KINETICS PORTFOLIOS TRUST
INVESTMENT ADVISORY AGREEMENT
THIS INVESTMENT ADVISORY AGREEMENT is made as of the 1st day of May, 2000,
by and between KINETICS PORTFOLIOS TRUST, a Delaware business trust (the
"Trust") on behalf of its series the Small Cap Opportunities Portfolio (the
"Portfolio") and KINETICS ASSET MANAGEMENT, INC., a New York corporation (the
"Adviser").
W I T N E S S E T H :
WHEREAS, the Trust is an open-end management investment company, registered
as such under the Investment Company Act of 1940 (the "Investment Company Act");
WHEREAS, the Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940 and is engaged in the business of providing
investment advice to investment companies; and
WHEREAS, the Trust, on behalf of the Portfolio, desires to retain the
Adviser to render advice and services to the Portfolio pursuant to the terms and
provisions of this Agreement, and the Adviser desires to furnish said advice and
services.
NOW, THEREFORE, in consideration of the covenants and the mutual promises
hereinafter set forth, the parties to this Agreement, intending to be legally
bound hereby, mutually agree as follows:
1. Appointment of Adviser. The Trust hereby employs the Adviser and the
Adviser hereby accepts such employment, to render investment advice and related
services with respect to the assets of the Portfolio for the period and on the
terms set forth in this Agreement, subject to the supervision and direction of
the Board of Trustees.
2. Duties of Adviser.
(a) General Duties. The Adviser shall act as investment adviser to the
Portfolio and shall supervise investments of the Portfolio in
accordance with the investment objective, policies and restrictions of
the Portfolio as set forth in the Portfolio's governing documents,
including, without limitation, the Fund's Certificate of Trust, as
amended, Declaration of Trust, as amended, and Bylaws, as amended, the
prospectus and statement of additional information; and such other
limitations, policies and procedures as the Trustees may impose from
time to time in writing to the Adviser. In providing such services,
the Adviser shall at all times adhere to the provisions and
restrictions contained in the federal securities laws, applicable
state securities laws, the Internal Revenue Code, the Uniform
Commercial Code and other applicable law.
Without limiting the generality of the foregoing, the Adviser shall:
(i) furnish the Portfolio with advice and recommendations with respect
to the investment of the Portfolio's assets and the purchase and sale
of portfolio securities for the Portfolio, including the taking of
such steps as may be necessary to implement such advice and
recommendations (i.e., placing the orders); (ii) manage and oversee
the investments of the Portfolio, subject to the ultimate supervision
and direction of the Board of Trustees; (iii) vote proxies for the
Portfolio, file ownership reports under Section 13 of the Securities
Exchange Act of 1934 for the Portfolio, and take other actions on
behalf of the Portfolio; (iv) maintain the books and records required
to be maintained by the Portfolio except to the extent arrangements
have been made for such books and records to be maintained by Firstar
Mutual Fund Services LLC, a Wisconsin limited liability company (the
"Sub-Administrator") or another agent of the Portfolio; (v) furnish
reports, statements and other data on securities, economic conditions
and other matters related to the investment of the Portfolio's assets
which the Board of Trustees or the officers of the Portfolio may
reasonably request; and (vi) render to the Board of Trustees such
periodic and special reports with respect to the Portfolio's
investment activities as the Board may reasonably request, including
at least one in-person appearance annually before the Board of
Trustees.
(b) Brokerage. The Adviser shall be responsible for decisions to buy and
sell securities for the Portfolio, for broker-dealer selection, and
for negotiation of brokerage commission rates, provided that the
Adviser shall not direct orders to an affiliated person of the Adviser
without general prior authorization to use such affiliated broker or
dealer from the Board of Trustees. The Adviser's primary consideration
in effecting a securities transaction will be execution at the most
favorable price. In selecting a broker-dealer to execute each
particular transaction, the Adviser may take the following into
consideration: the best net price available; the reliability,
integrity and financial condition of the broker-dealer; the size of
and difficulty in executing the order; and the value of the expected
contribution of the broker-dealer to the investment performance of the
Portfolio on a continuing basis. The price to the Portfolio in any
transaction may be less favorable than that available from another
broker-dealer if the difference is reasonably justified by other
aspects of the portfolio execution services offered.
Subject to such policies as the Board of Trustees may determine, the
Adviser shall not be deemed to have acted unlawfully or to have
breached any duty created by this Agreement or otherwise solely by
reason of its having caused the Portfolio to pay a broker or dealer
that provides (directly or indirectly) brokerage or research services
to the Adviser an amount of commission for effecting a portfolio
transaction in excess of the amount of commission another broker or
dealer would have charged for effecting that transaction, if the
Adviser 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 Adviser's overall responsibilities
with respect to the Portfolio. The Adviser is further authorized to
allocate the orders placed by it on behalf of the Portfolio to such
brokers or dealers who also provide research or statistical material,
or other services, to the Portfolio, the Adviser, or any affiliate of
either. Such allocation shall be in such amounts and proportions as
the Adviser shall determine, and the Adviser shall report on such
allocations regularly to the Portfolio, indicating the broker-dealers
to whom such allocations have been made and the basis therefor. The
Adviser is also authorized to consider sales of shares as a factor in
the selection of brokers or dealers to execute portfolio transactions,
subject to the requirements of best execution, i.e., that such brokers
or dealers are able to execute the order promptly and at the best
obtainable securities price.
On occasions when the Adviser deems the purchase or sale of a security
to be in the best interest of the Portfolio as well as of other
clients (to the extent that the Adviser may, in the future, have other
clients), the Adviser, to the extent permitted by applicable laws and
regulations, may aggregate the securities to be so purchased or sold
in order to obtain the most favorable price or lower brokerage
commissions and the most efficient execution. In such event,
allocation of the securities so purchased or sold, as well as the
expenses incurred in the transaction, will be made by the Adviser in
the manner it considers to be the most equitable and consistent with
its fiduciary obligations to the Portfolio and to such other clients.
3. Representations of the Adviser.
(a) The Adviser shall use its best judgment and efforts in rendering the
advice and services to the Portfolio as contemplated by this
Agreement.
(b) The Adviser shall maintain all licenses and registrations necessary to
perform its duties hereunder in good order.
(c) The Adviser shall conduct its operations at all times in conformance
with the Investment Advisers Act of 1940, the Investment Company Act
of 1940, and any other applicable state and/or self-regulatory
organization regulations.
4. Independent Contractor. The Adviser shall, for all purposes herein, be
deemed to be an independent contractor, and shall, unless otherwise expressly
provided and authorized to do so, have no authority to act for or represent the
Portfolio in any way, or in any way be deemed an agent for the Portfolio. It is
expressly understood and agreed that the services to be rendered by the Adviser
to the Portfolio under the provisions of this Agreement are not to be deemed
exclusive, and the Adviser shall be free to render similar or different services
to others so long as its ability to render the services provided for in this
Agreement shall not be impaired thereby.
5. Adviser's Personnel. The Adviser shall, at its own expense, maintain
such staff and employ or retain such personnel and consult with such other
persons as it shall from time to time determine to be necessary to the
performance of its obligations under this Agreement. Without limiting the
generality of the foregoing, the staff and personnel of the Adviser shall be
deemed to include persons employed or retained by the Adviser to furnish
statistical information, research, and other factual information, advice
regarding economic factors and trends, information with respect to technical and
scientific developments, and such other information, advice and assistance as
the Adviser or the Board of Trustees may desire and reasonably request.
6. Expenses.
(a) With respect to the operation of the Portfolio, the Adviser shall be
responsible for (i) providing the personnel, office space and
equipment reasonably necessary for the investment management of the
Portfolio, and (ii) the costs of any special Board of Trustees
meetings or shareholder meetings convened for the primary benefit of
the Adviser. If the Adviser has agreed to limit the operating expenses
of the Portfolio, the Adviser shall also be responsible on a monthly
basis for any operating expenses that exceed the agreed upon expense
limitation.
(b) The Portfolio is responsible for and has assumed the obligation for
payment of all of its expenses, other than as stated in Subparagraph
6(a) above, including but not limited to: investment advisory,
administrative and sub-administrative fees payable to the Adviser or
the Sub-Administrator under the appropriate agreements entered into
with the Adviser or the Sub-Administrator, as the case may be; fees
and expenses incurred in connection with the issuance, registration
and transfer of its shares; brokerage and commission expenses; all
expenses of transfer, receipt, safekeeping, servicing and accounting
for the cash, securities and other property of the Portfolio including
all fees and expenses of its custodian, shareholder services agent and
accounting services agent; interest charges on any borrowings; costs
and expenses of pricing and calculating its daily net asset value and
of maintaining its books of account required under the Investment
Company Act; taxes, if any; a pro rata portion of expenditures in
connection with meetings of the Portfolio's shareholders and Board of
Trustees that are properly payable by the Portfolio; salaries and
expenses of officers and fees and expenses of members of the Board of
Trustees or members of any advisory board or committee who are not
members of, affiliated with or interested persons of the Adviser or
the Sub-Administrator; insurance premiums on property or personnel of
the Portfolio which inure to its benefit, including liability and
fidelity bond insurance; the cost of preparing and printing reports,
proxy statements, prospectuses and statements of additional
information of the Portfolio or other communications for distribution
to existing shareholders; legal, auditing and accounting fees; trade
association dues; fees and expenses (including legal fees) of
registering and maintaining registration of its shares for sale under
federal and applicable state and foreign securities laws; all expenses
of maintaining and servicing shareholder accounts, including all
charges for transfer, shareholder recordkeeping, dividend disbursing,
redemption, and other agents for the benefit of the Portfolio; and all
other charges and costs of its operation plus any extraordinary and
non-recurring expenses, except as herein otherwise prescribed.
(c) The Adviser may voluntarily absorb certain Portfolio expenses or waive
the Adviser's own advisory fee.
(d) To the extent the Adviser incurs any costs by assuming expenses which
are an obligation of the Portfolio as set forth herein, the Portfolio
shall promptly reimburse the Adviser for such costs and expenses,
except to the extent the Adviser has otherwise agreed to bear such
expenses. To the extent the services for which the Portfolio is
obligated to pay are performed by the Adviser, the Adviser shall be
entitled to recover from the Portfolio to the extent of the Adviser's
actual costs for providing such services. In determining the Adviser's
actual costs, the Adviser may take into account an allocated portion
of the salaries and overhead of personnel performing such services.
7. Investment Advisory Fee.
(a) The Portfolio shall pay to the Adviser, and the Adviser agrees to
accept, as full compensation for all investment and advisory services
furnished or provided to the Portfolio pursuant to this Agreement, an
annual investment advisory fee at the rate set forth in Schedule A to
this Agreement.
(b) The investment advisory fee shall be accrued daily by the Portfolio
and paid to the Adviser on the first business day of the succeeding
month.
(c) The initial fee under this Agreement shall be payable on the first
business day of the first month following the effective date of this
Agreement and shall be prorated as set forth below. If this Agreement
is terminated prior to the end of any month, the fee to the Adviser
shall be prorated for the portion of any month in which this Agreement
is in effect which is not a complete month according to the proportion
which the number of calendar days in the month during which the
Agreement is in effect bears to the number of calendar days in the
month, and shall be payable within ten (10) days after the date of
termination.
(d) The fee payable to the Adviser under this Agreement will be reduced to
the extent of any receivable owed by the Adviser to the Portfolio and
as required under any expense limitation applicable to the Portfolio.
(e) The Adviser voluntarily may reduce any portion of the compensation or
reimbursement of expenses due to it pursuant to this Agreement and may
agree to make payments to limit the expenses which are the
responsibility of the Portfolio under this Agreement. Any such
reduction or payment shall be applicable only to such specific
reduction or payment and shall not constitute an agreement to reduce
any future compensation or reimbursement due to the Adviser hereunder
or to continue future payments. Any such reduction will be agreed to
prior to accrual of the related expense or fee and will be estimated
daily and reconciled and paid on a monthly basis.
(f) Any fee withheld or voluntarily reduced and any Portfolio expense
absorbed by the Adviser voluntarily or pursuant to an agreed upon
expense cap shall be reimbursed by the Portfolio to the Adviser, if so
requested by the Adviser, no later than the fifth fiscal year
succeeding the fiscal year of the withholding, reduction or absorption
if the aggregate amount actually paid by the Portfolio toward the
operating expenses for such fiscal year (taking into account the
reimbursement) do not exceed the applicable limitation on Portfolio
expenses. Such reimbursement may be paid prior to the Portfolio's
payment of current expenses if so requested by the Adviser even if
such practice may require the Adviser to waive, reduce or absorb
current Portfolio expenses. Replaced with attached addendum on March
29, 2001.
(g) The Adviser may agree not to require payment of any portion of the
compensation or reimbursement of expenses otherwise due to it pursuant
to this Agreement. Any such agreement shall be applicable only with
respect to the specific items covered thereby and shall not constitute
an agreement not to require payment of any future compensation or
reimbursement due to the Adviser hereunder.
8. No Shorting; No Borrowing. The Adviser agrees that neither it nor any of
its officers or employees shall take any short position in the shares of the
Portfolio. This prohibition shall not prevent the purchase of such shares by any
of the officers or employees of the Adviser or any trust, pension,
profit-sharing or other benefit plan for such persons or affiliates thereof, at
a price not less than the net asset value thereof at the time of purchase, as
allowed pursuant to rules promulgated under the Investment Company Act. The
Adviser agrees that neither it nor any of its officers or employees shall borrow
from the Portfolio or pledge or use the Portfolio's assets in connection with
any borrowing not directly for the Portfolio's benefit. For this purpose,
failure to pay any amount due and payable to the Portfolio for a period of more
than thirty (30) days shall constitute a borrowing.
9. Conflicts with the Portfolio's Governing Documents and Applicable Laws.
Nothing herein contained shall be deemed to require the Portfolio to take any
action contrary to its Certificate of Trust, as amended, Declaration of Trust,
as amended, Bylaws, as amended, or any applicable statute or regulation, or to
relieve or deprive the Board of Trustees of its responsibility for and control
of the conduct of the affairs of the Portfolio. In this connection, the Adviser
acknowledges that the Trustees retain ultimate plenary authority over the
Portfolio and may take any and all actions necessary and reasonable to protect
the interests of shareholders.
10. Reports and Access. The Adviser agrees to supply such information to
the Sub-Administrator and to permit such compliance inspections by the
Sub-Administrator as shall be reasonably necessary to permit the
Sub-Administrator to satisfy its obligations and respond to the reasonable
requests of the Trustees.
11. Adviser's Liabilities and Indemnification.
(a) The Adviser shall have responsibility for the accuracy and
completeness (and liability for the lack thereof) of the statements in
the Portfolio's offering materials (including the prospectus, the
statement of additional information, advertising and sales materials),
except for information supplied by the Sub-Administrator or the
Portfolio or another third party for inclusion therein.
(b) The Adviser shall be liable to the Portfolio for any loss (including
brokerage charges) incurred by the Portfolio as a result of any
improper investment made by the Adviser.
(c) In the absence of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the obligations or duties hereunder on the part
of the Adviser, the Adviser shall not be subject to liability to the
Portfolio or to any shareholder of the Portfolio for any act or
omission in the course of, or connected with, rendering services
hereunder or for any losses that may be sustained in the purchase,
holding or sale of any security by the Portfolio.
(d) Each party to this Agreement shall indemnify and hold harmless the
other party and the shareholders, directors, trustees, officers and
employees of the other party (any such person, an "Indemnified Party")
against any loss, liability, claim, damage or expense (including the
reasonable cost of investigating and defending any alleged loss,
liability, claim, damage or expenses and reasonable counsel fees
incurred in connection therewith) arising out of the Indemnified
Party's performance or nonperformance of any duties under this
Agreement provided, however, that nothing herein shall be deemed to
protect any Indemnified Party against any liability to which such
Indemnified Party would otherwise be subject by reason of willful
misfeasance, bad faith or negligence in the performance of duties
hereunder or by reason of reckless disregard of obligations and duties
under this Agreement.
(e) No provision of this Agreement shall be construed to protect any
Trustee or officer of the Portfolio, or officer of the Adviser, from
liability in violation of Sections 17(h) and (i) of the Investment
Company Act.
12. Non-Exclusivity; Trading for Adviser's Own Account. The Portfolio's
employment of the Adviser is not an exclusive arrangement. The Portfolio may
from time to time employ other individuals or entities to furnish it with the
services provided for herein. Likewise, the Adviser may act as investment
adviser for any other person, and shall not in any way be limited or restricted
from having, selling or trading any securities for its or their own accounts or
the accounts of others for whom it or they may be acting, provided, however,
that the Adviser expressly represents that it will undertake no activities which
will adversely affect the performance of its obligations to the Portfolio under
this Agreement; and provided further that the Adviser will adhere to a code of
ethics governing employee trading and trading for proprietary accounts that
conforms to the requirements of the Investment Company Act and the Investment
Advisers Act of 1940 and has been approved by the Portfolio's Board of Trustees.
13. Term. This Agreement shall become effective on September 1, 1999 and
shall remain in effect for a period of two (2) years, unless sooner terminated
as hereinafter provided. This Agreement shall continue in effect thereafter for
additional periods not exceeding one (1) year so long as such continuation is
approved for the Portfolio at least annually by (i) the Board of Trustees or by
the vote of a majority of the outstanding voting securities of the Portfolio and
(ii) the vote of a majority of the Trustees of the Portfolio who are not parties
to this Agreement nor interested persons thereof, cast in person at a meeting
called for the purpose of voting on such approval. The terms "majority of the
outstanding voting securities" and "interested persons" shall have the meanings
as set forth in the Investment Company Act.
14. Termination; No Assignment.
(a) This Agreement may be terminated by the Portfolio at any time without
payment of any penalty, by the Board of Trustees or by vote of a
majority of the outstanding voting securities of the Portfolio, upon
sixty (60) days' written notice to the Adviser, and by the Adviser
upon sixty (60) days' written notice to the Portfolio. In the event of
a termination, the Adviser shall cooperate in the orderly transfer of
the Portfolio's affairs and, at the request of the Board of Trustees,
transfer any and all books and records of the Portfolio maintained by
the Adviser on behalf of the Portfolio.
(b) This Agreement shall terminate automatically in the event of any
transfer or assignment thereof, as defined in the Investment Company
Act.
15. Severability. If any provision of this Agreement shall be held or made
invalid by a court decision, statute or rule, or shall be otherwise rendered
invalid, the remainder of this Agreement shall not be affected thereby.
16. Captions. The captions in this Agreement are included for convenience
of reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect.
17. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York without giving effect to the
conflict of laws principles thereof; provided that nothing herein shall be
construed to preempt, or to be inconsistent with, any federal law, regulation or
rule, including the Investment Company Act and the Investment Advisers Act of
1940 and any rules and regulations promulgated thereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their duly authorized officers, all on the day and year first
above written.
KINETICS PORTFOLIOS TRUST KINETICS ASSET MANAGEMENT, INC.
on behalf of its series, The Small Cap
Opportunities Portfolio
By:_________________________________ By:_________________________________
Name: Name:
Title: Title:
SCHEDULE A
Annual Fee Rate
The Small Cap Opportunities Portfolio 1.25% of average daily net assets
