Exhibit (5)(b)
INVESTMENT ADVISORY AGREEMENT
Between
PENN SERIES FUNDS, INC.
and
INDEPENDENCE CAPITAL MANAGEMENT, INC.
INVESTMENT ADVISORY AGREEMENT, made as of the first day of November, 1992
by and between PENN SERIES FUNDS, INC. ("Penn Series"), a corporation organized
and existing under the laws of the State of Maryland, and INDEPENDENCE CAPITAL
MANAGEMENT, INC. ("Adviser"), a corporation organized and existing under the
laws of the Commonwealth of Pennsylvania.
WITNESSETH:
WHEREAS, Penn Series is an open-end management investment company
registered as such under the federal Investment Company Act of 1940, as amended
(the "Act"); and
WHEREAS, Penn Series is authorized to issue shares in separate series with
each series representing interests in a separate fund of securities and other
assets; and
WHEREAS, Adviser is engaged principally in the business of rendering
investment advisory services and is registered as an investment adviser under
the federal Investment Advisers Act of 1940, as amended; and
WHEREAS, Penn Series desires Adviser to render investment advisory
services, and certain accounting and related services, to Penn Series in the
manner and on the terms and conditions hereinafter set forth:
NOW, THEREFORE, in consideration of the premises and the mutual promises
hereinafter set forth, the parties hereto agree as follows:
1. Investment Advisory Services. Adviser shall serve as investment
adviser and shall supervise and direct the investments of the Growth Equity Fund
(formerly the "Growth Stock Fund"), the Quality Bond Fund (formerly the "Fixed
Income Fund"), and the Money Market Fund of Penn Series (collectively, "the
Funds") in accordance with the investment objectives, program and restrictions
applicable to each such Fund as provided in Penn Series' prospectus and
statement of additional information, as amended from time to time, and such
other limitations as may be imposed by law or as Penn Series may impose with
notice in writing to Adviser. No investment will be made by Adviser for any of
the Funds if that investment is in violation of the objectives, program,
restrictions or limitations of that Fund. Adviser shall not take custody of any
assets of Penn Series, but shall issue settlement instructions to the custodian
designated by Penn Series (the "Custodian"). Adviser shall obtain and evaluate
such information relating to the economy, industries, businesses, securities
markets and securities as it may deem necessary or useful in the discharge of
its obligations hereunder and shall formulate and implement a continuing
program for the management of the assets and resources of the Funds in a manner
consistent with the investment objectives of that Fund. In furtherance of this
duty, Adviser, as agent and attorney-in-fact with respect to Penn Series, is
authorized, in its discretion and without prior consultation with Penn Series,
to:
(i) buy, sell, exchange, convert, lend, and otherwise trade in any
stocks, bonds, and other securities or assets; and
(ii) place orders and negotiate the commissions (if any) for the
execution of transactions in securities with or through such
brokers, dealers, underwriters or issuers as Adviser may select,
in conformance with the provisions of Paragraph 4 herein;
provided, however, that Adviser shall make no investment for any of the Funds
that is in violation of the objectives, program, restrictions or limitations of
that Fund.
2. Accounting and Related Services. Adviser agrees to cooperate with
the Accounting Services Agent appointed by Penn Series pursuant to the
Accounting Services Agreement. As requested from time to time, Adviser shall
provide Penn Series and its Accounting Services Agent with such information as
may be reasonably necessary to properly account for financial transactions with
respect to each of the Funds.
3. Fees.
A. Fee Rate. For all of the services rendered to Penn Series
hereunder, Adviser shall be paid a fee by Penn Series, at the
annual rates of each Fund's average daily net assets as follows:
2
Annual Rate for
Average Daily Net Annual Rate for
Assets Up to and Average Daily Net
Including One- Assets Over One-
Hundred Million Hundred Million
Dollars Dollars
Fund ($100,000,000) ($100,000,000)
---- ------------------ ------------------
Growth Equity Fund 0.50% 0.45%
(Formerly the
"Growth Stock Fund")
Quality Bond Fund 0.45% 0.40%
(Formerly the
"Fixed Income Fund")
Money Market Fund 0.40% 0.35%
B. Method of computation. The fee for each of the Funds shall be accrued for
each calendar day and the sum of the daily fee accruals shall be paid monthly to
Adviser as of the first business day of the next succeeding calendar month. The
daily fee accruals will be computed by multiplying the fraction of one over the
number of calendar days in the year by the annual rate applicable to the Fund as
set forth above, and multiplying this product by the net assets of the Fund. The
Fund's net assets, for purposes of the calculations described above, will be
determined in accordance with Penn Series' prospectus and statement of
additional information as of the close of business on the most recent previous
business day on which Penn Series was open for business.
C. Expense Limitation. With respect to each of the Funds, to the extent that
the Fund's total expenses for a fiscal year (excluding interest, taxes,
brokerage, other expenses which are capitalized in accordance with generally
accepted accounting principles, and extraordinary expenses, but including
investment advisory and administrative and corporate services fees before any
adjustment pursuant to this provision) exceed the expense limitation for that
Fund in an amount up to and including .10% of the average daily net assets of
the Fund, such excess amount shall be a liability of Adviser to Penn Series. The
liability (if any) of Adviser to pay Penn Series such excess amount shall be
determined on a daily
3
basis. If, at the end of each month, there is any liability of Adviser to
pay Penn Series such excess amount, the advisory fee shall be reduced by
such liability. If, at the end of each month, there is no liability of
Adviser to pay Penn Series such excess amount and if payments of the
advisory fee at the end of prior months during the fiscal year have been
reduced in excess of that required to maintain expenses within the
expense limitation, such excess reduction shall be recaptured by Adviser
and shall be payable by Penn Series to Adviser along with the advisory
fee payable to Adviser for that month. The expense limitations of the
Funds, as a percentage of the Fund's average daily net assets, are as
follows :
Fund Expense Limitation
---- ------------------
Growth Equity Fund 1.00%
(Formerly the
"Fixed Income
Fund")
Quality Bond Fund 0.90%
(Formerly the
"Fixed Income Fund")
Money Market Fund 0.80%
4. Brokerage. In executing portfolio transactions and selecting brokers
or dealers for any of the Funds, Adviser will use its best efforts to seek the
best price and the most favorable execution of its orders. In assessing the best
price and the most favorable execution for any transaction, Adviser shall
consider the breadth of the market in the security, the price of the security,
the skill, financial condition and execution capability of the broker or dealer,
and the reasonableness of the commission, if any. Where best price and most
favorable execution will not be compromised, Adviser may take into account the
research and related services that the broker provided to Penn Series or the
Adviser. In addition, for the Growth Fund (formerly the "Growth Stock Fund") and
the Quality Bond Fund (formerly the "Fixed Income Fund"), Adviser is authorized
to take into account the sale of variable contracts which are invested in Penn
Series shares in allocating to brokers or dealers purchase and sale orders for
portfolio securities, provided that Adviser believes that the quality of the
transaction and commission are comparable to what they would be with other
qualified firms. Adviser shall regularly advise Penn Series' board of directors
as to all payments of commissions add as to its brokerage policies and practices
and shall follow such instructions with respect thereto as may be given by Penn
Series' board.
5. Use of the Services of Others. Adviser may (at its cost except as
contemplated by Section 4 of this Agreement) employ, retain or otherwise avail
4
itself of the services or facilities of other persons or organizations for the
purpose of providing itself or Penn Series, as appropriate, with such
statistical and other factual information, such advice regarding economic
factors and trends, such advice as to occasional transactions in specific
securities or such other information, advice or assistance as Adviser may deem
necessary, appropriate or convenient for the discharge of its obligations
hereunder or otherwise helpful to Penn Series, or in the discharge of Adviser's
overall responsibilities with respect to the other accounts which it serves as
investment adviser.
6. Personnel, Office Space, and Facilities. Adviser at its own
expense shall furnish or provide and pay the cost of such office space, office
equipment, office personnel, and office services as it, or any affiliated
corporation of Adviser, requires in the performance of services under this
Agreement.
7. Ownership of Software and Related Material. All computer programs,
magnetic tapes, written procedures and similar items developed and used by
Adviser or any affiliate in performance of this Agreement are the property of
Adviser and will not become the property of Penn Series.
8. Certain Personnel. Adviser agrees to permit individuals who are
officers or employees of Adviser to serve (if duly elected or appointed) as
officers, directors, members of any committee of directors, members of any
advisory board, or members of any other committee of Penn Series, without
remuneration or other cost to Penn Series. Adviser shall pay all salaries,
expenses, and fees of officers and/or directors of Penn Series who are
affiliated with Adviser.
9. Reports to Penn Series and Cooperation with Accountants. Adviser,
and any affiliated corporation of Adviser performing services for Penn Series
described in this Agreement, shall furnish to or place at the disposal of
Series, such information, reports, evaluations, analyses and opinions as Penn
Series may, at any time or from time to time, reasonably request or as Adviser
may deem helpful, to reasonably ensure compliance with applicable laws and
regulations or for any other purpose. Adviser and its affiliates shall cooperate
with Penn Series' independent public accountants and take all reasonable action
in the performance of services and obligations under this Agreement to assure
that the information needed by such accountants is made available to them for
the expression of their opinion without any qualification as to the scope of
their examination, including, but not limited to, their opinion included in Penn
Series' annual report under the Act and annual amendment to Penn Series'
registration statement under the Act.
10. Reports to Adviser. Penn Series shall furnish or otherwise make
available to Adviser such prospectuses, financial statements, proxy statements,
reports, and other information relating to the business and affairs of Penn
Series, as Adviser may, at any time or from time to time, reasonably require in
order to
5
discharge its obligations under this Agreement.
11. Ownership of Records. All records required to be maintained and
kept current by Penn Series pursuant to the provisions of rules or regulations
of the Securities and Exchange Commission under Section 31(a) of the Act and
that are maintained and kept current by Adviser or any affiliated corporation of
Adviser on behalf of Penn Series are the property of Penn Series. Such records
will be preserved by Adviser itself or through an affiliated corporation for the
periods prescribed in Rule 3la-2 under the Act, where applicable, or in such
other applicable rules that may be adopted from time to time under the Act. Such
records may be inspected by representatives of Penn Series at reasonable times,
and, in the event of termination of this Agreement, will be promptly delivered
to Penn Series.
12. Services to Other Clients. Nothing herein contained shall limit
the freedom of Adviser or any affiliated person of Adviser to render investment
supervisory and other services to other investment companies, to act as
investment adviser or investment counselor to other persons, firms or
corporations, or to engage in other business activities, but so long as this
Agreement or any extension, renewal or amendment hereof shall remain in effect
as to any particular Fund, or until Adviser shall otherwise consent, Adviser
shall be the only investment adviser to that Fund. It is understood that Adviser
may give advice and take action for its other clients which may from advice
given, or the timing or nature of action taken, for any of the Funds. Adviser is
not obligated to initiate transactions for a Fund in any security which Adviser,
its principals, affiliates or employees may purchase or sell for its or their
own accounts or for other clients.
13. Confidential Relationship. Information furnished by one party to
another, including a party's respective agents and employees, is confidential
and shall not be disclosed to third parties unless required by law. Adviser, on
behalf of itself and its affiliates and representatives, agrees to confidential
all records and other information relating to Penn Series, except after prior
notification to and approval in writing by Penn Series, approval shall not be
unreasonably withheld and may not be withheld where Adviser or any affiliate may
be exposed to civil or criminal contempt proceedings for failure to comply, when
requested to divulge such information by duly constituted authorities, or when
so requested by Penn Series.
14. Proxies. Subject to such direction and oversight by Penn Series
as the Board of Directors of Penn Series shall deem appropriate, Adviser shall
vote proxies solicited by or with respect to the issuers of securities held in
the Funds.
15. Instructions, opinion of Counsel and Signatures. At any time
6
Adviser may apply to an officer of Penn Series for instructions, and may consult
legal counsel for Penn Series, in respect of any matter arising in connection
with this Agreement, and Adviser shall not be liable for any action taken or
omitted by it or by any affiliate in good faith in accordance with such
instructions or with the advice or opinion of Penn Series' legal counsel.
Adviser and its affiliates shall be protected in acting upon any instruction,
advice, or opinion provided by Penn Series or its legal counsel and upon any
other paper or document delivered by Penn Series or its legal counsel believed
by Adviser to be genuine and to have been signed by the proper person or persons
and shall not be held to have notice of any change of authority of any officer
or agent of Penn Series, until receipt of written notice thereof from Penn
Series.
16. Compliance with Governmental Rules and Regulations. Except as
such responsibility may be placed upon Adviser or any affiliate expressly by, or
by fair implication of, the terms of this Agreement, and except for the accuracy
of information furnished to Penn Series by Adviser or any affiliate, Penn Series
assumes full responsibility for the preparation, contents and distribution of
the prospectuses for Penn Series, for complying with all applicable requirements
of the Act, the Securities Exchange Act of 1934, the Securities Act of 1933, and
any other laws, rules and regulations of governmental authorities having
jurisdiction over Penn Series.
17. Limitation of Liability. Neither Adviser nor any of its
affiliates, their officers, directors, employees or agents, or any person
performing executive, administrative, trading, or other functions for Penn
Series (at the direction or request of Adviser), or Adviser or its affiliates in
connection with the discharge of obligations undertaken or reasonably assumed
with respect to this Agreement, shall be liable for any error of judgment or
mistake of law or for any loss suffered by Penn Series in connection with the
matters to which this Agreement relates, except for such error, mistake or loss
resulting from willful misfeasance, bad faith, negligence or misconduct in the
performance of its, his or her duties on behalf of Penn Series or constituting
or resulting from a failure to comply with any term of this Agreement. Adviser
shall not be responsible for any loss incurred by reason of any act or omission
of the Custodian or of any broker, dealer, underwriter or issuer selected by
Adviser with reasonable care.
18. Obligations of Penn Series and Adviser. It is expressly agreed
that the obligations of Penn Series and Adviser hereunder shall not be binding
upon any of their directors, shareholders, nominees, officers, agents or
employees, personally. The execution and delivery of this Agreement have been
authorized by the board of directors and shareholders of Penn Series and signed
by an authorized officer of Penn Series, acting as such, and shall bind Penn
Series.
7
19. Indemnification by Penn Series. Penn Series will indemnify and
hold Adviser harmless from all loss, cost, damage and expense, including
reasonable expenses for legal counsel, incurred by Adviser resulting from: (i)
any action or omitting to act by Adviser or any affiliated corporation, with
respect to any service described in this Agreement, upon instructions reasonably
believed by Adviser or any affiliated corporation to have been executed by an
individual who has been identified in writing by Penn Series as a duly
authorized officer of Penn Series; or (ii) any action by Adviser or any
affiliated corporation, with respect to any service described in this Agreement,
upon information provided by Penn Series in form and under policies agreed to by
Adviser and Penn Series. Adviser shall not be entitled to such indemnification
in respect of actions or omissions constituting negligence or willful misconduct
of Adviser or its affiliates, agents or contractors, or constituting a failure
by Adviser or any affiliate to comply with any term of this Agreement. Prior to
the confession of any claim against Adviser which may be subject to this
indemnification, Adviser shall give Penn Series reasonable opportunity to defend
against said claim in its own name or in the name of Adviser.
20. Indemnification by Adviser. Adviser will indemnify and hold
harmless Penn Series from all loss, cost, damage and expense, including
reasonable expenses for legal counsel, incurred by Penn Series resulting from
any claim, demand, action or suit arising out of Adviser's or any affiliate's
failure to comply with any term of this Agreement or which arise out of the
willful misfeasance, bad faith, negligence or misconduct of Adviser, its
affiliates, their agents or contractors. Penn Series shall not be entitled to
such indemnification in respect of actions or omissions constituting negligence
or willful misconduct of Penn Series or its agents or contractors or
constituting a failure by Penn Series to comply with any term of this Agreement;
provided, that such negligence or misconduct is not attributable to Adviser or
any person that is an affiliate of Adviser or an affiliate of an affiliate of
Adviser. Prior to confessing any claim against it which may be subject to this
indemnification, Penn Series shall give Adviser reasonable opportunity to defend
against said claim in its own name or in the name of Penn Series. For purposes
of this Section 20 and of Section 19 hereof, no broker or dealer shall be deemed
to be acting as agent or contractor of Penn Series, Adviser or any affiliate of
Adviser, in effecting or executing any portfolio transaction for a Fund.
21. Further Assurances. Each party agrees to perform such further
acts and execute such further documents as are necessary to effectuate the
purposes hereof.
22. Dual Interests. It is understood that some person or persons may
be, or from time to time become, directors, officers, or shareholders of both
Penn Series and Adviser (including its affiliates), and that the existence of
any such dual
8
interest shall not affect the validity hereof or of any transactions hereunder
except as otherwise provided by a specific provision of applicable law.
23. Term of Agreement. The term of this Agreement shall begin on the
date first above written, and unless sooner terminated as hereinafter provided,
this Agreement shall remain in effect through October 31, 1993. Thereafter, this
Agreement shall continue in effect from year to year with respect to any given
Fund, subject to the termination provisions and all other terms and conditions
hereof, so long as such continuation shall be specifically approved at least
annually (a) by either the board of directors of Penn Series, or by a vote of a
majority of the outstanding voting securities of the series of shares of Penn
Series representing interests in that Fund; (b) in either event by the vote,
cast in person at a meeting called for the purpose of voting on such approval,
of a majority of the directors of Penn Series who are not parties to this
Agreement or interested persons of any such party; and (c) Adviser shall not
have notified Penn Series, in writing, at least 90 days prior to October 31,
1993 or prior to October 31 of any year thereafter, that it does not desire such
continuation. Adviser shall furnish to Penn Series, promptly upon its request,
such information as may reasonably be necessary to evaluate the terms of this
Agreement with respect to each Fund or any extension, renewal or amendment
hereof.
24. Amendment and Assignment of Agreement. This Agreement may not be
amended or assigned as to any particular Fund without the affirmative vote of a
majority of the outstanding voting securities of the series of shares of Penn
Series representing interests in that Fund, and, without affecting any claim for
damages or other right that Penn Series may have as a result thereof, this
Agreement shall automatically and immediately terminate as to any Fund in the
event of its assignment with respect to that Fund.
25. Termination of Agreement. This Agreement may be terminated as to
any Fund by Penn Series or by Adviser, without the payment of any penalty, upon
60 days' prior notice in writing from Penn Series to Adviser, or upon 90 days'
prior notice in writing from Adviser to Penn Series; provided, that in the case
of termination by Penn Series, such action shall have been authorized by
resolution of a majority of its directors who are not parties to this Agreement
or interested persons of any such party, or by vote of a majority of the
outstanding voting securities of the series of shares of Penn Series
representing interests in that Fund.
26. Miscellaneous.
A. Captions. The captions in this Agreement are included for
convenience of reference only and in no way define or delineate
any of the provisions hereof or otherwise affect their
construction or
9
effect.
B. Interpretation. Nothing herein contained shall be deemed to
require Penn Series to take any action contrary to its Articles
of Incorporation or By-Laws, or any applicable statutory or
regulatory requirement to which it is subject or by which it is
bound, or to relieve or deprive the board of directors of Penn
Series of its responsibility for and control of the conduct of
the affairs of Penn Series.
C. Definitions. Any question of interpretation of any term or
provision of this Agreement having a counterpart in or otherwise
derived from a term or provision of the Act shall be resolved by
reference to such term or provision of the Act and to
interpretations thereof, if any, by the United States courts or,
in the absence of any controlling decision of any such court, by
rules, regulations or orders of the Securities and Exchange
Commission validly issued pursuant to the Act. Specifically, the
terms "vote of a majority of the outstanding voting securities,"
"interested person," "assignment," and "affiliated person," as
used herein, shall have the meanings assigned to them by Section
2(a) of the Act. In addition, where the effect of a requirement
of the Act reflected in any provision of this Agreement is
relaxed by a rule, regulation or order of the Securities and
Exchange Commission, whether of special or of general
application, such provision shall be deemed to incorporate the
effect of regulation or order.
D. Notice. Notice under the Agreement shall be in addressed and
delivered or sent by registered or certified mail, postage
prepaid, to the addressed party at such address as such party may
designate for the receipt of such notices. Until further notice,
it is agreed that for this purpose the address of Penn Series is
000 Xxxxxxx Xxxx, Xxxxxxx XX 00000, Attention: C. Xxxxxx Xxxxxx,
Associate General Counsel, and that of Adviser is 000 Xxxxxxx
Xxxx, Xxxxxxx, XX 00000, Attention: Xxxxxxx X. Xxxxx, President.
10
E. State Law. The Agreement shall be construed and enforced in
accordance with and governed by the laws of the State of Maryland
except where such state laws have been preempted by Federal law.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the day and
year first above written.
Attest: PENN SERIES FUNDS, INC.
/s/ C. Xxxxxx Xxxxxx By: /s/ Xxxxxxx X. Xxxxx
----------------------------- ------------------------------
Secretary Xxxxxxx X. Xxxxx
President
Attest: INDEPENDENCE CAPITAL
MANAGEMENT, INC.
/s/ C. Xxxxxx Xxxxxx By: /s/ Xxxxxxx X. Xxxxx
----------------------------- ------------------------------
Assistant Secretary Xxxxxxx X. Xxxxx
President
11
