FORM OF INVESTMENT ADVISORY AGREEMENT
X.XXX FUNDS
AGREEMENT, effective commencing as of September __, 1999 between X.xxx
Asset Management, Inc. (the "Adviser") and X.xxx Funds (the "Trust") with
respect to the series listed on Exhibit A ("Funds").
WHEREAS, the Trust is a Delaware business trust organized pursuant to a
Declaration of Trust dated July 7, 1999 (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; and
WHEREAS, the Trust wishes to retain the Adviser to render investment
advisory services to the Funds, and the Adviser is willing to furnish such
services to the Funds; and
WHEREAS, the Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended ("Advisers Act");
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 to the Funds 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 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 each 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 each 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 Funds
hereunder, the Adviser will provide the Funds 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 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 current Form ADV as filed with
the SEC, the Adviser will advise as to the securities, instruments, repurchase
agreements, options and other investments and techniques that each 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 Funds 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 each 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 each 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 each 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
each 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 Funds, 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 Funds,
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 a 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 as filed with the SEC, 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 a 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 a 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 interest, taxes, brokerage
commissions, extraordinary expenses, the fees and expenses of those directors
who are not "interested persons" as defined in the 1940 Act, including counsel
fees, and expenses incurred in connection with the provision of shareholder
services and distribution services.
6. Compensation.
As compensation for the services provided and expenses assumed by the
Adviser under this Agreement, the Trust will arrange for each Fund to pay the
Adviser at the end of each calendar month an advisory fee computed daily at an
annual rate equal to the amount of average daily net assets listed opposite each
Fund's name in Exhibit A, attached hereto. The "average daily net assets" of a
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
each Fund shall always be determined pursuant to the applicable provisions of
the Declaration of Trust 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 a 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 a 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 a 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.
7. Books and Records. The Adviser agrees to maintain such books and records with
respect to its services to the Funds 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 Funds are being conducted in accordance
with applicable laws and regulations.
8. Aggregation of Orders. Provided that the investment objective, policies and
restrictions of the Funds are adhered to, the Trust agrees that the Adviser may
aggregate sales and purchase orders of securities held in the Funds 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
respective 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 a 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 a 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 Funds 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 a 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 a 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 a 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 continue for a period of two years from the date
of commencement, 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 Funds upon the vote of a majority of the
Trustees or by vote of the majority of the Funds' 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 a 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.
Use of "S&P 500" Name.
It is understood that the Adviser has entered into a licensing agreement
with The XxXxxx-Xxxx Companies, Inc., for use of the terms "S&P 500", "S&P",
"Standard & Poor's", and "Standard & Poor's 500" (the "license"). In accordance
with such license, the Adviser shall permit the Trust, on behalf of the Fund, to
use the terms "S&P 500", "S&P", "Standard & Poor's", and "Standard & Poor's
500", so long as the license and this Agreement shall continue in effect.
15. 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.
16. Year 2000 Preparedness.
The Adviser warrants and represents that the Adviser has adopted a written
plan for Year 2000 compliance for the correct operation of the Adviser's
computer systems because of the approaching millennium (the "Plan"), that the
Plan provides for the identification, testing and, where appropriate, upgrading
of the Adviser's computer systems, in accordance with reasonable industry
standards, so that both the Adviser's computer systems and their interfaces with
third party computer systems will function accurately and without interruption
before, during and after December 31, 1999 and that the Adviser is actively in
the process of implementing the Plan and presently has no reason to believe that
the Adviser's computer systems and their interfaces with third party computer
systems will not be able to function accurately and without interruption before,
during and after such date. The Adviser will continue to implement the Plan and
take such other steps as may be necessary and appropriate to be Year 2000
compliant in a timely and efficient manner and will notify the Trust of any Year
2000 compliance problems and the nature thereof on or before October 1, 1999 if
the Adviser determines that it is not or is not likely to be Year 2000 compliant
in a timely and efficient manner. The failure of the Adviser to be Year 2000
compliant shall not be deemed to be a force majeure event or provide a defense
to performance hereunder.
17. 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.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of __________, 1999.
X.XXX FUNDS
By:
------------------------
Name:
Title:
X.XXX ASSET MANAGEMENT, INC.
By:
-------------------------
Name:
Title:
EXHIBIT A
Name of Fund Advisory Fee
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X.xxx Premier S&P 500 Fund 0.23%
X.xxx U.S.A. Bond Fund 0.32%
X.xxx U.S.A. Money Market Fund 0.50%
