EXHIBIT 5(a)(3)
THE PBHG FUNDS, INC.
INVESTMENT ADVISORY AGREEMENT
AGREEMENT, effective commencing on April 28, 1995, between Pilgrim ▇▇▇▇▇▇ &
Associates (the "Adviser") and The PBHG Funds, Inc. (the "Fund").
WHEREAS, the Fund is a Maryland corporation organized under Articles of
Incorporation dated July 31, 1992, (the "Articles") and is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end,
diversified management investment company;
WHEREAS, the Fund wishes to retain the Adviser to render investment
advisory services to the Fund and the Adviser is willing to furnish such
services to the portfolios listed on Schedule A hereto (the "Portfolios");
WHEREAS, the Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended (the "Advisers Act");
NOW THEREFORE, in consideration of the promises and mutual covenants herein
contained, it is agreed between the Fund and the Adviser as follows:
1. Appointment. The Fund hereby appoints the Adviser to act as investment
adviser to the Fund for the periods and on the terms set forth in this
Agreement. The Adviser accepts such appointment and agrees to furnish the
services herein set forth, for the compensation herein provided.
2. Investment Advisory Duties. Subject to the supervision of the Directors of
the Fund, the Adviser will, (a) provide a program of continuous investment
management for the Portfolios in accordance with the Portfolios' investment
objectives, policies and limitations as stated in each Portfolio's prospectus
and Statement of Additional Information included as part of the Fund's
Registration Statement filed with the Securities and Exchange Commission, as
they may be amended from time to time, copies of which shall be provided to the
Adviser by the Fund; (b) make investment decisions for the Portfolios; and (c)
place orders to purchase and sell securities for the Portfolios.
In performing its investment management services to the Portfolios
hereunder, the Adviser will provide the Portfolios with ongoing investment
guidance and policy direction, including oral and written research, analysis,
advice, statistical and economic data and judgments regarding individual
investments, general economic conditions and trends and long-range investment
policy. The Adviser will determine the securities, instruments, repurchase
agreements, options, futures and other investments and techniques that the
Portfolios will purchase, sell, enter into or use, and will provide an ongoing
evaluation of the Portfolios' investments. The Adviser will determine what
portion of the Portfolios' investments shall be invested in securities and other
assets, and what portion, if any, should be held uninvested. The
Adviser shall furnish to the Fund adequate (i) office space, which may be space
within the offices of the Adviser or in such other places as may be agreed upon
from time to time and (ii) office furnishings, facilities and equipment as may
be reasonably required for managing the corporate affairs and conducting the
business of the Fund, including complying with the corporate reporting
requirements of the various states in which the Fund does business, and
conducting correspondence and other communications with the stockholders of the
Fund. The Adviser shall employ or provide and compensate the executive,
secretarial and clerical personnel necessary to provide such services. Subject
to the approval of the Board of Directors (including a majority of the Fund's
Directors who are not "interested persons" of the Fund as defined in the ▇▇▇▇
▇▇▇) and of the shareholders of the Fund, the Adviser may delegate to a
sub=adviser its duties enumerated in Section 2 hereof. The Adviser shall
continue to supervise the performance of any such sub-adviser and shall report
regularly thereon to the Fund's Board of Directors. The Adviser further agrees
that, in performing its duties hereunder, it will:
(a) comply with the 1940 Act and all rules and regulations thereunder, the
Advisers Act, the Internal Revenue Code (the "Code") and all other applicable
federal and state laws and regulations, and with any applicable procedures
adopted by the Directors;
(b) use reasonable efforts to manage each Portfolio so that it will
qualify, and continue to qualify, as a regulated investment company under
Subchapter M of the Code and regulations issued thereunder;
(c) place orders pursuant to its investment determinations for each
Portfolio directly with the issuer, or with any broker or dealer, in accordance
with applicable policies expressed in each Portfolio's prospectus and/or
Statement of Additional Information and in accordance with applicable legal
requirements;
(d) furnish to the Fund whatever statistical information the Fund may
reasonably request with respect to each Portfolio's assets or contemplated
investments. In addition, the Adviser will keep the Fund and the Directors
informed of developments materially affecting each Portfolio's investments and
shall, on the Adviser's own initiative, furnish to the Fund from time to time
whatever information the Adviser believes appropriate for this purpose;
(e) make available to the Fund, promptly upon its request, such copies of
the Adviser's investment records and ledgers with respect to the Portfolios as
may be required to assist the Fund in its compliance with applicable laws and
regulations. The Adviser will furnish the Directors with such periodic and
special reports regarding each Portfolio as they may reasonably request; and
(f) immediately notify the Fund in the event that the Adviser or any of its
affiliates; (1) becomes aware that it is subject to a statutory disqualification
that prevents the Adviser from serving as investment adviser pursuant to this
Agreement; or (2) becomes aware that it is the subject of an administrative
proceeding or enforcement action by the Securities and Exchange Commission
("SEC") or other regulatory authority. The Adviser further agrees to notify the
Fund immediately of any material fact known to the Adviser respecting or
relating to the Adviser that is not contained in the Fund's Registration
Statement, or any amendment or supplement
thereto, but that is required to be disclosed therein, and of any statement
contained therein that becomes untrue in any material respect.
3. Additional Services. If the Fund so requests, the Adviser shall also
maintain all internal bookkeeping, accounting and auditing services and records
in connection with maintaining the Fund's financial books and records, and shall
calculate each Portfolio's daily net asset value. For these services, each
Portfolio shall pay to the Adviser a monthly fee, which shall be in addition to
the fees payable pursuant to Section 5 hereof, to reimburse the Adviser for its
costs, without profit, for performing such services.
4. Allocation of Charges and Expenses. Except as otherwise specifically
provided in this Section 4, the Adviser shall pay the compensation and expenses
of all its directors, officers and employees who serve as officers and executive
employees of the Fund (including the Fund's share of payroll taxes for such
persons), and the Adviser shall make available, without expense to the Fund, the
service of its directors, officers and employees who may be duly-elected
officers of the Fund, subject to their individual consent to serve and to any
limitations imposed by law.
The Adviser shall not be required to pay any expenses of the Fund other
than those specifically allocated to the Adviser in this Section 4. In
particular, but without limiting the generality of the foregoing, the Adviser
shall not be responsible, except to the extent of the reasonable compensation of
such of the Fund's employees as are officers or employees of the Adviser whose
services may be involved, for the following expenses of the Fund; organization
and certain offering expenses of the Fund (including out-of-pocket expenses, but
not including the Adviser's overhead and employee costs); fees payable to the
Adviser and to any other Fund advisers or consultants; legal expenses; auditing
and accounting expenses; interest expenses; telephone, telex, facsimile, postage
and other communications expenses; taxes and governmental fees; fees, dues and
expenses incurred by or with respect to the Fund in connection with membership
in investment company trade organizations; costs of insurance relating to
fidelity coverage for the Fund's officers and employees; fees and expenses of
the Fund's custodian, any sub-custodian, transfer agent registrar, or dividend
disbursing agent; payments to the Adviser for maintaining the Fund's financial
books and records and calculating the daily net asset value pursuant to Section
3 hereof, other payments for portfolio pricing or valuation services to pricing
agents, accountants, bankers and other specialists, if any; expenses of
preparing share certificates; other expenses in connection with the issuance,
offering, distribution, sale or redemption of securities issued by the Fund;
expenses relating to investor and public relations; expenses of registering and
qualifying shares of the Fund for sale; freight, insurance and other charges in
connection with the shipment of the Fund's portfolio securities; brokerage
commissions or other costs of acquiring or disposing of any portfolio securities
or other assets of the Fund, or of entering into other transactions or engaging
in any investment practices with respect to the Fund; expenses of printing and
distributing prospectuses, Statements of Additional Information, reports,
notices and dividends to stock-holders; costs of stationery; any litigation
expenses; costs of stockholders' meetings; the compensation and all expenses
(specifically including travel expenses relating to the Fund's business) of
officers, directors and employees of the Fund who are not interested persons of
the Adviser; and travel expenses (or an appropriate portion thereof) of officers
or directors of the Fund who are officers, directors or
employees of the Adviser to the extent that such expenses relate to attendance
at meetings of the Board of Directors of the Fund with respect to matters
concerning the Fund, or any committees thereof or advisers thereto.
5. Compensation. As compensation for the services provided and expenses
assumed by the Adviser under this Agreement, except for any additional services
provided by the Adviser pursuant to Section 3 hereof, each Portfolio will pay
the Adviser at the end of each calendar month an advisory fee as set forth in
Schedule A hereto. The advisory fee is computed daily as a percentage of each
Portfolio's average daily net assets. The "average daily net assets" of a
Portfolio shall mean the average of the values placed on the Portfolio's net
assets as of 4:00 p.m. (Eastern time) on each day on which the net asset value
of the Portfolio is determined consistent with the provisions of Rule 22c-1
under the 1940 Act or, if the Portfolio lawfully determines the value of its net
assets as of some other time on each business day, as of such other time. The
value of net assets of the Portfolio shall always be determined pursuant to the
applicable provisions of the Articles and the Registration Statement. If,
pursuant to such provisions, the determination of net asset value is suspended
for any particular business day, then for the purposes of this Section 5, the
value of the net assets of the Portfolio as last determined shall be deemed to
be the value of its net assets as of the close of regular trading on the New
York Stock Exchange, or as of such other time as the value of the net assets of
the Portfolio's securities may lawfully be determined, on that day. If the
determination of the net asset value of the shares of a Portfolio has been so
suspended for a period including any month and when the Adviser's compensation
is payable at the end of such month, then such value shall be computed on the
basis of the value of the net assets of the Portfolio as last determined
(whether during or prior to such month). If the Portfolio determines the value
of the net assets more than once on any day, then the last such determination
thereof on that day shall be deemed to be the sole determination thereof on that
day for the purposes of this Section 5.
In the event that the Adviser's gross compensation hereunder shall, when
added to the other expenses of a Portfolio, cause the aggregate expenses of the
Portfolio to exceed the maximum expenses permitted under the lowest applicable
expense limitation established pursuant to the statutes or regulations of any
jurisdiction in which the shares of the Portfolio may be qualified for offer and
sale, the total compensation paid or payable to the Adviser shall be reduced
(but not below zero), to the extent necessary to cause the Portfolio not to
exceed such expense limitation. Except to the extent that such reduction has
been reflected in lowered monthly payments to the Adviser, the Adviser shall
refund to the Portfolio the amount by which the total of payments received by
the Adviser are in excess of such expense limitation as promptly as practicable
after the end of such fiscal year, provided that the Adviser shall not be
required to pay the Portfolio an amount greater than the fee otherwise payable
to the Adviser in respect of such year. As used in this Section 5, "expenses"
shall mean those expenses included in the applicable expense limitation having
the broadest specifications thereof, and "expense limitation" mean a limitation
on the maximum annual expenses which may be incurred by an investment company as
determined by applicable law. The words "lowest applicable expense limitation"
shall be deemed to be that which results in the largest reduction of the
Adviser's compensation for any fiscal year of a Portfolio; provided, however,
that nothing in this Agreement shall limit the Adviser's fees if not required by
an applicable statute or regulation referred to above in this Section 5.
6. Books and Records. The Adviser agrees to maintain such books and records
with respect to its services to the Fund as are required by Section 31 under the
1940 Act, and rules adopted thereunder, and by other applicable legal
provisions, and to preserve such records for the periods and in the manner
required by that Section, and those rules and legal provisions. The Adviser also
agrees that records it maintains and preserves pursuant to Rules 31a-1 and 31a-2
under the 1940 Act as otherwise in connection with its services hereunder are
the property of the Fund and will be surrendered promptly to the Fund upon its
request. And the Adviser further agrees that it will furnish to regulatory
authorities having the requisite authority any information or reports in
connection with its services hereunder which may be requested in order to
determine whether the operations of the Fund are being conducted in accordance
with applicable law and regulations.
7. Standard of Care and Limitation of Liability. The Adviser shall exercise
its best judgment in rendering the services provided by it under this Agreement.
The Adviser shall not be liable for any error of judgment or mistake of law or
for any loss suffered by the Fund or the holders of the Fund's shares in
connection with the matters to which this Agreement relates, provided that
nothing in this Agreement shall be deemed to protect or purport to protect the
Adviser against any liability to the Fund or to holders of the Fund's shares to
which the Adviser would otherwise be subject by reason of willful misfeasance,
bad faith or gross negligence on its part in the performance of its duties or by
reason of the Adviser's reckless disregard of its obligations and duties under
this Agreement. As used in this Section 7, the term "Adviser" shall include any
officers, directors, employees or other affiliates of the Adviser performing
services with respect to the Fund.
8. Services Not Exclusive. It is understood that the services of the Adviser
are not exclusive, and that nothing in this Agreement shall prevent the Adviser
from providing similar services to other investment companies or to other series
of investment companies, or from engaging in other activities , provided such
other services and activities do not, during the term of the Agreement,
interfere in a material manner with the Adviser's ability to meet its
obligations to the Fund hereunder. When the Adviser recommends the purchase or
sale of the same security for a Portfolio, it is understood that in light of its
fiduciary duty to the Portfolio, such transactions will be executed on a basis
that is fair and equitable to the Portfolio. In connection with purchases or
sales of portfolio securities for the account of a Portfolio, neither the
Adviser nor any of its directors, officers or employees shall act as a principal
or agent or receive any commission, provided that portfolio transactions for a
Portfolio may be executed through firms affiliated with the Adviser, in
accordance with applicable legal requirements. If the Adviser provides any
advice to its clients concerning the shares of the Fund, the Adviser shall act
solely as investment counsel for such clients and not in any way on behalf of
the Fund.
9. Duration and Termination. This Agreement shall continue until April 28,
1997, and thereafter shall continue automatically for successive annual periods,
provided such continuance is specifically approved at least annually by (i) the
Directors or (ii) a vote of a "majority" (as defined in the ▇▇▇▇ ▇▇▇) of each
Portfolio's outstanding voting securities (as defined in the 1940 Act), provided
that in either event the continuance is also approved by a majority of the
Directors who are not "interested persons" (as defined in the ▇▇▇▇ ▇▇▇) of any
party to this Agreement, by vote cast in person at a meeting called for the
purpose of voting on such
approval. Notwithstanding the foregoing, this Agreement may be terminated as to
a Portfolio (a) at any time without penalty by the Fund upon the vote of a
majority of the Directors or by vote of the majority of the Portfolio's
outstanding voting securities, upon sixty (60) days' written notice to the
Adviser or (b) by the Adviser at any time without penalty, upon sixty (60) days'
written notice to the Fund. This Agreement will also terminate automatically in
the event of its assignment (as defined in the 1940 Act).
10. Amendments. 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 amendment of this Agreement shall be effective
until approved by an affirmative vote of (i) a majority of the outstanding
voting securities of the Fund, and (ii) a majority of the Directors, including a
majority of Directors who are not interested persons of any party to this
Agreement, cast in person at a meeting called for the purpose of voting on such
approval, if such approval is required by applicable law.
11. Miscellaneous.
a. This Agreement shall be governed by the laws of the State of Maryland,
provided that nothing herein shall be construed in a manner inconsistent with
the 1940 Act, the Advisers Act, or rules or orders of the SEC thereunder.
b. The captions of this Agreement are included for convenience only and in
no way define or limit any of the provisions hereof or otherwise affect their
construction or effect.
c. 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 hereby and, to this extent, the provisions of this Agreement
shall be deemed to be severable.
d. Nothing herein shall be construed as constituting the Adviser as an
agent of the Fund.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of April 28, 1995.
THE PBHG FUND, INC.
By: __________________________
Title: Vice President
PILGRIM ▇▇▇▇▇▇ & ASSOCIATES
By: __________________________
Title:
Schedule A dated December __, 1996
to the Investment Advisory Agreement dated
April 28, 1995 between The PBHG
Funds, Inc.
and
Pilgrim ▇▇▇▇▇▇ & Associates, Ltd.
Pursuant to Section 5 of this Agreement, each Portfolio shall pay the
Adviser, at the end of each calendar month, compensation computed daily at an
annual rate of the Portfolio's average daily net assets as follows:
Portfolio Fee
--------- ---
PBHG Growth Fund .85%
PBHG Emerging Growth Fund .85%
PBHG International Fund 1.00%
PBHG Large Cap Growth Fund .75%
PBHG Select Equity Fund .85%
PBHG Cash Reserves Fund .30%
PBHG Technology & Communications Fund .85%
PBHG Core Growth Fund .85%
PBHG Limited Fund 1.00%
PBHG Large Cap 20 Fund .85%
PBHG Large Cap Value Fund .85%
PBHG Mid-Cap Value Fund .85%
PBHG Strategic Small Company Fund .85%