EXHIBIT (h).2
FUND ADMINISTRATION SERVICING AGREEMENT
THIS AGREEMENT is made and entered into as of this April 26, 1999, by
and between Investment Advisers, Inc., a corporation organized under the laws of
the State of Delaware (hereinafter referred to as "IAI") and Firstar Mutual Fund
Services, LLC, a corporation organized under the laws of the State of Wisconsin
(hereinafter referred to as "FMFS").
WHEREAS, IAI is a registered investment adviser under the Investment
Advisers Act of 1940, as amended, and serves as the investment manager of
open-end investment management companies (the "IAI Mutual Funds") registered
under the Investment Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the IAI Mutual Funds are authorized to create separate series,
each with its own separate investment portfolio (each a "Fund");
WHEREAS, FMFS is in the business of providing, among other things,
mutual fund administration services to investment companies; and
WHEREAS, IAI desires to retain FMFS to provide mutual fund
administration services to the Funds listed on Exhibit A attached hereto, as it
may be amended from time to time.
NOW, THEREFORE, in consideration of the mutual agreements herein made,
IAI and FMFS agree as follows:
1. APPOINTMENT OF ADMINISTRATOR
IAI hereby appoints FMFS as Administrator of the IAI Mutual Funds on
the terms and conditions set forth in this Agreement, and FMFS hereby accepts
such appointment and agrees to perform the services and duties set forth in this
Agreement in consideration of the compensation provided for herein.
2. DUTIES AND RESPONSIBILITIES OF FMFS
A. General Fund Management
1. Act as liaison among all Fund service providers
2. Supply:
a. Corporate secretarial services
b. Office facilities (which may be in FMFS's or its
affiliate's own offices)
c. Non-investment-related statistical and research data
as needed
3. Coordinate board communication by:
a. Establish meeting agendas
b. Preparing board reports based on financial and
administrative data
c. Evaluating independent auditor
d. Securing and monitoring fidelity bond and director
and officer liability coverage, and making the
necessary SEC filings relating thereto
e. Preparing minutes of meetings of the board and
shareholders
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f. Recommend dividend declarations to the Board, prepare
and distribute to appropriate parties' notices
announcing declaration of dividends and other
distributions to shareholders
g. Provide personnel to serve as officers of the IAI
Mutual Funds if so elected by the Board and attend
Board meetings to present materials for Board review
h. Prepare expenses and director fee analysis for annual
approval
4. Audits
a. Prepare appropriate schedules and assist independent
auditors
b. Provide information to SEC and facilitate audit
process
c. Provide office facilities
5. Assist in overall operations of the Fund
6. Pay Fund expenses upon written authorization from the IAI
Mutual Funds
7. Monitor arrangements under shareholder services or similar
plan
8. Complete and return Fund survey information
B. Compliance
1. Regulatory Compliance
a. Monitor compliance with 1940 Act requirements,
including:
1) Asset diversification tests
2) Total return and SEC yield calculations
3) Maintenance of books and records under Rule
31a-3
4) Code of Ethics for the disinterested
Directors of the Fund
b. Monitor Fund's compliance with the policies and
investment limitations of the Fund as set forth in
its Prospectus and Statement of Additional
Information
c Maintain awareness of applicable regulatory and
operational service issues and recommend dispositions
2. Blue Sky Compliance
a. Prepare and file with the appropriate state
securities authorities any and all required
compliance filings relating to the registration of
the securities of the Fund so as to enable the Fund
to make a continuous offering of its shares in all
states
b. Monitor status and maintain registrations in each
state
c. Provide information regarding material developments
in state securities regulation
3. SEC Registration and Reporting
a. Assist Fund counsel in updating Prospectus and
Statement of Additional Information and in preparing
proxy statements and Rule 24f-2 notices
b. Prepare annual and semiannual reports, Form N-SAR
filings and Rule 24f-2 notices
c. Coordinate the printing, filing and mailing of
publicly disseminated Prospectuses and reports
d. File fidelity bond under Rule 17g-1
e. File shareholder reports under Rule 30b2-1
f. Monitor sales of each Fund's shares and ensure that
such shares are properly registered with the SEC and
the appropriate state authorities
g. File Rule 24f-2 notices, Form N-SAR, Form N30-d
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4. IRS Compliance
a. Monitor status as a regulated investment company
under Subchapter M, including without limitation,
review of the following:
1) Asset diversification requirements,
including variable annuity testing
2) Qualifying income requirements
3) Distribution requirements
b. Calculate required distributions (including excise
tax distributions)
C. Financial Reporting
1. Provide financial data required by Fund's Prospectus and
Statement of Additional Information;
2. Prepare financial reports for officers, shareholders, tax
authorities, performance reporting companies, the board, the
SEC, and independent auditors;
3. Supervise the Funds' Custodian and Accountants in the
maintenance of the general ledger and in the preparation of
the Funds' financial statements, including oversight of
expense accruals and payments, of the determination of net
asset value of each Fund's net assets and of each Fund's
shares, and of the declaration and payment of dividends and
other distributions to shareholders;
4. Compute the yield, total return and expense ratio of each
class of each Fund, and each Fund's portfolio turnover rate;
and
5. Monitor the expense accruals and notify IAI of any proposed
adjustments.
6. Prepare monthly financial statements, which will include
without limitation the following items:
Schedule of Investments
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Cash Statement
Schedule of Capital Gains and Losses
7. Prepare quarterly broker security transaction summaries.
D. Tax Reporting
1. Prepare and file on a timely basis appropriate federal and
state tax returns including, without limitation, Forms
1120/8613 with any necessary schedules
2. Prepare state income breakdowns where relevant
3. File Form 1099 Miscellaneous for payments to directors and
other service providers
4. Monitor wash losses
5. Calculate eligible dividend income for corporate shareholders
6. Calculate federal obligation interest
E. Subject to FMFS's agreement, perform such other tasks as routinely
performed by IAI prior to the effective date of this Agreement consistent with
the intent of both parties that FMFS is assuming
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all responsibilities previously exercised by IAI in connection with the services
generally described herein.
3. COMPENSATION
FMFS shall be compensated for providing the services set forth in this
Agreement in accordance with the Fee Schedule attached hereto as Exhibit A and
as mutually agreed upon and amended from time to time. IAI agrees to pay all
fees and reimbursable expenses within ten (10) business days following the
receipt of the billing notice.
4. PERFORMANCE OF SERVICE; LIMITATION OF LIABILITY
A. FMFS shall exercise reasonable care in the performance of its duties
under this Agreement. FMFS shall not be liable for any error of judgment or
mistake of law or for any loss suffered by a Fund in connection with matters to
which this Agreement relates, including losses resulting from mechanical
breakdowns or the failure of communication or power supplies beyond FMFS's
control, except for such an error, mistake or loss arising out of or relating to
FMFS's refusal or failure to comply with the terms of this Agreement or from bad
faith, negligence, or willful misconduct on its part in the performance of its
duties under this Agreement.
Notwithstanding any other provision of this Agreement (other than
Section 3 above), if FMFS has exercised reasonable care in the performance of
its duties under this Agreement, IAI shall indemnify and hold harmless FMFS from
and against any and all claims, demands, losses, expenses, and liabilities
(whether with or without basis in fact or law) of any and every nature
(including reasonable attorneys' fees) which FMFS may sustain or incur or which
may be asserted against FMFS by any person arising out of any action taken or
omitted to be taken by it in performing the services hereunder, except for any
and all claims, demands, xxxxxx expenses, and liabilities arising out of or
relating to FMFS's refusal or failure to comply with the terms of this Agreement
or from bad faith, negligence or from willful misconduct on its part in
performance of its duties under thi Agreement, (i) in accordance with the
foregoing standards, or (ii) in reliance upon any written or oral instruction
provided to FMFS by any duly authorized officer of the Fund or IAI, such duly
authorized officer to be included in a list of authorized officers furnished to
FMFS and as amended from time to time in writing by resolution of the Board of
Directors of the Company. This indemnification and hold harmless obligation
shall not extend to any and all claims, demands, losses, expenses, and
liabilities arising out of or relating to FMFS's refusal or failure to comply
with the terms of this Agreement or from bad faith, negligence or from willful
misconduct on its part in performance of its duties under this Agreement.
FMFS shall indemnify and hold IAI harmless from and against any and all
claims, demands, losses, expenses, and liabilities (whether with or without
basis in fact or law) of any and every nature (including reasonable attorneys'
fees) which the IAI may sustain or incur or which may be asserted against IAI by
any person arising out of any action taken or omitted to be taken by FMFS as a
result of FMFS's refusal or failure to comply with the terms of this Agreement,
its bad faith, negligence, or willful misconduct.
Regardless of the above, FMFS reserves the right to reprocess and
correct administrative errors at its own expense.
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B. In order that the indemnification provisions contained in this
section shall apply, it is understood that if in any case the indemnitor may be
asked to indemnify or hold the indemnitee harmless, the indemnitor shall be
fully and promptly advised of all pertinent facts concerning the situation in
question, and it is further understood that the indemnitee will use all
reasonable care to notify the indemnitor promptly concerning any situation which
presents or appears likely to present the probability of a claim for
indemnification. The indemnitor shall have the option to defend the indemnitee
against any claim, which may be the subject of this indemnification. In the
event that the indemnitor so elects, it will so notify the indemnitee and
thereupon the indemnitor shall take over complete defense of the claim, and the
indemnitee shall in such situation initiate no further legal or other expenses
for which it shall seek indemnification under this section. The indemnitee shall
in no case confess any claim or make any compromise in any case in which the
indemnitor will be asked to indemnify the indemnitee except with the
indemnitor's prior written consent.
5. PROPRIETARY AND CONFIDENTIAL INFORMATION
FMFS agrees on behalf of itself and its directors, officers, and
employees to treat confidentially and as proprietary information of the IAI
Mutual Funds, all records and other information relative to the IAI Mutual Funds
and prior, present, or potential shareholders of the IAI Mutual Funds (and
clients of said shareholders), and not to use such records and information for
any purpose other than the performance of its responsibilities and duties
hereunder, except after prior notification to and approval in writing by the IAI
Mutual Funds, which approval shall not be unreasonably withheld and may not be
withheld where FMFS 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 IAI Mutual Funds.
6. DATA NECESSARY TO PERFORM SERVICES
Each Fund or its agent, which may be FMFS, shall furnish to FMFS the
data necessary to perform the services described herein at times and in such
form as mutually agreed upon if FMFS is also acting in another capacity for a
Fund, nothing herein shall be deemed to relieve FMFS of any of its obligations
in such capacity.
7. TERM OF AGREEMENT
A. This Agreement shall become effective as of the date hereof and will
continue in effect for a period of three years. If IAI terminates the services
before the end of the third year of this Agreement, IAI agrees to reimburse FMFS
for its costs incurred in the conversion of services to FMFS as follows: $1133
per month remaining in the three year term. Subsequent to the initial three year
term, this Agreement may be terminated by either party upon giving sixty (60)
days prior written notice to the other party or such shorter period as is
mutually agreed upon by the parties. However, this Agreement may be amended by
mutual written consent of the parties.
B. Notwithstanding the foregoing, if the IAI Mutual Funds terminate
their agreements with IAI pursuant to which IAI has retained FMFS under this
Agreement, such termination shall also effectively terminate FMFS and IAI will
have no responsibility to compensate FMFS in an amount equal to the fees
remaining under the initial three year agreement. unless sooner terminated as
provided herein, shall continue subject to Board approval in effect for
successive annual periods. The Agreement may be terminated by
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either party upon giving sixty (60) days prior written notice to the other party
or such shorter period as is mutually agreed upon by the parties. However, this
Agreement may be amended by mutual written consent of the parties. If the IAI
Mutual Funds terminate their agreements with IAI pursuant to which IAI has
retained FMFS under this Agreement, such termination shall also serve to
terminate FMFS.
8. NOTICES
Notices of any kind to be given by either party to the other party
shall be in writing and shall be duly given if mailed or delivered as follows:
Notice to FMFS shall be sent to:
Firstar Mutual Fund Services, LLC
000 Xxxx Xxxxxxxx Xxxxxx
Xxxxxxxxx, XX 00000
and notice to IAI shall be sent to:
IAI Mutual Funds
Director of Fund Administration
000 Xxxxxx Xxxxxx Xxxxx, Xxxxx 0000
Xxxxxxxxxxx, XX 00000
9. NO AGENCY RELATIONSHIP
Nothing herein contained shall be deemed to authorize or empower FMFS
to act as agent for the other party to this Agreement, or to conduct business in
the name of, or for the account of the other party to this Agreement.
10. DUTIES IN THE EVENT OF TERMINATION
In the event that, in connection with termination, a successor to any
of FMFS's duties or responsibilities hereunder is designated by IAI by written
notice to FMFS, FMFS will promptly, upon such termination and at the expense of
IAI, transfer to such successor all relevant books, records, correspondence, and
other data established or maintained by FMFS under this Agreement in a form
reasonably acceptable to IAI (if such form differs from the form in which FMFS
has maintained, IAI shall pay any expenses associated with transferring the data
to such form), and will cooperate in the transfer of such duties and
responsibilities, including provision for assistance from FMFS's personnel in
the establishment of books, records, and other data by such successor.
11. GOVERNING LAW
This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the State of Wisconsin.
However, nothing herein shall be construed in a manner inconsistent with the
1940 Act or any rule or regulation promulgated by the Securities and Exchange
Commission thereunder.
12. RECORDS
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FMFS shall keep records relating to the services to be performed
hereunder, in the form and manner as it may deem advisable. To the extent
required by Section 31 of the 1940 Act, and the rules thereunder, FMFS agrees
that all such records prepared or maintained by FMFS relating to the services to
be performed by FMFS hereunder are the property of a Fund and will be preserved,
maintained and made available in accordance with such section and rules and will
be surrendered to a Fund on and in accordance with its request. Such records
shall also be made available for review by the U.S. Securities and Exchange
Commission.
13. FURTHER REPRESENTATIONS AND WARRANTIES OF FMFS
A. FMFS represents to IAI that the computer software, computer
firmware, computer hardware (whether general or special purpose) and other
similar related items of automated, computerized and/or software systems that
are owned or licensed by FMFS and will be utilized by FMFS or its agents in
connection with the provision of services described in this Agreement are "Year
2000 Compliant" (as defined below). As used in this Section 15 of this
Agreement, the term "Year 2000 Compliant" shall mean the ability of the relevant
system to provide all of the following functions:
1. Process date information before, during and after January 1,
2000, including but not limited to accepting date specific
input data, providing date specific output data, and
performing calculations on dates or portions of dates;
2. Function accurately and without interruption or malfunction
before, during and after January 1, 2000, without any change
in operations associated with the advent of the new millennium
and assuming no other defects, bugs, viruses or other problems
unrelated to Year 2000 compliance issues which disrupt
functionality;
3. Respond to two-digit, year-date input in a way that resolves
the ambiguity as to century and in a disclosed, defined and
predetermined manner; and
4. Store and provide output data of date specific information in
ways that are unambiguous as to century.
The parties recognize and acknowledge that this representation and
warranty was a significant inducement for IAI to enter into this Agreement.
B. FMFS represents and warrants that it satisfies all rules and
requirements under the 1940 Act for the purpose of providing the services set
forth in this Agreement.
C. To the extent FMFS make changes relating to its services, systems,
programs, rules, operating schedules and equipment, it represents and warrants
that any such changes will not adversely affect the services provided to a Fund
under this Agreement. FMFS will provide IAI at least 90 days' prior written
notice of any such material changes.
D. In the event of a mechanical breakdown or failure of communication
or power supplies beyond its control, FMFS shall take all reasonable steps to
minimize service interruptions for any period that such interruption continues
beyond FMFS's control. FMFS will restore any lost or damaged data and correct
any errors resulting from such a breakdown at the expense of FMFS. FMFS agrees
that it shall, at all times, have reasonable contingency plans with appropriate
parties, making reasonable provision for emergency use of systems needed to
perform services under this Agreement. FMFS shall provide IAI with copies of
such contingencies plans and any changes thereto. Representatives of IAI
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shall be entitled to inspect FMFS's premises and operating capabilities at any
time during regular business hours of FMFS, upon reasonable notice to FMFS.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by a duly authorized officer or one or more counterparts as of the day
and year first written above.
INVESTMENT ADVISERS, INC. FIRSTAR MUTUAL FUND SERVICES, LLC
By: /s/ Xxxx Xxxxxxxxx By: /s/ Xxxxxx Xxxx
------------------------------- ---------------------------------
Attest: /s/ Xxxxxx Xxxxx Attest: /s/ Xxxxxx XxXxx
--------------------------- -----------------------------
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EXHIBIT A
Name of Fund Effective Date
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IAI INVESTMENT FUNDS I, INC.
IAI Bond Fund April 26, 1999
IAI Institutional Bond Fund April 26, 1999
IAI INVESTMENT FUNDS II, INC.
IAI Growth Fund April 26, 1999
IAI INVESTMENT FUNDS III, INC.
IAI International Fund April 26, 1999
IAI INVESTMENT FUNDS IV, INC.
IAI Regional Fund April 26, 1999
IAI INVESTMENT FUNDS VI, INC.
IAI Emerging Growth Fund April 26, 1999
IAI Midcap Growth Fund April 26, 1999
IAI Balanced Fund April 26, 1999
IAI Money Market Fund April 26, 1999
IAI Capital Appreciation Fund April 26, 1999
IAI INVESTMENT FUNDS VII, INC.
IAI Growth & Income Fund April 26, 1999
IAI INVESTMENT FUNDS VIII, INC.
IAI Value Fund April 26, 1999
IAI RETIREMENT FUNDS, INC.
IAI Regional Portfolio April 26, 1999
IAI Reserve Portfolio April 26, 1999
IAI Balanced Portfolio April 26, 1999
Annual fee based upon fund group assets:
7 basis points on the first $500 million
6 basis points on the next $500 million
4 basis points on the balance
Subject to a minimum annual fee of $25,000 per fund, in aggregate for the fund
group.
Extraordinary services quoted separately.
Plus out-of-pocket expense reimbursements, including but not limited to:
Postage
Programming
Stationery
Proxies
Retention of records
Special reports
Federal and state regulatory filing fees
Certain insurance premiums
Expenses from board of Directors meetings
Auditing and legal expenses
Fees and out-of-pocket expense reimbursements are billed to IAI monthly
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