MONTEREY MUTUAL FUND
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this 31st day of August, 1998, by and between
MONTEREY MUTUAL FUND (the "Trust"), a Massachusetts business trust, and
PACIFIC INCOME ADVISERS, INC., a Delaware corporation, (the "Adviser").
WHEREAS, a series of the Trust having separate assets and liabilities
exists entitled the "PIA Total Return Bond Series" or the "PIA Total
Return Bond Fund" (hereafter the "Total Return Bond Fund"); and
WHEREAS, the Trust desires to retain the Adviser as investment
adviser to the Total Return Bond Fund and enter into an investment
advisory agreement (i.e., this Agreement) relating to the Total Return
Bond Fund which shall apply only to the Total Return Bond Fund; and
WHEREAS, this Agreement has been, or will be, approved by the
shareholders of the Total Return Bond Fund and by the Board of Trustees of
the Trust, including a majority of the Trustees who are not "interested
persons," as defined in the Investment Company Act of 1940 ("1940 Act");
In consideration of the mutual promises and agreements herein
contained and other good and valuable consideration, the receipt of which
is hereby acknowledged, it is hereby agreed by and between the parties
hereto as follows:
1. In General
The Adviser agrees, all as more fully set forth herein, to act as
managerial investment adviser to the Trust with respect to the investment
of the assets of the Total Return Bond Fund and to supervise and arrange
the purchase and sale of securities held in the portfolio of the Total
Return Bond Fund and the Total Return Bond Fund's use of hedging
instruments.
2. Duties and Obligations of the Adviser with respect to Investment
of Assets of the Total Return Bond Fund
a. Subject to the succeeding provisions of this section and subject
to the direction and control of the Board of Trustees of the Trust, the
Adviser shall:
(i) Decide what securities and hedging instruments shall be
purchased or sold by the Trust with respect to the Total Return Bond
Fund and when; and
(ii) Arrange for the purchase and the sale of securities
and hedging instruments held in the portfolio of the Total
Return Bond Fund by placing purchase and sale orders for the
Trust with respect to the Total Return Bond Fund.
(b) Any investment purchases or sales made by the Adviser shall at
all times conform to, and be in accordance with, any requirements imposed
by: (1) the provisions of the 1940 Act and of any rules or regulations in
force thereunder; (2) the provisions of the Commodity Exchange Act and of
any rules or regulations in force thereunder; (3) any other applicable
provisions of law; (4) the provisions of the Declaration of Trust and By-
Laws of the Trust as amended from time to time; (5) any policies and
determinations of the Board of Trustees of the Trust; and (6) the
fundamental policies of the Trust relating to the Total Return Bond Fund,
as reflected in the Trust's registration statement under the 1940 Act, or
as amended by the shareholders of the Total Return Bond Fund.
(c) The Adviser shall give the Trust the benefit of its best
judgment and effort in rendering services hereunder, but the Adviser shall
not be liable for any loss sustained by reason of the purchase, sale or
retention of any security or hedging instrument, whether or not such
purchase, sale or retention shall have been based on its own investigation
and research or upon investigation and research made by any other
individual, firm or corporation, if such purchase, sale or retention shall
have been made and such other individual, firm or corporation shall have
been selected in good faith. Nothing herein contained shall, however, be
construed to protect the Adviser against any liability to the Trust or its
security holders by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of its reckless
disregard of obligations and duties under this Agreement.
(d) Nothing in this Agreement shall prevent the Adviser or any
affiliated person (as defined in the 0000 Xxx) of the Adviser from acting
as investment adviser or manager and/or principal underwriter for any
other person, firm or corporation and shall not in any way limit or
restrict the Adviser or any such affiliated person from buying, selling or
trading any securities or hedging instruments for its or their own
accounts or the accounts of others for whom it or they may be acting,
provided, however, that the Adviser expressly represents that it will
undertake no activities which, in its judgment, will adversely affect the
performance of its obligations to the Trust under this Agreement.
(e) It is agreed that the Adviser shall have no responsibility or
liability for the accuracy or completeness of the Trust's Registration
statement under the Act or the Securities Act of 1933 except for
information supplied by the Adviser for inclusion therein. The Trust
agrees to indemnify the Adviser to the full extent permitted by the
Trust's Declaration of Trust.
3. Broker-Dealer Relationships
The Adviser is responsible for decisions to buy and sell securities
for the Total Return Bond Fund, broker-dealer selection and negotiation of
brokerage commission rates. The Adviser's primary consideration in
effecting a securities transaction will be execution at the most favorable
price. The Trust understands that a substantial amount of the portfolio
transactions of the Total Return Bond Fund may be transacted with primary
market makers acting as principal on a net basis, with no brokerage being
paid by the Total Return Bond Fund. Such principal transactions may,
however, result in a profit to market makers. In certain instances the
Adviser may make purchases of underwritten issues for the Total Return
Bond Fund at prices which include underwriting fees. In selecting a
broker-dealer to execute each particular transaction, the Adviser will
take the following into consideration: the best net price available; the
reliability, integrity and financial condition of the broker-dealer; the
size of and difficulty in executing the order; and the value of the
expected contribution of the broker-dealer to the investment performance
of the Total Return Bond Fund on a continuing basis. Accordingly, the
price to the Total Return Bond Fund in any transaction may be less
favorable than that available from another broker-dealer if the difference
is reasonably justified by other aspects of the portfolio execution
services offered. Subject to such policies as the Board of Trustees of
the Trust may determine, the Adviser shall not be deemed to have acted
unlawfully or to have breached any duty created by this Agreement or
otherwise solely by reason of its having caused the Total Return Bond Fund
to pay a broker or dealer that provides brokerage or research services to
the Adviser an amount of commission for effecting a portfolio transaction
in excess of the amount of commission another broker or dealer would have
charged for effecting that transaction, if the Adviser determines in good
faith that such amount of commission was reasonable in relation to the
value of the brokerage and research services provided by such broker or
dealer, viewed in terms of either that particular transaction or the
Adviser's overall responsibilities with respect to the Trust. The Adviser
is further authorized to allocate the orders placed by it on behalf of the
Total Return Bond Fund to such brokers or dealers who also provide
research or statistical material, or other services, to the Trust, the
Adviser, or any affiliate of either. Such allocation shall be in such
amounts and proportions as the Adviser shall determine, and the Adviser
shall report on such allocations regularly to the Trust, indicating the
broker-dealers to whom such allocations have been made and the basis
therefor. The Adviser is also authorized to consider sales of shares as a
factor in the selection of brokers or dealers to execute portfolio
transactions, subject to the requirements of best execution, i.e., that
such brokers or dealers are able to execute the order promptly and at the
best obtainable securities price.
4. Allocation of Expenses
The Adviser agrees that it will furnish the Trust, at the Adviser's
expense, with all office space and facilities, and equipment and clerical
personnel necessary for carrying out its duties under this Agreement. The
Adviser will also pay all compensation of all Trustees, officers and
employees of the Trust who are affiliated persons of the Adviser. All
operating costs and expenses relating to the Total Return Bond Fund not
expressly assumed by the Adviser under this Agreement shall be paid by the
Trust from the assets of the Total Return Bond Fund, including, but not
limited to (i) interest and taxes; (ii) brokerage commissions; (iii)
insurance premiums; (iv) compensation and expenses of the Trust's Trustees
other than those affiliated with the Trust's investment advisers; (v)
legal and audit expenses; (vi) fees and expenses of the Trust's
Administrator, custodian, shareholder servicing or transfer agent and
accounting services agent; (vii) expenses incident to the issuance of the
Total Return Bond Fund's shares, including issuance on the payment of, or
reinvestment of, dividends; (viii) fees and expenses incident to the
registration under Federal or state securities laws of the Trust or the
shares of the Total Return Bond Fund; (ix) expenses of preparing, printing
and mailing reports and notices and proxy material to shareholders of the
Trust; (x) all other expenses incidental to holding meetings of the
Trust's shareholders; (xi) dues or assessments of or contributions to the
Investment Company Institute or any successor; (xii) such non-recurring
expenses as may arise, including litigation affecting the Trust and the
legal obligations which the Trust may have to indemnify its officers and
Trustees with respect thereto; and (xiii) all expenses which the Trust or
a series of the Trust agrees to bear in any distribution agreement or in
any plan adopted by the Trust and/or a series of the Trust pursuant to
Rule 12b-1 under the Act.
5. Compensation of the Adviser
(a) The Trust agrees to pay the Adviser and the Adviser agrees to
accept as full compensation for all services rendered by the Adviser
hereunder, an annual management fee payable monthly and computed on the
value of the net assets of the Total Return Bond Fund as of the close of
business each business day at the following annual rates:
Assets Fee Rate
All asset levels 0.30%
(b) In the event that the expenses of the Total Return Bond Fund
(including the fees of the Total Return Bond Fund's Adviser and the
Administrator and amortization of organization expenses but excluding
interest, taxes, brokerage commissions, extraordinary expenses and sales
charges and distribution fees) for any fiscal year exceed the limits set
by applicable regulations of state securities commissions or the limits
set forth in the Total Return Bond Fund's current prospectus or statement
of additional information, the Adviser will reduce its fees by the amount
of such excess. Any such reductions are subject to readjustment during
the year. The payment of the advisory fee at the end of any month will be
reduced or postponed, or if necessary, a refund or payment will be made to
the Trust as to the Total Return Bond Fund so that at no time will there
be any accrued but unpaid liability under this expense limitation.
6. Duration and Termination
(a) This Agreement shall go into effect when approved by the holders
of a "majority" (as defined in the 0000 Xxx) of the outstanding voting
securities of the Total Return Bond Fund and shall, unless terminated as
hereinafter provided, continue in effect until December 31, 1999 and
thereafter from year to year, but only so long as such continuance is
specifically approved at least annually by the Trust's Board of Trustees,
including the vote of a majority of the Trustees who are not parties to
this Agreement or "interested persons" (as defined in the 0000 Xxx) of any
such party cast in person at a meeting called for the purpose of voting on
such approval, or by the vote of the holders of a "majority" (as so
defined) of the outstanding voting securities of the Total Return Bond
Fund and by such a vote of the Trustees.
(b) This Agreement may be terminated by the Adviser at any time
without penalty upon giving the Trust sixty (60) days' written notice
(which notice may be waived by the Trust) and may be terminated by the
Trust at any time without penalty upon giving the Adviser sixty (60) days'
written notice (which notice may be waived by the Adviser), provided that
such termination by the Trust shall be directed or approved by the vote of
a majority of all of its Trustees or approved by the vote of a majority of
all of its Trustees in office at the time or by the vote of the holders of
a majority (as defined in the 0000 Xxx) of the voting securities of the
Trust at the time outstanding and entitled to vote. This Agreement shall
automatically terminate in the event of its assignment (as so defined).
7. Agreement Binding Only on Fund Property
The Adviser understands that the obligations of this Agreement are
not binding upon any shareholder of the Trust personally, but bind only
the Trust's property; the Adviser represents that it has notice of the
provisions of the Trust's Declaration of Trust disclaiming shareholder
liability for acts or obligations of the Trust.
8. Code of Ethics
The Adviser has adopted a written code of ethics complying with the
requirements of Rule 17j-1 under the Act and has provided the Trust with a
copy of the code of ethics and evidence of its adoption. Upon written
request of the Trust, the Adviser shall permit the Trust to examine any
reports required to be made by the Adviser pursuant to Rule 17j-1(1) under
the Act.
IN WITNESS WHEREOF, the parties hereto have caused the foregoing
instrument to be executed by duly authorized persons all as of the day and
year first above written.
MONTEREY MUTUAL FUND
By:
PACIFIC INCOME ADVISERS, INC.
By:
