FUND ACCOUNTING SERVICING AGREEMENT
THIS AGREEMENT is made and entered into as of this 24th day of May, 2000,
by and between The Arbitrage Funds, a Delaware business trust (hereinafter
referred to as the "Trust") and Firstar Mutual Fund Services, LLC, a limited
liability company organized under the laws of the State of Wisconsin
(hereinafter referred to as "FMFS").
WHEREAS, the Trust is an open-end management investment company registered
under the Investment Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the Trust is authorized to create separate series, each with its
own separate investment portfolio;
WHEREAS, FMFS is a limited liability corporation and, among other things, is
in the business of providing mutual fund accounting services to investment
companies; and
WHEREAS, the Trust desires to retain FMFS to provide accounting services
to each series of the Trust listed on Exhibit A attached hereto, (each
hereinafter referred to as a "Fund"), as it may be amended from time to time.
NOW, THEREFORE, in consideration of the mutual agreements herein made, the
Trust and FMFS agree as follows:
1. APPOINTMENT OF FUND ACCOUNTANT
The Trust hereby appoints FMFS as Fund Accountant of the Trust 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. Portfolio Accounting Services:
(1) Maintain portfolio records on a trade date+1 basis using security
trade information communicated from the investment manager.
(2) For each valuation date, obtain prices from a pricing source approved
by the Board of Trustees of the Trust and apply those prices to the
portfolio positions. For those securities where market quotations are
not readily available, the Board of Trustees of the Trust shall
approve, in good faith, the method for determining the fair value for
such securities.
(3) Identify interest and dividend accrual balances as of each valuation
date and calculate gross earnings on investments for the accounting
period.
(4) Determine gain/loss on security sales and identify them as,
short-term or long-term; account for periodic distributions of gains
or losses to shareholders and maintain undistributed gain or loss
balances as of each valuation date.
B. Expense Accrual and Payment Services:
(1) For each valuation date, calculate the expense accrual amounts as
directed by the Trust as to methodology, rate or dollar amount.
(2) Record payments for Fund expenses upon receipt of written
authorization from the Trust.
(3) Account for Fund expenditures and maintain expense accrual balances
at the level of accounting detail, as agreed upon by FMFS and the
Trust.
(4) Provide expense accrual and payment reporting.
C. Fund Valuation and Financial Reporting Services:
(1) Account for Fund share purchases, sales, exchanges, transfers,
dividend reinvestments, and other Fund share activity as reported by
the transfer agent on a timely basis.
(2) Apply equalization accounting as directed by the Trust.
(3) Determine net investment income (earnings) for the Fund as of each
valuation date. Account for periodic distributions of earnings to
shareholders and maintain undistributed net investment income
balances as of each valuation date.
(4) Maintain a general ledger and other accounts, books, and financial
records for the Fund in the form as agreed upon.
(5) Determine the net asset value of the Fund according to the accounting
policies and procedures set forth in the Fund's Prospectus.
(6) Calculate per share net asset value, per share net earnings, and
other per share amounts reflective of Fund operations at such time as
required by the nature and characteristics of the Fund.
(7) Communicate, at an agreed upon time, the per share price for each
valuation date to parties as agreed upon from time to time.
(8) Prepare monthly reports which document the adequacy of accounting
detail to support month-end ledger balances.
D. Tax Accounting Services:
(1) Maintain accounting records for the investment portfolio of the Fund
to support the tax reporting required for IRS-defined regulated
investment companies.
(2) Maintain tax lot detail for the investment portfolio.
(3) Calculate taxable gain/loss on security sales using the tax lot
relief method designated by the Trust.
(4) Provide the necessary financial information to support the taxable
components of income and capital gains distributions to the transfer
agent to support tax reporting to the shareholders.
E. Compliance Control Services:
(1) Support reporting to regulatory bodies and support financial
statement preparation by making the Fund's accounting records
available to the Trust, the Securities and Exchange Commission, and
the outside auditors.
(2) Maintain accounting records according to the 1940 Act and
regulations provided thereunder
F. FMFS will perform the following accounting functions on a daily basis:
(1) Reconcile cash and investment balances of each Portfolio with the
Custodian, and provide the Advisor with the beginning cash balance
available for investment purposes;
(2) Transmit or mail a copy of the portfolio valuation to the Advisor;
(3) Review the impact of current day's activity on a per share basis,
review changes in market value.
G. In addition, FMFS will:
(1) Prepare monthly security transactions listings;
(2) Supply various Trust, Portfolio and class statistical data as
requested on an ongoing basis.
3. PRICING OF SECURITIES
For each valuation date, obtain prices from a pricing source selected by FMFS
but approved by the Board of Trustees and apply those prices to the portfolio
positions of the Fund. For those securities where market quotations are not
readily available, the Company's Board of Trustees shall approve, in good faith,
the method for determining the fair value for such securities.
If the Trust desires to provide a price which varies from the pricing source,
the Trust shall promptly notify and supply FMFS with the valuation of any such
security on each valuation date. All pricing changes made by the Trust will be
in writing and must specifically identify the securities to be changed by CUSIP,
name of security, new price or rate to be applied, and, if applicable, the time
period for which the new price(s) is/are effective.
4. CHANGES IN ACCOUNTING PROCEDURES
Any resolution passed by the Board of Trustees of the Trust that affects
accounting practices and procedures under this Agreement shall be effective upon
written receipt and acceptance by the FMFS.
5. CHANGES IN EQUIPMENT, SYSTEMS, SERVICE, ETC.
FMFS reserves the right to make changes from time to time, as it deems
advisable, relating to its services, systems, programs, rules, operating
schedules and equipment, so long as such changes do not adversely affect the
service provided to the Trust under this Agreement.
6. 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. The Trust agrees to pay all fees and
reimbursable expenses within ten (10) business days following the receipt of the
billing notice. Notwithstanding anything to the contrary, amounts owed by the
Trust to FMFS shall only be paid out of the assets and property of the
particular Fund involved.
7. 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 the Trust 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 a 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, if FMFS has
exercised reasonable care in the performance of its duties under this Agreement,
the Trust 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,
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, (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 Trust, 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 Trustees of the Trust.
FMFS shall indemnify and hold the Trust 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 Trust may sustain or incur or which may be asserted against the
Trust 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.
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 make every reasonable effort to 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 electrical data processing equipment to the extent appropriate
equipment is available. Representatives of the Trust 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.
Regardless of the above, FMFS reserves the right to reprocess and correct
administrative errors at its own expense.
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. Indemnitee shall in no case
onfess 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.
C. FMFS is hereby expressly put on notice of the limitation of shareholder
liability as set forth in the Trust Instrument of the Trust and agrees that
obligations assumed by the Trust pursuant to this Agreement shall be limited in
all cases to the Trust and its assets, and if the liability relates to one or
more series, the obligations hereunder shall be limited to the respective assets
of such series. FMFS further agrees that it shall not seek satisfaction of any
such obligation from the shareholder or any individual shareholder of a series
of the Trust, nor from the Trustees or any individual Trustee of the Trust.
8. 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 Trust all records and
other information relative to the Trust and prior, present, or potential
shareholders of the Trust (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 Trust, 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 Trust.
9. TERM OF AGREEMENT
This Agreement shall become effective as of the date hereof and will continue in
effect for a period of three years. During the initial three year term of this
Agreement, if the Trust terminates any services with FMFS, the Trust agrees to
compensate Firstar an amount equal to the fees remaining under the initial three
year Agreement. Subsequent to the initial three year term, this Agreement may be
terminated by either party upon giving ninety (90) 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.
10. RECORDS
FMFS shall keep records relating to the services to be performed hereunder, in
the form and manner, and for such period as it may deem advisable and is
agreeable to the Trust but not inconsistent with the rules and regulations of
appropriate government authorities, in particular, 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 the Trust and will be preserved, maintained, and made
available in accordance with such section and rules of the 1940 Act and will be
promptly surrendered to the Trust on and in accordance with its request.
11. GOVERNING LAW
This Agreement shall be construed 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 SEC thereunder.
12. 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 the Trust by written
notice to FMFS, FMFS will promptly, upon such termination and at the expense of
the Trust 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 the Trust (if such form differs from the form in which
FMFS has maintained the same, the Trust shall pay any expenses associated with
transferring the same 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.
13. 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.
14. DATA NECESSARY TO PERFORM SERVICES
The Trust or its agent, which may be FMFS, shall furnish to FMFS the data
necessary to perform the services described herein at such times and in such
form as mutually agreed upon. If FMFS is also acting in another capacity for the
Trust, nothing herein shall be deemed to relieve FMFS of any of its obligations
in such capacity.
15. NOTIFICATION OF ERROR
The Trust will notify FMFS of any discrepancy between portfolio reports provided
by FMFS and the records of the Company, within three (3) business days after
receipt of any such reports rendered by FMFS to the Company; within three (3)
business days after discovery by the Company of any error or omission not
covered in the balancing or control procedure, or within three (3) business days
of receiving notice from any shareholder that the shareholder believes their
account information is incorrect.
16. 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 the Trust shall be sent to:
Xxxx X. Xxxxxx
Water Island Capital, LLC
000 Xxxx Xxxxxx
Xxx Xxxx, XX 00000
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by a duly authorized officer on one or more counterparts as of the day
and year first written above.
THE ARBITRAGE FUNDS FIRSTAR MUTUAL FUND SERVICES, LLC
By:______________________________ By: ________________________________
Attest: __________________________ Attest:_____________________________
