INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of December 1, 1995 between THE ARBOR FUND, a
Massachusetts business trust (the "Fund"), and PNC INSTITUTIONAL MANAGEMENT
CORPORATION, a Delaware corporation (the "Advisor").
WHEREAS, the Fund is registered as an open-end, management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, the Fund desires to retain Advisor to furnish investment
advisory services to the Fund and Advisor is willing to so furnish such
services.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment.
(a) The Fund hereby appoints Advisor to act as investment
advisor to the following investment portfolio of the Fund: California Tax Exempt
Portfolio (the "Portfolio"), for the period and on the terms set forth in this
Agreement. Advisor accepts such appointment and agrees to furnish the services
herein set forth for the compensation herein provided.
(b) In the event that the Fund establishes one or more
portfolios other than the Portfolio with respect to which it desires to retain
Advisor to act as investment adviser hereunder, the Fund shall notify Advisor in
writing. If Advisor is willing to render such services under this Agreement it
shall notify the Fund in writing whereupon, subject to such shareholder approval
as may be required pursuant to Paragraph 10 hereof, such portfolio shall become
a portfolio hereunder and shall be subject to the provisions of this Agreement
to the same extent as the Portfolio named above in subparagraph (a) except to
the extent that said provisions (including those relating to the compensation
payable by the Fund to Advisor) are modified with respect to such portfolio in
writing by the Fund and Advisor at the time.
2. Sub-Contractors. It is understood that Advisor will from time to
time employ or associate with such person or persons as Advisor 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 Advisor and that Advisor shall be as fully responsible to the Fund for the
acts and omissions of any subcontractor as it is for its own acts and omissions.
Such person or persons shall be employed pursuant to sub-advisory agreements
agreeable to the Fund and approved in accordance with the provisions of the 1940
Act.
3. Delivery of Documents. The Fund has furnished Advisor with copies,
properly certified or authenticated, of each of the following:
(a) Resolutions of the Fund's Board of Trustees
authorizing the appointment of Advisor as the
Portfolio's advisor and approving this Agreement;
(b) The Fund's Declaration of Trust as filed with the
State Secretary of the Commonwealth of
Massachusetts and the Boston City Clerk on
July 24, 1992;
(c) The Fund's By-Laws;
(d) The Fund's Notification of Registration on Form N- 8A
under the 1940 Act as filed with the Securities and
Exchange Commission ("SEC") on August 11, 1992;
(e) The Fund's Registration Statement on Form N-1A (the
"Registration Statement") under the Securities Act of
1933 and 1940 Act, as filed with the SEC on August
11, 1992, and all amendments thereto; and
(f) The Fund's most recent prospectus(es) for the
Portfolio (such prospectus(es) together with the
related statement(s) of additional information, as
currently in effect and all amendments and
supplements thereto, are herein called "Prospectus").
The Fund will furnish Advisor from time to time with copies, properly
certified or authenticated, of all amendments of or supplements to the
foregoing, if any.
4. Services. Subject to the supervision of the Fund's Board of
Trustees, Advisor will (either directly or through the sub- advisors and other
sub-contractors employed by it in accordance with Section 2 hereof) provide a
continuous investment program for the Portfolio, including investment research
and management with respect to all securities, investments, cash and cash
equivalents in the Portfolio. Advisor will (either directly or through the
sub-advisors and other sub-contractors employed by it in accordance with
Paragraph 2 hereof) determine from time to time what securities and other
investments will be purchased, retained or sold by the Portfolio and will place
the daily orders for the purchase or sale of securities. Advisor will provide
the services rendered by it under this Agreement in accordance with the
Portfolio's investment objective, policies and restrictions as stated in the
2
Portfolio's Prospectus (as currently in effect and as it may be amended or
supplemented from time to time) and the resolutions of the Fund's Board of
Trustees. Advisor further agrees that it:
(a) will comply with all applicable rules and regulations
of the SEC and will in addition conduct its
activities under this Agreement in accordance with
other applicable law;
(b) will place orders either directly with the issuer
or with any broker or dealer. Subject to the other
provisions of this paragraph, in placing orders
with brokers and dealers, Advisor will attempt to
obtain the best price and the most favorable
execution of its orders. In placing orders,
Advisor will consider the experience and skill of
the firm's securities traders as well as the firm's
financial responsibility and administrative
efficiency. In addition, Advisor is authorized to
take into account the sale of shares of the Fund in
allocating purchase and sale orders for portfolio
securities to brokers or dealers (including brokers
and dealers that are affiliated with Advisor, the
sub-advisors or the Fund's distributor) in
compliance with applicable law. In no instance,
however, will the Portfolio's securities be
purchased from or sold to Advisor, any sub-advisor,
the Fund's distributor or any affiliated person
thereof, except to the extent permitted by the SEC
or by applicable law;
(c) will maintain books and records with respect to the
Portfolio's securities transactions and will furnish
the Fund's Board of Trustees such periodic and
special reports as the Board may request;
(d) will maintain a policy and practice of conducting
its investment advisory services hereunder
independently of the commercial banking operations
of its affiliates. When Advisor makes investment
recommendations for the Portfolio, its investment
advisory personnel will not inquire or take into
consideration whether the issuer of securities
proposed for purchase or sale for the Portfolio's
account are customers of the commercial departments
of its affiliates. In dealing with commercial
customers, Advisor and the sub-advisors will not
inquire or take into consideration whether
securities of those customers are held by the Fund;
and
3
(e) will treat confidentially and as proprietary
information of the Fund all records and other
information relative to the Fund, the Portfolio and
the Fund's prior, current or potential
shareholders, and will not use such records and
information for any purpose other than performance
of its responsibilities and duties hereunder,
except after prior notification to and approval in
writing by the Fund, which approval shall not be
unreasonably withheld and may not be withheld where
Advisor may be exposed to civil or criminal
contempt proceedings for failure to comply, when
requested to divulge such information by duly
constituted authorities, or when so requested by
the Fund.
5. Services Not Exclusive. Advisor's services hereunder are not
deemed to be exclusive, and Advisor shall be free to render similar services
to others so long as its services under this Agreement are not impaired thereby.
6. Books and Records. In compliance with the requirements of Rule 31a-3
under the 1940 Act, Advisor hereby agrees that all records which it maintains
for the Portfolio are the property of the Fund and further agrees to surrender
promptly to the Fund any of such records upon the Fund's request. Advisor
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.
7. Expenses. During the term of this Agreement, Advisor 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 Portfolio.
8. Compensation.
(a) For the services provided and the expenses assumed
pursuant to this Agreement the Fund will pay Advisor and Advisor will accept as
full compensation therefor a fee, computed daily and payable monthly, at the
following annual rate: .095% of the Portfolio's average daily net assets. Prior
to the requisite approval of this Agreement by the shareholders of the
California Tax Exempt Portfolio, Advisor agrees to accept a fee from the Fund
for its services hereunder with respect to the Portfolio at the level the
Portfolio was required to compensate its previous investment adviser pursuant to
its most recent investment advisory agreement. Such fee as is attributable to
the Portfolio shall be a separate charge to the Portfolio and shall be the
several (and not joint or joint and several) obligation of the Portfolio.
4
(b) If in any fiscal year the aggregate expenses of the
Portfolio (as defined under the securities regulations of any state having
jurisdiction over the Portfolio) exceeds the expense limitations of any such
state, Advisor will bear its share of the amount of such excess in proportion to
the aggregate fees otherwise payable to it hereunder and to the Fund's
administrator under its administration agreement with the Fund. The obligation
of Advisor to reimburse the Fund under this Paragraph 8(b) is limited in any
fiscal year to the amount of its fees otherwise payable hereunder attributable
to the Portfolio for such fiscal year, provided, however, that notwithstanding
the foregoing, Advisor shall reimburse the Fund for the full amount of its share
of any such excess expenses regardless of the amount of fees otherwise payable
to it during such fiscal year to the extent that the securities regulations of
any state having jurisdiction over the Portfolio so require. Such expense
reimbursement, if any, will be estimated, reconciled and paid on a monthly
basis.
9. Limitation of Liability. Advisor shall not be liable for any error
of judgment or mistake of law or for any loss suffered by the Fund 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 gross negligence on its
part in the performance of its duties or from reckless disregard by it of its
obligations or duties under this Agreement.
10. Duration and Termination. This Agreement will become effective as
of the date hereof with respect to the Portfolio listed in Section 1(a) hereof
and, with respect to any additional portfolio, on the date of receipt by the
Fund of notice from Advisor in accordance with Section 1(b) hereof that Advisor
is willing to serve as investment advisor with respect to such portfolio,
provided that this Agreement (as supplemented by the terms specified in any
notice and agreement pursuant to Section 1(b) hereof) shall have been approved
by the shareholders of such portfolio(s) in accordance with the requirements of
the 1940 Act, and, unless sooner terminated as provided herein, shall continue
in effect with respect to the Portfolio until December 1, 1997. Thereafter, if
not terminated, this Agreement shall continue in effect with respect to the
Portfolio for successive annual periods ending on December 1, provided such
continuance is specifically approved at least annually (a) by vote of a majority
of those members of the Fund'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 on such approval, and (b) by the Funds's Board of Trustees or
by vote of a majority of the outstanding voting securities of the Portfolio.
Notwithstanding the foregoing, this Agreement may be terminated at any time,
without the payment of any penalty, by the Fund (by vote of the Fund's Board of
Trustees or by vote of a majority of the outstanding voting securities of the
5
Portfolio), or by Advisor 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
in the 1940 Act.)
11. 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. Any amendment of this Agreement shall be
subject to the 1940 Act.
12. Release. The names "The Arbor Fund" and "Trustees of The Arbor
Fund" refer respectively to the Trust created and the Trustees, as trustees but
not individually or personally, acting from time to time under a Declaration of
Trust dated 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 "The Arbor Fund" entered into
in the name or on behalf thereof by any of the Trustees, officers,
representatives or agents are made not individually, but in such capacities, and
are not binding upon any of the Trustees, Shareholders, officers,
representatives or agents of the Trust personally, but bind only the Trust
Property (as defined in the Declaration of Trust), 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.
13. Miscellaneous. This Agreement replaces any prior or contemporaneous
agreements between the parties hereto regarding the California Tax Exempt
Portfolio with respect to the subject matter hereof. 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 on, and shall
inure to the benefit of, the parties hereto and their respective successors and
shall be governed by Delaware law.
14. Counterparts. This Agreement may be executed in counterparts by
the parties hereto, each of which shall constitute an original counterpart,
and all of which, together, shall constitute one Agreement.
6
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.
THE ARBOR FUND
By:____________________________________
Title:
PNC INSTITUTIONAL
MANAGEMENT CORPORATION
By:____________________________________
Title:
7
