Exhibit (d)(ii)
INVESTMENT ADVISORY AGREEMENT
THIS INVESTMENT ADVISORY AGREEMENT (this "Agreement") is made as of
this 27th day of September, 2010 by and between THE ARBITRAGE FUNDS, a Delaware
business trust (the "Trust") and WATER ISLAND CAPITAL, LLC, a Delaware limited
liability company (the "Adviser"), with respect to the following recital of
facts.
RECITALS
WHEREAS, the Trust is registered as an open-end, diversified management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"), and is authorized to issue shares in separate series with each such
series representing interests in a separate portfolio of securities and other
assets; and
WHEREAS, the Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, and is engaged in the business of
acting as an investment adviser; and
WHEREAS, the Trust desires to retain the Adviser to render advice and
services to the Fund (as defined below) pursuant to the terms and provisions of
this Agreement, and the Adviser desires to furnish said advice and services.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the receipt whereof is
hereby acknowledged, the parties hereto agree as follows:
1. Appointment of Adviser. The Trust hereby appoints the Adviser to act as
investment adviser for the Arbitrage Event Driven Fund, a series of the
Trust (the "Fund"). Subject to the direction and control of the Trust's
Board of Trustees, the Adviser shall act as investment adviser for the
Fund and shall, in such capacity, supervise the investment and
reinvestment of the cash, securities or other properties comprising the
Fund's assets. The Adviser shall give the Fund the benefit of its best
judgment, efforts and facilities in rendering its services as
investment adviser.
2. Duties of Investment Adviser. In carrying out its obligation under
paragraph 1 hereof, the Adviser shall:
(a) act as investment adviser for and supervise and manage the
investment and reinvestment of the Fund's assets and in connection
therewith have complete discretion in purchasing and selling securities
and other assets for the Fund and in voting, exercising consents and
exercising all other rights appertaining to such securities and other
assets on behalf of the Fund;
(b) supervise continuously the investment program of the Fund and the
composition of its investment portfolio;
(c) arrange, subject to the provisions of paragraph 3 hereof, for the
purchase and sale of securities and other assets held in the investment
portfolio of the Fund; and
(d) maintain books and records with respect to the Fund's securities
transactions and will render to the Trust's Board of Trustees such
periodic and special reports as they may request.
3. Brokerage. The Adviser shall place all orders for the purchase and
sale of portfolio securities for the account of the Fund with brokers
or dealers selected by the Adviser, although the Fund will pay the
actual brokerage commissions on portfolio transactions in accordance
with paragraph 5 hereof. The Adviser will take the following into
consideration when selecting a broker or dealer: the best net price
available; the reliability, integrity and financial condition of the
broker or dealer; the size of and difficulty in executing the order;
the value of the expected contribution of the broker or dealer to the
investment performance of the Fund on a continuing basis; and the
reasonableness of the commission, if any (for the specific transaction
and on a continuing basis).
To the extent contemplated by the Trust's Registration Statement under
the 1933 Act, as amended, and the 1940 Act (the "Registration
Statement"), in evaluating the best overall terms available, and in
selecting the broker or dealer to execute a particular transaction, the
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, as amended) provided to the Fund and/or other accounts over which
the Adviser (or an affiliate of the Adviser) exercises investment
discretion. The Adviser is authorized 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 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
all of the accounts over which investment discretion is so exercised.
4. Compliance with Applicable Requirements. In carrying
out its obligations under this Agreement, the Adviser
shall at all times conform to:
(a) all applicable provisions of the 1940 Act and any rules and
regulations adopted thereunder;
(b) the provisions of the Registration Statement;
(c) the provisions of the Agreement and Declaration of Trust of the
Trust, as amended;
(d) the provisions of the By-Laws of the Trust, as amended; and
(e) any other applicable provisions of state and federal law.
5. Expenses. The expenses connected with the Fund shall be allocable
between the Fund and the Adviser as follows:
(a) The Adviser shall furnish, at its expense and without cost to the
Fund, the services of a President, Secretary and one or more Vice
Presidents of the Trust, to the extent that such additional officers
may be required by the Trust for the proper conduct of its affairs.
(b) The Adviser shall further maintain, at its expense and without cost
to the Fund, a trading function in order to carry out its obligations
under subparagraph (c) of paragraph 2 hereof to place orders for the
purchase and sale of portfolio securities for the Fund.
(c) Nothing in subparagraph (a) hereof shall be construed to require
the Adviser to bear:
(i) any of the costs (including applicable office space,
facilities and equipment) of the services of a principal
financial officer of the Trust whose normal duties consist of
maintaining the financial accounts and books and records of the
Fund; including the reviewing of calculations of daily net asset
value and preparing tax returns; or
(ii) any of the costs (including applicable office space,
facilities and equipment) of the services of any of the personnel
operating under the direction of such principal financial
officer.
Notwithstanding the obligation of the Fund to bear the expense of the
functions referred to in clauses (i) and (ii) of this subparagraph (c),
the Adviser may pay the salaries, including any applicable employment
or payroll taxes and other salary costs, of the principal financial
officer and other personnel carrying out such functions and the Fund
shall reimburse the Adviser therefor upon proper accounting.
(d) All of the ordinary business expenses incurred in the operations of
the Fund and the offering of its shares shall be borne by the Fund
unless specifically provided otherwise in this paragraph 5. These
expenses include but are not limited to the costs incurred in
connection with registration and maintenance of its registration under
the Securities Act of 1933, as amended, the 1940 Act and state
securities laws and regulations; preparation of and printing and
mailing reports, notices and prospectuses to current shareholders;
transfer taxes on the sales of the Fund's shares and on the sales of
portfolio securities; brokerage commissions; custodial and shareholder
transfer charges; legal, auditing and accounting expenses; interest
charges, reimbursement payments to securities lenders for dividend and
interest payments on securities sold short; taxes; expenses of
servicing shareholder accounts; insurance expenses for fidelity and
other coverage; fees and expenses of Trustees who are not "interested
persons" within the meaning of the 1940 Act; expenses of Trustee and
shareholder meetings; and any expenses of distributing the Fund's
shares which may be payable pursuant to a Plan of Distribution adopted
pursuant to Rule 12b-1 under the 1940 Act.
(e) The Adviser may voluntarily absorb certain Fund expenses or waive
the Adviser's own advisory fee. To the extent the Adviser incurs any
costs by assuming expenses, which are obligations of the Fund as set
forth herein, the Fund shall promptly reimburse the Adviser for such
costs and expenses, except to the extent the Adviser has otherwise
agreed to bear such expenses. Subject to approval by the Trust's Board
of Trustees, to the extent the services for which the Fund is obligated
to pay are performed by the Adviser, the Adviser shall be entitled to
recover from the Fund to the extent of the Adviser's actual costs for
providing such services. In determining the Adviser's actual costs, the
Adviser may take into account an allocated portion of the salaries and
overhead of personnel performing such services.
6. Compensation.
(a) For all services rendered by the Adviser hereunder, the Fund shall
pay to the Adviser and the Adviser agrees to accept as full
compensation for all services rendered hereunder, an advisory fee,
payable monthly, at an annual rate of 1.25%. The portion of the fee
based upon the average daily net assets of the Fund shall be accrued
daily at the rate of 1/365th of the applicable percentage applied to
the daily net assets of the Fund.
(b) The investment advisory fee shall be accrued daily by the Fund and
paid to the Adviser on the first business day of the succeeding month.
(c) The initial fee under this Agreement shall be payable on the first
business day of the first month following the effective date of this
Agreement and shall be prorated as set forth below. If this Agreement
is terminated prior to the end of any month, the fee to the Adviser
shall be prorated for the portion of any month in which this Agreement
is in effect which is not a complete month according to the proportion
which the number of calendar days in the month during which the
Agreement is in effect bears to the number of calendar days in the
month, and shall be payable within ten days after the date of
termination.
(d) The fee payable to the Adviser under this Agreement will be reduced
to the extent of any receivable owed by the Adviser to the Fund and as
required under any expense limitation applicable to the Fund.
(e) The Adviser voluntarily may reduce any portion of the compensation
or reimbursement of expenses due to it pursuant to this Agreement and
may agree to make payments to limit the expenses that are the
responsibility of the Fund under this Agreement. Any such reduction or
payment shall be applicable only to such specific reduction or payment
and shall not constitute an agreement to reduce any future compensation
or reimbursement due to the Adviser hereunder or to continue future
payments. Any such reduction will be agreed to prior to accrual of the
related expense or fee and will be estimated daily and reconciled and
paid on a monthly basis.
(f) The Adviser may agree not to require payment of any portion of the
compensation or reimbursement of expenses otherwise due to it pursuant
to this Agreement. Any such agreement shall be applicable only with
respect to the specific items covered thereby and shall not constitute
an agreement not to require payment of any future compensation or
reimbursement due to the Adviser hereunder.
7. Independent Contractor/Non-Exclusivity. The Adviser shall for all
purposes herein be deemed to be an independent contractor and shall,
unless otherwise expressly provided or authorized, have no authority to
act for or represent the Fund or the Trust in any way or otherwise be
deemed an agent of the Fund or the Trust. However, it is understood and
agreed that officers or directors of the Adviser may serve as officers
or trustees of the Trust, and that officers and trustees of the Trust
may serve as officers or directors of the Adviser to the extent
permitted by law; and that the officers and directors of the Adviser
are not prohibited from engaging in any other business activity or from
rendering services to any other person, or from serving as partners,
officers or directors of any other firm or corporation, including other
investment companies.
The services of the Adviser to the Fund are not to be deemed to be
exclusive, and the Adviser shall be free to render investment advisory
and corporate administrative or other services to others (including
other investment companies) and to engage in other activities.
The Adviser (including its officers, directors, members and employees)
shall have no obligation to purchase or sell for the Fund any security
that any such person may purchase or sell for itself or for any other
clients. The Adviser shall have full authority to allocate any
particular transaction in any security among its clients (including the
Fund) in any manner the Adviser shall in good faith, and consistent
with its fiduciary obligations, determine. The Fund acknowledges that
transactions in a specific security may not be accomplished for all
client accounts of the Adviser at the same time or at the same price.
8. Term and Approval. This Agreement shall continue in effect, unless
terminated as hereinafter provided, from year to year, provided that
such continuance is specifically approved at least annually:
(a) (i) by the Trustees or (ii) by the vote of a majority of the
outstanding voting securities of the Fund (as defined in Section
2(a)(42) of the 1940 Act), and
(b) by the affirmative vote of a majority of the Trustees who are not
parties to this Agreement or interested persons of a party to this
Agreement (other than as Trustees), by votes cast in person at a
meeting specifically called for such purpose.
9. Termination. This Agreement may be terminated at any time, without the
payment of any penalty, by vote of the Trustees or by vote of a
majority of the Fund's outstanding voting securities, or by the Adviser
on sixty days' written notice to the other party. The notice provided
for herein may be waived by either party. This Agreement shall
automatically terminate in the event of its assignment, the term
"assignment" for this purpose having the meaning defined in Section
2(a)(4) of the 1940 Act.
10. Liability of Adviser. In the absence of willful misfeasance, bad faith,
gross negligence or reckless disregard of obligations or duties
hereunder on the part of the Adviser or any of its officers, directors
or employees, it shall not be subject to liability to the Fund or to
any shareholder of the Fund for any act or omission in the course of,
or connected with, rendering services hereunder or for any losses that
may, from time to time, be sustained in the purchase, holding or sale
of any security.
11. Liability of Trust. The obligations of the Trust hereunder shall not be
binding upon any of the trustees, shareholders, nominees, officers,
agents or employees of the Trust, personally, but shall bind only the
assets and property of the Trust as provided in the Agreement and
Declaration of Trust of the Trust.
12. Notices. Any notices under this Agreement shall be in writing,
addressed and delivered or mailed postage paid to the other party at
such address as such other party may designate for the receipt of such
notice. Until further notice to the other party, it is agreed that the
address of the Trust and that of the Adviser shall be 00 Xxxxxxx
Xxxxxx, 00xx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000.
13. Questions of Interpretation. Any question of interpretation of any
term or provision of this Agreement having a counterpart in or
otherwise derived from a term or provision of the 1940 Act shall be
resolved by reference to such term or provision of the 1940 Act and to
interpretations thereof, if any, by the United States Courts or in the
absence of any controlling decision of any such court, by rules,
regulations or orders of the Securities and Exchange Commission issued
pursuant to the 1940 Act. In addition, where the effect of a
requirement of the 1940 Act reflected in any provision of this
Agreement is changed by rules, regulation or order of the Securities
and Exchange Commission, such provision shall be deemed to incorporate
the effect of such rule, regulation and order.
14. Books and Records. In compliance with the requirements of Rule 31a-3
under the 1940 Act, the Adviser hereby agrees that all records that it
maintains for the Trust are the property of the Trust and further
agrees to surrender promptly to the Trust any such records upon the
Trust's request. The 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.
15. 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 by subject to the 1940 Act.
16. Governing Law. This Agreement shall be construed in accordance with the
laws of the State of New York for contracts to be performed entirely
therein without reference to choice of law principles thereof and in
accordance with the applicable provisions of the 1940 Act.
17. 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 on, and shall inure to the benefit of this parties hereto and
their respective successors.
IT WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective officers on the day and the year first above
written.
THE ARBITRAGE FUNDS WATER ISLAND CAPITAL, LLC
By: /s/ Xxxx X. Xxxxxx By: /s/ Xxxx X. Xxxxxx
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Name: Xxxx X. Xxxxxx Name: Xxxx X. Xxxxxx
Title: President Title: President
