MONTEREY MUTUAL FUND
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this 28th day of December, 1996, 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 Global Bond Series" or the "Global Bond Fund"
(hereafter the "Global Bond Fund"); and
WHEREAS, the Trust desires to retain the Adviser as investment adviser to
the Government Fund and enter into an investment advisory agreement (i.e.,
this Agreement) relating to the Government Fund which shall apply only to
the Government Fund; and
WHEREAS, this Agreement has been, or will be, approved by the shareholders
of the Government 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 Government Fund and to supervise and arrange the
purchase and sale of securities held in the portfolio of the Government
Fund and the Government Fund's use of hedging instruments.
2. Duties and Obligations of the Adviser with respect to Investment
of Assets of the Government 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 Government
Fund and when; and
(ii) Arrange for the purchase and the sale of securities
and hedging instruments held in the portfolio of the Government
Fund by placing purchase and sale orders for the Trust with
respect to the Government 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 Government Fund, as
reflected in the Trust's registration statement under the 1940 Act, or as
amended by the shareholders of the Government 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 Government 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 Government Fund may be transacted with primary market
makers acting as principal on a net basis, with no brokerage being paid by
the Government 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 Government 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 Government Fund on a
continuing basis. Accordingly, the price to the Government 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
Government 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 Government 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. In the
Agreement, the term "broker" and "broker-dealer" shall include futures
commission merchants.
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 Government Fund not expressly
assumed by the Adviser under this Agreement shall be paid by the Trust
from the assets of the Government 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 Government 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 Government 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 Government Fund as of the close of business
each business day at the following annual rates:
Assets Fee Rate
All asset levels 0.40%
(b) In the event that the expenses of the Government Fund (including
the fees of the Government 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
Government 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 Government 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 Government Fund and shall, unless terminated as
hereinafter provided, continue in effect until December 31, 1998 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 Government 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_____________________________
