An Investment Advisory Service is a business that provides investing advice or counsel to an investor in exchange for a fee. Investment advisory services may interact directly with a client (e.g. by managing assets), or may provide passive, general advice on which securities are a good investment. Investment advisory services managing a certain amount of money must register with the Security and Exchange Commission. The actions of investment advisory services are governed by the Investment Advisors Act of 1940. It is a criminal offense for investment advisory services to provide false or misleading information, and to sell or buy their own securities to or from a client. A Real Estate Investment Trust (a REIT) is a corporation or trust that uses the pooled capital of many investors to purchase and manage income property and/or mortgage loans. REITs are traded on major exchanges just like stocks. They are also granted special tax considerations. REITs offer several benefits over actually owning properties: • They are highly liquid, unlike traditional real estate; • REITs enable sharing in non-residential properties as well, such as commercial or industrial properties; • and there is no minimum investment with REITs. REITs do not necessarily increase and decrease in value along with the broader market. However, they pay yields in the form of dividends no matter how the shares perform.
Real Estate Investment Trust Advisory Agreement Advisory Agreement made this the (date), between (Name of Trust), a real estate investment Trust formed under the laws of (name of state), with its principal office located at (street address, city, state, zip code), referred to herein as the Trust, and (Name of Adviser), a corporation organized and existing under the laws of the state of (name of state), with its principal office located at (street address, city, state, zip code), referred to herein as the Adviser. Whereas, the Trust desires to avail itself of the experience, sources of information, advice, and assistance available to the Adviser and to have the Adviser undertake the duties and responsibilities set forth below, on behalf of and subject to the supervision of the Trustees of the Trust, all as provided in this Agreement; and Whereas, the Adviser is willing to render such services, subject to the supervision of the Trustees, on the terms and conditions set forth below; Now, therefore, for and in consideration of the mutual covenants contained in this Agreement, and other good and valuable consideration, the parties agree as follows: I. Duties of Adviser A. The Adviser shall use its best efforts to present to the Trust a continuing and suitable investment program consistent with the investment policies and objectives of the Trust, and, subject to the supervision of the Trustees: 1. To serve as the Trust's Investment Adviser, including recommending changes in the Trust's investment policies when appropriate; 2. To originate, investigate and evaluate investment opportunities and recommend them to the Trustees; 3. To manage the Trust's short-term investments, including the acquisition and sale of money market instruments in accordance with the Trust's policies; 4. To administer the day-to-day investment operations of the Trust; 5. To investigate, select and conduct business and relationships on behalf of the Trust with borrowers, lenders, mortgage loan originators, builders, developers, and other individuals, corporations and entities in furtherance of the investment activities of the Trust; 6. To invest and reinvest any money of the Trust; 7. To obtain for the Trust such services as may be required for property management and other activities relating to the investment portfolio of the Trust; 8. To advise the Trust in connection with negotiations with investment banking firms, securities brokers or dealers or securities investors in connection with the public or private sale of securities of the Trust; 9. To provide personnel, office space and office equipment, or the use of the above, necessary or advisable to carry out its function as the Adviser to the Trust; and 10. To make reports to the Trustees from time to time of its performance of the above-mentioned services. B. Recommendations from the Adviser as to investments by the Trust will be generated through the Adviser's mortgage loan department. In recommending investments or participations in them to the Trust, the management of the Adviser will select from the available investment opportunities those that it believes consistent with the Trust's investment objectives. These investments will be generally representative of comparable investments of similar quality being made by the Adviser for its own account. Neither the Adviser nor any of its affiliates shall have any obligation to present to the Trust any particular investment opportunity that comes to the Adviser or such affiliate, even if the opportunity is such that, if presented to the Trust, it could be taken by the Trust. C. Nothing contained in this Agreement shall prevent the Adviser from engaging in other businesses or from acting as an adviser to or as an investment manager for any other person even though the Adviser has or may have investment policies similar to the Trust or interests in any particular investment that are or may be adverse to the interest of the Trust in the same or any related investment. The Adviser shall be free from any obligation to present to the Trust any particular investment opportunity that comes to the Adviser, regardless of whether the opportunity is within the Trust's investment policies, provided, however, that the Adviser shall act on a basis that is fair and reasonable to the Trust and its shareholders in selecting from among the particular investment opportunities that come to the Adviser that it presents to the Trust. D. Adviser shall from time to time furnish the Trust with information, on a confidential basis, of any investment opportunity within the Trust's investment policies that the Adviser subsequently decides to accept for its own account and, to the extent that the Adviser deems it consistent with its obligations and legally permissible (if requested by the Trust not later than the date of the second meeting of the Investment Committee of the Trust that next follows the date on which the Adviser informs the Trust of such investment opportunity and of the Adviser's decision to accept such investment opportunity for its own account), shall grant to the Trust a participation of equal terms in such investment opportunity to the extent of ____% of the aggregate amount invested in it by the Trust and the Adviser. By mutual agreement of the Trust and the Adviser, the Trust's participation in such an investment may be greater than ____%. On the request of the Trust, the Adviser shall permit the Trustees to review other investment opportunities within the Trust's investment policy that are presented to the Adviser's Finance Committee for investment by the Adviser for its own account, but not approved by such Committee and, at the request of the Trust, shall use its best efforts to make available any of such opportunities to the Trust for investment. II. Servicing Functions. Adviser agrees by this Agreement to provide the requisite servicing of the Trust's mortgage loans and real property investments. These servicing functions may be performed directly by the Adviser or by others, but the Adviser shall, in any event, be responsible for the supervision of such servicing performed by others. The servicing functions shall include the review of appraisal reports and title opinions or reports from independent counsel for the Trust, the collection of all payments when due, the supervision of the payment of taxes, special assessments, fire and other insurance premiums, and any other required payments, to the extent of funds collected, and the remission to the Trust of the balance. In the event of a default on an investment, the Adviser shall advise the Trust and supervise foreclosure or other remedies on the direction of the Trustees. III. Compliance with REIT Qualifications and Declaration of Trust. Anything else in this Agreement to the contrary notwithstanding, the Adviser shall refrain from any action that, in its sole judgment made in good faith, or in the judgment of the Trustees (of which the Adviser has notice): (a) would adversely affect the status of the Trust as a real estate investment trust, as defined and limited in the Internal Revenue Code of 1986, as amended (26 U.S.C.A. §§ 856 to 859), and the regulations promulgated under the Code; or (b) would violate any law, rule or regulation of any governmental body or agency having jurisdiction over the Trust or would otherwise not be permitted by the Declaration of Trust. IV. Records. The Adviser shall maintain appropriate books of account and records relating to services performed under this Agreement, which books of account and records shall be accessible for inspections by the Trust at any time during ordinary business hours. V. Bank Accounts. The Adviser may establish and maintain one or more bank accounts in its own name, and may collect and deposit into any such account or accounts, and disburse from any such account or accounts, any money on behalf of the Trust, under such terms and conditions as the Trustees may approve, and the Adviser shall from time to time render appropriate accounting of such collections and payments to the Trustees and to the auditors of the Trust. VI. Bond. The Adviser shall maintain such fidelity bond with a responsible surety company and in such amount (not less than $_____________ per person) as may be required by the Trust from time to time, covering all officers and employees of the Adviser handling funds of the Trust and any investment documents or papers. This bond shall inure to the benefit of the Trust in respect of losses of any such property from acts of such officers and employees through theft, embezzlement, fraud, negligence in act, error or omission, or otherwise. The premium for this bond shall be at the expense of the Trust. VII. Information Furnished Adviser. The Trustees shall at all times keep the Adviser fully informed with regard to the investment policy of the Trust, the capitalization policy of the Trust, and generally their then current intentions as to the future of the Trust. In particular, the Trustees shall notify the Adviser promptly of their intention to sell or otherwise dispose of any of the Trust's investments, or to make any new investment. The Trust shall furnish the Adviser with a copy of all financial statements, a signed copy of each report or opinion prepared by independent public accountants, and such other information with regard to its affairs as the Adviser may from time to time reasonably request. VIII. Trustees, Officers and Employees of the Adviser. Trustees, officers and employees of the Adviser or of affiliates of the Adviser may serve as Trustees, officers, agents, nominees or signatories for the Trust. When executing documents or otherwise acting in such capacities for the Trust, such persons shall use their respective titles in the Trust. Such persons who are officers or employees of the Adviser shall not receive compensation from the Trust for their services to the Trust in any such capacities. IX. Definitions. As used in this Agreement, the following terms have the meanings set forth below: A. Advisory compensation shall mean for a calendar year an amount determined by multiplying the shareholder benefit index for such calendar year by the advisory compensation for the immediately preceding calendar year and shall mean for a part of a calendar year an amount determined by multiplying the shareholder benefit index for such part of a calendar year by that portion of the advisory compensation for the immediately preceding entire calendar year which such part of a calendar year bears to a whole calendar year. Solely for the purposes of this computation, advisory compensation for the calendar year ended December 31, (year), shall be deemed to be $____________________. B. Book value of an asset or assets shall mean the value of such asset or assets on the books of the Trust, reduced by provision for amortization, depreciation or depletion but before deducting any indebtedness or other liability in respect of the asset or assets. Depreciable assets shall be included at the lesser of fair market value (in the judgment of the Trustees) or cost less depreciation. Depreciation shall be computed on a straight-line basis. C. Declaration of Trust shall mean the Trust's Declaration of Trust dated (date), as amended and restated (date), and as subsequently amended from time to time. D. Development loans shall mean mortgage loans made to finance the development of land into a site or sites suitable for the construction of improvements on them or suitable for other residential, recreational, commercial, industrial or public uses, and may include the financing of all or part of the cost of the acquisition of such land or leasehold interests in them. E. Invested assets shall mean the Trust's total assets (without deduction of any liabilities), but excluding good will and other intangible assets, cash, cash items, and obligations of municipal, state and federal governments and governmental agencies. As so defined, the term shall not include the undisbursed commitments of the Trust in respect of closed loans or investments. Invested assets shall include obligations secured by a lien on real property owned, or to be acquired, by such governments or governmental agencies and securities of the Federal Housing Administration, the Federal National Mortgage Administration, and other governmental agencies issuing securities backed by a pool of mortgages. F. Long-term and net lease investments shall mean mortgage loans (other than development loans) with an initial term of more than (number) years and real property that is under lease to one tenant who is required to pay directly all of the property taxes, costs and expenses of maintaining the property and who pays rent to the Trust net of all such taxes, costs and expenses. G. Month-end average invested assets of the Trust for a calendar year shall mean the average of the amounts reflected in the computations at the end of each month during such calendar year of invested assets. H. Month-end average net invested assets of the Trust for a calendar year shall mean the month-end average invested assets of the Trust for such calendar year, minus the arithmetic average of the liabilities of the Trust at the end of each month during such calendar year. I. Mortgage loans shall mean notes, debentures, bonds and other evidences of indebtedness or obligations, that are negotiable or nonnegotiable and that are secured or collateralized by mortgages, deeds of Trust or other security interests in real property. J. Net income for a calendar year shall mean the net income of the Trust for such calendar year computed on the basis of its results of operations for such year, plus the amount of any deductions for compensation paid to the Adviser under Sections X, XI and XII of this Agreement that were deducted in determining such net income, and excluding extraordinary items and gains and losses from the disposition of assets, all as certified by the Trust's independent public accountants. K. Operating expenses shall mean for any calendar year the aggregate annual operating expenses of every character, other than the expenses set forth in Paragraphs A through N, inclusive, of Section XV of this Agreement, and any other expenses properly regarded as relating to the maintenance of the Trust. L. Other investments shall mean mortgage loans and real property investments other than long-term and net lease investments. M. Person shall mean and include individuals, corporations, limited partnerships, general partnerships, joint stock companies, joint ventures, associations, companies, trusts, banks, federal savings banks, trust companies, land trusts, business trusts, or other organizations, whether or not legal entities, and governments and agencies and political subdivisions of governments. N. Real property shall mean land, ownership or other rights or interests in land (including leasehold interests as lessee or lessor), and any buildings, structures, improvements and fixtures located on or used in connection with land and rights in land, or interests in land, but does not include mortgage loans or interests in mortgage loans. O. Shareholder benefit shall mean the Trust's fully diluted earnings per share determined in the manner set forth in Opinion No. 15 issued by the Accounting Principles Board of the American Institute of Certified Public Accountants based on an accrual method of accounting in accordance with generally accepted accounting principles consistently applied, adjusted: (i) by the addition of any depreciation and any increase in the allowance for possible loan losses (however denominated) that were deducted in determining such earnings per share; and (ii) by the subtraction of a fully diluted per share basis of any losses (except any losses caused by an act or acts of God) experienced by and recorded on the books of the Trust. Notwithstanding the above, shareholder benefit shall not include any amount that would result in the Adviser's receiving any compensation under this Agreement the receipt of which under any applicable law would be prohibited or would render this Agreement unenforceable. P. Shareholder benefit index shall mean for a calendar year the quotient obtained by dividing the amount of shareholder benefit for such calendar year by the amount of shareholder benefit for the immediately preceding calendar year, and shall mean for a part of a calendar year the quotient obtained by dividing the amount of shareholder benefit for such part of a calendar year by that portion of the shareholder benefit for the immediately preceding entire calendar year that such part of a calendar year bears to a whole calendar year. X. Compensation for Advisory Functions. The Trust shall pay to the Adviser as compensation for all services rendered to the Trust under this Agreement (except for generating and servicing investments for which compensation is to be paid under Sections XI and XII) for each calendar year advisory compensation as determined under Section IX, Paragraph A. Within (number) business days after the end of each month of a calendar year, the Trust shall pay to the Adviser an amount equal to the difference between the advisory compensation for such calendar year to the end of such month and the aggregate amount of payments under this section previously made by the Trust to and not refunded by the Adviser for such calendar year. If at the end of any quarter of a calendar year the aggregate amount of payments under this section for such calendar year made by the Trust to and not refunded by the Adviser exceeds the advisory compensation payable under this Agreement for such calendar year to the end of such quarter, the excess shall be refunded by the Adviser to the Trust within (number) business days of the date that the Adviser is notified by the Trust of the overpayment. All of the above- mentioned payments may be based on unaudited financial statements. The amount of advisory compensation payable under this Agreement for any calendar year shall be finally determined after the close of the calendar year by independent accountants satisfactory to the Trust and the Adviser based on audited financial statements. Any payment by the Trust or repayment by the Adviser which shall be indicated to be necessary in accordance with this Agreement shall be made promptly after the completion of the audit. XI. Compensation for Investment Generation Functions A. The Trust shall pay to the Adviser as compensation for investment generation functions, described in Section I of this Agreement, a fee as to any one investment approved by the investment committee of the Trust or the Trustees during the term of this Agreement based on the principal amount (which includes, in the case of real property, the principal amount of any mortgage loan on such property) of such investment, which fee shall be in the amount of _____% of the first $_____________ of such investment and _____% of the amount, if any, in excess of $_____________. For the purposes of this Paragraph A, in the case of an investment that the Trust shares with the Adviser, the aggregate amount of the investments made by all such persons shall be used to determine the amount of the Adviser's fee, but the Adviser shall be entitled to a fee under this Agreement only in regard to the Trust's portion of an investment. Notwithstanding the preceding provisions of this Paragraph, for any loan as to which at the time the Trust is first committed to make the loan the borrower has a firm commitment from any person (including the Trust, or the Adviser) to make a loan to, or purchase the property from, the borrower, on or before the maturity of the Trust's loan so that the proceeds of such loan or purchase are to be used to repay the Trust's loan, the fee to which the Adviser is entitled shall be one-half of the fee as determined above. B. The above-described fee shall be paid to the Adviser when the principal amount of the investment is disbursed by the Trust. However, if the principal amount of an investment is disbursed by the Trust in more than one installment, the Trust shall pay to the Adviser each time the Trust makes a disbursement of the principal amount of the investment the appropriate percentage, as provided in Paragraph A of this Section XI, of the amount of principal then disbursed. C. The Trust and the Adviser shall share equally in any fees received
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