Exhibit (d)(1)
INVESTMENT ADVISORY AGREEMENT
AGREEMENT, made as of this 6th day of September, 2007, between XShares
Advisors LLC (the "Advisor"), a Delaware limited liability company with a
principal place of business at 000 Xxxxxxxxx Xxxxxx, Xxx Xxxx, XX 00000, and
Realty Funds, Inc., a Maryland corporation (the "Company") with a principal
place of business at 000 Xxxxxxxxx Xxxxxx, Xxx Xxxx, XX 00000.
WHEREAS, the Advisor is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended (the "Advisers Act");
WHEREAS, the Company is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act")
and is authorized to issue shares in one or more series; and
WHEREAS, the Company desires to retain the Advisor to serve as
investment adviser to each of the Funds listed on Schedule A hereto, as such
Schedule A may be amended or supplemented from time to time by mutual agreement
(each, a "Fund" and collectively the "Funds") and the Advisor is willing to
perform these services on the terms and conditions set forth in this Agreement.
NOW THEREFORE, the parties hereto hereby agree as follows:
1. The Company and Funds
The Company is engaged in the business of investing and reinvesting its
assets in securities of the type and in accordance with the limitations
specified in its Articles of Incorporation, By-Laws and Registration Statement
filed with the Securities and Exchange Commission (the "Commission") under the
1940 Act and the Securities Act of 1933 (the "Securities Act"), including the
prospectuses forming a part thereof and statements of additional information
relating to the Funds contained therein, and as may be supplemented from time to
time, all in such manner and to such extent as may from time to time be
authorized by the Board of Directors of the Company (the "Board"). The Board is
authorized to approve the issuance by the Company of unissued shares in any
number of additional classes or series. The Company has delivered copies of the
documents listed in this Section to the Advisor and will from time to time
furnish the Advisor with any amendments thereof.
2. Appointment of the Advisor
The Company hereby appoints the Advisor, subject to the direction and
control of the Board, to manage the investment and reinvestment of the assets in
the Funds and, without limiting the generality of the foregoing, to provide the
other services specified in Section 3 hereof.
The Advisor shall be deemed to be an independent contractor and shall,
unless otherwise expressly provided for or authorized in this Agreement or
another writing by the Company and the Advisor, have no authority to act for or
represent the Company in any way or otherwise be deemed an agent of the Company.
3. Duties and Obligations of the Advisor
(a) The Advisor will manage the investment operations and composition
of each Fund and render investment advice for each Fund. The Advisor shall make
decisions with respect to all purchases and sales of securities and other
investment assets of the Funds. The services provided by the Advisor shall
include: (i) furnishing continuously an investment program for each Fund; (ii)
managing the investment and reinvestment of each Fund's assets; (iii)
determining which investments shall be purchased, held, sold or exchanged for
each Fund and what portion, if any, of the assets of each Fund shall be held
uninvested; (iv) making changes on behalf of the Company in the investments for
each Fund; (v) vote proxies for the Company, file ownership reports under
Section 13 of the Securities Exchange Act of 1934 (the "1934 Act") and take
other actions on behalf of the Funds as a shareholder of the underlying
securities contained in the Funds' portfolios and (vi) rendering reports to the
Company's officers and the Board concerning the Advisor's discharge of the
foregoing responsibilities. To carry out such duties and responsibilities, the
Advisor is hereby authorized, as agent and attorney-in-fact for the Company, for
the account of, at the risk of and in the name of the Funds, to place orders and
issue instructions for the Funds. In all purchases, sales and other transactions
in securities for the Funds, the Advisor is authorized to exercise full
discretion and act for the Funds in the same manner and with the same force and
effect as the Funds might or could do with respect to such purchases, sales or
other transactions, as well as with respect to all other things necessary or
incidental to the furtherance or conduct of such purchases, sales or other
transactions.
(b) The Advisor will report to the Board at each regular meeting
thereof all material changes in the investments in the Funds since the prior
report, and will also keep the Board informed of important developments
affecting the Company, the Funds and the Advisor, and on its own initiative will
furnish the Board from time to time with such information as the Advisor may
believe appropriate, whether concerning the individual companies whose
securities are held by the Funds, the industries in which they engage, or the
economic, social or political conditions prevailing in each country in which the
Funds maintain investments. The Advisor will also furnish the Board with such
statistical and analytical information with respect to securities in the Funds
as the Advisor may believe appropriate or as the Board reasonably may request.
The Advisor shall discharge all of its duties and responsibilities under this
Agreement subject to the supervision and control of the Board and will comply
with the policies established from time to time by the Board as well as the
limitations imposed by the Company's Articles of Incorporation, By-Laws and
Registration Statement under the 1940 Act and the Securities Act, the
limitations in the 1940 Act and in the Internal Revenue Code of 1986, as
amended, the Company's compliance manual, the investment objectives, policies
and restrictions of the Funds, and applicable laws and regulations.
(c) The Advisor will from time to time employ or associate with such
persons as the Advisor believes to be appropriate or necessary to assist in the
execution of the Advisor's duties hereunder; provided, however, that the
employment of or sub-contracting with any such person shall not relieve the
Advisor of its responsibilities or liabilities hereunder; and provided further
that the Advisor shall not have the authority to subcontract advisory
responsibilities without the consent of the Company. The cost of performance of
such duties shall be borne and paid by the Advisor.
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(d) The Advisor shall maintain, or cause to be maintained records
relating to portfolio transactions and the placing and allocation of brokerage
orders as are required to be maintained by the Funds under the 1940 Act. The
Advisor shall prepare and maintain, or cause to be prepared and maintained, in
such form, for such periods and in such locations as may be required by
applicable law, all documents and records relating to the services provided by
the Advisor pursuant to this Agreement required to be prepared and maintained by
the Funds. The books and records pertaining to the Funds that are in the
possession of the Advisor shall be the property of the Company. The Company, or
the Company's authorized representatives, shall have access to such books and
records at all times during the Advisor's normal business hours. Upon the
reasonable request of the Company, copies of any such books and records shall be
provided promptly by the Advisor to the Company or the Company's authorized
representatives.
(e) The Advisor will provide, or arrange for the provision of,
transfer agency, custody, fund administration and accounting and all other
non-distribution related services necessary for the Funds' operation, subject in
each case to the approval of the Board. The Advisor will also provide
supervisory personnel who will be responsible for supervising and monitoring the
performance of the Company's service providers in connection with their duties.
Such personnel may be employees of the Advisor or employees of affiliates of the
Advisor or of other organizations. The Advisor will also administer the
Company's business affairs, provides office facilities and equipment and certain
clerical, bookkeeping and administrative services and will permit its officers
and employees to serve without compensation as officers, directors or employees
of the Company.
4. Delegation of Responsibilities
The Advisor may carry out any of its obligations or responsibilities
under this Agreement by engaging, subject to supervision by the Advisor, one or
more Sub-Advisors who are registered as investment advisers pursuant to the
Advisers Act ("Sub-Advisor"). Each Sub-Advisor's engagement will be evidenced by
a separate written agreement approved by the Board and, if required under the
1940 Act, by the shareholders of the Funds (unless the Commission or its staff
has given authorization or issued an interpretation or no-action letter
dispensing with the requirement of shareholder approval). The Advisor shall not
be liable hereunder for any act or omission of any Sub-Advisor, except for
failure to exercise good faith in the engagement of the Sub-Advisor and for
failure to exercise appropriate supervision of such Sub-Advisor, and as may
otherwise be agreed in writing. The Advisor shall be solely responsible for
compensating any Sub-Advisor for services rendered under any sub-advisory
agreement. The Advisor may, from time to time and at any time, terminate any
Sub-Advisor and reassume the responsibilities assigned to such Sub-Advisor with
respect to the Funds or engage another Sub-Advisor without obtaining the
approval of the shareholders of the Funds unless required by the federal
securities laws.
5. Broker -Dealer Relationships
In connection with the purchase and sale of securities for the Funds,
the Advisor is responsible for broker-dealer selection and negotiation of
brokerage commission rates. The Advisor's primary consideration in effecting a
security transaction will be to obtain best price and execution. In selecting a
broker-dealer to execute each particular transaction for the Funds
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the Advisor may take in consideration various factors including, but not limited
to: the best price available; the reliability, integrity and financial condition
of the broker-dealer; and the size and the difficulty in executing the order.
Accordingly, the price to the 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 may from time to time 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 having caused the Funds to pay a
broker or dealer that provides brokerage and research services to the Advisor an
amount of commission for effecting a 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 overall responsibilities of the Advisor with
respect to the Funds and to other clients of the Advisor. The Advisor may
delegate any of its duties and responsibilities as to the selection of
broker-dealers to any Sub-Advisor appointed in accordance with the provisions of
Section 4 of this Agreement.
6. Advisory Fees/Allocation of Expenses
(a) For the services to be provided by the Advisor hereunder with
respect to each Fund, the Company shall pay to the Advisor a unitary advisory
fee at the rate set forth on Schedule A attached hereto. Schedule A shall be
amended from time to time to reflect the addition and/or termination of any Fund
as a Fund hereunder and to reflect any change in the advisory fees payable with
respect to any Fund duly approved in accordance with Section 12(b) hereunder.
All fees payable hereunder shall be accrued daily and paid as soon as practical
after the last day of each month.
In any case of commencement or termination of this Agreement with
respect to any Fund during any calendar month, the fee with respect to such Fund
for that month shall be reduced proportionately based upon the number of
calendar days during which it is in effect, and the fee shall be computed upon
the average daily net assets of such Fund for the days during which it is in
effect.
(b) The Advisor shall pay its own expenses in connection with the
services to be provided by it pursuant to this Agreement. In addition, the
Advisor shall be responsible for the compensation of officers or employees of
the Company who are also officers or employees of the Advisor, except as may
otherwise be determined by the Board. The Advisor agrees to pay all fees and
expenses of any Sub-Advisor, and shall pay, or cause a Sub-Advisor to pay, all
fees and expenses of any other Sub-Advisor, the Transfer-Agent, the
Administrator and Accounting Agent, and the Custodian engaged by the Advisor on
behalf of the Company. The Company is responsible for the payment of all other
expenses associated with its operation including, but not limited to, (i)
brokerage and other expenses (such as stamp taxes) connected with the execution
of portfolio transactions or in connection with creation and redemption
transactions, (ii) taxes, (iii) interest on borrowings, (iv) legal fees or
expenses in connection with any arbitration, litigation or pending or threatened
arbitration or litigation, including any settlements in connection therewith,
(v) compensation and expenses of the Directors of the Company who are not
officers, directors, partners or employees of the Advisor, or its affiliates
(the "Independent
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Directors") as well as the cost of Directors' Meetings, (vi) compensation and
expenses of counsel to the Fund and counsel to the Independent Directors, (vii)
if approved by the Board, compensation and expenses of the Company's chief
compliance officer and expenses associated with the Company's compliance
program, (viii) fees and expenses of the Company's independent auditors, (ix)
registration fees, expenses associated with compliance by the Fund with
mandatory regulatory mandates including those relating to the development and
distribution of its prospectus and shareholder reports, and extraordinary
expenses, (x) distribution fees and expenses paid by the Company under any
distribution plan adopted pursuant to Rule 12b-l under the 1940 Act, (xi) the
cost of director and officer errors and omissions insurance coverage, (xii) the
Funds' pro-rata portion of dues, fees and charges of any trade associations of
which the Company is a member, (xiii) certain out-of-pocket expenses, including,
but not limited to cost of obtaining prices for security valuations (including
manual broker quotes), Federal Reserve charges related to securities
transactions, postage and insurance on physical transfer items,
telecommunication charges, and proxy voting execution, advice and reporting etc.
and (xiv) the advisory fee payable to the Advisor hereunder. The payment or
assumption by the Advisor of any expense of the Company that the Advisor is not
required by this Agreement to pay or assume shall not obligate the Advisor to
pay or assume the same or any similar expense of the Company on any subsequent
occasion.
7. Limitation of Liability Under the Company's Articles of Incorporation
The Advisor acknowledges and agrees that, with respect to any potential
claim it may have against officers or directors of the Company relating to the
subject matter of this Agreement, such claim is subject to the limitation
contained in the Company's Articles of Incorporation relating to the liability
of directors and officers of the Company to its stockholders for money damages.
8. Provision of Certain Information by the Advisor
The Advisor will promptly notify the Company in writing of the
occurrence of any of the following events:
(a) the Advisor fails to be registered as an investment adviser under
the Advisors Act or under the laws of any jurisdiction in which the Advisor is
required to be registered as an investment adviser in order to perform its
obligations under this Agreement;
(b) the Advisor is served or otherwise receives notice of any action,
suit, proceeding, inquiry or investigation, at law or in equity, before or by
any court, governmental, regulatory or administrative authority or body, or any
self-regulatory body public board or body, involving the affairs of the Advisor
or the Company;
(c) it becomes ineligible to serve as an investment advisor to the
Company, or any of its employees, officers or directors become ineligible to act
in such capacity, pursuant to Section 9 of the 1940 Act, or other applicable law
or regulation, and
(d) the parent company of the Advisor or the portfolio manager of any
Fund changes or the Advisor otherwise is subject to a change in corporate
ownership that may constitute a "change of control" under the Advisers Act or
the 1940 Act.
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9. Limitation of Liability of the Advisor
Neither the Advisor nor its officers, directors, employees, agents,
affiliated persons or controlling persons or their respective assigns shall be
liable for any error of judgment or mistake of law or for any loss suffered by
the Company, the Funds or its shareholders in connection with the matters to
which this Agreement relates; provided that no provision of this Agreement shall
be deemed to protect the Advisor against any liability to the Company, the Funds
or its shareholders resulting from any willful misfeasance, bad faith or gross
negligence in the performance of its duties or obligations hereunder, the
reckless disregard of its duties or obligations hereunder, or breach of its
fiduciary duty to the Company, any Fund or its shareholders.
10. Force Majeure
Notwithstanding any other provision of this Agreement, the Advisor shall
not be liable for any loss suffered by the Company, the Funds or its
shareholders caused directly or indirectly by circumstances beyond the Advisor's
reasonable control including, without limitation, government restrictions,
exchange or market rulings, suspensions of trading, acts of civil or military
authority, national emergencies, labor difficulties, fires, earthquakes, floods
or other catastrophes, acts of God, wars, riots, acts of terrorism or failures
of communication or power supply. In the event of equipment breakdowns beyond
its reasonable control, the Advisor shall take reasonable steps to minimize
service interruptions, but shall have no liability with respect thereto.
11. Confidentiality
The Advisor will treat confidentially and as proprietary information of
the Company all records and other information relative to the Funds and prior,
present or potential shareholders, including Nonpublic Personal Information, as
defined in Regulation S-P under the Xxxxx-Xxxxx- Xxxxxx Act (the "G-L-B Act"),
and will not use such records and information for any purpose other than
performance of its responsibilities and duties hereunder, except after prior
notification to and approval in writing by the Company, which approval shall not
be unreasonably withheld and may not be withheld where the Advisor may be
exposed to civil or criminal contempt proceedings for failure to comply, when
requested to divulge such information by duly constituted authorities, or when
so requested by the Company or when otherwise permitted by the G-L-B Act.
Nothing contained herein, however, shall prohibit the Advisor from advertising
or soliciting the public generally with respect to other products or services,
regardless of whether such advertisement or solicitation may include prior,
present or potential shareholders of the Company.
12. Duration, Amendment and Termination
(a) Duration. This Agreement shall become effective with respect to
each Fund on the date hereof and, with respect to any Fund added to this
Agreement subsequent to the date hereof, on the date Schedule A is amended to
reflect such additional Fund in accordance with paragraph (b) below. Unless
terminated in accordance with this Section 12, the Agreement shall remain in
full force and effect for two years from the date hereof with respect to each
Fund
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and, with respect to each Fund added to this Agreement subsequent to the date
hereof, for two years from the date on which such Fund becomes a Fund hereunder.
Subsequent to such initial periods of effectiveness, this Agreement shall
continue in full force and effect for additional annual terms so long as such
continuance with respect to such Fund is specifically approved at least annually
(i) by either the Board or by vote of a "majority of the outstanding voting
securities" (as defined in the 0000 Xxx) of such Fund, and (ii) in either event,
by the vote of a majority of the directors who are not parties to this Agreement
or "interested persons" (as defined in the 0000 Xxx) of any such party
("Independent Directors") cast in person at a meeting called for the purpose of
voting on such approval. If the shareholders of any Fund fail to approve the
Agreement or any continuance of the Agreement as provided herein, the Advisor
may continue to serve hereunder in the manner and to the extent permitted by the
1940 Act and rules and regulations thereunder. The foregoing requirement that
continuance of this Agreement be "specifically approved at least annually" shall
be construed in a manner consistent with the 1940 Act and the rules and
regulations thereunder.
(b) Amendment. 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. If shareholder approval of an amendment is required under
the 1940 Act, no such amendment shall become effective until approved by a vote
of the majority of the outstanding shares of the affected Funds. Otherwise, a
written amendment of this Agreement is effective upon the approval of the Board
and the Advisor.
(c) Termination. As required under the 1940 Act, this Agreement may
be terminated as to any Fund at any time, without the payment of any penalty, by
the Company (by vote of the Board or by vote of a majority of the outstanding
voting securities of the particular Fund), or by the Advisor on sixty (60) days'
written notice. The notice provided for herein may be waived by the party
entitled to receipt thereof. This Agreement will immediately terminate in the
event of its assignment. This Agreement may also be terminated immediately by
the Company or the Advisor in the event that the other party (i) breaches a
material term of this Agreement or (ii) commits a material violation of any
governing law. As used in this Agreement, the terms "majority of the outstanding
voting securities," "interested persons" and "assignment" shall have the same
meanings as such terms have in the 1940 Act.
13. Services Not Exclusive
The services of the Advisor to the Company hereunder are not to be
deemed exclusive, and the Advisor shall be free to render similar services to
others (including other investment companies and to engage in other activities)
so long as its services hereunder are not impaired thereby. It is understood and
agreed that officers or directors of the Advisor may serve as officers or
directors of the Company and that officers or directors of the Company may serve
as officers or directors of the Advisor, to the extent that such services may be
permitted by law, and that the officers and directors of the Advisor are not
prohibited from engaging in any other business activity or from rendering
services to any other person, or from serving as partners, officers, directors
or trustees on any other firm or trust, including other investment advisory
companies.
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14. Indemnification by the Advisor.
The Company shall not be responsible for, and the Advisor shall
indemnify and hold the Company, the Funds and its directors, officers and agents
harmless from and against, any and all losses, damages, costs, charges, counsel
fees, payments, expenses and liability arising out of or attributable to the
willful misfeasance, bad faith, gross negligence or reckless disregard of
obligations or duties on the part of the Advisor or any of its officers,
directors, employees or agents.
15. Indemnification by the Fund.
In the absence of willful misfeasance, bad faith, gross negligence or
reckless disregard of duties hereunder on the part of the Advisor or any of its
officers, directors, employees or agents, the Company hereby agrees to indemnify
and hold harmless the Advisor, its parent, affiliates and their respective
officers, directors, employees and agents and controlling persons of each of
them against any loss, liability, claim, damage or expense (including reasonable
attorney's fees and the reasonable cost and expense of investigating and
defending any alleged loss, liability, claim, damage or expense) and whether
such actions, suits or proceedings are brought at law or in equity or whether
brought by a private party or a governmental entity, bureau, agency or
instrumentality, of any kind, arising from (i) the advertising, solicitation,
sale, purchase or pledge of securities, whether of the Company or other
securities (ii) actions undertaken by the Funds or their officers, directors,
employees or affiliates, (iii) resulting from any violations of the securities
laws, rules, regulations, statutes and codes, whether federal or of any state,
by the Company or their officers, directors, employees or affiliates, (iv)
arising out of or based upon this Agreement or by reason of its performance of
services provided hereunder or, (v) (a) arising out of or based upon any
Sub-Advisory agreement entered into by the Advisor pursuant to Section 4 hereof
or (b) by reason of the performance of the Sub-Advisor of its services pursuant
to any such Sub-Advisory agreement to the extent the Advisor has indemnified the
Sub-Advisor pursuant to the terms of such Sub-Advisory Agreement. Federal and
state securities laws impose liabilities under certain circumstances on persons
who act in good faith, and nothing herein shall constitute a waiver of
limitation of any rights which a Fund may have and which may not be waived under
any applicable federal or state securities laws.
16. Miscellaneous
(a) Notice. All notices required to be given pursuant to this
Agreement shall be delivered or mailed to the last known business address of the
Company or the Advisor in person or by registered mail or a private mail or
delivery service providing the sender with notice of receipt. Notice shall be
deemed given on the date delivered or mailed in accordance with this section.
(b) Severability. Should any portion of this Agreement for any reason
be held to be void in law or in equity, the Agreement shall be construed,
insofar as is possible, as if such portion had never been contained herein.
(c) Applicable Law. This Agreement shall be construed in accordance
with and governed by the laws of the State of New York (without giving effect to
its conflict of law
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principles) and the applicable provisions of the 1940 Act. To the extent that
the applicable laws of the State of New York, or any of the provisions herein,
conflict with the applicable provisions of the 1940 Act, the latter shall
control.
(d) Execution By Counterpart. This Agreement may be executed in any
number of counterparts, all of which together shall constitute one agreement.
(e) Entire Agreement. This Agreement constitute the entire
understanding and agreement of the parties with respect to the subject matter
contained herein.
[SIGNATURE PAGE TO FOLLOW]
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IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
executed as of the date first set forth above.
REALTY FUNDS, INC.
By: /s/ Xxxxxxx X. Xxxxxxxxx
------------------------
Name: Xxxxxxx X. Xxxxxxxxxx
Title: President
XSHARES ADVISORS LLC
By: /s/ Xxxxx XxXxxxxxx
Name: Xxxxx XxXxxxxxx
Title: Chief Financial Officer
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Schedule A
to the Investment Advisory Agreement
Dated September 6, 2007
between Realty Funds, Inc.
and XShares Advisors LLC
Name of Fund; Fee
Adelante Shares RE Growth(TM) Exchange-Traded Fund 0.58%
Adelante Shares RE Value(TM) Exchange-Traded Fund 0.58%
Adelante Shares RE Classics(TM) Exchange-Traded Fund 0.58%
Adelante Shares RE Kings(TM) Exchange-Traded Fund 0.58%
Adelante Shares RE Yield Plus(TM) Exchange-Traded Fund 0.58%
Adelante Shares RE Shelter(TM) Exchange-Traded Fund 0.58%
Adelante Shares RE Composite(TM) Exchange-Traded Fund 0.58%
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