INVESTMENT SUB-ADVISORY AGREEMENT
Between
INDEPENDENCE CAPITAL MANAGEMENT, INC.
and
X. XXXX PRICE ASSOCIATES, INC.
Relating to
FLEXIBLY MANAGED FUND
HIGH YIELD BOND FUND
INVESTMENT SUB-ADVISORY AGREEMENT, made as of May 1, 1998 by and
between INDEPENDENCE CAPITAL MANAGEMENT, INC. ("Adviser"), a corporation
organized and existing under the laws of the State of Pennsylvania, and X. XXXX
PRICE ASSOCIATES, INC. ("Sub-Adviser"), a corporation organized and existing
under the laws of the State of Maryland.
WITNESSETH:
WHEREAS, Penn Series Funds, Inc. ("Penn Series") is an open-end
management investment company registered as such under the Investment Company
Act of 1940, as amended (the "Act"), and 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 and Sub-Adviser are engaged principally in the
business of rendering investment advisory services and are registered as
investment advisers under the federal Investment Advisers Act of 1940, as
amended; and
WHEREAS, Adviser renders investment advisory services to Penn Series
pursuant to an investment advisory agreement entered into by Penn Series and
Adviser;
WHEREAS, Adviser desires Sub-Adviser to render investment sub-advisory
services to Penn Series in the manner and on the terms and conditions
hereinafter set forth; and Sub-Adviser desires to render such services, in such
manner and under such terms;
NOW, THEREFORE, in consideration of the premises and the mutual
promises hereinafter set forth, the parties hereto agree as follows:
1. Investment Sub-Advisory Services. Sub-Adviser shall serve as
investment sub-adviser and shall supervise and direct the cash, securities and
other assets of the Flexibly Managed and High Yield Bond Funds (each a "Fund"
and together the "Funds"), and to exercise all rights incidental to ownership in
accordance with the investment objectives, program and restrictions applicable
to the Funds 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
Sub-Adviser. To enable Sub-Adviser to fully exercise its discretion, Adviser
hereby appoints Sub-Adviser as agent and attorney-in-fact for the Funds with
full power and authority to buy, sell and otherwise deal in securities and
contracts for the Funds. No investment will be made by Sub-Adviser for Funds if
that investment would violate the objectives, investment restrictions or
limitations of a Fund set out in the prospectus and the SAI previously delivered
to the Sub-Adviser or to be delivered. Sub-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"). Sub-Adviser shall, in its
discretion, 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 the Funds. In furtherance of this duty, Sub-Adviser, as agent and
attorney-in-fact with respect to Adviser and 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 Sub-Adviser may
select, in conformance with the provisions of Paragraph 4 herein;
and
(iii) take such other actions Sub-Adviser deems to be appropriate;
provided, however, that Sub-Adviser shall make no investment for the Funds that
would violate the objectives, program, restrictions or limitations of the Funds.
2. Accounting and Related Services. Sub-Adviser agrees to cooperate
with the Accounting Services Agent appointed by Penn Series pursuant to the
Accounting Services Agreement entered into by Penn Series and the Accounting
Services Agent. As requested from time to time, Sub-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 the Fund.
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3. Fees.
A. Payment of Fees. For the services Sub-Adviser renders to Penn
Series under this Agreement, Adviser will pay Sub-Adviser fees based
on the average daily net assets of each Fund.
B. Fee Rates. The fee rates, based on the average daily net assets
of each Fund, shall be as follows:
0.50% with respect to the first $250,000,000 of the combined
total average daily net assets of the two Funds;
0.40% with respect to the next $500,000,000 of combined total
average daily net assets of the two Funds;
Provided, the fee rate shall be 0.40% with respect to all average
daily net assets of the two Funds at such time the combined total
average daily net assets of the two Funds exceed $750,000,000.
C. Method of computation. The fee shall be accrued for each calendar
day and the sum of the daily fee accruals shall be paid monthly to
Sub-Adviser as of the first business day of the next succeeding
calendar month. The daily fee 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. A 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. If this Agreement is terminated before the end of the
month, the fee for the period from the beginning of such month to
the date of termination shall be prorated based upon services
provided through the date of termination.
D. Expense Limitation. The expense limitation of each Fund, as a
percentage of the Fund's average daily net assets, is 0.90%. To the
extent that a 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
accounting, administrative and corporate service fees before any
adjustment pursuant to this provision) exceed the expense limitation
for the Fund, one-half of such excess amount shall be a liability of
Sub-Adviser to Adviser. The liability (if any) of Sub-Adviser to pay
Adviser one-half of such excess amount shall be determined on a
daily basis. If, at the end of each month, there is any liability of
Sub-Adviser to pay Adviser such excess amount, the fee shall be
reduced by such liability. If, at the end
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of each month, there is no liability of Sub-Adviser to pay Adviser
such excess amount and if payments of the fee at the end of prior
months during the fiscal year have been reduced in excess of that
required in this subsection, such excess reduction shall be
recaptured by Sub-Adviser and shall be payable by Adviser to
Sub-Adviser along with the fee payable to Sub-Adviser for that
month. If, at the end of the fiscal year, there is any remaining
liability of Sub-Adviser to pay Adviser such excess amount (which
has not been paid through reduction of the fee), Sub-Adviser shall
remit to Adviser an amount sufficient to pay such remaining
liability.
4. Brokerage. In executing portfolio transactions and selecting brokers
or dealers for the Funds, Sub-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, Sub-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, Sub-Adviser may take into account
the research and related services that the broker has provided to the Funds or
the Sub-Adviser. It is understood that the Sub-Adviser will not be deemed to
have acted unlawfully or to have breached a fiduciary duty to the Funds or be in
breach of any obligation owing to the Funds under this Agreement, or otherwise,
by reason of its having directed a securities transaction on behalf of the Funds
to a broker-dealer in compliance with the provisions of Section 28(e) of the
Securities Exchange Act of 1934, as amended, or as described from time to time
in the Penn Series' Prospectus and Statement of Additional Information. In
addition, Sub-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
Sub-Adviser believes that the quality of the transaction and commission are
comparable to what they would be with other qualified firms. Sub-Adviser shall
advise Penn Series' Board of Directors, when requested, as to all payments of
commissions and as to its brokerage policies and practices and shall follow such
reasonable instructions with respect thereto as may be given by Penn Series'
Board.
5. Use of the Services of Others. Sub-Adviser may (at its cost except
as contemplated by Section 4 of this Agreement) employ, retain or otherwise
avail itself of the services or facilities of other persons or organizations for
the purpose of providing Penn Series, Adviser or itself, 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 Sub-Adviser may
deem necessary, appropriate or convenient for the discharge of its obligations
hereunder or otherwise helpful to Penn Series and Adviser, or in the discharge
of Sub-Adviser's overall responsibilities with respect to the other accounts
which it serves as investment adviser.
6. Personnel, Office Space, and Facilities. Sub-Adviser at its own
expense shall furnish or provide and pay the cost of such office space, office
equipment, office personnel, and
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office services as it, or any affiliated corporation of Sub-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
Sub-Adviser or any affiliate in performance of this Agreement are the property
of Sub-Adviser and will not become the property of Penn Series or Adviser.
8. Reports to Penn Series and Cooperation with Accountants.
Sub-Adviser, and any affiliated corporation of Sub-Adviser performing services
for Adviser and Penn Series described in this Agreement, shall furnish to or
place at the disposal of Penn Series and Adviser, such information, reports,
evaluations, analyses and opinions as Penn Series and Adviser may, at any time
or from time to time, reasonably request or as Sub-Adviser may deem helpful, to
reasonably ensure compliance with applicable laws and regulations or for any
other purpose. Sub-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.
9. Reports to Sub-Adviser. Penn Series and/or Adviser shall furnish or
otherwise make available to Sub-Adviser such prospectuses, statements of
additional information, financial statements, proxy statements, reports,
articles of incorporation, by-laws and other information relating to the
business and affairs of Penn Series as Sub-Adviser may, at any time or from time
to time, reasonably require in order to discharge its obligations under this
Agreement. Any printed matter, or other material prepared for distribution to
the stockholders of Penn Series or the public, which refers in any way to
Sub-Adviser or any affiliated corporation of Adviser other than merely to
identify Sub-Adviser as the Sub-Adviser, shall be furnished to Sub-Adviser at
least 14 days prior to use thereof. Penn Series and Adviser shall not use such
material if Sub-Adviser shall object thereto in writing within 7 days after its
receipt by Sub-Adviser. In the event of termination of this Agreement, Penn
Series and Adviser shall, on written request of Sub-Adviser, forthwith delete
any reference to Sub-Adviser or any affiliated corporation of Sub-Adviser from
any materials prepared on behalf of Penn Series.
10. 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 Sub-Adviser or any affiliated
corporation of Sub-Adviser on behalf of Penn Series are the property of Penn
Series. Such records will be preserved by Sub-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 time
under the Act. Such records may be inspected by
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representatives of Penn Series and Adviser at reasonable times and, in the event
of termination of this Agreement, will be promptly delivered to Adviser and Penn
Series upon request.
11. Services to Other Clients. Nothing herein contained shall limit the
freedom of Sub-Adviser or any affiliated person of Sub-Adviser to render
investment supervisory and other services to other investment companies, to act
as investment advisor 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 the Funds, or until Sub-Adviser shall otherwise consent, Sub-Adviser shall
be the only investment Sub-Adviser to the Fund. It is understood that
Sub-Adviser may give advice and taken action for its other clients which may
differ from advice given, or the timing or nature of action taken, for a Fund.
Sub-Adviser is not obligated to initiate transactions for a Fund in any security
which Sub-Adviser , its principals, affiliates or employees may purchase or sell
for its or their own accounts or other clients.
12. Confidential Relationship. Information furnished by Penn Series or
by one party to another, including Penn Series' or a party's respective agents
and employees, is confidential and shall not be disclosed to third parties
unless required by law. Sub-Adviser, on behalf of itself and its affiliates and
representatives, agrees to keep confidential all records and other information
relating to Adviser or Penn Series (as the case may be), except after prior
notification to and approval in writing by Adviser or Penn Series (as the case
may be), which approval shall not be unreasonably withheld, and may not be
withheld, where Sub-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, when so requested by Adviser and
Penn Series.
13. Proxies. Subject to such oversight as the Board of Directors of
Penn Series shall deem appropriate, Sub-Adviser shall vote proxies solicited by
or with respect to the issuers of securities held in a Fund.
14. Instructions, Opinion of Counsel and Signatures. At any time
Sub-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 Sub-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. Sub-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 Sub-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.
15. Compliance with Governmental Rules and Regulations. Except as such
responsibility may be placed upon Sub-Adviser or any affiliate by the terms of
this Agreement, and except for the accuracy of information furnished to Penn
Series by Sub-Adviser or any
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affiliate, Sub-Adviser does not assume responsibility for the preparation,
contents and distribution of the prospectuses for Penn Series, for complying
with any applicable requirements of the Act, the Securities Exchange Act of
1934, the Securities Act of 1933, or any other laws, rules and regulations of
governmental authorities having jurisdiction over Penn Series.
16. Limitation of Liability. Neither Sub-Adviser nor any of its
affiliates, their respective officers, directors, employees or agents, or any
person performing executive, administrative, trading, or other functions for
Penn Series (at the direction or request of Sub-Adviser), or Sub-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 willful 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. Sub-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 Sub-Adviser with reasonable care.
17. Obligations of Adviser and Sub-Adviser. It is expressly agreed that
the obligations of Adviser and Sub-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 in
accordance with the governing documents of each party and in accordance with
applicable law, and shall be signed by an authorized officer of each party,
acting as such, and shall be binding on each party.
18. Indemnification by Adviser. Adviser will indemnify and hold
Sub-Adviser harmless from all loss, cost, damage and expense, including
reasonable expenses for legal counsel, incurred by Sub-Adviser resulting from:
(i) any action or omission of Sub-Adviser or any affiliated corporation, with
respect to any service described in this Agreement, upon instructions reasonably
believed by Sub-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 Adviser; (ii) any action of Sub-Adviser or
any affiliated corporation, with respect to any service described in this
Agreement upon information provided by Penn Series or Adviser in form and under
policies agreed to by Sub-Adviser and Penn Series or Adviser. Sub-Adviser shall
not be entitled to such indemnification in respect of actions or omissions
constituting negligence or willful misconduct of Sub-Adviser or its affiliates,
agents or contractors, or constituting a failure by Sub-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, Sub-Adviser shall
give Adviser reasonable opportunity to defend against said claim in its own name
or in the name of Sub-Adviser.
19. Indemnification by Sub-Adviser. Sub-Adviser will indemnify and hold
harmless Penn Series and Adviser from all loss, cost, damage and expense,
including reasonable expenses
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for legal counsel, incurred by Penn Series and Adviser and resulting from any
claim, demand, action or suit arising out of Sub-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 Sub-Adviser, its
affiliates, their agents or contractors. Neither Penn Series nor Adviser shall
be entitled to such indemnification in respect of actions or omissions
constituting negligence or willful misconduct of Penn Series or Adviser, or
their agents or contractors or constituting a failure by Adviser to comply with
any term of this Agreement; provided, that such negligence or misconduct is not
attributable to Sub-Adviser or any person that is an affiliate of Sub-Adviser or
an affiliate of an affiliate of Sub-Adviser. Prior to confessing any claim
against it which may be subject to this indemnification, Adviser shall give
Sub-Adviser reasonable opportunity to defend against said claim in its own name
or in the name of Adviser. For purposes of this Section 19 and of Section 18
hereof, no broker or dealer shall be deemed to be acting as agent or contractor
of Sub-Adviser or any affiliate of Sub-Adviser, in effecting or executing any
portfolio transaction for the Fund.
20. Further Assurances. Each party agrees to perform such further acts
and execute such further documents as are necessary to effectuate the purposes
hereof.
21. 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 until two years from date of execution.
Thereafter, this Agreement shall continue in effect from year to year with
respect to each 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 the Fund and (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. Sub-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.
22. Amendment and Assignment of Agreement. This Agreement may not be
amended or assigned without the written consent of the parties hereto, and
without the affirmative vote of a majority of the outstanding voting securities
of the series of shares of Penn Series representing interests in the affected
Fund, and, without affecting any claim for damages or other right that any party
hereto may have as a result thereof, this Agreement shall automatically and
immediately terminate in the event of its assignment.
23. Termination of Agreement. This Agreement may be terminated by
Adviser, Penn Series or by Sub-Adviser, with respect to a Fund, without payment
of any penalty, upon 60 days' prior notice in writing from Penn Series to
Sub-Adviser, or upon 90 days' prior notice in writing from Sub-Adviser to Penn
Series; provided, that in the case of termination by Adviser or Penn Series,
such action shall have been authorized by resolution of a majority of its
directors who are
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not interested persons of any party to this Agreement, or by vote of a majority
of the outstanding voting securities of the series of shares of Penn Series
representing interests in the affected Fund.
24. 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 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 terms 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 such rule, regulation or order.
D. Notice. Notice under the Agreement shall be in writing, 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 Adviser is Independence Capital
Management, Inc., 000 Xxxxxxx Xxxx, Xxxxxxx, XX 00000, Attention:
President, and that of Sub-Adviser is X. Xxxx Price Associates, Inc.,
000 Xxxx Xxxxx Xxxxxx, Xxxxxxxxx, Xxxxxxxx 00000, Attention: General
Counsel.
E. State Law. The Agreement shall be construed and enforced in
accordance with and governed by the laws of Maryland except where such
state laws have been preempted by Federal law.
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F. Counterparts. This Agreement may be entered into in counterparts,
each of which when so executed and delivered shall be deemed to be an
original, and together shall constitute one document.
G. Entire Agreement; Severability. This Agreement is the entire
agreement of the parties and supersedes all prior or contemporaneous
written or oral negotiations, correspondence, agreements and
understandings regarding the subject matter hereof. The invalidity or
unenforceability of any provision hereof shall in no way affect the
validity or enforceability of any and all other provisions hereof.
H. No Third Party Beneficiaries. Neither party intends for this
Agreement to benefit any third-party not expressly named in this
Agreement.
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: INDEPENDENCE CAPITAL
MANAGEMENT, INC.
By: /s/ Xxxxx X. Xxxxxxx
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Secretary Xxxxx X. Xxxxxxx
President
Attest: X. XXXX PRICE ASSOCIATES, INC.
/s/ Xxxxx Xxxxxx By:/s/ Xxxxxxx Xxxxxx
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Xxxxx Xxxxxx Xxxxxxx Xxxxxx
Secretary Vice President
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