Exhibit (d)(iii)
INVESTMENT ADVISORY AGREEMENT
PAYPAL FUNDS
This is an INVESTMENT ADVISORY AGREEMENT, dated as of October 4, 2002
between PayPal Asset Management, Inc. (the "Adviser") and PayPal Funds (the
"Trust") with respect to the PayPal Money Market Fund, a series of the Trust
(the "Fund").
WHEREAS, the Trust is a Delaware business trust organized pursuant to
a Trust Instrument dated June 3, 1999, as amended and restated, (the
"Declaration of Trust") and is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end, diversified management
investment company;
WHEREAS, the Trust wishes to retain the Adviser to render investment
advisory services and other management services required for the ordinary
operations of the Fund, and the Adviser is willing to furnish those services to
the Fund;
WHEREAS, the Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended ("Advisers Act");
WHEREAS, the Adviser has provided investment advisory and other
management services to the Fund pursuant to that certain Investment Advisory
Agreement, dated as of June 13, 2000 (the "Old Investment Advisory Agreement");
WHEREAS, the Old Investment Advisory Agreement has terminated in
accordance with its terms pursuant to a change of control of the parent company
of the Adviser;
WHEREAS, the parties hereto wish to reinstate the agreement evidenced
by the Old Investment Advisory Agreement on substantially the same terms; and
NOW THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed between the Trust and the Adviser as follows:
1. Appointment.
The Trust hereby appoints the Adviser to act as investment adviser and
manager to the Fund for the periods and on the terms set forth in this
Agreement. The Adviser accepts such appointment and agrees to furnish the
services herein set forth, for the compensation herein provided.
2. Investment Advisory and Management Duties.
(a) Subject to the supervision of the Trustees of the Trust, the
Adviser will provide a program of continuous investment management for the Fund
in accordance with the Fund's investment objective, policies and limitations as
stated in the Fund's Prospectus and Statement of Additional Information
included as part of the Trust's Registration Statement filed with the
Securities and Exchange Commission ("SEC") and as the Prospectus and Statement
of Additional Information may be amended from time to time, copies of which
shall be provided to the Adviser by the Trust. Subject to approval by the
Trustees of the Trust, the Adviser for the Fund may select a master fund having
substantially the same investment objective and policies as the Fund into which
all or substantially all of the Fund's assets may be invested, or select and
manage investment subadvisers who may be granted discretionary investment
authority with respect to the assets of the Fund.
(b) In performing its investment management services to the Fund
hereunder, the Adviser will provide the Fund with ongoing investment guidance,
policy direction, including oral and written research, monitoring of any master
funds, analysis, advice, statistical and economic data and judgments regarding
individual investments, general economic conditions and trends and long-range
investment policy.
(c) To the extent permitted by the Adviser's Form ADV as filed with
the SEC and as may be amended from time to time (the "Adviser's Form ADV") and
subject to the approval of the Trustees of the Trust, the Adviser shall have
the authority to manage cash and money market instruments for cash flow
purposes.
(d) To the extent permitted by the Adviser's Form ADV, the Adviser
will advise as to the securities, instruments, repurchase agreements, options
and other investments and techniques that the Fund will purchase, sell, enter
into or use, and will provide an ongoing evaluation of the Fund's portfolio.
The Adviser will advise as to what portion of the Fund's portfolio shall be
invested in securities and other assets, and what portion if any, should be
held uninvested.
(e) The Adviser shall provide or arrange for administration, transfer
agency, custody and all other services necessary for the Fund to operate, and
shall be responsible for the payment of all expenses associated with such
services, subject to Section 5 of this Investment Advisory Agreement.
(f) The Adviser may engage and remove one or more subadvisers, subject
to the legally required approvals of the Trust and its shareholders, and the
Adviser shall monitor the performance of any subadviser and report to the Trust
thereon.
(g) The Adviser further agrees that, in performing its duties
hereunder, it will:
(i) comply with the 1940 Act and all rules and regulations
thereunder, the Advisers Act, the Internal Revenue Code (the "Code") and all
other applicable federal and state laws and regulations, and with any
applicable procedures adopted by the Trustees;
(ii) use reasonable efforts to manage the Fund so that it will
qualify, and continue to qualify, as a regulated investment company under
Subchapter M of the Code and regulations issued thereunder;
(iii) place orders pursuant to the Fund's investment
determinations as approved by the Trustees for the Fund directly with the
issuer, or with any broker or dealer, in accordance with applicable policies
expressed in the Fund's Prospectus and/or Statement of Additional Information
and in accordance with applicable legal requirements;
(iv) furnish to the Trust whatever statistical information the
Trust may reasonably request with respect to each Fund's assets or contemplated
investments. In addition, the Adviser will keep the Trust and the Trustees
informed of developments materially affecting the Fund's portfolio and shall,
on the Adviser's own initiative, furnish to the Trust from time to time
whatever information the Adviser believes appropriate for this purpose;
(v) make available to the Trust's administrator (the
"Administrator") and the Trust, promptly upon their request, such copies of its
investment records and ledgers with respect to the Fund as may be required to
assist the Administrator and the Trust in their compliance with applicable laws
and regulations. The Adviser will furnish the Trustees with such periodic and
special reports regarding the Fund and any subadviser as they may reasonably
request;
(vi) immediately notify the Trust in the event that the Adviser or
any of its affiliates: (1) becomes aware that it is subject to a statutory
disqualification that prevents the Adviser from serving as investment adviser
pursuant to this Agreement; or (2) becomes aware that it is the subject of an
administrative proceeding or enforcement action by the SEC or other regulatory
authority. The Adviser further agrees to notify the Trust immediately of any
material fact known to the Adviser respecting or relating to the Adviser that
is not contained in the Trust's Registration Statement regarding the Fund, or
any amendment or supplement thereto, but that is required to be disclosed
thereon, and of any statement contained therein that becomes untrue in any
material respect; and
(vii) in providing investment advice to the Fund, use no inside
information that may be in its possession or in the possession of any of its
affiliates, nor will the Adviser seek to obtain any such information.
3. Futures and Options.
The Adviser's investment authority shall include advice with regard to
purchasing, selling, covering open positions, and generally dealing in
financial futures contracts and options thereon, or master funds which do so in
accordance with Rule 4.5 of the Commodity Futures Trading Commission.
The Adviser's authority shall include authority to: (i) open and
maintain brokerage accounts for financial futures and options (such accounts
hereinafter referred to as "Brokerage Accounts") on behalf of and in the name
of the Fund; and (ii) execute for and on behalf of the Brokerage Accounts,
standard customer agreements with a broker or brokers. The Adviser may, using
such of the securities and other property in the Brokerage Accounts as the
Adviser deems necessary or desirable, direct the custodian to deposit on behalf
of the Fund, original and maintenance brokerage deposits and otherwise direct
payments of cash, cash equivalents and securities and other property into such
brokerage accounts and to such brokers as the Adviser deems desirable or
appropriate.
4. Use of Securities Brokers and Dealers.
The Adviser will monitor the use by master funds of broker-dealers. To
the extent permitted by the Adviser's Form ADV , purchase and sale orders will
usually be placed with brokers who are selected by the Adviser as able to
achieve "best execution" of such orders. "Best execution" shall mean prompt and
reliable execution at the most favorable securities price, taking into account
the other provisions hereinafter set forth. Whenever the Adviser places orders,
or directs the placement of orders, for the purchase or sale of portfolio
securities on behalf of the Fund, in selecting brokers or dealers to execute
such orders, the Adviser is expressly authorized to consider the fact that a
broker or dealer has furnished statistical, research or other information or
services which enhance the Adviser's research and portfolio management
capability generally. It is further understood in accordance with Section 28(e)
of the Securities Exchange Act of 1934, as amended, that the Adviser may
negotiate with and assign to a broker a commission which may exceed the
commission which another broker would have charged for effecting the
transaction if the Adviser determines in good faith that the amount of
commission charged was reasonable in relation to the value of brokerage and/or
research services (as defined in Section 28(e)) provided by such broker, viewed
in terms either of the Fund or the Adviser's overall responsibilities to the
Adviser's discretionary accounts.
Neither the Adviser nor any parent, subsidiary or related firm shall
act as a securities broker with respect to any purchases or sales of securities
which may be made on behalf of the Fund, provided that this limitation shall
not prevent the Adviser from utilizing the services of a securities broker
which is a parent, subsidiary or related firm, provided such broker effects
transactions on a "cost only" or "nonprofit" basis to itself and provides
competitive execution. Unless otherwise directed by the Trust in writing, the
Adviser may utilize the service of whatever independent securities brokerage
firm or firms it deems appropriate to the extent that such firms are
competitive with respect to price of services and execution.
5. Allocation of Charges and Expenses.
The Adviser will pay all of the expenses of each class of each series
of the Trust's shares that it shall manage, other than the following expenses:
o interest;
o taxes;
o brokerage commissions;
o insurance and bonding premiums;
o fees and expenses of those trustees who are not "interested persons"
as defined in the 1940 Act, including counsel fees;
o extraordinary expenses approved by those disinterested trustees; and
o fees and expenses of any master portfolio into which that series
invests all or substantially all of its assets.
The Adviser also will pay expenses incurred in connection with the
provision of shareholder services and distribution services.
To the extent the Adviser incurs any costs by assuming expenses that
are an obligation of the Fund as set forth herein, the Fund shall promptly
reimburse the Adviser for those costs and expenses, except to the extent the
Adviser has otherwise agreed to bear those expenses. 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 those services.
6. Compensation.
(a) As compensation for the services provided and expenses assumed by
the Adviser under this Agreement, the Trust will arrange for the Fund to pay
the Adviser at the end of each calendar month an advisory fee computed daily at
an annual rate equal to 1.80% of the Fund's average daily net assets. The
"average daily net assets" of the Fund shall mean the average of the values
placed on the Fund's net assets as of 4:00 p.m. (New York time) on each day on
which the net asset value of the Fund is determined consistent with the
provisions of Rule 22c-1 under the 1940 Act or, if the Fund lawfully determines
the value of its net assets as of some other time on each business day, as of
such other time. The value of net assets of the Fund shall always be determined
pursuant to the applicable provisions of the Trust Instrument and the
Registration Statement. If, pursuant to such provisions, the determination of
net asset value is suspended for any particular business day, then for the
purposes of this Section 6, the value of the net assets of the Fund as last
determined shall be deemed to be the value of its net assets as of the close of
the New York Stock Exchange, or as of such other time as the value of the net
assets of the Fund's portfolio may lawfully be determined, on that day. If the
determination of the net asset value of the shares of the Fund has been so
suspended for a period including any month end when the Adviser's compensation
is payable pursuant to this Section 6, then the Adviser's compensation payable
at the end of such month shall be computed on the basis of the value of the net
assets of the Fund as last determined (whether during or prior to such month).
If the Fund determines the value of the net assets of its portfolio more than
once on any day, then the last such determination thereof on that day shall be
deemed to be the sole determination thereof on that day for the purposes of
this Section 6.
(b) 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.
7. Books and Records.
The Adviser agrees to maintain such books and records with respect to
its services to the Fund as are required by Section 31 under the 1940 Act, and
rules adopted thereunder, and by other applicable legal provisions, and to
preserve such records for the periods and in the manner required by that
Section, and those rules and legal provisions. The Adviser also agrees that
records it maintains and preserves pursuant to Rules 31a-1 and Rule 31a-2 under
the 1940 Act and otherwise in connection with its services hereunder are the
property of the Trust and will be surrendered promptly to the Trust upon its
request. The Adviser further agrees that it will furnish to regulatory
authorities having the requisite authority any information or reports in
connection with its services hereunder which may be requested in order to
determine whether the operations of the Fund are being conducted in accordance
with applicable laws and regulations.
8. Aggregation of Orders.
Provided that the investment objective, policies and restrictions of
the Fund are adhered to, the Trust agrees that the Adviser may aggregate sales
and purchase orders of securities held in the Fund with similar orders being
made simultaneously for other accounts managed by the Adviser or with accounts
of the affiliates of the Adviser, if in the Adviser's reasonable judgment such
aggregation shall result in an overall economic benefit to the Fund taking into
consideration the advantageous selling or purchase price, brokerage commission
and other expenses. The Trust acknowledges that the determination of such
economic benefit to the Fund by the Adviser represents the Adviser's evaluation
that the Fund is benefited by relatively better purchase or sales prices, lower
commission expenses and beneficial timing of transactions or a combination of
these and other factors.
9. Standard of Care and Limitation of Liability.
The Adviser shall exercise its best judgment in rendering the services
provided by it under this Agreement. The Adviser shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund or the
holders of the Fund's shares in connection with the matters to which this
Agreement relates, provided that nothing in this Agreement shall be deemed to
protect or purport to protect the Adviser against any liability to the Trust,
the Fund or to holders of the Fund's shares to which the Adviser would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or by reason of the
Adviser's reckless disregard of its obligations and duties under this
Agreement. As used in this Section 9, the term "Adviser" shall include any
officers, directors, employees or other affiliates of the Adviser performing
services with respect to the Fund.
10. Services Not Exclusive.
It is understood that the services of the Adviser are not exclusive,
and that nothing in this Agreement shall prevent the Adviser from providing
similar services to other investment companies or to other series of investment
companies, including the Trust (whether or not their investment objectives and
policies are similar to those of the Fund) or from engaging in other
activities, provided such other services and activities do not, during the term
of this Agreement, interfere in a material manner with the Adviser's ability to
meet its obligations to the Fund hereunder. When the Adviser recommends the
purchase or sale of a security for other investment companies and other
clients, and at the same time the Adviser recommends the purchase or sale of
the same security for the Fund, it is understood that in light of its fiduciary
duty to the Fund, such transactions will be executed on a basis that is fair
and equitable to the Fund. In connection with purchases or sales of portfolio
securities for the account of the Fund, neither the Adviser nor any of its
directors, officers or employees shall act as a principal or agent or receive
any commission. If the Adviser provides any advice to its clients concerning
the shares of the Fund, the Adviser shall act solely as investment counsel for
such clients and not in any way on behalf of the Trust or the Fund.
11. Duration and Termination.
(a) This Agreement shall become effective on the later of the date of
its execution or the date it is approved by shareholders and/or the Trustees in
the manner required by the 1940 Act. This Agreement shall continue for a period
of two years from its effective date , and thereafter shall continue
automatically for successive annual periods, provided such continuance is
specifically approved at least annually by (i) the Trustees or (ii) a vote of a
"majority" (as defined in the 0000 Xxx) of the Funds' outstanding voting
securities (as defined in the 1940 Act), provided that in either event the
continuance is also approved by a majority of the Trustees who are not parties
to this Agreement or "interested persons" (as defined in the 0000 Xxx) of any
party to this Agreement, by vote cast in person (to the extent required by the
0000 Xxx) at a meeting called for the purpose of voting on such approval.
(b) Notwithstanding the foregoing, this Agreement may be terminated:
(a) at any time without penalty by the Fund upon the vote of a majority of the
Trustees or by vote of the majority of the Fund's outstanding voting
securities, upon sixty (60) days' written notice to the Adviser or (b) by the
Adviser at any time without penalty, upon sixty (60) days' written notice to
the Trust. This Agreement will also terminate automatically in the event of its
assignment (as defined in the 1940 Act).
12. Amendments.
This Agreement may be amended at any time but only by the mutual
agreement of the parties to this Agreement and in accordance with any
applicable legal or regulatory requirements.
13. Proxies.
Unless the Trust gives written instructions to the contrary, the
Adviser shall vote all proxies solicited by or with respect to the issuers of
securities in which assets of the Fund may be invested in a manner which best
serves the interests of the Fund's shareholders. The Adviser shall use its best
good faith judgment to vote such proxies in a manner which best serves the
interests of the Fund's shareholders.
14. Failure to Perform; Force Majeure.
No failure or omission by either party hereto in the performance of
any obligation of this Agreement (other than payment obligations) shall be
deemed a breach of this Agreement or create any liability if the same shall
arise from any cause or causes beyond the control of the party, including but
not limited to, the following: acts of God, acts or omissions of any
governmental agency; any rules, regulations, or orders issued by any
governmental authority or by any officer, department, agency or instrumentality
thereof; fire; storm; flood; earthquake, war; rebellion; insurrection; riot;
and invasion and provided that such failure or omission resulting from one of
the above causes is cured as soon as is practicable after the occurrence of one
or more of the above-mentioned causes.
15. [Reserved.]
16. Miscellaneous.
(a) This Agreement shall be governed by the laws of the State of
California, provided that nothing herein shall be construed in a manner
inconsistent with the 1940 Act, the Advisers Act, or rules or orders of the SEC
thereunder.
(b) The captions of this Agreement are included for convenience only
and in no way define or limit any of the provisions hereof or otherwise affect
their construction or effect.
(c) 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 hereby and, to this extent, the provisions of
this Agreement shall be deemed to be severable.
(d) Nothing herein shall be construed as constituting the Adviser as
an agent of the Trust or the Fund.
(e) All liabilities of the Trust hereunder are limited to the assets
of the Fund, but this shall not be interpreted to conflict with the Fund's
maintaining its separate assets and liabilities.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of October 4, 2002.
PAYPAL FUNDS
By: /s/ Xxxx X. Story
-----------------------------
Name: Xxxx X. Story
Title: President
PAYPAL ASSET MANAGEMENT, INC.
By: /s/ Xxxxx Xx
-----------------------------
Name: Xxxxx Xx
Title: President
