EXHIBIT 5
Form of Investment Management Agreement
FORM OF INVESTMENT
MANAGEMENT AGREEMENT
THIS INVESTMENT MANAGEMENT AGREEMENT made as of the ____ day
of __________, 1997, by and between Metropolitan West Funds, a Delaware business
trust (hereinafter called the "Trust"), on behalf of each series of the Trust
listed in Appendix A hereto, as such may be amended from time to time
(hereinafter referred to individually as a "Fund" and collectively as the
"Funds") and Metropolitan West Asset Management, LLC, a California limited
liability company (hereinafter called the "Manager").
WITNESSETH:
WHEREAS, the Trust is an open-end management investment
company, registered as such under the Investment Company Act of 1940, as amended
(the "1940 Act"); and
WHEREAS, the Manager is registered as an investment adviser
under the Investment Advisers Act of 1940, as amended, and is engaged in the
business of supplying investment advice, investment management and
administrative services, as an independent contractor; and
WHEREAS, the Trust desires to retain the Manager to render
advice and services to the Funds pursuant to the terms and provisions of this
Agreement, and the Manager is interested in furnishing said advice and services;
NOW, THEREFORE, in consideration of the covenants and the
mutual promises hereinafter set forth, the parties hereto, intending to be
legally bound hereby, mutually agree as follows:
1. Appointment of Manager. The Trust hereby employs the
Manager and the Manager hereby accepts such employment, to render investment
advice and management services with respect to the assets of the Funds for the
period and on the terms set forth in this Agreement, subject to the supervision
and direction of the Trust's Board of Trustees.
2. Duties of Manager.
(a) General Duties. The Manager shall act as
investment manager to the Funds and shall supervise investments of the Funds on
behalf of the Funds in accordance with the investment objectives, programs and
restrictions of the Funds as provided in the Trust's governing documents,
including, without limitation, the Trust's Agreement and Declaration of Trust
and By-Laws, or otherwise and such other limitations as the Trustees may impose
from time to time in writing to the Manager. Without limiting the generality of
the foregoing, the Manager shall: (i) furnish the Funds with advice and
recommendations with respect to the investment of each Fund's assets and the
purchase and sale of portfolio securities for the Funds, including the taking of
such other steps as may be necessary to implement such advice and
recommendations; (ii) furnish the Funds with reports, statements and other data
on securities, economic conditions and other
FORM OF INVESTMENT
MANAGEMENT AGREEMENT
pertinent subjects which the Trust's Board of Trustees may reasonably request;
(iii) manage the investments of the Funds, subject to the ultimate supervision
and direction of the Trust's Board of Trustees; (iv) provide persons
satisfactory to the Trust's Board of Trustees to act as officers and employees
of the Trust and the Funds (such officers and employees, as well as certain
trustees, may be trustees, directors, officers, partners, or employees of the
Manager or its affiliates) but not including personnel to provide limited
administrative services to the Fund not typically provided by the Fund's
administrator under separate agreement; and (v) render to the Trust's Board of
Trustees such periodic and special reports with respect to each Fund's
investment activities as the Board may reasonably request.
(b) Brokerage. The Manager shall place orders for the
purchase and sale of securities either directly with the issuer or with a broker
or dealer selected by the Manager. In placing each Fund's securities trades, it
is recognized that the Manager will give primary consideration to securing the
most favorable price and efficient execution, so that each Fund's total cost or
proceeds in each transaction will be the most favorable under all the
circumstances. Within the framework of this policy, the Manager may consider the
financial responsibility, research and investment information, and other
services provided by brokers or dealers who may effect or be a party to any such
transaction or other transactions to which other clients of the Manager may be a
party.
It is also understood that it is desirable for the Funds that
the Manager have access to investment and market research and securities and
economic analyses provided by brokers and others. It is also understood that
brokers providing such services may execute brokerage transactions at a higher
cost to the Funds than might result from the allocation of brokerage to other
brokers on the basis of seeking the most favorable price and efficient
execution. Therefore, the purchase and sale of securities for the Funds may be
made with brokers who provide such research and analysis, subject to review by
the Trust's Board of Trustees from time to time with respect to the extent and
continuation of this practice to determine whether each Fund benefits, directly
or indirectly, from such practice. It is understood by both parties that the
Manager may select broker-dealers for the execution of the Funds' portfolio
transactions who provide research and analysis as the Manager may lawfully and
appropriately use in its investment management and advisory capacities, whether
or not such research and analysis may also be useful to the Manager in
connection with its services to other clients.
On occasions when the Manager deems the purchase or sale of a
security to be in the best interest of one or more of the Funds as well as of
other clients, the Manager, to the extent
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MANAGEMENT AGREEMENT
permitted by applicable laws and regulations, may aggregate the securities to be
so purchased or sold in order to obtain the most favorable price or lower
brokerage commissions and the most efficient execution. In such event,
allocation of the securities so purchased or sold, as well as the expenses
incurred in the transaction, will be made by the Manager in the manner it
considers to be the most equitable and consistent with its fiduciary obligations
to the Funds and to such other clients.
(c) Administrative Services. The Manager shall
oversee the administration of the Funds' business and affairs although the
provision of administrative services, to the extent not covered by subparagraphs
(a) or (b) above, is not the obligation of the Manager under this Agreement.
Notwithstanding any other provisions of this Agreement, the Manager shall be
entitled to reimbursement from the Funds for all or a portion of the reasonable
costs and expenses, including salary, associated with the provision by Manager
of personnel to render administrative services to the Funds.
3. Best Efforts and Judgment. The Manager shall use its
best judgment and efforts in rendering the advice and services to the Funds as
contemplated by this Agreement.
4. Independent Contractor. The Manager shall, for all
purposes herein, be deemed to be an independent contractor, and shall, unless
otherwise expressly provided and authorized to do so, have no authority to act
for or represent the Trust or the Funds in any way, or in any way be deemed an
agent for the Trust or for the Funds. It is expressly understood and agreed that
the services to be rendered by the Manager to the Funds under the provisions of
this Agreement are not to be deemed exclusive, and the Manager shall be free to
render similar or different services to others so long as its ability to render
the services provided for in this Agreement shall not be impaired thereby.
5. Manager's Personnel. The Manager shall, at its own
expense, maintain such staff and employ or retain such personnel and consult
with such other persons as it shall from time to time determine to be necessary
to the performance of its obligations under this Agreement. Without limiting the
generality of the foregoing, the staff and personnel of the Manager shall be
deemed to include persons employed or retained by the Manager to furnish
statistical information, research, and other factual information, advice
regarding economic factors and trends, information with respect to technical and
scientific developments, and such other information, advice and assistance as
the Manager or the Trust's Board of Trustees may desire and reasonably request.
6. Reports by Funds to Manager. Each Fund will from time
to time furnish to the Manager detailed statements of its investments and
assets, and information as to its investment
FORM OF INVESTMENT
MANAGEMENT AGREEMENT
objective and needs, and will make available to the Manager such financial
reports, proxy statements, legal and other information relating to each Fund's
investments as may be in its possession or available to it, together with such
other information as the Manager may reasonably request.
7. Expenses.
(a) With respect to the operation of each Fund, the
Manager is responsible for (i) the compensation of any of the Trust's trustees,
officers, and employees who are affiliates of the Manager (but not the
compensation of employees performing services in connection with expenses which
are the Fund's responsibility under Subparagraph 7(b) below or the compensation
of affiliates performing distribution and marketing duties outside of the scope
of this Agreement if a Rule 12b-1 plan has been adopted by the Trust), (ii) the
expenses of printing and distributing the Funds' prospectuses, statements of
additional information, and sales and advertising materials (but not the legal,
auditing or accounting fees attendant thereto) to prospective investors (but not
to existing shareholders), and (iii) providing office space and equipment
reasonably necessary for the operation of the Funds.
(b) Each Fund is responsible for and has assumed the
obligation for payment of all of its expenses, other than as stated in
Subparagraph 7(a) above, including but not limited to: fees and expenses
incurred in connection with the issuance, registration and transfer of its
shares; brokerage and commission expenses; all expenses of transfer, receipt,
safekeeping, servicing and accounting for the cash, securities and other
property of the Trust for the benefit of the Funds including all fees and
expenses of its custodian, shareholder services agent and accounting services
agent; interest charges on any borrowings; costs and expenses of pricing and
calculating its daily net asset value and of maintaining its books of account
required under the 1940 Act; taxes, if any; expenditures in connection with
meetings of each Fund's shareholders and Board of Trustees that are properly
payable by the Fund; salaries and expenses of officers and fees and expenses of
members of the Trust's Board of Trustees or members of any advisory board or
committee who are not members of, affiliated with or interested persons of the
Manager; insurance premiums on property or personnel of each Fund which inure to
its benefit, including liability and fidelity bond insurance; the cost of
preparing and printing reports, proxy statements, prospectuses and statements of
additional information of the Fund or other communications for distribution to
existing shareholders; legal, auditing and accounting fees; trade association
dues; fees and expenses (including legal fees) of registering and maintaining
registration of its shares for sale under federal and applicable state and
foreign securities laws; all expenses of maintaining
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MANAGEMENT AGREEMENT
and servicing shareholder accounts, including all charges for transfer,
shareholder recordkeeping, dividend disbursing, redemption, and other agents for
the benefit of the Funds, if any; and all other charges and costs of its
operation plus any extraordinary and non-recurring expenses, except as herein
otherwise prescribed.
(c) To the extent the Manager incurs any costs by
assuming expenses which are an obligation of a Fund as set forth herein, such
Fund shall promptly reimburse the Manager for such costs and expenses, except to
the extent the Manager has otherwise agreed to bear such expenses. To the extent
the services for which a Fund is obligated to pay are performed by the Manager,
the Manager shall be entitled to recover from such Fund to the extent of the
Manager's actual costs for providing such services.
8. Investment Advisory and Management Fee.
(a) Each Fund shall pay to the Manager, and the
Manager agrees to accept, as full compensation for all administrative and
investment management and advisory services furnished or provided to such Fund
pursuant to this Agreement, a management fee at the annual rate set forth in the
Fee Schedule attached hereto as Appendix A, as may be amended in writing from
time to time by the Trust and the Manager.
(b) The management fee shall be accrued daily by each
Fund and paid to the Manager on the first business day of the succeeding month
or when demanded by the Manager.
(c) The initial fee under this Agreement shall be
payable on the first business day of the first month following the effective
date of this Agreement and shall be prorated as set forth below. If this
Agreement is terminated before the end of any month, the fee to the Manager
shall be prorated for the portion of any month in which this Agreement is in
effect which is not a complete month according to the proportion which the
number of calendar days in the month during which the Agreement is in effect
bears to the number of calendar days in the month, and shall be payable within
ten (10) days after the date of termination.
(d) The Manager may reduce any portion of the
compensation or reimbursement of expenses due to it pursuant to this Agreement
and may agree to make payments to limit the expenses which are the
responsibility of a Fund under this Agreement. Any such reduction or payment
shall be applicable only to such specific reduction or payment and shall not
constitute an agreement to reduce any future compensation or reimbursement due
to the Manager hereunder or to continue future payments. Any such reduction will
be agreed to prior to accrual of the related expense or fee and will be
estimated daily and reconciled and paid on a monthly basis. Any fee withheld
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MANAGEMENT AGREEMENT
pursuant to this paragraph from the Manager shall be reimbursed by the
appropriate Fund to the Manager in the first, second or third (or any
combination thereof) fiscal year next succeeding the fiscal year of the
withholding to the extent permitted by the applicable state law if the aggregate
expenses for the next succeeding fiscal year, second succeeding fiscal year or
third succeeding fiscal year do not exceed the applicable state limitation or
any more restrictive limitation to which the Manager has agreed. The Manager may
elect to seek reimbursement for the oldest reductions and waivers before payment
by a Fund of fees or expenses for the current year.
(e) The Manager may agree not to require payment of
any portion of the compensation or reimbursement of expenses otherwise due to it
pursuant to this Agreement prior to the time such compensation or reimbursement
has accrued as a liability of the Fund. Any such agreement shall be applicable
only with respect to the specific items covered thereby and shall not constitute
an agreement not to require payment of any future compensation or reimbursement
due to the Manager hereunder.
9. Fund Share Activities of Manager's Officers and
Employees. The Manager agrees that neither it nor any of its officers or
employees shall take any short position in the shares of the Funds. This
prohibition shall not prevent the purchase of such shares by any of the officers
or bona fide employees of the Manager or any trust, pension, profit-sharing or
other benefit plan for such persons or affiliates thereof, at a price not less
than the net asset value thereof at the time of purchase, as allowed pursuant to
rules promulgated under the 1940 Act.
10. Conflicts with Trust's Governing Documents and
Applicable Laws. Nothing herein contained shall be deemed to require the Trust
or the Funds to take any action contrary to the Trust's Agreement and
Declaration of Trust, By-Laws, or any applicable statute or regulation, or to
relieve or deprive the Board of Trustees of the Trust of its responsibility for
and control of the conduct of the affairs of the Trust and Funds.
11. Manager's Liabilities.
(a) In the absence of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the obligations or duties hereunder
on the part of the Manager, the Manager shall not be subject to liability to the
Trust or the Funds or to any shareholder of the Funds for any act or omission in
the course of, or connected with, rendering services hereunder or for any losses
that may be sustained in the purchase, holding or sale of any security by the
Funds.
(b) The Funds shall indemnify and hold harmless the
Manager and the partners, members, officers and employees of the Manager and its
general partner (any such person, an "Indemnified Party") against any loss,
liability, claim, damage or expense (including the reasonable cost of
investigating and defending any alleged loss, liability, claim, damage
FORM OF INVESTMENT
MANAGEMENT AGREEMENT
or expenses and reasonable counsel fees incurred in connection therewith)
arising out of the Indemnified Party's performance or non-performance of any
duties under this Agreement provided, however, that nothing herein shall be
deemed to protect any Indemnified Party against any liability to which such
Indemnified Party would otherwise be subject by reason of willful misfeasance,
bad faith or gross negligence in the performance of duties hereunder or by
reason of reckless disregard of obligations and duties under this Agreement.
(c) No provision of this Agreement shall be construed
to protect any Trustee or officer of the Trust, or officer of the Manager (or
its general partner), from liability in violation of Sections 17(h) and (i) of
the 1940 Act.
12. Non-Exclusivity. The Trust's employment of the
Manager is not an exclusive arrangement, and the Trust may from time to time
employ other individuals or entities to furnish it with the services provided
for herein. If this Agreement is terminated with respect to any Fund, this
Agreement shall remain in full force and effect with respect to all other Funds
listed on Appendix A hereto, as the same may be amended.
13. Term. This Agreement shall become effective at the
time the Trust's initial Registration Statement under the Securities Act of 1933
with respect to the shares of the Trust is declared effective by the Securities
and Exchange Commission and shall remain in effect for a period of two (2)
years, unless sooner terminated as hereinafter provided. This Agreement shall
continue in effect thereafter for additional periods not exceeding one (l) year
so long as such continuation is approved for each Fund at least annually by (i)
the Board of Trustees of the Trust or by the vote of a majority of the
outstanding voting securities of each Fund and (ii) the vote of a majority of
the Trustees of the Trust who are not parties to this Agreement nor interested
persons thereof, cast in person at a meeting called for the purpose of voting on
such approval.
14. Termination. This Agreement may be terminated by the
Trust on behalf of any one or more of the Funds at any time without payment of
any penalty, by the Board of Trustees of the Trust or by vote of a majority of
the outstanding voting securities of a Fund, upon sixty (60) days' written
notice to the Manager, and by the Manager upon sixty (60) days' written notice
to a Fund.
15. Termination by Assignment. This Agreement shall
terminate automatically in the event of any transfer or assignment thereof, as
defined in the 1940 Act.
16. Transfer, Assignment. This Agreement may not be
transferred, assigned, sold or in any manner hypothecated or
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MANAGEMENT AGREEMENT
pledged without the affirmative vote or written consent of the holders of a
majority of the outstanding voting securities of each Fund.
17. Severability. If any provision of this Agreement
shall be held or made invalid by a court decision, statute or rule, or shall be
otherwise rendered invalid, the remainder of this Agreement shall not be
affected thereby.
18. Definitions. The terms "majority of the outstanding
voting securities" and "interested persons" shall have the meanings as set forth
in the 1940 Act.
19. Notice of Declaration of Trust. The Manager agrees
that the Trust's obligations under this Agreement shall be limited to the Funds
and to their assets, and that the Manager shall not seek satisfaction of any
such obligation from the shareholders of the Funds nor from any trustee,
officer, employee or agent of the Trust or the Funds.
20. Captions. The captions in this Agreement are included
for convenience of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect.
21. Governing Law. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of California without
giving effect to the conflict of laws principles thereof; provided that nothing
herein shall be construed to preempt, or to be inconsistent with, any federal
law, regulation or rule, including the 1940 Act and the Investment Advisors Act
of 1940 and any rules and regulations promulgated thereunder.
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FORM OF INVESTMENT
MANAGEMENT AGREEMENT
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and attested by their duly authorized officers,
all on the day and year first above written.
METROPOLITAN WEST FUNDS METROPOLITAN WEST ASSET
MANAGEMENT, LLC
By: _______________________ By: __________________________
Title:_____________________ Title: _______________________
FORM OF INVESTMENT
MANAGEMENT AGREEMENT
Appendix A to
Investment Management
Agreement
FEE SCHEDULE
Name of Fund Applicable Fee
------------ --------------
Metropolitan West Total Return Bond Fund 0.55%
Metropolitan West Low Duration Bond Fund 0.48%
Metropolitan West Short Term Investment Fund 0.40%
This Fee Schedule is effective as of this __th day of __________, 1997.
METROPOLITAN WEST FUNDS METROPOLITAN WEST ASSET
MANAGEMENT, LLC
By:________________________ By:___________________________
Title:_____________________ Title: _______________________