION
Pursuant to Section 4 of this Agreement, the Fund shall pay the Advisor, at
the end of each calendar month, compensation computed daily at an annual rate of
the Fund's average daily net assets as follows:
AVERAGE DAILY NET ASSETS FEE
$0 to $250,000,000 0.75%
$250,000,000 to $500,000,000 0.70%
in excess of $500,000,000 0.65%
