Exhibit (d)(xv) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
SUB-ADVISORY CONTRACT
Agreement made as of September 2, 1999 ("Contract") between Wachovia Bank,
N.A., ("Adviser") and Flaherty & Crumrine Incorporated ("Sub-Adviser").
RECITALS
(1) The Adviser has entered into an Investment Advisory Agreement, dated
June 3, 1999 ("Advisory Agreement"), with ("Trust"), an open-end management
investment company registered under the Investment Company Act of 1940, as
amended ("1940 Act");
(2) The Trust offers for public sale distinct series of shares of
beneficial interest, as set forth in Schedule A hereto ("Fund" or "Funds");
Under the Advisory Agreement, the Adviser has agreed to provide certain
investment advisory services to the Funds;
The Advisory Agreement permits the Adviser to delegate certain of its
duties as investment adviser thereunder to a sub-adviser;
The Sub-Adviser is willing to furnish such services solely with respect to
the Fund or Funds set forth on Schedule A;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the Adviser and the Sub-Adviser agree as follows:
1. APPOINTMENT. The Adviser hereby appoints the Sub-Adviser as an
investment sub-adviser with respect to the investments of the Fund or Funds set
forth in Schedule A hereto for the period and on the terms set forth in this
Contract. The Sub-Adviser accepts that appointment and agrees to render the
services herein set forth, for the compensation herein provided.
2. DUTIES AS SUB-ADVISER.
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(a) Subject to the supervision and direction of the Trust's Board of
Trustees ("Board") and review by the Adviser, and any written guidelines adopted
by the Board or the Adviser and provided to the Sub-Adviser in a timely manner,
the Sub-Adviser will provide a continuous investment program with respect to the
portion of a Fund's assets allocated to the Sub-Adviser from time to time by the
Adviser in its sole discretion ("Assets"), including investment research and
management to all Securities and investments and cash equivalents comprising the
Assets. The Adviser may from time to time increase or decrease the Assets
allocated to the Sub-Adviser. The Sub-Adviser will determine from time to time
what investments comprising the Assets will be purchased, retained or sold by
the Funds. The Sub-Adviser will be responsible for placing purchase and sell
orders for investments and for other related transactions with respect to the
Assets, provided that no such order or transaction shall direct the delivery to
the Sub-Adviser of any of the Assets owned or held by the Fund or shall
authorize any disposition thereof, except either initial or variation margin or
option premium transfers for the account of the Fund at the future commission
merchant or against countervalue. The Sub-Adviser will provide services under
this Contract in accordance with the Fund's investment objective, policies and
restrictions as stated in the Trust's currently effective registration statement
under the 1940 Act, and any amendments or supplements thereto ("Registration
Statement"). Any such amendments or supplements will be binding upon the
Sub-Adviser when they have been provided to the Sub-Adviser in writing and have
been duly adopted by the Board or other authorized party.
(b) The Sub-Adviser agrees that, in placing orders with brokers, it will
seek to obtain the best net results in terms of price and execution; provided
that, on behalf of the Funds, the Sub-Adviser may, in its discretion, use
brokers who provide the Sub-Adviser with research, analysis, advice and similar
services to execute portfolio transactions, and the Sub-Adviser may pay to those
brokers in return for brokerage and research services a higher commission than
may be charged by other brokers, subject to the Sub-Adviser's determining in
good faith that such commission is reasonable in terms either of the particular
transaction or of the overall responsibility of the Sub-Adviser to the Funds and
its other clients and that the total commissions paid by the Funds will be
reasonable in relation to the benefits to the Funds over the long term. In no
instance will portfolio securities be purchased from or sold to the Sub-Adviser,
or any affiliated person thereof, except in accordance with the federal
securities laws and the rules and regulations thereunder. Whenever the
Sub-Adviser simultaneously places orders to purchase or sell the same security
on behalf of the Funds and one or more other accounts advised by the
Sub-Adviser, the orders will be allocated as to price and amount among all such
accounts in a manner believed to be equitable over time to each account. The
Adviser recognizes that in some cases this procedure may adversely affect the
results obtained for the Funds.
(c) The Sub-Adviser will maintain all books and records required to be
maintained pursuant to the 1940 Act and the rules and regulations promulgated
thereunder with respect to actions by the Sub-Adviser on behalf of the Funds
with regard to the Assets, and will furnish the Board and the Adviser with such
periodic and special reports as the Board or the Adviser reasonably may request.
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 the Funds are
the property of the Trust, agrees to preserve for the periods prescribed by Rule
31a-2 under the 1940 Act any records that it maintains for the Trust and that
are required to be maintained by Rule 31a-1 under the 1940 Act, and further
agrees to surrender promptly to the Trust any records that it maintains for the
Funds upon request by the Trust. For legal and regulatory compliance purposes,
the Sub-Adviser may retain at its offices copies of records that it maintained
for the Funds.
(d) At such times as shall be reasonably requested by the Board or the
Adviser, the Sub-Adviser will provide the Board and the Adviser with investment
analyses and reports as well as quarterly reports setting forth the performance
of the Assets' investments and make available to the Board and the Adviser any
economic, statistical and investment services that the Sub-Adviser normally
makes available to its institutional or other customers.
3. FURTHER DUTIES. In all matters relating to the performance of
this Contract, the Sub-Adviser will act in conformity with the Trust's Trust
Instrument, By-Laws and Registration Statement and with the written instructions
and written directions of the Board and the Adviser; and will comply with the
requirements of the 1940 Act and the rules thereunder, as amended, and all other
federal and state laws and regulations applicable to the Trust and the Funds.
The Adviser agrees to provide to the Sub-Adviser copies of the Trust's Trust
Instrument, By-Laws, Registration Statement, written instructions and directions
of the Board and the Adviser, and any amendments or supplements to any of these
materials as soon as practicable after such materials become available; and
further agrees to identify to the Sub-Adviser in writing any broker-dealers or
securities issuers that are affiliated with the Adviser. The Adviser further
agrees to provide the Sub-Adviser with evidence that a notice of exemption has
been properly filed on behalf of the Funds pursuant to Rule 4.5 under the
Commodity Exchange Act..
4. EXPENSES. During the term of this Contract, the Sub-Adviser will bear
all expenses directly incurred by it in connection with its services under this
Contract.
5. COMPENSATION.
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(a) For the services provided and the expenses assumed by the Sub-Adviser
pursuant to this Contract, the Adviser, not the Funds, will pay the Sub-Adviser
a sub-advisory fee, computed daily and paid monthly as set forth in Schedule B
attached hereto.
(b) The fee shall be accrued daily and payable monthly to the Sub-Adviser
on or before the last business day of the next succeeding calendar month.
(c) If this Contract becomes effective or terminates before the end of any
month, the fee for the period from the effective date to the end of the
month or from the beginning of such month to the date of termination,
as the case may be, shall be pro-rated according to the proportion that
such period bears to the full month in which such effectiveness or
termination occurs.
(d) The Adviser shall be responsible for computing the sub-advisory fee
based upon a percentage of the net asset value of the Assets, and will
submit a copy of this calculation to the Sub-Adviser.
6. LIMITATION OF LIABILITY. The Sub-Adviser shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Funds, the
Trust, its shareholders or by the Adviser in connection with the matters to
which this Contract relates, except a loss resulting from willful misfeasance,
bad faith or gross negligence on its part in the performance of its duties or
from reckless disregard by it of its obligations and duties under this Contract.
Nothing in this paragraph shall be deemed a limitation or waiver of any
obligation or duty that may not by law be limited or waived.
7. REPRESENTATIONS OF ADVISER. The Adviser represents, warrants and agrees
as follows:
(a) The Adviser is a bank, which is not required to register as an investment
adviser under the Investment Advisers Act of 1940 ("Advisers Act"). The Adviser
will register under the Advisers Act if required by applicable law to do so
during the term of this contract.
(b) The Advisory Agreement permits the Adviser to delegate certain of its duties
as investment adviser thereunder to a sub-adviser.
8. REPRESENTATIONS OF SUB-ADVISER. The Sub-Adviser represents, warrants and
agrees as follows:
(a) The Sub-Adviser (i) is registered as an investment adviser under the
Advisers Act and will continue to be so registered for so long as this Contract
remains in effect; (ii) is not prohibited by the 1940 Act or the Advisers Act
from performing the services contemplated by this Contract; (iii) has met and
will seek to continue to meet for so long as this Contract remains in effect,
any other applicable federal or state requirements, or the applicable
requirements of any regulatory or industry self-regulatory agency necessary to
be met in order to perform the services contemplated by this Contract; (iv) has
the authority to enter into and perform the services contemplated by this
Contract; and (v) will promptly notify the Adviser of the occurrence of any
event that would disqualify the Sub-Adviser from serving as an investment
adviser of an investment company pursuant to Section 9(a) of the 1940 Act or
otherwise.
(b) The Sub-Adviser has adopted a written code of ethics complying with
the requirements of Rule 17j-1 under the 1940 Act and will provide the Adviser
and the Board with a copy of such code of ethics, together with evidence of its
adoption. Within forty-five days of the end of the last calendar quarter of each
year that this Contract is in effect, the president or a vice-president of the
Sub-Adviser shall certify to the Adviser that the Sub-Adviser has complied with
the requirements of Rule 17j-1 during the previous year and that there has been
no violation of the Sub-Adviser's code of ethics or, if such a violation has
occurred, that appropriate action was taken in response to such violation. Upon
the written request of the Adviser, the Sub-Adviser shall permit the Adviser,
its employees or its agents to examine the reports required to be made to the
Sub-Adviser by Rule 17j-1(c)(1) and all other records relevant to the
Sub-Adviser's code of ethics.
(c) The Sub-Adviser has provided the Adviser with a copy of its Form ADV,
which as of the date of this Contract is its Form ADV most recently filed with
the Securities and Exchange Commission ("SEC") and promptly will furnish a copy
of all amendments to the Adviser at least annually.
(d) The Sub-Adviser will notify the Adviser of any change of control of
the Sub-Adviser, including any change of its general partners or 25%
shareholders, as applicable, and any changes in the key personnel who are either
the portfolio manager(s) of the Funds or senior management of the Sub-Adviser,
in each case prior to, or promptly after, such change.
9. SERVICES NOT EXCLUSIVE. The Sub-Adviser may act as an investment
adviser to any other person, firm or corporation, and may perform management and
any other services for any other person, association, corporation, firm or other
entity pursuant to any contract or otherwise, and take any action or do anything
in connection therewith or related thereto, except as prohibited by applicable
law or agreed upon in writing between the Sub-Adviser and the Adviser, and no
such performance of management or other services or taking of any such action or
doing of any such thing shall be in any manner restricted or otherwise affected
by any aspect of any relationship of the Sub-Adviser to or with the Trust, the
Funds or the Adviser or deemed to violate or give rise to any duty or obligation
of the Sub-Adviser to the Trust, the Funds or the Adviser, except as otherwise
imposed by law or agreed upon in writing between the Sub-Adviser and the
Adviser, the Trust or the Funds. The investment and trading strategies and
policies employed for other clients may differ from those employed on behalf of
the Funds, and as a consequence, the results of other clients may differ from
those experienced by the Funds.
10. DURATION AND TERMINATION.
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(a) This Contract shall become effective upon the date first above written,
provided that this Contract shall not take effect unless it has first been
approved: (i) by a vote of a majority of those trustees of the Trust who are not
parties to this Contract or interested persons of any such party, cast in person
at a meeting called for the purpose of voting on such approval, and (ii) by vote
of a majority of the Funds' outstanding securities.
(b) Unless sooner terminated as provided herein, this Contract shall
continue in effect for two years from its effective date. Thereafter, if not
terminated, this Contract shall continue automatically for successive periods of
twelve months each, provided that such continuance is specifically approved at
least annually: (i) by a vote of a majority of those trustees of the Trust who
are not parties to this Contract or interested persons of any such party, cast
in person at a meeting called for the purpose of voting on such approval, and
(ii) by the Board or by vote of a majority of the outstanding voting securities
of the Funds.
(c) Notwithstanding the foregoing, this Contract may be terminated at any
time, without the payment of any penalty, by vote of the Board or by a vote of a
majority of the outstanding voting securities of the Funds on 60 days' written
notice to the Sub-Adviser. This Contract may also be terminated, without the
payment of any penalty, by the Adviser: (i) Upon 120 days' written notice to the
Sub-Adviser; (ii) upon material breach by the Sub-Adviser of any representations
and warranties set forth in Paragraph 8 of this Contract, if such breach has not
been cured within a 20 day period after notice of such breach; or (iii)
immediately if, in the reasonable judgment of the Adviser, the Sub-Adviser
becomes unable to discharge its duties and obligations under this Contract,
including circumstances such as financial insolvency of the Sub-Adviser or other
circumstances that could adversely affect the Funds. The Sub-Adviser may
terminate this Contract at any time, without the payment of any penalty, on 120
days' written notice to the Adviser. This Contract will terminate automatically
in the event of its assignment or upon termination of the Advisory Contract as
it relates to the Funds.
11. ADDITIONAL SERIES. If the Trust establishes additional series of shares
for which it desires that the Sub-Adviser render services under this Contract,
it shall so notify the Sub-Adviser in writing. If the Sub-Adviser agrees in
writing to provide said services, such series of shares shall become a "Fund"
hereunder upon execution of a new Schedule A and Schedule B and the approval of
the Trustees of the Trust as required by the Trust's Trust Instrument and the
1940 Act.
12. AMENDMENT OF THIS CONTRACT. No provision of this Contract may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against whom enforcement of the change, waiver,
discharge or termination is sought. No amendment of this Contract shall be
effective until approved (i) by a vote of a majority of those trustees of the
Trust who are not parties to this Contract or interested persons of any such
party, and (ii) by a vote of a majority of the Funds' outstanding voting
securities (unless in the case of (ii), the Trust receives an order or no-action
letter from the SEC permitting it to modify the Contract without such vote or an
opinion of counsel satisfactory to the Adviser and the Sub-Adviser that no such
vote is required).
13. GOVERNING LAW. This Contract shall be construed in accordance with the
1940 Act and the laws of the State of North Carolina, without giving effect to
the conflicts of laws principles thereof. To the extent that the applicable laws
of the State of North Carolina conflict with the applicable provisions of the
1940 Act, the latter shall control.
14. MISCELLANEOUS. The captions in this Contract 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 Contract shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Contract shall not be affected
thereby. This Contract shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors. As used in this Contract,
the terms "majority of the outstanding voting securities," "affiliated person,"
"interested person," "assignment," "broker," "investment adviser," "net assets,"
"sale," "sell" and "security" shall have the same meaning as such terms have in
the 1940 Act, subject to such exemption as may be granted by the SEC by any
rule, regulation or order. Where the effect of a requirement of the federal
securities laws reflected in any provision of this Contract is made less
restrictive by a rule, regulation or order of the SEC, whether of special or
general application, such provision shall be deemed to incorporate the effect of
such rule, regulation or order. This Contract may be signed in counterpart.
15. NOTICES. Any notice herein required is to be in writing and is deemed
to have been given to the Sub-Adviser or the Adviser upon receipt of the same at
their respective addresses set forth below. All written notices required or
permitted to be given under this Contract will be delivered by personal service,
by postage mail - return receipt requested or by facsimile machine or a similar
means of same day delivery which provides evidence of receipt (with a confirming
copy by mail as set forth herein). All notices provided to the Adviser will be
sent to the attention of Wachovia Bank, N.A.; 100 Main Street; Winston-Salem, NC
27102; ATTN: Wayne F. Morgan. All notices provided to the Sub-Adviser will be
sent to the attention of Flaherty & Crumrine Incorporated, 301 E. Colorado Blvd.
Suite 720, Pasadena, CA 91101; ATTN: Donald F. Crumrine.
16. CONFIDENTIALITY. The Adviser and the Sub-Adviser agree to maintain
strictest confidence with respect to this relationship. Reports concerning this
relationship shall be treated as confidential except as disclosure may be
required by applicable law or regulatory authority. Provided however, the
Adviser shall be permitted to use the Sub-Adviser's name, upon notice to the
Sub-Adviser, in marketing materials developed in relation to the Fund. Adviser
agrees to submit to the Sub-Adviser any prospectus or SAI containing the
Sub-Adviser's name prior to any filing of such document.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their duly authorized signatories as of the date and year first
above written.
WACHOVIA BANK, N.A.
By:/S/ JOHN N. SMITH By: /S/ WAYNE F. MORGAN
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Name: John N. Smith Name: Wayne F. Morgan
Title: Senior Vice President Title: Senior Vice President
FLAHERTY & CRUMRINE INCORPORATED
Attest:
By: /S/ PETER C. STIMES By: /S/ DONALD F. CRUMRINE
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Name: Peter C. Stimes Name: Donald F. Crumrine
Title: Vice President Title: Chairman of the Board
SCHEDULE A
FUNDS SUBJECT TO AGREEMENT
Assets in The Wachovia Executive Fixed Income Fund allocated by the Adviser to
the Sub-Adviser.
DATE: September 2, 1999
SCHEDULE B
SCHEDULE OF COMPENSATION
FUND ANNUAL FEE
(as a percentage of net
Assets)
The Wachovia Executive Fixed Income Fund First $15 million 55 bp
Next $5 million 40 bp
Balance 30 bp
Minimum annual fee......................$82,500.00
DATE: September 2, 1999
