THE COVENTRY GROUP
on behalf of
KENSINGTON STRATEGIC INCOME FUND
INVESTMENT ADVISORY AGREEMENT
AGREEMENT, effective commencing on , 1999, between Kensington Investment
Group, Inc. (the "Adviser") and The Coventry Group. (the "Group") on behalf of
Kensington Strategic Income Fund (the "Fund").
WHEREAS, the Group is a Massachusetts business trust of the series type
organized under a Declaration of Trust dated January 8, 1992, (the
"Declaration") and is registered under the Investment Company Act of 1940, as
amended (the "1940 Act"), as an open-end, diversified management investment
company, and the Fund is a series of the Group;
WHEREAS, the Group wishes to retain the Adviser to render investment
advisory services to the Fund, and the Adviser is willing to furnish such
services to the Fund;
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 Group and the Adviser as follows:
1. Appointment. The Group hereby appoints the Adviser to act as investment
adviser to the Fund 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. Subject to the supervision of the Trustees
of the Group, the Adviser will (a) provide a program of continuous investment
management for the Fund in accordance with the Fund's investment objectives,
policies and limitations as stated in the Fund's prospectus and Statement of
Additional Information included as part of the Group's Registration Statement
filed with the Securities and Exchange Commission, as they may be amended from
time to time, copies of which shall be provided to the Adviser by the Group; (b)
make investment decisions for the Fund; and (c) place orders to purchase and
sell securities for the Fund.
In performing its investment management services to the Fund
hereunder, the Adviser will provide the Fund with ongoing investment guidance
and policy direction, including oral and written research, analysis, advice,
statistical and economic data and judgments regarding individual investments,
general economic conditions and trends and long-range investment policy. The
Adviser will determine the securities, instruments, repurchase agreements,
options and other investments and techniques that the Fund will purchase, sell,
enter into or use, and will provide an ongoing evaluation of the Fund's
portfolio. The Adviser will determine what portion of the Fund's portfolio shall
be invested in securities and other assets, and what portion if any, should be
held uninvested.
The Adviser further agrees that, in performing its duties hereunder, it
will:
(a) 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;
(b) use reasonable efforts to manage the 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;
(c) place orders pursuant to its investment determinations 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;
(d) furnish to the Group whatever statistical information the Group may
reasonably request with respect to the Fund's assets or contemplated
investments. In addition, the Adviser will keep the Group and the Trustees
informed of developments materially affecting the Fund's portfolio and shall, on
the Adviser's own initiative, furnish to the Group from time to time whatever
information the Adviser believes appropriate for this purpose;
(e) make available to the Group's administrator (the "Administrator"), and
the Group, promptly upon their request, such copies of its investment records
and ledgers with respect to the Fund as may be required to assist the
Administrator and the Group in their compliance with applicable laws and
regulations. The Adviser will furnish the Trustees with such periodic and
special reports regarding the Fund as they may reasonably request;
(f) immediately notify the Group 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 Securities and Exchange
Commission ("SEC") or other regulatory authority. The Adviser further agrees to
notify the Group immediately of any material fact known to the Adviser
respecting or relating to the Adviser that is not contained in the Group's
Registration Statement regarding the Fund, 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;
(g) in making investment decisions for the Fund, 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. Allocation of Charges and Expenses. Except as otherwise specifically
provided in this section 3, the Adviser shall pay the compensation and expenses
of all its Trustees, officers and employees who serve as officers and executive
employees of the Group (including the Group's share of payroll taxes), and the
Adviser shall make available, without expense to the Fund, the service of its
Trustees, officers and employees who may be duly elected officers of the Group,
subject to their individual consent to serve and to any limitations imposed by
law.
The Adviser shall not be required to pay any expenses of the Fund
other than those specifically allocated to the Adviser in this section 3. In
particular, but without limiting the generality of the foregoing, the Adviser
shall not be responsible, except to the extent of the reasonable compensation of
such of the Group's employees as are officers or employees of the Adviser whose
services may be involved, for the following expenses of the Fund: organization
and certain offering expenses of the Fund (including out-of-pocket expenses, but
not including the Adviser's overhead and employee costs); fees payable to the
Adviser and to any other Fund advisers or consultants; legal expenses; auditing
and accounting expenses; interest expenses; telephone, telex, facsimile, postage
and other communications expenses; taxes and governmental fees; fees, dues and
expenses incurred by or with respect to the Fund in connection with membership
in investment company trade organizations; cost of insurance relating to
fidelity coverage for the Group's officers and employees; fees and expenses of
the Fund's Administrator or of any custodian, subcustodian, transfer agent,
registrar, or dividend disbursing agent of the Fund; payments to the
Administrator for maintaining the Fund's financial books and records and
calculating its daily net asset value; other payments for portfolio pricing or
valuation services to pricing agents, accountants, bankers and other
specialists, if any; expenses of preparing share certificates; other expenses in
connection with the issuance, offering, distribution or sale of securities
issued by the Fund; expenses relating to investor and public relations; expenses
of registering shares of the Fund for sale and fees related to notification and
other filings required by states in which Fund shares are sold; freight,
insurance and other charges in connection with the shipment of the Fund's
portfolio securities; brokerage commissions or other costs of acquiring or
disposing of any portfolio securities or other assets of the Fund, or of
entering into other transactions or engaging in any investment practices with
respect to the Fund; expenses of printing and distributing prospectuses,
Statements of Additional Information, reports, notices and dividends to
stockholders; costs of stationery or other office supplies; any litigation
expenses; costs of stockholders' and other meetings; the compensation and all
expenses (specifically including travel expenses relating to the Fund's
business) of officers, Trustees and employees of the Group who are not
interested persons of the Adviser; and travel expenses (or an appropriate
portion thereof) of officers or Trustees of the Group who are officers, Trustees
or employees of the Adviser to the extent that such expenses relate to
attendance at meetings of the Board of Trustees of the Group with respect to
matters concerning the Fund, or any committees thereof or advisers thereto.
4. Compensation.
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(a) As compensation for the services provided and expenses assumed by the
Adviser under this Agreement, the Group will arrange for the Fund to pay the
Adviser, for the period ending eleven full months after the effective date of
this Agreement a fee, calculated daily and paid at the end of each calendar
month, at a rate equal on an annual basis to 1.50% of the Fund's average daily
net assets. Commencing with the end of the twelfth full month after the
effective date of this Agreement, the Fund will pay the Adviser a Total Fee that
is calculated daily and paid at the end of each calendar month , such Total Fee
to be composed of (1) a Base Fee and (2) a Performance Adjustment that will add
to or subtract from the Base Fee depending on the performance of Class A shares
of the Fund relative to the National Association of Real Estate Investment Trust
("NAREIT") Composite Index ("Index") for the preceding twelve month period. A
Performance Adjustment will be made at the end of the each calendar month
thereafter, based on the performance of Class A shares relative to the Index for
the preceding twelve months, to determine the Total Fee payable for that month.
The Base Fee will be at an annual rate equal to 1.50% of the Fund's average
daily net assets for the previous twelve month period. The Performance
Adjustment will be a positive or negative amount equal to 15% (rounded to the
third decimal place) of the difference between the performance of Class A shares
of the Fund and the performance of the Index for the previous twelve month
period. The Total Fee rate, composed of the Base Fee and the Performance
Adjustment, will be at an annual rate not less than 0.50% or greater than 2.50%
of the Fund's average daily net assets.
(b) The investment performance of the Fund's Class A shares and the
investment record of the Index will be calculated in accordance with applicable
law and regulation, including Rule 205-1 under the 1940 Act. The investment
performance of the Fund's Class A shares will be measured by comparing (i) the
opening net asset value of one Class A share of the Fund on the first business
day of the applicable twelve month period with (ii) the closing net asset value
of one Class A share of the Fund as of the last business day of such period. The
investment record of the Index will determined by comparing the level of the
Index on the first day of the applicable twelve month period with its level on
the last business day of such period.
(c) The "average daily net assets" of the 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 the Fund and of its
Classes shall always be determined pursuant to the applicable provisions of the
Declaration and the Registration Statement. If, pursuant to such provisions, the
determination of net asset value of the Fund or a Class is suspended for any
particular business day, then for the purposes of this section 4, the value of
the net assets of the Fund or Class, as applicable, 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 or
such Class may lawfully be determined, on that day. If the determination of the
net asset value of the shares of the Fund or a Class has been so suspended for a
period including any month end when the Adviser's compensation is payable
pursuant to this section, 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 or Class, as applicable, as last determined (whether during or prior to
such month). If the Fund or Class determines the value of its net assets 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 4.
(d) The computation of the Performance Adjustment will not be cumulative.
A positive fee rate will apply even though the performance of a Class A share
has been behind that of the Index, and conversely, a negative fee rate will
apply for a month even though the performance of a Class A share over some
period of time shorter than the preceding twelve months has been ahead of that
of the Index.
5. Books and Records. The Adviser agrees to maintain such books and
records with respect to its services to the Fund 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 Group and will be surrendered promptly to the Group upon
its request. And 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 Fund are being conducted in accordance
with applicable laws and regulations.
6. 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 the 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 Group, 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 6, the term "Adviser" shall
include any officers, Trustees, employees or other affiliates of the Adviser
performing services with respect to the Fund.
7. 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 Group (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 Fund 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 the 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 the Fund, neither the Adviser
nor any of its Trustees, 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 the Fund, the Adviser shall act solely as investment
counsel for such clients and not in any way on behalf of the Group or the Fund.
8. Duration and Termination. This Agreement shall continue until , 2001,
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
Fund's 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 at a meeting
called for the purpose of voting on such approval. Notwithstanding the
foregoing, this Agreement may be terminated: (a) at any time without penalty by
the Fund upon the vote of a majority of the Trustees or by vote of the majority
of the Fund's 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 Group. This Agreement will also terminate
automatically in the event of its assignment (as defined in the 1940 Act).
9. Amendments. Except to the extent permitted by applicable law,
regulation or regulatory policy, no provision of this Agreement may be changed,
waived, discharged or terminated orally, but only by an instrument in writing
signed by the party against which enforcement of the change, waiver, discharge
or termination is sought, and, except to the extent permitted by applicable law,
regulation or regulatory policy, no amendment of this Agreement shall be
effective until approved by an affirmative vote of (i) a majority of the
outstanding voting securities of the Fund, and (ii) a majority of the Trustees,
including a majority of Trustees who are not interested persons of any party to
this Agreement, cast in person at a meeting called for the purpose of voting on
such approval, if such approval is required by applicable law.
10. Proxies. Unless the Group 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 the Fund may be invested. 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.
11. Name Reservation. The Group acknowledges and agrees that the Adviser
has property rights relating to the use of the term "Kensington" and has
permitted the use of such term by the Group and the Fund. The Group agrees that:
(i) it will use the term "Kensington" only as a component of the name of the
Fund and any other series for which the Adviser serves as investment adviser,
and for no other purposes; (ii) it will not purport to grant to any third party
any rights in such name; (iii) at the request of the Adviser, the Group will
take such action as may be required to provide its consent to use of the term by
the Adviser, or any affiliate of the Adviser to whom the Adviser shall have
granted the right to such use; and (iv) the Adviser may use or grant to others
the right to use the term, or any abbreviation thereof, as all or a portion of a
corporate or business name or for any commercial purpose, including a grant of
such right to any other investment company. Upon termination of this Agreement,
the Group shall, upon request of the Adviser, cease to use the term "Kensington"
as part of the name of the Fund or any series of the Group or in any way not
consented to by the Adviser. In the event of any request by the Adviser that use
of the term "Kensington" shall cease, the Group shall cause its officers,
Trustees and stockholders to take any and all such actions which the Adviser may
request to effect such request and to reconvey to the Adviser any and all rights
to the term "Kensington."
12. Shareholder List. The Group grants to Adviser the unconditional right
to receive, at any time and at no cost to the Adviser, the list of the
registration information pertaining to the shareholders of the Fund
("Shareholder List"). The Shareholder List shall be provided in a printed as
well as an electronic format and shall include the name, last known address and
number of shares held for each shareholder as of the date produced. In addition,
the list shall include, where applicable, identification of beneficial ownership
of shares held of record by depositories, custodians, brokers, or other
institutional holders.
13. Miscellaneous.
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(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 Group or the Fund.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of , 1999.
THE COVENTRY GROUP
on behalf of Kensington Strategic Income Fund
By:__________________________________
President
KENSINGTON INVESTMENT GROUP, INC.
By:__________________________________
President
