INVESTMENT ADVISORY AGREEMENT
Agreement made as of this 7th day of December, 2000 between Threshold
Advisor Funds, Inc., a Maryland corporation (the "Fund"), and Kennedy Capital
Management, Inc. (the "Advisor"), a Missouri corporation.
WHEREAS, the Fund is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end management investment company
consisting of one or more series (portfolios) of shares, each having its own
investment policies; and
WHEREAS, the Advisor is an investment adviser registered with the
Securities and Exchange Commission ("SEC") under the Investment Advisers Act of
1940, as amended; and
WHEREAS, the Fund desires to retain the Advisor as investment adviser
to furnish investment advisory and portfolio management services to the Fund
with respect to its existing portfolios and such other portfolios as the Fund
and the Advisor shall agree upon (collectively, the "Portfolios"), and the
Advisor is willing to furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Fund hereby appoints Advisor as investment adviser
of the Fund and each Portfolio listed on Schedule A of this Agreement (as such
schedule may be amended from time to time) for the period and on the terms set
forth in this Agreement. Advisor accepts such appointment and agrees to render
the services herein set forth for the compensation as set forth on Schedule A.
In the performance of its duties, the Advisor will act in the best interests of
the Fund and each Portfolio and will comply with (a) applicable laws and
regulations, including, but not limited to, the 1940 Act, (b) the terms of this
Agreement, (c) the Fund's Articles of Incorporation, By-Laws and currently
effective registration statement under the Securities Act of 1933, as amended,
and the 1940 Act, and any amendments thereto, (d) the stated investment
objective, policies and restrictions of each applicable Portfolio, and (f) such
other guidelines as the Board of Directors of the Fund ("Board of Directors")
reasonably may establish.
2. Duties as Investment Adviser.
(a) Subject to the supervision of the Board of Directors, the Advisor
will provide a continuous investment program for each Portfolio, including
investment research and management with respect to all securities, investments
and cash equivalents in each Portfolio. The Advisor will determine from time to
time what securities and other investments will be purchased, retained or sold
by each Portfolio. The Advisor will exercise full discretion and act for each
Portfolio in the same manner and with the same force and effect as such
Portfolio itself might or could do with respect to 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 place orders pursuant to its investment
determinations for each Portfolio either directly with the issuer or through
brokers. In the selection of brokers and the placement of orders for the
purchase and sale of portfolio investments for the Portfolios, the Advisor shall
use its best efforts to obtain for the Portfolios the most favorable price and
execution available, except to the extent it may be permitted to pay higher
brokerage commissions for brokerage and research services as described below. In
using its best efforts to obtain the most favorable price and execution
available, the Advisor, bearing in mind the Fund's best interests at all times,
shall consider all factors it deems relevant, including by way of illustration,
price, the size of the transaction, the nature of the market for the security,
the amount of the commission, the timing of the transaction taking into account
market prices and trends, the reputation, experience and financial stability of
the broker involved and the quality of service rendered by the broker in other
transactions. Subject to such policies as the Board of Directors may 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 its having
caused a Portfolio to pay a broker that provides brokerage and research services
to the Advisor an amount of commission for effecting a portfolio investment
transaction in excess of the amount of commission another broker 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, viewed in terms of
either that particular transaction or the Advisor's overall responsibilities
with respect to the Fund and to other clients of the Advisor as to which the
Advisor exercises investment discretion. In no instance will portfolio
securities of any Portfolio be purchased from or sold to the Advisor or any
affiliated person of the Advisor.
(c) The Advisor shall make available to the Board of Directors upon
request any economic, statistical and investment services normally available to
institutional or other customers of the Advisor.
(d) Any of the foregoing functions with respect to any or all
Portfolios may be delegated by the Advisor, at the Advisor's expense, to another
appropriate party (including an affiliated party), subject to such approval by
the Board of Directors and shareholders of each affected Portfolio as may be
required by the 1940 Act. The Advisor shall oversee the performance of delegated
functions by any such party and shall furnish the Fund with quarterly
evaluations and analyses concerning the performance of delegated
responsibilities by those parties.
3. Services Not Exclusive. The services furnished by the Advisor
hereunder are not to be deemed exclusive and the Advisor shall be free to
furnish similar services to others so long as its services under this Agreement
are not impaired thereby.
4. Books and Records. In compliance with the requirements of Rule 3la-3
under the 1940 Act, the Advisor hereby agrees that all records which it
maintains for the Fund are the property of the Fund and further agrees to
surrender promptly to the Fund any of such records upon the Fund's request. The
Advisor further agrees to preserve for the periods prescribed by Rule 3la-2
under the 1940 Act the records required to be maintained by Rule 3la-1 under the
1940 Act.
5. Expenses. During the term of this Agreement, the Fund will bear all
expenses not specifically assumed by the Advisor incurred in its operations and
the offering of its shares. Expenses borne by the Fund will include, but not be
limited to, the following (or each Portfolio's proportionate share of the
following): (a) brokerage commissions relating to securities purchased or sold
by the Fund or any losses incurred in connection therewith; (b) fees payable to
and expenses incurred on behalf of the Fund by the Advisor; (c) expenses of
organizing the Fund and the Portfolios; (d) filing fees and expenses relating to
the registration and qualification of the Fund's shares and the Fund under
federal securities laws and state notice filings and fees and the expenses of
maintaining such registrations and state notice filings; (e) distribution fees;
(f) fees and salaries payable to the members of the Board of Directors and
officers who are not officers or employees of the Advisor or interested persons
(as defined in the 1940 Act) of any investment adviser or distributor of the
Fund; (g) taxes (including any income or franchise taxes) and governmental fees;
(h) costs of any liability, uncollectible items of deposit and other insurance
or fidelity bonds; (i) any costs, expenses or losses arising out of any
liability of or claim for damage or other relief asserted against the Fund for
violation of any law; (j) legal, accounting and auditing expenses, including
legal fees of special counsel for the independent Directors; (k) charges of
custodians, transfer agents and other agents; (l) expenses of setting in type
and printing Prospectuses and supplements thereto for existing shareholders,
reports and statements to shareholders and proxy material; (m) any extraordinary
expenses (including fees and disbursements of counsel) incurred by the Fund; and
(n) fees and other expenses incurred in connection with membership in investment
company organizations.
6. Expense Cap. In the event the total operating expenses of each class
of a Portfolio, including organizational expenses payable in a fiscal year, to
average net assets for the fiscal period commencing on the effective date of
this Agreement and ending December 31, 2001 exceeds the amount set forth on
Schedule B on an annual basis as calculated monthly, Advisor agrees to waive its
fee set forth Schedule A attributable to such period and to pay to the Portfolio
any additional amount of such excess; provided, however, there shall be excluded
from such expenses the amount of any advisory fees, any interest, taxes,
brokerage fees and commissions, 12b-1 distribution fees and expenses and
extraordinary expenses (including but not limited to legal claims and
liabilities and litigation costs and any indemnification related thereto) paid
or payable by a class of any Portfolio. Any fee returned or waived or payments
made by Adviser pursuant hereto shall be reimbursed by a Portfolio in subsequent
fiscal years to the extent operating expenses are less than the percentage
limitation set forth herein; provided, however, that no such reimbursement shall
be made in any fiscal year which is more than five full fiscal years after the
period in which the fee was returned or waived or such payment was made, and all
reimbursements will be credited on a first-in, first-out basis.
7. Compensation. For the services provided and the expenses assumed
pursuant to this Agreement with respect to each Portfolio, the Fund will pay the
Advisor, effective from the date of this Agreement, a fee which is computed
daily and paid monthly from each Portfolio's assets at the annual rates as
percentages of that Portfolio's average daily net assets as set forth in the
attached Schedule A, which schedule can be modified from time to time to reflect
changes in annual rates or the addition or deletion of a Portfolio from the
terms of this Agreement, subject to appropriate approvals required by the 1940
Act. If this Agreement becomes effective or terminates with respect to any
Portfolio before the end of any month, the fee for the period from the effective
date to the end of the month or from the beginning of such month to the date of
termination, as the case may be, shall be prorated according to the proportion
that such period bears to the full month in which such effectiveness or
termination occurs.
8. Limitation of Liability of the Advisor. The Advisor shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Fund or any Portfolio in connection with the matters to which this Agreement
relates except a loss resulting from the willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or from reckless
disregard by it of its obligations and duties under this Agreement. Any person,
even though also an officer, partner, employee, or agent of the Advisor, who may
be or become an officer, Director, employee or agent of the Fund shall be
deemed, when rendering services to the Fund or acting in any business of the
Fund, to be rendering such services to or acting solely for the Fund and not as
an officer, partner, employee, or agent or one under the control or direction of
the Advisor even though paid by it.
9. Duration and Termination. This Agreement shall become effective upon
its execution; provided, that with respect to any Portfolio now existing or
hereafter created, this agreement shall not take effect unless it first has been
approved (i) by a vote of the majority of those Directors of the Fund who are
not parties to this Agreement or interested persons of such party, cast in
person at a meeting called for the purpose of voting on such approval, and (ii)
by vote of a majority of that Portfolio's outstanding voting securities. This
Agreement shall remain in full force and effect continuously thereafter until
terminated without the payment of any penalty as follows:
(a) By vote of a majority of its Directors, or by the affirmative vote
of a majority of the outstanding Shares of such Portfolio, the Fund may at any
time terminate this Agreement with respect to any or all Portfolios by providing
not more than 60 days' written notice delivered or mailed by registered mail,
postage prepaid, to the Advisor at its principal offices; or
(b) With respect to any Portfolio, if (i) the Directors or the
shareholders of that Portfolio by the affirmative vote of a majority of the
outstanding shares of such Portfolio, and (ii) a majority of the Directors who
are not interested persons of the Fund or of the Advisor or of any subadviser,
by vote cast in person at a meeting called for the purpose of voting on such
approval, do not specifically approve at least annually the continuance of this
Agreement, then this Agreement shall automatically terminate at the close of
business on the second anniversary of its execution, or upon the expiration of
one year from the effective date of the last such continuance, whichever is
later; provided, however, that if the continuance of this Agreement is submitted
to the shareholders of a Portfolio for their approval and such shareholders fail
to approve such continuance of this Agreement as provided herein, the Advisor
may continue to serve hereunder in a manner consistent with the 1940 Act and the
rules and regulations thereunder with respect to that Portfolio; or
(c) The Advisor may at any time terminate this Agreement with respect
to any or all Portfolios by not less than 60 days' written notice delivered or
mailed by registered mail, postage prepaid to the Fund.
(d) This Agreement automatically and immediately will terminate in the
event of its assignment.
10. Amendment of This Agreement. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought, and no material amendment of this Agreement
with respect to any Portfolio shall be effective until approved by vote of the
holders of a majority of that Portfolio's outstanding voting securities.
11. Governing Law. This Agreement shall be construed in accordance with
the laws of the State of Missouri, without giving effect to the conflicts of
laws principles thereof, and in accordance with the 1940 Act. To the extent that
the applicable laws of the State of Missouri conflict with the applicable
provisions of the 1940 Act, the latter shall control.
12. Definitions. As used in this Agreement, the terms "majority of the
outstanding voting securities," "interested person," and "assignment" shall have
the same meanings as such terms have in the 1940 Act.
13. Severability. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors.
14. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
THRESHOLD ADVISOR FUNDS, INC.
/s/Charles W. Schweizer
President
Attest:
/s/ Charlotte D. Cribbs
Secretary
KENNEDY CAPITAL MANAGEMENT, INC.
/s/Charles W. Schweizer
President
Attest:
/s/ Richard Oliver
Secretary
<PAGE>
Schedule A
to the
Investment Advisory Agreement
As compensation pursuant to section 7 of the Investment Advisory
Agreement between Kennedy Capital Management, Inc. (the "Advisor") and Threshold
Advisor Funds, Inc. (the "Fund"), the Fund shall pay to the Advisor a fee,
computed daily and paid monthly, at the following annual rates as percentages of
each Portfolio's average daily net assets:
(1) For the Threshold Small Cap Value Fund:
Average Daily Advisory Fee as % of
Net Assets Average Daily Net Assets
---------- ------------------------
All 1.00%
(2) For the Threshold Mid Cap Fund:
Average Daily Advisory Fee as % of
Net Assets Average Daily Net Assets
---------- ------------------------
All 0.85%
Dated: December 7, 2000
Schedule B
to the
Investment Advisory Agreement
Pursuant to Section 6 of the Investment Advisory Agreement between
Kennedy Capital Management, Inc. (the "Advisor") and Threshold Advisor Funds,
Inc. (the "Fund"), the Advisor agrees to waive its fee or reimburse the expenses
of each class of a Portfolio to the extent such class total operating expenses
exceed the limits set forth below:
(1) For the Threshold Small Cap Value Fund:
Total Operating Expenses
Class Not to Exceed
----- -------------
A 1.45%
I 1.45%
(2) For the Threshold Mid Cap Fund:
Total Operating Expenses
Class Not to Exceed
----- -------------
A 1.45%
I 1.45%
Dated: December 7, 2000
