FORM OF
INVESTMENT ADVISORY CONTRACT
PIMCO FUNDS
000 Xxxxxxx Xxxxxx Xxxxx
Xxxxxxx Xxxxx, Xxxxxxxxxx 00000
May 5, 2000
Pacific Investment Management Company
000 Xxxxxxx Xxxxxx Xxxxx
Xxxxxxx Xxxxx, Xxxxxxxxxx 00000
Dear Sirs:
This will confirm the agreement between the undersigned (the "Trust")
and Pacific Investment Management Company (the "Adviser") as follows:
1. The Trust is an open-end investment company which currently has
forty-two separate investment portfolios, all of which are subject to this
agreement, as supplemented: the Money Market Fund; the Short-Term Fund; the Low
Duration Fund; the Low Duration Fund II; the Low Duration Fund III; the Low
Duration Mortgage Fund; the Moderate Duration Fund; the Real Return Bond Fund;
the Total Return Fund; the Total Return Fund II; the Total Return Fund III; the
Total Return Mortgage Fund; the High Yield Fund; the Investment Grade Corporate
Bond Fund; the Long-Term U.S. Government Fund; the Long Duration Fund; the Short
Duration Municipal Income Fund; the Municipal Bond Fund; the California
Intermediate Municipal Bond Fund; the New York Intermediate Municipal Bond Fund;
the Global Bond Fund; the Global Bond Fund II; the Foreign Bond Fund; the
Emerging Markets Bond Fund; the Strategic Balanced Fund; the Convertible Bond
Fund; the StocksPLUS Fund; the Commercial Mortgage Securities Fund; and the
StocksPLUS Short Strategy Fund (the "Funds") and the Short-Term Portfolio; the
Short-Term Portfolio II; the U.S. Government Sector Portfolio; the U.S.
Government Sector Portfolio II; the Mortgage Portfolio; the Mortgage Portfolio
II; the Investment Grade Corporate Portfolio; the High Yield Portfolio; the
Municipal Sector Portfolio; the International Portfolio; the Emerging Markets
Portfolio; the Real Return Bond Portfolio, and the Opportunity Portfolio (the
"Portfolios"). Additional investment portfolios may be established in the
future. This Contract shall pertain to the Funds and Portfolios and to such
additional investment portfolios as shall be designated in Supplements to this
Contract, as further agreed between the Trust and the Adviser. Eight separate
classes of shares of beneficial interest in the Trust are offered to investors
in each Fund. The Trust engages in the business of investing and reinvesting the
assets of each Fund and Portfolio in the manner and in accordance with the
investment objective and restrictions applicable to that Fund and Portfolio as
specified in the currently effective Prospectus (the "Prospectus") for the Trust
included in the registration statements, as amended from time to time (the
"Registration Statement"), filed by the Trust under the Investment Company Act
of 1940 (the "1940 Act") and the Securities Act of 1933 (the "1933 Act"). Copies
of the documents referred to in the preceding sentence have been furnished to
the Adviser. Any amendments to those documents shall be furnished to the Adviser
promptly. Pursuant to a Distribution Contract, as amended (the "Distribution
Contract"), between the Trust and PIMCO Funds Distributors LLC (the
"Distributor"), the Funds and Portfolios have employed the Distributor to serve
as principal underwriter for the shares of beneficial interest of the Trust.
Pursuant to an Administration Agreement ("Administration Agreement") between the
Trust and the Adviser, the Trust has also retained the Adviser to provide the
Funds and Portfolios with administrative and other services.
2. The Trust hereby appoints the Adviser to provide the investment
advisory services specified in this Contract and the Adviser hereby accepts such
appointment.
3. (a) The Adviser shall, at its expense, (i) employ or associate with
itself such persons as it believes appropriate to assist it in performing its
obligations under this Contract and (ii) provide all services, equipment and
facilities necessary to perform its obligations under this Contract. The Adviser
may from time to time seek research assistance and rely on investment management
resources available to it through its affiliated companies, but in no case shall
such reliance relieve the Adviser of any of its obligations hereunder, nor shall
the Trust be responsible for any additional fees or expenses hereunder as a
result.
(b) The Trust shall be responsible for all of its expenses and
liabilities, including compensation of its Trustees who are not affiliated with
the Adviser, the Distributor or any of their affiliates; taxes and governmental
fees; interest charges; fees and expenses of the Trust's independent accountants
and legal counsel; trade association membership dues; fees and expenses of any
custodian (including maintenance of books and accounts and calculation of the
net asset value of shares of the Trust), transfer agent, registrar and dividend
disbursing agent of the Trust; expenses of issuing, selling, redeeming,
registering and qualifying for sale shares of beneficial interest in the Trust;
expenses of preparing and printing share certificates, prospectuses and reports
to shareholders, notices, proxy statements and reports to regulatory agencies;
the cost of office supplies, including stationery; travel expenses of all
officers, Trustees and employees; insurance premiums; brokerage and other
expenses of executing portfolio transactions; expenses of shareholders'
meetings; organizational expenses; and extraordinary expenses. Notwithstanding
the foregoing, the Trust may enter into a separate agreement, which shall be
controlling over this contract, as amended, pursuant to which some or all of the
foregoing expenses of this Section 3(b) shall be the responsibility of the other
party or parties to that agreement.
4. (a) The Adviser shall provide to the Trust investment guidance and
policy direction in connection with the management of the Funds and Portfolios,
including oral and written research, analysis, advice, and statistical and
economic data and information.
Consistent with the investment objectives, policies and restrictions
applicable to the Trust and its Funds and Portfolios, the Adviser will determine
the securities and other assets to be purchased or sold by each Fund or
Portfolio of the Trust and will determine what portion of each Fund or Portfolio
shall be invested in securities or other assets, and what portion, if any,
should be held uninvested.
The Trust will have the benefit of the investment analysis and
research, the review of current economic conditions and trends and the
consideration of long-range investment policy generally available to investment
advisory clients of the Adviser. It is understood that the Adviser will not use
any inside information pertinent to investment decisions undertaken in
connection with this Contract 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.
(b) The Adviser also shall provide to the officers of the Trust
administrative assistance in connection with the operation of the Trust, the
Funds, and Portfolios which shall include (i) compliance with all reasonable
requests of the Trust for information, including information required in
connection with the Trust's filings with the Securities and Exchange Commission
and state securities commissions, and (ii) such other services as the Adviser
shall from time to time determine to be necessary or useful to the
administration of the Trust, Funds and Portfolios.
(c) As manager of the assets of the Funds and Portfolios, the
Adviser shall make investments for the account of the Funds and Portfolios in
accordance with the Adviser's best judgment and within the investment
objectives, policies, and restrictions set forth in the Prospectus, the 1940 Act
and the provisions of the Internal Revenue Code relating to regulated investment
companies, subject to policy decisions adopted by the Trust's Board of Trustees.
(d) The Adviser shall furnish to the Trust's Board of Trustees
periodic reports on the investment performance of the Trust and its Funds and
Portfolios and on the performance of its obligations under this Contract and
shall supply such additional reports and information as the Trust's officers or
Board of Trustees shall reasonably request.
(e) On occasions when the Adviser deems the purchase or sale of a
security to be in the best interest of a Fund or Portfolio as well as other of
its clients, the Adviser, to the extent permitted by applicable law, may
aggregate the securities to be so sold or purchased in order to obtain the best
execution of the order or lower brokerage commissions, if any. The Adviser may
also on occasion purchase or sell a particular security for one or more clients
in different amounts. On either occasion, and to the extent permitted by
applicable law and regulations, allocation of the securities so purchased or
sold, as well as the expenses incurred in the transaction, will be made by the
Adviser in the manner it considers to be the most equitable and consistent with
its fiduciary obligations to the Trust and to such other customers.
(f) The Adviser may cause a Fund and/or Portfolio to pay a broker
which provides brokerage and research services to the Adviser a commission for
effecting a securities transaction in excess of the amount another broker might
have charged. Such higher commissions may not be paid unless the Adviser
determines in good faith that the amount paid is reasonable in relation to the
services received in terms of the particular transaction or the Adviser's
overall responsibilities to the Trust and any other of the Adviser's clients.
5. The Adviser shall give the Trust the benefit of the Adviser's best
judgment and efforts in rendering services under this Contract. As an inducement
to the Adviser's undertaking to render these services, the Trust agrees that the
Adviser shall not be liable under this Contract for any mistake in judgment or
in any other event whatsoever, provided that nothing in this Contract shall be
deemed to protect or purport to protect the Adviser against any liability to the
Trust or its shareholders to which the Adviser would otherwise be subject by
reason of willful misfeasance, bad faith or gross negligence in the performance
of the Adviser's duties under this Contract or by reason of the Adviser's
reckless disregard of its obligations and duties hereunder.
6. In consideration of the services to be rendered by the Adviser under
this Contract, each Fund and each Portfolio of the Trust shall pay the Adviser a
monthly fee on the first business day of each month, based upon the average
daily value (as determined on each business day at the time set forth in the
Prospectus for determining net asset value per share) of the net assets of the
Fund or Portfolio, as applicable, during the preceding month, at the following
annual rates: Money Market Fund -- 0.15%; Short-Term Fund, Low Duration Fund,
Low Duration Fund II, Low Duration Fund III, Low Duration Mortgage Fund,
Moderate Duration Fund, Real Return Bond Fund, Total Return Fund, Total Return
Fund II, Total Return Fund III, Total Return Mortgage Fund, High Yield Fund,
Investment Grade Corporate Bond Fund, Long-Term U.S. Government Fund, Municipal
Bond Fund, Global Bond Fund, Global Bond Fund II, Foreign Bond Fund, California
Intermediate Municipal Bond Fund, New York Intermediate Municipal Bond Fund, and
Long Duration Fund -- 0.25%; Commercial Mortgage Securities Fund, Strategic
Balanced Fund, StocksPLUS Fund, StocksPLUS Short Strategy Fund, and Convertible
Bond Fund -- 0.40%; Emerging Markets Bond Fund; -- 0.45%; Short Duration
Municipal Income Fund -- 0.20%; Short-Term Portfolio, Short-Term Portfolio II,
U.S. Government Sector Portfolio, U.S. Government Sector Portfolio II, Mortgage
Portfolio, Mortgage Portfolio II, Investment Grade Corporate Portfolio; High
Yield Portfolio, Municipal Sector Portfolio, International Portfolio, Emerging
Markets Portfolio, Real Return Bond Portfolio, and Opportunity Portfolio --
0.02%.
If the fees payable to the Adviser pursuant to this paragraph 6
begin to accrue before the end of any month or if this Contract terminates
before the end of any month, the fees for the period from that date to the end
of that month or from the beginning of that month to the date of termination, as
the case may be, shall be prorated according to the proportion which the period
bears to the full month in which the effectiveness or termination occurs. For
purposes of calculating the monthly fees, the value of the net assets of each
Fund and each Portfolio shall be computed in the manner specified in the
Prospectus for the computation of net asset value. For purposes of this
Contract, a "business day" is any day the New York Stock Exchange is open for
trading.
7. If the aggregate expenses of every character incurred by, or
allocated to, the Trust in any fiscal year, other than interest, taxes,
brokerage commissions and other portfolio transaction expenses, other
expenditures which are capitalized in accordance with generally accepted
accounting principles and any extraordinary expense (including, without
limitation, litigation and indemnification expense), but including the fees
payable under this Contract ("includable expenses"), exceed any expense
limitations applicable to the Trust imposed by state securities laws or
regulations thereunder, as these limitations may be raised or lowered from time
to time, the Adviser shall pay the Trust an amount equal to that excess. With
respect to portions of a fiscal year in which this Contract shall be in effect,
the foregoing limitations shall be prorated according to the proportion which
that portion of the fiscal year bears to the full fiscal year. At the end of
each month of the Trust's fiscal year, the Adviser will review the includable
expenses accrued during that fiscal year to the end of the period and shall
estimate the contemplated includable expenses for the balance of that fiscal
year. If, as a result of that review and estimation, it appears likely that the
includable expenses will exceed the limitations referred to in this paragraph 7
for a fiscal year with respect to the Trust, the monthly fees relating to the
Trust payable to the Adviser under this Contract and under the Administration
Agreement for such month shall be reduced, subject to a later reimbursement to
reflect actual expenses, by an amount equal to a pro rata portion (prorated on
the basis of the remaining months of the fiscal year, including the month just
ended) of the amount by which the includable expenses for the fiscal year (less
an amount equal to the aggregate of actual reductions made to this provision
with respect to prior months of the fiscal year) are expected to exceed the
limitations provided in this paragraph 7. For purposes of the foregoing, the
value of the net assets of each Fund of the Trust shall be computed in the
manner specified in paragraph 6, and any payments required to be made by the
Adviser shall be made once a year promptly after the end of the Trust's fiscal
year.
8. (a) This Contract shall become effective with respect to the Funds
and Portfolios on May 5, 2000 (and, with respect to any amendment, or with
respect to any additional fund, the date of the amendment or Supplement hereto)
and shall continue in effect with respect to a Fund or Portfolio for a period of
more than two years from that date (or, with respect to any additional fund, the
date of the Supplement) only so long as the continuance is specifically approved
at least annually (i) by the vote of a majority of the outstanding voting
securities (as defined in the 1940 Act) of the Fund or Portfolio or by the
Trust's Board of Trustees and (ii) by the vote, cast in person at a meeting
called for the purpose, of a majority of the Trust's trustees who are not
parties to this Contract or "interested persons" (as defined in the 1940 Act) of
any such party.
(b) This Contract may be terminated with respect to a Fund or
Portfolio (or any additional fund) at any time, without the payment of any
penalty, by a vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of the Fund or Portfolio or by a vote of a majority of
the Trust's entire Board of Trustees on 60 days' written notice to the Adviser
or by the Adviser on 60 days' written notice to the Trust. This Contract (or any
Supplement hereto) shall terminate automatically in the event of its assignment
(as defined in the 1940 Act).
9. Except to the extent necessary to perform the Adviser's obligations
under this Contract, nothing herein shall be deemed to limit or restrict the
right of the Adviser, or any affiliate of the Adviser, or any employee of the
Adviser, to engage in any other business or to devote time and attention to the
management or other aspects of any other business, whether of a similar or
dissimilar nature, or to render services of any kind to any other corporation,
firm, individual or association.
10. The investment management services of the Adviser to the Trust
under this contract are not to be deemed exclusive as to the Adviser and the
Adviser will be free to render similar services to others.
11. This Contract shall be construed in accordance with the laws of the
State of California, provided that nothing herein shall be construed in a manner
inconsistent with the 1940 Act.
12. The Declaration of Trust establishing the Trust, dated March 31,
2000, a copy of which, together with all amendments thereto (the "Declaration"),
is on file in the Office of the Secretary of the Commonwealth of Massachusetts,
provides that the name "PIMCO Funds" refers to the trustees under the
Declaration collectively as trustees and not as individuals or personally, and
that no shareholder, trustee, officer, employee or agent of the Trust shall be
subject to claims against or obligations of the Trust to any extent whatsoever,
but that the Trust estate only shall be liable.
If the foregoing correctly sets forth the agreement between the Trust
and the Adviser, please so indicate by signing and returning to the Trust the
enclosed copy hereof.
Very truly yours,
PIMCO FUNDS
By: ____________________
Title:
ACCEPTED:
PACIFIC INVESTMENT MANAGEMENT COMPANY
By: ________________
Title:
