EXHIBIT 9(d)(7)
THE PBHG FUNDS, INC.
FORM OF EXPENSE LIMITATION AGREEMENT
EXPENSE LIMITATION AGREEMENT, effective as of April __, 1996, by and
between Pilgrim Xxxxxx & Associates, Ltd. (the "Adviser") and The PBHG Funds,
Inc. (the "Fund"), on behalf of the PBHG Small Cap Value Fund (the "Portfolio").
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 company of the series type, and the Portfolio is one
of the series of the Fund; and
WHEREAS, the Fund and the Adviser have entered into an Investment
Advisory Agreement (the "Advisory Agreement"), pursuant to which the Adviser
will render investment advisory services to the Portfolio for compensation based
on the value of the average daily net assets of the Portfolio; and
WHEREAS, the Fund and the Adviser have determined that it is
appropriate and in the best interests of the Portfolio and its shareholders to
maintain the expenses of the Portfolio at a level below the level to which the
Portfolio would normally be subject during its start-up period.
NOW THEREFORE, the parties hereto agree as follows:
1. Expense Limitation
1.1 Applicable Expense Limit. To the extent that the aggregate expenses
of every character incurred by the Portfolio in any fiscal year, including but
not limited to investment advisory fees of the Adviser (but excluding interest,
taxes, brokerage commissions, and other expenditures which are capitalized in
accordance with generally accepted accounting principles, and other
extraordinary expenses not incurred in the ordinary course of the Portfolio's
business) ("Portfolio Operating Expenses"), exceed the Operating Expense Limit,
as defined in Section 1.2 below, such excess amount (the "Excess Amount") shall
be the liability of the Adviser.
1.2 Operating Expense Limit. The Operating Expense Limit in any year
shall be 1.50% of the average daily net assets of the Portfolio, or such other
rate as may be agreed to in writing by the parties.
1.3 Method of Computation. To determine the Adviser's liability with
respect to the Excess Amount, each month the Portfolio Operating Expenses for
the Portfolio shall be annualized as of the last day of the month. If the
annualized Portfolio Operating Expenses for any month exceed the Operating
Expense Limit, the Adviser shall first waive or reduce its investment management
fee for such month by an amount sufficient to reduce the annualized Portfolio
Operating Expenses to an amount no higher than the Operating Expense Limit. If
the
amount of the waived or reduced investment advisory fee for any such month is
insufficient to pay the Excess Amount, the Adviser may also remit to the
Portfolio an amount that, together with the waived or reduced advisory fee, is
sufficient to pay such Excess Amount.
1.4 Year-End Adjustment. If necessary, on or before the last day of the
first month of each fiscal year, an adjustment payment shall be made by the
appropriate party in order that the amount of the advisory fees waived or
reduced and other payments remitted by the Adviser to the Portfolio with respect
to the previous fiscal year shall equal the Excess Amount.
2. Reimbursement of Fee Waivers and Expense Reimbursements.
2.1 Reimbursement. If in any year during which total Portfolio assets
are greater than $75 million and in which the Advisory Agreement is still in
effect, the estimated aggregate Portfolio Operating Expenses for the fiscal year
are less than the Operating Expense Limit for that year, subject to quarterly
approval by the Fund's Board of Directors as provided in Section 2.2 below, the
Adviser shall be entitled to reimbursement by the Portfolio, in whole or in part
as provided below, of the advisory fees waived or reduced and other payments
remitted by the Adviser to the Portfolio pursuant to Section 1 hereof. The total
amount of reimbursement to which the Adviser may be entitled (the "Reimbursement
Amount") shall equal, at any time, the sum of all investment advisory fees
previously waived or reduced by the Adviser and all other payments remitted by
the Adviser to the Portfolio, pursuant to Section 1 hereof, during any of the
previous two (2) fiscal years, less any reimbursement previously paid by the
Portfolio to the Adviser, pursuant to Sections 2.2 or 2.3 hereof, with respect
to such waivers, reductions, and payments. The Reimbursement Amount shall not
include any additional charges or fees whatsoever, including, e.g., interest
accruable on the Reimbursement Amount.
2.2 Board Approval. No reimbursement shall be paid to the Adviser
pursuant to this provision in any fiscal quarter, unless the Fund's Board of
Directors has determined that the payment of such reimbursement is in the best
interests of the Portfolio and its shareholders. The Fund's Board of Directors
shall determine quarterly in advance whether any reimbursement may be paid to
the Adviser in such quarter.
2.3 Method of Computation. To determine the Portfolio's payments, if
any, to reimburse the Adviser for the Reimbursement Amount, each month the
Portfolio Operating Expenses shall be annualized as of the last day of the
month. If the annualized Portfolio Operating Expenses for any month are less
than the Operating Expense Limit, the Portfolio, only with the prior approval of
the Board, shall pay to the Adviser an amount sufficient to increase the
annualized Portfolio Operating Expenses to an amount no greater than the
Operating Expense Limit, provided that such amount paid to the Adviser will in
no event exceed the total Reimbursement Amount.
2.4 Year-End Adjustment. If necessary, on or before the last day of the
first month of each fiscal year, an adjustment payment shall be made by the
appropriate party in order that
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the actual Portfolio Operating Expenses for the prior fiscal year (including any
reimbursement payments hereunder with respect to such fiscal year) do not exceed
the Operating Expense Limit.
3. Term and Termination of Agreement.
This Agreement shall continue in effect for a period of one year from
the date of its execution and from year to year thereafter provided such
continuance is specifically approved by a majority of the Directors of the Fund
who (i) are not "interested persons" of the Fund or any other party to this
Agreement, as defined in the Act, and (ii) have no direct or indirect financial
interest in the operation of this Agreement ("Non-Interested Directors").
Nevertheless, this Agreement may be terminated by either party hereto, without
payment of any penalty, upon 90 days' prior written notice to the other party at
its principal place of business; provided that, in the case of termination by
the Fund, such action shall be authorized by resolution of a majority of the
Non-Interested Directors of the Fund or by a vote of a majority of the
outstanding voting securities of the Fund.
4. Miscellaneous.
4.1 Captions. The captions in this Agreement are included for
convenience of reference only and in no other way define or delineate any of the
provisions hereof or otherwise affect their construction or effect.
4.2 Interpretation. Nothing herein contained shall be deemed to require
the Fund or the Portfolio to take any action contrary to the Fund's 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
Fund's Board of Directors of its responsibility for and control of the conduct
of the affairs of the Fund or the Portfolio.
4.3 Definitions. Any question of interpretation of any term or
provision of this Agreement, including but not limited to the investment
advisory fee, the computations of net asset values, and the allocation of
expenses, having a counterpart in or otherwise derived from the terms and
provisions of the Advisory Agreement or the 1940 Act, shall have the same
meaning as and be resolved by reference to such Advisory Agreement or the 1940
Act.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be signed
by their respective officers thereunto duly authorized and their respective
corporate seals to be hereunto affixed, as of the day and year first above
written.
ATTEST: THE PBHG FUNDS, INC. ON BEHALF OF
PBHG SMALL CAP VALUE FUND
/s/ By: /s/
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Secretary
ATTEST: PILGRIM XXXXXX & ASSOCIATES, LTD.
/s/ By: /s/
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