INVESTMENT SUB-ADVISORY AGREEMENT
NATIONS ANNUITY TRUST
THIS AGREEMENT is made as of July 3, 2000, by and between BANC OF
AMERICA ADVISORS, INC., a North Carolina corporation (the "Adviser"), MACKAY
SHIELDS, LLC, a Delaware limited liability company (the "Sub-Adviser"), and
NATIONS ANNUITY TRUST, a Delaware business trust (the "Trust"), on behalf of
those series of the Trust now or hereafter identified on Schedule I (each a
"Portfolio" and collectively, the "Portfolios").
WHEREAS, the Trust is registered with the Securities and Exchange
Commission (the "Commission") as an open-end management investment company under
the Investment Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the Adviser is registered with the Commission as an investment
adviser under the Investment Advisers Act of 1940, as amended (the "Advisers
Act");
WHEREAS, the Sub-Adviser is also registered with the Commission as an
investment adviser under the Advisers Act;
WHEREAS, the Adviser and the Trust have entered into an investment
advisory agreement (the "Investment Advisory Agreement"), pursuant to which the
Adviser manages the investment operations of each Portfolio and may delegate
certain duties of the Adviser to one or more investment sub-adviser(s); and
WHEREAS, the Adviser, with the approval of the Board of Trustees of the
Trust (the "Board"), including a majority of the Trustees who are not
"interested persons" (defined herein) of any party to this Agreement, desires to
delegate to the Sub-Adviser the duty to manage the portfolio investments of the
Portfolios;
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment of Sub-Adviser. The Adviser hereby appoints the
Sub-Adviser and the Sub-Adviser hereby agrees to manage the portfolio
investments of each Portfolio subject to the terms of this Agreement and subject
to the supervision of the Adviser and the Board.
2. Services of Sub-Adviser. The Sub-Adviser shall perform all services
necessary for the management of the portfolio investments of each Portfolio,
including but not limited to:
(a) Managing the investment and reinvestment of all assets, now or
hereafter acquired by each Portfolio, including determining
what securities and other investments are to be purchased or
sold for each Portfolio and executing transactions
accordingly;
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(b) Transmitting trades to each Portfolio's custodian for
settlement in accordance with each Portfolio's procedures and
as may be directed by the Trust;
(c) Assisting in the preparation of all shareholder
communications, including shareholder reports, and
participating in shareholder relations;
(d) Making recommendations, or making determinations under
authority delegated by the Adviser or the Trust, as to the
manner in which voting rights, rights to consent to Portfolio
action and any other rights pertaining to each Portfolio's
portfolio securities shall be exercised;
(e) Making recommendations to the Adviser and the Board with
respect to Portfolio investment policies and procedures, and
carrying out such investment policies and procedures as are
approved by the Board or by the Adviser under authority
delegated by the Board to the Adviser;
(f) Supplying reports, evaluations, analyses, statistical data and
information to the Adviser, the Board or to the Portfolios'
officers and other service providers as the Adviser or the
Board may reasonably request from time to time or as may be
necessary or appropriate for the operation of the Trust as an
open-end investment company or as necessary to comply with
Section 3(a) of this Agreement;
(g) Maintaining all books and records with respect to the
investment decisions and securities transactions for each
Portfolio required by applicable law;
(h) Furnishing any and all other services, subject to review by
the Board, that the Adviser from time to time determines to be
necessary or useful to perform its obligations under the
Investment Advisory Agreement or as the Board may reasonably
request from time to time.
3. Responsibilities of Sub-Adviser. In carrying out its obligations
under this Agreement, the Sub-Adviser agrees that it will:
(a) Comply with all applicable law, including but not limited to
the 1940 Act and the Advisers Act, the rules and regulations
of the Commission thereunder, and the conditions of any order
affecting the Trust or a Portfolio issued thereunder;
(b) Use the same skill and care in providing such services as it
uses in providing services to other fiduciary accounts for
which it has investment responsibilities;
(c) Not make loans to any person for the purpose of purchasing or
carrying Portfolio shares;
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(d) Place, or arrange for the placement of, all orders pursuant to
its investment determinations for the Portfolios either
directly with the issuer or with any broker or dealer
(including any affiliated broker or dealer). In executing
portfolio transactions and selecting brokers or dealers, the
Sub-Adviser will use its best efforts to seek on behalf of
each Portfolio the best overall terms available. In assessing
the best overall terms available for any transaction, the
Sub-Adviser shall consider all factors that 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 or dealer, 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 or dealer to execute a
particular transaction, the Sub-Adviser may also consider
whether such broker or dealer furnishes research and other
information or services to the Sub-Adviser;
(e) Adhere to the investment objective, strategies and policies
and procedures of the Trust adopted on behalf of each
Portfolio; and
(f) Meet the service level performance standards that the parties
may agree to from time to time.
4. Confidentiality of Information. Each party agrees that it will treat
confidentially all information provided by another party regarding such other
party's business and operations, including without limitation the investment
activities or holdings of a Portfolio. All confidential information provided by
a party hereto shall not be disclosed to any unaffiliated third party without
the prior consent of the providing party. The foregoing shall not apply to any
information that is public when provided or thereafter becomes public or which
is required to be disclosed by any regulatory authority in the lawful and
appropriate exercise of its jurisdiction over a party, by any auditor of the
parties hereto, by judicial or administrative process or otherwise by applicable
law or regulation.
5. Services Not Exclusive. The services furnished by the Sub-Adviser
hereunder are deemed not to be exclusive, and the Sub-Adviser shall be free to
furnish similar services to others so long as its provision of services under
this Agreement is not impaired thereby. To the extent that the purchase or sale
of securities or other investments of the same issuer may be deemed by the
Sub-Adviser to be suitable for two or more accounts managed by the Sub-Adviser,
the available securities or investments may be allocated in a manner believed by
the Sub-Adviser to be equitable to each account. It is recognized that in some
cases this procedure may adversely affect the price paid or received by a
Portfolio or the size of the position obtainable for or disposed of by a
Portfolio.
6. Delivery of Documents. The Trust will provide the Sub-Adviser with
copies, properly certified or authenticated, of each of the following:
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(a) the Trust's Certificate of Trust, as filed with the Secretary
of State of Delaware, and Declaration of Trust (such
Declaration of Trust, as presently in effect and as from time
to time amended, is herein called the "Declaration of Trust");
(b) the Trust's Bylaws, if any;
(c) the most recent prospectus(es) and statement(s) of additional
information relating to each Portfolio (such prospectus(es)
together with the related statement(s) of additional
information, as presently in effect and all amendments and
supplements thereto, are herein called the "Prospectus"); and
(d) any and all applicable policies and procedures approved by the
Board.
The Trust will promptly furnish the Sub-Adviser with copies of any and
all amendments of or additions or supplements to the foregoing.
7. Books and Records. In compliance with the requirements of Rule 31a-3
under the 1940 Act, the Sub-Adviser hereby agrees that all records that it
maintains for each Portfolio under this Agreement are the property of the Trust
and further agrees to surrender promptly to the Trust or the Adviser any of such
records upon request. The Sub-Adviser further agrees to preserve for the periods
prescribed by Rule 31a-2 under the 1940 Act the records required to be
maintained by Rule 31a-1 under the 1940 Act.
8. Expenses of the Portfolios. Except to the extent expressly assumed
by the Sub-Adviser and except to any extent required by law to be paid or
reimbursed by the Sub-Adviser, the Sub-Adviser shall have no duty to pay any
ordinary operating expenses incurred in the organization and operation of the
Portfolios. Ordinary operating expenses include, but are not limited to,
brokerage commissions and other transaction charges, taxes, legal, auditing,
printing, or governmental fees, other Portfolio service providers' fees and
expenses, including those related to third party pricing of portfolio
securities, expenses of issue, sale, redemption and repurchase of shares,
expenses of registering and qualifying shares for sale, expenses relating to
Board and shareholder meetings, and the cost of preparing and distributing
reports and notices to shareholders. The Sub-Adviser shall pay all other
expenses directly incurred by it in connection with its services under this
Agreement.
9. Compensation. Except as otherwise provided herein, for the services
provided to each Portfolio and the expenses assumed pursuant to this Agreement,
the Adviser will pay the Sub-Adviser and the Sub-Adviser will accept as full
compensation therefor a fee determined in accordance with Schedule I attached
hereto. It is understood that the Adviser shall be solely responsible for
compensating the Sub-Adviser for performing any of the duties delegated to the
Sub-Adviser and the Sub-Adviser agrees that it shall have no claim against the
Trust or any Portfolio with respect to compensation under this Agreement. To the
extent that the advisory fee that the Trust would be obligated to pay to the
Adviser with respect to a Portfolio pursuant to the Investment Advisory
Agreement is reduced or reimbursed, the fee that the Sub-Adviser would otherwise
receive pursuant to this Agreement shall be reduced or reimbursed
proportionately.
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10. Liability of Sub-Adviser. The Sub-Adviser shall not be liable for
any error of judgment or mistake of law or for any loss suffered by the Adviser
or the Trust in connection with the performance of its duties under this
Agreement, except a loss resulting from a breach of fiduciary duty with respect
to the receipt of compensation for services, from willful misfeasance, bad faith
or negligence on the part of the Sub-Adviser or any of its officers, directors
or employees, in connection with the performance of their duties under this
Agreement, from reckless disregard by it or its officers, directors or employees
of any of their obligations and duties under this Agreement, or from any
violations of securities laws, rules, regulations, statutes and codes, whether
federal or state, by the Sub-Adviser or any of its officers, directors or
employees.
11. Indemnification. The Sub-Adviser shall indemnify and hold harmless
the Portfolios and the Adviser from and against any and all direct or indirect
claims, losses, liabilities or damages (including reasonable attorney's fees and
other related expenses) resulting from a breach of fiduciary duty with respect
to the receipt of compensation for services, from willful misfeasance, bad faith
or negligence on the part of the Sub-Adviser or any of its officers, directors,
or employees, in connection with the performance of their duties under this
Agreement, from reckless disregard by it or its officers, directors, or
employees of any of their obligations and duties under this Agreement, or
resulting from any violations of securities laws, rules, regulations, statutes,
and codes, whether federal or state, by the Sub-Adviser or any of its officers,
directors, or employees; provided, however, that the Sub-Adviser shall not be
required to indemnify or otherwise hold the Portfolios or the Adviser harmless
under this Section 11 where the claim against, or the loss, liability, or damage
experienced by the Portfolios or the Adviser, is caused by or is otherwise
directly related to the Portfolios' or the Adviser's own willful misfeasance,
bad faith or negligence, or to the reckless disregard by the Portfolios or the
Adviser of their duties under this Agreement.
12. Term and Approval. This Agreement will become effective as of the
date set forth herein above, and shall continue in effect until the second
anniversary of its effective date. This Agreement will become effective with
respect to each additional Portfolio as of the date set forth on Schedule I when
each such Portfolio is added thereto. The Agreement shall continue in effect for
a Portfolio after the second anniversary of the effective date for successive
annual periods ending on each anniversary of such date, provided that the
continuation of the Agreement is specifically approved for the Portfolio at
least annually:
(a)(i) by the Board or (ii) by the vote of "a majority of the
outstanding voting securities" of the Portfolio (as defined in
Section 2(a)(42) of the 1940 Act); and
(b) by the affirmative vote of a majority of the Trustees of the
Trust who are not parties to this Agreement or "interested
persons" (as defined in the 1940 Act) of a party to this
Agreement (other than as Trustees of the Trust), by votes cast
in person at a meeting specifically called for such purpose.
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13. Termination. This Agreement may be terminated without payment of
any penalty at any time by:
(a) the Trust with respect to a Portfolio, by vote of the Board or
by vote of a majority of a Portfolio's outstanding voting
securities, upon sixty (60) days' written notice to the other
parties to this Agreement; or
(b) the Adviser or the Sub-Adviser with respect to a Portfolio,
upon sixty (60) days' written notice to the other parties to
this Agreement.
Any party entitled to notice may waive the notice provided for herein.
This Agreement shall automatically terminate in the event of its assignment,
unless an order is issued by the Commission conditionally or unconditionally
exempting such assignment from the provisions of Section 15(a) of the 1940 Act,
in which event this Agreement shall remain in full force and effect subject to
the terms of such order. For the purposes of this paragraph, the definitions
contained in Section 2(a) of the 1940 Act and the applicable rules under the
1940 Act shall apply.
14. Code of Ethics. The Sub-Adviser represents that it has adopted a
written code of ethics complying with the requirements of Rule 17j-1 under the
1940 Act and will provide the Adviser or the Trust with a copy of such code, any
amendments or supplements thereto, and its policies and/or procedures
implemented to ensure compliance therewith.
15. Insurance. The Sub-Adviser shall maintain for the term of this
Agreement and provide evidence thereof to the Trust or the Adviser a blanket
bond and professional liability (error and omissions) insurance in an amount
reasonably acceptable to Adviser.
16. Representations and Warranties. Each party to this Agreement
represents and warrants that the execution, delivery, and performance of its
obligations under this Agreement are within its powers, have been duly
authorized by all necessary actions and that this Agreement constitutes a legal,
valid, and binding obligation enforceable against it in accordance with its
terms. The Sub-Adviser further represents and warrants that it is duly
registered as an investment adviser under the Advisers Act.
17. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged, or terminated orally, except by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
18. Notices. Any notices under this Agreement shall be in writing,
addressed, and delivered or mailed postage paid to such address as may be
designated for the receipt of such notice. Until further notice, it is agreed
that the address of the Trust shall be c/o Stephens Inc., 111 Center Street,
Little Rock, Arkansas 72201, Attention: Secretary, that of the Adviser shall be
One Bank of America Plaza, 33rd Floor, 101 South Tryon Street, Charlotte, North
Carolina 28255, Attention: President, and that of the Sub-Adviser shall be
MacKay Shields, LLC, 9 West 57th Street, New York, New York 10019, Attention:
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Robert Nisi, Esq. The Sub-Adviser agrees to promptly notify the Adviser and the
Trust in writing of the occurrence of any event which could have a material
impact on the performance of its duties under this Agreement, including but not
limited to (i) the occurrence of any event which could disqualify the
Sub-Adviser from serving as an investment adviser pursuant to Section 9 of the
1940 Act; (ii) any material change in the Sub-Adviser's business activities;
(iii) any event that would constitute a change in control of the Sub-Adviser;
(iv) any change in the portfolio manager or portfolio management team of a
Portfolio; (v) the existence of any pending or threatened audit, investigation,
examination, complaint or other inquiry (other than routine audits or regulatory
examinations or inspections) relating to any Portfolio; and (vi) any material
violation of the Sub-Adviser's code of ethics.
19. Release. The names "Nations Annuity Trust" and "Trustees of Nations
Annuity Trust" refer respectively to the Trust created by the Declaration of
Trust and the Trustees as Trustees but not individually or personally. All
parties hereto acknowledge and agree that any and all liabilities of the Trust
arising, directly or indirectly, under this Agreement will be satisfied solely
out of the assets of the Trust and that no Trustee, officer or shareholder shall
be personally liable for any such liabilities. All persons dealing with any
Portfolio of the Trust must look solely to the property belonging to such
Portfolio for the enforcement of any claims against the Trust.
20. Miscellaneous. This Agreement contains the entire understanding of
the parties hereto. Each provision of this Agreement is intended to be
severable. 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.
21. Governing Law. This Agreement shall be governed by, and construed
in accordance with, Delaware law and the federal securities laws, including the
1940 Act and the Advisers Act.
22. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original.
23. Use of the Name "Nations Funds". The Sub-Adviser agrees that it
will not use the name "Nations Funds", any derivative thereof, or the name of
the Adviser, the Trust, or any Portfolio except in accordance with such policies
and procedures as may be mutually agreed to in writing.
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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.
NATIONS ANNUITY TRUST
on behalf of the Portfolios
By: /s/ A. Max Walker
-------------------------------
A. Max Walker
President and Chairman of
the Board of Trustees
BANC OF AMERICA ADVISORS, INC.
By: /s/ Robert H. Gordon
-------------------------------
Robert H. Gordon
President
MACKAY SHIELDS, LLC
By: /s/ Robert A. Nisi
-------------------------------
Robert A. Nisi
General Counsel
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SCHEDULE I
The Adviser shall pay the Sub-Adviser as, full compensation for
services provided and expenses assumed hereunder, a sub-advisory fee for each
Portfolio, computed daily and payable monthly at the annual rates listed below
as a percentage of the average daily net assets of the Portfolio:
<TABLE>
<CAPTION>
Rate of
Portfolio Compensation Effective Date
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<S> <C> <C>
Nations High Yield Bond Portfolio 0.40% of average daily net 7/03/00
assets up to and including
$100 million; 0.375% of
average daily net assets in
excess of $100 million and
up to and including $200
million; and 0.35% of
average daily net assets in
excess of $200 million
</TABLE>
Approved: December 9, 1999
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