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MERCURY HW FUNDS
INTERIM
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this ____ day of October, 2001, by and between MERCURY
HW FUNDS, a Massachusetts business trust (the "Trust"), on behalf of the Mercury
HW Equity Fund for Insurance Companies (the "Fund"), and HOTCHKIS AND WILEY
CAPITAL MANAGEMENT, LLC (the "Advisor").
WITNESSETH:
WHEREAS, the Trust has been organized and operates as an investment
company registered under the Investment Company Act of 1940 ("1940 Act") and is
currently comprised of eight series, one of which is the Fund; and each series
engages in the business of investing and reinvesting its assets; and
WHEREAS, the Advisor is a registered investment adviser under the
Investment Advisers Act of 1940 and engages in the business of providing
investment advisory services; and
WHEREAS, the Trust's Board of Trustees, including 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, have approved this Agreement;
NOW, THEREFORE, 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 Advisor agrees, all as more fully set forth herein, to act as
managerial investment advisor with respect to the investment of the assets of
the Fund and to supervise and arrange the purchase and sale of securities held
in the portfolio of the Fund.
2. DUTIES AND OBLIGATIONS OF THE ADVISOR WITH RESPECT TO
INVESTMENT OF ASSETS OF THE 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 Advisor shall:
(i) Decide what securities or other assets shall
be purchased or sold by the Trust with respect to the
Fund and when; and
(ii) Arrange for the purchase and the sale of
securities or other assets held in the portfolio of
the Fund by placing purchase and sale orders for the
Trust with respect to the Fund.
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(b) Any investment purchases or sales made by the Advisor
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) any
other applicable provisions of law; (3) the provisions of the
Declaration of Trust and By-Laws of the Trust as amended from
time to time; (4) any policies and determinations of the Board
of Trustees of the Trust; and (5) the fundamental policies of
the Trust relating to the Fund, as reflected in the Trust's
Registration Statement under the 1940 Act, or as amended by
the shareholders of the Fund.
(c) The Advisor shall give the Fund the benefit of its
best judgment and effort in rendering services hereunder, but
the Advisor shall not be liable for any loss sustained by
reason of the purchase, sale or retention of any security
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 Advisor against
any liability to the Fund 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 Advisor
or any affiliated person (as defined in the 0000 Xxx) of the
Advisor from acting as investment advisor or manager and/or
principal underwriter for any other person, firm or
corporation and shall not in any way limit or restrict the
Advisor or any such affiliated person from buying, selling or
trading any securities for its or their own accounts or the
accounts of others for whom it or they may be acting,
provided, however, that the Advisor 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 Advisor shall have no
responsibility or liability for the accuracy or completeness
of the Trust's Registration Statement under the 1940 Act or
the Securities Act of 1933 except for information supplied by
the Advisor for inclusion therein. The Trust may indemnify the
Advisor to the full extent permitted by the Trust's
Declaration of Trust.
3. BROKER-DEALER RELATIONSHIPS
The Advisor is responsible for decisions to buy and sell securities for
the Fund, broker-dealer selection, and negotiation of brokerage commission
rates. The Advisor's primary consideration in effecting a securities transaction
will be execution at the most favorable price. In selecting a broker-dealer to
execute each particular transaction, the Advisor 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 Fund on a
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continuing basis. Accordingly, the price to the 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 Advisor 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 or dealer that provides brokerage or
research services to the Advisor 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 Advisor
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
Advisor's overall responsibilities with respect to the Trust. The Advisor is
further authorized to allocate the orders placed by it on behalf of the Fund to
such brokers or dealers who also provide research or statistical material, or
other services, to the Trust, the Advisor, or any affiliate of either. Such
allocation shall be in such amounts and proportions as the Advisor shall
determine, and the Advisor 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 Advisor 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 Advisor agrees that it will furnish the Trust, at the Advisor's
expense, with all office space and facilities, and equipment and clerical
personnel necessary for carrying out its duties under this Agreement. All
operating costs and expenses relating to the Fund are hereby expressly assumed
by the Advisor, 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 Advisor; (v) legal
and audit expenses; (vi) fees and expenses of the Trust's custodian, shareholder
servicing or transfer agent and accounting services agent; (vii) expenses
incident to the issuance of the 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 Fund; (ix) expenses of preparing, printing and mailing reports and
notices and proxy materials to shareholders of the Fund; (x) all other expenses
incident to holding meetings of the Fund'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 the Fund agree to bear in any distribution agreement
or in any plan adopted by the Trust and/or the Fund pursuant to Rule 12b-1 under
the 1940 Act.
5. COMPENSATION OF THE ADVISOR
(a) The Trust agrees to pay the Advisor and the Advisor
agrees to accept as full compensation for all services
rendered by the Advisor hereunder, an annual management fee,
payable monthly and computed on the value of the average net
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assets of the Fund as of the close of business each business
day, at the annual rate of .60 of 1% of the first $10,000,000
of such average net assets and .50 of 1% of such net assets in
excess of $10 million; provided, however, that no fee will be
paid on any portion of such net assets that are invested in
another investment company for which the Advisor serves as the
investment advisor.
(b) The compensation earned by the Advisor under this
Agreement shall be held in an interest-bearing escrow account
with the Trust's custodian or a bank. If a majority (as
defined in the 0000 Xxx) of the Fund's outstanding voting
securities approve an investment advisory agreement with the
Advisor by the end of the 150-day period beginning with the
effective date of this Agreement, the amount in the escrow
account (including interest earned) shall be paid to the
Advisor. If a majority (as so defined) of the Fund's
outstanding voting securities do not approve an investment
advisory agreement with the Advisor by the end of the 150-day
period beginning with the effective date of this Agreement,
the Advisor shall be paid, out of the escrow account, the
lesser of (i) any costs incurred by the Advisor in performing
its obligations under this Agreement (plus interest earned on
that amount while in escrow) or (ii) the total amount in the
escrow account (plus accrued interest).
6. DURATION AND TERMINATION
(a) This Agreement shall go into effect on the date
hereof and shall, unless terminated as hereinafter provided,
continue in effect for a period of up to 150 days from the
date hereof until an investment advisory agreement with the
Advisor is approved by a majority (as defined in the 0000 Xxx)
of the Fund's outstanding voting securities.
(b) This Agreement may be terminated by the Trust at any
time without penalty upon giving the Advisor 10 days' written
notice, provided that such termination by the Trust shall be
directed 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 Fund 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 Advisor 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 Advisor 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.
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IN WITNESS WHEREOF, the parties hereto have caused the foregoing
instrument to be executed by duly authorized persons and their seals to be
hereunto affixed, all as of the day and year first above written.
MERCURY HW FUNDS
By _____________________________________
ATTEST:
________________________________
HOTCHKIS AND WILEY
CAPITAL MANAGEMENT, LLC
By _____________________________________
ATTEST:
________________________________
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