INVESTMENT ADVISORY AGREEMENT
Exhibit (5)(b)
(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 "Sub-
Adviser") 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
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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
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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
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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
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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
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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
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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
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[Seal]
Attest: Xxxxxxx Capital Advisors, INC.
By /s/ Xxxx X. Xxxxx
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[Seal]
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