Exhibit (d)
KINETICS MUTUAL FUNDS, INC.
INVESTMENT ADVISORY AGREEMENT
THIS INVESTMENT ADVISORY AGREEMENT is made as of the 1st day
of September, 1999, by and between KINETICS MUTUAL FUNDS, INC., a Maryland
corporation (the "Company") on behalf of its series The Medical Fund (the
"Fund") and KINETICS ASSET MANAGEMENT, INC., a New York corporation (the
"Adviser").
W I T N E S S E T H :
WHEREAS, the Company 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 Company, on behalf of the Fund, desires to retain
the Adviser to render advice and services to the Fund 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 Company 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 Fund for the
period and on the terms set forth in this Agreement, subject to the supervision
and direction of the Board of Directors.
2. DUTIES OF ADVISER.
(a) GENERAL DUTIES. The Adviser shall act as
investment adviser to the Fund and shall supervise investments of the Fund in
accordance with the investment objective, policies and restrictions of the Fund
as set forth in the Fund's governing documents, including, without limitation,
the Fund's Articles of Incorporation, as amended and restated, and Bylaws, as
amended and restated, the prospectus and statement of additional information;
and such other limitations, policies and procedures as the Directors 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 Fund with advice and
recommendations with respect to the investment of the Fund's assets and the
purchase and sale of portfolio securities for the Fund, 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 Fund,
subject to the ultimate supervision and direction of the Board of Directors;
(iii) vote proxies for the Fund, file ownership reports under Section 13 of the
Securities Exchange Act of 1934 for the Fund, and take other actions on behalf
of the Fund; (iv) maintain the books and records required to be maintained by
the Fund 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
Fund; (v) furnish reports, statements and other data on securities, economic
conditions and other matters related to the investment of the Fund's assets
which the Board of Directors or the officers of the Fund may reasonably request;
and (vi) render to the Board of Directors
-22-
such periodic and special reports with respect to the Fund's investment
activities as the Board may reasonably request, including at least one in-person
appearance annually before the Board of Directors.
(b) BROKERAGE. The Adviser shall be responsible for
decisions to buy and sell securities for the Fund, 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 Directors. 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 Fund on a
continuing basis. The price to the Fund 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 Directors
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 Fund 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 Fund. The Adviser is further authorized to allocate the orders placed by it
on behalf of the Fund to such brokers or dealers who also provide research or
statistical material, or other services, to the Fund, 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 Fund, 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 Fund 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 Fund 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 Fund 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 Fund in any way, or in any way be deemed an agent for the Fund. It
is expressly understood and agreed that the services to be rendered by the
Adviser to the Fund under the provisions of this Agreement are
-23-
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 Directors may desire and reasonably request.
6. EXPENSES.
(a) With respect to the operation of the Fund, the
Adviser shall be responsible for (i) providing the personnel, office space
and equipment reasonably necessary for the investment management of the Fund,
and (ii) the costs of any special Board of Directors meetings or shareholder
meetings convened for the primary benefit of the Adviser. If the Adviser has
agreed to limit the operating expenses of the Fund, the Adviser shall also be
responsible on a monthly basis for any operating expenses that exceed the agreed
upon expense limitation.
(b) The Fund 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 Fund
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 Fund's
shareholders and Board of Directors that are properly payable by the Fund;
salaries and expenses of officers and fees and expenses of members of the Board
of Directors 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 Fund 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 Fund 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 Fund;
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 Fund
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 Fund as set forth herein, the
Fund 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 Fund is obligated to pay are
performed by the Adviser, the Adviser shall be entitled to recover from the Fund
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.
-24-
7. INVESTMENT ADVISORY FEE.
(a) The Fund 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 Fund 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 Fund 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 Fund and as required under any expense limitation applicable to the Fund.
(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 Fund 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
Fund expense absorbed by the Adviser voluntarily or pursuant to an agreed upon
expense cap shall be reimbursed by the Fund 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 Fund toward the operating expenses for such fiscal year (taking into
account the reimbursement) do not exceed the applicable limitation on Fund
expenses. Such reimbursement may be paid prior to the Fund'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 Fund expenses.
(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 Fund. 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 Fund or pledge or use the Fund's assets in connection with any
borrowing not directly for the Fund's benefit. For this purpose, failure to pay
any amount due and payable to the Fund for a period of more than thirty (30)
days shall constitute a borrowing.
-25-
9. CONFLICTS WITH THE FUND'S GOVERNING DOCUMENTS AND
APPLICABLE LAWS. Nothing herein contained shall be deemed to require the Fund to
take any action contrary to its Articles of Incorporation, as amended and
restated, Bylaws, as amended and restated, or any applicable statute or
regulation, or to relieve or deprive the Board of Directors of its
responsibility for and control of the conduct of the affairs of the Fund. In
this connection, the Adviser acknowledges that the Directors retain ultimate
plenary authority over the Fund 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 Directors.
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 Fund'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 Fund or another third party for
inclusion therein.
(b) The Adviser shall be liable to the Fund for any
loss (including brokerage charges) incurred by the Fund 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
Fund or to any shareholder of the Fund 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 Fund.
(d) Each party to this Agreement shall indemnify and
hold harmless the other party and the shareholders, directors, 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 Director or officer of the Fund, 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
Fund's employment of the Adviser is not an exclusive arrangement. The Fund 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 Fund 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 Fund's Board of Directors.
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 Fund at least annually by (i) the Board of
Directors or by the vote of a majority of the outstanding
-26-
voting securities of the Fund and (ii) the vote of a majority of the
Directors of the Fund 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 Fund at
any time without payment of any penalty, by the Board of Directors or by vote
of a majority of the outstanding voting securities of the Fund, upon sixty (60)
days' written notice to the Adviser, and by the Adviser upon sixty (60) days'
written notice to the Fund. In the event of a termination, the Adviser shall
cooperate in the orderly transfer of the Fund's affairs and, at the request of
the Board of Directors, transfer any and all books and records of the Fund
maintained by the Adviser on behalf of the Fund.
(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 MUTUAL FUNDS, INC., KINETICS ASSET MANAGEMENT, INC.
on behalf of its series, The Medical Fund
By:_________________________________ By:_________________________________
Name: Name:
Title: Title:
121314
-27-
SCHEDULE A
ANNUAL FEE RATE
The Medical Fund 1.25% of average daily net assets
-28-
