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<PAGE> PAGE 2
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<PAGE> PAGE 3
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<PAGE> PAGE 4
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<PAGE> PAGE 5
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<PAGE> PAGE 6
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<PAGE> PAGE 7
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<PAGE> PAGE 8
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<PAGE> PAGE 9
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<PAGE> PAGE 10
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<PAGE> PAGE 11
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<PAGE> PAGE 12
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<PAGE> PAGE 13
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<PAGE> PAGE 14
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<PAGE> PAGE 15
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<PAGE> PAGE 16
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<PAGE> PAGE 17
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<PAGE> PAGE 18
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<PAGE> PAGE 19
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<PAGE> PAGE 20
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<PAGE> PAGE 21
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<PAGE> PAGE 22
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<PAGE> PAGE 23
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076 000400 0.00
015 A000501 FIRSTAR TRUST COMPANY
015 B000501 C
015 C010501 MILWAUKEE
015 C020501 WI
015 C030501 53202
015 C040501 5207
015 E010501 X
024 000500 N
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<PAGE> PAGE 24
028 G040500 8
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050 000500 N
051 000500 N
052 000500 N
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054 E000500 Y
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<PAGE> PAGE 25
057 000500 N
058 A000500 N
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070 E020500 N
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070 G020500 N
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<PAGE> PAGE 26
070 I010500 N
070 I020500 N
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070 J020500 N
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<PAGE> PAGE 27
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015 A000601 FIRSTAR TRUST COMPANY
015 B000601 C
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<PAGE> PAGE 28
025 A000601 SALOMON, INC.
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025 A000602 LEHMAN BROTHERS, INC.
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025 A000603 BEAR STEARNS & CO.
025 C000603 D
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025 A000604 CITICORP MORTGAGE SECURITIES, INC.
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<PAGE> PAGE 29
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<PAGE> PAGE 30
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070 H020600 N
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070 I020600 N
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<PAGE> PAGE 31
070 L010600 N
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<PAGE> PAGE 32
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015 A000701 FIRSTAR TRUST COMPANY
015 B000701 C
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<PAGE> PAGE 33
025 A000703 DONALDSON, LUFKIN & JENRETTE
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<PAGE> PAGE 34
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<PAGE> PAGE 35
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<PAGE> PAGE 36
070 Q010700 N
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<PAGE> PAGE 37
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015 A000801 FIRSTAR TRUST COMPANY
015 B000801 C
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<PAGE> PAGE 38
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<PAGE> PAGE 39
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<PAGE> PAGE 40
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<PAGE> PAGE 41
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<PAGE> PAGE 42
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SIGNATURE GRACIE FERMELIA
TITLE SECRETARY
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000759829
<NAME> HOTCHKIS AND WILEY FUNDS
<SERIES>
<NUMBER> 1
<NAME> BALANCED INCOME FUND
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<S> <C>
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<TABLE> <S> <C>
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<NAME> HOTHCKIS AND WILEY FUNDS
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<NAME> HOTCHKIS AND WILEY FUNDS
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<NAME> HOTCHKIS AND WILEY FUNDS
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<TABLE> <S> <C>
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<CIK> 0000759829
<NAME> HOTCHKIS AND WILEY FUNDS
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<TABLE> <S> <C>
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<NAME> HOTCHKIS AND WILEY FUNDS
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<NUMBER> 7
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<CIK> 0000759829
<NAME> HOTCHKIS AND WILEY FUNDS
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<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 743
<OTHER-INCOME> 0
<EXPENSES-NET> 70
<NET-INVESTMENT-INCOME> 673
<REALIZED-GAINS-CURRENT> 459
<APPREC-INCREASE-CURRENT> 555
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<DISTRIBUTIONS-OF-GAINS> 240
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<SHARES-REINVESTED> 58
<NET-CHANGE-IN-ASSETS> 17,541
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<GROSS-EXPENSE> 121
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<PER-SHARE-NAV-BEGIN> 12.94
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</TABLE>
Supplemental Proxy Information
A special meeting of shareholders of the Hotchkis and Wiley
Funds was held on October 13, 1995. The following matters were
voted on at the meeting.
1). The shareholders of the Trust elected the following
nominees to the Board of Trustees: Robert L. Burch III, Nancy
D. Celick, John F. Hotchkis, Robert B. Hutchinson, Merle T.
Welshans and George Wiley.
Nominees For Against Abstain
Robert L. Burch, III 23,968,927.87 15,772.50 170,804.31
Nancy D. Celick 23,970,808.06 14,880.13 169,815.50
John F. Hotchkis 23,967,734.62 17,273.96 170,495.09
Robert B. Hutchinson 23,966,602.04 18,406.54 170,495.09
Merle T. Welshans 23,964,827.20 19,872.16 170,804.31
George Wiley 23,969,119.12 16,569.05 169,815.50
2). The shareholders of the Total Return Bond Fund approved an
amendment to the Investment Advisory Agreement with Hotchkis and
Wiley.
For Against Abstain
978,421.68 (98.82%) 2,292.00 (0.23%) 9,397.00 (0.95%)
3). The shareholders of the Low Duration Fund approved an
amendment to the Investment Advisory Agreement with Hotchkis and
Wiley.
For Against Abstain
7,569,626.67 880,285.47 1,013,589.07
4). The shareholders of the Trust ratified the selection by the
Trustees of Price Waterhouse LLP, independent accountants, to
examine and audit the Trust's financial statements.
For Against Abstain
23,746,858.18 (98.31%) 70,170.39 (0.29%) 338,475.13 (1.40%)
5). The shareholders of the Hotchkis and Wiley Funds, on behalf
of each Fund, approved the change of investment restrictions as
outlined below from fundamental (changeable by shareholder vote)
to non-fundamental (changeable by Board of Trustees).
a. Investment in securities of companies less than three years
old
Hotchkis and Wiley Fund For Against Abstain
Equity Income Fund 4,359,102.85 1,160,251.06 116,463.13
Small Cap Fund 707,208.76 15,797.90 19,733.77
International Fund 2,402,232.59 33,635.90 61,779.15
Balanced Income Fund 1,158,402.21 253,386.34 63,849.30
Total Return Bond Fund 973,246.42 9,393.00 7,470.27
Low Duration Fund 8,255,253.93 875,615.86 332,630.43
Short-Term Investment 1,723,931.12 58,211.40 60,160.97
Fund
b. Investment in securities of other issuers if Officers,
Trustees or Partners of Hotchkis and Wiley own shares
Equity Income Series 4,267,944.89 1,252,791.94 115,080.27
Small Cap Series 702,364.88 22,706.20 17,668.36
International Series 2,262,667.25 179,480.54 55,499.84
Balanced Income Series 1,152,562.90 256,104.02 66,970.92
Total Return Bond Series 976,163.42 6,476.00 7,470.27
Low Duration 7,497,166.52 1,743,823.60 222,509.10
Short-Term Investment 1,724,988.12 56,207.40 61,108.97
Series
c. Investment in oil, gas or other mineral lease or exploration
or development programs
Equity Income Series 4,172,788.92 1,350,523.35 112,503.78
Small Cap Series 631,343.39 104,993.18 6,402.86
International Series 2,346,894.68 132,969.60 17,785.35
Balanced Income Series 1,104,607.56 310,131.35 60,898.94
Total Return Bond Series 971,723.42 11,197.00 7,190.27
Low Duration Series 7,163,665.12 2,027,948.83 271,886.27
Short-Term Investment 1,723,834.40 60,582.20 57,886.89
Series
d. Purchase warrants in excess of 5% of total assets
Equity Income Series 4,199,765.18 1,320,427.47 115,624.39
Small Cap Series 709,088.74 23,311.43 10,340.27
International Series 2,244,046.78 55,402.34 198,198.51
Balanced Income Series 1,154,440.90 263,294.59 57,902.35
Total Return Bond Series 971,306.42 6,612.00 12,193.27
Low Duration Series 7,247,209.79 1,952,450.25 263,841.18
Short-Term Investment 1,719,864.12 64,906.12 57,533.24
Series
6). The shareholders of the Hotchkis and Wiley Funds, on behalf
of each Fund approved an amendment of the Funds' restrictions on
investing in securities of a single issuer and securities of
issuers in a single industry.
a. Investment in securities of a single issuer
Fund For Against Abstain
Equity Income Fund 4,554,905.44 967,662.50 113,249.10
Small Cap Fund 717,323.71 8,921.57 16,494.15
International Fund 2,390,887.94 41,630.17 65,130.53
Balanced Income Fund 1,369,068.58 46,433.91 60,135.35
Total Return Bond Fund 975,486.42 2,150.00 12,473.27
Low Duration Fund 7,501,417.23 1,724,408.47 237,674.52
Short-Term Investment 1,747,387.69 35,082.55 59,833.24
Fund
b. Investment in securities of issuers in a single industry
Equity Income Fund 4,604,146.31 918,006.96 113,663.78
Small Cap Fund 721,141.82 5,703.06 15,894.56
International Fund 2,398,516.58 39,494.74 59,637.32
Balanced Income Fund 1,379,308.73 38,402.31 57,925.81
Total Return Bond Fund 976,928.42 989.00 12,193.27
Low Duration Fund 8,222,597.55 1,008,622.66 232,280.01
Short-Term Investment 1,754,900.69 29,869.55 57,533.24
Fund
7). The shareholders of the Hotchkis and Wiley Funds, on behalf
of each Fund, approved an amendment of restrictions on investing
in voting securities of a single issuer
Equity Income Fund 4,361,962.87 844,517.17 429,337.01
Small Cap Fund 707,518.44 7,870.06 27,349.94
International Fund 2,378,502.39 45,587.19 73,559.05
Balanced Income Fund 1,367,438.58 40,688.66 67,511.60
Total Return Bond Fund 972,833.42 3,281.00 13,996.27
Low Duration Fund 7,472,603.89 1,616,856.24 374,040.09
Short-Term Investment 1,731,710.05 30,230.55 80,362.88
Fund
8). The shareholders of the Hotchkis and Wiley Funds, on behalf
of each Fund, approved an amendment of the Funds' restrictions
on investing in restricted securities
Hotchkis and Wiley Fund For Against Abstain
Equity Income Fund 4,287,587.84 1,233,719.16 114,509.04
Small Cap Fund 716,668.38 14,122.51 11,948.54
International Fund 2,381,194.03 49,911.79 66,542.82
Balanced Income Fund 1,151,579.66 262,790.56 61,267.62
Total Return Bond Fund 975,735.42 7,185.00 7,190.27
Low Duration Fund 7,444,427.73 1,792,465.31 226,607.19
Short-Term Investment Fund 1,725,156.05 37,112.28 80,035.15
9). The shareholders of the Hotchkis and Wiley Funds, on behalf
of each Fund, approved an amendment of the Funds' restrictions
on investing in other investment companies
Equity Income Fund 4,217,881.71 1,306,400.56 111,534.78
Small Cap Fund 725,481.88 6,550.57 10,707.98
International Fund 2,400,862.26 35,738.63 61,047.75
Balanced Income Fund 1,189,523.36 227,286.13 58,828.35
Total Return Bond Fund 974,636.42 3,281.00 12,193.27
Low Duration Fund 7,568,228.39 1,664,367.64 230,904.19
Short-Term Investment 1,775,582.52 11,865.08 54,856.89
Fund
HOTCHKIS AND WILEY FUNDS
AMENDED AND RESTATED
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this 7th day of May, 1993, and amended and
restated as of October 31, 1995, by and between HOTCHKIS AND
WILEY FUNDS (the "Trust"), a Massachusetts business trust, and
HOTCHKIS AND WILEY (the "Advisor").
WITNESSETH:
Whereas, two series of the Trust having separate assets and
liabilities have been created entitled the "Low Duration Series"
(hereafter the "Low Duration Fund") and the "Short-Term
Investment Series" (hereafter the "Short-Term Investment Fund"),
collectively referred to herein as the "Fixed-Income Funds"; and
Whereas, it is desirable to have a new investment advisory
agreement (i.e., this Agreement) relating to the Fixed-Income
Funds that supersedes the former agreement and contains the new
fee schedule applicable to the Low Duration Fund, as approved by
its shareholders at a meeting duly called and held on October
13, 1995.
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 adviser to the Trust with respect to
the investment of the assets of the Fixed-Income Funds and to
supervise and arrange the purchase and sale of securities held
in the portfolios of the Fixed-Income Funds.
2. Duties and Obligations of the Advisor with respect to
Investment of Assets of the Fixed-Income Funds
(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 shall be purchased or sold by the
Trust with respect to the Fixed-Income Funds and when; and
(ii) Arrange for the purchase and the sale of securities held
in the portfolio of the Fixed-Income Funds by placing purchase
and sale orders for the Trust with respect to the Fixed-Income
Funds.
(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 Investment
Company Act of 1940 ("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
Fixed-Income Funds, as reflected in the Trust's registration
statement under the 1940 Act, or as amended by the shareholders
of the Fixed-Income Funds.
(c) The Advisor shall give the Trust 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
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 Advisor or any
affiliated person (as defined in the 1940 Act) 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 Fixed-Income Funds, 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
theFixed-Income Funds on a continuing basis. Accordingly, the
price to the Fixed-Income Funds 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 Fixed-Income Funds 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 Fixed-Income Funds 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. The Advisor (or an affiliate
thereof) will also pay all compensation of all Trustees,
officers and employees of the Trust who are affiliated persons
of the Advisor. All operating costs and expenses relating to
the Fixed-Income Funds not expressly assumed by the Advisor
under this Agreement shall be paid by the Trust from the assets
of either the Low Duration Fund or the Short-Term Investment
Fund, as applicable, 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) custodian,
shareholder servicing or transfer agent and accounting services
agent; (vii) expenses incident to the issuance of the
Fixed-Income Funds' 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 Fixed-Income Funds; (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 the
Fixed-Income Funds agree to bear in any distribution agreement
or in any plan adopted by the Trust and/or a 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 net assets of the Low Duration Fund
as of the close of business each business day at the annual rate
of .46 of 1% of the Fund's average daily net assets and for the
Short-Term Investment Fund at the annual rates set forth below:
Advisory Fees
(expressed as a percentage of average daily net assets)
Under $100,000,000 .40 of 1%
$100,000,000 to $249,999,999 .35 of 1%
$250,000,000 to $499,999,999 .30 of 1%
$500,000,000 or more .25 of 1%
(b) In the event the expenses of either of the Fixed-Income
Funds (including the fees of the Advisor and amortization of
organization expenses but excluding interest, taxes, brokerage
commissions, extraordinary expenses and sales charges and any
distribution fees) for any fiscal year exceed the limits set by
applicable regulations of state securities commissions, the
Advisor will reduce its fee by the amount of such excess. Any
such reductions are subject to readjustment during the year.
The payment of the management fee at the end of any month will
be reduced or postponed or, if necessary, a refund will be made
to the Trust as to each of the Fixed-Income Funds so that at no
time will there be any accrued but unpaid liability under this
expense limitation.
6. Duration and Termination
(a) This Agreement as amended and restated shall go into effect
on October 31, 1995 and shall, unless terminated as hereinafter
provided, continue in effect until October 31, 1997, 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 1940 Act) 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 Fixed-Income Funds and by such a vote of the Trustees.
(b) This Agreement may be terminated by the Advisor 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 Advisor sixty (60) days' written notice (which notice may be
waived by the Advisor), 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 amajority (as defined in the 1940 Act) 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 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.
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 above written.
HOTCHKIS AND WILEY FUNDS
By _________________________________
President
ATTEST:
_______________________________
HOTCHKIS AND WILEY
By _________________________________
ATTEST:
______________________________
HOTCHKIS AND WILEY FUNDS
AMENDED AND RESTATED
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this 6th day of December, 1994, and amended and
restated as of October 31, 1995, by and between HOTCHKIS AND
WILEY FUNDS (the "Trust"), a Massachusetts business trust, and
HOTCHKIS AND WILEY (the "Advisor").
WITNESSETH:
Whereas, one series of the Trust having separate assets and
liabilities has been created entitled the "Total Return Bond
Series" (hereafter the "Total Return Fund"); and
Whereas, it is desirable to have a new investment advisory
agreement (i.e., this Agreement) relating to the Total Return
Fund that supersedes the former agreement and contains the new
fee schedule that was approved by shareholders of the Total
Return Fund at a meeting duly called and held on October 13,
1995.
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 to the Trust with respect to
the investment of the assets of the Total Return Fund and to
supervise and arrange the purchase and sale of securities held
in the portfolio of the Total Return Fund.
2. Duties and Obligations of the Advisor with respect to
Investment of Assets of the Total Return 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 shall be purchased or sold by the
Trust with respect to the Total Return Fund and when; and
(ii) Arrange for the purchase and the sale of securities held
in the portfolio of the Total Return Fund by placing purchase
and sale orders for the Trust with respect to the Total
Return Fund.
(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 Investment
Company Act of 1940 ("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 Total Return Bond Fund, as reflected in the Trust's
Registration Statement under the 1940 Act, or as amended by
the shareholders of the Total Return Fund.
(c) The Advisor shall give the Trust 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
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 Advisor or any
affiliated person (as defined in the 1940 Act) 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 Total Return 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 Total
Return Fund on a continuing basis. Accordingly, the price to
the Total Return 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 Total Return 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 Total Return 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. The Advisor (or an affiliate
thereof) will also pay all compensation of all Trustees,
officers and employees of the Trust who are affiliated persons
of the Advisor. All operating costs and expenses relating to
the Total Return Fund not expressly assumed by the Advisor
under this Agreement shall be paid by the Trust from the assets
of the Total Return Fund, as applicable, 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 Total Return 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
Total Return 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 the Total Return Fund agree to bear in any
distribution agreement or in any plan adopted by the Trust
and/or the Total Return 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
assets of the Total Return Fund as of the close of business
each business day, at the annual rate of .55%.
(b) In the event the expenses of the Total Return Fund
(including the fees of the Advisor and amortization of
organization expenses but excluding interest, taxes, brokerage
commissions, extraordinary expenses and sales charges and any
distribution fees) for any fiscal year exceed the limits set
by applicable regulations of state securities commissions, the
Advisor will reduce its fee by the amount of such excess. Any
such reductions are subject to readjustment during the year.
The payment of the management fee at the end of any month will
be reduced or postponed or, if necessary, a refund will be
made to the Trust as to the Total Return Fund so that at no
time will there be any accrued but unpaid liability under this
expense limitation.
6. Duration and Termination
(a) effect on October 31, 1995 and shall, unless terminated as
hereinafter provided, continue in effect until October 31,
1997, 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 1940 Act) 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 Total Return Fund and by such a vote of the
Trustees.
(b) This Agreement may be terminated by the Advisor 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 Advisor sixty (60) days' written notice (which
notice may be waived by the Advisor), 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 1940 Act) 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 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.
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 above written.
HOTCHKIS AND WILEY FUNDS
By
ATTEST: President
HOTCHKIS AND WILEY
By
ATTEST: Managing Director
