EXHIBIT 5(c)
SUB-ADVISORY AGREEMENT
This Sub-Advisory Agreement (the "Agreement"), dated as of this ___
day of ______, 1997, is entered into by and between First Chicago NBD
Investment Management Company ("FCNIMCO") and Federated Investment
Counseling, a Delaware business trust
("Federated").
WHEREAS, the High Yield Bond Fund (the "Fund") is an investment
portfolio of Pegasus Funds (the "Trust"), a Massachusetts business trust
registered as an investment company under the Investment Company Act of 1940
(the "1940 Act");
WHEREAS, the Trust employs FCNIMCO (the "Adviser") to act as
investment adviser to the Trust's investment portfolios, including the Fund,
pursuant to a written agreement (the "Advisory Agreement");
WHEREAS, the Advisory Agreement provides that the Adviser may employ
one or more sub-advisers to assist it in the performance of the Advisory
Agreement; and
WHEREAS, the Adviser desires to employ Federated to act as a
sub-adviser to the Fund;
NOW, THEREFORE, the parties hereto intending to be legally bound,
hereby agree as follows:
1. Appointment. The Adviser hereby appoints Federated to
provide investment sub-advisory services to the Fund for the period and on
the terms set forth in this Agreement. Federated accepts such appointment and
agrees to furnish the services herein set forth for the compensation herein
provided.
2. Management. (a) Subject to the supervision and approval
of the Adviser, Federated will provide a continuous investment program for
the Fund, including investment research and management with respect to all
securities and investments in the Fund. Federated will determine from time to
time what securities and other investments will be purchased, retained or
sold by the Fund. Federated further agrees that it:
(i) will provide the services rendered by it hereunder
in accordance with the investment objective and
policies of the Fund as stated in its prospectus
("Prospectus"), statement of additional
information ("SAI") and all amendments and
supplements thereto, the Trust's Bylaws, the
Trust's Amended and Restated Declaration of Trust,
resolutions adopted from time to time by the
Trust's Board of Trustees (the "Board") and other
guidelines as set forth in the documents listed on
Schedule 1 to this Agreement;
(ii) will conform with all applicable Rules and
Regulations (hereinafter called the "Rules") of
the Securities and Exchange Commission ("SEC"),
and will in addition conduct its activities under
this Agreement in accordance with other applicable
laws;
(iii) will place all orders for the purchase and sale of
portfolio securities for the account of the Fund
with banks, brokers, dealers, futures commission
merchants or other firms dealing in securities
("Brokers") selected by Federated, which may
include Brokers that are affiliated persons of
Federated, provided such orders are exempt from
the provisions of Section 17(a), (d) and (e) of
the 1940 Act. In executing portfolio transactions
and selecting Brokers, Federated will use its best
efforts to seek on behalf of the Trust and the
Fund the best overall terms available. In
assessing the best overall terms available for any
transaction, Federated shall consider all factors
it deems relevant, including the breadth of the
market in the security, the price of the security,
the financial condition and execution capability
of the Broker, the reliability, integrity and
financial condition of the Broker, and the
reasonableness of the commission, if any, both for
the specific transaction and on a continuing
basis. In evaluating the best overall terms
available, and in selecting the Broker to execute
a particular transaction, Federated may also
consider the brokerage and research services (as
those terms are defined in Section 28(e) of the
Securities Exchange Act of 1934) provided to the
Fund and/or other accounts over which Federated or
an affiliate of Federated exercises investment
discretion. Federated is authorized, subject to
the prior approval of such policy by the Trust's
Board, to pay to a Broker who provides such
brokerage and research services a commission for
executing a portfolio transaction for the Fund
which is in excess of the amount of commission
another Broker or dealer would have charged for
effecting that transaction if, but only if, such
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is consistent with applicable law and Federated
determines in good faith that such commission was
reasonable in relation to the value of the
brokerage and research services provided by such
Broker -- viewed in terms of that particular
transaction or in terms of the overall
responsibilities of Federated to the Fund, the
Trust or its other clients.
In no instance will portfolio securities be
purchased from or sold to Federated, the Adviser
or the Trust's principal underwriter for the Fund
or an affiliated person of any of them, acting as
principal or as broker, except as permitted by
law. In executing portfolio transactions for the
Fund, Federated, to the extent permitted by
applicable laws and regulations, may but shall not
be obligated to, aggregate the securities to be
sold or purchased with those of other funds and
its other clients where such aggregation is not
inconsistent with applicable law and the policies
set forth in the Trust's registration statement.
In such event, Federated will allocate the
securities so purchased or sold, and the expenses
incurred in the transaction, in the manner it
considers to be the most equitable and consistent
with its fiduciary obligations to the Fund and to
such other clients;
(iv) will maintain all books and records with respect
to the securities transactions of the Fund; and
furnish the Trust's Board such periodic (at least
quarterly) and special reports as the Board may
reasonably request. Federated will permit the
Adviser, the auditors and appropriate regulators
to inspect such books and records at all
reasonable times during normal business hours,
upon reasonable notice;
(v) will treat confidentially and as proprietary
information of the Trust all records and other
information relative to the Trust and prior or
present shareholders of the Fund or those persons
or entities who respond to inquiries of the
Trust's principal underwriter concerning
investment in the Fund and will not use such
records and information for any purpose other than
performance of its responsibilities and duties
hereunder, except after prior notification to and
approval in writing by the Trust, which approval
shall not be unreasonably withheld and may not be
withheld where Federated may be exposed to civil
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or criminal contempt proceedings for failure to
comply, when requested to divulge such information
by duly constituted authorities, or when so
requested by the Trust. Nothing contained herein
or in any other agreement executed with the Trust,
however, shall prohibit Federated and any of its
affiliates from advertising to or soliciting the
public generally with respect to other products or
services, including, but not limited to, any
advertising or marketing via radio, television,
newspapers, magazines or direct mail solicitation,
regardless of whether such advertisement or
solicitation may coincidentally include prior or
present Fund shareholders or those persons or
entities who have responded to inquiries of the
Trust's principal underwriter.
(b) The Adviser will promptly notify Federated of any material
change in any of the documents listed on Schedule 1 to this Agreement and
will provide Federated with copies of any such modified document. The Adviser
will also provide Federated with a list, to the best of the Adviser's
knowledge, of all affiliated persons of the Trust, any of its promoters or
its principal underwriter (and any affiliated person of such an affiliated
person) and will promptly update the list whenever the Adviser becomes aware
of any additional affiliated persons.
3. Services Not Exclusive. The services rendered by Federated
hereunder are not to be deemed exclusive, and Federated shall be free to
render similar services to others so long as its services under this
Agreement are not impaired thereby.
4. Expenses. Federated will bear all expenses in connection
with the performance of its services under this Agreement. All other expenses
to be incurred in the operation of the Trust (other than those borne by the
Adviser) will be borne by the Trust, except to the extent specifically
assumed by Federated. The expenses to be borne by the Trust include, without
limitation, the following: organizational costs, taxes, interest, loan
commitment fees, interest and distributions paid on securities sold short,
brokerage fees and commissions, if any, fees of Board members, SEC fees and
state Blue Sky qualification fees, advisory fees, charges of custodians,
transfer and dividend disbursing agents' fees, certain insurance premiums,
industry association fees, outside auditing and legal expenses, costs of
independent pricing services, costs of maintaining the Fund's existence,
costs attributable to investor services (including, without limitation,
telephone and personnel expenses), costs of preparing, printing and
distributing proxy statements, prospectuses and statements of additional
information for regulatory purposes and for distribution to existing
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stockholders, costs of stockholders' reports and meetings, and any
extraordinary expenses.
5. Compensation. For the services provided and the expense
assumed pursuant to this Agreement, the Adviser will pay Federated and
Federated will accept as full compensation therefor the fees set forth on
Schedule 3 hereof.
6. Limitation of Liability of the Sub-Adviser. Federated shall
not be liable for any error of judgment or mistake of law or for any loss
suffered by FCNIMCO, the Trust, the Fund or the Fund's shareholders in
connection with the matters to which this Agreement relates, except as may
otherwise be provided by the Investment Company Act of 1940 or the federal
securities laws or a loss resulting from willful misfeasance, bad faith or
gross negligence on the part of Federated in the performance of its duties or
from reckless disregard of its obligations and duties under this Agreement.
Any person, even though also an officer, Board member, partner, director,
employee or agent of the Adviser or of Federated, who may be or become an
officer, Board member, partner, employee or agent of the Trust, shall be
deemed, when rendering services to the Trust or acting on any business of the
Trust (other than services or business in connection with Federated's duties
hereunder) to be rendering such services to or acting solely for the Trust
and not as an officer, Board member, partner, director, employee or agent or
one under the control or direction of Federated even though paid by either of
them. The Adviser is hereby expressly put on notice of the limitation of
liability as set forth in the Declaration of Trust of Federated and agrees
that the obligations assumed by Federated pursuant to this Agreement will be
limited in any case to Federated and its assets and the Adviser shall not
seek satisfaction of any such obligations from the shareholders of Federated,
the trustees of Federated, officers, employees or agents of Federated, or any
of them.
7. Pricing. The Adviser hereby acknowledges that Federated
is not responsible for pricing portfolio securities. Subject to its terms of
the Advisory Agreement and to the supervision of the Board of Trustees, the
Adviser intends to rely on one or more pricing agent(s) approved by the Board
of the Trust to price protfolio securities.
The appropriate officers and employees of Federated will be
available to consult with the Adviser, the Trust and the Trustees at
reasonable times upon reasonable notice concerning valuations of securities
for which reliable prices may not be available from the approved pricing
agent(s), including securities that are not registered for public sale, are
not traded on any securities market or otherwise may be illiquid for purposes
of the 1940 Act.
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8. Duration and Termination. This Agreement shall become
effective as to the Fund upon the date first above written. Unless sooner
terminated as provided herein, this Agreement shall continue with respect to
the Fund until June 30, 1998. Thereafter, if not terminated, this Agreement
shall continue with respect to the Fund for successive annual periods,
provided such continuance is specifically approved at least annually (a) by
the vote of a majority of those members of the Board who are not parties to
this Agreement or "interested persons" of any such party, cast in person at a
meeting called for the purpose of voting on such approval, and (b) by the
Board or by vote of a majority of the outstanding voting securities of the
Fund; provided, however, that this Agreement may be terminated with respect
to the Fund, without the payment of any penalty, by the Board, FCNIMCO or by
vote of a majority of the outstanding voting securities of the Fund on sixty
(60) days' written notice, or by Federated, without the payment of any
penalty, on ninety (90) days' written notice to the Trust. This Agreement
will immediately terminate in the event of its assignment. (As used in this
Agreement, the terms "majority of the outstanding voting securities,"
"interested person" and "assignment" shall have the same meaning as such
terms have in the 1940 Act.)
9. Conditions to Agreement. Federated's and the Adviser's
obligations under this Agreement are subject to the satisfaction of the
following conditions precedent:
a. Receipt of a certification of an officer of the
Trust stating that (i) this Agreement and the
Advisory Agreement have been approved by the vote
of a majority of the Fund's Board of Trustees, who
are not interested persons of Federated 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 the Fund;
b. Receipt of certified copies of instructions from
the Fund to its custodian designating the persons
specified by Federated as "Authorized Persons"
under the Fund's custody agreement;
c. The Fund's execution and delivery of a limited
power of attorney in favor of Federated in a form
mutually agreeable to Federated, the Adviser and
the Board;
d. Board resolutions, certified by an officer of the
Fund, adopting all procedures and guidelines
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required by any exemptive order listed on Schedule
2 to this Agreement; and
e. Any other documents, certificates or other
instruments that Federated or the Adviser may
reasonable request from the Fund.
10. Representations and Warranties. (a) Federated hereby
represents and warrants to the Adviser that: (i) it is a business trust duly
formed and validly existing under the laws of Delaware, (ii) it is duly
authorized to execute and deliver this Agreement and to perform its
obligations hereunder and has taken all necessary action to authorize such
execution, delivery and performance, (iii) it is registered with the SEC as
an investment adviser under the Investment Advisers Act of 1940 (the
"Advisers Act") and is registered or licensed as an investment adviser under
the laws of all jurisdictions in which its activities require it to be so
registered or licensed, except where the failure to be so licensed would not
have a material adverse effect on its business, and (iv) it has furnished to
the Adviser true and complete copies of all the documents listed on Schedule
2 to this Agreement.
(b) The Adviser hereby represents and warrants to Federated
that: (i) it is a corporation duly formed and validly existing under the laws
of Delaware, (ii) it is duly authorized to execute and deliver this Agreement
and to perform its obligations hereunder and has taken all necessary action
to authorize such execution, delivery and performance, (iii) it is registered
with the SEC as an investment adviser under the Advisers Act and is
registered or licensed as an investment adviser under the laws of all
jurisdictions in which its activities require it to be so registered or
licensed, except where the failure to be so licensed would not have a
material adverse effect on its business, and (iv) it has furnished to
Federated true and complete copies of all the documents listed on Schedule 1
to this Agreement.
11. Amendment of this Agreement. No provisions in this Agreement
may be changed, discharged or terminated orally, but only by an instrument in
writing signed by the party or parties against which enforcement of the
change, discharge or termination is sought, and no amendment to this
Agreement affecting the Fund shall be effective until approved by vote of the
holders of a majority of the outstanding voting securities of the Fund.
12. Notice. Any notices and other communications to be given
pursuant to this Agreement shall be delivered or mailed:
To the Adviser:
First Chicago NBD Investment Management Company
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Xxxxx Xxxxx Xxxxxxxx Xxxxx
Xxxxxxx, Xxxxxxxx 00000
Attn: Xxxxxxx X. Xxxx
To the Trust:
Pegasus Funds
c/o NBD Bank
000 Xxxxx Xxxxx
X.X. Xxx 0000
Xxxx, Xxxxxxxx 00000-0000
(000) 000-0000
Attn: President
With a copy to:
W. Xxxxx XxXxxxxx, III
Drinker Xxxxxx & Xxxxx LLP
0000 Xxxxxxxx Xxxxxx
Xxxxxxxxxxxx, XX 00000-0000
To Federated:
Federated Investment Counseling1
Federated Investors Tower
Xxxxxxxxxx, XX 00000-0000
Attn: President
13. Miscellaneous. The captions in this Agreement are included
for convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. 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 thereby. This Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their respective successors and
shall be governed by Michigan law.
14. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but
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all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this instrument
to be executed by their officers designated below as of the day and year
first above written.
FIRST CHICAGO NBD INVESTMENT
MANAGEMENT COMPANY
By: _________________________
Xxxxxxx X. Xxxx
Senior Vice President and
Director
FEDERATED INVESTMENT
COUNSELING
By: _________________________
Name:
Title:
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Schedule 1
Fund Documentation
Sub-Advisory Agreement dated , 1997
----------------------------------------------
1. The Trust's Amended and Restated Declaration of Trust, as amended
and Bylaws.
2. The most current Prospectus and Statement of Additional Information
for each class of the Fund's shares.
3. The Custody Agreement between the Trust and NBD Bank, as Custodian
for the Fund's portfolio, including information as to:
o the Fund's nominee,
o the Federal tax identification numbers of the Fund
and its nominee,
o all routing, bank, participant and account numbers
and other information necessary to provide proper
instructions for transfer and delivery of
securities to the Fund's accounts at the
Custodian, and
o the name, address, phone and fax number of the
Custodian's employees responsible for the Fund's
accounts.
4. The schedule of current year's meetings of the Trust's Board of
Trustees.
5. A list of pricing and performance calculation entities and contact
persons.
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Schedule 2
Sub-Adviser Documentation
Sub-Advisory Agreement dated , 1997
----------------------------------------------
1. Part II of Federated's Form ADV most recently filed with the SEC.
2. All exemptive orders granted by the SEC that will become applicable
to the Fund, and the procedures and guidelines followed by Federated
in accordance therewith.
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Schedule 3
Fees
Sub-Advisory Agreement dated , 1997
----------------------------------------------
As compensation for its services hereunder, the Adviser
will pay to Federated a sub-advisory fee, computed daily and payable monthly,
at the following annual rates based on the Fund's average daily net assets:
.50% on increments of $20 million to $30 million,
.40% on increments of $30 million to $50 million,
.30% on increments of $50 million to $75 million,
.25% on increments of $75 million to $100 million,
.20% on increments over $100 million.
Net asset value shall be computed in accordance with the
Fund's Prospectus and resolutions of the Trust's Board of Trustees. The fee
for the period from the day of the month this Agreement is entered into until
the end of that month shall be pro-rated according to the proportion which
such period bears to the full monthly period. Upon any termination of this
Agreement before the end of any month, the fee for such part of a month shall
be pro-rated according to the proportion which such period bears to the full
monthly period and shall be payable upon the date of termination of this
Agreement. Such fee as is attributable to the Fund shall be a separate charge
to the Fund and shall be the several (and not joint or joint and several)
obligation of such Fund.
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