Exhibit (d)(1)
THE KENSINGTON FUNDS
ON BEHALF OF
KENSINGTON STRATEGIC REALTY FUND
INVESTMENT ADVISORY AGREEMENT
as restated December 9, 2005, effective commencing on April 1, 2003,
between Kensington Investment Group, Inc. (the "Adviser") and The Kensington
Funds (the "Trust") on behalf of Kensington Strategic Realty Fund (the "Fund").
WHEREAS, the Trust is a Delaware statutory trust of the series type
organized under a Declaration of Trust dated January 10, 2003 (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 Trust that offers one or more classes
of its shares (each, a "Class"); and
WHEREAS, the Trust 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; and
WHEREAS, the Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended ("Advisers Act");
NOW THEREFORE, in consideration of the promises and mutual covenants herein
contained, it is agreed between the Trust and the Adviser as follows:
1. APPOINTMENT. The Trust hereby appoints the Adviser to act as investment
adviser to the 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 Trust, 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 Trust'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 Trust; (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 Trust whatever statistical information the Trust may
reasonably request with respect to the Fund's assets or contemplated
investments. In addition, the Adviser will keep the Trust and the Trustees
informed of developments materially affecting the Fund's portfolio and
shall, on the Adviser's own initiative, furnish to the Trust from time to
time whatever information the Adviser believes appropriate for this
purpose;
(e) make available to the Trust's administrator (the "Administrator"), and the
Trust, promptly upon their request, such copies of its investment records
and ledgers with respect to the Fund as may be required to assist the
Administrator and the Trust in their compliance with applicable laws and
regulations. The Adviser will furnish the Trustees with such periodic and
special reports regarding the Fund as they may reasonably request;
(f) immediately notify the Trust in the event that the Adviser or any of its
affiliates: (1) becomes aware that it is subject to a statutory
disqualification that prevents the Adviser from serving as investment
adviser pursuant to this Agreement; or (2) becomes aware that it is the
subject of an administrative proceeding or enforcement action by the
Securities and Exchange Commission ("SEC") or other regulatory authority.
The Adviser further agrees to notify the Trust immediately of any material
fact known to the Adviser respecting or relating to the Adviser that is not
contained in the Trust's Registration Statement regarding the 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;
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(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 directors, officers and employees who serve as officers and executive
employees of the Trust (including the Trust's share of payroll taxes), and the
Adviser shall make available, without expense to the Fund, the service of its
directors, officers and employees who may be duly elected officers of the Trust,
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 Trust'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 Trust'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 Trust who are not
interested persons of the Adviser; and travel expenses (or an appropriate
portion thereof) of officers or Trustees of the Trust who are officers,
directors or employees of the Adviser to the extent that such expenses relate to
attendance at meetings of the Board of Trustees of the Trust with respect to
matters concerning the Fund, or any committees thereof or advisers thereto.
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4. COMPENSATION.
(a) Total and Base Fees. As compensation for the services provided and
expenses assumed by the Adviser under this Agreement, the Trust will arrange for
the Fund to pay the Adviser a fee (the "Total Fee") composed of: (1) a base fee,
accrued daily and paid monthly equal to a monthly rate based on an annual
percentage rate of 1.50% of the Fund's daily net assets, averaged over the most
recent month (the "Base Fee"); and (2) a performance adjustment to the Base Fee,
as further discussed below (the "Performance Adjustment").
(b) Performance Adjustment. Each month, before it is paid, the Base
Fee is adjusted proportionately upward or downward based upon the investment
performance of the Fund (the "Investment Performance") for the preceding twelve
month performance period ending on the last day of the month for which a monthly
payment of the Total Fee is calculated (the "Performance Period") relative to
the investment record of the National Association of Real Estate Investment
Trust Composite Index (the "Index"), over the Performance Period (the
"Investment Record").
(For purposes of this section 4, the Performance Period shall be deemed to
include the Investment Performance of the Fund's predecessor investment series
during the twelve months immediately prior to the original date of this
Agreement.)
(c) Calculation of Total Fee. Each month, if the Investment
Performance matches the Investment Record over the Performance Period, the Fund
will pay only the Base Fee to the Adviser.
Each average month,(1) if the Investment Performance exceeds the Investment
Record over the Performance Period, the Performance Adjustment will amount to
1/12th of 15% of the difference between the Investment Performance and the
Investment Record over such period (rounded to the third decimal place) applied
to the Fund's daily net assets averaged over the Performance Period. The
Performance Adjustment reaches a maximum positive average monthly adjustment of
1/12th of 1.00% of the Fund's daily net assets averaged over the Performance
Period if the Fund outperforms the Investment Record by 6.667 percentage points
or more over the Performance Period. The Fund will then pay the Base Fee plus
the positive Performance Adjustment to the Fund.
Each average month, if the Investment Performance trails the Investment
Record over the Performance Period, the negative Performance Adjustment will
amount to 1/12th of 15% of the difference between the Investment Performance and
the Investment Record over such period
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(1) As the Base Fee and the Performance Adjustment are accrued daily (and not
monthly), actual rates vary monthly based upon the number of days in a
particular month, but, on a monthly basis, are equal, on average, to 1/12th
of an annual rate.
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(rounded to the third decimal place) applied to the Fund's daily net assets
averaged over the Performance Period. The Performance Adjustment reaches a
maximum negative average monthly adjustment of 1/12th of 1.00% of the Fund's
daily net assets averaged over the Performance Period if the Fund underperforms
the Investment Record by 6.667 percentage points or more over the Performance
Period. The Fund will then pay the Base Fee minus the negative Performance
Adjustment to the Fund.
The following table illustrates the method used to calculate the
Performance Adjustment and the corresponding Total Fee, expressed as a
percentage of the Fund's annual average daily net assets at different levels of
Investment Performance against the Investment Record, assuming that the average
daily net assets of the Fund remain constant over the Performance Period. By
virtue of using a "rolling" performance period and calculating the Base Fee and
the Performance Adjustments on different asset bases, the Total Fee paid by the
Fund generally will differ from the annualized rates shown below. The actual
Total Fee paid by the Fund may be higher or lower depending on whether the net
assets of the Fund increase or decrease over the Performance Period.
ADJUSTMENT TO BASE
PERCENTAGE POINT DIFFERENCE BETWEEN FEE
INVESTMENT PERFORMANCE AND (ON AN ANNUALIZED TOTAL FEE
INVESTMENT RECORD* BASIS) (ANNUALIZED)
----------------------------------- ------------------ ----------------------
+6.667 and up +1.00% 2.50%
+6 +.90% 2.40%
+5 +.75% 2.25%
+4 +.60% 2.10%
+3 +.45% 1.95%
+2 +.30% 1.80%
+1 +.15% 1.65%
0 0 1.50% (i.e., Base Fee)
-1 -.15% 1.35%
-2 -.30% 1.20%
-3 -.45% 1.05%
-4 -.60% .90%
-5 -.75% .75%
-6 -.90% .60%
-6.667 and down -1.00% 0.50%
*. Measured over the Performance Period.
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The Base Fee, as adjusted, is prorated in any month for which this
Agreement is not in effect for the entire month. It is accrued daily and paid
monthly.
(d) Investment Performance. The Investment Performance shall be
calculated upon Class A shares (the "Measuring Class") in accordance with Rule
205-1(a) under the Advisers Act (i.e., the Investment Performance is equal to
the sum of: (i) the change in net asset value per Measuring Class share during
the Performance Period; (ii) the value of all cash distributions per Measuring
Class share accumulated to the end of such Performance Period; and (iii) the
value of capital gains taxes per Measuring Class share paid or payable on
undistributed realized long-term capital gains accumulated to the end of the
Performance Period, expressed as a percentage of net asset value per Measuring
Class share at the beginning of the Performance Period - for this purpose, the
value of distributions per share of realized capital gains, of dividends per
share paid from investment income and of capital gains taxes per share paid or
payable on undistributed realized long-term capital gains are treated as
reinvested in Measuring Class shares at the net asset value per share in effect
at the close of business on the record date for the payment of such
distributions and dividends and the date on which provision is made for such
taxes, after giving effect to such distributions, dividends and taxes).
(e) Investment Record. The Investment Record shall be calculated in
accordance with Rule 205-1(b) under the Advisers Act (i.e., the Investment
Record shall be equal to the sum of: (i) the change in the level of the Index
during the Performance Period; and (ii) the value, computed consistently with
the Index, of cash distributions made by companies whose securities comprise the
Index accumulated to the end of the Performance Period; expressed as a
percentage of the Index level at the beginning of the Performance Period).
(f) 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
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determination thereof on that day shall be deemed to be the sole determination
thereof on that day for the purposes of this section 4.
(g) Since the Performance Adjustment to the Base Fee is based on the
comparative performance of the Fund against the Index, the controlling factor is
not whether the Investment Performance of the Fund is up or down, but whether it
exceeds or lags the Investment Record of the Index. Accordingly, it is possible
that the Fund could pay the maximum investment advisory fee even though the Fund
had overall negative Investment Performance during the Performance Period if the
Fund's performance significantly exceeds the record of the Index. In addition,
the performance of the Fund in relation to the record of the Index is measured
only for the relevant Performance Period, and does not take into account
performance over longer or shorter periods of time.
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 31a-2
under the 1940 Act and otherwise in connection with its services hereunder are
the property of the Trust and will be surrendered promptly to the Trust upon its
request. 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 Trust, the Fund or to holders of the Fund's
shares to which the Adviser would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence on its part in the performance of its
duties or by reason of the Adviser's reckless disregard of its obligations and
duties under this Agreement. As used in this Section 6, the term "Adviser" shall
include any officers, directors, 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 Trust (whether or not their
investment objectives and policies are similar to those of the Fund) or from
engaging in other activities, provided such other services and activities do
not, during the term of this Agreement, interfere in a material manner with the
Adviser's ability to meet its
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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 directors, officers or employees
shall act as a principal or agent or receive any commission. If the Adviser
provides any advice to its clients concerning the shares of the Fund, the
Adviser shall act solely as investment counsel for such clients and not in any
way on behalf of the Trust or the Fund.
8. DURATION AND TERMINATION. This Agreement shall continue until April 1,
2004, 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 Trust. 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 Trust gives written instructions to the contrary,
the Adviser shall vote all proxies solicited by or with respect to the issuers
of securities in which assets of 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 Trust 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 Trust and the Fund. The Trust 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
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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 Trust 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 Trust 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 Trust 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 Trust 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 Trust grants to the 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.
a. This Agreement shall be governed by the laws of the State of California,
provided that nothing herein shall be construed in a manner inconsistent with
the 1940 Act, the Advisers Act, or rules or orders of the SEC thereunder.
b. The captions of this Agreement are included for convenience only and in
no way define or limit any of the provisions hereof or otherwise affect their
construction or effect.
c. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected hereby and, to this extent, the provisions of this
Agreement shall be deemed to be severable.
d. Nothing herein shall be construed as constituting the Adviser as an
agent of the Trust or the Fund.
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IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the date first above written.
THE KENSINGTON FUNDS
ON BEHALF OF KENSINGTON STRATEGIC REALTY
FUND
By:
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Name:
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Title:
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KENSINGTON INVESTMENT GROUP, INC.
By:
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Name:
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Title:
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