EXHIBIT 5(h)
SUB-ADVISORY AGREEMENT
This Agreement, made as of this 24th day of July, 1998, by and
between U.S. Bank National Association, a national banking association organized
and existing under the laws of the United States of America (the "Adviser"), and
Federated Investment Counseling, a Delaware business trust (the "Sub-Adviser").
WHEREAS, First American Investment Funds, Inc., a Maryland
corporation ("FAIF"), on behalf of its Strategic Income Fund, a separately
managed series of FAIF ("Strategic Income Fund"), has appointed the Adviser as
Strategic Income Fund's investment adviser pursuant to an Investment Advisory
Agreement dated April 2, 1991, as amended (the "Advisory Agreement"); and
WHEREAS, pursuant to the terms of the Advisory Agreement, the
Adviser desires to appoint the Sub-Adviser as its sub-adviser for Strategic
Income Fund, and the Sub-Adviser is willing to act in such capacity upon the
terms set forth herein; and
WHEREAS, pursuant to the terms of the Advisory Agreement, FAIF has
approved the appointment of the Sub-Adviser as the sub-adviser for Strategic
Income Fund.
NOW, THEREFORE, the Adviser and the Sub-Adviser agree as follows:
1. The Adviser hereby retains the Sub-Adviser, and the Sub-Adviser
hereby agrees to act, as sub-adviser for, and to manage the investment of the
assets of, Strategic Income Fund as follows:
(a) The Adviser shall determine the proportions in which Strategic
Income Fund's assets shall be allocated and re-allocated among (i) U.S.
government and domestic corporate investment grade fixed income
securities; (ii) domestic corporate high yield (as defined in Strategic
Income Fund's prospectus) fixed income securities; (iii) foreign
government and foreign corporate investment grade and high yield fixed
income securities; and (iv) cash equivalents. The Adviser shall
communicate such asset allocation determinations to the Sub-Adviser at
such times and in such manner as the Sub-Adviser reasonably requests.
(b) The Sub-Adviser shall manage the investment of those proportions
of Strategic Income Fund's assets which the Adviser determines, pursuant
to (a) above, shall be allocated to and invested in securities described
in (a)(ii) above. It is understood and agreed that the Adviser, acting
alone or through another sub-adviser, shall manage the investment of those
proportions of Strategic Income Fund's assets which the Adviser
determines, pursuant to (a) above, shall be allocated to and invested in
securities described in (a)(i), (iii) and (iv) above.
Without limiting the generality of the foregoing, it is specifically understood
and agreed by the Adviser and the Sub-Adviser that:
(x) The investment of Strategic Income Fund's assets by the Sub-
Adviser as set forth in (b) above shall at all times be subject to the
investment objectives, policies and restrictions of Strategic Income Fund
as set forth in FAIF's then-effective Registration Statement under the
Securities Act of 1933, as amended, including the Prospectus and Statement
of Additional Information of Strategic Income Fund contained therein. The
Adviser shall communicate to the Sub-Adviser any changes or additions to
or interpretations of such investment objectives, policies and
restrictions of Strategic Income Fund made by the Board of Directors of
FAIF (the "Board"). The Sub-Adviser shall have a reasonable opportunity to
review and comment on proposed changes, additions or interpretations
before they take effect. The Sub-Adviser will maintain books and records
relating to its management of Strategic Income Fund under its customary
procedures and in compliance with applicable regulations
under the Investment Company Act of 1940, as amended (the "Act") and the
Investment Advisers Act of 1940, as amended (the "Advisers Act"). The
Sub-Adviser will permit the Adviser to inspect and copy such books and
records at all reasonable times during normal business hours, upon
reasonable notice. Prior to each Board meeting, the Sub-Adviser will
provide the Adviser and the Board with reports regarding its management of
Strategic Income Fund during the interim period in such form as may be
mutually agreed upon by the Sub-Adviser and the Adviser. The Sub-Adviser
will also provide the Adviser with any information regarding its
management of Strategic Income Fund required for any shareholder report,
amended registration statement or prospectus supplement filed by Strategic
Income Fund with the Securities and Exchange Commission.
(y) If a transfer of investment advisory or sub-advisory services
with respect to Strategic Income Fund should occur, the Sub-Adviser will
within a reasonable period of time and at the Adviser's expense take all
steps necessary or appropriate to segregate such records and deliver them
to FAIF or to such person as is designated by FAIF.
(z) Subject to paragraphs (a) and (x) above and the supervision of
the Adviser and the Board, the Sub-Adviser will manage the investment
operations of the portion of Strategic Income Fund allocated to its
management pursuant to paragraph (b) above (the "Sub-Adviser's Portfolio")
and the composition of the Sub-Adviser's Portfolio, including the
purchase, retention and disposition of, and exercise of all rights
pertaining to, the securities comprising the Sub-Adviser's Portfolio.
Subject to the foregoing, the Adviser hereby authorizes the Sub-Adviser,
in its discretion and without prior consultation with the Adviser, to buy,
sell and otherwise trade in any stocks, bonds, instruments, financial
contracts and other investment assets ("Securities") on behalf of
Strategic Income Fund. Subject to the foregoing, the Sub-Adviser may
invest the Sub-Adviser's Portfolio in such proportions of stocks, bonds,
instruments, financial contracts and other investment assets as the
Sub-Adviser shall determine, and may dispose of securities without regard
to the length of time the Securities have been held, the resulting rate of
portfolio turnover or any tax considerations.
In acting hereunder the Sub-Adviser shall be an independent contractor and,
unless otherwise expressly provided or authorized hereunder or by the Board,
shall have no authority to act for or represent the Adviser, FAIF or Strategic
Income Fund in any way or otherwise be an agent of the Adviser, FAIF or
Strategic Income Fund.
2. The Sub-Adviser, at its own expense, shall provide all office
space, personnel and facilities necessary and incident to the performance of the
Sub-Adviser's services hereunder. The Sub-Adviser may consult with counsel to
Strategic Income Fund and shall be protected insofar as it acts in conformity
with advice rendered to it by such counsel. The fees and expenses of counsel to
Strategic Income Fund shall be paid by Strategic Income Fund.
3. The Sub-Adviser shall be responsible only for those expenses
expressly stated in paragraph 2 to be the responsibility of the Sub-Adviser and
shall not be responsible for any other expenses of the Adviser, Strategic Income
Fund or FAIF, including, as illustrative and without limitation, the fees and
expenses of organizing FAIF and continuing its existence; expenses of
administrative support and personnel services; fees and expenses of preparing
and printing registration statements under the Securities Act of 1933 and the
Act and any amendments thereto; expenses of preparing, printing and distributing
prospectuses (and any amendments thereto) to shareholders; fees and charges of
any custodian (including charges as custodian and for keeping books and records
and similar services to FAIF and Strategic Income Fund) and including any
expenses relating to foreign country registration and relating to the Board's
Rule 17f-5 determinations; fees and expenses of directors
and officers; fees and expenses of accounting, insurance, independent auditors,
legal counsel, transfer agents, dividend disbursing agents, shareholder
servicing agents, and registrars; costs of and incident to issuance, purchase,
redemption and transfer of Strategic Income Fund's shares, and distributions to
shareholders (including dividend payments and reinvestment of dividends);
brokers' commissions; interest charges; taxes and corporate fees payable to any
government or governmental body or agency (including those incurred on account
of the registration or qualification of securities issued by FAIF); dues and
other expenses incident to FAIF's membership in the Investment Company Institute
and other like associations; costs of stock certificates, directors and
shareholder meetings, corporate reports, reports and notices to shareholders and
proxy solicitations thereof and reports to governmental officers and
commissions; and costs of printing and mailing, stationery and bookkeeping
forms. Strategic Income Fund will also pay its allocable share of such
extraordinary expenses as may arise including expenses incurred in connection
with litigations, proceedings and claims and the legal obligations of Strategic
Income Fund to indemnify its officers and agents with respect thereto.
4. To the extent consistent with applicable law, the Sub-Adviser may
aggregate purchase or sell orders for Strategic Income Fund with contemporaneous
purchase or sell orders of other clients of the Sub-Adviser or its affiliated
persons. In such event, allocation of the Securities so purchased or sold, as
well as the expenses incurred in the transaction, will be made by the
Sub-Adviser in the manner the Sub-Adviser considers to be the most equitable and
consistent with its and its affiliates' fiduciary obligations to Strategic
Income Fund and to such other clients. The Adviser hereby acknowledges that such
aggregation of orders may not result in a more favorable price or lower
brokerage commissions in all instances.
The Sub-Adviser will place purchase and sell orders for Strategic
Income Fund with or through such banks, brokers, dealers, futures commission
merchants or other firms dealing in Securities ("Brokers") as it determines,
which may include Brokers which are affiliated persons of the Sub-Adviser,
provided such orders are exempt from the provisions of Section 17(a), (d) and
(e) of the Act. The Sub-Adviser will use its best efforts to obtain execution of
transactions for Strategic Income Fund at prices which are advantageous to
Strategic Income Fund and at commission rates that are reasonable in relation to
the services received. The Sub-Adviser may, however, select Brokers on the basis
that they provide brokerage, research or other services or products to Strategic
Income Fund and/or other clients of the Sub-Adviser and its affiliated persons.
In selecting Brokers, the Sub-Adviser may also consider the reliability,
integrity and financial condition of the Broker, and the size of and difficulty
in executing the order.
To the extent consistent with applicable law, and subject to review
by the Board, the Sub-Adviser may pay a Broker an amount of commission for
effecting a Securities transaction in excess of the amount of commission or
dealer spread another Broker would have charged for effecting that transaction,
if the Sub-Adviser determines in good faith that such amount of commission was
reasonable in relation to the value of the brokerage and research products
and/or services provided by such Broker to Strategic Income Fund and/or other
clients of the Sub-Adviser and its affiliated persons. This determination, with
respect to brokerage and research services or products, may be viewed in terms
of either that particular transaction or the overall responsibilities which the
Sub-Adviser and its affiliated persons have with respect to Strategic Income
Fund or their other clients, and may include services or products that the
Sub-Adviser does not use in managing Strategic Income Fund. The Sub-Adviser's
placement of orders and receipt of research products and/or services shall
comply with any applicable policies and procedures adopted by the Board and with
Strategic Income Fund's registration statement.
The Sub-Adviser shall provide to the Adviser and the Board such
reports in respect to placement of security transactions for Strategic Income
Fund as the Adviser or the Board may
reasonably request. The Sub-Adviser also shall provide to the Adviser and the
Board such reports as are mutually agreed upon by the Adviser and the
Sub-Adviser in connection with the determinations required to be made by the
Board or its delegate pursuant to Rule 17f-5 under the Act.
5. For the services provided and the expenses assumed by the
Sub-Adviser pursuant to this Agreement, the Adviser will pay to the Sub-Adviser
as full compensation therefor a fee based on an annual rate of 0.20% of the
first $25 million of Strategic Income Fund's average daily net assets, 0.165% of
its average daily net assets in excess of $25 million up to $50 million, 0.13%
of its average daily net assets in excess of $50 million up to $100 million and
0.105% of its average daily net assets in excess of $100 million. This fee will
be computed based on net assets at the beginning of each day and will be paid to
the Sub-Adviser monthly on or before the fifteenth day of the month next
succeeding the month for which the fee is paid. The fee shall be prorated for
any fraction of a fiscal year at the commencement and termination of this
Agreement. Anything to the contrary herein notwithstanding, the Sub-Adviser may
at any time and from time to time waive any part or all of any fee payable to it
pursuant to this Agreement.
6. Nothing in this Agreement shall prevent the Sub-Adviser or any
partner, officer, employee or other affiliate thereof from acting as investment
adviser for any other person, firm or corporation, or from engaging in any other
lawful activity, and shall not in any way limit or restrict the Sub-Adviser or
any of its partners, officers, employees or agents from buying, selling or
trading any securities for its or their own accounts or for the accounts of
others for whom it or they may be acting, provided, however, that the
Sub-Adviser will undertake and permit such persons to undertake no activities
which, in its judgment, will adversely affect the performance of its obligations
under this Agreement.
Except as provided in the following paragraph, the Sub-Adviser
agrees to indemnify Strategic Income Fund, FAIF and the Adviser with respect to
any loss, liability, judgment, cost or penalty which Strategic Income Fund, FAIF
or the Adviser may directly or indirectly suffer or incur in any way arising out
of or in connection with any material breach of this Agreement by the Sub-
Adviser. In no event shall this be construed to have the Sub-Adviser incur any
liability for investment decisions made prior to the effective date of this
Agreement. The Adviser agrees to indemnify the Sub-Adviser with respect to any
loss, liability, judgment, cost or penalty which the Sub-Adviser may directly or
indirectly suffer or incur in any way arising out of the performance of its
duties under this Agreement, except as provided in the following paragraph. The
Adviser will not be entitled to indemnity for any loss, liability, or judgment,
cost or penalty resulting from willful malfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of its reckless
disregard of its obligations and duties, under this Agreement.
The Sub-Adviser shall give Strategic Income Fund the benefit of its
best judgment and effort in rendering services hereunder, but the Sub-Adviser
shall not be liable for any act or omission or for any loss sustained by
Strategic Income Fund in connection with the matters to which this Agreement
relates, except a loss resulting from willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of its reckless
disregard of its obligations and duties, under this Agreement. The Sub-Adviser
shall not be entitled to indemnity for any loss, liability, judgment, cost or
penalty resulting from willful misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of its reckless disregard of its
obligations and duties, under this Agreement.
7. The Sub-Adviser represents, warrants and agrees that the Sub-
Adviser is registered as an "investment adviser" under the Investment Advisers
Act of 1940, as amended (the "Advisers Act") and is and shall continue at all
times to be in compliance in all material respects with the requirements imposed
upon it by the Advisers Act. The Sub-Adviser agrees to (a) supply the
Adviser with such documents as the Adviser may reasonably request to document
the Sub-Adviser's compliance with such laws and regulations, and (b) immediately
notify the Adviser of the occurrence of any event which would disqualify the
Sub-Adviser from serving as an investment adviser of an investment company
pursuant to any applicable law or regulation. The Sub-Adviser will furnish to
the Adviser a copy of any amendment to Part II of the Sub-Adviser's Form ADV
most recently filed with the Securities and Exchange Commission.
8. The Adviser and the Sub-Adviser each represents and warrants that
it has the power to execute and deliver this Agreement and any other
documentation relating hereto and to perform its respective obligations under
this Agreement and that it has taken all necessary action to authorize such
execution, delivery and performance. Such execution, delivery and performance do
not violate or conflict with any law applicable to the Adviser or the
Sub-Adviser, respectively, any order or judgment of any court or other
governmental agency, or any contractual restriction binding on or affecting the
Adviser or the Sub-Adviser, respectively. The obligations of the Adviser and the
Sub-Adviser, respectively, under this Agreement constitute their respective
legal, valid and binding obligations, enforceable against each of them in
accordance with the terms hereof.
9. Subject to any other written instructions of the Adviser or FAIF,
the Sub-Adviser is hereby appointed FAIF's agent and attorney-in-fact for the
limited purposes of executing account documentation, agreements, contracts and
other documents as the Sub-Adviser shall be requested by brokers, dealers,
counterparties and other persons in connection with its management of Strategic
Income Fund's assets. The Adviser and FAIF hereby ratify and confirm as good and
effectual, at law or in equity, all that the Sub-Adviser and its officers and
employees, may do in its capacity as attorney-in-fact. However, nothing herein
shall be construed as imposing a duty on the Sub-Adviser to act or assume
responsibility for any matters in its capacity as attorney-in-fact for FAIF. Any
person, partnership, corporation or other legal entity dealing with the
Sub-Adviser in its capacity as attorney-in-fact hereunder for FAIF is hereby
expressly put on notice that the Sub-Adviser is acting solely in the capacity as
an agent of FAIF and that any such person. partnership, corporation or other
legal entity must look solely to FAIF for enforcement of any claim against FAIF,
as the Sub-Adviser assumes no personal liability whatsoever for obligations of
FAIF entered into by the Sub-Adviser in its capacity as attorney-in-fact for
FAIF.
10. The Adviser hereby acknowledges that the Sub-Adviser is not
responsible for pricing portfolio Securities, and that the Adviser and the
Sub-Adviser will rely on the pricing agent chosen by the Board for prices of
Securities, for any purposes.
11. The Sub-Adviser's and the Adviser's obligations under this
Agreement are subject to the satisfaction of the following conditions precedent:
(a) Receipt by the Sub-Adviser of a certificate of an officer of
Strategic Income Fund stating that (i) this Agreement and the Advisory
Agreement have been approved by the vote of a majority of the directors,
who are not interested persons of Sub-Adviser or the Adviser, cast in
person at a meeting of the Board called for the purpose of voting on such
approval, and (ii) this Agreement and the Advisory Agreement have been
approved by the vote of a majority of the outstanding voting securities of
Strategic Income Fund.
(b) Authorization by Strategic Income Fund to its custodian
designating the persons specified by the Sub-Adviser as "Authorized
Persons" under Strategic Income Fund's custody agreement.
(c) Strategic Income Fund's execution and delivery of a limited
power of attorney-in-fact of the Sub-Adviser, in a form mutually agreeable
to the Sub-Adviser, the Adviser and the Board.
(d) Receipt by the Sub-Adviser of Board resolutions, certified by an
officer of Strategic Income Fund, adopting all procedures and guidelines
required by any exemptive order listed on Schedule 2 to this Agreement and
all policies, procedures, guidelines, and codes listed on Schedule 1 to
this Agreement;
(e) Receipt by the Sub-Adviser of a list of entities affiliated with
FAIF and an opinion of counsel concerning the placement of principal and
brokerage securities transactions with affiliated entities of FAIF by the
Sub-Adviser and its affiliated entities.
(f) Any other documents, certificates or other instruments that the
Sub-Adviser or the Adviser may reasonably request from Strategic Income
Fund.
12. The Adviser, FAIF, and Strategic Income Fund are hereby
expressly put on notice of the limitation of liability as set forth in the
Declaration of Trust of the Sub-Adviser and agree that the obligations assumed
by the Sub-Adviser pursuant to this contract shall be limited in any case to the
Sub-Adviser and its assets and the Adviser, FAIF, and Strategic Income Fund
shall not seek satisfaction of any such obligation from the shareholders of the
Sub-Adviser, the Trustees, officers, employees, or agents of the Sub-Adviser, or
any of them.
13. The effective date of this Agreement shall be the date set forth
in the first paragraph hereof. Unless sooner terminated as hereinafter provided,
this Agreement shall continue in effect for a period of more than two years from
the date of its execution but only as long as such continuance is specifically
approved at least annually by (a) the Board or by the vote of a majority of the
outstanding shares of Strategic Income Fund and (b) the vote of a majority of
the directors, who are not parties to this Agreement or "interested persons" (as
defined in the Act) of the Adviser, of the Sub-Adviser or of FAIF, cast in
person at a meeting called for the purpose of voting on such approval.
14. This Agreement may be terminated at any time, without the
payment of any penalty, by the Board or by the vote of a majority of the
outstanding shares of Strategic Income Fund, or by the Adviser or the
Sub-Adviser, upon 60 days' written notice to the other parties.
This Agreement shall automatically terminate in the event of its
"assignment" (as defined in the Act), provided, however, that such automatic
termination shall be prevented in a particular case by an order of exemption
from the Securities and Exchange Commission or a no-action letter of the staff
of the Commission to the effect that such assignment does not require
termination as a statutory or regulatory matter.
15. This Agreement may be modified by mutual consent, such consent
only to be authorized by a majority of the directors of FAIF who are not parties
to this Agreement or "interested persons" (as defined in the Act) of the
Adviser, of the Sub-Adviser or of FAIF and the vote of a majority of the
outstanding shares of Strategic Income Fund.
16. Wherever referred to in this Agreement, the vote or approval of
the holders of a majority of the outstanding shares of Strategic Income Fund
shall mean the lesser of (a) the vote of 67% or more of the shares of Strategic
Income Fund at a meeting where more than 50% of the outstanding shares are
present in person or by proxy, or (b) the vote of more than 50% of the
outstanding shares of Strategic Income Fund.
17. If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder shall not be
thereby affected.
18. Any notice under this Agreement shall be in writing, addressed,
delivered or mailed, postage prepaid, to the other party at such address as such
other party may designate in writing for receipt of such notice.
19. The internal law, and not the law of conflicts, of the
Commonwealth of Pennsylvania will govern all questions concerning the
construction, validity and interpretation of this Agreement and the performance
of the obligations imposed by this Agreement.
20. This Agreement constitutes the entire agreement between the
parties concerning its subject matter and supersedes all prior and
contemporaneous agreements, representations and understandings of the parties.
21. This Agreement may be executed simultaneously in two or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
IN WITNESS WHEREOF, the Adviser and the Sub-Adviser have caused this
Agreement to be executed by their duly authorized officers as of the day and
year first above written.
U.S. BANK NATIONAL ASSOCIATION
By /s/ Xxxxxxx X. Xxxxxx
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Its Vice President
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FEDERATED INVESTMENT COUNSELING
By Xxxx Xxxxxx
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Its President
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SCHEDULE 1 - FUND DOCUMENTATION
1. FAIF's Articles of Incorporation and Bylaws.
2. 10 copies of the most current Prospectus and Statement of Additional
Information for each class of Strategic Income Fund's shares.
3. Information regarding the Custody Agreement between FAIF and U.S. Bank
National Association, as Custodian for Strategic Income Fund's
Securities, including information as to:
* Strategic Income Fund's nominee,
* the Federal tax identification numbers of Strategic Income
Fund and its nominee,
* all routing, bank, participant and account numbers and other
information necessary to provide proper instructions for
transfer and delivery of Securities to Strategic Income Fund's
accounts at the Custodian,
* the name, address, phone and fax number of the Custodian's
employees responsible for Strategic Income Fund's accounts,
and
* Strategic Income Fund's pricing service and contact persons.
4. All policies, procedures, guidelines and codes adopted by the Board
under the Act or any regulation thereunder, including:
* Rule 10f-3 (relating to affiliated underwriting syndicates),
* Rule 17a-7 (relating to interfund transactions),
* Rule 17e-1 (relating to transactions with affiliated Brokers),
* Rule 17-f-4 (relating to securities held in securities
depositories),
* Rule 17j-1 (relating to a code of ethics), and
* Rule 17f-5 (relating to foreign custody).
5. All SEC exemptive orders applicable to Strategic Income Fund, and all
procedures and guidelines adopted by the Board under the terms of such
orders.
6. All procedures and guidelines adopted by the Board or the Adviser
regarding:
* Repurchase agreements,
* Evaluating the liquidity of securities, include restricted
securities, municipal leases and stripped U.S. government
securities,
* Segregation of liquid assets in connection with reverse
repurchase agreements, firm commitments, standby commitments,
short sales, options and futures agreements,
* Derivative contracts and securities, and
* Affiliated bank procedures.
7. Any master agreements that FAIF has entered into on behalf of Strategic
Income Fund, including:
* Master Repurchase Agreement,
* Master Futures and Options Agreements,
* Master Foreign Exchange Netting Agreements, and
* Master Swap Agreements.
8. CFTC Rule 4.5 letter.
9. Schedule of the current year's Board meetings, and the reports needed
by the Board.
10. Pricing and performance calculation entities and contact persons.
SCHEDULE 2 - SUB-ADVISER DOCUMENTATION
1. Part II of the Sub-Adviser's Form ADV most recently filed with the
Securities and Exchange Commission.
2. All exemptive orders granted by the Securities and Exchange Commission
that will become applicable to Strategic Income Fund, and the
procedures and guidelines followed by the Sub-Adviser in accordance
therewith.
