INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this 3rd day of June, 1998, by and between LM
Institutional Advisors, Inc. ("Manager"), a Maryland corporation, and Western
Asset Management Company ("Western Asset"), a California corporation, each of
which is registered as an investment adviser under the Investment Advisers Act
of 1940, as amended.
WHEREAS, the Manager is the manager of certain of the series of LM
Institutional Fund Advisors II, Inc. (the "Corporation"), an open-end,
management investment company registered under the Investment Company Act of
1940, as amended (the "1940 Act"); and
WHEREAS, the Manager wishes to retain Western Asset to provide certain
investment advisory services in connection with the Manager's management of Xxxx
Xxxxx Fund Adviser/Western Asset Balanced Portfolio ("Fund"), a series of the
Corporation; and
WHEREAS, Western Asset is willing to furnish such services on the
terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed as follows:
1. Appointment. The Manager hereby appoints Western Asset as investment
adviser for the Fund for the period and on the terms set forth in this
Agreement. Western Asset accepts such appointment and agrees to furnish the
services herein set forth for the compensation herein provided.
2. Delivery of Documents. The Manager has furnished Western Asset with
copies of each of the following:
(a) The Corporation's Articles of Incorporation and all amendments
thereto (such Articles of Incorporation, as presently in effect and as they
shall from time to time be amended, are herein called the "Articles");
(b) The Corporation's By-Laws and all amendments thereto (such By-Laws,
as presently in effect and as they shall from time to time be amended, are
herein called the "By-Laws");
(c) Resolutions of the Corporation's Board of Directors (the
"Directors") authorizing the appointment of the Manager as the manager and
Western Asset as investment adviser and approving the Investment Management
Agreement between the Manager and the Corporation with respect to the Fund dated
June 3, 1998 (the "Management Agreement") and this Agreement;
(d) The Fund's most recent prospectus (such prospectus, as presently in
effect, and all amendments and supplements thereto are herein called the
"Prospectus"); and
(e) The Fund's most recent statement of additional information (such
statement of additional information, as presently in effect, and all amendments
and supplements thereto are herein called the "Statement of Additional
Information").
The Manager will furnish Western Asset from time to time with copies of all
amendments of or supplements to the foregoing.
3. Investment Advisory Services. (a) Subject to the supervision of the
Directors and the Manager, Western Asset shall as requested by the Manager
regularly provide the Fund with investment research, advice, management and
supervision and shall furnish a continuous investment program for the Fund
consistent with the Fund's investment objectives, policies, and restrictions as
stated in the Fund's current Prospectus and Statement of Additional Information.
Western Asset shall as requested by the
Manager determine from time to time what securities or other property will be
purchased, retained or sold by the Fund, and shall implement those decisions,
all subject to the provisions of the Corporation's Articles and By-Laws, the
1940 Act, the applicable rules and regulations of the Securities and Exchange
Commission, and other applicable federal and state law, as well as the
investment objectives, policies, and restrictions of the Fund, as each of the
foregoing may be amended from time to time. Western Asset will as requested by
the Manager place orders pursuant to its investment determinations for the Fund
either directly with the issuer or with any broker, dealer or futures commission
merchant (collectively, a "broker"). In the selection of brokers and the placing
of orders for the purchase and sale of portfolio investments for the Fund,
Western Asset shall seek to obtain for the Fund the most favorable price and
execution available, except to the extent it may be permitted to pay higher
brokerage commissions for brokerage and research services as described below. In
using its best efforts to obtain for the Fund the most favorable price and
execution available, Western Asset, bearing in mind the Fund's best interests at
all times, shall consider all factors it deems relevant, including, by way of
illustration, price, the size of the transaction, the nature of the market for
the security, the amount of the commission, the timing of the transaction taking
into consideration market prices and trends, the reputation, experience and
financial stability of the broker involved and the quality of service rendered
by the broker in other transactions. Subject to such policies as the Directors
may determine and communicate to Western Asset in writing, Western Asset 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 Fund to
pay a broker that provides brokerage and research services to Western Asset or
any affiliated person of Western Asset an amount of commission for effecting a
portfolio investment transaction in excess of the amount of commission another
broker would have charged for effecting that transaction, if Western Asset
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, viewed in terms of either that particular transaction or Western Asset's
overall responsibilities with respect to the Fund and to other clients of
Western Asset and any affiliated person of Western Asset as to which Western
Asset or any affiliated person of Western Asset exercises investment discretion.
Western Asset shall also perform such other functions of management and
supervision as may be requested by the Manager and agreed to by Western Asset.
(b) Western Asset will as requested by the Manager oversee the
maintenance of all books and records with respect to the investment transactions
of the Fund in accordance with all applicable federal and state laws and
regulations, and will furnish the Directors with such periodic and special
reports as the Directors or the Manager reasonably may request.
(c) The Corporation hereby agrees that any entity or person associated
with Western Asset (or with any affiliated person of Western Asset) which is a
member of a national securities exchange is authorized to effect any transaction
on such exchange for the account of the Fund which is permitted by Section 11(a)
of the Securities Exchange Act of 1934, as amended, and Rule 11a2-2(T)
thereunder, and the Corporation hereby consents to the retention of compensation
for such transactions in accordance with Rule 11a2-2(T)(a)(2)(iv) or otherwise.
4. Services Not Exclusive. Western Asset's services hereunder are not
deemed to be exclusive, and Western Asset shall be free to render similar
services to others. It is understood that persons employed by Western Asset to
assist in the performance of its duties hereunder might not devote their full
time to such service. Nothing herein contained shall be deemed to limit or
restrict the right of Western Asset or any affiliate of Western Asset to engage
in and devote time and attention to other businesses or to render services of
whatever kind or nature.
5. Books and Records. In compliance with the requirements of Rule 31a-3
under the 1940 Act, Western Asset hereby agrees that all books and records which
it maintains for the Fund are property of the Fund and further agrees to
surrender promptly to the Fund or its agents any of such records upon the Fund's
request. Western Asset further agrees to preserve for the periods prescribed by
Rule 31a-2 under the 1940 Act any such records required to be maintained by Rule
31a-1 under the 1940 Act.
-2-
6. Expenses. During the term of this Agreement, Western Asset will pay
all expenses incurred by it in connection with its activities under this
Agreement other than the cost of securities and other property (including
brokerage commissions, if any) purchased for the Fund.
7. Compensation. For the services which Western Asset will render to
the Manager and the Fund under this Agreement, the Manager will pay Western
Asset a fee, computed daily and paid monthly, at an annual rate of 0.55% of the
average daily net assets of the Fund allocated to the adviser. The average daily
net assets of the Fund shall in all cases be based only on business days and be
computed as of the time of the regular close of business of the New York Stock
Exchange, or such other time as may be determined by the Directors of the
Corporation. Fees due to Western Asset hereunder shall be paid promptly to
Western Asset by the Manager following its receipt of fees from the Fund. If
this Agreement is terminated as of any date not the last day of a calendar
month, a final fee shall be paid promptly after the date of termination and
shall be based on the percentage of days of the month during which the contract
was still in effect.
8. Limitation of Liability. In the absence of willful misfeasance, bad
faith or gross negligence on the part of Western Asset, or reckless disregard of
its obligations and duties hereunder, Western Asset shall not be subject to any
liability to the Manager, the Fund or any shareholder of the Fund, for any act
or omission in the course of, or connected with, rendering services hereunder.
9. Definitions. As used in this Agreement, the terms "assignment,"
"interested person," "affiliated person," and "majority of the outstanding
voting securities" shall have the meanings given to them by Section 2(a) of the
1940 Act, subject to such exemptions and interpretations as may be granted by
the Securities and Exchange Commission by any rule, regulation or order; the
term "specifically approve at least annually" shall be construed in a manner
consistent with the 1940 Act and the rules and regulations thereunder; and the
term "brokerage and research services" shall have the meaning given in the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder.
10. Term. This Agreement shall become effective upon its execution, and
shall remain in full force and effect continuously thereafter (unless terminated
automatically as set forth in Section 12) until terminated as follows:
a. The Corporation may at any time terminate this Agreement by
not more than 60 days' written notice delivered or mailed by registered
mail, postage prepaid, to the Manager and Western Asset, or
b. If (i) the Directors or the shareholders of the Fund by
vote of a majority of the outstanding voting securities of the Fund,
and (ii) a majority of the Directors who are not interested persons of
the Corporation, the Manager or Western Asset, by vote cast in person
at a meeting called for the purpose of voting on such approval, do not
specifically approve at least annually the continuance of this
Agreement, then this Agreement shall automatically terminate at the
close of business on the second anniversary of its execution, or upon
the expiration of one year from the effective date of the last such
continuance, whichever is later; PROVIDED, HOWEVER, that if the
continuance of this Agreement is submitted to the shareholders of the
Fund for their approval and such shareholders fail to approve such
continuance of this Agreement as provided herein, Western Asset may
continue to serve hereunder in a manner consistent with the 1940 Act
and the rules and regulations thereunder, or
c. The Manager may at any time terminate this Agreement by not
less than 60 days' written notice delivered or mailed by registered
mail, postage prepaid, to Western Asset, and Western Asset may at any
time terminate this Agreement by not less than 60 days' written notice
delivered or mailed by registered mail, postage prepaid, to the
Manager.
Action by the Corporation under paragraph (a) of this Section 10 may be
taken either (i) by vote of
-3-
a majority of the Directors, or (ii) by the vote of a majority of the
outstanding voting securities of the Fund.
11. Further Actions. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
12. No Assignment; Amendments. This Agreement shall terminate
automatically in the event of its assignment or in the event that the Management
Agreement shall have terminated for any reason. Any termination of this
Agreement pursuant to Section 10 shall be without the payment of any penalty.
This Agreement shall not be amended unless such amendment is approved by the
vote of a majority of the outstanding voting securities of the Fund (provided
that such shareholder approval is required by the 1940 Act and the rules and
regulations thereunder, giving effect to any interpretations of the Securities
and Exchange Commission and its staff) and by the vote, cast in person at a
meeting called for the purpose of voting on such approval, of a majority of the
Directors who are not interested persons of the Corporation, the Manager or
Western Asset.
13. Miscellaneous. This Agreement embodies the entire agreement and
understanding between the parties hereto, and supersedes all prior agreements
and understandings relating to the subject matter hereof. 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. Should any part of this Agreement 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 and shall inure to the
benefit of the parties hereto and their respective successors.
14. Non-Exclusive Right. In the event this Agreement is terminated or
upon written notice from Western Asset at any time, the Corporation hereby
agrees that it will eliminate from the Fund's name any reference to the name of
"Western Asset." The Corporation, on behalf of the Fund, shall have the
non-exclusive use of the name "Western Asset" in whole or in part only so long
as this Agreement is effective or until such notice is given.
-4-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below on the day and year first above
written.
LM INSTITUTIONAL ADVISORS, INC.
Attest:
By: ____________________ By: _______________________________________
WESTERN ASSET MANAGEMENT COMPANY
Attest:
By: ____________________ By: ________________________________________
The foregoing is accepted by:
LM INSTITUTIONAL FUND ADVISORS II, INC.
Attest:
By: ____________________ By: ________________________________________
-5-
