INVESTMENT ADVISORY AGREEMENT
(Tax-Exempt Fund)
AGREEMENT made as of January 9, 1998, between EMERALD FUNDS, a
Massachusetts business trust (herein called the "Trust"), and XXXXXXX CAPITAL
ADVISORS, INC., a wholly-owned indirect subsidiary of Xxxxxxx Xxxxx, Inc.
(herein called the "Investment Adviser").
WHEREAS, the Trust is registered as an open-end, management investment
company under the Investment Company Act of 1940, as amended ("1940 Act"); and
WHEREAS, the Trust desires to retain the Investment Adviser to furnish
investment advisory and other services to the Trust for its Tax-Exempt Fund
portfolio (the "Fund"), and the Investment Adviser is willing to so furnish such
services;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, it is agreed between the parties hereto as follows:
1. Appointment.
The Trust hereby appoints the Investment Adviser to provide
the investment advisory and other services set forth herein to the Trust for its
Tax-Exempt Fund for the period and on the terms set forth in this Agreement. The
Investment Adviser accepts such appointment and agrees to furnish the services
herein set forth for the compensation herein provided.
2. Subcontractors.
It is understood that the Investment Adviser will from time to
time employ or associate with such person or persons as the Investment Adviser
may believe to be particularly fitted to assist it in the performance of this
Agreement; provided, however, that the compensation of such person or persons
shall be paid by the Investment Adviser. In addition, notwithstanding any such
employment or association, the Investment Adviser shall itself (a) establish and
monitor general investment criteria and policies for the Fund, (b) review and
analyze on a periodic basis the Fund's portfolio holdings and transactions in
order to determine their appropriateness in light of the Fund's shareholder
base, and (c) review and analyze on a periodic basis the policies established by
any sub-adviser for the Fund with respect to the placement of orders for the
purchase and sale of portfolio securities. Without limiting the generality of
the foregoing, it is agreed that investment advisory services to the Fund shall
be provided by a sub-investment adviser (the "SubAdviser") pursuant to a
sub-advisory agreement agreeable to the Trust and approved in accordance with
the provisions of the 1940 Act (the "Sub-Advisory Agreement").
3. Delivery of Documents.
The Trust has furnished the Investment Adviser with copies
properly certified or authenticated of each of the following:
(a) The Trust's Agreement and Declaration of Trust, as filed
with the State Secretary of the Commonwealth of Massachusetts
on March 16, 1988, and any amendments thereto (such Agreement
and Declaration of Trust, as presently in effect and as it
shall from time to time be amended, is herein called the
"Declaration of Trust");
(b)The Trust's Code of Regulations and any amendments thereto;
(c) Resolutions of the Trust's Board of Trustees authorizing
the appointment of the Investment Adviser and approving this
Agreement;
(d) The Trust's Notification of Registration on Form N-8A
under the 1940 Act as filed with the Securities and Exchange
Commission on March 21, 1988 and any amendments thereto;
(e) The Trust's Registration Statement on Form N-1A under the
Securities Act of 1933 as amended ("1933 Act") (File No.
33-20658) and under the 1940 Act as filed with the Securities
and Exchange Commission on March 21, 1988 and any amendments
thereto; and
(f) The most recent prospectus of the Fund (such prospectus
together with the related statement of additional information,
as presently in effect and all amendments and supplements
thereto, are herein called "Prospectus").
The Trust will furnish the Investment Adviser from time to time with copies of
all amendments of or supplements to the foregoing, if any.
4. Services.
Subject to the supervision of the Trust's Board of Trustees,
the Investment Adviser will be responsible for the management of, and will
provide a continuous investment program for, the Fund, including investment
research and management with respect to all securities, investments, cash and
cash equivalents in the Fund. The Investment Adviser will determine from time to
time what securities and other investments will be purchased, retained or sold
by the Fund. The Investment Adviser will provide the services rendered by it
under this Agreement in accordance with the Fund's investment objective,
policies and restrictions as stated in the Prospectus and resolutions of the
Trust's Board of Trustees. Without limiting the generality of the foregoing, the
Investment Adviser is hereby specifically authorized to invest and reinvest the
assets of the Fund, in its discretion as investment adviser, in (i) variable
amount demand notes of corporate borrowers held by the Investment Adviser in its
capacity as fiduciary, agent and custodian and (ii) securities of other
investment companies whether or not the same are advised or managed by the
Investment Adviser or another affiliated person of the Trust. The Investment
Adviser further agrees that it will:
(a) Establish and monitor general investment criteria
and policies for the Fund;
(b) Update the Fund's cash availability throughout the
day as required;
(c) Maintain historical tax lots for each portfolio
security held by the Fund;
(d) Transmit trades to the Trust's custodian for proper
settlement;
(e) Maintain appropriate books and records with respect to the
Fund's securities transactions;
(f) Supply the Trust and its Board of Trustees with reports,
statistical data and economic information as requested; and
(g) Prepare a quarterly broker security transaction summary
and, if requested in advance, monthly security transaction listing for the Fund.
5. Other Covenants.
The Investment Adviser agrees that it:
(a) will comply with all applicable Rules and Regulations of
the Securities and Exchange Commission and will in addition conduct its
activities under this Agreement in accordance with other applicable law;
(b) will use the same skill and care in providing such
services as it uses in providing services to fiduciary accounts for which it has
investment responsibilities;
(c) will place orders pursuant to its investment
determinations for the Fund either directly with the issuer or with any broker
or dealer. In executing portfolio transactions and selecting brokers or dealers,
the Investment Adviser will use its best efforts to seek on behalf of the Fund
the best overall terms available. In assessing the best overall terms available
for any transaction, the Investment Adviser shall consider all factors that it
deems relevant, including the breadth of the market in the security, the price
of the security, the financial condition and execution capability of the broker
or dealer, and the reasonableness of the commission, if any, both for the
specific transaction and on a continuing basis. In evaluating the best overall
terms available, and in selecting the broker-dealer to execute a particular
transaction, the Investment Adviser may also consider the brokerage and research
services (as those terms are defined in Section 28(e) of the Securities Exchange
Act of 1934) provided to the Fund and other accounts over which the Investment
Adviser or an affiliate of the Investment Adviser exercises investment
discretion. The Investment Adviser is authorized, subject to the prior approval
of the Trust's Board of Trustees, to pay to a broker or dealer who provides such
brokerage and research services a commission for executing a portfolio
transaction for the Fund which is in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction if, but only
if, the Investment Adviser determines in good faith that such commission was
reasonable in relation to the value of the brokerage and research services
provided by such broker or dealer -- viewed in terms of that particular
transaction or in terms of the overall responsibilities of the Investment
Adviser to the Fund. In addition, the Investment Adviser is authorized to take
into account the sale of shares of the Trust in allocating purchase and sale
orders for portfolio securities to brokers or dealers (including brokers and
dealers that are affiliated with the Investment Adviser, Sub-Adviser or the
Trust's principal underwriter), provided that the Investment Adviser believes
that the quality of the transaction and the commission are comparable to what
they would be with other qualified firms. In no instance, however, will
portfolio securities be purchased from or sold to the Investment Adviser,
Sub-Adviser, the Trust's principal underwriter, or any affiliated person of
either the Trust, the Investment Adviser, Sub-Adviser or the principal
underwriter, acting as principal in the transaction, except to the extent
permitted by the Securities and Exchange Commission; and
(d) will maintain a policy and practice of conducting its
investment advisory services hereunder independently of the commercial banking
operations of its affiliates. When the Investment Adviser makes investment
recommendations for the Fund, its investment advisory personnel will not inquire
or take into consideration whether the issuer of securities proposed for
purchase or sale for the Fund's account are customers of the commercial
department of any of the Investment Adviser's affiliates. In dealing with
commercial customers, the Investment Adviser's affiliates will not inquire or
take into consideration whether securities of those customers are held by the
Fund.
6. Services Not Exclusive.
The services furnished by the Investment Adviser hereunder are
deemed not to be exclusive, and the Investment Adviser shall be free to furnish
similar services to others so long as its services under this Agreement are not
impaired thereby. To the extent that the purchase or sale of securities or other
investments of the same issuer may be deemed by the Investment Adviser to be
suitable for two or more accounts managed by the Investment Adviser, the
available securities or investments may be allocated in a manner believed by the
Investment Adviser to be equitable to each account. It is recognized that in
some cases this procedure may adversely affect the price paid or received by the
Fund or the size of the position obtainable for or disposed of by the Fund.
7. Books and Records.
In compliance with the requirements of Rule 31a-3 under the
1940 Act, the Investment Adviser hereby agrees that all records which it
maintains for the Fund are the property of the Trust and further agrees to
surrender promptly to the Trust any of such records upon the Trust's request.
The Investment Adviser further agrees to preserve for the periods prescribed by
Rule 31a-2 under the 1940 Act the records required to be maintained by Rule
31a-1 under the 1940 Act.
8. Expenses.
During the term of this Agreement, the Investment Adviser will
pay all expenses incurred by it in connection with its activities under this
Agreement other than the cost of securities, commodities and other investments
(including brokerage commissions and other transaction charges, if any)
purchased or sold for the Fund. In addition, if in any fiscal year the aggregate
expenses of the Fund (as defined under the securities regulations of any state
having jurisdiction over the Fund) exceed the expense limitations of any such
state, the Investment Adviser will reimburse the Trust, to the extent required
by state law, for 50% of such excess expenses of the Fund. The Investment
Adviser's obligation is not limited to the amount of its fees hereunder. Such
reimbursement, if any, will be estimated and accrued daily and paid on a monthly
basis.
9. Compensation.
For the services provided and the expenses assumed pursuant to
this Agreement, the Trust will pay the Investment Adviser, and the Investment
Adviser will accept as full compensation therefor from the Trust, a fee,
computed daily and payable monthly, at the annual rate of .25% of the average
daily net assets of the Fund. Such fee shall be a separate charge to the Fund
and shall be the several (and not joint or joint and several) obligation of the
Fund. The fees payable by the Fund under this Section 9 for the period beginning
on the date of this Agreement and ending on the date the shareholders of the
Fund approve this Agreement shall be maintained in an interest-bearing escrow
account until such time as the Fund's shareholders approve the payment of such
fees to the Investment Adviser. If the Fund's shareholders do not approve the
payment to the Investment Adviser of such fees for such period, the balance in
the escrow account shall be paid to the Fund.
10. Limitation of Liability.
The Investment Adviser shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Trust in connection
with the performance of this Agreement, except a loss resulting from a breach of
fiduciary duty with respect to the receipt of compensation for services or a
loss resulting from willful misfeasance, bad faith or negligence on the part of
the Investment Adviser in the performance of its duties or from reckless
disregard by it of its obligations and duties under this Agreement.
11. Duration and Termination.
This Agreement shall become effective as of the date hereof.
Unless sooner terminated as provided herein, this Agreement shall continue in
effect until May 9, 1998 and, if approved by the shareholders of the Fund on or
before such date, shall continue in effect for an additional period ending on
November 30, 1998. Thereafter, if not terminated, this Agreement shall
automatically continue in effect for successive annual periods ending on
November 30, provided such continuance is specifically approved at least
annually (a) by the vote of a majority of those members of the Trust's Board of
Trustees who are not interested persons of any party to this Agreement, cast in
person at a meeting called for the purpose of voting such approval, and (b) by
the Trust's Board of Trustees or by vote of a majority of the outstanding voting
securities of the Fund. Notwithstanding the foregoing, this Agreement may be
terminated as to the Fund at any time, without the payment of any penalty, by
the Trust (by vote of the Trust's Board of Trustees or by vote of a majority of
the outstanding voting securities of the Fund), or by the Investment Adviser, on
sixty days' written notice. This Agreement will immediately terminate in the
event of its assignment. (As used in this Agreement, the terms "majority of the
outstanding voting securities," "interested persons" and "assignment" shall have
the same meaning as such terms have in the 1940 Act.)
12. Amendment of This Agreement.
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. No amendment of this Agreement shall be effective until
approved by vote of a majority of the outstanding voting securities of the Fund.
13. Miscellaneous.
The captions in this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect. 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 thereby. This
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and shall be governed by New York law.
14. Names.
The names "Emerald Funds" and "Trustees of Emerald Funds"
refer respectively to the Trust created and the Trustees, as trustees but not
individually or personally, acting from time to time under an Agreement and
Declaration of Trust dated March 15, 1988, which is hereby referred to and a
copy of which is on file at the office of the State Secretary of the
Commonwealth of Massachusetts and at the principal office of the Trust. The
obligations of "Emerald Funds" entered into in the name or on behalf thereof by
any of the Trustees, representatives or agents are made not individually, but in
such capacities, and are not binding upon any of the Trustees, shareholders, or
representatives of the Trust personally, but bind only the Trust Property, and
all persons dealing with any class of shares of the Trust must look solely to
the Trust Property belonging to such class for the enforcement of any claims
against the Trust.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
EMERALD FUNDS
(a Massachusetts business trust)
Attest:
/s/ Xxxxxxx X. Xxxxx By /s/ Xxxx X. Xxxxxxxx
[Seal]
Attest: XXXXXXX CAPITAL ADVISORS, INC.
____________________________ By /s/ Xxxx X. Xxxxx
[Seal]
