EXHIBIT (5)(C)
SUB-ADVISORY AGREEMENT
This Sub-Advisory Agreement (the "Agreement"), dated as of this
30th day of June, 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 securitiesand 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 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 for the Fund and/or
other accounts over which Federated or an affiliate of
Federated exercises investment discretion. In addition,
Federated is authorized, subject to the prior approval
of such policy by the Trust's Board, to negotiate and
pay to a Broker who provides such brokerage and
research services within the meaning of such provision
a commission for executing a portfolio transaction for
the Fund which is in excess of the amount of commission
another Broker would have charged for effecting that
transaction if, but only if, such 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
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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 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
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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
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
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Fund's shareholders in connection with the matters to which this Agreement
relates, except 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 or
except as may otherwise be provided by the 1940 Act or the federal securities
laws. 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 the Adviser or
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 and Federated will rely on the pricing agent approved by the Board of
the Trust to price portfolio 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.
In the event the pricing agent approved by the Board of the Trust is
unable to provide a reliable price for a security, Federated, following its
standard practices, will provide the Adviser a recommended price and the
rationale thereof.
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;
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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 sixty (60) 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
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
reasonably 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
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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
c/o NBD Bank
000 Xxxxxxxx Xxxxxx
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
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Drinker Xxxxxx & Xxxxx LLP
0000 Xxxxxxxx Xxxxxx
Xxxxxxxxxxxx, XX 00000-0000
To Federated:
Federated Investment Counseling
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 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: /s/ Xxxxxx X. Xxxx
-----------------------
Name: Xxxxxx X. Xxxx
Title: Chief Investment Officer
FEDERATED INVESTMENT
COUNSELING
By: /s/ Xxxx X. Xxxxxx
-----------------------
Name: Xxxx X. Xxxxxx
Title: President
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Schedule 1
Fund Documentation
Sub-Advisory Agreement dated June 30, 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. The pricing and performance calculation entity and
contact persons.
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Schedule 2
Sub-Adviser Documentation
Sub-Advisory Agreement dated June 30, 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 June 30, 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 assets up 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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